<PAGE> 1
==========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -----------------------
Commission file number - 2-83353
ROADRUNNER VIDEO GROUP, INC. (FORMERLY BUSINESS DATA GROUP, INC.)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 22-2431014
- ---------------------------------------------------- ------------------------------------------
(State of other jurisdiction of incorporation (IRS Employer Identification Number)
or organization)
</TABLE>
819 South Floyd Street, Louisville, Kentucky 40203
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(502) 585-1411
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
On March 20, 1996, the registrant had 11,695,991 outstanding shares of Common
Stock, and on such date, the aggregate market value of the shares of Common
Stock held was $17,543,986.
DOCUMENTS INCORPORATED BY REFERENCE
Part IV Certain exhibits to the registrant's prior filings with the
Securities and Exchange Commission as listed on page 54.
================================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
Number
PART I
------
<S> <C> <C>
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II
-------
ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
PART III
--------
ITEM 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . 50
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ITEM 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . 51
ITEM 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 54
</TABLE>
-2-
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Roadrunner Video Group, Inc. and its subsidiaries (collectively, the "Company")
operates 38 video specialty stores primarily located throughout metropolitan
Louisville, Kentucky and southern Indiana. The Company also sells previously-
viewed videocassettes on a wholesale basis to supermarkets in several states.
The Company's stores rent and sell a wide range of videos and video games, rent
video recorders and video game equipment, and sell video accessories such as
blank cassettes, cleaning equipment and a variety of candy and similar items.
The Company believes that, based upon the number of stores in operation as of
December 31, 1995, it is one of the twenty-five largest operators of video
specialty stores in the United States.
On July 17, 1995, Business Data Group, Inc. ("Business Data") (a publicly
traded company with no significant operations) and Roadrunner Video
Enterprises, Inc. ("Roadrunner") entered into a transaction whereby Business
Data acquired all of the outstanding shares of Roadrunner and, in exchange,
Roadrunner stockholders received 9,200,000 newly issued common shares of
Business Data representing approximately 81% of the outstanding shares of the
combined entity.
This transaction was accounted for as a "reverse acquisition" whereby
Roadrunner is deemed to have acquired Business Data for financial reporting
purposes. However, Business Data remains the continuing legal entity and
registrant for Securities and Exchange Commission filing purposes. Following
the transaction, the combined entity changed its name to Roadrunner Video
Group, Inc. and replaced its principal officers and directors with those of
Roadrunner.
OPERATING STRATEGY
The key elements of the Company's operating strategy include the following:
Smaller Markets. Most of the Company's stores which are not located in its
home market of Louisville, Kentucky are located in small towns where its
principal competition usually consists of single-store operators and small
chains that generally have smaller stores, less capital and buying power,
smaller advertising budgets and fewer current release titles than the Company's
stores. The Company attempts to become the leading video retailer in the areas
it serves and believes that its stores can achieve a higher return on invested
capital in these markets than in the larger urban markets because of the lack
of competition and its lower operating costs.
Customer Service. The Company seeks to provide a high level of customer
service at each of its stores. The Company offers a broad selection of new
releases and catalog products, is committed to offering more copies of the
newest releases than many of its competitors, and provides customers with
personalized attention.
Geographic Concentration. The Company has traditionally concentrated its
openings and activities in areas in or near Louisville, Kentucky to maximize
operating efficiencies. The Company believes that geographic concentration
allows the Company to more easily monitor store operations through its
Louisville-based management offices and to achieve operating efficiencies in
inventory management, marketing, distribution, training and store supervision.
Since the Company operates multiple stores, it is able to receive relatively
large aggregate cooperative advertising credits from its distributors. The
Company receives cooperative advertising credits based on the volume of
purchases and, by operating multiple stores in a single geographic market, the
Company can more effectively use cooperative advertising credits to maximize
the
-3-
<PAGE> 4
impact of its advertising. The Company may expand its operations to other
parts of the United States in the future, but still intends to concentrate
multiple stores in a particular geographic area.
Inventory Management. The Company aggressively manages its store inventory.
In each of its markets, management seeks to maintain a selection of new
releases that balances customer demand and rental trends with maximization of
store profitability. Buying decisions are made centrally and are based on box
office results, industry newsletters, management's knowledge of the popularity
of certain types of movies in its markets and input from store managers.
Centralized buying allows the Company to obtain volume discounts and
cooperative advertising credits that are often not utilized by its smaller
competitors. Distribution costs are reduced and control of new releases is
maintained by having the product shipped to and processed at the main office.
GROWTH STRATEGY
The key elements of the Company's growth strategy include the following:
Targeted Acquisitions. The Company believes that acquiring clusters of stores
in targeted market areas is often the most cost-effective means of entering a
new market, particularly when the stores are in desirable locations. Because
of a recent trend toward consolidation in the industry, the Company believes
smaller chain operators perceive the need to join larger organizations for
enhanced access to working capital, marketing efficiencies and other economies
of scale to compete successfully in the future. Management believes this has
created an opportunity for the Company to grow further through acquisitions.
As a result, management believes that it will continue to be presented with
attractive acquisition opportunities. The Company is currently negotiating to
acquire several chains of video specialty stores (see "Acquisitions").
Selective Development. The Company anticipates developing between four and
seven stores during 1996. In some markets with multiple shopping areas and a
sufficient population base to support more than one operator, it is often more
cost- effective for the Company to develop a store rather than to buy an
existing operation. In choosing specific store sites, the Company considers
such factors as lease costs, visibility, access, traffic volume, consumer
demographics and convenience to residential neighborhoods, regardless of the
proximity of competing video specialty stores. The stores are generally
located in strip shopping centers, preferably in an end location and are easily
identified by a large sign. The Company leases the space for all but one of
its video specialty stores from unaffiliated third parties. Competition for
the best sites can be intense. In many of its markets, there is only one main
shopping area, so it is critical to get space within that area. The lack of
desirable locations in a particular market may necessitate the acquisition of a
competitor with a preferable location rather than opening a new store. The
Company currently estimates that the gross cost of each new store opening will
be approximately $125,000 to $150,000. The Company usually acts as the general
contractor with respect to the construction of its new stores and, in that
regard, employs a construction manager who has significant video specialty
store construction experience.
Videocassette Sales. During the year ended December 31, 1995, the sale of
videocassettes accounted for approximately 16% of the Company's revenues.
Management anticipates that this percentage will increase in the next few years
through the wholesale sale of videocassettes to supermarkets and through the
development of stores that focus primarily on the sale of videocassettes.
-4-
<PAGE> 5
Set forth below is a historical summary showing the store openings,
acquisitions and closings by the Company since inception.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1985/1989 1990 1991 1992 1993 1994 1995
--------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
New Stores Opened 6 1 2 0 1 3 3
Stores Acquired 0 0 0 0 0 15 0
Stores Closed 0 0 0 0 1 0 7
Total Stores at End of Period 21 22 24 24 24 42 38
</TABLE>
STORES
The Company's stores generally are located in stand-alone sites or strip
shopping centers for heightened visibility, with a preference for end-cap
locations. The Company's stores range in size from approximately 2,800 to
10,000 square feet, with an average size of approximately 5,500 square feet.
Most of the stores are leased pursuant to leases with terms ranging from one to
ten years and varying renewal options. The Company is responsible for taxes,
insurance and utilities under most of these leases. The Company's stores are
generally open seven days a week, from 10:00 a.m. to 12:00 a.m. on weekends and
from 10:00 a.m. to 11:00 p.m. on weekdays.
The Company has developed a uniform system of design and operation that allows
for predictable costs in the opening and operation of its stores. The format
and layout of each store allow customers to conveniently locate movie titles,
facilitate browsing and provide customers with an unobstructed view across the
store. Movies are arranged in display boxes organized into categories by
topic, except for new releases, which are assembled in their own section,
alphabetically, for ease of selection by customers.
Each store operates under substantially the same plan of operation. Video
rentals generally range from $2.50 to $3.25 for new releases to $2.00 for
catalog titles. Company-owned stores are generally open 365 days a year. In
order to maximize profits, the Company varies the quantity of its new release
inventory from location to location to meet competition in the area. The
Company generally has a two-day, one-night rental term for new releases, which
tends to keep new releases more readily available and requires the purchase of
fewer copies of new releases than a three-day, two-night rental policy. For
catalog titles, the Company has traditionally had a three-day, two-night rental
term. The Company has experimented with a seven-day, six-night rental term and
intends to implement this policy in the majority of its stores in 1996. This
new policy will also include offering the majority of catalog titles for sale
in addition to rental. The Company's stores use a self-service system, whereby
customers select products from the shelves and bring them to the checkout
counter. The Company's stores use a computerized system that simplifies rental
and return transactions and maintains inventory and customer information.
Employees in each store can provide customers with computerized information
regarding the availability of a movie title in that store and other information
about that title.
For the convenience of its customers, the Company operates a drop-box return
procedure at all of its locations, allowing for returns off-hours. Customers
utilizing the drop-box must return to the store to pay any unpaid rental fee
within seven days of returning the videocassette or video game. To date, the
Company has experienced only minimal loss of revenue as a result of
videocassettes and video games returned and not paid for within the prescribed
time. To generate goodwill with its customers, the Company's stores will, upon
customer request, temporarily reserve titles and will special-order any title
not currently in stock for overnight delivery.
-5-
<PAGE> 6
PRODUCTS
During the year ended December 31, 1995, approximately 84% of the Company's
revenues were derived from the rental of videocassettes and 16% from the sale
of videocassettes, with the balance of revenues being derived from the rental
of video games and video recorders, the sale of video accessories, such as
blank cassettes and cleaning equipment, and the sale of confectionery items.
The Company also sells audio tapes in a few of its stores.
The Company's stores offer from 8,000 to 10,000 videocassettes (from 2,500 to
8,000 titles) and from 500 to 900 video games (from 400 to 800 titles) for
rental and sale, depending upon location. The Company rents and sells adult
videocassettes in all of its stores. A typical store's inventory is made up of
7,500 catalog selections (chosen from a core selection of about 7,000 titles),
with the balance representing new release titles. Each store has a few special
interest titles, covering subjects such as hunting, golf and education,
selected by management to appeal to the customer base in the store's market
area.
Management believes that a typical store's revenues are most affected by its
new release title selection and the number of copies of each new release
available for rental as compared to the competition. The Company is committed
to offering as many copies of new releases as necessary to be competitive
within a market, while at the same time keeping its costs as low as possible.
Videocassettes offered for sale in video stores are generally special interest
titles, children's or other titles promoted by the studios for sell-through and
seasonal titles connected to particular holidays.
ACQUISITIONS
During 1995 and 1994, the Company acquired several businesses previously
operated by others. Details of these acquisitions are as follows:
Midwest Video Wholesalers Limited Partnership--In May 1995, the Company
acquired all the assets of Midwest Video Wholesalers Limited Partnership, which
was a videocassette wholesaler located in Columbus, Ohio. The purchase price
was $225,000 consisting principally of intangible assets ($210,000 promissory
notes guaranteed by the majority stockholder and $15,000 paid in cash).
Roadrunner Video, Inc.--In March 1994, the Company acquired essentially all the
assets of Roadrunner Video, Inc. (owned by eight stockholders, one of which was
a former stockholder of the Company) which owned and operated five video stores
in southern Indiana. The purchase price consisted of a non-interest bearing
note payable by the Company in the amount of $350,000 (discounted to $281,000
using a 7% interest rate) and an additional $60,000 if the gross revenues of
the five stores equal or exceed $1,500,000 during any of the next five years
beginning April 1, 1994. At the option of the Company, this note payable may
be converted into shares of any publically-traded stock, including the
Company's, if approved by the noteholder within fifteen days after
notification. The number of shares to be issued will be determined at the time
of conversion.
Video Knights, Inc.--In June 1994, the Company acquired all the assets of Video
Knights, Inc. which owned and operated five video stores in the states of
Virginia, Maryland and New Jersey. The purchase price paid by the Company was
$1,410,000 ($60,000 promissory note, $1,000,000 promissory note convertible to
common stock and $350,000 paid in cash).
-6-
<PAGE> 7
In July 1995, the $1,000,000 promissory note (with an unpaid principal balance
of $750,000) was canceled in exchange for an agreement whereby Roadrunner would
issue convertible preferred stock to Selvac Corporation, the owner of Video
Knights, Inc. Following the merger with Business Data, this agreement was
canceled in exchange for an agreement whereby the Company issued 75,000 shares
of Series B cumulative Preferred Stock, convertible into 750,000 common shares
(subject to certain anti-dilution adjustments) of the Company, to Selvac
Corporation.
These stores were acquired in contemplation of a potential 1994 business
acquisition transaction involving additional video retail stores in the same
geographic market. This potential business transaction was not consummated, and
since the acquisition of these stores, the Company incurred significant
operating losses attributable to these stores. As a result, management adopted
a plan to dispose of these stores (including their lease arrangements). During
1994, the Company recorded a $1.7 million charge to operations to reflect the
estimated cost of the disposal of these five stores.
During 1995, four of the five stores were closed. Videocassettes and fixtures
from these stores were transferred to the main office and redistributed to
other Company stores as needed. The lease related to one of the closed stores
was settled. The fifth store (Silver Springs, Maryland) was sold to an
unrelated party. The Company is continuing to make payments related to the
leases on the three remaining closed store locations. Management is actively
seeking other tenants for the remaining locations.
H&H Video Enterprises, Inc.--In August 1994, the Company acquired the stock of
H&H Video Enterprises, Inc. (H&H) which operated five video stores in
metropolitan Louisville. The purchase price consisted of notes payable to the
sellers of $231,600, forgiveness of $27,000 receivable and the assumption of
various liabilities totaling $118,400. The notes payable are convertible into
common stock by the sellers. The number of shares to be issued is to be
determined at the time of conversion. One of the sellers has filed a lawsuit
demanding immediate payment in full of approximately $126,000. The Company is
attempting to restructure the payment terms. However, there is no assurance
that the payment terms will be restructured or alternative financing will be
available to the Company. The other seller used the majority of his note to
acquire common stock from a stockholder that owed the Company certain amounts
under a note receivable.
Potential Future Acquisitions--The Company has signed an agreement and plan of
merger with a video specialty store chain consisting of 12 stores in Oxford,
Mississippi for approximately $2,555,000. The purchase price is to be paid
through the issuance of shares of common stock. The closing is scheduled to
occur on or before April 30, 1996.
The Company also has a non-binding letter of intent to acquire a video
specialty store chain consisting of 12 stores in the Akron, Ohio market for
approximately $2.6 million. The majority stockholder of the Company also owns
a controlling interest in the Akron chain. A closing date has not been
scheduled for this potential acquisition.
MARKETING AND ADVERTISING
The Company markets its stores and merchandise through radio and direct mail
and to a lesser extent through newspaper advertising, discount coupons,
celebrity appearances and promotional materials. The Company also publishes a
proprietary monthly video guide designed to help customers determine what to
watch. The cost of these activities is partially funded through advertising
allowances and market development funds that the Company receives from its
video wholesale suppliers. To the extent that studios or suppliers do not
continue such promotions, the Company will be required to fund advertising and
promotions through cash flow from operations and other available funds, which
could have a material adverse impact on the Company's plans for expansion and
its ongoing operations. The Company also benefits from
-7-
<PAGE> 8
the advertising and marketing of studios and theaters in connection with their
efforts to promote films and increase box office revenues. The Company's
advertising emphasizes the selection, service and value available at the
Company's stores. The Company also emphasizes community service activities.
VIDEOCASSETTE SALES
In the fall of 1994, the Company opened its first previously-viewed
videocassette concept store in Indianapolis, Indiana under the name "Roadrunner
Discount Video." In this store, catalog titles are featured in a warehouse
style, with all videocassettes available for sale or rental on a weekly basis.
In April 1995, the Company began selling previously viewed videocassettes to a
supermarket chain for resale. A company owned by stockholders of the Company
receives a sales commission for arranging this relationship. After each
store's initial order, the Company fills re-orders initiated by the supermarket
chain. The Company determines the videocassettes to be sold to the supermarket
chain based on its knowledge of trends in the industry and the grocery store
chain has no right to return videocassettes to the Company. The Company
supplies videocassettes to over 80 supermarkets in several states.
INVENTORY AND INFORMATION MANAGEMENT
The videocassette and video game inventory in each store consists of its
catalog titles (those in release for more than one year) and new release
titles. Videocassettes and video games utilized as initial inventory in the
Company's new stores consist of excess copies of catalog titles and new release
titles from existing stores, supplemented as necessary by purchases directly
from suppliers. This inventory for new stores is packaged at a 28,500 square
foot warehouse, adjacent to its headquarters facility in Louisville, Kentucky.
Each videocassette and video game is removed from its original packaging and an
optical bar code label, used in the Company's computerized inventory system, is
applied to both the packaging and the plastic rental case. The cassette is
placed in the rental case, and a display carton is created by inserting foam or
cardboard into the original packing and shrink-wrapping the carton. The
re-packaged videocassettes, video games and display cartons are then shipped to
the new store ready for use. The Company believes that its existing
distribution facilities will be adequate for the foreseeable future.
The Company aggressively manages its store inventory. In each of its markets,
management seeks to maintain a large selection of new releases and catalog
products consistent with maximization of store profitability. Buying decisions
are made centrally and are based on the size of the active customer base, new
release dates, box office results, industry newsletters and management's
knowledge of the popularity of certain types of movies in its markets. The
Company believes that centralized buying allows it to obtain volume discounts.
The Company maintains two distinct business systems: a store sales system and a
corporate information system. All rental and sales transactions are recorded
by the store sales system at the time of customer checkout. The systems track
all rental and sales products from the warehouse to each store. The systems
also maintain detailed rental history of each customer and title. This
information produces the reports used by the Company, including those used in
making purchasing decisions on new releases. All of the Company's stores,
including all of the acquired stores, use the Company's store sales system.
-8-
<PAGE> 9
SUPPLIERS
The video inventory in each of the Company's stores consists of catalog and new
release titles, which it either purchases or rents. The Company acquires
approximately 80% of its new release videos and substantially all of its
catalog videos by purchase directly from one video wholesale supplier. The
Company purchases from such wholesaler rather than directly from movie studios
because the Company believes that the cost savings of direct purchases would
not offset the expense to the Company of establishing its own distribution
system. Currently, the typical cost of new release videos purchased by the
Company is approximately $60 to $68 except for videos merchandized primarily
for immediate sale, for which the cost is typically $5 to $20.
The Company also rents new release titles under revenue sharing arrangements.
The Company presently intends to spend approximately 12.5% of its new release
budget to obtain new releases from a supplier who is also a stockholder
pursuant to a revenue sharing agreement which expires in 1999. Under this
agreement, the Company is obligated to obtain a minimum annual dollar amount of
new release titles from the supplier, and to the extent that the Company elects
to obtain a new release title from the supplier, it must obtain all copies of
that title from the supplier. Approximately 45% of new release titles
available through normal distribution channels in any given period are also
available through the supplier as a result of its relationship with certain
movie studios. During the revenue sharing period, which is generally one year
(but does not exceed two years) per title, the movie studio retains ownership
of the video and the Company shares the rental revenue with the supplier rather
than purchasing the video for a fixed cost. In addition, the Company must make
an initial payment of approximately $8 per video obtained pursuant to this
agreement. The initial payment is amortized on a straight-line basis over the
estimated average revenue sharing period (approximates twelve months). The
Company expenses revenue sharing costs as incurred. At the end of the revenue
sharing period for a title, the Company has the option to purchase the copies
of that title, generally for less than $5 per copy. Revenue sharing allows the
Company to order a large number of copies to meet most of the temporarily heavy
demand that exists during the first few weekends after a title's release. In
addition, revenue sharing reduces the risk that the Company will be unable to
recover the acquisition cost of a video through rental revenue before the
popularity of the title declines significantly. In addition, in order for the
Company to obtain the full benefits of the supplier revenue sharing
arrangement, the Company must correctly estimate the number of new releases
that it should lease.
Both of the above suppliers have provided loans to the Company. Under the
terms of the loan agreements, the Company is required to obtain virtually all
of its videocassettes from these two suppliers.
COMPETITION
The video retail industry is highly competitive. The Company's stores compete
with other video specialty stores, including stores operated by regional and
national chains, such as Blockbuster, and with other businesses offering videos
and video games, such as supermarkets, pharmacies, convenience stores,
bookstores, mass merchants, mail order operations and other retailers. The
Company's stores in the metropolitan Louisville, Kentucky area compete with
Blockbuster, the dominant video specialty retailer in the United States. It is
anticipated that Blockbuster may open 4 to 7 new stores in the Louisville
market during 1996. Some of the Company's competitors, including Blockbuster,
have significantly greater financial and marketing resources, market share and
name recognition than the Company. In addition, the Company's stores compete
with other leisure-time activities, including movie theaters, network and cable
television, live theater, sporting events and family entertainment centers.
However, many of these have a higher per-person cost than the rental of a
video.
-9-
<PAGE> 10
The Company believes the principal competitive factors among participants in
the video retail industry are store location and visibility, title selection,
the number of copies of each new release available and customer service. While
the Company does not believe that price is a significant competitive factor
among video retailers, it is a significant factor relative to competition with
movie theaters and other forms of entertainment. The Company's goal is to
generally offer a high level of service, more titles and more copies of new
releases than its competitors.
The Company's stores also compete with Pay-Per-View cable television systems,
in which home subscribers pay a fee to see a movie selected by the subscriber.
Existing Pay-Per-View services offer a limited number of channels and movies
and are generally available only to households with a converter to unscramble
incoming signals. Recently developed technologies, however, permit certain
cable companies, direct broadcast satellite companies, telephone companies and
other telecommunications companies to transmit a much greater number of movies
to homes in more markets as frequently as every five minutes, referred to as
Near Video-on-Demand. Ultimately, further improvement in these technologies
could lead to the availability of a broad selection of movies to consumers on
demand, referred to as Video-on-Demand, at a price which is competitive with
the price of video rentals.
The Company believes movie studios have a significant interest in maintaining a
viable movie rental business because the sale of videocassettes to video retail
stores currently represents the studios' largest source of revenue. As a
result, the Company anticipates that movie studios will continue to make movie
titles available to cable television or other distribution channels only after
revenues have been derived from the sale of videocassettes to video stores. In
addition, the Company believes substantial technological developments will be
necessary to allow Pay-Per-View television to match the low price, viewing
convenience and selection available through video rental, and substantial
capital expenditures will be necessary to implement Video-on-Demand systems.
Although the Company does not believe cable television or other distribution
channels represent a near-term competitive threat to its business,
technological advances or changes in the manner in which movies are marketed,
including the earlier release of movie titles to cable television or other
distribution channels, could make these technologies more attractive and
economical, which could have an adverse effect on the business of the Company.
VIDEO RETAIL INDUSTRY
Video Retail Industry. According to entertainment media analyst Paul Kagan
Associates ("Paul Kagan"), the U.S. videocassette rental and sales industry
has grown from $0.7 billion in revenue in 1982 to $14.0 billion in 1994 and is
expected to reach $19.1 billion in 2000. Paul Kagan estimates that in 1992 80%
of American households with televisions also owned a VCR and that more than 100
million VCRs are currently in consumer homes.
The video retail industry is highly fragmented. According to Paul Kagan, in
1994 there were approximately 27,400 video specialty stores in the U.S. Of
this number, approximately 6,100 were "superstores", which are defined as video
stores with at least 7,500 videocassettes. The Company believes the sales and
rental revenue of Blockbuster, which operated approximately 2,800 video retail
stores in the U.S. at the end of 1994, was greater than the combined revenue of
the next 500 largest domestic video retailers in that year and represented
approximately 18% of the domestic video retail market. The Company believes
the video retail industry is evolving rapidly from "mom and pop" stores to
regional and national superstore chains. Few single store owners are able to
expand to multiple store operations, in part due to the difficulty of obtaining
working capital financing from banks. Multiple store operations that do exist
are generally chains of fewer than 50 stores. Because of a recent trend toward
consolidation in the video retail industry, the Company believes that smaller
chain operators perceive the need to join larger organizations for enhanced
access to working capital, marketing efficiencies and other economies of scale
to compete successfully in the future. The Company believes it is well
positioned to benefit from this consolidation trend by acquiring successful
smaller chain operations.
-10-
<PAGE> 11
Movie Studio Dependence on Video Retail Industry. Although the domestic video
retail industry includes both rentals and sales, consumers primarily rent
rather than buy videos. By setting wholesale video prices, movie studios
influence the relative levels of video rentals versus sales. Videos released
at a relatively high price, typically $60 to $68, are purchased by video
specialty stores and are offered primarily as rental titles. Videos released
at a relatively low price, typically $5 to $20, are purchased by video
specialty stores and are generally offered as both rental and sales titles.
Typically, movie studios attempt to maximize total revenue from video releases
by maintaining prices at a relatively high level during the first six months to
one year after a new release, during which time sales will be made primarily to
video specialty stores for rental, and then re-releasing the video at a lower
price to promote sales. From time to time, however, movies that are believed
to have mass appeal, such as Forrest Gump and The Lion King, are initially
released for sale at a relatively low price.
According to a recent Paul Kagan industry report, total United States consumer
filmed entertainment spending has increased from approximately $4.7 billion in
1980 to approximately $37.8 billion in 1993. According to Video Business
magazine, in 1994 the home video market was the largest single source of
revenue to movie studios, accounting for approximately 53% of movie studios'
total domestic revenues and approximately 49% of movie studios' worldwide
revenue. Of the many movies produced by major studios and released in the
United States each year, relatively few are profitable for the studios based on
box office revenue alone. In addition to purchasing box office hits, video
specialty stores typically purchase movies on video that were not successful at
the box office as customers will often rent a video that they might not view at
a theater. The Company believes the consumer is more likely to view movies
that were not box office hits on a rented video than on any other medium
because video specialty stores provide an inviting opportunity to browse and
make an impulse choice among a very broad selection of movie titles at a
relatively low price. These purchases by the video stores provide the major
movie studios with a reliable source of revenue for the majority of their
movies.
Historically, new technologies have led to the creation of additional
distribution channels for movie studios. Movie studios seek to maximize their
revenues by releasing movies in sequential release date "windows" to various
movie distribution channels. These distribution channels generally include, in
release date order, movie theaters, video retail stores, pay-per-view
television, pay television, basic cable television and, finally, network and
syndicated television. The Company believes this method of sequential release
has allowed movie studios to increase their total revenue with the addition of
new distribution channels, with relatively little adverse effect on the revenue
derived from previously established channels, and that movie studios will
continue the practice of sequential release as new distribution channels become
available. According to Paul Kagan, most movie studios have recently agreed to
lengthen the release date window for many hit movie videos from 30 days to 90
days prior to the Pay-Per-View release date.
EMPLOYEES
As of December 31, 1995, the Company employed 238 employees, of whom 135 are
employed on a full-time basis. Of these employees, approximately 41 were
employed in the Company's corporate offices and distribution operations. None
of the Company's employees are represented by a labor union, and the Company
believes that its relations with its employees are good.
Each of the Company's stores employ approximately three to eight persons,
including one manager and one assistant manager. Area managers supervise the
operations of a group of four to five stores each. They report directly to the
Company's Operations Manager.
-11-
<PAGE> 12
ITEM 2. PROPERTIES
PROPERTIES
Most of the Company's stores are leased pursuant to leases with terms ranging
from one to ten years, with varying option renewal periods. The Company
anticipates that future stores will also be located on leased premises.
STORE LOCATIONS
The following table sets forth the locations of the Company's stores as of
December 31, 1995:
<TABLE>
<CAPTION>
KENTUCKY INDIANA
- -------- -------
<S> <C>
Bardstown Charlestown
Crestwood Clarksville
Hillview Indianapolis
LaGrange Jeffersonville
Louisville (22 locations) Madison
Mt. Washington New Albany
Shelbyville North Vernon
Shepherdsville Scottsburg
Sellersburg
</TABLE>
The Company's corporate headquarters are located at 819 South Floyd Street,
Louisville, Kentucky 40203 and consists of approximately 10,000 square feet of
office space and 18,500 square feet of storage space. This facility is
presently leased by the Company on a month-to-month basis for approximately
$4,600 per month.
ITEM 3. LEGAL PROCEEDINGS
Brenda L. Patterson, et al. v. Roadrunner Video Enterprises. Inc., et al., in
the Jefferson Circuit Court, Commonwealth of Kentucky, Division Thirteen, Case
No. 95-CI-02432.
Brenda Patterson, a former employee, has filed a Complaint against the Company,
its President, Terry Schneider, its Vice President, Wayne Jung, and a
co-worker, Willie Worthington, alleging that she was sexually harassed by those
individuals during the course of her employment. James Breslin, the former
Chief Financial Officer of the Company, has joined Patterson as a Plaintiff in
this action. Breslin alleges that his employment was wrongfully terminated by
the Company after he sought to oppose the Company's practice of tolerating
sexual harassment of Ms. Patterson.
Prior to instituting this action, Patterson had filed a charge of sexual
harassment against the Company with the Equal Employment Opportunity Commission
("EEOC"). The EEOC dismissed Patterson's charge and gave her a right to sue
letter in April 1995.
Patterson is claiming damages in excess of $585,000 based in large part on her
alleged lost salary of $50,000 for a period of 10 years. Breslin is claiming
damages of over $4 million in connection with his wrongful discharge claim
based upon his alleged lost salary for a four year period and certain stock
compensation that he failed to receive when the Company went public. Breslin
has also asserted a defamation claim against Schneider for which he is seeking
over $400,000 in damages. The plaintiff's complaint also contains a claim for
punitive damages in an unspecified amount.
-12-
<PAGE> 13
The Company intends to vigorously defend Patterson's and Breslin's claims and
has filed a counterclaim against those individuals. The Company's counsel is
working towards the completion of discovery in the case. This case is set for
trial beginning on October 29, 1996.
Homer Quick v. Roadrunner Video Enterprises, Inc., Jefferson Circuit Court,
Commonwealth of Kentucky, Division 16, Case No. 95-CI-02432.
Plaintiff Homer Quick filed his complaint on June 23, 1995 to collect judgement
on a subordinated convertible note executed in his favor by the Company on
August 1, 1994. The complaint seeks judgement in the principal amount of
$138,800 plus interest of 7.25% per annum for January 15, 1995 until May 14,
1995 plus interest at a rate of 12% per annum from May 14, 1995 until paid. A
hearing is scheduled in this matter for April 1, 1996.
Starlite Centre, Ltd. v. Roadrunner Video Enterprises, Inc., Jefferson Circuit
Court, Commonwealth of Kentucky, Division 16, Case No. 96-CI-00888.
Plaintiff Starlite Centre is the owner of certain rental property leased from
it by the Company in Elizabethtown, Hardin County, Kentucky. Starlite has sued
the Company under the lease agreement for rent totalling $17,592.40.
Starlite filed its complaint on February 9, 1996 and has since negotiated a
settlement agreement with the Company pursuant to which the Company has agreed
to pay a portion of the back rent. Starlite has granted the Company an
extension to file an answer to its complaint pending compliance with the
settlement agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 23, 1995, by written consent executed in accordance with Section 228 of
the Delaware General Corporation Law, the holders of the majority of the
outstanding stock of the Company entitled to vote thereon voted in favor of
amending the Company Certificate of Incorporation to increase the number of the
Company's authorized shares of capital stock from 10,050,000 (with 10,000,000
reserved to be Common Stock and 50,000 reserved to be Preferred Stock) to
25,100,000 (with 25,000,000 reserved to be Common Stock and 100,000 reserved to
be Preferred Stock).
On July 17, 1995, by written consent executed in accordance with Section 228 of
the Delaware General Corporation Law, holders of the majority of the
outstanding stock of the Company entitled to vote thereon approved and
consented to the following corporate actions:
(1) the election of Terry W. Schneider, Wayne J. Jung, and Eldon C.
Arave as Directors of the Company until the next annual meeting
of the Company, and
(2) the amendment of the Company's Certificate of Incorporation,
changing the Company's name from "Business Data Group, Inc." to
"Roadrunner Video Group, Inc."
-13-
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.01 par value, is presently traded
over-the-counter but not in any established market nor on any national
securities exchange. The Common Stock presently is not subject to quotation by
the National Association of Securities Dealers Automated Quotation Systems
("NASDAQ"). To date, trading in shares of the Company's Common Stock has been
sporadic and infrequent, and generally have involved a relatively small number
of shares. No cash dividends have been paid, nor does the company expect to
pay any dividends in the foreseeable future. Currently, certain debt
agreements prohibit the payment of dividends without the prior approval of the
lender.
The following table presents the high and low bid prices as reported by the
National Quotation Bureau, Inc., a registered securities association:
<TABLE>
<CAPTION>
Quarterly Common Stock Price Ranges
-----------------------------------------------------------
1995 High Low
----------- ------ ------
<S> <C> <C>
1st Quarter $ .500 $ .250
2nd Quarter 2.375 .250
3rd Quarter 2.875 1.375
4th Quarter 3.313 1.250
1994
------------
1st Quarter .375 .250
2nd Quarter .375 .250
3rd Quarter .375 .250
4th Quarter .375 .250
</TABLE>
-14-
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(In thousands, except per share and
other operating data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
REV
Rental revenue $5,203 $6,329 $6,499 $ 8,307 $ 9,554
Product sales 381 389 569 399 1,781
Other fees 96 122 119 24 1
------- ------- ------- ------- --------
TOTAL REVENUE 5,680 6,840 7,187 8,730 11,336
OPERATING COSTS AND EXPENSES
Amortization of videocassette
rental inventory 1,432 1,457 1,409 1,857 2,027
Cost of revenue sharing 112 923 764 1,108
Cost of product sales 210 276 399 278 1,617
Operating expenses 3,311 3,484 3,657 5,288 6,359
Selling, general and
administrative expenses 515 645 1,049 1,407 1,099
Disposal of stores 1,700 (217)
------- ------- ------- ------- --------
TOTAL OPERATING COSTS
AND EXPENSES 5,468 5,974 7,437 11,294 11,993
------- ------- ------- ------- -------
OPERATING INCOME (LOSS) 212 866 (250) (2,564) (657)
NONOPERATING INCOME (EXPENSE)
Interest expense, net (135) (137) (105) (297) (394)
Other, net 14 (3) 233
------- ------- ------- ------- -------
TOTAL NONOPERATING INCOME
(EXPENSE) (135) (137) (91) (300) (161)
INCOME (LOSS) BEFORE
INCOME TAXES 77 729 (341) (2,864) (818)
PROVISION (BENEFIT) FOR
INCOME TAXES 50 294 (134) (336)
------- ------- ------- -------- --------
NET INCOME (LOSS) $ 27 $ 435 $ (207) $ (2,528) $ (818)
======== ======= ======== ======== ========
OPERATING INCOME (LOSS)
PER SHARE $.02 $.09 $(.03) $(.31) $(.07)
==== ==== ===== ===== =====
NET INCOME (LOSS)
PER SHARE $.00 $.04 $(.02) $(.31) $(.09)
==== ==== ===== ===== =====
SHARES USED IN COMPUTING
NET INCOME (LOSS)
PER SHARE 9,680 9,680 9,621 8,201 9,868
===== ===== ===== ===== =====
</TABLE>
-15-
<PAGE> 16
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(In thousands, except per share and
other operating data)
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA
Number of stores at
end of year 24 24 24 42 38
BALANCE SHEET DATA
Cash and cash equivalents 82 102 101 93 424
Net property and equipment 885 1,100 1,268 1,842 1,721
Net videocassette rental
inventory 2,400 2,821 3,036 4,455 4,358
TOTAL ASSETS 4,154 4,279 4,790 6,879 7,525
LONG-TERM DEBT 1,112 1,728 2,420 4,231 3,615
TOTAL LIABILITIES 2,590 2,488 3,432 7,049 5,479
PREFERRED STOCK 760
STOCKHOLDERS' EQUITY (DEFICIT) 1,564 1,791 1,358 (170) 2,046
</TABLE>
NOTES -
- Includes the operations of Midwest Wholesalers Limited
Partnership, Roadrunner Video, Inc. and H&H Video Enterprises,
Inc. since their acquisitions in May 1995, March 1994 and August
1994, respectively.
- Includes the operations of five video stores acquired from Video
Knights, Inc. from their acquisition in June 1994 through the
closing and/or sale of such stores in the fourth quarter of 1995.
- Shares used in computing net income or loss per share have been
retroactively restated to reflect the transaction with Business
Data Group, Inc.
-16-
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1995 COMPARED TO 1994
REVENUE
Revenue, which includes rental revenue and product sales, increased $2.6
million, or 30% ($8.7 million in 1994 to $11.3 million in 1995). Approximately
27% of the above increase resulted from the full year's operating results in
1995 from five new stores opened in 1994. These five additional stores helped
generate over $700,000 in revenues for 1995. Approximately 38% of the increase
was due to the acquisition of 15 video stores during 1994. These stores were
not in operation for a full year in 1994, and by being open for a full year in
1995, helped contribute over $1 million in additional revenue during the year.
The above increases were offset in part by an 8% decrease in same store sales
(for stores in operation for a full 12 months for both 1995 and 1994).
Management believes that the decrease in same store sales is an industry trend,
and that this trend may continue. Published reports on the video industry
support this belief. The remaining balance of the net increase was from the
sale of new and previously viewed videocassettes to a major grocery store
chain.
Product sales were 16% and 5% of total revenues for years ended December 31,
1995 and 1994. Part of the increase was the result of over $900,000 in
videocassette sales to a major grocery store chain during 1995. The company
feels videocassette sales will continue to increase throughout 1996. The
increase will primarily be the result of continued videocassette sales to the
grocery store chain and the company's emphasis on increasing videocassette
sales at the store level.
OPERATING COSTS AND EXPENSES
Cost of Product and Other Sales
Cost of product sales increased from $278,000, or 3% of total revenue for 1994
to $1.6 million, or 14% of total revenue for 1995. The cost of product sales
as a percentage of product sales revenue increased from 70% to 90% for 1994 and
1995. The decrease in the gross margin was due in large part to volume
discounts to the grocery store chain. Prior to 1995, product sales were only
at the retail store level.
Operating Expenses
Operating expenses increased from $5.3 million in 1994, or 61% of revenues, to
$6.4 million in 1995, or 57% of revenues. The increase resulted primarily from
an increase in the number of stores that were in operation for a full year in
1995 compared to 1994. The decrease as a percentage of revenue was a result
of management selling one and closing four unprofitable East Coast locations in
1995.
Amortization of Videocassette Rental Inventory
Amortization of videocassette rental inventory increased from $1.9 million, or
22% of rental revenue in 1994, to $2 million, or 22% of rental revenue for
1995. The increase was due to the company having more stores in operation for
a longer period of time in 1995 compared to 1994. This created additional
purchases of videocassettes for rental, causing an increase in amortization.
-17-
<PAGE> 18
Cost of Revenue Sharing
Pursuant to a revenue sharing agreement, a supplier, who is also a stockholder
of the Company, provides the company with new releases and various other
videocassettes released by certain movie studios. Under this agreement, the
company incurs an up-front handling fee, which is amortized on a straight-line
basis over the estimated average revenue sharing period (approximates twelve
months). The company pays a percentage of the rental revenues to the supplier
and expenses the revenue sharing costs under this agreement as incurred.
Cost of revenue sharing increased from $800,000, or 9% of rental revenue for
1994 to $1.1 million, or 12% of rental revenue for 1995. The increase was the
result of more stores in operation and more usage of this supplier for 1995
compared to 1994. The additional stores in operation for 1995 generated the
$300,000 increase in revenue sharing from 1994 to 1995.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased from $1.4 million, or
16% of revenues for 1994 to $1.1 million, or 9% of revenues for 1995. The
decrease in selling, general and administrative expenses was primarily due to
the decrease in advertising expense and professional fees for 1995 as compared
to 1994. The decrease in advertising expense was due to increased usage of
cooperative advertising. The decrease in professional fees was due to less
acquisition and development activity.
Other Income/Expense
Interest expense increased $97,000, or 32%, from 1994 to 1995. This was due
primarily to higher outstanding debt balances during 1995 as compared to 1994.
The gain on sale of assets in 1995 resulted from the sale of the assets of the
Silver Springs, Maryland location and the sale of other fixed assets.
Benefit for Income Taxes
Benefit for income taxes decreased from $336,000 from 1994 to zero in 1995.
The decrease was the result of no income taxes being recorded during 1995 since
the company has provided a full valuation allowance against deferred tax assets
recorded due to uncertainties in realization using the "more likely than not"
valuation method.
1994 COMPARED TO 1993
REVENUE
Revenue, which includes rental revenue and product sales, increased $1.5
million, or 21% ($7.1 million in 1993 to $8.7 million in 1994). Approximately
$213,000 of the above net increase resulted from the opening of a new store for
a partial year in 1993, but for a full year in 1994. Approximately $258,000 of
the net increase was due to the opening of two additional stores in 1994, which
generated additional revenue. Approximately $1.6 million of the net increase
was due to the acquisition of 15 video stores during 1994. The above increases
were offset in part by a 5% decrease in same store sales for 1994 as compared
to 1993. The increase was also offset by a 2% decrease in product sales and
other fees for the same period.
-18-
<PAGE> 19
Product sales were 5% and 8% of total revenues for years ended December 31,
1994 and 1993. The decrease was primarily due to a decrease in wholesale
videocassette sales from 1993 to 1994.
OPERATING COSTS AND EXPENSES
Cost of Product and Other Sales
Cost of product sales decreased from $399,430, or 6% of total revenue for 1993,
to $277,968, or 4% of total revenue for 1994. The cost of product sales as a
percentage of product sales revenue remained constant for 1993 and 1994.
Operating Expenses
Operating expenses increased from $3.7 million in 1993, or 51% of revenue, to
$5.3 million in 1994, or 61% of revenues. The increase resulted from two
factors: (1) an increase in the number of stores that were in operation for a
full year in 1994 compared to 1993, and (2) the fact that the east coast stores
acquired in 1994 were more expensive to operate than previously existing
company stores.
Amortization of Videocassette Rental Inventory
Amortization of videocassette rental inventory increased from $1.4 million, or
22% of rental revenue in 1993 to $2 million, or 23% of rental revenue for 1994.
The increase was due to the company having more stores in operation for a
longer period of time in 1994 compared to 1993. This created additional
purchases of videocassettes for rental causing an increase in amortization.
Cost of Revenue Sharing
Cost of revenue sharing decreased from $922,727, or 15% of rental revenue for
1993 to $763,849, or 10% of rental revenue for 1994. The decrease was the
result of less product acquired under the revenue sharing agreement for 1994 as
compared to 1993.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased from $1 million, or 15%
of revenues for 1993 to $1.4 million, or 17% of revenues for 1994. The
increase in selling, general and administrative expenses was primarily due to
the increase in professional fees and higher advertising expenses to promote
stores opened and acquired in 1994.
Other Income/Expense
Interest expense increased $192,000, or 182%, from 1993 to 1994. This was due
primarily to higher outstanding debt balances during 1994 as compared to 1993.
-19-
<PAGE> 20
Benefit for Income Taxes
Benefit for income taxes increased from $134,000 for 1993 to $336,000 for 1994.
The increase was the result of recognizing the benefit expected to be realized
from the utilization of the net operating loss carryforward.
LIQUIDITY AND CAPITAL RESOURCES
In connection with acquisitions made in 1994 and operating losses incurred
since 1992, the Company has incurred substantial indebtedness resulting in a
more highly leveraged capital structure. As of December 31, 1995, the Company
had $5,479,000 of liabilities outstanding. In addition, the Company may incur
further indebtedness (including secured indebtedness) from time to time to
finance acquisitions and for other purposes.
The Company's high degree of leverage has important consequences for the
Company, including the following: (i) dedication of a substantial portion of
the Company's cash flow from operations to pay interest and principal on its
debt obligations, which will reduce the funds available to the Company for its
operations and future business opportunities; (ii) reduction of the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate or other purposes; and
(iii) vulnerability of the Company to a downturn in its business or the economy
generally.
If the Company were unable to meets its debt service requirements in the
future, it may, depending upon the circumstances which then exist, seek
additional equity and/or debt financing, refinance its existing indebtedness or
sell all or part of its business and utilize the proceeds to repay
indebtedness. There can be no assurance that such equity or debt financing, if
needed, would be available to the Company on acceptable terms or that the
Company could refinance existing indebtedness or raise sufficient funds through
asset sales. Any inability of the Company to meet its debt service
requirements would have a significant adverse effect on the Company and the
market value and marketability of the Common Stock.
At December 31, 1995, the Company had a working capital deficit of $1,893,000.
Videocassette rental inventory is treated as a non-current asset under
generally accepted accounting principles because they are not assets which are
reasonably expected to be completely realized or sold in the normal business
cycle. Although the rental of this inventory generates the major portion of
the Company's revenues, the classification of these assets as non-current
results in their exclusion from working capital. The aggregate amount payable
for this inventory, however, is reported as a current liability until paid and,
accordingly, is included as a reduction of working capital. Consequently,
management believes that working capital is not an appropriate measure of its
liquidity and it anticipates that it will continue to operate with a working
capital deficit.
The Company's principal long-term capital requirements are for opening new
stores and acquiring stores. The Company continues to actively investigate
potential merger and acquisition targets in the same line of business. It is
management's intention to enter into such acquisition agreements in the future,
however, there is no assurance such acquisition agreements will be finalized.
Financing of such potential acquisitions would most likely include equity
offerings.
The overall net increase in cash was $331,000 for the year ended December 31,
1995 as a result of net cash provided by operating and financing activities and
net cash used in investing activities.
Net cash provided by operating activities was $1,409,000 for the year ended
December 31, 1995. Net cash used in investing activities was $2,212,000 for
the year ended December 31, 1995. This included purchases of videocassette
rental inventory of $1,971,000 and purchases of property and equipment of
$273,000.
-20-
<PAGE> 21
Net cash provided by financing activities was $1,134,000 for the year ended
December 31, 1995. The Company received $1,000,000 from the sale of common
stock during 1995. Proceeds from borrowings were $1,328,000. Principal
payments on debt were $1,194,000. Proceeds from the sale of stock and
borrowings were used to meet various operating, financing and investing needs
of the Company.
As cash flows from operating activities have not been sufficient to meet the
Company's short-term working capital needs, including the acquisition of
videocassette rental inventory, the Company has borrowed funds, restructured
debt and received equity contributions to meet these needs.
The Company's principal supplier of videocassettes agreed to provide the
Company with financing during 1995 to purchase videocassette rental inventory.
At December 31, 1995, the Company owed $859,000 under this arrangement, which
is included in long-term debt, including a current portion of $269,000.
The Company has a revenue sharing agreement and various debt agreements with
another supplier, who is also a stockholder. During 1995, the supplier
converted accounts payable of approximately $489,000 to a note payable
requiring monthly interest payments at the prime rate plus one percent. At
December 31, 1995, the Company owed the supplier $1,089,000, which is included
in long-term debt, including a current portion of $92,500. On March 29, 1996,
the stockholder/supplier agreed to extend the note payable until at least
January 1, 1997. They proposed payment terms which provide for monthly
payments of approximately $14,500, including interest, at 9.5%, beginning April
1, 1996, with a final maturity in March 2000.
Under the terms of the loan agreements with the above two suppliers, the
Company is required to obtain virtually all of its videocassettes from them.
At December 31, 1995, the Company had a $600,000 line of credit with a bank
with an outstanding balance of $600,000. The line of credit matured in the
first quarter of 1996.
On March 26, 1996, the bank loaned $900,000 to two stockholders of the Company.
The stockholders, in turn, loaned $900,000 to the Company under a line of
credit agreement. The Company repaid $600,000 to the bank. Under the terms of
the agreement with the stockholders, interest is payable monthly at the prime
rate. The principal is payable no earlier than 1998. The agreement is
collateralized by virtually all assets of the Company.
During the year ended December 31, 1995, the two stockholders mentioned above
loaned the Company $321,000 on a long-term basis (due no earlier than 1997) for
operating purposes. Effective December 31, 1995, these stockholders converted
notes payable and related accrued interest of $426,000 into Common Stock.
The Company issued promissory notes to the sellers of H&H Video Enterprises,
Inc. (H&H) in connection with the acquisition of H&H. Under the terms of the
notes, principal and interest payments are due quarterly through December 1996
and the sellers may elect to convert the promissory notes into common stock.
If converted, the number of shares to be issued will be negotiated at that
time. One of the sellers has filed a lawsuit demanding immediate payment in
full of approximately $126,000. The Company is attempting to restructure the
payment terms. However, there is no assurance that the payment terms will be
restructured or alternative financing will be available to the Company. The
other seller used the majority of his note to acquire common stock from a
stockholder, who, in turn, offset the debt against indebtedness he owed the
Company.
-21-
<PAGE> 22
During May and September 1995, the Company received $800,000 in loan proceeds
from Business Data which, in effect, became equity in connection with the July
17, 1995 merger. In addition, on July 17, 1995, Roadrunner received cash of $1
million from a common stock sale and converted $750,000 of debt to convertible
preferred stock.
The Company acquired five stores located on the east coast in June 1994 in
contemplation of a potential 1994 business acquisition involving additional
video retail stores on the east coast. This potential business transaction was
not consummated and since their acquisition, these stores have incurred
significant operating losses. As a result, management decided in 1994 that
they did not want to operate these east coast stores and adopted a plan to
dispose of them (including their lease arrangements). Four of these stores
have been closed. The fifth store was sold to an unrelated third party during
1995. The Company is in the process of soliciting tenants for the closed store
locations. The aggregate minimum lease payments for these remaining locations
at December 31, 1995 was approximately $1.4 million.
During 1995, the Company's cash flow from operations was not sufficient to
provide enough capital to purchase videocassette rental inventory and property
and equipment, and to repay maturities of debt. The Company will attempt to
improve liquidity in 1996 by taking the measures indicated above (i.e. east
coast store disposal plan described above) along with additional steps
including cost reduction measures, increasing rental revenues and increasing
sales to a regional grocery store chain. If such measures are not successful,
the Company will need to raise additional capital or obtain other financing to
restore adequate liquidity.
GENERAL ECONOMIC TRENDS AND SEASONALITY
The Company anticipates that its business will be affected by general economic
trends. The Company believes it would generally be able to pass on increased
costs resulting from inflation to its customers. Future operating results may
be affected by other factors, including variations in the number and timing of
new store openings, the quality and number of new release titles available for
rental and sale and the expense associated with the acquisition of new release
titles, acquisition by the Company of existing video stores, additional and
existing competition, marketing programs, weather, special or unusual events
and other factors that may affect retailers in general. Any concentration of
new store openings and the related new store pre-opening costs near the end of
a fiscal quarter could have an adverse effect on the financial results for the
quarter and could, in certain circumstances, lead to fluctuations in quarterly
financial results. The video retail industry generally experiences relative
revenue declines in April and May, due in part to the change to Daylight
Savings Time and to improved weather, and in September and October, due in part
to the start of school and introduction of new television programs. The
Company believes these seasonality trends will continue.
-22-
<PAGE> 23
ITEM 8--FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
ROADRUNNER VIDEO GROUP, INC.
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Financial Statements
Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Statements of Stockholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
-23-
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
Roadrunner Video Group, Inc.
We have audited the accompanying consolidated balance sheets of Roadrunner
Video Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roadrunner Video
Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ STROTHMAN & COMPANY PSC
Louisville, Kentucky
March 29, 1996
-24-
<PAGE> 25
Consolidated Balance Sheets
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
-----------------------------
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 424,206 $ 93,128
Accounts receivable
Related parties 64,580 40,480
Unrelated parties 62,090 2,635
Current portion note receivable 52,153
Merchandise inventory 124,276 135,929
Prepaid handling fees to related party 144,004 146,500
Prepaid rent 27,855 75,749
----------- -----------
TOTAL CURRENT ASSETS 899,164 494,421
NET VIDEOCASSETTE RENTAL INVENTORY 4,357,758 4,455,302
NET PROPERTY AND EQUIPMENT 1,721,346 1,841,549
OTHER ASSETS
Net intangible assets 255,613 87,757
Note receivable, less current portion 185,972
Deposits and other 105,432
----------- -------------
TOTAL ASSETS $ 7,525,285 $ 6,879,029
=========== ===========
</TABLE>
Continued
-25-
<PAGE> 26
Consolidated Balance Sheets--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable
Related parties $ 268,431 $ 544,449
Unrelated parties 824,464 1,053,606
Accrued expenses and other 317,029 439,501
Liability for closed stores 454,000 781,000
Current portion of long-term debt
Related parties 92,500
Unrelated parties 835,592 1,028,300
---------- ----------
TOTAL CURRENT LIABILITIES 2,792,016 3,846,856
LONG-TERM DEBT, less current portion
Related parties 1,596,227 817,035
Unrelated parties 1,090,649 2,385,525
---------- ----------
TOTAL LIABILITIES 5,478,892 7,049,416
COMMITMENTS AND CONTINGENCIES (Notes A, K and M)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, 12% cumulative voting, $10 par value,
redeemable at par value at Company's option,
convertible into common stock at holders' option,
100,000 shares authorized:
Series A, convertible into 20 shares of Common
Stock, 1,000 shares issued and outstanding 10,000
Series B, convertible into 10 shares of Common
Stock, 75,000 shares issued and outstanding 750,000
Common Stock, one cent par value, 25 million shares
authorized, 11.696 million shares issued and outstanding
116,960
Common Stock, no par value, 3,000 shares authorized,
1,405 shares issued and outstanding 2,419,609
Paid-in-capital 4,273,636
Less treasury stock, 200 shares (345,000)
Accumulated deficit (3,104,203) (2,244,996)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 2,046,393 (170,387)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,525,285 $ 6,879,029
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-26-
<PAGE> 27
Consolidated Statements of Operations
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Rental revenues $ 9,553,615 $ 8,306,546 $6,499,124
Product sales 1,781,258 398,915 569,463
Other fees 1,497 23,603 118,520
----------- ----------- -----------
TOTAL REVENUES 11,336,370 8,729,064 7,187,107
OPERATING COSTS AND EXPENSES
Amortization of videocassette
rental inventory 2,027,000 1,857,000 1,409,000
Cost of revenue sharing
with related party 1,108,016 763,849 922,727
Cost of product sales 1,617,315 277,968 399,430
Operating expenses (net of sublease
income from related party of
approximately $39,000, $40,000
and $23,000, respectively) 6,358,723 5,287,544 3,657,373
Selling, general and
administrative expenses
(including related party
commissions of $48,000
in 1995) 1,099,002 1,406,927 1,048,886
Disposal of stores (Note M) (216,577) 1,700,000
---------- ----------- ----------
TOTAL OPERATING COSTS AND EXPENSES 11,993,479 11,293,288 7,437,416
OPERATING LOSS (657,109) (2,564,224) (250,309)
OTHER INCOME (EXPENSE)
Interest expense, net (including
related party expense of
approximately $99,630,
$47,000 and $5,000, respectively) (394,426) (297,085) (105,409)
Gain on sale of assets 233,753
Other, net (3,218) 13,974
----------- ----------- ----------
LOSS BEFORE INCOME TAXES (817,782) (2,864,527) (341,744)
BENEFIT OF INCOME TAXES (336,000) (134,000)
----------- ------------ -----------
NET LOSS $ (817,782) $(2,528,527) $ (207,744)
----------- ----------- -----------
LOSS PER COMMON SHARE $(.09) $(.31) $(.02)
===== ===== =====
</TABLE>
See Notes to Consolidated Financial Statements
-27-
<PAGE> 28
Consolidated Statements of Stockholders' Equity (Deficit)
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
For the Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------------------------- Common Stock
Series A Series B One Cent Par Value
---------------------------- --------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993
1993 net loss
Purchase of Common Stock
BALANCES, DECEMBER 31, 1993
Issuance of Common Stock
1994 net loss
BALANCES, DECEMBER 31, 1994
Issuance of Common Stock
January 1995
July 1995
Merger with Business Data
Group, Inc. on July 17,
1995 1,000 $10,000 11,412,000 $114,120
Conversion of Selvac debt to
Preferred Stock 75,000 $750,000
Issuance of Common Stock
December 1995 283,991 2,840
Dividends on Series B
Preferred Stock -
$.55 per share
1995 net loss
------ ------- ------ -------- ---------- ---------
BALANCES, DECEMBER 31, 1995 1,000 $10,000 75,000 $750,000 11,695,991 $116,960
===== ======= ====== ======== ========== ========
<CAPTION>
Common Stock
No Par Value Treasury Stock Retained Stockholders'
----------------------- -------------------------- Paid-in Earnings Equity
Shares Amount Shares Amount Capital (Deficit) (Deficit)
---------- ---------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993 1,600.0 $1,529,609 200 $(345,000) $ 606,275 $1,790,884
1993 net loss (207,744) (207,744)
Purchase of Common Stock (300.0) (110,000) (115,000) (225,000)
-------- ---------- --- --------- ----------- ----------
BALANCES, DECEMBER 31, 1993 1,300.0 1,419,609 200 (345,000) 283,531 1,358,140
Issuance of Common Stock 105.0 1,000,000 1,000,000
1994 net loss (2,528,527) (2,528,527)
-------- ---------- --- --------- ----------- ----------
BALANCES, DECEMBER 31, 1994 1,405.0 2,419,609 200 (345,000) (2,244,996) (170,387)
Issuance of Common Stock
January 1995 10.6 100,000 100,000
July 1995 105.0 1,000,000 1,000,000
Merger with Business Data
Group, Inc. on July 17,
1995 (1,520.6) (3,519,609) (200) 345,000 $3,850,489 800,000
Conversion of Selvac debt to
Preferred Stock 750,000
Issuance of Common Stock
December 1995 423,147 425,987
Dividends on Series B
Preferred Stock -
$.55 per share (41,425) (41,425)
(817,782) (817,782)
-------- ---------- --- --------- ---------- ----------- ----------
BALANCES, DECEMBER 31, 1995 0.0 $ -0- -0- $ -0- $4,273,636 $(3,104,203) $2,046,393
======== ========== === ========= ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-28-
<PAGE> 29
Consolidated Statements of Cash Flows
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (817,782) $(2,528,527) $ (207,744)
Adjustments
Disposal of stores (216,577) 1,700,000
Depreciation and amortization 2,400,014 2,229,650 1,616,263
Benefit for deferred
income taxes (336,000) (134,000)
Loss (gain) on disposal of assets (233,753) 3,284 28,391
Changes in operating assets and liabilities
Accounts receivable (71,680) 53,400 (40,344)
Merchandise inventory 11,653 (40,140) (33,446)
Prepaid expenses 50,390 (148,826) (60,296)
Other assets (56,278) (24,883) (4,750)
Accounts payable 578,000 708,741 144,574
Accrued expenses and other (235,006) 144,774 62,434
----------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,408,981 1,761,473 1,371,082
INVESTING ACTIVITIES
Purchases of videocassette rental inventory (1,970,532) (1,874,507) (1,149,336)
Purchases of property and equipment (272,733) (248,449) (436,926)
Investment in businesses acquired,
net of $110,000 of cash and
inventories acquired in 1994 (45,000) (578,089)
Proceeds from disposal of assets 76,593 11,715
----------- ------------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,211,672) (2,701,045) (1,574,547)
FINANCING ACTIVITIES
Net proceeds from issuance
of Common Stock 1,000,000 1,000,000
Proceeds from borrowings 1,327,632 753,252 926,282
Principal payments on debt (1,193,863) (836,158) (748,125)
Net repayments from affiliate 14,584 34,511
Purchase of Common Stock (10,000)
------------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,133,769 931,678 202,668
------------- ---------- -----------
NET INCREASE (DECREASE) IN CASH 331,078 (7,894) (797)
CASH BEGINNING OF YEAR 93,128 101,022 101,819
------------- ---------- ----------
CASH END OF YEAR $ 424,206 $ 93,128 $ 101,022
============ ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-29-
<PAGE> 30
Notes to Consolidated Financial Statements
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE A--TRANSACTION WITH BUSINESS DATA GROUP, INC. AND BASIS OF PRESENTATION
During May and June 1995, Business Data Group, Inc. ("Business Data") (a
publicly traded company with no significant operations) loaned Roadrunner Video
Enterprises, Inc. ("Roadrunner") $800,000 at an interest rate of 12%.
Roadrunner used the loan proceeds to pay down debt and for various operating
purposes.
On July 17, 1995, Business Data and Roadrunner entered into a transaction
whereby Business Data acquired all of the outstanding shares of Roadrunner and,
in exchange, Roadrunner stockholders received 9,200,000 newly issued common
shares of Business Data representing approximately 81% of the outstanding
shares of the combined entity.
This transaction was accounted for as a "reverse acquisition" whereby
Roadrunner is deemed to have acquired Business Data for financial reporting
purposes. However, Business Data remains the continuing legal entity and
registrant for Securities and Exchange Commission filing purposes. Consistent
with the reverse acquisition accounting treatment, the accompanying historical
financial statements presented for 1995, 1994, and 1993 are the consolidated
financial statements of Roadrunner. The operations of Business Data have been
included in the accompanying financial statements from the date of acquisition.
Following the transaction, the combined entity changed its name to Roadrunner
Video Group, Inc. (the "Company") and replaced its principal officers and
directors with those of Roadrunner. The $800,000 loan (mentioned above) was
canceled.
The Company also issued 75,000 shares of Series B cumulative Preferred Stock,
which is convertible into 750,000 common shares (subject to certain
anti-dilution adjustments), to Selvac Corporation ("Selvac") in exchange for
the cancellation of Roadrunner's obligation to issue Preferred Stock to Selvac
(Note G).
The consolidated financial statements also include the accounts of Buyer's
Group International, Inc. (BGI), a wholly- owned subsidiary, whose operations
consisted primarily of the rental and sale of videocassettes at a Louisville
area grocery retailer (Note I) and H&H Video Enterprises, Inc., a video store
company acquired in 1994 (Note M). All significant intercompany accounts have
been eliminated.
NOTE B--DESCRIPTION OF BUSINESS
The Company is primarily engaged in the business of renting and selling
prerecorded videocassette movies and video games. As of December 31, 1995, the
Company owned and operated (under the name Roadrunner Video) 38 stores
primarily located throughout metropolitan Louisville, Kentucky and southern
Indiana. In 1994, the Company acquired five stores operating in southern
Indiana, five stores operating in metropolitan Louisville and five stores
operating in New Jersey, Maryland, and Virginia (Note M).
-30-
<PAGE> 31
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Merchandise Inventory--Merchandise inventory consists primarily of
videocassettes and games for resale, t-shirts and related items that are stated
at the lower of cost (determined on a first-in, first-out basis) or market
value.
Videocassette Rental Inventory--Videocassette rental inventory, which also
includes video games, is recorded at cost and amortized over its estimated
economic life. Videocassettes, which are considered base stock, are amortized
over thirty- six months on a straight-line basis with a residual value of $4
per videocassette. New release videocassettes are amortized as follows: the
first ten videocassettes per store are amortized as base stock and any
succeeding copies are amortized over twelve months on an accelerated basis.
The Company does not capitalize any direct or indirect processing costs to
prepare videocassettes for rental.
Videocassette rental inventory and related accumulated amortization at December
31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C> <C>
Videocassette rental inventory $11,908,659 $10,892,699
Less accumulated amortization 7,550,901 6,437,397
----------- -----------
NET VIDEOCASSETTE RENTAL INVENTORY $ 4,357,758 $ 4,455,302
=========== ===========
</TABLE>
Amortization expense related to videocassette rental inventory was
approximately $2,027,000, $1,857,000 and $1,409,000 in 1995, 1994, and 1993,
respectively. As videocassette rental inventory is sold (via product sales) or
retired, the applicable cost and accumulated amortization are eliminated from
the accounts and expensed.
Property and Equipment--Property and equipment are stated at cost.
Depreciation of property and equipment is provided using the straight-line and
accelerated methods for financial reporting purposes at rates based on the
estimated useful lives of the respective assets. Property and equipment and
related depreciation at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
Lives 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Land $ 155,375 $ 165,375
Buildings 31-39 years 122,527 122,527
Equipment and store fixtures 5-7 years 1,818,813 1,753,793
Leasehold improvements 7-10 years 357,616 301,079
Vehicles 3-5 years 270,915 302,302
---------- ----------
2,725,246 2,645,076
Less accumulated depreciation 1,003,900 803,527
---------- ----------
NET PROPERTY AND EQUIPMENT $1,721,346 $1,841,549
========== ==========
</TABLE>
Continued
-31-
<PAGE> 32
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Depreciation expense related to property and equipment was approximately
$335,000, $260,000 and $205,000 in 1995, 1994 and 1993, respectively.
Intangible Assets--Intangible assets, principally the excess of purchase price
over the fair value of identifiable net assets of acquired businesses
(goodwill), are stated at cost less accumulated amortization. These assets are
amortized using the straight-line method over their estimated useful lives, not
exceeding forty years. Amortization expense charged to operations for 1995,
1994 and 1993 amounted to $38,000, $8,000 and $2,000, respectively.
Intangible assets and related accumulated amortization at December 31, 1995 and
1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C> <C>
Goodwill $295,925 $90,079
Less accumulated amortization 40,312 2,322
-------- -------
NET INTANGIBLE ASSETS $255,613 $87,757
======== =======
</TABLE>
Subsequent to its acquisition, the Company continually evaluates whether events
and changes in circumstances have occurred that indicate the remaining
estimated useful life of an intangible asset may warrant revision or that the
remaining balance of an intangible asset may not be fully recoverable. When
factors indicate that an intangible asset should be evaluated for possible
impairment, the Company uses an estimate of the related business' undiscounted
future cash flows over the remaining life of the asset in measuring whether the
intangible asset has been impaired.
Treasury Stock--Treasury stock represents amounts paid by the Company to
purchase the Common Stock of former stockholders.
Revenue Recognition--Revenue from videocassettes and merchandise is recognized
at the time of rental or sale.
Store Opening Costs--Store opening costs, which consist primarily of payroll,
advertising, occupancy and supplies, are expensed as incurred.
Estimates--The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Continued
-32-
<PAGE> 33
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Loss Per Common Share--Loss per common share was based upon the weighted
average common shares outstanding of 9,868,312 in 1995, 8,201,229 in 1994, and
9,602,716 in 1993, as adjusted for the reverse acquisition (see Notes A and G).
Statement of Cash Flows--Cash includes demand deposits with banks and all
highly liquid investments with original maturities of three months or less.
Cash paid for interest was $397,000, $243,000 and $110,000 for 1995, 1994 and
1993, respectively. Cash paid for income taxes was $23,000 in 1993.
Supplemental disclosures of non-cash activities for the years ended December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Videocassette rental inventory
acquired with debt $1,083,000 $ 900,000 $764,000
Business acquisitions financed with debt 210,000 1,522,000
Common Stock acquired with debt 215,000
Loan cancelled in conjunction with
Business Data merger 800,000
Note payable converted to Preferred
Stock 750,000
Related party note payable and related
accrued interest converted to
Common Stock 426,000
Note receivable received related to
sale of store 250,000
Note payable converted to Common Stock 100,000
</TABLE>
Continued
-33-
<PAGE> 34
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Revenue Sharing Agreement--The Company may obtain new release and various other
titles from a supplier who is also a stockholder pursuant to a revenue sharing
agreement. Under this agreement, the supplier provides to the Company
videocassettes released by certain movie studios. The Company pays an up-front
handling fee of approximately $8.00 for each videocassette. This handling fee
is amortized on a straight-line basis over the estimated average revenue
sharing period (approximately twelve months). During the revenue sharing
period, which does not exceed two years, the studio retains ownership of the
videocassettes and the Company shares the rental revenue with the studio rather
than initially purchasing the videocassette for a fixed cost (typically $60 to
$68 per tape). The Company is required to spend a minimum quarterly amount of
rental revenues with the supplier. Management believes revenue sharing
generally allows the Company to order a substantially larger number of copies
to fill most of the temporarily large demand that exists when a title is
released. Revenue sharing reduces the risk that the Company will be unable to
recover the acquisition cost of a videocassette through rental revenue before
the popularity of the title declines significantly. The Company has an option
to purchase the videocassette (based on fair value) at specified intervals and
at the end of the revenue sharing period. The Company expenses revenue sharing
costs as incurred (Note H).
Income Taxes and Accounting Change--Deferred income taxes are recorded based on
temporary differences between the financial statements and tax basis of assets
and liabilities and net operating loss carryforwards available for income tax
purposes. Effective January 1, 1993, the company adopted Statement of
Financial Accounting Standards No. 109, the standard for accounting for income
taxes issued by the Financial Accounting Standards Board. Prior year financial
statements were not restated for this accounting change. The cumulative effect
of this accounting change was recorded effective January 1, 1993 and had no
effect on net loss.
Reclassifications--Certain 1993 and 1994 amounts have been reclassified to
conform with 1995 classifications. Such reclassifications had no effect on the
previously reported net loss.
NOTE D--NOTE RECEIVABLE
In December 1995, the Company sold its Silver Springs, Maryland store to an
unrelated party. The total stated purchase price was $350,000; however,
$100,000 of that amount is contingent upon the new owner achieving a level of
sales which is significantly higher than the historical amounts. As such, this
contingent portion has not been recorded by the Company.
In conjunction with the above sale, the Company received $50,000 at closing,
less rent due of approximately $12,000. The remaining balance is payable
beginning July 1, 1996 in monthly installments of $2,338 through December 31,
1996 and in monthly installments of $4,676 thereafter, including interest at
8%. The assets of the Silver Springs store serve as collateral for the note
receivable.
-34-
<PAGE> 35
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE E--LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Debt agreements with a stockholder/supplier, interest
payable monthly at the prime rate plus 1%,
collateralized by virtually all assets of the Company
and guaranteed by certain stockholders:
Line of credit (weighted average interest rates
were 9.9% and 10.2% for 1995 and 1994,
respectively), due in June 1999 $ 599,551 $ 599,551
Note payable (See Note 1) 489,176
---------- ------------
1,088,727 599,551
Notes payable to a supplier, due in 33 monthly
installments of $30,000, beginning January 1996,
including interest at 12% with a final payment of
all outstanding principal and interest in October
1998, collateralized by virtually all assets of
the Company and guaranteed by the majority
stockholder 859,420 550,000
Line of credit with a bank, with an interest rate
ranging from prime plus 1%-1.5%, (weighted
average interest rates were 10.2% and 8.9% for
1995 and 1994, respectively) collateralized by
virtually all assets of the Company and guaranteed
by certain stockholders (See Note 2) 600,000 600,000
Notes payable to certain stockholders, bearing
interest at rates approximating 6% (Notes G and H) -0- 217,483
Notes payable to two banks, due in aggregate monthly
installments of $5,360, net of unamortized discount
of $43,936 and $54,075 in 1995 and 1994, respectively,
effective interest rate of 8.3%, with interest payable
monthly at approximately 1%, maturing March
1997, guaranteed by the majority stockholder 231,232 283,011
Notes payable to various financial institutions, due in varying
monthly installments, including interest from 7.9% to 13.75%,
varying maturities through 1998 and collateralized by vehicles 178,498 121,373
Continued
</TABLE>
-35-
<PAGE> 36
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE E--LONG-TERM DEBT--Continued
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Note payable to seller of five southern Indiana stores,
net of unamortized discount of $31,352 and $46,657,
due in aggregate monthly installments of $5,069,
including effective interest at 7%, maturing in
November 1999 (Note M) 174,596 252,439
Notes payable to sellers of Midwest Video, due in
quarterly installments of $30,000, including interest
at 9% (Note M) 153,362
Notes payable to sellers of H&H Video Enterprises,
Inc. (H&H), due December 1996, bearing interest
at 7.25%, payable quarterly, collateralized by
H&H stock (Note M) (See Note 3) 126,300 231,600
Mortgage note payable to bank, due in monthly
installments of $3,150, including interest
at 8.5%, maturing June 1997, collateralized
by real property and improvements of the
Cane Run Road, Louisville, Kentucky store 50,697 82,684
Note payable to financial institution, due in monthly
installments of $1,566, including interest at 6%,
maturing May 1998 42,176 57,921
Note payable to former stockholder, due in monthly
installments of $1,990, including interest at 12%,
maturing March 1997 27,617 46,927
Note payable to seller of five Video Knights, Inc. stores,
principal payment of $250,000 plus interest at prime
plus 1%, remaining $750,000 unpaid principal balance
converted to preferred stock in July 1995 (Note M) 1,000,000
Note payable to former stockholder, due in monthly
installments of $9,724, including interest at 8% 111,783
Various other 82,343 76,088
----------- ----------
$3,614,968 $4,230,860
========== ==========
</TABLE>
Continued
-36-
<PAGE> 37
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE E--LONG-TERM DEBT--Continued
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current portion:
Related parties $ 92,500
Unrelated parties 835,592 $1,028,300
---------- ----------
$ 928,092 $1,028,300
---------- ----------
Long-term portion:
Related parties $1,596,227 $ 817,035
Unrelated parties 1,090,649 2,385,525
---------- ----------
2,686,876 3,202,560
---------- ----------
$3,614,968 $4,230,860
========== ==========
</TABLE>
Contained in the above debt agreements are certain restrictive covenants
including, among others, restrictions on acquisitions, prohibition on payment
of dividends without approval of the lender, and restrictions on disposition of
assets. The Company has violated certain covenants; however, relevant waivers
have been granted except as mentioned in Note 3 below.
Approximate principal maturities as of December 31, 1995, as modified for
subsequent refinancing in March 1996 as explained below, are as follows:
<TABLE>
<S> <C>
1996 $ 928,000
1997 1,532,000
1998 1,052,000
1999 95,000
2000 8,000
</TABLE>
Note 1--On March 29, 1996, the stockholder/supplier agreed to extend the note
payable until at least January 1, 1997. They proposed payment terms which
provide for monthly payments of approximately $14,500, including interest at
9.5% beginning April 1, 1996, with a final maturity in March, 2000.
Note 2--On March 26, 1996, the bank loaned $900,000 to two stockholders of the
Company. The stockholders, in turn, loaned $900,000 to the Company under a
line of credit agreement. The Company repaid $600,000 to the bank. Under the
terms of the agreement with the stockholders, interest is payable monthly at
the prime rate. The principal is payable no earlier than 1998. As such, the
$600,000 has been classified as non-current since it was refinanced on a
long-term basis. The agreement is collateralized by virtually all assets of
the Company.
Note 3--The holder of this note has given notice that the Company is in default
due to late payment of certain note payments. He has declared the full amount
due and payable.
-37-
<PAGE> 38
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE F--INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109
effective January 1, 1993. SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using tax rates in effect for the year in which the differences are
expected to reverse. In accordance with this statement, the Company recognized
deferred tax assets reflecting the benefit expected to be realized from the
utilization of net operating loss carryforwards, and deferred tax liabilities
for tax depreciation in excess of book depreciation. The adoption of SFAS 109
had no impact on the financial statements as of January 1, 1993.
Income tax benefit for the years ended December 31, 1995, 1994 and 1993
consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C> <C>
Current $ -0- $ -0- $ -0-
Deferred -0- (336,000) (134,000)
---------- --------- ---------
Total $ -0- $(336,000) $(134,000)
========== ========== ==========
</TABLE>
The benefit for income taxes differs from that computed at the federal
statutory corporate tax rate at December 31, 1995, 1994 and 1993 as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Benefit at statutory 34% rate $ (278,000) $(974,000) $(116,000)
State taxes, net of federal benefit (49,000) (172,000) (18,000)
Addition to valuation allowance 327,000 810,000
--------- --------- -----------
Income tax benefit $ -0- $ (336,000) $(134,000)
========= ========== ==========
</TABLE>
As of December 31, 1995, the Company has net operating loss carryforwards of
approximately $3.6 million for federal income tax purposes, which expire during
the years 2004 through 2010. The Company's net operating loss carryforwards
may be limited in future years due to ownership changes in the Company.
Continued
-38-
<PAGE> 39
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE F--INCOME TAXES--Continued
Significant components of the Company's net deferred tax liability consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Non deductible financial accruals $ 501,000 $ 754,000
Net operating loss carryforwards 1,457,000 831,000
Valuation allowance (1,137,000) (810,000)
----------- ---------
Total deferred tax assets 821,000 775,000
----------- ---------
Deferred tax liabilities:
Excess tax depreciation over book 821,000 775,000
----------- ---------
Total deferred tax liabilities 821,000 775,000
----------- ---------
Net deferred tax liabilities $ -0- $ -0-
============= ===========
</TABLE>
A valuation allowance is provided when it is more likely than not some portion
of the deferred tax asset will not be realized. The Company has provided a
valuation allowance against deferred tax assets recorded as of December 31,
1995 and 1994 of $1,137,000 and $810,000, respectively, due to uncertainties in
realization using the "more likely than not" valuation method.
NOTE G--STOCKHOLDERS' EQUITY
On July 17, 1995, Business Data acquired all of the outstanding shares (1520.6
common shares) of Roadrunner and, in exchange, Roadrunner stockholders received
9,200,000 newly issued common shares of Business Data representing
approximately 81% of the outstanding shares of the Company (Note A). Pursuant
to the merger, each share of Roadrunner Common Stock was converted into
6,050.24 shares of Business Data Common Stock. Concurrent with this
acquisition, the Company issued 75,000 shares of Series B 12% cumulative
Preferred Stock to Selvac, which is convertible into 750,000 common shares
(subject to certain anti-dilution adjustments).
At July 17, 1995, Business Data had 25 million shares of $.01 par value Common
Stock authorized, of which 2,212,000 shares were issued and outstanding. In
addition, Business Data had 100,000 shares of $10 par value Series A,
cumulative convertible Preferred Stock authorized, of which 1,000 shares were
issued and outstanding.
Continued
-39-
<PAGE> 40
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE G--STOCKHOLDERS' EQUITY--Continued
In connection with the reverse acquisition, the 9,200,000 shares of newly
issued Common Stock by Business Data to the Roadrunner shareholders are
considered in effect a recapitalization of the previously outstanding
Roadrunner Common Stock. Accordingly, for purposes of computing loss per
common share, the weighted average shares outstanding have been retroactively
restated to reflect the effect of the recapitalization for all periods
presented.
Other transactions during the periods presented are as follows:
In January 1995, the Company converted a $100,000 note payable to 10.6 shares
(64,132.6 shares as restated) of Common Stock.
In July 1995, the Company issued, sold and delivered 105 shares (635,275.5
shares as restated) of Common Stock to an existing stockholder for the cash
purchase price of $1 million (Note H).
Effective December 31, 1995, two stockholders of the Company converted notes
payable and related accrued interest of $425,987 into 283,991 shares of Common
Stock.
In June 1994, the Company entered into a stock purchase agreement with the
parent corporation of a supplier. As stated in the agreement, the Company
issued, sold and delivered to the purchaser an aggregate of 105 shares
(635,275.5 shares as restated) of Common Stock for the cash purchase price of
$1 million. In addition, the purchaser has certain stock participatory and
registration rights in the Company. The stock purchase agreement contained
several restrictive covenants including, among others, restrictions on the
acquisition of other business and on the issuance of additional stock of any
class besides Common Stock. The Company has violated several covenants;
however, the stock purchase agreement does not provide any specific remedies
for such violations. Management of the Company believes that such violations
will not result in action against the Company by the purchaser.
During 1993, the Company purchased 300 shares (1,815,072.9 shares as restated)
of its Common Stock in the buyout of a stockholder. As the purchase price was
greater than the original basis of the stock, the excess amount was recorded as
a decrease in retained earnings.
NOTE H--RELATED PARTY TRANSACTIONS
As of December 31, 1995 and 1994, the Company had borrowed $392,821 and
$217,483, respectively, from stockholders and officers. For the years ended
December 31, 1995, 1994 and 1993, the Company recorded interest expense of
approximately $40,400, $6,500 and $6,000, respectively, on loans from
stockholders and officers. Such loans and related accrued interest were
converted to Common Stock effective December 31, 1995 (Note G).
Continued
-40-
<PAGE> 41
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE H--RELATED PARTY TRANSACTIONS--Continued
In July 1995, Roadrunner issued, sold and delivered 105 shares (635,272.5
shares as restated - See Note G) of Common Stock to an existing stockholder for
a cash purchase price of $1 million. In August, 1995, the Company loaned
approximately $1 million to this stockholder. The stockholder subsequently
sold the 105 shares to other parties and repaid the loan with 10.5% interest
prior to December 31, 1995. Interest earned on this loan was $17,213 in 1995.
A supplier, who is also a stockholder of the Company, provides videocassettes
to the Company under a revenue sharing agreement (Note C). As a result of
these transactions, approximately $268,000 and $544,000 is included in accounts
payable as of December 31, 1995 and 1994, respectively, and the Company
incurred revenue-sharing expense to this supplier in 1995, 1994 and 1993 of
approximately $1,108,000, $764,000 and $923,000, respectively.
During 1994, the Company entered into a line of credit agreement with the above
supplier (Note E). The Company had borrowings outstanding of $1,088,727 and
$599,550 under this agreement as of December 31, 1995 and 1994, respectively.
The Company incurred interest expense of approximately $59,000, $41,000 and
$3,000 for the years ending December 31, 1995, 1994 and 1993, respectively and
accrued interest was approximately $29,000 and $9,500 as of December 31, 1995
and 1994, respectively.
During 1995, the Company began selling previously viewed videocassettes to a
regional grocery store chain for resale. The Company has purchased previously
viewed videocassettes from the above supplier to sell to the grocery store
chain. In exchange for arranging this relationship, the Company is currently
paying a sales based commission to a company owned by certain stockholders of
the Company. Sales commissions under this arrangement were $48,000 in 1995.
The Company has purchased materials from a company which is partially owned by
a stockholder of the Company. For the years ended December 31, 1995, and 1994,
the Company made purchases totaling $4,000 and $12,000, respectively.
The Company buys and sells merchandise at cost from/to Coyote Enterprises, Inc.
(Coyote), which is partially owned by a stockholder of the Company. As of
December 31, 1995, 1994 and 1993, the Company had advanced merchandise (net of
repayments) to Coyote with a cost of $-0-, $2,399 and $16,983, respectively.
The Company had an agreement with H&H Video Enterprises, Inc. (H&H), an
enterprise owned partially by an employee of the Company, whereby H&H paid a
fee to operate five stores in metropolitan Louisville using the Company's name.
Under this agreement, the Company recorded income of approximately $37,000 for
the year ended December 31, 1993. The agreement terminated in 1994 when the
Company acquired the assets of H&H (Note M).
Continued
-41-
<PAGE> 42
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE H--RELATED PARTY TRANSACTIONS--Continued
The Company occasionally makes purchases for Squeeze Play Cards, Comics and
Collectibles, Inc. (Squeeze Play), a retail concern that sells sports cards and
related materials and is owned by a stockholder of the Company. In addition,
Squeeze Play subleased retail space from the Company for $39,000, $40,000 and
$30,000 for the years ending December 31, 1995, 1994 and 1993, respectively.
As of December 31, 1995 and 1994, Squeeze Play owed $65,000 and $41,000,
respectively, for rent and purchases.
NOTE I--RELATED BUSINESS ACTIVITIES
BGI (Note C) recorded a net loss from operations of approximately $42,000 for
the year ending December 31, 1993. In 1994, BGI was dissolved and transferred
all remaining assets and obligations to the Company.
NOTE J--PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all employees who
meet certain service and other eligibility requirements. The plan is intended
to provide employees with income upon retirement or a benefit in the event of
death or disability. Contributions to the plan are made by the Company at the
discretion of the Board of Directors and are allocated to plan participants on
a proportionate compensation basis. Participants became 100% vested in their
account balances upon completion of five years of service. The Company did not
contribute to the plan for the years ended December 31, 1995, 1994 and 1993.
NOTE K--COMMITMENTS AND CONTINGENCIES
Leasing Arrangements
The Company conducts its operations from facilities that are leased under
various operating lease agreements. There are options to renew leases at
varied terms at increased monthly rentals. The leases generally obligate the
Company for the cost of property taxes, insurance and maintenance. Several of
these leases are personally guaranteed by the majority stockholder of the
Company.
Continued
-42-
<PAGE> 43
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE K--COMMITMENTS AND CONTINGENCIES--Continued
The following is a schedule of approximate future minimum rental payments
required under noncancellable operating leases as of December 31, 1995,
including leases related to closed stores (see Note M):
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ----------
<S> <C>
1996 $1,869,000
1997 1,410,000
1998 1,181,000
1999 823,000
2000 and thereafter 1,053,000
</TABLE>
Rental expense was approximately $1,860,000, $1,709,000 and $1,139,000 in 1995,
1994 and 1993, respectively.
Legal Matters--In May 1995, two former employees filed a suit against the
Company alleging sexual harassment and wrongful discharge. The plaintiffs are
alleging damages in excess of $5 million. Management of the Company believes
these allegations are without merit and the ultimate outcome of this matter
will not have a material adverse effect on the Company's results of operations
or financial condition.
The Company was involved in a dispute with a stockholder/supplier (Notes C, E,
G and H) concerning the accuracy of the system in place at certain of the
Company's stores which tracks revenue sharing. This dispute was settled in
December, 1995 with the Company receiving a credit of $100,000.
The Company is subject to various lawsuits, claims and other legal matters in
the course of conducting its business. Management of the Company believes that
such lawsuits, claims and other legal matters will not have a material adverse
effect on its results of operations or financial condition.
Employment Contract--The Company has an employment contract with a member of
management which expires in April 1997.
NOTE L--LEGAL SETTLEMENT
During 1993, the Company and a principal stockholder entered into a settlement
agreement involving a legal matter with the U.S. Government, whereby the
Company paid a $30,000 fine and contributed $30,000 to a charitable
organization. The settlement was approved by the court in 1994. This
settlement has been reflected in the 1993 financial statements.
-43-
<PAGE> 44
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE M--BUSINESS ACQUISITIONS
During 1995 and 1994, the Company acquired several businesses previously
operated by others. The purchase method of accounting has been used to record
these acquisitions and the results of operations of the acquired businesses
have been included in the results of operations of the Company since the dates
of acquisition. Details of these acquisitions are as follows:
Midwest Video Wholesalers Limited Partnership--In May 1995, the Company
acquired all the assets of Midwest Video Wholesalers Limited Partnership, which
was a videocassette wholesaler located in Columbus, Ohio. The purchase price
was $225,000 consisting principally of intangible assets ($210,000 promissory
notes guaranteed by the majority stockholder and $15,000 paid in cash.)
Roadrunner Video, Inc.--In March 1994, the Company acquired essentially all the
assets of Roadrunner Video, Inc. (owned by eight stockholders, one of which was
a former stockholder of the Company) which owned and operated five video stores
in southern Indiana. The purchase price consisted of a non-interest bearing
note payable by the Company in the amount of $350,000 (discounted using a 7%
interest rate of $281,000) and an additional $60,000 (the "Additional Amount")
if the gross revenues of the five stores equal or exceed $1,500,000 during any
of the next five years beginning April 1, 1994. Under the purchase method of
accounting, the Company did not record the Additional Amount. Management does
not anticipate having to pay the Additional Amount. In the event the Company
is required to pay the Additional Amount, the allocation of the purchase price
will be revised accordingly. At the option of the Company, this note payable
may be converted into shares of any publically-traded stock, including the
Company's, if approved by the noteholder within fifteen days after
notification. The number of shares to be issued will be determined at the time
of conversion.
The estimated fair market value at the date of acquisition of the assets and
liabilities of the acquired stores was as follows:
<TABLE>
<S> <C> <C>
Videocassette rental inventory $127,000
Equipment and leasehold improvements 96,000
Land and building 58,000
---------
Total $281,000
========
</TABLE>
Video Knights, Inc.--In June 1994, the Company acquired all the assets of Video
Knights, Inc., which owned and operated five video stores in the states of
Virginia, Maryland and New Jersey. The purchase price paid by the Company was
$1,410,000 ($60,000 promissory note, $1,000,000 promissory note convertible to
common stock and $350,000 paid in cash).
Continued
-44-
<PAGE> 45
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE M--BUSINESS ACQUISITIONS--Continued
The estimated fair market value at the date of acquisition of the assets and
liabilities of the acquired stores was as follows:
<TABLE>
<S> <C> <C>
Current assets (includes cash and merchandise
inventory) $ 110,000
Videocassette rental inventory 693,000
Equipment and leasehold improvements 547,000
Other assets 60,000
-----------
Total $1,410,000
==========
</TABLE>
In July 1995, the $1,000,000 promissory note (with an unpaid principal balance
of $750,000) was canceled in exchange for an agreement whereby Roadrunner would
issue convertible Preferred Stock to Selvac Corporation, the owner of Video
Knights, Inc. Following the merger described in Note A, this agreement was
canceled in exchange for an agreement whereby the Company issued 75,000 shares
of Series B cumulative Preferred Stock, which is convertible into 750,000
common shares (subject to certain anti-dilution adjustments) of the Company to
Selvac Corporation.
These stores were acquired in contemplation of a potential 1994 business
acquisition transaction involving additional video retail stores in the same
geographic market. This potential business transaction was not consummated, and
since the acquisition of these stores, the Company incurred significant
operating losses attributable to these stores. As a result, management decided
in 1994 that they did not want to operate these stores and adopted a plan to
dispose of them (including their lease arrangements). During 1994, the Company
recorded a $1.7 million charge to operations to reflect the estimated cost of
the disposal of these five stores. Such charge was to reduce the assets to
their estimated net realizable value (approximately $920,000) as well as to
accrue the estimated loss expected under lease arrangements (approximately
$780,000).
During 1995, four of the five stores were closed. Videocassettes and fixtures
from these stores were transferred to the main office and redistributed to
other Company stores as needed. Rental payments after the stores were closed
of approximately $50,000 were charged against the accrued liability. The lease
related to one of the closed stores was settled for approximately $60,000. The
fifth store (Silver Springs, Maryland) was sold to an unrelated party (see Note
D). The portion of the accrued liability related to the Silver Springs store
(approximately $220,000) was reversed since the new owner assumed the full
liability for the lease. The Company is continuing to make payments related to
the leases on the three remaining closed store locations. The remaining
balance of the liability was approximately $450,000 at December 31, 1995.
Management is actively seeking other tenants for the remaining locations. The
aggregate minimum lease payments for these remaining locations are
approximately $1,370,000 at December 31, 1995.
Continued
-45-
<PAGE> 46
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE M--BUSINESS ACQUISITIONS--Continued
H&H Video Enterprises, Inc.--In August 1994, the Company acquired the stock of
H&H Video Enterprises, Inc. (H&H), which operated five video stores in
metropolitan Louisville. The purchase price consisted of notes payable to the
sellers of $231,600, forgiveness of $27,000 receivable from seller and the
assumption of various liabilities totaling $118,400. These notes payable are
convertible into Common Stock by the sellers. The number of shares to be
issued is to be determined at the time of conversion.
The estimated fair market value at the date of acquisition of the assets and
liabilities of the acquired stores was as follows:
<TABLE>
<S> <C> <C>
Videocassette rental inventory $270,000
Equipment and leasehold improvement 60,000
Goodwill 47,000
---------
Total $377,000
========
</TABLE>
On September 30, 1995, the holder of a $93,500 Convertible Promissory Note
issued in connection with the acquisition of H&H exchanged the note for 55,000
shares of Common Stock previously owned by a stockholder that owed the Company
approximately $560,000 at September 30, 1995. The result of the transaction
was a reduction in notes payable and a reduction in the related party note
receivable of $93,500.
Unaudited Proforma Information--Unaudited pro forma information for the years
ended December 31, 1995, and 1994 has been provided below to reflect the impact
on the Company's historical operations as if the above acquisitions and the
Business Data acquisition described in Note A had occurred on January 1, 1994.
The unaudited pro forma information does not purport to be indicative of what
would have occurred had this acquisition been made at the beginning of the
respective periods or of results which may occur in the future.
<TABLE>
<CAPTION>
Unaudited Pro Forma
Year Ended December 31
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
Revenues $11,350,000 $ 9,312,000
Operating Loss (721,000) (2,889,000)
Net Loss (868,000) (2,853,000)
Net Loss Per Common Share $(.09) $(.35)
</TABLE>
Continued
-46-
<PAGE> 47
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE M--BUSINESS ACQUISITIONS--Continued
Potential Future Acquisitions--The Company has signed an agreement and plan of
merger with a video specialty store chain consisting of 12 stores in
Mississippi. The sole stockholder of the Mississippi company is to receive
that number of shares of Common Stock of the Company equal to $2,555,250
divided by (a) $1.50 if the average closing trading price of the Company's
Common Stock over the 20 days preceding the closing date (the "Trading Price")
is less than $1.50, (b) the Trading Price if such amount is between $1.50 and
$2.00, or (c) $2.00 if the Trading Price is greater than $2.00. The closing is
scheduled to occur on or before April 30, 1996.
The Company also has a non-binding letter of intent to acquire a video
specialty store chain consisting of 12 stores in the Akron, Ohio market for
approximately $2.6 million. The majority stockholder of the Company owns a
controlling interest in the Akron chain. A closing date has not been scheduled
for this potential acquisition.
NOTE N--FINANCIAL INSTRUMENTS
Carrying Amount and Fair Value of Financial Instruments--During 1995, the
Company adopted Statement of Financial Accounting Standards No. 107,
"Disclosures About the Fair Value of Financial Instruments". The carrying
amount of cash and cash equivalents approximates fair value due to the
short-term maturities of these instruments. The value of long-term debt is
estimated using discounted cash flows based on the Company's incremental
borrowing rates for similar types of borrowings. A comparison of the carrying
value and approximate fair value of these instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1995
- -------------------------
Carrying Fair
Amount Value
---------- -----------
<S> <C> <C>
Cash and cash equivalents $ 424,206 $ 424,206
Note receivable 238,125 238,000
Long-term debt 3,614,968 3,615,000
</TABLE>
Concentrations of Credit Risk--At December 31, 1995, the Company had cash in
banks in excess of Federal Deposit Insurance Corporation insured limits of
approximately $33,000.
The Company has a note receivable from the purchaser of one of its store (see
Note D). At December 31, 1995, the balance of that note was $238,125.
-47-
<PAGE> 48
Notes to Consolidated Financial Statements--Continued
ROADRUNNER VIDEO GROUP, INC. AND SUBSIDIARIES
December 31, 1995, 1994, and 1993
NOTE O--STOCK OPTION PLAN
The Company has a Non-Qualified Stock Option Plan established April 27, 1987.
Under the terms of the plan, options to purchase shares of the Company's Common
Stock are granted at a price equal to or greater than its market price at the
date of grant. Options expire seven years from the date of grant and may be
exercised at the minimum rate of 1,000 shares. The Company has allocated
500,000 shares to the Plan. All outstanding options expired in 1994 and none
have been granted since.
NOTE P--MAJOR SUPPLIERS
The Company is contractually obligated to obtain virtually all of its
videotapes and games from two suppliers. Both of these suppliers have made
loans to the company (Note E) and one is also a stockholder (Notes C, G and H).
-48-
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Bond, Andiola & Company, Raritan, New Jersey, ("Bond Andiola") resigned as
Registrant's independent accountant effective March 13, 1996. Registrant has
engaged independent accountant Strothman & Company PSC, Louisville, Kentucky,
("Strothman & Company") as the principal accountant to audit Registrant's
consolidated financial statements for the fiscal year ended December 31, 1995.
During the two most recent fiscal years and interim periods to December 31,
1995, there have been no disagreements with Bond Andiola on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure or any reportable events. Bond Andiola's report on the
financial statements for the past two years contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. In a letter attached as an exhibit to
this filing, Bond Andiola has stated its agreement with the statements made
above.
The decision to change independent accountants was ratified by Registrant's
Board of Directors.
-49-
<PAGE> 50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and their ages as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- --- ----------------------------------------
<S> <C> <C>
Terry W. Schneider 48 Chief Executive Officer and Director
Wayne J. Jung 37 President, Secretary and Director
Eldon Arave 68 Director
</TABLE>
Terry W. Schneider has been the Chief Executive Officer of the Company since
its founding in August 1984.
Wayne J. Jung has served as the President and Chief Operating Officer of the
Company since 1993. Previously, Mr. Jung was employed as a National Grocery
Accounts Manager and Branch Manager for Sight and Sound Distributors, Inc., a
distributor of videocassettes from 1987 to 1993.
Eldon Arave has been a director of the Company since July 1995. Mr. Arave has
been President of TAO, Inc. which has operated a wholesale groceries business,
since June 1992. From June 1990 to December 1992, Mr. Arave was the President
of Unified Trades, a plastics business.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid to the executive
officers of the Company that earn more than $100,000 in respect to services
rendered to the Company:
<TABLE>
<CAPTION>
Annual Compensation
------------------------ All Other
Name of Individual Year Salary Bonus Compensation (1)
- ------------------------------------ ------ --------- ------- ------------
<S> <C> <C> <C> <C>
Terry W. Schneider
- Chief Executive Officer
of the Company 1995 $156,000 0 0
1994 146,000 0 0
1993 154,500 0 0
Wayne J. Jung
- President of the Company (2) 1995 $134,999 0 0
1994 109,824 0 0
1993 69,120 0 0
</TABLE>
(1) Does not include the value of a company automobile or country club
membership costs or other benefits available to employees of the
Company generally.
(2) The Company pays Mr. Jung pursuant to an employment agreement. See
"Employment Contract" below.
-50-
<PAGE> 51
DIRECTOR COMPENSATION
To date, directors of the Company have not received separate compensation for
their services as directors. The Company intends to implement a director
compensation plan.
The Company's Bylaws provide that the Company shall indemnify it directors and
officers to the fullest extent permitted by the Delaware Code.
EMPLOYMENT CONTRACT
Effective April 7, 1995, the Company entered into a two-year employment
agreement with Mr. Wayne J. Jung pursuant to which Mr. Jung serves as President
and Chief Operating Officer at an annual base salary of $134,999 during the
first 12 months and $144,999 during the second 12 months. Under the agreement,
Mr. Jung is entitled to receive unspecified stock option incentives upon
completion by the Company of a successful public offering, and is eligible for
bonuses at the discretion of the Board of Directors. The agreement is
automatically renewable by both parties on a month-to-month basis, but it may
be terminated at any time by Mr. Jung or the Company upon 30 days prior written
notice. Upon the expiration or termination of the agreement, except for
voluntary termination of employment by Mr. Jung or termination for just cause
by the Company, Mr. Jung shall be paid severance compensation equal to the 12
months salary at the effective salary rate at the time of termination. The
above employment agreement contains a covenant not to compete within a 30 mile
radius of any business location of the Company in operation while Mr. Jung was
employed by the Company for a period of five years following such termination
of employment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK
The table sets forth certain information regarding the beneficial ownership of
the Company's Common Stock by (i) each person who is known to the Company to be
the beneficial owner of more than 5% of the Common Stock, (ii) each director
and each person who will become a director of the Company upon completion of
this offering, (iii) each executive officer of the Company, and (iv) all
executive officers and directors of the Company as a group. Except as set
forth below, the stockholders listed below have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Percentage
Name Owned of Class
- -------------------------------------- --------------- ------------
<S> <C> <C>
Terry W. Schneider 5,672,500 45.5%
Kenneth E. Stilger 2,663,083 21.4%
Selvac Corporation 774,368 (1) 6.2%
Mortco, Inc. (a Rentrak
Corporation subsidiary) 635,276 5.1%
Eldon C. Arave 250,000 2.0%
Wayne J. Jung -0- 0.0%
All executive officers and directors
as a group 5,922,500 47.5%
</TABLE>
(1) Includes 750,000 shares of Common Stock issuable upon conversion of
75,000 shares of Class B Preferred Stock.
-51-
<PAGE> 52
CLASS A PREFERRED STOCK
The following table sets forth information regarding the sole owner of the
Company's Class A Preferred Stock.
<TABLE>
<CAPTION>
Shares of Stock
Beneficially Percentage
Name Owned of Class
- -------------------------------------- --------------- ------------
<S> <C> <C>
Robert W. Matthies 10,000 100.0%
</TABLE>
CLASS B PREFERRED STOCK
The following table set forth information regarding the sole owner of the
Company's Class B Preferred Stock.
<TABLE>
<CAPTION>
Shares of Stock
Beneficially Percentage
Name Owned of Class
- -------------------------------------- --------------- ------------
<S> <C> <C>
Selvac Corporation 750,000 100.0%
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Kenneth E. Stilger beneficially owns 21.4% of the outstanding interest of the
Company. Mr. Stilger acquired 635,276 shares of Common Stock of the Company in
July 1995 for $1.57 per share or an aggregate consideration of $1,000,000 in
exchange for a promissory note for the same amount.
The Company has purchased materials from Star Drywall of Louisville, Inc.
("Star Drywall") which is partially owned by Kenneth E. Stilger. For the year
ended December 31, 1995, the Company made purchases totaling $4,000.
Mortco, Inc. ("Mortco") beneficially owns 5.1% of the outstanding Common Stock
of the Company. Mortco is a wholly owned subsidiary of Rentrak that leases
videos to the Company. For 1995, the Company incurred revenue sharing expense
to Rentrak of approximately $1,108,000. Pursuant to a revolving credit
agreement, in June 1994, Rentrak provided Roadrunner Enterprises a revolving
line of credit initially having aggregate borrowing availability of $1,000,000,
which was subsequently decreased to $600,000 in June 1994. Borrowing under
this facility bears interest at a rate equal to the prime rate as published by
the Wall Street Journal plus one percent per annum. On January 10, 1995, the
Company issued a promissory note to Rentrak in the amount of $504,449 for past
due receivables. This notes bears interest at a rate equal to the prime rate
as published in the Wall Street Journal, plus one percent per annum. On May 5,
1995, the Company issued/provided Rentrak a promissory note in the amount of
15% per annum. During the six months ended June 30, 1995, the aggregate amounts
owned to Rentrak during such periods ranged from $1,000,000 to $1,300,000.
As of December 31, 1995, the Company had borrowed $392,821 from Kenneth E.
Stilger and Terry W. Schneider. For the year ended December 31, 1995, the
Company recorded interest expense of approximately $40,400 on loans from such
persons. Such loans and related accrued interest were converted to Common
Stock effective December 31, 1995.
-52-
<PAGE> 53
During 1995, TSKS, a company owned by Kenneth E. Stilger and Terry W.
Schneider, received commissions in connection with the sale of
previously-viewed videocassettes by the Company to a grocery store chain for
resale. The Company currently leases one video-store from TSKS.
The Company buys and sells merchandise at cost from/to Coyote Enterprises, Inc.
("Coyote"), which is partially owned by a stockholder of the Company.
The Company occasionally makes purchases for Squeeze Play Cards, Comics, and
Collectibles, Inc. ("Squeeze Play"), a retail concern that sells sports cards
and related materials and is owned by Terry W. Schneider. In addition, Squeeze
Play subleased retail space from the Company for the year ending December 31,
1995. As of December 31, 1995, Squeeze Play owed the Company $65,000 for rent
and purchases made by the Company.
With the exception of transactions between the Company and Mortco and its
affiliates, management believes that the transactions described above may not
have been on terms as favorable to the Company, as those that could have been
obtained from unaffiliated parties.
-53-
<PAGE> 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The consolidated financial statements, together with the report
thereon of Strothman & Company PSC dated March 29, 1996, appear at
Item 8 of this Form 10-K. Financial statement schedules not
included in this Form 10-K have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(i) Financial Statements:
Report on Independent Accountants
Consolidated Financial Statements
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993 Notes to Consolidated Financial
Statements
(iii) Exhibits
Exhibits filed as part of this report are listed on the
following "Exhibits" listing. Certain exhibits have been
previously filed and are incorporated herein by reference.
(b) REPORT ON FORM 8-K
No reports were filed on Form 8-K during the three months ended
December 31, 1995.
-54-
<PAGE> 55
EXHIBITS
<TABLE>
<CAPTION>
S.E.C. Exhibit
- --------------
Reference No. Description
- ------------- ---------------------------------------------------------------------------
<S> <C>
2.1 Stock Exchange Agreement dated July 17, 1995 by and among Business Data Group,
Inc., Roadrunner Video Enterprises, Inc., Terry W. Schneider, Kenneth Stilger,
Mortco, Inc., and Tommy Hower
2.2 Stock Purchase Agreement dated June 30, 1995 between Roadrunner Video
Enterprises, Inc. and Selvac Corporation
2.3 Agreement dated July 17, 1995 by and among Roadrunner Video Enterprises, Busine
Data Group, Inc. and Selvac Corporation
3.1 Certificate of Incorporation of Roadrunner Video Group, Inc. (formerly Business
Data Group, Inc.) and various amendments thereto
3.2 By-Laws of Roadrunner Video Group, Inc. (formerly Business Data Group, Inc.)
4.1 Article Fourth of the Amended Certificate of Incorporation of the Company
included in Exhibit 3.1 is incorporated herein by reference.
4.2 Promissory Note of Roadrunner Video Enterprises, Inc. dated December 13, 1995 t
Wax Works, Inc.
Other debt instruments - Copies of debt instruments for which the related debt
less than 10% of the Company's total assets will be furnished to the Commission
upon request.
10.1 Employment Agreement dated April 7, 1995 between Roadrunner Video Enterprises,
Inc. and Wayne J. Jung
10.2 Promissory Note of Kenneth E. Stilger dated August 18, 1995 of Kenneth E. Stilg
to Roadrunner Video Enterprises, Inc.
10.3 Agreement dated May 7, 1992 between Roadrunner Video Enterprises, Inc. and
Rentrak Corporation
10.4 Rentrak National Account Agreement dated May 7, 1992 by and between Rentrak
Corporation and Roadrunner Video Enterprises, Inc.
10.5 First Addendum to Rentrak National Account Agreement dated June, 1994 by and
between Rentrak Corporation and Roadrunner Video Enterprises, Inc.
10.6 First Amendment to First Addendum to Rentrak National Account Agreement dated
December 27, 1995 by and among Rentrak Corporation and Roadrunner Video
Enterprises, Inc.
</TABLE>
Continued
-55-
<PAGE> 56
<TABLE>
<CAPTION>
S.E.C. Exhibit
- --------------
Reference No. Description
- ------------- ---------------------------------------------------------------------------
<S> <C>
10.7 Agreement dated November 9, 1993 by and between Roadrunner and Wax Works, Inc.
10.8 Agreement dated May 31, 1994 by and between Roadrunner Video Enterprises, Inc.
and Wax Works, Inc.
10.9 Purchase and Sale Agreement dated June 1, 1994 by and among Video Knights, Inc.,
Selvac Corporation and Roadrunner Video Enterprises, Inc.
10.10 Stock Exchange Agreement dated July 17, 1995 by and among Business Data Group,
Inc., Roadrunner Video Enterprises, Inc., Terry W. Schneider, Kenneth Stilger,
Mortco, Inc., and Tommy Hower included in Exhibit 2.1 is incorporated herein be
reference.
16.1 Agreement Letter of Bond Andiola & Company dated March 19, 1996. Exhibit A to
Company's Report on Form 8-K dated March 13, 1996 is incorporated herein by
reference.
21.1 List of the Company's subsidiaries
27 Financial Data Schedule (for SEC use only)
</TABLE>
-56-
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf the
undersigned, thereunto duly authorized.
Roadrunner Video Group, Inc.
(Formerly Business Data Group, Inc.)
/s/ Terry W. Schneider
-------------------------------------
Date: March 29, 1996 By: Terry W. Schneider
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on March 29, 1996 as indicated:
/s/ Terry W. Schneider /s/ Wayne J. Jung
- -------------------------------------- ------------------------------
By: Terry W. Schneider By: Wayne J. Jung
Director, Chairman of the Board, Director, President
and Chief Executive Officer
(Acting Principal Financial and
Accounting Officer)
/s/ Eldon Arave
- -------------------------------------
By: Eldon Arave, Director
-57-
<PAGE> 1
EXHIBIT 2.1
STOCK EXCHANGE AGREEMENT
STOCK EXCHANGE AGREEMENT, made as of this 17th day of July, 1995, by and
among Business Data Group, Inc., a Delaware corporation with offices at 151
East Main Street, Ramsey, New Jersey 07446 ("Buyer"), Roadrunner Video
Enterprises, Inc., a corporation organized under the laws of Kentucky (the
"Company") having principal offices at 819 South Floyd Street, Louisville,
Kentucky 40203; and the corporation and individuals identified as "Sellers" in
Exhibit A hereto (each, individually, a "Seller" and collectively, the
"Sellers").
WHEREAS, the Sellers collectively own 100% of the issued and outstanding
capital stock of the Company;
WHEREAS, the Company is engaged in the video sale and rental business,
operating fifty-three (53) video specialty stores in six states;
WHEREAS, each Seller has agreed to sell and transfer to Buyer, and Buyer
has agreed to acquire from each Seller, in exchange for an aggregate of nine
million two hundred thousand (9,200,000) shares of common stock, par value $.01
per share, of Buyer, all of the shares of capital stock of the Company owned by
each Seller, in each case on the terms and subject to the conditions set forth
below; and
WHEREAS, Buyer and the Sellers, being all of the stockholders of the
Company intend to effect the acquisition referred to in the preceding paragraph
(the "Acquisition") pursuant to Section 368(a)(1)(B) of the Internal Revenue
Code of 1986;
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties and covenants contained herein, the parties hereto
hereby agree as follows:
<PAGE> 2
1. Definitions. The following defined terms used herein shall have the
meanings set forth opposite such terms.
<TABLE>
<CAPTION>
Defined Term Definition
- ------------ ----------
<S> <C>
Affiliate an entity Controlling, Controlled by, or under
common Control with, a party.
Buyer Business Data Group, Inc., a Delaware corporation.
BDG Common Stock the common stock, par value $.01 per share, of
Buyer.
BDG Shares the nine million two hundred thousand (9,200,000)
shares of BDG Common Stock which are to be issued
to the Sellers in exchange for the transfer to
Buyer of the Shares.
Benefit Plan any employee benefit plan within the meaning of
Section 3(3) of ERISA.
Business the business of the Company relating to the
operation of fifty three (53) specialty video
stores in six (6) states.
Closing the closing of the transactions provided for in
Section 3.1 hereof.
Closing Date the Closing Date referred to in Section 3.1 hereof.
Commission the Securities and Exchange Commission.
Control (and with the possession, directly or indirectly, of power
correlative meaning, either to (i) vote 10% or more of the Voting
Controls, Controlled or Securities of the Company or Buyer, as the case may
Controlling) be, or (ii) direct or cause the direction of the
management and policies of the Company or Buyer, as
the case may be, whether by contract or otherwise;
and, as to a natural Person, such Person's spouse,
parents, siblings and lineal descendants.
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Environmental Actions any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation,
judicial or administrative proceeding, judgment,
letter or other written communication from any
governmental agency, department, bureau, office or
other authority, or any third party involving
violations of Environmental Laws or Releases of
Hazardous Materials (i) from any assets, properties
or businesses of the Company or Buyer, as the case
may be, or any predecessor in interest; (ii) from
or onto any adjoining properties or businesses; or
(iii) from or onto any facilities which received
Hazardous Materials generated by the Company or
Buyer, as the case may be, or any predecessor in
interest.
Environmental Laws the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section
9601, et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801, et
seq.), the Resource Conservation and Recovery Act
(42 U.S.C. Section 6901, et seq.), the Federal
Water Pollution Control Act (33 U.S.C. Section
1251 et seq.), the Clean Air Act (42 U.S.C. Section
7401 et seq.), the Toxic Substances Control Act
(15 U.S.C. Section 2601 et seq.) and the
Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), as such laws may be amended
or supplemented from time to time, and any other
present or future federal, state, local or foreign
statute, ordinance, rule, regulation, order,
judgment, decree, permit, license or other binding
determination of any Governmental Authority
imposing liability or establishing standards of
conduct for protection of the environment.
ERISA the Employee Retirement Income Security Act of
1974, as amended from time to time, and, unless the
context otherwise requires, the rules and
regulations promulgated thereunder from time to
time.
Exchange Act the Securities Exchange Act of 1934, as amended.
Financial Statements the financial statements referred to in Section 5.5.
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
Hazardous Materials include (i) any element, compound, or chemical that
is defined, listed or otherwise classified as a
contaminant, pollutant, toxic pollutant, toxic or
hazardous substance, extremely hazardous substance
or chemical, hazardous waste, special waste, or
solid waste under Environmental Laws; (ii)
petroleum and its refined products; (iii)
polychlorinated biphenyls; (iv) any substance
exhibiting a hazardous waste characteristic
including but not limited to corrosivity,
ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (v) any raw
materials, building components, including but not
limited to asbestos-containing materials and
manufactured products containing Hazardous
Materials.
Indemnitee a party seeking indemnification hereunder.
Indemnitor a party obligated to indemnify another hereunder.
Internal Revenue Code the Internal Revenue Code of 1986, as amended.
Lien any mortgage, deed of trust, pledge lien, security
interest, charge or other encumbrance or security
arrangement of any nature whatsoever, including but
not limited to any conditional sale or title
retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the
effect of, security.
Multiemployer Pension Plan a plan as defined in Section 3(37) of ERISA.
Pension Plan an employee pension benefit plan within the meaning
of Section 3(2) of ERISA.
Person an individual, partnership, association,
corporation, limited liability company, joint stock
or other company, entity, trust or unincorporated
organization, or a government or agency or
political subdivision thereof.
Release any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping,
leaching, seeping, migrating, dumping, or disposing
of any Hazardous Material (including the
abandonment or discarding of barrels, containers,
and other closed receptacles containing any
Hazardous Material) into the indoor or outdoor
environment, including ambient air, soil, surface
or ground water.
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
Securities Act the Securities Act of 1933, as amended.
Security shall have the same meaning as in Section 2(1) of
the Securities Act.
Sellers collectively, the individuals and the corporation
listed on Exhibit A hereto.
Shares collectively, all of the issued and outstanding
shares of capital stock of the Company to be
transferred by the Sellers to Buyer pursuant to
Section 2.1 hereof.
Voting Securities (i) Securities of any class or classes of a
corporation the holders of which are ordinarily, in
the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons
performing similar functions), (ii) other ownership
interests having ordinary voting power with respect
to a Person, or (iii) Securities or other interests
convertible into, or exercisable or exchangeable
for, Securities or other ownership interests of the
type described in clause (i) or (ii) above.
</TABLE>
2. Transfer of Shares in Exchange for BDG Common Stock.
2.1 Transfer of Shares. At the Closing, each Seller shall
transfer to Buyer, and Buyer shall acquire from each Seller, the number of
Shares set forth opposite such Seller's name on Exhibit A annexed hereto.
2.2 Exchange for BDG Common Stock.
(a) As consideration for the Shares to be
transferred to Buyer pursuant to this Agreement, Buyer shall transfer to each
Seller, the number of shares of BDG Common Stock set forth opposite
such Seller's name on Schedule 2.2 annexed hereto, which when aggregated
together constitute nine million, two hundred thousand (9,200,000) shares of
BDG Common Stock (collectively referred to herein as the "BDG Shares").
5
<PAGE> 6
(b) The BDG Shares shall not be registered under
the Securities Act and shall be subject to the provisions of Rule 144 of the
Securities Act. The BDG Shares shall bear the following legend:
No sale, offer to sell or transfer of the
securities represented by this certificate shall
be made unless a Registration Statement under
the Federal Securities Act of 1933, as amended,
with respect to such securities is then in
effect or an exemption from the registration
requirement of such Act is then applicable to
such securities.
3. Closing.
3.1 Closing Date. The Closing shall take place at the offices
of Hirn Doheny Reed & Harper at 2000 Meidinger Tower, Louisville, Kentucky 40202
(or at such other place as the parties may agree upon in writing), on July 17,
1995 at 1:00 p.m. or on such other date (the "Closing Date") to be agreed upon
between Sellers and Buyer which date shall not be later than the later of (i)
the date of the execution of this Agreement by all of the parties hereto, and
(ii) the date of the satisfaction, or waiver, of the conditions specified in
Sections 8.1 and 8.2 hereof. At the Closing, the parties shall deliver the
documents identified in Section 9 hereof.
4. Representations and Warranties by the Sellers. Each of the
Sellers, severally, but not jointly, represents and warrants to Buyer as
follows:
4.1 The Seller's Organization and Authority. Such Seller,
if a corporation, is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated or organized and
has the full corporate power and authority to enter into and to perform this
Agreement. Such Seller, if a natural person, has the individual power and
capacity to enter into and to perform this Agreement.
6
<PAGE> 7
4.2 Authorization of Agreement. The execution, delivery
and performance of this Agreement by such Seller, if a corporation, has been
duly authorized by all necessary corporate action of such Seller, and this
Agreement constitutes the valid and binding obligation of such Seller,
enforceable against it in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Consents of Third Parties. The execution, delivery and
performance of this Agreement by such Seller, will not (i) if such Seller is a
corporation, conflict with the certificate of incorporation, by-laws or other
charter documents of such Seller; (ii) conflict with, or result in the breach or
termination of, or constitute a default under, any contract, commitment,
agreement, lease, license or other instrument, or any order, judgment or decree,
to which such Seller is a party or by which such Seller is bound; or (iii)
constitute a violation by such Seller of any law, rule or regulation applicable
to such Seller, the enforcement of which would have a material adverse effect on
such Seller's ability to consummate the transactions contemplated hereby. No
consent, approval or authorization of, or designation, declaration or filing
with, any governmental authority or other party is required on the part of such
Seller in connection with the execution, delivery and performance of this
Agreement by such Seller.
4.4 Title to Shares. Such Seller has, and at the Closing
will have, valid title to the Shares to be transferred to Buyer by such Seller,
free and clear of any Lien. There are no existing agreements, subscriptions,
options, warrants, calls, commitments or other rights of
7
<PAGE> 8
any kind whatsoever to purchase or otherwise acquire from such Seller at any
time any Shares or other securities of the Company.
4.5 Such Seller has no actual knowledge that there is any
reason why the Acquisition would not be treated as tax-free exchange of stock
under section 368(a)(1)(B) of the Internal Revenue Code; and
4.6 Investment. The acquisition of the BDG Shares by such
Seller is being made for investment by such Seller and not with a view toward
resale or distribution thereof.
5. Representations and Warranties of the Company. The Company
represents and warrants to Buyer as follows:
5.1 The Company's Organization and Authority. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the full corporate
power and authority to enter into and to perform this Agreement and to carry on
the Business. The Company is duly qualified as a foreign corporation in the
states listed in Schedule 5.1 annexed hereto and is in good standing in all
jurisdictions where such qualification is necessary, except where the failure
to be so qualified would not have, and will not in the future have, a material
adverse effect on the Business.
5.2 Authorization of Agreement. The execution, delivery
and performance of this Agreement by the Company has been duly authorized by
all necessary corporate action of the Company, and this Agreement constitutes
the valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights in
general and
8
<PAGE> 9
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3 Consents of Third Parties. Subject to receipt of the
consents and approvals referred to in Schedule 5.3 annexed hereto, the
execution, delivery and performance of this Agreement by the Company will not
(i) conflict with the articles of incorporation, or by-laws or other charter
documents of the Company; (ii) conflict with, or result in the breach or
termination of, or constitute a default under, any contract, commitment,
agreement, lease, license or other instrument, or any order, judgment or decree,
to which the Company is a party or by which the Company is bound, except for any
conflicts, breaches, terminations or defaults which would not have a material
adverse effect on the Business or on the Company's ability to consummate the
transactions contemplated hereby; (iii) constitute a violation by the Company of
any law, rule or regulation applicable to the Company, the enforcement of which
would have a material adverse effect on the Business, or on the Company's
ability to consummate the transactions contemplated hereby; or (iv) result in
the creation of any Lien upon any of the properties or assets owned by the
Company other than Liens that do not have a materially adverse effect on the
Business. Except as set forth on Schedule 5.3 annexed hereto, no consent,
approval or authorization of, or designation, declaration or filing with, any
governmental authority or other party is required on the part of the Company in
connection with the execution, delivery and performance of this Agreement by the
Company.
5.4 Title to Assets. Except as set forth on Schedule 5.4
annexed hereto, the Company has valid title to all its assets, free and clear
of any Lien, except for liens, if any, for
9
<PAGE> 10
current taxes not yet due and payable and Liens that do not have a materially
adverse effect on the Business.
5.5 Financial Statements. The Company has delivered to
Buyer (receipt of which are hereby acknowledged by Buyer) the Financial
Statements listed on Schedule 5.5 annexed hereto. The Financial Statements
have been prepared from books and records maintained by the Company and were
prepared in accordance with generally accepted accounting principles as applied
in the United States and applied on a basis consistent with that of prior
periods, are certified by Arthur Andersen & Co. LLP, independent certified
public accountant and fairly present the financial condition and the results of
operations of the Company as of the dates thereof and for the periods presented.
5.6 Absence of Certain Changes in Financial Condition.
Except as set forth on Schedule 5.6 annexed hereto and except for any events
or conditions which would not have a material adverse effect on the Business,
since December 31, 1994 the Company has not:
(a) experienced any change in its financial
condition, operating assets, liabilities, revenues, expenses or business
prospects which would have a material adverse effect on the Business or change
in any accounting method, policy or practice;
(b) incurred any obligation or liability
(contingent or otherwise), except normal trade or business obligations
incurred in the ordinary course of business;
(c) become subject to an encumbrance or modified
or extended any existing encumbrance on the Business or its material assets,
other than in the ordinary course of business;
10
<PAGE> 11
(d) sold, committed to or agreed to sell, lease,
hypothecate or otherwise dispose of the Business or the material assets
thereof, other than in the ordinary course of business;
(e) waived or released any rights of substantial
value including cancellation of any substantial debt owed to, or accounts
receivable of, the Company, other than in the ordinary course of business;
(f) entered into any agreements with any Affiliate,
including any officer, director, shareholder, partner, employee, agent or
consultant of such Affiliate, nor granted or agreed to grant any increase or in
the compensation, rate or commission of any officer or director or caused any
change in any existing, or the adoption of any new bonus, profit sharing,
pension, stock option, retirement or similar plan, agreement or arrangement, or
any accrual, arrangement for, or payment of, any bonus, severance or termination
pay to any officer, director or Affiliate other than any increases, changes,
accruals, arrangements or payments as are scheduled as of the date hereof or as
are contemplated by existing agreements, plans or arrangements;
(g) permitted or suffered any amendment,
cancellation or termination of any contract, agreement, lease, license or
commitment to which the Company is a party, the cancellation of which would
have a material adverse effect on the Business;
(h) permitted or suffered any amendment,
cancellation or termination of any regulatory license to which the Company is
a party;
(i) suffered any casualty loss or damage involving
the properties or assets of the Business, whether or not the same shall have
been covered by insurance;
11
<PAGE> 12
(j) failed to pay when due any lease obligation or
obligation for borrowed money, or default in respect of any other material
contractual obligation to which the Company is subject;
(k) borrowed or entered into any arrangement
relating to the borrowing of funds from any person or guarantee the payment or
performance with respect to any such arrangement, other than in the ordinary
course of business;
(l) loaned or advanced any funds to its officers,
directors, stockholders or Affiliates;
(m) incurred or committed to make any capital
expenditure, except in the ordinary course of business;
(n) amended or restated any of the Financial
Statements;
(o) transferred any amounts in payment of the
intercompany accounts of the Company or its Affiliates, if any, other than
such transfers as have customarily been made in the ordinary course of
business; and
(p) permitted or suffered any other event or
condition which would have a material adverse effect on the Business.
5.7 Contracts, etc. Schedule 5.7 annexed hereto contains a list of: (a)
all contracts, commitments and agreements for the purchase of any materials or
supplies that involve an expenditure by the Company of more than $50,000; (b)
all leases and other rental agreements (excluding leases of video stores
operated by the Company) under which the Company is either lessor or lessee
that involve annual payments or receipts of $10,000 or more; (c) all other
contracts, commitments, agreements and leases to which the Company is a party
12
<PAGE> 13
or by which it is bound (excluding leases of video stores operated by the
Company) that require payment by the Company of more than $50,000 and cannot be
terminated by the Company on ninety days' or fewer notice without liability; (d)
all license agreements with third parties to which the Company is a party; (e)
all agreements to which the Company is a party which contain restrictive
covenants with respect to the Company which materially restrict the operations
of the Company; (f) all agreements with sales representatives; and (g) all
orders, judgments or decrees to which the Company is a party or by which any of
its properties or assets are subject.
5.8 Absence of Defaults. Except as set forth on Schedule 5.8(a)
annexed hereto, the Company is not in default under any contract, commitment,
agreement, lease, license, order, judgment or decree to which the Company is a
party or by which it is bound, which default would give the other party a right
of termination or cancellation, except for contracts, commitments, agreements,
leases, licenses, orders, judgments and decrees, the cancellation or
termination of which would not have a material adverse effect on the Business.
Except as set forth on Schedule 5.8(b) annexed hereto, to the best of the
Sellers' knowledge, no other party is in default under any contract,
commitment, agreement, lease, license, order, judgment or decree to which the
Company is a party to by which it is bound, except for defaults which would not
have a material adverse effect on the Business.
5.9 Employee Matters.
(a) Except as set forth in Schedules 5.7 or 5.9 annexed hereto,
the Company is not a party to, does not contribute to, and is not otherwise
obligated under (i) any collective bargaining or other labor agreement, or (ii)
any Benefit Plan, any Pension Plan or any Multiemployer Pension Plan.
13
<PAGE> 14
(b) Schedule 5.9 identifies all employment agreements to which
the Company is a party.
(c) Except as set forth on Schedule 5.9(c) annexed hereto, (i)
the Company is in compliance in all material respects with all applicable laws
relating to the employment practices, terms and conditions of employment and
wages and hours; (ii) there are no controversies (other than routine grievances)
pending or, to the best of the Sellers' knowledge, threatened between the
Company and any of its employees or labor unions or other collective bargaining
units representing its employees; (iii) to the best of the Sellers' knowledge,
no unfair labor practice complaints have been filed against the Company with the
National Labor Relations Board or other appropriate authority, and the Company
has not received any notice or communication reflecting an intention or a threat
to file any such complaint; (iv) there is no labor strike, dispute, slow-down or
stoppage pending against the Company; and (v) no representation petition
respecting the Business is pending with the National Labor Relations Board or
other appropriate authority.
5.10 Litigation; Compliance with Laws. Except as set forth on Schedule
5.10 annexed hereto, there is no litigation, proceeding or governmental
investigation pending or, to the best of the Sellers' knowledge, threatened, or
any order, injunction or decree outstanding, against or relating to the Company
that, if adversely determined, would have a material adverse effect upon the
Business. The Company is not in violation of any applicable law, rule or
regulation, ordinance, or any other requirement of any governmental body or
court, which violation would have a material adverse effect upon the Business,
and no notice has been received by the Company alleging any such violation.
14
<PAGE> 15
5.11 Trademarks. The Company does not own or possess the right to use
any registered trademarks, service marks or trade names and no such trademarks,
service marks or trade names are necessary to the conduct of the Business as
now conducted by the Company. To the best of the Sellers' knowledge, the
Company is not, in connection with the Business, infringing in any material
respect upon any trademark, service mark or trade name of any third party and
no proceedings have been instituted or are pending or threatened, and no claim
has been received by the Company, alleging any such violation.
5.12 Tax Matters.
(a) All tax returns required to be filed by the Company on or
before the Closing Date have been or shall be filed and all taxes indicated as
due when payable on such returns have been or shall be paid or accrued within
the prescribed period or any extension thereof.
(b) The Company has filed or will file all required tax returns
and reports, including, without limitation, income tax, estimated tax, excise
tax, sales tax, gross receipts tax, franchise tax, employment and payroll-
related tax, property tax and import tax returns and reports, whether or not
measured in whole or in part by net income, due (including extensions) prior to
the Closing Date. The Company has paid, and with respect to the current tax
year will pay or will reserve for, all taxes shown to be due on account of its
activities on such returns and reports or due or to become due pursuant to any
written assessment, deficiency notice, 30-day letter or similar written notice
actually received by it prior to the date hereof, including interest and
penalties with respect thereto. There are no tax liens upon any property of the
Company except for liens for current taxes not yet due. All amounts required to
be
15
<PAGE> 16
withheld by the Company from employees for income taxes, social security and
other payroll taxes have been collected and withheld, and either paid to
the respective governmental agencies, set aside in accounts for such purpose, or
accrued, reserved against and entered upon the books and records of the
Company.
(c) The Company is not a party to any pending action by
any governmental authority for assessment or collection of taxes, or party to
any dispute or threatened dispute in which action or dispute an adverse
determination would have a material adverse effect on the Business and no such
claim for assessment or collection of taxes has been made upon the Company.
5.13 Capitalization. The total capitalization of the Company is as set
forth on Schedule 5.13 annexed hereto. The Shares constitute all of the issued
and outstanding capital stock of the Company. The Company has no subsidiaries
other than H and H Video Enterprises, Inc. The Shares have been duly and
validly authorized and issued, and are fully paid and nonassessable, with no
liability attaching to the ownership thereof. Except as set forth on Schedule
5.3 annexed hereto, there are no existing agreements, subscriptions, options,
warrants, calls, commitments or other rights of any kind whatsoever to purchase
or otherwise acquire from the Company at any time any shares of capital stock
or other securities of the Company, nor are there any outstanding securities of
the Company which are convertible into, or exchangeable for, any shares of the
capital stock of the Company. The Company has heretofore delivered to Buyer
(receipt of which is hereby acknowledged by Buyer) true and complete copies of
its articles of incorporation (and all amendments thereto) and by-laws, in each
case in effect at the date hereof.
16
<PAGE> 17
5.14 Real Property.
(a) Set forth on Schedule 5.14(a) annexed hereto, is a true and
complete description of all real property owned by the Company.
(b) Set forth on Schedule 5.14(b) annexed hereto, is a true and
complete list of all leases of real property to which the Company is a party
as the lessee other than leases related to video stores operated by the Company.
5.15 Insurance. The Company maintains insurance coverage on its
properties and assets, and with respect to its employees and operations,
covering risks which are customarily insured against by businesses similar to
the Business. Except as set forth on Schedule 5.15, no notice of, cancellation
or nonrenewal with respect to, or disallowance of any claim under, any such
policy, binder or performance bond has been received by the Company which would
have a material adverse effect on the Company.
5.16 Permits, Licenses, Franchises, etc. The Company possesses all
franchises, ordinances, licenses, authorizations and permits required to permit
it to operate the Business, other than those, the failure of which to not
possess does not have a material adverse effect on the Business.
5.17 Brokers. Neither the Sellers nor the Company has employed or
utilized the services of any broker or finder in connection with this Agreement
or the transactions contemplated hereby. The Company shall indemnify and hold
harmless Buyer from any claims to the contrary.
5.18 Holding Company and Investment Company Acts. The Company is not
(i) a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of
17
<PAGE> 18
a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, or (ii) an "investment company" or an
"affiliated person" or "promoter" of, or "principal underwriter" of or for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
5.19 Full Disclosure. Neither this Agreement nor Schedule nor Exhibit
thereto contains any material misstatement of fact or omits to state a material
fact or any fact necessary to make the statements contained herein or therein
not misleading in any material respect. There is no fact reasonably likely to
result in a material adverse effect to the Business which has not been set
forth in this Agreement or a Schedule hereto.
5.20 Environmental Matters. (i) The operations of the Company are in
compliance with Environmental Laws, except where non-compliance would not,
reasonably be likely to result in a material adverse effect upon the Business
or the Company; (ii) there have been no Releases at any of the properties
owned, leased or operated by the Company, or to the knowledge of the Company,
at any disposal or treatment facility which received Hazardous Materials
generated by the Company, except where such Releases would not reasonably be
likely to result in a material adverse effect upon the Business or the Company;
(iii) no Environmental Actions have been asserted against the Company nor does
the Company have knowledge or notice of any threatened or pending Environmental
Actions against the Company which would reasonably be likely to result in a
material adverse effect upon the Business or the Company; and (iv) to the
knowledge of the Company, no Environmental Actions have been asserted against
any facilities that may have received Hazardous Materials generated by the
Company which
18
<PAGE> 19
would reasonably be likely to result in a material adverse effect upon the
Business or the Company.
As used in Sections 4 and 5 hereof, the term "to the best of the Sellers'
knowledge" shall mean the actual acknowledge of Terry W. Schneider.
6. Representations and Warranties by Buyer. Buyer represents and warrants
to each of the Sellers as follows:
6.1 Organization and Authority. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware. Buyer has
the full corporate power and authority to enter into and to perform this
Agreement. Buyer is duly qualified as a foreign corporation and is in good
standing in all jurisdictions where such qualification is necessary, except
where the failure to be so qualified would not have a material adverse effect
on the business of Buyer. Buyer is not presently an operating company and has
conducted no operating business since July 1992.
6.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement by Buyer have been duly authorized by all necessary corporate
action of Buyer, and this Agreement constitutes the valid and binding
obligation of Buyer, enforceable against it in accordance with its terms,
except as may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
6.3 Consents of Third Parties. The execution, delivery and performance
of this Agreement by Buyer, and the ownership and operation of the Business by
Buyer, will not
19
<PAGE> 20
(i) conflict with the certificate of incorporation (or other charter documents)
or by-laws of Buyer; (ii) conflict with, or result in the breach or
termination of, or constitute a default under, any contract, commitment, lease,
license or other instrument, or any order, judgment or decree, to which Buyer is
a party or by which Buyer is bound, or on Buyer's ability to own and operate the
Business; or (iii) constitute a violation by Buyer of any law, rule or
regulation applicable to Buyer, the enforcement of which would have a material
adverse effect upon Buyer or Buyer's ability to consummate the transactions
contemplated hereby or thereby, or upon the Company's ability to own and
operate the Business after the Closing. No consent, approval or authorization
of or designation, declaration or filing with, any governmental authority or
other party is required on the part of Buyer in connection with the execution,
delivery and performance of this Agreement other than the filing with the
Secretary of the State of Delaware referred to in Section 7.4 hereof.
6.4 BDG Shares. The BOG Shares to be issued to the Sellers pursuant to
this Agreement have been duly and validly authorized, and when issued to the
Sellers in accordance with the terms hereof, shall be fully paid and
nonassessable, with no liability attaching to the ownership thereof, free from
any Liens. The certificates representing the BDG Shares shall contain the
legend specified in Section 2.2(b).
6.5 Title to Assets. Buyer has valid title to all its assets, free and
clear of any Lien except for liens, if any, for current taxes not yet due and
payable and Liens that do not have a material adverse effect on Buyer.
6.6 Absence of Certain Changes. Except as disclosed in filings made by
Buyer pursuant to the Exchange Act and since July 31, 1992, Buyer has not:
20
<PAGE> 21
(a) experienced any change in its financial condition, liabilities,
revenues, expenses or business prospects or change in any accounting method,
policy or practice;
(b) incurred any obligation or liability (contingent or otherwise);
(c) become subject to an encumbrance;
(d) waived or released any rights of substantial value including
cancellation of any substantial debt owed to, or accounts receivable of, Buyer;
(e) entered into any agreements with any Person, nor granted or agreed
to grant any form of compensation to any Person;
(f) permitted or suffered any amendment, cancellation or termination of
any contract, agreement or commitment to which Buyer is a party;
(g) suffered any material casualty loss or damage involving Buyer or any
of its assets, whether or not the same shall have been covered by insurance;
(h) borrowed or entered into any arrangement relating to the borrowing
of funds from any Person or guarantee the payment or performance with respect to
any such arrangement;
(i) loaned or advanced any funds to any Person;
(j) incurred or committed to make any capital expenditure;
(k) amended or restated any of the financial statements of Buyer; and
(l) permitted or suffered any other event or condition which would have
a material adverse effect on Buyer.
21
<PAGE> 22
6.7 Contracts; Absence of Defaults. There are no contracts, commitments,
agreements and leases to which Buyer is a party or by which it is bound.
6.8 Employee Matters. Buyer does not have any employees.
6.9 Litigation; Compliance with Laws. There is no litigation, proceeding
or governmental investigation pending or, to the best knowledge of Buyer,
threatened, or any order, injunction or decree outstanding, against or relating
to the business of Buyer. Buyer is not in violation of any applicable law,
rule or regulation, ordinance, or any other requirement of any governmental
body or court, which violation would have a material adverse effect upon Buyer
and no notice has been received by Buyer alleging any such violation.
6.10 Trademarks. Buyer does not own or possess any trademarks, service
marks or trade names. To the best knowledge of Buyer, Buyer is not infringing
in any material respect upon any trademark, service mark or trade name of any
third party and no proceedings have been instituted or are pending or
threatened, and no claim has been received by Buyer, alleging any such
violation.
6.11 Tax Matters.
(a) All tax returns required to be filed by Buyer on or before
the Closing Date, in respect of Buyer have been or shall be filed and all taxes
indicated as due when payable on such returns have been or shall be paid or
accrued within the prescribed period or any extension thereof.
(b) Buyer has filed or will file all required Federal, state,
county,local, foreign and other tax returns and reports, including, without
limitation, income tax, estimated tax, excise tax, sales tax, gross receipts
tax, franchise tax, employment and payroll-related tax,
22
<PAGE> 23
property tax and import tax returns and reports, whether or not measured in
whole or in part by net income, due (including extensions) prior to the Closing
Date. Buyer has paid, and with respect to the current tax year will pay or will
reserve for, all taxes shown to be due on account of its activities on such
returns and reports or due or to become due pursuant to any written assessment,
deficiency notice, 30-day letter or similar written notice actually received by
Buyer prior to the date hereof, including interest and penalties with respect
thereto. There are no tax liens upon any property of Buyer, except for liens
for current taxes not yet due. All amounts required to be withheld by Buyer
from employees for income taxes, social security and other payroll taxes have
been collected and withheld, and either paid to the respective governmental
agencies, set aside in accounts for such purpose, or accrued, reserved against
and entered upon the books and records of the employer.
(c) Buyer, is not a party to any pending action by any governmental
authority for assessment or collection of taxes, or party to any dispute or
threatened dispute in which action or dispute an adverse determination would
have a material adverse effect on the Buyer, and no such claim for assessment
or collection of taxes has been made upon Buyer.
6.12 Franchises, etc. Buyer does not possess any local, municipal,
county, state or federal franchises, ordinances, licenses, authorizations or
permits and none of such are required to permit it to operate its business as
presently operated, other than those, the failure of which to not possess does
not have a material adverse effect on Buyer.
6.13 Capitalization. The total capitalization of Buyer is set forth in
Buyer's March 31, 1995 Report on Form 10-Q (the "1995 Form 10-Q"). Buyer does
not have any subsidiaries. The issued and outstanding shares of the capital
stock of Buyer have been duly and
23
<PAGE> 24
validly authorized and issued, and are fully paid and nonassessable. Except as
set forth in the 1995 Form 10-Q annexed hereto, there are no existing
agreements, subscriptions, options, warrants, calls, commitments or other rights
of any kind whatsoever to purchase or otherwise acquire from Buyer at any time
any shares of capital stock or other securities of Buyer nor are there any
outstanding securities of Buyer which are convertible into, or exchangeable for,
shares or other securities of Buyer. Buyer has heretofore delivered to the
Sellers true and complete copies of all charter documents and by-laws of Buyer
in effect at the date hereof (receipt of which is hereby acknowledged by
Sellers).
6.14 Insurance. Buyer does not maintain insurance coverage on its
assets, nor with respect to its employees or operations.
6.15 Securities Laws Filings. Buyer completed a public offering of
shares of BDG Common Stock in 1983, pursuant to the provisions of the
Securities Act. The issued and outstanding shares of BDG Common Stock (the "BDG
Stock") are not registered under Section 12 of the Exchange Act and,
accordingly, Buyer is not subject to the periodic reporting requirements of
Section 13 of the Exchange Act by virtue of being the issuer of a security
registered under Section 12 of that Act nor to the proxy solicitation
requirements set forth in Section 14 of the Exchange Act. The duty of Buyer to
file periodic reports with the Commission required by Section 13 of the Exchange
Act, pursuant to Section 15(d) of the Exchange Act has been suspended because at
the beginning of Buyer's current fiscal year, the BDG Stock were held of record
by fewer than three hundred persons. Buyer has, on a voluntary basis, generally
filed periodic reports with the Commission.
24
<PAGE> 25
6.16 Brokers. Buyer has not employed or utilized the services of any
broker or finder in connection with this Agreement or the transactions
contemplated hereby. Buyer shall indemnify and hold each of the Sellers
harmless from any claims to the contrary.
6.17 Investment. The acquisition of the Shares by Buyer is being made
for investment by Buyer and not with a view toward resale or distribution
thereof.
6.18 SEC Documents. Buyer has delivered to the Sellers its Annual Report
on Form 10-K for the year ended December 31, 1994 and its Quarterly Report on
Form 10-Q for the period ended March 31, 1995 (including exhibits and any
amendments thereto) filed with the Securities and Exchange Commission (the
"SEC") (collectively, the "Reports"). As of their respective dates, the Reports
(i) were prepared in all material respects in accordance with the applicable
requirements of the Exchange Act, and the rules and regulations thereunder and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the balance sheets of Buyer included in or incorporated by
reference into the Reports (including the related notes and schedules) fairly
presents the financial position of Buyer as of its date and each of the
statements of income, retained earnings and cash flows of Buyer included in or
incorporated by reference into the Reports (including any related notes and
schedules) fairly presents the results of operations, retained earnings or cash
flows, as the case may be, of Buyer for the periods set forth therein (subject,
in the case of unaudited statements, to normal year-end audit adjustments which
would not be material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as may
25
<PAGE> 26
be noted therein. Except as and to the extent set forth on the balance sheet of
Buyer at March 30, 1995, including all notes thereto, or as set forth in the
Reports, Buyer does not have any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise).
6.19 Holding Company and Investment Company Acts. Buyer is not (i) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended, or (ii) an "investment
company" or an "affiliated person" or "promoter" of, or "principal underwriter"
of or for, an "investment company", as such terms are defined in the Investment
Company Act of 1940, as amended.
6.20 Full Disclosure. Neither this Agreement nor Schedule nor Exhibit
thereto contains any material misstatement of fact or omits to state a material
fact or any fact necessary to make the statements contained herein or therein
not misleading in any material respect. There is no fact reasonably likely to
result in a material adverse effect to Buyer which has not been set forth in
this Agreement or a Schedule hereto.
6.21 Environmental Matters. (i) The operations of Buyer are and were in
compliance with Environmental Laws; (ii) there have been no Releases at any of
the properties owned, leased or operated by Buyer, or to the knowledge of
Buyer, at any disposal or treatment facility which received Hazardous Materials
generated by Buyer; (iii) no Environmental Actions have been asserted against
Buyer nor does Buyer have knowledge or notice of any threatened or pending
Environmental Actions against Buyer; and (iv) to the knowledge of Buyer, no
Environmental Actions have been asserted against any facilities that may have
received Hazardous Materials generated by Buyer.
26
<PAGE> 27
6.22 Absence of Undisclosed Liabilities. Except as set forth in the 1995
Form 10-Q, Buyer has no liabilities or obligations, either direct or indirect,
matured or unmatured or absolute, contingent or otherwise. For purposes of
this Agreement, the term "liabilities" shall include, without limitation, any
direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation or responsibility, fixed or unfixed,
known or unknown, asserted or unasserted, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
As used in Section 6 hereof, the term "to the best knowledge of Buyer"
shall mean the actual knowledge of James Leonard.
7. Further Covenants and Agreements of the Parties.
7.1 Expenses. Buyer and the Sellers shall bear their own respective
expenses incurred in connection with this Agreement and in connection with all
obligations required to be performed by each of them under this Agreement.
7.2 Transfer Taxes. The Company shall pay any state or local sales or
like taxes (including all stock transfer taxes required to be paid arising out
of the transactions contemplated pursuant to this Agreement payable in
connection with the transactions contemplated pursuant to this Agreement.
7.3 Section 368(a)(1)(B) Election. The parties agree that each of them
will take all requisite action and execute and deliver any document to any
person in order to cause the Acquisition to be treated as a tax-free exchange
of stock under Section 368(a)(1)(B) of the Internal Revenue Code.
27
<PAGE> 28
7.4 Change of Name of Buyer. Buyer shall have taken all necessary
corporate action to cause the name of Buyer to be changed from "Business Data
Group, Inc." to "Roadrunner Video Enterprises, Inc." as of the Closing Date and
shall simultaneously with the Closing, or as soon thereafter as possible, make
the requisite filings with the Secretary of the State of Delaware.
7.5 Further Assurances. At any time and from time to time after the
Closing Date, each party hereto shall, without further consideration, execute
and deliver to the others such other instruments of transfer and assumption,
and shall take such other action as any of the others may reasonably request to
carry out the transactions contemplated by this Agreement.
8. Conditions to Closing.
8.1 Conditions Precedent to the Obligations of Buyer. The obligations of
Buyer to consummate the transactions contemplated by this Agreement is subject
to the fulfillment, prior to or at the Closing, of each of the following
conditions (any or all of which may be waived by Buyer):
(a) All representations and warranties of the Sellers to Buyer set forth
in Section 4 hereof, and of the Company set forth in Section 5 hereof shall be
true and correct at and as of the date hereof and the Closing Date, with such
exceptions as do not in the aggregate have a material adverse effect on the
Business, or the ability of the Sellers to consummate the transactions
contemplated hereby;
(b) The Sellers shall have performed, and complied in all material
respects with, all obligations and covenants required by this Agreement to be
performed or complied with by them prior to or at the Closing;
28
<PAGE> 29
(c) There shall not be in effect any injunction or restraining order
issued by a court of competent jurisdiction against the consummation of the
sale and transfer of the Shares pursuant to this Agreement;
(d) Buyer shall have received satisfactory evidence and/or assurances
that the Company has received consents and approvals to the consummation of the
transactions contemplated hereby from such of the entities, identified on
Schedule 5.3 annexed hereto, as are stated therein to be required to grant
consent to Buyer as a condition of Closing; and
(e) Buyer shall have received all the documents referred to in Sections
9.1 and 9.3.
8.2 Conditions Precedent to the Obligations of the Sellers. The
obligation of the Sellers to consummate the transactions contemplated by this
Agreement is subject to the fulfillment, prior to or at the Closing, of each of
the following conditions (any or all of which may be waived by Terry W.
Schneider as the Sellers' representative):
(a) All representations and warranties of Buyer to the Sellers shall be
true and correct at and as of date hereof and the Closing Date, with such
exceptions as do not in the aggregate have a material adverse effect on Buyer,
or Buyer's ability to perform its obligations under this Agreement;
(b) Buyer shall have performed, and complied in all material respects
with, all obligations and covenants required by this Agreement to be performed
or complied with by it prior to or at the Closing;
(c) Sellers shall have been furnished with both the resignations of the
officers and directors of Buyer (as are requested by the Company prior to the
Closing) and
29
<PAGE> 30
evidence of the appointment of the new officers and directors of Buyer as
are requested by the Company (and which are those set forth on Schedule 8.2(d)
annexed hereto), which appointments shall be effective as of the Closing Date;
(d) There shall not be in effect any injunction or restraining order
issued by a court of competent jurisdiction against the consummation of the
transactions contemplated by this Agreement; and
(e) The Sellers shall have received all the documents referred to in
Section 9.2.
9. Documents to be Delivered at the Closing.
9.1 Documents to be Delivered by the Company to Buyer. At the Closing,
the Company shall deliver to Buyer the following:
(a) a copy of resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement
by the Company, and a certificate of the secretary or assistant secretary of the
Company, dated the Closing Date, stating that such resolutions were duly
adopted and are in full force and effect at such date and setting forth the
incumbency of each person executing this Agreement or any document required by
this Section 9.1 on behalf of the Company; and
(b) copies of all consents, approvals and waivers required as a condition
precedent to the Closing as set forth on Schedule 5.3 hereof.
9.2 Documents to be Delivered by Buyer to the Sellers. At the Closing,
Buyer shall deliver to the Sellers the following:
30
<PAGE> 31
(a) a copy of resolutions adopted by the Board of Directors of Buyer
authorizing the execution, delivery and performance of this Agreement by Buyer,
and a certificate of the secretary or assistant secretary of Buyer, dated the
Closing Date, stating that such resolutions were duly adopted and are in full
force and effect at such date, and setting forth the incumbency of each person
executing this Agreement, or any document required by this Section 9.2 on
behalf of Buyer; and
(b) share certificates representing the BDG Shares each of which shall
bear the legend set forth in Section 2.2(b) hereof.
9.3 Documents to be Delivered by the Sellers to Buyer. At the Closing,
the Sellers shall deliver to Buyer the following:
(a) certificates evidencing the Shares to be sold and transferred to
Buyer, including stock powers duly executed transferring the Shares to Buyer or
its nominee;
(b) a copy of resolutions adopted by the Board of Directors of any
Seller, which is a corporation, authorizing the execution, delivery and
performance of this Agreement by such Seller, and a certificate of the secretary
or assistant secretary of the Company, dated the Closing Date, stating that
such resolutions were duly adopted and are in full force and effect at such date
and setting forth the incumbency of each person executing this Agreement or any
document required by this Section 9.1 on behalf of such Seller; and
(c) Certificates dated not more than five business days prior to the
Closing Date, from the appropriate authorities of the jurisdiction in which any
Seller, which is a corporation, is incorporated and each jurisdiction where the
conduct of such Seller's business activities or the ownership of its properties
necessitates qualification, as to its existence and good
31
<PAGE> 32
standing and/or due qualification and as to full payment of any and all
franchise and similar taxes due.
10. Survival of Representations and Related Matters.
10.1 Survival. The representations and warranties of the Sellers, on the
one hand, and Buyer, on the other, contained in this Agreement shall survive
the Closing. Except as specifically set forth in this Agreement and the
agreements and documents specifically referred to herein, there are no
representations or warranties, express or implied, made by any party in
connection with the transactions contemplated by this Agreement.
10.2 Time and Manner of Claims. The Sellers, on the one hand, and Buyer,
on the other, shall be liable for damages arising from their respective
misrepresentations or breaches of their respective warranties only to the
extent that notice of a claim therefor is asserted by the other in writing and
delivered prior to the expiration of 12 months from the Closing Date. Any
notice of a claim by reason of any of the representations and warranties
contained in this Agreement shall state specifically the representation or
warranty with respect to which the claim is made, the facts giving rise to an
alleged basis for the claim, and the amount of liability asserted against the
other party by reason of the claim.
11. Indemnification and Related Matters.
11.1 Indemnifications by the Sellers. Each Seller, severally but not
jointly, shall indemnify Buyer and hold it harmless against and in respect of
any and all damages, losses, liabilities, costs and expenses resulting from any
misrepresentation or breach of any warranty by such Seller set forth in Section
4 hereof or the nonfulfillment of any covenant or agreement on the part of such
Seller under this Agreement.
32
<PAGE> 33
11.2 Indemnification by Buyer. Buyer shall indemnify the Sellers and
hold each of them harmless against and in respect of any and all damages,
losses, liabilities, costs and expenses resulting from any misrepresentation
or breach of any warranty set forth in Section 6 hereof or the nonfulfillment
of any covenant or agreement on the part of Buyer under this Agreement.
11.3 Limitation on Indemnity. In calculating the damages to any
Indemnitee for any misrepresentation or breach, the Indemnitor shall receive
credit for any tax benefit received, or to be received, and any increase in
assets of the Indemnitee as a result of the facts giving rise to the claim for
damages, it being the intention and understanding of the parties that the
Indemnitee should not be in a better position, after taking into account the
tax effects both of the breach and the provision for payment of damages
hereunder, than it would have been in the absence of such a breach; and
provided further that no amount shall be included as damages except for the
Indemnitee's actual out-of-pocket costs and expenses, and that the Indemnitee
shall not be entitled to punitive or consequential damages. Notwithstanding
the foregoing, the indemnification provided in this Section 11 shall apply only
to the extent that the aggregate amount of damages and losses to Buyer or the
Sellers, as the case may be, from all such claims exceeds $10,000 and, in such
event, the Sellers or Buyer, as the case may be, shall be required to pay only
the amount which is in excess of the $10,000, and less than $50,000.
11.4 Period of Indemnity. The aforesaid indemnities of the
Sellers and Buyer are subject to the provisions of Section 10.2 hereof.
33
<PAGE> 34
11.5 Notice to the Indemnitor. Promptly after the assertion of any claim
by a third party or occurrence of any event which may give rise to a claim for
indemnification under this Section 11, an Indemnitee shall notify the
Indemnitor in writing of such claim.
11.6 Rights of Parties to Settle or Defend. If the Indemnitor determines
not to contest such claim, the Indemnitee shall have the right, at its own
expense, to contest and defend against such claim. If the Indemnitor
determines to contest such claim, the Indemnitee shall have the right to be
represented, at its own expense, by its own counsel and accountants, its
participation to be subject to the reasonable direction of the Indemnitor. In
either case, the Indemnitee shall make available to the Indemnitor and its
attorneys and accountants, at all reasonable times during normal business
hours, all books, records, and other documents in its possession relating to
such claim. The party contesting any such claim shall be furnished all
reasonable assistance in connection therewith by the other party. If the
Indemnitor fails to undertake the defense of or settle or pay any such third
party claim within 10 days after the Indemnitee has given written notice to the
Indemnitor of such claim, then the Indemnitee may take any and all necessary
action to dispose of such claim, including, without limitation, the settlement
or full payment thereof upon such terms as it shall deem appropriate, in its
sole discretion, subject to the following with respect to any proposed
settlement thereof.
11.7 Settlement Proposals. In the event the Indemnitee desires to settle
any such third-party claim (whether or not contested by the Indemnitor), the
Indemnitee shall advise the Indemnitor in writing of the amount it proposes to
pay in settlement thereof (the "Proposed Settlement"). If such Proposed
Settlement is unsatisfactory to the Indemnitor, it shall have the right, at its
expense, to contest such claim by giving written notice of such election to the
34
<PAGE> 35
Indemnitee within 10 days after the Indemnitor's receipt of the advice of the
Proposed Settlement. If the Indemnitor does not deliver such written notice
within 10 days after receipt of such advice, the Indemnitee may offer the
Proposed Settlement to the third party making such claim. If the Proposed
Settlement is not accepted by the party making such claim, any new Proposed
Settlement figure which the Indemnitee may wish to present to the party making
such claim shall first be presented to the Indemnitor who shall have the right,
subject to the conditions hereinabove set forth in this Section, to contest
such claim.
11.8 Reimbursement. At the time the amount of any liability on the part
of the Indemnitor under this Section 11 is determined (which in the case of
payments to third persons shall be the earlier of (i) the date of such payments
or (ii) the date that a court of competent jurisdiction shall enter a final
judgment, order or decree (after exhaustion of appeal rights) establishing such
liability), the Indemnitor shall forthwith, upon notice from the Indemnitee,
pay to the Indemnitee, the amount of the indemnity claim.
12. Miscellaneous.
12.1 Entire Agreement. This Agreement, together with the agreements
referred to herein, the Registration Rights Agreement, dated July 17, 1995
between Buyer and Mortco, Inc. ("Mortco"), the Assumption Agreement, dated July
17, 1995, among Buyer, the Company, Mortco, and Rentrak Corporation
("Rentrak"), and the Agreement dated July 17, 1995 among Buyer, Mortco, and
Rentrak, contain, and are intended as, a complete statement of all of the terms
of the arrangements between the parties with respect to the matters provided
for, supersede any previous agreements and understandings between the parties
with respect to those
35
<PAGE> 36
matters, and cannot be changed or terminated except by a writing executed by
the parties hereto and thereto.
12.2 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with the laws of the Commonwealth of Kentucky
applicable to agreements made and to be fully performed in Kentucky.
12.3 Headings. The section headings of this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
12.4 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telexed, sent by facsimile transmission or sent
by prepaid documented air courier or certified, registered or express mail,
postage prepaid. Any such notice shall be deemed to have been given (a) when
received, if delivered in person, telegraphed, telexed, sent by facsimile
transmission and, in the case of facsimile, confirmed in writing within three
business days thereafter, or sent by prepaid air courier or (b) there business
days following the mailing thereof, it mailed by registered or certified first
class mail, postage prepaid, return receipt requested, in any such case as
follows (or to such other address or addresses as a party may have advised the
other in the manner provided in this Section 12.4):
If to any of the Sellers, to them in care of:
Roadrunner Video Enterprises, Inc.
819 South Floyd Street
Louisville, Kentucky, 40203
Attention: Mr. Terry W. Schneider
36
<PAGE> 37
with a copy to:
Hirn, Doheny, Reed & Harper
2000 Meidinger Tower
Louisville, Kentucky 40202
Attention: William G. Strench, Esq.
If to Buyer, to it at:
Business Data Group, Inc.
151 East Main Street
Ramsey, NJ 07446
Attention: Mr. James J. Leonard
with a copy to:
Squadron, Ellenoff, Plesent,
Sheinfeld & Sorkin, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Stuart Stein, Esq./Arthur D. Stout, Esq.
12.5 Separability. If any provision of this Agreement is held to be
invalid or unenforceable, the balance of this Agreement shall remain in effect.
12.6 Waiver. Any party may waive compliance by another with any of the
provisions of this Agreement. No waiver of any provision hereof shall be
construed as a waiver of any other provision. Any waiver must be in writing.
12.7 Publicity. Prior to the Closing Date, neither Buyer on the one
hand, nor the Company nor the Sellers on the other hand, shall issue any press
release or public announcement of any kind concerning the transactions
contemplated by this Agreement without the prior written consent of the other
unless such disclosure is required to be made by law or by the rules of any
stock exchange or quotation system on which BDG Common Stock may be listed or
quoted. The Sellers and Buyer shall cooperate to prepare a joint press release
(or,
37
<PAGE> 38
subject to prior review and approval by the Sellers and Buyer, individual
press releases) to be issued at the Closing.
12.8 Assignment and Binding Effect. None of the parties hereto may
assign any of its rights or delegate any of its duties under this Agreement
without the prior written consent of the others, and any assignment in
violation of this Section 12.8 shall be null and void. All of the terms and
provisions of this Agreement shall be binding on, and shall inure to the
benefit of, the respective successors and permitted assigns of the parties.
12.9 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective successors and permitted assigns and they
shall not be construed as conferring and are not intended to confer any rights
on any other persons.
12.10 Schedules and Exhibits. All Schedules and Exhibits referred to
herein are intended to be and hereby are specifically made a part of this
Agreement. Any matter disclosed on any Schedule annexed hereto shall be deemed
to have been disclosed on all other Schedules annexed hereto. All references
herein to Sections, subsections, clauses, Exhibits and Schedules shall be
deemed references to such parts of this Agreement, unless the context
shall otherwise require. To the extent that the Schedules annexed hereto
contain information not specifically required to be set forth in such
Schedules, the parties hereto acknowledge that the representations and
warranties made herein shall not be deemed to pertain thereto and that such
additional information is solely provided as a convenience to the parties, with
no liability with respect thereto on the part of the party making the
representation and providing the information.
38
<PAGE> 39
12.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and each party thereto
may become a party hereto by executing a counterpart hereof. This Agreement
and any counterpart so executed shall be deemed to be one and the same
instrument. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Stock Exchange
Agreement as of the date first above written.
BUSINESS DATA GROUP, INC.
By: /s/ James J. Leonard
------------------------------------
Name: James J. Leonard
Title: Authorized Signator
ROADRUNNER VIDEO ENTERPRISES, INC.
By: /s/ Terry W. Schneider
--------------------------------------
Name: Terry W. Schneider
Title: President
/s/ Terry W. Schneider
------------------------------------------
TERRY W. SCHNEIDER
/s/ Kenneth Stilger
------------------------------------------
KENNETH STILGER
/s/ Tommy Hower
------------------------------------------
TOMMY HOWER
39
<PAGE> 40
MORTCO, INC.
By: /s/ Ron Berger
-------------------------------
Name: Ron Berger
Title: President
40
<PAGE> 41
EXHIBIT A
<TABLE>
<CAPTION>
Sellers Number of Shares in the
- ------- Company to be Exchanged
-----------------------
<S> <C>
Terry W. Schneider 900.0
Kenneth Stilger 505.0
Mortco, Inc.
(A Rentrak Subsidiary) 105.0
Tommy Hower 10.6
</TABLE>
41
<PAGE> 42
Schedule 2.2
<TABLE>
<CAPTION>
Sellers BDG Shares
- ------- ----------
<S> <C>
Terry W. Schneider 5,445,219
Kenneth Stilger 3,055,373
Mortco, Inc.
(A Rentrak Subsidiary) 635,276
Tommy Hower 64,132
</TABLE>
42
<PAGE> 43
SCHEDULE 5.1
The Company is duly qualified as a foreign corporation in Indiana, Maryland,
New Jersey, Ohio and Virginia.
43
<PAGE> 44
SCHEDULE 5.3
Consents are required, and have been received from, Waxworks, PNC and Rentrak.
44
<PAGE> 45
SCHEDULE 5.4
The Company is indebted to PNC ($600,000), Waxworks (approximately $900,000),
Rentrak (approximately $599,551, $330,000 and $27,000), Video Knights
(approximately $750,000) and Studebaker Worthington ($13,500). These creditors
have liens on virtually all of the Company's assets.
45
<PAGE> 46
SCHEDULE 5.5
The Company has delivered a preliminary draft of the December 31, 1994
Financial Statements.
46
<PAGE> 47
SCHEDULE 5.6
a) The Company has operated at a loss during the first six months of 1995,
estimated to be approximately $500,000. These losses have decreased the
Company's equity and cash flow. An unaudited first quarter of 1995 has
been provided to Buyer. Projections of 1995 operations have also been
provided to Buyer.
b) Reference is made to Footnote 8.b to the December 31, 1994 Financial
Statements.
c) Reference is made to the debt modifications of Waxworks, Rentrak and
Video Knights. These modifications are discussed in the footnotes to the
financial statements.
d) The Company has discussed selling parts of the Video Knights operations
although no formal agreement has been signed.
e) None.
f) In April 1995, the Company hired D. Ross Davison as Chief Financial
Officer. Mr. Davison resigned from the Company as of July 3, 1995 but
will continue to serve as a consultant for six weeks.
In April 1995, the Company entered into an agreement to sell used
videotapes in a large grocery chain. The Company has an informal
agreement with the grocery chain to pay a commission during the initial
phases of the new relationship.
g) Based on the operating deficiencies through 1995, the Company has
strained relationships with many of its vendors and lessors. Buyer is
aware of the current relationships with the Company's vendors and lessors.
The Company has accepted D. Ross Davison's resignation of employment as
Chief Financial Officer effective July 3, 1995.
h) None.
i) None.
j) All of the Company's leases have been paid late at certain times. As of
June 29, 1995, the Company is current on all rent due. Two video stores
have outstanding CAM and real estate taxes due.
k) Reference is made to Footnote 11.d to the December 31, 1994 Financial
Statements.
l) None.
47
<PAGE> 48
SCHEDULE 5.6 (CONTINUED)
m) None.
n) None.
o) None.
p) Reference is made to the discussion in note j above.
48
<PAGE> 49
SCHEDULE 5.8
All of the Company's leases have been paid late at certain times. However, as
of July 15, 1995, all leases are current on rent due.
49
<PAGE> 50
SCHEDULE 5.9
a) None.
b) The Company has an employment agreement with Wayne J. Jung and D. Ross
Davison. Mr. Davison has resigned effective as of July 3, 1995.
c) None.
50
<PAGE> 51
SCHEDULE 5.10
Reference is made to Footnote 8.b to the December 31, 1994 Financial
Statements. The Company is also party to a Sensormatic lawsuit, which has been
reserved for on the financial statements, and a lawsuit with Homer E. Quick.
51
<PAGE> 52
SCHEDULE 5.11
None.
52
<PAGE> 53
SCHEDULE 5.12
a) None.
b) The Company may not have filed certain past year's tangible property tax
returns. The Company has reserved an amount as of 12/31/94 on the
financial statements.
53
<PAGE> 54
SCHEDULE 5.13
Reference is made to Exhibit A concerning the capitalization of the Company.
54
<PAGE> 55
SCHEDULE 5.14
a) Property located on 4316 Cane Run Road.
b) Property located at 819 South Floyd Street, Louisville, Kentucky.
55
<PAGE> 56
SCHEDULE 5.15
None.
56
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
Re: Roadrunner Video Enterprises, Inc.
75,000 Shares Convertible Preferred Stock
Par Value ($10.00) Per Share
1995 Series 12% Cumulative Convertible Preferred Stock
THE STOCK PURCHASE AGREEMENT is made as of the 30th day of June 1995. THE
PARTIES HEREBY AGREE AS FOLLOWS:
1. DIVIDEND RIGHTS. Each share of 1995 Series Preferred is entitled to
receive an annual dividend of 12% of the par value thereof, payable
semi-annually, on the last day of December and June in each year commencing
December 31, 1995. The dividends payable on the 1995 Series Preferred shall be
cumulative from the date of issuance. So long as there are any accrued and
unpaid dividends on shares of Preferred Stock, the Company shall not pay any
dividends or make any Stock Payments (as defined) on the Common Stock or any
class stock junior to the Preferred.
2. CONVERSION PRIVILEGE. Each share of the 1995 Series Preferred Stock is
convertible on or before June 30, 2000 at the option of the holder into
ten (10) shares of Common Stock, subject to certain anti-dilution adjustments.
3. PRE-EMPTIVE RIGHTS. Holders of the 1995 Series Preferred Stock have no
pre-emptive or other preferential rights to subscribe to any class of the
Company's capital stock, any rights, warrants or options to subscribe to any
class of the Company's capital stock or any security convertible into a class of
capital stock.
4. LIQUIDATION PREFERENCES. Upon any dissolution, liquidation or winding up
of the Company, holders of the 1995 Series Preferred Stock and all other series
of Preferred Stock will be entitled to receive an amount equal to the par value
of the shares, plus all accrued and unpaid dividends before any amounts are
allocated to holders of Common Stock or of any class of stock junior to the
Preferred Stock.
5. VOTING RIGHTS. Each share of 1995 Series Preferred Stock is entitled to
one vote on all corporate matters, including the election of directors. The
holders of said shares vote as a single class with the holders of all other
shares of Preferred Stock and with the holders of Common Stock. Holders of the
1995 Preferred Stock vote as a separate class on any matter which affects such
class adversely and a two-thirds vote of the 1995 Preferred Stock is required
for the approval of any such matter.
6. REGISTRATION RIGHTS.
6.1 DEFINITIONS. For purposes of this Section 6.
<PAGE> 2
(a) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration
or ordering of effectiveness of such registration statement or document:
(b) The term "Registered Securities" means any Registrable
Securities which have been included in an effective Registration Statement
pursuant to the terms hereof,
(c) The term "Registrable Securities" means the Common Stock
issued or issuable upon conversion of outstanding shares of the 1995 Series
Preferred Stock to be issued;
(d) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are Registrable
Securities;
(e) The term "Holder" means any person owning or having the
right to acquire Registrable Securities of the 1995 Series Preferred Stock or
any assignee thereof.
6.2 COMPANY REGISTRATION.
If at any time, the Company proposes to register any of its
stock or other securities under the Act in connection with the public offering
of such securities, the Company will propose to register the underlying
Registrable Securities of the 75,000 shares of the 1995 Series Prefer-red Stock
of the Holder. The Company shall, at such time, promptly give this Holder
written notice of such registration.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
ATTEST:
/s/ Terry W. Schneider /s/ James J. Leonard
- ---------------------------------- ------------------------
ROADRUNNER VIDEO ENTERPRISES, INC. SELVAC CORPORATION
Terry W. Schneider, President James Leonard, President
<PAGE> 1
EXHIBIT 2.3
AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of the 17th day of
July, 1995 by and among BUSINESS DATA GROUP, INC., a Delaware corporation
("Business Data"), ROADRUNNER VIDEO ENTERPRISES, INC., a Kentucky corporation
("Roadrunner"), and SELVAC CORPORATION, a Delaware corporation ("Selvac").
W I T N E S S E T H:
WHEREAS, Roadrunner and Selvac have entered into a Stock Purchase
Agreement dated July 1, 1995 (the "Stock Purchase Agreement"), providing for
the purchase by Selvac of 75,000 shares of Series 1995 12% Cumulative
Convertible Preferred Stock, $10.00 par value, of Roadrunner (the "Roadrunner
Preferred Stock").
WHEREAS, as of the date hereof, Roadrunner has not issued any shares of
the Roadrunner Preferred Stock to Selvac.
WHEREAS, as of the date hereof, Business Data will acquire all of the
issued and outstanding capital stock of Roadrunner.
WHEREAS, Business Data and Roadrunner desire for Business Data to issue
75,000 shares of Series 1995 12% cumulative convertible preferred stock of
Business Data (the "Business Data Preferred Stock") in exchange for the
cancellation of Roadrunner's obligation to issue the Roadrunner Preferred Stock
to Selvac, and Selvac is agreeable to such transaction.
NOW, THEREFORE, in consideration of the foregoing, Business Data,
Roadrunner and Selvac agree as follows:
SECTION 1. Issuance of Business Data Shares. Business Data agrees to
amend its certificate of incorporation to authorize the issuance of not less
than 75,000 shares of Business Data Preferred Stock. The rights, privileges
and preferences of the Business Data Preferred Stock relative to Business Data
shall be identical to the rights, privileges and preferences of the Roadrunner
Preferred Stock relative to Roadrunner.
SECTION 2. Cancellation of Roadrunner Preferred Stock. Selvac hereby
relinquishes all rights it has under the Stock Purchase Agreement to acquire
shares of the Roadrunner Preferred Stock.
SECTION 3. Governing Law. The validity, interpretation and performance
of this Agreement shall be governed by the internal laws of the Commonwealth of
Kentucky.
SECTION 4. Counterparts. This Agreement may be executed in any number of
counterparts, and by the parties hereto on separate counterparts, each of which
when so executed and delivered shall be an original, but all of which together
shall constitute one and the same instrument.
<PAGE> 2
SECTION 5. Severability. The provisions of this Agreement are severable,
and if any clause or provision shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
SECTION 6. Headings. The headings in this Agreement are for purposes of
reference only and shall not otherwise affect the meaning or construction of
any provision of this Agreement.
SECTION 7. Final Expression. This Agreement together with any other
agreement executed in connection herewith, is intended by the parties as a
final expression of the subject matter hereof and is intended as a complete and
exclusive statement of the terms and conditions hereof. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.
SECTION 8. Binding Effect. This Agreement shall bind each of the parties
hereto and their respective successors and assigns.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to
be duly executed and delivered by it as of the day and year first above
written.
BUSINESS DATA GROUP, INC., a
Delaware corporation
By: /s/ James J. Leonard
--------------------------------------
James J. Leonard, Authorized Signatory
ROADRUNNER VIDEO ENTERPRISES,
INC., a Kentucky corporation
By: /s/ Wayne J. Jung
--------------------------------------
Wayne J. Jung, President
SELVAC CORPORATION, a Delaware
corporation
By: /s/ James J. Leonard
--------------------------------------
James J. Leonard, President
2
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BUSINESS DATA GROUP, INC.
I, the undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is
BUSINESS DATA GROUP, INC.
SECOND: The registered office of the corporation and place of business in
the State of Delaware is to be located at 410 South State Street, in the City
of Dover, County of Kent. The name of its registered agent at that address is
Corporate Filing Service, Inc.
THIRD: The nature of the business, and the objects and purposes proposed
to be transacted, promoted and carried on, are to do any and all things therein
mentioned, as fully and to the same extent as natural persons might or could
do, and in any part the world, viz:
FOURTH: The total number of shares which the corporation is authorized to
issue is Twenty Million (20,000,000) common shares, each of which shall have a
par value of $.0001.
FIFTH: The names and addresses of each of the incorporators or
incorporator are as follows:
<PAGE> 2
Name Address
Marie J. Buckley 170 Washington Avenue
Albany, New York 12201
SIXTH: The Directors shall have power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to authorize
and cause to be executed, mortgages and liens without limit as to the amount,
upon the property and franchises of this Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall have
authority to dispose, in any manner, of the whole property of this corporation.
The By-Laws shall determine whether and to what extent the accounts and
books of this Corporation, or any of them, shall be open to the inspection of
the stockholders; and no stockholder shall have any right of inspecting any
account, or book, or document of this Corporation, except as conferred by law
or the By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and
keep the books, documents and papers of the corporation outside the State of
Delaware, at such places as may be from time to time designated by the By-Laws
or by resolution of the stockholders or directors, except as otherwise required
by the laws of Delaware.
It is the intention that the objects, purposes and powers specified in the
third paragraph hereof shall, except where otherwise specified in said
paragraph, be in nowise limited or restricted by reference to or inference from
the terms of any other clause or paragraph in this Certificate of
Incorporation, but that the objects, purposes and powers specified in the third
2
<PAGE> 3
paragraph and in each of the clauses or paragraphs of this charter shall be
regarded as independent objects, purposes and powers.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 7th day of
January, 1983.
Maria J. Ruckley /s/ Marie J. Ruckley
- -------------------- --------------------
Incorporator
3
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BUSINESS DATA GROUP, INC.
BUSINESS DATA GROUP, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of BUSINESS DATA
GROUP, INC. resolutions were duly adopted setting forth a proposed amendment of
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling for a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered
"FOURTH" so that, as amended said Article shall be and read as
follows:
The Corporation shall have the authority to issue Thirty Million
(30,000,000) shares of stock having $.001 par value.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
<PAGE> 5
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said BUSINESS DATA GROUP, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
David Eig, its President and Eugene Weiss, its Secretary, this 22nd day of
March, 1983.
/s/ David Eig
---------------------------
David Eig
President
/s/ Eugene Weiss
---------------------------
Eugene Weiss
Secretary
2
<PAGE> 6
SECOND
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BUSINESS DATA GROUP, INC.
BUSINESS DATA GROUP, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of BUSINESS DATA
GROUP, INC. resolutions were duly adopted setting forth a proposed amendment of
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling for a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered
"FOURTH" so that, as amended said Article shall be and read as
follows:
The Corporation shall have the authority to issue Thirty Million
(30,000,000) shares of stock having $0.001 par value.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 7
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said BUSINESS DATA GROUP, INC., has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
David Eig, its President and Eugene Weiss, its Secretary, this 26th day of
April, 1983.
/s/ David Eig
-----------------------------
David Eig
President
/s/ Eugene Weiss
-----------------------------
Eugene Weiss
Secretary
2
<PAGE> 8
THIRD
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
BUSINESS DATA GROUP, INC.
BUSINESS DATA GROUP, INC., having its registered office at 410 South State
Street in the City of Dover, County of Kent (the "Corporation"), hereby
certifies to the Secretary of State of the State of Delaware that:
1. Article Fourth of the Certificate of Incorporation of the Corporation
is hereby amended so as to read in its entirety as follows:
The aggregate number of shares of capital stock of all
classes which the Corporation shall have authority to issue is ten
million fifty thousand (10,050,000) shares, of which ten million
(10,000,000) shares are to be Common Stock, of the par value of
one cent ($.01) each, and fifth thousand (50,000) shares are to be
Preferred Stock, of the par value of ten dollars ($10.00) each.
Description of Capital Stock. The voting powers,
designations, preferences and relative participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereon, of the classes of stock of the Corporation
which are fixed by this Certificate of Incorporation, and the
authority vested in the Board of Directors to fix by resolution or
resolutions providing for the issue of Common and Preferred Stock
and the voting powers, designations, preferences and relative
participation, optional or other special rights, and the
qualifications, limitations or restrictions thereon of the shares
of Common and Preferred Stock which are not fixed by the
Certificate of Incorporation, are as follows:
PREFERRED STOCK
a. The Preferred Stock may be issued from time to time in one
or more series, each such series to have such designation or title
as may be fixed by the Board of Directors prior to the issuance of
any shares thereof. Each such series may differ from every other
series already outstanding as may be determined from time to time
by the Board of Directors prior to the issuance of any shares
thereof, including but not limited to any or all of the following
respects:
(i) The rate of dividend, if any, which the
Preferred Stock of any such series shall be entitled
to receive, whether the dividends of such series shall
be cumulative or non-cumulative and, if such dividends
be cumulative, the date from which they shall be cumulative,
and whether the payment of the dividend of any such
<PAGE> 9
series shall have priority over the payment of the dividend
of any other series;
(ii) The right or obligation, if any, of the
Corporation to redeem shares of Preferred Stock of any
series, the terms and conditions of such redemption,
the amount per share which the Preferred Stock of any
such series shall be entitled to receive in case of
the redemption thereof, and the right of the
Corporation, if any, to reissue any such shares after
the same shall have been redeemed;
(iii) The amount per share which the Preferred
Stock of any such series shall be entitled to receive
in case of the voluntary liquidation, dissolution or
winding up of the Corporation, or in case of the
involuntary liquidation, dissolution or winding up of
the Corporation, and the priority of the payment of
any such amount per share of any payment of any such
amount per share of any one series over any other
series;
(iv) the right if any, of the holders of
Preferred Stock of any such series to convert the same
into other classes of stock, and the terms and
conditions of such conversion;
(v) The voting power, if any, of the holders of
Preferred Stock of any series, and the terms and
conditions under which they may exercise such voting
power; and
(vi) The terms of the sinking fund or fund of a
similar nature, if any, to be provided for the
Preferred Stock of any such series.
The description and terms of the Preferred Stock of each
series with respect of the foregoing particulars shall be fixed
and determined by the Board of Directors by appropriate resolution
or resolutions at or prior to the time of the authorization of the
issue of the original shares of each such series.
b. The holders of the Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of
funds legally available therefor, preferential dividends in cash
at, but not exceeding, the annual rate fixed for each particular
series.
c. So long as any of the Preferred Stock remains outstanding,
in no event shall any dividend whatever, whether in cash or other
property (other than in shares of Common Stock), be paid or declared
on the Common Stock by the
2
<PAGE> 10
Corporation unless (a) the full dividends of the Preferred Stock for all
past dividend periods from the respective date or dates on which they
became cumulative shall have been paid and the full dividend thereon for
the then current quarter-yearly dividend period shall have been paid or
declared and a sum set apart sufficient for the payment thereof, and (b)
if at any time the Corporation is obligated to retire or redeem shares of
any series of the Preferred Stock pursuant to a sinking fund or a fund of
similar nature or otherwise, all arrears, if any, in respect of the
retirement or redemption of the Preferred Stock of all such series shall
have been made good. Subject to the foregoing provisions and not
otherwise, such dividends (payable in cash, stock or otherwise) as may be
determined by the Board of Directors may be declared and paid on the
Common Stock in accordance with paragraph (e) of this Article Fourth, as
the case may be, from time to time, out of the remaining funds of the
Corporation legally available therefore, and the Preferred Stock shall not
be entitled to participate in any such dividend, whether payable in cash,
stock or otherwise. No limitations, conditions or restrictions whatever
are imposed by the provisions of this paragraph (d) upon the purchase or
redemption or other acquisitions by the Corporation of any class or
classes of any capital stock of the Corporation.
d. In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, before any
distribution or payment shall be made to holders of the Common
Stock, the holders of the Preferred Stock of each series shall be
entitled to be paid in cash the applicable liquidation price per
share determined in the manner, or in the amount, fixed at the
time of the original authorization of issuance of shares of such
respective series, together with a sum, in the case of each share
of Preferred Stock, computed at the annual dividend rate for the
series of which the particular hare is a part, form the date on
which dividends on such share became cumulative to the date fixed
for such distribution or payment, less the aggregate amount of all
dividends theretofore and on such distribution or payment date
paid thereon. If such payment shall have been made in full to the
holders of the Preferred Stock, the remaining assets and funds of
the Corporation shall be distributed among the holders of the
Common Stock.
COMMON STOCK
Except as otherwise required by law and except as expressly
provided in this Certificate of Incorporation or in any resolution
or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the foregoing provisions of
this Article Fourth with respect to the Preferred Stock, the
holders of the Common Stock (i) shall have the exclusive voting
rights for the election of directors and for all other purposes,
each holder of Common Stock being entitled to one vote for each
share thereof held by such holder except as otherwise required by
law, and (ii) shall be entitled to receive dividends declared payable
3
<PAGE> 11
in such property or shares of the capital stock of the Corporation
when and as declared by the Board of Directors.
2. The Board of Directors of the Corporation by requisite action adopted a
resolution which set forth the foregoing amendment to the Certificate of
Incorporation, in accordance with Section 242 of the General Corporation Law of
the State of Delaware, declaring that the amendment to the Certificate of
Incorporation as proposed was advisable and calling for a meeting of the
stockholders of said corporation for consideration thereof.
3. Pursuant to resolution of its Board of Directors, a special meeting of
the stockholders of the Corporation was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law of the State of
Delaware at which meeting the necessary number of shares as required by statute
were voted in favor of the amendment.
4. That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
5. That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said BUSINESS DATA GROUP, INC., has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
David Eig, its President and Eugene Weiss, its Secretary, this 2nd day of
October, 1985.
/s/ David Eig
---------------------------
David Eig
President
ATTESTED:
/s/ Eugene Weiss
---------------------------
Eugene Weiss
Secretary
4
<PAGE> 12
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF BUSINESS DATA GROUP, INC.
BUSINESS DATA GROUP, INC., a Delaware corporation (the "Corporation") does
hereby certify pursuant to Section 242 of the General Corporation Law of the
State of Delaware, as follows:
FIRST: That the Board of Directors of the Corporation, by
unanimous written consent pursuant to Section 141(f) of the
General Corporation Law of the State of Delaware (the "DGCL"),
adopted resolutions setting forth the amendments to the
Certificate of Incorporation of the Corporation set forth below,
declaring said amendments to be advisable and submitting them to
the stockholders of the Corporation entitled to vote thereon for
consideration thereof.
SECOND: That, by written consent executed in accordance with
Section 228 of the DGCL, the holders of the majority of the
outstanding stock of the Corporation entitled to vote thereon, and
the majority of the outstanding stock of each class entitled to
vote thereon as a class, being the holders of outstanding stock of
the Corporation having not less than the minimum number of votes
that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present
and voted, voted in favor of the adoption of the amendments to the
Certificate of Incorporation of the Corporation set forth below.
THIRD: That, in accordance with Section 228(d) of the DGCL,
prompt notice of the written consent, referred to in paragraph
SECOND above, voting in favor of the adoption of the amendments to
the Certificate of Incorporation of the Corporation set forth
below, was given to those holders of outstanding stock of the
Corporation entitled to vote thereon who did not execute the said
written consent.
FOURTH: That the amendments to the Certificate of
Incorporation of the Corporation set forth below were duly adopted
in accordance with the provisions of Section 242 of the DGCL.
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by deleting the paragraph of Article "FOURTH" thereof set forth below:
"The aggregate number of shares of capital stock
of all classes which the Corporation shall have
authority to issue is ten million fifty thousand
(10,050,000) shares, of which ten million (10,000,000)
shares are to be Common Stock, of the par value of
one cent ($.01) each, and fifty thousand (50,000)
shares are to be Preferred Stock, of the par value of
ten dollars ($10.00) each."
<PAGE> 13
and by substituting in lieu of such paragraph is said Article
"FOURTH" the following new paragraph:
"The aggregate number of shares of capital stock
of all classes which the Corporation shall have the
authority to issue is twenty five million one hundred
thousand (25,100,000) shares, of which twenty five
million (25,000,000) share are to be Common Stock, of
the par value of one cent ($.01) each, and one hundred
thousand (100,000) are to be Preferred Stock, of the
par value of ten dollars ($10.00) each."
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed on its behalf this 23rd day of June, 1995.
BUSINESS DATA GROUP, INC.
By: /s/ David M. Eig
----------------------
Name: David M. Eig
Title: President
By: /s/ Eugene A. Weiss
----------------------
Name: Eugene A. Weiss
Title: Secretary
2
<PAGE> 14
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF BUSINESS DATA GROUP, INC.
BUSINESS DATA GROUP, INC., a Delaware corporation (the "Corporation") does
hereby certify pursuant to Section 242 of the General Corporation Law of the
State of Delaware, as follows:
FIRST: That the Board of Directors of the Corporation, by
unanimous written consent pursuant to Section 141(f) of the
General Corporation Law of the State of Delaware (the "DGCL"),
adopted resolutions setting forth the amendments to the
Certificate of Incorporation of the Corporation set forth below,
declaring said amendments to be advisable and submitting them to
the stockholders of the Corporation entitled to vote thereon for
consideration thereof.
SECOND: That, by written consent executed in accordance with
Section 228 of the DGCL, the holders of the majority of the
outstanding stock of the Corporation entitled to vote thereon, and
the majority of the outstanding stock of each class entitled to
vote thereon as a class, being the holders of outstanding stock of
the Corporation having not less than the minimum number of votes
that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present
and voted, voted in favor of the adoption of the amendments to the
Certificate of Incorporation of the Corporation set forth below.
THIRD: That, in accordance with Section 228(d) of the DGCL,
prompt notice of the written consent, referred to in paragraph
SECOND above, voting in favor of the adoption of the amendments to
the Certificate of Incorporation of the Corporation set forth
below, will be given to those holders of outstanding stock of the
Corporation entitled to vote thereon who did not execute the said
written consent.
FOURTH: That the amendments to the Certificate of
Incorporation of the Corporation set forth below were duly adopted
in accordance with the provisions of Section 242 of the DGCL.
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by deleting the paragraph of Article "FIRST" thereof set forth below:
The name of the corporation is BUSINESS DATA GROUP, INC.
and by substituting in lieu of such paragraph in such Article
"FIRST" the following new paragraph:
The name of the corporation is ROADRUNNER VIDEO GROUP, INC.
<PAGE> 15
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed on its behalf this 29th day of August, 1995.
BUSINESS DATA GROUP, INC.
By: /s/ Wayne J. Jung
---------------------------------------
Wayne J. Jung, President
By: /s/ Terry W. Schneider
---------------------------------------
Terry W. Schneider, Assistant Secretary
2
<PAGE> 1
EXHIBIT 3.2
BUSINESS DATA GROUP, INC.
BY-LAWS
ARTICLE I
Offices
Section 1. Registered office. The registered office of the Corporation
shall be at 410 South State Street, in the City of Dover, County of Kent and
State Of Delaware.
Section 2. Additional Offices. The Corporation also may have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors from time to time may determine or as the business of the
Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Time and Place. A meeting of stockholders for any purpose may
be held at such time and place within or without the State of Delaware as the
Board of Directors may fix from time to time and as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual Meetings of Stockholders, commencing
with the year 1984, shall be held on the last day of April or at such other
date and time as, from time to time, shall be designated by the Board of
Directors and stated in the notice of the meeting. At such annual meetings,
the stockholders) shall elect a Board of Directors and transact such other
business as properly may be brought before the meetings.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time thereof shall be given to each
stockholder entitled to vote at such
<PAGE> 2
meeting not less than ten (10) (unless a longer period is required by law)
nor more than sixty (60) days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders) may be
called for any purpose or purposes unless otherwise proscribed by statute or by
the Certificate of Incorporation. Meetings may be called by the Chairman of
the Board, if any, or by the President, and shall for proper purposes be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors or of the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a special
meeting,, stating the place, date and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten (10) (unless a longer period if required
by law) nor more than sixty (60) days prior to the meeting.
Section 6. List of Stockholders. At least ten (10) days before every
meeting of stockholders, the officer in charge of the stock ledger of the
Corporation or the transfer agent shall prepare and arrange in alphabetical
order, a complete list naming the stockholders entitled to vote at the meeting,
the address of each such stockholder and the number of shares registered in his
name. Such list shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at least ten (10) days prior to the meeting, at a place within the city where
the meeting is to be held, which place, if other than the place of the meeting,
shall be specified in the notice of the meeting. The list also shall be
produced and kept at the place of the meeting during the whole time thereof,
and may be inspected by any stockholder who is present in person thereat.
<PAGE> 3
Section 7. Presiding officer and Order of Business.
a. Meetings of stockholders shall be presided over by the
Chairman of the Board. If he is not present or there is none, they shall be
presided over by the President, or, if he is not present or there is none, by a
Vice President, or, if he is not present or there is none, by a person chosen by
the Board of Directors, or, if no such person is present or has been chosen, by
a chairman to be chosen by the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting and who are present in person or represented by proxy. The
secretary of the Corporation, or, if he is not present, an Assistant Secretary,
or, if he is not present, a person chosen by the Board of Directors, shall act
as secretary at meetings of stockholders; if no such person is present or has
been chosen, the stockholders owning a majority of the shares of capital stock
of the Corporation issued and outstanding and entitled to vote at the meeting
who are present in person or represented by proxy shall choose any person
present to act as secretary of the meeting.
b. The following order of business, unless otherwise determined
at the meeting, shall be observed as far as practicable and consistent with
the purposes of the meeting:
1. Call of the meeting to order.
2. Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting, the call
thereof.
3. Presentation of proxies.
4. Announcement that a quorum is present.
5. Reading and approval of the minutes of the previous meeting.
6. Reports, if any, of officers.
7. Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
<PAGE> 4
8. Consideration of the specific purpose or purposes, other
than the election of directors, for which the meeting has
been called, if the meeting is a special meeting.
9. Transaction of such other business as properly may come
before the meeting.
10. Adjournment.
Section 8. Quorum and Adjournments. The presence in person or
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders except as otherwise provided by
statute or by the Certificate of incorporation. If, however, a quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat who are present in person or represented
by proxy shall have the power to adjourn the meeting from time to time until a
quorum shall be present or represented. If the time and place of the adjourned
meeting are announced at the meeting at which the adjournment is taken, no
further notice of the adjourned meeting need be given. Even if a quorum shall
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat who are present in person or represented by proxy
shall have the power to adjourn the meeting from time to time for good cause to
a date that is not more than thirty (30) days after the date of the original
meeting. Further notice OF the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At any adjourned meeting at which a quorum is present in person or
represented by proxy, any business may be transacted that might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty (30) days, or if, after the adjournment, a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled
<PAGE> 5
to vote thereat.
Section 9. Voting.
a. At any meeting of stockholders, every stockholder
having the right to vote shall be entitled to vote in person or by proxy.
Except as otherwise provided by law or the Certificate of Incorporation, each
stockholder of record shall be entitled to one (1) vote for each share of
capital stock registered in his name on the books of the Corporation.
b. All elections shall be determined by a plurality vote, and
except as otherwise provided by law or the Certificate of Incorporation all
other matters shall be determined by a vote of a majority of the shares present
in person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law or
the Certificate of Incorporation to be taken at any meeting of stockholders may
be taken without a meeting, without prior notice, and without a vote, if a
written consent setting forth the action so taken shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present or represented by proxy and
voted. Such written consent shall be filed with the minutes of the meetings of
stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing thereto.
Section 11. Corporate Shareholder. Shares standing in the name of another
domestic or foreign corporation may be voted by any officer or agent, or by
proxy appointed by any of them, unless some other person, by resolution of its
board or pursuant to its by-laws, shall be
<PAGE> 6
appointed to vote such shares.
ARTICLE III
Directors
Section 1. General Powers, Number and Tenure. The business of the
Corporation shall be managed by its Board of Directors which may exercise all
powers of the Corporation and perform all lawful acts that by law, the
Certificate of Incorporation, or these By-Laws are not directed or required to
be exercised or performed by the stockholders. The number of directors shall
be determined by the Board of Directors; if no such determination is made, the
number of directors shall be four (4). The directors shall be elected at the
annual meeting of the stockholders except as provided in Section 2 of this
Article, and each director elected shall hold office until his successor is
elected and shall qualify. Directors need not be stockholders.
Section 2. Vacancies. If any vacancy occurs in the Board of Directors, or
if any new directorship is created, it may be filled either by a vote of the
majority of the directors then in office, although less than a quorum, or by
the vote of a sole remaining director. In the event of a vacancy, the
remaining directors may elect to reduce the size of the Board pursuant to
Section 1 of this Article III. Each director so chosen shall hold office until
the next annual meeting of the stockholders and until his successor is duly
elected and shall qualify. If there are no directors in office, any officer or
stockholder may call a special meeting of stockholders in accordance with the
provisions of either the Certificate of Incorporation or these By-Laws, at
which meeting such vacancy shall be filled.
Section 3. Removal or Resignation.
a. Except as otherwise provided herein, by law or the Certificate
of Incorporation, any director or the entire Board of Directors may be removed,
with or without
<PAGE> 7
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors.
b. Any director may resign at any time by giving written notice
to the Board of Directors, the Chairman of the Board, if any, or the President
or Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect upon delivery thereof to the Board of
Directors or the designated officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold both
regular and special meetings either within or without the State of Delaware.
Section 5. Annual Meeting. Immediately following the annual meeting of
stockholders, the annual meeting of each newly elected Board of Directors shall
be held. Provided a quorum is present, no notice of such meeting to the newly
elected directors shall be necessary in order legally to constitute the
meeting.
Section 6. Regular Meetings. Additional regular meetings of the Board of
Directors may be held without notice at such time and place as may be determined
from time to time by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, or by two (2) or more
directors on at least two (2) days' notice to each director if such notice is
delivered personally or sent by telegram, or on at least three (3) days' notice
if sent by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary, or two (2) or more directors in like manner and on like
notice on the written request of one-half (1/2) or more of the number of
directors then in office. Any such notice need not state the purpose or
purposes of such meeting except as provided in Article XI hereof.
<PAGE> 8
Section 8. Quorum and Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors except as otherwise may be provided specifically by law or the
Certificate of Incorporation. From time to time if a quorum is not present at
any meeting of the Board of Directors, until a quorum shall be present, the
directors present may adjourn the meeting without notice other than
announcement at the meeting at which the adjournment is taken.
Section 9. Compensation. Directors shall be entitled to such compensation
for their services as directors and to such reimbursement for any reasonable
expenses incurred in attending directors' meetings as from time to time may be
fixed by the Board of Directors. The compensation of directors may be on such
basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity or from receiving compensation and reimbursement for reasonable
expenses for such other services.
Section 10. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the Board of Directors and if such written consent is filed with the minutes
of its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment.
The Board of Directors may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all directors
participating in the meeting can hear
<PAGE> 9
each other. Participation in such a meeting shall constitute presence in
person by any such director at such meeting.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one (1) or more directors, one of whom shall be designated as
Chairman of the Executive Committee and unless sooner removed as a member or as
a director, shall continue as a member thereof until the expiration of his term
as a director or his earlier resignation.
Section 2. Powers. The Executive Committee shall have and may exercise
those rights, powers and authority of the Board of Directors as from time to
time may be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to all papers
that may require it.
Section 3. Procedure and Meeting. The Executive Committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of the Executive Committee
shall fix. The Executive Committee shall keep regular minutes of its meetings,
which minutes it shall deliver to the Board of Directors from time to time.
The Chairman of the Executive Committee or, in his absence, a member of the
Executive Committee chosen by a majority of the members present shall preside
at meetings of the Executive Committee, and another member chosen by the
Executive Committee shall act as secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee
shall constitute a quorum for the transaction of business, and the affirmative
vote of a majority
<PAGE> 10
of the members present at any meeting at which there is a quorum shall be
required for any action of the Executive Committee; provided, however, that when
an Executive Committee of one (1) member is authorized under the provisions of
Section 1 of this Article, that one (1) member shall constitute a quorum.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, powers and
authority as it shall prescribe. Each such committee shall consist of one (1)
or more directors.
Section 6. Committee Changes. The Board of Directors shall have the power
at any time to fill vacancies in, to change membership of, and to discharge any
committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as from time to time may be fixed by the Board of Directors. Any
member may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity or from receiving compensation and
reimbursement for reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and if such written consent is filed with the minutes of its
proceedings.
Section 9. Meetings by Telephone or Similar Communications Equipment.
The members of any committee designated by the Board of Directors may
<PAGE> 11
participate in a meeting of such committee by means of conference telephone
or similar communications equipment by means of which all persons participating
in such meeting can hear each other. Participation in such a meeting shall
constitute presence in person by any such committee member at such meeting.
ARTICLE V
Notices
Section 1. Form and Delivery. Whenever a provision of any law, the
Certificate of Incorporation, or these By-Laws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in
writing, by mail addressed to the address of the director or stockholder as it
appears on the records of the Corporation, with postage prepaid. These notices
shall be deemed to be given when they are deposited in the United States mail.
Notice to a director also may be given personally or by telegram to his address
as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under the
provisions of any law, the Certificate of Incorporation, or these By-Laws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of
stockholders in person or is represented at such meeting by proxy, without
protesting at the commencement of the meeting, the lack of notice thereof to
him, or any director who attends a meeting of the Board of Directors without
protesting, at commencement of the meeting, the lack of notice, shall be deemed
conclusively to have waived notice of such meeting.
ARTICLE VI
<PAGE> 12
Divisions and Officers
Section 1. Divisions. The Board of Directors may establish divisions for
the Corporation.
Section 2. Designations. The officers of the Corporation shall be chosen
by the Board of Directors. The Board of Directors may choose a Chairman of the
Board, a President, Presidents of the Divisions, an Executive Vice President,
Senior Vice President, Vice Presidents, a secretary, a Treasurer, one (1) or
more Assistant Secretaries and/or Assistant Treasurers, and other officers and
agents that it shall deem necessary or appropriate. All officers of the
Corporation shall exercise the powers and perform the duties that from time to
time shall be determined by the Board of Directors. Any number of offices may
be held by the same person unless the Certificate of Incorporation or these
By-Laws provide otherwise.
Section 3. Term of, and Removal From, Office. At its first regular
meeting after each Annual Meeting of Stockholders, the Board of Directors shall
choose a President, an Executive vice President, a Secretary and a Treasurer.
Also, it may choose a Chairman of the Board, a vice President or Vice
Presidents, one (1) or more Assistant Secretaries and/or Assistant Treasurers,
and such other officers and agents as it shall deem necessary until his
successor is chosen and shall qualify. Any officer elected or appointed by the
Board of Directors may be removed, with or without cause, at any time by the
affirmative vote of a majority of the directors then in office. Removal from
office, however, shall not prejudice the contract rights, if any, of the person
removed. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 4. Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board of Directors and no officer shall
be prevented from
<PAGE> 13
receiving a salary because he is also a director of the Corporation.
Section 5. The Chairman of the Board. The Chairman of the Board, if any,
shall be the chief executive officer of the Corporation, and subject to the
direction of the Board of Directors, shall perform such executive, supervisory
and management functions and duties as may be assigned to him from time to time
by the Board of Directors. If present, he shall preside at all meetings of the
stockholders and of the Board of Directors.
Section 6. The President.
a. The President shall have general charge of the business affairs
and property of the Corporation and general supervision over its other officers
and agents. In general, he shall perform all duties incident to the office of
President and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
b. Unless otherwise proscribed by the Board of Directors, the
President shall have full power and authority to attend, act and vote on behalf
of the Corporation at any meeting of the security holders of other corporations
in which the Corporation may hold securities. At any such meeting, the
President shall possess and may exercise any and all rights and powers incident
to the ownership of such securities that the Corporation might have possessed
and exercised if it had been present. The Board of Directors from time to time
may confer like powers upon any other person or persons.
Section 7. Vice President.
a. The Executive Vice President in the absence of the President
or in the event of his disability, shall perform the duties and exercise the
powers of the President and generally shall assist the President and perform
such other duties and have such other powers as from time to time may be
prescribed by the Board of Directors.
<PAGE> 14
b. The vice President, if any, or in the event there be more than
one (1), the vice Presidents, in the order of their election, in the absence of
the Executive Vice President or in the event of his disability, shall perform
the duties and exercise the powers of the Executive Vice President and generally
shall assist the Executive Vice President and perform such other duties and have
such other powers as from time to time may be prescribed by the Board of
Directors.
Section 8. The Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the stockholders and shall record all votes and the
proceedings of the meetings in a book to be kept for the purpose. He shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as from time to time may be prescribed by the Board of
Directors, the Chairman of the Board, or the President, under whose supervision
he shall act. He shall have custody of the seal of the Corporation, and he or
an Assistant Secretary, shall have authority to affix it to any instrument
requiring it, and, when so affixed, the seal may be attested by his signature
or by the signature of the Assistant Secretary. The Board of Directors may
give general authority to any other officer to affix the seal of the
Corporation and to attest the affixing thereof by his signature.
Section 9. The Assistant Secretary. The Assistant Secretary, if any, or
in the event there be more than one (1) , the Assistant Secretaries in the
order designated, or in the absence of any designation, in the order of their
election, in the absence of the Secretary or in the event of his disability,
shall perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as from time to time may
be prescribed by the Board of Directors.
<PAGE> 15
Section 10. The Treasurer. The Treasurer shall have the custody of the
corporate funds and other valuable effects, including securities, and shall
keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all monies and other valuable
effects in the name and to the credit of the Corporation in such depositories
as from time to time may be designated by the Board of Directors. He shall
disburse the funds of the Corporation in accord with the orders of the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, if any, the President, and the Board of Directors,
whenever they may require it or at regular meetings of the Board, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
Section 11. The Assistant Treasurer. The Assistant Treasurer, if any, or
in the event there shall be more than one (1) , the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election, in the absence of the Treasurer or in the event of his disability,
shall perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as from time to time may
be prescribed by the Board of Directors.
ARTICLE VII
Indemnification
Reference is made to Section 145 and any other relevant provisions of the
General Corporation Law of the State of Delaware. Particular reference is made
to the class of persons, hereinafter called "Indemnitees", who may be
indemnified by a Delaware corporation pursuant to the provisions of such
Section 145, namely, any person, or the heirs, executors, or administrators of
such person, who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal,
<PAGE> 16
administrative, or investigative, by reason of the fact that such person is or
was a director, officer, employee, or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise. The Corporation shall, and is hereby obligated to, indemnify the
Indemnitees, and each of them, in each and every situation where the Corporation
is obligated to make such indemnification pursuant to the aforesaid statutory
provisions. The Corporation shall indemnify the Indemnitees, and each of them,
in each and every situation where, under the aforesaid statutory provisions, the
Corporation is not obligated, but is nevertheless permitted or empowered, to
make such indemnification, it being understood that, before making such
indemnification with respect to any situation covered under this sentence, (i)
the Corporation shall promptly make or cause to be made, by any of the methods
referred to in subsection (d) of such Section 145, a determination as to whether
each Indemnitee acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and, in the case
of any criminal action or proceeding, had no reasonable cause to believe that
his conduct was unlawful, and (ii) that no such indemnification shall be made
unless it is determined that such indemnitee acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
ARTICLE VIII
Affiliated Transactions and Interested Directors
Section 1. Affiliated Transactions. No contract or transaction between
the Corporation and one (1) or more of its directors or officers, or between
the Corporation and any
<PAGE> 17
other corporation, partnership, association, or other organization in which one
(1) or more of its directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participating in the meeting of
the Board of Directors or committee thereof that authorizes the contract or
transaction or solely because his or their votes are counted for such purpose,
if:
a. The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or
b. The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by the vote of the stockholders; or
C. The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved, or ratified by the Board of Directors, a
committee thereof or the stockholders.
Section 2. Determining Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorized the contract or
transaction.
ARTICLE IX
Stock Certificates
Section 1. Form and Signatures.
a. Every holder of stock of the Corporation shall be entitled to a
certificate
<PAGE> 18
stating the number and class, and series, if any, of shares owned by him, signed
by the Chairman of the Board, if any, or the President and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, and bearing the seal of the Corporation. The signatures and the
seal may be facsimiles. A certificate may be signed, manually or by facsimile,
by a transfer agent or registrar other than the Corporation or its employee. In
case any officer who has signed or whose facsimile signature was placed on a
certificate shall have ceased to be such officer before the certificate is
issued, nevertheless it may be issued by the Corporation with the same effect as
if he were such officer at the date of its issue.
b. All stock certificates representing shares of capital stock
that are subject to restrictions on transfer or to other restrictions may have
imprinted thereon any notation to that effect determined by the Board of
Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation or
any transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment, or authority to
transfer, the Corporation or its transfer agent shall issue a new certificate
to the person entitled thereto, cancel the old certificate, and record the
transaction upon its books.
Section 3. Registered Stockholders.
a. Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for
calls and assessments any person who is registered on its books as the owner of
shares of its capital stock. The Corporation shall not be bound to recognize
any
<PAGE> 19
equitable or legal claim to, or interest in, such shares on the part of any
other person.
b. If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the
stock ledger maintained by the Corporation, or its transfer agent or registrar,
if any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to receive notice of, or to vote at,
any meeting of stockholders or any adjournment thereof or to express consent to
corporate action in writing without a meeting, to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion, or exchange of stock or for the
purpose of any lawful action, the Board of Directors in advance, may fix a date
as the record date for any such determination. Such date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting,
nor more than sixty (60) days prior to the date of any other action. A
determination of stockholders of record entitled to notice of, or to vote at, a
meeting of stockholders shall apply to any adjournment of the meeting taken
pursuant to Section 8 of Article II; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates.
The Board of Directors may direct that a new certificate be issued to
replace any certificate theretofore issued by the Corporation that, it is
claimed, has been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing the issue of a new certificate, the Board
<PAGE> 20
of Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost, stolen or destroyed certificate, or
his legal representative, to advertise the same in such manner as it shall
require, and/or to give the Corporation a bond in such sum, or other security in
such form, as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate claimed to have been
lost, stolen or destroyed.
ARTICLE X
General Provisions
Section 1. Dividends. Subject to the provisions of law and the
Certificate of Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available
for the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole
discretion, may fix a sum that may be set aside or reserved over and above the
paid-in capital of the Corporation as a reserve for any proper purpose, and
from time to time, may increase, diminish, or vary such amount.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Delaware".
<PAGE> 21
ARTICLE XI
Amendments
The Board of Directors shall have the power to alter and repeal these
By-Laws and to adopt new By-Laws by an affirmative vote of a majority of the
whole Board, provided that notice of the proposal to alter or repeal these
By-Laws or to adopt new By-Laws must be included in the notice of the meeting
of the Board of Directors at which such action takes place.
<PAGE> 1
EXHIBIT 4.2
PROMISSORY NOTE
---------------
$859,419.69 Owensboro, Kentucky
Effective: 12/13/95
FOR VALUE RECEIVED, sale and delivery of pre-recorded video cassette
movies and game cartridges to Roadrunner Video Group, Inc. (formerly Roadrunner
Video Enterprises, Inc.) of 819 South Floyd Street, Louisville, Kentucky 40203,
receipt acknowledged, the undersigned promise to pay to the order of Wax Works,
Inc., of 325 East Third Street, Owensboro, Kentucky 42303, said principal sum
of EIGHT HUNDRED FIFTY NINE THOUSAND FOUR HUNDRED NINETEEN AND 69/100
($859,419.69) DOLLARS, together with interest at the rate of twelve percent
(12%), principal and interest payable monthly over 33 consecutive monthly
payments of $30,000.00 each, and one final payment of $30,445.43, as per
payment schedule attached hereto as Exhibit "A" and made a part hereof in its
entirety. Payments shall first be applied to interest and the balance to
principal. The first payment as per Exhibit "A" is due January 20, 1996. The
last payment of the entire balance of principal and interest to be due and
payable on or before October 20, 1998.
The total principal sum of this note consists of the balance of
principal and interest to 12/13/95 of $265,435.85 on a prior promissory note
which was effective 12/20/94 and $593,983.84 of accumulated accounts payable
due Wax Works, Inc. as of 12/13/95.
The parties hereto, both makers and endorsers hereof, hereby expressly
waive presentment of this note for payment, notice of nonpayment, and diligence
in bringing suit against any party hereto, either makers or endorsers, and also
waive any right to require suit to be brought on this note by giving notice
under the provisions of the Kentucky Statutes. The sureties, drawers and
endorsers consent that time of payment may be extended from time to time,
without notice, and upon any extension, there shall be no waiving of any rights
herein.
All of any part of the outstanding principal and interest amount of
this Note may be prepaid at any time without penalty.
This note is secured by security agreements on inventory, accounts
receivable, furniture and fixtures. The terms and conditions of said security
agreements and exhibits are incorporated herein in their entirety by reference
and made a part hereof.
Upon receipt of any insufficient funds checks, in addition to being an
event of default, thereafter, all purchases shall be paid by cashier's check,
money order or cash equivalent documents.
EVENTS OF DEFAULT
Makers shall be in default under this Note upon the happening of any of
the following events:
1. Default of any payment for a period of five (5) days;
<PAGE> 2
2. Appointment of a receiver for any part or all of the property or
assignment for the benefit of any creditors or commencement of any
proceeding under any bankruptcy or insolvency laws by makers or
guarantors;
3. As per agreement, failure to furnish Wax Works, Inc. a copy of monthly
inventory (borrowing base as required by PNC Bank), a copy of current
financial statements and quarterly financial statements of maker and
personal financial statement of Terry W. Schneider, quarterly cash flow
projections;
4. Opening or purchasing any new video stores, or liquidation of business
property outside the normal course of business beyond the current number
of stores as of this effective date.
5. Upon sale of any common or preferred stock or any other interest in the
business without written consent of Wax Works, Inc. which shall result
in Terry W. Schneider owning less than 46%;
6. Giving any individual or entity a mortgage lien position on property,
excluding PNC Bank and Rentrak, without written consent from Wax Works,
Inc.;
7. Failure of makers and guarantor to continue Wax Works, Inc. as exclusive
distributor of pre-order purchases of movie videos and game cartridges
for all company video stores (excluding the agreement with Rentrak);
The foregoing requirement to use Wax Works, Inc. as exclusive
distributor is a material consideration for this agreement and shall
apply under the following circumstances:
a. To the extent any movie video referred to herein is available
through Wax Works, Inc.;
b. Wax Works, Inc. continues to maintain timely delivery schedules
for goods purchased consistent with those currently experienced by
Debtor with respect to purchases from Wax Works, Inc.; Wax Works, Inc.
continues to grant Debtor purchase discounts consistent with those
currently experienced by Debtor with respect to purchases from Wax
Works, Inc.;
c. Unless Wax Works, Inc. is sold in total and voluntarily by
Terry Woodward to another competitive distributor;
In the event of default, all principal and accumulated interest shall be
immediately due and payable and the holder of this note shall be entitled to
collect all expenses incurred plus court costs resulting from efforts to
collect, including a reasonable attorney's fee, which the makers and guarantor
hereof agree a reasonable attorney's fee shall be fifteen percent (15%) of the
balance due, or the amount agreed by Wax Works, Inc. to be paid to an attorney
in collection of the balance due, not to exceed said percent.
<PAGE> 3
MISCELLANEOUS TERMS
1. The terms of the prior note of 12/20/94 shall be null and void upon
execution of this promissory note.
2. It is understood that as of this date the undersigned shall pay Wax
Works, Inc. for purchase of all product described herein by check on
delivery or electronic funds transfer as agreed upon between the
parties.
3. The undersigned, Terry W. Schneider, in consideration of the credit
granted to maker, hereby personally guarantees the prompt payment of all
sums mentioned herein.
4. Execution of this agreement by the president has been authorized by the
Board of Directors of maker, which shall cause this document to be
binding upon the corporation.
ROADRUNNER VIDEO GROUP, INC.
BY /s/ Terry W. Schneider
-------------------------------------
Terry W. Schneider, President
GUARANTOR:
/s/ Terry W. Schneider
-------------------------------------
Terry W. Schneider, Individually as
personal guarantor
STATE OF KENTUCKY
COUNTY OF JEFFERSON
The foregoing instrument was acknowledged before me this the ____ day of
December, 1995, by Terry W. Schneider, Individually, as personal guarantor and
by Terry W. Schneider, as President, on behalf of Roadrunner Video Group, Inc.
----------------------------------------
Notary Public:
--------------------------
My commission expires:
-----------------
<PAGE> 4
Compounding interval: Monthly
<TABLE>
<S> <C>
Annual percentage rate . . . . . . . .: 12.000%
Effective annual rate . . . . . . . .: 12.683%
Rate per compounding period. . . . . .: 1.0000%
Equivalent daily rate. . . . . . . . .: 0.03288%
</TABLE>
Valuation date: 12-13-1995 Value: $859,419.69
CASH FLOW DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
First date Payment amount -#- Interval Last date
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01-20-1996 $ 30,000.00 33 Monthly 09-20-1998
10-20-1998 $ 30,445.43 1
</TABLE>
AMORTIZATION SCHEDULE - Normal amortization
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Pmt Date Payment Interest Principal Balance
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at 12-13-1995 859,419.69
1 01-20-1996 30,000.00 10,591.82 19,408.18 840,011.51
2 02-20-1996 30,000.00 8,400.12 21,599.88 818,411.63
3 03-20-1996 30,000.00 8,184.12 21,815.88 796,595.75
4 04-20-1996 30,000.00 7,965.96 22,034.04 774,561.71
5 05-20-1996 30,000.00 7,745.62 22,254.38 752,307.33
6 06-20-1996 30,000.00 7,523.07 22,476.93 729,830.40
7 07-20-1996 30,000.00 7,298.30 22,701.70 707,128.70
8 08-20-1996 30,000.00 7,071.29 22,928.71 684,199.99
9 09-20-1996 30,000.00 6,842.00 23,158.00 661,041.99
10 10-20-1996 30,000.00 6,610.42 23,389.58 637,652.41
11 11-20-1996 30,000.00 6,376.52 23,623.48 614,028.93
12 12-20-1996 30,000.00 6,140.29 23,859.71 590,169.22
1996 totals 360,000.00 90,749.53 269,250.47
13 01-20-1997 30,000.00 5,901.69 24,098.31 566,070.91
14 02-20-1997 30,000.00 5,660.71 24,339.29 541,731.62
15 03-20-1997 30,000.00 5,417.32 24,582.68 517,148.94
16 04-20-1997 30,000.00 5,171.49 24,828.51 492,320.43
17 05-20-1997 30,000.00 4,923.20 25,076.80 467,243.63
18 06-20-1997 30,000.00 4,672.44 25,327.56 441,916.07
19 07-20-1997 30,000.00 4,419.16 25,580.84 416,335.23
20 08-20-1997 30,000.00 4,163.35 25,836.65 390,498.58
21 09-20-1997 30,000.00 3,904.99 26,095.01 364,403.57
22 10-20-1997 30,000.00 3,644.04 26,355.96 338,047.61
23 11-20-1997 30,000.00 3,380.48 26,619.52 311,428.09
24 12-20-1997 30,000.00 3,114.28 26,885.72 284,542.37
1997 totals 360,000.00 54,373.15 305,626.85
25 01-20-1998 30,000.00 2,845.42 27,154.58 257,387.79
26 02-20-1998 30,000.00 2,573.88 27,426.12 229,961.67
27 03-20-1998 30,000.00 2,299.62 27,700.38 202,261.29
28 04-20-1998 30,000.00 2,022.61 27,977.39 174,283.90
29 05-20-1998 30,000.00 1,742.84 28,257.16 146,026.74
30 06-20-1998 30,000.00 1,460.27 28,539.73 117,487.01
31 07-20-1998 30,000.00 1,174.87 28,825.13 88,661.88
32 08-20-1998 30,000.00 886.62 29,113.38 59,548.50
33 09-20-1998 30,000.00 595.49 29,404.51 30,143.99
34 10-20-1998 30,445.43 301.44 30,143.99 0.00
1998 totals 300,445.43 15,903.06 284,542.37
Grand totals 1,020,445.43 161,025.74 859,419.69
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This is an Employment Agreement dated as of April 7, 1995, between
Roadrunner Video Enterprises, Inc., a Kentucky corporation (the "Company"), 819
South Floyd Street, Louisville, Kentucky 40203 and Wayne J. Jung (the
"Employee"), 4126 Browns Lane, Louisville, Kentucky 40220.
Recital
The company desires to employ the Employee and the Employee desires top
accept such employment, each upon the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged by each of the parties to this Agreement, the parties
agree as follows:
1. Employment. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, upon the terms and conditions of this Agreement.
2. Term. Subject to earlier termination as provided in paragraph 12 below,
the Employee's employment shall begin as of April 17, 1995 and shall continue
for a period of 24 months (the "Term"). Upon the expiration of the Term, the
Employee's employment shall continue from month-to-month upon the same terms and
conditions as in force as of expiration of the Term until the earlier of (i) the
execution of a substitute employment agreement, (ii) termination of the
employment relationship in accordance with the provisions of paragraph 12 below,
or (iii) the date 30 days after delivery of written notice of the termination of
the employment relationship.
3. Duties. The Employee shall be the Company's Chief Operating Officer and
President. In such office, the Employee shall report directly to the Chief
Executive Officer and perform the duties customary for such position, including
without limitation, coordination and administration of all day-to-day business
activities, all advertising and promotional responsibilities, training and
development of all Company employees, assistance in the purchase of video
products, and such other duties as the Company's Board of Directors may from
time to time assign to him. The Employee agrees, at the discretion of the
Company's shareholders, to serve on the Board of Directors without any
additional compensation.
4. Compensation. The Employee shall receive as his sole compensation for
services under this Agreement a salary of (i) $134,998.96 for the first 12
months of the Term, payable in 52 equal weekly installments, and (ii)
$144,998.96 for the second 12 months of the Term, payable in 52 equal weekly
installments. The Employee may also receive a bonus from time to time in the
sole discretion of the Company's Board of Directors.
5. Extent of Services. The Employee shall devote all of his non-personal
time, attention and energies to the business of the Company and shall serve the
Company faithfully
<PAGE> 2
and to the best of his ability. The Employee shall not, without the prior
written consent of the Board of Directors, devote any of his time, attention and
energies to any business activities other than those of the Company (except
private business activities not in competition with the Company and which do not
materially detract from the Employee's services to the Company), whether or not
such business activity is in pursuit of pecuniary or non-pecuniary advantage.
6. Expenses. The Employee shall be reimbursed by the Company for all
reasonable out-of-pocket expenses incurred by the Employee which are necessary
to conduct the Company's business activities, including expenses incurred during
the use of the cellular telephone provided by the Company, upon presentation by
the Employee to the Company of a written itemized account of such expenditures
and such other reasonable documentation as the company may require.
7. Fringe Benefits.
(a) The Employee shall be entitled to participate, in accordance with
his position within the Company, in an employee pension plan, group life
insurance plan, hospitalization plan, medical service plan, health benefit plan
or other employee benefit plan applicable to employees or officers of the
Company generally and which may be in effect from time to time during the Term.
(b) During the Term, the Company shall provide the Employee, at the
Company's expense, with an automobile comparable to automobiles provided to
other executive officers of the Company, for use in connection with the
Employee's performance of his duties under this Agreement. The Company shall
also provide insurance on the automobile at the Company's expense. The Employee
shall be reimbursed by the Company for complete fuel, cleaning and maintenance
expenses incurred during the use of the automobile.
(c) During the Term, the Company shall provide the Employee, at the
Company's expense, with a cellular telephone to be used by the Employee while
performing his services under this Agreement.
(d) During the Term, the Company shall provide the Employee, at the
Company's expense, a complete family membership at the Country Club of his
choice.
(e) Upon the completion of a successful public offering, the Employee
shall be entitled to stock option incentives in accordance with his position
within the Company.
8. Time Away from Duties. The Employee shall be entitled to three paid
weeks away from work for each 12 months of employment under this Agreement.
Each such vacation shall be at mutual convenience of the Company and the
Employee. The Employee shall also be entitled to all paid holidays and sick
days given by the Company to its management personnel.
9. Confidential Information.
(a) The Employee acknowledges that as a consequence of his employment
by
<PAGE> 3
the Company, trade secrets and information of a proprietary or confidential
nature relating to the business of the Company and its clients have been and
will be disclosed to and developed by him, including, without limitation,
information about trade secrets, inventions, products, services, patents,
licenses, costs, special tooling, plans for future development, market analysis,
product uses, projects and plans, customers developed by the Employee while
employed by the Company, information regarding the Company's financial status,
customers, profits, profit margins, project costs, quality assurance study
results, pricing information, materials and labor costs, and any other
information that may not be known generally or publicly outside of the Company
(collectively referred to as "Confidential Information").
(b) The Employee acknowledges that such Confidential Information is
generally not known in the trade, and is of considerable importance to the
Company with respect to such information shall be fiduciary in nature. It is
expressly agreed between the Company and the Employee that he will hold in
confidence and not disclose and not make use of, during the Term of this
Agreements, plus ten years after the termination for any reason of his
employment with the Company, any such Confidential Information, except as
required in the course of his employment by the Company, or as authorized in
writing by the Board of Directors of the Company.
(c) Confidential Information shall not include information which was in
the public domain or generally available to the public prior to the receipt
thereof by the Employee, or which, other than as a result of an act or omission
of the Employee, subsequently becomes part of the public domain or generally
available to the public. The Employee further acknowledges, understands and
agrees that the Company has incurred substantial costs and expense and has
expended substantial time in order to develop and compile its Confidential
Information.
(d) Upon termination of his employment, the Employee shall return to
the Company any items which contain or constitute Confidential Information; all
such items are and shall remain the property of the Company.
10. Technological Developments. The Employee agrees that any invention,
formula, method, pattern, device, apparatus, product, product enhancement or
application, material design, drawing or service relating to the business of the
Company, developed by the Employee while the Employee is in the employ of the
Company or during the Term of this Agreement (collectively referred to as
"Technological Developments", either alone or with others, or by those working,
directly or indirectly, under the guidance or direction of the Employee shall
take all actions necessary or appropriate to procure title in the name of the
Company, or transfer title to the Company, or transfer title to the Company, for
any such Technological Development.
11. Restrictive Covenant. The Employee shall not, at any time prior to
termination of the Employee's employment or for a period of five years after the
termination of the Employee's employment, whether voluntary or involuntary,
directly or indirectly, individually, in a partnership or joint venture, or
through a corporation as proprietor, employee, stockholder or consultant, or
through any other business entity or by any other means:
<PAGE> 4
(a) engage in any business activities which compete with the Company
within a 30 mile radius of any business location of the Company in operation
while the Employee was employed by the Company, or
(b) enter into agreement with or solicit the employment of any present
or former employees of the Company for the purpose of causing them to (i) leave
the employ of the Company, (ii) reveal or utilize Confidential Information in
such a manner so as to constitute a violation of Paragraph 9 above, (iii) reveal
or utilize Technological Developments in such a manner so as to constitute a
violation of paragraph 10 above, or (iv) compete with the Company in such a
manner so as to constitute a violation of paragraph 1 1 (a) above.
12. Termination.
(a) The Employee's employment by the Company shall terminate upon the
occurrence of the earliest of the following events: (i) upon the expiration of
the Term and any extension thereof as provided in paragraph 2 above; (ii)
whenever the Company and the Employee shall mutually agree in writing to
terminate this Agreement; (iii) upon the material breach by the Employee of any
of his obligations under this Agreement; (iv) at the Company's sole option, for
Cause; (v) upon the death of the Employee; (vi) at either party's option, upon
30 days written notice, without Cause; or (vii) at the Company's sole option,
upon the "disability" of the Employee.
(b) "Cause" shall include drunkenness, committing any acts of ethical
behavior, embezzlement, theft, dishonesty, any other similar intentional wrong,
or any act of willful misconduct during the performance of his duties. "Cause"
shall also include the failure of the Employee for any reason, within 10 days
after the receipt by the Employee of written notice thereof from the Company, to
correct, cease to otherwise alter any insubordination, failure to comply with
instructions or other act or omission to act which the Company believes does or
may materially or adversely affect its business or operations.
(c) "Disability" shall be determined by the Company and shall mean the
Employee's inability for an indefinite duration (which shall include any period
in excess of 90 days in the aggregate) by reason of his physical or mental
illness or other cause, to adequately perform his duties under this Agreement
and as required by the Company's Board of Directors.
(d) Except as provided in paragraph 12(e) below, upon any termination
of employment described in paragraph 12(a) above, the Employee shall be entitled
to receive only the salary payable as of the end of the next pay period in which
the event of termination occurs or becomes effective, and he shall not be
entitled to any additional compensation or benefits.
(e) Upon receipt of written notice of the termination of the Employee's
employment by the Company without Cause, the Employee shall, if requested by the
Company, continue to render his services under this Agreement until the
expiration of the 30 day notice period, during which he shall continue to be
compensated at his customary salary. If his termination is without Cause, then
the Employee shall be entitled to receive on the date of termination as a
severance allowance 12 months salary at the effective salary rate at the time of
<PAGE> 5
termination.
13. Miscellaneous.
(a) Because this is a contract for the personal services of the
Employee, any attempted assignment by the Employee of his rights and obligations
under this Agreement shall be null and void and shall, at the sole option of the
Company, terminate the Company's obligations under this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Kentucky.
(c) Any notices required or permitted to be given under this Agreement
shall be deemed sufficiently given for all purposes if mailed by certified mail,
postage prepaid and return receipt requested, addressed to the intended
recipient at the addresses set forth in the preamble above or to such other
address as the intended recipient shall specify by written notice to the other
party to this Agreement.
(d) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior and other
understandings with respect to the subject matter hereof No change,
modification, addition or amendment of this Agreement shall be enforceable
unless in writing and signed by the party against whom enforcement is sought.
(e) If any provision of this Agreement is declared void or unenforceable
by a court of competent jurisdiction, the remaining provisions shall remain in
full force and effect.
(f) If any one or more of the provisions of this Agreement shall for
any reason be held to be excessively broad as to time, duration, geographical
scope, activity, or subject, each such provision shall be construed, by limiting
and reducing it, so as to be enforceable to the extent compatible with
applicable law then in force.
(g) No waiver by either party hereto at any time of a breach by the
other party of any provision of this Agreement to be performed by such other
party shall be deemed a waiver of any similar or dissimilar provisions hereof at
the same or any prior or subsequent time.
(h) The heading and captions of this Agreement have been included
solely for convenience of reference and shall in no way define, limit or
describe any of the provisions of this Agreement.
(i) In the event of sale, merger, or other change of ownership of the
Company this Agreement will remain in effect and is binding upon new ownership.
(j) In the event of a breach by the Employee of his covenants in this
Agreement, it is agreed that the Company may suffer immediate irreparable harm
and that damage to the Company will be difficult to ascertain and quantify. The
Company may therefore petition a court of law or equity for, and be granted,
injunctive relief, in addition to any other
<PAGE> 6
relief which the Company may have under applicable law, including reasonable
attorney's fees. In the event of a breach by the Company of its covenants
in this Agreement, it is agreed that the Employee may petition a court of law
or equity for, and be granted, any relief which the Employee may have under
applicable law, including reasonable attorney's fees.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above, but actually on the dates set forth below.
ROADRUNNER VIDEO ENTERPRISES, INC.
/s/ Terry W. Schneider
--------------------------------------------
Terry W. Schneider - Chief Executive Officer
Date: April 14, 1995
---------------------------------------
/s/ Wayne J. Jung
--------------------------------------------
Wayne J. Jung
Date: April 14, 1995
---------------------------------------
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
$1,000,000 Louisville, Kentucky
August 18, 1995
FOR VALUE RECEIVED, the undersigned, KENNETH E. STILGER ("Stilger"),
hereby promises to pay to ROADRUNNER VIDEO ENTERPRISES, INC., a Kentucky
corporation ("Roadrunner"), at 819 S. Floyd Street, Louisville, Kentucky 40203,
or at such other place as the holder of this Promissory Note (this "Note") may
from time to time designate in writing, in lawful money of the United States of
America and in immediately available funds, the principal sum of One Million
Dollars ($1,000,000), together with interest as described below on the
principal balance remaining from time to time unpaid at the rate provided below
from the date hereof until payment in full thereof.
The principal of this Note shall be paid to Roadrunner in full on or
before September 30, 1995, which is the final maturity date of this Note (the
"Maturity Date").
Stilger further promises to pay interest on the outstanding unpaid
principal balance hereunder, from the date hereof until payment in full hereof,
at the per annum rate of 10.5% percent. All accrued but unpaid interest shall
be payable in full at the Maturity Date.
The outstanding principal balance hereof, and any accrued but unpaid
interest hereon, may be prepaid at any time, in whole or in part, without
penalty or premium; provided, however, that if less than the full amount of
principal and accrued interest is prepaid, such prepayment shall be applied
first to all accrued and unpaid interest hereunder, and then to the outstanding
principal balance hereof.
In no contingency or event whatsoever shall interest charged hereunder,
however such interest may be characterized or computed, exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that Roadrunner has received interest hereunder in excess of the
highest rate applicable hereto, Roadrunner shall promptly refund such excess
interest to Stilger.
Stilger waives demand, presentment, protest, notice of protest and notice
of nonpayment or dishonor of this Note without waiving any rights Roadrunner
may have hereunder.
No delay or omission on the part of Roadrunner in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by Roadrunner of any right or remedy shall preclude other or further
exercise thereof or of any other right or remedy.
This Note has been delivered at and shall be deemed to have been made in
Louisville, Kentucky, and shall be interpreted and the rights and liabilities
of the parties hereto determined in accordance with the internal laws (as
opposed to conflicts of laws provisions) and decisions
<PAGE> 2
of the Commonwealth of Kentucky. Whenever possible each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note. Whenever in this Note
reference is made to Stilger or Roadrunner, such reference shall be deemed to
include, as applicable, a reference to their respective successors, heirs and
assigns. The provisions of this Note shall be binding upon and shall inure to
the benefit of said successors, heirs and assigns.
By: /s/ Kenneth E. Stilger
-------------------------
Kenneth E. Stilger
2
<PAGE> 3
UNCONDITIONAL GUARANTY
In consideration of the benefits inuring to Roadrunner under the Purchase
Agreement, the undersigned unconditionally guarantees the prompt payment of (i)
the entire principal balance of this Note, (ii) all accrued interest upon the
principal balance hereof, and (iii) all attorneys' fees and costs and expenses
of collection incurred by Holder regardless of the genuineness, validity or
enforceability of this Note. The undersigned consents and agrees to be bound
by all of the terms of this Note.
-------------------------
Terry W. Schneider
("Guarantor")
3
<PAGE> 1
Exhibit 10.3
AGREEMENT
This is an Agreement dated as of May 7, 1992, between Roadrunner Video
Enterprises, Inc., a Kentucky corporation (the "Retailer") and Rentrak
Corporation, an Oregon corporation (Rentrak").
Recitals
A. The Retailer currently operated 24 video specialty outlets.
B. Rentrak distributes prerecorded videocassettes pursuant to the
"Pay-Per-Transaction" system (the "PPT Systems").
C. The Retailer desires to obtain the opportunity to utilize the PPT
System and Rentrak desires to provide the Retailer with such an
opportunity, each on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties agree
as follows.
1. Subject to the terms and conditions of this Agreement, Rentrak
hereby grants the Retailer the right to utilize the PPT System.
2. The Retailer agrees to execute the Rentrak National Account
Agreement (the "Account Agreement") in connection with its use of the PPT
System, the form of which, as amended, is attached as Annex A to this
Agreement. The terms and conditions set forth in this Agreement and the Account
Agreement shall govern the relationship between the Retailer and Rentrak. To
the extent that the terms of the Account Agreement conflict with the terms of
this Agreement, the terms of this Agreement shall be controlling.
3. During the next 12 months, the Retailer agrees to utilize the PPT
System in at least one outlet, and, at its sole and absolute discretion, shall
have the right to utilize the PPT System in any or all additional outlets.
4. The Retailer shall pay to Rentrak a processing fee of $2,250 for each
outlet utilizing the PPT System (the "Processing Fee") within 12 months from
the date of this Agreement. If the Retailer continues to utilize the PPT
System after the expiration of such 12 month period, Rentrak shall charge no
additional processing fee with respect to outlets that participated in the PPT
System during the 12 month period referred to above. The Retailer
acknowledges that Rentrak may increase the per-outlet processing fee with
respect to outlets that begin participation in the PPT System after the
expiration of the 12 month period referred to above.
<PAGE> 2
5. The Processing Fee shall be paid by means of the delivery of a
promissory note, the form of which is attached as Annex B to this Agreement
(the "Note"). The Note shall be due and payable on April 30, 1995 and shall
bear no interest. The principal amount of the Note shall be reduced, but not
below zero, by an amount equal to 10% of the total handling, transaction and
sell-thru fees (as defined in the Account Agreement) paid to Rentrak on or
before May 30, 1995 with respect to the Retailer's outlets. The above
described credits against the Note shall in no event cause any amount or
credit to be due from Rentrak to the Retailer.
6. The terms of this Agreement shall be subject to the confidentiality
requirements set forth in paragraph 13 of the Account Agreement.
This proposal is offered to you with the understanding that you will
not disclose the terms thereof to any individual or entity. If you do disclose
the terms thereof of this proposal, and any agreement entered into pursuant
hereto, shall, at Rentrak's election be null and void, replaced by the standard
Rentrak Agreement then in effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
RENTRAK CORPORATION
By: /s/
-------------------------------
Title: V.P. Finance
----------------------------
ROADRUNNER VIDEO ENTERPRISES, INC.
By: /s/ Terry W. Schneider
--------------------------------
Terry W. Schneider
President
<PAGE> 1
EXHIBIT 10.4
RENTRAK NATIONAL ACCOUNT AGREEMENT
INSTRUCTIONS
- ------------
All shaded areas of this Agreement must be completed.
This Agreement will be rejected if any alterations are made to it or
if it is not accompanied by the full processing fee. Processing fees are:
Fee (U.S. and Canada)
- ----------------------------------------------------------------------------
First store:....................................................$4,495.00
Multiple stores owned by the same Retailer:
a) Additional stores signed at the same time as first store...$2,250.00
b) Additional stores signed at a later date...................$4,495.00
AGREEMENT
AGREEMENT made this 7th day of May, 1992, by and between Rentrak
Corporation ("Rentrak"), and
Roadrunner Video Enterprises, Inc.
- ----------------------------------
("Retailer").
Retailer operates a chain of video retail locations. This Agreement
shall cover the retail establishments ("Retail Location(s)") listed on Exhibit
A hereto. In addition, Retailer operates the central office (Office) and/or
warehouse facility (Warehouse) also listed on Exhibit A.
Rentrak distributes prerecorded videocassettes pursuant to an
innovative method known as Pay-Per-Transaction(SM) ("PPT" or the "PPT(R)
System"). The PPT System involves the leasing of prerecorded videocassettes or
other media by certain individuals or entities ("Vendors") to Retailers. The
leases are governed by the terms established under the PPT System. Retailer
desires to participate in the PPT System.
In consideration of the mutual promises and agreements contained herein,
the parties agree as follows:
1. Rentrak agrees to process this application and to determine if
Retailer currently meets the requirements for participation in the PPT System.
Rentrak shall ship to Retailer cassettes in such quantities and at such times
as Vendors make available to the PPT System and which Retailer orders. All
cassettes will be shipped "FOB Destination" to Retailer's Warehouse or at
Retailer's request, to each Retail Location. Retailer's last order accepted and
confirmed by Rentrak shall be final. Rentrak will use its best efforts to
assure delivery of cassettes to Retailer on or before the street date. If, for
any reason, Retailer's order cannot be shipped, Rentrak or Retailer may cancel
the unfilled order upon notice and without further liability to the other party.
2. Retailer agrees to pay a processing fee of $ (per agreement date
5/7/92) for which a check is attached hereto. In no event will the processing
fee (or any portion thereof) be refunded unless the application is rejected by
Rentrak. Retailer agrees to participate in the PPT System on the terms and
conditions established by the this Agreement, any Rentrak PPT System Manual
delivered to Retailer (including any amendments or modifications thereto) and
any written notices delivered to Retailer by Rentrak from time to time. Retailer
shall:
a) Acquire Rentrak approved computer hardware and software or otherwise
fully comply, to Rentrak's satisfaction, with its interface specifications.
Retailer shall complete, to Rentrak's satisfaction, its training program and
system testing. If prior to Retailer's placement of its initial order for PPT
product, Retailer's hardware or software is determined by Rentrak in its sole
discretion to be incompatible with Rentrak's software or to be unable to report
properly, Rentrak may terminate this Agreement and will, upon return of the
software and manuals delivered to Retailer, immediately refund all of the
application fee paid by Retailer.
b) Timely remit all amounts due Rentrak.
c) Comply with the reporting system established by Rentrak. Rentrak may
modify the reporting system from time to time, and Retailer must comply with
such modification within ninety (90) days of written notice from Rentrak.
Retailer shall permit Rentrak to obtain all reports required pursuant to this
Agreement from each Retail Location's point-of-sale computer system ("POS
System") and at Rentrak's request from Retailer's central computer (meaning the
computer to which all Retail Locations are reporting their rental and sale
information, such computer being hereinafter referred to as the "host
computer"). If Retailer cannot deliver the required reporting to Rentrak within
seven (7) days of the due date, Rentrak may, at its sole election, cancel
orders and refuse to accept additional orders in process until the required
reporting is received.
d) Utilize POS System software authorized by Rentrak, or modify its
software to meet Rentrak's current specifications and thereafter remain in
compliance with Rentrak's specifications as modified from time to time in
Rentrak's sole discretion. Rentrak, in its sole discretion, may at any time
modify or change the authorized Vendors, modify or change the required POS
System software, and/or modify or change the required POS System equipment.
Retailer shall, within ninety (90) days of written notice, and at Retailer's
sole expense, comply with any such changes. Failure to comply shall be deemed a
breach of this Agreement and subject Retailer to immediate termination of its
rights hereunder. As between Retailer and Rentrak, software used by the PPT
System shall remain the exclusive property of Rentrak.
e) Not violate the Vendor-designated street date for any cassette
leased pursuant hereto. Cassettes may not be rented, leased, given, or in any
manner for any reason provided to anyone who is not at the time a bona fide
employee of Retailer before the Vendor's designated street date.
f) Pay all sales, use, property or other taxes of any kind or nature
assessed or levied by any taxing authority with respect to cassettes acquired
or rented pursuant hereto, except for income taxes of Rentrak or Vendor.
g) At the time of ordering, designate the number of cassettes being
ordered by each individual Retail Location.
h) Within forty-eight (48) hours of receipt at its Warehouse or at its
Retailer Locations, whichever occurs first and prior to any rental thereof,
bar-code the cassettes, enter them into both the designated Retail Location's
POS System and the host computer and make them available for immediate rental.
Cassettes retained at Retailer's Warehouse may not be so retained longer than
five (5) days after the street date. Rentrak may provide, and Retailer shall
use, identification codes for the cassettes. Rentrak may periodically prescribe
a different identification code, which Retailer will implement within thirty
(30) days of written notice.
i) Process through the appropriate Retail Location's POS System the
rental and sale of all cassettes offered for rental by Retailer.
Notwithstanding the foregoing sentence, Retailer may utilize a processing
system other than the POS System for a period not to exceed two (2) business
days, when the Retailer's POS System is nonfunctioning. Retailer shall
immediately give Rentrak telephone notice of retailer's POS System is
nonfunctioning. All rental and sale transactions involving cassettes occurring
during the nonoperational period will be processed through Retailer's POS
System once it is again operational.
j) Not remove the cassette from the retail establishment except
pursuant to this paragraph or paragraph 19 hereof. Retailer may, subsequent to
deployment, move cassettes from one Retail Location to another or from a Retail
Location to Retailer's Warehouse. A transfer from one Retail Location to
another need not be reported to Rentrak but must be tracked by the Retailer's
internal inventory control system on a same day basis. A cassette may not be
moved from one Retail Location to another Retail Location more than five (5)
times during the lease term. For purposes hereof, a transfer of a cassette from
a Retail Location to the Warehouse shall be deemed a sale of the cassette at
the minimum used sale price. Retailer shall timely report all such transfers.
k) Honor and comply with all copyrights applicable to all cassettes
leased pursuant hereto and not copy any of the cassettes or allow any customer
to copy the cassettes, or rent cassettes to any customer it has reason to
believe intends to copy the cassettes, where such copying may violate copyright
or other laws.
l) Use its best efforts to rent cassettes at rates it determines
appropriate and prominently display the cassettes supplied through Rentrak. Not
more than one copy of each title need be displayed. Retailer shall not rent the
cassettes for a period of longer than seven (7) days in any single transaction
to any customer or permit the cassettes to be leased to or by other video
retailers.
m) Not order quantities of cassettes in excess of those required to
meet anticipated rental demand.
n) Not disassemble, decompile, reverse engineer, or in any manner
tamper with or in any manner alter, copy, or use any hardware or software
provided or required by Rentrak except in the manner and for the specific
purpose described in this Agreement and in the Operations Manual. Retailer
agrees that it will not divulge or disclose or otherwise make available to any
third person whatsoever, or make any use whatsoever, copy or in any way
replicate the PPT software or allow any third party to do the same. Except as
directed by Rentrak, neither the POS System nor the software will be utilized
to, in any manner, provide information on rental or sale activity of any
cassettes at the retail location, regardless of how the cassettes were
acquired, to any provider of cassettes under any form of revenue sharing plan
or leasing system.
3. As a condition of making a title(s) available, a Vendor may
establish its own credit, pricing terms and/or minimum/maximum purchase
requirements. When ordering cassettes, Retailer shall comply with such
minimum/maximum requirements. Whenever a purchase requirement is established by
a Vendor, Retailer will have the option of terminating its involvement in the
PPT System with respect to that particular Vendor or, in some cases, title(s).
If the Retailer elects to participate and fails to honor the purchase
requirements, it will forfeit its right to continue participation in the PPT
System with respect to that Vendor.
4. The rights granted to Retailer hereunder with respect to the leasing
of prerecorded Videocassettes in the PPT System are dependent upon the rights
1
<PAGE> 2
granted to Rentrak by the Vendors (owners of such prerecorded videocassettes).
In the event that Rentrak's PPT rights in and to certain prerecorded
videocassettes terminate for any reason, Retailer's rights to certain
videocassettes granted pursuant to this Agreement shall be affected in the
following manner. In consideration of Retailer compensating Vendor(s) directly,
or returning Vendor(s)'s property (i.e., the videocassettes) directly to the
Vendor(s), which choice Retailer may be given the option of selecting, certain
Vendor(s) have agreed to permit Retailer to own some or all of those Vendor(s)'s
videocassettes in Retailer's possession after compensating those Vendor(s) in
accordance with a "purchase formula" or returning the videocassettes Retailer
elects not to purchase directly to that Vendor. If Rentrak's rights to lease a
Vendor's videocassettes terminate, Retailer may be notified in writing by the
Vendor, and instructed on the choices and procedures to follow. In such event of
termination, Rentrak may at that time assign all of its rights as the lessor of
videocassettes to the Vendor, and Retailer will become a lessee of the Vendor.
5. Retailer is under no obligation to lease any cassette offered
pursuant to the PPT System. Further, Retailer may order cassettes of a title
for one or more of the other Retail Locations and not order cassettes of the
same title for one or more of the Retail Locations. If a Retailer rents
cassettes to the public at a store which was designated in Retailer's order as
a PPT participating store with respect to that title and which were obtained by
means other than this Agreement, and are of the same title as cassettes which
it has also obtained under this Agreement. Retailer agrees that rentals of all
cassettes of such title, regardless of how obtained, shall be reflected,
reported and revenue sharing paid as if the cassettes were obtained under this
Agreement. With respect to cassettes leased hereunder, Retailer may not
purchase the cassette and use it as rental inventory, remove the title from
rental availability except as provided herein, or take any other steps to
deprive the Vendor of all available revenue under the Vendor's established
terms for the title's lease term except to the extent that, once "used
sell-through" is permitted for a particular title by Vendor's terms, Retailer
may remove cassettes no longer required for rental use to Retailer's Warehouse
for subsequent sale at non-PPT locations by recording the same as a sale and
making the required remittance to Rentrak upon transfer.
6. When cassettes are offered pursuant hereto, Retailer will be
notified of the lease terms. Generally, such terms include the following:
a) Retailer shall, within the time allowed by Rentrak, pay Rentrak a
"handling fee" for each cassette leased. This handling fee may vary from title
to title. A portion of the handling fee may represent sales, use or excise
taxes.
b) Retailer shall, on a weekly basis, pay Rentrak a "transaction fee"
with respect to each rental of all cassettes leased pursuant hereto. This
transaction fee may vary from title to title and may include a minimum lease
fee per transaction due regardless of the rental amount received by Retailer.
c) Retailer shall, on a weekly basis, pay Rentrak a "sell-through fee"
with respect to any cassettes leased pursuant hereto and sold by Retailer to
the public. Vendors may establish restrictions on the sale of cassettes leased
pursuant hereto, and these restrictions or the sell-through fee may vary from
title to title. Retailer shall establish its own sales price for the cassettes
sold pursuant to this Agreement. Retailer shall immediately report the sale
through its POS System. PPT cassettes may not be ordered for the purpose of
resale prior to rental activity. In all cases, Retailer must retain, display,
and make available for rental at least one of the cassettes of a title which it
leased pursuant hereto at each location designated as participating with
respect to the particular title throughout the term of the lease.
d) Generally Vendors have established terms by which Retailer may
purchase some or all the cassettes leased pursuant to this Agreement at the end
of the lease term. Within the time specified, Retailer shall pay the
appropriate "buy-out fee," if any, with respect to all cassettes not returned
at the end of the lease term.
7. Retailer shall pay Rentrak its then current monthly communications
fee as billed by Rentrak. Such fee is currently $29 per Retail Location as
designated by Retailer as one which may participate in PPT. Fees are subject to
change without notice. In the event Retailer elects to communicate for all of
its locations from one central host computer, Retailer shall be responsible for
paying all costs incurred to deliver the data to Rentrak on a daily basis in a
form acceptable to Rentrak.
8. Retailer shall maintain insurance on all cassettes in an amount at
least equal to their "replacement value," defined herein as an amount equal to
fifty percent (50%) of its then current list price. Retailer shall pay to
Rentrak the replacement value for all cassettes which are lost, stolen or
destroyed subsequent to delivery to Retailer. The replacement value shall be
paid to Rentrak immediately upon the destruction, loss or theft of a cassette.
Cassettes discovered missing in the ordinary course of business are to be
recorded and paid for when discovered as if they had been sold to the public.
9. Retailer agrees to maintain the cassettes in good condition and
repair.
10. In the event Retailer receives defective cassettes from Rentrak, it
may, within thirty (30) days of receipt, return them prepaid to Rentrak.
Rentrak will immediately replace the cassettes, billing Retailer the initial
fee per cassette. Upon receipt of the defective cassette from the Retailer, and
after determining that the defect was not Retailer or consumer related,
Rentrak will issue credit for the initial fee. In the event Rentrak does not
replace the returned defective cassette, Rentrak will issue credit for the
initial fee paid by Retailer. In no event will Rentrak or the Vendor be
otherwise liable for such cassettes or any loss of any nature caused thereby.
Defective cassettes not delivered to Rentrak within thirty (30) days of receipt
may not be returned for replacement or credit.
11. Prior to Rentrak's approval of shipments to Retailer, Retailer shall
demonstrate to Rentrak's sole satisfaction that it has in operation a
comprehensive inventory tracking system which is able, on a demand basis
(meaning immediately upon Rentrak's request) to produce reports detailing the
information desired by Rentrak on a per cassette basis and in a format
acceptable to Rentrak. Retailer and Rentrak agree that Rentrak and/or Vendor may
employ shopping services and may, without prior notice to Retailer, conduct
during normal business hours, periodic audits of Retailer's business operation
and records to verify compliance with the terms of this Agreement. Within 48
hours of Rentrak's request, Retailer will deliver to Rentrak at its principal
office (or if requested by Rentrak to its on-site auditor) a list of every title
leased pursuant to this Agreement, the number of cassettes of each leased title,
the location of each cassette, including a list of the customers to whom
cassettes are then on rental, and the location from which each cassette was
rented. Retailer agrees to pay liquidated damages in the amount of $2,000
multiplied by the number of Retail Locations, in payment of Rentrak's audit
costs in the event that an audit or shopper's report indicates any breach of
this Agreement. A breach of this Agreement may include, but is not limited to,
the following:
a) Retailer has not reported all of its rentals or sales of cassettes
to Rentrak;
b) Retailer has rented or sold cassettes leased hereunder on other than
the authorized terms;
c) Retailer has rented or sold cassettes from any location other than a
designated Retail Location;
d) Retailer has in stock or has had in stock, (in a particular Retail
Location) cassettes of titles for rental to the public which were obtained from
a source other than Rentrak, and said titles were also obtained from Rentrak
under this Agreement, and Retailer fails to report revenue sharing to Rentrak
for all cassettes of such titles;
e) Retailer has in stock cassettes which have not been prepared for
rental, are not displayed as required, or are not immediately available for
rental;
f) Retailer has in stock or has had in stock cassettes not accounted
for under the POS System;
g) Retailer has transferred cassettes obtained hereunder in violation
of this Agreement; and/or
h) Retailer has breached any other term or condition of this Agreement.
In addition, Retailer agrees to pay Rentrak liquidated damages in an amount
equal to the retail price established by Rentrak at the time of distribution to
the Retailer ("Retail Price") for each and every cassette not at a Retail
Location, or properly rented or sold on the day of the audit.
In addition, if at any time cassettes provided to Retailer under this
Agreement are missing from the Retail Location and not properly rented or sold,
Retailer agrees to pay liquidated damages for lost revenue to Rentrak consisting
of $.40 per cassette per day for the first sixty (60) days after the cassette's
street date and $.10 per cassette for each and every day thereafter that the
cassette is not in the retail establishment. The lost revenue damages will
continue to accrue through and including the date the Retailer pays Rentrak the
Retail Price for each missing cassette as described above. Retailer may not
return cassettes which were missing at the audit, in satisfaction of the
liquidated damages equal to the Retail Price due under this paragraph. The
liquidated damages may be assessed by Rentrak against the Retailer, if, in
Rentrak's sole discretion, the breach is intentional. This Agreement may be
immediately terminated by Rentrak prior to its termination date if any breach of
this Agreement is discovered by Rentrak at an audit of the retail establishment.
12. Retailer acknowledges that the Rentrak PPT Software (the Rentrak
Profit Maker [RPM]) is a proprietary valuable asset of Rentrak. Retailer
further acknowledges that the PPT System requires Retailer to retain and reveal
certain information with respect to its business, and that accurate verifiable
data as to rentals and sales of the cassettes is imperative. Inaccurate or
incorrect reporting by Retailer will cause substantial damage to Rentrak.
Rentrak agrees data collected will be kept strictly confidential and will use
such data only for (i) auditing purposes; and (ii) in the aggregate with data
from other Retailers.
13. Retailer acknowledges that it is imperative that the participants
in the PPT System, the parties to this Agreement, the titles involved, the
reporting system established by Rentrak and any obligations of Retailer
pursuant to the Agreement remain confidential. Retailer agrees that during the
term of this Agreement and all times thereafter, it will not disclose to any
individual or entity, including but not limited to, business associates,
friends or relatives, the participants in the PPT System, the titles offered
pursuant to this Agreement, the reporting system, or any obligations of
Retailer pursuant to this Agreement. Notwithstanding the foregoing, Retailer
may reveal this Agreement to professional advisors for purposes of providing
Retailer with advice regarding execution of the Agreement, Retailer's
obligation hereunder, or the performance of Retailer's obligation pursuant to
federal, state or local laws. Retailer shall inform any such professional
advisor of this Confidentiality provision.
14. During the term of this Agreement, Retailer shall obtain all its
requirements for leased cassettes exclusively from Rentrak and not obtain
cassettes from any other person by lease, consignment, revenue sharing
arrangement, or any other manner which competes with, or is substantially
similar to, the PPT System, nor participate in any system which competes with,
or is substantially similar to, PPT. Notwithstanding the above, Retailer has
the absolute right at its sole discretion to purchase cassettes from any source.
2
<PAGE> 3
15. Rentrak will notify Retailer of the lease period with respect to
each title offered pursuant to this Agreement. The lease period may vary from
title to title, but in no event shall exceed two (2) years. Upon termination of
a title's lease period. Retailer shall cause to be delivered to Rentrak within
fifteen (15) days, all cassettes thereof not validly purchased or otherwise
properly disposed. The returned cassettes shall be rewound, in good condition
(normal wear and tear accepted) and shipped in their original packaging. The
term "normal wear and tear" is construed to allow Retailer to return
manufacturer's defectives and customer defectives. The term "original
packaging" shall be construed to include "cut-box" packaging or with Retailer's
labels affixed. Retailer shall ship the cassettes with all shipping and postage
prepaid.
16. This Agreement shall expire on March 31, 2002, unless terminated
prior thereto as provided herein.
a) This Agreement may be terminated by Rentrak, prior to March 31,
2002, by notice of termination to the Retailer. In such event and upon demand.
Retailer shall deliver to Rentrak all cassettes leased hereunder which have not
been validly disposed of by Retailer within ten (10) days with all shipping and
postage prepaid.
b) Upon a breach by Retailer of any provision of this Agreement or any
other agreement between Retailer and Rentrak. Rentrak may in its sole
discretion, (i) terminate this Agreement and demand return of all cassettes
leased pursuant hereto, (ii) suspend all Retailer's rights hereunder, including
ordering privileges, until thirty (30) days after such default has been cured,
or (iii) in the event Retailer's breach consists of ordering quantities of
cassettes in excess of those required to meet anticipated rental demand (a
determination that such breach has occurred being in Rentrak's sole discretion)
then Rentrak may, without notice to Retailer, reduce Retailer's orders of
cassettes to amounts Rentrak deems appropriate. If Retailer does not cure a
default for which his rights hereunder were suspended, the Retailer shall be
subject to immediate termination without notice or opportunity to cure.
c) Retailer may terminate this Agreement if Rentrak has failed to cure,
or begun to cure, an event of default by Rentrak for which Retailer has given
Rentrak thirty (30) days written notice.
d) Upon termination of this Agreement, Retailer shall within ten (10)
days deliver to Rentrak all cassettes leased hereunder that have not been
validly purchased or otherwise properly disposed. The returned cassettes shall
be rewound in good condition (normal wear and tear accepted) and shipped in
their original packaging. Retailer shall ship the cassettes with all shipping
and postage prepaid. Retailer shall pay the then current manufacturer's
suggested retail price for any cassettes not returned to Rentrak and shall pay
all liabilities remaining due to Rentrak within seven (7) days of termination.
Under no circumstances shall Retailer be entitled to or receive any refund or
credit for any initial signup or ongoing fees paid to Rentrak in connection
with this Agreement, nor will Rentrak be held liable for any costs associated
with the Agreement incurred by Retailer.
e) If Retailer's breach consists of failure to report rental or sales
transactions, Retailer agrees to pay liquidated damages for lost revenue to
Rentrak of $.40 per cassette for each and every day that Retailer fails to
report to Rentrak during the first sixty (60) days after the cassette's street
date and $.10 per cassette each and every day that Retailer fails to report to
Rentrak thereafter.
f) Any notice permitted or required pursuant to this Agreement shall be
in writing and shall be effective when actually delivered in person or when
deposited in the United States mail, registered or certified, postage prepaid,
addressed to the party at the address stated in this Agreement or at such other
address as either party may designate by written notice to the other.
17. Rentrak has established, and will continue to establish from time
to time, minimum acceptable net worth requirements for Retailers. If Retailer's
net worth is now or subsequently falls below this minimum, Retailer shall
provide Rentrak a personal guarantee(s) satisfactory to Rentrak.
18. Retailer, and the shareholders of Retailer, if it is a corporation,
and the partners of Retailer, if it is a partnership, shall not voluntarily or
involuntarily sell, transfer, assign, encumber, give, lease or sublease
(hereinafter collectively referred to as "transfer") the whole or any part of
this Agreement or the cassettes leased pursuant hereto without Rentrak's prior
written consent. Any attempted transfer, voluntary or involuntary, without
Rentrak's prior written consent shall be a default under the terms of this
Agreement. Approval of any transfer shall be in Rentrak's sole discretion and in
no event will be made unless all of the following occur:
a) Retailer may not be in default in any way under this Agreement or
any other agreement with Rentrak, and all billed amounts hereunder shall be
paid to Rentrak;
b) All obligations of Retailer in connection with this Agreement shall
be assumed by the transferee;
c) The transferee shall, to Rentrak's satisfaction, complete the
testing procedure required of new retailers hereunder;
d) Rentrak shall have been paid its then current transfer fee (as of
the date hereof, the current transfer fee is $500);
e) The transferee shall execute all documents Rentrak requires of new
retailers including the then current form of Agreement;
f) The transferee shall meet the financial capacity standards
established by Rentrak for retailers;
g) If Retailer transfers this Agreement or the cassettes leased
hereunder without Rentrak's prior written consent, or if Retailer transfers all
or substantially all of the assets of the business to any person who carries on
a substantially similar business without Rentrak's prior written consent, then
Retailer shall pay liquidated damages to Rentrak as follows: Retailer and its
guarantors shall pay Rentrak each month for the duration of the Agreement as
liquidated damages, a sum equal to one-twelfth (1/12) of the previous twelve
months' total charges to Retailer with respect to the Retail Location(s) or
assets thereof, which are transferred, increased by one percent (1%) per month.
The twelve month average is based upon the twelve consecutive calendar months
previous to the Retailer's default of the Agreement. Rentrak may accelerate the
time for all payments of all amounts due under this paragraph and demand
immediate payment in full.
19. Retailer may, during the term of this Agreement, desire to conduct
centralized sales of cassettes leased hereunder or to relocate one or more of
its locations.
a) Retailer shall have the right to move cassettes from a Retail
Location for the purpose of conducting a sale from a centralized location. Such
removal must not last longer than five (5) days and must be tracked by
Retailer's inventory system on a same day basis. A cassette may not be moved
for the purpose of a centralized sale more than five (5) times during the
lease term. with respect to any cassettes sold, such sales must be processed
through the appropriate Retail Location(s)'s POS System within seventy-two (72)
hours of any sale.
b) During such relocation, Retailer will be unable to comply with
certain provisions of this Agreement and, pursuant to this Agreement, would be
in default and subject to additional fees and/or penalties. Rentrak will waive
the default, fees and penalties accruing due to the relocation of the retail
establishment provided Retailer complies with all of the following:
(1) Retailer delivers to Rentrak written notice of the intended move at
least fifteen (15) days before the cassettes leased pursuant hereto are no
longer available for rental to the public.
(2) The period during which the cassettes leased pursuant hereto are
not available for rental to the public does not exceed ten (10) days, and there
is not more than one weekend (5PM Friday to the close of business on Sunday)
during such ten (10) day period.
(3) Retailer complies with all other requirements established, from
time to time, by Rentrak with respect to the relocation of a retail
establishment.
20. To secure the performance of the Retailer's obligations under this
Agreement, Retailer hereby grants Rentrak a security interest in all cassettes
leased to Retailer pursuant to this Agreement together with Retailer's interest
in any rental contracts entered into by Retailer with customers with respect to
the cassettes as well as the products and proceeds thereof (all hereinafter
called "Collateral"). Retailer will join with Rentrak in executing, filing, and
doing whatever may be necessary under applicable law to perfect and continue
Rentrak's security interest in the Collateral.
21. Retailer acknowledges and agrees that no representation or warranty
has been made by Rentrak, its directors, officers, employees, shareholders,
agents or contractors as to (i) the effect upon Retailer's revenues or net
profits of participation in the PPT System; or (ii) the vendors or titles
involved, or to be involved, in the PPT System. Retailer acknowledges that the
PPT System may terminate at any time, and that neither the PPT System nor
Rentrak's services under this Agreement are, in any way or within any
geographical area, exclusive to Retailer. Retailer acknowledges and agrees that
he has not relied upon any representation or warranty except those received in
writing and contained herein and is relying solely upon his own investigation
and that of his own advisors.
22. If any fees or costs are incurred to enforce this Agreement, or if
any suit or action is brought to enforce any provision of this Agreement, or
for damages for the breach of any of the terms of this Agreement, the
prevailing party shall be entitled, at trial and on appeal, if any, to
reasonable attorney fees as awarded by the court. This Agreement is and shall
be deemed accepted in Oregon and interpreted and enforced in accordance with
the laws of the State of Oregon applicable to contracts to be made and to be
performed entirely within this state. The parties hereto agree that any suit,
dispute, or action brought pursuant to this Agreement shall be brought in the
Circuit Court for the County of Muitnomah, State of Oregon, or the Federal
Court for the District of Oregon.
23. In the event that Retailer brings an action or asserts any claim
against Rentrak for damages arising out of this Agreement or from Retailer
entering into this Agreement with Rentrak, Retailer agrees to limit any damages
claimed to no more than the following percentage of the processing fee paid by
the Retailer: 1st day through and including the 91st day following date of
Rentrak Agreement--100%; 92nd day through and including the 183rd day following
date of Rentrak Agreement--75%; 184th day through and including the 275th day
following date of Rentrak Agreement--50%; 275th day through each and every day
thereafter following date of Rentrak Agreement--10%.
24. Should any term or provision of this Agreement be held to be
unenforceable as illegal or against public policy, that term shall be
considered severed from the rest of this Agreement and the remaining portions
of this Agreement shall not be affected. The rights and obligations of Retailer
and Rentrak shall be construed and determined, if possible, as if this
Agreement did not contain the provision or term held to be invalid. This
Agreement, as modified from time to time by authorized Rentrak manuals,
constitutes the entire Agreement and understanding of the parties with respect
to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
3
<PAGE> 4
25. Retailer certifies that the information to Rentrak, including any
financial statements furnished herewith and the "credit information" attached
hereto, is true and correct. Retailer authorizes Rentrak to check Retailer's
credit history and trade and bank references for customary credit information,
to confirm the information contained herein and to release information to other
creditors regarding Applicant's credit experience with Rentrak. Retailer
authorizes any individuals or entities listed in the attached credit information
to provide information regarding Retailer's credit history to Rentrak.
26. This Agreement will be guaranteed by the Guarantor(s) listed below.
Each Guarantor agrees that if, now or later:
a) Retailer shall be or become insolvent: and
b) Any obligations under this Agreement shall not at all times, until
paid or performed, be fully secured by collateral pledged by Retailer.
Guarantor hereby forever waives and relinquishes in favor of Rentrak and
Retailer, and their respective successors, any claim or right to payment
Guarantor may now have or later have or acquire against Retailer, by subrogation
or otherwise, so that at no time shall Guarantor be or become a "creditor" of
Retailer within the meaning of U.S.C. 547(b), or any successor provision of the
Bankruptcy Code.
<TABLE>
<CAPTION>
SOLE OWNER SIGNATURE BLOCK (Complete This Block If You Are The Sole Owner Of Your Business And Not A Partnership Or Corporation.)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY: BY:
------------------------------------------------- -----------------------------------------------------
DATE: DATE:
------------------------------------------------ ----------------------------------------------------
DO NOT COMPLETE THE COPY BLOCK BELOW IF YOU ARE A SOLE OWNER.
PARTNERSHIP/CORPORATION SIGNATURE BLOCKS
- -------------------------------------------------------------------------------------------------------------------------------
PARTNERSHIP SIGNATURE BLOCK: CORPORATE SIGNATURE BLOCK:
- ---------------------------------------------------- -------------------------------------------------------------------
(COMPLETE IF YOU ARE A PARTNERSHIP.) (COMPLETE IF YOU ARE A CORPORATION.)
Roadrunner Video Enterprises, Inc.
- ---------------------------------------------------- --------------------------------------------------------------------
(Please Print Name of Partnership) (Please Print Name of Corporation)
BY: BY: Terry W. Schneider
---------------------------------------------------- -----------------------------------------------------------------
(Please Print Name) (Please Print Name)
/s/ Terry W. Schneider
- ----------------------------------------------------- --------------------------------------------------------------------
Signature Signature
TITLE: TITLE: President
----------------------------------------------- --------------------------------------------------------------
DATE: DATE:
----------------------------------------------- ---------------------------------------------------------------
BY: BY:
--------------------------------------------------- ----------------------------------------------------------------
(Please Print Name) (Please Print Name)
- ----------------------------------------------------- ---------------------------------------------------------------------
Signature Signature
TITLE: TITLE:
----------------------------------------------- --------------------------------------------------------------
</TABLE>
IF YOU SIGNED EITHER THE PARTNERSHIP OR THE CORPORATE SIGNATURE BLOCK AND
THE CORPORATION'S NET WORTH EXCLUDING VIDEOCASSETTE INVENTORY IS LESS THAN
$250,000.00, YOU MUST COMPLETE THE GUARANTY BELOW:
GUARANTY:
- -------------------------------------------------------------------------------
The undersigned individuals, in order to induce Rentrak to enter into with
________________________________ that certain Agreement of even date herewith
do jointly and severally unconditionally and irrevocably guarantee to Rentrak,
its successors and assigns, full and complete payment and performance by
Retailer of all of the provisions, conditions, covenants, and agreements
contained in the Agreement, do jointly and severally agree to the terms of the
Agreement, expressly including the terms set fort in paragraph 21, and do
waive all notice of default by the said Retailer, notice of the acceptance of
this guaranty by Rentrak and consent to any extension of time which may be
given by Rentrak to Retailer of time for payment or performance of any of
Retailer's obligations hereunder.
<TABLE>
<S> <C>
GUARANTOR: -----------------------------------------------------------
(Print Guarantor's Name)
BY:
- ---------------------------------------------------------------- --------------------------------------------------------
(Print Guarantor's Name) Guarantor's Signature
BY:
------------------------------------------------------------- -----------------------------------------------------------
Guarantor's Signature (Print Guarantor's Name)
DATE: BY:
----------------------------------------------------------- -------------------------------------------------------
Guarantor's Signature
For Rentrak interoffice use only Do not complete:
By: /s/ Title: V.P. Finance Date: 5/14/92
--------------------------------------------- ------------------------------- --------------------------------
COMPLETE CREDIT INFORMATION ON PAGE 5 AND FINANCIAL STATEMENT AND COMPUTER INFORMATION ON PAGE 6.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
CREDIT INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS INFORMATION TRADE REFERENCES: Video distributor
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TODAY'S DATE 5/12/92 NAME Wax Works
------------------------------------------ --------------------------------------------------------------
NAME OF
COMPANY RoadRunner Video Enterprises, Inc. STREET ADDRESS
----------------------------------------------- ---------------------------------------------------
DATE 1ST STORE OPENED UNDER PRESENT OWNERSHIP 9/84 CITY Owensboro
-------- ------------------------------------------------------------
CORP. STREET ADDRESS 819 S. FLoyd STATE KY ZIP CODE
---------------------------------- -------------------------- --------------------------
CITY Louisville TELEPHONE NO. 800-825-8558
-------------------------------------------------- ----------------------------------------------------
STATE KY ZIP CODE 10203 ACCOUNT NO. Bill Burton
----------------------- ---------------- -----------------------------------------------------
TELEPHONE NO. 502-585-1411 TRADE REFERENCES: Other than video distributors & utility companies
----------------------------------------- ------------------------------------------------------------------
AVG. ANNUAL MOVIE RENTAL VOLUME PER STORE $271,000
-----------
NO. OF STORES OWNED 24 1. NAME Keith Handley Atty.
----------------------------------- -------------------------------------------------------------
AVG. STORE SQ. FOOTAGE 5500 STREET ADDRESS
-------------------------------- ---------------------------------------------------
AVG. NO. OF VHS TAPES IN RENTAL LIBRARY PER STORE 6,000 CITY Louisville
------ ------------------------------------------------------------
SALES TAX NO. STATE KY ZIP CODE
------------------------------------------ ----------------------- -----------------------
SHIPPING ADDRESS IF DIFFERENT THAN CORPORATE TELEPHONE NO. 502-589-5400
LOCATION: Please attach list of addresses if additional ---------------------------------------------------
shipping locations are needed. ACCOUNT NO.
------------------------------------------------------
NAME 2. NAME Kosse & Lindle CPA's
--------------------------------------------------- ------------------------------------------------------------
STREET ADDRESS STREET ADDRESS
----------------------------------------- ---------------------------------------------------
CITY CITY Louisville
---------------------------------------------------- -------------------------------------------------------------
STATE ZIP CODE STATE KY ZIP CODE
-------------------------- -------------- ------------------------------ ---------------------
COMMENTS TELEPHONE NO. 502--897-2818
------------------------------------------------ ---------------------------------------------------
ACCOUNT NO.
- -------------------------------------------------------- ------------------------------------------------------
BILLING ADDRESS IF DIFFERENT LOCATION: PRINCIPAL OWNER INFORMATION
----------------------------------------------------------------
- --------------------------------------------------------
NAME Terry W. Schneider
- -------------------------------------------------------- -------------------------------------------------------------
TELEPHONE NO. HOME ADDRESS 9604 Brownsboro Rd.
-------------------------------------------- -----------------------------------------------------
CONTACT NAME CITY Louisville
-------------------------------------------- -------------------------------------------------------------
BANK REFERENCE STATE KY ZIP CODE 40223
- --------------------------------------------------------- ---------------------- ---------------------------
NAME Citizens Fidelity HOME TELEPHONE 339-0853
---------------------------------------------------- ---------------------------------------------------
ACCOUNT NO. SOCIAL SECURITY NO. ###-##-#### DOB 7/17/47
-------------------------------------------- -------------------------- -------------------
ACCOUNT NO. EMPLOYER (IF DIFFERENT THAN VIDEO STORE)
-------------------------------------------- ------------------------
STREET ADDRESS Citizens Plaza
----------------------------------------- ------------------------------------------------------------------
CITY Louisville ADDRESS
---------------------------------------------------- ----------------------------------------------------------
STATE KY ZIP CODE 40296
------------------------ --------------------- -----------------------------------------------------------------
TELEPHONE NO. 502-581-4654 GUARANTOR (IF DIFFERENT THAN PRINCIPAL)
------------------------------------------ -------------------------------------------------------------------
CONTACT NAME Alan Spaes NAME
---------------------------------------------- --------------------------------------------------------------
LANDLORD/MORTGAGOR OF CORPORATE LOCATION HOME ADDRESS
- --------------------------------------------------------- -----------------------------------------------------
NAME Chase Investment CITY
-------------------------------------------------------- -------------------------------------------------------------
ADDRESS STATE ZIP CODE
----------------------------------------------------- ------------------------ ----------------------
CITY HOME TELEPHONE
------------------------------------------------------- -------------------------------------------------
STATE ZIP CODE SOCIAL SECURITY NO. DOB
-------------------- ------------------------- ------------------- -------------------
TELEPHONE NO. EMPLOYER (IF DIFFERENT THAN VIDEO STORE)
------------------------------------------------ ------------------------
CONTACT Aaron Chase
----------------------------------------------------- -----------------------------------------------------------------
-----------------------------------------------------------------
ADDRESS
---------------------------------------------------------
----------------------------------------------------------------
ACCOUNT NO.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 1
EXHIBIT 10.5
FIRST ADDENDUM TO RENTRAK
NATIONAL ACCOUNT AGREEMENT
This FIRST ADDENDUM, dated as of this ___ day of June, 1994 (this
"First Addendum"), to the Rentrak National Account Agreement, by and between
Rentrak Corporation, an Oregon corporation ("Rentrak"), Roadrunner Video
Enterprises, Inc., a Kentucky corporation with its principal place of business
located at 819 South Floyd Street, Louisville, Kentucky 40203 ("Roadrunner"),
Coyote Enterprises, Inc., a Kentucky corporation ("Coyote") and Terry W.
Schneider. Roadrunner and Coyote are hereinafter referred to as "Retailer."
RECITALS
A. Retailer desires to participate in Rentrak's pay-per-transaction
("PPT") system.
B. Rentrak and Retailer have agreed that Retailer shall enter into a
Rentrak National Account Agreement, dated the date hereof (the "Account
Agreement"), which Account Agreement shall be amended and supplemented by this
First Addendum, and any other amendments thereto (as so supplemented and
amended, the "PPT Agreement") to evidence the terms and conditions of
Retailer's video leasing arrangement under the PPT system with Rentrak.
C. It is the parties' intention that the terms and conditions of the PPT
Agreement shall apply to all Retail Locations (as defined herein) owned,
operated, managed, controlled or acquired by Retailer, Terry W. Schneider or
their Affiliates (as defined in Section 3 below), including but not limited to,
all Retail Locations of H&H Enterprises, Inc. and Choices Entertainment
Corporation to the extent Retailer effectuates the contemplated merger or other
combination or consolidation of these entities with an into Retailer.
AGREEMENT
Accordingly, in consideration of the mutual promises and
agreements contained herein, and in the Account Agreement, the parties hereto
agree as follows:
1. Effect of First Addendum. This First Addendum shall become
effective upon execution by Rentrak and Retailer of the Account Agreement and
this First Addendum. Unless otherwise stated herein, to the extent any term or
provision of this First Addendum is inconsistent with or in conflict with any
term of the Account Agreement, this First Addendum shall supersede and control
any such provision in the Account Agreement. Unless otherwise modified herein,
all terms and conditions contained in the Account Agreement shall remain in
full force and effect.
1
<PAGE> 2
2. Definitions. Any capitalized term used herein that is not otherwise
defined herein shall have the meaning set forth in the Account
Agreement.
3. Amendment to Account Agreement. The Account Agreement shall be amended
as follows:
INSTRUCTION - All processing fees pertaining to all existing and future
Retail Locations are hereby waived and the notes previously executed
by Retailer covering processing fees due from Retailer are hereby
cancelled.
RECITALS - The first paragraph of the recitals section of the Account
Agreement is amended in its entirety and shall read as follows:
Retailer operates a chain of retail video stores at various locations.
This Agreement shall cover all current retail video store locations
listed on Exhibit A to the First Addendum and all future retail
locations owned, operated, managed, controlled or acquired by
Retailer, Terry W. Schneider or their Affiliates or their successors
and assigns, including, but not limited to, all current and future
retail video store locations of any entity that is merged or
consolidated with or into Retailer or otherwise acquired by Retailer
(collectively "Retail Locations"). In the event Retailer is merged or
otherwise combined or consolidated with Choices Entertainment
Corporation, a Delaware corporation ("Choices"), any Affiliate of
Choices or any other corporation and Retailer is not the surviving
corporation, Retailer agrees to cause Choices and any other
corporation that (a) survives a merger with Retailer or (b) otherwise
controls a corporation that survives a merger with Retailer to assume
all obligations and agree to be legally bound by all terms and
conditions of this Agreement as amended and supplemented by the First
Addendum pursuant to an Assumption Agreement in form and substance
reasonably satisfactory to Rentrak. The term "Affiliate" shall mean
any individual or entity (a) directly or indirectly controlling,
controlled by, or under common control with, Retailer; (b) directly or
indirectly owning or holding ten percent (10%) or more of an equity
interest in Retailer; or (c) ten percent (10%) or more of whose voting
stock or other equity interest is directly or indirectly owned or held
by Retailer; provided, however, that Rentrak shall not be deemed an
Affiliate. In addition, Retailer operates the central office (Office)
and/or warehouse facility (Warehouse) listed on Exhibit A to the First
Addendum.
SECTION 1 - Section 1 of the Account Agreement is amended in its
entirety and shall read:
1. Subject to Section 5 below, Rentrak shall ship to Retailer
prerecorded video cassettes ("cassettes") in such quantities and at such
times as Vendors make available to the PPT System and which Retailer
orders. All cassettes will be shipped "FOB Destination" to Retailer's
2
<PAGE> 3
Warehouse or at Retailer's request, to each Retail Location. Subject to Section
5 below, retailer's last order accepted and confirmed by Rentrak shall be
final. Rentrak will use its best efforts to assure delivery of cassettes to
Retailer on or before the street date. If, for any reason, Retailer's order
cannot be shipped, Rentrak or Retailer may cancel the unfilled order upon
notice and without further liability to the other party.
SECTION 2 - The first paragraph of Section 2 of the Account Agreement is
amended in its entirety and shall read:
2. All processing fees to participate in PPT shall be waived for all
current and future Retail Locations. Retailer agrees to participate in the PPT
System on terms and conditions established by this Agreement, as amended and
supplemented by the First Addendum to this Agreement, entered into between
Rentrak and Retailer on the same date as this Agreement (the "First
Addendum"), and any Rentrak PPT System Manual delivered to Retailer (including
any amendments or modifications thereto, the "PPT Manual") and any written
notices delivered to Retailer by Rentrak from time to time; provided, however,
that the First Addendum shall be controlling to the extent that any such
documents are inconsistent therewith and this Agreement shall be controlling
over the PPT Manual to the extent the PPT Manual is in conflict with or is
inconsistent with this Agreement. As of the date of this Agreement and First
Addendum, Retailer shall cause all of the Retail Locations identified in
Exhibit A to the First Addendum to commence participation in the PPT Program
and to place their first order pursuant to, and be in full compliance with, the
terms requirements and procedures of this Agreement, as amended by the First
Addendum. Other Retail Locations acquired in the future or otherwise developed
or managed pursuant to a management agreement shall commence participation in
PPT and place its first order pursuant to, and be in full compliance with, the
terms, requirements, and procedures of this Agreement, as amended by the First
Addendum, upon opening for business to the general public if such Retail
Location is developed internally by Retailer or within 45 days if such Retail
Location is acquired or operated pursuant to a management agreement. Retailer
shall:
Paragraph (a) of Section 2 of the Account Agreement shall remain
unchanged and be given full force and effect.
Paragraph (b) of Section 2 of the Account Agreement is amended in its
entirety and shall read:
b) Timely remit all amounts due Rentrak. Rentrak and Retailer agree
that any "handling fee", "transaction fee", "sell-through fee", "end of term
buy-out fee" or other fees payable with respect to any cassettes leased pursuant
hereto shall be payable sixty (60) days after the date of Rentrak's invoice
for such fee; provided, however, that in the event
3
<PAGE> 4
Retailer does not make timely remittance of any and all amounts
due Rentrak hereunder, in addition to Rentrak' other rights
hereunder, under any other agreement between Rentrak and
Retailer and under the law, Rentrak may stop shipment of
cassettes to Retailer or ship cassettes on a COD basis with the
amount due for such cassettes to include (i) Rentrak's
reasonable estimate of future payments likely to be due with
respect thereto and (ii) an amount covering a portion of the
amounts past due Rentrak. Except as otherwise provided in this
Agreement and First Addendum, all fees payable with respect to
any cassettes leased pursuant to Rentrak's PPT Program shall be
no higher than fees charged by Rentrak to customers of similar
size and volume of business generated under the PPT Program. The
accounts receivable generated by billings to Retailer shall not
at any time exceed the cap of one million dollars ($1 million).
Rentrak shall have no obligation to extend trade credit that
exceeds this cap. Unless otherwise provided herein, Retailer
shall pay interest of one percent (1%) per month on all accounts
receivable not paid pursuant to the terms of this Agreement and
the First Addendum. In addition, in the event of a Revenue
Deficiency (as defined in Section 5 below), Rentrak may in the
exercise of its sole discretion make any or all of the following
elections: (a) upon five (5) days written notice to Retailer,
all PPT accounts receivable shall immediately become due and
payable by Retailer and Retailer shall pay in full all
outstanding PPT accounts receivable; (b) upon written notice to
Retailer charge Retailer and Retailer agrees to pay interest on
all outstanding PPT accounts receivable that are not paid thirty
(30) days or more past the invoice date and an interest rate
equal to the lesser of (i) the highest rate allowed by
applicable law or (ii) the prime rate as published in the Wall
Street Journal, from time to time, in effect as of the first day
of each month plus six percent (6%).
SECTION 5 - Section 5 of the Account Agreement is amended in its
entirety as follows:
(a) For a period of five (5) years from the date of this
Agreement and the First Addendum, Retailer, its permitted legal
representatives, successors and assigns shall: order from
Rentrak for all of Roadrunner's current twenty-five (25) Retail
Locations, the locations of which are described in Exhibit A
hereto, all future Retail Locations, including all of the
current and future Retail Locations of Choices that result from
the consummation of the Choices Transaction or any similar
transaction (other than as specified in Section 5(b) below), all
of such Retail Location's requirements of cassettes of all
rental priced video titles or other media released to or
otherwise made available under the PPT System ("Product"), in
full compliance with any vendor or Rentrak established
minimum/maximum purchase requirements, subject to the following
limitations:
(i) In the event Rentrak offers Product under the
PPT Program that requires Retailer to pay a per
transaction revenue sharing fee
4
<PAGE> 5
in excess of 55%, Retailer shall not be required to
order such Product, notwithstanding its obligations
hereunder.
(ii) If Rentrak offers the Product of more than 4 of
the 6 named Studios (Disney, Warner, Paramount, Fox, MCA
or Columbia (collectively, the "Studios") in any one
month, Retailer shall only be required to order its
requirements of Product from 4 of the 6 Studios, which
Studios shall be selected by Rentrak.
(b) For a period of five (5) years from the date of this
Agreement and the First Addendum, Retailer, and its permitted
legal representatives, successors and assigns, shall order from
Rentrak for the ten (10) currently existing Retail Locations of
Coyote, the locations of which are set forth on Exhibit B,
attached hereto, and the additional Retail Locations that result
from the merger, if any, of H&H Enterprises, Inc. with and into
Roadrunner, a sufficient volume of Product to cause the payments
made by Retailer for such Retail Locations to Rentrak pursuant
to the PPT Agreement for each calendar quarter to equal or
exceed 12.5% of Retailer's gross video retail rental revenues
from such Retail Locations as determined on a quarterly
basis (the "Purchase Requirement"). The term gross video retail
revenues shall include all revenues of any kind or nature
generated from the rental of prerecorded video whether
cassettes or other similar media rented to the public by all
Retail Locations. If Retailer fails to meet the Purchase
Requirement for any calendar quarter (the "PPT Deficiency"),
Retailer shall within the next two succeeding calendar quarters
(in addition to meeting the Purchase Requirement for such
quarters) increase the amount of Product obtained under the PPT
system to cause its payments made to Rentrak to equal or exceed
the PPT Deficiency such that in the aggregate, Retailer shall
have paid to Rentrak an amount equal to a minimum of 12.5% of
Retailer's gross video retail revenues for such three (3)
calendar quarter period. Failure to pay to Rentrak the PPT
Deficiency within the next two succeeding calendar quarters
shall be referred to as the "Revenue Deficiency." Product shall
be obtained by Retailer in full compliance with any vendor or
Rentrak established minimum/maximum purchase requirements.
"Rental priced" Product shall mean any Products that have a
manufacturers suggested retail price of $35 or more.
(c) Section 3 of this Agreement shall not in any way limit
or restrict Retailer's obligations pursuant to Section 5(a) of
this Agreement, as amended by the First Addendum.
(d) If a Retailer rents cassettes to the public at a Retail
Location which was designated in Retailer's order as a PPT
System participating store with respect to that title and which
were obtained by means other than this Agreement and the First
Addendum, and are of the same title as cassettes which it has
also obtained under this Agreement and the First Addendum,
Retailer agrees that rentals of all cassettes of such title at
that store, regardless of how obtained, shall be reflected,
reported and revenue sharing paid as if the cassettes were
obtained under this Agreement and the First Addendum. With
respect to cassettes leased hereunder
5
<PAGE> 6
and under the First Addendum, Retailer may not purchase the
cassette and use it as rental inventory, remove the title from
rental availability except as provided herein and in the First
Addendum, or take any other steps to deprive the Vendor of all
available revenue under the Vendor's established terms for the
title's lease term except to the extent that, once "used
sell-through" is permitted for a particular title by Vendor's
terms, Retailer may remove cassettes no longer required for
rental use to Retailer's Warehouse for subsequent sale at
non-PPT locations by recording the same as a sale and making the
required remittance to Rentrak upon transfer.
SECTION 13 - Section 13 of the Account Agreement is amended in
its entirety and shall read as follows:
Retailer acknowledges that it is imperative that the
participants in the PPT System, the parties to this Agreement
and the First Addendum, the titles involved, the reporting
system established by Rentrak, any obligations of Retailer
pursuant to this Agreement and the First Addendum, and all other
aspects of execution, delivery and performance of this Agreement
and the First Addendum, including the terms hereof and thereof,
remain confidential. Retailer hereby agrees it will not disclose
to any individual or entity, including but not limited to,
business associates, friends or relatives, any of the terms or
conditions of this Agreement or the First Addendum or any of the
participants in the PPT System, the titles offered pursuant to
this Agreement and the First Addendum, the reporting system, or
any obligations of Retailer and Rentrak pursuant to this
Agreement or the First Addendum. A disclosure of this Agreement
and First Addendum will be permitted, however, to bona fide
potential investor or advisor who has signed a nondisclosure
agreement in form and substance satisfactory to Rentrak or to an
attorney or accountant that is under professional or ethical
duty to keep such information confidential. In addition, this
restriction shall not prevent Retailer from disclosing such
information pursuant to Court order, or as may be required under
state and federal securities law, provided that in the event
Borrower engages in a public offering of its securities and in
good faith and on the advice of counsel determines that
disclosure of such information is required under federal or
state securities laws, Borrower agrees to consult with and
advise Rentrak of the proposed disclosure in advance of such
disclosure and Rentrak agrees not to unreasonably withholder its
consent to the disclosure provided that Borrower exercises its
best efforts to obtain confidential treatment of such
information by making the appropriate applications and requests
to the Securities and Exchange Commission. Retailer (and its
officers and directors) hereby endorses Rentrak and the PPT
System and shall not in any way disparage Rentrak or the PPT
System to the press, trade, public or anyone else, except as may
be required by applicable law. The obligations contained in this
Section 13 shall survive the expiration and termination of this
Agreement and the First Addendum and continue thereafter for a
period of twenty-four (24) months. Notwithstanding the
6
<PAGE> 7
foregoing, Retailer hereby agrees that Retailer (and its officers and
directors) shall confirm the existence of this Agreement and the First
Addendum at such time as requested by Rentrak in writing.
SECTION 14 -- Section 14 of the Account Agreement is amended in its
entirety and shall read as follows:
Except as otherwise modified by Section 5, this Section 14 shall remain
in full force and effect.
SECTION 16 -- The following paragraph shall be added to Section 16 of
the Account Agreement to read in its entirety as follows:
g) Upon expiration or termination of this Agreement and the First
Addendum for any reason, Rentrak and Retailer agree that they shall not
make any derogatory, negative or otherwise disparaging remarks of any
nature whatsoever about each other.
4. Additional Terms of the Account Agreement. The following additional
terms shall be added to the Account Agreement:
SECTION 27 -- Dissemination of Data. Rentrak may use financial and
business data which it acquires from Retailer or its representatives
including revenue and quantities, hereinafter "Data", for the sole
purpose of promoting its PPT concept. Rentrak will not identify Retailer
in the use of such data. Rentrak will exercise its reasonable efforts to
protect Retailer's competitive advantage of owning this Data. Retailer
will use reasonable efforts to promote the PPT concept and assist
Rentrak in its relationship with other retailers and movie studios as
long as by doing so Retailer would not jeopardize its competitive
advantage. Rentrak may use quotes and other testimonials given by
Retailer to promote PPT, with Retailer's consent.
SECTION 28 -- Future Stores. During the term of this Agreement, as
supplemented and amended by the First Addendum, all existing and future
video retail establishments owned, operated or managed by Retailer, its
successors or assigns (including, without limitation, all retail video
stores of any other entity that is merged or consolidated with or into
Retailer), Terry W. Schneider and their Affiliates shall be subject to
and shall comply with all of the terms and conditions set forth in this
Agreement and the First Addendum. If the terms of trade differ at the
newly acquired/merged retailer, the terms of this Agreement shall apply
and be controlling.
SECTION 29 -- Successors and Assigns. This Agreement and the First
Addendum shall be legally binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
7
<PAGE> 8
SECTION 30 - No Other Revenue Sharing. During the term of the
PPT Agreement and for a period of two (2) years from the date of
the termination of the PPT Agreement, Retailer shall not order
or otherwise obtain from any source other than Rentrak on a
lease, consignment, revenue sharing or similar arrangement any
prerecorded video titles whether on cassettes or other media.
SECTION 31 - Scope of Agreement and Effect of Prior Agreements.
The PPT Agreement shall cover all Retail Locations owned,
operated, managed or controlled by Retailer, Terry W. Schneider,
or their Affiliates as further specified in Recital C and Item 3
of the First Addendum and such Retail Locations and the
individuals or entities owning, operating, managing or
controlling such Retail Location shall be legally bound to the
terms and conditions of the PPT Agreement. Retailer and Terry
Schneider agree to cause such Retail Locations and the
individuals or entities owning such Retail Locations to be
legally bound to the terms and conditions of the PPT Agreement.
This PPT Agreement shall replace, as of the date hereof, the
National Account Agreements dated ______________, entered into
by and between Roadrunner and Rentrak and dated ______________,
entered into by and between Coyote and Rentrak (the "Prior PPT
Agreements") and all Product obtained pursuant to such Prior
Agreements and the rights and obligations of the parties hereto
on and after the date hereof, shall be governed by the terms
contained in this PPT Agreement. The Prior PPT Agreements shall
remain effective only with respect to the rights and obligations
of the parties existing prior to the date hereof.
SECTION 32 - Inventory. Retailer shall not shift or transfer any
inventory of Product between Retail Locations unless and until
Retailer establishes an inventory tracking system that is
approved by Rentrak in writing. Within forty-five (45) days of
the date hereof, Retailer shall prepare a reconciliation of
Retailer's PPT inventory, including all Product under the Prior
PPT Agreements, with Rentrak's title sites. All missing or
unaccounted for video cassettes shall be processed through the
PPT system as used sales.
5. SECTION 33 - Counterparts. This First Addendum may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties have caused this First Addendum to be
executed as of the day and year first written above.
RENTRAK: RENTRAK CORPORATION
By --------------------------------
Ron Berger, President
8
<PAGE> 9
RETAILER: ROADRUNNER VIDEO ENTERPRISES, INC.
BY /s/ Terry W. Schneider
---------------------------------
Terry W. Schneider, President
COYOTE ENTERPRISES, INC.
By /s/ Terry W. Schneider
---------------------------------
Terry W. Schneider, President
The undersigned hereby executes this First Addendum only for the
purpose of being legally bound to the terms of this First Addendum pertaining
to Terry W. Schneider set forth in Section 31 of this First Addendum.
TERRY W. SCHNEIDER
By /s/ Terry W. Schneider
---------------------------------
Terry W. Schneider
9
<PAGE> 10
EXHIBIT A
Name and location of existing Roadrunner retail video store locations
and warehouse and office locations.
10
<PAGE> 11
EXHIBIT B
Name and location of existing Coyote retail video store locations
and warehouse and office locations.
11
<PAGE> 12
ROADRUNNER VIDEO ENTERPRISES, INC.
819 SOUTH FLOYD STREET, LOUISVILLE, KENTUCKY 40203
May 6, 1993
Ms. C.J. Richie
Rentrak Corporation
7227 NE 55th Avenue
Portland, OR 97218
Dear Ms. Richie;
Please be advised that our store number 43779 is closed as of May 6, 1993.
The Rentrak product is stored in our warehouse and is currently inactive.
We anticipate that the store will re-open on or before July 1, 1993, but we
cannot be certain of that date.
Should you have any questions whatsoever, please do not hesitate to contact me.
Very truly yours,
/s/ James R. Breslin, CPA
James R. Breslin, CPA
Chief Financial Officer
/jmh
<PAGE> 1
EXHIBIT 10.6
FIRST AMENDMENT
TO FIRST ADDENDUM TO
RENTRAK NATIONAL ACCOUNT AGREEMENT
and
FIRST AMENDMENT
TO
SECURITY AGREEMENT
This First Amendment to First Addendum to Rentrak National Account
Agreement and First Amendment to Security Agreement is made and entered into as
of this 27th day of December, 1995, by and among Rentrak Corporation, an Oregon
corporation ("Rentrak"), Roadrunner Video Enterprises, Inc., a Kentucky
corporation with its principal place of business located at 819 South Floyd
Street, Louisville, Kentucky 40203 ("Roadrunner"), Coyote Enterprises, Inc., a
Kentucky corporation ("Coyote"), Roadrunner Video Group, Inc. ("RVG"), formerly
Business Data Group, Inc., a Delaware corporation, and Terry W. Schneider
("Schneider"), individually and as guarantor of the PPT Agreement pursuant to
the Guaranty dated June 6, 1994. Roadrunner, Coyote and RVG are hereinafter
referred to individually and collectively as "Retailer."
WITNESSETH:
WHEREAS, Retailer currently owes Rentrak $15,867.00 in past due
accounts receivable for product acquired under the PPT system and a sum to be
determined as set forth below for Cassettes that are missing and/or were
improperly transferred recorded; and
WHEREAS, Retailer owes Rentrak $218,618.20 in amounts due on invoices
related to the ABC DataTrak system, check posting errors and related items; and
WHEREAS, Retailer is obligated to order Cassettes pursuant to a
National Account Agreement dated June 6, 1994, as modified and supplemented by
a First Addendum to the National Account Agreement (the "First Addendum") dated
June 6, 1994, as modified by a Letter Agreement dated October 10, 1994, and
further modified by an Agreement dated June 28, 1995 (collectively the "PPT
Agreement"); and
WHEREAS, Rentrak, Roadrunner and Schneider are parties to a Revolving
Credit Agreement dated as of June 6, 1994 (the "Revolving Credit Agreement"),
and Roadrunner and Schneider are obligated to Rentrak pursuant to loans
advanced thereunder with present balances of $328,679.04 ("Note 1") and
$26,011.65 ("Note 2") (collectively, Notes 1 and 2 may be referred to as the
"Existing Notes"); and
WHEREAS, the parties hereto desire to convert all past due accounts
receivable, the Existing Notes, and other amounts owed to Rentrak as further
described herein, into a single promissory note owed to Rentrak by Retailer and
otherwise to modify the PPT Agreement and the Revolving Credit Agreement as set
forth herein;
Page 1 - FIRST AMENDMENT
<PAGE> 2
NOW, THEREFORE, for and in consideration of the premises, mutual promises
hereafter contained, the sum of One Hundred Thousand Dollars ($100,000) paid
upon execution hereof by forgiveness of accounts receivable in that amount, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby acknowledge and agree as follows:
AGREEMENT
1. Pursuant to a promissory note (the "Receivables Note") dated of
even date herewith, a copy of which is attached hereto as Exhibit A, Retailer
promises to pay to Rentrak $489,175.89 which amount represents the $118,618.20
in past due accounts receivable which amount includes a $100,000 credit against
such receivables, and $15,867.00 in other amounts due Rentrak for invoices as
described above, and $354,690.69 as the amounts due on the Existing Notes. The
indebtedness represented by the Receivables Note shall be secured by the
Security Agreement, dated June 6, 1994 (the "Security Agreement"), and the
security interest created by such Security Agreement is perfected by the UCC-1
financing statements filed in connection therewith and the Receivables Note is
guaranteed pursuant to the Guaranty, dated June 6, 1994.
2. Further, RVG acknowledges that it (under its former name of
Business Data Group, Inc., a Delaware corporation) shall be treated as an
original signatory to the Revolving Credit Agreement and the Security Agreement,
and RVG agrees to execute all such UCC-1 financing statements and any other
documents as shall be necessary or desirable to evidence or perfect such
security interest. Retailer further agrees with Rentrak and covenants that
Retailer shall, on or before December 15, 1995, ship to Rentrak's Wilmington,
Ohio distribution center (freight prepaid, at Retailer's expense) all Cassettes
currently warehoused by Retailer. Rentrak shall audit all Cassettes upon
receipt, the results of which audit shall be conclusive as to the Cassettes.
Based on such audit, Rentrak shall adjust charges (currently in the amount of
$123,234.70) against Retailer by reversing sell-through charges for the returned
Cassettes, but charging Retailer for all lost or missing Cassettes. On January
12, 1996, the amount determined by such audit, together with the balance of all
existing outstanding advances under the Receivables Note and the Second Secured
Note, and those sums found to be due to Rentrak as the result of Rentrak's
August 31, 1995, audit reconciliation of Retailer, or otherwise due to Rentrak
pursuant to this Section 2, shall become due and payable and shall be evidenced
by one or more notes incorporating all such sums. The new note(s) (the
"Rewritten Note(s)") This new note (the "Rewritten Note") shall be subject to
all the terms and conditions of the PPT Agreement, the Revolving Credit
Agreement, and the Security Agreement referenced above, and shall be repayable
on a payment schedule which shall be over such term and in such amounts as
shall be determined by Rentrak.
3. Retailer covenants and agrees with Rentrak to remain current on all
accounts receivable pursuant to the terms of trade set forth in the PPT
Agreement. Each and every instance in which Retailer fails to pay when due any
accounts receivable owed Rentrak or any interest or principal owed to Rentrak
pursuant to any promissory note or other obligation may be hereinafter
referenced to as a Payment Default. In the event of a Payment Default, Rentrak
may stop all shipments of Product under the PPT system and shall have no further
obligation to ship Product until such time as Retailer has paid Rentrak all
amounts due with
Page 2- FIRST AMENDMENT
<PAGE> 3
respect to all obligations of Retailer under the PPT Agreement and all accounts
receivable of and notes payable to Rentrak, including but not limited to, any
and all principal, interest and penalties due. Notwithstanding Rentrak's
election not to ship product as a result of a Payment Default, all of
Retailer's obligations under the PPT Agreement including but not limited to the
Purchase Requirement and Retailer's other obligations under the PPT Agreement
and this First Amendment, including but not limited to, paying Rentrak on an
annual basis an amount equal to the Purchase Requirement shall remain in effect
throughout the term of the PPT Agreement (including any extension thereof).
4. Coyote currently owns and operates ten Retail Locations, the
locations and addresses of which are listed on Exhibit B. Retailer has failed to
cause these Retail Locations to become active on PPT as required by the PPT
Agreement. Coyote shall be deemed a Retailer for purposes of the PPT Agreement
and this Amendment. Retailer currently has two Retail Locations using the ABC
DataTrak system, the locations of which are also specified on Exhibit B.
Retailer agrees that (a) all Coyote Retail Locations shall be active on PPT
within thirty (30) days of the date of this Amendment, (b) Retailer shall cease
using the ABC DataTrak system in any of its Retail Locations including the
Coyote Retail Locations, and (c) all Retail Locations of Retailer and Coyote
using the ABC DataTrak System shall be converted to Roadrunner's internally
developed POS software system within thirty (30) days of the date of this
Amendment (hereinafter collectively referred to as the "PPT Requirement"). The
term "active" as used above, shall mean that Retailer has placed its first order
on PPT, has all of the necessary computer hardware and software required by
Rentrak to participate in the PPT System and is and continues to be on-line with
the PPT system. Retailer and Schneider confirm, consent, and agree to the
continued enforceability by Rentrak of the provisions contained in the Letter
Agreement dated October 10, 1994, including, without limitation, all of those
provisions set forth in Section 8 thereof as follows:
For each day after January 31, 1995, in which any Roadrunner, Coyote,
Choices Entertainment Corporation ("Choices"), or Video Knight store
currently in operation is not active and ordering from Rentrak pursuant
to the agreement, seven (7) days will be added to the term of the
agreement for each day that each store is not in compliance (i.e., if
five (5) stores are not in compliance for one day, the agreement
expiration date and Roadrunner's obligations thereunder are extended
from June 5, 2004, to July 10, 2004 (5 stores x 1 day x 7 days = 35
days). Stores acquired or opened in the future which are not "active" as
required by Section 2 of the First Addendum within forty-five (45) days
will add seven (7) days to the term for every day each store is not
active on or before the forty-fifth (45th) day.
Retailer and Schneider further confirm and agree that the above
provisions of Section 8 apply to each and every location now or in the future
owned or operated by Retailer, Schneider or any Affiliate of any of them.
5. Section 5 of the First Addendum is amended in its entirety as
follows:
5(a). For a period of five (5) years beginning on the date of the
First Addendum, Retailer and its permitted legal representatives,
successors and
Page 3 - FIRST AMENDMENT
<PAGE> 4
assigns shall order and obtain exclusively from Rentrak (and Retailer
shall cause its Affiliates to order and obtain from Rentrak) for all
Retail Locations and Schneider shall cause Retailer and such other persons
or entities that own, operate, manage or control such Retail Locations to
order a sufficient volume of Cassettes of rental priced video titles or
other media released to or otherwise made available under the PPT System
("Product") necessary to cause Retailer to pay Rentrak revenue sharing and
handling fee payments that are equal on an annual basis to at least 12.5
percent of Retailer's gross retail revenues (the "Purchase Requirement").
The Purchase Requirement shall be effective as of June 28, 1995, and shall
continue throughout the term of this PPT Agreement as such term may be
extended as provided herein. The Purchase Requirement shall be prorated
for any partial years during which the Purchase Requirement is in effect.
Retailer's annual gross retail revenues shall be determined on a
consolidated basis in accordance with generally accepted accounting
principles, consistently applied and shall include rental revenues from
all sources. To the extent Roadrunner's and Coyote's revenues are
consolidated into RVG's revenues for accounting purposes, the Purchase
Requirement shall not apply separately to Roadrunner and Coyote. If,
however, such consolidation does not occur, the Purchase Requirement shall
apply separately to RVG, Roadrunner and Coyote and their respective
Affiliates. The determination of Retailer's gross retail revenues shall be
based on audited financial statements certified by a nationally recognized
independent account firm. Although, the Purchase Requirement is calculated
on an annual basis, in order to ensure a minimum level of business on a
monthly basis, Retailer agrees to acquire that amount of Product under PPI
necessary to cause Retailer to pay Rentrak revenue sharing and handling
fee payments on a monthly basis equal to at least 0.5 percent of
Retailer's gross retail revenues (the "Minimum Monthly Requirement"),
provided that meeting the Minimum Monthly Requirement shall not relieve
Retailer from satisfying its annual Purchase Requirement obligation. If
Retailer in any month fails to meet the Minimum Monthly Requirement, the
term of this PPT Agreement and the purchase obligations contained
thereunder shall be extended two (2) months for each month in which
Retailer fails to satisfy the Minimum Monthly Requirement.
(b) Rentrak shall have the right, upon five (5) business days' advance
written notice, to independently audit, at its sole cost and expense, the
books and records of Retailer in order to verify and confirm Retailer's
retail revenues. As soon as they are available and publicly disclosed, but
in no event later than ninety (90) days after the end of each calendar
year, Retailer shall submit its audited financial statements (including
balance sheet, income statement and statement of cash flow) to Rentrak. If
Retailer fails to meet the Purchase Requirement for any given year (the
"PPT Deficiency"), Rentrak shall provide Retailer with an invoice setting
forth the amount of the PPT Deficiency. The PPT Deficiency shall be paid
within thirty (30) days of the date of such invoice, together with a
penalty payment equal to 10 percent of the amount by which Retailer failed
to satisfy the Purchase Requirement in any given year. For example, if
Retailer had gross retail revenues equal to $10,000,000 and
Page 4 - FIRST AMENDMENT
<PAGE> 5
Retailer paid Rentrak $800,000 for Cassettes obtained pursuant to this
Agreement, the PPT Deficiency would be $450,000 and the penalty payment
would be $45,000.
(c). Retailer's ordering and purchase of Products shall be in full
compliance with all terms and conditions obtained in this Agreement, as
modified and supplemented by this Addendum and all Program Supplier or
Rentrak established minimum and maximum ordering limitations and/or
requirements set forth in this Agreement and Addendum including but not
limited to Section 5. All monthly communication charges shall be waived
for all Retail Locations provided that such Retail Locations deliver the
data specified by Rentrak at Retailer's expense. "Rental priced"
Cassettes shall mean any and all Cassettes that have a manufacturer's
suggested retail price of $35 or more. In addition to the Purchase
Requirement contained herein, Retailer may, but shall be under no
obligation to order such other titles under PPT as it may determine,
which order shall comply with and be subject to the terms of this
Agreement, as modified and supplemented by this Addendum. Section 3 of
the National Account Agreement shall not in any way limit or restrict
Retailer's obligations pursuant to Section 5 of this First Amendment.
(d). With regard to ordering limitations imposed by certain Program
Suppliers, if Retailer elects to carry a particular title in a Retail
Location, Retailer shall be required to order a given title released by
such Program Suppliers for each Retail Location of similar or larger
size if Retailer orders the same title for one Retail Location (i.e., if
Retail Location A, a store with average monthly revenues of $10,000 from
the rental and sale of video cassettes, orders a certain title from a
certain Program Supplier, Retailer shall be required to order the same
title for all of Retailer's Retail Locations of similar or larger size
to Retail Location A).
(e). If a Retailer rents cassettes or other media to the public at a
store which was designated in Retailer's order as a Retail Location with
respect to that title, and which cassettes were obtained by means other
than pursuant to this Agreement and the Addendum, and are of the same
title as Cassettes available under PPT which Retailer was required to
order pursuant to this Agreement and the Addendum, Retailer agrees that
rentals of all such cassettes or other media of such title that are in a
format or media available under PPT at that Retail Location, regardless
of how obtained, shall be reflected, reported and revenue sharing paid
as if they were obtained under this Agreement and the Addendum. Payment
of such fees shall not in any respect constitute a waiver of Rentrak's
right to declare such action a default under this Agreement. With
respect to Cassettes leased hereunder and under the Addendum, Retailer
may not purchase the cassettes or other media of such title and use them
as rental inventory, remove the title from rental availability except as
provided herein and in the Addendum, or take any other steps to deprive
Rentrak of all available revenue under the established terms for the
title's lease term except to the extent that, once "used sell-through"
is permitted for a particular title by its terms, Retailer
Page 5 - FIRST AMENDMENT
<PAGE> 6
may remove Cassettes no longer required for rental use to Retailer's
Warehouse for subsequent sale at non-PPT locations by recording the
same as a sale and making the required remittance to Rentrak upon
transfer.
6. Retailer has developed a Point of Sale computer system ("POS
System") that utilizes its own proprietary software POS System Software that
allows Retailer to effect and record rental and sales transactions of
prerecorded video cassettes ("Cassettes"), video games and other products.
During the term of the PPT Agreement, Retailer agrees not to modify or
otherwise change its POS System Software without Rentrak's approval, which
approval may be withheld in Rentrak's sole discretion. Retailer acknowledges
that it is imperative to Rentrak's business that all modifications to
Retailer's POS System Software be approved by Rentrak in order to assure proper
integration with the PPT System. In order to protect the integrity of
Retailer's POS System's Software and the proper integration with the PPT
System, Retailer agrees to deliver on the date of execution of this Agreement a
true copy of the source code for its POS System Software to Rentrak and provide
Rentrak with all documentation relating to such software. Retailer represents
and warrants to Rentrak that such copy of source code is an exact copy of the
source code to the POS System Software currently being used by Retailer in its
Retail Locations. Rentrak agrees to maintain the confidentiality of the source
code and to keep such source code in a secure location (i.e., safe deposit box
or safe). Rentrak shall not use the source code for its own purposes other than
to verify that no changes or other modifications have been made to Retailer's
POS System Software. If Retailer modifies or changes in any respect the POS
System Software without Rentrak's prior approval, Retailer agrees that it shall
pay Rentrak a penalty payment of $100,000 each time Retailer modifies its POS
System Software without Rentrak's consent. Retailer agrees that this penalty is
reasonable and shall be in addition to and not in lieu of any actual or
consequential damages to which Rentrak may be entitled as a result of such
modifications to the POS System Software.
7. The parties acknowledge that they have a dispute concerning the
reporting of data by the ABC DataTrak system. The parties desire to resolve
this dispute by forever releasing and discharging each other from claims
arising therefrom. Each of the parties hereto hereby releases, acquits and
forever discharges each other, and their respective successors, officers,
directors, employees, agents, and assigns, from and against any and all
actions, causes of action, claims, demands, damages, liabilities, costs or
expenses, of every kind and nature whatsoever, known or unknown, contingent or
liquidated, that the parties hereto have or may hereafter have against each
other, as a result of, or in any way arising on account of, or in any way
arising out of, Retailer's and Coyote's past, present or future use of the ABC
Datatrak System, and any data reporting errors or inaccuracies or omissions
resulting therefrom. This release, however, shall not and does not release
Retailer and Coyote from the obligation (and any liability associated
therewith) to pay their invoices to and as submitted by Rentrak based on data
generated by the ABC Datatrak System and the accounts receivable generated
therefrom.
8. The June 28, 1995, Agreement between Rentrak and Roadrunner is
hereby superseded in its entirety by this First Amendment and shall have no
further force or effect.
Page 6 - FIRST AMENDMENT
<PAGE> 7
9. Except as otherwise specifically amended hereby, all terms and
conditions of the PPT Agreement and the Revolving Credit Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as of the day and year
first written above by the parties set forth below.
RENTRAK:
Rentrak Corporation
By /s/ Ron Berger,
-------------------------------------
Ron Berger, President
COYOTE:
Coyote Enterprises, Inc.
By /s/ Terry W. Schneider
-------------------------------------
Terry W. Schneider
SCHNEIDER:
/s/ Terry W. Schneider
- ---------------------------------------
Terry W. Schneider, Individually and as
Guarantor
ROADRUNNER:
Roadrunner Video Enterprises, Inc.
By /s/ Terry W. Schneider
-------------------------------------
Terry W. Schneider, President
RVG:
Roadrunner Video Group, Inc., formerly
Business Data Group, Inc.
By /s/ Terry W. Schneider
-------------------------------------
Terry W. Schneider
Title CEO
----------------------------------
Page 7 - FIRST AMENDMENT
<PAGE> 8
EXHIBIT A
RECEIVABLES NOTE
$489,175.89 Portland, Oregon
December 27th, 1995
FOR VALUE RECEIVED, ROADRUNNER VIDEO ENTERPRISES, INC., a Kentucky
Corporation ("Borrower") promises to pay to the order of RENTRAK CORPORATION,
an Oregon corporation, ("Payee"), on or before January 12, 1996 (the "Expiry
Date"), Four Hundred Eighty-Nine Thousand One Hundred Seventy-Five and 89/100
Dollars ($489,175.89), pursuant to the terms of that certain First Amendment to
First Addendum to Rentrak National Account Agreement and First Amendment to
Security Agreement, dated December , 1995 (the "First Amendment"). For
purposes of this Receivables Note, the terms and conditions of Article IV of
the Revolving Credit Agreement dated as of June 6, 1994, between Payee,
Borrower, and Terry W. Schneider (the "Credit Agreement") shall be incorporated
herein as if this Receivables Note were that Secured Revolving Note referenced
in the Credit Agreement. Except upon the occurrence of an Event of Default and
the acceleration of this Note by Payee, no advances shall be due until the
Expiry Date. Capitalized terms used herein without definition shall have the
meanings set forth in the Credit Agreement.
Borrower also promises to pay interest on the unpaid principal amount
of this Receivables Note at the rate and at the times which shall be determined
in accordance with the provisions of Section 2.2.1 of the Credit Agreement.
This Receivables Note is subject to prepayment at the option of Borrower.
This Receivables Note is secured by the Security Agreement dated June
6, 1994 (the "Security Agreement").
All payments of principal and interest due in respect of this
Receivables Note shall be made without defense, set off or counterclaim, in
lawful money of the Untied States of America, and in same day funds and
delivered to Payee by wire transfer to Payee's account, ABA No. 1211-4039-9 for
credit to Account No. 09000887-70 at Silicon Valley Bank, 3000 Lakeside Drive,
Santa Clara, California 95054-2894, Reference: Rentrak Corporation, for the
benefit of Roadrunner Video Enterprises, Inc., or at such other place as shall
be designated in writing for such purpose in accordance with the terms of the
Credit Agreement.
THE CREDIT AGREEMENT AND THIS RECEIVABLES NOTE SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF OREGON WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
Page 1 - RECEIVABLES NOTE
<PAGE> 9
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Receivables Note may become, or may be declared to be,
due and payable in the manner, upon the conditions and with the effect provided
in the Credit Agreement.
The terms of this Receivables Note are subject to amendment only in the
manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this
Receivables Note or the Credit Agreement or the other Loan Documents shall alter
or impair the obligation of Borrower, which is absolute and unconditional, to
pay the principal of and interest on this Receivables Note at the place, at the
respective times, and in the currency herein prescribed.
Borrower promises to pay pursuant to Section 6.7 of the Credit Agreement
all fees, costs and expenses incurred in the collection and enforcement of this
Receivables Note. Borrower and endorsers of this Receivables Note hereby consent
to renewals and extensions of time at or after the maturity hereof, without
notice, and hereby waive diligence, presentment, protest, demand and notice of
every kind (except such notices as may be required under the Credit Agreement
and other Loan Documents) and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
Page 2 - RECEIVABLES NOTE
<PAGE> 10
Whenever possible, each provision of this Receivables Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Receivables Note shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Receivables Note.
IN WITNESS WHEREOF, Borrower has caused this Second Revolving Note to be
executed and delivered by its duly authorized officer, as of the day and year
first written above.
ROADRUNNER VIDEO ENTERPRISES, INC.
By /s/ Terry W. Schneider
----------------------------------------
Terry W. Schneider, President
ROADRUNNER VIDEO GROUP, INC.
formerly Business Data Group, Inc.
By /s/ Terry W. Schneider
----------------------------------------
Name Terry W. Schneider
--------------------------------------
Title CEO
------------------------------------
Page 3 - RECEIVABLES NOTE
<PAGE> 11
EXHIBIT B
(list of Coyote owned Retail Locations)
<PAGE> 1
EXHIBIT 10.7
- -------------------------------------------------------------------------------
WaxWorks - VideoWorks
- -------------------------------------------------------------------------------
325 East Third Street - Owensboro, Kentucky 42303 - (502) 926-0008
- -------------------------------------------------------------------------------
November 9, 1993
Roadrunner Video Enterprises, Inc. will:
1) Pay Wax Works, Inc. $160,000 before December 31, 1993.
Sign a note for $475,000 for 12 months (amortized over 24 months) with a
re-financiable balloon payment due at end of 12th month. Monthly
payments to begin 20th day of January 1994 and the same day each
subsequent month until paid in full. Interest on this note will accrue
at a rate of 2% over the rate currently being charged to Wax Works, Inc.
by our primary lending institution (currently 7.5%, therefore effective
rate of note would be 9.5%) - this rate will remain fixed unless our
rate increases substantially - then rate will be adjusted upward never
to exceed 2% above rate charged to Wax Works, Inc. (an amortization
schedule is attached).
2) Limit purchases of movies and games for all locations to never more than
30% of sales on a monthly basis.
3) Beginning January 1, 1994 purchase all merchandise for all locations on
a C.O.D. basis.
4) Strictly adhere to the plan of management and payment set forth by Jim
Breslin, CFO.
5) Insure that Jim Breslin or some person of equal education, experience
and competency be retained as corporate C.F.O. and that person be bound,
committed and obligated to fulfill and execute the content of this
agreement.
6) If any business merger or transaction occurs between Roadrunner Video
Enterprises, Inc. and any other business entity that results in a
substantial influx of cash into the company:
a. Wax Works, Inc. will be notified of the occurrence and the
amount.
b. Said monies will be used in total or in part to satisfy the note
to Wax Works, Inc. within 60 days of receipt of said monies.
c. With the exception of monies received by Roadrunner Video
Enterprises, Inc. specifically intended and ultimately used for
the acquisition of Video Library, a 10-store chain,
headquartered in Bradenton, Florida, owned by Gorkes
Enterprises, Inc.
<PAGE> 2
7) Agree to abide by all the events of default outlined in the promissory note
including but not limited to:
a. Failure to provide monthly income and expense statement.
b. Default of any payment for a period of five (5) days.
c. Appointment of a receiver of any part or all of the
property or assignment for the benefit of any creditors or
commencement of any proceeding under any bankruptcy or
insolvency laws by makers or guarantors.
d. Failure to provide quarterly cash flow projections.
e. As per agreement, failure to furnish Wax Works, Inc. a copy of
monthly inventory (borrowing base as required by Citizens Bank),
copy of a current financial statement and quarterly financial
statements, of makers and annual personal financial statement of
Terry W. Schneider, issuance of any insufficient funds checks
for purchases or payments.
f. Opening or purchasing any new video stores beyond the current 25
stores currently in operation (see attached), or making any new
acquisition or liquidation of business property (outside the
normal course of business) without written consent of Wax Works,
Inc. An exception will be made for the Indianapolis sell-thru
store, for which the lease has already been signed. This store
is on schedule to be opened in late January or February of 1994.
The cost of opening this store shall not exceed $25,000.
g. Failure to notify Wax Works, Inc. of any major purchases or
single expenditures (major being in excess of $20,000 per item).
h. Upon sale of any common or preferred stock or any other interest
in the business without written consent of Wax Works, Inc. which
shall result in Terry W. Schneider owning less than fifty-one
(51%) percent.
i. Giving any individual or entity a mortgage lien position,
excluding Citizens Bank, without written consent from Wax Works,
Inc.
j. Failure of makers and guarantor to continue Wax Works, Inc. as
exclusive distributor of pre-order purchases of movie videos and
video games for all company operations.
<PAGE> 3
The foregoing requirement to use Wax Works, Inc. as exclusive
distribution is a material consideration for this agreement and shall
apply under the following circumstances:
1. To the extent any movie video or video game referred to herein is
available through Wax Works, Inc.;
2. Wax Works, Inc. continues to maintain timely delivery schedules for
goods purchased consistent with those currently experienced by
Debtor with respect to purchases from Wax Works, Inc.; Wax Works,
Inc. continues to grant Debtor purchase discounts consistent with
those currently experienced by Debtor with respect to purchases from
Wax Works, Inc.
3. Unless Wax Works, Inc. is sold in total and voluntarily by Terry
Woodward to some other competitive distributor.
k. Failure to make all payments timely of the promissory note dated
1-1-94 in the original principal amount of $475,000, executed by
makers hereof.
In the event of default all principal and accumulated interest shall be
immediately due and payable and the holder of this note shall be entitled to
collect all expenses incurred plus court costs resulting from efforts to
collect, including a reasonable attorney's fee, which the makers and guarantor
hereof agree a reasonable attorney's fee shall be fifteen (15%) percent of the
balance due, not to exceed said percent.
Signed: /s/ Terry W. Schneider 11/12/93
----------------------------------- -----------------------
Terry W. Schneider, President Date
Roadrunner Video Enterprises, Inc.
<PAGE> 1
EXHIBIT 10.8
- -------------------------------------------------------------------------------
WAXWORKS - VIDEOWORKS
- -------------------------------------------------------------------------------
325 East Third Street - Owensboro, Kentucky 42301 - (502) 926-0008
May 31, 1994
Roadrunner Video Enterprises, Inc.
817-819 South Floyd Street
Louisville, KY 40203
ATTN: Mr. Terry Schneider
RE: Roadrunner Video Enterprises, Inc.
Transaction with Rentrak Corporation
Addendum to Agreement of 11/9/93
Dear Terry:
In consideration of approval of a loan from Rentrak Corporation (hereinafter
caller "Rentrak") and sale of stock to Mortco, Inc., and further consideration
of the covenants and agreements contained herein, Wax Works, Inc. (hereinafter
referred to as "Wax Works"), Roadrunner Video Enterprises, Inc. (hereinafter
referred to as "Roadrunner") and Terry Schneider (hereinafter referred to as
"Schneider") agree as follows:
1. Wax Works does hereby nullify from its agreement of 11/9/93 the
following:
a. The exclusivity requirement;
b. Restriction on Roadrunner expanding beyond a 25 store limit and
withdrawing any other limit on Roadrunner expansion plans;
c. Deleting the pay-down requirements from infusion of new cash.
2. For a period of five years and so long as Roadrunner is indebted to Wax
Works, Roadrunner, with the exception of purchase of video tapes on a
revenue-sharing basis from Rentrak, shall use Wax Works as exclusive
distributor for the purchase of all video tapes and game cartridges as
set forth
<PAGE> 2
in the previous agreement between the parties dated 11/9/93. This
exclusive distribution shall apply to all existing and future video
stores, owned by Roadrunner, its successors or assigns, including all
stores purchased or merged with or into Roadrunner in regard to the
Choices transaction.
The foregoing requirement to use Wax Works as exclusive distributor is a
material consideration for this agreement and shall apply under the
following circumstances:
a. To the extent any movie video referred to herein is available
through Wax Works, Inc.
b. Wax Works, Inc. continues to maintain timely delivery schedules for
goods purchased consistent with those currently experienced by Roadrunner
with respect to purchases from Wax Works, Inc., Wax Works, Inc. continues
to grant Roadrunner purchase discounts consistent with those currently
experienced by Roadrunner with respect to purchases from Wax Works, Inc.
3. It is understood and agreed that there is a first lien debt to PNC Bank in
the amount of $600,000 and an existing second lien debt to Wax Works in
the amount of $379,012; that Wax Works has a subordination agreement with
PNC Bank whereby Wax Works shall only be second to all debt up to $500,000
to PNC Bank; that the proposed revolving credit agreement with Rentrak
provides that Rentrak shall be subordinate in security to PNC Bank and Wax
Works in an amount not to exceed $1,000,000.
Schneider has informed Wax Works that the above referred-to $1,000,000
subordination paragraph may be increased to $2,000,000 for the purpose of
Wax Works and Roadrunner entering into additional terms of credit for
purchase of game cartridges and video tapes on account. The parties
understand and agree that upon the increase of said additional $1,000,000
that Wax Works shall be a prior lien holder to Rentrak and additional
credit terms shall be as agreed between Wax Works and Roadrunner.
4. Event of Default and Penalty: In addition to the events of default as
pertains to the promissory note between the parties effective 1/1/94, for
and in consideration of the covenants and agreements contained herein,
upon failure of Roadrunner, its successors or assigns, to use Wax Works as
exclusive distributor during the five year period described herein, as
penalty and for loss of profits by Wax Works, Roadrunner, its successors
or assigns, shall pay Wax Works the sum of $250,000.
<PAGE> 3
5. Any and all terms or agreements and promissory notes between the
parties shall remain in full force and effect.
Sincerely,
/s/ BILL BURTON
-------------------------------
Bill Burton
Vice President
HAVE SEEN AND AGREED TO:
/s/ TERRY SCHNEIDER
- ------------------------
Terry Schneider, individually,
and as President of Roadrunner
Video Enterprises, Inc.
<PAGE> 1
EXHIBIT 10.9
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT is entered into as of June 1, 1994 (the
"Effective Date") by and among VIDEO KNIGHTS, INC., a New Jersey corporation
("Video Knights"), SELVAC CORPORATION, a Delaware corporation ("Selvac"), and
ROADRUNNER VIDEO ENTERPRISES, INC., a Kentucky corporation ("Roadrunner").
RECITALS
WHEREAS, Video Knights is engaged, among other things, in the business of
operating five video stores in the States of Virginia, Maryland and New Jersey;
WHEREAS, Selvac owns all of the issued and outstanding capital stock of
Video Knights; and
WHEREAS, Roadrunner desires to purchase, and Video Knights desires to
sell, the assets used in the operation of the video stores, including, without
limitation, the furniture, fixtures and equipment associated with the stores,
and the leases of the real property upon which the stores are located, as more
particularly set forth in this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
ARTICLE I
Sale and Purchase
1.1 Sale and Purchase of Assets. For the consideration and subject to the
terms and conditions set forth in this Agreement, as of the Effective Date,
Video Knights hereby sells to Roadrunner, and Roadrunner hereby purchases from
Video Knights, the assets listed on Schedule 1.1 and, whether or not listed on
Schedule 1.1, the following assets (the "Assets"):
(a) assignment of all of the tenant's rights, titles and interests
under, or sublease of the property covered by, the leases relating to the
real property located at the addresses listed on Schedule 1.1(a) (the
"Leases") by which Video Knights leases five retail store facilities (the
"Stores") including all rights to exercise any renewal options under all
Leases;
(b) all displays and fixtures located at, and improvements made to,
each of the Stores (collectively, the "Fixtures and Improvements"),
except to the extent that any Lease provides that part or all of the
Fixtures and Improvements installed at or made to
<PAGE> 2
the Store by the tenant under such Lease become the property of the
landlord under such Lease;
(c) all telephone, computer, television and other equipment,
machinery, supplies (including all videocassette, video game, compact
disc, laser disc or audio cassette viewing or listening equipment) and
all other tangible personal property (other than Inventory and
Rentrak-Owned Inventory (as defined in Section 1.1(d)) located at the
Stores (collectively, the "Personal Property");
(d) all videocassettes, video game cartridges, compact discs, laser
discs, audio cassettes, and packaging materials (other than the
videocassettes owned by Rentrak (the "Rentrak-Owned Inventory") either
(i) located at the Stores and held for sale or lease in the business
carried on and conducted by Video Knights at the Stores (the "Business"),
(ii) leased from the Stores, or (iii) purchased by Video Knights as of
the Effective Date for use in the Business but not yet delivered to the
Stores (collectively, the "Inventory");
(e) all rights in and to all permits, licenses, authorizations and
approvals specific to and used in the Business which are required by any
court, governmental department, commission, council, board, agency or
other instrumentality of the United States of America or any state,
county, municipality or local government (each a "Governmental Entity")
in order for Video Knights to conduct the Business as presently conducted
(as distinct from general corporate and other similar authorizations not
specific to the Business, such as qualifications to transact business) to
the extent transferable or assignable (the "Permits");
(f) the customer data base for the Business and the rental history
data base used by Video Knights in the Business and any and all
intangible rights related thereto;
(g) all rights of Video Knights in and to any other intellectual
property used, or in the process of being written, by Video Knights, or
by Selvac, exclusively for the Business other than trademarks, logos and
trade names (except as contemplated by Section 5.8);
(h) all accounts receivable (including late fees) of Video Knights
to the extent they relate to the Business;
(j) all security deposits held by landlords pursuant to the Leases;
(k) all coins and currency located at the Stores;
(l) all assignable rights, if any, to all telephone lines and
numbers used in the conduct of the Business; and
2
<PAGE> 3
(m) all other assets of Video Knights and all assets of Selvac
located at the Stores.
1.2 Liabilities. Roadrunner shall assume and timely perform and pay (i)
all obligations under the Leases attributable to periods or events occurring
from and after the Effective Date, (ii) all liabilities due with respect to the
Business and the Assets to the extent of any adjustment made pursuant to
Section 2.2, and (iii) all obligations arising out of commitments or orders for
the purchase of Fixtures and Improvements, Personal Property, and Inventory
used in the Business and not yet received at the Stores as of the Effective
Date to the extent such commitments and orders were entered into by Video
Knights with the express consent of Roadrunner. Other than such obligations
and except as otherwise specifically provided in this Agreement, Roadrunner is
not assuming or obligating itself to perform any obligations or commitments or
pay any liabilities or debts (whether contingent or certain and whether known
or unknown).
ARTICLE II
Purchase Price
2.1 Purchase Price. Subject to adjustment as hereafter provided, the
purchase price for the Assets (the "Purchase Price") shall be:
(a) $1,410,000; $350,000 of which is payable in cash and the
remainder of which is payable by delivery of a $60,000 promissory note and a
$1,000,000 promissory note of Roadrunner (the "Notes");
(b) the aggregate amount (which may be a positive or negative figure)
of the adjustments provided for in Section 2.2; and
(c) the Deficit Revenue Amount (as hereinafter defined) or the Surplus
Revenue Amount (as hereinafter defined).
2.2 Adjustments. If following the Effective Date, either Video Knights or
Roadrunner receives any information or gains any knowledge that (i) the amount
of state and local ad valorem taxes and assessments, common area charges and
assessments, utility charges, and rent (including taxes, operating expenses,
and other charges) relating to the Stores which have been paid by Video Knights
on or before the Effective Date but which have accrued for periods after the
Effective Date is more or less than (ii) the amount of state and local ad
valorem taxes and assessments, common area charges and assessments, utility
charges and rent (including taxes, operating expenses, and other charges)
relating to such Stores which have accrued for periods preceding the Effective
Date but have not been paid, then such party shall promptly notify the other
party. Promptly following such notice being given, the corresponding
adjustment payment shall be made by check to Video Knights or Roadrunner, as
applicable, by the other party within 10 days after the determination of the
amount of such adjustments.
3
<PAGE> 4
2.3 Revenue Adjustment Amount.
(a) If the average gross revenues per Store ("Average Gross Revenues")
are less than $400,000 during the period beginning October 1, 1994 and ending
September 30, 1995 (the "Measurement Period") (prorated for Stores not open
during the entire Measurement Period) (the "Minimum Level"), Video Knights
and/or Selvac shall pay Roadrunner on or before October 31, 1995, 125% of the
difference between the Minimum Level and the Average Gross Revenues (the
"Deficit Revenue Amount").
(b) If the Average Gross Revenues are more than $550,000 during the
Measurement Period (prorated for Stores not open during the entire Measurement
Period) (the "Maximum Level"), Roadrunner shall pay Video Knights on or before
October 31, 1995, 125% of the difference between the Average Gross Revenues and
the Maximum Level (the "Surplus Revenue Amount").
ARTICLE III
Representations and Warranties of Video Knights and Selvac
Video Knights and Selvac jointly and severally make the following
representations and warranties to Roadrunner:
3.1 Corporate Status and Authority.
(a) Video Knights is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New Jersey. Selvac is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
(b) Each of Video Knights and Selvac has all requisite corporate
power and authority to execute and deliver this Agreement and each of the other
Operative Documents (as hereinafter defined) to which it is a party and to
perform their respective obligations hereunder and thereunder, and the
execution, delivery and performance of this Agreement and the other Operative
Documents to which it is a party have been duly authorized by all necessary
corporate action on the part of Video Knights and Selvac.
(c) Video Knights has all requisite corporate power and authority to
own, lease and operate the Assets and to carry on the Business in the manner it
is now conducted.
3.2 Enforceability. Each of Video Knights and Selvac has the full
corporate power and authority to enter into this Agreement and the other
Operative Documents to which it is a party and carry out their respective
terms. Each of Video Knights and Selvac has taken all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement and the other Operative Documents to which it is a party. This
Agreement has been duly and validly executed and delivered by Video Knights and
Selvac. The other Operative Documents to which Video Knights is a party have
been duly and validly executed and delivered
4
<PAGE> 5
by Video Knights. This Agreement constitutes a legal, valid and binding
obligation of Video Knights and Selvac enforceable against each in accordance
with its terms subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws and judicial decisions of general applicability
relating to or affecting creditors' rights and to general principles of equity.
Each of the other Operative Documents to which Video Knights is a party
constitutes a legal, valid and binding obligation of Video Knights enforceable
against Video Knights in accordance with its terms subject, as to enforceable,
to bankruptcy, insolvency, reorganization and other laws and judicial decisions
of general applicability relating to or affecting creditors' rights and to
general principles of equity.
3.3 No Violation. The execution, delivery and performance of this
Agreement and the other Operative Documents by Video Knights and Selvac, as the
case may be, and the consummation by Video Knights of the transactions
contemplated hereby and thereby will not result in (a) any conflict with,
breach or violation of, or default under, the Articles of Incorporation or
Bylaws of Video Knights or the Certificate of Incorporation or Bylaws of Selvac
or (b) to the knowledge of Video Knights or Selvac, any conflict with, breach
or violation of, or default under any obligation under any contract or
agreement to which Video Knights or Selvac is a party or by which any of the
Assets are bound or any applicable laws, rules, regulations, codes and
ordinances of a Governmental Entity (collectively "Legal Requirements"), or (c)
the creation or imposition of any security interest, lien or other encumbrance
upon any of the Assets.
3.4 Title and Condition of Stores.
(a) Video Knights holds all of the tenant's rights, titles and
interests under the Leases and has not assigned or subleased any of the Leases
and Video Knights's title in and to the tenant's interest under the Leases is
free and clear of all liens, claims, encumbrances, or security interests.
(b) To the knowledge of Video Knights and Selvac, there are no pending
or threatened condemnation or similar proceeding or special assessment affecting
the Stores, nor has Video Knights or Selvac received notification that any such
proceeding or assessment is contemplated by any Governmental Entity.
(c) To the knowledge of Video Knights and Selvac, certificates of
occupancy and all other licenses, permits, authorizations, and approvals
required by any Governmental Entity having jurisdiction have been issued for
each of the buildings and improvements constituting the Stores and, all such
certificates, licenses, permits, authorizations and approvals have been paid
for and are in full force and effect.
(d) To the knowledge of Video Knights and Selvac, the Stores are being
used and occupied by Video Knights in accordance with all applicable laws,
regulations, insurance requirements, contracts, permits, licenses, ordinances,
restrictions, covenants, and easements, the violation of which would or could
reasonably be expected to have a material adverse effect
5
<PAGE> 6
on the Assets taken as a whole or the business, results of operations, or
prospects of the Business taken as a whole (a "Material Adverse Effect").
(e) To the knowledge of Video Knights and Selvac, no hazardous
materials including, without limitation, asbestos or asbestos products, were
installed in the construction, repair or maintenance of any of the Stores.
(f) All water, sewer, gas, electric, telephone, drainage and other
utility equipment, facilities and services, and all mechanical systems, in each
case as required by law are necessary for the operation of the Stores as same
are now being operated, are, to the knowledge of Video Knights and Selvac,
adequate to service the Stores.
3.5 Title and Condition of Other Assets.
(a) Video Knights is the owner of the Personal Property and, subject to
the terms of the Leases, the Fixtures and Improvements, free and clear of all
liens, claims, encumbrances or legal or contractual restrictions of any kind.
(b) Except for the Rentrak-Owned Inventory, the Inventory is owned by
Video Knights free and clear of all liens, consignment arrangements, claims and
encumbrances and, except for normal obsolescence and normal wear and tear, the
Inventory is of a quality useable, leaseable or saleable in the ordinary course
of the Business.
(c) Video Knights is the lawful licensee or permittee under the
Permits and none of the Permits has been assigned, transferred, revoked or
permitted to lapse. Video Knights has paid all fees and other payments due and
owing in connection with Permits prior to the Effective Date, and except for
such fees and other payments prorated as of the Effective Date, there are no
unpaid fees or other payments which could cause the lapse or revocation of any
of the Permits.
(d) To Video Knights's and Selvac's knowledge, the Intellectual
Property does not, and no individual, partnership, joint venture, limited
liability company, corporation, bank, trust or unincorporated organization,
Governmental Entity or other entity (a "Person") has asserted that there is any
basis for belief that any of the Intellectual Property does, infringe on any
domestic or foreign copyright, or represent a misappropriation or improper use
or disclosure of any trade secret, confidential information, or know how.
(e) Roadrunner will acquire good title to all the Assets, free and
clear of all mortgages, pledges, security interests, claims, charges, or other
encumbrances or legal or contractual restrictions of any kind other than as
expressly set forth in the Operative Documents.
3.6 Leases. Each of the Leases is a valid and binding agreement and is in
full force and effect and neither Video Knights nor, to the knowledge of Video
Knights or Selvac, any other party thereto, is in default and/or in breach of,
and no event has occurred that with the
6
<PAGE> 7
lapse of time or both would constitute a breach or default of the terms,
conditions or provisions of, such Leases. Video Knights has previously made
available to Roadrunner true and complete copies of each of the Leases.
3.7 Compliance with Permits and Laws.
(a) Except for the Permits, and any permits or approvals specific to
Video Knights and not transferable, to the knowledge of Video Knights and
Selvac, there are no permits, licenses, orders or approvals of governmental or
administrative authorities required to permit Roadrunner to utilize the Assets
in a manner substantially similar to the manner in which they are used in the
Business as presently conducted (including, without limitation, those required
under federal, state or local laws or regulations relating to pollution or
protection of the environment). To the knowledge of Video Knights and Selvac,
the conduct by Video Knights of the Business does not violate or infringe, and
does not cause a default under, any of the Permits, and neither Video Knights
nor Selvac has received any written notification of any threatened suspension or
cancellation of any of the Permits.
(b) To the knowledge of Video Knights and Selvac, the conduct by Video
Knights of the Business and the occupation and use of the Stores do not violate
or infringe and do not cause a default under, any Legal Requirement currently
in effect which, in any case, might reasonably be expected to have a Material
Adverse Effect or prevent or materially hinder the consummation of the
transactions contemplated hereby. Video Knights and Selvac have not received
written notice that any governmental, administrative or regulatory authority
considers the Stores, or the occupation or use thereof, to violate in any
material respect any Legal Requirement, and to the knowledge of Video Knights
and Selvac, no investigation of any of the Stores with respect to such a
violation has been conducted or is being conducted by any governmental,
administrative or regulatory authority. Video Knights is not subject to any
outstanding order, writ, injunction or decree.
3.8 Employees.
(a) The employees of Video Knights assigned to the Business on a
full-time or part-time basis (the "Employees") are not represented by any union
or other collective bargaining agent. Video Knights is not a party or otherwise
subject to any collective bargaining or other agreement governing the wages,
hours or terms of employment of the Employees. To the knowledge of Video
Knights and Selvac, in connection with the Business, Video Knights is and has
been in material compliance with all applicable laws regarding employment and
employment practices, terms and conditions of employment, wages and hours and is
not and has not been engaged in any unfair labor practice. There is no unfair
labor practice complaint against Video Knights pending before the National Labor
Relations Board or any other governmental authority with respect to the
Employees, or representation petition respecting the Employees pending before
the National Labor Relations Board. Video Knights has not experienced any
primary work stoppage or other organized work stoppage involving the Employees
in the past two years. There is neither pending nor, to the knowledge of Video
7
<PAGE> 8
Knights or Selvac, threatened any labor dispute, strike or work stoppage or
slowdown by the Employees. There are no outstanding injunctions, orders,
decrees or judgments and there are no pending or, to the knowledge of Video
Knights or Selvac, threatened litigation or other proceeding or claim
(including, without limitation, any claim that Video Knights is engaged or
permitted one or more discriminatory hiring or employment practices) by any
current or prior employees of Video Knights which could result in the imposition
of any material liability or obligation (including, without limitation, any
obligation to hire or promote any such employee) on Roadrunner with respect to
the Business.
(b) Each of the Employees is an "at-will" employee, and there are no
written employment, commission, or compensation agreements of any kind between
Video Knights and any of the Employees.
3.9 Employee Benefit Plans. No Employee is a participant in any "employee
benefit plan," as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended. No pension, retirement,
profit sharing, deferred compensation, bonus, commission, incentive, life
insurance, health and disability insurance, hospitalization or other employee
benefit plans or arrangements is sponsored, maintained or contributed to by
Video Knights for the benefit of the Employees.
3.10 Financial Statements. Schedule 3.10 sets forth (i) the audited
financial statements as of, and for the years ended, May 31, 1994 and May 31,
1993 of the Company-Owned Stores Division of Video Knights (collectively, the
"Video Knights Financial Statements"). The Video Knights Financial Statements
(a) have been prepared from and are in accordance with the books and records of
the Video Knights, and (b) taken as a whole fairly present in all material
respects the matters presented therein and the Video Knights Financial
Statements, subject to the notes to the Video Knights Financial Statements,
were prepared in all material respects in accordance with generally accepted
accounting principles consistently applied.
3.11 Litigation. There is no claim, action, suit, proceeding,
arbitration, or hearing or notice of hearing pending, or to the knowledge of
Video Knights or Selvac threatened, before any court or governmental or
administrative authority or private arbitration tribunal against or relating to
or affecting the Assets, the Business or the transactions contemplated by this
Agreement. There is no continuing order, injunction or decree of any court,
arbitrator or governmental or administrative authority to which Video Knights
is a party or is subject which relates to the Business.
3.12 Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been conducted without the intervention
of any Person acting on behalf of Video Knights or Selvac in such a manner as
to give rise to any valid claim against Roadrunner for any broker's or finder's
commission, fee or similar compensation.
3.13 Tax Matters. Video Knights has (a) prepared and filed with the
appropriate governmental authorities all returns or other reports regarding all
federal, state, county, local,
8
<PAGE> 9
foreign and other taxes, charges, duties, imports, fees, levies or other
assessments of any kind whatsoever, including, without limitation (i) income,
accumulated earnings, franchise, excise, sales, use, gross receipts, ad valorem,
profits, real and personal property, capital stock, license, payroll,
withholding, employment, severance, stamp, occupation, premium, utility,
windfall profits, transfer and gains taxes, and (ii) interest, penalties,
additions to tax, and any similar impositions with respect thereto (collectively
"Video Knights Taxes") required to be filed prior to the Effective Date with
respect to the Business, all of which have been prepared in all material
respects in accordance with applicable law and the rules and regulations of the
appropriate taxing authorities, and (b) paid or accrued all Video Knights Taxes
shown on such tax returns as being due or which have become due pursuant to any
assessment, deficiency notice, 30-day letter or similar notice received by Video
Knights or Selvac. Neither Video Knights nor Selvac is a party to any pending
action, proceeding or investigation, nor to Video Knights's or Selvac's
knowledge, has any action, proceeding, or investigation been threatened, for the
assessment or collection of Video Knights Taxes with respect to the Business,
which could create a lien or encumbrance on the Assets from and after the
Effective Date.
ARTICLE IV
Representations and Warranties of Roadrunner
Roadrunner makes the following representations and warranties to Video
Knights and Selvac:
4.1 Corporate Status and Authority. Roadrunner is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Kentucky. Roadrunner has all requisite corporate power and
authority to execute and deliver this Agreement and the Operative Documents to
which it is a party and to perform its obligations hereunder and thereunder,
and the execution, delivery and performance of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of Roadrunner.
4.2 Enforceability. Roadrunner has the full corporate power and authority
to enter into this Agreement and the other Operative Documents to which it is a
party and carry out their respective terms. Roadrunner has taken all corporate
actions necessary to authorize the execution, delivery and performance of this
Agreement and the other Operative Documents to which it is a party. This
Agreement and the other Operative Documents to which Roadrunner is a party have
been duly and validly executed and delivered by Roadrunner. Each of this
Agreement and the other Operative Documents to which Roadrunner is a party
constitutes a legal, valid and binding obligation of Roadrunner enforceable
against Roadrunner in accordance with its terms subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws and judicial decisions of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
4.3 No Violation. The execution, delivery and performance of this
Agreement and the other Operative Documents by Roadrunner and the consummation
by Roadrunner of the
9
<PAGE> 10
transactions contemplated hereby and thereby will not result in (a) any
conflict with, breach or violation of, or default under, the Articles of
Incorporation or Bylaws of Roadrunner, (b) any conflict with, breach or
violation of, or default under any obligation under any contract or agreement
to which Roadrunner is a party, or any of its assets are bound, or any
applicable Legal Requirement, or (c) the creation or imposition of any security
interest, lien or other encumbrance upon any of the assets of Roadrunner.
4.4 Consents. No consent, action, approval or authorization of, or
registration, declaration or filing with, any Governmental Entity or any Person
is required to authorize, or is otherwise required in connection with the
execution and delivery of, this Agreement or the other Operative Documents by
Roadrunner, or Roadrunner's performance of the terms of this Agreement or the
other Operative Documents.
4.5 Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been conducted without the intervention
of any Person acting on behalf of Roadrunner in such a manner as to give rise
to any valid claim against Video Knights or Selvac for any brokerage or
finder's commission, fee or similar compensation.
4.6 Financial Statements. Roadrunner will deliver to Video Knights (i)
the audited financial statements as of, and for the years ended, December 31,
1993 and December 31, 1992 of Roadrunner (collectively, the "Roadrunner
Financial Statements"). The Roadrunner Financial Statements (a) will be
prepared from and will be in accordance with the books and records of
Roadrunner, and (b) taken as a whole will fairly present in all material
respects the matters presented therein and the Roadrunner Financial Statements,
subject to the notes to the Roadrunner Financial Statements, will be prepared
in all material respects in accordance with generally accepted accounting
principles consistently applied.
4.7 Litigation. There is no claim, action, suit, proceeding, arbitration,
or hearing or notice of hearing pending, or to the knowledge of Roadrunner
threatened, before any court or governmental or administrative authority or
private arbitration tribunal against or relating to or affecting the
transactions contemplated by this Agreement. There is no continuing order,
injunction or decree of any court, arbitrator or governmental or administrative
authority to which Roadrunner is a party or is subject.
4.8 Tax Matters. Roadrunner has (a) prepared and filed with the
appropriate governmental authorities all returns or other reports regarding all
federal, state, county, local, foreign and other taxes, charges, duties,
imports, fees, levies or other assessments of any kind whatsoever, including,
without limitation (i) income, accumulated earnings, franchise, excise, sales,
use, gross receipts, ad valorem, profits, real and personal property, capital
stock, license, payroll, withholding, employment, severance, stamp, occupation,
premium, utility, windfall profits, transfer and gains taxes, and (ii)
interest, penalties, additions to tax, and any similar impositions with respect
thereto (collectively "Roadrunner Taxes") required to be filed prior to the
Effective Date, all of which have been prepared in all material respects in
accordance with applicable law and the rules and regulations of the appropriate
taxing authorities, and (b) paid
10
<PAGE> 11
or accrued all Roadrunner Taxes shown on such tax returns as being due or which
have become due pursuant to any assessment, deficiency notice, 30-day letter or
similar notice received by Roadrunner. Roadrunner is not a party to any pending
action, proceeding or investigation, or to Roadrunner's knowledge, has any
action, proceeding, or investigation been threatened, for the assessment or
collection of Roadrunner Taxes, which could create a lien or encumbrance on its
assets from and after the Effective Date.
ARTICLE V
Covenants of the Parties
5.1 Access and Information. After the Effective Date, Video Knights and
Selvac shall make or cause to be made available to Roadrunner all books,
records and documents of Video Knights and Selvac that Roadrunner must access
in order to comply with regulatory requirements.
5.2 Sales Taxes Prior to the Effective Date. Video Knights agrees to
timely file all sales tax returns with respect to sales occurring in connection
with the Business on or before the Effective Date, and Video Knights shall
timely remit all sales taxes applicable to the sales reported on such tax
returns.
5.3 Further Assurances. Video Knights and Selvac agree that, at any time
and from time to time on and after the Effective Date, it will, upon the
request of Roadrunner and without further consideration, take all steps
reasonably necessary to place Roadrunner in possession and operating control of
the Assets, and Video Knights and Selvac will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
further acts, deeds, assignments, conveyances, transfers, powers of attorney or
assurances as reasonably required to give effect to the transfers contemplated
by this Agreement.
5.4 Post-Effective Date Access to Information and Employees; Cooperation.
After the Effective Date, Roadrunner shall, and shall cause its counsel and
independent public accountants to, afford to representatives of Video Knights,
including its counsel and accountants, at Video Knights's cost and expense,
reasonable access to all files, personnel and documents (and the right to make
copies of all documents) related to the Assets or the Business in Roadrunner's
possession or under Roadrunner's control as may be reasonably requested by
Video Knights in order to permit Video Knights (at its cost and expense) to
prepare and file federal, state and local tax returns and to prepare for and
participate in any investigation with respect thereto, to prepare for,
participate in, assert or defend any other investigation or litigation relating
to or involving Video Knights or the Business and to discharge Video Knights's
obligations or contest and defend any claims made under this Agreement (other
than any litigation involving a claim or cause of action asserted by Video
Knights or Roadrunner against the other provided that nothing herein shall
limit either party's normal discovery rights as provided by law). Roadrunner
will cause the books, records, files and documents related to the Assets or the
Business to be maintained for not less than five years from the Effective Date.
11
<PAGE> 12
5.5 Transaction Costs. Except as expressly provided in this Agreement,
each party shall pay its own expenses incident to the preparation of this
Agreement and the consummation of the transactions contemplated hereby,
including all attorneys' fees. Video Knights or Selvac shall pay all taxes and
transfer fees and costs resulting from the transactions contemplated hereby.
5.6 Waiver of Bulk Sales Act Compliance. Roadrunner hereby waives
compliance by Video Knights with the provisions of Article 6 of the Uniform
Commercial Code of the State New Jersey and with any similar article or section
under the Uniform Commercial Code enacted in any other jurisdiction in which
any of the Assets are located.
5.7 Consents.
(a) Roadrunner acknowledges that various lessors under the Leases from
whom a consent is required to sublease or assign to Roadrunner the Stores
covered by each such Lease may require financial and other information
regarding Roadrunner in connection with determining whether to grant the
requested consent. Roadrunner agrees to provide to Video Knights any such
financial or other information as may be reasonably requested by Video Knights
in connection with obtaining such consents, and Roadrunner otherwise agrees to
cooperate with Video Knights in attempting to obtain such consents.
(b) With respect to any Lease for which the consent of the other
party(ies) thereto is necessary to assign and transfer the same (or sublease
the property covered thereby) to Roadrunner and to convert such Stores to
Roadrunner Video stores, Video Knights and Selvac shall, within 45 days of
receipt from Roadrunner of all the information required to be delivered
pursuant to Section 5.7(a), obtain such consent.
(c) At such time as Video Knights obtains the necessary consent to
assign a Lease covered by this Section 5.7, such Lease shall be deemed to be
assumed or entered into by Roadrunner effective as of the Effective Date. Any
arrangement which Video Knights and Roadrunner have theretofore entered into or
agreed upon in respect of such Lease shall be terminated effective as of the
date of such notification; provided, in no event shall such termination relieve
either party of its obligations under such sublease or arrangement which are
attributable to periods prior to such termination.
5.8 Elimination of Designations. As soon as practicable, but in any event
within 120 days following the date upon which the last of the consents required
under Section 5.7 has been obtained, Roadrunner shall eliminate all use of the
designations "Video Knights" and "Just the Hits", or any other designations, if
any, indicating an affiliation with Video Knights.
12
<PAGE> 13
ARTICLE VI
Indemnification, Limited Survival of
Certain Representations, Warranties and Covenants
6.1 Indemnified Liabilities.
(a) Roadrunner Indemnities. From and after the Effective Date,
Roadrunner shall absolutely and irrevocably indemnify, defend and hold harmless
Video Knights and Selvac, every person controlling, controlled by, or under
common control with, Video Knights and Selvac, and their respective directors,
stockholders, officers and employees (collectively, the "Video Knights
Indemnified Parties") from and against all damages, losses, penalties, fines,
costs and expenses, including attorney's fees and expenses, of whatever kind or
character (collectively, "Damages") arising from any of the following described
matters:
(i) any liability or obligation of Roadrunner arising out of
Roadrunner's use or ownership of the Assets or conduct of the
Business from and after the Effective Date;
(ii) the liabilities and obligations to be assumed by
Roadrunner pursuant to Section 1.2; and
(iii) any representations or warranties of Roadrunner
contained in Article IV not having been true and correct as of the
Effective Date.
(b) Video Knights and Selvac Post-Effective Date Indemnities. From and
after the Effective Date, Video Knights and Selvac shall absolutely and
irrevocably indemnify, defend and hold harmless Roadrunner and every person
controlling, controlled by, or under control with, Roadrunner, and their
respective directors, stockholders, officers, and employees (collectively, the
"Roadrunner Indemnified Parties") from and against all Damages arising from the
following described matters:
(i) any liability or obligation of Video Knights arising out
of Video Knights's use or ownership of the Assets or conduct of the
Business prior to the Effective Date, in either case not expressly
assumed by Roadrunner in accordance with the terms of this
Agreement;
(ii) all causes of action, demands and claims by any creditor
of Video Knights (other than the creditors of the accounts payable
assumed by Roadrunner with respect to such accounts) arising from,
relating to or associated with the failure of Video Knights and
Roadrunner to comply with the provisions of Article 6 of the
Uniform Commercial Code enacted in the State of New Jersey or any
other jurisdiction in which any of the Assets are located; and
13
<PAGE> 14
(iii) any representations or warranties of Video Knights
contained in Article III not having been true and correct as of the
Effective Date.
6.2 Notice of Claim.
(a) For purposes of this Article VI, the term "Indemnifying Party" when
used in connection with a particular Demand (as hereinafter defined) shall mean
the party having an obligation to indemnify the other party with respect to
such Demand pursuant to this Article VI, and the term "Indemnified Party" when
used in connection with a particular Demand shall mean the party having the
right to be indemnified with respect to such Demand by the other party pursuant
to this Article VI.
(b) Each party agrees that promptly after it becomes aware of facts
giving rise to a claim by it for indemnification pursuant to this Article VI (a
"Demand"), such party will provide notice thereof in writing to the other party
specifying the nature and specific basis for such Demand and to the extent
feasible the estimated amount of Damages attributable thereto (a "Demand
Notice"). The failure of an Indemnified Party to send a Demand Notice shall
not relieve the Indemnifying Party from liability hereunder with respect to
such Demand except to the extent such failure results in insufficient time
being available to permit the Indemnifying Party or its counsel to effectively
defend against such Demand and to make a timely response thereto or otherwise
prejudices the Indemnifying Party's ability to defend such Demand. For
purposes of this Section 6.2(b), receipt by a party of written notice of any
claim by or from any Person other than a party to this Agreement which gives
rise to a Demand on behalf of such party shall constitute the discovery of
facts giving rise to a Demand by it and shall require prompt notice of the
receipt of such matter as provided in the first sentence of this Section
6.2(b). Each Demand Notice shall set forth all information respecting the
Demand as the applicable party shall then have and shall contain a statement to
the effect that the party giving the notice is making a claim pursuant to and
formal demand for indemnification under this Article VI.
6.3 Subrogation Rights. If the Indemnified Party is one of the Video
Knights Indemnified Parties and such Indemnified Party has a right against a
Person (other than one of the other Video Knights Indemnified Parties) with
respect to any damages or other amounts paid to such Indemnified Party by
Roadrunner, then Roadrunner shall, to the extent of such payment, be subrogated
to the rights of such Indemnified Party. If the Indemnified Party is one of
the Roadrunner Indemnified Parties and such Indemnified Party has a right
against a Person (other than one of the other Roadrunner Indemnified Parties)
with respect to any damages or other amount paid to such Indemnified Party by
Video Knights, then Video Knights shall, to the extent of such payment, be
subrogated to the rights of such Indemnified Party.
6.4 Indemnification Procedure.
(a) The Indemnifying Party shall, at its sole cost and expense, contest
and defend by all appropriate legal proceedings any Claim with respect to which
it is obligated to
14
<PAGE> 15
indemnify the Indemnified Party pursuant to this Article VI. Any such contest
may be conducted in the name and on behalf of the Indemnifying Party or the
Indemnified Party as may be appropriate. Such contest shall be conducted by
attorneys employed by the Indemnifying Party; however, the Indemnified Party
shall have the right to participate in such proceedings and to be represented
by attorneys of its own choosing, and the cost and expense attributable to such
attorneys employed by the Indemnified Party shall be borne solely by the
Indemnified Party. If the Indemnified Party joins in any such contest, the
Indemnifying Party shall have full authority to determine all action to be
taken with respect thereto, except that the Indemnifying Party shall not enter
into any settlement agreement with respect to a claim providing for any
sanction or restriction upon the conduct of any business of the Indemnified
Party without the Indemnified Party's consent.
(b) If requested by the Indemnifying Party, the Indemnified Party
agrees to cooperate with the Indemnifying Party and its counsel in contesting
any claim which the Indemnifying Party elects to contest or, if appropriate, in
making any counterclaim against the Person asserting the claim, or any
cross-complaint against any Person; however, the Indemnifying Party shall
reimburse the Indemnified Party for any expenses incurred by it in so
cooperating.
(c) The obligations of the Indemnifying Party to indemnify the
Indemnified Party hereunder shall not be terminated, modified or abated if the
cause or alleged cause (in whole or in part) of the damages for which a claim
is made hereunder is the sole or concurrent, active or passive, imputed,
technical or other negligence, gross negligence or fault of the Indemnified
Party.
(d) The Indemnifying Party shall pay to the Indemnified Party, upon
demand, the amount of any Damages to which the Indemnified Party is entitled by
reason of the provisions of this Article VI, such payment to be made in cash or
other immediately available funds at the then address of the Indemnified Party
for notice purposes pursuant to this Agreement.
6.5 Reduction of Indemnity Payments. Notwithstanding anything in this
Article VI to the contrary, any indemnity payments owed by one party to another
party pursuant to this Article VI shall be reduced by the aggregate of (a) any
net tax benefits to the Indemnified Party and (b) any amounts actually received
by the Indemnified Party (from Persons other than Video Knights Indemnified
Parties or Roadrunner Indemnified Parties, as the case may be) under, insurance
policies, indemnification agreements and similar arrangements in connection
with the claim for which the indemnification pursuant to this Agreement
relates. To the extent any such indemnity payments are received by the
Indemnified Party under insurance policies and similar arrangements or from
third parties by the party claiming indemnity hereunder, such party so claiming
indemnity hereunder shall and does hereby waive any rights of subrogation
against the party that would have been required to make the indemnity payment
hereunder but for the provisions of the preceding sentence.
15
<PAGE> 16
6.6 Indemnity Not Exclusive. The indemnity obligations of Roadrunner and
Video Knights under this Article VI are in addition to the obligations and
liabilities of Roadrunner and Video Knights under this Agreement, the Bill of
Sale of Video Knights, the Assignment of Real Estate Leases of Video Knights,
the Notes and the Security Agreement between Video Knights and Roadrunner
(collectively, the "Operative Documents").
ARTICLE VII
Miscellaneous
7.1 Modification. This Agreement may be modified, amended or supplemented
in any manner and at any time only by a written instrument executed by Video
Knights, Selvac and Roadrunner.
7.2 Entire Agreement. This Agreement, the Schedules hereto and the other
Operative Documents constitute the entire agreement and understanding of Video
Knights, Selvac and Roadrunner with respect to the subject matter hereof and
fully supersede, and accordingly Video Knights, Selvac and Roadrunner hereby
disclaim and negate, any and all statements, understandings, agreements,
covenants, representations and warranties made by Video Knights, Selvac or
Roadrunner prior to the execution and delivery of this Agreement, including,
without limitation, that certain Letter Agreement dated May 31, 1994 by and
among Video Knights, Selvac and Roadrunner.
7.3 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, or sent by telecopy or nationally recognized express courier
service, in each case addressed as follows:
If to Video Knights: Video Knights, Inc.
151 East Main Street
Ramsey, New Jersey 07446
Attn: James J. Leonard, President
with a copy to: David Lightweis
Trinity Management Company
P.O. Box 12471
Burke, VA 22009-2471
If to Selvac: Selvac Corporation
151 East Main Street
Ramsey, New Jersey 07446
Attn: James J. Leonard,
Chief Executive Officer
16
<PAGE> 17
with a copy to: David Lightweis
Trinity Management Company
P.O. Box 12471
Burke, VA 22009-2471
If to Roadrunner: Roadrunner Video Enterprises, Inc.
819 South Floyd Street
Louisville, Kentucky 40203
Attn: Terry W. Schneider,
Chief Executive Officer
with a copy to: William G. Strench
Hirn Doheny Reed & Harper
2000 Meidinger Tower
Louisville, Kentucky 40202
or to such other Person or address in the United States of America as any party
hereto shall have last designated by notice given to the other parties in
accordance with this Section 7.3. Any notice given hereunder shall be deemed
to have been given at the time of receipt thereof by the party to whom such
notice is addressed; provided, any notice given by telecopy and received after
5:00 p.m. at the location of the receiving party's address for notice shall be
deemed received by such party on the immediately succeeding business day.
7.4 Assignment; Third Party Beneficiaries.
(a) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned, by operation of
law or otherwise, by any party hereto without the prior written consent of the
other party; provided, however, this Agreement and the rights, interests and
obligations hereunder may be assigned by Roadrunner to any Person in connection
with the merger of Roadrunner into such Person.
(b) Nothing in this Agreement, express or implied, is intended to or
shall confer upon any Person other than the parties hereto and their said
successors and permitted assigns, and the Video Knights Indemnified Parties and
the Roadrunner Indemnified Parties, any rights, remedies or obligations under or
by reason of this Agreement.
7.5 Severability. If any provision of this Agreement is invalid or
unenforceable, all other provisions of this Agreement shall nevertheless remain
in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any material adverse manner
to either party. Upon such determination that any provision is invalid or
unenforceable, the parties hereto shall negotiate in good faith to modify this
Agreement so
17
<PAGE> 18
as to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
7.6 Publicity. Video Knights and Roadrunner will cooperate with each
other in the development and distribution of all news releases and other public
disclosures relating to the transaction contemplated hereby. Neither Video
Knights nor Roadrunner shall issue or make, or cause to have issued or made,
any press release or announcement concerning the transactions contemplated
hereby without the advance approval of the form and substance thereof by the
other party, unless otherwise required by applicable Legal Requirements,
including the Federal securities laws.
7.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument. Any counterpart of this
Agreement having attached thereto one or more counterparts of the signature
pages of this Agreement containing in the aggregate the original signatures of
the parties hereto shall be deemed to be a fully executed original.
7.8 Governing Law. This Agreement shall be construed, performed and
enforced in accordance with the laws of the State of Delaware. The parties
hereto irrevocably agree that any legal action or proceeding arising out of or
in connection with this Agreement shall be brought in federal court (or state
court if federal courts are without jurisdiction) located in Jefferson County,
the Commonwealth of Kentucky; and, by execution and delivery of this Agreement,
hereby irrevocably accept and submit to the jurisdiction of such courts in
person, generally and unconditionally in connection with any such action or
proceeding.
7.9 Covenant Not to Compete. During a period of two years following the
Effective Date, Video Knights shall not open or franchise any new video or
entertainment retail stores within a five mile radius of any of the Stores.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VIDEO KNIGHTS, INC.,
a New Jersey corporation
By: /s/ James J. Leonard
--------------------------------
James J. Leonard, President
18
<PAGE> 19
SELVAC CORPORATION,
a Delaware corporation
By: /s/ James J. Leonard
--------------------------------------------
James J. Leonard, Chief Executive Officer
ROADRUNNER VIDEO ENTERPRISES, INC.,
a Kentucky corporation
By: /s/ Terry W. Schneider
--------------------------------------------
Terry W. Schneider, Chief Executive Officer
19
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Roadrunner Video Enterprises, Inc.
H&H Video Enterprises, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROADRUNNER
VIDEO GROUP, INC. FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 424,206
<SECURITIES> 0
<RECEIVABLES> 126,670
<ALLOWANCES> 0
<INVENTORY> 124,276
<CURRENT-ASSETS> 899,164
<PP&E> 14,633,905
<DEPRECIATION> 8,554,801
<TOTAL-ASSETS> 7,525,285
<CURRENT-LIABILITIES> 2,792,016
<BONDS> 2,686,876
0
760,000
<COMMON> 116,960
<OTHER-SE> 1,169,433
<TOTAL-LIABILITY-AND-EQUITY> 7,525,285
<SALES> 1,781,258
<TOTAL-REVENUES> 11,336,370
<CGS> 1,617,315
<TOTAL-COSTS> 11,993,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 394,426
<INCOME-PRETAX> (817,782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (817,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (817,782)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
