UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-21824
---------------
HOLLYWOOD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in charter)
Oregon 93-0981138
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25600 S.W. Parkway Center Drive, Wilsonville, Oregon 97070
(Address of principal executive office, including zip code)
(503) 570-1600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
As of May 12, 1998, there were 36,925,046 shares of the registrant's Common
Stock outstanding.
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
March 31, 1998
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Thousands, except per share amounts)
Three Months Ended
March 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue:
Rental revenue $ 141,363 $ 91,680
Product sales 28,589 18,795
--------- ---------
169,952 110,475
--------- ---------
Operating costs and expenses:
Cost of product sales 18,448 11,601
Operating and selling 121,857 77,049
General and administrative 8,381 5,969
Amortization of intangibles 1,834 1,527
--------- ---------
150,520 96,146
--------- ---------
Income from operations 19,432 14,329
Nonoperating income (expense):
Interest income 84 82
Interest expense (6,745) (1,549)
Litigation settlement - (18,874)
--------- ---------
Income (loss) before income taxes 12,771 (6,012)
(Provision for) benefit from income taxes (5,108) 2,405
--------- ---------
Net income (loss) $ 7,663 $ (3,607)
========= =========
- -------------------------------------------------------------------------------------------
Net income (loss) per share:
Basic $ 0.21 $ (0.10)
Diluted $ 0.21 $ (0.10)
- -------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 36,842 37,416
Diluted 37,377 37,416
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands, except share amounts)
March 31, Dec. 31,
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,360 $ 3,909
Accounts receivable 36,339 39,566
Merchandise inventories 62,986 61,482
Prepaid expenses and other current assets 6,771 6,488
---------- ---------
Total current assets 110,456 111,445
Videocassette rental inventory, net 243,719 226,051
Property and equipment, net 258,860 234,497
Goodwill, net 92,411 93,760
Deferred income tax 11,922 11,334
Other assets, net 11,629 12,036
---------- ---------
$ 728,997 $ 689,123
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 2,341 $ 2,341
Accounts payable 90,121 103,823
Accrued expenses 26,188 29,423
Accrued interest 3,111 8,256
Income taxes payable 6,302 -
---------- ---------
Total current liabilities 128,063 143,843
Long-term obligations, less current portion 275,581 231,155
Other liabilities 26,790 24,229
---------- ---------
430,434 399,227
Shareholders' equity:
Preferred stock, 25,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, 100,000,000 shares authorized;
36,899,246 and 36,786,396 shares issued
and outstanding, respectively 248,902 247,950
Retained earnings 51,651 43,988
Intangible assets, net (1,990) (2,042)
---------- ---------
Total shareholders' equity 298,563 289,896
---------- ---------
$ 728,997 $ 689,123
========== =========
The accompanying notes are an integral part of this financial statement.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
Three Months Ended
March 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss) $ 7,663 $ (3,607)
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 43,181 28,904
Litigation settlement warrants - 9,000
Change in deferred rent 1,261 747
Change in deferred income taxes 712 (4,455)
Net change in operating assets and liabilities:
Accounts receivablele 3,227 2,584
Merchandise inventories (1,504) 948
Accounts payable (13,702) (17,987)
Accrued interest (5,145) 15
Other current assets and liabilities 2,784 4,240
--------- ---------
Cash provided by operating activities 38,477 20,389
--------- ---------
Investing activities:
Purchases of videocassette rental inventory, net (50,467) (38,374)
Purchases of property and equipment, net (32,911) (17,749)
Increase in intangibles and other assets (26) (1,144)
--------- ---------
Cash used in investing activities (83,404) (57,267)
--------- ---------
Financing activities:
Proceeds from the issuance of common stock, net - 4,695
Issuance of long-term obligations - 10,000
Repayments of long-term obligations (574) (208)
Tax benefit from exercise of stock options (47) 1,651
Proceeds from exercise of stock options 999 2,493
Increase in revolving loan, net 45,000 19,000
--------- ---------
Cash provided by financing activities 45,378 37,631
--------- ---------
Increase in cash and cash equivalents 451 753
Cash and cash equivalents at beginning of year 3,909 12,849
--------- ---------
Cash and cash equivalents at end of the first quarter $ 4,360 $ 13,602
========= =========
The accompanying notes are an integral part of this financial statement.
</TABLE>
5
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented, and which are of a
normal, recurring nature. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's Form 10-K, filed with the Securities and Exchange Commission on
March 31, 1998.
1. Accounting Policies
The consolidated financial statements included herein have been prepared in
accordance with the accounting policies described in Note 1 to the December 31,
1997 audited consolidated financial statements included in the Company's Form
10-K. Certain prior year amounts have been reclassified to conform to the
presentation used for the current year.
2. Statements of Changes in Shareholders' Equity
An analysis of the shareholders' equity amounts for the first quarter ended
March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Common Stock
------------------------------ Intangible Retained
(in thousands, except share amounts) Shares Amount Assets Earnings Total
------------------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 36,786,396 $ 247,950 $ (2,042) $ 43,988 $ 289,896
Issuance of common stock under option plan 112,850 999 - - 999
Tax benefit from exercise of stock options - (47) - - (47)
Amortization on intangible assets - - 52 - 52
Net income - - - 7,663 7,663
------------------------------ ------------- ------------- ------------
Balance at March 31, 1998 36,899,246 $ 248,902 $ (1,990) $ 51,651 $ 298,563
============================== ============= ============= ============
</TABLE>
3. Earnings per Share
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share" requires current and retroactive presentation of basic and
diluted earnings per share. Basic earnings per share are calculated based
on income available to common shareholders and the weighted-average number
of common shares outstanding during the reported period. Diluted earnings
per share includes additional dilution from the effect of potential common
stock,
6
<PAGE>
such as stock issuable pursuant to the exercise of stock options, warrants
outstanding and the conversion of debt.
The following table is a reconciliation of the basic and diluted earnings
per share computations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------------------------------------------
1998 1997
---------------------------------------- -------------------------------------
(in thousands, except per share amounts)
Per Per
Share Share
Income Shares Amounts Loss Shares Amounts
---------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $7,663 36,842 $ 0.21 $ (3,607) 36,591 $ (0.10)
Effect of dilutive securities:
Stock options - 535 - -
----------- ---------- ---------- ----------
Dilutive earning per share: $7,663 37,377 $ 0.21 $ (3,607) 36,591 $ (0.10)
=========== ========== ============ ========== ========== ===========
</TABLE>
Options to purchase 825,000 shares of common stock were not included in the
computation of diluted earnings per share for March 31, 1997, as such shares
were anti-dilutive.
4. Comprehensive Income
In June 1997, Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards, No. 130, "Reporting Comprehensive
Income." The Company has adopted the standard as of January 1, 1998. Total
comprehensive income (loss) for the three months ended March 31, 1998 and 1997
was net income of $7.7 million and a net loss of $3.6 million, respectively.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Summary Results of Operations
The Company's net income in the current year first quarter was $7.7
million, compared with a net loss of $3.6 million for the corresponding period
of the prior year.
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 each such period.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Revenue:
Rental revenue 83.2% 83.0%
Product sales 16.8% 17.0%
------------ ------------
100.0% 100.0%
------------ ------------
Operating costs and expenses:
Cost of product sales 10.9% 10.5%
Operating and selling 71.7% 69.7%
General and administrative 4.9% 5.4%
Amortization of intangibles 1.1% 1.4%
------------ ------------
88.6% 87.0%
Income from operations 11.4% 13.0%
Nonoperating income (expense), net -3.9% -18.4%
------------ ------------
Income (loss) before income taxes 7.5% -5.4%
(Provision for) benefit from income taxes -3.0% 2.2%
------------ ------------
Net income (loss) 4.5% -3.2%
============ ============
Number of stores 995 601
============ ============
</TABLE>
8
<PAGE>
Revenue
Revenue increased by $59.5 million, or 54%, in the current year first
quarter compared with the corresponding period of the prior year primarily due
to the opening of 394 new superstores. The Company ended the quarter with 995
stores in 43 states compared with 601 stores in 32 states in the corresponding
period of the prior year. Revenue was also favorably impacted by an increase of
2% in comparable store revenue in the current year first quarter. The Company's
pricing of videocassette rentals and merchandise for sale has not changed
significantly in 1998.
Operating Costs and Expenses
Cost of Product Sales
The cost of product sales as a percentage of product sales increased from
61.7% in the prior year first quarter to 64.5% in the current year first
quarter due to increasing pricing pressure on sell-through video merchandise
from mass merchant retailers, which use video sales as a loss leader in order to
drive customer traffic.
Operating and Selling
Operating and selling expenses, which consist principally of all store
expenses, including payroll, occupancy, advertising, depreciation and rental
revenue sharing, increased as a percentage of total revenue to 71.7% in the
current year first quarter from 69.7% in the corresponding period of the prior
year. This increase was due to lower average revenues per store in 1998,
resulting primarily from the addition of 394 new superstores during the last
twelve months, which have lower revenue per store than mature Hollywood Video
stores. Since a portion of store-level operating expenses is fixed, new stores
generally have lower operating margins in the 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 and will continue to have an
adverse impact on the Company's margin.
General and Administrative
General and administrative expenses decreased as a percentage of total
revenue to 4.9% in the current first quarter compared with 5.4% in the
corresponding first quarter of the prior year. This decrease as a percentage of
total revenue was due to the increase in total revenue without a proportionate
increase in corporate overhead.
9
<PAGE>
Amortization of Intangibles and Other Assets
Amortization of intangibles increased by $0.3 million in the current year
first quarter compared with the corresponding period of the prior year primarily
due to the amortization of deferred financing costs associated with the
Company's senior subordinated notes and revolving credit facility.
Nonoperating Income (Expense), Net
Interest expense net of interest income was $6.7 million for the current
year first quarter compared with $1.5 million for the corresponding period of
the prior year. The increase in interest expense was primarily due to increased
levels of borrowing associated with the issuance of the senior subordinated
notes combined with increased borrowings under the Company's revolving credit
facility. The Company incurred a charge of $18.9 million in the first quarter of
1997 for the settlement of securities litigation (see Note 15 of Notes to
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the Securities and Exchange Commission).
Income Taxes
The effective tax rate for the Company was a provision of 40 percent for
both the current and prior year first quarters.
Liquidity and Capital Resources
The Company generates substantial operating cash flow because most of its
revenue is received in cash. The amount of cash generated from operations in the
first quarter of 1998 significantly exceeded the current debt service
requirements of the Company's long-term obligations. The capital expenditures
(including purchases of videocassette inventory) of the Company are primarily
funded by the excess operating cash flow and through loans under a revolving
line of credit. The Company has a $300 million revolving line of credit
available to address the timing of certain working capital and capital
expenditure disbursements. The Company believes cash flow from operations,
supplemented by the availability of a revolving line of credit, will provide the
Company with adequate liquidity and the capital necessary to achieve its planned
expansion through at least 1999.
At March 31, 1998, the Company had cash and cash equivalents of $4.4
million and a working capital deficit of $17.6 million. Videocassette rental
inventories are accounted for as non-current 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 non-current excludes them from
the computation
10
<PAGE>
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 non-current asset, the Company may, from time to time, operate
with a working capital deficit.
Cash Provided by Operating Activities
Net cash provided by operating activities increased by $18.1 million in the
current year first quarter compared with the corresponding period of the prior
year, primarily due to an increase in revenue and depreciation and amortization
expenses, combined with improved results of operations in the current fiscal
year (see "Results of Operations"), net of the non-cash impact of the litigation
settlement warrants.
Cash Used in Investing Activities
Net cash used in investing activities increased by $26.1 million in the
current year first quarter compared with the corresponding period of the prior
year, primarily due to increased purchases of videocassette rental inventory for
new and existing stores and capital expenditures with respect to new store
construction, remodeling of certain existing stores and for the continued
development of information management systems (see "Capital Expenditures").
Cash Provided by Financing Activities
Net cash provided by financing activities increased by $7.7 million in the
current year first quarter compared with the corresponding period of the prior
year as a result of additional borrowings under the Company's revolving credit
line. The Company has the availability of up to $300 million in revolving credit
loans. The Company may utilize the revolving credit facility as needed for
working capital, capital expenditures and general corporate purposes. As of
March 31, 1998, $70 million was outstanding under the revolving credit
agreement.
Capital Expenditures
The Company's capital expenditures include product for stores, store
equipment and fixtures, remodeling a certain number of existing stores,
implementing and upgrading office and store technology and opening new store
locations. Each new store opening requires initial capital expenditures,
including leasehold improvements, inventory, equipment and costs related to site
location, lease negotiations and construction permits, excluding leasehold
improvements that are customarily paid for by the property developer. These
capital expenditures will be funded primarily by cash generated from operations,
supplemented by the availability of a revolving line of credit or other forms of
equipment financing and/or leasing, if necessary.
11
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1998 a complaint was filed against the Company, entitled Rentrak
Corporation v. Hollywood Entertainment et al., case no. 98-04-02811, Circuit
Court of the State of Oregon for the County of Multnomah, Portland, Oregon. The
plaintiff alleges that the Company violated alleged contractual obligations
requiring the Company to obtain all of its leased videocassettes exclusively
from Rentrak and seeks injunctive relief and monetary damages. In addition, the
plaintiff alleges that an audit of the Company's stores revealed audit and
reporting violations. The Company 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 effect on the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.8 - First Amendment Agreement, dated as of March 31,
1998 among the Company, Societe Generale, as Agent,
Donaldson, Lufkin & Jenrette Securities
Corporation, as Administrative Agent and Goldman
Sachs Credit Partners L.P., as Documentation Agent
Exhibit 27 - Financial data schedule submitted in electronic
form only
(b) Reports on Form 8-K.
None.
12
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOLLYWOOD ENTERTAINMENT CORPORATION
--------------------------------------------------
(Registrant)
May 15, 1998 FORREST MARK WOLFINGER
- ----------------- --------------------------------------------
(Date) Forrest Mark Wolfinger
Chief Financial Officer
(Principal financial and accounting officer
of the registrant)
13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
10.8 First Amendment Agreement, dated as of March 31, 1998 among the
Company, Societe Generale, as Agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as Administrative Agent and Goldman Sachs
Credit Paqrtners L.P., as Documentation Agent
27 Financial data schedule submitted in electronic form only
FIRST AMENDMENT AGREEMENT
THIS FIRST AMENDMENT AGREEMENT ("First Amendment") is entered into as
of March 31, 1998, and is among HOLLYWOOD ENTERTAINMENT CORPORATION an Oregon
corporation dba "Hollywood Video" (the "Borrower"), SOCIETE GENERALE, as Agent,
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as Administrative Agent,
and GOLDMAN SACHS CREDIT PARTNERS L.P., as Documentation Agent, the Co-Agents
named in the Credit Agreement referred to below, and each of the Lenders, as
defined therein, currently party to the Credit Agreement.
RECITALS:
A. The Borrower, Societe Generale, as Agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as Administrative Agent, and Goldman Sachs Credit
Partners L.P., as Documentation Agent, the Co-Agents named therein and the
Lenders are parties to that certain Revolving Credit Agreement dated as of
September 5, 1997, providing initially for a revolving credit facility in the
maximum principal amount of $300,000,000 (as from time to time amended,
supplemented or restated, the "Credit Agreement"). Capitalized terms used herein
without definition have the meanings ascribed to them in the Credit Agreement.
B. The parties desire to amend the Credit Agreement to modify certain of
the terms and conditions of the Loan Documents.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions.
1.1 Amendments to Definitions. The definition of each of the following
terms is hereby amended to read in its entirety as set forth below:
"EBITDA" means, for any Person for any period, such Person's net
income (or net loss), excluding any extraordinary gains or losses and taxes
associated therewith, plus the sum of (a) interest expense, (b) income tax
expense, (c) depreciation expense, (d) amortization expense, and (e) all
other noncash items deducted for purposes of determining net income (other
than items that will require cash payments and for which an accrual or
reserve is, or is required under GAAP, to be made), in each case determined
on a consolidated basis in accordance with GAAP for such Person for such
period; provided, however, that in determining net income (or net loss) for
Borrower (x) for any period that includes the three months ended March 31,
1997, there shall be excluded the nonrecurring $18.9 million pre-tax
expense related to the settlement in such period of the securities class
action lawsuit Murphy v. Hollywood Entertainment Corporation et al.; and
(y) for any period that includes the three months ended
<PAGE>
March 31, 1998, there shall be excluded the nonrecurring $4.6 million
pre-tax expense related to Borrower's proposed tender offer for its own
shares.
2. Amendments to Article II.
2.1 Additional Provision Regarding Interest. There is hereby added to
Section 2.6.1 of the Credit Agreement a new Section 2.6.1(e), reading in its
entirety as follows:
(e) Notwithstanding anything herein or in any other Loan
Document to the contrary, under no circumstances whatsoever shall
interest charged in respect of the Loans for the benefit of any
Lender, however such interest may be characterized or computed, exceed
the highest rate permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable to the
Loans of such Lender. If such a court determines that any Lender has
received interest hereunder in excess of the highest rate applicable
to its Loans, such Lender shall, at the Lender's election, either (i)
promptly refund such excess interest to the Borrower or (ii) credit
such excess to the principal balance of such Lender's Loans. This
provision shall control over every other provision of all agreements
between the Borrower and any Lender.
2.2 Amendment of Section 2.9. Section 2.9 of the Credit Agreement is
hereby amended to read in its entirety as follows:
2.9 Notes. The Loans made by each Lender shall, if requested by such
Lender, be evidenced by a promissory note of the Borrower, substantially in
the form of Exhibit A hereto, with appropriate insertions, dated as of the
date hereof and payable to the order of such Lender, in the face amount of
such Lender's Commitment (all promissory notes so requested and issued, the
"Notes"). Each Lender is hereby authorized to record the date and the
amount of each Loan it makes, and the date and amount of each payment of
principal and interest thereon, (i) on a schedule annexed to its Note, if
any, or maintained in connection therewith, or (ii) otherwise in such
Lender's records. Any such recordation by any Lender shall constitute prima
facie evidence of the accuracy of the information so recorded; provided,
however, that neither the failure to make any such recordation, nor any
error in any such recordation, shall affect the Obligations. The election
by any Lender not to request the execution and delivery of a Note, or its
surrender of a Note for cancellation without requesting the issuance of a
replacement Note, shall in no way impair or otherwise adversely affect the
Borrower's Obligations to such Lender in respect of the Loans, which
Obligations shall be evidenced (or continued to be evidenced)
-2-
<PAGE>
by the Loan Documents. References in the Loan Documents to amounts payable
under any Lender's Note shall mean, with respect to a Lender to whom no
Note is then outstanding, amounts payable to such Lender under the Loan
Documents. In connection with any permitted assignment of an interest in
the Loans by a Lender to whom no Note is then issued, then, notwithstanding
the provisions of Section 9.5.5(b) requiring the surrender by the assigning
Lender of its Note, the assignee shall be entitled, upon request, to the
issuance to it of a Note reflecting the amount of its Commitment.
3. Effectiveness. The amendments to the terms of the Credit Agreement
provided for herein shall become effective, as of March 31, 1998, immediately
upon the execution and delivery by the Borrower, the Agent and Majority Lenders
of counterparts hereof; and each reference herein to the effect that any
provision of the Credit Agreement is "hereby amended" shall mean that such
provision is so amended, effective upon such execution and delivery.
4. Representations and Warranties. The Borrower represents and warrants to
Agent and the Lenders as follows, which representations and warranties shall
survive the execution of this First Amendment: except as set forth in the
Borrower Disclosure Letter (which indicates which sections of this First
Amendment or the Credit Agreement are qualified by the disclosures set forth
therein, provided that inadvertent failure to indicate all sections of this
First Amendment or the Credit Agreement that a particular disclosure is intended
to qualify shall not constitute a breach hereunder):
4.1 Binding Obligations, Etc. This First Amendment has been duly
executed and delivered by the Borrower and constitutes (and the Credit
Agreement, as amended hereby constitutes), and the other Loan Documents when
duly executed and delivered will constitute, the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.
4.2 Other Representations and Warranties. Each of the representations
and warranties of Borrower set forth in Sections 4.1 through 4.17 of the Credit
Agreement is true and correct as if set forth herein in full and made on and as
of the date hereof.
4.3 Absence of Defaults. As of the date hereof, no Event of Default or
Default has occurred and is continuing.
5. Miscellaneous.
5.1 Execution in Counterparts. This First Amendment may be executed in
any number of counterparts, all of which taken together shall constitute a
single agreement, and shall not become effective until the parties described in
Section 3 hereof have executed and delivered this First Amendment.
-3-
<PAGE>
5.2 Limitation; Certain Acknowledgments.
5.2.1 Except as expressly provided herein, nothing in this First
Amendment shall alter or affect any provision, condition or covenant contained
in the Credit Agreement or any other Loan Document, or limit or impair any
rights, powers or remedies of the Agent or any Lender thereunder, it being the
intent of the parties hereto that the provisions of the Loan Documents shall
continue in full force and effect except as expressly modified hereby or
pursuant to another Loan Document executed and delivered in connection with the
transactions contemplated hereby.
5.2.2 The Borrower acknowledges and agrees that the Obligations,
as amended pursuant hereto, are intended to, and shall, continue to constitute
"Designated Senior Indebtedness" for all purposes of the High Yield Notes and
the Indenture. The Borrower shall designate the Agent as the "Representative" of
the Lenders for purposes of the Indenture in accordance with the procedures set
forth therein, and shall take such action as may be required from time to time
under the Indenture to keep each such designation in effect.
5.2.3 The Borrower's Obligations with respect to Loans made by
any Lender who surrenders its Note for cancellation without requesting the
issuance of a replacement Note shall in no manner be impaired or otherwise
adversely affected by such surrender and cancellation, it being the intent of
the parties that such surrender shall not effect a release or other discharge of
any of such Obligations.
5.3 Entire Agreement. This First Amendment contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior written or oral communications between the parties with
respect thereto.
5.4 Governing Law. This First Amendment shall be governed by, and
construed in accordance with, the internal laws of the State of New York,
without reference to principles of conflicts of law.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their respective officers or agents thereunto duly authorized as
of the date first written above.
BORROWER:
HOLLYWOOD ENTERTAINMENT CORPORATION
By: DONALD J. EKMAN
----------------------------------
Name: Donald J. Ekman
----------------------------------
Title: Senior Vice President
----------------------------------
AGENT:
SOCIETE GENERALE
By: J. BLANE SHAUM
----------------------------------
Name: J. Blaine Shaum
----------------------------------
Title: Regional Manager
----------------------------------
ADMINISTRATIVE AGENT: DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
By: ERIC SWANSON
----------------------------------
Name: Eric Swanson
----------------------------------
Title: Managing Director
----------------------------------
DOCUMENTATION AGENT: GOLDMAN SACHS CREDIT PARTNERS L.P.
By: STEPHEN J. McGUIRE
----------------------------------
Name: Stephen J. McGuire
----------------------------------
Title:
----------------------------------
LENDERS AND CO-AGENTS: SOCIETE GENERALE
By: J. BLAINE SHAUM
----------------------------------
Name: J. Blaine Shaum
----------------------------------
Title: Regional Manager
----------------------------------
<PAGE>
DLJ CAPITAL FUNDING, INC.
By: ERIC SWANSON
----------------------------------
Name: Eric Swanson
----------------------------------
Title: Managing Director
----------------------------------
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: STEPHEN J. McGUIRE
----------------------------------
Name: Stephen J. McGuire
----------------------------------
Title:
----------------------------------
CREDIT LYONNAIS LOS ANGELES BRANCH as a
Co-Agent and a lender
By: DIANNE M. SCOTT
----------------------------------
Name: Dianne M. Scott
----------------------------------
Title: Vice President and Manager
----------------------------------
DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH, as a Co-Agent and a
Lender
By: ROBERT WOOD
----------------------------------
Name: Robert Wood
----------------------------------
Title: Director
----------------------------------
By: JOEL D. MAKOWSKY
----------------------------------
Name: Joel D. Makowsky
----------------------------------
Title: Assistant Vice President
----------------------------------
KEYBANK NATIONAL ASSOCIATION,
as a Co-Agent and a Lender
By: MARY K. YOUNG
----------------------------------
Name: Mary K. Young
----------------------------------
Title: Commercial Banking Officer
----------------------------------
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: JANET JORDAN
----------------------------------
Name: Janet Jordan
----------------------------------
Title: Vice President
----------------------------------
BARCLAYS BANK PLC, as a Co-Agent and a
Lender
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
THE SUMITOMO BANK, LIMITED
By: J. H. BROADLEY
----------------------------------
Name: J. H. Broadley
----------------------------------
Title: Vice President
New York Office
----------------------------------
By: BRIAN M. SMITH
----------------------------------
Name: Brian M. Smith
----------------------------------
Title: Senior Vice President and
Regional Manager (East)
----------------------------------
UNION BANK OF CALIFORNIA, N.A.
By: DAVID E. TAYLOR
----------------------------------
Name: David E. Taylor
----------------------------------
Title: Vice President
----------------------------------
VAN KAMPEN AMERICAN PRIME RATE INCOME
TRUST
By: JEFFREY W. MAILLET
----------------------------------
Name: Jeffrey W. Maillet
----------------------------------
Title: Senior Vice President and Director
----------------------------------
THE BANK OF NOVA SCOTIA
By: M. BROWN
----------------------------------
Name: M. Brown
----------------------------------
Title: Officer
----------------------------------
<PAGE>
By: DARYL K. HOGGE
----------------------------------
Name: Daryl K. Hogge
----------------------------------
Title: Officer
----------------------------------
THE FUJI BANK, LIMITED - SAN FRANCISCO
AGENCY
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: T. HAYASHI
----------------------------------
Name: Mr. Toshihiro Hayashi
----------------------------------
Title: Senior Vice President
----------------------------------
THE SAKURA BANK, LTD., SAN FRANCISCO
AGENCY
By: YOSHI KAZUKAMURA
----------------------------------
Name: Yoshi Kazukamura
----------------------------------
Title: Vice President
----------------------------------
SUNTRUST BANK CENTRAL FLORIDA, N.A.
By: JANET P. SAMMONS
----------------------------------
Name: Janet P. Sammons
----------------------------------
Title: Vice President
----------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: PERRY VANVOULES
----------------------------------
Name: Perry Vanvoules
----------------------------------
Title: Senior Vice President
----------------------------------
CITY NATIONAL BANK
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
BANQUE WORMS CAPITAL CORPORATION
By: F. GAMET / C. V. VALL
----------------------------------
Name: F. Gamet / C. V. Vall
----------------------------------
Title: SVP / VP
----------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,360
<SECURITIES> 0
<RECEIVABLES> 36,339
<ALLOWANCES> 0
<INVENTORY> 62,986
<CURRENT-ASSETS> 110,456
<PP&E> 258,860
<DEPRECIATION> 43,181
<TOTAL-ASSETS> 728,997
<CURRENT-LIABILITIES> 128,063
<BONDS> 0
0
0
<COMMON> 248,902
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 728,997
<SALES> 28,589
<TOTAL-REVENUES> 169,452
<CGS> 18,448
<TOTAL-COSTS> 150,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,661
<INCOME-PRETAX> 12,771
<INCOME-TAX> 5,108
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,663
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
