As filed with the Securities and Exchange Commission on July 15, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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HOLLYWOOD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
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Oregon 7841 93-0981138
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification No.)
organization) Code Number)
9275 SW Peyton Lane
Wilsonville, Oregon 97070
(503) 570-1600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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DONALD J. EKMAN
Senior Vice President and General Counsel
9275 SW Peyton Lane
Wilsonville, Oregon 97070
(503) 570-1600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
It is respectfully requested that the Commission send copies of all
notices, orders and communications to:
ROBERT J. MOORMAN
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
(503) 224-3380
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Approximate date of commencement of proposed sale to the public: As
promptly as practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
============================================================================================================
Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered(1) per share(1) offering price(1) registration fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 5/8% Senior Subordinated
Notes due 2004 $50,000,000 100% $50,000,000 $13,900
============================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933.
</TABLE>
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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, as amended, or until the Registration Statement
shall become effective on such a date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
PROSPECTUS
HOLLYWOOD ENTERTAINMENT CORPORATION
Exchange Offer for
$50,000,000
10 5/8% Senior Subordinated Notes due 2004
Key Terms of Exchange Offer
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<CAPTION>
<S> <C>
o Expires 5:00 p.m., New York City o Tenders of outstanding notes may be
time, _________, 1999, unless withdrawn any time before the
extended expiration of the exchange offer
o Not subject to any conditions other o The exchange of notes will not be a
than the exchange offer does not taxable exchange for United States
violate law or any interpretation of federal income tax purposes
the staff of the Securities and
Exchange Commission o The terms of the notes to be issued
are identical to the outstanding notes,
o All outstanding notes that are validly except for the elimination of
tendered and not validly withdrawn specified transfer restrictions and
will be exchanged registration rights of the outstanding
notes
</TABLE>
This investment involves risks. See the Risk Factors section beginning on
page 12.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
________, 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Summary............................................................3
Risk Factors.................................................................12
The Exchange Offer...........................................................21
Description of Notes.........................................................30
Business.....................................................................75
Description of Senior Credit Facility........................................82
Federal Income Tax Considerations............................................83
Plan of Distribution.........................................................87
Legal Matters................................................................87
Experts......................................................................88
Where You Can Find More Information..........................................88
Forward-looking Statements May Prove Inaccurate..............................89
We have also included a table of contents for the "Description of Notes"
section because of that section's length. That table of contents can be found on
page 30.
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<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It may not contain all the information that is important to you. For a more
complete understanding of the exchange offer, we encourage you to read this
entire document.
The Exchange Offer
On June 24, 1999 we completed a private offering of 10 5/8% Senior
Subordinated Notes due 2004. The notes were sold for a total purchase price of
$50 million. These notes were issued under an indenture covering $250 million
principal amount of notes, and are substantially identical to the $200 million
principal amount of notes we issued in 1997 under the indenture.
We entered into a registration rights agreement with the initial purchaser
of the notes in the private offering in which we agreed to deliver to you this
prospectus and to complete the exchange offer by November 21, 1999. This
exchange offer entitles you to exchange your notes for notes with identical
terms that are registered with the Securities and Exchange Commission (the
"exchange notes"). If the exchange offer is not completed by November 21, 1999,
the interest rate on the notes will be increased to 10 7/8% per year. You should
read the discussion under the heading "The Exchange Offer" beginning on page 21
and "Description of Notes" beginning on page 30 for more information about the
registered exchange notes.
We believe the exchange notes may be resold by you without compliance with
the registration and prospectus delivery requirements of the Securities Act of
1933, subject to various conditions. You should read the discussion under the
heading "The Exchange Offer" beginning on page 21 for more information
concerning the exchange offer and resale of notes.
The Exchange Offer................ We are offering to exchange $1,000
principal amount of 10 5/8% Senior
Subordinated Notes due 2004 of Hollywood
Entertainment Corporation that have been
registered under the Securities Act of 1933
for each $1,000 principal amount of our
outstanding 10 5/8% Senior Subordinated
Notes due 2004 that were issued in June
1999 in a private offering. To be
exchanged, an outstanding note must be
properly tendered and accepted. All
outstanding notes that are validly tendered
and not validly withdrawn will be exchanged
for registered exchange notes.
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We will issue registered exchange notes
promptly after the expiration of the
exchange offer.
Resales........................... We believe the exchange notes may be
offered for resale, resold and otherwise
transferred by you without compliance with
the registration and prospectus delivery
provisions of the Securities Act of 1933
provided that
o the exchange notes received in the
exchange offer are acquired in the
ordinary course of your business,
o you are not participating, do not
intend to participate, and have no
arrangement or understanding with any
person to participate in the
distribution of the exchange notes
issued to you in the exchange offer,
and
o you are not an affiliate of ours.
Each broker-dealer issued exchange notes
for its own account in exchange for notes
acquired by the broker-dealer as a result
of market-making or other trading
activities must acknowledge that it will
deliver a prospectus meeting the
requirements of the Securities Act of 1933
in connection with any resale of the
exchange notes. A broker-dealer may use
this prospectus for an offer to resell,
resale or other transfer of the exchange
notes issued to it in the exchange offer.
Expiration Date................... The exchange offer will expire at 5:00
p.m., New York City time, _____, 1999,
unless we extend the expiration date. If we
extend the exchange offer, the longest we
could keep the offer open would be until
November 21, 1999, which is __ days after
the exchange offer is first made.
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Conditions to the Exchange
Offer........................... The exchange offer is not subject to any
condition other than the exchange offer
does not violate law or any interpretation
of the staff of the Securities and Exchange
Commission.
Procedures for Tendering
Outstanding Notes
Held in the Form of
Book-Entry Interests............ The outstanding notes were issued as global
securities in bearer form without interest
coupons. The outstanding notes were
deposited with U.S. Trust Company, N.A.
when they were issued. U.S. Trust Company
issued a certificateless depositary
interest in each note, which represents a
100% interest in the notes, to The
Depository Trust Company. Beneficial
interests in the notes, which are held by
participants in DTC without certificates
and are represented only on records and to
which we will refer as notes held in
book-entry form, are shown on, and
transfers of the notes can be made only
through, records maintained in book-entry
form by DTC and its participants.
If you are a holder of a note held in the
form of a book-entry interest and you wish
to tender your book-entry interest for
exchange in the exchange offer, you must
transmit to Continental Stock Transfer &
Trust Company, as exchange agent, before
the expiration date of the exchange offer:
either
o a properly completed and executed
letter of transmittal, which
accompanies this prospectus, or a
facsimile of the letter of transmittal,
including all other documents required
by the letter of transmittal, to the
exchange agent at the address on the
cover page of the letter of
transmittal;
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<PAGE>
or
o a computer-generated message
transmitted by means of DTC's Automated
Tender Offer Program system and
received by the exchange agent and
forming a part of a confirmation of
book-entry transfer in which you
acknowledge and agree to be bound by
the terms of the letter of transmittal;
and, either
o a timely confirmation of book-entry
transfer of your outstanding notes into
the exchange agent's account at DTC,
according to the procedure for
book-entry transfers described in this
prospectus under the heading "The
Exchange Offer -- Book-Entry Transfer"
beginning on page 26;
or
o the documents necessary for compliance
with the guaranteed delivery procedures
described below.
Procedure for Tendering
Certificated Notes.............. If you are a holder of a beneficial
interest in the outstanding notes, you are
entitled to receive, in exchange for your
beneficial interest, certificated notes
that are in equal principal amounts to your
beneficial interest. As of this date,
however, no certificated notes were issued
and outstanding. If you acquire
certificated notes before the expiration
date of the exchange offer, you must tender
your notes under the procedures described
in this prospectus under the heading "The
Exchange Offer-- Procedure for Tendering
Notes" beginning on page 23.
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<PAGE>
Special Procedures for
Beneficial Owners............... If you are the owner of a beneficial
interest and your name does not appear on a
security position listing of DTC as the
holder of that interest or if you are a
beneficial owner of certificated notes that
are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and you wish to tender that
interest or certificated notes in the
exchange offer, you should contact the
person in whose name your interest or
certificated notes are registered promptly
and instruct such person to tender on your
behalf.
Guaranteed Delivery
Procedures...................... If you wish to tender your notes and time
will not permit your required documents to
reach the exchange agent by the expiration
date of the exchange offer, or the
procedure for book-entry transfer cannot be
completed on time or certificates for notes
cannot be delivered on time, you may tender
your notes according to the procedures
described in this prospectus under the
heading "The Exchange Offer-- Guaranteed
Delivery Procedures" beginning on page 26.
Withdrawal Rights................. You may withdraw the tender of your notes
at any time before 5:00 p.m. New York City
time on _____, 1999.
U.S. Federal Income Tax
Consequences.................... The exchange of notes will not be a taxable
exchange for U.S. federal income tax
purposes. You will not recognize any
taxable gain or loss or any interest income
as a result of the exchange.
Exchange Agent.................... Continental Stock Transfer & Trust Company
is serving as exchange agent for the
exchange offer.
Summary of the Terms of the Exchange Notes
The form and terms of the exchange notes are the same as the form and terms
of outstanding unregistered notes except that the exchange notes will be
registered under the Securities Act of 1933 and, accordingly, will not bear
legends restricting their transfer. The exchange notes will evidence the same
debt as the outstanding unregistered notes, and both the
7
<PAGE>
outstanding unregistered notes and the exchange notes to be issued are governed
by the same indenture.
Total Amount...................... $50,000,000 total principal amount of
10 5/8% Senior Subordinated Notes due 2004
of Hollywood Entertainment Corporation.
Together with the notes we issued in 1997
under the same indenture, a total of
$250,000,000 principal amount of notes is
outstanding.
Maturity.......................... August 15, 2004.
Interest.......................... Annual rate - 10 5/8%
Payment frequency - every six months on
February 15 and August 15
First payment - August 15, 1999.
Optional Redemption............... On or after August 15, 2001 we may redeem
some or all of the notes at any time at the
redemption prices listed in the section
"Description of Notes" under the heading
"Optional Redemption."
Ranking........................... These notes are general unsecured
obligations and are subordinated in right
of payment to all our existing and future
senior indebtedness.
Change of Control................. If our ownership structure materially
changes, we must offer to buy any or all
the notes you wish to sell. We must pay you
101% of the total principal amount of the
notes, plus accrued and unpaid interest, on
the date we buy the notes.
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<PAGE>
Basic Covenants of the Indenture.. We will issue the exchange notes under our
indenture with U.S. Trust Company, N.A.
Among other things, the indenture restricts
our ability and the ability of our
subsidiaries to:
o make some payments and investments
o become liable for additional
indebtedness
o create liens
o agree to payment restrictions affecting
subsidiaries
o engage in mergers and asset sales
o conduct our business
o engage in transactions with our
affiliates and some subsidiaries and
o make issuances and sales of capital
stock of our wholly owned subsidiaries.
For more information, see "Description of
Notes -- Certain Covenants" beginning on
page 39.
Where You Can Reach Us
Our mailing address is 9275 SW Peyton Lane, Wilsonville, Oregon 97070. Our
telephone number is (503) 570-1600.
Risk Factors
You should carefully consider the information under the caption "Risk
Factors" beginning on page 12 and all other information in this document before
tendering your notes in the exchange offer.
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Selected Financial Data
(in thousands, except earnings per share amounts and ratio)
The historical financial data for the annual periods presented below were
derived from audited consolidated financial statements contained in the annual
reports we have filed with the SEC and should be read in conjunction with that
information. The historical financial data for the three months ended March 31,
1998 and 1999 are unaudited and were prepared on the same basis as the
historical financial information for the annual periods. In the opinion of our
management, all adjustments, consisting only of normal recurring adjustments,
have been included for a fair presentation of results of operations for these
interim periods.
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<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ............................ $73,288 $149,430 $302,342 $500,501 $763,908 $169,952 $266,529
Income (loss) from operations........ 12,610 17,537 38,418 41,681 (37,913) 19,432 13,016
Interest expense..................... 795 490 4,339 13,806 31,893 6,745 9,245
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle... 8,143 11,786 20,630 5,559 (50,464) 7,663 (2,777)
Net income (loss).................... 8,143 9,226 20,630 4,996 (50,464) 7,663 (4,221)
Net income (loss) per share before
extraordinary item and cumulative
effect of a change in accounting
principle:
Basic 0.33 0.37 0.60 0.15 (1.30) 0.21 (0.06)
Diluted 0.32 0.36 0.59 0.15 (1.30) 0.21 (0.06)
Net income (loss) per share:
Basic 0.33 0.28 0.60 0.14 (1.30) 0.21 (0.09)
Diluted $ 0.32 $ 0.28 $ 0.59 $ 0.13 $ (1.30) $ 0.21 $ (0.09)
Other Financial Data:
Ratio of earnings to fixed charges 4.21x 3.09x 2.48x 1.18x - 1.66x 1.14x
December 31,
1994 1995 1996 1997 1998 March 31, 1999
-------- --------- --------- --------- --------- --------------
Balance Sheet Data:
Cash and cash equivalents $ 39,017 $ 29,980 $ 12,849 $ 3,909 $ 3,975 $ 4,684
Total assets 142,861 334,660 451,295 689,123 934,434 969,016
Long-term obligations (including
current portion) 3,505 7,971 82,361 233,496 392,145 435,768
Shareholders' equity 110,765 217,783 274,703 289,896 345,695 345,990
Mandatorily redeemable common - 54,250 - - - -
stock
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Effective January 1, 1995, we changed our method of amortizing the cost of
videocassette rental inventory. The change in amortization method resulted in a
charge in 1995 totaling $2.6 million, representing the cumulative effect as of
January 1, 1995 as if the new method had been applied retroactively to all
videocassettes in service at that date.
For 1997, excluding charges of $18.9 million relating to the settlement of
a securities class action lawsuit, $6.8 million related to a write-off of
obsolete video game inventory and related accessories, $4.6 million of expenses
related to a failed tender offer and a $0.6 million loss on extinguishment of
debt net of related tax benefit, pro forma net income would have been $23.6
million.
For 1998, (a) excluding (i) a non-recurring, non-cash, pre-tax charge of
$99.9 million related to the write-down of videocassette inventory and (ii) the
following costs associated with the Reel.com acquisition: the write-off of $1.9
million of purchased research and development costs, $12.5 million of goodwill
amortization and $7.6 million of other Reel.com pre-tax losses, and (b) applying
a 40.5% effective tax rate, pro forma net income would have been $31.1 million.
See Note 4 of Notes to Consolidated Financial Statements of Hollywood
Entertainment incorporated in this prospectus by reference to our Annual Report
on Form 10-K for the year ended December 31, 1998 (the "Incorporated 10-K
Financial Statements").
Effective January 1, 1999, we adopted SOP 98-5, "Reporting on the Cost of
Start-Up Activities." The cumulative effect of the change resulted in a charge
of $1.4 million.
For purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense, including amounts capitalized and the
amortization of deferred financing fees, and that portion of rental expense that
we believe to be a reasonable approximation of interest costs (approximately 1/3
of rent expense). For the year ended December 31, 1997, the ratio of earnings to
fixed charges for such period would have been 1.83x, excluding the effect of a
pre-tax charge of $18.9 million relating to the settlement of a securities class
action lawsuit, $6.8 million related to the writeoff of obsolete videogame
inventory and related accessories and $4.6 million of expenses related to a
failed self tender offer.
For the year ended December 31, 1998, earnings were inadequate to cover
fixed charges by $70.9 million; however, the ratio of earnings to fixed charges
for that period would have been 1.50x, excluding the effect of the $99.9 million
pre-tax charge related to the write down of videocassette inventory and the
effect of the Reel.com acquisition. We incurred the following pre-tax charges
with respect to Reel.com: $1.9 million for purchased in-process research and
development costs and $12.5 million for the amortization of goodwill.
11
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RISK FACTORS
You should carefully consider the following risks before making the
decision whether to exchange the notes.
This prospectus includes forward-looking statements including, in
particular, the statements about the Company's plans, strategies and prospects
under the headings "Prospectus Summary" and "Business." Although we believe that
our plans, intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, we give no assurance these plans,
intentions or expectations will be achieved. Important factors that could cause
actual results to differ materially from the forward-looking statements we make
in this prospectus are described above and elsewhere in this prospectus. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the preceding cautionary
statements.
Risks Related to the Notes
Unregistered notes not exchanged will continue to be subject to transfer
restrictions.
The exchange agent will issue exchange notes in exchange for the
unregistered notes only after timely receipt by it of the unregistered notes, a
properly completed and duly executed letter of transmittal and all other
required documents. You should therefore allow sufficient time to ensure timely
delivery of these items to the exchange agent. We are under no duty to give
notification of defects or irregularities with respect to tenders of
unregistered notes for exchange. If you do not exchange your notes pursuant to
this exchange offer, you will continue to be subject to the restrictions on
transfer of the unregistered notes as described on the legend inscribed on those
notes. In general, the unregistered notes may not be offered or sold, unless
registered under the Securities Act of 1933, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not anticipate registering the unregistered notes
under the Securities Act. To the extent these notes are tendered and accepted in
the exchange offer, your ability to sell untendered, or tendered by unaccepted,
unregistered notes could be adversely affected. See "The Exchange Offer -
Consequences of Failure to Exchange Notes."
Based on interpretations of the SEC, we believe the exchange notes issued
pursuant to the exchange offer may be offered for resale, resold and otherwise
transferred by their holders, other than
o an "affiliate" of Hollywood Entertainment within the meaning of Rule
405 of the Securities Act,
o the initial purchaser, who acquired the unregistered notes directly
from us solely in order to resell pursuant to Rule 144A of the
Securities Act or other available exemptions under the Securities Act,
or
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o a broker-dealer who acquired the unregistered notes as a result of
market-making or other trading activities,
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided the exchange notes are acquired in
the ordinary course of the holder's business and that the holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution, within the meaning of the Securities Act, of the
exchange notes. We have not, however, sought a no-action letter from the SEC,
and we do not assure you the SEC would make a similar determination with respect
to the resale of the exchange notes. Any holder that cannot rely on this prior
SEC interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless the sale is made pursuant to an exemption from these
requirements. See "The Exchange Offer - Consequences of Failure to Exchange
Notes."
We have substantial amounts of outstanding indebtedness.
At June 30, 1999, approximately $210 million was outstanding under our $300
million revolving senior credit facility, and we had outstanding $250 million
principal amount of notes. Our indebtedness presents risks to investors,
including the possibility that we may be unable to generate cash sufficient to
pay the principal of and interest on the indebtedness. Our ability to make
principal and interest payments on our indebtedness will be dependent on our
future operating performance, which is dependent on a number of factors, many of
which are beyond our control. These factors include prevailing economic
conditions and financial, competitive, regulatory and other factors affecting
our business and operations, and may be dependent on the availability of
borrowings. Although we believe, based on current levels of operations, that our
cash flow from operations, together with other sources of liquidity, will be
adequate to make required payments of principal and interest on our debt,
whether at or prior to maturity, finance anticipated capital expenditures and
fund working capital requirements, this may not occur. If we do not have
sufficient available resources to repay any indebtedness when it becomes due and
payable, we may find it necessary to refinance indebtedness, and such
refinancing may not be available, or available on reasonable terms.
Additionally, our indebtedness could have a material adverse effect on our
future operating performance, including, but not limited to, the following:
o a significant portion of our cash flow from operations will be dedicated to
debt service payments, thereby reducing the funds available for other
purposes;
o our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes
or other purposes may be impaired;
o our leverage may place us at a competitive disadvantage;
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o our leverage may limit our ability to expand and otherwise meet our growth
objectives; and
o our leverage may hinder our ability to adjust rapidly to changing market
conditions and could make us more vulnerable in the event of a downturn in
general economic conditions or our business.
The Notes will be subordinated to other indebtedness.
The notes are general unsecured obligations and will be subordinate in
right of payment to all senior indebtedness, including all indebtedness under
the revolving credit facility. As of June 30, 1999, we had approximately $210.0
million of senior indebtedness outstanding. In addition, any additional
borrowings under the senior credit facility will be senior indebtedness. The
indenture permits us and (under limited circumstances) our subsidiaries to incur
additional senior indebtedness, and we expect to incur additional indebtedness,
including senior indebtedness. By reason of the subordination provisions of the
indenture, if we become insolvent, liquidate, reorganize, dissolve or wind-up,
the lenders under the senior credit facility and other creditors who are holders
of senior indebtedness, as well as creditors with secured obligations that are
not defined as indebtedness under the indenture, must be paid in full before
payment of amounts due on the notes. Accordingly, insufficient assets may remain
after these payments to pay amounts due on the notes.
In addition, we may not pay principal of, premium, if any, or interest on,
or any other amounts owing in respect of, the notes, or purchase, redeem or
otherwise retire the notes, or make any deposit pursuant to defeasance
provisions for the notes, if designated senior indebtedness (as that term is
defined in the indenture) is not paid when due, unless the default is cured or
waived or has ceased to exist or the designated senior indebtedness has been
repaid in full. Under various circumstances, no payments may be made for a
specified period with respect to the principal of, premium, if any, and interest
on, and any other amounts owing in respect of, the notes if a default, other
than a payment default, exists with respect to designated senior indebtedness,
including indebtedness under the senior credit facility, unless the default is
cured, waived or has ceased to exist or the indebtedness has been repaid in
full. See "Description of Notes-Subordination." If any event of default occurs
and is continuing, the trustee or the holders of at least 25% in principal
amount of the then outstanding notes may declare all the notes to be due and
payable immediately. Such a continuing event of default, however, also would
permit the acceleration of all outstanding obligations under the senior credit
facility. In that event, the subordination provisions of the indenture would
prohibit any payments to holders of the notes unless and until these obligations
(and any other accelerated senior indebtedness) have been repaid in full. See
"Description of Notes-Subordination" and " -Defaults."
We have obligations in the event of a change of control; there are restrictions
on repurchase of notes.
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Upon the occurrence of a change of control of Hollywood Entertainment, we
may be required to purchase all or a portion of the Notes then outstanding at a
purchase price equal to 101% of the principal amount of the notes, plus accrued
and unpaid interest, if any, to the date of purchase. Before commencing such an
offer to purchase, we may be required to
o repay in full all of our indebtedness that would prohibit the
repurchase of the notes, including under the senior credit facility,
or
o obtain any consent required to make the repurchase.
If we are unable to repay all of this indebtedness or are unable to obtain the
necessary consents, we will be unable to offer to purchase the notes and that
failure will constitute an event of default under the indenture. We may not have
sufficient funds available at the time of any change of control to repurchase
the notes. The events that require a repurchase upon a change of control under
the indenture may also constitute events of default under the senior credit
facility or our subsequently incurred indebtedness. See "Description of
Notes-Change of Control."
Lack of public market for the notes; volatility; restrictions on resale.
The outstanding unregistered notes you now hold are eligible for trading in
the Private Offerings, Resales and Trading through Automatic Linkages (PORTAL)
Market. The exchange notes will be new securities, and there is no existing
trading market for these notes and we do not intend to apply for listing or
quotation of the exchange notes on any securities exchange or stock market.
Moreover, no market for the exchange notes may develop in the near future, and
holders of notes may not be able to sell notes or may not be able to obtain any
particular price for the notes. If a market for the notes does develop, the
notes could trade at prices that may be higher or lower than the initial
offering price of the notes. Prevailing market prices from time to time will
depend on many factors, including then existing interest rates, our operating
results and cash flow and the market for similar securities.
In addition, the liquidity of, and trading markets for, the notes may be
adversely affected by declines in the market for high-yield securities
generally. Such a decline may adversely affect liquidity and trading markets
independent of our financial performance and prospects.
Risks Related to Our Business
We may not be able to achieve and manage planned expansion.
Our future performance will depend in part on our ability to open stores
and to operate these stores profitably. We have grown from 25 stores in two
states at the end of 1993 to 1,322 stores in 43 states at March 31, 1999. We
added 353 stores in 1998 and plan to add approximately 350 stores in each of
1999 and 2000. We will continue to add stores in markets where we have limited
or no operating history. Additionally, we have been decreasing the size
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of acceptable trade areas, primarily through the increased opening of stores in
small markets with populations under 40,000 people. We have a limited operating
history in these smaller markets and may experience lower than anticipated
revenue and operating results. Our expansion is dependent on a number of
factors, including:
o our ability to hire, train and assimilate management and store-level
employees;
o the adequacy of our financial resources;
o our ability to identify and successfully compete in new markets;
o our ability to locate suitable store sites and negotiate acceptable lease
terms; and
o our ability to adapt purchasing, management information and other systems
to handle expanded operations.
We believe the amounts available for borrowing under our senior credit
facility will be sufficient to fund our expansion until at least 2000. Our
expansion is also dependent on the timely fulfillment by landlords and others of
their contractual obligations to us, the maintenance of construction schedules
and the speed at which we obtain local zoning and construction permits. We may
not be able to achieve our planned expansion and the expansion may not be
profitable. Our new stores may not achieve sales and profitability comparable to
our existing stores.
We have expanded the size of our store base and the geographic scope of
operations significantly over the last several years. This expansion has placed,
and we expect it to continue to place, increasing pressure on our operating and
management controls. To manage our larger store base and planned expansion, we
will need to continue to evaluate our financial controls, management information
systems and distribution facilities. We may not adequately anticipate or respond
to all of the changing demands of expansion on our infrastructure.
We face intense competition and risks associated with technological
obsolescence.
The video retail industry is highly competitive. We compete with local,
regional and national video retail stores, including Blockbuster Inc., the
largest video retailer in the United States, and with supermarkets, pharmacies,
convenience stores, bookstores, mass merchants, mail order operations, online
stores and other retailers, as well as with noncommercial sources such as
libraries. According to the Video Software Dealers Association, in 1998 there
were between 25,000 and 30,000 video specialty stores in the United States. We
believe approximately 8,500 of these stores were video retail superstores. Some
of our competitors have significantly greater financial and marketing resources,
market share and name recognition than we do. Substantially all of our stores
compete with stores operated by Blockbuster, most in very close proximity. As a
result of direct competition with Blockbuster, rental pricing of videos is a
significant competitive factor in our business, and from time to time, in
certain markets, Blockbuster has cut prices below those offered in our stores.
If price
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cutting occurs on a more sustained and widespread basis, it could have an
adverse impact on our results of operations.
We also compete with cable, satellite and pay-per-view 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 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. Some 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, including direct broadcast satellite, cable
television or other distribution channels, could make these technologies more
attractive and economical, which could have a material adverse effect on our
business.
Our business would be adversely affected if revenue sharing arrangements were
reduced or eliminated.
If the scope of our revenue sharing arrangements with movie studios were
reduced, or if some studios were to stop using these arrangements, our business
would be adversely affected. Movie studios might reduce their use of revenue
sharing if they found it to be less profitable than alternative distribution
methods, in response to technological developments, as the result of new
government regulation, or for other reasons. See "Business-Trends in Video
Rentals and Sales" and "-Revenue Sharing."
We are subject to risks associated with possible future acquisitions.
We may continue to pursue potential acquisitions, some of which may be
material in size. 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. We have no understandings, commitments or agreements with
respect to any acquisition. Future acquisitions, if any, may not be successful
and may have an adverse effect on our results of operations. See
"Business-Expansion Strategy."
With the acquisition of Reel.com, we face risks associated with electronic
commerce.
In October 1998 we made a significant investment in electronic commerce
with the acquisition of Reel.com, an electronic commerce retailer of movie
videocassettes and DVDs. We do not have a meaningful operating history for this
part of our business. Our ability to achieve and manage growth through
electronic commerce is subject to a number of risks and uncertainties, including
those associated with acquisitions generally and those related to the
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Internet in particular. We will expend financial, operational, and management
resources operating this new business and integrating operations with our
existing business. If we are unable to do this cost-effectively, it could have a
material adverse effect on this new business and also be detrimental to
Hollywood Entertainment as a whole. Internet retailing is highly competitive and
is characterized by rapid technological change and changes in user and customer
requirements and preferences. We may have difficulty adapting in a timely and
cost-effective manner to these changes and competing against other Internet
retailers, some of which have greater name recognition, larger customer bases
for electronic commerce, or greater financial resources devoted to Internet
retailing. In addition, Internet-based businesses are susceptible to technical
difficulties, including viruses, security breaches or other computer system
interruptions, which can reduce the availability of products and services,
disrupt or delay order fulfillment, and reduce customer satisfaction. Customer
satisfaction may also be adversely affected by poor performance of those parties
we contract with to handle order fulfillment. Our efforts to build recognition
as an Internet retailer, enhance website content and promote ease of use,
reliability and support for customers will require us to make additional
investments in this business segment going forward, and these investments may
not be profitable. Our ability to grow and operate a profitable Internet-based
business is also dependent on increasing consumer acceptance of electronic
commerce generally and on favorable government regulations. Rapid growth and
change in the electronic marketplace could result in increased government
regulation of electronic retailers and have a material adverse effect on this
part of our business. The risks described in this paragraph will be greater if
the Reel.com business continues to grow rapidly.
The Reel.com acquisition will have an adverse impact on our operating results.
As a result of the Reel.com acquisition, we will amortize approximately
$100.3 million of goodwill over eight quarters beginning in the fourth quarter
of 1998. In addition, although the revenue of Reel.com grew rapidly in 1998, it
recorded an operating loss in that year and we expect it to incur substantial
operating losses for the foreseeable future. The acquisition will therefore
likely have a negative effect on our earnings. Reel.com may never achieve
profitability. While Reel.com was consolidated into our financial results
beginning with the fourth quarter of 1998, we will continue to evaluate
strategic opportunities for the Reel.com business, which include a public or
private offering of a minority interest in Reel.com. We do not assure you that
any of these opportunities will be pursued or be available.
Our future operating results may fluctuate.
Various factors may affect future operating results, including
o variations in the number and timing of store openings;
o the performance of new or acquired stores;
o the quality and number of new release titles available for rental and sale;
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o the expense associated with the acquisition of new release titles;
o acquisitions by us of existing video stores;
o changes in comparable store revenue;
o additional and existing competition;
o marketing programs;
o weather;
o special or unusual events;
o seasonality;
o the amount of losses related to the Internet part of our business;
o the success of new business initiatives; and
o other factors that may affect retailers in general.
In addition, any concentration of new store openings and the related new
store expenses near the end of a fiscal quarter could have an adverse effect on
the financial results for that quarter and could, in some circumstances, lead to
fluctuations in quarterly financial results.
We are involved in lawsuits that could adversely affect our business.
In April 1998 a complaint seeking injunctive relief and monetary damages
was filed against us, entitled Rentrak Corporation v. Hollywood Entertainment,
et al., Case No. 98-04-02811, Circuit Court for the County of Multnomah,
Portland, Oregon. The plaintiff, Rentrak, initially alleged we were
contractually obligated until at least December 31, 2011 to deal exclusively
with Rentrak whenever we obtain videocassettes on a revenue sharing basis, and
that we had violated this alleged obligation by obtaining videocassettes on a
revenue sharing basis directly from movie studios. In addition, Rentrak
initially alleged we had violated alleged audit and reporting obligations under
contractual arrangements. In June 1999 Rentrak amended its complaint to allege
additional claims for conspiracy, intentional interference with business
relations, breach of fiduciary duty, negligent misrepresentation, tortious
breach of contract, fraud, breach of implied duty of good faith and fair
dealing, defamation, spoliation of evidence, negligence, unjust enrichment and
conversion. The amended complaint seeks monetary damages in the amount of
approximately $245 million, plus interest and attorneys' fees. In its amended
complaint, Rentrak indicated that it would later seek punitive damages. If
Rentrak prevails, the results could have an adverse effect on our relationships
with revenue-sharing studios and on our financial condition and results of
operations.
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In July 1998 a related lawsuit seeking monetary damages in the amount of at
least $5 million, plus unspecified punitive damages, interest and attorneys'
fees, was filed against us by Twentieth Century Fox Home Entertainment, Inc.
("Fox"), entitled Twentieth Century Fox Home Entertainment, Inc. v. Hollywood
Entertainment Corporation and Does 1 through 100, Case No. SC053 551, Superior
Court for the County of Los Angeles, Los Angeles, California. Fox alleges we
knowingly or negligently reported inaccurate transaction-related data concerning
Fox titles to Rentrak Corporation and that we either knew or should have known
that Rentrak would report to Fox the same allegedly inaccurate transaction data
for purposes of Fox's generation of invoicing to Rentrak. In March 1999 Fox
filed an amended complaint against us in which it added allegations of potential
misrepresentation and fraud. If Fox prevails, the results could have an adverse
effect on our relationships with revenue sharing studios and on our financial
condition and results of operations.
We depend on key personnel; recent management additions are unproven.
Our future performance depends on the continued contributions of certain
key management personnel, including Mark J. Wattles, our founder, Chief
Executive Officer and principal shareholder, Jeffrey Yapp, our President and
Chief Operating Officer, David G. Martin, our Chief Financial Officer, and
Jeffrey D. Jordan, President of Internet Hollywood, Inc. To support our
expansion, we have added a substantial number of senior management personnel.
These new members of management may not be able to manage our existing
operations successfully or achieve our expansion plans and they may not remain
with us. Our continued growth and profitability also depend on our ability to
attract and retain other management personnel, including qualified store
managers.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Your Notes
We sold your notes on June 24, 1999 to Banc of America Securities LLC under
a purchase agreement dated June 17, 1999. On the terms and subject to the
conditions stated in this prospectus and in the accompanying letter of
transmittal, we will accept for exchange any and all of your notes that are
properly tendered on or before the expiration date of the exchange offer and not
withdrawn as permitted below. The expiration date will be at 5:00 p.m., New York
City time, on _______, 1999. If we extend the period of time for which the
exchange offer is open, the expiration date will be the latest time and date to
which the exchange offer is extended. The longest we could extend the offer
would be until November 21, 1999 which is __ days after the exchange offer
commences.
As of the date of this prospectus, $50,000,000 total principal amount of
the unregistered notes was outstanding. Together with the notes we issued in
1997 under the same indenture, a total of $250,000,000 principal amount of notes
are outstanding. We are sending this prospectus, together with the letter of
transmittal, on or about the date stated on the cover page to you at the
addresses listed in the security register in connection with notes maintained by
the trustee. Our obligation to accept notes for exchange in the exchange offer
is subject to various conditions.
We reserve the right, at any time or from time to time, to extend the
period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any notes, by mailing written notice of any extension
to you as described below. During any extension, all notes previously tendered
will remain subject to the exchange offer and may be accepted for exchange by
us. Any notes not accepted for exchange for any reason will be returned without
expense to the tendering holder of the notes as promptly as practicable after
the expiration or termination of the exchange offer.
Notes tendered in the exchange offer must be $1,000 in principal amount or
any integral multiple of $1,000.
We will mail written notice of any extension, amendment, non-acceptance or
termination to the holders of the notes as promptly as practicable. Any notice
will be mailed to the holders of record of the notes no later than 9:00 a.m. New
York City time, on the next business day after the previously scheduled
expiration date or other event giving rise to the notice requirement.
Registration Rights; Additional Interest
We have agreed with Banc of America Securities LLC, for your benefit and at
our cost, to use our best efforts to offer the exchange notes in exchange for
surrender of the unregistered notes. We will keep this offer open for at least
30 days after the date notice of the offer is mailed to you and use our best
efforts to cause the offer to be completed no later
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than November 21, 1999. For each note surrendered to us in the offer, the holder
of the note will receive an exchange note having a principal amount equal to
that of the surrendered note. Interest on each exchange note will accrue from
the last interest payment date on which interest was paid on the note
surrendered in exchange for the exchange note or, if no interest has been paid
on the note, from the date of its original issue.
In general, if you wish to exchange the notes for exchange notes in the
offer, you will be required to represent that any exchange notes you receive
will be acquired in the ordinary course of your business, that you are not our
affiliate, as defined in Rule 405 of the Securities Act, and that at the time of
the commencement of the offer, you have no arrangement or understanding with any
person to participate in the distribution, within the meaning of the Securities
Act, of the exchange notes, or if you are participating in a distribution of the
exchange notes, that you will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If applicable law or interpretations of the staff of the SEC do not permit
us to complete the exchange offer, if the offer is not completed by November 21,
1999, or if any holder of notes is prohibited by applicable law or SEC policy
from participating in the offer, or the holder may not resell the exchange notes
acquired by it in the offer without delivering a prospectus and the prospectus
contained in the registration statement is not appropriate or available for
these resales or the holder is a broker-dealer and holds notes acquired directly
from us or one of our affiliates, we will, at our cost,
o as promptly as practicable file a shelf registration statement
covering resales of the notes,
o use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act as promptly as
practicable, but no later than November 21, 1999, and
o keep the shelf registration statement effective for two years after
its effective date or a shorter period that will terminate when all
notes covered by the shelf registration statement have been sold under
the shelf registration statement.
In some circumstances, we have the right to suspend the effectiveness of the
shelf registration statement for limited periods. If a shelf registration
statement is filed, we will provide to each holder for whom such shelf
registration statement was filed copies of the prospectus which is part of the
shelf registration statement, notify each holder when the shelf registration
statement has become effective and take specified other actions required to
permit unrestricted resales of the notes. A holder selling these notes under the
shelf registration statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to some of the civil liability provisions under the
Securities Act in connection with these sales and will be bound by the
provisions of the registration rights agreement that are applicable to the
holder.
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If
o the exchange offer has not been completed by November 21, 1999;
o a shelf registration statement is required to be filed and is not
filed within the time specified for filing in the registration rights
agreement or is not declared effective within the time specified for
effectiveness in the registration rights agreement; or
o after either the registration statement or the shelf registration
statement has been declared effective, the registration statement
thereafter ceases to be effective or fails to be usable for its
intended purpose in connection with resales of notes or exchange notes
during the periods specified in the registration rights agreement,
additional interest will accrue on the notes and the exchange notes from and
including the date on which any registration default occurs but excluding the
date on which all registration defaults have been cured. Additional interest
will accrue at a rate of 0.25% per year during the 90-day period immediately
following the occurrence of any registration default and will increase by 0.25%
per year at the commencement of each subsequent 90-day period, but additional
interest will not accrue at a rate in excess of 1.00% per year. Following the
cure of all registration defaults, the accrual of additional interest will
cease.
Procedure for Tendering Notes
Your tender of notes to us as described below and our acceptance of the
notes will constitute a binding agreement between you and us upon the terms and
subject to the conditions stated in this document and in the accompanying letter
of transmittal. Except as explained below, a holder who wishes to tender notes
for exchange in the exchange offer must transmit a properly completed and
executed letter of transmittal, together with all other documents required by
the letter of transmittal, to Continental Stock Transfer & Trust Company at the
address listed below under "-- Exchange Agent" on or before the expiration date.
In addition,
o certificates for the notes must be received by Continental along with
the letter of transmittal, or
o a timely confirmation of a book-entry transfer of the notes, if this
procedure is available, into Continental's account at The Depository
Trust Company according to the procedure for book-entry transfer
described below must be received by Continental before the expiration
date, or
o you must comply with the guaranteed delivery procedures described
below.
The method of delivery of the notes, letters of transmittal and all other
required documents is at your election and risk. If the delivery is by mail, we
recommend
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registered mail, properly insured, with return receipt requested, be used in all
cases. You should allow sufficient time to assure timely delivery. No letters of
transmittal or notes should be sent to us.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the notes surrendered for exchange are tendered
o by a registered holder of the notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
o for the account of an eligible institution.
An "eligible institution" is an eligible guarantor institution, such as a bank,
stockbroker, national securities exchange, registered securities association,
savings and loan association or credit union with membership in a signature
medallion program under Rule 17Ad-15 of the Securities Exchange Act of 1934. If
signatures on a letter of transmittal or a notice of withdrawal are required to
be guaranteed, the guarantees must be by an eligible institution. If notes are
registered in the name of a person other than the person signing the letter of
transmittal, the notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by us in our sole discretion, properly executed
by the registered holder, with the signature guaranteed by an eligible
institution.
All questions about the validity, form, eligibility, including time of
receipt, and acceptance of notes tendered will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all tenders of any particular notes not
properly tendered or not to accept any particular notes if acceptance might, in
our judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right in our sole discretion to waive any defects or irregularities or
conditions of the exchange offer as to any particular notes either before or
after the expiration date. This includes the right to waive the ineligibility of
any holder who seeks to tender notes in the exchange offer. The interpretation
of the terms and conditions of the exchange offer as to any particular notes
either before or after the expiration date by us will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of notes for exchange must be cured within a reasonable period of time
that we will determine. Neither we, Continental nor any other person will be
under any duty to give notification of any defect or irregularity in any tender
of notes for exchange, nor will any of us be liable for any reason for failure
to give any notification.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of notes, the notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the notes.
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If the letter of transmittal or any notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
these persons should so indicate when signing, and unless waived by us, proper
evidence satisfactory to us of their authority to so act must be submitted with
the letter of transmittal.
By tendering notes, if you are not a broker-dealer, you must acknowledge
you are not engaged in, and do not intend to engage in, a distribution of
exchange notes. If you are our affiliate, as defined under Rule 405 of the
Securities Act, or are engaged in or intend to engage in or have any arrangement
with any person to participate in the distribution of the exchange notes to be
acquired in the exchange offer, you
o could not rely on the applicable interpretations of the staff of the
SEC and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. The letter of transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
considered to have admitted that it is an underwriter within the meaning of the
Securities Act.
Acceptance of Notes for Exchange; Delivery of Exchange Notes
We will accept, promptly after the expiration date, all notes properly
tendered and will issue the exchange notes promptly after acceptance of the
notes. For each note accepted for exchange, the holder of the note will receive
an exchange note having a principal amount equal to that of the surrendered
note. The exchange notes will bear interest from the most recent date to which
interest has been paid on the notes or, if no interest has been paid on the
notes, from June 24, 1999.
In all cases, issuance of exchange notes for notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by
Continental of
o certificates for the notes or a timely book-entry confirmation of the
notes into Continental's account at DTC,
o a properly completed and executed letter of transmittal and
o all other required documents.
If any tendered notes are not accepted for any reason described in the terms and
conditions of the exchange offer or if certificates representing notes are
submitted for a greater principal amount than the holder desires to exchange,
certificates representing the unaccepted or
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non-exchanged notes will be returned without expense to the tendering holder of
the notes as promptly as practicable after the expiration or termination of the
exchange offer. If notes are tendered by book-entry transfer into Continental's
account at DTC according to the book-entry transfer procedures described below,
the non-exchanged notes will be credited to an account maintained with DTC.
Book-Entry Transfer
Continental will make a request to establish an account for the notes at
DTC for purposes of the exchange offer within two business days after the date
of this document, and any financial institution that is a participant in DTC's
systems may make book-entry delivery of notes by causing DTC to transfer the
notes into Continental's account at DTC. Although delivery of notes may be
effected through book-entry transfer at DTC, the letter of transmittal or a
facsimile of it, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by Continental at
the address listed below under " -- Exchange Agent" on or before the expiration
date or you must comply with the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
If you desire to tender your notes and your notes are not immediately
available, or time will not permit your notes or other required documents to
reach Continental before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
o the tender is made through an eligible institution,
o before the expiration date, Continental receives from the eligible
institution a properly completed and executed letter of transmittal or
a facsimile of it and notice of guaranteed delivery, substantially in
the form provided by us, stating your name and address and the amount
of notes tendered, stating that the tender is being made and
guaranteeing that within five New York Stock Exchange trading days
after the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered notes, in proper form for
transfer, or a book-entry confirmation, and any other documents
required by the letter of transmittal will be deposited by the
eligible institution with Continental and
o the certificates for all physically tendered notes, in proper form for
transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by Continental
within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
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Withdrawal Rights
Tenders of notes may be withdrawn at any time before 5:00 p.m., New York
City time, on the expiration date.
For a withdrawal to be effective, a written or facsimile notice of
withdrawal must be received by Continental at the address listed below under "--
Exchange Agent." Any notice of withdrawal must
o specify the name of the person having tendered the notes to be
withdrawn,
o identify the notes to be withdrawn, including the principal amounts of
such notes, and
o where certificates for notes have been transmitted, specify the name
in which such notes are registered, if different from that of the
withdrawing holder.
If certificates for notes have been delivered or otherwise identified to
Continental, then, before the release of the certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
eligible institution unless the holder is an eligible institution. If notes have
been tendered according to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at DTC to be credited with the withdrawn notes and otherwise comply with the
procedures of the facility. All questions about the validity, form and
eligibility of the notices will be determined by us and our determination will
be final and binding on all parties. Certificates for any notes so withdrawn
will not be considered to have been validly tendered for purposes of the
exchange offer. Any notes that have been tendered but which are not exchanged
for any reason will be returned to the holder of the notes without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. In the case of notes tendered by book-entry
transfer into Continental's account at DTC according to the book-entry transfer
procedures described above, the notes will be credited to an account maintained
with DTC for the notes. Properly withdrawn notes may be retendered by following
one of the procedures described under "-- Procedure for Tendering Notes" above
at any time on or before the expiration date.
Exchange Agent
Continental Stock Transfer & Trust Company has been appointed as the
exchange agent for the exchange offer. All executed letters of transmittal
should be directed to the exchange agent at the address below. Questions and
requests for assistance, requests for additional copies of this document or of
the letter of transmittal and requests for notices of guaranteed delivery should
be directed to the exchange agent, addressed as follows:
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By hand up to 4:30 P.M.:
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
By overnight courier and by hand after 4:30 P.M.:
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
By facsimile:
Continental Stock Transfer & Trust Company
(212) 509-5150
Confirm facsimile by telephone:
(212) 509-4000
Delivery of the letter of transmittal to a different address or transmission of
instructions via a different facsimile number does not constitute a valid
delivery of the letter of transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer.
Transfer Taxes
You will not be obligated to pay any transfer tax in connection with the
exchange, except if you instruct us to register exchange notes in the name of,
or request that notes not tendered or not accepted in the exchange offer be
returned to, a person other than you, you will be responsible for the payment of
any applicable transfer tax.
Consequences of Failure to Exchange Notes
If you do not exchange their notes for exchange notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of the
notes. In general, the notes may not be offered or sold unless registered under
the Securities Act, except under an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. We do not anticipate that we will register the existing
notes under the Securities Act. Based on interpretations by the staff of the SEC
issued to third
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parties, exchange notes issued in the exchange offer in exchange for notes may
be offered for resale, resold or otherwise transferred by holders of the
exchange notes, other than any holder that is our affiliate within the meaning
of Rule 405 under the Securities Act, without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
exchange notes are acquired in the ordinary course of the holders' business and
the holders have no arrangement with any person to participate in the
distribution of the exchange notes. If you are not a broker-dealer, you must
acknowledge you are not engaged in, and do not intend to engage in, a
distribution of exchange notes. If you are our affiliate, are engaged in or
intend to engage in or have any arrangement or understanding related to the
distribution of the exchange notes to be acquired in the exchange offer, you
(1) could not rely on the applicable interpretations of the staff of the
SEC and
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in exchange
for notes must acknowledge that the notes were acquired by the broker-dealer as
a result of market-making activities or other trading activities and that it
will deliver a prospectus in connection with any resale of the exchange notes.
See "Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, it may be necessary to qualify for sale or
to register the exchange notes prior to offering or selling the exchange notes.
We do not intend to take any action to register or qualify the exchange notes
for resale in any of these jurisdictions.
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DESCRIPTION OF NOTES
Table of Contents
This table of contents only covers the "Description of Notes" section. The
table of contents for the entire prospectus is on the inside front cover.
Page
Introduction................................................................. 30
Brief Description of the Notes............................................... 31
General Terms................................................................ 31
Optional Redemption.......................................................... 32
Selection.................................................................... 33
Subordination................................................................ 33
Change of Control............................................................ 35
Book-Entry, Delivery and Form................................................ 37
Certificated Notes........................................................... 39
Certain Covenants............................................................ 39
Limitation on Indebtedness.......................................... 39
Limitations on Restricted Payments.................................. 41
Limitations on Restrictions on Distributions from Restricted
Subsidiaries................................................... 43
Limitations on Sales of Assets and Subsidiary Stock................. 45
Limitations on Affiliate Transactions............................... 46
Limitations on the Issuance or Sale of Capital Stock of
Restricted Subsidiaries........................................ 48
Limitations on Liens................................................ 48
Merger and Consolidation............................................ 49
Future Guarantors................................................... 50
SEC Reports......................................................... 50
Defaults..................................................................... 51
Amendments and Waivers....................................................... 53
No Personal Liability of Directors, Officers, Employees and Shareholders..... 54
Defeasance................................................................... 54
Concerning the Trustee....................................................... 55
Governing Law................................................................ 55
Definitions.................................................................. 55
Introduction
You can find the definitions of some of the terms used in this description
under the subheading "Definitions." In this description, the word "Company"
refers only to Hollywood Entertainment Corporation and not to any of its
subsidiaries.
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On June 24, 1999 the Company issued $50,000,000 principal amount of 10 5/8%
Senior Subordinated Notes (the "1999 Notes"). These notes were issued under an
indenture dated as of August 13, 1997, between the Company and U.S. Trust
Company of California, N.A., (now U.S. Trust Company, N.A.) as trustee, as
supplemented by a first supplemental indenture dated as of June 24, 1999 (the
indenture and the first supplemental indenture are together referred to as the
"Indenture"). The Indenture covers $250,000,000 principal amount of notes,
$200,000,000 principal amount of which was issued in 1997 (the "1997 Notes").
The 1997 Notes and the 1999 Notes are together referred to as the "Notes".
Brief Description of the Notes
These notes
o are general unsecured obligations of the Company and
o are junior in right of payment, or subordinated, to all existing
and future senior indebtedness of the Company.
General Terms
The following is a summary of various provisions of the Indenture and the
Notes, a copy of which Indenture and form of Notes are available upon request to
the Company at the address listed under "Where You Can Find More Information."
The following summary is not complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of specified terms in the Indenture and those terms made a part of
the Indenture by the Trust Indenture Act of 1939, as amended. Capitalized terms
used in this section and not otherwise defined have the meanings set forth in
this section under "-Certain Definitions."
The Notes are unsecured senior subordinated obligations of the Company,
limited to $250 million total principal amount, and will mature on August 15,
2004. The 1999 Notes bear interest at the rate per year shown on the cover page
from June 24, 1999, or from the most recent date to which interest has been paid
or provided for, payable semi-annually to holders of record at the close of
business on the February 1 or August 1 immediately preceding the interest
payment date on February 15 and August 15 of each year, commencing August 15,
1999. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months. The Company will pay interest on overdue principal at the same
rate per year borne by the Notes and it will pay interest on overdue
installments of interest at that rate to the extent lawful.
The interest rate on the 1999 Notes will be increased in specified
circumstances if various conditions are not satisfied. All references in this
section to the interest accrued and payable on the Notes include additional
interest that may become payable on the 1999 Notes. See "Exchange
Offer--Registration Rights; Additional Interest."
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Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company, which, unless otherwise provided by the Company, will be the offices of
the trustee. At the option of the Company, payment of interest may be made by
check mailed to the addresses of the holders as those addresses appear in the
Note register.
The Notes are issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with any registration of
transfer or exchange of Notes.
Optional Redemption
Aside from the exception in the following paragraph, the Notes will not be
redeemable at the option of the Company before August 15, 2001. On or after
August 15, 2001, the Company may redeem all or a part of the Notes, at any time
or from time to time, on not less than 30 nor more than 60 days' notice mailed
by first-class mail to each holder's registered address, at the redemption
prices, which are expressed as a percentage of principal amount below, plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of the holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period beginning on August 15 of the years listed below:
Period Redemption Price
------ ----------------
2001...................................................... 105.313%
2002...................................................... 102.656
2003 and thereafter....................................... 100.000
In addition, at any time and from time to time before August 15, 2000, the
Company may redeem up to 35% of the original $250 million principal amount of
the Notes with the proceeds of one or more Public Equity Offerings, at a
redemption price of 110.625% of the principal amount plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date). To undertake such a redemption, however
o at least 65% of the original principal amount of the Notes must
remain outstanding after each redemption; and
o the redemption must occur within 60 days of the closing date of
the Public Equity Offering.
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Selection
If less than all of the Notes are to be redeemed at any time, the trustee
will select Notes for redemption on a pro rata basis, by lot or by any method
the trustee in its sole discretion decides is fair and appropriate. No Notes of
$1,000 in original principal amount or less will be redeemed in part. If any
Note is to be redeemed in part only, the notice of redemption relating to that
Note will state the portion of the principal amount to be redeemed. A new Note
in principal amount equal to the unredeemed portion of the original Note will be
issued in the name of the holder upon cancellation of the original Note.
Subordination
The indebtedness evidenced by the Notes are senior subordinated obligations
of the Company. This means that the right of payment of the principal of,
premium, if any, and interest on, and all other Obligations related to the Notes
is ranked behind the right of payment, or subordinated, as described in the
Indenture, in full of all Senior Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred, including the obligations
of the Company under the Senior Credit Facility. The Notes will also be
effectively subordinated to any Secured Indebtedness of the Company to the
extent of the value of the assets securing that Indebtedness and to any
liabilities of Subsidiaries.
As of June 30, 1999, the Company had approximately $210.0 million of Senior
Indebtedness outstanding. Although the Indenture contains limitations on the
amount of additional Indebtedness that the Company and its Restricted
Subsidiaries may acquire, under some circumstances the amount of the
Indebtedness could be substantial and, in any case, the Indebtedness may be
Senior Indebtedness. See "-Certain Covenants-Limitation on Indebtedness."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes according to the provisions of the Indenture. The Notes will
in all respects rank equally and proportionally with all other senior
subordinated Indebtedness of the Company. The Company has agreed in the
Indenture that it will not Incur any Indebtedness that is junior in ranking in
right of payment to its Senior Indebtedness unless the Indebtedness has an equal
and proportional right of payment to the Notes or is expressly subordinated in
right of payment to the Notes. Unsecured Indebtedness is not considered to be or
treated as junior debt merely because it is unsecured.
The Company may not pay principal of, premium, if any, or interest on, or
any other Obligations arising under the Notes or make any deposit according to
the provisions described under "-Defeasance" below and may not repurchase,
redeem or otherwise retire any Notes (collectively, "pay the Notes") if
(1) any Senior Indebtedness is not paid when due or
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(2) any other default on any Senior Indebtedness occurs and causes
the Senior Indebtedness to reach maturity immediately and to
become due and payable according to its terms, or, in other
words, accelerated.
The Company may pay the Notes, however, if, in either case, the default has been
cured or waived and any acceleration has been rescinded or the Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to these restrictions if the Company and the trustee receive
written notice approving the payment from the Representative of the Senior
Indebtedness if either of the events described immediately above in clauses (1)
or (2) has occurred and is continuing.
During the time that a default (other than a default described in clauses
(1) and (2) of the preceding paragraph) on any Designated Senior Indebtedness
continues according to which the Designated Senior Indebtedness may be brought
to maturity immediately without further notice (except notice as may be required
to cause the immediate maturity) or the expiration of any applicable grace
periods, the Company may not pay the Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the trustee (with a copy to the Company)
of written notice (a "Blockage Notice") of the default from the Representative
of the holders of the Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days later or earlier if the
Payment Blockage Period is terminated
o by written notice to the trustee and the Company from the
Person or Persons who gave the Blockage Notice,
o because the default giving rise to the Blockage Notice is no
longer continuing, or
o because the Designated Senior Indebtedness has been repaid
in full.
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of the Designated Senior Indebtedness have or the
Representative of the holders has caused the Designated Senior Indebtedness to
become immediately due and payable, the Company may resume payments on the Notes
after the end of the Payment Blockage Period. The Notes shall not be subject to
more than one Payment Blockage Period in any consecutive 365-day period,
irrespective of the number of defaults that occurred under the Designated Senior
Indebtedness during that period.
Upon any payment or distribution of the assets of the Company on a total or
partial liquidation, dissolution, reorganization or similar proceeding relating
to the Company or its property, the holders of Senior Indebtedness will be
entitled to receive payment in full of the Senior Indebtedness before the
noteholders are entitled to receive any payment. Until the Senior Indebtedness
is paid in full, any payment or distribution to which noteholders would be
entitled but for the subordination provisions of the Indenture will be made to
holders of the Senior Indebtedness as their interests may appear. If a payment
or distribution is made to
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noteholders that, due to the subordination provisions, should not have been made
to them, the noteholders are required to hold it in trust for the holders of
Senior Indebtedness and pay it over to them as their interests may appear.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness of the Company may recover more, proportionally, than the
noteholders. Creditors of the Company who are not holders of Senior
Indebtedness, on the other hand, may recover less, proportionally, than holders
of Senior Indebtedness but more, proportionally, than the noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the trustee for the payment of principal of and interest on the Notes
according to the provisions described under "-Defeasance."
Change of Control
If of a Change of Control occurs, each holder shall have the right to
require the Company to repurchase all or a portion (equal to $1,000 or an
integral multiple of $1,000) of the holder's Notes at a purchase price in cash
equal to 101% of the principal amount plus accrued and unpaid interest, if any,
to the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), according to the provisions of the next paragraph.
Within 30 days following any Change of Control, the Company shall mail
a notice to each holder, with a copy to the trustee, stating:
o a Change of Control has occurred and the holder has the
right to require the Company to purchase the holder's Notes
at a purchase price in cash equal to 101% of the principal
amount outstanding at the repurchase date plus accrued and
unpaid interest, if any, to the date of repurchase (subject
to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment
date);
o the circumstances and relevant facts and financial
information regarding the Change of Control;
o the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date the notice is mailed);
and
o the instructions determined by the Company, consistent with
the covenant described below, that a holder must follow in
order to have its Notes repurchased.
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On the repurchase date, the Company will, to the extent lawful, accept for
payment all Notes or portions of the Notes properly tendered according to the
terms of the notice described immediately above. On that date, the Company will
also deposit with the trustee (or other paying agent appointed according to the
Indenture) an amount equal to the Change of Control payment for all Notes or
portions of the Notes tendered and deliver or cause to be delivered to the
trustee the Notes so accepted together with an officer's certificate from the
Company stating the total principal amount of Notes or portions of Notes being
repurchased by the Company. The trustee (or paying agent) will promptly mail to
each holder of Notes so tendered the Change of Control payment for the Notes,
and the trustee will promptly authenticate and mail (or cause to be transferred
by book entry) to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any. Each new Note, however,
will only be in a principal amount of $1,000 or an integral multiple of $1,000.
The Indenture provides that, before complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of the Notes required by this covenant.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes according to the covenant
described below. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
considered to be in breach of its obligations under the covenant described below
by virtue of its compliance.
The occurrence of some of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of the Company may contain prohibitions of specified events
that would constitute a Change of Control or require the Senior Indebtedness to
be repurchased upon a Change of Control. Moreover, the exercise by the holders
of their right to require the Company to repurchase the Notes could cause a
default under the Senior Indebtedness, even if the Change of Control itself does
not, due to the financial effect of the repurchase on the Company. Finally, the
Company's ability to pay cash to the holders upon a repurchase may be limited by
the Company's then existing financial resources. There is no assurance that
sufficient funds will be available when necessary to make any repurchases
required in connection with a Change of Control. The Company's failure to
purchase the Notes in connection with a Change in Control would result in a
default under the Indenture which would, in turn, constitute a default under the
Senior Credit Facility. In these circumstances, the subordination provisions in
the Indenture would likely restrict payment to the holders of the Notes. See
"Description of Senior Credit Facility."
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The existence of a holder's right to require the Company to repurchase the
holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
Book-Entry, Delivery and Form
With one possible exception described in the next paragraph, the 1999 Notes
were issued in the form of one or more global securities under the Indenture
(collectively the "1999 Global Note"). The 1999 Global Note was deposited with,
or on behalf of, the Depository and registered in the name of the Depository or
its nominee. Except as explained below, the 1999 Global Note may be transferred,
in whole and not in part, only to the Depository or another nominee of the
Depository. Investors may hold their beneficial interests in the 1999 Global
Note directly through the Depository if they have an account with the Depository
or indirectly through organizations which have accounts with the Depository.
1999 Notes that were issued as described below under "-Certificated Notes"
were issued in definitive form. Upon the transfer of a 1999 Note in definitive
form (other than to a transferee of Notes in definitive form as described in the
Indenture), the 1999 Note will, unless the 1999 Global Note has previously been
exchanged for Notes in definitive form, be exchanged for an interest in the 1999
Global Note representing the principal amount of Notes being transferred.
The Depository has advised the Company as follows. The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934 (the "Exchange Act"). The Depository was created to hold securities of
institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in these securities through electronic book-entry changes in
accounts of the participants, thus eliminating the need for physical movement of
securities certificates. The Depository's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations. Access to the Depository's book-entry system is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant.
Upon the issuance of the 1999 Global Note, the Depository credited the
principal amount of the Notes represented by the 1999 Global Note to the
accounts of participants on its book-entry registration and transfer system.
This means that ownership of beneficial interests in the 1999 Global Note is
shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depository of the participants' interest and
by the participants of the owners of beneficial interests in the 1999 Global
Note other than participants. Ownership of beneficial interests in the 1999
Global Note is limited to participants or persons that may hold interests
through participants. The laws of some jurisdictions may require that specified
purchasers of securities take physical delivery of the
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securities in definitive form. These limits and laws may impair the ability to
transfer or pledge beneficial interests in the 1999 Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the 1999 Global Note, the Depository or the nominee will be considered
the sole legal owner and holder of the related 1999 Notes for all purposes of
the 1999 Notes and the Indenture. Except as described below, an owner of a
beneficial interest in the 1999 Global Note will not be entitled to have that
interest registered in its name, will not receive or be entitled to receive
physical delivery of certificated Notes in definitive form and will not be
considered to be the owner or holder of any 1999 Notes under the 1999 Global
Note. The Company understands that under existing industry practice, if an owner
of a beneficial interest in the 1999 Global Note desires to take any action the
Depository, as the holder of the 1999 Global Note, is entitled to take, the
Depository would authorize the participants to take that action, and that the
participants would authorize beneficial owners owning through the participants
to take that action or would otherwise act upon the instructions of beneficial
owners owning through them.
Payment of principal of, and interest on, 1999 Notes represented by the
1999 Global Note registered in the name of and held by the Depository or its
nominee will be made to the Depository or its nominee as the registered owner
and holder of the 1999 Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of, or interest on, the 1999 Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the 1999 Global Note
as shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
1999 Global Note held through the participants will be governed by standing
instructions and customary practices and will be the responsibility of the
participants.
The Company will not have any responsibility or liability for any aspect of
the records relating to, or payments made on account of, beneficial ownership
interests in the 1999 Global Note for any 1999 Note. The Company will also not
have any responsibility or liability for maintaining, supervising or reviewing
any records relating to the beneficial ownership interests or for any other
aspect of the relationship between the Depository and its participants or the
relationship between the participants and the owners of beneficial interests in
the 1999 Global Note owning through the participants.
Unless and until it is exchanged in whole or in part for certificated 1999
Notes in definitive form, the 1999 Global Note may not be transferred except as
a whole by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository.
Although the Depository has agreed to these procedures to facilitate
transfers of interests in the 1999 Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither the
trustee nor the Company will have any responsibility for
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the performance by the Depository or its participants or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
Certificated Notes
The Notes represented by the 1999 Global Note are exchangeable for
certificated 1999 Notes in denominations of $1,000 and integral multiples of
$1,000 if
o the Depository notifies the Company that it is unwilling or
unable to continue as Depository for the 1999 Global Note or if
at any time the Depository ceases to be a clearing agency
registered under the Exchange Act,
o the Company in its discretion at any time determines not to have
any of the 1999 Notes represented by the 1999 Global Note or
o a default entitling the holders of the Notes to make their Notes
due and payable has occurred and is continuing.
Any 1999 Note that is exchangeable under the terms of the preceding sentence is
exchangeable for certificated 1999 Notes issuable in authorized denominations
and registered in such names as the Depository shall direct. Subject to the
preceding conditions, the 1999 Global Note is not exchangeable, except for a
1999 Global Note of the same combined denomination to be registered in the name
of the Depository or its nominee.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur any Indebtedness unless, immediately after giving effect to the
Incurrence, the Consolidated Coverage Ratio exceeds 2.25 to 1.
(b) Notwithstanding paragraph (a), the Company and its Restricted
Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred under the Senior Credit Facility to the
extent that, after giving effect to the Incurrence, the total principal
amount of the Indebtedness then outstanding does not exceed $300 million;
(2) Indebtedness represented by $200 million in principal amount of
Notes;
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(3) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1) of this paragraph);
(4) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in any
Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of Indebtedness (other than to the Company or a Wholly
Owned Subsidiary) shall be treated as the Incurrence of the Indebtedness by
the issuer or transferor of the Capital Stock;
(5) Refinancing Indebtedness, the net proceeds of which are used to
extend, refinance, renew, replace, terminate on the basis of a condition in
the Indebtedness, which action is known as defeasance, or refund
Indebtedness that was permitted by the Indenture to be Incurred under
paragraph (a) or clause (1), (2), (3) or this clause (5) of this paragraph
(b);
(6) Indebtedness from performance bonds, bankers' acceptances, letters
of credit and surety or appeal bonds entered into by the Company and the
Restricted Subsidiaries in the ordinary course of their business;
(7) Hedging Obligations consisting of Interest Rate Agreements entered
into in the ordinary course of business and not for the purpose of
speculation; provided, however, that the Interest Rate Agreements do not
increase the Indebtedness of the Company outstanding at any time other than
as a result of fluctuations in interest rates or by reason of fees,
reimbursements and compensation payable under the Interest Rate Agreements;
(8) Indebtedness Incurred by the Company or any Restricted Subsidiary
in connection with the purchase or improvement of real or personal property
or other capital expenditures in the ordinary course of business, including
for the purchase of assets or stock of any Related Business, or consisting
of Capital Lease Obligations Incurred, in either case after the Issue Date
in a total principal amount which does not exceed 5% of combined total
revenue of the Company and its Restricted Subsidiaries during the most
recently completed four fiscal quarter period on a consolidated basis
measured at the time of Incurrence;
(9) Guarantees of Indebtedness Incurred under the Senior Credit
Facility; and
(10) Indebtedness in a principal amount which, together with all other
Indebtedness of the Company and its Restricted Subsidiaries outstanding on
the date of the Incurrence (other than Indebtedness permitted by clauses
(1) through (9) above or paragraph (a)), does not exceed $10 million.
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(c) The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur any Indebtedness under the terms of paragraph (b), if the proceeds of
that Indebtedness are used to Refinance
(1) any Subordinated Obligations unless the new Indebtedness shall be
subordinated to the Notes to at least the same extent as the Subordinated
Obligations or
(2) any Senior Subordinated Indebtedness unless the new Indebtedness
shall be Senior Subordinated Indebtedness or rank lower in right of payment
than the Notes.
(d) For purposes of determining compliance with the terms of the covenant
in paragraph (c),
(1) if an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole
discretion, will classify that item of Indebtedness and only be required to
include the amount and type of the Indebtedness in one of the above clauses
and
(2) an item of Indebtedness may be divided and classified in more than
one of the types of Indebtedness described above.
Limitations on Restricted Payments
(a) The Company shall not, and shall not permit any Restricted Subsidiary,
to make a Restricted Payment if at the time the Company or the Restricted
Subsidiary makes the Restricted Payment:
(1) a Default shall have occurred and is continuing or would result
from such Restricted Payment;
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness under the terms of paragraph (a) of the covenant described
under "-Limitation on Indebtedness"; or
(3) the total amount of the Restricted Payment together with all other
Restricted Payments (the amount of any payments made in property other than
cash to be valued at the fair market value of the property, as determined
in good faith by the Board of Directors) declared or made since the Issue
Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter in which the Issue
Date occurred to the end of the most recent fiscal quarter before the
date of the Restricted Payment for which financial statements are
available (or, in case the Consolidated Net
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Income accrued during the period (treated as one accounting period)
shall be a deficit, minus 100% of the deficit);
(B) the total Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
after the Issue Date (other than an issuance or sale to a Subsidiary
of the Company);
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
after the Issue Date, of any Indebtedness of the Company or its
Restricted Subsidiaries convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the
Company or any Restricted Subsidiary upon the conversion or exchange);
(D) an amount equal to the sum of
(I) the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets after the Issue Date, in
each case to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries, and
(II) the portion (proportionate to the Company's equity
interest in the Subsidiary) of the fair market value of the net
assets of an Unrestricted Subsidiary at the time the Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided,
however, that this sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously
made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in the Unrestricted Subsidiary; and
(E) $5 million.
(b) The provisions of paragraph (a) shall not prohibit, without
duplication:
(1) any acquisition of any shares of Capital Stock or the repurchase,
redemption, defeasance or repayment of any Subordinated Obligations of the
Company or any Restricted Subsidiary made in exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary of the Company); provided, however, that the Net
Cash Proceeds that are used for any acquisition, repurchase, redemption,
defeasance or repayment shall be excluded from the calculation of the
amount of Restricted Payments and the Net Cash Proceeds from the
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sale shall be excluded from the calculation of amounts under clause (3)(B)
of paragraph (a) above;
(2) any purchase or redemption of
(A) Subordinated Obligations of the Company made in exchange for,
or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred under
the terms of paragraphs (b) and (c) of the covenant described under
"-Limitation on Indebtedness" or
(B) Subordinated Obligations of a Restricted Subsidiary made in
exchange for, or out of the proceeds of the substantially concurrent
sale of, Indebtedness of the Restricted Subsidiary or the Company
which is permitted to be Incurred by paragraphs (b) and (c) of the
covenant described under "-Limitation on Indebtedness"; provided,
however, that the purchase or redemption shall be excluded from the
calculation of the amount of Restricted Payments;
(3) any purchase or redemption of
(A) Disqualified Stock of the Company made in exchange for, or
out of the proceeds of the substantially concurrent sale of,
Disqualified Stock of the Company or
(B) Disqualified Stock of a Restricted Subsidiary made in
exchange for, or out of the proceeds of the substantially concurrent
sale of, Disqualified Stock of the Restricted Subsidiary or the
Company; provided, however, that at the time of the exchange, no
Default or Event of Default shall have occurred and be continuing or
would result from the exchange and the purchase or redemption will be
excluded from the calculation of the amount of Restricted Payments;
and
(4) dividends paid within 60 days after the date of declaration of a
dividend if at the date of declaration the dividend would have complied
with this covenant; provided, however, that at the time of payment of the
dividend, no Default shall have occurred and be continuing (or would result
from the payment of the dividend); provided, further, however, that the
dividend shall be included in the calculation of the amount of Restricted
Payments.
Limitations on Restrictions on Distributions from Restricted Subsidiaries
The Company shall not, and shall not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
burden on any property or asset of the Company or any Restricted Subsidiary or
consensual restriction on the ability of any Restricted Subsidiary:
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(a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness
owed to the Company;
(b) to make any loans or advances to the Company; or
(c) to transfer any of its property or assets to the Company or any
Restricted Subsidiary,
except for the following:
(1) any claim or lien created by or restriction in an agreement in
effect at or entered into on the Issue Date;
(2) any claim or lien on or restriction of a Restricted Subsidiary in
an agreement relating to any Indebtedness Incurred by the Restricted
Subsidiary which was entered into on or before the date on which the
Restricted Subsidiary was acquired by the Company (other than as
consideration in, or to provide all or any portion of the funds or credit
support used to complete, the transaction or series of related transactions
by which the Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company) and outstanding on that date;
(3) any claim or lien or restriction required by an agreement
effecting a Refinancing of Indebtedness Incurred according to an agreement
referred to in clause (1) or (2) of this covenant or effecting a
Refinancing of the Refinancing Indebtedness according to this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3); provided, however, that the claims or
liens and restrictions on the Restricted Subsidiary contained in any
refinancing agreement or amendment are no more restrictive in any material
respect than the restrictions on the Restricted Subsidiary contained in the
agreements;
(4) any claim or lien or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests to the
extent the provisions restrict the transfer of the lease or the leased
property;
(5) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent the restrictions restrict the transfer of the
property subject to the security agreements or mortgages;
(6) any restriction on a Restricted Subsidiary imposed by an agreement
entered into for the sale or disposition of all or substantially all the
Capital Stock or assets of the Restricted Subsidiary pending the closing
of the sale or disposition;
(7) any claim, lien or restriction required by the Senior Credit
Facility and any amendments, modifications, restatements, renewals,
increases, supplements,
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refundings, replacements or refinancings of the Senior Credit Facility;
provided that the amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings contain
claims, liens and restrictions on the Restricted Subsidiary that are no
more restrictive in any material respect than the claims, liens and
restrictions on the Restricted Subsidiary contained in the Senior Credit
Facility; and
(8) any restriction imposed by applicable law.
Limitations on Sales of Assets and Subsidiary Stock
The Company shall not, and shall not permit any Restricted Subsidiary to,
complete any Asset Disposition unless the Company or the Restricted Subsidiary
receives consideration at the time of the Asset Disposition at least equal to
the fair market value (including as to the value of all non-cash consideration),
as determined in good faith by the Board of Directors, of the shares and assets
subject to the Asset Disposition and at least 75% of the consideration received
by the Company or the Restricted Subsidiary is in the form of cash or cash
equivalents. For the purposes of this covenant alone, "cash" includes:
(a) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or the Restricted Subsidiary
from all liability on the Indebtedness in connection with the Asset
Disposition and
(b) securities received by the Company or any Restricted Subsidiary
from the transferee that are immediately converted by the Company or the
Restricted Subsidiary into cash.
For any Asset Disposition occurring on or after the Issue Date from which
the Company or any Restricted Subsidiary receives Net Available Cash, the
Company or the Restricted Subsidiary shall:
(1) within 360 days after the date the Net Available Cash is received
and to the extent the Company or the Restricted Subsidiary elects (or is
required by the terms of any Senior Indebtedness)
(A) apply an amount equal to the Net Available Cash to prepay,
repay or purchase Senior Indebtedness of the Company or the Restricted
Subsidiary, in each case owing to a Person other than the Company or
any Affiliate of the Company, or
(B) invest an equal amount, or the amount not applied under the
terms of clause (A), in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted
Subsidiary); and
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(2) apply the excess Net Available Cash (to the extent not applied
under the terms of clause (1)) as provided in the following paragraphs of
the covenant described below; provided, however, that in connection with
any prepayment, repayment or purchase of Senior Indebtedness according to
the terms of clause (A) above, the Company or the Restricted Subsidiary
shall retire the Senior Indebtedness and shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
The amount of Net Available Cash required to be applied according to the terms
of clause (2) above but not applied according to those terms shall constitute
"Excess Proceeds." Pending application of Net Available Cash under this
provision, the Net Available Cash shall be invested in Temporary Cash
Investments.
If at any time the amount of Excess Proceeds not previously subject to an
Excess Proceeds Offer (as defined below) totals at least $10 million, the
Company shall, not later than 30 days after the end of the period during which
the Company is required to apply the Excess Proceeds according to clause (1)
above (or, if the Company so elects, at any time within the period), make an
offer (an "Excess Proceeds Offer") to purchase from the holders on a pro rata
basis a principal amount of Notes equal to the Excess Proceeds (rounded down to
the nearest multiple of $1,000) on that date, at a purchase price equal to 100%
of the principal amount of the Notes, plus, in each case, accrued interest (if
any) to the date of purchase (the "Excess Proceeds Payment"). Upon completion of
an Excess Proceeds Offer the amount of Excess Proceeds remaining after
application under the Excess Proceeds Offer (including payment of the purchase
price for Notes properly tendered), may be used by the Company for any corporate
purpose (to the extent not otherwise prohibited by the Indenture) and the amount
of Excess Proceeds shall then be reset at zero. The Indenture provides that,
before complying with the provisions of this paragraph, but in any event within
30 days following the date on which the combined amount of Excess Proceeds not
previously subject to an Excess Proceeds Offer totals at least $10 million, the
Company will either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of the Notes required by this paragraph.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations if the Excess Proceeds are received by the Company under the
covenant described below and the Company is required to repurchase Notes as
described above. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described below, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described below.
Limitations on Affiliate Transactions
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into or permit to exist any transaction or series of related
transactions (including the purchase,
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sale, lease or exchange of any property, employee compensation arrangements or
the rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless the terms:
(1) are no less favorable to the Company or the Restricted Subsidiary
than those that could be obtained at the time of the transaction in
arm's-length dealings with a Person who is not an Affiliate;
(2) if the Affiliate Transaction or series of related Affiliate
Transactions involves payments in an amount in excess of $1 million in any
one year,
(I) are in writing,
(II) comply with clause (1) and
(III) have been approved by a majority of the disinterested
members of the Board of Directors; and
(3) if the Affiliate Transaction (or series of related Affiliate
Transactions) involves payments in an amount in excess of $5 million in any
one year,
(I) comply with clause (2) and
(II) have been determined by a nationally recognized consulting,
accounting, appraisal or investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of paragraph (a) shall not prohibit:
(1) any Restricted Payment permitted to be paid according to the
covenant described under "-Limitations on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise, according to the terms of, or the funding
of, employment arrangements, stock options and stock ownership plans in the
ordinary course of business and approved by the Board of Directors;
(3) the grant of stock options or similar rights to employees and
directors of the Company in the ordinary course of business and according
to plans approved by the Board of Directors;
(4) loans or advances to employees in the ordinary course of business
of the Company or its Restricted Subsidiaries;
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(5) fees, compensation or employee benefit arrangements paid to and
made immediately due and payable provided for the benefit of directors,
officers or employees of the Company or any Subsidiary in the ordinary
course of business; or
(6) any Affiliate Transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries in the ordinary course of
business (so long as the other shareholders of any participating Restricted
Subsidiaries that are not Wholly Owned Restricted Subsidiaries are not
themselves Affiliates of the Company).
Limitations on the Issuance or Sale of Capital Stock of Restricted Subsidiaries
The Company shall not (a) sell, pledge, hypothecate or otherwise dispose of
any shares of Capital Stock of a Restricted Subsidiary (other than pledges of
Capital Stock securing Senior Indebtedness) or (b) permit any Restricted
Subsidiary to issue or sell or otherwise dispose of any shares of its Capital
Stock other than
(1) to the Company or a Wholly Owned Subsidiary,
(2) directors' qualifying shares or
(3) if, immediately after giving effect to the issuance or sale, the
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary.
Limitations on Liens
Except for Permitted Liens, the Company shall not, and shall not permit any
Restricted Subsidiary to, Incur or permit to exist any Lien of any nature
whatsoever on any property of the Company or any Restricted Subsidiary
(including Capital Stock of a Restricted Subsidiary), whether owned at the Issue
Date or acquired later which secures Indebtedness that ranks equally and
proportionally in right of payment to the Notes or is junior in right of payment
to the Notes unless
(a) if the Lien secures Indebtedness that ranks equally with the
Notes, the Notes are secured on an equal and proportional basis with the
obligation so secured until such time as the obligation is no longer
secured by a Lien or
(b) if the Lien secures Indebtedness that is junior in right of
payment to the Notes, the Lien shall be subordinated to a Lien granted to
the holders on the same collateral as that securing the Lien to the same
extent as the Indebtedness is subordinated to the Note.
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Merger and Consolidation
The Company shall not join with or merge with or into, or convey, transfer
or lease, in one transaction or a series of related transactions, all or
substantially all its assets to any Person, unless:
(a) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by a
supplement to the Indenture, executed and delivered to the trustee, in form
satisfactory to the trustee, all the obligations of the Company under the
Notes and the Indenture;
(b) immediately after giving effect to the transaction on a pro forma
basis (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Subsidiary as a result of the transaction as
having been Incurred by the Successor Company or the Subsidiary at the time
of the transaction), no Default shall have occurred and be continuing;
(c) except in the case of a merger with or into a Wholly Owned
Restricted Subsidiary or a merger, the sole purpose of which is to change
the Company's jurisdiction of incorporation, immediately after giving
effect to the transaction on a pro forma basis, the Successor Company would
be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of
the covenant described under "-Limitation on Indebtedness";
(d) immediately after giving effect to the transaction on a pro forma
basis, the Successor Company shall have Consolidated Net Worth in an amount
that is not less than the Consolidated Net Worth of the Company immediately
before the transaction; and
(e) the Company shall have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that the corporate
combination, merger or transfer and the supplemental indenture (if any)
comply with the Indenture. Notwithstanding clauses (b), (c) and (d), any
Restricted Subsidiary may consolidate with, merge into or transfer all or
part of its properties and assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
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Future Guarantors
The Company shall cause each Restricted Subsidiary that at any time becomes
an obligor or guarantor of any obligations under the Senior Credit Facility to
execute and deliver to the trustee a supplemental indenture according to which
the Restricted Subsidiary will Guarantee payment of the Notes on the same terms
and conditions as those listed in the Indenture. Any such Guarantee will be
subordinated in a manner similar to that of the Notes. Each Subsidiary Guaranty
will be limited in amount to an amount not to exceed the maximum amount that can
be Guaranteed by the applicable Subsidiary Guarantor without rendering the
Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. Nonetheless, any Guarantee by a Restricted Subsidiary of
the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon either (a) the release or discharge
of the Guarantee of the Indebtedness, except a discharge by or as a result of
payment under the Guarantee, or (b) any sale, exchange or transfer, to any
Person not an Affiliate of the Company, of all of the Company's Capital Stock
in, or all or substantially all the assets of, the Restricted Subsidiary, which
sale, exchange or transfer is made in compliance with the applicable provisions
of the Indenture. The form of the Guarantee is attached as an exhibit to the
Indenture.
SEC Reports
The Indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any Notes are outstanding, the Company will
furnish to holders of Notes
(a) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file those forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, for the annual information only, a report on that information by the
Company's certified independent accountants and
(b) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file those reports.
In addition, whether or not required by the rules and regulations of the SEC,
the Company will file a copy of all of this information and these reports with
the SEC for public availability (unless the SEC will not accept such a filing)
and make the information available to securities analysts and prospective
investors upon request. The Company has also agreed that, for so long as any
Notes remain outstanding, it will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered by Rule 144A(d)(4) under the Securities Act.
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Defaults
An Event of Default is defined in the Indenture as:
(a) a default in the payment of interest on the Notes when due
(whether or not the payment is prohibited by the provisions described
under "Subordination" above), continued for 30 days;
(b) a default in the payment of principal, or premium, if any, of any
Note when due at its Stated Maturity, upon optional redemption, upon
required repurchase, upon declaration or otherwise (whether or not the
payment is prohibited by the provisions described under "Subordination"
above);
(c) the failure by the Company to comply with any of its obligations
under the covenants described under "-Change in Control," "-Certain
Covenants-Limitation on Indebtedness," "-Limitations on Restricted
Payments," "-Limitations on Sales of Assets and Subsidiary Stock" and
"-Merger and Consolidation" for 30 days after notice;
(d) the failure by the Company to comply with any of its other
covenants or other agreements of the Indenture for 60 days after notice;
(e) Indebtedness of the Company or any Restricted Subsidiary that is
not paid within any applicable grace period after final maturity or that is
made due and payable by the holders of the Indebtedness because of a
default and the total amount of the Indebtedness due and payable exceeds $5
million and, in either case, the default is not cured or waived and the
immediate maturity of the Indebtedness, if any, is not rescinded or the
Indebtedness is not paid in 30 days (the "cross-acceleration provision");
(f) specified events of bankruptcy, insolvency or reorganization of
the Company or a Restricted Subsidiary (the "bankruptcy provisions"); or
(g) any judgment or decree for the payment of money in excess of $5
million is rendered against the Company or a Restricted Subsidiary, remains
outstanding following the judgment and is not discharged, waived or stayed
within 60 days after entry of the judgment or decree (the "judgment default
provision").
However, a default under clauses (c) or (d) will not constitute an Event of
Default until the trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure the default within the period of time specified in clause (c) or (d),
depending on which clause provides the basis for default, after receipt of the
notice.
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If an Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon this declaration, the principal and interest shall be due and
payable immediately. If an Event of Default relating to specified events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will become and
immediately be due and payable without any declaration or other act on the part
of the trustee or any holders of the Notes. Under specified circumstances, the
holders of a majority in principal amount of the outstanding Notes may rescind
this treatment of the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders unless the holders
have offered to the trustee reasonable undertakings to reimburse it for or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
may pursue any remedy under the Indenture or the Notes unless:
(1) the holder has previously given the trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
Notes have requested the trustee to pursue the remedy;
(3) the holders have offered the trustee reasonable security or
undertakings to reimburse it against any loss, liability or expense;
(4) the trustee has not complied with the request within 60 days after
the receipt of the notice and the offer of security or undertakings to
reimburse against any loss, liability or expense; and
(5) the holders of a majority in principal amount of the outstanding
Notes have not given the trustee a direction inconsistent with the request
within the 60-day period.
Subject to specified restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or of exercising any trust or power conferred on the trustee. The trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the trustee determines is unjustly prejudicial to the rights
of any other holder or that would involve the trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note,
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the trustee may withhold notice if and so long as a committee of its trust
officers determines that withholding notice is not opposed to the interest of
the holders. In addition, the Company is required to deliver to the trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers of the certificate know of any Default that occurred during
the previous year. The Company also is required to deliver to the trustee,
within 30 days after its occurrence, written notice of any event that would
constitute specified Defaults, their status and what action the Company is
taking or proposes to take.
Amendments and Waivers
Subject to specified exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected by the amendment, no amendment may, among
other things,
(a) reduce the amount of Notes whose holders must consent to an amendment,
(b) reduce the rate of or extend the time for payment of interest on any
Note,
(c) reduce the principal of or extend the Stated Maturity of any Note,
(d) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-Optional
Redemption" above,
(e) make any Note payable in money other than that stated in the Note,
(f) impair the right of any holder to institute suit for the enforcement of
any payment on or related to the holder's Notes,
(g) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions, or
(h) make any change to the subordination provisions of the Indenture that
would adversely affect the noteholders.
Without the consent of any holder, the Company and trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner so
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees for the Notes, to secure the Notes, to add to the
covenants of the
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Company for the benefit of the holders or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder or to comply with any requirement of the SEC in
connection with the qualification of the Indenture under the Trust Indenture
Act. However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of the Senior Indebtedness (or their
Representative) consent to the change.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if the consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders a notice briefly describing the amendment. However,
the failure to give this notice to all holders, or any defect in the notice,
will not impair or affect the validity of the amendment.
No Personal Liability of Directors, Officers, Employees and Shareholders
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, related to, or by reason of,
these obligations or their creation. Each holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for specified obligations,
including those respecting the defeasance trust, described below, and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent for the Notes. The Company at any time may terminate its
obligations under "-Change of Control" and under the covenants described under
"-Certain Covenants" (other than the covenant described under "-Merger and
Consolidation"), the operation of the cross-acceleration provision, the
bankruptcy provisions related to significant subsidiaries and the judgment
default provision described under "-Defaults" above and the limitations
contained in clauses (iii) and (iv) under "-Certain Covenants-Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, the Notes may not be made immediately due and payable
because of an Event of Default. If the Company exercises its covenant defeasance
option, payment of the Notes may
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not be made immediately due and payable because of an Event of Default specified
in clause (c), (d), (e) (with respect only to Significant Subsidiaries) or (f)
under "-Defaults" above or because of the failure of the Company to comply with
clause (c) or (d) under "-Certain Covenants-Merger and Consolidation" above.
To exercise either defeasance option, the Company must irrevocably deposit
in trust (the "defeasance trust") with the trustee money or U.S. Government
Obligations for the payment of principal and interest on the Notes to redemption
or maturity, depending on which option is chosen, and must comply with specified
other conditions, including delivery to the trustee of an Opinion of Counsel to
the effect that holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of the deposit and defeasance and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if the deposit and defeasance had
not occurred (and, in the case of legal defeasance only, the Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
Concerning the Trustee
U.S. Trust Company, N.A., is the trustee under the Indenture and has been
appointed by the Company as registrar and paying agent with regard to the Notes.
The holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee, subject to specified
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the trustee is required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
these provisions, the trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request of any holder of Notes,
unless the holder shall have offered to the trustee security and undertakings to
reimburse it satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed according to the terms of, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required by that
law.
Definitions
"Additional Assets" means either any property or assets (other than
Indebtedness and Capital Stock) in a Related Business or the Capital Stock of a
Person that becomes a Restricted Subsidiary as a result of the acquisition of
the Capital Stock by the Company or another Restricted Subsidiary; provided,
however, that any Restricted Subsidiary is primarily engaged in a Related
Business.
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"Affiliate" of any specified Person means any other Person, controlling or
controlled by or under direct or indirect common control with the specified
Person. For the purposes of this definition, "control" when used for any Person
means the power to direct the management and policies of the Person whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings based on this definition of
"control." For purposes of the provisions described under "-Certain
Covenants-Limitations on Restricted Payments," "-Limitations on Affiliate
Transactions" and "-Limitations on Sales of Assets and Subsidiary Stock" only,
"Affiliate" shall also mean any beneficial owner of Capital Stock representing
10% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase the Capital Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any beneficial owner according to the first sentence.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
corporate combination or similar transaction (each referred to for the purposes
of this definition as a "disposition"), of
(a) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares and, to the extent required by local ownership
laws in foreign countries, shares owned by foreign shareholders),
(b) all or substantially all the assets of any division, business
segment or comparable line of business of the Company or any Restricted
Subsidiary or
(c) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or the Restricted
Subsidiary.
The term "Asset Disposition" shall not include, however,
(1) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary,
(2) for purposes of the covenant described under "Certain
Covenants-Limitations on Sales of Assets and Subsidiary Stock," a
disposition that constitutes a Permitted Investment or a Restricted Payment
permitted by the covenant described under "Certain Covenants-Limitations on
Restricted Payments," and
(3) a disposition of assets having a fair market value of less than $1
million.
For purposes of this section, "ordinary course of business" for the Company
shall be deemed to include, without limitation, the sale of rental inventory,
consistent with past practice, and sales or closures of stores; provided,
however, that the Company or a Restricted Subsidiary acquires or opens another
store within 90 days of the sale or closure for each store sold or closed.
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"Attributable Debt" in the context of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
the Sale/Leaseback Transaction (including any period for which the lease has
been extended).
"Average Life" means, as of the date of determination, for any Indebtedness
or Preferred Stock, the quotient obtained by dividing (a) the sum of the
products of numbers of years from the date of determination to the dates of each
successive scheduled principal payment of the Indebtedness or redemption or
similar payment for the Preferred Stock multiplied by the amount of the payment
by (b) the sum of all of these payments.
"Bank Indebtedness" means any and all amounts payable under or arising from
the Senior Credit Facility, including principal, premium, if any, interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization, whether or not a claim for post-filing
interest is allowed in these proceedings), fees, charges, expenses,
reimbursement obligations, Guarantees and all other amounts and Obligations
payable under or in connection with the Senior Credit Facility.
"Board of Directors" means the Board of Directors of the Company or any
committee of the Board of Directors properly authorized to act on behalf of the
Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
by GAAP, and the amount of Indebtedness represented by the obligation shall be
the capitalized amount of the obligation determined according to GAAP; and the
Stated Maturity of the Indebtedness shall be the date of the last payment of
rent or any other amount due under the lease before the first date upon which
the lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of the Person, including any Preferred
Stock, but excluding any debt securities convertible into equity.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as those terms are used in Sections 13(d)
and 14(d) of the Exchange Act) (other than one or more Permitted Holders),
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause the person
or group shall be considered to have "beneficial ownership" of all shares
that any person or group has the right to acquire, whether the right is
exercisable immediately or only after the passage of time) of more than 50%
of the total voting power of the Voting Stock of the Company; provided,
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however, a change of control shall not be considered to have occurred if
(1) the beneficial ownership is shared with one or more Permitted Holders
who hold the sole power to vote the Voting Stock; or (2) one or more
Permitted Holders possess the right (by contract or otherwise) to elect, or
cause the election of, a majority of the members of the Company's Board of
Directors; or
(b) during any period of two consecutive years, individuals who at the
beginning of the period constituted the Board of Directors (together with
any new directors whose election by the Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of at least 66 2/3% of the directors of the Company then still in
office who were either directors at the beginning of the period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (a) the total amount of Operating Cash Flow for the period of the most
recent four consecutive fiscal quarters ending at least 45 days (or, if less
than 45 days, the number of days after the end of the fiscal quarter for which
consolidated financial statements of the Company shall be available) before the
date of the determination to (b) Consolidated Interest Expense for the four
fiscal quarters; provided, however, that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of the period that remains outstanding on
the date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
or both, Operating Cash Flow and Consolidated Interest Expense for the
period shall be calculated after giving effect on a pro forma basis to the
Indebtedness as if the Indebtedness had been Incurred on the first day of
the period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of the new Indebtedness
as if the discharge had occurred on the first day of the period (except
that, in the case of Indebtedness used to finance working capital needs
that arise under a revolving credit or similar arrangement, the amount
shall be the average daily balance of such Indebtedness during the
four-fiscal-quarter period),
(2) if since the beginning of the period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the Operating Cash Flow
for the period shall be reduced by an amount equal to the Operating Cash
Flow (if positive) directly attributable to the assets which are the
subject of the Asset Disposition for the period, or increased by an amount
equal to the Operating Cash Flow (if negative) directly attributable to the
assets which are the subject of the Asset Disposition for the period, and
Consolidated Interest Expense for the period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased, assumed by a
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third person (to the extent the Company and its Restricted Subsidiaries are
no longer liable for the Indebtedness) or otherwise discharged for the
Company and its continuing Restricted Subsidiaries in connection with the
Asset Disposition for the period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for the
period directly attributable to the Indebtedness of the Restricted
Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for the Indebtedness after the sale),
(3) if since the beginning of the period the Company shall have
completed a Public Equity Offering, Consolidated Interest Expense for the
period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
by the Company and its Restricted Subsidiaries in connection with the
Public Equity Offering for the period,
(4) if since the beginning of the period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, which acquisition constitutes all or
substantially all of an operating unit of a business, including any
Investment or acquisition occurring in connection with a transaction
requiring a calculation of the Consolidated Coverage Ratio to be made,
Operating Cash Flow and Consolidated Interest Expense for the period shall
be calculated after giving them pro forma effect (including the Incurrence
of any Indebtedness) as if the Investment or acquisition occurred on the
first day of the period and
(5) if since the beginning of the period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of the period) shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment under clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during the period, Operating Cash
Flow and Consolidated Interest Expense for the period shall be calculated
after giving them pro forma effect as if the Asset Disposition, Investment
or acquisition occurred on the first day of the period.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on the Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to the
Indebtedness if the Interest Rate Agreement has a remaining term in excess of 12
months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in the total interest expense, and to the extent the
Company or its Restricted Subsidiaries are made subject to it,
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(a) interest expense attributable to Capital Lease Obligations,
(b) amortization of the interest represented by the difference between
the price paid for a debt security and its face or maturity amount,
(c) capitalized interest,
(d) non-cash interest expenses,
(e) commissions, discounts and other fees and charges owed for letters
of credit and bankers' acceptance financing,
(f) net costs associated with Hedging Obligations (including
amortization of fees),
(g) Preferred Stock dividends for all Preferred Stock held by Persons
other than the Company or a Wholly Owned Subsidiary, and
(h) interest actually paid on any Indebtedness of any other Person
that is Guaranteed by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in Consolidated Net Income:
(a) any net income (or loss) of any Person if the Person is not the
Company or a Restricted Subsidiary, except that, subject to the exclusion
contained in clause (d) below, the Company's equity in the net income of
any Person for the period shall be included in the Consolidated Net Income
up to the total amount of cash actually distributed by the Person during
the period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to a Restricted Subsidiary, to the limitations contained in clause (c)
below);
(b) for purposes of subclause (a)(3)(A) of the covenant described
under "-Certain Covenants-Limitations on Restricted Payments" only, any net
income (or loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period before the date of the
acquisition;
(c) any net income of any Restricted Subsidiary if the Restricted
Subsidiary is subject to restrictions on the payment of dividends or the
making of distributions by the Restricted Subsidiary to the Company, except
that
(1) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any Restricted Subsidiary for the
period shall be
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included in the Consolidated Net Income up to the total amount of cash that
could have been distributed by the Restricted Subsidiary consistent with
this restriction during the period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted Subsidiary, to
the limitation contained in this clause) and
(2) the Company's equity in a net loss of any Restricted
Subsidiary for the period shall be included in determining Consolidated Net
Income;
(d) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including under
any sale-and-leaseback arrangement) which is not sold or otherwise disposed
of in the ordinary course of business and any gain (or loss) realized upon
the sale or other disposition of any Capital Stock of any Person;
(e) extraordinary gains or losses;
(f) the cumulative effect of a change in accounting principles; and
(g) for any period that includes the three months ended March 31,
1997, the nonrecurring $18.9 million pre-tax expense related to the
settlement in that period of a securities class action lawsuit, Murphy v.
Hollywood Entertainment Corporation et al., case no. C95-1926-MA, U.S.
District Court for the District of Oregon.
For the purposes of the covenant described under "-Certain Covenants-Limitations
on Restricted Payments" only, however, there shall be excluded from Consolidated
Net Income any dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary
to the extent the dividends, repayments or transfers increase the amount of
Restricted Payments permitted under the covenant according to clause (a)(3)(D)
of that covenant.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis according to GAAP, as of the end of the most recent fiscal
quarter of the Company ending at least 45 days before the taking of any action
for the purpose of which the determination is being made, as (a) the par or
stated value of all outstanding Capital Stock of the Company plus (b) paid-in
capital or capital surplus relating to the Capital Stock plus (c) any retained
earnings or earned surplus less (1) any accumulated deficit and (2) any amounts
attributable to Disqualified Stock.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (a) the Bank Indebtedness and (b)
any other Senior Indebtedness of the Company which, at the date of
determination, has a total principal
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amount outstanding of, or under which, at the date of determination, the holders
are committed to lend up to, at least $10 million and is specifically designated
by the Company in the instrument evidencing or governing the Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, for any Person, any Capital Stock which by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable) or upon the happening of any event
(a) matures or is mandatorily redeemable according to an obligation to
make payments from a fund whose assets and their earnings are earmarked to
repay some obligation, in other words, a sinking fund obligation, or
otherwise,
(b) is convertible or exchangeable, at the option of the holder, for
Indebtedness or Disqualified Stock or
(c) is redeemable at the option of the holder, in whole or in part, in
each case on or before the first anniversary of the Stated Maturity of the
Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those principles found
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, statements and
pronouncements of the Financial Accounting Standards Board and other statements
by any other entity as approved by a significant segment of the accounting
profession.
"Guarantee" means any obligation, contingent or other, of any Person
guaranteeing any Indebtedness or other obligation of any Person and any
obligation, contingent or other, of the Person either:
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) the Indebtedness or other obligation of the Person (whether
arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to
take-or-pay or to maintain financial statement conditions or otherwise) or
(b) entered into for the purpose of assuring in any other manner the
obligee of the Indebtedness or other obligation of the payment of that
Indebtedness or other obligation or to protect the obligee against loss
related to the Indebtedness (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a
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corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of the Person
under any Interest Rate Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however,
(a) that any Indebtedness or Capital Stock of a Person existing at the
time the Person becomes a Subsidiary (whether by merger, corporate
combination, acquisition or otherwise) shall be considered to be Incurred
by the Subsidiary at the time it becomes a Subsidiary; and
(b) that in the case of a discount security, neither the accrual of
interest nor the accretion of original issue discount shall be considered
an Incurrence of Indebtedness, but the entire face amount of the security
shall be considered Incurred upon the issuance of the security.
The term "Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, for any Person on any date of determination (without
duplication),
(a) the principal of and premium (if any) arising under (1)
indebtedness of the Person for money borrowed and (2) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which the Person is responsible or liable;
(b) all Capital Lease Obligations of the Person and all Attributable
Debt arising under Sale/Leaseback Transactions entered into by the Person;
(c) all obligations of the Person issued or assumed as the deferred
purchase price of property or services, all conditional sale obligations of
the Person and all obligations of the Person under any title retention
agreement (but excluding trade accounts payable and accrued liabilities
arising in the ordinary course of business and which are not more than 90
days past due and not in dispute), which purchase price or obligation is
due more than six months after the date of placing the property in service
or taking delivery and title to the property or the completion of the
services (provided that, in the case of obligations of an acquired Person
assumed in connection with an acquisition of the Person, the obligations
would constitute Indebtedness of the Person);
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(d) all obligations of the Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations for letters of credit securing obligations (other
than obligations described in (a) through (c) above) entered into in the
ordinary course of business of the Person to the extent the letters of
credit are not drawn upon or, if and to the extent drawn upon, the drawing
is reimbursed no later than the tenth Business Day following receipt by the
Person of a demand for reimbursement following payment on the letter of
credit);
(e) the amount of all obligations of the Person for the redemption,
repayment or other repurchase of any Disqualified Stock or, for any
Subsidiary of the Person, any Preferred Stock (but excluding, in each case,
any accrued dividends);
(f) all obligations of the type referred to in clauses (a) through (e)
of other Persons and all dividends of other Persons for the payment of
which, in either case, the Person is responsible or liable, as obligor,
guarantor or otherwise, including by means of any Guarantee;
(g) all obligations of the type referred to in clauses (a) through (f)
of other Persons secured by any Lien on any property or asset of the Person
(whether or not the obligation is assumed by the Person), the amount of the
obligation being treated as the lesser of the value of the property or
assets or the amount of the obligation so secured; and
(h) to the extent not otherwise included in this definition, Hedging
Obligations of the Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at the date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations as described above at that date;
provided, however, that the amount outstanding at any time of any Indebtedness
issued with original issue discount shall be treated as the face amount of the
Indebtedness less the remaining unamortized portion of the original issue
discount of the Indebtedness at such time as determined in conformity with GAAP.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by the Person. For purposes of the definition of
"Unrestricted Subsidiary,"
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the definition of "Restricted Payment" and the covenant described under
"-Certain Covenants-Limitations on Restricted Payments":
(a) "Investment" shall include the portion (proportionate to the
Company's equity interest in the Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that the
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon redesignation of the Subsidiary as a Restricted Subsidiary, the
Company shall be considered to continue to have a permanent "Investment" in
an Unrestricted Subsidiary equal to an amount (if positive) equal to (1)
the Company's "Investment" in the Subsidiary at the time of the
redesignation less (2) the portion (proportionate to the Company's equity
interest in the Subsidiary) of the fair market value of the net assets of
the Subsidiary at the time of the redesignation; and
(b) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of the transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means August 13, 1997, the date on which the 1997 Notes were
originally issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature of a conditional sale).
"Net Available Cash" from an Asset Disposition means cash payments received
by the Company or any of its Subsidiaries from an Asset Disposition (including
any cash payments received by way of deferred payment of principal under the
terms of a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets or received in any other noncash form) in each case
net of:
(a) all legal, title and recording tax expenses, commissions and other
fees and expenses, and all Federal, state, provincial, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a
consequence of the Asset Disposition,
(b) all payments made on any Indebtedness which is secured by any
assets subject to the Asset Disposition, according to the terms of any Lien
upon or other security agreement of any kind for the assets, or which must
by its terms, or in order to obtain a necessary consent to the Asset
Disposition, or by applicable law, be repaid out of the proceeds from the
Asset Disposition,
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(c) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or Joint Ventures as a result of
the Asset Disposition and
(d) the deduction of appropriate amounts provided by the seller as a
reserve, as required by GAAP, against any liabilities associated with the
property or other assets disposed in the Asset Disposition and retained by
the Company or any Restricted Subsidiary after the Asset Disposition,
including without limitation liabilities under any obligations to pay the
expenses of an eligible party for some litigation or loss associated with
the Asset Disposition.
"Net Cash Proceeds," for any issuance or sale of Capital Stock, means the
cash proceeds of the issuance or sale net of attorneys' fees and disbursements,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually connected to the
issuance or sale and net of taxes paid or payable as a result of the issuance.
"Obligations" means all present and future obligations for principal,
premium, interest (including, without limitation, any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation filed with respect to the bankruptcy petition, whether or not
the interest is an allowed claim under applicable law), penalties, fees,
indemnifications, reimbursements (including, without limitation, all
reimbursement and other obligation under the terms of any letters of credit,
bankers' acceptance or similar instruments or documents), damages and other
liabilities payable under the documentation at any time governing any
indebtedness.
"Operating Cash Flow," means, for any Person and for any period, the sum of
Consolidated Net Income plus (a) Consolidated Interest Expense, plus (b) the
following to the extent deducted in calculating such Consolidated Net Income,
without duplication: (1) income tax expense, (2) depreciation expense, (3)
amortization expense, (4) all other non-cash items reducing Consolidated Net
Income (other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), plus (c) any cash
charges associated with the acquisition of new release videocassettes (including
any fees in connection with revenue sharing arrangements for rental inventory)
and other media and game inventory purchases to the extent the cash charges have
been included in the operating expenses used to calculate Consolidated Net
Income, minus (d) 30% of rental revenue for the period. Nonetheless, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute Operating Cash Flow only to the extent (and in the same
proportion) that the net income of the Subsidiary was included in calculating
Consolidated Net Income.
"Permitted Holder" means (a) Mark J. Wattles, (b) an employee benefit plan
of the Company, or any of its subsidiaries or any participant in the employee
benefit plan, (c) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries or (d) any
Permitted Transferee of any of the persons listed in clauses (a), (b) and (c).
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"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(a) the Company,
(b) a Restricted Subsidiary or a Person that will, upon the making of
the Investment, become a Restricted Subsidiary; provided, however, that the
primary business of the Restricted Subsidiary is a Related Business;
provided further that no such investment shall constitute assets owned by
the Company as of the Issue Date (or any substitute or replacement assets
for assets owned by the Company as of the Issue Date);
(c) another Person if as a result of the Investment the other Person
is merged or combined with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that the Person's primary business is a Related
Business; provided further that no such Investment shall constitute assets
owned by the Company as of the Issue Date (or any substitute or replacement
assets for assets owned by the Company as of the Issue Date);
(d) Temporary Cash Investments;
(e) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable according to customary trade terms; provided, however, that
the trade terms may include concessionary trade terms that the Company
or any Restricted Subsidiary determines are reasonable under the
circumstances;
(f) payroll, travel and similar advances to cover matters that are
expected at the time of the advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(g) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or the Restricted
Subsidiary;
(h) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(i) any Person to the extent the Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
by the covenant described under "-Certain Covenants-Limitations on Sales of
Assets and Subsidiary Stock"; and
(j) Persons other than the Company and Restricted Subsidiaries, in a
total amount after the Issue Date of up to $15 million; provided, however,
the amount of any
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dividends, repayment of loans or transfers of assets as a return on the
Permitted Investments will reduce the amount of the $15 million amount used
(but not below $0).
"Permitted Liens" means:
(a) Liens in favor of the Company or the Restricted Subsidiary,
(b) Liens on property or assets of a Person existing at the time the
Person is merged into or combined with the Company or any Restricted
Subsidiary; provided that the liens were in existence before the merger or
combination and were not created or obtained in contemplation of the merger
or combination and do not extend to any assets other than those of the
Person merged into or combined with the Company or the Restricted
Subsidiary before the merger; and
(c) Liens on property existing at the time of acquisition of the
property by the Company or any Restricted Subsidiary; provided that the
Liens were in existence before the acquisition and were not created or
obtained in contemplation of the acquisition.
"Permitted Transferees" means, for any person,
(a) any Affiliate of the person,
(b) the heirs, executors, administrators, testamentary trustees,
legatees or beneficiaries of the person,
(c) a trust, the beneficiaries of which, or a corporation or
partnership, the stockholders or general or limited partners of which,
include only the person or his or her spouse or lineal descendants, in each
case to whom the person has transferred the beneficial ownership of any
securities of the Company,
(d) any investment account whose investment managers and investment
advisors consist solely of the person and/or Permitted Transferees of the
person, and
(e) any investment fund or investment entity that is a subsidiary of
the person or Permitted Transferee of the person.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or
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dissolution of the corporation, over shares of Capital Stock of any other class
of the corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company under an effective registration statement under the
Securities Act.
"Purchase Money Indebtedness" means Indebtedness
(a) consisting of the deferred purchase price of property, conditional
sale obligations, obligations under any title retention agreement, other
purchase money obligations and obligations arising under industrial revenue
bonds or similar Indebtedness, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed, and
(b) used to finance the acquisition by the Company or a Restricted
Subsidiary of the asset, including additions and improvements; provided,
however,
(1) that any Lien arising in connection with any Indebtedness
shall be limited to the specified asset being financed or, in the case of
real property or fixtures, including additions and improvements, the real
property on which the asset is attached; and
(2) that the Indebtedness is Incurred within 90 days after the
acquisition of the asset by the Company or Restricted Subsidiary.
"Refinance" means, in relation to any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, the Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that
(a) other than Refinancing Indebtedness arising under the Senior
Credit Facility, the Refinancing Indebtedness has a Stated Maturity no
earlier than the Stated Maturity of the Indebtedness being Refinanced,
(b) other than Refinancing Indebtedness arising under the Senior
Credit Facility, the Refinancing Indebtedness has an Average Life at the
time the Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being Refinanced and
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(c) the Refinancing Indebtedness has a total principal amount (or if
Incurred with original issue discount, a total issue price) that is equal
to or less than the total principal amount (or if Incurred with original
issue discount, the total value after the payment of interest) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs and, solely in the case of Bank Indebtedness, Obligations)
under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of the
Company and the Restricted Subsidiaries.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" means, for any Person,
(a) the declaration or payment of any dividends or any other
distributions on or related to its Capital Stock (including any payment in
connection with any merger or combination involving the Person) or similar
payment to the holders of its Capital Stock, except dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and except dividends or distributions payable solely to the Company
or a Restricted Subsidiary (and, if the Restricted Subsidiary is not wholly
owned, to its other shareholders on a pro rata basis or on a basis that
results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro
rata basis),
(b) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock),
(c) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, before scheduled maturity, scheduled
repayment or scheduled sinking fund payment, of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition) or
(d) the making of any Investment in any Person (other than a Permitted
Investment).
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"Restricted Subsidiary" means, at any time, any Subsidiary of the Company
that is not an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, the Subsidiary shall be included in the definition of "Restricted
Subsidiary."
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired under which the Company or a Restricted Subsidiary
transfers the property to a Person and the Company or a Restricted Subsidiary
leases it from the Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means the Company's $300 million five-year
revolving credit facility established in September 1997 with a syndicate of
lenders for which Societe Generale and Goldman Sachs Credit Partners L.P. act as
agents, as the same may be amended, waived, modified, replaced or Refinanced
from time to time (except to the extent that any amendment, waiver,
modification, replacement or Refinancing would be prohibited by the terms of the
Indenture).
"Senior Indebtedness" of the Company means
(a) Indebtedness of the Company, whether outstanding on the Issue Date
or thereafter Incurred, including the Guarantees by the Company of all Bank
Indebtedness,
(b) accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to the Company whether or not a claim for post-filing interest is
allowed in the proceeding) related to indebtedness of the Company for money
borrowed and indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which the Company is responsible or
liable unless, in the instrument creating or evidencing the same or by
which the same is outstanding, it is provided that the right to receive
payment for these obligations can be met only after all of the claims for
payment by the holders of the Notes are met, and
(c) all Obligations of the Company related to any of this
indebtedness,
provided, however, that the Senior Indebtedness shall not include
(1) any obligation of the Company to any Subsidiary,
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(2) any liability for federal, state, local or other taxes owed or
owing by the Company,
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees of trade creditors
arising in the ordinary course of business or instruments evidencing these
liabilities),
(4) any Indebtedness of the Company (and any accrued and unpaid
interest related to the Indebtedness) which is junior in any respect (other
than as a result of the Indebtedness being unsecured) to any other
Indebtedness or other obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations,
(5) any obligations related to any Capital Stock or
(6) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that the
Indebtedness is to rank the same with the Notes in right of payment and is not
junior to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness by its terms in right of payment.
"Stated Maturity" means, for any security, the date specified in the
security as the fixed date on which the final payment of principal of the
security is due and payable, including a date specified by a mandatory
redemption provision (but excluding any provision providing for the repurchase
of the security at the option of the holder upon the happening of any
contingency unless the contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or Incurred after the Issue Date) which is junior
in right of payment to the Notes under the terms of a written agreement to that
effect.
"Subsidiary" means, for any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees is at the time owned or
controlled, either directly or through other means, by (a) the Person, (b) the
Person and one or more Subsidiaries of the Person or (c) one or more
Subsidiaries of the Person.
"Temporary Cash Investments" means any of the following:
(a) any investment in direct obligations of the United States of
America or any agency of the United States of America or obligations
guaranteed by the United States of America or any agency of the United
States of America,
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(b) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
issued by a bank or trust company which is organized under the laws of the
United States of America, any state of the United States of America or any
foreign country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent) and has outstanding debt
which is rated "A" (or a similar equivalent rating) or higher by at least
one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) above entered
into with a bank meeting the qualifications described in clause (b) above,
(d) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America, any State or the District of Columbia or any
foreign country recognized by the United States of America with a rating at
the time as of which any investment is made of "P-1" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard and Poor's Ratings Group, and
(e) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Unrestricted Subsidiary" means any Subsidiary of the Company that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless the Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either the Subsidiary to
be so designated has total assets of $1,000 or less or if the Subsidiary has
assets greater than $1,000, the designation would be permitted under the
covenant described under "-Certain Covenants-Limitations on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to the designation
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(a) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "-Certain
Covenants-Limitation on Indebtedness" and
(b) no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be notified by the Company to
the trustee by promptly filing with the trustee a copy of the board
resolution giving effect to the designation and an Officers' Certificate
certifying that the designation complied with these provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in the obligations) of the United States of
America (including any agency or instrumentality) for the payment of which the
full faith and credit of the United States of America is pledged and which are
not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of the Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees of the Person.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
and/or one or more Wholly Owned Subsidiaries.
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BUSINESS
General
Hollywood Entertainment owns and operates 1,322 video retail superstores in
43 states as of March 31, 1999 and is the second largest video retailer in the
United States. Our revenue increased from $17.3 million in 1993 to $763.9
million in 1998. We added 353 stores in 1998 and intend to add approximately 350
stores in each of 1999 and 2000.
In addition, with the acquisition of Reel.com in October 1998, we became
the leading online video only retailer and began implementing a strategy to
electronically deliver entertainment products directly into the homes of our
customers over the Internet.
Industry Overview
Video Retail Industry
Based on industry sources, we believe the videocassette rental industry
grew by approximately 10% in 1998, reaching $8.1 billion in revenue, in sharp
contrast to recent years in which rental revenue was generally flat and industry
growth was driven by increases in product sales revenue. According to Paul
Kagan, the U.S. videocassette rental and sales industry has grown from $9.8
billion in revenue in 1990 to $16.9 billion in 1998, and is expected to reach
$20.8 billion in 2002. The video rental 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, there were between 25,000 and 30,000 video
specialty stores in operation in 1998. We believe approximately 8,500 of these
stores are "superstores." We believe this consolidation will continue as the
video retail industry evolves from independent 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 $6.7 billion,
or 48.5%, of the $13.8 billion of estimated domestic studio revenue in 1998. 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. According to the Motion Picture Association of America, between 1990 and
1997 only 7.2% of all movies released generated in excess of $20 million in U.S.
theater revenue for studios. Over the same period, members of the Motion Picture
Association of America reported that the average production, advertising and
distribution cost per movie increased from $38.8 million to $75.7 million. We
believe the customer 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 us, acquire movies on videocassette regardless of whether the movies
were
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successful at the box office, thus providing movie studios a reliable source of
revenue for almost all of the hundreds of movies produced each year.
Consequently, we believe movie studios are highly motivated to protect this
unique and significant source of revenue.
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 "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, premium channels,
basic cable television and, finally, network and syndicated television.
Trends in Video Rentals and Sales
Studios have historically sold videocassettes to video retailers under two
pricing structures, "rental" and "sell-through." Rental titles are initially
sold at relatively high prices (typically $60 to $65 wholesale) and promoted
primarily for rental, and then later re-released for sale to consumers at a
lower price (typically $10 to $15 wholesale). Certain high-grossing box office
films, generally with box office revenue in excess of $100 million, are targeted
at the sell-through market. These titles are released on videocassette at a
relatively low initial price (approximately $15 wholesale) and are both promoted
as a rental title by video stores and sold directly to consumers through a broad
array of retailers including video stores. Studios elect to release a title
either as rental or sell-through based on which would optimize their income from
the title.
According to Paul Kagan, video rental revenue has increased from $7.5
billion in 1997 to $8.1 billion in 1998 and is expected to increase to $9.7
billion in 2002. This growth is in contrast to flat rental revenue in prior
years, when consumers attracted by lower prices increased their video purchases.
Sell-through revenue has increased from $3.2 billion in 1990 to $8.8 billion in
1998 and is expected to increase to $11.1 billion in 2002. Video sales as a
percentage of total industry revenue have increased from approximately 32% in
1990 to approximately 53% in 1998.
In 1998 a number of studios and video retailers adopted revenue sharing as
an alternative to the historical rental pricing structure. Studios began
offering retailers more videocassettes for an individual title at substantially
lower initial cost in exchange for a share of the rental revenue that those
copies generate over their initial release window. The additional copies have
contributed to improved consumer satisfaction early in a title's release because
the supply of titles better matches demand. This has led to higher rental
revenues for the video store industry as well as for studios. Revenue sharing
also gives the studios
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an incentive to market these titles, because they share in the revenue generated
by increased transactions.
DVDs are an alternative format to VHS tapes that offer consumers digital
picture and sound and additional features such as enhanced content and
interactivity. Since their introduction in late 1997, more than 1.3 million DVD
players have reportedly been sold.
Business Strategy
Our goal is to build a strong national brand which consumers will identify
with the entertainment industry. We have developed an effective superstore
format that distinguishes us from competitors. We attempt to quickly establish a
leadership position in each of the markets in which we open stores. We
successfully compete in both well-developed and relatively untapped markets. We
are also investing in technologies that enable us to deliver entertainment
directly into the homes of our customers. Our business strategy includes the
following key elements:
o Expansion Through Company-Built Superstores. In each of the last two
years we added approximately 350 stores and we intend to add
approximately 350 stores in each of 1999 and 2000. Of our 1,322 video
superstores at March 31, 1999 over 85% stores had been opened as new
stores by us.
o Broad Selection and Superior Availability. We strive to provide our
customers with the broadest selection of movies and video games. Our
superstores typically carry approximately 8,000 titles and 15,000
videocassettes and video games. Our goal is to offer more copies of
popular new video releases and more titles than our competitors. In
part because of our new revenue sharing arrangements with studios, we
have increased the availability of most new releases and typically
acquire 100 to 175 copies of "hit" movies for each Hollywood Video
store.
o Exciting, Enjoyable and Convenient Shopping Experience. Our
superstores are designed to capture the bright lights, energy and
excitement of the motion picture industry. We focus on creating an
inviting atmosphere that encourages browsing and generates repeat
customers. Our superstores are typically located in high traffic,
high-visibility locations. We believe excellent customer service, a
bright, clean and friendly shopping environment and convenient store
locations are important to our success.
o Excellent Entertainment Value. We offer consumers the opportunity to
rent new releases, video games and any of our catalog movie titles for
five days in most of our stores. New release movies typically rent for
$3.49 and catalog movies typically rent for $1.99. We believe movie
rental in general, and our pricing
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structure and rental terms in particular, provide consumers convenient
entertainment and excellent value.
o Electronic Commerce. Having established our superstores as physical
"portals" linking consumers to the movie studios, we have begun
through the acquisition of Reel.com in October 1998 to establish an
electronic "portal," linking customers in their homes to movies and
movie related entertainment. We intend to build on our relationships
with movie studios, Internet businesses such as America Online and
Yahoo and our more than 25 million superstore customers to build our
electronic commerce business.
o Expanding Product Opportunities. We regularly explore opportunities to
enhance entertainment experiences of our customers. We are in the
early stages of testing a new business initiative that sells, buys and
trades video games, as an expansion of our traditional video game
rental business. This initiative is designed as a store within a
store, leveraging a portion of our existing superstore real estate. If
the test is successful, we plan to aggressively roll-out this concept
to a substantial portion of our existing store base. Although DVD may
at some point displace videocassettes, we believe it is a format that
complements our existing business and is well suited to rental or
sale. We introduced DVD for rental in the majority of our stores in
the fourth quarter of 1998, generating the highest revenues of any new
format in our history, and we are expanding our DVD offerings in 1999.
Expansion Strategy
Video Store Openings and Flexible Store Format
We opened our first video superstore in October 1988 and grew to 25 stores
in Oregon and Washington by the end of 1993. In 1994 we significantly
accelerated our store expansion program, adding 88 stores and expanding into
California, Texas, Nevada, New Mexico, Virginia and Utah. In 1995 we added 192
stores and entered major new markets in the midwest, southwest, east and
southeast regions of the United States. Our expansion strategy is to continue to
open stores in regions where we have existing operations and to expand into new
geographic regions where we believe we can become a dominant video retailer. We
added 246 stores in 1996, 356 stores in 1997 and 353 stores in 1998. We plan to
add approximately 350 stores in each of 1999 and 2000.
We have been testing a smaller superstore format that reduces the target
size of new stores from 7,500 square feet to 5,000 square feet, which lowers our
per store annual rent and initial build-out costs. These smaller stores are able
to carry the same amount of video and video game inventory as larger stores due
to a new store design and shelving system, and we
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believe they retain a "superstore" look to consumers. This efficient design also
allows us greater flexibility in locating new stores. Early tests suggest that
these smaller, less expensive stores are generating similar revenue volumes as
larger units in comparable locations, thus increasing our financial return on
new stores. We are rolling out these smaller stores in most of our new
locations.
We believe the selection of locations for our stores is critical to the
success of our operations. We have assembled a new store development team with
broad and significant experience in retail tenant development. The majority of
our 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. Final approval of all new sites is the responsibility of the Chairman
of the Real Estate Committee of the Board of Directors. 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. We generally seek what we consider the most desirable locations,
typically locating our stores in high-visibility stand-alone structures or in
prominent locations in multi-tenant shopping developments. We typically compete
for these prime sites with other retailers, banks, restaurants and gas stations.
All of our stores are in leased premises; we do not own any real estate.
Acquisitions
In the future we may explore potential acquisitions that complement our
current businesses, including both physical stores as well as Internet-based
businesses. We have no understandings, commitments or agreements with respect to
acquisitions.
Our expansion depends on a number of different factors and is subject to
various risks. See "Risk Factors" and "Business-Competition."
Products
Video Rental. Our primary source of revenue is the rental of
videocassettes. Our superstores typically carry approximately 8,000 movie titles
and 15,000 videocassettes and video games. In 1998 we began renting DVDs in all
of our stores. Excluding new releases, movie titles are classified into 28
categories, such as "Action," "Drama," "Family" and "Children," and are
displayed alphabetically within those categories. We do not rent or sell adult
movies in our superstores. We are committed to offering more copies of popular
new releases than our competitors.
Video Sales. We offer new and previously viewed videos for sale.
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Video Games. In addition to video rentals and sales, we rent and to a
lesser extent sell video games licensed by Nintendo(TM), Sega(TM) and Sony(TM).
Each mature Hollywood Video store offers between 1,200 and 4,000 video games.
See "Business Strategy."
Other Products. We rent audio books, and for the convenience of our
customers we rent videocassette and video game players and sell blank
videocassettes, video cleaning equipment and confectionery and other items.
Revenue Sharing
During 1998 we formalized revenue sharing arrangements with a number of
studios which provide us with increased copies of titles in exchange for sharing
the revenues those copies generate. In the fourth quarter of 1998 we acquired
most of our rental products under these arrangements. We believe the resulting
increase in copy availability has led to greater customer satisfaction and
rental revenue growth for both the video store industry and the studios. Giving
the studios a share of video rental revenue may also cause them to increase
advertising on rental products.
Pricing
After testing in the third quarter of 1998, we increased prices at most of
our stores in the fourth quarter from $1.49 to $1.99 for catalog titles and from
$2.99 to $3.49 for new releases.
Competition
The video retail industry is highly competitive. We compete with 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 1998 there
were approximately 25,000 to 30,000 video specialty stores in the United States.
We believe approximately 8,500 of these stores were video retail superstores,
including approximately 4,200 Blockbuster stores. Some of our competitors have
significantly greater financial and marketing resources, market share and name
recognition than we have.
We believe the principal competitive factors in the video retail industry
are title selection, rental period, the number of copies of popular titles
available, store location and visibility, customer service and employee
friendliness, convenience of store access and parking and, to a lesser extent,
pricing. Substantially all of our stores compete with stores operated by
Blockbuster, most in very close proximity. As a result of direct competition
with Blockbuster, rental pricing of videocassettes and greater availability of
new releases are significant competitive factors in our business and from time
to time, in some markets, Blockbuster has
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cut prices below those offered in our stores. If price cutting occurs on a more
sustained or widespread basis, it could have an adverse impact on our results of
operations. We believe we generally offer more titles and more copies of popular
titles for longer rental periods than the majority of our competitors. In
addition to competing with other video retailers, we compete with all
leisure-time activities, especially entertainment activities such as movies,
sporting events and network and cable television programs.
We compete with cable, satellite and pay-per-view 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 enabling 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. Some cable and other telecommunications
companies have tested "video on demand" service in some markets. Video on demand
service would allow a viewer to pause, rewind and fast forward movies. Based on
publicly available information, we believe these tests have been unsuccessful.
We also believe movie studios have a significant interest in maintaining a
viable movie rental business because their sale of videocassettes to stores
represents the largest source of their revenue. In addition, home video provides
the only reliable 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,
we believe 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 videos to video stores.
In addition, we believe 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. In contrast, according to Adams
Media Research, 78.8 million, or 82%, of all U.S. television households own a
VCR. Although we do not believe cable television, video on demand or other
distribution channels represent a near-term competitive threat to our 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 direct broadcast satellite, cable television or other distribution
channels, could make these technologies more attractive and economical, which
could have a material adverse effect on our business.
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DESCRIPTION OF SENIOR CREDIT FACILITY
In 1997, we established a $300 million, five-year revolving senior credit
facility with a syndicate of lenders for whom Societe Generale and Goldman Sachs
Credit Partners L.P. act as agents. As collateral for the credit facility, we
have pledged substantially all of our assets. The senior credit facility
contains financial and other restrictive covenants, including minimum interest
coverage ratio; maximum leverage ratio; minimum average per store contribution
requirement; minimum shareholders' equity; and restrictions on mergers, asset
sales, additional indebtedness, guarantees, liens, investments, operating lease
obligations and acquisitions. The senior credit facility also contains customary
events of default and other provisions, including an event of default if there
is a change of control. Other events of default are triggered by events related
to bankruptcy. When an event of default occurs, the lenders can terminate their
commitment to lend and declare all amounts we owe under the credit facility to
be immediately due and payable. Loans under the senior credit facility bear
interest, at our option, at an applicable margin over the lenders' base rate
loan or the LIBOR rate. The applicable margin is based on the ratio of
consolidated indebtedness to consolidated adjusted EBITDA, as defined in the
senior credit facility. See Note 10 to Notes to the Incorporated 10-K Financial
Statements. At June 30, 1999, we owed approximately $210.0 million under the
senior credit facility. This summary does not describe all the terms of the
indebtedness.
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FEDERAL INCOME TAX CONSIDERATIONS
This section discusses the material U.S. federal income tax consequences
resulting from the ownership of the notes by an initial beneficial owner. This
section addresses only initial beneficial owners who hold the notes as capital
assets and does not address holders that may be subject to special tax rules,
such as financial institutions, insurance companies, dealers in securities,
persons that mark-to-market their securities, persons that hold notes as part of
a "straddle," "hedge" or "synthetic security transaction" (including a
"conversion" transaction), persons with a "functional currency" other than the
U.S. dollar, some retirement plans and tax-exempt organizations. This section is
based upon U.S. federal tax laws and Treasury regulations as now in effect and
as currently interpreted and does not take into account possible changes in
these tax laws or these interpretations, any of which may be applied
retroactively. It does not include any description of the tax laws of any state,
local or foreign government that may be applicable to the notes or a holder of
the notes.
This section does not discuss all aspects of U.S. federal income taxation
that may be relevant to a particular holder of the notes in light of the
holder's particular circumstances and income tax situation. Each holder of the
notes should consult its own tax advisor as to the specific tax consequences to
the holder of the exchange of notes for exchange notes and the ownership and
disposition of the notes, including the application and effect of state, local,
foreign and other tax laws or changes to those laws.
Original Issue Discount
We have concluded that the notes were not issued with more than a de
minimis amount of original issue discount. The law in this area, however, is
subject to different interpretations. If securities are issued with more than a
de minimis amount of original issue discount, holders generally will be required
to include as ordinary income, on a constant yield basis, the amount of the
original issue discount over the term of the securities, without the receipt of
corresponding cash payments. We do not purport to give tax advice, and each
holder of the notes should consult its own tax advisor.
The Exchange
The exchange of the notes for exchange notes under the exchange offer will
not be treated as an "exchange" for U.S. federal income tax purposes because the
exchange notes will not differ materially either in kind or extent from the
notes and because the exchange will occur by operation of the terms of the
notes. Instead, the exchange notes received by a holder will be treated as a
continuation of the notes in the hands of the holder. As a result, there
generally will be no U.S. federal income tax consequences to holders who
exchange notes for the exchange notes under the exchange offer.
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U.S. Taxation of Non-U.S. Holders
The following is a summary of the material U.S. federal income tax
consequences resulting from the ownership of the notes by an initial beneficial
owner that is a non-U.S. holder (that is, any holder that is, as to the United
States, a foreign corporation, a nonresident alien individual, a foreign estate
or trust or a foreign partnership). U.S. holders (that is, holders other than
non-U.S. holders) are subject to rules different from those discussed below. The
discussion below does not address non-U.S. holders that hold the notes in
connection with a U.S. trade or business or non-U.S. holders that have a
functional currency other than the United States dollar.
Interest
In general, payments of interest to a non-U.S. holder will not be subject
to U.S. federal income or withholding tax, provided that
(a) the holder is not
(1) an actual or constructive owner of 10% or more of the total
voting power of all voting stock of Hollywood Entertainment,
(2) a controlled foreign corporation related to Hollywood
Entertainment through stock ownership or
(3) a bank whose receipt of interest on a note is described in
section 881(c)(3)(A) of the Internal Revenue Code,
(b) such interest payments are not effectively connected with the
conduct of the non-U.S. holder of a trade or business within the United
States, and
(c) Hollywood Entertainment or its paying agent receives documentation
satisfying the requirements of section 871(h)(5) of the Internal Revenue
Code.
In general, these requirements may be satisfied by the receipt (1) from the
non-U.S. holder of a properly completed Internal Revenue Service Form W-8, or
substitute Form W-8, which provides under penalties of perjury the non-U.S.
holder's name and address and certifies that the non-U.S. holder is a non-U.S.
holder or (2) from a financial institution such as a securities clearing
organization, bank or other financial institution that holds the notes in the
ordinary course of its trade or business on behalf of the non-U.S. holder,
certification under penalties of perjury that such a Form W-8 has been received
by it or by another such financial institution from the non-U.S. holder, and the
name and address of the beneficial owner and a copy of the Form W-8 is furnished
to the payor. New Treasury regulations, generally effective for
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payments after December 31, 2000, include additional certification procedures
and special rules for payments to foreign partnerships.
A non-U.S. holder that does not qualify for the exemption from withholding
under the preceding paragraph generally will be subject to withholding of U.S.
federal income tax at the rate of 30% on payments of interest on the notes.
Non-U.S. holders should consult any applicable income tax treaties, which may
provide for an exemption from or a lower rate of tax on interest, or other rules
different from those described above. A non-U.S. holder who qualifies for a
reduced rate of tax under a treaty may be subject to a reduced rate of
withholding, if applicable certification requirements are satisfied.
Gain on Disposition
Except as described below and subject to the discussion concerning backup
withholding below, any gain realized by a non-U.S. holder on the sale, exchange,
retirement or other disposition of a note generally will not be subject to U.S.
federal income tax unless
(a) the gain is effectively connected with the conduct by such
non-U.S. holder of a trade or business within the United States,
(b) the non-U.S. holder is present in the United States for 183 days
or more in the taxable year of the disposition and certain other conditions
are satisfied, or
(c) the non-U.S. holder is subject to tax pursuant to the provisions
of United States tax law applicable to certain United States expatriates.
Federal Estate Taxes
A note held by an individual who is a non-U.S. holder at the time of his or
her death will not be subject to U.S. federal estate tax, provided that any
interest received on the note, if received by the holder at the time of the
holder's death, would not be effectively connected with the conduct of a trade
or business in the United States and the individual does not own, actually or
constructively at the date of death, 10% or more of the total voting power of
all voting stock of Hollywood Entertainment.
Backup Withholding and Information Reporting
Under current U.S. federal income tax law, a 31% backup withholding tax
requirement may apply to certain payments of interest on, and the proceeds of a
sale, exchange or redemption of, the notes. In the case of a non-U.S. holder,
under current Treasury regulations, backup withholding will not apply to
payments made by Hollywood Entertainment, or any paying agent acting on
Hollywood Entertainment's behalf, on a note if the holder has provided the
required certification under penalties of perjury that it is a non-U.S. holder
or has
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otherwise established an exemption, provided in each case that Hollywood
Entertainment or its paying agent does not have actual knowledge that the payee
is not a non-U.S. holder. Special rules may apply with respect to the payment of
the proceeds from the sale of a note to or through foreign offices of certain
brokers. New Treasury regulations, generally effective for payments after
December 31, 2000, may alter the details of the certification procedures. Any
amounts withheld from payment under the backup withholding rules will be allowed
as a credit against a holder's U.S. federal income tax liability and may entitle
such holder to a refund, provided that the required information is furnished to
the Internal Revenue Service.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in
connection with the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange notes received in exchange
for notes where the notes were acquired as a result of market-making activities
or other trading activities. We have agreed that for a period ending on the
earlier of
(1) 180 days after the date of this prospectus and
(2) the date on which a broker-dealer is no longer required to deliver a
prospectus in connection with market-making or other trading
activities,
we will make available and provide promptly upon reasonable request this
prospectus, in a form meeting the requirements of the Securities Act, to any
broker-dealer for use in connection with any such resale.
We will receive no proceeds in connection with the exchange offer. Exchange
notes received by broker-dealers for their own account in the exchange offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
exchange notes or a combination of these methods of resale, at market prices
prevailing at the time of resale, at prices related to the prevailing market
prices or negotiated prices. A resale may be made directly to purchasers or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from the broker-dealer and/or the purchasers of
exchange notes. Any broker-dealer that resells exchange notes that were received
by it for its own account in the exchange offer and any broker or dealer that
participates in a distribution of the exchange notes may be an underwriter
within the meaning of the Securities Act, and any profit on the resale of
exchange notes and any commissions or concessions received by these persons may
be underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus, a broker-dealer will not be considered to admit that it is an
underwriter. We have agreed to reimburse these broker-dealers for any amounts
arising as a result of specified liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the issuance of the exchange notes will be passed upon for
us by Stoel Rives LLP, Portland, Oregon.
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EXPERTS
The financial statements of Hollywood Entertainment Corporation
incorporated into this Registration Statement by reference to the Annual Report
on Form 10-K of Hollywood Entertainment Corporation for the year ended December
31, 1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Reel.com LLC incorporated into this
Registration Statement by reference to the audited historical financial
statements appearing on page 5 of the Current Report on Form 8-K/A of Hollywood
Entertainment Corporation dated October 1, 1998 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
As required by the Securities Act, we have filed a registration statement
on Form S-4 with the SEC to register the exchange notes to be exchanged for
existing notes in the exchange offer. This document omits some information
contained in the registration statement and the exhibits and schedules attached
to the registration statement. For further information about us and the exchange
offer, you should review the registration statement and its exhibits and
schedules. Statements in this document that summarize the contents of any
contract or other document are not necessarily complete and you should review
every contract or document that is filed as an exhibit to the registration
statement. The registration statement and its exhibits and schedules may be
inspected without charge at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of these materials may be obtained from the
Public Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates and from the SEC's Internet Web site
at http://www.sec.gov. You may obtain information on the operations of the
Public Reference Room by calling the SEC at 1-800-SEC-0300.
We are incorporating by reference in this offering memorandum the following
documents filed by us with the SEC pursuant to the Exchange Act:
o Annual Report on Form 10-K for the year ended December 31, 1998
o Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
o Current Reports on Form 8-K dated October 1, 1998 (and Amendment No. 1 on
Form 8-K/A) and June 18, 1999
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o The description of our common stock contained in our registration statement
under the Exchange Act, including any amendment or report updating the
description.
In addition, we incorporate by reference all documents we will file with
the SEC after July 8, 1999 under Sections 13, 14 or 15(d) of the Exchange Act
until the termination of this offering. We refer to these documents, and the
documents listed above, in this offering memorandum as "incorporated documents."
You should consider any statement contained in an incorporated document to be
modified or superseded for purposes of this offering memorandum to the extent
that a statement contained in this offering memorandum or in any other
subsequently filed incorporated document modifies or replaces such statement.
Any such statement so modified or replaced will not be deemed to be a part of
this offering memorandum, except as so modified or superseded. You should
consider all incorporated documents a part of this offering memorandum.
We have agreed that, whether or not we are required to do so by the rules
and regulations of the SEC, we will deliver to the trustee and to each holder of
notes the annual and quarterly financial statements included in reports we file
with the SEC.
You may request, without charge, a copy of any incorporated document
(excluding exhibits, unless we have specifically incorporated an exhibit in an
incorporated document) by writing or telephoning us at our principal executive
offices at the following address:
Hollywood Entertainment Corporation
9275 SW Peyton Lane
Wilsonville, OR 97070
Attention: General Counsel
Telephone: (503) 570-1600
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
The information, including information concerning our planned expansion and
financial resources, incorporated by reference in this prospectus or set forth
in "Risk Factors" under the captions "We may not be able to achieve and manage
planned expansion," "Our business would be adversely affected if revenue sharing
arrangements were reduced or eliminated," "We are subject to risks associated
with possible future acquisitions" and "We are involved in lawsuits that could
adversely affect our business," and in "Business" under the captions "General,"
"Business Strategy," "Expansion Strategy" and "Competition" includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and is subject to the safe harbor created by that section. Various factors
that could cause result to differ materially from those projected in the
forward-looking statements are set forth in "Risk Factor" and in "Business"
under the caption "Competition".
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PART II
Item 20. Indemnification of Officers and Directors
Article IV of the Company's 1993B Restated Articles of Incorporation, as
amended (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 writing that he or
she believes 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.
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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.
Item 21. Exhibits and Financial Statement Schedules
3.1 1993B Restated Articles of Incorporation, as amended (incorporated by
reference to the Registrant's Registration Statement on Form S-1 (File
No. 33-63042)(the "Form S-1"), to Exhibit 4 to the Registrant's
Registration Statement on Form S-3 (File No. 33-96140), and to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1998)
3.2 1999 Restated Bylaws
4.1 Indenture, dated August 13, 1997, between the Registrant and U.S.
Trust Company of California, N.A. (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-4
(No.333-35351)(the "1997 S-4"))
4.2 First Supplemental Indenture, dated June 24, 1999, between the
Registrant and U.S. Trust Company, N.A.
4.3 Registration Rights Agreement, dated as of June 17, 1999, by and
between the Registrant and Banc of America Securities LLC
5.1 Opinion of Stoel Rives LLP
10.1 1993 Stock Incentive Plan, as amended (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997)
10.2 Form of Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.1 of the Form S-1)
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10.3 Form of Nonqualified Stock Option Agreement (incorporated by reference
to Exhibit 10.3 of the Form S-1)
10.4 Revolving Credit Agreement, dated as of September 5, 1997, among the
Registrant, as Borrower, and Societe Generale, DLJ Capital Funding,
Inc. Goldman Sachs Credit Partners L.P. and certain other financial
institutions, as Lenders, and Societe Generale, as Agent for the
Lenders, Donaldson, Lufkin & Jenrette Securities Corporation, as
Administrative Agent, Goldman Sachs Credit Partners, L.P., as
Documentation Agent, and Credit Lyonnais Los Angeles Branch, Barclays
Bank PLC, Deutsche Bank AG, New York Branch, U.S. Bank National
Association and KeyBank National Association, as Co-Agents
(incorporated by reference to Exhibit 10.1 of the 1997 S-4)
10.5 First Amendment Agreement, dated as of March 31, 1998, among the
Registrant, Societe Generale, as Agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as Administrative Agent and Goldman Sachs
Credit Partners L.P., as Documentation Agent (incorporated by
reference to Exhibit 10.8 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998)
10.6 Second Amendment Agreement, dated as of March 1, 1999, among the
Registrant, Societe Generale, as Agent, Goldman Sachs Credit Partners
L.P., as Documentation Agent and certain Co-Agents and Lenders
(incorporated by reference to Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999)
10.7 Employment letter between the Registrant and Jeffrey B. Yapp, dated
July 31, 1997 (incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997)
12.1 Statements re Computation of Ratios
23.1 Consent of PricewaterhouseCoopers LLP (Portland)
23.2 Consent of PricewaterhouseCoopers LLP (San Francisco)
23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on Page II-5 of the Registration
Statement)
25.1 Statement of Eligibility of Trustee
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Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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
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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 whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) 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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilsonville, State of
Oregon, on July 15, 1999.
HOLLYWOOD ENTERTAINMENT CORPORATION
By: MARK J. WATTLES
-------------------------------------
Mark J. Wattles
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on
July 15, 1999 in the capacities indicated.
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 David
G. Martin 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 of Directors and
Mark J. Wattles Chief Executive Officer
(Principal Executive Officer)
II-6
<PAGE>
DAVID G. MARTIN
- ---------------------------------- Executive Vice President and Chief
David G. Martin Financial Officer
(Principal Financial and Accounting
Officer)
DONALD J. EKMAN
- ---------------------------------- Director
Donald J. Ekman
SCOTT A. BECK
- ---------------------------------- Director
Scott A. Beck
WILLIAM P. ZEBE
- ---------------------------------- Director
William P. Zebe
II-7
1999 RESTATED BYLAWS
OF
HOLLYWOOD ENTERTAINMENT CORPORATION
ARTICLE I
SHAREHOLDERS MEETINGS
1.1 Annual Meeting. The annual meeting of the shareholders shall be held on
the fourth Thursday in May of each year at 9 a.m., unless a different date or
time is fixed by the Board of Directors and stated in the notice of the meeting.
1.2 Special Meetings. Special meetings of the shareholders, for any
purposes, unless otherwise prescribed by statute, may be called by the Board of
Directors. The Board of Directors shall have the sole power to determine the
place, time and date for any special meeting of shareholders and to set a record
date for the determination of shareholders entitled to vote at the meeting.
1.3 Place of Meetings. Meetings of the shareholders shall be held at any
place in or out of Oregon designated by the Board of Directors.
1.4 Meeting by Telephone Conference. Shareholders may participate in an
annual or special meeting by, or conduct the meeting through, use of any means
of communications by which all shareholders participating may simultaneously
hear each other during the meeting, except that no meeting for which a written
notice is sent to shareholders may be conducted by this means unless the notice
states that participation in this manner is permitted and describes how any
shareholder desiring to participate in this manner may notify the Corporation.
1.5 Notice of Shareholder Business and Nominations.
(a) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders only (i) pursuant
to the Corporation's notice of meeting or any supplement thereto, (ii) by or at
the direction
<PAGE>
of the Board of Directors or (iii) by any shareholder of the Corporation who (A)
was a shareholder of record of the Corporation when the notice provided for in
this Section 1.5 is delivered to the Secretary of the Corporation, (B) is
entitled to vote at the meeting and (C) complies with the notice procedures set
forth in subparagraphs (2) and (3) of this paragraph (a) in this Section 1.5.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of
this Section 1.5, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for shareholder action as determined by the Board
of Directors. To be timely, a notice shall be delivered to the Secretary at the
principal executive offices of the Corporation at least 90 days, and no earlier
than 120 days, before the first anniversary of the date of the proxy statement
for the preceding year's annual meeting (provided, however, that if the date of
the annual meeting is more than 30 days before or more than 70 days after the
anniversary date, notice by the shareholder must be delivered no earlier than
120 days before the annual meeting and no later than the later of 90 days before
the annual meeting or 10 days following the day on which public announcement of
the date of the meeting is first made by the Corporation). The public
announcement of an adjournment or postponement of an annual meeting of
shareholders shall not commence a new time period (or extend any time period)
for the giving of a shareholder's notice as described above. The shareholder's
notice shall set forth the information required by paragraph (c) of this Section
1.5.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 1.5 to the contrary, if the number of directors to be
elected to the Board of Directors of the Corporation at an annual meeting is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 100 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by this Section 1.5 shall
also be considered timely, but only with respect to nominees for any new
positions created by the increase, if it is delivered to the Secretary at the
principal executive offices of the Corporation not later than 10 days following
the day on which the public announcement is first made by the Corporation.
(b) Special Meetings of Shareholders.
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(1) The only business that may be conducted at a special meeting of
shareholders is the business described in the Corporation's notice of meeting.
If directors are to be elected at a special meeting, nominations of persons for
election to the Board of Directors may be made at a special meeting of
shareholders only (i) by or at the direction of the Board of Directors or the
Chairman of the Board or (ii) by any shareholder of the Corporation who (A) is a
shareholder of record at the time the notice provided for in this Section 1.5(b)
is delivered to the Secretary of the Corporation, (B) is entitled to vote at the
special meeting and (C) complies with the notice procedures set forth in
paragraph (b)(2) of this Section 1.5. If a special meeting of shareholders is
called to elect one or more directors to the Board of Directors, any shareholder
entitled to vote in the election of directors may nominate a person or persons
(as the case may be) for election to such position(s) as specified in the
Corporation's notice of meeting, if the shareholder's notice containing the
information and as otherwise required by paragraph (b)(2) of this Section 1.5 is
delivered to the Secretary at the principal executive offices of the Corporation
not later than 10 days following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at the meeting. The public announcement of an
adjournment or postponement of a special meeting shall not commence a new time
period (or extend any time period) for the giving of a shareholder's notice as
described above.
(2) For nominations to be properly brought before a special meeting by
a shareholder pursuant to clause (ii) of paragraph (b)(1) of this Section 1.5,
the shareholder's notice must contain the information required by paragraph (c)
of this Section 1.5. For any other business to be properly brought before a
special meeting by a shareholder, the other business must be a proper matter for
shareholder action and the shareholder's demand for the special meeting pursuant
to the Oregon Business Corporation Act must contain the information required by
paragraph (c) of this Section 1.5.
(c) Information Required in Shareholder Notice. A shareholder notice given
pursuant to paragraph (a) or (b) of this Section 1.5 shall contain the following
information:
(i) As to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act and Rule 14a-11 thereunder
(and be accompanied by such
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<PAGE>
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected);
(ii) as to any other business the shareholder proposes to bring before
the special meeting, a brief description of the business desired to be brought
before the special meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and, if the business includes
a proposal to amend the bylaws of the Corporation, the language of the proposed
amendment), the reasons for conducting the business at the special meeting and
any material interest in the business of such shareholder and any beneficial
owner on whose behalf the proposal is made; and
(iii) as to the shareholder giving the notice and any beneficial owner
on whose behalf the nomination or proposal is made, (A) the name and address of
the shareholder, as they appear on the Corporation's books, and of the
beneficial owner, (B) the class and number of shares of capital stock of the
Corporation which are owned beneficially and of record by the shareholder and
the beneficial owner, (C) a representation that the shareholder is a holder of
record of stock of the Corporation entitled to vote at the special meeting and
intends to appear in person or by proxy at the special meeting to propose such
business or nomination, and (D) a representation as to whether the shareholder
or the beneficial owner, if any, intends or is part of a group which intends to
(1) deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the Corporation's outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (2) otherwise solicit proxies
from shareholders in support of such proposal or nomination. The Corporation may
require any proposed nominee to furnish any other information it reasonably
requires to determine the eligibility of the proposed nominee to serve as a
director of the Corporation
(d) General.
(1) Only persons nominated in accordance with the procedures set forth
in this Section 1.5 shall be eligible to be elected at an annual or special
meeting of shareholders of the Corporation to serve as directors and only such
business shall be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 1.5. Except as otherwise provided by law, the chairman of the meeting
shall have the power and duty to (i) determine whether a nomination or any
business proposed to be brought before an annual or special meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 1.5 and (ii) if any proposed
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<PAGE>
nomination or business is not in compliance with this Section 1.5 (including
whether the shareholder or any beneficial owner on whose behalf the nomination
or proposal is made solicits (or is part of a group which solicits), or fails to
so solicit (as the case may be), proxies in support of such shareholder's
nominee or proposal in compliance with such shareholder's representation as
required by clause (iii)(D) of Section (a)(2) or clause (iii)(D) of Section
(b)(2) of this Section 1.5), to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted.
(2) For purposes of this Section 1.5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press, PR Newswire or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) A shareholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.5. Nothing in this Section 1.5 shall be
deemed to affect any rights of shareholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
1.6 Conduct of Meetings.
(a) Chairman of the Meeting. Meetings of shareholders shall be presided
over by the Chief Executive Officer, if that position is filled, or, if there is
no Chief Executive Officer, the President or, in any event, by another chairman
designated by the Board of Directors. The date and time of the opening and the
closing of the polls for each matter upon which the shareholders will vote at a
meeting shall be determined by the chairman of the meeting and announced at the
meeting.
(b) Rules and Regulations. The Board of Directors may adopt by resolution
any rules and regulations for the conduct of the meeting of shareholders as it
deems appropriate. Except to the extent inconsistent with rules and regulations
as adopted by the Board of Directors, the chairman of any meeting of
shareholders shall have the exclusive right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
the chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or pro cedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for
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<PAGE>
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to shareholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting determines; (iv) restrictions on
entry to the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent otherwise determined by the Board of Directors or the
chairman of the meeting, meetings of shareholders are not required to be held in
accordance with the rules of parliamen tary procedure.
(c) Adjournment. Any annual or special meeting of shareholders may be
adjourned only by the chairman of the meeting from time to time to reconvene at
the same or some other time, date and place, and notice need not be given of any
such adjourned meeting if the time, date and place are announced at the meeting
at which the adjournment occurs. The shareholders present at a meeting shall not
have authority to adjourn the meeting. At the adjourned meeting at which a
quorum is present, the shareholders may transact any business which might have
been transacted at the original meeting. If after the adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting.
ARTICLE II
BOARD OF DIRECTORS
2.1 Number and Term. The number of directors of the Corporation shall be at
least one and no more than eleven. Within this range, the number of directors
when these Restated Bylaws are adopted shall be four, and the number of
directors shall otherwise be determined from time to time by the Board of
Directors.
2.2 Regular Meetings. A regular meeting of the Board of Directors shall be
held without notice other than this Bylaw immediately after, and at the same
place as, the annual meeting of shareholders.
2.3 Special Meetings. Special meetings of the Board of Directors may be
called by the officer serving as chief executive officer of the Corporation or
any two directors. The person or persons authorized to call special meetings of
the Board of Directors may fix any place in or out of Oregon as the place for
holding any special meeting of the Board of Directors called by them.
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<PAGE>
2.4 Notice. Notice of the date, time and place of any special meeting of
the Board of Directors shall be given at least 24 hours prior to the meeting by
notice communicated in person, by telephone, telegraph, teletype, fax, other
form of wire or wireless communication, mail or private carrier. If written,
notice shall be effective at the earliest of (a) when received, (b) three days
after its deposit in the United States mail, as evidenced by the postmark, if
mailed postpaid and correctly addressed, or (c) on the date shown on the return
receipt, if sent by registered or certified mail, return receipt requested and
the receipt is signed by or on behalf of the addressee. Notice by all other
means shall be deemed effective when received by or on behalf of the director.
ARTICLE III
OFFICERS
3.1 Appointment. The Board of Directors at its first meeting following its
election each year shall appoint a President and a Secretary. The Board of
Directors may appoint an officer with the title of Chief Executive Officer and
any other officers, assistant officers and agents. The officer serving as the
chief executive officer of the Corporation may appoint any other officer,
assistant officer and agents, provided that any appointment of a chief financial
officer or an officer at the level of senior vice-president or above shall be
expressly conditioned upon approval by the Board of Directors or a committee of
the board. Any two or more offices may be held by the same person.
3.2 Compensation. The Corporation may pay its officers reasonable
compensation for their services as fixed from time to time by the Board of
Directors or by the person serving as the chief executive officer of the
Corporation with respect to officers appointed by that person.
3.3 Term. The term of office of all officers commences upon their
appointment and continues until their successors are appointed or until their
resignation or removal.
3.4 Removal. Any officer or agent appointed by the Board of Directors or
the officer serving as chief executive officer of the Corporation may be removed
by the Board of Directors at any time with or without cause. Any officer or
agent appointed by the officer serving as chief executive officer of the
Corporation may be removed by that officer at any time with or without cause,
provided that any removal
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<PAGE>
of the chief financial officer or an officer at or above the level of senior
vice president must be approved by the Board of Directors or a committee of the
Board.
3.5 Chief Executive Officer. Unless otherwise determined by the Board of
Directors, the Chief Executive Officer, if an officer with that title is
appointed, shall be the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, shall be responsible for the general
operation of the Corporation. The Chief Executive Officer shall have any other
duties and responsibilities prescribed by the Board of Directors. Unless
otherwise determined by the Board of Directors, the Chief Executive Officer
shall have authority to vote any shares of stock owned by the Corporation and to
delegate this authority to any other officer.
3.6 President. If no other officer is serving as the chief executive
officer of the Corporation, the President shall be the chief executive officer
of the Corporation and, subject to the control of the Board of Directors, shall
be responsible for the general operation of the Corporation. The President shall
have any other duties and responsibilities prescribed by the Board of Directors
or by the officer designated as chief executive officer by the Board of
Directors.
3.7 Vice Presidents. Each Vice President shall perform duties and
responsibilities prescribed by the Board of Directors or the officer serving as
chief executive officer of the Corporation. The Board of Directors or the
officer serving as chief executive officer of the Corporation may confer a
special title upon a Vice President.
3.8 Secretary. The Secretary shall record and keep the minutes of all
meetings of the directors and shareholders in one or more books provided for
that purpose and perform any duties prescribed by the Board of Directors or the
officer serving as chief executive officer of the Corporation.
3.9 Voting of Shares. The officer serving as the chief executive officer of
the Corporation shall have authority to vote any shares of stock or other equity
interests owned by the Corporation and to delegate this authority to any other
officer.
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ARTICLE IV
ISSUANCE OF SHARES
4.1 Adequacy of Consideration. The authorization by the Board of Directors
of the issuance of shares for stated consideration shall evidence a
determination by the Board that such consideration is adequate.
4.2 Certificates for Shares. Certificates representing shares of the
Corporation shall be signed, either manually or in facsimile, by two officers of
the Corporation, at least one of whom shall be the officer serving as chief
executive officer of the Corporation, the President or a Vice President.
ARTICLE V
AMENDMENTS
These Bylaws may be amended or repealed and new Bylaws may be adopted by
the Board of Directors or the shareholders of the Corporation.
Adopted: April 12, 1999
9
FIRST SUPPLEMENTAL INDENTURE
Dated as of June 24, 1999
between
HOLLYWOOD ENTERTAINMENT CORPORATION,
AS ISSUER
and
U.S. TRUST COMPANY, N.A.
AS TRUSTEE
Supplementing the Indenture
Dated as of August 13, 1997
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of June 24, 1999 (the "First
Supplemental Indenture"), between Hollywood Entertainment Corporation, an Oregon
corporation (the "Company"), and U.S. Trust Company, N.A. (formerly known as
U.S. Trust Company of California, N.A.), as trustee (the "Trustee").
WHEREAS, the Company executed and delivered the Indenture dated as of
August 13, 1997 (the "Original Indenture"; as amended hereby, the "Indenture")
to the Trustee to provide for the issuance of up to $250,000,000 in principal
amount of the Company's 10 5/8% Senior Subordinated Notes due 2004 (the
"Securities");
WHEREAS, on August 13, 1997 the Company issued $200,000,000 in principal
amount of the Securities (the "Original Securities");
WHEREAS, pursuant to the terms of the Original Indenture, the Company
desires to supplement and amend the Original Indenture to issue $50,000,000 in
principal amount of additional Securities (the "Additional Securities") of the
Company as contemplated by Sections 2.2 and 9.1(3) of the Indenture;
WHEREAS, all things necessary to make this First Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Original Indenture, have been done.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Original Indenture has the same meaning when
used in this First Supplemental Indenture, unless such term is defined
differently herein;
(b) the Original Indenture is hereby amended to include the
definitions of terms provided for herein
(c) capitalized terms used herein that are not otherwise defined
herein shall have the meaning assigned to such terms in the Original Indenture;
(d) the singular includes the plural and vice versa;
<PAGE>
(e) headings are for convenience of reference only and do not affect
interpretation;
(f) "Additional Securities" has the meaning set forth in the recitals
hereto.
(g) "Additional Securities Issue Date" means the date on which the
Additional Securities are originally issued.
(h) "Additional Securities Registration Rights Agreement" means the
Registration Rights Agreement dated as of June 17, 1999 by and between the
Company and Banc of America Securities LLC.
(i) "Exchange Additional Securities" means the Additional Securities
issued pursuant to the Additional Securities Registration Rights Agreement in
exchange for the Initial Additional Securities.
(j) "Initial Additional Securities" means the Additional Securities
issued on the Additional Securities Issue Date, for so long as such Securities
constitute Restricted Securities.
(k) "Initial Purchasers" means (a) with respect to Original
Securities, Montgomery Securities, Donaldson, Lufkin & Jenrette Securities
Corporation, Goldman, Sachs & Co. and Societe Generale Securities Corporation,
collectively, and (b) with respect to Additional Securities, Banc of America
Securities LLC.
(l) "Original Securities" has the meaning set forth in the recitals
hereto.
ARTICLE II
AMENDMENTS TO THE ORIGINAL INDENTURE
Section 2.1 Issuance of Additional Securities.
(a) The Original Indenture is amended to provide for the issuance of
additional 10 5/8% Senior Subordinated Notes due 2004 of the Company in an
aggregate principal amount of $50,000,000. Except to the extent inconsistent
with the terms of Exhibit A hereof and Sections 3.1 and 3.2 of this First
Supplemental Indenture, the terms of the Original Indenture will be applicable
to the Additional Securities and the Additional Securities will constitute
"Securities" within the meaning of that term under the Indenture.
(b) The Original Indenture is amended so that the definition therein
of "Exchange Securities" and "Registration Rights Agreement" will be deemed to
include the Exchange Additional Securities and the Additional Securities
Registration Rights Agreement, respectively, on and after the Additional
Securities Issue Date.
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<PAGE>
ARTICLE III
MISCELLANEOUS
Section 3.1 Form and Dating.
The Initial Additional Securities and the Trustee's certificate of
authentication relating thereto shall be substantially in the form of Exhibit A
annexed hereto, which is part of this First Supplemental Indenture. The Exchange
Additional Securities and the Trustee's certificate of authentication relating
thereto shall be substantially in the form of Exhibit B to the Original
Indenture.
The terms and provisions contained in the form of Additional Securities
annexed hereto as Exhibit A shall constitute, and are expressly made, a part of
this First Supplemental Indenture. The Original Indenture is amended to provide
that references in the certificates evidencing the Exchange Additional
Securities in the form of Exhibit B to the Original Indenture to (a) "Initial
Securities" shall be deemed to include the Initial Additional Securities and (b)
"August 13, 1997" in Paragraph 1 thereof shall be deemed to be references to
"June 24, 1999" with respect to the Initial Additional Securities, in each case
on and after the Additional Securities Issue Date.
Section 3.2 Execution and Authentication.
The Trustee shall authenticate (a) Initial Additional Securities for
original issue in an aggregate principal amount of $50,000,000 and (b) Exchange
Additional Securities for issue only in exchange pursuant to the Additional
Securities Registration Rights Agreement, for a like principal amount of
Additional Securities, in each case, upon a written order of the Company signed
by an Officer.
Section 3.3 Ratification of Indenture.
The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture shall
be deemed part of the Indenture in the manner and to the extent herein and
therein provided.
Section 3.4 Governing Law.
This First Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State without giving effect to applicable
principles of conflict of laws to the extent that the application of the laws of
another jurisdiction would be required thereby.
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<PAGE>
Section 3.5 Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this First Supplemental Indenture but
this First Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
Section 3.6 Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
Section 3.7 Effectiveness.
This First Supplemental Indenture shall be effective and binding when
executed by the Company and the Trustee.
Section 3.8 Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.
Section 3.9 Performance by Trustee.
The Trustee, for itself and its successors accepts the Trust of the
Indenture as amended by this First Supplemental Indenture and agrees to perform
the First Supplemental Indenture and agrees to perform the same, but only upon
the terms and conditions set forth in the Indenture, including the terms and
provisions defining and limiting the liability and responsibility of the
Trustee.
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IN WITNESS WHEREOF, the Parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.
HOLLYWOOD ENTERTAINMENT
CORPORATION
By: DAVID G. MARTIN
-------------------------------------
Name: David G. Martin
Title: CFO
U.S. TRUST COMPANY, N.A.
as Trustee
By: PRISCILLA DEDORO
-------------------------------------
Name: Priscilla Dedoro
Title: Assistant Vice President
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<PAGE>
EXHIBIT A
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON
THE REVERSE HEREOF.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES
FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) BY THE INITIAL PURCHASER (a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF APPLICABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION
A-1
<PAGE>
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE
COMPANY SO REQUESTS), (d) TO THE COMPANY, OR (e) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (2) BY SUBSEQUENT
PURCHASERS, AS SET FORTH IN (1)(a) THROUGH (e) ABOVE, AND IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN
BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE
OF THE SECURITY EVIDENCED HEREBY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC, TO AN ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
A-2
<PAGE>
No.
10 5/8% Senior Subordinated Notes Due 2004
CUSIP No. 436141 AF 2
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation, promises to pay
to Cede & Co., or registered assigns, the principal sum set forth from time to
time on Schedule A hereto on August 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the reverse side of
this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
HOLLYWOOD ENTERTAINMENT CORPORATION
By:
-------------------------------------
Name:
Title:
Dated: June 24, 1999
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
U.S. TRUST COMPANY, N.A., as Trustee, certifies that this is one of the
Securities referred to in the within-mentioned Indenture.
By: U.S. TRUST COMPANY, N.A.,
as Trustee
------------------------------------
Authorized Signatory
Date of Authentication:
June 24, 1999
A-3
<PAGE>
REVERSE OF SECURITY
10 5/8% SENIOR SUBORDINATED SECURITY DUE 2004
1. Interest
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation (such entity,
and its successors and assigns under the Indenture hereinafter referred to, and
each other entity which is required to become the Company pursuant to the
Indenture, and its successors and assigns under the Indenture, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
semiannually on February 15 and August 15 of each year, commencing August 15,
1999. Interest on the Securities will accrue from the most recent date on which
interest has been paid, or if interest has not yet been paid, June 24, 1999.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the same rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at such rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted interest)
to the Persons who are registered holders of Securities at the close of business
on the February 1 and August 1 immediately preceding the interest payment date
even if Securities are canceled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the Additional
Securities Registration Rights Agreement)) after the record date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Company may pay principal and interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder's registered address.
3. Paying Agent and Registrar
Initially, U.S. Trust Company, N.A., a national banking association
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
may act as Paying Agent, Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of August 13,
1997 and First Supplemental Indenture dated June 24, 1999 (the "First
Supplemental Indenture," and together with the Indenture dated as of August 13,
1997, the "Indenture"), between the Company
A-4
<PAGE>
and the Trustee. This Security is one of a duly authorized issue of Initial
Additional Securities (as defined in the Indenture) of the Company designated as
its 10 5/8% Senior Subordinated Notes due 2004. The Securities include the
Initial Additional Securities and the Exchange Additional Securities (as defined
in the Indenture), issued in exchange for the Initial Additional Securities
pursuant to the Additional Securities Registration Rights Agreement. The Initial
Additional Securities, the Exchange Additional Securities and the Original
Securities (as defined in the Indenture) are treated as a single class of
securities under, and constitute Securities under, the Indenture. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms. Any conflict between this Security and the Indenture will be
governed by the Indenture.
The Securities are unsecured senior subordinated obligations of the Company
limited to $250,000,000 aggregate principal amount (subject to Section 2.7 of
the Indenture). The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the existence of
liens, the payment of dividends on, and redemption of, the Capital Stock of the
Company and its Subsidiaries, restricted payments, the sale or transfer of
assets and Subsidiary stock, the issuance or sale of Capital Stock of Restricted
Subsidiaries, the investments of the Company and its Restricted Subsidiaries,
consolidations, mergers and transfers of all or substantially all the assets of
the Company, and transactions with Affiliates. In addition, the Indenture limits
the ability of the Company and certain of its Subsidiaries to restrict
distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed at the option of the Company prior to August 15, 2001. Thereafter, the
Securities will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the 12-month period commencing on August 15 of the years set
forth below:
Period Percentage
------ ----------
2001 ..................................... 105.313%
2002 ..................................... 102.656%
2003 and thereafter ...................... 100.000%
In addition, at any time and from time to time prior to August 15, 2000,
the Company may redeem in the aggregate up to 35% of the original principal
amount of the Securities with the
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<PAGE>
proceeds of one or more Public Equity Offerings at a redemption price (expressed
as a percentage of principal amount) of 110.625% plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the original
aggregate principal amount of the Securities must remain outstanding after each
such redemption; and provided further, however, that such redemption shall occur
within 60 days of the closing date of such Public Equity Offering.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at such Holder's registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000 (except as otherwise set forth in the Indenture). If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption. If a notice or
communication is sent in the manner provided in the Indenture, it is duly given,
whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company will
be required to make an offer to purchase Securities at a purchase price of 100%
of their principal amount plus accrued interest to the date of purchase (subject
to the rights of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date) as provided in, and subject
to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the right to
require the Company to repurchase all or any part of the Securities of such
Holder at a repurchase price in cash equal to 101% of the principal amount of
the Securities to be repurchased plus accrued and unpaid interest to the date of
repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
A-6
<PAGE>
8. The Additional Securities Registration Rights Agreement
The holder of this Initial Additional Security is entitled to the benefits
of a Registration Rights Agreement, dated as of June 17, 1999, among the Company
and the Initial Purchaser named therein (as such may be amended from time to
time, the "Additional Securities Registration Rights Agreement"). Capitalized
terms used in this subsection but not defined herein have the meanings assigned
to them in the Additional Securities Registration Rights Agreement.
If (i) within 30 days after the Closing Date, neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement has been filed with
the Commission; (ii) within 120 days after the Closing Date, the Exchange Offer
Registration Statement has not been declared effective; (iii) within 150 days
after the Closing Date, the Registered Exchange Offer has not been consummated;
(iv) within 150 days after the Closing Date, the Shelf Registration Statement
has not been declared effective if a Shelf Registration Statement is required to
be filed; or (v) after either the Exchange Offer Registration Statement or the
Shelf Registration Statement has been declared effective, such Registration
Statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Securities in accordance with and
during the periods specified in the Additional Securities Registration Rights
Agreement (each such event referred to in clauses (i) through (iv), a
"Registration Default"), interest ("Additional Interest") will accrue on the
Initial Additional Securities (in addition to the stated interest on the Initial
Additional Securities) from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Additional Interest will accrue at a rate
of 0.25% per annum during the 90-day period immediately following the occurrence
of any Registration Default and shall increase by 0.25% per annum at the end of
each subsequent 90-day period, but in no event shall such increase exceed 1.00%
per annum.
9. Subordination
The Securities are subordinated to Senior Indebtedness of the Company, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid. In
addition, to the extent applicable, each Subsidiary Guaranty shall be
subordinated to Senior Indebtedness of the relevant Subsidiary Guarantor, as
defined in the Indenture (or the relevant supplement thereto). The Company and,
to the extent applicable, each Subsidiary Guarantor, agrees, and each Holder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give such provisions effect and appoints
the Trustee as attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or
A-7
<PAGE>
permitted by the Indenture, including any transfer tax or other similar
governmental charge payable in connection therewith. The Registrar need not
register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or any Securities for a period of 15 days before a
selection of Securities to be redeemed or 15 days before an interest payment
date.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of it
for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its written request unless an abandoned property law designates another Person.
After any such payment, Holders entitled to the money must look only to the
Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate some
or all of its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended with the consent of the Holders of at least a
majority in principal amount outstanding of the Securities and (ii) any past
default or compliance with any provision may be waived with the consent of the
Holders of a majority in principal amount outstanding of the Securities. Subject
to certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, to comply
with Article 5 of the Indenture, to provide for uncertificated Securities in
addition to or in place of certificated Securities, to add guarantees with
respect to the Securities, to secure the Securities, to add additional covenants
or surrender rights and powers conferred on the Company, to make any change that
does not adversely affect the rights of any Securityholder or to comply with any
request of the SEC in connection with qualifying the Indenture under the TIA.
15. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days in
payment of interest on the Securities; (ii) default in payment of principal or
premium, if any, on any Security
A-8
<PAGE>
when due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise, (iii) failure by the Company to
comply for 30 days after notice with Sections 4.3, 4.4, 4.6 or Article 5 of the
Indenture; (iv) failure by the Company to comply with other agreements in the
Indenture or the Securities, for 60 days after notice; (iv) failure by the
Company or any Restricted Subsidiary to pay any Indebtedness within any
applicable grace period after final maturity or acceleration by the Holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $5.0 million and in either case, such default is not cured
or waived and such acceleration, if any, rescinded or the Indebtedness is not
paid in 30 days; (v) certain events of bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary; and (vi) the rendering of any
judgments or decrees against the Company or any Restricted Subsidiary for the
payment of money in excess of $5.0 million, if any such judgment or decree is
not discharged, waived or stayed within 60 days after entry of such judgment or
decree.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Securities then outstanding may
declare all the Securities to be due and payable. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
A-9
<PAGE>
17. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any, or
interest or other Obligations on any of the Securities or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Securities or because of the creation of any Indebtedness represented hereby
and thereby, shall be had against any incorporator, stockholder, officer,
director, employee or controlling person of the Company, a Subsidiary Guarantor
or any Successor Person thereof. Each Holder, by accepting a Security, waives
and releases all such liability.
18. Guarantees
This Security may be entitled to the benefits of certain Guarantees, if
any, which may be made after the original issuance of this Security for the
benefit of the Holders. Reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and
obligations thereunder of any such Subsidiary Guarantors, the Trustee and the
Holders.
19. Governing Law
The Indenture and the Securities shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
20. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
21. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
22. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed
A-10
<PAGE>
on the Securities or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture. Requests may be
made as follows:
If to the Company:
Hollywood Entertainment Corporation
9275 SW Peyton Lane
Wilsonville, Oregon 97070
Attention: Secretary
If to the Trustee:
U.S. Trust Company, N.A.
555 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
A-11
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ____________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Date: _______________ Your Signature: _________________________
Sign exactly as your name appears on the
other side of this Security.
Signature Guarantee: ____________________
(Signature must be
guaranteed)
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the Commission
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the second anniversary of the Issue Date; provided, however,
that neither the Company nor any Affiliate of the Company has held any
beneficial interest in this Security, or a portion thereof, at any time on or
prior to the second anniversary of the Issue Date and the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer:
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
(3) __ outside the United States to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as amended;
or
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<PAGE>
(4) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(5) __ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(6) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[ ] The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4) or
(6) is checked, the Company or the Trustee may require, prior to registering any
such transfer of the Securities, in their sole discretion, such written legal
opinions, certifications (including an investment letter in the case of box (3))
and other information as the Trustee or the Company has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933, as amended.
If none of the foregoing items are checked, the Trustee or Registrar shall
not be obligated to register this Security in the name of any person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.14 of the Indenture shall have
been satisfied.
Date: _______________ Your Signature: _________________________
Sign exactly as your name appears on the
other side of this Security.
Signature Guarantee: ____________________
(Signature must be
guaranteed)
A-13
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Issuer as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ______________
NOTICE: To be executed by an executive officer
A-14
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: If you want to
elect to have only part of this Security purchased by the Company pursuant to
Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: _______________ Your Signature: _________________________
Sign exactly as your name appears on the
other side of this Security.
Signature Guarantee: ____________________
(Signature must be
guaranteed)
A-15
<PAGE>
SCHEDULE A
PRINCIPAL AMOUNT: $50,000,000
The following increases or decreases in the principal amount of this Global
Security have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Signature of
decrease in increase in Amount of this authorized
Principal Principal Global Security signatory of
Amount of this Amount of this following such Trustee or
Date of Global Global decrease (or Securities
Exchange Security Security increase) Custodian
- ------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
- ------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
A-16
REGISTRATION RIGHTS AGREEMENT
Dated as of June 17, 1999
by and between
Hollywood Entertainment Corporation
and
Banc of America Securities LLC
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 17, 1999, by and between Hollywood Entertainment
Corporation, an Oregon corporation (the "Company"), and Banc of America
Securities LLC the ("Initial Purchaser"), which has agreed to purchase the
Company's 10 5/8% Senior Subordinated Notes due 2004 (the "Initial Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated as of
June 17, 1999 (the "Purchase Agreement"), by and among the Company and the
Initial Purchaser (i) for the benefit of the Initial Purchaser and (ii) for the
benefit of the holders from time to time of the Notes (including the Initial
Purchaser). To induce the Initial Purchaser to purchase the Initial Notes, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchaser set forth in Section 5(h) of the Purchase
Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Additional Interest Payment Date: With respect to the Initial Notes,
each Interest Payment Date.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company
to the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Initial Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
Effectiveness Target Date: As defined in Section 5.
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Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The 10 5/8% Senior Subordinated Notes due 2004, of the
same series under the Indenture as the Initial Notes, to be issued to Holders in
exchange for Transfer Restricted Securities pursuant to this Agreement.
Exchange Offer: The registration by the Company under the Act of the
Exchange Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser
proposes to sell the Initial Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of August 13, 1997, among the
Company and U.S. Trust Company of California, N.A., as trustee (the "Trustee"),
pursuant to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchaser: As defined in the preamble hereto.
Initial Notes: The 10 5/8% Senior Subordinated Notes due 2004, of the
same series under the Indenture as the Exchange Notes, for so long as such
securities constitute Transfer Restricted Securities.
Initial Placement: The issuance and sale by the Company of the Initial
Notes to the Initial Purchaser pursuant to the Purchase Agreement.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Initial Notes and the Exchange Notes.
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Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
the Notes, each Person who is a Holder of Notes on the record date with respect
to the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof
TIA: The Trust Indenture Act of 1939 (15 U. S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been effectively registered under the Act and disposed of in accordance with
a Shelf Registration Statement and (c) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Act or by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein).
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the benefits
of this Agreement are the Transfer Restricted Securities.
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(b) Holders of Transfer Restricted Securities. A Person is deemed to be a
holder of Transfer Restricted Securities (each, a "Holder") whenever such Person
owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable law
or Commission policy (after the procedures set forth in Section 6(a) below have
been complied with), the Company shall (i) cause to be filed with the Commission
as soon as practicable after the Closing Date, but in no event later than 30
days after the Closing Date, a Registration Statement under the Act relating to
the Exchange Notes and the Exchange Offer, (ii) cause such Registration
Statement to become effective at the earliest possible time, but in no event
later than 120 days after the Closing Date, (iii) in connection with the
foregoing, file (A) all pre-effective amendments to such Registration Statement
as may be necessary in order to cause such Registration Statement to become
effective, (B) if applicable, a post-effective amendment to such Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings in connection with the registration and qualification of the Exchange
Notes to be made under the Blue Sky laws of such jurisdictions as are necessary
to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of
such Registration Statement, commence the Exchange Offer. The Exchange Offer
shall be on the appropriate form permitting registration of the Exchange Notes
to be offered in exchange for the Transfer Restricted Securities and to permit
resales of Notes held by Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration Statement to be
effective continuously and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 30 days after the date notice of the
Exchange Offer is mailed to the Holders. The Company shall cause the Exchange
Offer to comply with all applicable federal and state securities laws. No
securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 150 days after the Closing Date.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus forming a part of the Exchange Offer Registration
Statement that any Broker-Dealer who holds Initial Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Initial Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with any
resales of the Exchange Notes
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received by such Broker-Dealer in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of the
Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of
Distribution" section shall also contain all other information with respect to
such resales by Broker-Dealers that the Commission may require in order to
permit such resales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Notes acquired by Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities, and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period ending on the earlier of (i) 180 days
from the date on which the Exchange Offer Registration Statement is declared
effective and (ii) the date on which a Broker-Dealer is no longer required to
deliver a prospectus in connection with market-making or other trading
activities.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
180-day (or shorter as provided in the foregoing sentence) period in order to
facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with), (ii) for any reason the Exchange Offer is not Consummated within 150 days
after the Closing Date, or (iii) with respect to any Holder of Transfer
Restricted Securities (A) such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer, or (B) such Holder
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder, or (C) such Holder is a Broker-Dealer and holds Initial
Notes acquired directly from the Company or one of its affiliates, then, upon
such Holder's request, the Company shall
(x) cause to be filed a shelf registration statement pursuant to Rule
415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement") as soon as practicable but in any event on or prior to 30 days
after the Closing Date (such
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date being the "Shelf Filing Deadline"), which Shelf Registration Statement
shall provide for resales of all Transfer Restricted Securities the Holders
of which shall have provided the information required pursuant to Section
4(b) hereof; and
(y) use its best efforts to cause such Shelf Registration Statement to
be declared effective by the Commission on or before the 150th day after
the Closing Date.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Notes by the Holders of Transfer Restricted Securities
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
two years following the effective date of such Shelf Registration Statement (or
shorter period that will terminate when all the Notes covered by such Shelf
Registration Statement have been sold pursuant to such Shelf Registration
Statement).
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. Each Holder as to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. ADDITIONAL INTEREST
If (i) any of the Registration Statements required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any of such Registration Statements has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), regardless of
the reasonableness of any efforts made by or on behalf of the Company to cause
such Registration Statement to become effective, or (iii) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself immediately
declared effective (each such event referred to in clauses (i) through (iii), a
"Registration Default"), the Company hereby agrees that the interest rate borne
by the
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Transfer Restricted Securities shall be increased by 0.25% per annum during the
90-day period immediately following the occurrence of any Registration Default
and shall increase by 0.25% per annum at the end of each subsequent 90-day
period, but in no event shall such increase exceed 1.00% per annum. Following
the cure of all Registration Defaults relating to any particular Transfer
Restricted Securities, the interest rate borne by the relevant Transfer
Restricted Securities will be reduced to the original interest rate borne by
such Transfer Restricted Securities; provided, however, that, if after any such
reduction in interest rate, a different Registration Default occurs, the
interest rate borne by the relevant Transfer Restricted Securities shall again
be increased pursuant to the foregoing provisions.
All obligations of the Company set forth in the preceding paragraph that
are outstanding with respect to any Transfer Restricted Security at the time
such security ceases to be a Transfer Restricted Security shall survive until
such time as all such obligations with respect to such Note shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Company shall comply with all of the provisions of Section 6(c)
below, shall use its best efforts to effect such exchange to permit the sale of
Transfer Restricted Securities being sold in accordance with the intended method
or methods of distribution thereof, and shall comply with all of the following
provisions:
(i) If in the reasonable opinion of counsel to the Company there is a
question as to whether the Exchange Offer is permitted by applicable law, the
Company hereby agrees to seek a no-action letter or other favorable decision
from the Commission allowing the Company to Consummate an Exchange Offer for
such Initial Notes. The Company hereby agrees to pursue the issuance of such a
decision to the Commission staff level but shall not be required to take
commercially unreasonable action to effect a change of Commission policy. The
Company hereby agrees, however, to (A) participate in telephonic conferences
with the Commission, (B) deliver to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted and (C)
diligently pursue a favorable resolution by the Commission staff of such
submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation thereof, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of the
Company, (B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring
the Exchange Notes in its ordinary course of business.
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In addition, all such Holders of Transfer Restricted Securities shall otherwise
cooperate in the Company's preparations for the Exchange Offer. Each Holder
hereby acknowledges and agrees that any Broker-Dealer and any such Holder using
the Exchange Offer to participate in a distribution of the securities to be
acquired in the Exchange Offer (1) could not under Commission policy as in
effect on the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon
Capital Holdings Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters (which may include any no-action letter obtained pursuant to
clause (i) above), and (2) must comply with the registration and prospectus
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K if the
resales are of Exchange Notes obtained by such Holder in exchange for Initial
Notes acquired by such Holder directly from the Company.
(b) Shelf Registration Statement. In connection with the Shelf Registration
Statement, the Company shall comply with all the provisions of Section 6(c)
below and shall use its best efforts to effect such registration to permit the
sale of the Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and pursuant thereto the
Company will as expeditiously as possible prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof.
(c) General Provisions. In connection with any Registration Statement and
any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for the
period specified in Section 3 or 4 of this Agreement, as applicable; upon the
occurrence of any event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material misstatement or omission
or (B) not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration Statement, in the case of
clause (A), correcting any such misstatement or omission, and, in the case of
either clause (A) or (B), use its best efforts to cause such amendment to be
declared effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable thereafter;
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(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 3 or 4 hereof, as applicable, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with the applicable provisions of Rules 424
and 430A under the Act in a timely manner; and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, to confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company shall
use its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) furnish without charge to the Initial Purchaser and each of the
underwriter(s), if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review of such
Holders and underwriter(s), if any, for a period of at least five business days,
and the Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which the Initial
Purchaser of Transfer Restricted Securities covered by such Registration
Statement or the underwriter(s), if any, shall reasonably object in
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writing within five business days after the receipt thereof (such objection to
be deemed timely made upon confirmation of telecopy transmission within such
period). The objection of the Initial Purchaser or underwriter, if any, shall be
deemed to be reasonable if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to the Initial Purchaser and to the underwriter(s), if
any, make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such information
in such document prior to the filing thereof as the Initial Purchaser or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the Initial
Purchaser, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by the Initial
Purchaser or any of the underwriter(s), all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all information reasonably
requested by the Initial Purchaser, or any such underwriter, attorney or
accountant in connection with such Registration Statement subsequent to the
filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s), if
any, promptly incorporate in any Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such information as
such selling Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being sold to
such underwriter(s), the purchase price being paid therefor and any other terms
of the offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is notified of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(viii) furnish to each selling Holder and each of the underwriter(s),
if any, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
financial statements and schedules, all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by reference);
(ix) deliver to each selling Holder and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company
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hereby consents to the use of the Prospectus and any amendment or supplement
thereto by each of the selling Holders and each of the underwriter(s), if any,
in connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement thereto;
(x) enter into such agreements (including an underwriting agreement),
and make such representations and warranties, and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement, all to such extent as may be requested by any
Initial Purchaser or by any Holder of Transfer Restricted Securities or
underwriter in connection with any sale or resale pursuant to any Registration
Statement contemplated by this Agreement; and whether or not an underwriting
agreement is entered into and whether or not the registration is an Underwritten
Registration, the Company shall:
(A) furnish to the Initial Purchaser, each selling Holder and each
underwriter, if any, in such substance and scope as they may request and as
are customarily made by issuers to underwriters in primary underwritten
offerings, upon the date of the Consummation of the Exchange Offer and, if
applicable, the effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, signed by (y) the President or any Vice
President and (z) a principal financial or accounting officer of the
Company, confirming, as of the date thereof, the matters set forth in
paragraphs (i), (ii) and (iii) of Section 5(e) of the Purchase
Agreement and such other matters as such parties may reasonably
request; and
(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company, covering
the matters set forth in paragraph (c) of Section 5 of the Purchase
Agreement and such other matter as such parties may reasonably
request, and in any event including a statement to the effect that
such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, the Initial Purchaser's
representatives and the Initial Purchaser's counsel in connection with
the preparation of such Registration Statement and the related
Prospectus and have considered the matters required to be stated
therein and the statements contained therein, although such counsel
has not independently verified the accuracy, completeness or fairness
of such statements; and that such counsel advises that, on the basis
of the foregoing (relying as to materiality to a large extent upon
facts provided to such counsel by officers and other representatives
of the Company and without
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independent check or verification), no facts came to such counsel's
attention that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in the case of
the Exchange Offer Registration Statement, as of the date of
Consummation, contained an 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 that the
Prospectus contained in such Registration Statement as of its date
and, in the case of the opinion dated the date of Consummation of the
Exchange Offer, as of the date of Consummation, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included in
any Registration Statement contemplated by this Agreement or the
related Prospectus;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (x), if any.
If at any time the representations and warranties of the Company
contemplated in clause (A)(1) above cease to be true and correct, the Company
shall so advise the Initial Purchasers and the underwriter(s), if any, and each
selling Holder promptly and, if requested by such Persons, shall confirm such
advice in writing;
(xi) if the registration is an Underwritten Registration, the Company
will furnish to each underwriter a customary comfort letter, dated as of the
date of Consummation of the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, from the Company's independent
accountants, in the customary form and covering matters of the type customarily
covered in comfort letters by underwriters in connection with primary
underwritten offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 5(a) of the Purchase Agreement, without
exception;
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection
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with the registration and qualification of the Transfer Restricted Securities
under the securities or Blue Sky laws of such jurisdictions as the selling
Holders or underwriter(s) may request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Transfer Restricted Securities covered by the Shelf Registration Statement;
provided, however, that the Company shall not be required to register or qualify
as a foreign corporation where it is not then so qualified or to take any action
that would subject it to the service of process in suits or to taxation, other
than as to matters and transactions relating to the Registration Statement, in
any jurisdiction where it is not then so subject;
(xiii) shall issue, upon the request of any Holder of Initial Notes
covered by the Shelf Registration Statement, Exchange Notes, having an aggregate
principal amount equal to the aggregate principal amount of Initial Notes
surrendered to the Company by such Holder in exchange therefor or being sold by
such Holder; such Exchange Notes to be registered in the name of such Holder or
in the name of the purchaser(s) of such Notes, as the case may be; in return,
the Initial Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be in
such denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to any sale
of Transfer Restricted Securities made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted Securities
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in clause (viii) above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D) above
shall exist or have occurred, prepare a supplement or post-effective amendment
to the Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(xvii) provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a form eligible
for deposit with The Depository Trust Company;
(xviii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any
13
<PAGE>
"qualified independent underwriter") that is required to be retained in
accordance with the rules and regulations of the NASD, and use its reasonable
best efforts to cause such Registration Statement to become effective and
approved by such governmental agencies or authorities as may be necessary to
enable the Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xix) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 (which need not be audited) for the
twelve-month period (A) commencing at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement;
(xx) provide promptly to each Holder upon request each document filed
with the Commission pursuant to the requirements of Section 13 and Section 15 of
the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security that,
upon receipt of any notice from the Company of the existence of any fact of the
kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or
shall have received the Advice; however, no such extension shall be taken into
account in determining whether Additional Interest is due pursuant to Section 5
hereof or the amount of such Additional Interest, it being agreed that the
Company's option to suspend use of a Registration. Statement pursuant to this
paragraph shall be treated as a Registration Default for purposes of Section 5.
14
<PAGE>
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by the Initial
Purchaser or any Holder with the NASD (and, if applicable, the fees and expenses
of any "qualified independent underwriter" and its counsel that may be required
by the rules and regulations of the NASD)); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Notes
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and, subject to Section 7(b) below, the Holders of Transfer
Restricted Securities; and (v) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchaser and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Brobeck, Phleger & Harrison LLP or such other counsel as may be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder and
(ii) each person, if any, who controls (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) any Holder (any of the persons referred
to in this clause (ii) being hereinafter referred to as a "controlling person")
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing, settling,
15
<PAGE>
compromising, paying or defending any claim or action, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
including the reasonable fees and expenses of counsel to any Indemnified
Holder), joint or several, directly or indirectly caused by, related to, based
upon, arising out of or in connection with any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders expressly for use
therein. This indemnity agreement shall be in addition to any liability which
the Company may otherwise have.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company, such Indemnified Holder (or the Indemnified Holder controlled by
such controlling person) shall promptly notify the Company in writing (provided,
that the failure to give such notice shall not relieve the Company of its
obligations pursuant to this Agreement). Such Indemnified Holder shall have the
right to employ its own counsel in any such action and the fees and expenses of
such counsel shall be paid, as incurred, by the Company (regardless of whether
it is ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder). The Company shall not, in connection with any one
such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for such Indemnified Holders, which firm shall be designated by the
Holders. The Company shall be liable for any settlement of any such action or
proceeding effected with the Company's prior written consent, which consent
shall not be withheld unreasonably, and the Company agrees to indemnify and hold
harmless any Indemnified Holder from and against any loss, claim, damage,
liability or expense by reason of any settlement of any action effected with the
written consent of the Company. The Company shall not, without the prior written
consent of each Indemnified Holder, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or threatened action,
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Holder is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each Indemnified Holder from all liability
arising out of such action, claim, litigation or proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally and not
jointly, to indemnify and hold harmless the Company, and its respective
directors, its officers who sign a Registration Statement, and any person
controlling (within the meaning of Section 15 of
16
<PAGE>
the Act or Section 20 of the Exchange Act) the Company, to the same extent as
the foregoing indemnity from the Company to each of the Indemnified Holders, but
only with respect to claims and actions based on information relating to such
Holder furnished in writing by such Holder expressly for use in any Registration
Statement. In case any action or proceeding shall be brought against the Company
or its directors or officers or any such controlling person in respect of which
indemnity may be sought against a Holder of Transfer Restricted Securities, such
Holder shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Holder by the preceding paragraph. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under Section 8(a) or Section 8(b) hereof (other than by
reason of exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities, judgments, actions or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Holders on the other hand from
the Initial Placement (which in the case of the Company shall be deemed to be
equal to the total gross proceeds from the Initial Placement as set forth on the
cover page of the Offering Memorandum), the amount of Additional Interest which
did not become payable as a result of the filing of the Registration Statement
resulting in such losses, claims, damages, liabilities, judgments actions or
expenses, and such Registration Statement, or if such allocation is not
permitted by applicable law, the relative fault of the Company on the one hand
and of the Indemnified Holder on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the Indemnified Holder on the other
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 relates to information supplied by the Company or by
the Indemnified Holder 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 the second paragraph of Section 8(a),
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company and each Holder of Transfer Restricted Securities agree
that it would not be just and equitable if contribution pursuant to this Section
8(c) were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations
17
<PAGE>
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, none of the Holders (and its related Indemnified
Holders) shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total discount received by such Holder with respect
to the Initial Notes exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. 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 Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Initial Notes held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lockup letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
18
<PAGE>
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the date
of this Agreement enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company will not take any action,
or permit any change to occur, with respect to the Notes that would materially
and adversely affect the ability of the Holders to Consummate any Exchange
Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered; provided that, with
respect to any matter that directly or indirectly affects the rights of the
Initial Purchaser hereunder, the Company shall obtain the written consent of the
Initial Purchaser with respect to which such amendment, qualification,
supplement, waiver, consent or departure is to be effective.
(e) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
19
<PAGE>
(ii) if to the Company:
Hollywood Entertainment Corporation
9275 SW Peyton Lane
Wilsonville, OR 97070
Telecopier No.: (503) 570-1701
Attention: Donald J. Ekman
With a copy to:
Stoel Rives LLP
Standard Insurance Center
900 S.W. Fifth Avenue, Suite 2600
Portland, OR 97204-1268
Telecopier No.: (503) 220-2480
Attention: Robert J. Moorman
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
20
<PAGE>
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Transfer Restricted Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
HOLLYWOOD ENTERTAINMENT CORPORATION
By: DONALD J. EKMAN
-------------------------------------
Donald J. Ekman
Senior Vice President and General
Counsel
21
<PAGE>
The foregoing Registration Rights Agreement is hereby
confirmed and accepted as of the date first above written.
By: BANC OF AMERICA SECURITIES LLC
By: ERIC S. PETERSON
-----------------------------------
Eric S. Peterson
Managing Director
22
Exhibit 5.1
July 15, 1999
Board of Directors
Hollywood Entertainment Corporation
9275 SW Peyton Lane
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-4 (the "Registration Statement") under the Securities Act of
1933, as amended, covering an aggregate principal amount of $50,000,000 of 10e%
Senior Subordinated Notes due 2004 of the Company (the "Notes") being offered
for exchange by the Company. 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; and
(ii) The Notes have been duly authorized.
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
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORTATION
Computation of Ratio of Earnings to Fixed Charges
3 Months Ended
Year Ended December 31, March 31,
1994 1995 1996 1997(1) 1998(2) 1998 1999(3)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Computation of Ratio of Earnings to Fixed Charges
Pre-tax income (loss) from continuing
operations 12,502 18,661 34,282 9,343 (69,665) 12,771 3,778
Fixed Charges:
Deferred financing cost - - - 603 1,462 365 374
Interest Expense 795 490 4,339 13,806 31,893 6,745 9,245
Rental Expense (1/3) 3,100 8,433 18,033 31,991 51,584 11,362 15,728
Capitalized Interest 458 734 1,277 304 277
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total fixed charges 3,895 8,923 22,830 47,134 86,216 18,776 25,624
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income taxes and fixed
charges
excluding capitalized interest 16,397 27,584 56,654 55,734 15,274 31,243 29,125
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of earnings to fixed charges 4.21 3.09 2.48 1.18 0.18 1.66 1.14
========== ========== ========== ========== ========== ========== ==========
(1) Computation of pro-forma ratio of earnings to fixed changes adjusted for
litigation settlement, write-off of obsolete video game inventory and
failed self-tender offer costs.
Fixed charges as above 47,134
----------
Earnings before income taxes and fixed charges excluding capitalized interest 55,734
Adjustments:
Increase assuming lack of litigation settlement 18,874
Increase assuming no inventory write-off 6,798
Increase assuming no failed self-tender offer 4,604
----------
86,010
----------
Pro forma ratio of earnings to fixed charges, as adjusted 1.83
(2) Computation of Pro forma ratio of earnings to fixed charges adjusted for
inventory write-off and the write-off of purchased research and development
costs and goodwill amortization associated with the Reel.com acquisition.
Fixed charges, as above 86,216
----------
Earnings before income taxes and fixed charges excluding capitalized interest 15,274
Adjustments:
Increase assuming no inventory write-off 99,910
Increase assuming no write-off of purchased research and development cost 1,900
Increase assuming lack of Reel.com goodwill amortization 12,545
----------
129,629
----------
Pro forma ration of earnings to fixed charges, as adjusted 1.50
(3) Computation of Pro-forma ratio of earnings to fixed charges adjusted for
the amortization of Reel.com goodwill Fixed charges, as above 25,624
----------
Earnings before income taxes and fixed charges excluding capitalized interest 29,125
Adjustments:
Increase assuming lack of Reel.com goodwill amortization 12,543
----------
41,668
----------
Pro forma ration of earnings to fixed charges, as adjusted 1.63
</TABLE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of our report dated
March 1, 1999 appearing on page F-1 of Hollywood Entertainment Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998. We also consent
to the references to us under the headings "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Portland, Oregon
July 15, 1999
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of our report dated
May 29, 1999, except for Note 7 as to which the date is October 1, 1998,
appearing on page 5 of Hollywood Entertainment Corporation's Current Report on
Form 8-K/A dated October 1, 1998. We also consent to the references to us under
the headings "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
San Francisco, California
July 15, 1999
Exhibit T-1.7
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
--------------------
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4311476
(I.R.S. employer
Identification No.)
515 South Flower Street, Suite 2700
Los Angeles, CA 90071
(Address of principal (Zip Code)
executive offices)
DWIGHT LIU
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone
number of agent for service)
--------------------
HOLLYWOOD ENTERTAINMENT CORPORATION
(Exact name of obligor as specified in its charter)
OREGON 93-0981138
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<PAGE>
Exhibit T-1.7
9275 SW Peyton Lane
Wilsonville, Oregon 97070
(Address of principal chief executive offices)
10 5/8% Senior Subordinated Notes due 2004
(Title of indenture securities)
GENERAL
- -------
1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
<PAGE>
Exhibit T-1.7
The obligor currently is not in default under any of its outstanding
securities for which U.S. Trust Company, National Association is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 - A copy of the Articles of Association of U.S. Trust Company,
National Association currently in effect; incorporated herein by reference to
Exhibit T-1.1 filed with Form T-1 Statement, Registration No. 333-59485.
T-1.2 - A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association, incorporated herein
by reference to Exhibit T-1.1 filed with Form T-1 Statement, Registration No.
33-33031.
T-1.3 -A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents specified
in paragraph (1) or (2) above, incorporated herein by reference to Exhibit T-1.1
filed with Form T-1 Statement, Registration No. 33-33031.
T-1.4 - A copy of the By-Laws of U.S. Trust Company, National Association,
as amended to date; incorporated by reference to Exhibit T-1.4 filed with Form
T-1 Statement, Registration No. 33-54136.
T-1.6 - The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939; incorporated herein by reference to Exhibit T-1.6 filed
with Form T-1 Statement, Registration No. 33-33031.
T-1.7 - A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority
T-1.8 - Not applicable.
T-1.9 - Not applicable.
NOTE
- ----
As of April 29, 1999, the Trustee had 20,000 shares of Capital Stock
outstanding, all of which are owned by U.S. Trust Corporation.
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the information
requested as though U. S. Trust Company, National Association and U.S. Trust
Corporation were the "trustee."
<PAGE>
Exhibit T-1.7
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
--------------------
Pursuant to the requirements of the Trust Indenture of Act of 1939, the trustee,
U.S. Trust Company, National Association, a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Los Angeles, and State of
California, on the 29th day of April 1999.
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
Trustee
By: SANDEE' PARKS
-------------------------------------
Sandee' Parks
Authorized Signatory
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Exhibit T-1.7
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U.S. Trust Company, N.A. Call Date: 12/31/98 ST-BK: 06-0784 FFIEC 033
515 South Flower Street, Suite 2700 Vendor ID: D Cert #: 33332 Page RC-1
Los Angeles, CA 90071 Transit #: 12204024
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CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
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Schedule RC - Balance Sheet
C200 -
Dollar Amounts in Thousands
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ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A) RCON
a. Noninterest-bearing balances and currency and coin (1)_______________ ____ _______ 0081 10,239 1.a
b. Interest bearing balances (2)________________________________________ ____ _______ 0071 199 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)___________ ____ _______ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)_________ ____ _______ 1773 167,359 2.b
3. Federal funds sold and securities purchased under agreements to resell____ ____ _______ 1350 65,000 3.
4. Loans and lease financing receivables: RCON
a. Loans and leases, net of unearned income (from Schedule RC-C)________ 2122 60,536 4.a
b. LESS: Allowance for loan and lease losses___________________________ 3123 979 4.b
c. LESS: Allocated transfer risk reserve_______________________________ 3128 0 4.c
d. Loans and leases, net of unearned income, allowance, and reserve RCON
(item 4.a minus 4.b and 4.c)_________________________________________ ____ _______ 2125 59,557 4.d
5. Trading assets____________________________________________________________ ____ _______ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)__________________ ____ _______ 2145 9,041 6.
7. Other real estate owned (from Schedule RC-M)______________________________ ____ _______ 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)______________________________________________________ ____ _______ 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding______________ ____ _______ 2155 0 9.
10. Intangible assets (from Schedule RC-M)____________________________________ ____ _______ 2143 30,166 10.
11. Other assets (from Schedule RC-F)_________________________________________ ____ _______ 2160 6,802 11.
12. Total assets (sum of items 1 through 11)__________________________________ ____ _______ 2170 348,363 12.
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(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
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Exhibit T-1.7
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<S> <C> <C> <C> <C> <C>
U.S. Trust Company, N.A. Call Date: 12/31/98 ST-BK: 06-0784 FFIEC 033
515 South Flower Street, Suite 2700 Vendor ID: D Cert #: 33332 Page RC-2
Los Angeles, CA 90071 Transit #: 12204024
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Schedule RC - Continued
Dollar Amounts in Thousands
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LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of RCON
columns A and C from Schedule RC-E)__________________________________ 2200 291,235 13.a
RCON
(1) Noninterest-bearing (1)________________________________________ 6631 84,867 13.a.1
(2) Interest-bearing_______________________________________________ 6636 206,368
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing____________________________________________
(2) Interest-bearing_______________________________________________
14. Federal funds purchased (2) and securities sold under agreements to RCON
repurchase: 2800 0 14
15. a. Demand notes issued to the U.S. Treasury_____________________________ ____ _______ 2840 0 15.a
b. Trading liabilities__________________________________________________ ____ _______ 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less________________________ ____ _______ 2332 0 16.a
b. With a remaining maturity of more than one year through three
years________________________________________________________________ ____ _______ A547 0 16.b
c. With a remaining maturity of more than three years___________________ ____ _______ A548 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding__________________ ____ _______ 2920 0 18.
19. Subordinated notes and debentures_________________________________________ ____ _______ 3200 0 19.
20. Other liabilities (from Schedule RC-G)____________________________________ ____ _______ 2930 9,492 20.
21. Total liabilities (sum of items 13 through 20)____________________________ ____ _______ 2948 300,727 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus_____________________________ ____ _______ 3838 5,000 23.
24. Common stock______________________________________________________________ ____ _______ 3230 2,000 24.
25. Surplus (exclude all surplus related to preferred stock)__________________ ____ _______ 3839 25,004 25.
26. a. Undivided profits and capital reserves_______________________________ ____ _______ 3632 14,703 26.a
b. Net unrealized holding gains (losses) on available-for-sale
securities___________________________________________________________ ____ _______ 8434 929 26.b
27. Cumulative foreign currency translation adjustments_______________________
28. a. Total equity capital (sum of items 23 through 27)____________________ ____ _______ 3210 47,636 28.
29. Total liabilities and equity capital (sum of items 21 and 28)_____________ ____ _______ 3300 348,363 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed for RCON
the bank by independent external auditors as of any date during 1997________________________ 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
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(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited life preferred stock and related surplus.
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