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As filed with the Securities and Exchange Commission on June 25, 1999 Reg. No.
333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
VIDEO CITY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
95-3897052
(I.R.S. Employer Identification No.)
Video City, Inc.
370 Amapola Avenue, Suite 208
Torrance, California 90501
(310) 533-3900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Young J. Kim, Esq.,
Senior Vice President and General Counsel
Video City, Inc.
370 Amapola Avenue, Suite 208
Torrance, California 90501
(310) 533-3900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
William J. Feis, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
(310) 553-4441
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share Offering Price Registration Fee
- --------------------------- ------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value... 7,215,434 shares (1) $2.50 (2) $18,038,585 (2) $5,015
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value... 500,000 shares (3) $3.00 (4) $1,500,000 (4) $417
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value... 131,483 shares (5) $3.0422 (6) $400,000 (6) $111
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value... 1,016,625 shares (7) $2.50 (2) $2,541,563 (2) $707
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Total Registration Fee................................................................................... $6,250
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</TABLE>
(1) Includes up to 2,303,767 shares of Common Stock issuable upon exercise of
the warrants described herein and up to 4,911,667 shares of Common Stock
issuable upon conversion of the convertible preferred stock described
herein. In accordance with Rule 416, there also is being registered
hereunder such indeterminate number of additional shares of Common Stock as
may become issuable upon exercise of the warrants or conversion of the
convertible preferred stock to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(2) Estimated solely for the purpose of calculating the registration fee.
Based, pursuant to Rule 457, on the average of the high and low sale prices
of Registrant's Common Stock as reported on the OTC Bulletin Board on June
24, 1999.
(3) Represents shares issuable upon exercise of warrants held by Mortco, Inc.,
as described herein.
(4) Based, pursuant to Rule 457, on the exercise price of the warrants referred
to in note (3) above.
(5) Represents shares issuable upon exercise of warrants held by Mortco, Inc.,
as described herein.
(6) Based, pursuant to Rule 457, on the exercise price of the warrants referred
to in note (5) above.
(7) Represents shares of Common Stock which the Registrant may elect to issue
in payment of dividend accruals on the convertible preferred stock referred
to in note (1) above.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
8,863,542 Shares
VIDEO CITY, INC.
Common Stock
Video City, Inc. owns and operates video specialty stores that rent and
sell a variety of videocassettes, video discs, game cartridges, accessories and
concessions. We currently have 137 retail stores.
The securityholders named herein or their assigns are offering for resale
from time to time up to 8,863,542 shares of our common stock which they have the
right to acquire. See "Selling Securityholders." All of the shares are being
offered by the selling securityholders. Of the shares offered, 2,935,250 are
issuable upon the exercise of outstanding warrants to purchase common stock and
4,911,667 are issuable upon conversion of our outstanding convertible preferred
stock held by certain of the selling securityholders. The number of shares
offered by these selling securityholders is subject to increase in certain
events by reason of so-called antidilution provisions of the warrants and
convertible preferred stock held by them. Also, we have the right to make
future dividend payments on the convertible preferred stock by issuing to these
selling securityholders additional shares of common stock, and the shares being
offered by these selling securityholders include an estimated 1,016,625 shares
which we may issue to them in the future in payment of dividends. We may
choose, however, to make dividend payments in cash or by a combination of cash
and shares of common stock, and the actual number of shares of common stock, if
any, which may be issued to these selling securityholders in payment of future
dividends will depend on various factors, including conversions or prepayments
of the convertible preferred stock and the market price of the common stock at
the time dividends are paid. For these reasons, the actual number of shares
offered by these selling securityholders will vary, perhaps materially, from the
amounts shown in this prospectus.
We will receive the exercise price of the warrants described in this
prospectus to the extent they are exercised, but we will not otherwise receive
any proceeds in connection with the sale of the shares by the selling
securityholders. See "Use of Proceeds."
The common stock is traded in the over-the-counter market under the symbol
"VDCT." On June 17, 1999, the last sale price for the common stock as reported
on the OTC Bulletin Board was $2.438.
The selling securityholders may offer the shares of common stock from time-
to-time to or through brokers, dealers or other agents, or directly to other
purchasers, in one or more market transactions or private transactions at
prevailing market or at negotiated prices. Brokers, dealers or other agents
engaged by the selling securityholders may arrange for other brokers, dealers or
agents to participate in sales of the shares and may receive commissions,
discounts or concessions from the selling securityholders in amounts to be
negotiated. These brokers, dealers or agents may be deemed to be "underwriters"
within the meaning of the federal securities laws, and any commissions,
discounts or concessions they receive may be deemed to be underwriting discounts
or commissions. See "Plan of Distribution."
We will bear the costs and expenses of registering the shares offered by
the selling securityholders. The selling securityholders will bear any
commissions and discounts attributable to sales of the shares.
An investment in the common stock involves a high degree of risk. Before
purchasing any shares, you should consider carefully the risks described under
"Risk Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the common stock or determined that this
prospectus is complete or accurate. Any representation to the contrary is a
criminal offense.
___________________
The date of this prospectus is ____________, 1999
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
The Company........................................................ 2
Available Information.............................................. 3
Incorporation of Certain
Documents by Reference........................................... 3
Forward Looking Statements......................................... 4
Risk Factors....................................................... 4
Use of Proceeds.................................................... 9
Selling Securityholders............................................ 9
Plan of Distribution............................................... 11
Description of Our Common Stock.................................... 12
Indemnification.................................................... 12
Legal Matters...................................................... 13
Experts............................................................ 13
</TABLE>
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THE COMPANY
General
We own and operate retail video specialty stores. Measured in growth rates,
we were the fastest growing publicly-held retail video specialty store company
in the United States in 1998. As part of our strategic plan of acquisition,
during our fiscal year ended January 31, 1999, we grew from 18 stores in
California to a total of 128 video stores located in nine states. As of June 15,
1999, we owned and operated 137 video specialty stores in twelve states. We have
recently entered into an agreement to sell 50 of our video stores located in the
states of Washington and Oregon, as described below under "Recent Developments".
Our principal executive offices are located at 370 Amapola Avenue, Suite 208,
Torrance, California 90501 and our telephone number is (310) 533-3900.
Developments During Our Last Fiscal Year
During our fiscal year ended January 31, 1999, we acquired nine companies that
owned and operated 114 retail video stores. The consideration for the
acquisitions consisted of a combination of cash, our capital stock, promissory
notes and our assumption of certain indebtedness and liabilities of the
companies being acquired, some of which we paid off at the closings. The
following summarizes the acquisitions we completed during our last fiscal year:
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Acquired Companies Number of Stores States
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<S> <C> <C>
Cianci's Videoland, Inc. 76 California, Idaho, Iowa,
Oregon, South Dakota and
Washington
Adventures in Video, Inc. 13 Minnesota
Video Tyme Inc. 6 Nevada
Leptis Magna, Inc. 5 Colorado
Sulpizio One, Inc. 4 California
Old Republic Entertainment, Inc. 4 California
KDDJ Investments, Inc. 3 California
Far West Entertainment, Inc. 2 California and Idaho
Game City, Inc. 1 California
</TABLE>
We recently entered into an agreement to sell 50 of our video stores
located in the states of Washington and Oregon, as described below under "Recent
Developments".
Recent Developments
Acquisition of Video Galaxy. On March 31, 1999, we acquired Video Galaxy,
Inc. Video Galaxy owns and operates 15 retail video stores in Connecticut and
Massachusetts and had aggregate revenues of approximately $5,800,000 during the
fiscal year ended September 30, 1998. The purchase price consisted of (i)
344,000 shares of our common stock (subject to post-closing adjustments, if any)
and (ii) our assumption of $4,833,000 of Video Galaxy's indebtedness (of which
we paid off approximately $1,757,000 at closing and converted $2,000,000 into
2,000 shares of our series D convertible redeemable
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preferred stock and warrants to purchase 500,000 shares of our common stock at
an exercise price of $3.00 per share). We obtained cash for the payoff of
indebtedness at closing by borrowing $1.7 million from one of our existing
creditors.
Sale of Certain Assets. On April 22, 1999, we entered into an agreement to
sell to Blockbuster Inc. substantially all of the assets of 50 of our retail
video stores located in the states of Washington and Oregon for approximately
$16 million in cash. The consummation of this sale is subject to certain
conditions, including the receipt of certain third-party consents, and there can
be no assurance that the sale will in fact be consummated. We expect to use the
proceeds from this sale to pay off certain of our indebtedness and to finance
possible future acquisitions.
Issuance to Distributor. On June 11, 1999, we issued to one of our current
distributors 2,000 shares of our series E convertible preferred stock, $1,000
stated value per share, and warrants to purchase 50,000 shares of our common
stock at an exercise price of $2.00 per share. The distributor cancelled
outstanding trade payables in the amount of $2,000,000 that we previously owed
in consideration for our stock and warrants.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act"). We file reports and other information with
the Securities and Exchange Commission in accordance with the Exchange Act. You
can inspect and copy these reports, proxy statements and other information at
the public reference facilities maintained by the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the following regional
offices: Seven World Trade Center, New York, New York 10048, and Northwestern
Atrium Center, 500 W. Madison Street, Chicago, Illinois 60661. You can obtain
copies of such material from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. You can also obtain such materials electronically at the SEC's site on
the World Wide Web at http:/www.sec.gov.
Additional information regarding us and the shares of common stock offered
by the selling securityholders is contained in the registration statement of
which this prospectus forms a part, and the exhibits thereto, filed with the SEC
under the Securities Act of 1933. For further information pertaining to us and
the offered shares, reference is made to the registration statement and the
exhibits thereto, which may be inspected without charge at, and copies thereof
may be obtained at prescribed rates from, the office of the SEC at Judiciary
Plaza, 450 Fifth Street, Washington, D.C. 20549 or obtained electronically at
the SEC's World Wide Web site referred to above. Statements contained herein
concerning the provisions of any document are not necessarily complete and in
each instance reference is made to the copy of the document filed as an exhibit
or schedule to the registration statement. Each such statement is qualified by
reference to the copies of the applicable documents filed with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which we have filed with the SEC, are incorporated
by reference into this prospectus: (1) our annual report on Form 10-K for the
year ended January 31, 1999, and Amendment No. 1 thereto filed with the SEC on
June 1, 1999; (2) our Current Report on Form 8-K filed with the SEC on April 15,
1999, and an Amendment thereto filed with the SEC on June 14, 1999; and (3) our
quarterly report on Form 10-Q for the quarter ended April 30, 1999.
All documents that we file with the SEC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this prospectus and before the
termination of the offering of the common stock offered in this prospectus shall
be deemed incorporated by reference into this prospectus and to be a part of
this prospectus from the respective dates of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed modified, superseded or replaced for purposes
of this prospectus to the extent that a statement contained herein or in
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any subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies, supersedes or replaces such statement. Any statement
so modified, superseded or replaced shall not be deemed, except as so modified,
superseded or replaced, to constitute a part of this prospectus.
Upon request, we will provide without charge, to each person to whom this
prospectus is delivered, a copy of any or all of the information incorporated by
reference (other than exhibits to such documents that are not specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to Video City, Inc., 370 Amapola Avenue, Suite 208, Torrance,
California 90501, Attention: Young J. Kim, Esq., telephone number (310) 533-
3900.
FORWARD LOOKING STATEMENTS
This prospectus contains so-called forward-looking statements within the
meaning of the federal securities laws. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "we believe," "management believes" and similar language. All forward-
looking statements are based on our current expectations and are subject to
certain risks, uncertainties and assumptions. Our actual results may differ
materially from results anticipated in these forward-looking statements. We
base our forward-looking statements on information currently available to us,
and we assume no obligation to update them.
RISK FACTORS
An investment in our common stock involves a high degree of risk. Before
deciding to invest, you should read and carefully consider the following risk
factors.
Our Growth Prospects are Subject to Risks
Our long-term strategy is to grow primarily by acquiring existing stores
and secondarily through new store openings. This strategy requires large amounts
of capital and other resources. In the past, we have funded our acquisitions by
borrowing from banks, using cash from operations, and issuing promissory notes,
preferred stock or common stock to sellers. We currently intend to finance
future acquisitions by borrowing money, by assuming liabilities of the sellers,
and by debt or equity financing. We cannot assure you that these and other
sources of capital will be available in the future in order for us to pursue our
growth strategy.
Our growth is dependent on a number of factors, including: our ability to
hire, train and assimilate management and store-level employees; the adequacy of
our financial resources; our ability to compete successfully in new markets; to
locate suitable store sites; to negotiate acceptable lease terms; to adapt our
purchasing, management information and other systems to accommodate expanded
operations; and to assimilate new operations into our existing operations.
Our Ability to Grow Through Acquisitions is Subject to Risks
Our ability to grow through acquisitions and to operate the acquired stores
at favorable levels of sales and profitability depends on many factors,
including our ability to identify new markets in which we can compete
successfully, the availability of suitable acquisition candidates at prices we
consider reasonable, our ability to integrate the acquired stores into our
existing operations, and our ability to manage the expansion into new markets.
We have competitors that are larger and better-capitalized, and they may try to
acquire some of the same video stores that we seek to acquire. Such competition
for acquisitions would probably drive up the acquisition prices and result in
fewer acquisition opportunities, and this could have a material adverse effect
on our growth. Also, we cannot assure you that we will be able to fully
integrate the acquired stores' systems into our existing systems and procedures,
or that once integrated, the acquired stores will achieve levels of revenues or
profitability comparable to those of our existing operations, or otherwise
perform as we expect.
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Our Ability to Grow Through New Store Openings is Subject to Risks
Growth through new store openings will depend on our ability to identify
suitable store sites, compete effectively for those sites, negotiate
satisfactory leases, implement cost-effective development plans for new stores,
and hire and train store managers and other personnel. We cannot guarantee that
any future new stores will achieve levels of revenues or profitability
comparable to those of our existing stores. To date our growth has relied
primarily on acquisitions of existing stores rather than new store openings and
we expect this to be the case for the foreseeable future.
Our Ability to Manage Growth is Subject to Risks
We have been expanding rapidly. Prior to March 1998 we had 18 stores. We
acquired 29 stores in March 1998; 9 stores in September 1998; 76 stores in
December 1998 and 16 stores in March 1999. We recently entered into an
agreement to sell 50 stores to Blockbuster Inc., which if consummated would
bring our total to 87 stores.
We may make additional acquisitions in the future. Such growth and
expansion has placed and will continue to place a significant strain on our
management, services and support operations, administrative personnel and other
resources. Our ability to manage such growth effectively will require us to
continue to improve our operational, management and financial systems and
controls and to hire, train, motivate and manage our employees. We may not be
able to retain or hire the necessary personnel or acquire other resources
necessary to service such growth adequately. Any difficulties in effectively
managing growth and expansion could have a material adverse effect on our
business and results of operations.
We Face Significant Competition and the Risk of Technological Obsolescence
The video retail industry is highly competitive. We compete with local,
regional and national chains, including Blockbuster and Hollywood Entertainment
Corporation, and with supermarkets, mass merchants, Internet and mail order
companies and other retailers. According to published reports, as of March 31,
1999, Blockbuster had more than 3,600 stores in the United States and as of
December 31, 1998, Hollywood Entertainment had approximately 1,260 stores in the
United States, making these chains many times larger than Video City. They and
some of our other competitors have significantly greater financial and marketing
resources and name recognition.
We believe the principal competitive factors in the video retail industry
are store location and visibility, title selection, the number of copies of
popular titles available, customer service, and pricing. As a result of direct
competition with Blockbuster and others, the availability of sufficient copies
of popular releases and the rental pricing of videocassettes are significant
competitive factors in our business.
Some of Our Competitors Have Greater Revenue Sharing Arrangements With
Studios. In 1998 a number of studios and certain of our competitors, including
Blockbuster and Hollywood Entertainment, adopted revenue sharing as an
alternative to the historical rental pricing structure. Studios began offering
these competitors more videocassettes for an individual title at substantially
lower initial cost in exchange for a share of the rental revenue that those
copies generate over their initial release window. This has led to higher
rental revenues for these competitors as well as for the studios. In addition,
revenue sharing provides the studios an incentive to market these titles which
improves revenue generated by increased transactions for both the video industry
and the studios. It may adversely impact our business if we are unable to enter
into similar revenue sharing agreements with studios.
We Also Compete With Cable Television, Satellite and Pay-Per-View Services.
Video retailers also compete with cable television, satellite and pay-per-view,
in which subscribers pay a fee to see a movie selected by the subscriber.
Currently, pay-per-view services offer a limited number of channels and movies
and are available only to households with a direct broadcast satellite or a
cable converter to
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unscramble incoming signals. However, the development of near-video-on-demand
and video-on-demand may have an material adverse effect on us, as described
below.
. Near-Video-On-Demand. Recent advances in direct broadcast satellite
and cable technologies may adversely affect public demand for video
store rentals. Direct broadcast satellite providers transmit numerous
channels of programs by satellite transmission into subscribers'
homes. Recently developed technology has presented cable providers
with the opportunity to use digital technology to transmit many
additional channels of programs over cable lines to subscribers'
homes. If direct broadcast satellite and digital cable were to become
widely available and accepted, this could cause a smaller number of
movies to be rented due to viewers favoring the expanded number of
conventional channels and expanded programming offered through these
services. In addition, because of this increased availability of
channels, direct broadcast satellite and digital cable providers have
been able to substantially increase the number and variety of movies
they can offer their subscribers on a pay-per-view basis and to
provide more frequent and convenient start times for the most popular
movies. This is referred to within our industry as "near-video-on-
demand." If near-video-on-demand were to become more widely available
and accepted, pay-per-view purchases could significantly increase,
possibly reducing the public demand for video store rentals. Near-
video-on-demand allows the consumer to avoid trips to the video store
for rentals and returns of movies, which also eliminates the chance
they will incur an extended viewing fee. However, newly released
movies are currently made available by the studios for rental prior
to being made available on a near-video-on-demand basis, and near-
video-on-demand does not allow the consumer to start, stop and rewind
the movie. Increases in the size of this pay-per-view market could
lead to an earlier distribution window for movies on pay-per-view if
the studios perceive this to be a better way to maximize their
revenue.
. Video-On-Demand. Some digital cable providers have begun testing
technology designed to transmit movies on demand with interactive
capabilities such as start, stop and rewind. This is referred to
within our industry as "video-on-demand." Video-on-demand is
currently available in certain test markets. Based upon publicly
available information, we believe these tests have not been
successful. However, if video-on-demand could be profitably provided
at a reasonable price and newly released movies were made available
at the same time, or before, they were made available to the video
stores for rental, it could have a material adverse effect on our
operations.
Our Industry Could Lose A Significant Competitive Advantage if Studios
Changed Our Distribution Window. A significant competitive advantage that our
industry currently enjoys over most other movie distribution channels except
theatrical release is the early timing of our distribution "window" which is
exclusive against most other forms of non-theatrical movie distribution, such as
pay-per-view, premium television, basic cable and network and syndicated
television. The length of the window for movie rental varies, typically ranging
from 30 to 90 days. Thereafter, movies are made available to television
distribution channels. We could be materially adversely affected if:
. the release window for video stores ceased to be the first following
theatrical release;
. the release window for video stores was shortened; or
. the release window for video stores was no longer as exclusive as
it is now.
We believe that the studios have a significant interest in maintaining a
viable home video rental industry. However, the order, length and exclusivity
of each window for each distribution channel with respect to any movie is
determined solely by the studio releasing the movie.
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Our Operating Results Are Subject to Significant Fluctuations
We have experienced in the past, and may continue to experience in the
future, fluctuations in our operating results. We experienced losses from
operations of $1,263,000 during the last fiscal year and $912,000 for the
quarter ended April 30, 1999. Future operating results may be affected by many
factors, including the following:
. New Stores. The performance of newly opened or acquired stores is
unpredictable. Also, we may be subject to large up-front expenses
relating to these stores.
. Appeal of Newly Released Movies. We are highly dependent upon rental
revenues from newly released movies. During our last fiscal year, about
90% of our rental revenues were from rentals of newly released movies.
The number and consumer appeal of new release titles may significantly
affect our operating results.
. Seasonality. Our 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.
. Televised Special Events. Televised special events, such as the Olympics
and the World Cup, may negatively affect our revenues by reducing video
rental demand.
We can give no assurance that we will have positive earnings in any
quarter, or that our earnings in any particular quarter will not fall short of
either a prior fiscal quarter or investors' expectations.
Our Ability to Obtain and Maintain Sufficient Capital is Subject to Risks
Our primary long-term capital needs are for opening and acquiring new
stores. We expect to fund such needs through cash flows from operations, the net
proceeds from the possible sale of debt or equity securities, bank credit
facilities, our assumption of others' liabilities, trade credit, and equipment
leases. The can be no assurance that financing will be available.
We currently have a credit facility with BankBoston, N.A. The terms of
this credit facility provide for various financial reporting and financial
performance covenants that require us to meet or exceed certain ratios on a
monthly basis. We requested and were granted a one-time waiver by BankBoston on
June 21, 1999 because we did not meet some of the financial covenants as
required. There can be no assurance that BankBoston will grant us any similar
waiver in the future.
Our ability to make scheduled payments of principal of, pay interest on,
comply with financial covenants relating to, or refinance our indebtedness under
the BankBoston credit facility depends on our future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
regulatory and other factors beyond our control. If for any reason, including a
shortfall in anticipated operating results, we were unable to meet our debt
service obligations or comply with the financial covenants, we would be in
default under the terms of the credit facility. In the event of such a default,
BankBoston could elect to declare all of our indebtedness under the credit
facility immediately due and payable, including accrued and unpaid interest, and
could terminate its commitments with respect to funding obligations under the
credit facility. In addition, BankBoston could proceed against the collateral
securing our indebtedness, which includes substantially all of our assets.
As of June 18, 1999, the total outstanding balance under the BankBoston
credit facility was approximately $23,679,000 and the availability on the credit
facility was approximately $10,000.
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We Rely on Certain Suppliers
We purchase or lease approximately 80% of our supply of new release videos
from two suppliers, Ingram Entertainment Inc. and Rentrak Corporation. If our
relationships with Ingram and Rentrak were terminated, we believe we could
readily obtain videocassette and video games from other suppliers at prices and
on terms comparable to those available from Ingram or Rentrak. However, there
can be no assurance that any replacement supplier would provide service or
payment terms as favorable as those provided by Ingram or Rentrak. Failure to
obtain comparable service, support or payment terms from an alternative supplier
could have a material adverse effect on our financial condition and results of
operations.
We Depend on Key Personnel
Our business and operations are dependent on the continued efforts of
Robert Y. Lee, our Chairman of the Board and Chief Executive Officer, and our
other executive officers. If any of these individuals become unwilling or unable
to continue their employment or association with us, or if we are unable to
attract and retain other skilled employees when needed, our business could be
materially, adversely affected. We maintain a key person life insurance policy
on Mr. Lee.
Our Stock is Volatile
The trading price of our common stock may fluctuate widely in response to
quarter-to-quarter variations in our operating results, announcements regarding
acquisitions, financial matters, competitive changes, general industry
conditions and other events or factors, including factors such as analysts'
expectations, which are beyond our control. The relatively small trading volume
in our stock also makes our stock price susceptible to rapid price fluctuations.
In recent years and months, broad stock market indices in general, and the
securities of "small cap" companies such as Video City in particular, have
experienced substantial price fluctuations. Such broad market fluctuations also
may adversely affect the future trading price of our common stock. The sale
prices of our common stock have ranged from $0.812 to $2.687 during the period
from February 1, 1999 to June 15, 1999.
We Don't Expect to Pay Dividends
We have never paid cash dividends on our common stock. We anticipate that
for the foreseeable future we will retain any earnings for use in our business.
The terms of our credit facility with BankBoston Retail Finance, Inc. prohibit
us from paying dividends on our common stock without BankBoston's consent.
Our Outstanding Options and Warrants May Adversely Affect the Trading Price of
Our Common Stock
As of January 31, 1999, there were 5,183,651 shares of common stock
reserved for issuance upon the exercise of outstanding stock options and
warrants at exercise prices ranging from $.10 to $3.04 per share. Our
outstanding options and warrants could adversely affect our ability to obtain
future financing or engage in certain mergers or other transactions, since the
holders of options and warrants can be expected to exercise them at a time when
we may be able to obtain additional capital through a new offering of securities
on terms more favorable to us than the terms of outstanding options and
warrants. For the life of the options and warrants, the holders have the
opportunity to profit from a rise in the market price of the common stock
without assuming the risk of ownership. To the extent the trading price of the
common stock at the time of exercise of any such options or warrants exceeds the
exercise price, such exercise will also have a dilutive effect to our
stockholders.
8
<PAGE>
We May Be Adversely Affected if Our "Year 2000" Remediation Efforts are
Unsuccessful
The year 2000 problem is the result of computer programs written using two
digits rather than four digits to define the applicable year. Any of our
computer systems that use time-sensitive software programming may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculation or system failure.
We have completed our assessment of all of our information technology
systems, related computer applications, and any embedded systems contained in
our buildings, equipment, and other infrastructure and have determined that we
are ready for the year 2000. Substantially all of our hardware and software
systems have been verified as being Year 2000 compliant.
We have important and material relationships with a number of vendors and
suppliers and have obtained written verification from them that they expect to
be Year 2000 compliant in time. However, if our vendors and suppliers are
unable to resolve such processing issues in a timely manner, it could result in
material financial risk to us.
Our management has determined that the costs of addressing potential
problems are not expected to have a material adverse impact on our financial
position, results of operations or cash flows in the future periods. The
estimated total costs to address our Year 2000 issues is approximately $25,000,
which includes the cost of upgrading software and hardware systems.
Our most likely worst case scenario would be the failure of our video
stores'point of sale system, which keeps track of customer rental transactions.
We are developing back-up systems that do not rely on computers in response to
this unlikely event.
USE OF PROCEEDS
We will bear the costs and expenses of registering the shares offered by
the selling securityholders, which are estimated at $35,000. Other than the
exercise of the warrants described herein (to the extent they may be exercised),
we will not receive any of the proceeds from the sale of the shares offered by
the selling securityholders. The holders of the warrants are not obligated to
exercise the warrants, and there can be no assurance that they will choose to do
so. If all of the warrants are exercised in full, we will receive $5,757,501
upon exercise.
The Company intends to use any proceeds it receives from the exercise of
warrants for working capital and general corporate purposes.
SELLING SECURITYHOLDERS
Selling Securityholder Table
The following table sets forth certain information regarding the beneficial
ownership of our common stock by the selling securityholders on June 15, 1999.
To our knowledge, each of the selling securityholders has sole voting and
investment power with respect to the shares of common stock shown, subject to
applicable community property laws.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Before Offering(1) After Offering (1)
------------------ ------------------
Number of
Number of Shares Number of
Selling Securityholder Shares Percent(2) Being Offered Shares Percent(2)
- ---------------------- ------ ---------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Ingram Entertainment Inc. (3) 3,243,878(4) 21.2% 1,743,878(5) 1,500,000 10.8%
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Mortco, Inc. (6) 2,628,444(7) 17.1% 1,438,227(8) 1,190,217 8.5%
Victor J. Cianci (9) 1,200,000(10) 7.9% 1,200,000(10) -0- 0%
Evvy R. Cianci (9) 1,200,000(10) 7.9% 1,200,000(10) -0- 0%
Stephen C. Lehman (11) 535,000(11) 3.7% 250,000(12) 285,000 2.0%
Gerald W.B. Weber (13) 320,000(14) 2.2% 200,000(15) 120,000 *
Michael T. Anderson (16) 70,000(17) * 25,000(18) 45,000 *
Ronald L. Collier (19) 25,000(18) * 25,000(18) -0- 0%
Ronald L. Collier (20) 25,000(18) * 25,000(18) -0- 0%
David W. Weber (21) 25,000(18) * 25,000(18) -0- 0%
Stephen R. Weber (21) 25,000(18) * 25,000(18) -0- 0%
Box Office LLC (22) 56,000(23) * 56,000(23) -0- 0%
International Video Distributors, LLC (24) 1,300,000(25) 8.5% 1,300,000(25) -0- 0%
The Value Group, LLC (26) 343,187(27) 2.4% 333,812(28) 9,375 *
</TABLE>
- -----------------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock subject to options, warrants and
convertible securities currently exercisable or convertible, or exercisable
or convertible within 60 days, are deemed outstanding, including for
purposes of computing the percentage ownership of the person holding such
option, warrant or convertible security, but not for purposes of computing
the percentage of any other holder.
(2) Included as outstanding for this purpose are 13,925,842 shares outstanding
on June 15, 1999, plus, in the case of each of these selling
securityholders, the shares issuable upon exercise and conversion of the
warrants, options and/or shares of convertible preferred stock held by such
selling securityholder (but not including shares issuable upon exercise or
conversion of any other warrants, convertible preferred stock or other
securities held by any other person).
(3) Ingram Entertainment Inc. is one of our suppliers.
(4) Includes 1,500,000 shares owned outright; a warrant to purchase 404,403
shares from Robert Y. Lee; and warrants to purchase 1,339,475 shares from
Video City. ( 5) Includes 1,339,475 shares issuable from Video City upon
exercise of warrants and 404,403 shares from Robert Y. Lee upon exercise of
warrants.
(6) Mortco, Inc. is an affiliate of one of our suppliers.
(7) Includes 1,190,217 shares owned outright; 37,500 shares issuable upon
conversion of outstanding shares of series AA preferred stock; 666,667
shares issuable upon conversion of outstanding shares of series D
convertible redeemable preferred stock; and 734,060 shares issuable upon
exercise of warrants.
(8) Includes 37,500 shares issuable upon conversion of outstanding shares of
series AA preferred stock; 666,667 shares issuable upon conversion of
outstanding shares of series D convertible redeemable preferred stock; and
734,060 shares issuable upon exercise of warrants.
(9) Victor J. Cianci and Evvy R. Cianci are former owners of Videoland, Inc.,
which we acquired in December 1998.
(10) Includes 1,200,000 shares issuable upon conversion of outstanding shares of
series B voting convertible redeemable preferred stock.
(11) Held by Mr. Lehman as trustee of The Lehman Family Trust. Mr. Lehman is a
director. Includes 50,000 shares owned outright, 125,000 shares issuable
upon conversion of outstanding shares of series AA convertible redeemable
preferred stock; 225,000 shares issuable upon exercise of warrants; and
135,000 shares issuable upon exercise of stock options.
(12) Held by Mr. Lehman as trustee of The Lehman Family Trust. Mr. Lehman is a
director. Includes 125,000 shares issuable upon conversion of outstanding
shares of series AA convertible redeemable preferred stock; and 125,000
shares issuable upon exercise of warrants.
(13) Mr. Weber is a director.
(14) Includes 100,000 shares issuable upon conversion of outstanding shares of
series AA convertible redeemable preferred stock; 100,000 shares issuable
upon exercise of warrants; and 120,000 shares issuable upon exercise of
options.
(15) Includes 100,000 shares issuable upon conversion of outstanding shares of
the series AA convertible redeemable preferred stock and 100,000 shares
issuable upon exercise of warrants.
(16) Mr. Anderson is a director.
(17) Includes 12,500 shares issuable upon conversion of outstanding shares of
the series AA convertible redeemable preferred stock; 12,500 shares
issuable upon exercise of warrants; and 45,000 shares issuable upon
exercise of options.
(18) Includes 12,500 shares issuable upon conversion of outstanding shares of
the series AA convertible redeemable preferred stock and 12,500 shares
issuable upon exercise of warrants.
10
<PAGE>
(19) Held by Ronald L. Collier, as trustee of Adam Collier 1984 Trust. Adam
Collier is a son of Barry L. Collier, who is a director.
(20) Held by Ronald L. Collier, as trustee of Joshua Collier 1984 Trust. Joshua
Collier is a son of Barry L. Collier, who is a director.
(21) David and Stephen Weber are sons of Gerald W.B. Weber, who is a director.
(22) Box Office LLC is owned by James G. Howard, an employee of Video City.
(23) Includes 56,000 shares issuable upon conversion of outstanding shares of
the series C convertible redeemable preferred stock.
(24) International Video Distributors, LLC is one of our suppliers.
(25) Includes up to 1,250,000 shares issuable upon conversion of outstanding
shares of the series E convertible preferred stock and 50,000 shares
issuable upon exercise of warrants.
(26) The Value Group, LLC provides us with investment banking services. John T.
Sheehy, one of our directors, is a principal of The Value Group.
(27) Includes 9,375 shares owned outright, 62,500 shares issuable upon
conversion of outstanding shares of the series AA convertible redeemable
preferred stock, 151,500 shares issuable upon conversion of outstanding
shares of the series C convertible redeemable preferred stock, and 119,812
shares of common stock issuable upon exercise of warrants.
(28) Includes 62,500 shares issuable upon conversion of outstanding shares of
the series AA convertible redeemable preferred stock, 151,500 shares
issuable upon conversion of outstanding shares of the series C convertible
redeemable preferred stock, and 119,812 shares of common stock issuable
upon exercise of warrants.
PLAN OF DISTRIBUTION
The purpose of this prospectus is to permit the selling securityholders, if
they desire, to dispose of some or all of their shares at such times and at such
prices as each may choose. Whether sales of shares will be made, and the timing
and amount of any sale made, is within the sole discretion of each selling
securityholder.
The common stock covered by this prospectus may be offered for sale from
time to time by the selling securityholders to or through underwriters or
directly to other purchasers or through agents in one or more market
transactions, in one or more private transactions or in a combination of such
methods of sale, at prices then prevailing, at prices related to such prices or
at negotiated prices. Such methods of distribution may include, without
limitation (a) a block trade in which the broker-dealer so engaged will attempt
to sell the common stock as agent but may position and resell a portion of the
block as a principal to facilitate the transaction; (b) purchases by a broker-
dealer as a principal and resale by such broker-dealer for its own account
pursuant to the Registration Statement of which this prospectus is a part; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face-to-face transactions between sellers and purchasers
without a broker or dealer. This prospectus may be amended and supplemented from
time to time to describe a specific plan of distribution.
In connection with distributions of the common stock or otherwise, the
selling securityholders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with such transactions, brokers-
dealers or other financial institutions may engage in short sales of common
stock in the course of hedging the positions they assume with the selling
securityholders. The selling securityholders may also enter into options or
other transactions with broker-dealers or other financial institutions which
require the delivery to such broker-dealer or financial institution of the
shares of common stock offered hereby, which such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or
amended to reflect such transaction). The selling securityholders may also
pledge the shares offered hereby to a broker-dealer or other financial
institution and, upon a default, such broker-dealer or other financial
institution may effect sales of the pledged shares pursuant to this prospectus
(as supplemented or amended to reflect such transaction). In addition, any
common stock covered by this prospectus that so qualifies may be sold under Rule
144 under the Securities Act.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling securityholders in
amounts to be negotiated in connection with sales pursuant thereto. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act, in connection
with such sales and any such commission, discount or concession may be deemed to
be underwriting discounts or commissions under the Securities Act.
11
<PAGE>
We will bear the costs, expenses and fees in connection with the
registration of the shares of common stock offered hereby. Commissions,
discounts and transfer taxes, if any, attributable to the sales of the common
stock will be borne by the selling securityholders. The selling securityholders
have agreed or may agree to indemnify the Company or any underwriter, as the
case may be, and any of their respective affiliates, directors, officers and
controlling persons, against certain liabilities in connection with the offering
of the common stock pursuant to this Registration Statement, including
liabilities arising under the Securities Act. In addition, we have agreed to
indemnify the selling securityholders or any underwriter, as the case may be,
and any of their respective affiliates, directors, officers and controlling
persons, against certain liabilities in connection with the offering of the
common stock pursuant to this prospectus, including liabilities arising under
the Securities Act.
We have informed the selling securityholders that the anti-manipulation
provisions of Regulation M under the Exchange Act may apply to their sales of
the shares offered hereby and have furnished each of the selling securityholders
with a copy of these provisions. We have also advised the selling
securityholders of the requirement for delivery of this prospectus in connection
with any public sale of the shares.
DESCRIPTION OF OUR COMMON STOCK
Our authorized capital consists of 30,000,000 shares of common stock, $.01
par value, and 2,000,000 shares of preferred stock, $.01 par value.
As of June 15, 1999, there were 13,925,842 shares of common stock
outstanding held by approximately 540 holders of record. Our common stockholders
are entitled to one vote for each share held of record on all matters submitted
to a vote of the stockholders. Until February 1, 2000, our common stockholders
are entitled to cumulative voting rights with respect to the election of
directors. Beginning February 1, 2000, they will not be entitled to these
cumulative voting rights, and, as a result, minority stockholders may not be
able to elect directors on the basis of their votes alone. Our common
stockholders are entitled to receive ratably any dividends declared by our board
of directors out of legally available funds, after payment of any dividends
required on our outstanding preferred stock. Upon our liquidation, dissolution
or winding up, our common stockholders are entitled to share ratably in all
assets that are legally available for distribution, after payment of or
provision for all debts and liabilities and any payments with respect to the
preferred stock. Our common stockholders have no preemptive, subscription or
conversion rights, and there are no redemption or sinking fund provisions
applicable to shares of our common stock. All of the outstanding shares of
common stock are fully paid and nonassessable. The rights, preferences and
privileges of holders of our common stock are subject to the rights of the
holders of shares of our outstanding preferred stock, and may be subject to the
rights of the holders of any preferred stock we issue in the future.
We have appointed Chase Mellon Shareholder Services as the transfer agent
and registrar for our common stock.
INDEMNIFICATION
Our Certificate of Incorporation and Bylaws permit us to indemnify our
officers and directors to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law. Section 145 of the Delaware General
Corporation Law makes provision for the indemnification of officers, directors
and other corporate agents in terms sufficiently broad to indemnify such
persons, under certain circumstances, for liabilities (including reimbursements
of expenses incurred) arising under the Securities Act.
We have entered into indemnity agreements with our directors and executive
officers. Pursuant to such indemnity agreements, we have agreed to indemnify
each director and executive officer who is a party to the indemnity agreement
under certain circumstances in which such person or we are named as a party to a
proceeding (as that term is defined).
12
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon by Troy
& Gould Professional Corporation, Los Angeles, California. The Troy & Gould firm
owns 46,233 shares of our common stock.
EXPERTS
The financial statements incorporated by reference in this prospectus have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report incorporated herein by
reference, and are incorporated herein in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
13
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY SELLING SECURITYHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES TO ANY PERSON IN ANY
STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
_______________
14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the
distributions described in this Registration Statement will be as set forth
below. Such costs and expenses shall be borne by the Company. Any commissions,
discounts and transfer taxes, if any, attributable to the sales of the shares
being registered hereunder will be borne by the Selling Securityholders.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 6,250
Printing expenses............................................... $ 3,000
Accounting fees and expenses.................................... $10,000
Legal fees and expenses......................................... $10,000
Fees and expenses for qualification under state securities laws. $ 3,000
Miscellaneous................................................... $ 2,750
-------
Total $35,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws permit the
Company to indemnify officers and directors of the Company to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law. Section 145 of
the Delaware General Corporation Law makes provision for the indemnification of
officers, directors and other corporate agents in terms sufficiently broad to
indemnify such persons, under certain circumstances, for liabilities (including
reimbursements of expenses incurred) arising under the Securities Act.
The Company has entered into indemnity agreements with its directors
and executive officers. Pursuant to such indemnity agreements, the Company has
agreed to indemnify each director and executive officer who is a party to the
indemnity agreement under certain circumstances in which such person or the
Company is named as a party to a proceeding (as that term is defined).
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference as a
part of this Registration Statement:
5 Opinion of Troy & Gould Professional Corporation.*
23.1 Consent of Troy & Gould Professional Corporation (included in Exhibit
5).*
23.2 Consent of BDO Seidman, LLP.*
24 Power of Attorney (included on page II-4 hereof).*
- --------------------------
* Included herewith.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that (i) and (ii) do not apply if the registration
statement is on Form S-3, and the information required to be included in a post-
effective amendment is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the Company's
annual report pursuant to section 13(a) or section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(d) The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
II-2
<PAGE>
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Torrance, State of California, on June 21, 1999.
VIDEO CITY, INC.
By: /s/ Robert Y. Lee
------------------------------------------
Robert Y. Lee
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert Y. Lee and Timothy J. Denari his
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him in any and all capacities, to sign this Registration Statement and any
amendments hereto, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as he might do or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute
or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement on Form S-3 has been signed by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert Y. Lee June 21, 1999
- ------------------------- Chairman of the Board and
Robert Y. Lee Chief Executive Officer
/s/ Timothy J. Denari
- ------------------------- Chief Financial Officer
Timothy J. Denari (Principal Financial and June 21, 1999
Accounting Officer)
/s/ James Craig Kelly
- ------------------------- Director June 21, 1999
James Craig Kelly
/s/ David A. Ballstadt
- ------------------------- Director June 21, 1999
David A. Ballstadt
/s/ Michael T. Anderson
- ------------------------- Director June 21, 1999
Michael T. Anderson
/s/ Barry L. Collier
- ------------------------- Director June 21, 1999
Barry L. Collier
/s/ Charles E. Cooke
- ------------------------- Director June 21, 1999
Charles E. Cooke
- ------------------------- Director June , 1999
Stephen C. Lehman
/s/ John T. Sheehy
- ------------------------- Director June 21, 1999
John T. Sheehy
- ------------------------- Director June , 1999
Gerald W.B. Weber
</TABLE>
II-4
<PAGE>
COMMON STOCK
VIDEO CITY, INC.
8,863,542 SHARES
____________
PROSPECTUS
____________
____________, 1999
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number
-------
5 Opinion of Troy & Gould Professional Corporation.*
23.1 Consent of Troy & Gould Professional Corporation (included in Exhibit
5).*
23.2 Consent of BDO Seidman, LLP.*
24 Power of Attorney (included on page II-4 hereof).*
- -------------------------------
* Included herewith.
<PAGE>
EXHIBIT 5
---------
TROY & GOULD
PROFESSIONAL CORPORATION
1801 CENTURY PARK EAST, 16TH FLOOR
LOS ANGELES, CALIFORNIA 90067
TELEPHONE (310) 553-4441
June 25, 1999
Video City, Inc.
370 Amapola Ave., Ste. 208
Torrance, California 90501
Re: REGISTRATION STATEMENT ON FORM S-3
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") of Video City, Inc. (the "Company"), which has
been prepared for filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"). The Registration Statement
relates to 8,863,542 shares of the Company's common stock (the "Shares")
issuable upon the exercise of certain warrants or upon the conversion of certain
convertible preferred stock, as described in the Registration Statement. The
Shares are to be offered for resale by certain selling securityholders as
described therein. Capitalized terms not defined herein shall have the
definitions ascribed to them in the Registration Statement.
We are familiar with the corporate proceedings heretofore taken or proposed
to be taken by the Company in connection with the authorization for issuance of
the Shares. In addition, we have examined such records of the Company as in our
judgment were necessary or appropriate to enable us to render the opinions
expressed herein.
Based on the foregoing, it is our opinion that the Shares have been duly
and validly authorized and, when issued in accordance with the warrants relating
thereto or the certificate of designations authorizing the series of the
convertible preferred stock converted thereto, as applicable, will be duly and
validly issued, fully paid and nonassessable.
We consent to the use of our name under the caption "Legal Matters" in the
Registration Statement and the Prospectus made part thereof, and to the filing
of this opinion as an exhibit to the Registration Statement. By giving you this
opinion and consent, we do not admit that we are experts with respect to any
part of the Registration Statement or Prospectus within the meaning of the term
"expert" as used in Section 11 of the Act, or the rules and regulations
promulgated thereunder, nor do we admit that we are in the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
/s/TROY & GOULD
Troy & Gould
Professional Corporation
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Video City, Inc.
Torrance, California
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated May 14,
1999, relating to the consolidated financial statements of Video City, Inc.
appearing in the Company's Annual Report on Form 10-K for the year ended January
31, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Los Angeles, California
June 25, 1999
