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VIDEO CITY TO RESTRUCTURE UNDER CHAPTER 11
Philadelphia, August 24, 2000 - Video City, Inc. (OTCBB:VDCT) announced
today that the Company and its subsidiaries have filed voluntary petitions to
reorganize their business under Chapter 11 of the US Bankruptcy Code. The
filings were made in the United States Bankruptcy Court for the Central District
of California.
The filings were made in the wake of actions taken by Fleet Retail
Finance, Inc. to accelerate the outstanding indebtedness under the Company's
secured credit facility with Fleet. Fleet had obtained a temporary order from
the Commonwealth of Massachusetts, Suffolk County requiring that all cash and
cash receipts be turned over to Fleet. The Company filed a petition to vacate
the temporary order and, on August 22, the Massachusetts court directed Fleet to
release enough funds to cover payroll. However, the court has not yet ruled on
the Company's petition to vacate the temporary order obtained by Fleet and to
restrain Fleet from sweeping all Company cash flow.
Fleet's actions have created a severe cash crisis affecting the
Company's operations. The Company has filed a complaint in the State of
Massachusetts (Suffolk County) against Fleet and certain other defendants
seeking damages in excess of $25,000,000. The complaint alleges fraud, breach of
contract, breach of the covenant of good faith and fair dealing, intentional
interference with contractual relations, intentional interference with
advantageous relations, violation of the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and violation of applicable provisions of
Massachusetts state law.
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The Company was moving forward in its intended merger with West Coast
Entertainment Corporation and was current in all its payment obligations under
the Fleet credit facility until Fleet accelerated the maturity of the Company's
indebtedness.
Robert Y. Lee, the Chairman and Chief Executive Officer of Video City,
stated, "Fleet's drastic actions and its continuing refusal to extend credit
under the credit facility require us to take immediate action. No business can
operate without cash. After careful consideration and analysis of our current
circumstances, we determined that Chapter 11 provides the best means of
achieving a successful financial and operational restructuring of our business.
We must focus on preserving our assets and improving our operational strength so
that we can emerge as a stronger and healthier company. We expect that we will
receive the support of our customers, employees, vendors and suppliers during
the reorganization process and that business should continue as usual."
Video City owns and operates 74 video stores and manages 225 West Coast
Entertainment Corporation video stores. Video City and West Coast Entertainment
are parties to a pending merger agreement. The Company will seek to proceed with
the planned merger.
Forward-looking statements in this press release are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Video City cautions that there are various important factors that could
cause actual results to differ materially from those indicated in the
forward-looking statements; accordingly, there can be no assurance that such
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indicated results will be realized. Among the factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are: the effect of the Chapter 11 proceedings and court supervision
of the Company; the overall viability of the long-term operational
reorganization and financial restructuring plan that the Company may devise;
restrictions on working capital and expansion that may be imposed in the Chapter
11 proceedings; the substantial and continuing losses being incurred by the
Company; the highly competitive nature of the retail video industry;
revenue-sharing agreements with studios and other changes in methods of
distribution of video products; rapidly changing technologies which may affect
the retail video business; substantial changes in the price and availability of
inventory; uncertainty regarding completion of the anticipated merger with West
Coast Entertainment Corporation, and the effects of that merger if it is
completed; and other factors discussed in the Company's annual report on Form
10-K for the fiscal year ended January 31, 2000.
