AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1996
REGISTRATION NO. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
HOLLYWOOD ENTERTAINMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
Oregon 7841 93-0981138
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification
of incorporation) Number)
25600 SW PARKWAY CENTER DRIVE, WILSONVILLE, OREGON 97070
(503) 570-1600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
DONALD J. EKMAN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
HOLLYWOOD ENTERTAINMENT CORPORATION
25600 SW PARKWAY CENTER DRIVE
WILSONVILLE, OREGON 97070
(503) 570-1600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
COPIES TO:
ROBERT J. MOORMAN THOMAS A. BEVILACQUA
STOEL RIVES LLP BROBECK, PHLEGER & HARRISON LLP
900 SW FIFTH AVENUE, SUITE 2300 TWO EMBARCADERO PLACE
PORTLAND, OREGON 97204 2200 GENG ROAD
(503) 224-3380 PALO ALTO, CALIFORNIA 94303
(415) 424-0160
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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. [ ]
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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================
Proposed maximum Proposed maximum
Title of each class of securities Amount to be offering price per aggregate offering Amount of
to be registered registered (1) share (2) price (2) registration fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,300,000 $18.125 $41,699,000 $12,633
- -----------------------------------------------------------------------------------------------------------------
<FN>
1) Includes 300,000 shares which the Underwriters have the option to
purchase to cover over-allotments, if any.
2) Estimated solely for the purpose of calculating the registration fee
and based on the last sale price for the Common Stock on November 18,
1996 as reported on the Nasdaq National Market.
</FN>
</TABLE>
---------------
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 THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
2,000,000 SHARES
[LOGO]
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being
sold by Hollywood Entertainment Corporation (the "Company").
The Common Stock is traded on the Nasdaq National Market under the
symbol "HLYW." On November 21, 1996, the last sale price of the Common
Stock as reported on the Nasdaq National Market was $18.13 per share. See
"Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price Underwriting Proceeds to
to Public Discount(1) Company(2)
- --------------------------------------------------------------------------------
Per Share.................. $ $ $
Total(3) .................. $ $ $
================================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$300,000.
(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 300,000 additional shares of Common Stock solely to
cover over-allotments, if any. If the Underwriters exercise this
option in full, the Price to Public will total $ , the
Underwriting Discount will total $ and the Proceeds to
Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters
named herein when, as and if delivered to and accepted by the Underwriters
and subject to their right to reject any order in whole or in part. It is
expected that delivery of certificates representing the shares will be made
against payment therefor at the office of Montgomery Securities on or about
, 1996.
--------------------
MONTGOMERY SECURITIES DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1996
<PAGE>
[Photograph of bank of 12 television screens with
"Hollywood Video" sign in each screen. Beneath the
wall of screens is a box containing the words
"Want Entertainment?. . .]
[Top cover of three-fold artwork]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
[Inside left of three-fold artwork:
Photograph of interior of store with a Hollywood
Video employee assisting a youth with
videocassette selection, a man and a woman looking
at comedy videocassette selections, and other
customers reviewing "Horror", "Comedy Concerts",
"Animation" and "New" categories of
videocassettes.]
[Inside right of three-fold artwork:
Five photographs depicting Hollywood Video store
fronts with a box containing words "Go to
Hollywood! TM]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information, including "Risk Factors," and financial statements
appearing elsewhere in this Prospectus or incorporated herein by reference.
THE COMPANY
Hollywood Entertainment owns and operates 466 video retail superstores
in 29 states and is the second largest video retailer in the United States
as measured by sales. According to video industry analyst Paul Kagan
Associates, Inc., in 1995 the Company operated the highest volume video
stores in the country.
The Company opened its first video superstore in October 1988 and had
grown to 25 stores in two states at the end of 1993, 113 stores in eight
states at the end of 1994 and 305 stores in 23 states at the end of 1995.
As a result, the Company's revenue increased from $17.3 million in 1993 to
$149.4 million in 1995, and its pro forma net income increased from $1.6
million to $11.8 million over the same period. The Company opened 148 new
stores in the nine months ended September 30, 1996 and intends to open
approximately 100 new stores in the fourth quarter of 1996. The Company
plans to open approximately 300 new stores in 1997. To support this
expansion, the Company has reorganized its operations into geographic
zones, managed from zone offices. The Company recently hired three senior
vice presidents with significant experience managing large, national chains
who are responsible for all aspects of store operations and development in
the zones.
Hollywood Entertainment's goal is to be a dominant national video
retailer and to build a strong national brand which consumers will identify
with the entertainment industry. As part of the strategy to achieve this
goal, the Company has developed a store format and design that captures the
bright lights, excitement and energy of the motion picture industry and
enables the public to easily identify and recognize Hollywood Video
superstores. Hollywood Video superstores average approximately 7,800 square
feet and typically carry approximately 10,000 titles and 16,000
videocassettes, consisting of many copies of popular new releases and an
extensive selection of older or "catalog" movies. Hollywood Entertainment's
goal is to offer more copies of popular new videocassette releases and more
titles than its competitors to achieve greater customer satisfaction and
encourage repeat visits. Hollywood Video stores are primarily located in
high traffic locations, in stand-alone buildings, at the end of shopping
strips or in other highly visible locations.
The Company was incorporated in Oregon in June 1988; its executive
offices are located at 25600 SW Parkway Center Drive, Wilsonville, Oregon
97070, and its telephone number is (503) 570-1600. References in this
Prospectus to the "Company" or "Hollywood Entertainment" are to Hollywood
Entertainment Corporation and its wholly owned subsidiary.
3
<PAGE>
THE OFFERING
Common Stock offered........................ 2,000,000 shares
Common Stock to be outstanding
after the offering (1).................. 35,949,176 shares
Use of Proceeds............................. For repayment of indebtedness, to
fund expansion and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market Symbol............... HLYW
- -----------------
(1) Based on shares outstanding at September 30, 1996. Excludes 4,603,362
shares reserved for issuance under the Company's 1993 Stock Incentive
Plan (the "Stock Incentive Plan"), of which 4,180,562 shares were
subject to outstanding options at September 30, 1996 at a weighted
average exercise price of $8.75 per share.
FORWARD-LOOKING STATEMENTS
The information, including information concerning the Company's
planned expansion and financial resources, set forth in "Prospectus
Summary" under the caption "The Company," in "Risk Factors" under the
captions "Uncertain Ability To Achieve and Manage Planned Expansion" and
"Legal Proceedings," in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Liquidity and
Capital Resources" and in "Business" under the captions "General,"
"Expansion Strategy," "Decentralization and Creation of Zone Offices,"
"Video Retail Industry" and "Competition" includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933
and is subject to the safe harbor created by that section. Certain factors
that could cause results to differ materially from those projected in the
forward-looking statements are set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
under the captions "Liquidity and Capital Resources" and "General Economic
Trends, Quarterly Results and Seasonality" and in "Business" under the
caption "Competition."
4
<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1991 1992(1) 1993(1) 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue......................... $ 5,184 $11,044 $17,339 $73,288 $149,430 $95,488 $204,718
Pro forma operating
income (2)(3)................. 562 1,796 2,795 9,745 17,537 13,936 23,573
Pro forma net income (2)(4)..... 892 1,647 6,277 11,786 9,291 12,574
Pro forma net income
per share (2)(5).............. $ 0.07 $ 0.11 $ 0.25 $ 0.36 $ 0.29 $ 0.36
Shares used in per share
calculation................... 12,936 15,357 25,578 32,962 32,212 34,971
Other Operating Data:
Number of stores at end
of period..................... 10 15 25 113 305 239 453
Comparable store sales
increase (6).................. 24% 27% 16% 7% 1% 0% 6%
SEPTEMBER 30, 1996
--------------------
AS
ACTUAL ADJUSTED(7)
------- -----------
Balance Sheet Data:
Cash and cash equivalents........................................... $ 5,918 $ 19,784
Total assets........................................................ 372,315 386,180
Long-term debt (including current portion).......................... 85,549 65,549
Shareholders' equity................................................ 231,148 265,014
- ---------------
<FN>
(1) Pro forma net income and pro forma net income per share include a pro
forma income tax adjustment to reflect the Company as a C corporation
rather than an S corporation for federal and state income tax purposes
for 1992 and for the period which commenced January 1, 1993 and ended
July 18, 1993.
(2) Effective January 1, 1995, the Company changed its method of
amortizing the cost of videocassette rental inventory. See Note 2 of
Notes to Consolidated Financial Statements of Hollywood Entertainment
Corporation incorporated herein by reference. The change in
amortization method resulted in a charge to earnings in 1995 totaling
$2.6 Million, representing the cumulative effect as of January 1, 1995
if the new method had been applied retroactively to all videocassettes
in service at that date. The pro forma amounts shown herein reflect
the effect on net income and net income per share had the new
amortization method been in effect as of the beginning of each of the
periods presented. Pro forma net income for 1991 is not determinable.
5
<PAGE>
(3) For each of 1991, 1995 and the nine months ended September 30, 1995
and 1996, pro forma and actual operating income were the same. Actual
operating income for 1991, 1992, 1993, 1994, 1995 and the nine months
ended September 30, 1995 and 1996 was $562, $2,270, $3,643, $12,610,
$17,537, $13,936 and $23,573, respectively.
(4) For each of 1995 and the nine months ended September 30, 1995 and
1996, pro forma and actual net income were the same. Actual net
income, adjusted in 1992 and 1993 as described in footnote 1 above,
for 1991, 1992, 1993, 1994, 1995 and the nine months ended September
30, 1995 and 1996 was $281, $1,177, $2,146, $8,143, $9,226, $9,291 and
$12,574, respectively.
(5) For each of 1995 and the nine months ended September 30, 1995 and
1996, pro forma and actual net income per share were the same. Actual
net income per share, adjusted in 1992 and 1993 as described in
footnote 1 above, for 1991, 1992, 1993, 1994, 1995 and the nine months
ended September 30, 1995 and 1996 was $0.02, $0.09, $0.14, $0.32,
$0.28, $0.29 and $0.36, respectively.
(6) A store becomes comparable after it has been open and owned by the
Company for 12 full calendar months. An acquired store converted to
the Hollywood Video name and store design is removed from the
comparable store base when the conversion process is initiated and
returned 12 full calendar months after reopening.
(7) Adjusted to reflect the sale of 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of
$18.13 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
</FN>
</TABLE>
6
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by
reference in this Prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing any
of the shares of Common Stock offered hereby.
UNCERTAIN ABILITY TO ACHIEVE AND MANAGE PLANNED EXPANSION
The Company's future performance will depend on its ability to open
new stores and to operate these stores profitably. The Company has grown
from 25 stores in two states at the end of 1993 to 305 stores in 23 states
at the end of 1995. The Company opened 148 new stores in the nine months
ended September 30, 1996 and intends to open approximately 100 new stores
in the fourth quarter of 1996. The Company plans to open approximately 300
new stores in 1997. The Company has not identified sites for many of these
planned stores and does not have signed leases for most of them. The
Company will continue to open stores in markets where it has limited or no
operating history. The Company's expansion is dependent on a number of
factors, including its ability to hire, train and assimilate management and
store-level employees, the adequacy of the Company's financial resources
and the Company's ability to identify and successfully compete in new
markets to locate suitable store sites and negotiate acceptable lease terms
and to adapt its purchasing, management information and other systems to
accommodate expanded operations. In addition to the net proceeds of this
offering, the Company will need to obtain financing to achieve its planned
expansion of 300 stores in 1997. This financing may not be available or
available on terms favorable to the Company. Failure to obtain financing to
fund the Company's planned expansion or for other purposes would have a
material adverse effect on the Company. The Company's expansion is also
dependent on the timely fulfillment by landlords and others of their
contractual obligations to the Company, the maintenance of construction
schedules and the speed at which local zoning and construction permits can
be obtained. There is no assurance that the Company will be able to achieve
its planned expansion or that expansion will be profitable. There is also
no assurance that the Company's new stores will achieve sales and
profitability comparable to the Company's existing stores.
The size of the Company's store base and the geographic scope of its
operations have expanded significantly over the last several years. This
expansion has placed and is expected to continue to place increasing
pressure on the Company's operating and management controls. The Company
has hired a significant number of additional senior management and other
personnel to manage this larger store base and recently reorganized its
operations into four geographic zones, each of which is managed by a senior
vice president with responsibility for store operations and new store
development in the zone. This new operating structure is in the early
stages of implementation, and there is no assurance it will be effective
for managing the Company's expanding operations. In addition, to manage its
larger store base and planned expansion, the Company will need to
continually evaluate the adequacy of its financial controls, management
information systems and distribution facilities. There is no assurance that
the Company will adequately anticipate or respond to all of the changing
demands that its planned expansion will impose on its infrastructure. See
"Business--Expansion Strategy."
DEPENDENCE ON KEY PERSONNEL; RECENT MANAGEMENT ADDITIONS
The Company's future performance depends on the continued
contributions of certain key management personnel, including Mark J.
Wattles, its founder, Chief Executive Officer and principal shareholder. To
support its planned expansion, the Company has added a substantial number
of senior management personnel. There is no assurance that the Company will
retain these new members of management or that they will be able to
successfully manage the Company's existing operations or achieve its
expansion plans. The Company's continued growth and profitability also
depend on its ability to attract and retain other management personnel,
including qualified store managers. See "Management."
7
<PAGE>
COMPETITION AND TECHNOLOGICAL OBSOLESCENCE
The video retail industry is highly competitive. The Company competes
with other local, regional and national video retail stores, including the
Blockbuster Entertainment division of Viacom, Inc. ("Blockbuster"), the
dominant video retailer in the U.S., and with supermarkets, pharmacies,
convenience stores, bookstores, mass merchants, mail order operations and
other retailers, as well as with noncommercial sources such as libraries.
According to the Video Software Dealers Association, in 1995 there were
approximately 27,000 video specialty stores in the U.S., of which
approximately 6,500 were video retail superstores. Some of the Company's
competitors have significantly greater financial and marketing resources,
market share and name recognition than the Company. The Company competes
directly with Blockbuster in nearly all of its markets and the majority of
its stores are located within very close proximity of stores operated by
Blockbuster. As a result of direct competition with Blockbuster, rental
pricing of videocassettes has been and may become a more significant
competitive factor in the Company's business, which could have an adverse
impact on the results of operations of the Company.
The Company also competes with pay-per-view satellite and cable
television systems, in which 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 available only to households with a receiver or
converter to unscramble incoming signals. Digital compression technology
combined with fiber optics and other developing technologies is expected
eventually to permit cable companies, direct broadcast satellite companies,
telephone companies and other telecommunications companies to transmit a
much greater number of movies to homes at more frequently scheduled
intervals throughout the day on demand. Certain cable and other
telecommunications companies have tested and are continuing to test movie
on demand services in some markets. Technological advances or changes in
the manner in which movies are marketed, including in particular the
earlier release of movie titles to pay-per-view and cable television or
other distribution channels, could make these technologies more attractive
and economical, which could have a material adverse effect on the business
of the Company. See "Business--Video Rental Industry" and "--Competition."
RISKS ASSOCIATED WITH POSSIBLE FUTURE ACQUISITIONS
Although the Company's principal growth strategy is to open new
Hollywood Video superstores, it may continue to pursue potential
acquisitions, some of which may be material in size, including businesses
that are not video retailers but which have potentially attractive
locations. The non-real estate assets of businesses other than video
retailers would likely need to be liquidated and the facility converted to
a video retail superstore. Further, any future acquisitions would require
investment of operational and financial resources and might require
integration of dissimilar operations, assimilation of new employees,
diversion of management resources, increases in administrative costs and
the addition of costs associated with debt or equity financing. The Company
has no understandings, commitments or agreements with respect to any
acquisition. There is no assurance that future acquisitions, if any, by the
Company will be successful, will not have an adverse effect on the
Company's results of operations or will not result in dilution to existing
shareholders. See "Business--Expansion Strategy."
LEGAL PROCEEDINGS
In December 1995 three complaints were filed against the Company,
certain of the Company's directors and officers and certain other parties
and consolidated in a single action entitled Murphy v. Hollywood
Entertainment et al., case no. C95-1926-MA, U.S. District Court for the
District of Oregon. The consolidated case is a class action encompassing
persons who purchased common stock of the Company from June 20 through
December 5, 1995. Plaintiffs allege violation of certain federal securities
laws with respect to statements made to the public and losses allegedly
sustained by plaintiffs as a result of the decline in the trading price of
the Company's stock in December 1995. In May 1996 the court certified the
class but dismissed claims based on violations of sections 11, 12(2) and 15
of the Securities Act of 1933. The remaining claims deal with alleged
violations of the Securities Exchange Act of 1934. The trial has been
tentatively scheduled for March 1997. The Company
8
<PAGE>
believes this suit is without merit and is vigorously defending the
litigation. The Company does not believe the ultimate outcome of the
litigation will have a material adverse effect on the Company. If the case
proceeds to trial and if the verdict is unfavorable to the Company, or if
the Company settles the litigation on unfavorable terms, the litigation
could have a material adverse effect on the Company.
FLUCTUATIONS IN FUTURE OPERATING RESULTS
Future operating results may be affected by many factors, including
variations in the number and timing of store openings, the performance of
new or acquired stores, 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, changes in same store revenue, additional and existing
competition, marketing programs, weather, special or unusual events,
seasonality 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 that quarter and could, in certain circumstances,
lead to fluctuations in quarterly financial results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General" and "--General Economic Trends, Quarterly Results and
Seasonality."
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of this offering, the Company's founder, Mark J.
Wattles, will beneficially own approximately 31% of the outstanding Common
Stock. As a result, he may be able effectively to control all matters
requiring approval by the shareholders of the Company, including the
election of directors.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has fluctuated
substantially since the initial public offering of the Company in July
1993. See "Price Range of Common Stock." There is no assurance that the
market price of the Common Stock will not decline below the price to the
public in this offering. The Common Stock is traded on the Nasdaq National
Market, which market has experienced and is likely to experience in the
future significant price and volume fluctuations that could adversely
affect the market price of the Common Stock without regard to the operating
performance of the Company. The Company believes factors such as quarterly
fluctuations in financial results, announcements of new technologies in
movie distribution or announcements by the Company or competitors may cause
the market price of the Common Stock to fluctuate, perhaps substantially.
These factors, as well as general economic conditions such as recessions or
high interest rates, may adversely affect the market price of the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of shares of the Common Stock in the
public market following this offering could adversely affect the market
price for the Common Stock. Upon expiration of a lockup agreement with the
Underwriters 90 days after the date of this Prospectus (or earlier upon the
consent of Montgomery Securities), approximately 11,000,000 shares will be
eligible for sale pursuant to Rule 144 under the Securities Act. Of these
11,000,000 shares, approximately 3,600,000 shares have been or are expected
to be pledged as collateral to secure approximately $17.0 million of
obligations of the pledgor. To the extent the lenders are required to sell
these shares to satisfy the pledgor's obligations, the shares will not be
subject to the lockup agreement, and a substantial number of shares would
enter the public market, which could adversely affect the market price of
the Common Stock.
9
<PAGE>
POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER
EFFECT OF OREGON LAW
The Board of Directors of the Company has authority to issue up to
25,000,000 shares of Preferred Stock and to fix the rights, preferences,
privileges and restrictions of those shares without any further vote or
action by the shareholders. The potential issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of
the Company, may discourage bids for the Common Stock at a premium over the
market price of the Common Stock and may adversely affect the market price
of, and the voting and other rights of the holders of, Common Stock. In
addition, certain provisions of Oregon law could make it more difficult for
a party to gain control of the Company.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares
of Common Stock offered hereby are estimated to be $33.9 million ($39.0
million if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $18.13 per share and after deducting
the estimated underwriting discount and offering expenses. The Company
plans to use approximately $20.0 million of the net proceeds to repay a
portion of the amount outstanding under its revolving line of credit and
the balance to fund expansion and for working capital and other general
corporate purposes. At September 30, 1996, $85.0 million was outstanding
under the bank line of credit and bore interest at a weighted average
annual rate of approximately 6.9%. Amounts borrowed were used principally
to fund the repurchase by the Company in January 1996 of shares of its
Common Stock, issued in connection with the Video Watch acquisitions, for
an aggregate payment of approximately $54.3 million and for working
capital. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." The Company
may also use a portion of the proceeds of this offering to fund possible
acquisitions, but it has no understandings, commitments or agreements with
respect to any acquisitions. Pending use of the net proceeds, the Company
will invest the funds in short-term, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "HLYW." The following table sets forth for the periods
indicated the high and low sale prices of the Company's Common Stock as
reported on the Nasdaq National Market and as adjusted for all prior stock
splits.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1994
First Quarter................................ $ 8.83 $ 5.00
Second Quarter............................... 12.42 7.17
Third Quarter................................ 14.75 9.33
Fourth Quarter............................... 18.44 13.13
1995
First Quarter................................ $18.25 $11.25
Second Quarter............................... 23.13 15.00
Third Quarter................................ 35.00 19.00
Fourth Quarter............................... 28.63 7.38
1996
First Quarter................................ $14.25 $ 6.25
Second Quarter............................... 19.00 13.13
Third Quarter................................ 22.63 11.75
Fourth Quarter through November 19, 1996..... 23.63 17.88
</TABLE>
The last sale price of the Company's Common Stock on November 20, 1996
as reported on the Nasdaq National Market was $18.13 per share. As of
September 30, 1996, there were 207 holders of record of the Company's
Common Stock. The Company has not paid any cash dividends on its Common
Stock since its initial public offering in July 1993 and anticipates that
any future earnings will be retained for development of its business. The
payment of any future dividends will be at the discretion of the Company's
Board of Directors.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to the sale by the
Company of the 2,000,000 shares of Common Stock offered hereby at an
assumed public offering price of $18.13 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------
(in thousands)
As
Actual Adjusted
--------- ---------
<S> <C> <C>
Cash and cash equivalents.......................... $ 5,918 $ 19,784
========= =========
Current portion of long-term debt.................. $ 484 $ 484
========== =========
Long-term debt, less current portion:
Revolving line of credit....................... $ 85,000 $ 65,000
Other long-term debt........................... 65 65
--------- ---------
Total long-term debt........................ 85,065 65,065
--------- ---------
Shareholders' equity:
Preferred Stock, 25,000,000 shares authorized;
no shares issued and outstanding.............
Common Stock, 100,000,000 shares authorized;
33,949,176 shares issued and outstanding;
35,949,176 shares issued and outstanding
as adjusted(1)............................... 202,585 236,451
Retained earnings.............................. 30,936 30,936
Intangible assets, net......................... (2,373) (2,373)
--------- ---------
Total shareholders' equity.................. 231,148 265,014
--------- ---------
Total capitalization..................... $ 316,213 $ 330,079
========= =========
- ---------------
<FN>
(1) Issued and outstanding shares exclude 4,603,362 shares reserved for
issuance under the Stock Incentive Plan, of which 4,180,562 shares were
subject to outstanding options at September 30, 1996 at a weighted
average exercise price of $8.75 per share.
</FN>
</TABLE>
12
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the years in
the three-year period ended December 31, 1995 and as of December 31, 1994
and 1995 have been derived from the audited financial statements of the
Company incorporated by reference into this Prospectus. The selected
financial data presented below for, and as of the end of, each of the years
in the two-year period ended December 31, 1992 and as of December 31, 1993
have been derived from the audited financial statements of the Company not
incorporated by reference into this Prospectus. The selected financial data
for the nine months ended September 30, 1995 and 1996 and as of September
30, 1996 have been derived from the unaudited financial statements of the
Company incorporated by reference into this Prospectus. The selected
financial data as of September 30, 1995 have been derived from the
unaudited financial statements of the Company not incorporated by reference
into this Prospectus. In the opinion of management of the Company, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for those periods. Operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996 or for any future period. This data should be read in conjunction
with the financial statements, pro forma financial statements, related
notes and other financial information included elsewhere in this Prospectus
or incorporated by reference.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- ---------- ---------- ------------ -----------
(in thousands, except per share and other operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Rental.................................... $ 4,623 $ 9,762 $15,267 $61,941 $123,894 $ 80,234 $173,052
Product sales............................. 561 1,282 2,072 11,347 25,536 15,254 31,666
---------- --------- --------- ---------- ---------- ------------ -----------
Total.................................. $ 5,184 $11,044 $17,339 $73,288 $149,430 $ 95,448 $204,718
========== ========= ========= ========== ========== ============ ===========
Operating income.............................. $ 562 $ 2,270 $ 3,643 $12,610 $ 17,537 $ 13,936 $ 23,573
========== ========= ========= ========== ========== ============ ===========
Income before cumulative effect
of a change in accounting principle (1) $ 281 $ 1,177 $ 2,146 $ 8,143 $ 11,786 $ 9,291 $ 12,574
Cumulative effect of a change in
accounting principle (2).................. -- -- -- -- (2,560) -- --
---------- --------- --------- ---------- ----------
Net income (1)................................ $ 281 $ 1,177 $ 2,146 $ 8,143 $ 9,226 $ 9,291 $ 12,574
========== ========= ========= ========== ========== ============ ===========
Net income per share(1):
Net income per share before cumulative
effect of a change in accounting
principle............................ $0.02 $0.09 $0.14 $0.32 $0.36 $0.29 $0.36
Cumulative effect per share of a change
in accounting principle .............
-- -- -- -- (0.08) -- --
---------- --------- --------- ---------- ---------- ------------ -----------
Net income per share..................... $0.02 $0.09 $0.14 $0.32 $0.28 $0.29 $0.36
========== ========= ========= ========== ========== ============ ===========
Pro forma operating income (2)................ $1,796 $2,795 $9,745
Pro forma net income (1)(2)................... 892 1,647 6,277
Pro forma net income per share (1)(2)......... $0.07 $0.11 $0.25
Shares used in per share calculations........... 12,024 12,936 15,357 25,578 32,962 32,212 34,971
Other Operating Data:
Number of stores at end of period............. 10 15 25 113 305 239 453
Comparable store sales increase (3)........... 24% 27% 16% 7% 1% 0% 6%
13
<PAGE>
December 31,
----------------------------------------------------- September 30,
1991 1992 1993 1994 1995 1996
-------- ------- ------- ------- ------- --------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents..................... $ 418 $ 1,013 $ 9,606 $39,017 $29,980 $ 5,918
Total assets.................................. 4,359 7,475 22,791 142,861 334,660 372,315
Long-term debt (including current portion).... 1,844 1,873 2,399 3,505 7,971 85,549
Mandatorily redeemable common stock........... -- -- -- -- 54,250 --
Shareholders' equity.......................... 347 2,282 13,303 110,765 217,783 231,148
- ---------------
<FN>
(1) For 1992 and 1993, includes a pro forma income tax adjustment to
reflect the Company as a C corporation rather than an S corporation for
federal and state income tax purposes for 1992 and for the period which
commenced January 1, 1993 and ended July 18, 1993.
(2) Effective January 1, 1995, the Company changed its method of amortizing
the cost of videocassette rental inventory. See Note 2 of Notes to
Consolidated Financial Statements of Hollywood Entertainment
Corporation incorporated herein by reference. The change in
amortization method resulted in a charge to earnings in 1995 totaling
$2.6 million, representing the cumulative effect as of January 1, 1995
if the new method had been applied retroactively to all videocassettes
in service at that date. The pro forma amounts shown herein reflect the
effect on net income and net income per share had the new amortization
method been in effect as of the beginning of each of the periods
presented. Pro forma net income for 1991 is not determinable.
(3) A store becomes comparable after it has been open and owned by the
Company for 12 full calendar months. An acquired store converted to the
Hollywood Video name and store design is removed from the comparable
store base when the conversion process is initiated and returned 12
full calendar months after reopening.
</FN>
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company opened its first video superstore in October 1988 and had
grown to 25 stores in two states at the end of 1993, 113 stores in eight
states at the end of 1994 and 305 stores in 23 states at the end of 1995.
The Company's revenue growth has been accomplished through a combination of
new store openings, strategic acquisitions and, to a lesser extent,
comparable store sales increases. Store activity for the last three years
and the nine months ended September 30, 1996 is summarized in the table
below.
VIDEO SUPERSTORES
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
---------------------------- -------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning of period........... 15 25 113 305
Opened during period (1)...... 10 33 122 148
Acquired during period (1).... -- 55 70 --
---- ---- ---- ----
End of period................. 25 113 305 453
==== ==== ==== ====
- ---------------
<FN>
(1) The number of stores opened or acquired is net of stores closed.
</FN>
</TABLE>
The Company intends to open approximately 100 new stores in the fourth
quarter of 1996 for a total of approximately 250 new stores in 1996. The
Company plans to open approximately 300 new stores during 1997. The
Company's ability to open 300 new stores in 1997 is dependent on a number
of factors, including the ability of the Company to obtain additional
financing. See "Risk Factors - Uncertain Ability to Achieve and Manage
Planned Expansion" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The Company's results are impacted by the timing of and costs incurred
in connection with new store openings. New Hollywood Video stores typically
experience lower sales volume in the first year of operation than do mature
stores. Because a portion of store-level operating expenses is fixed, new
stores generally have lower operating margins in their first year of
operation. In addition, pre-opening expenses are charged to earnings in the
first full month of a store's operation. Therefore, the addition of a
significant number of new stores to the Company's existing store base has
had and is expected to have an adverse impact on the Company's operating
margins in future periods.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i)
selected statement of operations data expressed as a percentage of total
revenue and (ii) the number of stores open at the end of the period.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------- -------------------------
(unaudited)
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Rental income 88.1% 84.5% 82.9% 84.0% 84.5%
Product sales 11.9 15.5 17.1 16.0 15.5
----------- ----------- ----------- ----------- -----------
100.0 100.0 100.0 100.0 100.0
----------- ----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of product sales 8.6 9.9 9.9 9.4 9.4
Operating and selling 62.6 64.6 70.6 68.3 70.6
General and administrative 7.2 6.0 5.3 5.2 6.3
Amortization of intangibles 0.6 2.3 2.5 2.5 2.2
----------- ----------- ----------- ----------- -----------
79.0 82.8 88.3 85.4 88.5
----------- ----------- ----------- ----------- -----------
Operating income 21.0 17.2 11.7 14.6 11.5
Interest income (expense), net (1.4) (0.2) 0.8 0.8 (1.3)
----------- ----------- ----------- ----------- -----------
Income before income taxes and
cumulative effect of a change in
accounting principle 19.6 17.0 12.5 15.4 10.2
Income taxes (1) 7.2 5.9 4.6 5.7 4.0
----------- ----------- ----------- ----------- -----------
Income before cumulative effect
of a change in accounting principle(1) 12.4 11.1 7.9 9.7 6.2
Cumulative effect of a change in
accounting principle (2) -- -- 1.7
----------- ----------- ----------- ----------- -----------
Net income(1) 12.4% 11.1% 6.2% 9.7% 6.2%
=========== =========== =========== =========== ===========
Pro forma operating income(2) 16.1% 13.2%
=========== ===========
Pro forma net income (1)(2) 9.5% 8.6%
=========== ===========
Number of stores at end of period 25 113 305 239 453
- ---------------
<FN>
(1) For 1993 includes a pro forma income tax adjustment to reflect the
Company as a C corporation rather than an S corporation for federal
and state income tax purposes for the period which commenced January
1, 1993 and ended July 18, 1993.
(2) Effective January 1, 1995, the Company changed its method of
amortizing the cost of videocassette rental inventory. See Note 2 of
Notes to Consolidated Financial Statements of Hollywood Entertainment
Corporation incorporated herein by reference. The change in
amortization method resulted in a charge to earnings in 1995 totaling
$2.6 million, representing the cumulative effect as of January 1, 1995
if the new method had been applied retroactively to all videocassettes
in service at that date. The pro forma amounts shown reflect the
effect on net income had the new amortization method been in effect as
of the beginning of each of the periods presented.
</FN>
</TABLE>
16
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue
Revenue for the nine months ended September 30, 1996 increased $109.2
million, or 114.4%, to $204.7 million compared to $95.5 million for the
nine months ended September 30, 1995. The increase in revenue was primarily
the result of new store expansion. During the nine months ended September
30, 1996, the Company increased the number of superstores operated by 148,
ending the period with 453 superstores, compared to 239 superstores at the
end of the corresponding period in 1995. Comparable store revenue increased
6%.
Product sales as a percentage of total revenue were 15.5% for the nine
months ended September 30, 1996 compared to 16.0% for the nine months ended
September 30, 1995.
The Company's pricing of videocassette rentals and merchandise for sale
has not changed significantly compared to the first nine months of 1995.
Operating Costs and Expenses
Cost of Product Sales
The cost of product sales was unchanged at 9.4% of total revenue for
the nine months ended September 30, 1996 compared to the same period of the
prior year due to decreased sales of product as a percentage of total
revenue offset by slightly lower gross margins. The cost of product sales
as a percentage of product sales increased from 58.6% to 60.6% for the nine
months ended September 30, 1995 and 1996, respectively. The gross margin on
product sales has decreased as the Company has de-emphasized the sale of
certain high gross margin movie accessories. The Company believes the
operating costs associated with maintaining those products offset the
higher gross margins that they generated.
Operating and Selling
Operating expenses, which principally consist of all store expenses,
including payroll, occupancy, advertising, depreciation and rental revenue
sharing, increased as a percentage of total revenue to 70.6% for the nine
months ended September 30, 1996, compared to 68.3% for the nine months
ended September 30, 1995.
Depreciation expense combined with rental revenue sharing costs was
28.2% of total revenue for the nine months ended September 30, 1996,
compared to 29.0% for the nine months ended September 30, 1995. The
decrease was due to lower revenue sharing expense and the implementation of
improved budgeting procedures in the purchase of new releases for existing
stores. Other operating and selling expenses increased as a percentage of
total revenue primarily due to lower average revenue per store, resulting
from the addition during 1995 and the first nine months of 1996 of a large
number of new and acquired stores which have lower revenue per store than
mature Hollywood Video stores.
General and Administrative
General and administrative expenses increased from $4.9 million, or
5.2% of total revenue, for the nine months ended September 30, 1995 to
$12.9 million, or 6.3% of total revenue, for the nine months ended
September 30, 1996. The percentage increase is primarily attributable to
the initial investment associated with establishing and staffing the
Company's new regional zone offices.
17
<PAGE>
Amortization of Intangibles
Amortization of intangibles increased from $2.3 million, or 2.5% of
total revenue, for the nine months ended September 30, 1995 to $4.5
million, or 2.2% of total revenue, for the nine months ended September 30,
1996. The dollar increase was attributable to the inclusion of the
amortization of intangible assets arising from the Title Wave and Video
Watch acquisitions for the entire nine month period ended September 30,
1996, while only partially included in the nine months ended September 30,
1995.
Nonoperating Income (Expense), Net
Net nonoperating income (expense) decreased from $800,000 for the nine
months ended September 30, 1995 to ($2.7 million) for the nine months ended
September 30, 1996. This change was primarily attributable to the Company's
higher level of borrowing under its revolving line of credit for nine
months ended September 30, 1996 compared to the third quarter of 1995.
Income Taxes
The Company's effective tax rate increased from 36.8% of income before
income taxes for the nine months ended September 30, 1995 to 39.7% for the
nine months ended September 30, 1996 due to higher federal and state tax
rates in 1996 compared to 1995.
1995 COMPARED TO 1994
Revenue
Revenue for 1995 increased $76.1 million, or 104%, to $149.4 million
from $73.3 million for 1994. Comparable store revenue increased 1%. During
the year, the Company opened 122 new stores and acquired 70 stores,
including 42 stores purchased in August 1995 operating under the name
"Video Watch" and 12 stores purchased during March 1995 from Title Wave
Stores, Inc.
The Company believes comparable store revenue was negatively impacted
by lower revenues from the rental and sale of video games, lower revenues
at stores acquired during 1994 prior to conversion to the Hollywood Video
name and store design and an uneven and therefore less favorable
distribution of new release "hit" movies during 1995 compared to 1994.
Product sales as a percentage of total revenue increased to 17.1% for
1995 compared to 15.5% during 1994. The increase in product sales as a
percentage of revenue was due to improved merchandising techniques and
higher per store product inventory levels.
The Company's pricing of videocassettes for rental and for sale
merchandise did not change significantly compared to 1994.
Operating Costs and Expenses
Cost of Product Sales
The cost of product sales remained unchanged at 9.9% of total revenue
in 1995 compared to 9.9% of total revenue in 1994. The cost of product
sales decreased as a percentage of product sales from 63.9% in 1994 to
57.8% for 1995. The gross margin on product sales increased in 1995
compared to 1994 due to expanded offerings of merchandise with higher gross
margins.
18
<PAGE>
Operating and Selling
Operating and selling expenses, which consist of all store expenses
including payroll, occupancy, advertising, depreciation and rental revenue
sharing expense, increased as a percentage of total revenue to 70.6% in
1995 compared to 64.6% in 1994. Operating and selling expenses increased as
a percentage of total revenue primarily due to lower average revenue per
store, resulting primarily from the addition during 1995 of a large number
of new and acquired stores which have lower revenue per store than mature
Hollywood Video stores.
Depreciation expense combined with rental revenue sharing expense was
29.6% of total revenue in 1995 compared to 27.9% in 1994. The increase was
primarily due to a change in the Company's method of depreciating
videocassette rental inventory effective January 1, 1995.
General and Administrative
General and administrative expenses, which principally consist of
corporate overhead, decreased from 6.0% of total revenue for 1994 to 5.3%
for 1995. The decrease in expenses as a percentage of revenue was due to
the Company's ability to increase revenue without proportionally increasing
corporate overhead expenses.
Amortization of Intangibles
Amortization of intangibles increased from $1.7 million, or 2.3% of
total revenue, during 1994 to $3.8 million, or 2.5% of total revenue,
during 1995. The dollar increase was primarily attributable to the
amortization of intangible assets arising from the Title Wave, Video Watch
and other store acquisitions in 1995.
Interest Income (Expense), Net
Net interest expense was $0.1 million, or 0.2% of total revenue, in
1994 while net interest income was $1.1 million, or 0.8% of total revenue,
in 1995. The change in net interest was primarily due to the receipt of the
net proceeds of the Company's public stock offering completed in July 1995,
resulting in a decrease in average debt outstanding and an increase in
interest earned on cash investments.
Income Taxes
The Company's effective tax rate for 1995 was 36.8%, compared to 34.9%
in 1994. The increase in 1995 was due to a higher federal statutory rate
and a higher aggregate state tax rate, partially offset by higher tax
exempt interest income.
1994 COMPARED TO 1993
Revenue
Revenue for 1994 increased $56.0 million, or 323%, to $73.3 million
from $17.3 million for 1993. Comparable store revenue increased 7%. During
the year, the Company opened 33 new stores and acquired 55 stores. The
increase in same store revenue was attributable to a greater volume of
customer transactions; the Company's prices did not change significantly
compared to 1993.
Product sales as a percentage of total revenue increased to 15.5% for
1994 compared to 11.9% during 1993. The increase in product sales as a
percentage of revenue was due to bulk sales of discontinued
merchandise, increases in the number of videocassettes available for sale,
improved merchandising techniques and the sale of video games in certain
stores.
19
<PAGE>
Operating Costs and Expenses
Cost of Product Sales
The cost of product sales increased to 9.9% of total revenue in 1994
compared to 8.6% in 1993, due to increased sales of products partially
offset by higher gross margins on product sales. The cost of product sales
as a percentage of product sales decreased to 63.9% in 1994 compared to
72.2% in 1993. The gross margin on product sales increased due to lower
product acquisition costs, resulting from more favorable purchasing terms
negotiated in October 1993 with one of the Company's major distributors.
Operating and Selling
Operating and selling expenses, which consist of all store expenses
including payroll, occupancy, advertising, depreciation and rental revenue
sharing expense, increased as a percentage of total revenue to 64.6% in
1994 compared to 62.6% for 1993. Operating and selling expenses increased
as a percentage of total revenue primarily due to lower average revenue per
store, resulting from the addition during 1994 of a large percentage of new
and acquired stores.
Depreciation expense, primarily from rental inventory, combined with
rental revenue sharing costs was 27.9% of total revenue in 1994 compared to
28.8% in 1993. All other operating and selling expenses accounted for the
remaining change in costs as a percentage of total revenue during 1994
compared to 1993.
General and Administrative
General and administrative expenses, which principally consist of
corporate overhead, decreased from 7.2% of total revenue for 1993 to 6.0%
for 1994. The decrease in costs as a percentage of total revenue was due to
the Company's ability to increase revenue without proportionally increasing
overhead expenses.
Amortization of Intangibles
Amortization of intangibles increased from $0.1 million, or 0.6% of
total revenue during 1993 to $1.7 million, or 2.3% of total revenue for
1994. The increase was primarily attributable to the amortization of
certain intangible assets resulting from acquisitions completed in 1994.
Interest Income (Expense), Net
Net interest expense decreased from $0.2 million, or 1.4% of total
revenue in 1993 to $0.1 million, or 0.2% of total revenue for 1994. This
decrease was primarily attributable to an increase in interest earned as a
result of the net proceeds of the Company's public offerings completed in
July 1993 and August 1994.
Income Taxes
The Company's effective tax rate for 1994 was 34.9% compared to 37.0%
(pro forma) in 1993. The decrease was primarily the result of higher
tax-exempt investment income earned on the Company's cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for opening new
stores, the purchase of rental inventory and the possible acquisition of
existing stores. The Company has funded its operations primarily through
cash from operations, the proceeds of four public offerings, loans under
the Company's revolving bank line of credit, trade credit and equipment
leases.
20
<PAGE>
At September 30, 1996, the Company had cash and cash equivalents of
approximately $5.9 million and working capital of $11.2 million.
Videocassette rental inventories are accounted for as noncurrent assets
under generally accepted accounting principles because they are not assets
which are reasonably expected to be completely realized in cash or sold in
the normal business cycle. Although the rental of this inventory generates
a substantial portion of the Company's revenue, the classification of these
assets as noncurrent excludes them from the computation of working capital.
The acquisition cost of videocassette rental inventories, however, is
reported as a current liability until paid and, accordingly, included in
the computation of working capital. Consequently, the Company believes
working capital is not as significant a measure of financial condition for
companies in the video retail industry as it is for companies in other
industries. Because of the accounting treatment of videocassette rental
inventory as a noncurrent asset, the Company may, from time to time,
operate with a working capital deficit.
Net cash provided by operating activities was $67.7 million for the
nine months ended September 30, 1996 compared to $36.7 million for the
comparable period in 1995. The increase in cash provided by operations was
primarily due to higher net income from operations and higher depreciation
and amortization expenses, partially offset by an increase in merchandise
inventories and a decrease in accounts payable.
Cash used in investing activities was $115.7 million for the nine
months ended September 30, 1996 compared to $102.4 million for the
comparable period in 1995. For the nine months ended September 30, 1996,
cash used in investing activities consisted primarily of purchases of
videocassette rental inventory for new and existing stores totaling $75.0
million and capital expenditures totaling $42.2 million, offset by a
reduction in construction and other receivables totaling $1.7 million.
Capital expenditures included the costs to open new stores, remodel certain
existing stores and enhance information systems.
Cash provided by financing activities for the nine months ended
September 30, 1996 totaled $23.9 million and included the repurchase of all
of the shares issued in connection with the Video Watch acquisition for
aggregate consideration of $54.3 million and the repayment of $7.4 million
of long-term debt.
Future capital requirements consist primarily of financing the addition
of new retail stores and converting certain acquired stores to the
Hollywood Video name and store design, together with the possible
acquisition of existing stores. The Company anticipates opening
approximately 100 new stores in the final three months of 1996 and 300 new
stores in 1997. Each video store opening requires initial capital
expenditures, including leasehold improvements, inventory, equipment and
costs related to site location, lease negotiations, construction
supervision and permits, of approximately $500,000, excluding leasehold
improvements that are customarily paid for by the property developer.
The Company has a revolving credit agreement for a working capital
line of $100.0 million. Funds borrowed bear interest, at the Company's
option, at either LIBOR, IBOR or the bank's base rate, plus approximately
1.25%, depending on the amount of borrowings. The Company must also pay a
fee of 0.3% per annum on the available and unused portion of the credit
facility. Amounts outstanding under the credit line are collaterized by
substantially all the assets of the Company. The credit line expires on
December 28, 1998. As of September 30, 1996, $85.0 million was outstanding
under the line. Of this amount, approximately $50.0 million was borrowed to
fund the share repurchase described above. The availability of borrowings
under the revolving credit agreement is based on the level of eligible
inventory, the Company's financial performance and compliance with certain
covenants and financial ratios. The Company is negotiating an increase in
the amount of the credit line to $150.0 million. Expansion of the credit
line to $150.0 million is subject to the negotiation and execution of
definitive documentation and possible further syndication of the loan, and
there is no assurance that the credit line will be expanded.
The Company believes the net proceeds of this offering, its borrowing
capacity, projected cash flow from operations, cash on hand and equipment
leases and trade credit will provide the necessary capital to fund its plan
of opening approximately 100 new video retail superstores in the final
three months of 1996 and a substantial
21
<PAGE>
portion of its planned expansion in 1997. If the credit line is expanded to
$150.0 million, the Company believes it will have sufficient financing to
fund its planned expansion through the end of 1997. If, however, the
revolving credit line is not expanded, the Company will need to obtain
additional financing to achieve its planned expansion of 300 stores in
1997. This financing may not be available or available on terms favorable
to the Company. Failure to obtain financing to fund the Company's expansion
plans or for other purposes would have a material adverse effect on the
Company. See "Risk Factors Uncertain Ability to Achieve and Manage Planned
Expansion."
GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY
The Company anticipates that its business will be affected by general
economic and other consumer trends. Future operating results may be
affected by various factors, including variations in the number and timing
of new store openings, the performance of new or acquired stores, the
quality and number of new release titles available for rental and sale, the
expense associated with the acquisition of new release titles, additional
and existing competition, marketing programs, weather, special or unusual
events and other factors that may affect retailers in general. In addition,
any concentration of new store openings and the related new store
pre-opening costs and other expenses associated with the opening of new
stores near the end of a fiscal quarter could have an adverse effect on the
financial results for that 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 in Daylight Savings
Time and due to improved weather, and in September and October, due in part
to the start of school and the introduction of new television programs. The
Company believes these seasonality trends will continue.
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<PAGE>
BUSINESS
GENERAL
Hollywood Entertainment owns and operates 466 video retail superstores
in 29 states and is the second largest video retailer in the United States
as measured by sales. According to well-known video industry analyst, Paul
Kagan Associates, Inc. ("Paul Kagan"), in 1995 the Company operated the
highest volume video stores in the country. The Company opened its first
video superstore in October 1988 and had grown to 25 stores in two states
at the end of 1993, 113 stores in eight states at the end of 1994 and 305
stores in 23 states at the end of 1995. The Company opened 148 new stores
in the nine months ended September 30, 1996 and intends to open
approximately 100 new stores in the fourth quarter of 1996. The Company
plans to open approximately 300 new stores in 1997.
As part of its goal to build a strong national brand, Hollywood
Entertainment has developed a store format and design that captures the
bright lights, excitement and energy of the motion picture industry and
enables the public to easily identify and recognize Hollywood Video
superstores. Hollywood Video superstores average approximately 7,800 square
feet and typically carry approximately 10,000 titles and 16,000
videocassettes, consisting of many copies of popular new releases and an
extensive selection of older or "catalog" movies classified into 28
categories, such as "Adventure," "Comedy," "Drama," "Classics," and
"Childrens," and displayed alphabetically within those categories. Hollywood
Entertainment's goal is to offer more copies of popular new videocassette
releases and more titles than its competitors to achieve greater customer
satisfaction and to encourage repeat visits. Each Hollywood Video store
rents videocassettes, video games and videocassette and video game players
and sells videocassettes, accessories and confectionery items. Hollywood
Video stores are primarily located in high traffic locations, in
stand-alone buildings, at the end of shopping strips or in other highly
visible locations.
DECENTRALIZATION AND CREATION OF ZONE OFFICES
To support its larger store base and continued expansion, the Company
has opened three zone offices in Chicago, Illinois; Dallas, Texas; and
Portland, Oregon and plans to open a fourth zone office in the Northeast in
the first half of 1997. Each zone now includes approximately 100 to 250
stores, and the Company believes each zone will be capable of opening 80 to
100 stores annually and of supporting all operations of 400 to 500 stores.
Each zone is headed by a senior vice president of operations, who has
responsibility for new store development and store operations in the zone,
including recruiting, training, marketing and budgeting, and is accountable
for the profit and loss of all stores in the zone. The Company recently
hired three senior vice presidents with significant experience managing
large, national chains to fill these positions and is recruiting a senior
vice president to open the fourth zone office in the Northeast. The senior
vice presidents will be supported by a complete team that will include vice
presidents of new store development and store operations and directors of
construction, recruiting, training, marketing and budgeting. As part of the
Company's decentralization strategy, the corporate office and warehouse
will provide more central support to the zones, including systems, product
purchasing, distribution, accounting and national marketing programs. In
addition, the corporate office will continue to give final approval for all
new store sites and store design and oversee quality standards and other
critical elements of the Hollywood concept. The Company believes the
creation of geographic zones managed from zone offices with profit and loss
responsibility will allow the Company to more effectively manage its
business, thereby enhancing its ability to achieve its expansion plans
without compromising operating standards. See "Risk Factors -- Uncertain
Ability To Achieve and Manage Planned Expansion."
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VIDEO RETAIL INDUSTRY
Overview. According to Paul Kagan, total U.S. consumer spending on
movies has increased from less than $3.0 billion in 1980 to approximately
$27.0 billion in 1995. The U.S. videocassette rental and sales industry has
grown at a compound annual growth rate of approximately 8.6%, from $9.8
billion in revenue in 1990 to $14.8 billion in 1995, and is expected to
reach $18.2 billion in 2000. The video retail industry is highly fragmented
and in recent years has been characterized by increased consolidation as
larger "superstore" chains, video stores with at least 7,500
videocassettes, have continued to increase market share by opening new
stores and acquiring smaller, local operators. According to the Video
Software Dealers Association, a video retailing industry association, the
number of video specialty stores has decreased from 31,500 in 1990 to
27,000 in 1995, approximately 6,500 of which were "superstores," including
approximately 3,180 Blockbuster stores. The Company believes this
consolidation will continue as the video retail industry evolves from
"mom-and-pop" stores to regional and national superstore chains.
Movie Studio Dependence on Video Retail Industry. According to Paul
Kagan, the video retail industry is the single largest source of revenue to
movie studios and represented approximately $4.3 billion, or 47%, of the
$9.3 billion of estimated domestic studio revenue in 1995. Of the hundreds
of movies produced by the major studios each year in the U.S., relatively
few are profitable for the movie studio based on box office revenue alone.
The Company believes the consumer is more likely to view "non-hit" movies
on rented videocassette than in any other medium because video retail
stores provide an inviting opportunity to browse and make an impulse choice
among a very broad selection of new releases. As a result, video retail
stores, including those operated by the Company, purchase movies on
videocassette regardless of whether the movies were successful at the box
office, thus providing the major movie studios a reliable source of revenue
for almost all of the hundreds of movies produced each year. Consequently,
the Company believes movie studios are highly motivated to protect this
unique and significant source of revenue.
The following chart depicts the percentage of movie studio revenue from
each movie distribution channel in 1995 according to Paul Kagan.
[PIE CHART: Home Video 46.6%
Box Office 28.6%
Cable and Pay TV 16.1%
TV 6.8%
PPV 1.4%
Other 0.5%]
Historically, movie studios have sought to generate incremental
sources of revenue through the addition of new distribution channels. To
maximize revenue, the studios have implemented a strategy of sequential
release
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"windows," giving each distribution channel the rights to its movies for a
limited time before making them available to the next sequential channel.
The studios have determined the sequential order in which they release
movies to each distribution channel based upon the order they believe will
maximize their total revenue from all distribution channels combined. These
distribution channels generally include, in release date order, movie
theaters, video retail stores, pay-per-view television, including direct
broadcast satellite ("DBS"), pay cable television, basic cable television
and, finally, network and syndicated television.
Order of Sequential Release Windows to Primary Channels of Distribution
-- Movie theatres
-- Video retail stores
-- Pay-per-view television (including DBS)
-- Pay cable (HBO, Showtime, etc.)
-- Basic cable television
-- Network television
-- Syndicated television
Trends in Video Rentals and Sales. The domestic video retail industry
includes both rentals and sales. Movie studios determine videocassette
suggested retail prices to both consumers and video rental stores and,
through that pricing, influence the relative levels of videocassette
rentals and sales. Videocassettes released at a relatively high price,
typically $60 to $65 wholesale, are generally purchased by video retail
stores and promoted primarily as a rental title and then later re-released
by the studios at a lower price, typically $10 to $20 wholesale, to promote
sales directly to consumers. Certain high grossing box office films,
generally with box office revenue in excess of $100 million, are released
on videocassette at a relatively low initial price, typically $10 to $15
wholesale, and are generally purchased by video retailers, mass merchants,
grocery stores and other retailers and promoted both as a rental title and
for sale directly to customers.
The consumer market has historically been primarily a rental market.
According to Paul Kagan, video rental revenue has increased from $6.6
billion in 1990 to $7.5 billion in 1995 and is expected to increase to $8.3
billion in 2000. Although rental revenue decreased slightly in 1995, the
Company believes industry-wide rental revenue in 1996 will exceed 1995
rental revenue. At the same time, consumers attracted by hit animated
films, cross promotions and lower videocassette prices have begun to spend
more on purchasing videos. Video sales have increased from $3.2 billion in
1990 to $7.3 billion in 1995 and are expected to increase to $9.9 billion
in 2000. As a result, video sales as a percentage of total industry revenue
have increased from approximately 32% in 1990 to nearly 50% in 1995.
The availability of "hit" sell-through movie titles, which are
initially priced much lower, allows video retailers to stock more copies of
these "hit" movies for rental at a substantially lower aggregate cost.
Because the best selling sell-through titles are often among the leading
rental titles, the return on investment in rental inventory for those
titles is typically much higher than for comparable titles initially priced
and promoted for rental.
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<PAGE>
STORE LOCATIONS
The following map depicts the locations of the Company's stores as of
September 30, 1996.
[Map of the United States of America with number
of Hollywood Video stores set forth inside state
boundary.
WA 29 NE 3 WI 12 PA 7
OR 26 KS 4 IL 17 MD 4
CA 101 OK 9 MI 35 VA 11
NV 6 TX 70 IN 12 NC 2
UT 10 MN 20 KY 2 DC 1
AZ 20 IA 2 TN 4
CO 7 MO 8 OH 18
NM 3 AR 1 GA 8
LA 1]
EXPANSION STRATEGY
The Company opened its first video superstore in October 1988 and had
grown to 25 stores in Oregon and Washington by the end of 1993. In 1994 the
Company significantly accelerated its store expansion program, adding 88
new stores (55 of which were acquired) and expanding into California,
Texas, Nevada, New Mexico, Virginia and Utah. In 1995 the Company opened
122 new stores, acquired 70 stores and entered major new markets in the
midwest, southwest, east and southeast regions of the United States. The
Company's expansion strategy is to continue to open or, to a lesser extent,
acquire stores in regions where it has existing operations and to expand
into new geographic regions where it believes it can become one of the
dominant video retailers. The Company opened 148 new stores in the nine
months ended September 30, 1996 and intends to open approximately 100 new
stores in the fourth quarter of 1996. The Company plans to open
approximately 300 new stores in 1997.
The Company believes the selection of locations for its stores is
critical to the success of its operations. The Company has assembled a new
store development team with broad and significant experience in retail
tenant development. The majority of the Company's new store development
personnel are located in the geographic area for which they are
responsible, but all final site approval takes place at the corporate
office, where new sites are approved by a committee of senior management
personnel. Important criteria for the location of a Hollywood Video
superstore include density of local residential population, traffic count
on roads immediately adjacent to the store location, visibility and
accessibility of the store and availability of ample parking. The Company
generally
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<PAGE>
seeks what it considers the most desirable locations, typically locating
its stores in high visibility stand-alone structures or in prominent
locations in multi-tenant shopping developments. The Company typically
competes for these prime sites with other retailers, banks, restaurants and
gas stations. All of the Company's stores are in leased premises; the
Company does not own any real estate.
The Company's expansion is dependent on a number of different factors
and is subject to various risks. See "Risk Factors--Uncertain Ability to
Achieve and Manage Planned Expansion," "--Dependence On Key Personnel;
Recent Management Additions," "--Risks Associated with Possible Future
Acquisitions" and "--Competition," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
BUSINESS STRATEGY
The Company's goal is to be a dominant national video retailer and to
build a strong national brand which consumers will identify with the
entertainment industry. The Company's business strategy includes the
following key elements:
-- Broad Selection and Superior Availability. The Company strives to
provide its customers with the broadest selection of videocassettes
movies and video games. Hollywood Video superstores typically carry
approximately 10,000 titles and 16,000 videocassettes and video
games. The Company's goal is to offer more copies of popular new
videocassette releases and more titles than its competitors. The
Company typically purchases 35 to 95 copies of "hit" movies for each
Hollywood Video store and may purchase as many as 200 copies for high
volume stores. In the case of certain "hit" sell-through movies, the
Company has purchased as many as 400 copies for rental at high volume
stores.
-- Exciting, Enjoyable and Convenient Shopping Experience. The Company's
superstores are designed to capture the bright lights, excitement and
energy of the motion picture industry. The Company focuses on
creating an atmosphere that invites consumers into the store,
encourages browsing and generates repeat customers. Hollywood Video
stores are typically located in high traffic, high-visibility
locations. The Company believes excellent customer service, a bright,
clean and friendly shopping environment and convenient store
locations are important to its success.
-- Excellent Entertainment Value. The Company offers consumers the
opportunity to rent any of its approximately 10,000 catalog movie
titles for five days for only $1.50. All new release movies and video
games can be rented for only $3.00. The Company believes movie rental
in general, and its pricing structure and rental terms in particular,
provide consumers convenient entertainment and excellent value.
COMPETITION
The video retail industry is highly competitive. The Company competes
with other local, regional and national video retail stores, including
Blockbuster, and with supermarkets, pharmacies, convenience stores,
bookstores, mass merchants, mail order operations and other retailers, as
well as with noncommercial sources such as libraries. According to the
Video Software Dealers Association, in 1995 there were approximately 27,000
video specialty stores in the U.S., of which approximately 6,500 were video
retail superstores. Some of the Company's competitors have significantly
greater financial and marketing resources, market share and name
recognition than the Company.
The Company believes the principal competitive factors in the video
retail industry are title selection, the number of copies of popular titles
available, store location and visibility, convenience of store access and
parking and, to a lesser extent, pricing. The Company's stores compete with
stores operated by Blockbuster, many in very close proximity. As a result
of direct competition with Blockbuster, rental pricing of videocassettes
may
27
<PAGE>
become a more significant competitive factor in the Company's business,
which could have an adverse impact on the results of operations of the
Company. The Company believes it generally offers more titles and more
copies of popular titles than the majority of its competitors. In addition
to competing with other video retailers, the Company competes with all
leisure-time activities, especially entertainment activities such as
movies, sporting events and network and cable television programs.
The Company competes with cable, satellite and pay-per-view cable
television systems, in which 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 only available to households with a direct
broadcast satellite receiver or a cable converter to unscramble incoming
signals. Digital compression technology and other developing technologies
are expected eventually to permit cable companies, direct broadcast
satellite companies, telephone companies and other telecommunications
companies to transmit a much greater number of movies to homes at more
frequently scheduled intervals throughout the day on demand. Certain cable
and other telecommunications companies have tested and are continuing to
test movie on demand services in some markets. 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
represents the studios' largest source of revenue. In addition, home video
provides the only viable source of revenue on "non-hit" or "B-title" movies
which make up the majority of movies produced by the major studios each
year. As a result, the Company believes 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 viewing convenience and selection available through video rental, and
substantial capital expenditures will be necessary to implement these
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 in particular the earlier release of movie titles
to pay-per-view, including DBS, cable television or other distribution
channels, could make these technologies more attractive and economical,
which could have a material adverse effect on the business of the Company.
28
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT.
The following table sets forth information with respect to the
Company's directors, executive officers and certain other key employees as
of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME Age Positions with the Company
- ---- --- --------------------------
<S> <C> <C>
Mark J. Wattles 36 Chairman of the Board, President and Chief
Executive Officer
Donald J. Ekman 44 Senior Vice President, General Counsel,
Secretary and Director
James N. Cutler, Jr. 44 Director
Richard A. Galanti 40 Director
Max G. Fratto 53 Executive Vice President of Store Operations
James O. George 49 Executive Vice President of Product
and Marketing
Bruce A. Walters 39 Executive Vice President of Store Development
F. Bruce Giesbrecht 36 Senior Vice President of Product Management
Douglas A. Gordon 29 Senior Vice President of Finance
Glen E. Hahn 44 Senior Vice President of Operations
(Central Zone)
John R. Hnanicek 32 Senior Vice President of Information Systems
Dale A. Naftzger 51 Senior Vice President of Operations
(Western Zone)
William M. Spae 44 Senior Vice President of Operations
(Southern Zone)
William P. Zebe 38 Senior Vice President of Development
</TABLE>
MARK J. WATTLES founded the Company in June 1988 and has served as
Chairman of the Board, President and Chief Executive Officer since that
time. In May 1986 Mr. Wattles founded Convenience Video Movies, Inc., a
videocassette distributor that operated video rental centers in
approximately 300 convenience stores throughout the country, and served as
its Chief Executive Officer until November 1987. Mr. Wattles founded
Downtown Video, a two-store video rental company, in 1985 and served as its
general manager until 1986.
DONALD J. EKMAN became a director of the Company in July 1993 and
became Vice President and General Counsel in March 1994. Mr. Ekman was a
partner in Ekman & Bowersox from January 1992 until March 1994, and from
August 1990 until December 1991 he practiced law with Foster Pepper &
Schefelman. Prior to August 1990, he practiced law with Bullivant, Houser,
Bailey, Pendergrass & Hoffman.
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<PAGE>
JAMES N. CUTLER, JR. became a director of the Company in July 1993.
Since 1980, Mr. Cutler has been President and Chief Executive Officer of
The Cutler Corporation, a holding company for various private businesses,
and, since 1982, he has been a director of Arrow Transportation Company of
Delaware, a trucking company. Mr. Cutler also serves as an officer or a
director of a number of other private corporations.
RICHARD A. GALANTI became a director of the Company in April 1996. Mr.
Galanti has been a director of Price/Costco, Inc. since January 1995 and
Executive Vice President - Finance of Price/Costco, Inc. since October
1993. From January 1985 to October 1993, Mr. Galanti was Senior Vice
President, Chief Financial Officer and Treasurer of Costco Wholesale
Corporation, which he joined in March 1984 as Vice President Finance. From
1978 to February 1984, Mr. Galanti was an investment banker with Donaldson,
Lufkin & Jenrette Securities Corporation. In March 1995 Mr. Galanti settled
an action brought by the Securities and Exchange Commission ("SEC")
alleging a five-year-old violation of the Securities Exchange Act of 1934
and Rule 10b-5 thereunder that was unrelated to Mr. Galanti's positions
with Price/Costco, Inc., Costco Wholesale Corporation or Hollywood
Entertainment. Without admitting or denying the allegations of the SEC's
complaint, Mr. Galanti agreed to pay $64,408 and entered into an order
requiring him to comply with the relevant sections of the federal
securities laws and rules.
MAX G. FRATTO joined the Company as Executive Vice President of Store
Operations in May 1994. From 1991 to 1994 Mr. Fratto was a partner in
Wallpaper Warehouse of Idaho, a small retail chain. From 1986 to 1991 he
served as Vice President of W.N.S., Inc., a retail holding company, where
he was responsible for the Wallpapers to Go division. Prior to his
employment with W.N.S., Mr. Fratto was Vice President of Store Operations
for several General Mills, Inc. specialty retailing companies.
JAMES O. GEORGE joined the Company in October 1995 as Executive Vice
President of Product and Marketing. Previously, Mr. George was employed by
Blockbuster Entertainment for eight years. Most recently, Mr. George served
as Zone Vice President, where he managed the operations of over 450
Blockbuster stores.
BRUCE A. WALTERS joined the Company in June 1995 as Executive Vice
President of Store Development. Previously, Mr. Walters was employed by
McDonald's Corporation for 14 years. Most recently, Mr. Walters served as
the Director of International Real Estate. From 1990 to 1994 Mr. Walters
was the Director of European Real Estate for McDonald's Corporation in
London, England. For the prior nine years, Mr. Walters held various
positions in domestic real estate and store development.
F. BRUCE GIESBRECHT was named Senior Vice President -- Product
Management in January 1996 and joined the Company in May 1993 as Vice
President of Corporate Information Systems and Chief Information Officer.
From August 1992 to May 1993, Mr. Giesbrecht served the Company as a
consultant. Mr. Giesbrecht was a founder of RamSoft, Inc., a software
development company specializing in management systems for the video
industry, and served as its President.
DOUGLAS A. GORDON was named Senior Vice President - Finance in November
1995 and joined the Company as Vice President of Strategic Analysis and
Forecasting in May 1995. From September 1991 to May 1995, Mr. Gordon worked
for Montgomery Securities as a vice president and senior analyst covering
the entertainment and retail industries.
GLEN E. HAHN joined the Company in April 1996 as Senior Vice President
of Operations (Central Zone). From 1993 to 1996 Mr. Hahn was Senior Vice
President - Director of Stores for Fayva/Parade of Shoes (a specialty
retail footwear division of J. Baker), overseeing approximately 400 stores.
From 1979 to 1993 Mr. Hahn worked for Payless Shoesource (a division of May
Department Stores) in various capacities. From 1987 to 1993 Mr. Hahn worked
as Division Operations Manager for Payless Shoesource, overseeing the
development of nearly 200 new stores during this period and the overall
operations of approximately 580 specialty retail footwear stores at the
time of his departure.
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<PAGE>
JOHN R. HNANICEK joined the Company in October 1996 as Senior Vice
President of Information Systems. From March 1996 to October 1996 Mr.
Hnanicek was Chief Information Officer for HomePlace, a privately owned
home furnishings speciality retailer, operating 37 stores at the time of
his departure. From July 1995 to February 1996 Mr. Hnanicek was Chief
Information Officer for Communicate! Powerstores, Inc., a start-up
communications superstore. From 1990 to 1995 Mr. Hnanicek worked for
OfficeMax, Inc., in various capacities, including most recently as Senior
Vice President - Information Systems and Logistics. During this period,
OfficeMax grew from 10 to 420 stores.
DALE A. NAFTZGER joined the Company in April 1996 as Senior Vice
President of Operations (Western Zone). From May 1995 to November 1995, Mr.
Naftzger was Chief Operating Officer of Caribon Coffee Company, a privately
owned speciality coffee retailer with approximately 40 company-owned units
at the time of his departure. From 1994 to 1995 Mr. Naftzger was President
and Chief Executive Officer of Chop Chop Chinese to You, a venture capital
financed Chinese food delivery business, operating 40 units and three
distribution centers at the time of his departure. From 1992 to 1994 Mr.
Naftzger was Senior Vice President Operations for Checkers Drive-In
Restaurants, overseeing all 248 company-owned and 200 franchised units at
the time of his departure. From 1987 to 1992 Mr. Naftzger worked for Taco
Bell Corporation as Zone Vice President, overseeing the development of
approximately 100 new units during this period and the overall operations
of approximately 350 units at the time of his departure. From 1980 to 1987
Mr. Naftzger worked for Wendy's International, Inc. in various capacities,
including from 1985 to 1987 as Zone Vice President-Operations, overseeing
more than 500 company-owned and 400 franchised units at the time of his
departure.
WILLIAM M. SPAE joined the Company in July 1996 as Senior Vice
President of Operations (Southern Zone). From 1991 to June 1996 Mr. Spae
worked for Wendy's International as Divisional Vice President, overseeing
the development of approximately 130 new units during this period and the
overall operations of more than 100 company-owned and 150 franchised units
at the time of his departure. From 1987 to 1991 Mr. Spae was a zone Vice
President for Taco Bell Corporation, overseeing more than 160 company-owned
and approximately 100 franchised units.
WILLIAM P. ZEBE was named Senior Vice President - Development in
January 1996 and joined the Company as National Vice President of Real
Estate in May 1994. Mr. Zebe previously worked from June 1993 to April 1994
as the Real Estate Manager for the Western Zone for Blockbuster Video,
Blockbuster Music and Blockbuster franchisee-owned Discovery Zone. From
1992 to May 1993 Mr. Zebe was a Real Estate Representative for Blockbuster.
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<PAGE>
UNDERWRITING
Montgomery Securities and Donaldson, Lufkin & Jenrette Securities
Corporation (the"Underwriters") have agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the
Company the number of shares of Common Stock indicated below opposite their
respective names at the offering price less underwriting discounts and
commissions set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares if they purchase any of the shares.
Number of
Underwriters Shares
------------ ---------
Montgomery Securities.....................
Donaldson, Lufkin & Jenrette
Securities Corporation..................
---------
Total................................ 2,000,000
The Underwriters have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $_____ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not
more than $_____ to certain other dealers. The concession to selected
dealers and the reallowance to other dealers may be changed by the
Underwriters, and after the offering, the offering price and other selling
terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable
during the 30-day period after the date of this Prospectus, to purchase up
to a maximum of 300,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares
to be purchased by the Underwriters. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
In connection with this offering, the Underwriters and certain selling
group members may engage in passive market making transactions in the
Common Stock of the Company on Nasdaq immediately prior to the commencement
of sales in this offering, in accordance with Rule 10b-6A under the
Exchange Act. Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and purchases
limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in
the Company's Common Stock during a specified prior period and must be
discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock of the Company at a level
above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Company and Mark J. Wattles have agreed not to offer, sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock of
the Company for a period of 90 days after the date of this Prospectus,
without the prior written consent of Montgomery Securities, except that the
Company, without such consent, may
32
<PAGE>
grant options or issue stock upon exercise of new or outstanding options
pursuant to the Stock Incentive Plan and with respect to certain shares
that are subject to pledges. See"Risk Factors--Shares Eligible for Future
Sale."
Montgomery Securities has been named as a defendant in the complaint
filed against the Company relating to alleged violations of certain federal
securities laws. See "Risk Factors--Legal Proceedings." The underwriting
agreement between Montgomery Securities and the Company with respect to the
Company's June 1995 Common Stock offering contains certain provisions
relating to the indemnification of Montgomery Securities and the other
underwriter against certain liabilities, including certain liabilities
under the federal securities laws.
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<PAGE>
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Stoel Rives LLP, Portland, Oregon. Certain
legal matters relating to this offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The financial statements and schedules of Hollywood Entertainment
Corporation, as of December 31, 1994 and for each of the two years in the
period ended December 31, 1994 incorporated herein by reference into this
Prospectus have been audited by Coopers & Lybrand L.L.P., independent
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K of Hollywood Entertainment Corporation as
of, and for the year ended, December 31, 1995 have been so incorporated in
reliance on the report (which contains an explanatory paragraph relating to
the Company's change in amortization method for videocassette rental
inventory) of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Title Wave Stores, Inc. at January 1, 1994
and January 7, 1995 and for the years ended January 2, 1993, January 1,
1994 and January 7, 1995 incorporated by reference into this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing in the reports
incorporated by reference into this Prospectus, and are included in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Video Watch Inc. at December 31, 1993 and
1994 and for the two years ended December 31, 1994 incorporated by
reference into this Prospectus and Registration Statement have been audited
by Plante & Moran, LLP, independent auditors, as set forth in their reports
thereon appearing in the reports incorporated by reference into this
Prospectus and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
The Company has also filed with the Commission a Registration Statement
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the shares of Common
Stock offered hereby, reference is made to such Registration Statement,
exhibits and schedules. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the reports and other
information filed pursuant to the Exchange Act may be inspected and copied
at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 1400 Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of all or
any part of the Registration Statement and the reports and other
information filed pursuant to the Exchange Act may be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 upon the
payment of the fees prescribed by the Commission. The Commission maintains
an Internet Web Site at http://www.sec.gov.
34
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30, and September 30, 1996;
(c) The Company's Current Report on Form 8-K dated March 20, 1995 (and
Amendment No. 1 thereto on Form 8-K/A);
(d) The Company's Current Report on Form 8-K dated August 9, 1996 (and
Amendment No. 1 thereto on Form 8-K/A); and
(e) The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed under Section 12 of the
Exchange Act, dated July 15, 1993, including any amendment or report
updating such description.
In addition, all documents filed by the Company pursuant to sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof
from the date of filing of such documents (such documents, and the
documents enumerated above, being hereinafter referred to as "Incorporated
Documents"). Any statement contained in an Incorporated Document shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, including any
beneficial owner, on the written or oral request of any such person, a copy
of any or all of the Incorporated Documents, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference
therein. Requests shall be directed to Hollywood Entertainment Corporation,
25600 SW Parkway Center Drive, Wilsonville, OR 97070, Attention: Mr. Donald
J. Ekman, Senior Vice President and General Counsel (telephone number (503)
570-1600). The information relating to the Company contained in this
Prospectus does not purport to be comprehensive and should be read together
with the information contained in the Incorporated Documents.
35
<PAGE>
[Inside back cover to Prospectus:
Photograph of interior of store with shelves
containing videos under categories "Drama,"
"Foreign," "Musicals," and customers among the
video racks reading video descriptions and
scanning titles in order to make their selections
of videocassettes to rent.]
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make such offer in
such jurisdiction. Neither the delivery of this Prospectus nor any sale
made hereunder shall, in any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof
or that there has been no change in the affairs of the Company since such
date.
-------------------
TABLE OF CONTENTS
-------------------
Page
----
Prospectus Summary.................................... 3
Risk Factors.......................................... 7
Use of Proceeds....................................... 11
Price Range of Common Stock........................... 11
Capitalization........................................ 12
Selected Financial Data............................... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................... 15
Business.............................................. 23
Management............................................ 29
Underwriting.......................................... 32
Legal Matters......................................... 34
Experts............................................... 34
Available Information................................. 34
Incorporation of Certain Documents by
Reference.......................................... 35
================================================================================
<PAGE>
================================================================================
2,000,000 Shares
[LOGO]
Common Stock
-------------------
PROSPECTUS
-------------------
MONTGOMERY SECURITIES
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Company in connection with the offer
and sale of the Common Stock being registered. All amounts are estimates
except the registration fee and the NASD filing fee.
Registration fee.................................... $12,633
NASD filing fee..................................... 4,755
Nasdaq listing fee.................................. 17,500
Blue Sky fees and expenses
(including legal fees).......................... 5,000
Accounting fees and expenses........................ 40,000
Other legal fees and expenses....................... 150,000
Transfer agent and registrar fee.................... 5,000
Printing and engraving.............................. 40,000
Miscellaneous....................................... 25,112
--------
Total.................................... . . . $300,000
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article IV of the Company's 1993B Restated Articles of Incorporation
(the "Articles") requires indemnification of current or former directors or
nominees for director ("directors") of the Company to the fullest extent
not prohibited by the Oregon Business Corporation Act (the "Act"). The
effects of the Articles and the Act (the "Indemnification Provisions") are
summarized as follows:
(a) The Indemnification Provisions grant a right of
indemnification in respect of any action, suit or proceeding (other
than an action by or in the right of the Company) against expenses
(including attorney fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred, if the person concerned
acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the Company, was not
adjudged liable on the basis of receipt of an improper personal
benefit and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the conduct was unlawful. The
termination of an action, suit or proceeding by judgment, order,
settlement, conviction or plea of nolo contendere does not, of
itself, create a presumption that the person did not meet the
required standards of conduct.
(b) The Indemnification Provisions grant a right of
indemnification in respect of any action or suit by or in the right
of the Company against the expenses (including attorney fees)
actually and reasonably incurred if the person concerned acted in
good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the Company, except that no
right of indemnification will be granted if the person is adjudged to
be liable to the Company.
(c) Every person who has been wholly successful on the merits
of a controversy described in (a) or (b) above is entitled to
indemnification as a matter of right.
(d) Because the limits of permissible indemnification under
Oregon law are not clearly defined, the Indemnification Provisions
may provide indemnification broader than that described in (a) and
(b).
Article IV of the Articles provides that the Company will advance to
a director the expenses incurred in defending any action, suit or
proceeding in advance of its final disposition if the director affirms in
good faith that he or she has met the standard of conduct to be entitled to
indemnification as described in (a) or (b) above and undertakes to repay
any amount advanced if it is determined that the person did not meet the
required standard of conduct.
II-1
<PAGE>
Article V of the Articles provides that the Company may, in the
discretion of the Board of Directors, indemnify officers, employees and
agents to the same extent that directors are entitled to indemnification.
The Company may obtain insurance for the protection of its directors
and officers against any liability asserted against them in their official
capacities.
The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise.
II-2
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
1.1 Form of Underwriting Agreement
3.1 1993B Restated Articles of Incorporation; incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 33-63042 (the "1993
S-1")
3.2 Bylaws; incorporated by reference to Exhibit 3.2 to the 1993 S-1
4.1 See Article II of Exhibit 3.1 and Articles I and V of Exhibit 3.2
5.1 Opinion of Stoel Rives LLP
23.1 Consent of Coopers & Lybrand L.L.P.; see page II-6
23.2 Consent of Ernst & Young LLP; see page II-7
23.3 Consent of Price Waterhouse LLP; see page II-8
23.4 Consent of Plante & Moran, LLP; see page II-9
23.5 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Powers of Attorney; see page II-4
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted
to directors, officers and controlling persons of the Registrant pursuant
to the provisions described in Item 14 or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange 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
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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
Registrant 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 of 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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d)
of the Securities Exchange Act of 1934 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or Rule 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 of 1933, 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 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Portland, State of Oregon, on
November 21, 1996.
HOLLYWOOD ENTERTAINMENT CORPORATION
By MARK J. WATTLES
------------------------------------
Mark J. Wattles
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
following capacities on November 21, 1996.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Mark J. Wattles, Donald J.
Ekman and Douglas A. Gordon or any one of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any amendments (whether pre-effective or
post-effective) to this Registration Statement and any registration
statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto each of 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 fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
Signature Title
--------- -----
MARK J. WATTLES Chairman of the Board, President
- --------------------------------------- and Chief Executive Officer
Mark J. Wattles (Principal Executive Officer)
DOUGLAS A. GORDON Senior Vice President of Finance
- --------------------------------------- (Principal Financial and
Douglas A. Gordon Accounting Officer)
DONALD J. EKMAN Senior Vice President, General
- --------------------------------------- Counsel and Director
Donald J. Ekman
II-4
<PAGE>
JAMES N. CUTLER, JR. Director
- ---------------------------------------
James N. Cutler, Jr.
RICHARD A. GALANTI Director
- ---------------------------------------
Richard A. Galanti
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND L.L.P
We consent to the incorporation by reference in this Registration
Statement on Form S-3 (File No. 333-________), of our report dated February
14, 1995 except for Note 3 as to which the date is March 29, 1995 on our
audits of the financial statements of Hollywood Entertainment Corporation
as of December 31, 1994 and for the two years ended December 31, 1993 and
1994, which report appears in the Annual Report on Form 10-K for the year
ended December 31, 1994 of Hollywood Entertainment Corporation. We also
consent to the references to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P
Portland, Oregon
November 20, 1996
II-6
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts"
in the Registration Statement (Form S-3) and related Prospectus of
Hollywood Entertainment Corporation for the registration of 2,300,000
shares of its common stock and to the incorporation by reference of our
reports dated February 15, 1995, with respect to the financial statements
of Title Wave Stores, Inc. included in Hollywood Entertainment
Corporation's Current Report on Form 8-K dated March 20, 1995, filed with
the Securities and Exchange Commission.
ERNST & YOUNG LLP
Minneapolis, Minnesota
November 19, 1996
II-7
<PAGE>
EXHIBIT 23.3
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated March 5, 1996 appearing on page F-1 of Hollywood Entertainment
Corporation's Annual Report on Form 10-K for the year ended December 31,
1995. We also consent to the reference to us under the heading "Experts."
PRICE WATERHOUSE LLP
Portland, Oregon
November 20, 1996
II-8
<PAGE>
EXHIBIT 23.4
CONSENT OF PLANTE & MORAN, LLP
We consent to the incorporation by reference in this Registration
Statement of Hollywood Entertainment Corporation on Form S-3 of our report
dated April 6, 1995 on our audits of the financial statements of Video
Watch, Inc. as of December 31, 1993 and 1994 and for the two years ended
December 31, 1993 and 1994, which report appears in the Current Report on
Form 8-K dated August 9, 1995 of Hollywood Entertainment Corporation filed
with Securities and Exchange Commission. We also consent to the reference
to our firm under the caption "Experts" in such registration statement.
PLANTE & MORAN, LLP
Ann Arbor, Michigan
November 19, 1996
II-9
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE NO.
- ------- --------
1.1 Form of Underwriting Agreement
3.1 1993B Restated Articles of Incorporation; incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 33-63042
(the "1993 S-1")
3.2 Bylaws; incorporated by reference to Exhibit 3.2
to the 1993 S-1
4.1 See Article II of Exhibit 3.1 and Articles I and V
of Exhibit 3.2
5.1 Opinion of Stoel Rives LLP
23.1 Consent of Coopers & Lybrand LLP; see page II-6
23.2 Consent of Ernst & Young LLP; see page II-7
23.3 Consent of Price Waterhouse LLP; see page II-8
23.4 Consent of Plante & Moran, LLP; see page II-9
23.5 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Powers of Attorney; see page II-5
2,000,000 Shares
HOLLYWOOD ENTERTAINMENT CORPORATION
Common Stock
UNDERWRITING AGREEMENT
December __, 1996
MONTGOMERY SECURITIES
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
SECTION 1. Introductory. Hollywood Entertainment Corporation, an
Oregon corporation (the "Company"), proposes to issue and sell 2,000,000
shares of its authorized but unissued Common Stock (the "Common Stock") to
the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representatives. Said aggregate
of 2,000,000 shares are herein called the "Firm Common Shares." In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to 300,000 additional shares of Common Stock (the "Optional
Common Shares"), as provided in Section 4 hereof. The Firm Common Shares
and, to the extent such option is exercised, the Optional Common Shares are
hereinafter collectively referred to as the Common Shares.
You have advised the Company that the Underwriters propose to
make a public offering of their respective portions of the Common Shares on
the effective date of the registration statement hereinafter referred to,
or as soon thereafter as in your judgment is advisable.
The Company hereby confirms its agreements with respect to the
purchase of the Common Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The
Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-3 (File No.
333-_______) with respect to the Common Shares has been prepared by
the Company in conformity with the requirements of the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, and has been filed with the Commission.
[The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared.] There have been
delivered to you two signed copies of such registration statement [and
amendments,] together with
1.
<PAGE>
two copies of each exhibit filed therewith. Conformed copies of such
registration statement [and amendments] (but without exhibits) and of
the related preliminary prospectus have been delivered to you in such
reasonable quantities as you have requested for each of the
Underwriters. The Company will next file with the Commission one of
the following: (i) prior to effectiveness of such registration
statement, a further amendment thereto, including the form of final
prospectus, (ii) a final prospectus in accordance with Rules 430A and
424(b) of the Rules and Regulations, or (iii) a term sheet (the "Term
Sheet") as described in and in accordance with Rules 434 and 424(b) of
the Rules and Regulations. As filed, the final prospectus, if one is
used, or the Term Sheet and Preliminary Prospectus (as hereinafter
defined), if a final prospectus is not used, shall include all Rule
430A Information (as hereinafter defined) and, except to the extent
that you shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the date
and time that this Agreement was executed and delivered by the parties
hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectus (as
hereinafter defined)) as the Company shall have previously advised you
in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration
statement becomes effective and, in the event any post-effective
amendment thereto becomes effective prior to the First Closing Date
(as hereinafter defined), shall also mean such registration statement
as so amended; provided, however, that such term shall also include
(i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations and
(ii) a registration statement, if any, filed pursuant to Rule 462(b)
of the Rules and Regulations relating to the Common Shares. The term
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes
effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean either (i) the prospectus relating
to the Common Shares in the form in which it is first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations, or
(ii) if a Term Sheet is not used and no filing pursuant to Rule 424(b)
of the Rules and Regulations is required, the form of final prospectus
included in the Registration Statement at the time such registration
statement becomes effective, or (iii) if a Term Sheet is used, the
Term Sheet in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations, together with
the Preliminary Prospectus included in the Registration Statement at
the time it becomes effective. The term "Rule 430A Information" means
information with respect to the Common Shares and the offering thereof
permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements
of the Act and the Rules and Regulations and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
at the time the Registration Statement becomes effective, and at all
times subsequent thereto up to and including each Closing Date
hereinafter mentioned, the Registration Statement and the Prospectus,
and any amendments or supplements thereto, will contain all material
statements and information required to be included therein by the Act
and the Rules and Regulations and will in all material respects
conform to the requirements of the Act and the Rules and Regulations,
and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include 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 therein not misleading;
provided, however, no representation or warranty contained in this
subsection 2(b) shall be applicable to information contained in or
omitted from any Preliminary
2.
<PAGE>
Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter, directly or through the Representatives, specifically for
use in the preparation thereof. The documents incorporated by
reference in the Registration Statement, any Preliminary Prospectus
and the Prospectus, when they were filed with the Commission or as
subsequently amended prior to the date hereof, conformed in all
material respects to the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, and none of such
documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21.1 to the Registration Statement.
The Company and each of its subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, with full
power and authority (corporate and other) to own and lease their
properties and conduct their respective businesses as described in the
Prospectus; the Company owns all of the outstanding capital stock of
its subsidiaries free and clear of all claims, liens, charges and
encumbrances; the Company and each of its subsidiaries are in
possession of and operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses taken as a whole, all of which
are valid and in full force and effect; the Company and each of its
subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which the ownership or
leasing of properties or the conduct of their respective businesses
requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect upon
the Company or the subsidiary; and, to the best of the Company's
knowledge, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital
stock as set forth under the heading Capitalization in the Prospectus;
the issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, are
duly listed on the Nasdaq National Market, have been issued in
compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform to the description
thereof contained or incorporated in the Prospectus. All issued and
outstanding shares of capital stock of each subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the
related notes thereto, included in the Prospectus, neither the Company
nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been
duly authorized and, when issued, delivered and paid for in the manner
set forth in this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable, and will conform to the description
thereof contained in the Prospectus. No preemptive rights or other
rights to subscribe for or purchase exist with respect to the issuance
and sale of the Common Shares by the Company pursuant to this
Agreement. No shareholder of the Company has any right which has not
been waived to require the
3.
<PAGE>
Company to register the sale of any shares owned by such shareholder
under the Act in the public offering contemplated by this Agreement.
No further approval or authority of the shareholders or the Board of
Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding
obligation of the Company in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or
by general equitable principles. The making and performance of this
Agreement by the Company and the consummation of the transactions
herein contemplated will not violate any provisions of the articles of
incorporation or bylaws, or other organizational documents, of the
Company or any of its subsidiaries, and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of
its respective properties may be bound or affected, any statute or any
authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries
or any of their respective properties. No consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance
with the Act, the Blue Sky laws applicable to the public offering of
the Common Shares by the several Underwriters and the clearance of
such offering with the National Association of Securities Dealers,
Inc. (the "NASD").
(g) Each of Coopers & Lybrand, L.L.P. and Price Waterhouse
LLP, who have expressed their opinions with respect to the financial
statements and schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the
Act and the Rules and Regulations.
(h) The financial statements and schedules of the Company
and its subsidiaries and the related notes thereto, included or
incorporated in the Registration Statement and the Prospectus present
fairly the financial position of Hollywood Entertainment Corporation
and its subsidiaries as of the respective dates of such financial
statements and schedules, and present fairly the results of operations
and changes in financial position of Hollywood Entertainment
Corporation for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis as certified by the independent accountants named in
subsection 2(g). No other financial statements or schedules are
required to be included or incorporated in the Registration Statement.
The selected financial data set forth in the Prospectus under the
captions "Capitalization" and "Selected Financial and Operating Data"
fairly present the information set forth therein on the basis stated
in the Registration Statement. [The pro forma financial information
included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements, have been properly compiled on the pro forma
bases described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.] No other financial
statements or schedules of the Company or any other entity are
required to be included in, or incorporated into, the Registration
4.
<PAGE>
Statement pursuant to any requirement of the Act or any Rules and
Regulations, including Rule 3-05 of Regulation S-X.
(i) Except as disclosed in the Prospectus, and except as to
violations, breaches and defaults which individually or in the
aggregate would not be material to the Company, neither the Company
nor any of its subsidiaries is in violation or default of any
provision of its articles of incorporation or bylaws, or other
organizational documents, or is in breach of or default with respect
to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of facts
which constitutes an event of default on the part of the Company or
any such subsidiary as defined in such documents or which, with notice
or lapse of time or both, would constitute such an event of default.
(j) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to
the Registration Statement by the Act or by the Rules and Regulations
which have not been described or filed as required. The contracts so
described in the Prospectus are in full force and effect on the date
hereof; and neither the Company nor any of its subsidiaries, nor to
the best of the Company's knowledge, any other party is in breach of
or default under any of such contracts.
(k) Except as disclosed in the Prospectus, there are no
legal or governmental actions, suits or proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company or
any of its subsidiaries is or may be a party or of which property
owned or leased by the Company or any of its subsidiaries is or may be
the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the
aggregate, prevent or adversely affect the transactions contemplated
by this Agreement or result in a material adverse change in the
condition (financial or otherwise), properties, business, results of
operations or prospects of the Company and its subsidiaries; and no
labor disturbance by the employees of the Company or any of its
subsidiaries exists or is imminent which might be expected to affect
adversely such condition, properties, business, results of operations
or prospects. Neither the Company nor any of its subsidiaries is a
party or subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned
in the financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such
financial statements (or elsewhere in the Prospectus), or (ii) those
which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its
leased properties under valid and binding leases, with such exceptions
as are not materially significant in relation to the business of the
Company and its subsidiaries taken as a whole. Except as disclosed in
the Prospectus, the Company owns or leases all such properties as are
necessary to its operations as now conducted.
(m) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus: (i) the
Company and its subsidiaries have not incurred any material
liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction
which is not in the ordinary course of business or which could result
in a material reduction in the future earnings of the Company and its
subsidiaries; (ii) the Company and its subsidiaries have not sustained
any material loss or interference with their respective businesses or
properties from fire, flood,
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windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company
and its subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been
any change in the capital stock (other than upon the sale of the
Common Shares hereunder and upon the exercise of options or warrants
described in the Registration Statement) or indebtedness material to
the Company and its subsidiaries taken as a whole (other than in the
ordinary course of business); and (v) there has not been any material
adverse change in the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and its
subsidiaries taken as a whole.
(n) Except as disclosed in or specifically contemplated by
the Prospectus, the Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; the expiration of any trademarks, trade
names, patent rights, mask works, copyrights, licenses, approvals or
governmental authorizations would not have a material adverse effect
on the condition (financial or otherwise), business, results of
operations or prospects of the Company or its subsidiaries; and the
Company has no knowledge of any material infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, mask
works, copyrights, licenses, trade secret or other similar rights of
others, and there is no claim being made against the Company or its
subsidiaries regarding trademark, trade name, patent, mask work,
copyright, license, trade secret or other infringement which could
have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the
Company and its subsidiaries taken as a whole.
(o) Neither the Company nor any of its subsidiaries have
been advised or have any reason to believe that either it or any of
its subsidiaries is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which
it is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries taken as a whole.
(p) The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns
and have paid all taxes shown as due thereon; and the Company has no
knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company or its subsidiaries which could
materially and adversely affect the business, operations or properties
of the Company and its subsidiaries taken as a whole.
(q) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute
prior to the First Closing Date any offering material in connection
with the offering and sale of the Common Shares other than the
Prospectus, the Registration Statement and the other materials
permitted by the Act.
(s) Each of the Company and its subsidiaries maintains
insurance of the types and in the amounts generally deemed adequate
for its business, including, but not limited to, insurance covering
real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is
in full force and effect.
6.
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(t) Neither the Company nor any of its subsidiaries has at
any time during the last five years (i) made any unlawful contribution
to any candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States of any
jurisdiction thereof.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the
Common Shares.
(v) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba in violation of Section 517.075 of the Florida
Statutes.
SECTION 3. Representations and Warranties of the Underwriters.
The Representatives, on behalf of the several Underwriters, represent and
warrant to the Company that the information set forth (i) on the cover page
of the Prospectus with respect to price, underwriting discounts and
commissions and terms of offering and (ii) under "Underwriting" in the
Prospectus was furnished to the Company by and on behalf of the
Underwriters for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects. The
Representatives represent and warrant that they have been authorized by
each of the other Underwriters as the Representatives to enter into this
Agreement on its behalf and to act for it in the manner herein provided.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On the
basis of the representations, warranties and agreements herein contained,
but subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Underwriters the [2,000,000] Firm Common
Shares. The Underwriters agree, severally and not jointly, to purchase from
the Company the number of Firm Common Shares described below. The purchase
price per share to be paid by the several Underwriters to the Company shall
be $_________ per share.
The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of full shares which (as nearly as
practicable, as determined by you) bears to [2,000,000] the same proportion
as the number of shares set forth opposite the name of such Underwriter in
Schedule A hereto bears to the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the
offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed upon by the Company and
the Representatives) at such time and date, not later than the third (or,
if the Firm Common Shares are priced, as contemplated by Rule 15c6-1(c) of
the Securities Exchange Act of 1934, as amended (the Exchange Act), after
4:30 P.M. Washington D.C. Time, the fourth) full business day following the
first date that any of the Common Shares are released by you for sale to
the public, as you shall designate by at least 48 hours' prior notice to
the Company (or at such other time and date, not later than one week after
such third or fourth, as the case may be, full business day as may be
agreed upon by the Company and the Representatives) (the First Closing
Date); provided, however, that if the Prospectus is at any time prior to
the First Closing Date recirculated to the public, the First Closing Date
shall occur upon the later of the third or fourth, as the case may be, full
business day following the first date that any of the Common Shares are
released by you for sale to the public (as set forth above) or the date
that is 48 hours after the date that the Prospectus has been so
recirculated.
Delivery of certificates for the Firm Common Shares shall be made
by or on behalf of the Company to you, for the respective accounts of the
Underwriters against payment by you, for the accounts of
7.
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the several Underwriters, of the purchase price therefor by certified or
official bank check payable in next day funds to the order of the Company.
The certificates for the Firm Common Shares shall be registered in such
names and denominations as you shall have requested at least two full
business days prior to the First Closing Date, and shall be made available
for checking and packaging on the business day preceding the First Closing
Date at a location in New York, New York, as may be designated by you. Time
shall be of the essence, and delivery at the time and place specified in
this Agreement is a further condition to the obligations of the
Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters
to purchase, severally and not jointly, up to an aggregate of 300,000
Optional Common Shares at the purchase price per share to be paid for the
Firm Common Shares, for use solely in covering any over-allotments made by
you for the account of the Underwriters in the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at any
time (but not more than once) within 30 days after the first date that any
of the Common Shares are released by you for sale to the public, upon
notice by you to the Company setting forth the aggregate number of Optional
Common Shares as to which the Underwriters are exercising the option, the
names and denominations in which the certificates for such shares are to be
registered and the time and place at which such certificates will be
delivered. Such time of delivery (which may not be earlier than the First
Closing Date), being herein referred to as the Second Closing Date, shall
be determined by you, but if at any time other than the First Closing Date
shall not be earlier than three nor later than five full business days
after delivery of such notice of exercise. The number of Optional Common
Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which
is the number of Firm Common Shares to be purchased by such Underwriter as
set forth opposite its name in Schedule A and the denominator of which is
300,000 (subject to such adjustments to eliminate any fractional share
purchases as you in your discretion may make). Certificates for the
Optional Common Shares will be made available for checking and packaging on
the business day preceding the Second Closing Date at a location in New
York, New York, as may be designated by you. The manner of payment for and
delivery of the Optional Common Shares shall be the same as for the Firm
Common Shares purchased from the Company as specified in the two preceding
paragraphs. At any time before lapse of the option, you may cancel such
option by giving written notice of such cancellation to the Company. If the
option is cancelled or expires unexercised in whole or in part, the Company
will deregister under the Act the number of Option Shares as to which the
option has not been exercised.
You have advised the Company that each Underwriter has authorized
you to accept delivery of its Common Shares, to make payment and to receipt
therefor. You, individually and not as the Representatives of the
Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have
been received by you by the First Closing Date or the Second Closing Date,
as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the
Common Shares as soon after the effective date of the Registration
Statement as in the judgment of the Representatives is advisable and at the
public offering price set forth on the cover page of and on the terms set
forth in the Prospectus, if one is used, or on the first page of the Term
Sheet, if one is used.
SECTION 5. Covenants of the Company. The Company covenants and
agrees that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and
8.
<PAGE>
delivered by the parties hereto, to become effective. If the
Registration Statement has become or becomes effective pursuant to
Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide
evidence satisfactory to you of such timely filing. The Company will
promptly advise you in writing (i) of the receipt of any comments of
the Commission, (ii) of any request of the Commission for amendment of
or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or
for additional information, (iii) when the Registration Statement
shall have become effective and (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of the institution of any proceedings for that purpose.
If the Commission shall enter any such stop order at any time, the
Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. The Company will not file any
amendment or supplement to the Registration Statement (either before
or after it becomes effective), any Preliminary Prospectus or the
Prospectus of which you have not been furnished with a copy a
reasonable time prior to such filing or to which you reasonably object
or which is not in compliance with the Act and the Rules and
Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue
the distribution of the Common Shares and will use its best efforts to
cause the same to become effective as promptly as possible. The
Company will fully and completely comply with the provisions of Rule
430A of the Rules and Regulations with respect to information omitted
from the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to
in Section 10(a)(3) of the Act during which a prospectus relating to
the Common Shares is required to be delivered under the Act any event
occurs, as a result of which the Prospectus, including any amendments
or supplements, would include an untrue statement of a material fact,
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or if it is
necessary at any time to amend the Prospectus, including any
amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will
promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission
or an amendment or supplement which will effect such compliance and
will use its best efforts to cause the same to become effective as
soon as possible; and, in case any Underwriter is required to deliver
a prospectus after such nine-month period, the Company upon request,
but at the expense of such Underwriter, will promptly prepare such
amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after
the end of the first quarter ending after one year following the
effective date of the Registration Statement (as defined in Rule
158(c) of the Rules and Regulations, the "Effective Date"), the
Company will make generally available to its security holders an
earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred
to in Section 10(a)(3) of the Act, will furnish to you or mail to your
order copies
9.
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of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents in
each case as soon as available and in such quantities as you may
request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect
so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise
you promptly of the suspension of the qualification or registration of
(or any such exemption relating to) the Common Shares for offering,
sale or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption,
the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request of any
Representative, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income,
shareholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii)
as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with
the Commission, the NASD or any securities exchange; and (iii) as soon
as available, copies of any report or communication of the Company
mailed generally to holders of its Common Stock.
(h) During the period of 90 days after the first date that
any of the Common Shares are released by you for sale to the public,
without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery
Securities), the Company will not issue, offer, pledge, sell, grant
options to purchase or otherwise dispose of, directly or indirectly,
any of the Company's equity securities or any other securities
convertible into or exchangeable with its Common Stock or other equity
security, other than grants pursuant to the Company's 1993 Stock
Incentive Plan and the sale of shares pursuant to the exercise of
options described in the Prospectus.
(i) The Company will apply the net proceeds of the sale of
the Common Shares sold by it in accordance with its statements under
the caption Use of Proceeds in the Prospectus.
(j) The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under
(or obtain exemptions from the application of) the Blue Sky laws of
the State of California (and thereby permit market making transactions
and secondary trading in the Company's Common Stock in California),
will comply with such Blue Sky laws and will continue such
qualifications, registrations and exemptions in effect for a period of
five years after the date hereof.
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing covenants or extend the time for their performance.
10.
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SECTION 6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective
or is terminated, the Company agrees to pay all costs, fees and expenses
incurred in connection with the performance of their obligations hereunder
and in connection with the transactions contemplated hereby, including
without limiting the generality of the foregoing, (i) all expenses incident
to the issuance and delivery of the Common Shares (including all printing
and engraving costs), (ii) all fees and expenses of the registrar and
transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common
Shares to the Underwriters, (iv) all fees and expenses of the Company's
counsel and the Company's independent accountants, (v) all costs and
expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement, the Underwriters' Questionnaire, the Underwriters' Power of
Attorney and the Blue Sky memorandum, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification
or registration of) all or any part of the Common Shares for offer and sale
under the Blue Sky laws or the laws of the Canadian provinces or of any
other foreign jurisdiction, (vii) the filing fee of the NASD, and (viii)
all other fees, costs and expenses referred to in Item 13 of the
Registration Statement. Except as provided in this Section 6, Section 8 and
Section 10 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those
relating to qualification, registration or exemption under the Blue Sky
laws and the Blue Sky memorandum referred to above).
SECTION 7. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm
Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the
representations and warranties on the part of the Company herein set forth
as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of
Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement shall have become effective
not later than 5:00 P.M. (or, in the case of a registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations relating to
the Common Shares, not later than 10:00 P.M.), Washington, D.C. Time,
on the date of this Agreement, or at such later time as shall have
been consented to by you; if the filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 424(b) of the Rules
and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or
shall be pending or, to the knowledge of the Company or you, shall be
contemplated by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates
as of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the capital
stock of the Company or any of its subsidiaries or any material
increase in the indebtedness (other than in the ordinary course of
business) of the Company or any of its subsidiaries, (ii) except as
set forth in or contemplated by the Registration Statement or the
Prospectus, no material verbal or written agreement or other
transaction shall have been entered into by the Company or any of its
subsidiaries, which is not in the ordinary course of business or which
could result in a material reduction in the future earnings of the
Company and its subsidiaries taken as a whole, (iii) no loss or damage
(whether or not insured) to the property of the Company or any of its
subsidiaries shall have
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been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries taken as a whole, (iv) no legal or
governmental action, suit or proceeding affecting the Company or any
of its subsidiaries which is material to the Company or any of its
subsidiaries or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or
threatened except as disclosed in the Prospectus and (v) there shall
not have been any material change in the condition (financial or
otherwise), business, management, results of operations or prospects
of the Company or any of its subsidiaries which makes it impractical
or inadvisable in the reasonable judgment of the Representatives to
proceed with the public offering or purchase the Common Shares as
contemplated hereby.
(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and
substance satisfactory to you, except as otherwise expressly provided
below:
(i) An opinion of Stoel Rives LLP counsel for the
Company, addressed to the Underwriters and dated the First
Closing Date, or the Second Closing Date, as the case may be, to
the effect that:
(1) Each of the Company and its subsidiaries has
been duly incorporated and is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do
business as a foreign corporation and is in good standing in
all other jurisdictions where the ownership or leasing of
properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure
to so qualify would not have a material adverse effect on
the Company and its subsidiaries taken as a whole, and has
full corporate power and authority to own its properties and
conduct its business as described in the Registration
Statement;
(2) The authorized, issued and outstanding capital
stock of the Company conforms as to legal matters in all
material respects to the description thereof contained in
the Registration Statement and is as set forth in the
Prospectus; all necessary corporate proceedings have been
taken in order to authorize validly such authorized Common
Stock; all outstanding shares of Common Stock (including the
Firm Common Shares and any Optional Common Shares when
certificates therefor have been delivered to you or upon
your order against payment of the agreed consideration
therefor in accordance with the provisions of this
Agreement) have been duly and validly issued, are fully paid
and nonassessable, have been issued in compliance with
registration and qualification provisions of federal and
state securities laws, were not issued in violation of or
subject to any preemptive rights or, to the actual knowledge
of such counsel, other rights to subscribe for or purchase
any securities and conform to the description thereof
contained in the Prospectus; without limiting the foregoing,
there are no preemptive or to the actual knowledge of such
counsel other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company hereunder;
(3) The certificates evidencing the Common Shares
to be delivered hereunder comply as to form with Oregon law,
and, when duly countersigned by the Company's transfer agent
and registrar and delivered to you or upon your order
against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement, the Common
Shares represented thereby will be duly authorized and
validly issued, fully paid and nonassessable, will not have
been
12.
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issued in violation of or subject to any preemptive rights
or, to the actual knowledge of such counsel, other rights to
subscribe for or purchase securities and will conform in all
respects to the description thereof contained in the
Prospectus;
(4) Except as disclosed in or specifically
contemplated by the Prospectus, to the actual knowledge of
such counsel, there are no outstanding options, warrants or
other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of
capital stock of the Company or any security convertible
into or exchangeable for capital stock of the Company;
(5) (a) The Registration Statement has become
effective under the Act, and, to the actual knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated
by the Commission; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules
and Regulations has been made in the manner and within the
time period required by such Rule 424(b);
(b) The Registration Statement, the
Prospectus and each amendment or supplement thereto (except
for the financial statements and schedules included therein
as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of
the Act and the Rules and Regulations;
(c) The documents incorporated by reference
in the Prospectus (except for any financial statements and
schedules and financial and statistical information included
in such documents as to which such counsel need express no
opinion), when they were filed with the Commission or as
subsequently amended prior to the date hereof, complied as
to form in all material respects with the requirements of
the Exchange Act and the rules and regulations of the
Commission thereunder;
(d) To the actual knowledge of such counsel,
there are no franchises, leases, contracts, agreements or
documents of a character required to be disclosed in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not
disclosed or filed, as required; and
(e) To the actual knowledge of such counsel,
there are no pending or threatened legal or governmental
actions, suits or proceedings against the Company
(including, without limitation, those having jurisdiction
over environmental or similar matters) required to be
disclosed in the Registration Statement or Prospectus which
are not disclosed as required;
(6) The Company has full corporate power and
corporate authority to enter into this Agreement and to sell
and deliver the Common Shares to be sold by it to the
several Underwriters; this Agreement has been duly and
validly authorized by all necessary corporate action by the
Company, has been duly and validly executed and delivered by
and on behalf of the Company, and is a valid and binding
agreement of the Company enforceable in accordance with its
terms, except as to those provisions relating to indemnity
or contribution for liabilities arising under the Act as to
which no opinion need be expressed; and no approval,
authorization, order,
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consent, registration, filing, qualification, license or
permit of or with any court, regulatory, administrative or
other governmental body is required for the execution and
delivery of this Agreement by the Company or the
consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required
under applicable Blue Sky laws in connection with the
purchase and distribution of the Common Shares by the
Underwriters and the clearance of such offering with the
NASD;
(7) The execution and performance of this
Agreement and the consummation of the transactions herein
contemplated will not conflict with, result in the breach
of, or constitute, either by itself or upon notice or the
passage of time or both, a default under, any agreement,
mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument actually known to such
counsel to which the Company or is a party or by which the
Company or any of its property may be bound or affected
which is material to the Company, or violate any of the
provisions of the articles of incorporation or bylaws of the
Company, or, to the actual knowledge of such counsel,
violate any statute, judgment, decree, order, rule or
regulation of any court or governmental body having
jurisdiction over the Company or any of its property;
(8) To the actual knowledge of such counsel, the
Company is not in violation of its articles of incorporation
or bylaws, or in breach of or default with respect to any
provision of any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument
actually known to such counsel to which the Company is a
party or by it or any of its properties or assets (tangible
or intangible) may be bound or affected, except where such
default would not materially adversely affect the Company;
and, to the actual knowledge of such counsel, the Company is
in compliance with all laws, rules, regulations, judgments,
decrees, orders and statutes of any court or jurisdiction to
which it is subject, except where noncompliance would not
materially adversely affect the Company;
(9) To the actual knowledge of such counsel, no
holders of securities of the Company have rights which have
not been waived to the registration of shares of Common
Stock or other securities because of the filing of the
Registration Statement by the Company or the offering
contemplated hereby;
(10) No transfer taxes are required to be paid in
connection with the sale and delivery of the Common Shares
to the Underwriters hereunder; and
(11) Assuming due execution by the party thereto,
the Lock-up Agreement of Mr. Mark J. Wattles is a legal,
valid and binding obligation of the party thereto,
enforceable against the party and, assuming timely notice of
the terms of the Lock-up Agreement, any subsequent holder of
the securities subject thereto in accordance with its terms.
In rendering such opinion, such counsel may rely as to matters of
local law, on opinions of local counsel, and as to matters of fact, on
certificates of officers of the Company and of governmental officials, in
which case their opinion is to state that they are so doing. In addition,
such counsel shall state that such counsel has participated in conferences
with officials and other representatives of the Company, you, your counsel
and the independent public accountants of the
14.
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Company, at which conferences the contents of the Registration Statement
and the Prospectus and related matters were discussed, and although they
have not verified the accuracy or completeness of the statements contained
in the Registration Statement or the Prospectus, nothing has come to the
attention of such counsel which caused them to believe that, at the time
the Registration Statement became effective, the Registration Statement
(except as to financial statements, financial data and supporting schedules
contained therein, as to which such counsel need make no statement),
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or on the Closing Date the Registration
Statement or the Prospectus (except as aforesaid), contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances in which made, not misleading.
(i) Such opinion or opinions of Brobeck, Phleger & Harrison
LLP, counsel for the Underwriters dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement,
the validity of the Common Shares, the Registration Statement and
the Prospectus and other related matters as you may reasonably
require, and the Company shall have furnished to such counsel
such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with such
opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental
officials.
(ii) A certificate of the Company executed by the Chairman
of the Board or President and the chief financial or accounting
officer of the Company, dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company
set forth in Section 2 of this Agreement are true and
correct as of the date of this Agreement and as of the First
Closing Date or the Second Closing Date, as the case may be,
and the Company has complied with all the agreements and
satisfied all the conditions specified herein on its part to
be performed or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order preventing
or suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or
any amendment thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued;
and to the best of the knowledge of the respective signers,
no proceedings for that purpose have been instituted or are
pending or contemplated under the Act;
(3) Each of the respective signers of the certificate
has carefully examined the Registration Statement and the
Prospectus; in his opinion and to the best of his knowledge,
the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all statements
required to be stated therein regarding the Company and its
subsidiaries; and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading;
15.
<PAGE>
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral,
transaction or event has occurred which should have been set
forth in an amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has not
been disclosed in such a supplement or amendment;
(5) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus,
and except as disclosed in or contemplated by the
Prospectus, there has not been any material adverse change
or a development involving a material adverse change in the
condition (financial or other), business, properties,
results of operations, management or prospects of the
Company and its subsidiaries; and except as disclosed in the
Prospectus, no legal or governmental action, suit or
proceeding is pending or threatened against the Company or
any of its subsidiaries which is material to the Company and
its subsidiaries, whether or not arising from transactions
in the ordinary course of business, or which in the
reasonable judgment of the Representatives may adversely
affect the transactions contemplated by this Agreement;
since such dates and except as so disclosed, neither the
Company nor any of its subsidiaries has entered into any
verbal or written agreement or other transaction which is
not in the ordinary course of business or which could result
in a material reduction in the future earnings of the
Company or incurred any material liability or obligation,
direct, contingent or indirect, made any change in its
capital stock, made any material increase in its short-term
debt, other than as the result of purchases of
videocassettes in the ordinary course of business in amounts
consistent with past practices, or funded debt or
repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to shareholders of record
on a date prior to the First Closing Date or Second Closing
Date; and
(6) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus
and except as disclosed in or contemplated by the
Prospectus, the Company has not sustained a material loss or
damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(iv) On the date before this Agreement is executed and also
on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from
Coopers & Lybrand, L.L.P., independent accountants, the first one
to be dated the day before the date of this Agreement, the second
one to be dated the First Closing Date and the third one (in the
event of a Second Closing) to be dated the Second Closing Date,
in form and substance satisfactory to you.
(v) On the date before this Agreement is executed and also
on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from
Price Waterhouse LLP, independent accountants, the first one to
be dated the day before the date of this Agreement, the second
one to be dated the First Closing Date and the third one (in the
event of a Second Closing) to be dated the Second Closing Date,
in form and substance satisfactory to you.
(vi) On or before the First Closing Date, a letter from Mr.
Mark J. Wattles, in form and substance satisfactory to you,
confirming that for a period of 90 days
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after the first date that any of the Common Shares are released
by you for sale to the public, he will not directly or indirectly
sell or offer to sell or otherwise dispose of any shares of
Common Stock or any right to acquire such shares without the
prior written consent of Montgomery Securities, which consent may
be withheld at the sole discretion of Montgomery Securities,
other than bona fide gifts of Common Stock where the recipient
agrees in writing to be bound by the terms of such letter
agreement.
SECTION 8. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 7, or if the sale to the Underwriters
of the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provision hereof, the Company agrees
to reimburse you and the other Underwriters upon demand for all
out-of-pocket expenses that shall have been incurred by you and them in
connection with the proposed purchase and the sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, telegraph charges and telephone charges
relating directly to the offering contemplated by the Prospectus. Any such
termination shall be without liability of any party to any other party
except that the provisions of this Section, Section 6 and Section 10 shall
at all times be effective and shall apply.
SECTION 9. Effectiveness of Registration Statement. You and the
Company will use your and its best efforts to cause the Registration
Statement to become effective, to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if such
stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification.
a. The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter
or such controlling person may become subject, under the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to
state in any of them a material fact required to be stated therein or
necessary to make the statements in any of them not misleading, or
arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of the Company contained herein or any
failure of the Company to perform its obligations hereunder or under
law; and will reimburse each Underwriter and each such controlling
person for any reasonable legal and other expenses incurred by such
Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action; provided, however,
that the Company will not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, any amendment or supplement
thereto in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and further
provided, however, such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom
the person asserting any such loss, claim, damage or liability
purchased the Common Shares which are the subject thereof if such
person did not receive a copy of the Prospectus (or the Prospectus as
amended or supplemented) at or prior to the confirmation of the sale
of such
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Common Shares to such person in any case where such delivery is
required by the Act and the untrue statement or omission of a material
fact contained in such preliminary prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented). In addition
to its other obligations under this Section 10(a), the Company agrees
that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission,
or any inaccuracy in the representations and warranties of the Company
herein or failure to perform its obligations hereunder, all as
described in this Section 10(a), it will reimburse each Underwriter on
a quarterly basis for all legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse each
Underwriter for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall
promptly return it to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of America NT&SA, San Francisco, California
(the "Prime Rate"). Any such interim reimbursement payments which are
not made to an Underwriter within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
b. Each Underwriter will severally indemnify and hold
harmless the Company, each of its directors and officers who signed
the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims,
damages, liabilities or expenses to which the Company, or any such
director, officer or controlling person may become subject, under the
Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in light of the circumstances in which made and, in each
case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon
and in conformity with the information furnished to the Company
pursuant to Section 3 hereof; and will reimburse the Company, or any
such director, officer or controlling person for any reasonable legal
and other expense incurred by the Company, or any such director,
officer or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. In addition to its other
obligations under this Section 10(b), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or
omission, described in this Section 10(b) which relates to information
furnished to the Company pursuant to Section 3 hereof, it will
reimburse the Company (and, to the extent applicable, each officer,
director and controlling person) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director and controlling person) for such
expenses and the possibility that such payments might later be held to
have been improper by a court of
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competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director and controlling
person) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to the
Company within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
c. Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it
may have to any indemnified party for contribution or otherwise than
under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all
other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include
both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable
for the expenses or more than one separate counsel, approved by the
Representatives in the case of paragraph (a), representing the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
d. If the indemnification provided for in this Section 10 is
required by its terms but is for any reason held to be unavailable to
or otherwise insufficient to hold harmless an indemnified party under
subparagraphs (a), (b) or (c) in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each
applicable indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any losses, claims,
damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received
by the Company and the Underwriters from the offering of the Common
Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits
received by the Company and the Underwriters shall be deemed to be in
the same proportion, in the
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case of the Company, as the total price paid to the Company for the
Common Shares sold by it to the Underwriters (net of underwriting
commissions but before deducting expenses) and, in the case of the
Underwriters, as the underwriting commissions received by them bears
to the total of such amounts paid to the Company and received by the
Underwriters as underwriting commissions. The relative fault of the
Company and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a
material fact or the inaccurate or the alleged inaccurate
representation or warranty relates to information supplied by the
Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the
limitations set forth in subparagraph (c) of this Section 10, any
legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The
provisions set forth in subparagraph (c) of this Section 10 with
respect to notice of commencement of any action shall apply if a claim
for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to
any action for which notice has been given under subparagraph (c) for
purposes of indemnification. The Company and the Underwriters agree
that it would not be just and equitable if contribution pursuant to
this Section 10 were determined solely by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 10, no
Underwriter shall be required to contribute any amount in excess of
the amount of the total underwriting commissions received by such
Underwriter in connection with the Common Shares underwritten by it
and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 10 are several in proportion to
their respective underwriting commitments and not joint.
e. It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in
Sections 10(a) and 10(b) hereof, including the amounts of any
requested reimbursement payments and the method of determining such
amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice,
then the party responding to said demand or notice is authorized to do
so. Such an arbitration would be limited to the operation of the
interim reimbursement provisions contained in Sections 10(a) and 10(b)
hereof and would not resolve the ultimate propriety or enforceability
of the obligation to reimburse expenses which is created by the
provisions of such Sections 10(a) and 10(b) hereof.
SECTION 11. Default of Underwriters. It shall be a condition to
this Agreement and the obligation of the Company to sell and deliver the
Common Shares hereunder, and of each Underwriter to purchase the Common
Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay
for all the Common Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such shares in
accordance with the terms hereof. If any Underwriter or Underwriters
default in their obligations to purchase Common Shares hereunder on either
the First or Second Closing Date and the aggregate number of Common Shares
which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of
Common Shares which the Underwriters are obligated to purchase on such
Closing Date, the non-defaulting Underwriters shall be obligated severally,
in proportion to their respective
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commitments hereunder, to purchase the Common Shares which such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to the Representatives and the
Company for the purchase of such Common Shares by other persons are not
made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter or the
Company except for the expenses to be paid by the Company pursuant to
Section 6 hereof and except to the extent provided in Section 10 hereof.
In the event that Common Shares to which a default relates are to
be purchased by the non-defaulting Underwriters or by another party or
parties, the Representatives or the Company shall have the right to
postpone the First or Second Closing Date, as the case may be, for not more
than five business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any
other arrangements, may be effected. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from
liability for its default.
SECTION 12. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10, 13 and 14 and, as to all other
provisions, (i) if at the time of execution of this Agreement the
Registration Statement has not become effective, at 2:00 P.M., California
Time, on the first full business day following the effectiveness of the
Registration Statement, or (ii) if at the time of execution of this
Agreement the Registration Statement has been declared effective, at 2:00
P.M., California Time, on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by
release of any of the Common Shares for sale to the public. For the
purposes of this Section 12, the Common Shares shall be deemed to have been
so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public
offering, or (ii) offering the Common Shares for sale to securities
dealers, whichever may occur first.
SECTION 13. Termination. Without limiting the right to terminate
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by
notice to you or by you by notice to the Company at any time prior to
the time this Agreement shall become effective as to all its
provisions, and any such termination shall be without liability on the
part of the Company to any Underwriter (except for the expenses to be
paid or reimbursed by the Company and the Selling Stockholders
pursuant to Sections 6 and 8 hereof and except to the extent provided
in Section 10 hereof) or of any Underwriter to the Company (except to
the extent provided in Section 10 hereof).
(b) This Agreement may also be terminated by you prior to
the First Closing Date by notice to the Company (i) if additional
material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such Exchange
or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or
California authorities, (ii) if an outbreak of major hostilities or
other national or international calamity or any substantial change in
political, financial or economic conditions shall have occurred or
shall have accelerated or escalated to such an extent, as, in the
reasonable judgment of the Representatives, to affect materially and
adversely the marketability of the Common Shares, (iii) if any adverse
event shall have occurred or shall exist which makes untrue or
incorrect in any material respect any statement or
21.
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information contained in the Registration Statement or Prospectus or
which is not reflected in the Registration Statement or Prospectus but
should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect,
or (iv) if there shall be any action, suit or proceeding pending or
threatened, or there shall have been any development or prospective
development involving particularly the business or properties or
securities of the Company or any of its subsidiaries or the
transactions contemplated by this Agreement, which, in the reasonable
judgment of the Representatives, may materially and adversely affect
the Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Common Shares. Any termination
pursuant to this subsection (b) shall be without liability on the part
of any Underwriter to the Company or on the part of the Company to any
Underwriter (except for expenses to be paid or reimbursed by the
Company pursuant to Sections 6 and 8 hereof and except to the extent
provided in Section 10 hereof).
SECTION 14. Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers, and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of its or their partners, officers
or directors or any controlling person, as the case may be, and will
survive delivery of and payment for the Common Shares sold hereunder and
any termination of this Agreement.
SECTION 15. Notices. All communications hereunder shall be in
writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Attention: Lynda Sullivan, with a copy to Brobeck,
Phleger & Harrison LLP, One Market, Spear Street Tower, San Francisco,
California 94105: Therese A. Mrozek, Esq.; and if sent to the Company shall
be mailed, delivered or telecopied and confirmed to the Company at
Hollywood Entertainment Corporation, 10300 S.W. Allen Blvd., Beaverton,
Oregon 97005, Attention: Donald J. Ekman, Esq., with a copy to Esq., Stoel
Rives Boley Jones & Grey, 900 S.W. Fifth Ave., Suite 2300, Portland, OR
97204. The Company or the Representatives may change the address for
receipt of communications hereunder by giving notice to the others.
SECTION 16. Successors. This Agreement will inure to the benefit
of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 11 hereof, and to the benefit of the
officers and directors and controlling persons referred to in Section 10,
and in each case their respective successors, personal representatives and
assigns, and no other person will have any right or obligation hereunder.
No such assignment shall relieve any party of its obligations hereunder.
The term "successors" shall not include any purchaser of the Common Shares
as such from any of the Underwriters merely by reason of such purchase.
SECTION 17. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all
dealings hereunder, and any action under or in respect of this Agreement
taken jointly or by Montgomery Securities, as Representatives, will be
binding upon all the Underwriters.
SECTION 18. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement
shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, paragraph or provision of
this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
SECTION 19. Applicable Law. This Agreement shall be governed by
and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of California.
22.
<PAGE>
SECTION 20. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
be executed in several counterparts, each one of which shall be an
original, and all of which shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and
the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not
affect the construction or interpretation of this Agreement. This Agreement
may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company, the
Selling Stockholders and you.
23.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding agreement between among the Company and
the several Underwriters including you, all in accordance with its terms.
Very truly yours,
HOLLYWOOD ENTERTAINMENT CORPORATION
By: _______________________________
President
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as
of the date first above written.
MONTGOMERY SECURITIES
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By: ___________________________________
Managing Director
24.
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SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
Montgomery Securities.......................................
Donaldson, Lufkin & Jenrette Securities Corporation. .......
TOTAL ................................... 2,000,000
==========
C-1
STOEL RIVES LLP
---------------
ATTORNEYS
Standard Insurance Center
900 SW Fifth Avenue, Suite 2300
Portland, Oregon 97204-1268
Telephone (503) 224-3380
Fax (503) 220-2480
TDD (503) 221-1045
November 21, 1996
Board of Directors
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, OR 97070
We have acted as counsel for Hollywood Entertainment Corporation (the
"Company") in connection with the preparation and filing of a Registration
Statement on Form S-3 (the "Registration Statement") under the Securities
Act of 1933, as amended, covering 2,300,000 shares of Common Stock of the
Company (the "Shares") being sold by the Company, which number includes
shares subject to an overallotment option granted by the Company to the
underwriters. We have reviewed the corporate action of the Company in
connection with this matter and have examined the documents, corporate
records and other instruments we deemed necessary for the purpose of this
opinion.
Based on the foregoing, it is our opinion that:
(i) The Company is a corporation existing under the laws of the State
of Oregon;
(ii) The Shares have been duly authorized; and
(iii) The Shares, when issued and sold in the manner described in the
Registration Statement and in accordance with resolutions adopted by the
Board of Directors of the Company, and when payment therefor shall have
been received by the Company, will be legally issued, fully paid and
nonassessable.
We consent to the use of our name in the Registration Statement and in
the Prospectus filed as a part thereof and to the filing of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
STOEL RIVES LLP
