SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 28, 1997
VIDEO UPDATE, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-24346 41-1461110
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(Commission File Number) (I.R.S. Employer Identification No.)
3100 World Trade Center, 30 East Seventh Street, St. Paul, Minnesota 55101
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(Address of Principal Executive Offices) (Zip Code)
(612) 222-0006
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
TABLE OF CONTENTS
FORM 8-K
February 28, 1997
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Item Page
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ITEM 5. OTHER EVENTS
a. Purchase Agreement by and among Video Update, Inc.,
Cox Video Corporation, and Robert W. Cox, dated as of
February 28, 1997. 1
b. Purchase Agreement by and among Video Update, Inc.,
Susan Janae Kingston, and Larry Peterman, dated as of
March 17, 1997. 1
c. Election of Director 1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS 2
SIGNATURE 3
EXHIBITS E-1
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ITEM 5. OTHER EVENTS
a. Effective February 28, 1997, Video Update, Inc. ("Video Update")
entered into a Purchase Agreement (the "Cox Agreement") with Cox Video
Corporation, a Texas corporation ("CVC"), and Robert W. Cox, the sole
stockholder (the "Stockholder") of CVC, which operated three video rental stores
in Texas and four video rental stores in Oklahoma (the "Cox Stores"). Under the
Cox Agreement, Video Update agreed to pay CVC and the Stockholder $2,800,000 in
cash (the "Cox Purchase Price"), in exchange for substantially all of the assets
of CVC relating to the Cox Stores (the "Cox Assets"). The amount of
consideration exchanged was determined by negotiations between the Stockholder
and Video Update. The Cox Purchase Price was financed by funds from Video
Update's bank line of credit. Video Update presently intends to continue to use
substantially all of the Cox Assets for the purpose of operating the Cox Stores.
No material relationship existed between the parties prior to the transaction.
b. Effective March 17, 1997, Video Update entered into a Purchase
Agreement (the "MB Agreement") with Susan Janae Kingston ("Kingston"), a sole
proprietor d/b/a Movie Buffs and Larry Peterman, the spouse of Kingston
(collectively, the "Sellers"), relating to two video rental stores in Utah (the
"MB Stores"). Under the MB Agreement, Video Update agreed to pay $500,000 in
cash on behalf of the Sellers (the "MB Purchase Price") in exchange for
substantially all of the assets relating to the MB Stores (the "MB Assets"). The
amount of consideration exchanged was determined by negotiations between the
Sellers and Video Update. The MB Purchase Price was financed by funds from Video
Update's bank line of credit. Video Update presently intends to continue to use
substantially all of the MB Assets for the purpose of operating the MB Stores.
No material relationship existed between the parties prior to the transaction.
c. On March 31, 1997, Video Update's Board of Directors elected Bernard
R. Patriacca as a Director, effective April 1, 1997. Since December 1995, Mr.
Patriacca has served as a director of Smith-Midland Corporation, a publicly held
developer and manufacturer of precast concrete products. Since May 1994, Mr.
Patriacca has served as Vice President and co-founder of Errands Etc., Inc., a
privately held business in the homeowners' personal services area. From January
1994 to May 1994, Mr. Patriacca served as the Vice President of Finance and
Administration for Sky Rock Services Corp., a privately held personal services
business. From 1992 through March 1993, Mr. Patriacca served as the Chief
Financial Officer for Boston Coach, a privately held limousine service company.
From 1991 to 1992 and from March 1993 to January 1994, Mr. Patriacca served as
an independent financial consultant. Mr. Patriacca served from 1973 to 1991 in
various capacities, including Senior Vice President and Chief Financial Officer,
for Dunkin' Donuts Incorporated, then a publicly held food service company
("Dunkin' Donuts"). From March 1990 to November 1991, he served as a director of
Dunkin' Donuts. Since January 1992, Mr. Patriacca has served as a director of
ENCON Systems, Inc., a publicly held full-service energy management company. Mr.
Patriacca received a Bachelor of Science degree in Accounting from Northeastern
University and a Master's degree in Financing/Accounting from Northeastern
University, and he is a Certified Public Accountant.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial statements of businesses acquired. Not applicable.
b. Pro forma financial information. Not applicable.
c. Exhibits. The following exhibits are filed with this report.
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Exhibit
No. Title
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2a Purchase Agreement by and among Video Update, Inc., Cox Video
Corporation, and Robert W. Cox, dated as of February 28, 1997.
2b Purchase Agreement by and among Video Update, Inc., Susan Janae
Kingston, and Larry Peterman, dated as of March 17, 1997.
99a Press Release, dated March 3, 1997.
99b Press Release, dated April 2, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Video Update, Inc.
Dated: April 4, 1997 By:/s/ Daniel A. Potter
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Daniel A. Potter
Chief Executive Officer
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EXHIBIT INDEX
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<CAPTION>
Exhibit
No. Title
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2a Purchase Agreement by and among Video Update, Inc., Cox Video Corporation, and
Robert W. Cox, dated as of February 28, 1997.
2b Purchase Agreement by and among Video Update, Inc., Susan Janae Kingston, and
Larry Peterman, dated as of March 17, 1997.
99a Press Release, dated March 3, 1997.
99b Press Release, dated April 2, 1997.
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EXHIBIT 2a
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PURCHASE AGREEMENT
THIS AGREEMENT is made effective as of this 28th day of February 1997,
by and among Video Update, Inc., a Delaware corporation having its principal
place of business at 3100 World Trade Center, 30 East Seventh Street, St. Paul,
Minnesota 55101 ("Video Update" or the "Company"), Cox Video Corporation, a
Texas corporation having its principal place of business at 1500 North I-35,
Carrolton, Texas 75006 ("CVC") and Robert W. Cox, an individual residing in
Dallas, Texas, the sole stockholder of CVC ("Cox") (CVC and Cox are hereinafter
referred to as the "Sellers").
RECITALS
WHEREAS, CVC owns all of the assets used or useful in the video rental
business carried out at the stores (the "Stores") listed on Exhibit A annexed
hereto; and
WHEREAS, Video Update wishes to acquire from CVC, and CVC wishes to
transfer to Video Update, the Assets (as defined below) in exchange for which
Video Update shall issue and transfer to CVC certain consideration on the terms
and conditions set forth below; and
WHEREAS, the parties intend that this Agreement shall constitute a
complete transfer to Video Update of all of the Assets; and
NOW, THEREFORE, intending to be legally bound hereby, and in
consideration of the mutual premises and the representations, warranties and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. PURCHASE OF CVC ASSETS
1.1 PURCHASE OF ASSETS. Subject to the terms, provisions and conditions
of this Agreement and upon the basis of the representations and warranties made
herein, at the Closing (as defined below) CVC shall assign and transfer to Video
Update all of its right, title and interest in and to the following assets used
or usable in connection with the CVC business carried on at the Stores (the
"Assets"):
(a) All tangible property, including but not limited to the
tangible property described on Schedule 1.1(a), located at the Stores, including
without limitation, inventory, leaseholds, leasehold improvements, security
systems, racking, fixtures, equipment, furniture, office furnishings, office
equipment, computers and peripherals;
(b) All accounts or customer receivables as described on
Schedule 1.1(b);
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(c) All trade secrets, "know how," confidential information
and data related to the Stores;
(d) All of the Stores' customer lists, vendor lists, data
bases, catalogues, brochures, art work, sales literature, advertising buys,
advertising material, promotional material and other selling material
specifically related to CVC's customers or marketing efforts with respect to the
Stores;
(e) A copy of all books and records of the CVC business
related to the Stores, including, without limitation, all movie rental records,
customer credit applications, all invoices, purchase orders, files, documents,
papers, computer files and/or other records of any description and in any medium
which pertain in any way to the CVC business as it relates to the Stores;
(f) All rights of CVC under all material agreements as set
forth on the schedule annexed hereto and marked Schedule 1.1(f) and under all
warranties, licenses, governmental permits or licenses of any description,
distribution and franchise agreements, equipment leases, sales orders and
purchase orders specifically related to the Stores;
(g) All rights, as licensee or otherwise, to use and employ in
its business computer systems located at the Stores, for a period of up to one
year following the Closing Date (as defined below), together with all associated
hardware, software, documentation, computer files and back up files;
(h) All rights to the Stores' telephone number(s), fax
number(s), telex address(es) (if any), lock box(es) (if any) and post office box
address(es); and
(i) All other assets of the Stores, tangible and intangible,
wherever located, related to and owned by the Sellers in connection with the CVC
business carried on at the Stores.
1.2 PURCHASE PRICE.
(a) Consideration. At the Closing, Video Update shall:
(i) pay to CVC by wire or check the sum of Two
Million Eight Hundred Thousand Dollars ($2,800,000); and
(ii) assume the specific liabilities and obligations
incurred and arising subsequent to the Closing for the lease for the
Stores, which liabilities and obligations are described on Schedule 1.2
(the "Assumed Liabilities"). With the exception of the Assumed
Liabilities, Video Update shall not be deemed by anything in this
Agreement to have assumed any liabilities of the Sellers of any kind,
character or nature and the indemnification provisions of Section 4
shall apply with respect to any and all liabilities not expressly
assumed by Video Update in this Agreement, including but not limited to
any store lease
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related expenses charges or adjustments (including common area charges)
for the period prior to the Closing, even if such expenses, charges or
adjustments are not billed until after the Closing.
The Assumed Liabilities and the cash consideration referenced above shall be the
total consideration (the "Purchase Price") for the Assets.
1.3 CLOSING. The closing (the "Closing") of the purchase of the Assets
under this Agreement shall take place at the offices of Video Update at St.
Paul, Minnesota, or by facsimile transmission on or before the 28th day of
February 1997, or such other date and place as shall be agreed upon by the
Sellers and Video Update, at 10 o'clock a.m. The date of the Closing is
hereinafter referred to as the "Closing Date." All proceedings to be taken and
all documents to be executed and delivered by all parties at the Closing shall
be deemed to have been taken and executed simultaneously, and no proceedings
shall be deemed to have been taken nor any documents executed or delivered until
all have been taken, executed and delivered. At Closing:
(a) The Sellers shall deliver to Video Update all executed
documents including without limitation, bills of sale, necessary to transfer all
right, title and interest in and to the Assets to Video Update, and Video Update
shall arrange for the issuance and delivery to CVC of the Purchase Price on the
terms set forth in Section 1.2 hereof;
(b) The Sellers shall deliver to Video Update all documents of
the CVC business not previously delivered to Video Update; and
(c) The Sellers shall deliver an opinion of their counsel
dated the Closing Date in substantially the form set forth in Exhibit B.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers, jointly and severally, represent and warrant to
Video Update, upon which representations and warranties Video Update relies, and
which representations and warranties shall survive the Closing, as follows:
2.1 OWNERSHIP OF ASSETS. CVC (i) is the sole owner of all of the Assets
and (ii) has good and marketable title to the Assets with full and absolute
authority to transfer the Assets to Video Update. None of the Assets are subject
to any mortgage, pledge, lien, security interest, lease, charge, encumbrance,
objection, claim or joint ownership except as set forth on Schedule 2.1.
2.2 AUTHORIZATION. CVC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, and has full
power to enter into this Agreement and to consummate the transactions
contemplated thereby. This Agreement has been duly and validly authorized,
executed, and delivered by each of the Sellers. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby
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to which each of the Sellers is a party constitute the valid and legally binding
obligations of each of the Sellers, as applicable, and are enforceable against
them in accordance with their respective terms except insofar as enforceability
may be limited by bankruptcy, insolvency, or similar laws affecting the rights
of creditors and general equitable principles. The execution, delivery and
performance by the Sellers of this Agreement and the agreements provided for
herein, and the consummation by the Sellers of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any by-law, charter, law,
rule or regulation applicable to Sellers; (b) violate any judgment, decree,
order or award of any court, governmental body or arbitrator; or (c) conflict
with or result in the breach or termination of any term or provision of, or
constitute a default under, or cause any acceleration under, or cause the
creation of any indebtedness, contract, lease, license, permit, lien, charge or
encumbrance upon the properties or assets of CVC pursuant to, any indenture,
mortgage, deed of trust or other instrument or agreement to which any of the
Sellers are a party or by which any of the Assets is or may be bound or subject.
2.3 NO ADVERSE CHANGES OR UNDISCLOSED LIABILITIES. Except as set forth
on Schedule 2.3, since December 31, 1995, none of the following has occurred or
arisen, whether or not in the ordinary course of business: (i) a disposition or
encumbrance of any Asset or portion of the Assets (ii) any adverse change in the
Assets or operations or business of the Stores, or (iii) any event, condition or
state of facts of any character known to the Sellers which might adversely
affect the Assets or the Stores. Except as set forth on Schedule 2.3 no
liabilities or obligations, fixed, accrued, contingent or otherwise, exist with
respect to or in connection with the Assets. Schedule 2.3 sets forth all
promotions and promotional activities of the Stores, none of which shall
obligate Video Update, directly or indirectly, to continue such promotions or
provide anything of value in connection with the same after the Closing.
2.4 ACCOUNTS RECEIVABLE; INVENTORIES. Except as set forth on Schedule
2.4, (i) any accounts receivable of the Stores have been collected or are
collectible, subject to a reasonable allowance for doubtful accounts; and (ii)
the inventories of the Stores consist of items of a quantity and quality usable,
rentable, or salable in the normal course of the business of the Stores.
2.5 TAX MATTERS.
(a) Except as set forth on Schedule 2.5 attached hereto, the
Sellers have paid all income taxes, capital gains taxes, withholding taxes,
capital taxes, sales and use taxes, goods and services taxes, business taxes, ad
valorem taxes, property taxes, excise taxes, customs and import duties, imposts,
rates, levies, assessments and fees, and all other taxes of every kind,
character or description, including all interest, fines, and penalties relating
thereto, imposed by any governmental or quasi-governmental authority, domestic
or foreign, whether federal, state, territorial or municipal (collectively the
"Taxes") required to be paid by the Sellers with respect to the Stores or the
Assets for all periods prior to the Closing Date. No outstanding assessments,
reassessments, notices of determination, or notices of any kind whatsoever, or
increases in tax rates with respect to any such Taxes exist. All reports,
returns and other documents relating to or covering all such Taxes, which
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are due or required to be filed at or prior to the Closing Date have been duly
filed or caused to be filed;
(b) None of the income tax returns for Taxes of CVC or Cox has
been audited by any taxing authority. No action, suit, proceeding, audit,
investigation or claim is pending or threatened, in respect of any Taxes for
which either of the Sellers is liable, nor has any deficiency or claim for any
Taxes been proposed or asserted. No waiver of any statute of limitations with
respect to any taxation year has been executed by the Sellers; and no agreement,
waiver or consent providing for an extension of time with respect to the
assessment, reassessment or other determination of any Taxes against the
Sellers, and no power of attorney granted by any of the Sellers with respect to
any matters relating to Taxes is currently in force.
2.6 REQUIRED CONSENTS, NO DEFAULT. Except as described in Schedule 2.6,
neither the execution and delivery of this Agreement nor compliance by any of
the Sellers with its terms and provisions will require the affirmative consent,
approval, order or authorization of or any registration, declaration or filing
with any third party or authority. None of the Sellers is in default under or in
violation of any provision of any indenture, mortgage, lease, loan or other
agreement to which either is a party or is bound or to which either of their
properties is subject.
2.7 LITIGATION. Except as set forth on Schedule 2.7 attached hereto (a)
no action, suit or proceeding to which any of the Sellers is a party (either as
a plaintiff or defendant) is pending or threatened before any court or
governmental agency, authority, body or arbitrator and no basis for any such
action, suit or proceeding exists; (b) neither of the Sellers nor any officer,
director or employee of CVC has been permanently or temporarily enjoined by any
order, judgment or decree of any court or any governmental agency, authority or
body from engaging in or continuing any conduct or practice in connection with
the business, assets, or properties of the Sellers; and (c) there is not in
existence on the date hereof any order, judgment or decree of any court,
tribunal or agency enjoining or requiring either of the Sellers to take any
action of any kind with respect to the business, assets or properties of CVC.
Video Update shall not under any circumstances assume or be deemed to have
assumed any obligation, responsibility or liability with respect to the matters
described on Schedule 2.7.
2.8 NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker,
person or firm has or will have, as a result of any act or omission of any
Seller or any of its affiliates, any right, interest or valid claim against
Video Update for any commission, fee or other compensation or similar fee as a
finder or broker in connection with the transactions contemplated by this
Agreement.
2.9 COPIES OF DOCUMENTS. Upon request, the Sellers will make available
or cause CVC to make available for inspection and copying by Video Update or its
attorneys or accountants true and correct copies of all documents referred to in
this Section 2 or in any schedule or exhibit delivered by any Seller to Video
Update in connection with this Agreement and any other agreements and records of
CVC that Video Update reasonably requests and which are related to the Assets or
the Stores.
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2.10 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required to be obtained or made by
any Seller in connection with the execution and delivery of this Agreement or
the sale and delivery of the Assets, as contemplated by this Agreement, except
such filings as shall have been made prior to and shall be effective on and as
of the Closing Date.
2.11 COMPLIANCE WITH AGREEMENTS AND LAWS. The Sellers have all
requisite licenses, permits and certificates, including environmental, health
and safety permits, from federal, state, and local authorities necessary to
conduct the business as currently conducted at the Stores (collectively, the
"Permits"). The business of CVC as conducted at the Stores through the date
hereof has not violated any federal, state, local or foreign laws, regulations
or orders (including, but not limited to, any of the foregoing relating to
employment discrimination, occupational safety, environmental protection,
hazardous waste, conservation, or corrupt practices). Except as set forth on
Schedule 2.11, no Seller has had notice or communication from any federal,
state, or local governmental or regulatory authority or otherwise of any such
violation or noncompliance.
2.12 EMPLOYEE RELATIONS.
(a) In connection with the operation of the Stores, the
Sellers are in compliance with all federal, state and municipal laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and they are not engaged in any unfair labor practice, and
there are no arrears in the payment of wages or social security taxes.
(b) Except as set forth on Schedule 2.12 attached hereto:
(i) none of the employees of CVC at the Stores are
represented by any labor union;
(ii) there is no unfair labor practice complaint
against CVC in connection with the operation of the Stores pending
before any federal, state, or local agency; and
(iii) there is no pending labor strike or other labor
trouble affecting CVC in connection with the operation of the Stores
(including, without limitation, any organizational drive).
2.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 2.13 annexed hereto, since December 31, 1995, no Seller has entered
into any transaction with respect to the Assets or the Stores that is not in the
usual and ordinary course of business. Other than as specifically described on
Schedule 2.13, neither Seller is a party to any leases, contracts, franchises or
commitments with respect to the Assets or the Stores, or agreements to enter
into any of the same, written or oral, extending beyond the Closing Date.
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2.14 CVC PERSONNEL INFORMATION. Schedule 2.14 annexed hereto is a true
and complete list, as of the Closing Date, setting forth in connection with the
operation of the Stores:
(a) The names of all persons, if any, holding powers of
attorney from the Sellers, and a summary statement of the terms thereof;
(b) The name and address of each bank or other institution in
which the Sellers has established an account for investment, deposit, checking,
savings or borrowing, or through which credit is extended, a brief description
thereof, and the names and titles of authorized signers and limits, if any;
(c) The names and addresses of all employees and their annual
compensation together with their social security numbers and all independent
contractors, consultants, subcontractors with whom the Sellers have contracted
during the 12 months preceding the Closing Date, and the social insurance
numbers and the amount of any commission and monies owed or paid by the Sellers
to such independent contractors, consultants and subcontractors during said 12
month period. Such independent contractors, consultants and subcontractors have
been treated as such by the Sellers and have not been and never have been
treated as employees of the Sellers for which any withholding taxes or other
applicable tax may be due from the Sellers; and
(d) All contracts or arrangements, whether written or oral,
pursuant to which the Sellers have received or are receiving services.
2.15 DISCLOSURE. No representation or warranty by any of the Sellers
(individually or collectively) in this Agreement, nor any statement, certificate
or Schedule furnished or to be furnished to Video Update by or on behalf of
either of the Sellers pursuant to or in connection with this Agreement nor any
document or certificate delivered to Video Update pursuant to or in respect of
this Agreement contains or will contain any untrue or misleading statement of a
material fact or omits or will omit to state a material fact reasonably related
to the transactions covered by this Agreement, and all such representations and
warranties are and on the Closing Date will be accurate and complete in all
material respects.
3. REPRESENTATIONS AND WARRANTIES OF VIDEO UPDATE
Video Update represents and warrants to the Sellers, upon which
representations and warranties the Sellers rely, as follows:
3.1 ORGANIZATION AND RELATED MATTERS. Video Update is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power to enter into this Agreement and
to consummate the transactions contemplated hereby.
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3.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement by Video Update have been duly and validly authorized and
approved by the Executive Committee of the Board of Directors of Video Update
and no other proceedings on the part of Video Update are necessary to authorize
the execution, delivery and performance of this Agreement by Video Update.
4. INDEMNIFICATION
4.1 SUBJECTS INDEMNIFIED AGAINST BY THE SELLERS. The Sellers, jointly
and severally, agree to defend, indemnify and hold harmless Video Update
(including any director, officer, employee, representative or agent), and its
successors and assigns, from and against any and all damages, losses and
expenses suffered by Video Update, or any subsidiary of Video Update, resulting
from (i) any breach of warranty or agreement or non-fulfillment of any
obligation on the part of the Sellers (individually or together) under this
Agreement (including the Schedules and Exhibits to this Agreement), (ii) any
misrepresentation in this Agreement or in any Schedule, Exhibit, certificate or
other instrument furnished by the Sellers to Video Update hereunder or any
failure to state herein or in any such Schedule, Exhibit, certificate or
instrument any fact required by the terms hereof or therein to be stated or
necessary to be stated in order to make the statements made herein or therein
not misleading, and (iii) all demands, assessments, judgments, settlements,
reasonable costs and legal and other expenses arising from or in connection with
any action, suit, proceeding or claim by any third party resulting in damage or
loss to Video Update or any subsidiary of Video Update as a consequence of any
such misrepresentation, breach of warranty or nonfulfillment of obligation.
4.2 CONDITIONS TO INDEMNIFICATION. The obligations and liabilities of
the Sellers hereunder with respect to their respective indemnities pursuant to
this Section, resulting from any claim or other assertion of liability by third
parties, shall be subject to the following terms and conditions:
(a) Video Update or any of its subsidiaries seeking
indemnification (the "Indemnified Party") shall give the Sellers, as the case
may be (the "Indemnifying Party"), notice in writing within thirty (30) days of
(i) any claim or potential claim, (ii) the commencement of any action or
proceeding, or (iii) the occurrence of any other event giving rise to
indemnification rights under this Section. The Indemnified Party receiving
notice of such claim, commencement of such action or proceeding or the
occurrence of such event shall give the Indemnifying Party written notice of
such claim, the commencement of such action or proceeding or the occurrence of
such event and, in each case, the basis therefor, provided, however, that
failure to give such notice within such thirty (30) day period shall not affect
the liability of the Indemnifying Party under this Agreement unless the failure
to give such notice within such time period materially adversely affects the
Indemnifying Party's ability to defend itself against the claim giving rise to
the Indemnified Party's claim for indemnification or to cure the default giving
rise to such claim. With respect to threatened or asserted claims of third
parties, the Indemnifying Party shall have the right to control the defense of
such claim by counsel of its own choosing, provided that the Indemnified Party
shall have the option
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at its expense to cooperate in such defense with counsel of its choosing. If the
Indemnified Party is named as a party against which claim is asserted or action
or proceeding is commenced, the Indemnifying Party shall have the right (i) to
defend any such claim, action or proceeding brought by a third party of which
notice has been delivered pursuant hereto, and (ii) to compromise or settle such
claim, action or proceeding brought by a third party of which notice has been
delivered pursuant hereto. In the event that the Indemnified Party shall
undertake to compromise, settle or defend any such asserted liability, it shall
promptly notify the Indemnifying Party of its intention to do so and the terms
of such compromise or settlement, and the Indemnifying Party agrees to cooperate
in the compromise of, or defense against, any such asserted liability. In any
event, the Indemnified Party shall have the right at its own expense to
participate in any claim, action or proceeding that is being defended by another
party.
(b) If the Indemnifying Party fails to defend such claim
within thirty days after notice of a claim hereunder, the Indemnified Party
shall be entitled to undertake the defense, compromise or settlement of such
claim at the reasonable expense of and for the account and risk of the
Indemnifying Party subject to the right of the Indemnifying Party to cooperate
in the defense of such claim at any time prior to the settlement, compromise or
final determination thereof.
(c) The Indemnifying Party will not, without Indemnified
Party's prior written consent, settle or compromise any claim or consent to any
entry or judgment that does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party of a release
from all liability with respect to such claim, provided, however, that should
the Indemnified Party assume the control of the defense of a claim, the
Indemnified Party shall have the authority to settle or compromise any claim or
consent to any entry of judgment, without the Indemnifying Party's prior
consent.
(d) Notwithstanding anything in this Agreement to the
contrary, the Sellers shall not have any liability to indemnify Video Update
unless and to the extent that Video Update's claims against the Sellers for
indemnification pursuant to the terms of this Agreement exceed $15,000 in the
aggregate.
4.3 PAYMENT FOR INDEMNIFICATION. The Sellers shall pay to Video Update
the amount of claims for indemnification within five (5) days after the
notification thereof (the "Due Date") in cash or by certified check. Video
Update may set off the amount of any claim due to it from the Sellers against
any amount due from Video Update to the Sellers. Any amounts not paid by the
Sellers when due under this Section shall bear interest from the Due Date
thereof until the date paid at the lower of eighteen percent (18%) per annum or
the highest rate allowed by law.
4.4 SURVIVAL OF INDEMNIFICATION. The indemnification provided in this
Section shall survive the Closing for a period of two (2) years.
-9-
4.5 INTENT OF PARTIES. The parties hereto intend for the
indemnification provisions of this Section to be construed as a full
indemnification in accordance with its terms, notwithstanding the use of any
"substantial" or "material" standard contained elsewhere in this Agreement. Any
remedies of Video Update shall be cumulative and not exclusive. Specifically,
but not by way of limitation, the parties make no attempt to limit any claims
based on common law fraud or other similar remedies.
5. NON-DISCLOSURE OF INFORMATION
(a) With respect to the operations of the Stores, each of the Sellers
recognizes and acknowledges that (i) all plans, systems, methods, designs,
procedures, books and records specifically relating to the operations, personnel
and practices (whether instituted or commenced prior or subsequent to the date
hereof) of the Stores, and (ii) all other records, documents and information
specifically concerning the business activities, practices, and procedures of
the Stores, may constitute valuable, special and unique assets of the business
of CVC to be acquired by Video Update. Each of the Sellers therefore covenants
and agrees that he, she or it will not, following the date of this Agreement,
disclose any part thereof that is confidential to any person, firm, corporation,
association or other entity, for any reason or purpose whatsoever.
(b) Each of the Sellers acknowledges that the restrictions contained in
this Section, in view of the nature of the business in which Video Update is
engaged, are reasonable and necessary to protect its legitimate interests, and
that any violation thereof could result in irreparable injuries to Video Update.
Each of the Sellers therefore acknowledges that, in the event of a breach or
threatened breach of the provisions of this paragraph by the Sellers, Video
Update shall be entitled to request from any court of competent jurisdiction,
preliminary and permanent injunctive relief restraining the Sellers from
disclosing any such records, documents or information.
6. RESTRICTIVE COVENANT
(a) Each of the Sellers agrees that for a period of two (2) years from
the Closing, neither they nor their respective successors or assigns shall
engage directly as a principal or indirectly as (i) an advisor, (ii) an agent
(whether a salesperson or otherwise), (iii) a broker or (iv) a partner,
coventurer, stockholder or other proprietor owning directly or indirectly more
than five percent (5%) interest in any firm, corporation, partnership, trust,
association or other organization, in the sale, rental or service of any asset,
part or product rented, sold, offered, featured or otherwise included in the
business of the Stores prior to the Closing, within the city limits of Oklahoma
City, Oklahoma and within a two-mile radius of each of the Stores located in the
State of Texas.
(b) Each of the Sellers acknowledges that the restrictions contained in
this Section, in view of the nature of the business in which Video Update is
engaged, are reasonable and necessary to protect the legitimate interests of
Video Update, and that any violation thereof could result in irreparable
injuries to Video Update. CVC acknowledges that, in the event of a breach or
threatened breach of the restrictions of this Section by any of the Sellers,
Video Update shall be entitled to
-10-
request from any court of competent jurisdiction, preliminary and permanent
injunctive relief restraining it (or its respective successors, assigns, or
transferees) from any violation of the foregoing.
(c) Nothing herein shall be construed as prohibiting Video Update from
pursuing any other remedies available for such breach or threatened breach,
including recovery of damages and an equitable accounting of all earnings,
profits and other benefits arising from such violation, by the Sellers.
(d) Each of the Sellers acknowledges the intention that Video Update
shall have the broadest possible protection of the value of the business of
Video Update in the trade areas set forth above (to the extent that the business
is actively conducted in any such trade area as of the Closing) consistent with
public policy, and it will not violate the intent of the parties if any court of
competent jurisdiction should determine, in an appropriate decree, that,
consistent with established precedent of the forum state, the public policy of
such state requires a more limited restriction in geographical area or duration
of the aforesaid covenant.
7. GENERAL
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Sellers contained herein or in any
Schedule, Exhibit or certificate delivered hereunder shall survive the Closing
Date for a period of two (2) years, shall remain in full force and effect and
shall be unaffected by any investigation made by Video Update hereunder. All
covenants and agreements contained herein that are to be performed or fulfilled
after the Closing Date shall survive and remain in full force and effect.
7.2 PRESS RELEASES. Unless approved in advance by Video Update, neither
of the Sellers shall issue any press release or written statement for general
circulation relating to the transactions contemplated hereby, except as required
by law in the reasonable opinion of their counsel.
7.3 PAYMENT OF EXPENSES. Whether or not the transactions contemplated
hereby are consummated, Video Update shall pay its own expenses, and the Sellers
shall pay their own expenses, in connection with the negotiation, authorization,
preparation, execution and performance of this Agreement, including, without
limitation, all fees and expenses of investment banking firms, agents,
representatives, counsel and accountants.
7.4 GOVERNING LAW. This Agreement shall be governed in all respects,
whether as to validity, construction, capacity, performance or otherwise, by the
internal laws of the State of Minnesota in which it has been executed and in
which it has a situs, without regard to its conflict of laws provisions. If any
provision of this Agreement shall be held invalid by a court with jurisdiction
over the parties to this Agreement, then and in that event such provision shall
be deleted from the Agreement, which shall then be construed to give effect to
the remaining provisions thereof. Each of the Sellers consents to the exclusive
jurisdiction of the courts of the State of Minnesota, and any
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state or federal court located therein, and to the appropriateness of the venue
of such courts, in connection with any dispute which may arise pursuant to this
Agreement or is related to the transactions contemplated hereby.
7.5 NOTICES. Any payments, notices or other communications required or
permitted hereunder shall be given in writing and deemed to have been properly
given if and when delivered personally or if sent by facsimile transmission or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
if to Video Update: Video Update, Inc.
3100 World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Attention: Daniel A. Potter, Chief
Executive Officer
Facsimile: (612) 229-9629
with a copy to: Lawrence H. Gennari, Esquire
O'Connor, Broude & Aronson
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154
Facsimile: (617) 890-9261
if to CVC or Cox: Cox Video Corporation
1500 North I-35
Carrolton, Texas 75006
Attention: Robert W. Cox, President
Facsimile: (972) 245-7624
with a copy to: Jarell B. Ormand, Esquire
Dooley & Rucker
1717 Main Street
4250 BankOne Center
Dallas, Texas 75201
Facsimile: (214) 761-4766
or such other address as shall be furnished in writing by any party. Any such
payment, notice or communication shall be deemed to have been made or given on
the date of actual receipt, whichever first occurs.
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7.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors,
assigns, heirs, executors, administrators and legal representatives, provided,
however, that no Seller shall assign any of his, her or its rights or delegate
any of its obligations hereunder to any party without the prior written consent
of Video Update.
7.7 HEADINGS. The descriptive headings of the several Sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
7.8 COUNTERPARTS. This Agreement may be executed originally or by
facsimile and in one or more counterparts, all of which together shall be
considered one and the same agreement.
7.9 WAIVER. The failure of any party to this Agreement at any time or
times to required performance of any provision hereof shall in no manner affect
such party's right at a later time to enforce the same. No waiver by any party
of any condition, or of the breach of any term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or the breach of any other term, covenant, representation or warranty
of this Agreement.
7.10 ENTIRE AGREEMENT. This Agreement, together with its Exhibits and
Schedules, contains the entire agreement among the parties hereto with respect
to the transactions contemplated herein, and supersedes all prior agreements and
understandings, whether written or oral, among the parties hereto with respect
to the subject matter of this Agreement.
7.11 ADDITIONAL ACTIONS. Video Update and the Sellers agree to execute
and deliver such other documents, certificates, agreements and other writings
and to take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been signed by a duly authorized
officer of Video Update, and by each of the Sellers as of the day and year first
above written.
VIDEO UPDATE, INC.
By:/s/ Daniel A. Potter
-----------------------------
Daniel A. Potter
Chief Executive Officer
COX VIDEO CORPORATION
By:/s/ Robert W. Cox
-----------------------------
Robert W. Cox
President
ROBERT W. COX
/s/ Robert W. Cox
-----------------------------
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LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Exhibit Title
- ------- -----
A List of Stores
B Opinion of Counsel to Cox Video Corporation
Schedule Title
- -------- -----
1.1(a) Tangible Property
1.1(b) Accounts and Customer Receivables
1.1(f) Material Agreements
1.2 Assumed Liabilities
2.1 Encumbrances on Assets
2.3 Statement of Adverse Changes, Undisclosed Liabilities and
Promotional Activity
2.4 Exceptions to Accounts Receivable and Usable Inventory
2.5 Exceptions to Tax Payments
2.6 Required Consents
2.7 Litigation
2.11 Notice of Violations or Noncompliance
2.12 List of Labor Unions, Unfair Practices and Other Labor Matters
2.13 List of Transactions Not in the Ordinary Course of Business and Contracts
Extending Beyond the Closing
2.14 List of Powers of Attorney, Deposit Accounts, Signing Authorities, and of
Employees and Service Contracts
Copies of the Exhibits and Schedules will be provided to the Commission upon request.
</TABLE>
EXHIBIT 2.b
-----------
PURCHASE AGREEMENT
THIS AGREEMENT is made effective as of this 17th day of March 1997, by
and among Video Update, Inc., a Delaware corporation having its principal place
of business at 3100 World Trade Center, 30 East Seventh Street, St. Paul,
Minnesota 55101 ("Video Update" or the "Company") and Susan Janae Kingston and
Larry Peterman, individuals residing at 538 South 4500 West, West Point, Utah
84015 (the "Owners") d/b/a Movie Buffs ("MB"), having its principal place of
business at 938 North 900 West, Salt Lake City, Utah 84116 (MB and the Owners
are hereinafter referred to as the "Sellers").
RECITALS
WHEREAS, Susan Janae Kingston owns all of the Assets (as defined below)
used or useful in the video rental business carried out at the Stores (the
"Stores") listed on Exhibit A annexed hereto; and
WHEREAS, Larry Peterman has, may have, or may claim an ownership
interest in the Assets, although no ownership or other interest is intended to
be created for or conveyed to Mr. Peterman through this Agreement or the
transactions contemplated hereby; and
WHEREAS, Video Update wishes to acquire from the Sellers, and the
Sellers wish to transfer to Video Update, the Assets in exchange for which Video
Update shall issue and transfer to the Sellers certain consideration on the
terms and conditions set forth below; and
WHEREAS, the parties intend that this Agreement shall constitute a
complete transfer to Video Update of all of the Assets; and
NOW, THEREFORE, intending to be legally bound hereby, and in
consideration of the mutual premises and the representations, warranties and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. PURCHASE OF MB ASSETS
1.1 PURCHASE OF ASSETS. Subject to the terms, provisions and conditions
of this Agreement and upon the basis of the representations and warranties made
herein, at the Closing (as defined below) the Sellers shall assign and transfer
to Video Update all their right, title and interest in and to the following
assets used or usable in connection with the MB business carried on at the
Stores (the "Assets"):
(a) All tangible property of the Stores, including but not
limited to the tangible property described on Schedule 1.1(a), wherever located,
including without limitation, inventory, leaseholds, leasehold improvements,
security systems, racking, fixtures, equipment, furniture, office furnishings,
office equipment, computers and peripherals;
(b) All accounts or customer receivables for the Stores as
described on Schedule
1.1(b);
------
(c) All trade secrets, "know how," confidential information
and data related to the Stores;
(d) All customer lists, vendor lists, data bases, catalogues,
brochures, art work, sales literature, advertising buys, advertising material,
promotional material and other selling material related to MB's customers or
marketing efforts at the Stores;
(e) All books and records of the MB business related to the
Stores, including, without limitation, all movie rental records, customer credit
applications, all invoices, purchase orders, files, documents, papers, computer
files and/or other records of any description and in any medium which pertain in
any way to the MB business;
(f) All rights under all material agreements as set forth on
the schedule annexed hereto and marked Schedule 1.1(f) and under all warranties,
licenses, governmental permits or licenses of any description, distribution and
franchise agreements, equipment leases, sales orders and purchase orders related
to the Stores;
(g) All rights as a member in any cooperative association
and/or "buying group" and all supplier information related to the Stores;
(h) All rights, as licensee or otherwise, to use and employ in
its business existing computer systems at the Stores, together with all
associated hardware, software, documentation, computer files and back up files;
(i) All rights to telephone number(s), fax number(s), telex
address(es) (if any), lock box(es) (if any) and post office box address(es) for
the Stores; and
(j) All other assets of the Stores, tangible and intangible,
wherever located, related to and owned by the Sellers in connection with the MB
business carried on at the Stores.
1.2 PURCHASE PRICE.
(a) Consideration. Video Update shall:
(i) pay on behalf of the Sellers by wire or check the
sum of Five Hundred Thousand Dollars ($500,000), of which Four Hundred
Fifty Thousand Dollars ($450,000) shall be paid at Closing and Fifty
Thousand Dollars ($50,000) shall be paid on behalf of the Sellers on
the tenth business day following the Closing Date provided that Video
Update is
-2-
reasonably satisfied that the transfer of the Assets has been completed
in accordance with the terms of this Agreement; and
(ii) assume the specific liabilities and obligations
incurred and arising subsequent to the Closing for the leases for the
Stores, which liabilities and obligations are described on Schedule 1.2
(the "Assumed Liabilities"). With the exception of the Assumed
Liabilities, Video Update shall not be deemed by anything in this
Agreement to have assumed any liabilities of the Sellers of any kind,
character or nature and the indemnification provisions of Section 4
shall apply with respect to any and all liabilities not expressly
assumed by Video Update in this Agreement, including but not limited to
any store lease related expenses, charges or adjustments (including
common area charges) for the period prior to the Closing, even if such
expenses, charges or adjustments are not billed until after the
Closing.
The Assumed Liabilities and the cash consideration referenced above shall be the
total consideration (the "Purchase Price") for the Assets.
1.3 CLOSING. The closing (the "Closing") of the purchase of the Assets
under this Agreement shall take place at the offices of Video Update at St.
Paul, Minnesota, on or before the 17th day of March 1997, or such other date and
place as shall be agreed upon by the Sellers and Video Update, at 10 o'clock
a.m. The date of the Closing is hereinafter referred to as the "Closing Date."
All proceedings to be taken and all documents to be executed and delivered by
all parties at the Closing shall be deemed to have been taken and executed
simultaneously, and no proceedings shall be deemed to have been taken nor any
documents executed or delivered until all have been taken, executed and
delivered. At Closing:
(a) The Sellers shall deliver to Video Update all executed
documents including without limitation, bills of sale, necessary to transfer all
right, title and interest in and to the Assets to Video Update, and Video Update
shall arrange for the issuance and delivery to the Sellers of the Purchase Price
on the terms set forth in Section 1.2 hereof;
(b) The Sellers shall deliver to Video Update all documents of
the MB business not previously delivered to Video Update including, without
limitation, the final financial report of MB's management for the most recently
completed fiscal year and any interim period; and
(c) The Sellers shall deliver an opinion of their counsel
dated the Closing Date in substantially the form set forth in Exhibit B.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers, jointly and severally, represent and warrant to
Video Update, upon which representations and warranties Video Update relies, and
which representations and warranties shall survive the Closing, as follows:
-3-
2.1 OWNERSHIP OF ASSETS. The Sellers (i) are the sole owners of all of
the Assets and (ii) have good and marketable title to the Assets with full and
absolute authority to transfer the Assets to Video Update. None of the Assets
are subject to any mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection, claim or joint ownership, including, but not limited to,
any such claims by or on behalf of "Rentrak Corporation" for property included
in the Assets, except as set forth on Schedule 2.1.
2.2 AUTHORIZATION. This Agreement has been duly and validly authorized,
executed, and delivered by each of the Sellers. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which each of the Sellers is a party
constitute the valid and legally binding obligations of each of the Sellers, as
applicable, and are enforceable against them in accordance with their respective
terms except insofar as enforceability may be limited by bankruptcy, insolvency,
or similar laws affecting the rights of creditors and general equitable
principles. The execution, delivery and performance by the Sellers of this
Agreement and the agreements provided for herein, and the consummation by the
Sellers of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any by-law, charter, law, rule or regulation applicable to
Sellers; (b) violate any judgment, decree, order or award of any court,
governmental body or arbitrator; or (c) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any indebtedness, contract,
lease, license, permit, lien, charge or encumbrance upon the properties or
assets of the Sellers pursuant to, any indenture, mortgage, deed of trust or
other instrument or agreement to which any of the Sellers are a party or by
which any of the Assets is or may be bound or subject.
2.3 FINANCIAL STATEMENTS.
(a) MB Financial Statements. Annexed hereto as Schedule 2.3(a)
are true and complete copies of management's final financial statements as of
December 31, 1996 (the "Financial Statements"). All such Financial Statements
are in accordance with the books and records of the MB business, and (i) present
fairly and correctly the financial position of the MB business as of the
respective dates and for the respective periods indicated, (ii) include all
required adjustments, and (iii) have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with prior periods
and practices.
(b) No Adverse Changes or Undisclosed Liabilities. Except as
set forth on Schedule 2.3(b), since December 31, 1996, none of the following has
occurred or arisen, whether or not in the ordinary course of business: (i) a
disposition or encumbrance of any Asset or portion of the Assets (ii) any
adverse change in the assets, financial condition, operations or business of MB,
or (iii) any event, condition or state of facts of any character known to the
Sellers which might adversely affect the results of operations, business,
financial condition or prospects of the MB business. Except as set forth on
Schedule 2.3(b) no liabilities or obligations, fixed, accrued,
-4-
contingent or otherwise, exist with respect to or in connection with the Assets
that are not fully reflected or provided for on, or disclosed in the notes to,
the Financial Statements except liabilities and obligations incurred in the
ordinary course of business since December 31, 1996, none of which individually
or in the aggregate have been or is adverse to the Assets or the operations,
business, financial condition or prospects of the MB business. Schedule 2.3(b)
sets forth all promotions and promotional activities of the MB business, none of
which shall obligate Video Update, directly or indirectly, to continue such
promotions or provide anything of value in connection with the same after the
Closing.
2.4 ACCOUNTS RECEIVABLE; INVENTORIES. Except as set forth on Schedule
2.4, (i) any accounts receivable reflected on the Financial Statements have been
collected or are collectible in the amounts shown, subject to a reasonable
allowance for doubtful accounts as set forth in the Financial Statements; (ii)
the inventories shown on the Financial Statements and the inventories acquired
since December 31, 1996 consist of items of a quantity and quality usable,
rentable, or salable in the normal course of the business of MB; and (iii) the
value at which the inventories are carried on the Financial Statements reflects
the lower of the MB business' cost or net realizable market value.
2.5 TAX MATTERS.
(a) Except as set forth on Schedule 2.5 attached hereto, the
Sellers have paid all income taxes, capital gains taxes, withholding taxes,
capital taxes, sales and use taxes, goods and services taxes, business taxes, ad
valorem taxes, property taxes, excise taxes, customs and import duties, imposts,
rates, levies, assessments and fees, and all other taxes of every kind,
character or description, including all interest, fines, and penalties relating
thereto, imposed by any governmental or quasi-governmental authority, domestic
or foreign, whether federal, state, territorial or municipal (collectively the
"Taxes") required to be paid by the Sellers with respect to the MB business or
the Assets for all periods prior to the Closing Date. No outstanding
assessments, reassessments, notices of determination, or notices of any kind
whatsoever, or increases in tax rates with respect to any such Taxes exist. All
reports, returns and other documents relating to or covering all such Taxes,
which are due or required to be filed at or prior to the Closing Date have been
duly filed or caused to be filed;
(b) None of the income tax returns for Taxes of the MB
business or the Owners has been audited by any taxing authority. Except as set
forth in Schedule 2.5, no action, suit, proceeding, audit, investigation or
claim is pending or threatened, in respect of any Taxes for which either of the
Sellers is liable, nor has any deficiency or claim for any Taxes been proposed
or asserted. No waiver of any statute of limitations with respect to any
taxation year has been executed by the Sellers; and no agreement, waiver or
consent providing for an extension of time with respect to the assessment,
reassessment or other determination of any Taxes against the Sellers, and no
power of attorney granted by any of the Sellers with respect to any matters
relating to Taxes is currently in force.
-5-
2.6 REQUIRED CONSENTS, NO DEFAULT. Except as described in Schedule 2.6,
neither the execution and delivery of this Agreement nor compliance by any of
the Sellers with its terms and provisions will require the affirmative consent,
approval, order or authorization of or any registration, declaration or filing
with any third party or authority. None of the Sellers is in default under or in
violation of any provision of any indenture, mortgage, lease, loan or other
agreement relating to the Stores or the Assets to which either is a party or is
bound or to which either of their properties is subject.
2.7 LITIGATION. Except as set forth on Schedule 2.7 attached hereto (a)
no action, suit or proceeding to which any of the Sellers is a party (either as
a plaintiff or defendant) is pending or threatened before any court or
governmental agency, authority, body or arbitrator and no basis for any such
action, suit or proceeding exists; (b) neither of the Sellers nor any officer,
director or employee of the MB business has been permanently or temporarily
enjoined by any order, judgment or decree of any court or any governmental
agency, authority or body from engaging in or continuing any conduct or practice
in connection with the business, assets, or properties of the Sellers; and (c)
there is not in existence on the date hereof any order, judgment or decree of
any court, tribunal or agency enjoining or requiring either of the Sellers to
take any action of any kind with respect to the business, assets or properties
of the MB business. Video Update shall not under any circumstances assume or be
deemed to have assumed any obligation, responsibility or liability with respect
to the matters described on Schedule 2.7.
2.8 NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker,
person or firm has or will have, as a result of any act or omission of any
Seller or any of its affiliates, any right, interest or valid claim against
Video Update for any commission, fee or other compensation or similar fee as a
finder or broker in connection with the transactions contemplated by this
Agreement.
2.9 COPIES OF DOCUMENTS. Upon request, the Sellers will make available
for inspection and copying by Video Update or its attorneys or accountants true
and correct copies of all documents referred to in this Section 2 or in any
schedule or exhibit delivered by any Seller to Video Update in connection with
this Agreement and any other agreements and records of the MB business that
Video Update requests.
2.10 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required to be obtained or made by
any Seller in connection with the execution and delivery of this Agreement or
the sale and delivery of the Assets, as contemplated by this Agreement, except
such filings as shall have been made prior to and shall be effective on and as
of the Closing Date.
2.11 COMPLIANCE WITH AGREEMENTS AND LAWS. The Sellers have all
requisite licenses, permits and certificates, including environmental, health
and safety permits, from federal, state, and local authorities necessary to
conduct its business as currently conducted (collectively, the "Permits"). The
business of MB as conducted through the date hereof has not violated any
federal, state, local or foreign laws, regulations or orders (including, but not
limited to, any of the foregoing
-6-
relating to employment discrimination, occupational safety, environmental
protection, hazardous waste, conservation, or corrupt practices). Except as set
forth on Schedule 2.11, no Seller has had notice or communication from any
federal, state, or local governmental or regulatory authority or otherwise of
any such violation or noncompliance.
2.12 EMPLOYEE RELATIONS.
(a) The Sellers are in compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and they are not engaged in any
unfair labor practice, and there are no arrears in the payment of wages or
social security taxes.
(b) Except as set forth on Schedule 2.12 attached hereto:
(i) none of the employees of the MB business are
represented by any labor union;
(ii) there is no unfair labor practice complaint
against the MB business pending before any federal, state, or local
agency; and
(iii) there is no pending labor strike or other labor
trouble affecting the MB business (including, without limitation, any
organizational drive).
2.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 2.13 annexed hereto, since December 31, 1996, no Seller has entered
into any transaction that is not in the usual and ordinary course of business.
Other than as specifically described on Schedule 2.13, neither Seller is a party
to any leases, contracts, franchises or commitments or agreements to enter into
any of the same, written or oral, extending beyond the Closing Date.
2.14 MB PERSONNEL INFORMATION. Schedule 2.14 annexed hereto is a true
and complete list, as of the Closing Date, setting forth:
(a) The names of all persons, if any, holding powers of
attorney from the Sellers, and a summary statement of the terms thereof;
(b) The names and addresses of all employees of the Sellers at
the Stores and their annual compensation together with their social security
numbers and all independent contractors, consultants, subcontractors with whom
the Sellers have contracted with respect to the Stores during the 12 months
preceding the Closing Date, and the social insurance numbers and the amount of
any commission and monies owed or paid by the Sellers to such independent
contractors, consultants and subcontractors during said 12 month period. Such
independent contractors, consultants and subcontractors have been treated as
such by the Sellers and have not been and never have been
-7-
treated as employees of the Sellers for which any withholding taxes or other
applicable tax may be due from the Sellers; and
(c) All contracts or arrangements, whether written or oral,
pursuant to which the Sellers have received or are receiving services.
2.15 DISCLOSURE. No representation or warranty by any of the Sellers
(individually or collectively) in this Agreement, nor any statement, certificate
or Schedule furnished or to be furnished to Video Update by or on behalf of
either of the Sellers pursuant to or in connection with this Agreement nor any
document or certificate delivered to Video Update pursuant to or in respect of
this Agreement contains or will contain any untrue or misleading statement of a
material fact or omits or will omit to state a material fact reasonably related
to the transactions covered by this Agreement, and all such representations and
warranties are and on the Closing Date will be accurate and complete in all
material respects.
3. REPRESENTATIONS AND WARRANTIES OF VIDEO UPDATE
Video Update represents and warrants to the Sellers, upon which
representations and warranties the Sellers rely, as follows:
3.1 ORGANIZATION AND RELATED MATTERS. Video Update is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power to enter into this Agreement and
to consummate the transactions contemplated hereby.
3.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement by Video Update have been duly and validly authorized and
approved by the Executive Committee of the Board of Directors of Video Update
and no other proceedings on the part of Video Update are necessary to authorize
the execution, delivery and performance of this Agreement by Video Update.
4. INDEMNIFICATION
4.1 SUBJECTS INDEMNIFIED AGAINST BY THE SELLERS. The Sellers, jointly
and severally, agree to defend, indemnify and hold harmless Video Update
(including any director, officer, employee, representative or agent), and its
successors and assigns, from and against any and all damages, losses and
expenses suffered by Video Update, or any subsidiary of Video Update, resulting
from (i) any breach of warranty or agreement or non-fulfillment of any
obligation on the part of the Sellers (individually or together) under this
Agreement (including the Schedules and Exhibits to this Agreement), (ii) any
misrepresentation in this Agreement or in any Schedule, Exhibit, certificate or
other instrument furnished by the Sellers to Video Update hereunder or any
failure to state herein or in any such Schedule, Exhibit, certificate or
instrument any fact required by the terms hereof or therein to be stated or
necessary to be stated in order to make the statements made herein or therein
not misleading, and (iii) all demands, assessments, judgments, settlements,
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reasonable costs and legal and other expenses arising from or in connection with
any action, suit, proceeding or claim by any third party resulting in damage or
loss to Video Update or any subsidiary of Video Update as a consequence of any
such misrepresentation, breach of warranty or nonfulfillment of obligation.
4.2 CONDITIONS TO INDEMNIFICATION. The obligations and liabilities of
the Sellers hereunder with respect to their respective indemnities pursuant to
this Section, resulting from any claim or other assertion of liability by third
parties, shall be subject to the following terms and conditions:
(a) Video Update or any of its subsidiaries seeking
indemnification (the "Indemnified Party") shall give the Sellers, as the case
may be (the "Indemnifying Party"), notice in writing within thirty (30) days of
(i) any claim or potential claim, (ii) the commencement of any action or
proceeding, or (iii) the occurrence of any other event giving rise to
indemnification rights under this Section. The Indemnified Party receiving
notice of such claim, commencement of such action or proceeding or the
occurrence of such event shall give the Indemnifying Party written notice of
such claim, the commencement of such action or proceeding or the occurrence of
such event and, in each case, the basis therefor, provided, however, that
failure to give such notice within such thirty (30) day period shall not affect
the liability of the Indemnifying Party under this Agreement unless the failure
to give such notice within such time period materially adversely affects the
Indemnifying Party's ability to defend itself against the claim giving rise to
the Indemnified Party's claim for indemnification or to cure the default giving
rise to such claim. With respect to threatened or asserted claims of third
parties, the Indemnifying Party shall have the right to control the defense of
such claim by counsel of its own choosing, provided that the Indemnified Party
shall have the option at its expense to cooperate in such defense with counsel
of its choosing. If the Indemnified Party is named as a party against which
claim is asserted or action or proceeding is commenced, the Indemnifying Party
shall have the right (i) to defend any such claim, action or proceeding brought
by a third party of which notice has been delivered pursuant hereto, and (ii) to
compromise or settle such claim, action or proceeding brought by a third party
of which notice has been delivered pursuant hereto. In the event that the
Indemnified Party shall undertake to compromise, settle or defend any such
asserted liability, it shall promptly notify the Indemnifying Party of its
intention to do so and the terms of such compromise or settlement, and the
Indemnifying Party agrees to cooperate in the compromise of, or defense against,
any such asserted liability. In any event, the Indemnified Party shall have the
right at its own expense to participate in any claim, action or proceeding that
is being defended by another party.
(b) If the Indemnifying Party fails to defend such claim
within thirty days after notice of a claim hereunder, the Indemnified Party
shall be entitled to undertake the defense, compromise or settlement of such
claim at the reasonable expense of and for the account and risk of the
Indemnifying Party subject to the right of the Indemnifying Party to cooperate
in the defense of such claim at any time prior to the settlement, compromise or
final determination thereof.
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(c) The Indemnifying Party will not, without Indemnified
Party's prior written consent, settle or compromise any claim or consent to any
entry or judgment that does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party of a release
from all liability with respect to such claim, provided, however, that should
the Indemnified Party assume the control of the defense of a claim, the
Indemnified Party shall have the authority to settle or compromise any claim or
consent to any entry of judgment, without the Indemnifying Party's prior
consent.
4.3 PAYMENT FOR INDEMNIFICATION. The Sellers shall pay to Video Update
the amount of claims for indemnification within five (5) days after the
notification thereof (the "Due Date") in cash or by certified check. Video
Update may set off the amount of any claim due to it from the Sellers against
any amount due from Video Update to the Sellers. Any amounts not paid by the
Sellers when due under this Section shall bear interest from the Due Date
thereof until the date paid at the lower of eighteen percent (18%) per annum or
the highest rate allowed by law.
4.4 SURVIVAL OF INDEMNIFICATION. The indemnification provided in this
Section shall survive the Closing.
4.5 INTENT OF PARTIES. The parties hereto intend for the
indemnification provisions of this Section to be construed as a full
indemnification in accordance with its terms, notwithstanding the use of any
"substantial" or "material" standard contained elsewhere in this Agreement. Any
remedies of Video Update shall be cumulative and not exclusive. Specifically,
but not by way of limitation, the parties make no attempt to limit any claims
based on common law fraud or other similar remedies.
5. NON-DISCLOSURE OF INFORMATION
(a) With respect to the operations of the Stores, each of the Sellers
recognizes and acknowledges that (i) all plans, systems, methods, designs,
procedures, books and records relating to the operations, personnel and
practices (whether instituted or commenced prior or subsequent to the date
hereof) of the Stores, and (ii) all other records, documents and information
concerning the business activities, practices, and procedures of the Stores, may
constitute valuable, special and unique assets of the business of MB to be
acquired by Video Update. Each of the Sellers therefore covenants and agrees
that he, she or it will not, following the date of this Agreement, disclose any
part thereof that is confidential to any person, firm, corporation, association
or other entity, for any reason or purpose whatsoever.
(b) Each of the Sellers acknowledges that the restrictions contained in
this Section, in view of the nature of the business in which it is engaged, are
reasonable and necessary to protect its legitimate interests, and that any
violation thereof could result in irreparable injuries to Video Update. Each of
the Sellers therefore acknowledges that, in the event of a breach or threatened
breach of the provisions of this paragraph by the Sellers, Video Update shall be
entitled to request from any court of competent jurisdiction, preliminary and
permanent injunctive relief restraining the Sellers from disclosing any such
records, documents or information.
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6. RESTRICTIVE COVENANT
(a) Each of the Sellers agrees that for a period of three (3) years
from the Closing, neither they nor their respective successors or assigns shall
engage directly as a principal or indirectly as (i) an advisor, (ii) an agent
(whether a salesperson or otherwise), (iii) a broker or (iv) a partner,
coventurer, stockholder or other proprietor owning directly or indirectly more
than five percent (5%) interest in any firm, corporation, partnership, trust,
association or other organization, in the sale, rental or service of any asset,
part or product rented, sold, offered, featured or otherwise included in the
business of MB prior to the Closing, within a three mile radius of each of the
Stores.
(b) Each of the Sellers acknowledges that the restrictions contained in
this Section, in view of the nature of the business in which Video Update is
engaged, are reasonable and necessary to protect the legitimate interests of
Video Update, and that any violation thereof could result in irreparable
injuries to Video Update. The Sellers acknowledge that, in the event of a breach
or threatened breach of the restrictions of this Section by any of the Sellers,
Video Update shall be entitled to request from any court of competent
jurisdiction, preliminary and permanent injunctive relief restraining them (or
their respective successors, assigns, or transferees) from any violation of the
foregoing.
(c) Nothing herein shall be construed as prohibiting Video Update from
pursuing any other remedies available for such breach or threatened breach,
including recovery of damages and an equitable accounting of all earnings,
profits and other benefits arising from such violation, by the Sellers.
(d) Each of the Sellers acknowledges the intention that Video Update
shall have the broadest possible protection of the value of the business of
Video Update in the trade areas set forth above (to the extent that the business
is actively conducted in any such trade area as of the Closing) consistent with
public policy, and it will not violate the intent of the parties if any court of
competent jurisdiction should determine, in an appropriate decree, that,
consistent with established precedent of the forum state, the public policy of
such state requires a more limited restriction in geographical area or duration
of the aforesaid covenant.
7. GENERAL
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Sellers contained herein or in any
Schedule, Exhibit or certificate delivered hereunder shall survive the Closing
Date, shall remain in full force and effect and shall be unaffected by any
investigation made by Video Update hereunder. All covenants and agreements
contained herein that are to be performed or fulfilled after the Closing Date
shall survive and remain in full force and effect.
-11-
7.2 PRESS RELEASES. Unless approved in advance by Video Update, neither
of the Sellers shall issue any press release or written statement for general
circulation relating to the transactions contemplated hereby, except as required
by law in the reasonable opinion of their counsel.
7.3 PAYMENT OF EXPENSES. Whether or not the transactions contemplated
hereby are consummated, Video Update shall pay its own expenses, and the Sellers
shall pay their own expenses, in connection with the negotiation, authorization,
preparation, execution and performance of this Agreement, including, without
limitation, all fees and expenses of investment banking firms, agents,
representatives, counsel and accountants.
7.4 GOVERNING LAW. This Agreement shall be governed in all respects,
whether as to validity, construction, capacity, performance or otherwise, by the
internal laws of the State of Minnesota in which it has been executed and in
which it has a situs, without regard to its conflict of laws provisions. If any
provision of this Agreement shall be held invalid by a court with jurisdiction
over the parties to this Agreement, then and in that event such provision shall
be deleted from the Agreement, which shall then be construed to give effect to
the remaining provisions thereof. Each of the Sellers consents to the exclusive
jurisdiction of the courts of the State of Minnesota, and any state or federal
court located therein, and to the appropriateness of the venue of such courts,
in connection with any dispute which may arise pursuant to this Agreement or is
related to the transactions contemplated hereby.
7.5 NOTICES. Any payments, notices or other communications required or
permitted hereunder shall be given in writing and deemed to have been properly
given if and when delivered personally or if sent by facsimile transmission or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
if to Video Update: Video Update, Inc.
3100 World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Attention: Daniel A. Potter,
Chief Executive Officer
Facsimile: (612) 229-9629
with a copy to: Lawrence H. Gennari, Esquire
O'Connor, Broude & Aronson
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154
Facsimile: (617) 890-9261
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if to MB or the Owners: Susan Janae Kingston
Larry Peterman
938 North 900 West
Salt Lake City, Utah 84116
Facsimile: (801) 322-2529
with a copy to: Jerome H. Mooney, Esquire
Mooney Law Firm
50 West Broadway, 4th Floor
Salt Lake City, Utah 84101
Facsimile: (801) 364-3406
or such other address as shall be furnished in writing by any party. Any such
payment, notice or communication shall be deemed to have been made or given on
the date of actual receipt, whichever first occurs.
7.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors,
assigns, heirs, executors, administrators and legal representatives, provided,
however, that no Seller shall assign any of his, her or its rights or delegate
any of its obligations hereunder to any party without the prior written consent
of Video Update.
7.7 HEADINGS. The descriptive headings of the several Sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
7.8 COUNTERPARTS. This Agreement may be executed originally or by
facsimile and in one or more counterparts, all of which together shall be
considered one and the same agreement.
7.9 WAIVER. The failure of any party to this Agreement at any time or
times to required performance of any provision hereof shall in no manner affect
such party's right at a later time to enforce the same. No waiver by any party
of any condition, or of the breach of any term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or the breach of any other term, covenant, representation or warranty
of this Agreement.
7.10 ENTIRE AGREEMENT. This Agreement, together with its Exhibits and
Schedules, contains the entire agreement among the parties hereto with respect
to the transactions contemplated herein, and supersedes all prior agreements and
understandings, whether written or oral, among the parties hereto with respect
to the subject matter of this Agreement.
-13-
7.11 ADDITIONAL ACTIONS. Video Update and the Sellers agree to execute
and deliver such other documents, certificates, agreements and other writings
and to take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement.
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IN WITNESS WHEREOF, this Agreement has been signed by a duly authorized
officer of Video Update, and by each of the Sellers as of the day and year first
above written.
VIDEO UPDATE, INC.
By: /s/ Daniel A. Potter
------------------------------
Daniel A. Potter
Chief Executive Officer
SUSAN JANAE KINGSTON
/s/ Susan Janae Kingston
------------------------------
LARRY PETERMAN
/s/ Larry Peterman
------------------------------
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LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Exhibit Title
- ------- -----
A List of Stores
B Opinion of Counsel to Sellers
Schedule Title
- -------- -----
1.1(a) Tangible Property
1.1(b) Accounts and Customer Receivables
1.1(f) Material Agreements
1.2 Assumed Liabilities
2.1 Encumbrances on Assets
2.3(a) Financial Statements
2.3(b) Statement of Adverse Changes, Undisclosed Liabilities and
Promotional Activity
2.4 Exceptions to Accounts Receivable and Usable Inventory
2.5 Exceptions to Tax Payments/Tax Proceedings and Claims
2.6 Required Consents
2.7 Litigation
2.11 Notice of Violations or Noncompliance
2.12 List of Labor Unions, Unfair Practices and Other Labor Matters
2.13 List of Transactions Not in the Ordinary Course of Business and Contracts
Extending Beyond the Closing
2.14 List of Powers of Attorney, Deposit Accounts, Signing Authorities, and of
Employees and Service Contracts
Copies of the Exhibits and Schedules will be provided to the Commission upon request.
</TABLE>
EXHIBIT 99.a
------------
FOR IMMEDIATE RELEASE
---------------------
VIDEO UPDATE COMPLETES ACQUISITION OF SEVEN VIDEO STORES
VIDEO UPDATE CHAIN CONTINUES RAPID EXPANSION THROUGH NORTH AMERICA
ST. PAUL, MN, March 3, 1997 -- Video Update, Inc. (Nasdaq National
Market: VUPDA, VUPDZ) an international video chain, today announced that it has
completed the asset acquisition of seven video stores in Texas and Oklahoma from
Cox Video Corporation. The addition of these stores raises the total number of
Video Update stores in North America to 330.
"We are moving quickly to execute our expansion strategy through
acquisitions and building new stores. Our recently increased credit line and
last month's appointment of a new area real estate manager position us for
continued efficient response to appropriate growth opportunities as they arise.
The swift closing of the Cox acquisitions further supports our commitment to
this strategy."
Video Update, Inc. is an international video retail chain with 330
video stores in North America of which 301 are corporately-owned and 29 are
franchised as of February 28, 1997. Video Update stores are located in seventeen
states in the U.S. and in three provinces in Canada.
Matters discussed in this news release contain forward-looking
statements that involve risks and uncertainties. The Company's results may
differ significantly from the results indicated by such forward-looking
statements. Although the Company endeavors to integrate and assimilate the
operations of acquired stores in an effective and timely manner, no assurance
can be given that the Company will be successful in such integration attempts or
that the Company will be able to hire, train, retrain and assimilate selected
individuals employed at acquired stores. Further no assurance can be given that
the Company will successfully integrate the above described acquisitions or any
other future acquired businesses into the Company's purchasing, marketing and
management information systems. These and similar acquisition related risks are
detailed from time to time in the Company's SEC reports, including Form 10-KSB,
S-3 and 10-QSB for the quarter ended October 31, 1996.
FOR IMMEDIATE RELEASE
---------------------
VIDEO UPDATE EXPANDS BOARD TO SEVEN WITH APPOINTMENT OF
BERNARD PATRIACCA AS INDEPENDENT DIRECTOR
FORMER CFO OF DUNKIN' DONUTS BRINGS ADDED RETAIL AND FRANCHISE EXPERTISE
ST. PAUL, MN, April 2, 1997 -- Video Update, Inc. (Nasdaq National
Market: VUPDA, VUPDZ), an international video chain, today announced the
election of Bernard R. Patriacca to its Board of Directors, increasing the size
of the Board from six to seven members, effective April 1st.
Mr. Patriacca, age 53, has extensive retail, financial and franchise
experience. From 1973 to 1991, Mr. Patriacca served in various capacities at
Dunkin' Donuts Incorporated, including Chief Financial Officer and Director.
Since 1994, he has served as Vice President of Errands Etc., Inc., a privately
held homeowner's personal service company he co-founded.
"Bernard brings to our Board a valuable mix of retail, franchising and
management expertise at both public and private companies," commented Dan
Potter, Chairman and Chief Executive Officer of Video Update. "His experience at
Dunkin' Donuts during its formative years is especially appropriate for our
Board as Video Update continues its North American expansion in the video rental
industry."
From 1991 to 1994, Mr. Patriacca held senior financial management
positions at several privately held consumer services companies including Sky
Rock Services Corp. and Boston Coach. He also serves as a director of publicly
held Smith-Midland Corporation, a developer and manufacturer of precast concrete
products, and ENCON Systems, Inc., a full-service energy management company. Mr.
Patriacca is a Certified Public Accountant with Bachelors and Masters degrees in
Finance and Accounting from Northeastern University.
Video Update, Inc. is an international video retail chain with 336
video superstores in North America of which 307 are company-owned and 29 are
franchised as of March 31, 1997. These stores are located in nineteen states in
the US and in three provinces in Canada.
Matters discussed in this news release, including the Company's
expansion plans, may be considered forward-looking statements that involve risks
and uncertainties. The Company's results may differ significantly from the
results indicated by such forward-looking statements. Business and expansion
risks are detailed from time to time in the Company's SEC reports, including
Form 10-KSB, S-3 and 10-QSB for the quarter ended January 31, 1997.
