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: October 27, 1997
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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
October 27, 1997
Item Page
ITEM 5. OTHER EVENTS
Amendment to Agreement and Plan of Merger by and among Video
Update, Inc.,VUI Merger Corp. and Moovies, Inc., dated as of
October 27, 1997 1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS 1
SIGNATURE 3
EXHIBITS E-1
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ITEM 5. OTHER EVENTS
Video Update, Inc. ("Video Update"), VUI Merger Corp., a wholly owned
subsidiary of Video Update (the "Subsidiary"), and Moovies, Inc., a Delaware
corporation ("Moovies"), entered into an Amendment dated as of October 27, 1997
(the "Amendment") to the Agreement and Plan of Merger dated as of July 9, 1997
(collectively, with the Amendment, the "Merger Agreement"), which contemplates a
merger of the Subsidiary with and into Moovies (the "Merger") in a tax-free
reorganization, whereby the Moovies stockholders will receive shares of Class A
Common Stock of Video Update in exchange for their capital stock in Moovies. The
Merger will become effective subject to the terms and conditions of the Merger
Agreement, including, but not limited to, the approval of the stockholders of
Video Update and the stockholders of Moovies, of which no assurance can be
given. The description of the Merger Agreement contained herein is qualified in
its entirety by reference to (a) the Amendment, attached as Exhibit 2 and
incorporated herein by reference and (b) the Agreement and Plan of Merger dated
as of July 9, 1997, attached as Exhibit 2 to Video Update's Form 8-K dated July
9, 1997, incorporated herein by reference.
Matters discussed herein, including any discussion of or impact,
expressed or implied, on the Company's anticipated operating results and future
earnings per share 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. The acquisition is subject to
several conditions, including bank approvals for both companies. No assurances
can be given that the above described acquisition will be completed, on a timely
basis, if at all. In addition, if the acquisition is completed, no assurance can
be given that the Company will be successful in timely integrating and managing
the operating, purchasing, marketing and management information systems of the
two companies or that the Company will be able to hire, train, retrain and
assimilate selected individuals employed at acquired stores. Additionally, the
Company's operating results may be affected by many factors, including but not
limited to variations in the number and timing of store openings and
acquisitions, weather (particularly on weekends and holidays), the public
acceptance of new release titles available for rental, competition, marketing
programs, special or unusual events and other events and other factors that may
affect retailers in general. These and other risks are detailed from time to
time in the Company's SEC reports, including Form 10-K for the year ended April
30, 1997.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial statements of businesses acquired.
Not applicable.
b. Pro forma financial information.
Not applicable.
c. Exhibits.
The following exhibits are filed with this report.
-1-
Exhibit
No. Title
2 Amendment to Agreement and Plan of Merger by and among Video
Update, Inc., VUI Merger Corp. and Moovies, Inc., dated as of
October 27, 1997
99 Press Release.
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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: October 31, 1997 By: /s/ Daniel A. Potter
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Daniel A. Potter
Chief Executive Officer
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EXHIBIT INDEX
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Exhibit
No. Title
2 Amendment to Agreement and Plan of Merger by and among Video
Update, Inc., VUI Merger Corp. and Moovies, Inc., dated as of
October 27, 1997
99 Press Release.
E-1
Exhibit 2
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
BY AND AMONG
VIDEO UPDATE, INC. ("BUYER")
VUI MERGER CORP.
AND
MOOVIES, INC.
DATED AS OF OCTOBER 27, 1997
This Amendment to the Agreement and Plan of Merger entered into as of
July 9, 1997 (the "Agreement") by and between Video Update, Inc., a Delaware
corporation ("BUYER"), VUI Merger Corp., a Delaware corporation ("SUB") and
Moovies, Inc., a Delaware corporation ("COMPANY"), is dated as of October 27,
1997. BUYER and COMPANY are referred to individually herein as a "PARTY" and
collectively herein as the "PARTIES."
WHEREAS, the Agreement contemplates a merger of SUB, a wholly owned
first tier subsidiary of BUYER with and into COMPANY in a reorganization
pursuant to Code Sections 368(a)(1)(A) and 368(a)(2)(E) whereby the COMPANY
Stockholders will receive voting common stock of BUYER in exchange for all of
their capital stock in COMPANY, all pursuant to the plan of reorganization set
forth herein; and
WHEREAS, the Parties wish to amend and modify certain provisions of the
Agreement.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. The definition of "REQUISITE BUYER STOCKHOLDER APPROVAL" is
hereby deleted and replaced in its entirety with the
following:
"REQUISITE BUYER STOCKHOLDER APPROVAL" with respect to the
BUYER means the affirmative vote of the holders of the
outstanding shares of BUYER (voting together as a single
class) representing a majority of the votes cast on the
proposal in favor of the issuance of BUYER shares in
connection with this Agreement, and with respect to SUB means
(i) the affirmative vote or consent of the holders of a
majority of the outstanding shares of SUB in favor of this
Agreement and the Merger.
2. Section 2.5 of the Agreement is hereby deleted and replaced in
its entirety with the following:
2.5 CONVERSION. At and as of the Effective Time, each COMPANY
Share shall no longer be outstanding and shall be cancelled
and retired and shall be converted into the right to receive
.75 of one BUYER Share (the ratio of .75 of one BUYER Share to
one COMPANY Share is referred to herein as the "CONVERSION
RATIO" and the BUYER Shares so received are referred to as the
"MERGER CONSIDERATION"). The Conversion Ratio shall be subject
to equitable adjustment in the event of any stock split, stock
dividend, reverse stock split or other recapitalization of the
BUYER's Shares after the date hereof. No COMPANY Share shall
be deemed to be outstanding or to have any rights other than
those set forth above in this Section 2.5 after the Effective
Time. From the date of this Agreement to the Closing Date,
COMPANY's Board of Directors shall not adopt any new "poison
pill," stockholder rights plan or other similar plan
applicable to the transactions contemplated by this Agreement.
In addition, the COMPANY's Board of Directors shall take all
actions required to ensure that the Rights (as defined in the
Rights Agreement, dated as of December 20, 1996, by and
between COMPANY and First Union National Bank of North
Carolina) and the Rights Agreement shall be inapplicable to
the Merger and the transactions contemplated by this
Agreement.
3. Section 3.6 is hereby deleted and replaced in its entirety
with the following:
3.6 FINANCIAL STATEMENTS. COMPANY has filed a
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1997 (the "MOST RECENT FISCAL QUARTER END"), and an
Annual Report on Form 10-K for the fiscal year ended December
31, 1996. The financial statements included in or incorporated
by reference into these Public Reports (including the related
notes and schedules) have been prepared in accordance with
GAAP applied on a consistent basis throughout the period
covered thereby, present fairly the financial condition of
COMPANY and its Subsidiaries as of the indicated dates and the
results of operations of COMPANY and its Subsidiaries for the
indicated periods, and are consistent with the books and
records of COMPANY and its Subsidiaries; PROVIDED, HOWEVER,
that the interim statements are subject to normal year-end
adjustments that are not expected to be material in amount.
4. Section 4.6 is hereby deleted and replaced in its entirety
with the following:
4.6 FINANCIAL STATEMENTS. BUYER has filed a Quarterly
Report on Form 10-Q for the fiscal quarter ended July 31, 1997
and an Annual Report on Form 10-K (as amended) for the fiscal
year ended April 30, 1997 (the "MOST RECENT FISCAL YEAR END").
The financial statements included in or incorporated by
reference into these Public Reports (including the related
notes and schedules) have been prepared in accordance with
GAAP applied on a consistent basis throughout the period
covered thereby, present fairly the financial condition of
BUYER and its Subsidiaries as of the indicated dates and the
results of operations of BUYER and its Subsidiaries for the
indicated periods, and are consistent with the books and
records of BUYER and its Subsidiaries; PROVIDED HOWEVER, that
the interim statements are subject to normal year-end
adjustments that are not expected to be material in amount.
5. ACKNOWLEDGEMENT. The parties hereby expressly waive any and
all claims, demands or expenses that they may respectively
have against the other based on any breach of any warranty,
representation or covenant contained in or made pursuant to
the Agreement prior to the date hereof.
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6. BUYER REPRESENTATIONS. The BUYER and SUB represent and warrant
that except for changes contemplated by this Agreement or as
set forth on Schedule 4 annexed hereto, the representations
and warranties set forth in Article 4 of the Agreement are
true and correct as qualified as of the date hereof, except
for such failures to be true and correct as do not have a
Material Adverse Effect on the BUYER and its Subsidiaries,
taken as a whole.
7. COMPANY REPRESENTATIONS. The COMPANY represents and warrants
that except for changes contemplated by the Agreement or set
forth on Schedule 3 annexed hereto, the representations and
warranties of the COMPANY set forth in Article 3 of the
Agreement are true and correct as qualified as of the date
hereof, except for such failures to be true and correct as do
not have a Material Adverse Effect on the COMPANY and its
Subsidiaries, taken as a whole.
8. Section 4.8 of the Agreement is hereby deleted and replaced in
its entirety with the following:
4.8 CERTAIN FEES. With the exception of the engagement of
Piper Jaffray Inc. and Asensio & Company, Inc. by BUYER, none
of BUYER and its Subsidiaries has any liability or obligation
to pay any fees or commissions to any financial advisors,
broker, finder, or agent with respect to the transactions
contemplated by this Agreement. Subject to Section 7, the
BUYER hereby indemnifies the COMPANY against and from any
claim, liabilities or actions in respect of fees or expenses
of the BUYER's advisors.
9. Section 5.6(a) of the Agreement is hereby deleted and replaced
in its entirety with the following:
5.6 INDEMNIFICATION AND INSURANCE. (a) From and after
the Effective Time, in the event of any claim, action, suit,
proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim,
action, suit, proceeding or investigation in which any of the
present or former officers or directors (the "Managers") of
the COMPANY or any of the COMPANY's Subsidiaries is, or is
threatened to be, made a party by reason of the fact that he
or she served as a Manager of the COMPANY or any of the
COMPANY's Subsidiaries, or is or was serving at the request of
the COMPANY or any of the COMPANY's Subsidiaries as a
director, officer, employee or agent of another corporation
(including without limitation, BUYER), partnership, joint
venture, trust or other enterprise, whether before or after
the Effective Time, each of the Surviving Corporation and the
BUYER shall indemnify and hold harmless, as and to the fullest
extent that COMPANY would have been permitted under Delaware
law and its certificate of incorporation and bylaws in effect
on the date hereof, each such Manager against any losses,
claims, damages, liabilities, costs, expenses (including
reasonable attorneys' fees), judgments, fines and amounts paid
in settlement in connection with any such claim, action, suit,
proceeding or investigation, and in the event of any such
claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), and (i) if the
BUYER or the Surviving Corporation (after the Effective Time)
have not promptly assumed the defense of such matter, the
Managers may retain counsel satisfactory to them, and the
Surviving Corporation and the BUYER after the Effective Time,
shall advance all reasonable fees and expenses (including
attorneys' fees) for the Managers promptly, as Manager incurs
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the same and as statements therefor are received, and (ii) the
Surviving Corporation and the BUYER after the Effective Time,
will use their respective best efforts to assist in the
vigorous defense of any such matter; provided that neither the
Surviving Corporation nor the BUYER shall be liable for any
settlement effected without its prior written consent;
provided further that the Surviving Corporation and the BUYER
shall have no obligation under the foregoing provisions of
this Section 5.6(a) to any Manager when and if (i) a court of
competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that
indemnification of such Manager in the manner contemplated
hereby is prohibited by applicable law or (ii) the loss,
claim, damage, liability, cost, expense, judgment or fine is
based on or arises from a final non-appealable order of a
court of competent jurisdiction or in connection with a
settlement, consent, decree, order or injunction with any
governmental agency or authority finding that the Manager
violated Section 16(b) of the Exchange Act, Section 10(b) of
the Exchange Act or Rule 10b-5 promulgated thereunder or any
federal or state securities law relating to or governing
"insider" trading of securities. At the Effective Time, each
Manager shall confirm in writing that upon the finality of any
such determination that the Surviving Corporation or the BUYER
is not liable for any such indemnification claims, the Manager
will immediately reimburse the BUYER and the Surviving
Corporation in full for any fees, expenses and costs incurred
by the BUYER or the Surviving Corporation in connection with
the defense of such claims. Any Manager wishing to claim
indemnification under this Section 5.6, upon learning of any
such claim, action, suit, proceeding or investigation, shall
immediately notify the BUYER, thereof (provided that the
failure to give such notice shall not affect any obligations
hereunder, except to the extent that the indemnifying party is
actually and materially prejudiced thereby). The BUYER further
covenants not to amend or repeal any provisions of the
Certificate of Incorporation or Bylaws of the BUYER or
Surviving Corporation in any manner that would adversely
affect the indemnification or exculpatory provisions contained
herein, except to the extent otherwise required by Delaware
law. The provisions of this Section 5.6 are intended to be for
the benefit of, and shall be enforceable by, each indemnified
party and his or her heirs and representatives, and shall
survive the Closing for a period expiring six years from the
Effective Time.
10. Section 5.13 of the Agreement is hereby deleted and replaced
in its entirety with the following:
5.13 CERTAIN COVENANTS.
(a) SOLICITATION. The COMPANY may, but shall not be
obligated to, directly or indirectly, through any officer,
director, employee, financial advisor, representative or agent
of such party (i) solicit, initiate, or encourage any
inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale or transfer of
substantial assets, sale of any shares of capital stock
(including without limitation by way of a tender offer) or
similar transaction involving it or any of its Subsidiaries,
other than the transactions contemplated by this Agreement
(any of the foregoing inquiries or proposals being referred to
in this Agreement as an "Acquisition Proposal"), (ii) engage
in negotiations or discussions concerning, or provide any
non-public information to any person or entity relating to,
any Acquisition Proposal, or (iii) agree to or recommend any
Acquisition Proposal.
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(b) The COMPANY shall notify BUYER immediately after
initiation of or receipt by the COMPANY (or its advisors) of
any Acquisition Proposal or any request for nonpublic
information in connection with an Acquisition Proposal or for
access to the properties, books or records of such party by
any person or entity that informs such party that it is
considering making, or has made, an Acquisition Proposal. Such
notice shall be made orally and in writing and shall indicate
in reasonable detail the identity of the offeror and the terms
and conditions of such proposal, inquiry or contact. The
COMPANY shall continue to keep BUYER informed, on a current
basis, of the status of any such discussions or negotiations
and the terms being discussed or negotiated. Under no
circumstances shall COMPANY provide to any party any
non-public or confidential information of or about the BUYER.
(c) CERTAIN ACTIONS. BUYER and COMPANY shall not, nor
shall either permit any of its Subsidiaries to, take or
consent to be taken any action, whether before or after the
Effective Date, that would disqualify the Merger as
"reorganization" within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Code.
(d) TAX RETURNS. BUYER and COMPANY shall jointly
prepare and file on a timely basis any Tax Return required to
be filed by virtue of the transactions contemplated by this
Agreement and BUYER shall pay any Tax due in connection
therewith on behalf of COMPANY and its shareholders.
11. Section 5.14 of the Agreement is hereby deleted and replaced
in its entirety with the following:
5.14 BUYER BOARD OF DIRECTORS. The Board of Directors
of BUYER shall cause the BUYER's Board of Directors to
continue to consist of seven persons and cause two designees
of COMPANY ("COMPANY Designees") to be elected to BUYER's
Board of Directors as soon as practicable after the Effective
Time and BUYER shall nominate such designees for election at
the next subsequent Annual Meeting of BUYER shareholders and
shall use its best efforts to cause such COMPANY Designees to
be elected at such meeting. The COMPANY Designees shall be
elected to the Nominating Committee of the Board of Directors
so long as they remain Directors of the BUYER. Following the
Effective Time, such nominating committee shall be comprised
solely of the two Company Designees and one designee of the
BUYER. The Nominating Committee shall have the right to
nominate two additional members of the Board, which, if
necessary, shall be expanded by the full Board to nine members
to include such two additional members.
12. Section 7.1(b) of the Agreement is hereby deleted and replaced
in its entirety with the following:
(b) by either BUYER or the COMPANY if the Merger
shall not have been consummated by January 31, 1998 (provided
that (i) either BUYER or the COMPANY may extend such date to
March 31, 1998 by providing written notice thereof to the
other party on or prior to January 31, 1998 (January 31, 1998,
as it may be so extended to March 31, 1998, shall be referred
to herein as the "Outside Date") and (ii) the right to
terminate or extend this Agreement under this Section 7.1(b)
shall not be available to any
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party whose failure to fulfill any covenant under this
Agreement has been the cause of or resulted in the failure of
the Merger to occur on or before such date); or
13. Section 7.1(e) of the Agreement is hereby deleted and replaced
in its entirety with the following:
(e) by COMPANY, if (i) at the Special BUYER Meeting
(including any adjournment or postponement) the Requisite
BUYER Proposal Approval shall not have been obtained; (ii) at
the Special BUYER Meeting (including any adjournment or
postponement), the Requisite BUYER Stockholder Approval shall
not have been obtained; (iii) after receipt by the Board of
Directors of the BUYER of a proposal or offer for a merger,
consolidation, business combination, sale or transfer of
substantial assets or shares of capital stock (including
without limitation by way of a tender offer) or similar
transaction involving BUYER or its subsidiaries (a "BUYER
Acquisition Proposal") the Board of Directors of the BUYER
shall have withdrawn or modified its recommendation with
respect to this Agreement or the Merger; (iv) after the
receipt by the BUYER of a BUYER Acquisition Proposal, COMPANY
requests in writing that the Board of Directors of the BUYER
reconfirm its recommendation with respect to this Agreement or
the Merger and the Board of Directors of the BUYER fails to do
so within 10 business days after its receipt of BUYER's
request; (v) the Board of Directors of the BUYER shall have
recommended to the Stockholders of the BUYER an Alternative
Transaction (as defined in Section 7.3(f)); (vi) a tender
offer or exchange offer for 20% or more of the outstanding
shares of the BUYER Shares is commenced (other than by COMPANY
or an Affiliate of COMPANY) and the Board of Directors of the
BUYER recommends that the stockholders of the BUYER tender
their shares in such tender or exchange offer; (vii) for any
reason fails to call and hold the Special BUYER Meeting at
least two business days prior to the Outside Date; (viii)
after receipt by the Board of Directors of the COMPANY of an
Acquisition Proposal, the Board of Directors of the COMPANY
shall have withdrawn or modified its recommendation of this
Agreement or the Merger; (ix) the Board of Directors of the
COMPANY shall have recommended to the stockholders of the
COMPANY an Alternative Transaction (as defined in Section
7.3(f)); (x) a tender offer or exchange offer for 20% or more
of the outstanding shares of the COMPANY Shares is commenced
(other than by BUYER or an Affiliate of BUYER) and the Board
of Directors of the COMPANY recommends that the stockholders
of the COMPANY tender their shares in such tender or exchange
offer; or (xi) the BUYER has not obtained financing sufficient
to obtain the consent of COMPANY's lender to the consummation
of the Merger and otherwise satisfactory to the COMPANY in its
sole good faith discretion.
14. The introductory sentence to Section 7.3(b) of the Agreement
is hereby deleted and replaced in its entirety with the
following:
(b) The COMPANY shall pay BUYER a termination fee of
$800,000 upon the earliest to occur of the following events;
15. Section 7.3(b)(i) is hereby deleted and replaced in its
entirety with the following:
(i) the termination of the Agreement by BUYER
pursuant to Section 7.1(d)(ii) through (vi) or by COMPANY
pursuant to Section 7.1(e)(viii) through (x); or
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16. The introductory sentence to Section 7.3(c) of the Agreement
is hereby deleted and replaced in its entirety with the
following:
(c) The BUYER shall pay COMPANY a termination fee of
$800,000 upon the earliest to occur of the following events;
17. Section 7.3(d) of the Agreement is hereby deleted and replaced
in its entirety with the following:
(d) The BUYER shall pay COMPANY a termination fee of
$400,000 upon termination of this Agreement by COMPANY
pursuant to Section 7.1(e)(i). In no event shall COMPANY
receive a termination fee under both 7.3(c) and this Section
7.3(d)
18. Except as otherwise set forth above, the Agreement is
otherwise ratified and confirmed in all respects.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as
of the date first above written.
MOOVIES, INC.
("COMPANY")
By: /s/ John L. Taylor
-----------------------
Authorized Officer
VIDEO UPDATE, INC. ("BUYER")
By: /s/ Daniel A. Potter
-------------------------
Daniel A. Potter
Chief Executive Officer
VUI MERGER CORP. ("SUB")
By: /s/ Daniel A. Potter
------------------------
Title: President
Schedules referenced in the foregoing exhibit shall be provided to the
commission upon request.
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Exhibit 99
FOR IMMEDIATE RELEASE
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VIDEO UPDATE, INC. ANNOUNCES AMENDEMENT TO AGREEMENT TO
ACQUIRE MOOVIES, INC.;
COMMENTS ON SECOND QUARTER OUTLOOK
St. Paul, Minn., October 30, 1997 - In concurrent press releases, Video
Update, Inc. (Nasdaq: VUPDA), an international video chain (the "Company"), and
Moovies, Inc., (Nasdaq: MOOV) ("Moovies") announced today that they have amended
their agreement pursuant to which the Company plans to acquire Moovies in a
stock-for-stock merger transaction. Moovies currently operates 269 video
specialty stores in 17 states throughout the United States and is the franchiser
for an additional 43 stores.
The amended merger agreement now provides that each stockholder of
Moovies will receive .75 shares of Video Update Class A Common Stock for each
share of Moovies' Common Stock, or approximately 32 percent of Video Update's
outstanding shares after the closing of the transaction. In addition,
immediately following the merger, Video Update's Board of Directors will include
two designees from Moovies, which Moovies' directors, together with a director
designated by Video Update, shall have the right to nominate two additional
directors to serve on the Video Update Board.
The transaction is subject to a number of conditions, including
shareholder approval of both companies, and is now anticipated to be completed
in early 1998. Piper Jaffray is serving as financial advisor to Video Update,
Inc. for this transaction. Needham & Co. is representing Moovies. Piper Jaffray
and Needham & Co., have provided fairness opinions in connection with the
amended agreement.
Daniel A. Potter, CEO of Video Update, Inc., said, "We are pleased to
proceed with this strategic merger, which we believe can maximize stockholder
value. I continue to view this transaction as a platform to significantly
enhance our future growth opportunities."
John L. Taylor, President and CEO of Moovies, stated, "We continue to
believe that this merger of complementary video retailers should provide good
growth opportunities for Moovies' stockholders and should result in important
synergies and cost savings for the combined companies."
Separately, Mr. Potter of Video Update also commented on the Company's
outlook for the fiscal quarter ending October 31, 1997: "We expect that the
continued lack of public acceptance of weaker new release titles available for
rental during the months of August and September of this year has adversely
impacted our operating results for this quarter. Although we expect an increase
in same store revenues compared to the quarter ended October 31, 1996, the
continuing industry-wide slump in titles will likely result in a loss for the
quarter, currently estimated to be less than $.05 per share."
Mr. Potter continued, "We expect that operating results for the next
two fiscal quarters should be positively affected by the impressive upcoming new
release line-up, which should include "Men in Black," "Lost World," "My Best
Friend's Wedding," "Face Off," "Con Air," and "Air Force One."
Video Update, Inc. is an international video retail chain with 420
video specialty stores in North America, of which 384 are Company owned and 36
are franchised as of October 29, 1997. These stores are located in twenty-two
states in the United States and in six provinces in Canada.
Matters discussed in this news release, including any discussion of or impact,
expressed or implied, on the Company's anticipated operating results and future
earnings per share 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. The acquisition of Moovies is subject to several
conditions, including bank approval for both companies. The amended merger
agreement also allows Moovies to entertain or solicit other acquisition
proposals, subject to certain amended termination fees. No assurances can be
given that the above described acquisition will be completed, on a timely basis,
if at all. In addition, if the acquisition is completed, no assurance can be
given that the Company will be successful in timely integrating and managing the
operating, purchasing, marketing and management information systems of the two
companies or that the Company will be able to hire, train, retrain and
assimilate selected individuals employed at acquired stores. Furthermore, the
Company has signed an agreement with Rentrak Corporation, a distributor of
prerecorded videocassettes and other media, which agreement will become
effective only if the merger is closed. To obtain the full benefits of its
agreement with Rentrak, the Company must correctly identify the new release and
other titles that it should lease from Rentrak and the stores that should
receive them. To the extent that the Company obtains new releases or other video
products from Rentrak for too many or the wrong stores, the Company's operations
and profits could be adversely affected. No assurances can be given that the
Company will be effective in using its agreement with Rentrak to achieve its
intended results. Additionally, the Company's and Moovies' operating results may
be affected by many factors, including but not limited to variations in the
number and timing of store openings and acquisitions, weather (particularly on
weekends and holidays), the public acceptance of new release titles available
for rental, competition, marketing programs, special or unusual events and other
events and other factors, that may affect retailers in general. These and other
risks are detailed from time to time in the Company's SEC reports, including the
Form 10-K for the year ended April 30, 1997.
