As filed with the Securities and Exchange Commission on March 20, 1997
Registration No. 333-22193
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VIDEO UPDATE, INC.
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 41-1461110
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
DANIEL A. POTTER, CHIEF EXECUTIVE OFFICER
VIDEO UPDATE, INC.
3100 WORLD TRADE CENTER
30 EAST SEVENTH STREET
ST. PAUL, MINNESOTA 55101
(612) 222-0006
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(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices and
name, address and telephone number of agent for service)
COPIES TO:
LAWRENCE H. GENNARI, ESQUIRE
O'CONNOR, BROUDE & ARONSON
950 WINTER STREET, SUITE 2300
WALTHAM, MASSACHUSETTS 02154
(617) 890-6600
--------------
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: |X|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class Maximum Maximum Amount of
of Securities to Be Amount to Offering Price Aggregate Registration
Registered Be Registered per Unit (1) Offering Price (1) Fee
- ---------------------- ------------- --------------- ------------------ ----------
<S> <C> <C> <C> <C>
Class A Common
Stock, $.01 par
value per share
(the "Common
Stock") (2) ........ 70,106 $4.65625 $326,431.06 $98.92 (3)
</TABLE>
(1) Estimated solely for calculation of the amount of the registration fee.
All shares of Common Stock are being offered by the Selling
Stockholders who are not restricted as to the price or prices at which
such securities may be sold. Such securities are anticipated to be
offered at prices approximating fluctuating market prices. Therefore,
pursuant to Rule 457 of the Securities Act of 1933, as amended, the
registration fee has been calculated based upon the average of $4.625
per share and $4.6875 per share, the closing bid and asked prices of
the Company's Common Stock, respectively, on February 18, 1997, as
reported by the NASDAQ National Market System Stock Market.
(2) Pursuant to Rule 416 also registered hereunder are such additional
indeterminate number of shares of Common Stock that may become issuable
pursuant to antidilution adjustments, stock splits, stock dividends and
similar adjustments.
(3) The registration fee was paid to the Commission on February 21, 1997.
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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 20, 1997
PROSPECTUS
VIDEO UPDATE, INC.
70,106 SHARES OF CLASS A COMMON STOCK,
$.01 PAR VALUE PER SHARE
This Prospectus relates to 70,106 shares of Class A Common Stock, $.01
par value per share (the "Class A Common Stock" or the Common Stock"), of Video
Update, Inc., a Delaware corporation (the "Company"), for reoffer or resale from
time to time by the selling stockholders (the "Selling Stockholders"). See
"Selling Stockholders."
This offering (the "Offering") is not being underwritten. The shares of
Common Stock being offered hereunder may be sold by the Selling Stockholders
and/or their registered representatives from time to time at prices to be
determined at the time of such sales. No minimum purchase is required and no
arrangement has been made to have funds received by such Selling Stockholders
and/or their registered representatives placed in an escrow, trust or similar
account or arrangement, unless the proceeds come from a purchaser residing in a
state in which the sale of those securities has not yet been qualified. See
"Plan of Distribution."
The Company's Common Stock and redeemable Class B Warrants (the "Class
B Warrants") are traded on the NASDAQ National Market System Stock Market
("NASDAQ") under the symbols "VUPDA" and "VUPDZ," respectively. The shares of
Common Stock to be offered for sale pursuant to this Prospectus may be offered
for sale on NASDAQ or in privately negotiated transactions. On March 19, 1997,
the closing bid price of the Company's Common Stock and Class B Warrants on
NASDAQ was $4.75 per share and $1.5625 per Warrant.
THE SECURITIES OFFERED HEREBY INVOLVE CERTAIN RISKS TO THE PURCHASERS
OF SUCH SECURITIES. SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Selling
Public(1) Commissions(2) Stockholders(2)(3)
<S> <C> <C> <C>
Per Share of Common Stock ... $ 4.8125 -0- $ 337,385.12
Total(3) ...................................$ 4.8125 -0- $ 337,385.12
</TABLE>
(1) Estimated prices solely for the purpose of this Prospectus based on the
closing bid and asked prices for the Common Stock of $4.75 and $4.875
as reported on NASDAQ on March 19, 1997.
(2) The Selling Stockholders will be responsible for any commissions for
the sale of the shares of Common Stock offered in this Prospectus. The
distribution of the shares by the Selling Stockholders may be effected
in one or more transactions that may take place on NASDAQ, including
ordinary broker's transactions, privately negotiated transactions, or
through sales to one or more dealers for the resale of such shares as
principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated prices.
Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Stockholders in connection with
such sales.
(3) Offering expenses estimated at $20,000 are payable by the Company
pursuant to its agreement with the Selling Stockholders. See "Selling
Stockholders."
THE DATE OF THIS PROSPECTUS IS , 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copies thereof may be
obtained, at prescribed rates, at the public reference facilities maintained by
the Commission at the Public Reference Section, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at 7 World Trade Center, 13th Floor, New York, New York 10048, and The Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 or such information can be retrieved and inspected
on the World Wide Web at http://www.sec.gov.
The Company's Common Stock and Class B Warrants are listed for trading
on NASDAQ. Reports and other information concerning the Company can be inspected
at the offices of The NASDAQ Stock Market located at 1735 K Street, N.W.
Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act"), covering the Common
Stock included in this Prospectus. This Prospectus does not contain all the
information set forth in or annexed as exhibits to the Registration Statement
filed by the Company with the Commission and reference is made to such
Registration Statement and the exhibits thereto for the complete text thereof.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
filed as part thereof, copies of which may be obtained at prescribed rates upon
request to the Commission in Washington, D.C. Any statements contained herein
concerning the provisions of any documents are not necessarily complete, and, in
each instance, such statements are qualified in their entirety by reference to
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission.
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER BY THE SELLING STOCKHOLDERS TO SELL ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE SELLING
STOCKHOLDERS TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
-2-
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been previously filed by the
Company with the Commission under the Exchange Act, are incorporated by
reference in this Prospectus:
(1) Annual Report on Form 10-KSB for the fiscal year ended April
30, 1996 ("Fiscal 1996");
(2) Quarterly Report on Form 10-QSB for the fiscal quarter ended
July 31, 1996;
(3) Quarterly Report on Form 10-QSB for the fiscal quarter ended
October 31, 1996;
(4) Quarterly Report on Form 10-QSB for the fiscal quarter ended
January 31, 1997;
(5) Current Report on Form 8-K, dated October 22, 1996;
(6) Current Report on Form 8-K, dated December 17, 1996, as
amended by a Current Report on Form 8-K/A, dated March 6,
1997;
(7) Current Report on Form 8-K, dated January 15, 1997;
(8) Current Report on Form 8-K, dated February 11, 1997;
(9) Definitive Proxy Statement, dated November 13, 1996; and
(10) Description of the Company's Common Stock in the Company's
Form 8-A Registration Statement, declared effective on July
20, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the Offering described herein shall be deemed to be
incorporated by reference into this Prospectus from the respective dates those
documents are filed.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
The Company will provide, without charge, to each person who receives
this Prospectus, upon the written or oral request of any such person, a copy of
any or all of the documents which have
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been incorporated herein by reference, other than exhibits to such documents
(unless such exhibits are specifically incorporated by reference). Requests
should be directed in writing to Daniel A. Potter, Chairman and Chief Executive
Officer, Video Update, Inc., 3100 World Trade Center, 30 East Seventh Street,
St. Paul, Minnesota 55101, or by telephone at (612) 222-0006.
RECENT DEVELOPMENTS
No material changes in the Company's affairs have occurred since the
end of Fiscal 1996, which have not been described in a report on an Annual
Report on Form 10-KSB, a Quarterly Report on Form 10-QSB or a Current Report on
Form 8-K filed by the Company under the Exchange Act.
-4-
THE COMPANY
The following summary does not purport to be complete and is qualified
in its entirety by and should be read in conjunction with the more detailed
information and financial statements (including the notes thereto) incorporated
into this Prospectus. The Company utilizes a fiscal year ending April 30 and
each year referred to herein shall be referred to as "fiscal." Investors should
carefully consider the information set forth under the heading "Risk Factors."
The Company owns and operates 303 video specialty stores under the name
"Video Update" located in Alaska, Arizona, Illinois, Indiana, Minnesota,
Missouri, Nevada, Oregon, Pennsylvania, Texas, Washington, Wisconsin and Canada
and franchises 29 additional video specialty stores predominantly in the United
States as of March 19, 1997. All of the Company's stores in the United States,
and approximately 50% of the Company's Canadian stores, are superstores, which
are defined as retail video stores that carry more than 7,500 rental units. The
Company believes that, as of the end of its most recent fiscal year, it was the
fourth largest video specialty retailer in the United States and the third
largest video specialty retailer in Canada based on the number of stores it
operates and franchises. Video Update stores in the United States and Canada
offer on average approximately 11,300 and 8,000 rental units, respectively,
including multiple copies of new and popular releases and video games, in a
visually appealing and customer friendly layout.
The Company franchised its first store in January 1983 and opened its
first Company-owned store in September 1989. By July 1994, when the Company
completed its initial public offering, the Company had grown to 15 Company-owned
stores and 30 franchised stores and had developed a cost-effective superstore
format that distinguished the Company from other video retailers by providing it
with the flexibility to expand into desirable sites in both small and large
markets without compromising profitability or decreasing the number of viable
markets into which it could expand. During fiscal 1996, the Company grew rapidly
in size from 33 to 204 Company-owned stores. During this period, the Company
acquired 136 video stores in 12 transactions and opened 35 new video
superstores.
The Company's management has substantial experience in the video
retailing industry. The Company's senior management operations team has worked
together for more than ten years. Management's depth of experience in the
knowledge of the industry are reflected in both the Company's operating strategy
and growth strategy. The key elements of the Company's operating strategy are
to: (i) provide an extensive selection of videocassettes tailored to each
store's local market, (ii) effectively manage videocassette inventories within
stores utilizing the Company's integrated point-of-sale ("POS") system, (iii)
aggressively market the Company's stores through couponing, direct mail and
other promotions, (iv) concentrate its stores geographically within markets to
achieve economies of scale, and (v) maintain consistency of image and operations
throughout the Company's network of stores.
The Company's objective is to become a national presence in the video
rental industry. The key elements of the Company's growth strategy are to (i)
acquire chains of stores that present an
-5-
attractive combination of price, profitability and location, (ii) open new
superstores utilizing its low-cost format in existing markets and selected new
markets, and (iii) franchise superstores, primarily in areas where the Company
does not expect to pursue acquisitions or new store development. During fiscal
1997, the Company expects that most of its growth will come from acquisitions
and new superstore openings. In addition to acquired stores, the Company expects
to open 60 or more new superstores during fiscal 1997.
The Company believes that the home video industry is highly fragmented.
According to published reports by Paul Kagan Associates, Inc., a media analyst
unaffiliated with the Company ("Paul Kagan"), there were an estimated 27,400
video specialty stores in the United States in 1994, including approximately
6,100 superstores. According to Video Store Magazine, an industry publication,
only nine multiple store businesses operated in excess of 100 stores in 1995.
The Company also believes that the retail video industry has experienced a
recent trend toward consolidation driven by the recognition by store operators
of the competitive advantages that larger organizations enjoy in terms of access
to working capital, marketing efficiencies and other economies of scale and the
enhanced ability to obtain quality retail locations. The Company believes that
attractive acquisition opportunities will continue to arise as the industry
consolidates.
The Company was incorporated in Minnesota in October 1983 and
reincorporated in Delaware in March 1994. The Company's executive offices are
located at 3100 World Trade Center, 30 East 7th Street, St. Paul, Minnesota
55101, and its telephone number is (612) 222-0006.
Information contained in this Prospectus Summary contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "would," "could," "intend,"
"plan," "except," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. Please see "Risk
Factors" for certain cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
-6-
RISK FACTORS
Investors should carefully consider the following matters in connection
with an investment in the Class A Common Stock in addition to the other
information contained or incorporated by reference in this Prospectus.
Information contained or incorporated by reference in this Prospectus contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "would," "could," "intend,"
"plan," "expect," "anticipate," "estimate" or "continue" or the negative thereof
or other variations thereon or comparable terminology. The following matters
constitute cautionary statements identifying important factors with respect to
such forward- looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.
UNCERTAIN ABILITY TO ACHIEVE AND MANAGE PLANNED EXPANSION
The Company's future success and continued growth will depend on its
ability to acquire, open and franchise new stores and to operate these stores
profitably. The Company grew rapidly during fiscal 1996 from 33 to 204
Company-owned stores. The Company intends to continue its rapid expansion
through future acquisitions and expects to open 60 or more new superstores
during fiscal 1997. The Company's expansion is dependent on a number of factors,
including its ability to hire, train, retain and assimilate competent management
and store-level employees, the adequacy of the Company's financial resources and
the Company's ability to identify new markets in which it can successfully
compete, to locate suitable superstore sites and negotiate acceptable lease
terms and to adapt its purchasing, management information and other systems to
accommodate expanded operations. In addition, the Company is increasingly
entering new markets in which it has no prior operating experience. The
Company's expansion is also dependent on the timely fulfillment by landlords and
others of their contractual obligations to the Company, the maintenance of
construction schedules and the speed at which local zoning and construction
permits can be obtained. No assurance can be given that the Company will be able
to achieve its planned expansion or that expansion will be profitable. The
Company's planned expansion, including growth through acquisitions, will place
increasing pressure on the Company's management controls. A failure to manage
successfully its planned expansion would adversely affect the Company's
business. No assurance can be given that the Company's new stores will achieve
sales and profitability comparable to the Company's existing stores. If the
Company achieves its plans for growth, no Company executive, other than Mr.
Christopher Gondeck, its Chief Financial Officer, will have had significant
experience operating a company as large, in terms of stores or annual sales, as
the Company.
RISKS ASSOCIATED WITH ACQUISITIONS
General. The Company's growth strategy includes acquisitions. During
fiscal 1996, the Company acquired, in 12 transactions, 136 video rental stores
in Alaska, Arizona, Indiana, Minnesota, Nevada, Washington and Canada. No
assurance can be given that the Company will successfully identify suitable
acquisition candidates, complete acquisitions, integrate acquired
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operations into its existing operations or expand into new markets. No assurance
can be given that recent acquisitions or future acquisitions will not have a
material adverse effect upon the Company's operating results, particularly in
the fiscal quarters immediately following the consummation of such transactions,
while the operations of the acquired businesses are being integrated into the
Company's operations. Once integrated, acquired operations may not achieve
levels of revenues or profitability comparable to those achieved by the
Company's existing operations, or otherwise perform as expected.
Limited Knowledge and Operating History. Notwithstanding its own due
diligence investigation, management has, and will have, limited knowledge about
the specific operating history, trends and customer buying patterns of the video
specialty stores acquired in its recent acquisitions or future acquisitions.
Consequently, no assurance can be given that the Company will be able to make
future acquisitions at favorable prices, that acquired stores will perform as
well as they had performed historically or that the Company will have sufficient
information to analyze accurately the markets in which it elects to make
acquisitions. Failure to pay reasonable prices for acquisitions or to acquire
profitable video specialty stores could have a material adverse effect on the
Company's financial condition and results of operations.
Integration. 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, retain and assimilate
selected individuals employed at acquired stores. Further, no assurance can be
given that the Company will successfully integrate its recent acquisitions or
any other future acquired businesses into the Company's purchasing, marketing
and management information systems.
Competition for Acquisitions. Certain of the Company's larger, better
capitalized competitors may seek to acquire some of the same video specialty
stores that the Company seeks to acquire. Such competition for acquisitions
would likely increase acquisition prices and related costs and result in fewer
attractive acquisition opportunities, which could have a material adverse effect
on the Company's growth.
Significant Future Charges to Earnings Arising from Amortization of
Goodwill. At January 31, 1997, the Company had $29,941,000 of goodwill on its
balance sheet that resulted primarily from the acquisition of video rental
stores, which will be amortized over 20 years. The Company expects that its
operating results for future quarters over the next 20 years will reflect
quarterly, non-cash charges of approximately $437,000 for amortization of
goodwill from these acquisitions. The Company also anticipates that future
acquisitions will involve the recording of a significant amount of goodwill on
its balance sheet, which will be amortized over varying periods of time of up to
20 years.
-8-
Misrepresentations and Breaches by Sellers. In completing acquisitions,
the Company relies upon certain representations, warranties and indemnities made
by the sellers with respect to each acquisition, as well as its own due
diligence investigation. No assurance can be given that representations and
warranties in any purchase agreement are true and correct or that the Company's
due diligence uncovers all materially adverse facts relating to the operations
and financial condition of acquired businesses. To the extent that the Company
is required to pay for obligations of acquired businesses, or if material
misrepresentations exist, the Company's operating results could be materially
adversely affected.
Deficiency Payments. In connection with three acquisitions in which the
Company has issued an aggregate of 594,506 shares of Class A Common Stock to
sellers, the Company may be obligated to make deficiency payments (the
"Deficiency Payments") to such sellers, of which payments that may be due with
respect to 239,163 shares may be paid in shares of Class A Common Stock (the
"Deficiency Shares") at the option of the Company. In one acquisition, the
Deficiency Payment is expected to be equal to the number of issued shares of
315,343 multiplied by the difference between the guaranteed price for each share
of Class A Common Stock of $7.00 on certain dates beginning in October 1997, and
the average market price on such dates, if such average market price is less
than the guaranteed price. In another acquisition, the Deficiency Payment is to
be calculated based on the difference between the guaranteed price of $12.00 per
share and the actual price received per share (in the aggregate) for the 239,163
shares in bona fide, arm's length transactions by the seller during the six
month period from March 1996 to September 1996. (The Company is currently
disputing the calculation of and timing for Deficiency Payments claimed to be
due by holders of the 239,163 shares.) In a third acquisition, the Deficiency
Payment is to be calculated based on the number of issued shares of 40,000
multiplied by the difference on certain dates between the guaranteed price for
each share of (i) $10.00 with respect to one-half of such shares, and (ii)
$15.00 with respect to the other half, and the average market price on such
dates, if the average market price is less than the guaranteed price. Based on
the closing sale price of the Class A Common Stock of $4.75 on March 19, 1997,
the aggregate additional Deficiency Payments that the Company would be liable
for is approximately $2,240,000. To the extent any Deficiency Payments are
required, the Company's cash flow, depending on whether the deficiency is
satisfied by a cash payment or issuance of shares, could be materially adversely
affected.
COMPETITION
The video rental business is highly competitive. The Company competes
with other video retail stores, including other superstores, and with
supermarkets, pharmacies, convenience stores, bookstores, mass merchants, mail
order operations, vending machines and other retailers, as well as with
noncommercial sources such as libraries. Some of the Company's competitors have
significantly greater financial and marketing resources, market share, and name
recognition than the Company. Many of the Company-owned and franchised stores
compete with stores operated by the Blockbuster Entertainment division of
Viacom, Inc. ("Blockbuster"), some of which are in very close proximity, which
could have an adverse impact on the Company's results of operations. The
Company's franchise operations also compete with numerous franchise operations
in many industries
-9-
that have significantly greater financial and human resources and more
experience in selling franchises than does the Company. Potential franchisees
may believe that these franchisors may offer potential franchisees greater
opportunities for success than the Company.
POSSIBLE ADVERSE EFFECT OF NEW TECHNOLOGIES ON THE VIDEO RENTAL BUSINESS
The Company also currently competes with pay-per-view cable television
systems. Recently developed digital compression technology combined with fiber
optics and other technology will eventually permit cable companies, direct
broadcast satellite companies and other telecommunications companies to transmit
a much greater selection of movies to homes at scheduled intervals throughout
the day. Ultimately, these technologies could lead to the availability of movies
to the consumer on demand. Certain cable and other telecommunications companies
have tested and are continuing to test movie-on-demand services in some markets.
Technological advances could have a material adverse effect on the business of
the Company.
CHANGES IN STUDIO DISTRIBUTION AND PRICING
Changes in the manner in which movies are marketed by the studios that
produce them, primarily related to an earlier release of movie titles to
alternative distribution channels, could substantially decrease the demand for
video rentals, which could have a material adverse effect on the Company's
financial condition and results of operations. In addition, changes in the movie
studios' wholesale pricing structure for videos could result in a competitive
disadvantage for all video specialty stores, including those of the Company.
FINANCING GROWTH
Future expansion through acquisitions or new superstore openings will
require significant capital. To date, the Company has financed acquisitions and
superstore openings with cash from operations, the proceeds of prior equity and
debt offerings, borrowings under bank facilities, trade credit and equipment
leases. The Company currently intends to finance future acquisitions and new
superstore openings from the net proceeds of the sale or issuance of debt or
equity securities, with cash from operations, and from borrowings under credit
facilities. If such sources do not provide sufficient funds, the Company will be
unable to pursue its growth strategy, which would have a material adverse effect
on the Company's ability to increase its revenues and net income.
SEASONALITY AND OTHER FACTORS
The Company's business is somewhat seasonal, with revenues in April,
May, September and October generally lower than in other months of the year.
Future operating results may be affected by many factors, including variations
in the number and timing of store openings and acquisitions, weather
(particularly on weekends and holidays), the public acceptance of new release
titles available for rental, competition, marketing programs, special or unusual
events and other factors that may affect retailers in general. Also, any
concentration of new superstore openings and the
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related pre-opening costs in any particular fiscal quarter could have a material
adverse effect on the Company's operating results for that quarter.
RISKS ASSOCIATED WITH FRANCHISE OPERATIONS
Since its inception, the Company has sold franchises and generated
revenue from franchise fees, royalties and sales of initial inventory to
franchisees. No assurance can be given that the Company can continue to market
and sell its franchises, or operate its franchise program at profitable levels.
In addition, no assurance can be given that all franchisees will operate their
superstores in accordance with the Company's operating guidelines and in
compliance with all material provisions of the franchise agreement.
Additionally, the Company is subject to the Federal Trade Commission's Trade
Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures" and state laws and regulations
that govern the offer and sale of franchises. If the Company is unable to comply
with applicable federal and state franchise sales laws or the regulations of any
state that regulates the offer and sales of franchises, the Company will be
unable to offer and sell franchises. No assurance can be given that the
Company's franchising program will not be adversely affected by its failure to
register or file in certain states.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the
continued contributions of Daniel A. Potter, the Company's Chairman and Chief
Executive Officer, and John M. Bedard, the Company's President. The loss of the
services of either of these officers could have a material adverse effect on the
Company. The Company's continued growth and profitability also depends on its
ability to attract, motivate, and retain other management personnel, including
qualified store managers. No assurance can be given that the Company will be
successful in attracting, motivating and retaining such personnel. The Company
has no employment agreements with its officers or key personnel other than with
Messrs. Potter and Bedard.
CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SHARES
The 1,300,000 shares (the "Escrow Shares') of the Company's Class B
Common Stock, $.01 par value per share (the "Class B Common Stock"), placed into
escrow by Messrs. Potter, Bedard and Howard in connection with the Company's
initial public offering will be released upon the achievement by the Company of
certain earnings goals or if the Class A Common Stock reaches certain price
goals. The Securities and Exchange Commission (the "Commission") has adopted a
position with respect to arrangements such as the escrow arrangement above. This
position provides that in the event any shares are released from escrow to the
stockholders of the Company who are officers, directors, consultants or
employees of the Company, a non-cash compensation expense will be recorded for
financial reporting purposes. Therefore, if the Company attains any of the
earnings thresholds or the Company's Class A Common Stock meets certain minimum
bid prices required for the release of the Escrow Shares, the release will
require the Company to recognize additional compensation expense. Accordingly,
the Company will, in the event of the release of the Escrow
-11-
Shares, recognize during the period in which the earnings thresholds are met or
such minimum bid prices obtained, what could be a substantial non-cash charge
that would have the effect of substantially reducing or eliminating earnings, if
any, at such time. Although the amount of compensation expense recognized by the
Company will not affect the Company's total stockholders' equity or cash flow,
it may have a depressive effect on the market price of the Company's securities.
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's founders, Daniel A. Potter and John M. Bedard,
beneficially own or control 420,000 shares of Class A Common Stock and 1,964,876
shares of Class B Common Stock representing approximately 12% of the Company's
outstanding capital stock and approximately 36% of the total voting power. The
Class A Common Stock and Class B Common Stock are essentially identical, except
the Class B Common Stock has five votes per share and the Class A Common Stock
has one vote per share on all matters upon which stockholders can vote. As a
result, Messrs. Potter and Bedard are able to substantially influence all
matters requiring approval by the stockholders of the Company, including the
election of directors. Furthermore, the disproportionate vote afforded to the
Class B Common Stock could impede or prevent a change of control of the Company.
As a result, potential acquirors may be discouraged from seeking to acquire
control of the Company through the purchase of Class A Common Stock, which could
have a depressive effect on the price of the Class A Common Stock.
POSSIBLE DEPRESSIVE EFFECT ON PRICE OF SECURITIES OF FUTURE SALES OF COMMON
STOCK AND EXERCISE OF WARRANTS; ISSUANCE OF ADDITIONAL SHARES
The Company has outstanding 18,120,341 shares of Class A Common Stock
and 2,000,000 shares of Class B Common Stock (including the Escrow Shares). All
but 156,606 of the 18,120,341 shares of Class A Common Stock currently
outstanding are freely tradeable without restriction under the Securities Act,
unless acquired by "affiliates" of the Company as that term is defined in the
Securities Act. In addition, all of the shares of Class A Common Stock issued
upon exercise of the following convertible securities will be freely tradeable
without restriction under the Securities Act upon such exercise, unless acquired
by affiliates of the Company: (i) 8,504,825 shares of Class A Common Stock
issuable upon exercise of outstanding Class B Warrants, (ii) 117,500 shares of
Class A Common Stock issuable upon exercise of the Unit Purchase Option issued
to D.H. Blair Investment Banking Corp. ("Blair") in connection with its services
as underwriter of the Company's initial pubic offering (the "Initial Option"),
(iii) 230,550 shares of Class A Common Stock issuable upon exercise of the Unit
Purchase Option issued to Blair in connection with its services as underwriter
of the Company's subsequent public offering (the "Subsequent Option")
(collectively, the Initial Option and the Subsequent Option are referred to as
the "Blair Options"), (iv) 348,050 shares of Class A Common Stock issuable upon
exercise of the Class A Warrants underlying the Blair Options, (v) 696,100
shares of Class A Common Stock issuable upon exercise of the Class B Warrants
underlying the Blair Options, and (vi) 1,441,150 shares of Class A Common Stock
issuable upon exercise of the options issued under the 1994 Stock Option Plan
(the "1994 Plan"), the 1995 Stock Option Plan (the "1995 Plan"), the 1996 Stock
Option Plan (the "1996 Plan") and the 1994
-12-
Formula Stock Option Plan (the "Formula Plan") (collectively the 1994, 1995,
1996 and Formula Plans are referred to as the "Plans"). The Company has
authorized 60,000,000 shares of Class A Common Stock, of which the Company's
Board of Directors has the authority, without action or vote of the
stockholders, to issue all or part of any authorized but unissued shares of
Class A Common Stock. Any such issuance will dilute the percentage ownership
interest of stockholders and may further dilute the book value of the Class A
Common Stock.
The sale, or availability for sale, of substantial amounts of Class A
Common Stock in the public market could adversely affect the prevailing market
prices of the Company's securities and could impair the Company's ability to
raise additional capital through the sale of its equity securities. In addition,
the existence of the Blair Options, Class B Warrants, and other options that
have been or which may be issued under the Plans may hinder future financing by
the Company, and exercise of these securities may further dilute the interest of
the persons purchasing Class A Common Stock. Further, the holders of such
options may exercise them at a time when the Company would otherwise be able to
obtain additional equity capital on terms more favorable to the Company.
UNCLASSIFIED BALANCE SHEET
The Company uses an unclassified balance sheet in its financial
statements, and as a result, does not classify its assets or liabilities as
current or noncurrent. If the Company were to use a classified balance sheet, a
portion of videocassette rental inventories could be classified as noncurrent
because they are not assets that are reasonably expected to be completely
realized in cash or sold within one year. The acquisition cost of these
inventories, however, would be reflected in current liabilities.
NO DIVIDENDS
The Company has not paid any dividends to its stockholders since its
inception and does not plan to pay dividends in the foreseeable future. In
addition, the terms of a loan agreement relating to the Company's bank debt
prohibit the payment of dividends without the lender's prior written consent.
The Company intends to reinvest earnings, if any, in the development and
expansion of its business.
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES
Pursuant to the Company's Restated Certificate of Incorporation, as
authorized under applicable Delaware law, directors of the Company are not
liable for monetary damages for breach of fiduciary duty, except in connection
with a breach of the duty of loyalty, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or for any transaction
in which a director has derived an improper personal benefit. In addition, the
Company's Bylaws, as amended, provide that the Company must indemnify its
officers and directors to the fullest extent permitted by Delaware law for all
expenses, fines and judgements (including reasonable attorneys' fees) incurred
-13-
in the defense or settlement of any actions against such persons in connection
with their having served as officers or directors of the Company. See
"Indemnification."
ANTITAKEOVER EFFECTS; DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS;
PREFERRED STOCK
The Company's Restated Certificate of Incorporation and Bylaws, as
amended, as well as Delaware corporate law, contain certain provisions that
could have the effect of delaying, deferring or preventing a change in control
of the Company and could adversely affect the prevailing market price of the
Class A Common Stock. Certain of such provisions impose various procedural and
other requirements that could make it more difficult for stockholders to effect
certain corporate actions. Other provisions allow the Company to issue, without
stockholder approval, preferred stock having rights senior to those of the Class
A Common Stock. The Company is authorized to issue up to 5,000,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), none of which
is currently outstanding. The Preferred Stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. The issuance of any Preferred Stock could adversely
affect the rights of the holders of Class A Common Stock, and therefore reduce
the value of the Class A Common Stock. In particular, specific rights granted to
future holders of Preferred Stock could be used to restrict the Company's
ability to merge with or sell its assets to a third party, thereby preserving
control of the Company by its then owners.
-14-
USE OF PROCEEDS
The Company will not receive any part of the proceeds of any sale or
transactions made by the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth, as of March 19, 1997, the number of
shares beneficially owned prior to the Offering, the number of shares of Common
Stock offered hereby, and the number of shares beneficially owned after the
Offering (assuming sale of all shares of Common Stock being offered hereby) by
the Selling Stockholders.
<TABLE>
<CAPTION>
Common
Stock Common Stock
Beneficially Common Beneficially
Owned Stock Owned After
Prior to Being Completion of
Selling Stockholders Offering Offered Offering
<S> <C> <C> <C>
B&R Investment, Inc. (1) 15,606 7,553 8,053
Gary and Linda Balfe (1)(2) 15,607 7,553 8,054
Glenn and Deborah Bedard (3) 15,000 15,000 0
Michael Talerico (4) 40,000 40,000 0
</TABLE>
(1) The Company acquired substantially all of the assets of B&R Investment,
Inc. ("B&R") on October 7, 1995.
(2) Mr. and Mrs. Balfe are the principal stockholders of B&R.
(3) Mr. and Mrs. Bedard are the principal stockholders of Bedard
Entertainment, Inc. ("BEI"). The Company acquired substantially all of
the assets of BEI on January 4, 1996.
(4) Mr. Talerico was one of the principal stockholders of Talerico
Enterprises, Inc. ("TEI"). The Company acquired substantially all of
the assets of TEI on October 6, 1995.
The shares of Common Stock are being registered to permit public
secondary trading of the shares from time to time by the Selling Stockholders.
The Selling Stockholders were issued the shares being offered hereby from the
Company as a result of certain acquisitions completed by the Company. Such
securities are being registered pursuant to the terms of the acquisition
agreements at the expense of the Company, exclusive of fees and expenses of the
Selling Stockholders' attorneys or other representatives and selling or
brokerage commissions, if any, as the result of the sale of such securities.
The Selling Stockholders are not restricted as to the price or prices
at which they may sell their securities and sales of such securities at less
than the market price may depress the market price of the Company's Common Stock
and Class B Warrants. It is anticipated that the sale of the securities being
offered hereby when made, will be made through customary channels either through
broker-dealers acting as agents or brokers for the seller, or through
broker-dealers acting as principals, who may then resell the shares in the
over-the-counter market, or at private sales in the over-the-counter market or
otherwise, at negotiated prices related to prevailing market prices at the time
of the sales, or by a combination of such methods. Thus, the period for sale of
such securities by the Selling Stockholders may occur over an extended period of
time.
-15-
PLAN OF DISTRIBUTION
The shares of Common Stock covered hereby may be offered and sold from
time to time by the Selling Stockholders listed above. The Selling Stockholders
will act independently of the Company in making decisions with respect to the
timing, market, or otherwise at prices related to the then current market price
or in negotiated transactions.
The shares of Common Stock may be sold from time to time by the Selling
Stockholders, or by pledgees, donees, transferees or other successors in
interest. The shares of Common Stock covered by this Prospectus may be sold by
the Selling Stockholders in one or more transactions on NASDAQ, or otherwise at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The shares of Common Stock may be
sold by one or more of the following: (a) a block trade in which the broker or
dealer so engaged will attempt to sell the shares of Common Stock as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
Thus, the period of distribution of such shares of Common Stock may occur over
an extended period of time. The Company is paying all of the other expenses of
registering the securities offered hereby under the Securities Act estimated to
be $20,000 for filing, legal, accounting and miscellaneous fees and expenses,
and has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act. In effecting sales,
broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Stockholders in
connection with such sales. The Company will not receive any proceeds from any
sales of the Common Stock by the Selling Stockholders.
In offering the securities, the Selling Stockholders and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profits realized by
the Selling Stockholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions. In addition, any shares
covered by this Prospectus which qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this Prospectus.
The Company has advised the Selling Stockholders that during such time
as they may be engaged in a distribution of Securities included herein they are
required to comply with Rules 10b-6 and 10b-7 under the Exchange Act (as those
Rules are described in more detail below) and, in connection therewith, that
they may not engage in any stabilization activity, except as permitted under the
Exchange Act, are required to furnish each broker-dealer through which Common
Stock included herein may be offered copies of this Prospectus, and may not bid
for or purchase any securities of the Company or attempt to induce any person to
purchase any securities except as permitted under the Exchange Act.
-16-
Rule 10b-6 under the Exchange Act prohibits, with certain exceptions,
participants in a distribution from bidding for or purchasing, for an account in
which the participant has a beneficial interest, any of the securities that are
the subject of the distribution. Rule 10b-7 governs bids and purchases made in
order to stabilize the price of a security in connection with a distribution of
the security.
TRANSFER AGENT
The transfer agent for the Company's Common Stock and Warrants is
American Stock Transfer & Trust Company of 40 Wall Street, New York, New York
10005.
LEGAL MATTERS
Certain legal matters relating to the Common Stock offered hereby will
be passed upon for the Company by O'Connor, Broude & Aronson, 950 Winter Street,
Waltham, Massachusetts 02154. Certain attorneys in the firm of O'Connor, Broude
& Aronson hold options to purchase an aggregate of 60,000 shares of the
Company's Common Stock.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-KSB for the year ended April 30, 1996, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
-17-
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company 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.
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which is deemed illegal or obtaining an improper
personal benefit. The Company's Restated Certificate of Incorporation includes
the following language:
To the maximum extent permitted by Section 102(b)(7) of the
General Corporation Law of Delaware, a director of this Corporation
shall not be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director
derived an improper personal benefit.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of the Company,
and, with respect to any criminal action, had reasonable cause to believe his
conduct was lawful. The Bylaws of the Company, as amended, include the following
provision:
Reference is made to Section 145 and any other relevant
provisions of the General Corporation Law of the State of Delaware.
Particular reference is made to the class of persons, hereinafter
called "Indemnitees," who may be indemnified by a Delaware corporation
pursuant to the provisions of such Section 145, namely, any person, or
the heirs, executors, or administrators of such person, who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such
corporation or is or was serving at the request of such corporation as
a director, officer, employee, or agent of such corporation or is or
was serving at the request of such corporation as a director, officer,
employee or agent of another
-18-
corporation, partnership, joint venture, trust, or other enterprise.
The Corporation shall, and is hereby obligated to, indemnify the
Indemnitees, and each of them, in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the
aforesaid statutory provisions. The Corporation shall indemnify the
Indemnitees, and each of them, in each and every situation where, under
the aforesaid statutory provisions, the Corporation is not obligated,
but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such
indemnification, with respect to any situation covered under this
sentence, (i) the Corporation shall promptly make or cause to be made,
by any of the methods referred to in Subsection (d) of such Section
145, a determination as to whether each Indemnitee acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, in the case of any criminal
action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be
made unless it is determined that such Indemnitee acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, in the case of any criminal
action or proceeding, had no reasonable cause to believe that his
conduct was unlawful.
-19-
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER A SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR
THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
Available Information ......................................... 2
Incorporation of Certain Information
by Reference ................................................. 3
Recent Developments ........................................... 4
The Company ................................................... 5
Risk Factors .................................................. 7
Use of Proceeds ............................................... 15
Selling Stockholders .......................................... 15
Plan of Distribution .......................................... 16
Transfer Agent ................................................ 17
Legal Matters ................................................. 17
Experts ....................................................... 17
Indemnification ............................................... 18
70,106 SHARES
OF CLASS A COMMON STOCK,
$.01 PAR VALUE PER SHARE
VIDEO UPDATE, INC.
PROSPECTUS
, 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby other
than underwriting discounts and commissions (items marked with an asterisk (*)
represent estimated expenses):
Registration Fee (SEC)................. $ 98.92
Registration Fee (NASD)................ $ 532.64
Transfer Agent's Fees*................. $ 500.00
Printing Costs*........................ $ 1,000.00
Legal Fees*............................ $ 12,000.00
Accounting Fees*....................... $ 5,000.00
Miscellaneous*......................... $ 868.44
------------
TOTAL* $ 20,000.00
============
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
See "Indemnification" contained in Part I hereof, which is incorporated
herein by reference.
ITEM 16. EXHIBITS
(a) The following is a list of exhibits filed herewith as part of
this Registration Statement:
Exhibit
No. Title
5* Opinion letter of O'Connor, Broude & Aronson as to
legality of shares being registered.
23a Consent of Ernst & Young LLP.
23b* Consent of O'Connor, Broude & Aronson (contained in
Opinion filed as Exhibit 5).
---------------------
* - Previously filed with the Commission on February 21, 1997.
II-1
(b) The following exhibit was filed as part of the Company's Current
Report on Form 8-K filed with the Commission on January 10, 1997, and is
incorporated herein by reference:
Exhibit
No. Title
3 Restated Certificate of Incorporation.
(c) The following exhibit was filed as part of the Company's Current
Report on Form 8-K filed with the Commission on March 14, 1996, and is
incorporated herein by reference:
Exhibit
No. Title
3 Bylaws, as amended.
(d) The following exhibits were filed as part of the Company's Form
SB-2 Registration Statement (No. 33-89018) declared effective by the Commission
on April 7, 1995, and are incorporated herein by reference:
Exhibit
No. Title
4a Form of Unit Purchase Option.
10c Form of Amendment to Warrant Agreement dated July 20,
1994 between the Company, American Stock Transfer &
Trust Company and D.H. Blair Investment Banking Corp.
(e) The following exhibits were filed as part of the Company's Form
SB-2 Registration Statement (No. 33-79292-C) declared effective by the
Commission on July 20, 1994, and are incorporated herein by reference:
Exhibit
No. Title
4a Specimen Class A Common Stock Certificate.
4b Specimen Class B Common Stock Certificate.
4c Form of Warrant Agreement, including Form of Class A
and Class B Warrant Certificates.
II-2
Exhibit
No. Title
4d Form of Unit Purchase Option of D.H. Blair Investment
Banking Corp.
4e Form of Escrow Agreement between certain Stockholders
of the Company, the Company and American Stock
Transfer & Trust Company.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to include
any additional or changed material information on the plan of distribution.
(2) For the purpose of determining any liability under the
Securities Act, to treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time as the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
Offering.
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 Registrant
of expenses incurred or paid by a director, officer, or controlling person of
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, 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St. Paul,
State of Minnesota, on March 20, 1997.
VIDEO UPDATE, INC.
By:/s/ Daniel A. Potter
------------------------
Daniel A. Potter
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/s/ Daniel A. Potter Chairman of the Board, March 20, 1997
- --------------------------------- and Chief Executive Officer
Daniel A. Potter principal executive
officer)
/s/ John M. Bedard President and Director March 20, 1997
- -------------------------------
John M. Bedard
/s/ Daniel C. Howard Chief Operations Officer March 20, 1997
- ------------------------------ and Director
Daniel C. Howard
/s/ Christopher J. Gondeck Chief Financial Officer March 20, 1997
- ------------------------------ (principal financial and
Christopher J. Gondeck accounting officer)
/s/ Paul M. Kelnberger Director March 20, 1997
- -----------------------------
Paul M. Kelnberger
/s/ Jana Webster Vaughn Director March 20, 1997
- -------------------------
Jana Webster Vaughn
/s/ Robert E. Yager Director March 20, 1997
- -----------------------------
Robert E. Yager
</TABLE>
II-4
EXHIBIT INDEX
Exhibit
No. Title
5* Opinion letter of O'Connor, Broude &
Aronson as to legality of shares being
registered.
23a Consent of Ernst & Young LLP.
23b* Consent of O'Connor, Broude & Aronson
(contained in Opinion filed as Exhibit 5).
- ---------------------
* - Previously filed with the Commission on February 21, 1997.
Exhibit 23a
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Video Update, Inc.
for the registration of 70,106 shares of its common stock and to the
incorporation by reference therein of our report dated June 12, 1996, with
respect to the consolidated financial statements of Video Update, Inc. included
in its Annual Report on Form 10-KSB for the year ended April 30, 1996, filed
with the Securities and Exchange Commission.
Minneapolis, Minnesota /s/Ernst & Young LLP
March 19, 1997
