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: December 17, 1996
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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
December 17, 1996
Item Page
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Purchase Agreement by and among Video Update
Canada Inc., Video View Ltd., and Gordon and
Joanne Hillman 1
ITEM 5. OTHER EVENTS 1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS 1
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S 2
SIGNATURE 3
EXHIBITS E-1
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective January 1, 1997, Video Update, Inc. ("Video Update"), through
its wholly owned Canadian subsidiary, Video Update Canada Inc. (the "Company"),
entered into a Purchase Agreement (the "Agreement") with Video View Ltd., an
Alberta corporation ("Video View"), and Gordon and Joanne Hillman, the sole
stockholders (the "Stockholders") of Video View, which operated 23 video rental
stores in Alberta, Canada. Under the Agreement, the Company agreed to pay Video
View and the Stockholders $8,000,000 (Cdn.) in cash and to issue 50,000 shares
of Video Update's Class A Common Stock, $.01 par value per share, in exchange
for substantially all of the assets of Video View (the "Acquisition"). The
Agreement is intended to be effective as of January 1, 1997, however, it is
being held in escrow with a closing under the Agreement subject to and pending
receipt of approval of the Acquisition from Industry Canada (formerly known as
Investment Canada). The closing under the Agreement shall occur after receipt of
such approval from Industry Canada, of which no assurance can be given. The
amount of consideration exchanged was determined by negotiations between the
Stockholders and Video Update. The cash portion of the purchase price was
financed by funds raised from Video Update's recent public offering, which was
completed in October 1996. The Company intends to continue to use substantially
all of the acquired assets for the purpose of operating the 23 video rental
stores. No material relationship existed between the parties prior to the
transaction.
ITEM 5. OTHER EVENTS
On December 17, 1996, Video Update held its annual meeting of
stockholders at the executive offices of the Company in St. Paul, Minnesota. The
stockholders voted to re-elect the six current members of the Board of Directors
and to approve the selection of Ernst & Young LLP as independent auditors for
the fiscal year ending April 30, 1997. The stockholders also voted to amend the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of the Company's Class A Common Stock from 50,000,000 shares
to 60,000,000, and to approve the Company's 1996 Stock Option Plan, under which
820,000 shares have been reserved for issuance.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial statements of businesses acquired.
It is impracticable to provide the required financial statements at
this time. Video Update intends to file the required financial statements as
soon as practicable, but in no event later than sixty (60) days after the date
that this report must be filed.
b. Pro forma financial information.
It is impracticable to provide the required pro forma financial
information at this time. Video Update intends to file the required pro forma
financial information as soon as practicable, but in no event later than sixty
(60) days after the date that this report must be filed.
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c. Exhibits. The following exhibits are filed with this report.
<TABLE>
<CAPTION>
Exhibit
No. Title
------- -----
<S> <C>
2 Purchase Agreement by and among Video Update Canada Inc., Video
View Ltd., and Gordon and Joanne Hillman, dated as of January 1,
1997.
3 Restated Certificate of Incorporation.
99 Press Release.
</TABLE>
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
a. Securities sold. Video Update issued Fifty Thousand (50,000) shares
of its Class A Common Stock, $ .01 par value per share (the "Shares"), into
escrow as of January 2, 1997.
b. Underwriters and other purchasers. No underwriters were involved in
the transaction. The Shares were issued into escrow for the benefit of Video
View.
c. Consideration. The Shares were issued as partial consideration for
the Acquisition. The additional consideration for the Acquisition was $8,000,000
(Cdn.).
d. Exemption from registration claimed. Video Update believes that an
exemption from registration of the Shares is available under Rule 903(c)(2) of
Regulation S promulgated under the Securities Act of 1933, as amended, because
of the following: (i) the offer and sale of the Shares were made in an "Offshore
Transaction," as defined in Rule 902(i), (ii) no "Directed Selling Efforts," as
defined in Rule 902(b), were made in the United States by Video Update or any of
its affiliates or representatives, (iii) Video Update is a "Reporting Issuer,"
as defined in Rule 902(l), and (iv) "Offering Restrictions," as defined in Rule
902(h), have been implemented.
e. Terms of conversion or exercise. Not applicable.
This report contains forward-looking statements that involve risks and
uncertainties. Video Update's results may differ significantly from the results
indicated by such forward-looking statements. In particular, no assurances can
be given that the above described Acquisition will be completed, or that the
approval of Industry Canada will be granted, on a timely basis, if at all. These
and similar acquisition related risks are detailed from time to time in Video
Update's SEC reports, including Form 10-KSB, S-3 and 10-QSB for the quarter
ended October 31, 1996.
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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: January 10, 1997 By:/s/ Daniel A. Potter
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Daniel A. Potter
Chief Executive Officer
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EXHIBIT INDEX
Exhibit
No. Title
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2 Purchase Agreement by and among Video Update Canada Inc., Video
View Ltd.,and Gordon and Joanne Hillman, dated as of January 1, 1997.
3 Restated Certificate of Incorporation.
99 Press Release.
E-1
Exhibit No. 2
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PURCHASE AGREEMENT
THIS AGREEMENT is made, effective as of 8:00 a.m. on the 1st day of
January 1997, by and between Video Update Canada Inc., an Ontario corporation
and wholly owned subsidiary of 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"), Video View
Ltd., an Alberta corporation having its principal place of business at 6201 46th
Avenue, Red Deer, Alberta T4N 6Z1 ("Video View"), and Gordon and Joanne Hillman,
individuals residing at 6201 46th Avenue, Red Deer, Alberta T4N 6Z1 (the
"Stockholders") (Video View and the Stockholders are hereinafter referred to
collectively as the "Sellers").
RECITALS
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WHEREAS, Video View and the Stockholders own all of the assets used or
useful in the video rental business carried out at the 23 stores (the "Stores")
listed on the attached Exhibit 1; and
WHEREAS, Video Update wishes to acquire from Video View and the
Stockholders, and Video View and the Stockholders wish to transfer to Video
Update, the Assets (as defined below) in exchange for which Video Update shall
issue and transfer 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.
NOW, THEREFORE, intending to be legally bound hereby, and in
consideration of the premises and the mutual 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 Video View 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 Escrow 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 Video View business
carried on at the Stores, except as specifically set forth on Schedule 1.1 (the
"Assets"):
(a) All tangible property, wherever located, including without
limitation, inventory, leaseholds, leasehold improvements, security systems,
racking, fixtures, equipment, furniture, office furnishings, office equipment,
computers and peripherals, including but not limited to the assets described on
Schedule 1.1(a);
(b) All accounts or customer receivables as described on Schedule
1.1(b), all intangible property, including without limitation, patents and
applications therefor (if any), all trademarks and trade names, logos, trademark
and trade name registrations, servicemark and servicemark
registrations, all copyrights, copyright registrations, the applications
therefor and the licenses thereto (if any), together with all goodwill and the
business appurtenant thereto;
(c) All trade secrets, "know how", confidential information and data;
(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 Video View's
customers or marketing efforts;
(e) Except as set forth on Schedule 1.1(e), all books and records of
the Video View business, 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 Video View business;
(f) All rights of Video View under all material agreements as set forth
on 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;
(g) All rights as a member in any cooperative association and/or
"buying group" and all supplier information;
(h) All rights, as licensee or otherwise, to use and employ in its
business existing computer systems, together with all associated hardware,
software, documentation, computer files and back up files;
(i) All rights to Video View's telephone number(s), fax number(s),
telex address(es) (if any), lock box(es) (if any) and post office box
address(es); and
(j) All other assets, tangible and intangible, wherever located,
related to and owned by the Sellers in connection with the Video View business.
1.2 No Assumption of 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. Effective on the Release Date, as defined below, Video
Update shall assume:
(a) The employment agreements set forth on, and attached to, Schedule
2.15, and shall assume the employment histories of the personnel listed on
Schedule 2.15 (the "Assumed Employees"). The parties agree that Section 11 of
the Employment Standards Act of Alberta shall apply to this Agreement insofar as
it relates to the Assumed Employees. Video View shall be responsible for the
payment of all salary, holiday pay and all other employment obligations arising
from or related to the period preceding the Release Date. With respect to the
employees of Video
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View that are not listed on Schedule 2.15, Video View shall be solely
responsible for retaining or terminating such employees and for the payment of
all severance or money in lieu of notice due to such employees, and Video Update
shall have no responsibility or liability to such employees or for payment of
any money or claims with respect thereto and the indemnification provisions of
Section 4 shall apply with respect to any and all liabilities resulting
hereunder; and
(b) Obligations arising under gift certificates sold, distributed or
otherwise by or on behalf of Video View, but solely to the extent that such
obligations do not exceed $15,000 (Cdn.) in the aggregate, and, if such
obligations do exceed $15,000 (Cdn.), then the indemnification provisions of
Section 4 shall apply with respect to any and all liabilities resulting
hereunder.
1.3 Purchase Price.
(a) Consideration. At the Escrow Closing Date (as defined in Section
1.4 below), Video Update shall:
(i) pay to The Trust Company of Bank of Montreal (the "Escrow
Agent") by wire or certified check the sum of (A) Eight Million Dollars
($8,000,000) (Cdn.), from which shall be drawn all amounts necessary to
fully discharge the liabilities (the "Escrowed Liabilities") secured by
the Personal Property Security Act Registrations and any other similar
registrations listed on Schedule 2.1 on the Release Date (as defined
below), plus (B) One Hundred Sixteen Thousand Five Hundred Ninety-nine
and 48/100 Dollars ($116,599.48) (Cdn.) to be applied as reimbursement
to Video View for the pre-payment of rent for the Stores for the month
of January 1997 (the "Reimbursement"), all of which shall be held in
escrow by the Escrow Agent in accordance with the Escrow Agreement
annexed as Exhibit 1.3 (the "Escrow Agreement"); and
(ii) arrange for the issuance and delivery to the Escrow Agent
of 50,000 shares (the "Video Update Shares") of Class A Common Stock,
$.01 par value per share (the "Common Stock"), of Video Update, Inc.
("VUI") registered in accordance with the Seller's written
instructions.
The cash consideration and Video Update Shares referenced herein
together with any closing adjustments agreed among the parties in writing shall
be the total consideration (the "Purchase Price") for the Assets. Immediately
following the Escrow Closing Date, Video Update and the Sellers shall jointly
instruct the Escrow Agent to release One Hundred Sixteen Thousand Five Hundred
Ninety-nine and 48/100 Dollars ($116,599.48) (Cdn.) to the Sellers in full and
complete satisfaction of the Reimbursement.
(b) Allocation of Purchase Price. The parties agree on the allocation
of purchase price set forth in Schedule 1.3(b) for the Assets and neither party
shall take any position inconsistent with such allocation with any taxing
authority or third party.
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1.4 Closing.
(a) The signing of this Agreement has taken place by facsimile
transmission, on the 31st day of December 1996 (the "Escrow Closing" or "Escrow
Closing Date"), notwithstanding the fact that the parties have not yet obtained
the approval of Investment Canada for the transaction contemplated by this
Agreement (the "Approval"). All proceedings have been taken and all documents
have been executed and delivered by all parties at the Escrow Closing and have
been 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 the Escrow Closing:
(i) The Sellers have delivered to the Escrow Agent all
executed documents including without limitation, lease assignments
(without the consents of landlords (the "Landlords' Consents"), where
applicable) and bills of sale, necessary to transfer all right, title
and interest in and to the Assets to Video Update (which documents,
together with the documents referenced in Sections 1.4(a) (ii) through
(vi) below may hereinafter be referred to as the "Closing Documents"),
and Video Update has arranged for the issuance and delivery to the
Escrow Agent of the Purchase Price on the terms set forth in Section
1.3 hereof;
(ii) The Sellers have delivered to Video Update all documents
of the Video View business not previously delivered to Video Update
including, without limitation, the unaudited financial statements for
the year ended December 31, 1995 and for the period ended November 30,
1996;
(iii) The Sellers have delivered an opinion of their counsel
dated the Escrow Closing Date in substantially the form set forth in
Exhibit A;
(iv) Video Update has delivered an opinion of its counsel
dated the Escrow Closing Date in substantially the form set forth in
Exhibit B.
(v) Video Update and the Sellers have entered into:
a. A Management Services Agreement in the form
annexed hereto as Exhibit 1.4(a) (the "Management Agreement");
b. A lease for the store located at Camrose in the
form annexed hereto as Exhibit 1.4(b);
c. A lease for each of the stores located at
Drumheller, Innisfail, Stettler and Eckville in the form
annexed hereto as Exhibit 1.4(c); and
d. The Escrow Agreement; and
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(vi) Video Update and the Sellers have delivered a Goods and
Service Tax Election on Form 44 (90/12) in accordance with the
provisions of the Excise Tax Act of Canada.
(b) Following the Escrow Closing, on or before the third business day
following the issuance of the Approval, or such other date as agreed upon by the
parties in writing (the "Release Date"), the Closing Documents and Purchase
Price shall be released from escrow in accordance with the Escrow Agreement and
the transactions contemplated herein shall be given full force and effect and
the transactions contemplated hereby shall be formally closed, subject to:
(i) the fulfillment by the Sellers, or waiver by Video Update,
of the following conditions on the Release Date:
a. Representations and Warranties of the Sellers to
be True and Correct. The representations and warranties of the
Sellers set forth in Article Two hereof shall be true and
correct in all respects on the Release Date with the same
effect as though made at such time, including without
limitation, all representations as to liens or encumbrances of
or relating to the Assets. The Sellers shall have performed
all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by
them or it at or prior to the Release Date. The Sellers shall
have delivered to Video Update a certificate substantially in
the form of Exhibit C hereto, dated the Release Date and
signed by the Sellers evidencing compliance with this Section.
b. Opinion of Counsel to the Sellers. Video Update
shall have received an opinion from counsel to the Sellers,
dated the Release Date and in form and substance satisfactory
to Video Update in substantially the form of Exhibit A.
c. No Material Change in the Business of Video View.
From the date of execution of this Agreement until the Release
Date, no material adverse change (individually or in the
aggregate) in the business, assets or prospects of Video View
shall have occurred. From the date of execution of this
Agreement until the Release Date, Video View shall not have
made any changes in its Articles of Incorporation, as amended,
or by-laws, effected any changes to its owner's equity, issued
any additional stock, options, or warrants or made any
payments to any party not in the ordinary course of business,
including without limitation, bonus or other compensation
payments to employees or Sellers, or entered into any material
agreement without the prior written consent of Video Update.
The Sellers shall have delivered to Video Update a certificate
substantially in the form of Exhibit C hereto, dated the
Release Date and signed by the Sellers evidencing compliance
with this Section.
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d. Legal Proceedings. No action or proceeding by or
before any court or any governmental body (including any
action by any landlord to terminate or otherwise prevent Video
Update from obtaining the use of any Video View store
location) shall have been instituted or threatened to
restrain, prohibit or invalidate the transactions contemplated
by this Agreement that might affect the right of Video Update
to own, control or use the Assets after the Release Date or
which, either individually or in the aggregate, might be
materially adverse to the operations, business, financial
condition or prospects of Video View or Video Update The
Sellers shall have delivered to Video Update a certificate
substantially in the form of Exhibit C hereto, dated the
Release Date and signed by the Sellers evidencing compliance
with this Section; and
e. Release of All Encumbrances and Liens. Video
Update shall have received the satisfactory release of all
encumbrances or liens applicable to the Assets, including, but
not limited to, the release of all Personal Property
Securities Act registrations on the Assets, which are further
described on Schedule 2.1 annexed hereto.
(ii) the fulfillment by Video Update, or waiver by the
Sellers, of the following conditions on or before the Release Date:
a. Representations and Warranties of Video Update to
be True and Correct. The representations and warranties of
Video Update under Article Three hereof shall be true and
correct in all respects at the Release Date with the same
effect as though made at such time. Video Update shall have
performed all obligations and complied with all covenants and
conditions required by this Agreement to be performed or
complied with by it prior to the Release Date. Video Update
shall have executed and delivered to the Sellers a certificate
of Video Update in the form of Exhibit D annexed hereto, each
dated the Release Date and signed by an authorized officer to
all such effects; and
b. Opinion of Counsel to Video Update. The Sellers
shall have received an opinion from counsel to Video Update,
dated the Release Date and in substantially the form of
Exhibit B annexed hereto.
(c) If Investment Canada issues a final ruling denying the Approval of
the transactions contemplated by this Agreement, then the Closing Documents and
Purchase Price held by the Escrow Agent shall be released in accordance with the
Escrow Agreement and this Agreement shall be terminated and of no further force
or effect.
(d) Where required, Video Update agrees to solicit and obtain the
Landlords' Consents from the landlords of the Stores and the Escrow Agent's
obligation to release the Closing Documents and the Purchase Price shall not be
relieved or diminished in the event that Video Update has not obtained all of
the Landlords' Consents (as defined in the Purchase Agreement) on or prior to
the
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date that the Escrow Agent is obligated to release such items. The Sellers agree
to use their best efforts to assist and to cooperate with Video Update in its
efforts to obtain the Landlords' Consents.
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 Escrow Closing, as
follows:
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 and (iii) none of the
Assets is subject to any mortgage, pledges, lien, security interest, lease,
charge, encumbrance, objection, claim or joint ownership except as set forth on
Schedule 2.1.
2.2 Authorization. Video View is a corporation duly organized, validly
existing and in good standing under the laws of the Province of Alberta, 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 to which each of the Sellers is a party
constitute the valid and legally binding obligations of each of the Sellers, as
applicable, 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 Video View
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 Audited Financial Statements
(a) Video View Financial Statements. Annexed as Schedule 2.3(a) are
true and complete copies of management's final unaudited financial statements as
of December 31, 1995 and November 30, 1996 (the "Financial Statements"). All
such financial statements are in accordance with the books and records of Video
View, and (i) present fairly and correctly the financial position of Video View
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. The parties acknowledge
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that Video Update will prepare, at its own expense and with the assistance and
cooperation of the Sellers, audited financial statements for Video View for the
years ended December 31, 1996 and 1995 (the "Audited Statements"). The Sellers
represent and warrant that the Audited Statements will not reveal or disclose
any material or adverse change in the Assets or in the operations of Video View.
(b) No Adverse Changes or Undisclosed Liabilities. Except as set forth
on Schedule 2.3(b), since December 31, 1995, neither of the following has
occurred or arisen, whether or not in the ordinary course of business: (i) any
material adverse change in the assets, financial condition, operations or
business of Video View, or (ii) any event, condition or state of facts of any
character known to the Sellers which might materially and adversely affect the
results of operations, business, financial condition or prospects of Video View.
Except as set forth on Schedule 2.3(b) no liabilities or obligations, fixed,
accrued, 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, 1995, none of which
individually or in the aggregate has been or is materially adverse to the Assets
or the operations, business, financial condition or prospects of Video View.
Schedule 2.3(b) sets forth all promotions and promotional activities of Video
View, 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 Release Date.
2.4 Accounts Receivable; Inventories. Except as set forth on Schedule
2.4, (i) any accounts receivable reflected on the Financial Statements are
correctly and accurately stated; (ii) the inventories shown on the Financial
Statements and the inventories acquired since December 31, 1995 consist of items
of a quantity and quality usable, rentable, or salable in the normal course of
the business of Video View; and (iii) the value at which the inventories are
carried on the Financial Statements reflect the lower of Video View's 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, provincial, state, territorial or municipal
(collectively the "Taxes") required to be paid by the Sellers with respect to
Video View or the Assets for all periods prior to the Escrow 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 date of Escrow
Closing have been duly filed or caused to be filed;
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(b) None of the income tax returns for Taxes of Stockholder or Video
View has been audited by any taxing authority. No action, suit, proceeding,
audit, investigation or claim is pending or to the knowledge of the Sellers are
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 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
(notwithstanding the passage of time or notice) 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 any of their properties are subject.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto (a)
no action, suit or proceeding to which either 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 there is no basis for any
such action, suit or proceeding; (b) neither of the Sellers nor any officer,
director or employee of Video View 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 or Video
View; 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 Video View.
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 Video View 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 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 Video View that Video Update requests.
2.10 Intangible Property.
Schedule 2.10 attached hereto sets forth: (i) a true, correct and
complete list and, where appropriate, a description of, all items of intangible
property owned by, or used or useful in connection with the business of Video
View, including, but not limited to, trademarks, trade secrets,
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know-how, any other confidential information of Video View, patents, trade
names, trade registrations, and applications for any of the foregoing (the
"Intangible Property"); and (ii) a true, correct and complete list of all
licenses or similar agreements or arrangements to which Video View is a party,
either as licensee or licensor, with respect to the Intangible Property. Except
as otherwise disclosed in Schedule 2.10;
(a) The Sellers are the sole and exclusive owner of all right, title
and interest in and to the Intangible Property and all designs, permits, labels
and packages used on or in connection therewith, free and clear of all liens,
security interests, charges, encumbrances, equities or other adverse claims;
(b) The Sellers have the right and authority to use, and to transfer to
Video Update for use after the Closing, the Intangible Property in connection
with the conduct of its business in the manner presently conducted, and such use
or continuing use does not and will not conflict with, infringe upon or violate
any rights of any other person, corporation or entity; and
(c) there are no outstanding, nor any threatened disputes or other
disagreements with respect to any licenses or similar agreements or arrangements
described in Schedule 2.10 or with respect to infringement by a third party or
any of the Intangible Property.
2.11 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 Escrow Closing, and as disclosed on Schedule 2.6.
2.12 Compliance with Agreements and Laws. The Sellers have all
requisite licenses, permits and certificates, including environmental, health
and safety permits, from federal, provincial and local authorities necessary to
conduct its business as currently conducted (collectively, the "Permits"). The
business of Video View as conducted through the date hereof has not violated any
federal, provincial 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 2.12, no Seller has had
notice or communication from any federal, provincial or local governmental or
regulatory authority or otherwise of any such violation or noncompliance.
2.13 Employee Relations.
(a) With respect to the operation of Video View, the Sellers are in
compliance with all material federal, state, municipal and provincial laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and it is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes.
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(b) Except as set forth on Schedule 2.13 attached hereto:
(i) none of the employees of Video View are represented by
any labor union;
(ii) there is no unfair labor practice complaint against
Video View pending before any federal, provincial or local agency; and
(iii) there is no pending labor strike or other material
labor trouble affecting Video View (including, without limitation, any
organizational drive).
2.14 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.14 attached hereto, since December 31, 1995, 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 2.14, neither Seller is a party
to any material leases, contracts, franchises or commitments or agreements to
enter into any of the same, written or oral, extending beyond the Escrow
Closing.
2.15 Video View Personnel Information. Schedule 2.15 attached hereto is
a true and complete list, as of the date of this Agreement, 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 name and address of each bank or other institution in which
Video View 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 to be assumed by Video
Update and their annual compensation together with their social security numbers
and all independent contractors, consultants, subcontractors with whom the
Sellers has contracted during the 12 months preceding the date of this
Agreement, and the social insurance numbers and their 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.
(d) All contracts or terms, whether written or oral, pursuant to which
the Sellers has or is receiving services.
2.16 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 this Agreement nor any document or certificate
delivered to Video Update pursuant to this Agreement contains or will
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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
Escrow Closing 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
jurisdiction of its incorporation, 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 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 or parent 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 to this Agreement), (ii) any
misrepresentation in this Agreement or in any Schedule, certificate or other
instrument furnished by the Sellers to Video Update hereunder or any failure to
state herein or in any such Schedule, 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 or parent 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 or its parent seeking
indemnification (the "Indemnified Party") shall give the Sellers or Seller, 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
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of any action or proceeding, or (iii) the occurrence of any other event giving
rise to indemnification rights under this Section. The individual or corporation
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
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 their own
expense to participate in any claim, action or proceeding which is being
defended by another party.
(b) If the Indemnifying Party within thirty days after notice of a
claim hereunder fails to defend such claim, 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
written consent, settle or compromise any claim or consent to any entry or
judgment which 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 established claims for indemnification within fifteen (15) days
after the establishment thereof (the "Due Date") in cash or by certified check,
provided, however, that Video Update shall not seek indemnification from the
Sellers for any loss, claim, damage or claim for indemnification resulting from
any and all gift certificates, coupons or other similar promotional items issued
by, on behalf of or for the benefit of Video View (the "Promotional Liability"),
unless and until the amount of the
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Promotional Liability exceeds $15,000 (Cdn.) in the aggregate. Video Update may
set off the amount of any claim (or cancel shares in respect of such claim) due
it from the Sellers against any amount due 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 Escrow 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. Representations and Warranties of the Sellers Regarding the Video
Update Shares.
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 Escrow Closing, as
follows:
(a) Prohibitions on Transfer. Each Seller acknowledges and agrees that
the Video Update Shares issued to such Seller will be held in accordance with
the Escrow Agreement and may not be sold, transferred, pledged, assigned or
otherwise encumbered or disposed of until the thirteen (13) month anniversary of
the Escrow Closing Date except in accordance herewith.
(b) Brokers and Finders. No broker or finder has acted for any Seller
in connection with this Agreement or the transactions contemplated hereby, and
no broker or finder is entitled to any brokerage or finder's fee or other
commissions in respect of such transactions based upon agreements, arrangements
or understandings made by or on behalf of such Seller.
(c) Investment Purposes Only. Each Seller represents that he is
acquiring the Video Update Shares for his own account and not for or on behalf
of a U.S. Person (as defined in Regulation S promulgated under the Act, as
amended) and not with a view to reselling or otherwise distributing such Video
Update Shares in violation of any federal, state or provincial securities laws
and understands and agrees that the Video Update Shares to be issued hereunder
are restricted on transfer and must be held unless (i) they are registered under
the Securities Act of 1933, as amended (the "Act") or (ii) an exemption from
registration is available, and Video Update has received an opinion of counsel,
in form and substance satisfactory to it, to such effect.
(d) Unregistered Securities. The Sellers (i) acknowledge that the Video
Update Shares to be acquired hereunder were not offered to the Sellers in the
U.S. and that this Agreement was executed outside of the U.S.; and (ii)
understand that the Video Update Shares have not been
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registered under the Act, or the securities laws of any state or province, in
reliance upon specific exemptions from registration thereunder, and agree that
such Video Update Shares may be neither sold, offered for sale, transferred,
pledged, hypothecated or otherwise disposed of in the U.S. or to any U.S. Person
for a period of 40 days following their issuance, except in compliance with the
Act and applicable state and provincial securities laws and this Agreement. The
Video Update Shares issued to the Sellers are being offered and sold pursuant to
Regulation S promulgated under the Act, as amended, which permits shares to be
issued by Video Update solely to non-U.S. Persons in transactions outside of the
U.S., subject to certain terms and conditions. If Regulation S is unavailable,
the Sellers understand that it is not anticipated that there will be any market
for resale of the Video Update Shares and that it may not be possible for the
Sellers to liquidate an investment in the Video Update Shares on an emergency
basis. The Sellers acknowledge that the following restrictive legends shall be
placed on the reverse side of each certificate representing the Video Update
Shares issued pursuant to this Agreement:
"The Shares represented by this certificate have been issued
in reliance on an exemption from registration under the Securities Act
of 1933, as amended (the "Act"), pursuant to Regulation S promulgated
thereunder. They have not been registered under the Act or under any
state or provincial law and they may not be offered, sold, or
transferred in the U.S. or to any U.S. Person (as defined in Regulation
S), except pursuant to an effective registration statement under the
Act and other laws, Regulation S or other applicable exemption from
registration under the Act, and may not be offered, sold, transferred,
or otherwise disposed of without an opinion of counsel, satisfactory to
Video Update, that such disposition may be made without such
registration."
"The Shares represented by this certificate are also subject
to certain "lockup" restrictions pursuant to a Purchase Agreement
between the holder and Video Update, dated January 1, 1997."
(e) Restrictions on Transfer. The Sellers shall not engage in any
activity for the purpose of, or which may reasonably be expected to have the
effect of, conditioning the market in the U.S. for the Video Update Shares, or
during the Restricted Period (as defined in Regulation S), offer or sell any of
the Video Update Shares in the U.S. to or for the benefit or account of any U.S.
Person. The Sellers understand that the Video Update Shares are only
transferable on the books of Video Update and its transfer agent and that Video
Update will not register any transfer of Video Update Shares that it believes in
good faith violates applicable federal or state securities law in the U.S. or
provincial securities law in Canada or the restrictions set forth herein. Any
proposed offer, sale, or transfer of any of the Video Update Shares acquired
hereunder during the Restricted Period shall be subject to the condition that
the Seller deliver to Video Update: (i) a written certification of the proposed
transferee, acceptable in form and substance to Video Update's counsel, that
such transferee is not a U.S. Person and is acquiring the shares for such
transferee's own account, and (ii) a written opinion of counsel, acceptable in
form and substance to Video Update's counsel, to the effect that the offer,
sale, or transfer of the Video Update Shares is permissible under Regulation S.
The Sellers understand that this resale restriction will continue to apply to
the Video Update Shares
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if disposed of by the Sellers during the Restricted Period and that Video Update
will issue appropriate stop-transfer orders for transfers violative of this
section.
6. Registration Rights
(a) For purposes of this Section:
(i) The term "1933 Act" means the Securities Act of 1933,
as amended;
(ii) The term "register", "registered", and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the 1933 Act and the declaration or
ordering of effectiveness of such registration statement (other than in
connection with a merger or pursuant to Form S-3, S-4, or S-8 or any
other comparable registration statement);
(iii) The term "Registrable Securities" means the Video
Update Shares issued pursuant to this Agreement and any common stock or
other securities of Video Update issued as a dividend or other
distribution with respect to, or in exchange, in conversion of or in
replacement of, the Video Update Shares;
(iv) The term "Holder" means the entity or entities to whom
the Registrable Securities are issued pursuant to this Agreement.
(b) From and after the Release Date and continuing for two (2) years
thereafter, on each occasion, if any, that VUI contemplates a public offering of
shares of its Common Stock to be registered under the 1933 Act, VUI shall so
notify the Holder in writing at least five (5) business days prior to the filing
of a registration statement in respect of the offering of its intention to do
so. If the Holder gives written notice to VUI, within five (5) business days of
the receipt of such notice from VUI, of its desire to have any of the
Registrable Securities included in such registration statement, it may, subject
to the provisions of this Section, have the Registrable Securities included in
such registration statement.
(c) In the case of any registration effected pursuant to this Section,
the Holder shall bear all additional registration and qualification fees and
expenses (including underwriters' discounts, commissions and expenses), but not
legal, accounting or printing expenses of such registration, with such
additional expenses of the registration being borne by all Holders pro-rata on
the basis of the amount of securities so registered; provided, however, that if
any such cost or expense is attributable solely to one selling Holder and does
not constitute a normal cost or expense of such registration, such cost or
expense shall be allocated to that selling Holder. In addition, each selling
Holder shall bear the fees and costs of any separate counsel it may select.
(d) Notwithstanding the foregoing, with respect to any underwritten
offering, if the managing underwriter or underwriters of any offering, in its
sole discretion, determines that the number of Registrable Securities proposed
to be included in the registration statement and sold by
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the Holders would materially and adversely affect the successful marketing of
the securities proposed to be registered and sold for the account of VUI, then
the number of Registrable Securities to be offered for the account of the
Holders shall be reduced (or, if necessary, excluded) to the extent necessary to
reduce the total amount of the securities to be included in the offering to the
amount recommended by the managing underwriter or underwriters and the
securities so included shall be apportioned pro rata among all selling Holders
according to the total amount of securities of VUI owned by them.
(i) In the case of a registration of which VUI is given
notice pursuant to this Section, if such registration is for an
underwritten offering and the underwriter determines not to include all
of the Registrable Securities requested to be registered in the
underwriting, the balance of such shares permitted to be included in
the registration shall, at the request of the Holders thereof, and
subject to the approval of the managing underwriter, be included in the
registration statement, provided that the Holders thereof agree not to
dispose of such shares until a date reasonably determined by the
underwriter pursuant to a "Lock-Up Agreement" or "Standstill Agreement"
in a form satisfactory to the underwriter, provided such "Lock-up
Agreement" or "Standstill Agreement" shall not exceed one hundred
eighty (180) days. Notwithstanding the foregoing, if a Holder owns five
percent (5%) or more of VUI's Common Stock (including shares issuable
pursuant to the exercise of Class A Warrants, Class B Warrants, and/or
Stock Options that have been granted under the Company's Stock Option
Plans) that is issued and outstanding at the time of an offering
contemplated in this Section, then such Holder shall agree not to
dispose of his shares until a date reasonably determined by the
underwriter pursuant to a "Lock-Up Agreement" or "Standstill Agreement"
in a form satisfactory to the underwriter, and such "Lock-Up Agreement"
or "Standstill Agreement" shall not be subject to the one hundred
eighty (180) day limit described above. VUI shall have the right to
designate the managing underwriter in respect of a public offering
pursuant to this Section.
(e) Whenever required under this Section to effect the registration of
any Registrable Securities, VUI shall:
(i) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such
Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective; provided,
however, that in connection with any proposed registration intended to
permit an offering of any securities from time to time, VUI shall in no
event be obligated to cause any such registration to remain effective
for more than one hundred eighty (180) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement.
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(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of the securities covered
by the registration statement, provided that VUI shall not be required
in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing
of expenses) if any jurisdiction in which the securities are to be
qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by
selling shareholders, then such expenses shall be payable by selling
shareholders pro-rata, to the extent required by such jurisdiction.
(f) It shall be a condition precedent to the obligations of VUI to take
any action pursuant to this Section that the Holders agree not to sell,
transfer, pledge, hypothecate or encumber the Video Update Shares held by them
for a period of thirteen months from the Escrow Closing Date.
(g) Whenever the Registrable Securities are to be registered pursuant
to this Section 6, the Holder shall furnish to VUI such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such Registrable Securities as VUI or its counsel shall request
and as shall be required in connection with the action to be taken by VUI.
(h) In the event any Registrable Securities are included in a
registration statement under this Section:
(i) To the extent permitted by law, VUI will indemnify and
hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the 1933 Act) for it, and each person, if
any, who controls such Holder or underwriter within the meaning of the
1933 Act, against any losses, claims, damages, or liabilities, joint or
several, to which they may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based on any untrue or
alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading or arise out of
any violation by VUI of any rule or regulation promulgated under, or
any provision of, the 1933 Act applicable to VUI and relating to action
or inaction required of VUI in connection with any such registration;
and
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will reimburse each such Holder, such underwriter, or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the written consent of VUI (which
consent shall not be unreasonably withheld) nor shall VUI be liable in
any such case for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance
upon and in conformity with information furnished in connection with
registration by any such Holder, underwriter, or controlling person.
(ii) To the extent permitted by law, each Holder
requesting or joining in a registration will indemnify and hold
harmless VUI, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls
VUI within the meaning of the 1933 Act, and each agent and any
underwriter for VUI (within the meaning of the 1933 Act) against any
losses, claims, damages, or liabilities to which VUI or any such
director, officer, controlling person, agent, or underwriter may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages, or liabilities to which VUI or any such director,
officer, controlling person, agent, or underwriter may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in such registration statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and
in conformity with information furnished by such Holder for use in
connection with such registration, and each such Holder will reimburse
any legal or other expenses reasonably incurred by VUI or any such
director, officer, controlling person, agent, or underwriter in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of such Holder (which
consent shall not be unreasonably withheld).
(iii) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this subsection, notify the
indemnifying party who shall have the right to participate in, and, to
the extent the indemnifying party so
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desires, jointly with any other indemnifying party similarly notified,
to assume the defense thereof with counsel mutually satisfactory to the
parties. The failure to notify an indemnifying party promptly of the
commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this subsection, but the
omission so to notify the indemnifying party will not relieve him of
any liability that he may have to any indemnified party otherwise than
under this Section.
(i) The registration rights of the Holders under this Section may be
transferred to any transferee of any Registrable Securities provided, however,
that VUI is given written notice by the Holder at the time of such transfer
stating the name and address of the transferee and identifying the securities
with respect to which the rights under this Section are being transferred.
(j) In consideration for VUI agreeing to its obligations under this
Section, the Holders whose Registrable Securities are included in any
registration of VUI's securities shall agree, upon the request of the
underwriters managing any underwritten offering of VUI's securities, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of such underwriters, for
such period of time (not to exceed ninety (90) days) from the effective date of
such registration as the underwriters may specify.
(k) Notwithstanding anything to the contrary in this Section, VUI shall
not be required to register any Registrable Securities that may, at the time
such registration would occur, be sold pursuant to Rule 144 under the 1933 Act,
or pursuant to any other exemption from registration available under the 1933
Act.
7. Disclosure of Information.
(a) With respect to the operations of Video View, 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 Video View business, (ii) all other records, documents and
information concerning Video View's business activities, practices, and
procedures, and any name or style under which it shall have been operated prior
or shall operate subsequent hereto, and (iii) any logo or other descriptive or
illustrative form thereof, as they may have existed from time-to-time, may
constitute valuable, special and unique assets of the business of Video View to
be acquired by Video Update. Each of the Sellers therefore covenants and agrees
that he or she or it will not, following the date of this Agreement, disclose
any part thereof that is confidential, or use or permit to be used any name,
style, logo or form to the extent included in the Assets, to or by 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 View is
engaged, are reasonable and necessary
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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 or using or permitting to be used any such name, style,
logo or form.
8. Restrictive Covenant.
(a) Each of the Sellers agrees that for a period of three (3) years
from the Escrow 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 Video View prior to the Escrow Closing, in the Province of Alberta.
(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. Video View 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 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, from 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 Escrow Closing)
consistent with public policy, and it will not violate the intent of the parties
of any court if 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.
9. General.
9.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of the Sellers contained herein or in any
Schedule or certificate delivered hereunder shall
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survive the Escrow 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 which are to be performed or fulfilled after the
Escrow Closing Date shall survive and remain in full force and effect.
9.2 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 opinion of their counsel.
9.3 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 and Video View's 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. Notwithstanding
the foregoing, application to Investment Canada for the Approval of the
transactions contemplated hereby shall be the responsibility of, and at the
expense of, Video Update.
9.4 Governing Law. Except as set forth below, this Agreement shall be
governed in all respects, whether as to validity, construction, capacity,
performance or otherwise, by the internal laws of the Province of Ontario,
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 Province of Ontario, and any federal or provincial 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. Notwithstanding the foregoing,
this Agreement, as it relates to securities law matters, shall be governed by
the internal laws of the State of Minnesota and the federal laws of the United
States and each of the Sellers consents to the exclusive jurisdiction of the
courts of the State of Minnesota, and any federal court located therein, and to
the appropriateness of the venue of such courts, in connection with any dispute
regarding securities law which may arise pursuant to this Agreement.
9.5 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 sent by facsimile transmission, with
printed electronic confirmation of delivery, 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
Fax: (612) 229-9644
-22-
with a copy to: Lawrence H. Gennari, Esquire
O'Connor, Broude & Aronson
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154
Fax: (617) 890-9261
if to Sellers: Video View Ltd.
6201 46th Avenue
Red Deer, Alberta
Canada T4N 6Z1
Attention: Gordon Hillman
Fax: (403) 347-8044
with a copy to: Garry M. Boris, Esquire
202-4921 49th Street
Red Deer, Alberta
Canada T4N 1V2
Fax: (403) 346-8661
or such other address as shall be furnished in writing by any party, and any
such payment, notice or communication shall be deemed to have been made or given
one business day after transmission by facsimile or three business days after
the date so mailed (except that a notice of change of address shall not be
deemed to have been given until received by the addressee) or on the date of
actual receipt, whichever first occurs.
9.6 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.
9.7 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.
9.8 Counterparts. This Agreement may be executed originally or by
facsimile and in one or more counterparts, all of which together shall
considered one and the same agreement.
9.9 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.
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9.10 Entire Agreement. This Agreement 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.
9.11 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.
9.12 Currency. All figures used in this Agreement and followed by the
notation "(Cdn.)" are expressed in Canadian Dollars.
9.13 Leases. Video Update shall cause Video Update, Inc. to be a party
to the indemnity provisions of the lease assignments contemplated hereunder and
to the forms of leases attached hereto as Schedules 1.4(b) and 1.4(c).
[REMAINDER OF PAGE 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 CANADA INC.
By:/s/Richard Bedard
--------------------------
Richard Bedard
Executive Vice President
VIDEO VIEW LTD.
By:/s/Gordon Hillman
--------------------------
Gordon Hillman
President
GORDON HILLMAN
/s/Gordon Hillman
-----------------------------
JOANNE HILLMAN
/s/Joanne Hillman
-----------------------------
-25-
LIST OF EXHIBITS AND SCHEDULES
------------------------------
<TABLE>
<CAPTION>
Exhibit Title
- ------- -----
<S> <C>
1 List of Stores
1.3 Escrow Agreement
1.4(a) Management Services Agreement
1.4(b) Form of Lease (Camrose)
1.4(c) Form of Lease (Drumheller, Eckville, Stettler, Innisfail)
A Opinion of Counsel to Video View
B Opinion of Counsel to Video Update
C Release Date Certificate for Video View
D Release Date Certificate for Video Update
Schedule Title
- -------- -----
1.1 Excluded Assets
1.1(a) Tangible Property
1.1(b) Accounts and Customer Receivables
1.1(e) Books and Records
1.1(f) Material Agreements
1.3(b) Allocation of Purchase Price
2.1 Encumbrances on Assets
2.3(a) Financial Statements
2.3(b) Statement of Adverse Changes and Undisclosed Liabilities
2.4 Exceptions to Accounts Receivable and Usable Inventory
2.5 Exceptions to Tax Payments
2.6 Required Consents
2.7 Litigation
2.10 Intangible Property
2.12 List of Violations or Non-compliance with Agreements and Laws
2.13 List of Labor Unions, Unfair Practices and other Labor Matters
2.14 List of Transactions Not in the Ordinary Course of Business and Contracts
Extending Beyond the Escrow Closing
2.15 List of Powers of Attorney, Deposit Accounts and Signing Authorities, and
of Employees and Service Contracts
</TABLE>
Copies of the Exhibits and Schedules will be provided to the Commission upon
request.
EXHIBIT NO.3
------------
RESTATED CERTIFICATE OF INCORPORATION
OF
VIDEO UPDATE, INC.
[originally incorporated under the same name on March 30, 1994]
1. The name of the corporation is Video Update, Inc.
2. The address of its registered office in the State of Delaware is 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have the
authority to issue is Sixty-Seven Million (67,000,000) shares, Sixty Million
(60,000,000) of which shall be Class A Common Stock, $.01 par value per share,
Two Million (2,000,000) of which shall be Class B Common Stock, $.01 par value
per share, and Five Million (5,000,000) of which shall be Preferred Stock, $.01
par value per share, amounting in the aggregate to Six Hundred Seventy Thousand
and 00/100 Dollars ($670,000.00).
Additional designations and powers, preferences and rights and
qualifications, limitations or restrictions thereof of the shares of Preferred
Stock shall be determined by the Board of Directors from time to time.
Holders of Class A Common Stock shall have the right to cast one vote
for each share held of record and holders of Class B Common Stock have the right
to cast five votes for each share held of record on all matters submitted to a
vote of the holders of Common Stock. The Class A Common Stock and Class B Common
Stock shall vote together as a single class on all matters on which stockholders
may vote, including the election of directors, except when class voting is
required by applicable law.
Shares of Class B Common Stock are automatically converted into an
equivalent number of fully paid and non-assessable shares of Class A Common
Stock: (i) upon the death of the original record holder thereof or (ii) upon the
sale or transfer of such shares of Class B Common Stock by the original record
holder thereof. Each share of Class B Common Stock also is convertible at any
time at the option of the holder into one share of Class A Common Stock; once
such shares are converted into Class A Common Stock, they are retired and
unavailable for future reissuance as Class B Common Stock.
Holders of the Class A Common Stock and Class B Common Stock shall have
equal ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors and are entitled to share ratably,
as a single class, in all of the assets of the Company
available for distribution to holders of shares of Class A Common Stock and
Class B Common Stock upon the liquidation, dissolution or winding up of the
affairs of the Company.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized:
To make, alter or repeal the bylaws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more committees,
each committee to consist of one or more of the Directors of the Corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The bylaws may provide that in the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such agent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in the bylaws of the corporation, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution or bylaws expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and assets
of the corporation, including its goodwill and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in whole
or in part of money or property, including shares of stock in, and/or other
securities of, any other corporation or corporation, as its board of directors
shall deem expedient and for the best interests of the corporation.
7. 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.
8. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court or equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directors. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement to any
reorganization of this corporation as consequences of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this corporation, as the case may be,
and also on this corporation.
9. Meetings of the stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the corporation. Elections of directors
need not be by written ballot unless the bylaws of the corporation shall so
provide.
10. The corporation reserves the right to amend, alter, change, or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; except that any
such amendment shall be made by the holders of at least two-thirds of the
outstanding shares of Common Stock of the Corporation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
only restates and integrates and does not further amend the certificate of Video
Update, Inc., as heretofore amended or supplemented, there being no discrepancy
between those provisions and the provisions of the Restated Certificate of
Incorporation, has been duly adopted in accordance with Section 245 of the
Delaware General Corporation Law, has been executed by its authorized officer
this 31st day of December, 1996.
VIDEO UPDATE, INC.
By: /s/ Daniel A. Potter
-------------------------------------
Daniel A. Potter
Chairman and Chief Executive Officer
EXHIBIT NO.99
-------------
FOR IMMEDIATE RELEASE
VIDEO UPDATE SIGNS DEFINITIVE AGREEMENT
TO PURCHASE VIDEO VIEW LTD.
ST. PAUL, MN, January 3, 1997 -- Video Update, Inc. (Nasdaq National
Market: VUPDA, VUPDZ), an international video chain, today announced that on
December 31st it signed a definitive purchase agreement to acquire the assets of
Video View Ltd., a privately-owned chain of 23 video rental stores in Alberta,
Canada. Completion of the purchase is pending and subject to Canadian regulatory
approval. Effective January 1st, Video Update began managing Video View's
operations and is receiving fees under a management agreement. The Company
expects to recognize these fees in its fiscal third quarter ending January 31,
1997.
"We are moving quickly to finalize our purchase of Video View,"
commented Dan Potter, Chairman and Chief Executive Officer of Video Update. "In
the meantime, we are actively managing the day-to-day operations of Video View
and preparing for its full integration into the Video Update system."
Video Update, Inc. is an international video retail chain with 277
video stores in North America of which 249 are corporately-owned and 28 are
franchised as of December 31, 1996, excluding the 23 Video View rental stores
currently under management. Video Update stores are located in thirteen 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. No assurances can be given that the above described acquisition will
be completed, or the required Canadian regulatory approval will be granted, on a
timely basis, if at all. 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.
