<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1996
REGISTRATION NO. 333-4270
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOOVIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7841 571012733
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
201 BROOKFIELD PARKWAY
GREENVILLE, SC 29607
(864) 213-1700
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN L. TAYLOR
MOOVIES, INC.
201 BROOKFIELD PARKWAY
GREENVILLE, SC 29607
TEL: (864) 213-1700
FAX: (864) 213-1702
(Name, address including zip code, and telephone number, including area code, of
agent for service)
The Commission is requested to mail copies of all orders, notices and
communications to:
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<S> <C>
T. CLARK FITZGERALD III, ESQ. BRUCE N. HAWTHORNE, ESQ.
ARNALL GOLDEN & GREGORY KING & SPALDING
1201 WEST PEACHTREE STREET 191 PEACHTREE STREET
ATLANTA, GEORGIA 30309 ATLANTA, GEORGIA 30303
TEL: (404) 873-8622 TEL: (404) 572-4600
FAX: (404) 873-8501 FAX: (404) 572-5100
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. ( )
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. (X)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
MOOVIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF FORM S-1
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<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OF CAPTION IN PROSPECTUS
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Facing Page, Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page, Outside Back Cover Page and Available
Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary, Risk Factors
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Not Applicable
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page, Underwriting
9. Description of Securities to Be Registered........ Description of Capital Stock
10. Interests of Named Experts and Counsel............ Not Applicable
11. Information with Respect to the Registrant........ Outside Front Cover Page, Prospectus Summary, Risk Factors, The
Acquisitions, Use of Proceeds, Price Range of Common Stock,
Dividend Policy, Capitalization, Pro Forma Financial Information,
Selected Historical and Pro Forma Financial Data, Management's
Discussion and Analysis of Financial Condition and Results of
Operations, Business, Management, Certain Transactions, Principal
Stockholders, Description of Capital Stock, Shares Eligible for
Future Sale and Index to Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................................... Not Applicable
</TABLE>
<PAGE>
Rotated type appears on left side of page with the following language:
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 16, 1996
PROSPECTUS
3,200,000 SHARES
(Moovies Logo appears here)
COMMON STOCK
All of the 3,200,000 shares of Common Stock offered hereby are being sold
by Moovies, Inc. (the "Company"). The Company's Common Stock is traded and
quoted on the Nasdaq Stock Market under the symbol "MOOV." On May 16, 1996, the
last reported sale price for the Company's Common Stock on the Nasdaq Stock
Market was $ . See "Price Range of Common Stock."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
[CAPTION]
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<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total (3)........................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1.0 million.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 480,000 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ , and $ , respectively. See
"Underwriting."
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject any
order in whole or in part. It is expected that certificates for the shares of
Common Stock will be available for delivery in New York, New York, on or about
, 1996.
NEEDHAM & COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
SCOTT & STRINGFELLOW, INC.
The date of this Prospectus is , 1996.
<PAGE>
[PHOTOS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
MOOVIES, INC. ACQUIRED 76 VIDEO SPECIALTY STORES AND CERTAIN OTHER RELATED
OPERATIONS CONCURRENTLY WITH THE CONSUMMATION OF ITS INITIAL PUBLIC OFFERING IN
AUGUST 1995 (THE "INITIAL ACQUISITIONS"). AFTER THE COMPLETION OF THE INITIAL
PUBLIC OFFERING, MOOVIES, INC. ACQUIRED AN AGGREGATE OF 53 ADDITIONAL VIDEO
SPECIALTY STORES IN SEVEN ACQUISITIONS (THE "RECENT ACQUISITIONS") (THE INITIAL
ACQUISITIONS AND THE RECENT ACQUISITIONS COLLECTIVELY, THE "ACQUISITIONS"). THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS
THE CONTEXT OTHERWISE REQUIRES, (I) ALL INFORMATION IN THIS PROSPECTUS ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, AND (II) ALL REFERENCES
HEREIN TO THE "COMPANY" INCLUDE MOOVIES, INC., ITS PREDECESSOR, TONIGHT'S
FEATURE LIMITED PARTNERSHIP II (THE "PREDECESSOR"), AND THE VIDEO SPECIALTY
STORES AND RELATED OPERATIONS ACQUIRED IN CONNECTION WITH THE ACQUISITIONS.
THE COMPANY
The Company currently owns and operates 158 video specialty stores located
in Georgia, South Carolina, North Carolina, Virginia, Pennsylvania, New Jersey,
New York, Connecticut, Ohio, Iowa and Colorado. In 1995, the Company had pro
forma revenues of $79.0 million and pro forma net income of $5.7 million ($22.7
million and $1.7 million, respectively, for the three months ended March 31,
1996). The Company operates all of its stores in the "superstore" format (i.e.,
a video specialty store with more than 7,500 videocassettes). The Company
believes that, based upon the number of stores operated by it at the end of
1995, it was one of the five largest operators of video specialty stores and one
of the three largest operators of video superstores in the United States.
The key elements of the Company's business and expansion strategy are (i)
to operate video superstores, which the Company believes is the most profitable
format for most locations, (ii) to concentrate store openings and acquisitions
in areas where the Company believes it can achieve economies of scale in
advertising, management and other overhead expenses, (iii) to open and acquire
video specialty stores in desirable locations and (iv) to offer a high level of
customer service at each store, including a commitment to provide more copies of
the newest releases than many of its competitors. The Company anticipates
opening approximately 50 new superstores in 1996 and through May 15, 1996, had
opened eight new superstores and signed leases for 18 new store sites, including
eight stores that were under construction. The Company estimates that the cash
investment required to open each new Moovies superstore generally ranges from
$250,000 to $300,000.
The Company has designed a visually appealing, customer-friendly and
family-oriented store layout which the Company believes distinguishes Moovies
superstores from those of its competitors. The Company currently operates
approximately 100 of its stores under the Moovies name and logo and expects to
convert substantially all of its remaining video specialty stores to the Moovies
name and logo by June 30, 1996.
According to estimates provided by entertainment media analyst Paul Kagan
Associates, Inc. ("Paul Kagan"), the domestic video rental and sales industry
has grown from $0.7 billion in revenues in 1982 to $14.8 billion in 1995 and is
projected to reach $19.1 billion in 2000. According to media analyst Veronis,
Suhler & Associates, the home video market was the largest single source of
revenue to movie distributors in 1995, accounting for approximately 46% of movie
distributors' worldwide revenues. The Company believes that the retail video
industry is highly fragmented and is undergoing consolidation. Paul Kagan
estimated that in 1994 there were approximately 27,400 video specialty stores,
including 6,100 video superstores, in the United States. According to VIDEO
STORE MAGAZINE, only nine multiple store businesses operated in excess of 100
stores in 1995. The Company believes that the fragmented nature of the industry
and the emergence of the superstore format present attractive opportunities to
open and acquire video specialty stores.
RECENT DEVELOPMENTS
Since the Company's initial public offering, the Company has acquired an
aggregate of 53 video specialty stores in seven acquisitions. These acquisitions
included the acquisition of the "Movies to Go" chain of 13 stores in September
1995, the "Pic-A-Flick" chain of 23 stores in December 1995, the "Movie Store"
chain of eight stores in December 1995, the "Showtime" chain of five stores in
March 1996 and several smaller acquisitions.
In March 1996, the Company sold its supermarket video business for
approximately $1.0 million in order to focus its resources on its video
superstores.
In April 1996, the Company signed an asset purchase agreement to acquire
the "Premiere Video" chain of 23 stores in Minnesota, Iowa, Wisconsin, South
Dakota and Nebraska (the "Pending Acquisition"). The Company anticipates closing
the Premiere Video acquisition concurrently with the completion of this
offering.
3
<PAGE>
THE OFFERING
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<S> <C>
Common Stock offered by the Company................... 3,200,000 shares
Common Stock to be outstanding after offering......... 11,864,040 shares (1)
Use of Proceeds....................................... To repay certain outstanding indebtness, to finance the Pending
Acquisition, and for general corporate purposes, including new store
openings and future acquisitions. See "Use of Proceeds."
Nasdaq Stock Market Symbol............................ MOOV
</TABLE>
(1) Excludes 803,950 shares of Common Stock reserved for issuance pursuant to
outstanding options granted under the Company's 1995 Stock Plan and 529,957
shares of Common Stock issuable upon exercise of outstanding warrants.
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
HISTORICAL (1)
PRO FORMA (2)
THREE MONTHS ENDED YEAR ENDED THREE MONTHS
YEARS ENDED DECEMBER 31, MARCH 31, DECEMBER 31, ENDED MARCH
1993 1994 1995 1995 1996 1995 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues................................... $3,889 $4,392 $24,658 $1,223 $19,316 $ 78,959 $ 22,652
Operating income........................... 278 382 2,983 74 2,270 9,030 2,862
Income before income taxes and cumulative
effect of a change in accounting
principle............................... 235 281 2,811 47 1,948 9,503 2,886
Income before cumulative effect of a change
in accounting
principle, net of taxes (3)............. 235 281 1,765 47 1,169 5,702 1,732
Net income................................. 235 281 1,765 47 278 5,702 1,732
Net income per share....................... -- -- $ .52 -- $ .03 $ .47 $ .14
Shares used in computation................. -- -- 3,395 -- 8,976 12,160 12,176
OPERATING DATA:
Number of stores at end of period.......... 8 9 148 11 158 176 181
Increase in same store revenues (4)........ 8.2% 10.5% 1.4% 0.0% 0.0% -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
AS
ACTUAL ADJUSTED (5)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................... $ 5,570 $ 13,124
Videocassette rental inventory, net................................................................. 17,357 19,157
Total assets........................................................................................ 72,557 91,611
Line of credit and other short-term debt............................................................ 13,745 3,549
Long-term debt, less current portion................................................................ 3,698 198
Total liabilities................................................................................... 34,816 21,120
Stockholders' equity................................................................................ 37,741 70,491
</TABLE>
4
<PAGE>
(1) The historical financial data reflect data for the Predecessor during 1993
and 1994, and for a portion of 1995. The Predecessor was a limited
partnership and therefore had no income tax liability.
(2) The pro forma statement of operations data for the year ended December 31,
1995 gives effect to the Acquisitions, the Company's initial public
offering, the Premiere Video acquisition and this offering as if they had
occurred as of the beginning of the year. The pro forma statements of
operations data for the three months ended March 31, 1996 give effect to
this offering and the consummation of the Pending Acquisition and the
Showtime acquisition as if they had occurred as of the beginning of the
period. See "Use of Proceeds," "The Acquisitions" and "Pro Forma Financial
Information."
(3) Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. The cumulative effect of the
change as of January 1, 1996 was to reduce net income by $891,000 and
earnings per share by $0.10 for the three months ended March 31, 1996. The
application of the new method of amortizing videocassette rental inventory
increased amortization expense by approximately $575,000 to $3.6 million and
reduced earnings per share by $0.04 for the three months ended March 31,
1996.
(4) The increase in same store revenues is computed by comparing on a quarterly
basis revenues from stores open during an entire quarter to revenues from
stores open during the entire corresponding quarter for the prior year. This
calculation includes acquired stores on a pro forma basis, that were owned
and operated at the end of the period.
(5) Adjusted to reflect the sale of 3,200,000 shares offered by the Company
hereby at an assumed price to the public of $11.25 per share and the use of
proceeds therefrom, including the repayment of certain outstanding
indebtness and the consummation of the Pending Acquisition. See
"Capitalization" and "Use of Proceeds".
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
ACQUISITION RISKS
GENERAL. The Company's growth strategy emphasizes acquisitions. There can
be no assurance that the Company will be able to successfully identify suitable
acquisition candidates, complete acquisitions, integrate acquired operations
into its existing operations or expand into new markets. There can be no
assurance that acquisitions will not have a material adverse effect upon the
Company's operating results, particularly in the fiscal quarters immediately
following the consummation of such transactions, while the operations of the
acquired businesses are being integrated into the Company's operations. Once
integrated, acquired operations may not achieve levels of revenues or
profitability comparable to those achieved by the Company's existing operations,
or otherwise perform as expected. See "The Acquisitions," "Pro Forma Financial
Information," and "Business -- Business and Expansion Strategy."
LIMITED KNOWLEDGE AND OPERATING HISTORY. Notwithstanding its own due
diligence investigation, management has, and will have, limited knowledge about
the specific operating history, trends and customer buying patterns of video
specialty stores it acquires. Consequently, there can be no assurance that the
Company will make acquisitions at favorable prices, that acquired stores will
perform as well as they had performed historically or that the Company will have
sufficient information to accurately analyze the markets in which it elects to
make acquisitions. Failure to pay reasonable prices for acquisitions or to
acquire profitable video specialty stores could have a material adverse effect
on the Company's financial condition and results of operations.
COMPETITION FOR ACQUISITIONS. Certain of the Company's larger, better
capitalized competitors may seek to acquire some of the same video specialty
stores that the Company seeks to acquire. Such competition for acquisitions
would be likely to increase acquisition prices and related costs and result in
fewer acquisition opportunities, which could have a material adverse effect on
the Company's growth.
MISREPRESENTATIONS AND BREACHES BY SELLERS. In consummating acquisitions,
the Company relies upon certain representations, warranties and indemnities made
by the sellers, as well as its own due diligence investigation. There can be no
assurance that such representations and warranties will be true and correct or
that the Company's due diligence will uncover all material adverse facts
relating to the operations and financial condition of the stores acquired. Any
material misrepresentations could have a material adverse effect on the
Company's financial condition and results of operations.
CONSIDERATION FOR ACQUIRED STORES EXCEEDS ASSET VALUE. Valuations of the
video specialty stores acquired in connection with the Acquisitions by the
Company were not established by independent appraisers, but through arm's-length
negotiations between the Company and the respective sellers. The consideration
paid for each of these stores was based primarily on management's estimate of
the value of such stores as going concerns and not on the value of the acquired
assets. No assurance can be given that the future performance of such stores
will justify or be commensurate with the consideration being paid to acquire
them. Similar risks apply to future acquisitions, including the Pending
Acquisition.
NEW STORE OPENINGS
The Company's continued growth will depend in part on its ability to open
and operate new stores on a profitable basis. Although the Company intends to
increase the number of its stores within its current market areas and believes
that adequate sites are currently available in these markets, the rate of new
store openings is subject to various contingencies, some of which are beyond the
Company's control. These contingencies include the Company's ability to secure
suitable store sites on a timely basis and on satisfactory terms, the Company's
ability to hire and train competent store management and personnel, the
availability of adequate capital resources and the successful integration of new
stores into existing operations. There can be no assurance that the Company will
be able to achieve its planned expansion or that its expansion will be
profitable. Failure of the Company to achieve its planned expansion on a
profitable basis could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Business and Expansion
Strategy."
FINANCING GROWTH STRATEGY
As of May 15, 1996, the Company had outstanding borrowings of $12.8 million
under its $22.5 million bank line of credit. At May 15, 1996 the Company had
$2.2 million available under this line of credit. The remaining $5.5 million
will become available upon the completion of this offering and the Premiere
Video acquisition. The Company intends to use $2.6
6
<PAGE>
million of the line of credit to secure the final payment due in January 1997 in
connection with the Premiere Video acquisition. The Company currently intends to
finance new store openings and future acquisitions with cash from operations,
borrowings under credit facilities and the net proceeds from the sale of debt or
equity securities. If the Company does not have sufficient cash from operations,
credit facilities or the ability to raise cash through the sale of debt or
equity securities, the Company will be unable to pursue its growth strategy,
which would have a material adverse effect on the Company's ability to increase
its revenues and net income and could have a material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Business and Expansion
Strategy."
COMPETITION
The video retail industry is highly competitive. According to Paul Kagan,
in 1994 there were approximately 27,400 video specialty stores, including 6,100
video superstores, in the United States. The Company competes with other video
specialty stores, including stores operated by regional and national chains, as
well as other businesses offering videos and video games such as supermarkets,
pharmacies, convenience stores, bookstores, mass merchants, mail order
operations and other retailers. Many of the Company's stores compete with stores
operated by Blockbuster Entertainment Corporation ("Blockbuster"), the dominant
video specialty retailer in the United States. Blockbuster and certain of the
Company's other competitors have significantly greater financial and marketing
resources, market share and name recognition than the Company. In addition, the
Company's stores compete with other leisure-time activities, including movie
theaters, network and cable television, programs made available directly by
satellite, live theater, sporting events and family entertainment centers. The
Company's failure to compete effectively would have a material adverse effect on
its financial condition and results of operations. See
"Business -- Competition."
NEW MANAGEMENT TEAM
The Company's management group, including the Chief Executive Officer, the
Chief Financial Officer and the Chief Operating Officer have had only a limited
time to work together. The Chief Executive Officer and the Chief Financial
Officer have only limited experience operating a company in the retail video
industry. Although certain members of the management team have experience
operating small companies in terms of annual revenues in the retail video
industry, no member of the management team has experience operating a
stand-alone company as large as the Company. As a result, there can be no
assurance that the Company's management group will succeed in managing the
operations of the Company or effectively implement the Company's business and
expansion strategy. Failure of the Company's management group to successfully
manage such operations or to effectively implement the Company's business and
expansion strategy could have a material adverse effect on the Company's
financial condition and results of operations. See "Management."
ABILITY TO MANAGE GROWTH
The Company is currently experiencing a period of rapid growth and
expansion. Such growth and expansion has placed and will continue to place a
significant strain on the Company's services and support operations,
administrative personnel and other resources. The Company's ability to manage
such growth effectively will require the Company to continue to improve its
operational, management and financial systems and controls and to train,
motivate and manage its employees. In addition, the Company may be unable to
retain or hire the necessary personnel or acquire other resources necessary to
service such growth adequately. There can be no assurance that the Company will
be able to effectively manage this rapid growth and expansion.
LOSS OF CUSTOMERS AND CUSTOMER LOYALTY
The success of the video specialty stores the Company acquires depends in
large part on the Company's ability to successfully convert them to the Moovies
name, logo and format without negatively impacting customer service in these
stores or customers' perceptions of these stores. The Company currently operates
approximately 100 of its stores under the Moovies name and logo and expects to
convert substantially all of its stores to the Moovies name and logo by June 30,
1996. To the extent that customers have developed loyalty to the current names
and logos of these stores, such transition could result in a loss of customers.
A significant loss of customers would have a material adverse effect on the
Company's financial condition and results of operations.
7
<PAGE>
IMPLEMENTATION OF NEW MANAGEMENT INFORMATION SYSTEM
The Company is in the process of replacing the various management
information systems ("MIS") used by its stores with a new MIS and as of May 15,
1996 had completed installation in approximately 125 stores. Implementation of
the new MIS in all of the Company's stores could cause significant disruption in
store operations and materially adversely affect the Company's financial
condition and results of operations. See "Business -- Inventory and Management
Information Systems."
TECHNOLOGICAL OBSOLESCENCE
The Company competes with pay-per-view cable television systems
("Pay-Per-View"), in which home subscribers pay a fee to see a movie selected by
the subscriber. Existing Pay-Per-View services offer a limited number of
channels and movies and are generally available only to households with a
converter to unscramble incoming signals. Technologies recently introduced to
the consumer market, however, permit certain cable companies, direct broadcast
satellite companies, telephone companies and other telecommunications companies
to transmit a much greater number of movies to homes in more markets as
frequently as every five minutes ("Near Video-on-Demand"). These technologies,
by providing alternatives to home video rentals and purchases, could have a
material adverse effect on the Company's business. Over the long term, further
improvements in these technologies, or the development of other similar
technologies, could lead to the availability of a broad selection of movies to
consumers on demand ("Video-on-Demand"), which could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business -- Competition." Changes in the manner in which movies are marketed,
primarily related to the timing of releases of movie titles to these
distribution channels, and the prices charged by those channels, could also
substantially decrease the demand for video rentals, resulting in a material
adverse effect on the Company's financial condition and results of operations.
In addition, the advent of video compact discs, which may occur by the end of
1996, could reduce the demand for video rentals, resulting in a material adverse
effect on the Company's financial condition and results of operations. See
" -- Pricing of Videos," "Business -- Video Retail Industry Overview" and
"Business -- Competition."
DEPENDENCE UPON SUPPLIERS
The Company anticipates that in 1996 approximately 80% of its supply of
videos, in the aggregate, will be acquired from two suppliers. While the Company
believes that it can readily purchase sufficient quantities of titles on
comparable terms from other suppliers, there can be no assurance that an
alternative supplier or suppliers would provide service, support or payment
terms as favorable as those currently provided. Failure to obtain comparable
service, support or payment terms from an alternative supplier could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business -- Suppliers."
PRICING OF VIDEOS
Changes in the movie studios' wholesale pricing structure for videos could
result in a competitive disadvantage for all video specialty stores, including
those of the Company, and could therefore have a material adverse effect on the
Company's financial condition and results of operations. Recently, movie studios
have begun pricing more of their film releases for sale to the consumer rather
than for rental, and to the extent that such sales reduce the volume or prices
of rentals, which generally provide higher margins, the Company's profit margins
would be reduced, which could have a material adverse effect on the Company's
financial condition and results of operations. In addition, the advent of video
compact discs, which may occur by the end of 1996, may result in an increase in
the ratio of sales to rental revenues and a decrease in the Company's overall
profit margins, which could have a material adverse effect on the Company's
financial condition and results of operations.
INABILITY TO OBTAIN AND ADEQUATELY MANAGE LEASED INVENTORY
The Company's ability to compete successfully depends in part on its
ability to lease appropriate quantities of the latest and most popular videos on
a timely basis and at favorable prices. The Company presently intends to spend
approximately 20% of its new release budget to obtain new releases from Rentrak
Corporation ("Rentrak") pursuant to a revenue sharing agreement. The Company
believes Rentrak is currently the sole supplier of leased videos to video
specialty stores. The Company's inability to renew this agreement on comparable
terms could have a material adverse effect on its financial condition and
results of operations. In order for the Company to obtain the most benefit from
the Rentrak revenue sharing arrangement, the Company must correctly identify new
release titles that it should lease from Rentrak and the stores which should
receive them. Because the Company's percentage share of revenue under the
Rentrak agreement is fixed, to the extent
8
<PAGE>
that the Company obtains new release videos from Rentrak for too many or the
wrong stores, the Company's profits may be adversely affected. See
"Business -- Suppliers."
NO ASSURANCE OF CONTINUED PROFITABILITY; QUARTERLY FLUCTUATIONS; SEASONALITY AND
OTHER FACTORS
Although the Company has been profitable since its initial public offering,
there is no assurance it will continue to be profitable. In addition, many of
the Company's stores have a limited operating history. Future operating results
may be affected by many factors, including variations in the number and timing
of store openings, the quality of new release titles available for rental and
sale, acquisition by the Company of existing video stores, additional and
existing competition, marketing programs, weather, special or unusual events and
other factors that may affect retailers in general. Any concentration of new
store openings and the related new store pre-opening costs near the end of a
fiscal quarter could have an adverse effect on the financial results for that
quarter and could, in certain circumstances, lead to fluctuations in quarterly
financial results. The video and video game rental portions of the Company's
business are somewhat seasonal, with revenues in April, May, September and
October generally being lower compared to other months of the year.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has fluctuated substantially
since its initial public offering in August 1995. See "Price Range of Common
Stock." There is no assurance that the market price of the Common Stock will not
decline below the price to the public in this offering. The Common Stock is
traded on the Nasdaq Stock Market, which market has experienced and is likely to
experience in the future significant price and volume fluctuations, which could
adversely affect the market price of the Common Stock without regard to the
operating performance of the Company. The Company believes factors such as
quarterly fluctuations in financial results, announcements of new technologies
in movie distribution or announcements by competitors may cause the market price
of the Common Stock to fluctuate, perhaps substantially. These fluctuations, as
well as general economic conditions, such as recessions or high interest rates,
may adversely affect the market price of the Common Stock.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of John L.
Taylor, its President, Chairman of the Board and Chief Executive Officer, and
its other executive officers. If any of these individuals become unwilling or
unable to continue their employment or association with the Company, or if the
Company is unable to attract and retain other skilled employees when needed, the
Company's business could be materially, adversely affected. The Company has
obtained key man life insurance covering John L. Taylor in the amount of $1.0
million. See "Management."
CONTROL BY MANAGEMENT
Upon completion of this offering, the Company's executive officers and
directors will, in the aggregate, beneficially own 23.7% of the Company's
outstanding Common Stock (including 205,000 shares subject to currently
exercisable options and warrants). As a result, these stockholders voting
together will likely be able to cause the election of all of the Company's
directors and effectively control the Company. These stockholders voting
together could delay or prevent a change in control of the Company or a business
combination involving the Company that is favored by other stockholders. See
" -- Anti-Takeover Provisions," "Management," "Principal Stockholders" and
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of the Common Stock in the
public market following this offering, or the perception that the sale of a
substantial number of shares might occur, could have a material adverse effect
on the prevailing market price of the Common Stock or the ability of the Company
to raise additional capital through a public offering of its equity securities.
Upon completion of this offering, the Company will have outstanding 11,864,040
shares of Common Stock, of which 6,822,500 shares, including the 3,200,000
shares sold in this offering (plus any additional shares sold upon exercise of
the Underwriter's over-allotment option) will be freely tradeable without
restriction or further registration under the Securities Act of 1933 (the
"Securities Act"), except for those shares held by "affiliates" (as defined in
the Securities Act) of the Company. None of the remaining 5,091,540 outstanding
shares of Common Stock (the "Restricted Shares") have been registered under the
Securities Act, and such shares may be resold only upon registration under the
Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act. Holders of 461,665 Restricted Shares will be
eligible to sell such shares pursuant to Rule 144 under the Securities Act,
subject to the manner of sale, volume, notice and information requirements of
Rule 144, beginning in December 1996, holders of 349,175 Restricted Shares will
be eligible to
9
<PAGE>
sell such shares pursuant to Rule 144 beginning in February 1997, holders of
12,879 Restricted Shares will be eligible to sell such shares pursuant to Rule
144 beginning in June 1997, holders of 3,178,185 Restricted Shares will be
eligible to sell such shares pursuant to Rule 144 beginning in August 1997
holders of 500,531 Restricted Shares will be eligible to sell such shares
pursuant to Rule 144 beginning in September 1997, holders of 11,014 Restricted
Shares will be eligible to sell such shares in October 1997, holders of 497,583
Restricted shares will be eligible to sell such shares in December 1997, holders
of 25,000 Restricted Shares will be eligible to sell such shares in March 1998,
holders of 1,377 Restricted Shares will be eligible to sell such shares in April
1998 and holders of 4,131 Restricted Shares will be eligible to sell such shares
in May 1998. The Company has granted to certain holders of Restricted Shares and
warrants for shares of Common Stock certain demand and piggyback registration
rights. See "Description of Capital Stock -- Registration Rights," "Shares
Eligible for Future Sale," "Management -- Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions."
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to one
million shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change of control of the Company. In
addition, certain provisions in the Company's Certificate of Incorporation and
Bylaws relating to dividing the Board of Directors into three classes,
restrictions on calling special meetings of stockholders, restrictions on
amendments to the Bylaws and prohibitions against action by majority written
consent of the stockholders may discourage or make more difficult any attempt by
a person or group of persons to obtain control of the Company.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of a corporation's voting stock. See "Description of Capital
Stock -- Preferred Stock; -- Certain Charter and Bylaw Provisions."
DISCRETION IN USE OF PROCEEDS
A portion of the net proceeds of this offering will be added to the
Company's working capital and will be available for general corporate purposes,
including acquisitions and new store openings. As of the date of this
Prospectus, the Company cannot specify with certainty the particular uses for
the net proceeds to be added to its working capital, and accordingly, management
will have broad discretion in the application of such net proceeds. Other than
with regard to the Premiere Acquisition, the Company currently has no
agreements, arrangements or understandings with respect to any particular
acquisition, and there can be no assurance that this acquisition or any other
acquisition will be completed. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Business and Expansion Strategy."
10
<PAGE>
THE ACQUISITIONS
THE COMPANY
The Predecessor owned and operated 11 video specialty stores under the
"Moovies" name, logo and format located in South Carolina, North Carolina and
Northern Georgia. Concurrently with the completion of its initial public
offering, the Predecessor's corporate general partner was merged into Moovies,
Inc. Moovies, Inc. was incorporated under the laws of the State of Delaware on
November 28, 1994. The Company's principal executive offices are located at 201
Brookfield Parkway, Greenville, South Carolina 29607, and its telephone number
is (864) 213-1700.
INITIAL ACQUISITIONS
Concurrently with its initial public offering in August 1995, the Company
acquired 76 video specialty stores located in Georgia, North Carolina, Virginia,
Pennsylvania, New Jersey, New York, Connecticut and Ohio, for aggregate
consideration of approximately $44.3 million, consisting of approximately $22.4
million in cash, approximately $21.4 million in shares of Common Stock
(approximately 1.8 million shares) and a $500,000 promissory note payable to a
seller. In addition, pursuant to the terms of the Initial Acquisitions, the
Company concurrently repaid approximately $4.2 million of long-term indebtedness
assumed in connection with the Initial Acquisitions and $1.4 million of
long-term indebtedness of the Predecessor. The Initial Acquisitions were
consummated concurrently with the initial public offering in August 1995. The
cash portion of the purchase price of the Initial Acquisitions was financed with
a portion of the net proceeds of the initial public offering.
Set forth below is a brief description of each of the Initial Acquisitions:
FIRST ROW. The Company acquired from First Row Video, Inc. and Video Game
Trader, Inc. (collectively, "First Row and Game Trader") 24 video specialty
stores and certain related operations. All of the stores and outlets are located
in Eastern Ohio and Western Pennsylvania.
MOVIE STARS. The Company acquired from Movie Stars Entertainment Corp.
("Movie Stars") ten video specialty stores. Nine stores are located in
Poughkeepsie, New York and its surrounding area and the tenth store is located
in Fairfield, Connecticut.
VIDEO EXPRESS. The Company acquired from PARR-Four, Inc. ("Video Express")
ten video specialty stores located in the Norfolk, Virginia area.
VIDEO STARS. The Company acquired from BREM, Inc. ("Video Stars") eight
video specialty stores located in the Norfolk, Virginia area.
VIDEO WAREHOUSE I. The Company acquired from Lott's Video Warehouse of
Athens, Inc. and four other related corporations (collectively, "Video Warehouse
I") five video specialty stores located in Northern Georgia.
VIDEO WAREHOUSE II. The Company acquired from Video Warehouse of Augusta
#1, Inc. and six related partnerships and corporations (collectively, "Video
Warehouse II") seven video specialty stores located in Southern Georgia.
KING VIDEO. The Company acquired from King Video, Inc. ("King Video") five
video specialty stores located in Blacksburg, Virginia and its surrounding area.
L.A. VIDEO. The Company acquired from L.A. Video, L.A. Video of Upper
Dublin, Inc. and L.A. Video of Aldan, Inc. (collectively, "L.A. Video") five
video specialty stores located in suburban areas of Philadelphia, Pennsylvania.
PLANET VIDEO. The Company acquired from Planet Video, Inc., and a related
corporation, XIMPEC, Inc. (collectively, "Planet Video") two video specialty
stores located in Drescher, Pennsylvania and Trenton, New Jersey.
RECENT ACQUISITIONS
Since the Company's initial public offering, the Company has acquired an
aggregate of 53 video specialty stores in seven acquisitions. These acquisitions
included the acquisition of the "Movies to Go" chain of 13 stores in September
1995, the "Pic-A-Flick" chain of 23 stores in December 1995, the "Movie Store"
chain of eight stores in December 1995, the "Showtime Video" chain of five
stores in March 1996, and several smaller acquisitions.
11
<PAGE>
MOVIES TO GO. In September 1995, the Company acquired the "Movies to Go"
chain of 13 stores and certain related operations located in Iowa ("Movies to
Go") through a merger transactions with MoveAmerica, Inc. for aggregate
consideration of 344,421 shares of common stock of the Company, the assumption
of approximately $685,000 in debt, and approximately $1,420,000 in cash. The
Company paid the cash portion of the consideration with proceeds from its
initial public offering.
PIC-A-FLICK. In December 1995, the Company acquired the "Pic-A-Flick" chain
of 23 stores located in North and South Carolina ("Pic-A-Flick Group") through a
merger and asset purchase transaction with eight corporations for aggregate
consideration of 336,134 shares of common stock of the Company and notes in the
aggregate principal amount of $5,000,000, due January 5, 1996 (which were
secured by letters of credit from a bank and subsequently repaid using proceeds
from borrowings under its line of credit).
MOVIE STORE. In December 1995, the Company acquired the "Movie Store" chain
of eight stores located in the Atlanta metropolitan area ("Movie Store Group")
through merger and asset purchase transactions with four corporations for
aggregate consideration of 161,449 shares of the Company's Common Stock, the
assumption of approximately $270,000 in debt, $166,000 of which was repaid at
closing, $190,000 in cash, a promissory note in the principal amount of $435,000
due January 5, 1996 and a promissory note in the principal amount of $469,000
with five installments of $93,730 each (plus interest at 8% per annum) due
quarterly from April 1, 1996 through April 1, 1997. Under the terms of the
merger agreement, the Company is required to issue up to a maximum of 42,580
additional shares to the former stockholder of the merged corporation if the
Company's closing trading price does not equal and/or exceed $14.375 for a ten
consecutive trading day period between December 21, 1995 and September 3, 1996.
If at any time during this period the price does exceed $14.375 for a
consecutive ten day trading period, the Company's contingent obligation to issue
these additional shares will terminate. The Company paid the cash portion of the
consideration with borrowings under its line of credit with a bank. The $435,000
note was repaid in January 1996 with borrowings under the line of credit.
SHOWTIME. In March 1996, the Company acquired the "Showtime Video" chain of
five stores in an asset purchase transaction for aggregate consideration of
approximately $2.3 million in cash. Showtime operates three stores in Fort
Collins, Colorado, one in Boulder, Colorado, and one in Greeley, Colorado.
PENDING ACQUISITION
PREMIERE. In April 1996, the Company signed an asset purchase agreement to
purchase certain assets and business of American Multi-Entertainment, Inc. d/b/a
Premiere Video ("Premiere Video") (such purchase, as proposed in the asset
purchase agreement, the "Pending Acquisition") for a purchase price of
approximately $11.5 million, consisting of $8.9 million in cash at closing and a
final payment of $2.6 million payable January 1997 which will be secured by a
bank letter of credit. Premiere Video operates 23 stores in Minnesota, Iowa,
Wisconsin, South Dakota and Nebraska. The Company's obligation to complete the
Pending Acquisition is contingent upon the availability, prior to July 31, 1996,
of financing on terms acceptable to the Company. The Company anticipates closing
the Pending Acquisition concurrently with the completion of this offering;
however, there can be no assurance that the Pending Acquisition will be
consummated.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,200,000 shares of
Common Stock offered by the Company hereby at an assumed price to public of
$11.25 per share, after deducting underwriting discounts and other offering
expenses (estimated to be approximately $1.0 million), are estimated to be
approximately $32.8 million ($37.8 million if the Underwriters' over-allotment
option is exercised in full). Of the net proceeds, the Company intends to use
(i) $12.8 million to repay the outstanding borrowings under its bank line of
credit, (ii) $8.9 million to fund the cash payable at closing of the Pending
Acquisition and (iii) $3.5 million to repay the outstanding balance under its
subordinated note payable. See "The Acquisitions -- Pending Acquisition." The
balance of the net proceeds from this offering will be added to the Company's
working capital and will be available for general corporate purposes, including
new store openings, possible future acquisitions and conversion of newly
acquired stores to the Moovies logo and format. The primary purpose of this
offering is to provide the Company with increased financial flexibility to
pursue new store openings and acquisitions of other businesses that are
consistent with the Company's growth strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Business -- Business and Expansion Strategy."
Pending use of the net proceeds of this offering, the Company may make
temporary investments in interest-bearing savings accounts, certificates of
deposit, United States Government obligations, money market accounts, interest
bearing securities or other insured short-term, interest-bearing investments.
The indebtedness of the Company that may be repaid from the proceeds of
this offering bears interest at rates ranging from 7.9% to 13.5% per annum, with
a weighted average interest rate of 9.1% at May 16, 1996. Such indebtedness
matures at various dates through January 2001.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded and quoted on the Nasdaq Stock Market
under the symbol "MOOV". The following table shows the high and low sales prices
of the Common Stock since the Common Stock began trading publicly on August 4,
1995, as reported through May 16, 1996. The price to the public in the initial
public offering which occurred on August 3, 1995 was $12.00 per share.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Third Quarter (from August 3, 1995)............................................ $22 3/4 $14 3/4
Fourth Quarter................................................................. 19 1/2 10
YEAR ENDING DECEMBER 31, 1996
First Quarter.................................................................. 15 1/4 11 3/4
Second Quarter (through May 16, 1996).......................................... 14 10 3/4
</TABLE>
As of May 16, 1996, there were 265 record holders and approximately 2,400
beneficial owners of the Company's Common Stock. Approximately 4,371,000 shares
were held by brokers, dealers and their nominees on behalf of the beneficial
owners. The closing price of the Company's Common Stock as reported on the
Nasdaq Stock Market on May 16, 1996 was $11.25.
13
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. However, amounts totalling $22.9 million, reflecting the cash portions of
the purchase prices paid and a note issued in connection with the Initial
Acquisitions, were treated as deemed dividends pursuant to the accounting
treatment accorded to such acquisitions. See Footnote 2 to the Moovies, Inc.
Consolidated Financial Statements. The Company currently intends to retain its
future earnings, if any, to finance the expansion of its business and for
general corporate purposes and currently does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Any payment of cash
dividends in the future will be at the discretion of the Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to the payment of dividends and other factors that the Company's
Board of Directors deems relevant. In addition, the Company's credit facility
with Sirrom Capital Corporation ("Sirrom Capital") prohibits the Company from
declaring or paying any dividends without the prior written consent of Sirrom
Capital, and its credit facility with a bank prohibits the payment of any
dividends without the prior written consent of the bank. See "The Acquisitions"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 and as adjusted to reflect the sale by the Company
of the 3,200,000 shares of Common Stock offered hereby at the assumed public
offering price of $11.25 per share and the application of the net proceeds
therefrom as described under "Use of Proceeds," including the consummation of
the Pending Acquisition. This table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
ACTUAL AS ADJUSTED
<S> <C> <C>
(IN THOUSANDS)
Line of credit and other short-term debt............................................................ $13,745 $ 3,549
Long-term debt, less current portion................................................................ $ 3,698 $ 198
Stockholders' equity:
Preferred Stock, $.001 par value; 1,000,000 shares authorized; none issued
or outstanding................................................................................. -- --
Common Stock, $.001 par value; 25,000,000 shares authorized; 8,658,532 shares issued and
outstanding, actual; 11,858,532 shares issued and outstanding, as adjusted (1)................. 9 12
Additional paid-in capital........................................................................ 35,857 68,604
Retained earnings................................................................................. 1,875 1,875
Total stockholders' equity........................................................................ 37,741 70,491
Total capitalization......................................................................... $41,439 $70,689
</TABLE>
(1) Outstanding shares exclude 803,450 shares of Common Stock issuable as of
March 31, 1996 under outstanding options granted pursuant to the Company's
1995 Stock Plan. Options to acquire an additional 500 shares (net of
forfeitures) have been granted since March 31, 1996. Also excludes 535,465
shares of Common Stock issuable upon exercise of outstanding warrants. See
"Capital Stock -- Warrants" and "Management -- Benefit Plans."
14
<PAGE>
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1996
Concurrently with the completion of the Company's initial public offering,
(i) the Predecessor's corporate general partner was merged into Moovies, Inc.
and (ii) Moovies, Inc. completed the Initial Acquisitions which resulted in the
acquisition of 76 video specialty stores for an aggregate consideration of
approximately $44.3 million, consisting of approximately $22.4 million in cash,
approximately $21.4 million in shares of Common Stock (approximately 1.8 million
shares) and a $500,000 promissory note payable to a seller. In addition,
approximately $4.2 million of indebtedness was assumed by the Company in
connection with the Initial Acquisitions and repaid concurrently with the
closing of the Company's initial public offering. Since the owners of the video
chains acquired pursuant to the Initial Acquisitions were considered promoters
as defined under Rule 1-02(s) of Regulation S-X and were stockholders who
transferred assets and liabilities to Moovies, Inc. in exchange for Common Stock
contemporaneously with the initial public offering, Moovies, Inc. recorded the
assets and liabilities acquired at the historical cost basis of the transferors
in accordance with the provisions of Securities and Exchange Commission Staff
Accounting Bulletin 48. As a result of recording the acquired assets and
liabilities at their historical cost basis, no goodwill was recorded by the
Company in connection with the Initial Acquisitions.
In September 1995, the Company acquired MoveAmerica, Inc. for $1.4 million
in cash, the issuance of 344,421 shares of Common Stock and the assumption of
approximately $685,000 in debt. In December 1995, the Company acquired
Pic-A-Flick Group for the issuance of a $5 million note payable and the issuance
of 336,134 shares of Common Stock. In December 1995, the Company acquired Movie
Store Group for the issuance of approximately $900,000 in notes payable, the
issuance of 161,449 shares of Common Stock, the assumption of approximately
$270,000 in debt ($166,000 of which was repaid at closing) and $190,000 in cash.
These acquisitions were accounted for under the purchase method of accounting
and accordingly the assets and liabilities were recorded at their fair market
value. The difference between fair market value and the purchase price was
recorded as goodwill.
Concurrently with the completion of this offering the Company will acquire
Premiere Video for $11.5 million, consisting of $8.9 million in cash at closing
and a final payment of $2.6 million payable in January, 1997 which will be
secured by a letter of credit. The acquisition will be accounted for under the
purchase method of accounting and accordingly the assets and liabilities will be
recorded at their fair market value. The difference between fair market value
and the purchase price will be recorded as goodwill.
The unaudited pro forma combined financial statements of the Company
reflect (i) the consummation of the Initial Acquisitions, the Recent
Acquisitions and the Pending Acquisition; (ii) the repayment of approximately
$10.5 million of indebtedness assumed in connection with the Acquisitions and
$1.4 million of long-term indebtedness of the Predecessor; (iii) the
establishment of a deferred tax asset arising from cumulative differences
between the book and tax basis of assets acquired; (iv) a provision for income
taxes as if the combined operations had been taxed as a C corporation; (v) the
completion of the Company's initial public offering and this Offering and the
application of the net proceeds therefrom; and (vi) the amortization of the
goodwill recorded in the above transactions (collectively, the "Pro Forma
Transactions"). The unaudited pro forma combined financial statements for the
year ended December 31, 1995 give effect to the Pro Forma Transactions as if
each had occurred as of the beginning of the year. The pro forma combined
financial statements for the three months ended March 31, 1996 give effect to
(i) the completion of this Offering and the application of the net proceeds
therefrom and (ii) the consummation of the Showtime acquisition and the Pending
Acquisition as if each had occurred as of the beginning of the period.
Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. The new method of amortization
has been applied to videocassette rental inventory that was held at January 1,
1996.
A retroactive adjustment has not been included in the December 31, 1995 pro
forma financial statements because the portion of the cumulative adjustment at
January 1, 1996 attributable to the year ended December 31, 1995 cannot be
computed. However, the Company believes that the effect of any such adjustment
for the period ended December 31, 1995 would be to reduce net income.
In the opinion of the Company's management, all adjustments necessary to
present fairly such pro forma combined financial statements have been made based
on the terms and structure of the Pro Forma Transactions.
15
<PAGE>
The pro forma financial statements do not purport to represent what the
Company's results of operations or financial position would actually have been
had the Pro Forma Transactions actually occurred on any of the dates set forth
above or to project the Company's results of operations for any future period.
The unaudited pro forma financial information should be read in connection
with the accompanying notes and the historical financial statements and notes
thereto of Moovies, Inc., Movie Stars, Parr Four, Inc. d/b/a Video Express,
Video Stars (a division of BREM, Inc.), Video Warehouse I Group, Video Warehouse
II Group, First Row Video, Inc., Video Game Trader, Inc., L.A. Video, Planet
Video, Inc., MoveAmerica, Incorporated d/b/a Movies to Go and Games to Go,
Pic-A-Flick Group, Movie Store Group, and certain stores of American
Multi-Entertainment, Inc. d/b/a Premiere Video and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
16
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THE PENDING PRO FORMA THE COMPANY
COMPANY ACQUISITION (1) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Current assets:
Cash and cash equivalents........................................... $5,570 $ 11 $ 32,750(2) $ 13,124
(8,911)(3)
(16,296)(4)
Receivables......................................................... 1,738 -- -- 1,738
Merchandise inventory............................................... 2,390 49 (49)(3) 2,390
Deferred income tax benefit......................................... 308 -- -- 308
Prepaid rent........................................................ 1,030 -- -- 1,030
Other............................................................... 1,596 20 (20)(3) 1,596
Total current assets............................................. 12,632 80 7,474 20,186
Videocassette rental inventory, net................................... 17,357 1,888 (88)(3) 19,157
Furnishings and equipment, net........................................ 11,117 2,162 (1,562)(3) 11,717
Goodwill.............................................................. 30,535 -- 9,100(3) 39,635
Deposits and other assets............................................. 916 264 (264)(3) 916
$72,557 $ 4,394 $ 14,660 $ 91,611
Current liabilities:
Line of credit...................................................... $12,796 $ -- $ (12,796)(4) $ --
Notes payable....................................................... 500 -- 2,600(3) 3,100
Current portion of long-term debt................................... 449 -- -- 449
Due to AMI corporate................................................ -- 2,850 (2,850)(3) --
Accounts payable.................................................... 8,330 -- -- 8,330
Accrued expenses.................................................... 3,737 -- -- 3,737
Total current liabilities........................................ 25,812 2,850 (13,046) 15,616
Long-term debt, less current portion.................................. 3,698 -- (3,500)(4) 198
Deferred income tax payable........................................... 5,306 -- -- 5,306
34,816 2,850 (16,546) 21,120
Stockholders' equity:
Preferred stock..................................................... -- -- -- --
Common stock........................................................ 9 -- 3(2) 12
Additional paid-in capital.......................................... 35,857 -- 32,747(2) 68,604
Retained earnings................................................... 1,875 1,544 (1,544)(3) 1,875
Total stockholders' equity....................................... 37,741 1,544 31,206 70,491
$72,557 $ 4,394 $ 14,660 $ 91,611
</TABLE>
(1) See the audited financial statements of certain stores of American
Multi-Entertainment, Inc. d/b/a Premiere Video.
(2) Reflects the sale of 3,200,000 shares of Common Stock net of the
underwriting discounts and offering expenses.
(3) Reflects the consummation of the Pending Acquisition and the adjustment to
fair market value of assets and liabilities acquired in the purchase
transaction.
(4) Reflects the repayment of certain debt with proceeds from the offering.
17
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
THE INITIAL RECENT PENDING PRO FORMA
COMPANY ACQUISITIONS (1) ACQUISITIONS (2) ACQUISITION ADJUSTMENTS
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
Revenues:
Rental revenues........................ $20,309 $ 21,288 $ 17,113 $6,429 --
Product sales.......................... 4,349 5,196 3,478 797 --
24,658 26,484 20,591 7,226 --
Operating costs and expenses:
Operating expenses..................... 15,593 18,178 14,153 4,765 (3,381)(3)
Cost of product sales.................. 2,979 3,761 2,403 1,252 --
General and administrative............. 2,955 3,429 2,261 397 (805)(4)
Amortization of goodwill............... 148 -- -- -- 1,841(5)
21,675 25,368 18,817 6,414 (2,345)
Operating income......................... 2,983 1,116 1,774 812 2,345
Non-operating income (expense):
Interest income (expense), net......... (197 ) (238) (225) (140) 1,258(6)
Other, net............................. 25 26 (130) -- 99(7)
Income before income taxes............... 2,811 904 1,419 672 3,697
Pro forma provision for income taxes..... 1,046 350 390 -- 2,015(8)
Pro forma net income..................... $1,765 $ 554 $ 1,029 $ 672 $ 1,682
Pro forma net income per share...........
Shares used in computation (9)...........
<CAPTION>
THE COMPANY
PRO FORMA
<S> <C<C>
Revenues:
Rental revenues........................ $65,139
Product sales.......................... 13,820
78,959
Operating costs and expenses:
Operating expenses..................... 49,308
Cost of product sales.................. 10,395
General and administrative............. 8,237
Amortization of goodwill............... 1,989
69,929
Operating income......................... 9,030
Non-operating income (expense):
Interest income (expense), net......... 453
Other, net............................. 20
Income before income taxes............... 9,503
Pro forma provision for income taxes..... 3,801
Pro forma net income..................... $ 5,702
Pro forma net income per share........... $ 0.47
Shares used in computation (9)........... 12,160
</TABLE>
18
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
THE RECENT PENDING PRO FORMA THE COMPANY
COMPANY ACQUISITIONS (2) ACQUISITION ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
Revenues:
Rental revenues........................................ $16,957 $ 508 $ 2,439 $ -- $19,904
Product sales.......................................... 2,359 104 285 -- 2,748
19,316 612 2,724 -- 22,652
Operating costs and expenses:
Operating expenses..................................... 12,819 447 1,613 (232)(3) 14,647
Cost of product sales.................................. 1,537 83 465 -- 2,085
General and administrative............................. 2,329 69 119 44(4) 2,561
Amortization of goodwill............................... 361 -- -- 136(5) 497
17,046 599 2,197 (52) 19,790
Operating income......................................... 2,270 13 527 52 2,862
Non-operating income (expense):
Interest income (expense), net......................... (301 ) -- (30) 376(6) 45
Other, net............................................. (21 ) -- -- -- (21)
Income before income taxes............................... 1,948 13 497 428 2,886
Pro forma provision for income taxes..................... 779 -- -- 375(8) 1,154
Pro forma net income..................................... $1,169 $ 13 $ 497 $ 53 $ 1,732
Pro forma net income per share........................... $ 0.14
Shares used in computation (9)........................... 12,176
</TABLE>
19
<PAGE>
(1) The table below sets forth certain information with respect to the Initial
Acquisitions for the period from January 1, 1995 through the respective
acquisition dates:
<TABLE>
<CAPTION>
NUMBER
INCOME BEFORE OF STORES
REVENUES INCOME TAXES ACQUIRED
<S> <C> <C> <C>
First Row and Game Trader...................................................... $ 8,301 $(755) 24
Movie Stars.................................................................... 2,483 (372) 10
Video Express.................................................................. 3,783 151 10
Video Stars.................................................................... 1,796 151 8
Video Warehouse I.............................................................. 2,327 465 5
Video Warehouse II............................................................. 3,101 579 7
King Video..................................................................... 1,609 156 5
L.A. Video..................................................................... 2,502 476 5
Planet Video................................................................... 582 53 2
Total................................................................... $ 26,484 $ 904 76
</TABLE>
(2) The table below sets forth certain information with respect to the Recent
Acquisitions from the beginning of the periods indicated through the
respective acquisition dates:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996 NUMBER
INCOME BEFORE INCOME BEFORE OF STORES
REVENUES INCOME TAXES REVENUES INCOME TAXES ACQUIRED
<S> <C> <C> <C> <C> <C>
Movies to Go........................................ $ 4,963 $ 368 $ -- $ -- 13
Pic-A-Flick Group................................... 7,104 316 -- -- 23
Movie Store Group................................... 3,613 411 -- -- 8
Showtime............................................ 3,902 156 612 13 5
Other Acquisitions.................................. 1,009 168 -- -- 4
Total........................................ $ 20,591 $ 1,419 $ 612 $ 13 53
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
<S> <C> <C>
(3) Adjustments to operating expenses consist of the following:
A reduction in the amortization expense of videocassettes....................... $ 1,700 $ 115
A reduction in the depreciation expense of fixed assets......................... 431 117
The elimination of reserves to close Video Game Trader, video game stores....... 1,250 --
Total.................................................................... $ 3,381 $ 232
(4) Adjustments to general and administrative expenses consist of the following:
An increase (decrease) in compensation paid to executives of certain entities
acquired in connection with the Acquisitions in excess of amounts to be
incurred under employment agreements and/or expected replacement costs for
these individuals.............................................................. $ (489) $ 44
The elimination of legal and accounting expenses recorded by the Acquisitions
related to their business combination with Moovies............................. (316) --
Total.................................................................... $ (805) $ 44
(5) Adjustments to amortization of goodwill consist of the following:
Amortization of goodwill (over a 20-year period on a straight-line basis)
recorded for all acquisitions accounted for under the purchase method of
accounting..................................................................... $ 1,841 $ 136
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
<S> <C> <C>
(6) Adjustments to interest income (expense), net consists of the following:
The elimination of historical interest expense for long-term indebtedness being
repaid with a portion of the net proceeds of the initial public offering....... $ 800 $ 331
The addition of interest expense on a $500,000 promissory note issued by Moovies
to a seller in connection with the Initial Acquisitions........................ (50) (13)
The interest income earned by investing the remaining proceeds of the initial
public offering in short-term securities....................................... 704 125
The payment of credit facility fees............................................. (201) (67)
Total.................................................................... $ 1,253 $ 376
(7) Elimination of loss from sale of land and building.................................... $ 99 $ --
(8) Adjustments to the provision for income taxes (at an assumed rate of 40%) reflect the
following:
The estimated effect as if the Company (including the Acquisitions, other than
Showtime, some of which were formerly operated as S Corporations) had been
taxed as a C Corporation....................................................... $ 536 $ 204
The income tax effect on the pro forma adjustments in (4) through (8) above..... 1,479 171
Total.................................................................... $ 2,015 $ 375
(9) Computation of number of shares outstanding as follows:
Existing shareholders........................................................... 4,027 4,027
Issuance of Common Stock in the initial public offering......................... 3,623 3,623
Issuance of Common Stock in this public offering................................ 3,200 3,200
Shares issued in acquisition of Movies to Go stores............................. 344 344
Shares issued in acquisition of Pic-A-Flick Group stores........................ 336 336
Shares issued in acquisition of Movie Store Group stores........................ 162 162
Options and warrants (assumes as outstanding for each of the periods indicated
Common Stock equivalents, using the treasury stock method for options and
warrants)...................................................................... 468 484
Total.................................................................... 12,160 12,176
</TABLE>
21
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data presented under the captions
Statement of Operations Data and Balance Sheet Data as of and for the years
ended December 31, 1992, 1993 and 1994 have been derived from the financial
statements of the Predecessor, which during 1995 was merged into the Company.
The selected historical financial data presented under the captions Statements
of Operations Data and Balance Sheet Data as of and for the year ended December
31, 1995 were derived from the consolidated financial statements of the Company.
Such financial statements were audited by KPMG Peat Marwick LLP, independent
certified public accountants. The financial statements of the Company as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995 and the accountants' report thereon are also included
elsewhere in this Prospectus. The selected financial data presented under the
captions Statement of Operations Data and Balance Sheet Data as of and for the
year ended December 31, 1991 are derived from the unaudited financial statements
of the Predecessor. The selected historical financial data presented under the
captions Statement of Operations Data and Balance Sheet Data as of and for the
three month periods ended March 31, 1995 and 1996 have been derived from the
unaudited financial statements of the Company included elsewhere in this
Prospectus. In the opinion of the Company, such unaudited financial statements
reflect all adjustments, consisting only of normal, recurring adjustments,
necessary for a fair presentation of the results of operations and financial
condition for such period. The pro forma Statement of Operations Data and pro
forma Balance Sheet Data do not purport to represent what the Company's results
of operations and financial position would actually have been had such
transactions actually occurred as of the dates indicated or to project the
Company's results of operations or financial position for any future period. The
Selected Historical and Pro Forma Financial Data and the operating data set
forth below should be read in conjunction with the consolidated financial
statements and notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Pro Forma Financial Information"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL(1)
PRO FORMA
THREE MONTHS (2)
ENDED YEAR ENDED
YEARS ENDED DECEMBER 31, MARCH 31, DECEMBER 31,
1991 1992 1993 1994 1995 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues.......................... $1,728 $2,857 $3,579 $4,070 $20,309 $1,114 $16,957 $ 65,139
Product sales............................ 244 256 310 322 4,349 109 2,359 13,820
Total.................................. 1,972 3,113 3,889 4,392 24,658 1,223 19,316 78,959
Operating costs and expenses:
Operating expenses....................... 1,387 2,241 2,798 3,121 15,593 871 12,819 49,308
Cost of product sales.................... 206 127 240 278 2,979 92 1,537 10,395
General and administrative............... 228 313 573 611 2,955 186 2,329 8,237
Amortization of goodwill................. -- -- -- -- 148 -- 361 1,989
Operating income........................... 151 432 278 382 2,983 74 2,270 9,030
Non-operating income (expense):
Interest expense, net.................... (29) (35) (43) (101) (197) (27) (301) 453
Other, net............................... -- -- -- -- 25 -- (21) 20
Income before income taxes and cumulative
effect of a change in accounting
principle................................ 122 397 235 281 2,811 47 1,948 9,503
Provision for income taxes................. -- -- -- -- 1,046 -- 779 3,801
Income before cumulative effect of a change
in accounting principle.................. 122 397 235 281 1,765 47 1,169 5,702
Cumulative effect of a change in accounting
principle................................ -- -- -- -- -- -- 891 --
Net income................................. $ 122 $ 397 $ 235 $ 281 $ 1,765 $ 47 $ 278 $ 5,702
Income before cumulative change in
accounting principle..................... $ 0.52 $ 0.13 $ 0.47
Cumulative effect of change in accounting
principle................................ -- 0.10 --
Net income per share....................... $ .52 $ 0.03 $ .47
Shares used in computation................. 3,395 8,976 12,160
OPERATING DATA:
Number of stores at end of period........ 7 8 8 9 148 11 158 176
Increase (decrease) in same store
revenues (3)........................... 18.2% (6.5%) 8.2% 10.5% 1.4% 0.0% 0.0% --
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1996
<S> <C<C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues.......................... $ 19,904
Product sales............................ 2,747
Total.................................. 22,651
Operating costs and expenses:
Operating expenses....................... 14,759
Cost of product sales.................... 1,972
General and administrative............... 2,561
Amortization of goodwill................. 497
Operating income........................... 2,862
Non-operating income (expense):
Interest expense, net.................... 45
Other, net............................... (21)
Income before income taxes and cumulative
effect of a change in accounting
principle................................ 2,886
Provision for income taxes................. 1,154
Income before cumulative effect of a change
in accounting principle.................. 1,732
Cumulative effect of a change in accounting
principle................................ --
Net income................................. $ 1,732
Income before cumulative change in
accounting principle..................... $ 0.14
Cumulative effect of change in accounting
principle................................ --
Net income per share....................... $ .14
Shares used in computation................. 12,176
OPERATING DATA:
Number of stores at end of period........ 181
Increase (decrease) in same store
revenues (3)........................... --
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO
FORMA (2)
DECEMBER 31, MARCH 31, MARCH 31,
1991 1992 1993 1994 1995 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash.............................................. $ 89 $ 151 $ 242 $ 170 $ 3,564 $ 5,570 $13,124
Videocassette rental inventory, net............... 942 969 820 931 16,728 17,357 19,157
Total assets...................................... 1,520 1,660 1,644 2,098 68,219 72,557 91,611
Line of credit and other short-term debt.......... 285 187 377 430 8,916 13,745 3,549
Long-term debt, less current portion.............. 187 22 1,078 1,309 2,411 3,698 198
Total liabilities................................. 797 536 1,953 2,502 30,756 34,816 21,120
Equity (deficit).................................. 723 1,124 (309) (404) 37,463 37,741 70,491
</TABLE>
(1) The Statement of Operations data reflect the results of operations of the
Predecessor for 1991 through 1994 and for a portion of 1995. The Predecessor
was a limited partnership and therefore had no income tax liability.
(2) The pro forma Statement of Operations Data for the year ended December 31,
1995 for the Company give effect to the initial public offering, this
offering and the Pro Forma Transactions as if they had occurred as of the
beginning of the year. The pro forma Statement of Operations Data for the
three months ended March 31, 1996 give effect to this offering and the
consummation of the Pending Acquisition and the Showtime acquisition as if
they had occurred as of the beginning of the period. The pro forma Balance
Sheet Data give effect to this offering and the Premiere Video Acquisition
as if they had been completed as of March 31, 1996. See "Use of Proceeds"
and "Pro Forma Financial Information."
(3) The increase (decrease) in same store revenues is computed by comparing on a
quarterly basis revenues from stores open during an entire quarter to
revenues from stores open during the entire corresponding quarter for the
prior year. This calculation includes acquired stores on a pro forma basis
that were owned and operated at the end of the period.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company opened its first video superstore under the Moovies name, logo
and format in June 1992. The Company currently owns and operates 158 video
specialty stores, including 100 stores under the Moovies name and logo, and
certain related operations and has entered into an agreement to acquire an
additional 23 stores. See "The Acquisitions." The Company's revenues consist of
rental revenues and product sales revenues. Rental revenues include revenue from
rentals of videos, video games, video players and video game machines. Product
sales revenues are derived from sales of videos and video games, including
excess rental inventory, and confectionery and other items.
Operating Costs and Expenses are comprised of operating expenses, cost of
product sales, general and administrative expenses and amortization of goodwill.
Operating expenses consists of amortization of videos purchased for rental, fees
and lease expense for leased videos and all store expenses, including occupancy,
payroll, store opening expenses and direct store promotions expenses.
Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. See " -- Recent Accounting
Developments."
Approximately 17% of the Company's new release budget is leased through
Rentrak. Under its agreement with Rentrak, pursuant to which the Company leases
videos for rental to its customers, the Company pays a handling fee of $8 to $10
for each video. During the revenue sharing period, which is generally one year
(but does not exceed two years) the movie studio that supplies the video to
Rentrak owns the video, and the rental revenues are shared by Rentrak and the
Company on a predetermined basis. Generally, the percentage of rental revenue
retained by the Company is fixed for the first sixty days of the revenue sharing
period and is then set at a higher rate for the remainder of the term. The
Company may also sell excess copies of a video title and share the sale proceeds
with Rentrak on a predetermined basis. At the end of the revenue sharing period
for a video title, the Company may purchase remaining copies of that title
generally for less than $5 per copy. The handling fee per video is amortized on
a straight-line basis over the revenue sharing period, and revenue sharing
payments are expensed when incurred.
Cost of product sales is comprised of cost of videos sold rather than
rented to customers and the cost of confectionery and other products sold in the
Company's stores. The cost of a video is measured at its amortized basis when
sold, if previously used as a rental video, or at the Company's cost if
purchased for sell-through, or at a varying basis if a leased product, depending
upon when in the revenue sharing period it is sold.
General and administrative expense is comprised of corporate office
expenses, including office equipment and facilities costs, management salaries
and benefits, professional fees and all other items of corporate expense.
Since the stockholders and owners of each of the video chains acquired
pursuant to the Initial Acquisitions were considered promoters as defined under
Rule 1-02(s) of Regulation S-X and are stockholders who transferred assets and
liabilities to Moovies, Inc. in exchange for Common Stock contemporaneously with
the initial public offering, Moovies, Inc. recorded the assets and liabilities
acquired in the Initial Acquisitions at the historical cost basis of the
transferors in accordance with the provisions of Securities and Exchange
Commission Staff Accounting Bulletin 48. As a result of recording the acquired
assets at their historical cost basis, no goodwill was recorded by the Company
in connection with the Initial Acquisitions. The assets acquired in the Recent
Acquisitions were recorded under the purchase method of accounting, and the
excess of cost over the estimated fair value of the assets acquired of $31.0
million is being amortized over 20 years on a straight-line basis.
24
<PAGE>
The following table sets forth for the periods indicated (i) statement of
operations data expressed as a percentage of total revenues and (ii) the number
of stores open at the end of each period.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
THREE MONTHS
YEARS ENDED THREE MONTHS YEAR ENDED ENDED
DECEMBER 31, ENDED MARCH 31 DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues................................. 92.0% 92.7% 82.4% 91.1% 87.8% 82.5% 87.9%
Product sales................................... 8.0 7.3 17.6 8.9 12.2 17.5 12.1
Total........................................ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating costs and expenses:
Operating expenses.............................. 71.9 71.1 63.2 71.2 66.4 62.5 65.2
Cost of product sales........................... 6.2 6.3 12.1 7.6 7.9 13.2 8.7
General and administrative...................... 14.7 13.9 12.0 15.2 12.0 10.4 11.3
Amortization of goodwill........................ -- -- 0.6 -- 1.9 2.5 2.2
Total........................................ 92.8 91.3 87.9 94.0 88.2 88.6 87.4
Operating income.................................. 7.2 8.7 12.1 6.0 11.8 11.4 12.6
Non-operating income (expense).................... (1.1) (2.3) (0.7) (2.2) (1.7) .6 .1
Income before income taxes........................ 6.1% 6.4% 11.4% 3.8% 10.1% 12.0% 12.7%
Number of stores open at end of period............ 8 9 148 11 158 171 181
</TABLE>
PRO FORMA RESULTS OF OPERATIONS FOR THE COMPANY
REVENUES. Pro forma revenues are comprised of rental revenues and product
sales, which were as a percentage of pro forma revenues, 82.5% and 17.5%,
respectively, for the year ended December 31, 1995 and 87.9% and 12.1%,
respectively, for the three months ended March 31, 1996. Not all of the video
specialty stores acquired by the Company have historically used leased product.
The Company believes that, because it intends to use leased product in the
acquired stores and to use more of its excess rental tapes as inventory in new
stores instead of offering such tapes for sale, rental revenues as a percentage
of total revenues will be higher for the year ending December 31, 1996 than they
were pro forma for the year ended December 31, 1995.
OPERATING COST AND EXPENSES. Pro forma operating expenses as a percentage
of revenues were 88.6% for 1995 and 87.4% for the three months ended March 31,
1996. The Company anticipates a decline in this percentage in 1996 as store
operating efficiencies are improved. The Company also expects a decrease in cost
of product sales as a percentage of revenues as sales of previously viewed tapes
are expected to decrease from the pro forma percentage for 1995. The Company
anticipates that these improvements will be partially offset during 1996 by an
increase in amortization of goodwill as additional acquisitions are completed.
The Company anticipates a slight decrease in general and administrative expenses
as a percentage of revenues if all of its planned new store openings and
acquisitions are completed.
INTEREST EXPENSE, NET. Interest expense for 1996 is expected to increase
compared to pro forma interest expense for 1995 due to borrowings under the
Company's $22.5 million revolving credit facility in order to fund operations,
new store openings and additional acquisitions. This increase is expected to be
partially offset by interest income generated by the investment of proceeds from
this offering.
RECENT ACCOUNTING DEVELOPMENTS
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 will be effective for fiscal years beginning after
December 31, 1995 and will require the Company to either elect to recognize in
its consolidated financial statements costs related to its employee stock-based
compensation plans, such as stock options and stock purchase plans, or provide
disclosure of such costs in a footnote to the consolidated financial statements.
Costs under SFAS No. 123 will be determined using fair value as compared with
the intrinsic value method of Accounting Principles Board Opinion No. 25.
25
<PAGE>
The Company has determined that it will elect the disclosure only
alternative provided by SFAS No. 123 and will make the required pro forma
disclosures in a footnote to the consolidated financial statements. The Company
has not determined the impact of these pro forma adjustments to its net income
or earnings per share.
Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. Under this new method,
videocassette rental inventory, which includes video games, is stated at cost,
including the related costs to prepare such videocassettes for rent, and is
amortized over its estimated economic life of 36 months, to its estimated
salvage value ($6 per videocassette during 1996). All copies of new release
videocassettes are amortized on an accelerated basis during their first four
months to an average net book value of $15 and then on a straight-line basis to
their estimated salvage value over the next 32 months. All copies of new release
videocassettes that are purchased for $15 or less are amortized on a
straight-line basis to their estimated salvage value over 36 months.
The method for calculating amortization of videocassette rental inventory
used in 1995 was as follows: videocassettes that were considered base stock
("catalog titles"), together with related costs to prepare them for rent, were
amortized over 36 months on a straight-line basis. New release videocassettes
were amortized as follows: the tenth and any succeeding copies of each title per
store were amortized over nine months on a straight-line basis; the fourth
through ninth copies of each title per store were amortized 40% in the first
year and 30% in each of the second and third years; and copies one through three
of the titles per store were amortized as base stock. The Company adopted its
previous method of amortization for videocassette rental inventory concurrently
with its initial public offering of common stock in August 1995. That method was
followed by the Company's major competitors and was considered to be the
industry standard. Recently, several competitors have announced changes in their
amortization methods. The Company adopted the new method of amortization because
it believes that accelerating expense recognition for new release videocassettes
during the first four months more closely matches the typically higher revenues
generated following a title's release, and believes $15 represents a reasonable
average carrying value for tapes to be rented or sold after four months and $6
represents a reasonable salvage value for all tapes after 36 months. The Company
also believes this method is similar to methods recently adopted by other large
video specialty store operators.
The new method of amortization has been applied to videocassette rental
inventory that was held at January 1, 1996. The cumulative effect of the change
as of January 1, 1996 was to reduce net income by $890,814, after income taxes
of $593,876, and earnings per share by $0.10 for the three months ended March
31, 1996. The application of the new method of amortizing videocassette rental
inventory increased amortization expense by approximately $575,000 to
approximately $3.6 million and reduced net income by approximately $345,000 and
earnings per share by $0.04 for the three months ended March 31, 1996.
HISTORICAL RESULTS OF OPERATIONS FOR THE COMPANY
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
REVENUES. Revenues increased $18,093,000, or 1,479.4%, for the three months
ended March 31, 1996 to $19,316,000 compared to revenues of $1,223,000 for the
same period in 1995. The increased revenues were a result of the additional
stores acquired and opened by the Company concurrently with and subsequent to
the initial public offering in August 1995. Product sales as a percentage of
total revenues increased to 12.2% for the 1996 quarter compared to 8.9% for the
1995 quarter. This increase is the result of greater emphasis by certain
acquired companies on product sales, including video game sales. Same store
revenues for the three months ended March 31, 1996 were flat, reflecting a 2.0%
increase in same store rental revenues offset by a decline in same store sale
product revenues. In March 1996, the Company sold its supermarket operation for
an amount approximating its net book value. The supermarket operation had
revenues of approximately $355,000 in the quarter ended March 31, 1996.
OPERATING COSTS AND EXPENSES. Operating expenses increased $11,948,000 to
$12,819,000 for the three months ended March 31, 1996 compared to $871,000 for
the same period in 1995. Operating expenses as a percentage of total revenues
were 66.4% for the 1996 quarter compared to 71.2% for the 1995 quarter. This
decrease was primarily the result of increased revenues from product sales in
the 1996 quarter without a corresponding increase in operating expenses,
partially offset by the impact of the change in the method of amortization of
videocassette rental inventory as described in note 10 to the consolidated
financial statements. The new method of accounting accelerates the amortization
of videocassette rental inventory. The Company anticipates that the amortization
for the last three quarters of 1996 will be greater under the new method of
amortization than it would have been under the previous method.
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Cost of product sales increased $1,445,000 to $1,537,000 for the 1996
quarter compared to $92,000 for the 1995 quarter. This increase is directly
related to the increase in product sales. Cost of product sales as a percentage
of product sales were 65.2% for the three months ended March 31, 1996 compared
to 84.4% for the 1995 quarter. This decrease is the result of closer management
of product sales by certain acquired companies and increasing the mix of higher
margin items.
General and administrative expenses increased $2,143,000 to $2,329,000 for
the 1996 quarter compared to $186,000 for the 1995 quarter, reflecting the
acquisitions and additional store openings. General and administrative expenses
as a percentage of total revenues were 12.0% for 1996 compared to 15.2% for
1995. The percentage decrease, despite the increase in the amount of general and
administrative expenses, reflects the effect of spreading these expenses over
significantly greater revenues.
INTEREST EXPENSE. Interest expense increased $274,000 to $301,000 for the
1996 quarter from $27,000 for the 1995 quarter. The increase is related
primarily to (i) the issuance in April 1995 of a $1.5 million note payable,
which was incurred to provide financing for the completion of the Company's
initial public offering and (ii) additional borrowings under the Company's line
of credit agreements and subordinated credit facility.
INCOME TAX EXPENSE. The Company had no income tax expense for the three
months ended March 31, 1995 because the Predecessor operated as a partnership
for income tax purposes. Income tax expense for the three months ended March 31,
1996 was approximately $779,000, representing an effective income tax rate of
40%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company's results of operations for the years ended December 31, 1994
and 1995 reflect only the operations of the Predecessor for the period from
January 1, 1994 to August 8, 1995 and include the results of the various
Acquisitions from and after their respective acquisition dates.
REVENUES. Revenues increased $20,266,000, or 461.5%, for 1995 to
$24,658,000 compared to revenues of $4,392,000 for 1994. The increased revenues
were primarily a result of the additional stores acquired and opened by the
Company between August 8 and December 31, 1995. Product sales as a percentage of
total revenues increased to 17.6% for 1995 compared to 7.3% for 1994. This
increase is the result of greater emphasis by certain acquired companies on
product sales, including video game sales. The Company anticipates that this
percentage will decrease during 1996. The Company intends to focus its resources
on its video specialty superstores. Accordingly, subsequent to the year ended
December 31, 1995, the Company sold its supermarket video operation in March
1996, for an amount approximating its book value. The supermarket operation
generated approximately $456,000 in revenues in 1995.
OPERATING COSTS AND EXPENSES. Operating expenses increased $12,472,000 to
$15,593,000 for 1995 compared to $3,121,000 for 1994. Operating expenses as a
percentage of total revenues were 63.2% for 1995 compared to 71.1% for 1994. The
difference in these percentages from 1994 to 1995 primarily reflects increased
revenues from product sales in 1995 without a corresponding increase in
operating expenses.
Cost of product sales increased $2,701,000 to $2,979,000 for 1995 compared
to $278,000 for 1994. The increase is directly related to the increases in
product sales. Cost of product sales as a percentage of product sales was 68.5%
for the year ended December 31, 1995 compared to 86.4% for 1994. This decrease
is the result of the Acquisitions' closer management of product sales and
increasing the mix of higher margin items, including video game sales. The
Company anticipates that the cost of product sales as a percentage of product
sales for 1996 will be comparable to 1995 results, but may vary according to the
mix of products sold.
General and administrative expenses increased $2,344,000 to $2,955,000 for
1995 compared to $611,000 for 1994, reflecting the Acquisitions (except
Showtime) and additional store openings. General and administrative expenses as
a percentage of total revenue were 12.0% and 13.9% for 1995 and 1994,
respectively. The percentage decrease, despite the increase in the amount of
general and administrative expenses, reflects the effect of spreading these
expenses over significantly greater revenues. The Company anticipates that 1996
general and administrative expenses will include incremental costs incurred in
connection with the establishment of the corporate infrastructure to support
anticipated future growth.
INTEREST EXPENSE, NET. Interest expense increased $96,000 to $197,000 for
1995 from $101,000 for 1994. The increase related primarily to the issuance of a
$1.5 million note payable in April 1995, which was incurred to provide financing
for the completion of the Company's initial public offering of Common Stock, and
the issuance of promissory notes in connection with one of the Initial
Acquisitions. These expenses were offset by interest income earned on the excess
cash received at the initial public offering, which was invested in short-term
securities from August 8, 1995 through December 31, 1995. Interest
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expense for 1996 is expected to increase due to borrowings under the Company's
$22.5 million revolving credit facility, obtained in March 1996 in order to fund
operations, new store openings and additional acquisitions.
INCOME TAX EXPENSE. The Company had no income tax expense for 1994 or for
1995 through August because the Predecessor was operated as a limited
partnership. Income tax expense for 1995 was approximately $1,046,000,
representing an effective income tax rate of 37.2%. The Company anticipates its
effective income tax rate will be approximately 40% in 1996.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The Company's results of operations for the year ended December 31, 1994
reflect the operations of the Predecessor's eight stores plus one new store
opened during the year. The results of operations for the year ended December
31, 1993 reflect the operations of eight stores during the entire year.
REVENUES. Revenues increased $503,000, or 13.0%, to $4,392,000 for 1994
from $3,889,000 for 1993. Approximately $96,000 of the increase related to the
opening of the new store during 1994. The remainder of the increase related to
same store revenues increases of approximately 10.5% for 1994. The increase in
same store revenues in 1994 was attributable to a greater volume of customer
transactions, which the Company believes resulted primarily from the ongoing
implementation of its program of store upgrades which began in 1992. This
program generally involved relocation to more prominent positions in strip
centers or to stand-alone locations, improved store design, increased emphasis
on more new release inventory and the change to the Moovies name, logo and
format.
OPERATING COSTS AND EXPENSES. Operating expenses increased $323,000 to
$3,121,000 for 1994 from $2,798,000 for 1993. This increase corresponded to the
increase in revenues in 1994 and was attributable to the new store opened during
1994, the relocation of two stores and the change to the Moovies name, logo and
format. During this period, the Company changed the mix of inventory purchases,
decreasing the use of leased product, which contributed to the reduction in
operating expenses as a percentage of revenues from 1993 to 1994.
Cost of product sales increased to $38,000 to $278,000 for 1994 from
$240,000 for 1993, corresponding to the increased revenues from product sales.
Cost of sales as a percentage of product sales was 86.4% for 1994 compared to
77.5% for 1993. The increase was the result of a change in the mix of product
sales.
General and administrative expenses increased to $611,000 for 1994 from
$573,000 for 1993. General and administrative expenses as a percentage of
revenues decreased to 13.9% for 1994 from 14.7% for 1993. This decrease was the
result of the Company's increasing revenues without a similar level of increase
in administrative cost.
INTEREST EXPENSE. Interest expense was $101,000 for 1994 compared to
$43,000 for 1993. This increase primarily resulted from a full year of
amortization of the discount on the long-term debt payable to the limited
partners in 1994 compared to only four months of discount amortization in 1993.
HISTORICAL RESULTS OF OPERATIONS FOR SELECTED ACQUISITION COMPANIES
Financial results are discussed below for Movie Store Group, Pic-A-Flick
Group and Movies to Go. These companies collectively accounted for 44 of the 53
video specialty stores acquired in connection with the Recent Acquisitions.
MOVIE STORE GROUP
Movie Store Group ("Movie Store Group"), opened its first video store in
December 1984, and was acquired by the Company in December 1995. At the time of
the acquisition, Movie Store Group operated eight video stores in Georgia.
Movie Store Group's result of operations for the eleven months ended
November 30, 1995 reflect the operations of eight stores. Movie Store Group's
results of operations for the year ended December 31, 1994 reflect the
operations of six stores.
ELEVEN MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased $411,000, or 12.9%, to $3,613,000 for the
eleven months ended November 30, 1995 from $3,202,000 for the year ended
December 31, 1994. Approximately $535,000 of the increase related to two new
store openings occurring during 1995. This increase was partially offset by a
$124,000, or 3.4%, decline in same store revenues, reflecting the shorter 1995
period.
OPERATING COSTS AND EXPENSES. Operating expenses increased $1,158,000 to
$2,392,000 for the eleven months ended November 30, 1995 from $1,234,000 for the
year ended December 31, 1994. This increase corresponded to the increase in
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revenues in 1995 and was attributable primarily to the opening costs and
operating of two new stores and the relocation of one store, and was offset in
part by reduced same store expenses reflecting the shorter 1995 period.
Cost of product sales decreased $4,000 to $301,000 for the eleven months
ended November 30, 1995 from $305,000 for the year ended December 31, 1994. The
decrease was primarily the result of the shorter 1995 period that did not
include December, which is the highest sales month for product sales.
General and administrative expenses increased $124,000 to $482,000 for the
eleven months ended November 30, 1995 from $358,000 for the year ended December
31, 1994. General and administrative expenses as a percentage of total revenues
increased to 13.4% for 1995 from 11.2% for 1994. This increase was primarily the
result of rent on a corporate office added to centralize operations and office
supplies expenses to operate the corporate office.
INTEREST EXPENSE. Interest expense increased $8,000 to $34,000 for the
eleven months ended November 30, 1995 compared to $26,000 for the year ended
December 31, 1994. This increase resulted from borrowings to open the two new
stores.
PIC-A-FLICK GROUP
Pic-A-Flick Video ("Pic-A-Flick Group") opened its first video store in May
1981. Pic-A-Flick Group was acquired by the Company in December 1995. At the
time of the acquisition, Pic-A-Flick Group operated 23 video stores, 19 located
in South Carolina and four located in North Carolina. During 1995, Pic-A-Flick
Group opened four new stores and relocated two existing stores. During 1994
Pic-A-Flick Group opened three new stores and relocated one existing store.
ELEVEN MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Pic-A-Flick Group results of operations for the eleven months ended
November 30, 1995 reflect the operations of 23 stores. Pic-A-Flick Group results
of operations for the twelve months ended December 31, 1994 reflect the
operations of 19 stores.
REVENUES. Revenues increased $747,000, or 12.1%, to $6,899,000 for the
eleven months ended November 30, 1995 from $6,152,000 for the year ended
December 31, 1994. Approximately $1,133,000 of the increase is attributable to
the new store openings in 1995 and 1994. The remaining increase is attributable
to same store revenue increases of approximately 4.5% for 1995.
OPERATING COSTS AND EXPENSES. Operating expenses increased $929,000 to
$5,227,000 for the eleven months ended November 30, 1995 from $4,298,000 for the
year ended December 31, 1994, notwithstanding the shorter 1995 period. The
increase was a result of Pic-A-Flick Group opening four new stores and
relocating two existing stores in 1995. Operating expenses as a percentage of
total revenues increased to 75.8% for the eleven months ended November 30, 1995
from 69.9% for the year ended December 31, 1994, as a result of the new stores
generating lower revenues than mature stores while incurring full operating
expense amounts.
Cost of product sales increased $75,000 to $544,000 for the eleven months
ended November 30, 1995 from $469,000 for the year ended December 31, 1994, as a
result of four new store openings and relocation of two existing stores. Cost of
product sales as a percentage of total revenues slightly increased to 7.9% for
the eleven months ended November 30, 1995 from 7.7% for the year ended December
31, 1994.
General and administrative expenses decreased $116,000 to $642,000 for the
eleven months ended November 30, 1995 from $758,000 for the year ended December
31, 1994. General and administrative expenses as a percentage of total revenues
decreased to 9.3% for the eleven months ended November 30, 1995 from 12.4% for
the year ended December 31, 1994. The decreases were a result of a reduction in
salary paid to the principal shareholder of Pic-A-Flick Group.
INTEREST EXPENSE. Interest expense increased slightly to $59,000 for the
eleven months ended November 30, 1995 from $56,000 for the year ended December
31, 1994. Interest expense consists primarily of mortgage interest on a 8,400
square-foot free-standing retail site located in North Carolina. One of the
Pic-A-Flick Group corporations owned the retail site until November 1995. In
November 1995, the land and building were transferred to the principal
shareholder in exchange for a note from such shareholder and his assumption of
the other remaining notes payable secured by the property.
MOVIES TO GO
Movies to Go opened its first video store in November 1984 and its first
game store, dba Games to Go, in May 1993. Movies to Go was acquired by the
Company in September 1995. At the time of the Acquisition, Movies to Go operated
13 video stores and five game stores located in Des Moines, Ankeny, Davenport,
Cedar Rapids and Coralville, Iowa.
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NINE MONTHS ENDED AUGUST 31, 1995 COMPARED TO NINE MONTHS ENDED AUGUST 31,
1994
Movies to Go results of operations for the nine months ended August 31,
1994 and the nine months ended August 31, 1995 reflect the operations of 13
video stores and five game stores.
REVENUES: Revenues decreased $136,000 to $4,963,000 for the nine months
ended August 31, 1995 compared to $5,099,000 for the nine months ended August
31, 1994. This decrease was due to a $253,000 decline in product sales at the
game stores which was partially offset by a 3.1% increase in same store revenues
at the video stores.
OPERATING COSTS AND EXPENSES: Operating expenses decreased $2,000 to
$3,176,000 for the nine months ended August 31, 1995 compared to $3,178,000 for
the nine months ended August 31, 1994. Operating costs and expenses as a
percentage of total revenues increased to 64.0% for the nine months ended August
31, 1995 compared to 62.4% for the prior period, as a result of the decline in
total revenues.
Cost of product sales increased $38,000 to $764,000 for the nine months
ended August 31, 1995 from $726,000 for the same period in 1994. Cost of product
sales as a percentage of product sales increased to 69.2% for the nine months
ended August 31, 1995 from 53.2% for the same period in 1994. The decline in
gross margin was the result of lower demand for video games.
General and administrative expenses decreased $215,000 to $538,000 for the
nine months ended August 31, 1995 from $753,000 for the nine months ended August
31, 1994. The decrease was the result of a reduction in advertising expense.
INTEREST EXPENSE: Interest expense increased $15,000 to $67,000 for the
nine months ended August 31, 1995 from $52,000 for the comparable period in 1994
as a result of increased borrowings to fund the two video stores opened in
fiscal 1994.
YEAR ENDED NOVEMBER 30, 1994 COMPARED TO YEAR ENDED NOVEMBER 30, 1993
Movies to Go results of operations for the year ended November 30, 1994
reflect the operations of 13 video stores and five game stores. Movies to Go
results of operations for the year ended November 30, 1993 reflect the
operations of 11 video stores and five game stores.
REVENUES. Revenues increased $1,743,000 to $6,536,000 for the year ended
November 30, 1994 from $4,793,000 for the year ended November 30, 1993.
Approximately $749,000 of the increase is attributable to the opening of three
new video stores in 1994 and $839,000 of the increase is attributable to five
new game stores which were open for only part of 1993 but were open for all of
1994. The remaining increase is attributable to same store revenue increases of
approximately 9.0% for 1994.
OPERATING COSTS AND EXPENSES. Operating expenses increased $1,257,000 to
$4,302,000 for the year ended November 30, 1994 from $3,045,000 for the year
ended November 30, 1993, as a result of the two new video stores opened in 1994
and the five new games stores opened in 1993. Operating costs and expenses as a
percentage of total revenues increased slightly to 65.9% for 1994 from 63.6% for
1993, as operating expenses at new stores are generally a greater percentage of
revenues until those stores' revenues fully develop.
Cost of product sales increased $412,000 to $926,000 for the year ended
November 30, 1994 from $514,000 for the year ended November 30, 1993, as a
result of the year ended November 30, 1994 being the first full year of
operation for the five new game stores. Cost of product sales as a percentage of
product sales was 55.8% for both 1994 and 1993.
General and administrative expenses decreased slightly by $29,000 to
$727,000 for the year ended November 30, 1994 from $756,000 for the year ended
November 30, 1993. No significant changes were made in the general and
administrative operations of the company during 1993 or 1994.
INTEREST EXPENSE. Interest expense, net, increased by $23,000 to $106,000
for the year ended November 30, 1994 from $83,000 for the year ended November
30, 1993, as a result of increased borrowings to fund the two new video stores
and the five new games stores.
PREMIERE VIDEO
Premiere Video opened its first store in July 1985, and currently operates
23 video stores located in Minnesota, South Dakota, Iowa, Nebraska, and
Wisconsin.
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THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Premiere Video's results of operations for the quarter ended March 31, 1996
reflect the operations of 22 stores. Premiere Video's results of operations for
the quarter ended March 31, 1995 reflect the operations of 12 stores.
REVENUES. Revenues increased $1,114,000 or 69.3% to $2,723,000 for March
31, 1996 from $1,609,000 for March 31, 1995. The increase is attributable to the
10 new stores opened during 1996, and was partially offset by a $25,000 decrease
in revenues for stores that were open during both quarters.
OPERATING COSTS AND EXPENSES. Operating expenses increased $701,000 to
$1,613,000 for the three months ended March 31, 1996 from $912,000 for the three
months ended March 31, 1995. This increase corresponded to the increase in
revenues for the three months ended March 31, 1996 and was attributable to the
opening costs and operating of ten new stores. Operating costs and expenses, as
a percentage of revenues, increased to 59.3% for the three months ended March
31, 1996 from 56.7% for the three months ended March 31, 1995.
Cost of product sales increased $213,000 to $465,000 for the three months
ended March 31, 1996 from $252,000 for the three months ended March 31, 1995,
corresponding to the increased revenues from product sales. Cost of sales as a
percentage of revenue increased to 17.1% for the three months ended March 31,
1996 from 15.7% for the three months ended March 31, 1995.
General and administrative expenses increased $57,000 to $119,000 for the
three months ended March 31, 1996 from $62,000 for the three months ended March
31, 1995. General and administrative expenses as a percentage of revenues
increased to 4.4% for the three months ended March 31, 1996 from 3.9% for the
three months ended March 31, 1995.
INTEREST EXPENSE. Interest expense decreased $8,000 to $30,000 for the
three months ended March 31, 1996 compared to $38,000 for the three months ended
March 31, 1995. This decrease resulted primarily from a refinancing in the third
quarter of 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Premiere Video's results of operations for the year ended December 31, 1995
reflect the operations of 22 stores. Premiere Video's results of operations for
the year ended December 31, 1994 reflect the operations of 12 stores.
REVENUES. Revenues increased $2,057,000 or 39.8% to $7,226,000 for 1995
from $5,169,000 for 1994. Approximately $1,432,000 of the increase related to
new stores opened during 1995. The remaining increase is attributable to a
$625,000 increase in revenues from stores that were open all of 1995.
OPERATING COSTS AND EXPENSES. Operating expenses increased $1,416,000 to
$4,765,000 for 1995 from $3,349,000 in 1994. This increase corresponded to the
increase in revenues in 1995 and was attributable to the opening costs and
operating of ten new stores. Operating costs and expenses, as a percentage of
revenues, increased to 66.0% for the year ended December 31, 1995 from 64.8% for
the year ended December 31, 1994.
Cost of product sales increased $342,000 to $1,252,000 for 1995 from
$910,000 in 1994, corresponding to the increased revenues from product sales.
Cost of sales as a percentage of revenue decreased to 17.4% for 1995 from 17.6%
for 1994.
General and administrative expenses increased $120,000 to $397,000 for 1995
from $277,000 in 1994. General and administrative expenses as a percentage of
revenues increased to 5.5% for 1995 from 5.4% for 1994.
INTEREST EXPENSE. Interest expense increased $21,000 to $140,000 for 1995
from $119,000 for 1994. This increase resulted primarily from increased
borrowings to open the ten new stores.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Premiere Video's results of operations for the year ended December 31, 1994
reflect the operations of 12 stores. Premiere Video's results of operations for
the year ended December 31, 1993 reflect the operations of 9 stores.
REVENUES. Revenues increased $1,041,000 or 25.3% to $5,169,000 for 1994
from $4,128,000 for 1993. Approximately $947,000 of the increase related to
three new stores opened during 1994. The remaining increase is attributable to a
$94,000 increase in revenues for stores that were open all of 1994.
OPERATING COSTS AND EXPENSES. Operating expenses increased $834,000 to
$3,349,000 for 1994 from $2,515,000 in 1993. This increase corresponded to the
increase in revenues in 1994 and was attributable to the opening costs and
operating
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expenses of three new stores. Operating costs and expenses, as a percentage of
revenues, increased to 64.8% for the year ended December 31, 1994 from 61.0% for
the year ended December 31, 1993.
Cost of product sales increased $313,000 to $910,000 for 1994 from $597,000
in 1993, corresponding to the increased revenues from product sales. Cost of
sales as a percentage of revenue increased to 17.6% for 1994 from 14.5% for
1993.
General and administrative expenses decreased $5,000 to $277,000 for 1994
from $282,000 in 1993. General and administrative expenses as a percentage of
revenues decreased to 5.4% for 1994 from 6.9% for 1993.
INTEREST EXPENSE. Interest expense increased $9,000 to $119,000 for 1994
from $110,000 for 1993. This increase resulted primarily from increased
borrowings to open the three new stores.
GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY
The Company's results of operations are affected by economic trends in its
market areas. To date, the Company has not operated during a period of high
inflation but believes that it would generally be able to pass on increased
costs relating to inflation to its customers.
The video and video game rental portions of the Company's business are
somewhat seasonal, with revenues in April, May, September and October generally
being lower compared to other months of the year due to the weather in the
spring, and the start of school, the football season and the new television
season in the fall. Future operating results may be affected by many factors,
including variations in the number and timing of store openings, the public
acceptance of new release titles available for rental and sale, the timing of
the acquisition of existing video specialty retail stores, the extent of
competition, marketing programs, weather, special or unusual events and other
factors that may affect retailers in general. Any concentration of new store
openings and the related pre-opening costs in any particular fiscal quarter
could have a material adverse effect on the Company's operating results for that
quarter.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's primary long-term capital needs are for opening and acquiring
new stores. The Company expects to fund such needs through cash flows from
operations, borrowing under credit facilities, operating equipment leases and
the net proceeds from the sale of debt and equity securities.
In August 1995 the Company closed its initial public offering and received
net proceeds of approximately $37.0 million. The proceeds were initially used
(i) to pay the $22.4 million cash portion of the Initial Acquisitions, which
were closed concurrently on August 8, 1995, and (ii) to repay approximately $4.2
million of long-term indebtedness assumed in connection with the Initial
Acquisitions and $1.4 million of long-term indebtedness of the Predecessor. The
remaining amount, $8.9 million, was invested temporarily in short-term
securities and was subsequently used to acquire and open additional superstores,
acquire new sites, renovate older locations, purchase computer equipment and for
general corporate purposes.
In December 1995 and January 1996 the Company borrowed a total of $6.5
million under an existing revolving credit facility from a bank. The proceeds
were used to fund a portion of the Recent Acquisitions. In addition, in January
1996 the Company borrowed $2.0 million (the "Subordinated Credit Facility"),
which is subordinated to the Company's revolving credit facility. Borrowings
outstanding under this Subordinated Credit Facility bear interest at an annual
rate equal to 13% and mature in January 2001. In conjunction with this
financing, the Company issued the lender a warrant to purchase 20,000 shares of
Common Stock at an exercise price of $10.80 per share.
In March 1996, the Company signed a revolving credit facility (the
"Facility") for up to $22.5 million to replace its existing credit facilities.
The available amount of the Facility will reduce quarterly beginning on March
31, 1997 with final maturity of June 30, 1998. The interest rate of the Facility
is variable based on LIBOR and the Company may repay the Facility at any time
without penalty. As of March 31, 1996, the Company had outstanding borrowings of
$12.8 million and had $4.2 million available under the Facility. The remaining
$5.5 million will become available upon the completion of this offering and the
Pending Acquisition. The Company intends to use $2.6 million of the line of
credit to support a letter of credit to secure the final payment due in January
1997 in connection with the Pending Acquisition. See "The Acquisitions --
Pending Acquisition."
The Company funds its short-term working capital needs, including the
acquisition of videos and other inventory, primarily through cash from
operations. The Company expects that cash from operations will be sufficient to
fund future video
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and other inventory purchases and other working capital needs. Under generally
accepted accounting principles, rental inventories are treated as non-current
assets because they are not assets that are reasonably expected to be completely
realized in cash or sold in the normal business cycle. Although the rental of
this inventory generates a substantial portion of the Company's revenue, the
classification of these assets as noncurrent excludes them from the computation
of working capital. The cost of video inventory purchases, however, is reported
as a current liability until paid, and accordingly, is included in the
computation of working capital. Consequently, the Company believes working
capital is not an appropriate measure of its liquidity and it anticipates that
it will operate with a working capital deficit during 1996.
During 1995, net cash provided by operating activities was $9.3 million.
Net cash used in investing activities was $17.6 million, consisting primarily of
$3.5 million used to pay the cash portion of the Recent Acquisitions, $8.3
million to acquire rental inventory and $5.9 million used to purchase furniture
and fixtures. Net cash provided by financing activities was $11.7 million.
Financing sources of cash consisted of $36.9 million from the initial public
offering ("IPO") and $4.1 million from issuance of long-term debt. The primary
financing uses of cash were the payment of $22.4 million in the form of a deemed
dividend in connection with the Initial Acquisitions and $9.2 million to repay
long-term debt. At December 31, 1995, the Company had cash of $3.6 million.
For the quarter ended March 31, 1996, net cash provided by operating
activities was $4.9 million. Net cash used in investing activities was $9.0
million, consisting primarily of $2.4 million used to pay the cash portion of
the Showtime acquisition, $5.9 million to acquire rental inventory, and $1.5
million to purchase furniture and fixtures offset by $746,000 received from the
sale of the grocery division. Net cash provided by financing activities was $6.1
million consisting of $10.3 million from increased line of credit borrowing and
$2.0 million from the issuance of long-term debt offset by $6.2 million of
repayments of long-term debt. At March 31, 1996 the Company had cash of $5.6
million.
The Company's capital expenditures in 1996 will continue to focus on
opening new stores, converting stores to the Moovies name and logo and
implementing a new MIS. The Company intends to open approximately 50 superstores
in 1996 (including eight superstores already opened in the first quarter of
1996). The Company estimates that the total cash required to open a new Moovies
superstore, including store fixtures and equipment, leasehold improvements and
rental and sale inventory, typically ranges from $250,000 to $300,000 per
superstore. In addition, the Company intends to complete the conversion of the
remaining stores acquired in connection with the Acquisitions to the Moovies
name and logo at an estimated aggregate cost of approximately $2.5 million. The
Company's MIS is currently being used in approximately 120 video specialty
stores that were acquired in connection with the Acquisitions. In 1996, the
Company intends to replace the various systems used by its other stores with
this system and to improve the computerized information systems at the corporate
offices at an estimated aggregate cost of approximately $1.0 million.
In April 1996, the Company signed an asset purchase agreement to acquire
the Premiere Video chain. Pursuant to the asset purchase agreement, the Company
will pay $8.9 million in cash concurrently with the closing of this offering.
The Company intends to fund the cash portion of the purchase price with proceeds
from this offering. In addition, the Company will make a final payment of $2.6
million in January 1997. The Company's obligation to make this payment will be
secured by a letter of credit. See "The Acquisitions -- Pending Acquisition" and
"Use of Proceeds".
The Company believes that cash from operations and borrowing availability
under its existing credit facilities will be sufficient to fund its existing
operations, including its planned capital expenditures and new store openings,
through December 31, 1996. The proceeds from this offering will enable the
Company to fund the Pending Acquisition and give the company flexibility to
pursue additional acquisitions and store openings.
SELECTED ACQUISITION COMPANIES
Movies to Go funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Movies to Go's cash provided by operations was $1.6 million for the
year ended November 30, 1994 compared to $1.3 million for the same period in
1993.
Pic-A-Flick Group funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Pic-A-Flick Group's cash provided by operations was $2.3 million for
the eleven months ended November 30, 1995 compared to $2.0 million for the year
ended December 31, 1994.
Movie Store Group funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Movie Store Group's cash provided by operations was $1.3 million for
the eleven months ended November 30, 1994 compared to $1.6 million for the year
ended December 31, 1994.
Premiere Video funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Premiere Video's cash provided by operations was $2.9 million for
the year ended December 31, 1995 compared to $2.2 million for the year ended
December 31, 1994. Premiere Video's cash provided by operations was $1.3 million
for the three months ended March 31, 1996 (unaudited).
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BUSINESS
GENERAL
The Company currently operates 158 video specialty superstores located in
Georgia, South Carolina, North Carolina, Virginia, Pennsylvania, New Jersey, New
York, Connecticut, Ohio, Iowa and Colorado and has entered into an agreement to
acquire an additional 23 stores in four additional states. See "The
Acquisitions." The Company's superstores rent and sell a wide range of videos
and video games, rent video players and video game equipment, and sell video
accessories such as blank cassettes, cleaning equipment and a variety of
confectionery items. Tonight's Feature, the Company's predecessor, opened its
first store in 1989 and in 1992 introduced the Moovies superstore format which
was the prototype for the Company's stores. Approximately 100 of the Company's
stores are now operating under the Moovies name and logo. The Company expects to
convert substantially all of its remaining video specialty superstores to the
Moovies name and logo by June 30, 1996. The Company had pro forma revenues of
$79.0 million and pro forma net income of $5.7 million for the year ended
December 31, 1995 and pro forma revenues of $22.7 million and pro forma net
income of $1.7 million for the three months ended March 31, 1996. See "Pro Forma
Financial Information."
VIDEO RETAIL INDUSTRY
According to Paul Kagan, the video rental and sales industry has grown from
$0.7 billion in revenues in 1982 to $14.8 billion in 1995 and is projected to
reach $19.1 billion in 2000. Annual revenues, according to Paul Kagan, increased
each year. The industry is highly fragmented. Paul Kagan estimates that in 1994
there were approximately 27,400 video specialty stores, including 6,100
superstores, in the United States. Only nine multiple store businesses operated
in excess of 100 stores in 1995. Few single store owners are able to expand to
multiple store operations, in part due to the difficulty of obtaining working
capital financing from banks. Multiple store operations that do exist are
generally chains of fewer than 50 stores. Because of a recent trend toward
consolidation in the video retail industry, the Company believes, and its
experience has been, that many smaller chain operators perceive the need to join
larger organizations for enhanced access to working capital, marketing
efficiencies and other economies of scale to compete successfully in the future.
The Company believes it is well positioned to benefit from this consolidation
trend by acquiring successful smaller chain operations.
Although the domestic video retail industry includes both rentals and
sales, consumers primarily rent rather than buy videos. By setting wholesale
video prices, movie studios influence the relative levels of video rentals
versus sales. Videos released at a relatively high price, typically $60 to $67,
are purchased by video specialty stores and are offered primarily as rental
titles. Videos released at a relatively low price, typically $8 to $17 and known
as "sell-through", are purchased by video specialty stores and are generally
offered as both rental and sales titles. Typically, movie studios attempt to
maximize total revenue from video releases by maintaining prices at a relatively
high level during the first six months to one year after a new release, during
which time sales will be made primarily to video specialty stores for rental,
and then re-releasing the video at a lower price to promote sales.
From time to time, however, movies that are believed to have mass appeal,
such as FORREST GUMP and THE LION KING, are initially released as sell-through
titles. The Company believes that the studios release videos on a sell-through
basis when they estimate that the lower selling price will generate six or more
times the unit volume of a higher priced rental tape. Mass appeal sell-through
tapes also enable video store operators to purchase large quantities of popular
titles that can draw customers into the stores. Sell-through titles are
dominated by children's or family videos which are replayed numerous times in
the home and are thus more likely to be purchased than rented. These
"sell-through" titles are also placed in the rental pool and can generate
significant cash flow for the stores since the lower cost of the tapes is
recovered in three to six rentals as opposed to 20 to 23 rentals for a typical
rental title. The Company believes that the ability to offer more copies of a
popular title when it is priced for sell-through combined with the higher
profits from rentals that do occur in those titles more than offsets the
potential rental revenues lost when such tapes are purchased by some consumers.
According to Paul Kagan's latest annual industry report, total United
States consumer filmed entertainment spending has increased from approximately
$4.7 billion in 1980 to approximately $39.6 billion in 1994. According to
industry analyst Veronis, Suhler & Associates, in 1994 the home video market was
the largest single source of revenue to movie distributors, accounting for
approximately 46% of movie distributors' worldwide revenue. The Company believes
that home video revenues are important to the success of the studios and could
not be easily replaced through other distribution channels. Of the many movies
produced by major studios and released in the United States each year,
relatively few are profitable for the studios based on box office revenue alone.
In addition to purchasing box office hits, video specialty stores typically
purchase movies on video that were not successful at the box office as customers
will often rent a video that they might not view at a theater. The Company
believes the consumer is more likely to view movies that were not box office
hits on a rented video
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than on any other medium because video specialty stores provide an inviting
opportunity to browse and make an impulse choice among a very broad selection of
movie titles at a relatively low price. Purchases by the video stores provide
the major movie studios with a reliable source of revenue for the majority of
their movies.
Historically, new technologies have led to the creation of additional
distribution channels for movie studios. Movie studios seek to maximize their
revenues by releasing movies in sequential release date "windows" to various
movie distribution channels. These distribution channels currently include, in
release date order, movie theaters, video specialty stores, Pay-Per-View, pay
television, basic cable television, direct broadcast satellite and network and
syndicated television. The Company believes that this method of sequential
release has allowed movie studios to increase their total revenue with
relatively little adverse effect on the revenue derived from previously
established channels and that movie studios will continue the practice of
sequential release as new distribution channels become available. The Company
believes that video stores with their broad purchases will continue to occupy
the first release date window after the box office. Some studios, notably
Disney, have released titles directly to video without exhibiting at theaters.
BUSINESS AND EXPANSION STRATEGY
The key elements of the Company's business and expansion strategy are:
SUPERSTORES. The Company believes that focusing on the superstore
format will enhance the Company's profitability. Superstores are defined by
Paul Kagan as stores carrying 7,500 or more videocassettes. The Company
believes that the superstore format is generally the most profitable
format. All of the Company's stores are superstores. The most significant
advantages of the superstore format include the following:
(Bullet) A broader selection of titles and greater availability of new
releases, which generate increased customer traffic;
(Bullet) Sufficient floor space to develop categories and themes and
to create an entertaining environment; and
(Bullet) Reduced labor costs (the Company's highest operating expense)
as a percentage of revenues.
These characteristics enable superstores to produce revenues and
profit levels sufficient to pay the generally higher lease rates of
preferred store locations.
CUSTOMER SERVICE. The Company seeks to provide a high level of
customer service at each of its stores. The Company offers a broad
selection of new releases and catalog product, is committed to offering
more copies of the newest releases than many of its competitors, provides
customers with personalized attention and maintains a fun, family-oriented
environment centered around the "Moovies" theme.
GEOGRAPHIC CONCENTRATION. The Company prefers to concentrate its new
store openings and activities in the areas in which other Moovies stores
are located to maximize operating efficiencies. The Company believes that a
geographic concentration allows the Company to more easily monitor store
operations through its area management structure and to achieve operating
efficiencies in inventory management, marketing, distribution, training and
store supervision. The Company will move to new geographic areas when it
sees an opportunity to be a top competitor in a particular market. A key
benefit to operating multiple stores is the Company's ability to receive
relatively large aggregate cooperative advertising credits from its
distributors and use them more efficiently than smaller competitors. The
Company receives cooperative advertising credits for each store it
operates, and by operating multiple stores in a single geographic market,
the Company can more effectively use cooperative advertising credits to
maximize the impact of its advertising.
TARGETED ACQUISITIONS. The Company believes that acquiring clusters of
superstores in targeted market areas is often the most cost-effective means
of entering a new market, particularly when the stores are in desirable
locations. Other than its preference for concentrating new store openings
and acquisitions in areas where it already has stores, the Company does not
focus its acquisition searches on specific regions of the country,
preferring instead to evaluate opportunities as and where they arise.
Because of a recent trend toward consolidation in the industry, the Company
believes smaller chain operators perceive the need to join larger
organizations for enhanced access to working capital, marketing
efficiencies and other economies of scale to compete successfully in the
future. This has created an opportunity for the Company to grow further
through acquisitions, and as a result, the Company believes that it will
continue to be presented with attractive acquisition opportunities
throughout the U.S. See "Risk Factors -- Acquisition Risks" and "Risk
Factors -- Financing Growth Strategy," "The Acquisitions."
NEW STORE DEVELOPMENT. The Company intends to expand its operations
through new store openings. The Company opened 15 new Moovies superstores
from the date of the Company's initial public offering to December 31,
1995.
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In 1996 the Company opened eight additional stores and closed or sold a
total of five stores. The Company anticipates opening approximately 42
additional new superstores by the end of 1996, principally in markets with
multiple shopping areas and a sufficient population base to support more
than one video specialty store operator. The Company generally intends to
open these stores in geographic areas where the Company is already
operating stores and attractive acquisition opportunities are not
available. The Company currently estimates that the total cash required to
open a new Moovies superstore, including store fixtures and equipment,
leasehold improvements and rental and sale inventory, typically ranges from
$250,000 to $300,000 per superstore.
STORE LOCATIONS
The following table sets forth the locations of the Company's stores and
the Premiere Video stores as of May 15, 1996:
CONNECTICUT
Fairfield
COLORADO
Boulder
Greeley
Fort Collins (3)
GEORGIA
Athens (2)
Atlanta (9)
Augusta (3)
Dublin
Gainesville
Macon (2)
Milledgeville
Savannah (2)
Toccoa
IOWA
Ames (2)
Ankeny
Cedar Rapids
Coralville
Council Bluffs*
Des Moines (5)
Iowa City
Sioux City (2)*
Urbandale
Waterloo*
West Des Moines (3)
MINNESOTA
Bemidji*
Brainerd*
Sauk Rapids*
Savage*
St. Cloud*
NEBRASKA
Columbus*
Kearney*
Norfolk*
South Sioux City*
NEW JERSEY
Ewing
NEW YORK
Fishkill
Larchmont
Middletown
Nanuet
Newburgh (2)
Pleasant Valley
Poughkeepsie
Stony Point
Wappingers Falls
White Plains
NORTH CAROLINA
Asheville (2)
Charlotte (5)
Clyde
Elizabeth City
Greenville
Hendersonville
Jacksonville
Jamestown
Raleigh
Wilmington (2)
OHIO
Ashtabula
Austintown
Boardman
Calcutta
Conneaut
Cortland
Garrettsville
Newton Falls
Niles
Norwalk
Ravenna
Struthers
Warren (4)
Youngstown (4)
PENNSYLVANIA
Altoona
Drescher
Du Bois
Johnstown
Kittanning
New Castle
Philadelphia (10)
SOUTH CAROLINA
Anderson (2)
Chester
Clemson
Columbia (3)
Easley
Greenville (10)
Greenwood
Greer (2)
Lexington
Newberry
Orangeburg
Pickens
Powdersville
Seneca
Spartanburg
Union
Williamston
SOUTH DAKOTA
Brooking*
Sioux Falls (3)*
Yankton*
VIRGINIA
Blacksburg
Chesapeake (4)
Christianburg
Martinsville
Norfolk (2)
Poquoson
Portsmouth
Radford
Roanoke
Salem
Tabb
Virginia Beach (6)
WISCONSIN
Marshfield*
Plover*
Shawano*
Sturgeon Bay*
Two Rivers*
* Premiere Video stores.
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In addition, as of May 15, 1996 the Company had signed leases for 18 new
store sites, including 8 new stores under construction.
MERCHANDISING
A typical Company superstore carries a broad selection of new release
titles (videos released in the last 12 months) and approximately 8,500 catalog
titles (generally, videos in release for over 12 months). Each store has a few
special interest titles, covering subjects such as sports, exercise and
education, which are selected to appeal to the customer base in the particular
store's market area. Movies are listed and displayed alphabetically within each
category. In 1995, over 82% of the Company's pro forma net revenues and 83% of
its actual net revenues were derived from the rental of videos and video games.
In 1995, over 17% of the Company's pro forma net revenues and 16% of its actual
net revenues were derived from the sale of videos, including previously rented
videos, video games and other products.
The Company generally has a three day, two night rental term for both new
releases and catalog titles. The Company is committed to offering more copies of
popular new releases than its competitors. See " -- Competition." In the case of
a major box office hit offered for rental, the Company typically orders 20 to 40
copies of that title for each store and may order as many as 200 copies for a
single store. For each superstore, the Company bases the selection and quantity
of videos on demographic data for the region or neighborhood in which the store
is located, as well as the past or projected performance of that store. Upon
conversion to the Moovies format, the Company will not rent or sell adult
movies. The Company is in the process of phasing out the limited number of adult
videos that were acquired in connection with the Initial Acquisitions. The
Company assesses late fees for videos returned beyond the initial term.
As of March 31, 1996, approximately 100 stores were operated under the
Moovies name and logo. The Company expects to convert substantially all of its
remaining stores to the Moovies name and logo by June 30, 1996. Moovies stores
feature distinctive signs and colorful awnings on the store's exterior and
interior. Whimsical category titles such as "Mooving On" (travel), "Moo-Dun-It"
(mystery), "Cowboys" (westerns), "Kung Moo" (martial arts) and "Moosicals"
(musicals) direct customers to their preferred titles. "Moo Releases" (new
releases) are displayed alphabetically along the perimeter of each store for
easier selection by customers. The Company's new prototype store will
incorporate a children's section complete with a monitor playing children's
videos.
MARKETING AND ADVERTISING
The Company markets its stores and merchandise through radio and direct
mail and to a lesser extent through newspaper advertising, discount coupons,
celebrity appearances and promotional materials. The Company also publishes a
proprietary monthly video guide designed to help customers make video
selections. The cost of these activities is primarily funded through advertising
allowances and market development funds that the Company receives from its video
wholesale suppliers. In addition, the Company benefits from the advertising and
marketing of studios and theaters in connection with their efforts to promote
films and increase box office revenues. The Company's advertising emphasizes the
stores' selection and service and also promotes the Company's family
orientation.
STORES
The Company's management structure is designed to enhance the overall
performance of the Company's video specialty stores by providing more consistent
and supportive supervision of store operations. The Company's operations are
divided into four geographic areas, each of which has district managers
responsible for store operations within the area. Each of the Company's stores
is managed by a full time store manager, who typically has one assistant
manager.
Management believes that the concentration of the Company's stores in
clusters enhances the Company's control of its store operations and enables the
Company to respond more quickly to changing market conditions. Because the
Company's stores are geographically concentrated, area managers typically visit
stores within their respective areas at least twice a month. These visits are
made to ensure adherence to Company-specified operating standards and to discern
current market information. In addition, area managers meet on a regular basis
with other senior management at the Company's headquarters to discuss their
operations. The Company believes that these meetings facilitate prompt
decision-making and enable the Company to respond rapidly to changing market
conditions and consumer demand.
In choosing new store sites, the Company considers such factors as
visibility, access, traffic volume, consumer demographics and convenience to
residential neighborhoods, regardless of the proximity of competing video
specialty stores. Company superstores are generally located in trade areas with
populations of more than 15,000, such as suburbs of metropolitan markets. The
Company's stores have generally performed well in close proximity to competing
superstores, which the
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Company believes is due in part to unsatisfied market demand. The Company's
stores generally are located in stand-alone sites or strip shopping centers for
heightened visibility, with a preference for end-cap locations. The Company's
stores range in size from approximately 3,000 to 11,000 square feet, with an
average size of approximately 5,700 square feet. Most of the stores are leased
pursuant to leases with terms ranging from one to ten years and varying renewal
options. The Company is responsible for taxes, insurance and utilities under
most of these leases. Generally, the Company's stores are open seven days a
week, from 10:00 a.m. to 11:00 p.m.
In executing its new store development strategy, the Company estimates that
its gross investment in each new Moovies superstore, including store fixtures
and equipment, leasehold improvements and rental and sale inventory, generally
has been and will be approximately $250,000 to $300,000.
As a result of one of its acquisitions, the Company supplied and managed
the video inventory of video departments located in approximately 80
supermarkets in several states. The Company generally received 75% of the
revenues from such operations. In 1995, the revenues received by the Company
from the supermarket operations of the entity acquired were approximately
$456,000. The Company sold this business in March 1996 to enable the Company to
focus its resources on the operation of video specialty stores.
INVENTORY AND MANAGEMENT INFORMATION SYSTEMS
The Company aggressively manages its store inventory. In each of its
markets, management seeks to maintain the largest selection of new releases and
catalog product that is consistent with long-term store profitability. Buying
decisions are made centrally and are based on the size of the active customer
base, new release dates, box office results, industry newsletters and
management's knowledge of the popularity of certain types of movies in its
markets. The Company believes that centralized buying allows it to obtain better
volume discounts. Rentals are monitored on a daily basis in each store, enabling
the Company to reallocate videos and video games among stores to respond to
customer demand and enhance profitability.
The Company is installing a new management information system ("MIS"). As
of April 30, 1996, the new system was installed in approximately 125 stores. The
Company expects the new system to be implemented in substantially all of the
stores it now operates by June 30, 1996. The new MIS uses a point-of-sale
("POS") computer located at each store that records all rental and sale
information upon customer checkout using scanned bar code information and
updates such information when the videos and video games are returned. This POS
system is tied to a computerized information system at the corporate offices.
The Company believes data generated by the MIS will help management monitor
store operations and inventory more effectively and at lower cost than the
previous systems. The Company also believes its ability to review rental history
by title and location will assist it in making purchasing decisions with respect
to new releases. The MIS can also enable the Company to perform its monthly
physical inventory using bar code recognition, which is more efficient, more
accurate and less costly than a manual count.
While management believes that disruptions caused by the implementation of
the new system in all of the Company's stores have been and will be minor, there
can be no assurance that such implementation, which will involve, among other
things, the retraining of existing employees, will not cause a significant
disruption in store operations that would materially adversely affect the
Company's financial condition and results of operations. See "Risk
Factors -- Implementation of New Management Information System."
SUPPLIERS
The video inventory in each of the Company's stores consists of catalog and
new release titles, which it either purchases or rents. The Company purchases
approximately 80% of its new release videos and all of its catalog videos
directly from video wholesalers. The Company purchases from such wholesalers
rather than directly from movie studios because the Company believes that the
cost savings of direct purchases would not offset the expense to the Company of
establishing its own distribution system. Currently, the typical cost of new
release videos purchased by the Company is approximately $60 to $67 for titles
the Company will rent and $8 to $17 for titles acquired for sell-through as well
as for rental. Catalog titles also typically cost from $8 to $17. The Company
has historically used two primary suppliers, Rentrak, and Baker & Taylor
Entertainment, a division of Baker & Taylor ("BTE") to fulfill the majority of
its video needs. BTE and Mr. John Taylor, the Company's Chief Executive Officer,
are not affiliated. The Company may expand its group of primary suppliers with
one or more additional sources. The Company believes that if its relationships
with its primary suppliers are terminated, the Company could obtain videos from
other suppliers at prices and on terms comparable to those available from its
current suppliers.
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The Company also rents new release titles under revenue sharing
arrangements. The Company presently spends approximately 17% of its new release
budget to obtain new releases from Rentrak pursuant to a long-term revenue
sharing agreement. Under this agreement, the Company is obligated to obtain a
minimum annual dollar amount of new release titles from Rentrak. The Company may
choose which stores offer a title from Rentrak, but if a store obtains a copy of
a new release title from Rentrak it must obtain all copies of that title from
Rentrak. The Company believes that Rentrak is often a more cost effective source
for larger orders of an individual title and typically chooses to use Rentrak
titles in newly opened stores or stores with significant competition in order to
build customer traffic. Using Rentrak enables the Company to order larger
numbers (often 3 times as many) of copies of a particular title to satisfy
customer demand than would be cost-effective if the copies were purchased for
rental. Revenue sharing allows the Company to order a large number of copies for
certain stores to meet most of the heavy initial demand that exists during the
first few weekends after a title's release. When the Company chooses to offer a
title under the Rentrak agreement a minimum number of copies for each store is
often established by Rentrak based on prior experience with similar titles. The
Company believes that these minimum order requirements have not been burdensome
since it typically orders large numbers of copies when it chooses a Rentrak
title. The Company is able to obtain a wide variety of titles under this
agreement since Rentrak has a supplier relationship with four of the six largest
studios.
During the revenue sharing period, which is generally one year (but does
not exceed two years) per title, the movie studio retains ownership of the video
and the Company shares the rental revenue with Rentrak rather than purchasing
the video for a fixed cost. In addition, the Company must make an initial
payment in the form of a handling charge of from $8 to $10 per video obtained
pursuant to this agreement. At the end of the revenue sharing period for a
title, the Company has the option to purchase the copies of that title,
generally for less than $5 per copy. Revenue sharing reduces the risk that the
Company will be unable to recover the acquisition cost of a video through rental
revenue before the popularity of the title declines significantly. In order to
obtain the full benefits of the Rentrak revenue sharing arrangement, the Company
must correctly identify the new release titles that it should lease from Rentrak
and the stores which should receive them. Because the Company's percentage share
of revenue under the Rentrak agreement is fixed, to the extent that the Company
obtains new release videos from Rentrak for too many or the wrong stores, the
Company's profits may be adversely affected. See "Risk Factors -- Inability to
Obtain and Adequately Manage Leased Inventory."
The Company purchases approximately 60% of its new release titles from BTE
pursuant to a letter agreement that expires April 1, 1997. The Company believes
that BTE is a major supplier in the wholesale video industry. The BTE agreement
provides for purchase of videos at a set discount from manufacturers suggested
retail price, and allows the Company to return overstock items for a specified
percentage credit against future purchases. The Company believes that it is a
major customer of BTE and that the terms of the BTE agreement are competitive
within the video wholesale market.
COMPETITION
The video retail industry is highly competitive. The Company's stores
compete with other video specialty stores, including stores operated by regional
and national chains, such as Blockbuster, and with other businesses offering
videos and video games, such as supermarkets, pharmacies, convenience stores,
bookstores, mass merchants, mail order operations and other retailers. Some of
the Company's competitors, including Blockbuster, have significantly greater
financial and marketing resources, market share and name recognition than the
Company. In addition, the Company's stores compete with other leisure-time
activities, including movie theaters, network, cable and direct broadcast
satellite television, live theater, sporting events and family entertainment
centers. However, many of these have a higher per-person cost than the rental of
a video. See "Risk Factors -- Competition."
The Company believes the principal competitive factors among participants
in the video retail industry are store location and visibility, title selection,
the number of copies of each new release available and customer service. While
the Company does not believe that price is a significant competitive factor
among video retailers, the Company believes that price is a significant factor
relative to competition with movie theaters and other forms of entertainment.
The Company's goal is to generally offer a high level of service and more titles
and more copies of new releases than its competitors.
The Company's stores also compete with Pay-Per-View cable television
systems, in which home subscribers pay a fee to see a movie selected by the
subscriber. Existing Pay-Per-View services offer a limited number of channels
and movies and are generally available only to households with a converter to
unscramble incoming signals. Recently developed technologies, however, permit
certain cable companies, direct broadcast satellite companies, telephone
companies and other telecommunications companies to transmit a much greater
number of movies to homes in more markets as frequently as every five minutes,
referred to as "Near Video-on-Demand." These technologies, by providing
alternatives to home video rentals and
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purchases, could have a material adverse effect on the Company's business. None
of these technologies, however, currently have penetration in the consumer
market as high as the 80% penetration of the VCR nor currently represent as
large a percentage of revenue to the movie studios as video specialty stores.
Over the long term, further improvement in these technologies could lead to the
availability of a broad selection of movies to consumers on demand, referred to
as "Video-on-Demand," at a price which is competitive with the price of video
rentals, which could have a material adverse effect on the Company's financial
condition and results of operations. Although the Company does not believe that
these technologies represent a near-term competitive threat to its business,
technological advances or changes in the manner in which movies are marketed,
including the earlier release of movie titles to cable television or other
distribution channels, could make these technologies more attractive and
economical, which could have a material adverse effect on the business of the
Company and on the Company's financial condition and results of operations. See
"Risk Factors -- Technological Obsolescence."
EMPLOYEES
As of March 31, 1996, the Company employed 1,875 persons, of whom 560 were
employed on a full-time basis. None of the Company's employees are represented
by a labor union, and the Company believes that its relations with its employees
are good.
PROPERTIES
All of the Company's stores are leased pursuant to leases with terms
ranging from one to ten years, with varying option renewal periods and which
range from approximately 3,000 to 11,000 square feet. The Company anticipates
that future stores will also be located on leased premises. See "Certain
Transactions."
The Company recently occupied a new leased corporate headquarters located
at 201 Brookfield Parkway, Greenville, South Carolina. This facility consists of
an aggregate of approximately 25,000 square feet of office space.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including MOOVIES
and the current logos for the Moovies stores. The Company has applied to
register CLUB COW A BUBBA and HOLY COW WHATTA VIDEO STORE! for video rental
services and promotional products related to its business. In addition, the
Company intends to seek federal trademark protection for the name and design of
its mascot character "Bubba" for video, retail services, toys and apparel. The
Company considers its intellectual property rights to be an important part of
its business.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings that
management believes could have a material adverse effect on the Company's
financial condition or results of operations.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
May 15, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John L. Taylor............................... 44 President, Chief Executive Officer, Chairman of the Board
F. Andrew Mitchell........................... 42 Chief Financial Officer, Director
Robert J. Klein.............................. 48 Chief Operating Officer
Victor B. John, III.......................... 43 Senior Vice President -- Real Estate
Ross Miller.................................. 42 Senior Vice President, General Counsel, Secretary
Jeffrey L. Plain............................. 36 Senior Vice President -- Purchasing
Arthur F. Greeder, III....................... 49 Vice President -- Store Development -- MidAtlantic Region, Director
Rokki Rogan.................................. 38 Vice President -- Acquisitions, Director
Michael A. Yeargin........................... 48 Vice President -- Administration, Director
Theodore J. Coburn........................... 42 Director
Douglas M. Raines............................ 47 Director
Charles D. Way............................... 43 Director
</TABLE>
JOHN L. TAYLOR has served as President, Chief Executive Officer and a
director of the Company since November 1994 and as Chairman of the Board since
November 1995. Mr. Taylor became President and Chief Executive Officer of the
Predecessor in September 1994. From March 1986 through July 1989 Mr. Taylor was
President and Chief Operating Officer, and thereafter through July 1994 was
President and Chief Executive Officer, of Ingram Entertainment, Inc., the
largest video wholesaler in the United States. Mr. Taylor graduated in 1976 from
the University of North Carolina, Charlotte, with a B.S. in accounting.
F. ANDREW MITCHELL has served as Chief Financial Officer and as a Director
of the Company since March 1995. From 1987 to March 1995 Mr. Mitchell was a
partner with KPMG Peat Marwick LLP and was managing partner of the 70-person
Greenville, South Carolina office for his last three and a half years with that
firm. During his 20-year career with KPMG he had extensive experience servicing
public and privately-held clients in the financial institution, entertainment
and franchise restaurant industries. He graduated in 1975 from the University of
Cincinnati with a B.B.A. in accounting.
ROBERT J. KLEIN became Chief Operating Officer of the Company in February
1996. From June 1995 to February 1996, he served as Vice President, Chief
Operating Officer -- Eastern Pennsylvania and New Jersey Region of the Company.
From January 1994 to June 1995, Mr. Klein was President of Planet Video, which
sold its two video specialty stores to the Company in August 1995. From March
1990 to May 1993, Mr. Klein was a Senior Vice President of Choices Entertainment
Corporation, a video retail company. Mr. Klein received his B.S. from Temple
University in 1970 and a M.A. in administration in 1975 from Villanova
University. Mr. Klein has been nominated by the Company for election to the
Company's Board of Directors at the annual meeting of stockholders to be held on
May 15, 1996.
VICTOR B. JOHN, III became Vice President -- Real Estate of the Company in
June 1995 and Senior Vice President in March 1996. From 1982 to June 1995, Mr.
John was a broker with Edens and Avant, Incorporated, a commercial real estate
firm in Columbia, South Carolina.
ROSS MILLER became Senior Vice President and General Counsel of the Company
in January 1996 and became Secretary of the Company in March 1996. From 1994 to
December 1995, Mr. Miller was corporate counsel with the Atlanta, Georgia law
firm of Rogers & Hardin. From 1991 to 1994, Mr. Miller was a partner in the
Chicago law firm of Schwartz, Cooper, Greenberger & Krauss. From 1986 to 1991,
Mr. Miller was a partner in the Chicago law firm of Katten Muchin & Zavis. Mr.
Miller received an A.B. degree from the University of North Carolina at Chapel
Hill, a J.D. from the University of Michigan Law School and a L.L.M., in
International and Comparative Law, from the University of Brussels. Mr. Miller
is a member of the Georgia, Illinois, Texas, and New York bars.
JEFFREY L. PLAIN became Vice President -- Purchasing in September 1995 and
Senior Vice President in March 1996. From 1989 to 1992, Mr. Plain was an Area
Manager, and thereafter through September 1995, was Director of Purchasing for
the New York Video and New England Video Limited Partnerships, which are
Blockbuster Video franchisees operating stores
41
<PAGE>
in New York and Connecticut, respectively. Mr. Plain received a Bachelor of
Science, Health and Physical Education degree (business concentration) from West
Chester University.
ARTHUR F. GREEDER, III became Vice President -- Store
Development -- MidAtlantic Region of the Company in October 1995 and became a
director in August 1995. From June 1995 to October 1995, Mr. Greeder was Vice
President, Chief Operating Officer -- MidAtlantic Region of the Company. From
1981 to June 1995, Mr. Greeder was President of Video Express, which merged its
ten stores into the Company in August 1995.
ROKKI ROGAN became Vice President -- Acquisitions of the Company in October
1995 and became a director in August 1995. From June 1995 to October 1995, he
was Vice President, Chief Operating Officer -- Midwest Region of the Company.
From 1983 to June 1995, Mr. Rogan was President of First Row and Game Trader,
which merged their 24 video specialty stores and certain other related
operations into the Company in August 1995.
MICHAEL A. YEARGIN co-founded the Company in 1985. From June 1995 to March
1996, Mr. Yeargin was Executive Vice President -- Purchasing, Secretary and a
Director of the Company. In March 1996, Mr. Yeargin resigned as Executive Vice
President and Secretary and became Vice President -- Administration of the
Company.
THEODORE J. COBURN became a director of the Company in June 1995. Since
1991, Mr. Coburn has been a partner and a director of Brown, Coburn & Co., an
investment banking firm. From 1986 until 1991, he was a Managing Director of
Global Equity Transactions and a member of the Board of Directors of Prudential
Securities. From 1983 to 1986 Mr. Coburn served as Managing Director of Merrill
Lynch Capital Markets. Mr. Coburn received his B.S. from the University of
Virginia in 1975 and an M.B.A. from Columbia University Graduate School of
Business in 1978. Mr. Coburn serves as a director of Sage Analytics
International ("Sage"), Nicholas-Applegate Growth Equity Fund, the Emerging
Germany Fund, and Premiere Radio Networks, Inc. ("Premiere Radio"), serves as a
trustee of Nicholas-Applegate Mutual Funds, and serves on the compensation
committees of Sage and Premiere Radio.
DOUGLAS M. RAINES co-founded the Company in 1985 and managed the business
until September 1994. In June 1995, Mr. Raines became Chairman of the Board and
Executive Vice President -- Real Estate and Development of the Company
responsible for site selection and construction for new stores. Mr. Raines
resigned as Chairman of the Board in November 1995 and as Executive Vice
President in March 1996.
CHARLES D. WAY became a director of the Company in August 1995. Since June
1988, Mr. Way has been President of Ryan's Family Steakhouses Inc. ("Ryan's"), a
chain of restaurants. In October 1989 he was elected Chief Executive Officer,
and in October 1992 he was elected Chairman of the Board of Ryan's. He graduated
in 1975 from Clemson University with a B.S. in Accounting. Mr. Way serves as a
director of World Acceptance Corp.
DIRECTOR COMPENSATION
The Company pays its non-employee directors $5,000 per year plus $1,000 for
each board or committee meeting attended in person (plus out-of-pocket
expenses). In addition, the Company granted Mr. Way options to purchase 5,000
shares of Common Stock exercisable at the initial public offering price of
$12.00 per share, subject to vesting over a 90-day period. These options are
exercisable over a period of ten years.
BOARD COMMITTEES, STAGGERED BOARD AND EXECUTIVE OFFICERS
The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee is currently composed of Mr. Coburn
and Mr. Taylor. The Compensation Committee is responsible for, among other
things, establishing compensation of the Company's executive officers and for
administering the Company's Stock Plan. The Audit Committee is currently
composed of Mr. Coburn and Mr. Way. The Audit Committee is responsible for,
among other things, recommending independent auditors, reviewing with the
independent auditors the scope and results of the audit engagement, monitoring
the Company's accounting policies and control procedures and reviewing and
monitoring the provision of non-audit services by the Company's auditors.
The directors are divided into three classes serving staggered terms that
expire at the 1996, 1997 or 1998 annual meeting of stockholders. The terms of
the directors and nominees for director will expire as follows: Messrs. Taylor
and Mitchell in 1996, Messrs. Greeder, Rogan and Way in 1997, and Messrs.
Raines, Yeargin and Coburn in 1998. Directors for each class will be elected at
the annual meeting of stockholders held in the year in which the term for such
class expires and will serve thereafter for three years or until their earlier
resignation or removal, or until their successors are elected or qualified.
Messrs.
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<PAGE>
Taylor, Mitchell and Klein have been nominated by the Company for election as
directors at the annual meeting of stockholders to be held on May 15, 1996.
All executive officers of the Company are elected annually by, and serve at
the discretion of, the Board of Directors.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
EXECUTIVE OFFICERS
The Company's Amended and Restated Certificate of Incorporation
("Certificate of Incorporation") limits the liability of its directors. As
permitted by the General Corporation Law of the State of Delaware (the "Delaware
Code"), directors will not be liable to the Company for monetary damages arising
from a breach of their fiduciary duty as directors in certain circumstances.
Such limitation does not affect liability for (i) any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) unlawful payment of dividends or unlawful stock purchases or
redemptions or (iv) any transaction from which such director derives an improper
personal benefit. Such limitation of liability also does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware Code.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid to the Chief
Executive Officer and the four highest paid executive officers of the Company
that earned more than $100,000 in annual salary and bonus pursuant to employment
agreements with Moovies, Inc. in 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION OTHER SECURITIES
BONUS AMOUNT UNDERLYING ALL OTHER
NAME AND SALARY ($) COMPENSATION OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) (1) (2) ($) (3) (#) (4) ($) (5)
<S> <C> <C> <C> <C> <C> <C>
John L. Taylor
Chairman of the Board of Directors, President 1995 200,000 0 0 0 1,110
and Chief Executive Officer 1994 66,694(6) 0 0 0 0
F. Andrew Mitchell 1995 190,181 10,000(8) 0 0 1,910
Chief Financial Officer (7) 1994 0 0 0 0 0
Robert J. Klein (9) 1995 97,014 0 0 40,000 0
Chief Operating Officer 1994 53,000 0 11,500(10) 0 0
Michael A. Yeargin (11) 1995 98,207 0 0 0 113,853(12)
Vice President-Administration 1994 65,000 0 0 0 188,148(12)
Douglas M. Raines (11)(13) 1995 97,380 0 0 0 113,853(12)
Director 1994 65,000 0 0 0 188,148(12)
</TABLE>
(1) In determining the Named Executives, the salaries and other compensation
paid by certain executives' acquired video chains prior to August 1995 were
not considered. The Named Executives were selected based on annual salary
payable pursuant to employment agreements with the Company, as follows: Mr.
Taylor $200,000; Mr. Mitchell, $200,000 (plus an additional $2,000 per
month for his first 12 months with the Company); Mr. Klein, $150,000; and
Messrs. Raines and Yeargin, each $150,000. For Messrs. Klein, Raines and
Yeargin, salaries under these agreements were paid from August 9, 1995 (the
date of the Company's initial public offering) through December 31, 1995.
For Mr. Taylor and Mr. Mitchell, salaries under these agreements were paid
from January 1 and March 1, respectively, through December 31, 1995. See
" -- Employment Agreements; Covenants Not to Compete."
(2) Includes bonuses earned by the Named Executives for the periods presented
or, for executives hired during the periods, for the period from the date
of hire to the end of the applicable year.
(3) Other than for Mr. Klein in 1994, amounts for perquisites and other
personal benefits extended to the Named Executives are less than 10% of the
total of annual salary and bonus of such Named Executive.
43
<PAGE>
(4) During the periods presented, the only form of long-term compensation
utilized by the Company has been the grant of stock options. The Company
has not awarded restricted stock or stock appreciation rights, nor has it
made any long-term incentive payouts. Accordingly, the columns for
"Restricted Stock Award(s)" and "Long Term Incentive Payouts" have been
omitted.
(5) In 1995, the Company adopted its supplemental life insurance program for
Mr. Taylor and Mr. Mitchell. The Company's contributions to supplemental
life insurance program for 1995 were $1,110 for Mr. Taylor and $1,910 for
Mr. Mitchell.
(6) Includes $46,774 of deferred salary earned by Mr. Taylor in 1994 but paid
in 1995.
(7) Mr. Mitchell joined the Company in March 1995.
(8) Mr. Mitchell's bonus represents a signing bonus paid in March 1995.
(9) For Mr. Klein, includes amounts paid by Planet Video, Inc., a video chain
acquired by the Company in August 1995. The salary amounts paid by Planet
Video, Inc. were $53,000 for 1994 and $41,000 for 1995. The salary amount
paid by the Company in 1995 was $56,014.
(10) Includes professional fees reimbursed of $5,000, auto allowance of $3,500,
and travel and entertainment allowance of $3,000, all paid to Mr. Klein by
Planet Video, Inc.
(11) For Messrs. Yeargin, and Raines, includes salaries paid to the Named
Executive from Tonight's Feature Limited Partnership II (the "Predecessor")
during the periods presented prior to August 8, 1995, the date the
Predecessor was merged with the Company, in the amount of $40,500, and
$40,500, respectively.
(12) Represents capital distributions from the Predecessor.
(13) Mr. Raines served as Chairman prior to November 1995 and Executive Vice
President prior to March 1996.
GRANT OF OPTIONS. During 1995, options were granted to Mr. Klein in
recognition of his performance. No options were granted to any of the other
Named Executives during 1995. No stock appreciation rights (SARs) have been
granted by the Company. The following table sets forth information regarding the
grant of options in 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1995)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
% OF TOTAL VALUE
NUMBER OF OPTIONS/SARS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF
UNDERLYING EMPLOYEES APPRECIATION FOR OPTION
OPTIONS/SARS IN FISCAL EXERCISE EXPIRATION TERM
NAME GRANTED (#) YEAR PRICE ($/SH) DATE (1) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Robert J. Klein........................... 40,000 6.0% $ 10.875 12/11/05 $273,569 $693,278
</TABLE>
(1) Options are subject to earlier termination in the event of death,
disability, retirement, or termination of employment.
OPTIONS EXERCISED. No options were exercised by Named Executives in 1995.
The following table sets forth information regarding the number of options held
by the Named Executives as listed in the Summary Compensation Table, including
the value of unexercised in-the-money options as of December 31, 1995. The
closing price of the Company's Common Stock on December 31, 1995 used to
calculate such values was $13.50 per share.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (1995)
AND FISCAL YEAR-END OPTION/SAR VALUES (AS OF DECEMBER 31, 1995)
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS/SARS
ACQUIRED ON OPTIONS/SARS AT YEAR END
EXERCISE VALUE AT YEAR END (#) ($)
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C> <C>
Robert J. Klein............................. 0 $0 0 40,000 $ 0
<CAPTION>
NAME UNEXERCISABLE
<S> <C>
Robert J. Klein............................. $ 105,000
</TABLE>
OPTION REPRICING. The Company did not reprice any stock options in 1994 or
1995 and, to date, has not issued any stock appreciation rights.
LONG TERM INCENTIVE PLANS. Presently, the Company has no long-term
incentive plans.
44
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since August 1995, compensation decisions for Moovies, Inc. have been made
by the Compensation Committee, comprised of Messrs. Taylor and Coburn. Prior to
August 1995, (i) compensation decisions for Moovies, Inc. were made by its Board
of Directors of which Mr. Taylor is a member, (ii) compensation decisions for
Video Express were made by its Board of Directors of which Mr. Greeder was a
member, (iii) compensation decisions for L.A. Video were made by Mr. Warshaw as
President and owner of L.A. Video, (iv) compensation decisions for First Row
were made by its Board of Directors of which Mr. Rogan was a member, (v)
compensation decisions for Movie Stars were made by its Board of Directors of
which Mr. Daniels was a member, (vi) compensation decisions for Planet Video
were made by its Board of Directors of which Mr. Klein was a member and (vii)
compensation decisions for the Predecessor were made by Messrs. Raines and
Yeargin as general partners.
In connection with the organization of Moovies, Inc., Mr. Taylor, an
executive officer and director of the Company, purchased 461,665 shares of
Common Stock of Moovies, Inc., for nominal consideration. Upon completion of the
initial public offering, Mr. Taylor beneficially owned 6.0% of the outstanding
Common Stock. In addition, in connection with the organization of Moovies, Inc.,
the Company granted Mr. Taylor certain demand and piggyback registration rights
with respect to such Common Stock. See "Description of Capital
Stock -- Registration Rights."
In November 1994, the Company granted a warrant to Theodore J. Coburn, a
director of the Company, in connection with his providing assistance to the
Company in completing its business plan and in selecting underwriters for the
initial public offering. Under the warrant, Mr. Coburn may purchase 150,000
shares of Common Stock of the Company at $1.00 per share at any time prior to
June 30, 2000. Shares purchased upon exercise of the warrant will be entitled to
the benefits of a registration rights agreement providing for certain demand and
piggyback registration rights with respect to such Common Stock. See
"Description of Capital Stock -- Registration Rights." In addition, Mr. Coburn
received approximately $140,000 during 1995 for investment advisory services,
primarily in connection with the Company's initial public offering, and
continues to receive $4,500 per month as a retainer as an investment advisor to
the Company.
MERGER OF TONIGHT'S FEATURE, INC. INTO MOOVIES, INC.
In August 1995, Tonight's Feature, Inc. ("TFI") was merged into Moovies,
Inc. under an Agreement and Plan of Merger. TFI beneficially owned 90.1% of the
outstanding partnership interests of the Predecessor prior to the merger.
Messrs. Raines and Yeargin, both executive officers and directors of the
Company, each beneficially owned 50% of the outstanding capital stock of TFI. In
connection with the merger of TFI into Moovies, Inc., (i) all of the partnership
interests of the Predecessor beneficially owned by Messrs. Raines and Yeargin
were converted into 641,149 shares and 641,149 shares, respectively, of Common
Stock of the Company (which represented in each case 8.4% of the Common Stock
outstanding upon completion of the initial public offering) and (ii) Messrs.
Raines and Yeargin were granted certain demand and piggyback registration rights
with respect to such Common Stock. See "Description of Capital
Stock -- Registration Rights."
THE ACQUISITIONS
FIRST ROW AND GAME TRADER. In August 1995, the Company entered into a
Merger Agreement with First Row and Game Trader, pursuant to which the Company
acquired 24 video specialty stores and certain other related operations. Prior
to these acquisitions, Mr. Rogan, an executive officer and director of the
Company, beneficially owned 70% of the outstanding capital stock of First Row
and Game Trader. In exchange for such interest, Mr. Rogan received aggregate
consideration of $8.4 million, consisting of $3.6 million in cash and $4.8
million in shares of Common Stock (400,000 shares) in the merger. In addition,
the Company repaid approximately $2.1 million of indebtedness of First Row and
Game Trader. In connection with the merger, the Company granted Mr. Rogan
certain demand and piggyback registration rights with respect to his Common
Stock. See "Description of Capital Stock -- Registration Rights." Pursuant to
the Agreement and Plan of Merger, Mr. Rogan agreed to indemnify the Company
against certain liabilities arising out of any misrepresentation relating to the
agreement subject to a cap of $4.2 million and not including the first $100,000
of indemnified claims. The merger consideration is subject to adjustment based
on the indemnification agreement. Potential adjustments to the merger
consideration in an aggregate amount of approximately $348,000 are currently
pending, subject to further adjustments. In August 1995, the Company granted Mr.
Rogan options to purchase 50,000 shares of Common Stock immediately exercisable
at the initial public offering price of $12.00 per share.
45
<PAGE>
In January 1995, First Row and Game Trader loaned $260,804 to an affiliate
which is 70% owned by Mr. Rogan pursuant to a demand promissory note with an
annual interest rate of 6%. As of December 31, 1995, $268,804 was outstanding
under this note. The greatest amount outstanding under notes with similar terms
during 1993, 1994, 1995 and the three months ended March 31, 1996 was $129,013,
$260,804, $268,804 and $268,804, respectively.
VIDEO EXPRESS. In June 1995, the Company entered into a Merger Agreement
with Video Express pursuant to which the Company acquired ten video specialty
stores. Mr. Greeder, an executive officer and director of the Company, and his
spouse beneficially owned 100% of the outstanding capital stock of Video Express
prior to the merger. Pursuant to the Merger Agreement, in exchange for all such
outstanding capital stock of Video Express, Mr. Greeder and his spouse received
aggregate consideration of approximately $7.1 million, consisting of
approximately $2.7 million in cash and approximately $4.4 million in shares of
Common Stock (362,500 shares). In addition, the Company repaid approximately
$123,000 of indebtedness of Video Express. In connection with the merger, the
Company granted Mr. Greeder and his spouse certain demand and piggyback
registration rights with respect to their Common Stock. See "Description of
Capital Stock -- Registration Rights." Pursuant to the Agreement and Plan of
Merger, Mr. Greeder and his spouse agreed to indemnify the Company against
certain liabilities arising out of any misrepresentation relating to the
agreement or certain liabilities relating to the business or assets of Video
Express. The merger consideration is subject to adjustment based on the
indemnification agreement. Potential adjustments to the merger consideration in
an aggregate amount of approximately $600,000 are currently pending, subject to
further adjustments.
In March 1995, Video Express borrowed $319,314 from Mr. Greeder pursuant to
a demand promissory note with annual interest accruing at a rate equal to the
applicable federal rate published periodically by the United States Treasury
Department. As of December 31, 1995, $319,314 was outstanding under this note.
The greatest amount outstanding under notes with similar terms during 1993,
1994, 1995 and the three months ended March 31, 1996 was $260,680, $260,680,
$326,501 and $326,501, respectively. In August 1995, the Company granted to Mr.
Greeder options to purchase 50,000 shares of Common Stock, exercisable at the
initial public offering price of $12.00 per share, subject to vesting over a
one-year period. See "Description of Capital Stock -- Registration Rights."
MOVIE STARS. In June 1995, the Company entered into an Asset Purchase
Agreement with Movie Stars pursuant to which the Company acquired ten video
specialty stores. Mr. Daniels, a former executive officer and director of the
Company, beneficially owned 100% of the outstanding capital stock of Movie
Stars. Pursuant to the Asset Purchase Agreement, in exchange for substantially
all of the assets of Movie Stars, the Company paid Movie Stars aggregate
consideration of approximately $5.3 million, consisting of approximately $1.8
million in cash, a $500,000 promissory note and approximately $3.0 million in
shares of Common Stock (252,083 shares). The promissory note is payable on
August 9, 1996 with annual interest accruing at a rate equal to the prime rate
as published by NationsBank, N.A., Atlanta, Georgia. In connection with the
acquisition, the Company granted Movie Stars certain demand and piggyback
registration rights with respect to its Common Stock. See "Description of
Capital Stock -- Registration Rights." Pursuant to the Asset Purchase Agreement,
Mr. Daniels agreed to indemnify the Company against liabilities arising out of
any misrepresentation relating to the agreement or certain liability relating to
the business or assets of Movie Stars. In addition, in connection with the
acquisition, the Company repaid approximately $1.1 million of indebtedness of
Movie Stars. Upon the completion of the Company's initial public offering, the
Company granted to Mr. Daniels options to purchase 250,000 shares of Common
Stock exercisable at the initial public offering price of $12.00 per share, of
which 100,000 were immediately exercisable and 150,000 were subject to vesting
over a three-year period.
In March 1996, the Company and Mr. Daniels entered into a settlement
agreement whereby (i) the Company received approximately $77,000 from escrow and
Mr. Daniels received approximately $33,000 as a severance payment, (ii) Mr.
Daniels resigned as a director of the Company effective December 1995, and (iii)
Mr. Daniels' options were amended to reduce the total number of option shares to
125,000, all of which vested immediately and expire in March 1999.
In September 1993, Movie Stars borrowed $184,406 from Mr. Daniels. This
advance was payable on demand. Beginning in 1994, Movie Stars paid interest on
Mr. Daniels' personal borrowings from an unaffiliated bank in consideration for
the advances made by Mr. Daniels to Movie Stars. In March 1994, Movie Stars
borrowed $52,786 from Mr. Daniels' spouse. This advance was payable on demand
and bore interest at a rate of 3.84%. The greatest amount outstanding on these
advances during 1993, 1994 and 1995 was approximately $184,406, $235,701 and
$194,000, respectively. The interest paid by Movie Stars on these advances for
1993, 1994 and 1995 was approximately $0, $13,161 and $12,000, respectively. In
1994, Mr. Daniels borrowed $182,915 from an unaffiliated bank, which loan was
secured by certain assets of Movie Stars and by a Movie Stars guaranty. At March
31, 1995, $161,141 was outstanding under such bank loan, all of which was repaid
by Mr. Daniels concurrently with the completion of the Company's offering with a
portion of the net proceeds received by
46
<PAGE>
Mr. Daniels under the Asset Purchase Agreement. In March 1995, Movie Stars
borrowed $225,000 from an unaffiliated bank pursuant to a variable interest
demand note, which loan was secured by a guaranty of Mr. Daniels. In May 1995,
Movie Stars borrowed an additional $255,000 from this bank, which loan was
secured by the same guaranty of Mr. Daniels. These borrowings financed two new
stores of Movie Stars. The balance of this loan was paid in full concurrently
with the completion of the Company's initial public offering.
L.A. VIDEO. In June 1995, Moovies, Inc. entered into an Asset Purchase
Agreement with L.A. Video pursuant to which the Company acquired five video
specialty stores. Mr. Warshaw, who was an executive officer of the Company from
June 1995 through August 1995, and his spouse beneficially owned 100% of the
outstanding equity interests in L.A. Video. Pursuant to the Asset Purchase
Agreement, in exchange for substantially all of the assets of L.A. Video, the
Company paid L.A. Video aggregate consideration of approximately $5.1 million
consisting of approximately $3.3 million in cash and approximately $1.8 million
in shares of Common Stock (149,125 shares). In addition, the Company repaid
approximately $360,000 of indebtedness of L.A. Video. In connection with the
acquisition, the Company granted L.A. Video certain demand and piggyback
registration rights with respect to its Common Stock. See "Description of
Capital Stock -- Registration Rights." Pursuant to the Asset Purchase Agreement,
Mr. Warshaw and his spouse agreed to indemnify the Company against certain
liabilities arising out of any misrepresentation relating to the agreement or
certain liabilities relating to the business or assets of L.A. Video. In August
1995, the Company granted Mr. Warshaw options to purchase 25,000 shares of
Common Stock exercisable at the initial public offering price of $12.00 per
share, subject to vesting over a one-year period.
In December 1994, March 1995 and June 1995, L.A. Video borrowed $198,035,
$40,000 and $34,114, respectively, from Mr. Warshaw. These advances are payable
on demand and are non-interest bearing. As of December 31, 1995, these amounts
had been paid in full. The greatest amounts outstanding under these advances
during 1994 and 1995 were $198,035 and $272,149, respectively.
PLANET VIDEO. In June 1995, the Company entered into an Asset Purchase
Agreement with Planet Video to acquire two video specialty stores. Mr. Klein, an
executive officer of the Company, beneficially owned 100% of the outstanding
capital stock of Planet Video. Pursuant to the Asset Purchase Agreement, in
exchange for substantially all of the assets of Planet Video, the Company paid
Planet Video aggregate consideration of approximately $653,000 consisting of
approximately $335,000 in cash and approximately $325,000 in shares of Common
Stock (27,083 shares). In addition, the Company repaid approximately $240,000 of
indebtedness of Planet Video. In connection with the acquisition, the Company
granted Planet Video certain demand and piggyback registration rights with
respect to its Common Stock. See "Description of Capital Stock -- Registration
Rights." Pursuant to the Asset Purchase Agreement, Mr. Klein agreed to indemnify
the Company against certain liabilities arising out of any misrepresentation
relating to the agreement or certain liabilities relating to the business or
assets of Planet Video.
LEASES
In August 1995, the Company entered into a ten year lease with Mr. Daniels
and his spouse with annual rental payments ranging from $60,000 in the first
year to $78,956 in the tenth year. The Company also entered into a five year
lease with Mr. Greeder with annual rental payments of $87,120. For 1995 and the
three months ended March 31, 1996 the Company made rental payments of $29,040
and $21,780, respectively, under this lease. The Company continues to pay rent
under these leases at these rental rates. In addition, the Company entered into
a five year lease with Mr. Rogan with annual rental payments of $29,200. The
Company subsequently sold the store subject to this lease and no longer pays
rent thereunder. All of such leases pertain to stores acquired by the Company in
connection with the acquisition of stores beneficially owned by Messrs. Daniels,
Greeder and Rogan.
Prior to August 1995, the Predecessor leased its office from a partnership
owned 100% by Messrs. Raines and Yeargin, and leased one of its store facilities
from a partnership which is 50% owned by Messrs. Raines and Yeargin. The
partnership sold this store property in October 1995 and thereafter received no
further lease payments from the Company. For 1992, 1993 and 1994, the
Predecessor made rental payments under this lease aggregating approximately
$12,691, $12,691 and $45,849, respectively. The Company assumed these leases in
connection with the consummation of the Acquisitions. For the year ended 1995
and the three months ended March 31, 1996, the Company and the Predecessor made
rental payments aggregating approximately $90,000 and $5,500 under these leases.
Prior to August 1995, First Row and Game Trader leased certain store
facilities and a warehouse from an affiliated company. Mr. Rogan owns 70% of
this affiliated company. For 1993, 1994 and 1995, First Row and Game Trader made
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rental payments under this lease aggregating $91,250, $134,610 and $176,812. The
Company assumed these leases in connection with the consummation of the
Acquisitions. For 1995 and three months ended March 31, 1996 the Company made
rental payments under these leases aggregating $105,813 and $78,876,
respectively.
Prior to August 1995, Video Express leased one of its store facilities from
Mr. Greeder. For each of the years ended March 31, 1993, 1994 and 1995, Video
Express made rental payments under this lease aggregating $85,200.
Prior to August 1995, Movie Stars leased one of its store facilities from
Mr. Daniels and his spouse. For 1993, 1994 and 1995, Movie Stars made rental
payments under this lease aggregating approximately $24,607, $62,155 and
$45,000, respectively. In addition, prior to August 1995, Movie Stars leased one
of its store facilities from Mr. Daniels' father-in-law. For 1993, 1994 and
1995, Movie Stars made rental payments under this lease aggregating
approximately $36,182, $37,629 and $28,000, respectively. The Company assumed
these leases in connection with the consummation of the Acquisitions. For the
year ended 1995 and the three months ended March 31, 1996, the Company made
rental payments aggregating approximately $41,000 and $35,000 under these
leases.
MANAGEMENT FEES
Prior to August 1995, the Predecessor paid a management fee to its general
partner, TFI. TFI was wholly owned by Messrs. Raines and Yeargin. For 1993, 1994
and 1995, such management fees aggregated $187,309, $218,356 and $0,
respectively.
Prior to August 1995, First Row and Game Trader received management fees
from certain corporations owned by the stockholders of First Row and Game
Trader. For 1993, 1994, and 1995, such management fees aggregated $38,744,
$50,704 and $0, respectively.
Following the consummation of the Initial Acquisitions, the Company did not
and does not intend to pay any such management fees.
With the exception of the Acquisitions, each of which was negotiated
between unaffiliated parties, management believes that the transactions
described above may not have been on terms as favorable to the Company, the
Predecessor or the relevant video store chains, as applicable, as those that
could have been obtained from unaffiliated parties; however, it is the Company's
policy that all future transactions, if any, with affiliated parties will comply
with the requirements of the Delaware General Corporation Law. As a result, any
such transactions will be approved by the disinterested members of the Company's
Board of Directors (or a committee thereof) or by the stockholders of the
Company.
CERTAIN PRIOR RELATIONSHIPS
Ingram Entertainment, Inc., of which Mr. Taylor was an executive officer
from March 1986 through July 1994, was a wholesale video supplier for the
Predecessor, Video Stars, Movie Stars, King Video, L.A. Video and Video
Warehouse 2 and certain stores owned by one of its owners, Gerald Pryor.
Prior to joining the Company in March 1995, Mr. Mitchell was a partner with
KPMG Peat Marwick LLP ("Peat Marwick"). Mr. Mitchell was involved during October
and November 1994 with the proposal to the Predecessor to engage Peat Marwick as
the Predecessor's independent auditors. Peat Marwick began its audit of the
Predecessor in November 1994. In late November 1994, Mr. Mitchell entered into
negotiations with Moovies, Inc. regarding his possible employment. At that time,
Mr. Mitchell ceased all involvement with respect to the audit of Moovies, Inc.,
the Predecessor and each of the video store chains to be acquired pursuant to
the Acquisitions.
Except as set forth above, there were no relationships prior to the
discussions which led to the Acquisitions between the Company, the Predecessor,
and the principals thereof, and the principals of any of the video chains to be
acquired pursuant to the Acquisitions.
EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
Effective September 1994, the Company entered into a three-year employment
agreement with Mr. Taylor pursuant to which Mr. Taylor serves as President and
Chief Executive Officer at an annual base salary of $200,000 and is eligible for
an annual bonus at the discretion of the Board of Directors. The Company also
maintains for the benefit of Mr. Taylor a $1.0 million life insurance policy and
a $1.0 million life insurance policy for the benefit of the Company.
Effective March 1995, the Company entered into a two-year employment
agreement with Mr. Mitchell pursuant to which he serves as Chief Financial
Officer at an annual base salary of $200,000 and a guaranteed additional payment
of
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$2,000 per month through March 1996. The agreement is automatically renewable by
both parties on a year-to-year basis, but it may be terminated at any time by
Mr. Mitchell or the Company upon 90-days prior written notice. Upon the
expiration or termination of the Agreement, except for voluntary termination of
employment by Mr. Mitchell or termination for just cause by the Company, Mr.
Mitchell shall be paid severance compensation equal to twelve months base salary
plus an amount equal to the average of any aggregate annual cash bonuses
received by him during the prior two calendar years of employment (collectively
the "Expiration Payment"). The Company may terminate the agreement without cause
if it pays Mr. Mitchell the Expiration Payment plus, if such termination occurs
during the original term of the agreement, an amount equal to the base salary
which would have been paid to Mr. Mitchell had he remained an employee through
the end of such two-year term. The Company also maintains a $1.5 million life
insurance policy for the benefit of Mr. Mitchell.
In August 1995, the Company entered into two-year employment agreements
with Messrs. Raines and Yeargin, as Executive Vice President -- Real Estate and
Development and as Executive Vice President -- Purchasing, respectively,
pursuant to which each were paid a base salary at the annual rate of $150,000
and were eligible for an annual bonus granted at the discretion of the Board of
Directors.
In August 1995, the Company entered into three-year employment agreements
with Messrs. Daniels and Klein, two-year employment agreements with Messrs.
Rogan and Warshaw, and a one-year employment agreement with Mr. Greeder under
which their annual base salaries were $100,000 and they were eligible for
payment of bonuses granted at the discretion of the Board of Directors. In March
1996, the Daniels' employment agreement was terminated by mutual consent of the
parties. See " -- The Acquisitions -- Movie Stars."
Each of the above employment agreements contain covenants not to compete
within a five-mile radius of the Company's store locations in existence upon
completion of this offering for a period of two years following termination of
employment, except that in the case of Messrs. Mitchell, Rogan, Warshaw, Greeder
and Klein such covenants are for a period of one year following termination of
employment.
In May 1996, the Board of Directors of the Company authorized the Company
to enter into severance agreements with each of six officers, including Messrs.
John, Plain and Miller, that provide for a severance payment of two times the
applicable officer's average annual compensation (including salary and bonus)
for the prior two years in the event that a "Change in Control" occurs and the
officer either resigns or is terminated without cause by the Company within six
months after such Change in Control. In addition, the Board approved a similar
severance agreement for Mr. Klein that provides for a severance payment equal to
(i) $1,000,000 minus (ii) the aggregate difference between the value of Mr.
Klein's outstanding stock options (as measured by the spread between the market
value of the Company's common stock and the exercise price) and $2,000,000. All
such severance agreements will define "Change of Control" as the occurrence of
any of the following events:
(a) any person or entity, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, other than the
Company, a wholly owned subsidiary of the Company, or any employee benefit plan
of the Company or its subsidiaries, becomes the beneficial owner of the
Company's securities having 51 percent or more of the combined voting power of
the then outstanding securities of the Company that may be cast for the election
for directors of the Company; or
(b) as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing transactions, less than a majority
of the combined voting power of the then outstanding securities of the Company
or any successor corporation or entity entitled to vote generally in the
election of directors of the Company or such other corporation or entity after
such transaction, are held in the aggregate by holders of the Company's
securities entitled to vote generally in the election of directors of the
Company immediately prior to such transaction; or
(c) the approval of the stockholders of the Company of a plan of
liquidation.
1995 STOCK PLAN
In June 1995, the Board of Directors adopted, and the stockholders
approved, the Moovies, Inc. 1995 Stock Plan (the "Plan"). The Plan provides for
the award of incentive stock options to officers and employees and the award of
non-qualified stock options and other incentive grants to directors, officers,
and employees. The Company reserved 560,000 shares of Common Stock for issuance
under the Plan. In February 1996, the Board of Directors of the Company approved
an amendment to the Plan to increase the shares reserved to 1,200,000 shares,
subject to stockholder approval. In April 1996, the Board of Directors and the
Stockholders of the Company approved a further amendment to the Plan to increase
the shares reserved to 1,500,000 shares, subject to stockholder approval. The
Board of Directors has granted an aggregate of 803,950 shares under the Plan.
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The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"), the members of which must be "disinterested
directors" as defined under Rule 16b-3 promulgated pursuant to the Securities
Exchange Act of 1934, as amended. Committee members are not eligible to receive
discretionary stock-based awards under any plan of the Company while they are
members of the committee. The current Committee members are Messrs. Taylor and
Coburn. Subject to the terms of the Plan, the Committee has the authority to
determine the employees to whom options or rights may be granted, the exercise
price and number of shares subject to each option or right and the time or times
when each option shall become exercisable, to interpret the Plan and prescribe
and rescind rules and regulations consistent with the Plan and to determine
certain other provisions with respect to each option or right.
The purchase price of Common Stock upon exercise of incentive stock options
must not be less than the fair market value of the Common Stock at the date of
the grant or, in the case of incentive stock options issued to holders of more
than 10% of the outstanding voting securities of the Company, 110% of fair
market value on the date of grant. The maximum term of incentive stock options
is ten years, or five years in the case of 10% stockholders. The aggregate fair
market value on the date of the grant of the stock for which incentive stock
options are exercisable for the first time by an employee during any calendar
year may not exceed $100,000. Options are exercisable over a period of time in
accordance with the terms of option agreements entered into at the time of
grant. Options granted under the Plan are generally nontransferable by the
optionee and, unless otherwise determined by the Committee, must be exercised by
the optionee during the period of the optionee's employment or service with the
Company or within a specified period following termination of employment or
service.
CERTAIN TRANSACTIONS
Moovies, Inc. was incorporated in the State of Delaware in November 1994.
In connection with the organization of Moovies, Inc., Messrs. Mitchell and
Taylor, both executive officers and directors of the Company, purchased 224,711
shares and 461,665 shares of Common Stock of Moovies, Inc., respectively, for
nominal consideration. Upon completion of this offering, Messrs. Mitchell and
Taylor will beneficially own 1.9% and 3.8%, respectively, of the outstanding
Common Stock. In addition, in connection with the organization of Moovies, Inc.,
the Company granted Messrs. Mitchell and Taylor certain demand and piggyback
registration rights with respect to such Common Stock. See "Description of
Capital Stock -- Registration Rights."
Mortco, Inc. ("Mortco") beneficially owned 9.9% of the outstanding
partnership interests of the Predecessor. Mortco acquired its interest in the
Predecessor in 1993 for aggregate consideration of $250,000. In connection with
the merger of the Predecessor into Moovies, Inc., (i) all of the partnership
interests beneficially owned by Mortco were converted into 140,897 shares of
Common Stock of the Company (which represents approximately 1.2% of the Common
Stock outstanding upon completion of this offering) and (ii) Mortco was granted
certain demand and piggyback registration rights with respect to such Common
Stock. See "Description of Capital Stock -- Registration Rights."
Mortco is a wholly owned subsidiary of Rentrak which leases videos to the
Company. For 1993, 1994, 1995 and the three months ended March 31, 1996, the
Predecessor paid Rentrak lease and revenue sharing payments aggregating
approximately $526,262, $662,481, $1.3 million and $583,000, respectively. In
addition, First Row and Game Trader, Planet Video, Video Express and Video Stars
also leased videos from Rentrak. Pursuant to a revolving credit agreement, in
November 1994 Mortco provided Tonight's Feature a revolving line of credit
initially having aggregate borrowing availability of $250,000, which was
subsequently increased to $750,000 in March 1995. Borrowing under this facility
bears interest at a rate equal to the greater of 7% or the prime rate as
published by the Wall Street Journal plus 2.0%. During the year ended December
31, 1995, the aggregate amounts owed to Mortco during such period ranged from
$150,000 to $750,000 and the aggregate interest paid by the Predecessor to
Mortco during such period was $70,000. The note was paid in full in December
1995. In April 1995 in consideration of Mortco subordinating its revolving line
of credit to other financing obtained by the Predecessor from a third party,
Moovies, Inc. issued to Mortco a warrant to purchase 40,877 shares of Common
Stock of the Company at an exercise price equal to the initial public offering
price of $12.00 per share. The registration rights granted to Mortco also apply
to the Common Stock subject to this warrant.
See "Management -- Compensation Committee Interlocks and Insider
Participation" for a description of certain other transactions among the Company
and certain of its affiliates.
With the exception of transactions between the Company or the Predecessor,
and Mortco and its affiliates, management believes that the transactions
described above may not have been on terms as favorable to the Company or the
Predecessor, as applicable, as those that could have been obtained from
unaffiliated parties; however, it is the Company's policy that all future
transactions, if any, with affiliated parties will comply with the requirements
of the Delaware General Corporation Law. As a result, any such transactions will
be required to be approved by the disinterested members of the Company's Board
of Directors (or a committee thereof) or by the stockholders of the Company.
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PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 30 by (i) each person who is known to
the Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each director, (iii) each executive officer of the Company, and (iv) all
executive officers and directors of the Company as a group, both before and
after giving effect to this offering (assuming no exercise of the Underwriters'
over-allotment option). Except as set forth below, the stockholders listed below
have sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
<TABLE>
<CAPTION>
COMMON PERCENTAGE PERCENTAGE
STOCK OF CLASS OF CLASS
BENEFICIALLY PRIOR TO AFTER
NAME (1) OWNED OFFERING OFFERING
<S> <C> <C> <C>
Directors and Executive Officers:
John L. Taylor........................................................................... 453,740(2) 5.2% 3.8%
F. Andrew Mitchell....................................................................... 221,711(3) 2.6 1.9
Robert J. Klein.......................................................................... 27,083 * *
Victor B. John, III...................................................................... 100 * *
Ross Miller.............................................................................. 0 * *
Jeffrey L. Plain......................................................................... 0 * *
Arthur F. Greeder, III................................................................... 347,800(4) 4.0 2.9
Rokki Rogan.............................................................................. 378,400(5) 4.3 3.2
Michael A. Yeargin....................................................................... 637,649 7.4 5.4
Theodore J. Coburn....................................................................... 150,000(6) 1.7 1.2
Douglas M. Raines........................................................................ 629,149 7.3 5.3
Charles D. Way........................................................................... 19,000(7) * *
All executive officers and directors as a group (12 persons)............................. 2,864,632(8) 32.3% 23.7%
</TABLE>
* Less than 1.0%.
(1) The address of the persons listed above is c/o Moovies, Inc., 201 Brookfield
Parkway, Greenville, South Carolina 29607.
(2) Includes 2,400 shares held of record by Mr. Taylor as custodian for minor
children.
(3) Includes 2,000 shares held of record by Mr. Mitchell's spouse as custodian
for minor children.
(4) Includes 165,150 shares held jointly with Mr. Greeder's spouse and 1,400
shares held by a dependent child.
(5) Includes 50,000 shares of Common Stock which are issuable upon the exercise
of currently exercisable options.
(6) Consists of 150,000 shares which may be purchased upon exercise of a warrant
that is currently exercisable.
(7) Includes 5,000 shares which are issuable upon the exercise of currently
exercisable options.
(8) Includes 205,000 shares which may be purchased upon exercise of a warrant
and options that are currently exercisable.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Moovies, Inc. consists of 25,000,000 shares
of Common Stock, $.001 par value per share, and 1,000,000 shares of preferred
stock, $.001 par value per share (the "Preferred Stock"). As of May 15, 1996,
Moovies, Inc. had outstanding 8,964,040 shares of Common Stock and no shares of
Preferred Stock. Upon completion of this offering, the Company will have
outstanding 11,964,040 shares of Common Stock (12,444,040 shares if the
Underwriters' over-allotment option is exercised in full) and no shares of
Preferred Stock.
COMMON STOCK
Except as otherwise required by law or as provided by the Board of
Directors with respect to any class or series of Preferred Stock, the entire
voting power and all voting rights shall be vested exclusively in the Common
Stock. Each holder of shares of Common Stock shall be entitled to one vote for
each share outstanding in his or her name on the books of the Company.
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
Common Stock are entitled to such dividends as may be declared by the Board of
Directors out of funds legally available therefor. The Company has no current
plans to pay cash dividends on its Common Stock.
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, after the distribution or payment to the
holders of shares of any series of Preferred Stock as provided by the Board of
Directors with respect to any such series of Preferred Stock, the remaining
assets of the Company available for distribution to stockholders shall be
distributed among and paid to the holders of Common Stock ratably in proportion
to the number of shares of Common Stock held by them respectively.
On June 13, 1995 the Company effected a 76.7449-for-one Common Stock split
payable as a stock dividend to common stockholders of record on June 13, 1995.
On August 3, 1995 the Company effected a .0733-for-one Common Stock split
payable as a stock dividend to common stockholders of record on August 2, 1995.
PREFERRED STOCK
The Board of Directors is authorized to issue shares of Preferred Stock at
any time and from time to time, in one or more series, and to fix or alter the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of such shares of
Preferred Stock, including without limitation of the generality of the
foregoing, dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices and liquidation preferences of any wholly unissued series of
preferred shares and the number of shares constituting any of such series and
the designation thereof, or any of them; and to increase or decrease the number
of shares of a series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. Furthermore, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may have
the effect of delaying or preventing a change in control of the Company,
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
CERTAIN CHARTER AND BYLAW PROVISIONS
Stockholders' rights and related matters are governed by the Delaware
General Corporation Law, the Company's Certificate of Incorporation and its
Bylaws. Certain provisions of the Certificate of Incorporation and Bylaws of the
Company, which are summarized below, tend to limit stockholders' ability to
influence matters pertaining to corporate governance.
CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is divided
into three classes of directors serving staggered terms of three years each. See
"Management -- Executive Officers and Directors." As a result, it will be more
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difficult to change the composition of the Company's Board of Directors, which
may discourage or make more difficult any attempt by a person or group of
persons to obtain control of the Company.
SPECIAL MEETING CALL RESTRICTIONS. Under the Company's Bylaws, special
meetings of the stockholders may only be called by the Chairman of the Board, a
majority of the Board of Directors or upon the written demand of the holders of
a majority of the outstanding shares of Common Stock entitled to vote at any
such meeting. This provision makes it more difficult for stockholders to require
the Company to call a special meeting of stockholders to consider any proposed
corporate action, including any sale of the Company, which may be favored by the
stockholders.
RESTRICTIONS ON AMENDMENTS TO BYLAWS. Under the Company's Certificate of
Incorporation, the Company's Bylaws may not be amended by the stockholders and
any contrary provision may not be adopted without the affirmative vote of at
least two-thirds of the shares entitled to vote generally in the election of
directors. This supermajority restriction makes it more difficult for the
stockholders of the Company to amend the Bylaws and thus enhances the power of
the Company's Board of Directors vis-a-vis stockholders with regard to matters
of corporate governance that are governed by the Bylaws.
LIMITED ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. In general, stockholder
action may only be taken at a special or annual stockholder meeting called for
such purpose or with the unanimous written consent of the stockholders. These
requirements may delay stockholder action on matters requiring stockholder
approval.
WARRANTS
In November 1994, the Company granted to a director a warrant to purchase
150,000 shares of Common Stock of the Company at $1.00 per share. In March 1995,
the Company granted 19 former limited partners of the Predecessor warrants to
purchase an aggregate of 74,352 shares of Common Stock of the Company for $.01
per share. In April 1995, the Company's Predecessor granted to Mortco, Inc., in
connection with the Company's note payable to Mortco, a warrant to acquire
40,877 shares of Common Stock at an exercise price equal to the initial public
offering price per share (I.E. $12.00 per share). In April 1995, the Company
granted to Sirrom Capital Corporation a warrant to acquire 156,110 shares of
Common Stock at $.01 per share in connection with a loan from Sirrom to the
Predecessor. In July 1995, the Company agreed to issue to the managing
underwriters in the initial public offering ("IPO Representatives"), warrants to
purchase 236,250 shares of Common Stock at a purchase price per share equal to
120% of the initial public offering price per share (I.E. $14.40 per share). In
December 1995, the Company issued a warrant for 25,000 shares of Common Stock at
a purchase price of $14.875 per share in connection with the Pic-A-Flick
acquisition. In January 1996, in connection with the Subordinated Credit
Facility, the Company granted to Sirrom Capital Corporation a warrant to
purchase 20,000 shares of Common Stock at an exercise price of $10.80 per share.
See Footnote 7 to Consolidated Financial Statements, "Underwriting."
REGISTRATION RIGHTS
The Company has granted piggyback and/or demand registration rights to
certain holders of Common Stock (or warrants for shares of Common Stock)
including Messrs. Taylor, Raines, Mitchell, Daniels, Yeargin, Greeder, Rogan,
Warshaw, Klein and Coburn and certain of their spouses. All of such holders
beneficially own an aggregate of approximately 4.9 million shares of Common
Stock. In the event the Company proposes to register shares of Common Stock
under the Securities Act for its own account or for the account of others,
holders of piggyback registration rights will have the right to require the
Company to include their shares in the registration, subject to the right of any
managing underwriter of the offering to exclude some or all the shares for
marketing reasons. Holders of demand registration rights as a group will have
the right to require the Company on one occasion only to register shares held by
them under the Securities Act at any time between August 9, 1995 and August 9,
2000, provided, however, that such offering must be underwritten on a firm
commitment basis and the proposed net offering price of shares to be registered
must be at least $2,000,000. The Company is not obligated to effect a demand
registration within six months after the effective date of a previous Company
registration. The registration expenses of such shares, other than underwriting
discounts and filing fees, shall be borne by the Company except to the extent
otherwise prohibited by law. See "Certain Transactions." The Company also
granted demand and piggyback registration rights to Mortco, Inc. as the
beneficial owner of 178,589 shares of Common Stock. Mortco has two demand
registration rights exercisable any time beginning one year after August 3, 1995
and unlimited piggyback registration rights exercisable beginning one year after
August 3, 1995. In addition, the Company issued to the IPO Representatives
warrants to purchase shares of Common Stock in August 1995. See " -- Warrants"
and "Underwriting." The shares of Common Stock underlying the warrants are
accorded one demand registration right exercisable at any time between one and
five years after the warrants are issued and unlimited piggyback registration
rights exercisable at any time between one and seven years after the warrants
are issued.
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DELAWARE BUSINESS COMBINATION STATUTE
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), an anti-takeover law. Section 203
provides, with certain exceptions, that a publicly held Delaware corporation may
not engage in a "business combination" with a person, or an affiliate or
associate of such person, who is an "interested stockholder" for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the Board of Directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquired 85% or more of the outstanding voting stock of
the corporation in the same transaction that made such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. For purposes of Section 203, a "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder and an "interested stockholder"
is defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation who was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank of North Carolina.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
11,864,040 shares of Common Stock. Of these shares, the 3,622,500 shares sold in
the Company's initial public offering are, and the 3,200,000 shares sold in this
offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) will be, freely tradeable without restriction or further
registration under the Securities Act except for those shares held by
"affiliates" (as defined in the Securities Act) of the Company. None of the
remaining 5,041,540 outstanding shares of Common Stock (collectively, the
"Restricted Shares") have been registered under the Securities Act, and they may
be resold publicly only upon registration under the Securities Act or in
compliance with an exemption from the registration requirements of the
Securities Act. The Company has granted demand and piggyback registration rights
to holders of Restricted Shares and warrants to purchase shares of Common Stock.
See "Description of Capital Stock -- Registration Rights."
Rule 144 provides generally that if two years have elapsed since the later
of the date of the acquisition of restricted shares of Common Stock from the
Company or any affiliate of the Company, the acquiror or subsequent holder
thereof may sell, within any three-month period commencing 90 days after the
date of this Prospectus, a number of shares that does not exceed the greater of
1% of the then outstanding shares of Common Stock or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. If three years have elapsed since the later of the date of acquisition
of restricted shares of Common Stock from the Company or from any affiliate of
the Company and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares under Rule 144(k)
without regard to the limitations described above. Holders of 461,665 Restricted
Shares will be eligible to sell such shares pursuant to Rule 144 under the
Securities Act, subject to the manner of sale, volume, notice and information
requirements of Rule 144, beginning in December 1996, holders of 349,175
Restricted Shares will be eligible to sell such shares pursuant to Rule 144
beginning in February 1997, holders of 12,879 Restricted Shares will be eligible
to sell such shares pursuant to Rule 144 beginning in June 1997, holders of
3,178,185 Restricted Shares will be eligible to sell such shares pursuant to
Rule 144 beginning in August 1997, holders of 500,531 Restricted Shares will be
eligible to sell such shares pursuant to Rule 144 beginning in September 1997,
holders of 11,014 Restricted Shares will be eligible to sell such shares in
October 1997, holders of 497,583 Restricted shares will be eligible to sell such
shares in December 1997, holders of 25,000 Restricted Shares will be eligible to
sell such shares in March 1998, holders of 1,377 Restricted Shares will be
eligible to sell such shares in April 1998 and holders of 4,131 Restricted
Shares will be eligible to sell such shares in May 1998.
54
<PAGE>
The Underwriters intend to obtain lock-up agreements whereby the Company,
executive officers, directors and certain stockholders of the Company will agree
not (directly or indirectly) to offer, sell, offer to sell, contract to sell,
assign, pledge, grant any option to purchase or otherwise dispose of or transfer
(or announce any offer, sale, offer of sale, contract for sale, assignment,
pledge, grant of an option to purchase or other disposition or transfer of) any
Common Stock of the Company, or any other security of the Company, convertible
into, or exchangeable or exercisable for, Common Stock for a period of 90 days
after the effective date of the registration statement (the "Lock-up Period")
without the prior written consent of the Underwriters, except that (a) the
Company (i) may issue Common Stock or options to purchase Common Stock under the
Stock Plan, (ii) may issue Common Stock upon the exercise of presently
outstanding warrants and (iii) may issue Common Stock in connection with the
Company's express strategy of growth through acquisitions provided that such
Common Stock is restricted and is not tradeable prior to the expiration of the
Lock-up Period and (b) the executive officers, directors and certain
stockholders of the Company may make bona fide gifts to donees who agree to be
bound by the foregoing restrictions. See "Underwriting."
The Company filed a registration statement under the Securities Act
registering the 560,000 shares of Common Stock reserved for issuance under the
Stock Plan in December 1995. See "Management -- 1995 Stock Plan." In April 1996,
the Board of Directors approved an amendment to the Stock Plan to increase the
number of shares available under the Stock Plan to 1,500,000, subject to
Stockholder approval. This amendment was approved by the stockholders at the
annual meeting on May 15, 1996. The Company intends to file a registration
statement to register the additional shares under the Stock Plan. Accordingly,
shares registered under such registration statements will be available for sale
in the open market, unless such shares are subject to vesting restrictions
imposed by the Company.
55
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives, Needham
& Company, Inc., Wheat, First Securities, Inc. and Scott & Stringfellow, Inc.
(the "Representatives"), have severally agreed with the Company, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
the number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all of such shares
if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Needham & Company, Inc...........................................................................................
Wheat, First Securities, Inc.....................................................................................
Scott & Stringfellow, Inc........................................................................................
Total..................................................................................................... 3,200,000
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share, of which $ may
be reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company issued to the IPO Representatives warrants to purchase 236,250
shares of Common Stock at a purchase price per share equal to $14.40 in August
1995. The warrants will be exercisable during the four year period commencing
one year after the date the warrants are issued. The shares of Common Stock
underlying the warrants are accorded one demand registration right exercisable
at any time during the warrant exercise period and unlimited piggyback
registration rights exercisable at any time between one and seven years after
the warrants are issued. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 480,000
additional shares of Common Stock at the same price per share as the Company
receives for the 3,200,000 shares that the Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,200,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 3,200,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities including
liabilities under the Act.
Pursuant to the terms of lock-up agreements, directors, officers and
certain stockholders of the Company have agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, assign, pledge, grant any option
to purchase or otherwise dispose of or transfer (or announce any offer, sale,
offer of sale, contract for sale, assignment, pledge, grant of an option to
purchase or other disposition or transfer of) any Common Stock of the Company,
or any other security of the Company convertible into, or exchangeable or
exercisable for, Common Stock for a period of 90 days after the date hereof (the
"Lockup Period"), without the prior written consent of the Underwriters except
that such directors, officers and stockholders may make bona fide gifts to
donees who agree to be bound by such restrictions. The Company also has agreed
not to, directly or indirectly, offer, sell, offer to sell, contract to sell,
assign, pledge, grant any option to purchase or otherwise dispose of or transfer
(or announce any offer, sale, offer of sale, contract for sale, assignment,
pledge, grant of an option to purchase or
56
<PAGE>
other disposition or transfer of) any Common Stock of the Company, or any other
security of the Company, convertible into, or exchangeable or exercisable for,
Common Stock for a period of 90 days after the date hereof, without the prior
written consent of the Underwriters, except that the Company (i) may issue
Common Stock or options to purchase Common Stock under the Stock Plan, (ii) may
issue Common Stock upon the exercise of presently outstanding warrants and (iii)
may issue Common Stock in connection with the Company's strategy of growth
through acquisitions provided that such Common Stock is restricted and is not
tradeable prior to the expiration of the Lockup Period.
The rules of the Commission generally prohibit the Underwriters from making
a market in the Common Stock during the two business days prior to commencement
of sale in this offering (the "Cooling Off Period"). The Commission has,
however, adopted Rule 10b-6A ("Rule 10b-6A"), which provides an exemption from
such prohibition for certain passive market making transactions. Such passive
market making transactions must comply with applicable price and volume limits
and must be identified as passive market making transactions. In general,
pursuant to Rule 10b-6A, a passive market maker must display its bid for a
security at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, certain of the Underwriters and selling group members
may engage in passive market making in the Common Stock during the Cooling Off
Period. Passive market making may stabilize the market price of the Common Stock
at a level above that which might otherwise prevail, and if commenced, may be
discontinued at any time.
The Underwriters have informed the Company that they do not expect to make
sales to accounts over which they exercise discretionary authority in excess of
five percent of the number of shares of Common Stock offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Arnall Golden & Gregory, Atlanta, Georgia, and for the Underwriters
by King & Spalding, Atlanta, Georgia.
EXPERTS
The financial statements of Moovies, Inc. as of December 31, 1994 and 1995
and for each of the years in the three year period ended December 31, 1995, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
auditing and accounting.
The financial statements of the Pic-A-Flick Group and the Movie Store Group
have been included herein and in the Registration Statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants, as
of the dates and for the periods indicated in their reports appearing elsewhere
herein, and upon the authority of said firm as experts in auditing and
accounting.
The financial statements of MoveAmerica, Incorporated d/b/a Movies To Go
and Games To Go have been included herein and in the Registration Statement in
reliance upon the reports of McGladrey & Pullen, LLP, independent certified
public accountants, as of the dates and for the periods indicated in their
reports appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
The financial statements of (i) Movie Stars (a division of Movie Stars
Entertainment Corp.); (ii) PARR-Four, Inc. (d/b/a Video Express); (iii) Video
Stars (a division of BREM, Inc.); (iv) Video Warehouse I Group; (v) Video
Warehouse II Group; (vi) Planet Video; (vii) First Row Video, Inc.; (viii) Video
Game Trader, Inc.; and (ix) L.A. Video have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, as of the dates and for the periods
indicated in their reports appearing elsewhere herein, and upon the authority of
said firm as experts in auditing and accounting. The report of KPMG Peat Marwick
LLP covering the December 31, 1993 and 1994 financial statements of First Row
Video, Inc. refers to a change in the method of computing amortization of
videocassette rental inventory.
57
<PAGE>
The financial statements of Premiere Video, a division of American
Multi-Entertainment, Inc., have been included herein and in the Registration
Statement in reliance upon the reports of McMahon, Hartmann, Amundson & Co. LLP,
independent certified public accountants, as of the dates and for the periods
indicated in their reports appearing elsewhere herein, and upon the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copies at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Common Stock is listed on the Nasdaq Stock Market and such
reports, proxy and information statements and other information concerning the
Company can be inspected and copies at the Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006-1506.
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a registration statement on Form S-1
under the Securities Act of 1933, as amended, with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the shares of Common
Stock offered hereby, reference is hereby made to such Registration Statement,
exhibits and schedules. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be examined without charge at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York, 10048 and at Northwestern Atrium, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of all or any part thereof may be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549 upon
payment of the fees prescribed by the Commission.
58
<PAGE>
MOOVIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Moovies, Inc.
Independent Auditors' Report......................................................................................... F-3
Consolidated Balance Sheets.......................................................................................... F-4
Consolidated Statements of Operations................................................................................ F-5
Consolidated Statements of Stockholders' Equity and Partners' Equity (Deficit)....................................... F-6
Consolidated Statements of Cash Flows................................................................................ F-7
Notes to Consolidated Financial Statements........................................................................... F-8
Movie Stars (a division of Movie Stars Entertainment Corp.)
Independent Auditors' Report......................................................................................... F-17
Statements of Operating Revenues and Expenses........................................................................ F-18
Statements of Cash Flows............................................................................................. F-19
Notes to Financial Statements........................................................................................ F-20
Parr-Four, Inc. (d/b/a Video Express)
Independent Auditors' Report......................................................................................... F-22
Statements of Operations............................................................................................. F-23
Statements of Cash Flows............................................................................................. F-24
Notes to Financial Statements........................................................................................ F-25
Video Stars (a division of BREM, Inc.)
Independent Auditors' Report......................................................................................... F-28
Statement of Operating Revenues and Expenses......................................................................... F-29
Statement of Cash Flows.............................................................................................. F-30
Notes to Financial Statements........................................................................................ F-31
Video Warehouse I Group
Independent Auditors' Report......................................................................................... F-33
Combined Statements of Operating Revenues and Expenses............................................................... F-34
Combined Statements of Cash Flows.................................................................................... F-35
Notes to Combined Financial Statements............................................................................... F-36
Video Warehouse II Group
Independent Auditors' Report......................................................................................... F-38
Combined Statements of Operating Revenues and Expenses............................................................... F-39
Combined Statements of Cash Flows.................................................................................... F-40
Notes to Combined Financial Statements............................................................................... F-41
Planet Video
Independent Auditors' Report......................................................................................... F-43
Combined Statements of Operating Revenues and Expenses............................................................... F-44
Combined Statements of Cash Flows.................................................................................... F-45
Notes to Combined Financial Statements............................................................................... F-46
First Row Video, Inc.
Independent Auditors' Report......................................................................................... F-48
Statements of Income................................................................................................. F-49
Statements of Cash Flows............................................................................................. F-50
Notes to Financial Statements........................................................................................ F-51
Video Game Trader, Inc.
Independent Auditors' Report......................................................................................... F-54
Statements of Operations............................................................................................. F-55
Statements of Cash Flows............................................................................................. F-56
Notes to Financial Statements........................................................................................ F-57
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
L.A. Video
<S> <C>
Independent Auditors' Report......................................................................................... F-59
Combined Statements of Operating Revenues and Expenses............................................................... F-60
Combined Statements of Cash Flows.................................................................................... F-61
Notes to Combined Financial Statements............................................................................... F-62
MoveAmerica, Incorporated d/b/a Movies To Go and Games To Go
Independent Auditors' Report......................................................................................... F-64
Statements of Income................................................................................................. F-62
Statements of Cash Flows............................................................................................. F-66
Notes to Financial Statements........................................................................................ F-67
Movie Store Group
Independent Auditors' Report......................................................................................... F-69
Combined Statements of Operating Revenues and Expenses............................................................... F-70
Combined Statements of Cash Flows.................................................................................... F-71
Notes to Combined Financial Statements............................................................................... F-72
Pic-A-Flick Group
Independent Auditors' Report......................................................................................... F-75
Combined Statements of Operating Revenues and Expenses............................................................... F-76
Combined Statements of Cash Flows.................................................................................... F-77
Notes to Combined Financial Statements............................................................................... F-78
Certain Stores of American Multi-Entertainment, Inc. d/b/a Premiere Video
Independent Auditors' Report......................................................................................... F-81
Combined Statements of Net Assets.................................................................................... F-82
Combined Statements of Operations.................................................................................... F-83
Statement of Changes in Stores' Capital.............................................................................. F-84
Combined Statements of Cash Flows.................................................................................... F-85
Notes to Combined Financial Statements............................................................................... F-86
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Moovies, Inc:
We have audited the accompanying consolidated balance sheets of Moovies,
Inc. as of December 31, 1994 and 1995 and the related consolidated statements of
operations, stockholders' equity and partners' equity (deficit), and cash flows
for each of the years in the three year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Moovies, Inc. as of December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 1, 1996
F-3
<PAGE>
MOOVIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 169,591 $ 3,563,788 $ 5,570,084
Receivables.................................................................... 6,544 2,780,214 1,737,596
Merchandise inventory.......................................................... 9,985 2,617,496 2,390,047
Deferred income tax benefit.................................................... -- 984,136 308,224
Prepaid rent................................................................... -- 739,804 1,030,112
Other.......................................................................... 116,810 1,243,708 1,595,951
Total current assets........................................................ 302,930 11,929,146 12,632,014
Videocassette rental inventory, net.............................................. 931,212 16,728,416 17,356,976
Furnishings and equipment, net................................................... 566,743 9,858,952 11,116,831
Goodwill......................................................................... -- 29,080,621 30,535,285
Deposits and other assets........................................................ 297,502 622,361 916,183
$2,098,387 $68,219,496 $72,557,289
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Line of credit................................................................. $ -- $ 2,500,000 $12,795,934
Notes payable.................................................................. -- 5,935,215 500,000
Current portion of long-term debt.............................................. 430,726 481,064 448,971
Accounts payable............................................................... 672,993 10,567,375 8,330,138
Accrued liabilities............................................................ 89,573 3,065,603 3,737,165
Total current liabilities................................................... 1,193,292 22,549,257 25,812,208
Long-term debt, less current portion............................................. 1,309,002 2,410,987 3,698,356
Deferred income tax payable...................................................... -- 5,796,051 5,305,468
2,502,294 30,756,295 34,816,032
Commitments
Stockholders' equity (partners' deficit):
Preferred stock, $.001 par value; 1,000,000 shares authorized; no shares issued
and outstanding............................................................. -- -- --
Common stock, $.001 par value; 25,000,000 shares authorized; issued and
outstanding 8,658,532 shares at March 31, 1996 and December 31, 1995 and
none at December 31, 1994................................................... -- 8,659 8,659
Additional paid-in capital..................................................... -- 35,857,767 35,857,767
Retained earnings.............................................................. -- 1,596,775 1,874,831
Partners' deficit.............................................................. (403,907) -- --
Total stockholders' equity (partners' deficit).............................. (403,907) 37,463,201 37,741,257
$2,098,387 $68,219,496 $72,557,289
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MOOVIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Rental revenues................................... $3,578,535 $4,069,509 $20,309,185 $1,114,672 $16,957,403
Product sales..................................... 310,458 322,099 4,349,124 108,581 2,358,658
3,888,993 4,391,608 24,658,309 1,223,253 19,316,061
Operating costs and expenses:
Operating expenses................................ 2,798,239 3,120,557 15,592,814 870,729 12,819,016
Cost of product sales............................. 239,426 278,448 2,978,728 92,392 1,537,095
Selling, general and administrative............... 573,006 610,471 2,955,493 186,502 2,328,845
Amortization of goodwill.......................... -- -- 148,112 -- 361,084
3,610,671 4,009,476 21,675,147 1,149,623 17,046,040
Operating income.................................... 278,322 382,132 2,983,162 73,630 2,270,021
Interest expense.................................... (43,134) (101,030) (197,236) (27,097) (301,047)
Other, net.......................................... -- -- 25,014 -- (20,900)
Income before income taxes and cumulative effect of
a change in accounting principle.................. 235,188 281,102 2,810,940 46,533 1,948,074
Income tax expense.................................. -- -- 1,045,822 -- 779,204
Income before cumulative effect of a change in
accounting principle.............................. 235,188 281,102 1,765,118 46,533 1,168,870
Cumulative effect of a change in accounting
principle, net of taxes........................... -- -- -- -- 890,814
Net income.......................................... $ 235,188 $ 281,102 $ 1,765,118 $ 46,533 $ 278,056
Earnings per share:
Income before cumulative effect of a change in
accounting principle.............................. $ N/A $ N/A $ .52 $ N/A $ .13
Cumulative effect of a change in accounting
principle......................................... N/A N/A -- N/A .10
Net income.......................................... $ N/A $ N/A $ .52 $ N/A $ .03
Weighted average shares outstanding................. N/A N/A 3,395,000 N/A 8,976,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MOOVIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL PARTNERS' TOTAL
COMMON PAID-IN RETAINED EQUITY STOCKHOLDERS'
STOCK CAPITAL EARNINGS (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992.......................... $-- $ -- $ -- $ 1,124,295 $ 1,124,295
Net income.......................................... -- -- -- 235,188 235,188
Limited partner buy-out............................. -- -- -- (1,691,107) (1,691,107)
Partner contributions............................... -- -- -- 22,910 22,910
Balance at December 31, 1993.......................... -- -- -- (308,714) (308,714)
Net income.......................................... -- -- -- 281,102 281,102
Partner withdrawals................................. -- -- -- (376,295) (376,295)
Balance at December 31, 1994.......................... -- -- -- (403,907) (403,907)
Partner withdrawals................................. -- -- -- (227,707) (227,707)
Partnership net income, through
August 8, 1995................................... -- -- -- 168,343 168,343
Net proceeds from issuance and sale of 3,622,500
shares of common stock in connection with the
initial public offering, net of issuance costs of
$3,463,770....................................... 3,623 36,959,707 -- -- 36,963,330
Issuance of common stock to companies acquired
concurrently with the initial public offering of
common stock..................................... 4,027 9,654,626 -- -- 9,658,653
Payment of deemed dividend.......................... -- (22,949,114) -- -- (22,949,114)
Elimination of partner's deficit.................... -- (463,271) -- 463,271 --
Issuance of 842,004 shares of common stock in
connection with acquisitions of video rental
chains........................................... 842 12,654,315 -- -- 12,655,157
Exercise of warrants for 167,124 shares............. 167 1,504 -- -- 1,671
Net income.......................................... -- -- 1,596,775 -- 1,596,775
Balance at December 31, 1995.......................... 8,659 35,857,767 1,596,775 -- 37,463,201
Net income (unaudited).............................. -- -- 278,056 -- 278,056
Balance at March 31, 1996 (unaudited)................. $8,659 $35,857,767 $1,874,831 $ -- $ 37,741,257
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MOOVIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net income......................................... $ 235,188 $ 281,102 $ 1,765,118 $ 46,533 $ 278,056
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting
principle..................................... -- -- -- -- 890,814
Depreciation and amortization................... 865,330 906,949 4,643,167 252,902 4,360,964
Amortization of discount on
long-term debt................................ 20,849 65,355 -- 17,021 --
Loss on disposal of furnishings and equipment... 4,066 8,837 -- -- --
Changes in operating assets and liabilities:
Receivables................................... (10,603) 9,852 (2,543,634) (42,032) 1,296,993
Merchandise inventory......................... (1,054) (2,747) (847,187) (5,615) 227,449
Other current assets.......................... -- -- (679,401) -- (642,551)
Deposits and other assets, net................ (31,921) (56,674) 34,103 (188,137) (293,822)
Accounts payable.............................. 176,890 233,698 4,720,501 811,513 (2,237,237)
Accrued liabilities........................... (5,934) 31,473 1,166,108 (25,088) 271,562
Deferred income taxes......................... -- -- 1,045,822 -- 779,204
Net cash provided by operating
activities................................. 1,252,811 1,477,845 9,304,597 867,097 4,931,432
Investing activities:
Purchases of videocassette rental
inventory, net.................................. (622,828) (890,931) (8,282,582) (539,192) (5,868,674)
Purchases of furnishings and equipment............. (95,540) (217,431) (5,884,931) (163,612) (1,483,893)
Proceeds from the sale of the grocery
division........................................ -- -- -- -- 745,625
Business acquisitions.............................. -- -- (3,477,311) -- (2,434,187)
Net cash used in investing activities......... (718,368) (1,108,362) (17,644,824) (702,804) (9,041,129)
Financing activities:
Proceeds from line of credit borrowings............ -- -- 2,500,000 -- 10,295,934
Proceeds from issuance of long-term debt........... 550,000 581,646 4,116,151 600,000 2,000,000
Principal payments on long-term debt............... (206,257) (362,620) (9,222,697) (102,927) (6,179,941)
Capitalized initial public offering costs.......... -- (285,024) -- (582,806) --
Proceeds from issuance of common stock, net........ -- -- 36,963,330 -- --
Cash paid, in the form of a deemed dividend, for
the purchase of video chains.................... -- -- (22,396,324) -- --
Proceeds from the exercise of warrants............. -- -- 1,671 -- --
Payment to limited partners........................ (810,000) -- -- -- --
Capital/partner contributions (withdrawals),
net............................................. 22,910 (376,295) (227,707) (73,027) --
Net cash provided by (used in) financing
activities................................. (443,347) (442,293) 11,734,424 (158,760) 6,115,993
Increase (decrease) in cash and cash
equivalents........................................ 91,096 (72,810) 3,394,197 5,533 2,006,296
Cash and cash equivalents at beginning
of year............................................ 151,305 242,401 169,591 169,591 3,563,788
Cash and cash equivalents at end of year............. $ 242,401 $ 169,591 $ 3,563,788 $ 175,124 $ 5,570,084
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 22,286 $ 35,674 $ 161,718 $ 26,114 $ 58,007
Issuance of limited partnership promissory
notes........................................... $ 881,107 $ -- $ -- $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Moovies, Inc. (the "Company") was incorporated in November 1994 for the
purpose of entering into agreements to acquire video specialty stores,
consummating an initial public offering of stock and operating video specialty
stores. Concurrently with the completion of an initial public offering of stock
in August 1995, the Company acquired ten other video specialty chains, including
Tonight's Feature Limited Partnership II, the Company's predecessor (the
"Predecessor" or "Tonight's Feature"). As of December 31, 1995, the Company
operated 148 video specialty stores located in South Carolina, North Carolina,
Georgia, Iowa, Virginia, Ohio, New Jersey, New York, Connecticut and
Pennsylvania. Prior to August 1995, Moovies, Inc. had no operations.
BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the 1993, 1994
and 1995 results of operations of Tonight's Feature, the Company's predecessor,
and from August 1995, the operations of the combined acquisitions (see note 2).
In August 1995, Tonight's Feature was merged into the Company. Throughout these
consolidated financial statements, references to the Company refer to Tonight's
Feature for periods prior to August 1995.
The consolidated balance sheet as of March 31, 1996 and the consolidated
statements of operations, stockholders' equity and partners' equity (deficit)
and cash flows for the three months ended March 31, 1995 and 1996 have been
prepared by the Company without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the financial position, results of operations and cash
flows as of March 31, 1996 and for the three months ended March 31, 1995 and
1996, have been included.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries from and after the date of acquisition of each
such subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
MERCHANDISE INVENTORY
Merchandise inventory, consisting primarily of prerecorded videocassettes,
children's books and confectionery items, is stated at the lower of cost or
market. Cost is determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the tenth and any succeeding copies of each title per store are
amortized over nine months on a straight-line basis; the fourth through ninth
copies of each title per store are amortized 40% in the first year and 30% in
each of the second and third years; and copies one through three of the titles
per store are amortized as base stock.
Certain videocassettes in the rental inventory are leased under a revenue
sharing agreement with a vendor, as broker for various studios. During the
revenue sharing period, which does not exceed two years, the studios retain
ownership of the videocassette, and the Company shares the rental revenue with
the studios rather than purchasing the videocassette for a fixed
F-8
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cost (typically $60 to $67). Under this agreement, the percentage of rental
revenue retained by the Company generally increases during the first 90 days of
the revenue sharing period, reaching a fixed percentage at 90 days. The
associated handling fee per leased videocassette is amortized on a straight-line
basis over the term of the lease. Revenue sharing allows the Company to order a
substantially larger number of copies to fill most of the temporarily heavy
demand that exists during the first few weekends of a title's release. Revenue
sharing reduces the risk that the Company will be unable to recover the
acquisition cost of a videocassette through rental revenue before the popularity
of the title declines significantly. At the end of the revenue sharing period
for a title, the Company may purchase the remaining copies of that title for
generally less than $5 per copy. The purchased copies are then amortized as base
stock (see Note 10).
Videocassette rental inventory and related amortization are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 MARCH 31, 1996
<S> <C> <C> <C>
(UNAUDITED)
Videocassette rental inventory........................ $ 3,039,992 $ 38,903,293 $ 32,328,659
Accumulated amortization.............................. (2,108,780) (22,174,877) (14,971,683)
$ 931,212 $ 16,728,416 $ 17,356,976
</TABLE>
Amortization expense related to videocassette rental inventory amounted to
$772,119, $779,285, and $3,988,296 for the years ended December 31, 1993, 1994
and 1995, respectively, and $217,653 and $3,573,335 for the three months ended
March 31, 1995 and 1996 (unaudited), respectively. As videocassette rental
inventory is sold or retired, the applicable cost and accumulated amortization
are eliminated from the accounts and any related gain or loss is recognized.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (5 to 7 years) for furnishings and
equipment and the lesser of the useful lives or lease term (primarily 5 to 10
years) for leased items using the straight-line method.
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
GOODWILL
Goodwill consists of the excess of acquisition costs over the fair market
value of assets acquired. Goodwill is amortized over 20 years and is shown net
of accumulated amortization of $148,112 at December 31, 1995 and $509,196 at
March 31, 1996 (unaudited). If facts and circumstances suggest that the excess
of cost over net assets acquired will not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the excess cost over net
assets acquired will be reduced by the estimated shortfalls of cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1994 and 1995 and at March 31, 1996 (unaudited), the
carrying value of financial instruments such as cash and cash equivalents and
accounts payable and notes payable approximated their fair values, based upon
the short-term maturities of these instruments. The fair value of the Company's
long-term debt is estimated using discounted cash flow analysis, based upon the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying value of such instruments approximated their fair
value at December 31, 1994 and 1995 and at March 31, 1996 (unaudited).
INCOME TAXES
The Predecessor operated as a partnership for income tax purposes through
August 1995. Accordingly, income taxes were paid by the Predecessor's general
partners and the Predecessor had no income tax liability.
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement
F-9
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. Weighted
average common and common equivalent shares include common shares, stock options
using the treasury stock method and the assumed exercise of the outstanding
warrants to purchase common stock.
(2) INITIAL STOCK OFFERING AND ACQUISITIONS
PUBLIC OFFERING
In August 1995, the Company completed its initial public offering of
3,622,500 shares of common stock for $12.00 per share (the "offering"). The net
proceeds of the offering, after deducting applicable issuance costs and
expenses, were approximately $37.0 million. The proceeds were used to pay the
cash portion of the acquisitions of $22.4 million, which together with the
issuance of a $500,000 note payable were considered to be deemed dividends, and
to repay approximately $4.2 million of long-term indebtedness of the
acquisitions and $1.4 million of long-term indebtedness of Tonight's Feature.
The remaining proceeds were used to acquire additional video rental chains and
to open new stores, acquire new sites, renovate older locations, purchase
computer equipment and for general corporate purposes.
ACQUISITIONS
Concurrently with the completion of the offering, the Company purchased
substantially all of the assets, assumed certain liabilities and acquired the
businesses of 76 video specialty stores. As defined under Rule 1-02(s) of
Regulations S-X, the shareholders and owners of these video stores were
considered promoters who transferred assets and liabilities to the Company in
exchange for common stock. As a result, the Company recorded the assets and
liabilities acquired at their historical cost bases and no goodwill was recorded
in the transaction.
Subsequent to the initial public offering, the Company acquired 48 video
specialty stores from six unrelated sellers for approximately $22.1 million,
including the issuance of approximately $5.9 million in notes payable and the
issuance of approximately 842,000 shares of common stock. These acquisitions
were recorded under the purchase method of accounting. The excess of cost over
the estimated fair value of the assets acquired of approximately $29.2 million
is being amortized over 20 years on a straight-line basis.
The following unaudited pro forma information presents the results of
operations of the Company as though the aforementioned acquisitions had occurred
as of the beginning of the year in which the acquisition occurred and the
immediately preceding year.
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
<S> <C> <C>
Pro forma revenue...................................................... $59,709,000 $67,831,000
Pro forma net income................................................... $ 3,296,000 $ 4,339,000
Pro forma net income per share......................................... $ .37 $ .48
Pro forma weighted average shares...................................... 8,860,000 8,960,000
</TABLE>
F-10
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) FURNISHINGS AND EQUIPMENT
Furnishings and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 MARCH 31, 1996
<S> <C> <C> <C>
(UNAUDITED)
Building................................................. $ -- $ 147,126 $ 147,126
Furniture and fixtures................................... 772,387 5,381,083 6,057,512
Other equipment.......................................... 29,000 4,824,807 5,191,929
Leasehold improvements................................... -- 2,666,848 3,655,050
Vehicles................................................. 120,246 216,130 216,967
Construction in progress................................. -- 2,190,098 1,857,451
921,633 15,426,092 17,126,035
Accumulated depreciation and amortization................ (354,890) (5,567,140) (6,009,204)
$ 566,743 $ 9,858,952 $ 11,116,831
</TABLE>
Depreciation and amortization expense on furnishings and equipment was
$93,211, $127,664, and $506,759 for the years ended December 31, 1993, 1994 and
1995, respectively, and $35,249 and $442,014 for the three months ended March
31, 1995 and 1996 (unaudited), respectively.
In December 1995, the Company entered into an ongoing operating lease
agreement whereby the Company may lease its computers and phone equipment. As of
December 31, 1995, the Company had a receivable from the leasing company for
$1,445,029 which was included in receivables. This receivable was $511,293 at
March 31, 1996 (unaudited). This receivable represents cash due for equipment
sold to the leasing company which will be leased back to the Company.
F-11
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 MARCH 31, 1996
<S> <C> <C> <C>
(UNAUDITED)
Note payable to former limited partners.......................................... $ 967,311 $ -- $ --
Notes payable to bank due in monthly installments of varying amounts through
March 1997, with interest at prime plus 1.5%, secured by certain fixed
assets......................................................................... 552,315 -- --
Notes payable to bank, due in monthly installments of varying amounts through
November 1999, with interest at 7% to 9%, secured by certain fixed assets...... 70,102 -- --
Revolving credit agreement with a related party vendor, due in March 1998, with
interest payable monthly at prime plus 2%, secured by certain fixed assets..... 150,000 -- --
Notes payable to bank, due in monthly installments of varying amounts through
November 2000, with interest at prime plus 1.5%, secured by all assets of
selected stores................................................................ -- 629,045 --
Note payable to bank, due in monthly installments of varying amounts through
November 2000, with interest at 9.75%, secured by certain fixed assets......... -- 116,151 112,483
Note payable to investment company, due in monthly installments through April
2000, with interest at 11%, secured by certain fixed assets.................... -- 112,011 --
Unsecured note payable to seller, due in five equal principal payments with the
final payment due in April 1997, with interest at 8%........................... -- 468,650 468,650
Note payable to bank, due in monthly installments of varying amounts through June
1996, with interest at 8.5%, secured by all assets of selected stores.......... -- 66,194 66,194
Subordinated note payable to investment company, due in April 2000, with interest
at 13.5%, secured by second lien on assets of selected stores.................. -- 1,500,000 3,500,000
1,739,728 2,892,051 4,147,327
Less current portion............................................................. (430,726) (481,064) (448,971)
$1,309,002 $2,410,987 $3,698,356
</TABLE>
The Company is required to comply with certain covenants which limit the
incurrence of additional debt, restrict the payment of dividends and restrict
the disposition of certain assets. At year end, the Company was in compliance
with such covenants.
Scheduled maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 481,064
1997............................................................ 300,945
1998............................................................ 127,620
1999............................................................ 142,950
2000............................................................ 1,839,472
$2,892,051
</TABLE>
At December 31, 1995, the Company had a commitment from a lender for a $2.0
million term loan which will be subordinated to the Company's revolving credit
facility. In January 1996, the Company exercised its commitment and received
$2.0 million under the facility. Borrowings outstanding under this loan bear
interest at an annual rate of 13% and
F-12
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
mature in January 2001. In connection with the borrowing, the Company issued the
lender a warrant to purchase 20,000 shares of common stock at an exercise price
of $10.80 per share.
(5) LINE OF CREDIT
The Company has a $6.5 million revolving credit facility with a bank. At
December 31, 1995, the Company had outstanding borrowings under the line of $2.5
million. The borrowings bear interest at the bank's prime rate plus 1.25%, with
interest payable monthly. The facility terminates in July 1996. Borrowings are
secured by substantially all of the Company's assets. The Company is required to
comply with certain covenants which limit the incurrence of additional debt,
restrict the payment of dividends and restrict the disposition of certain
assets. At December 31, 1995, the Company was in compliance with such covenants.
(See Note 10.)
(6) NOTES PAYABLE
Concurrently with the completion of its initial public offering and the
acquisition of 76 video specialty stores, the Company issued a $500,000
unsecured promissory note payable to a seller. The note bears interest at a rate
of 10% and matures in August 1996.
In connection with the acquisition of the Pic-A-Flick Group in December
1995 the Company issued a $5.0 million note payable to the former owners. The
note bears interest at a rate of 5.5%. The note and the related interest were
repaid by the Company in January 1996.
In connection with the acquisition of the Movie Store Group in December
1995 the Company issued a $435,215 note payable to the former owners. The note
bears interest at a rate of 5.5%. The note and the related interest were repaid
by the Company in January 1996.
(7) STOCKHOLDER'S EQUITY
PREFERRED STOCK
The Board of Directors is authorized to issue up to 1,000,000 shares of
preferred stock in one or more series, and to fix or alter the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of such stock, including the
dividend rights, dividend rates, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), redemption price or
prices and liquidation preferences of the shares constituting any series,
without any further vote or action by the stockholders' of the Company. No
shares of preferred stock have been issued.
STOCK OPTIONS
In June 1995, the Board of Directors adopted, and the stockholders'
approved, the 1995 Stock Option Plan (the "Plan"). The Plan provides for the
award of incentive stock options to officers and employees and the award of
non-qualified stock options and other incentive grants to directors, officers
and employees. The Company has reserved 1,200,000 shares for issuance under the
Plan, subject to stockholder approval.
<TABLE>
<CAPTION>
SHARES OPTION PRICE
<S> <C> <C>
Outstanding............................................................ 700,450 $10.88 to $12.00
Exercisable............................................................ 155,000 $10.88 to $12.00
Granted................................................................ 700,450 $10.88 to $12.00
Exercised.............................................................. -- --
Canceled............................................................... -- --
Available for future grants............................................ 499,550
</TABLE>
F-13
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, options outstanding become exercisable as follows:
<TABLE>
<S> <C>
1996............................................................... 275,567
1997............................................................... 150,566
1998............................................................... 119,317
545,450
</TABLE>
WARRANTS
In November 1994, the Company granted to a director a warrant to purchase
150,000 shares of Common Stock of the Company at $1.00 per share. In March 1995,
the Company granted 19 former limited partners of the Predecessor warrants to
purchase an aggregate of 74,352 shares of Common Stock of the Company for $.01
per share. In April 1995, the Company's Predecessor granted to Mortco, Inc., in
connection with the Company's note payable to Mortco, a warrant to acquire
40,877 shares of Common Stock at an exercise price equal to the initial public
offering price per share (i.e. $12.00 per share). In April 1995, the Company
granted to Sirrom Capital Corporation a warrant to acquire 156,110 shares of
Common Stock at $.01 per share in connection with a loan from Sirrom to the
Predecessor. In July 1995, the Company agreed to issue to the Underwriters
warrants to purchase 236,250 shares of Common Stock at a purchase price per
share equal to 120% of the initial public offering price per share (i.e. $14.40
per share). In December 1995, the Company issued a warrant for 25,000 shares of
Common Stock at a Purchase Price of $14.875 per share in connection with the
Pic-A-Flick acquisition. In January 1996 in connection with issuance of a
subordinated note payable the Company granted to Sirrom Capital Corporation a
warrant to purchase 20,000 shares of Common Stock at an exercise price of $10.80
per share. The warrants will be exercisable during the four year period
commencing one year after the date the warrants are issued.
During 1995, warrants for 167,124 shares at $.01 per share were exercised.
The Company received proceeds of $1,671.
(8) COMMITMENTS
The Company leases all of its retail facilities under noncancelable
operating leases which contain renewal options and escalation clauses. Future
minimum lease payments required under these leases as of December 31, 1995 are
as follows:
<TABLE>
<S> <C>
1996........................................................... $ 9,889,649
1997........................................................... 8,749,859
1998........................................................... 7,810,513
1999........................................................... 7,025,556
2000........................................................... 5,498,321
$38,973,898
</TABLE>
Rental and related expenses amounted to $368,236, $421,836, and $2,900,697
for the years ended December 31, 1993, 1994 and 1995, respectively, and $118,450
and $2,285,542 for the three months ended March 31, 1995 and 1996 (unaudited),
respectively.
The Company has a revenue sharing agreement through 2005 whereby it is
obligated to obtain a minimum annual dollar amount of new releases from a
vendor. During the revenue sharing period, which is generally one year (but does
not exceed two years) per title, the movie studio retains ownership of the video
and the Company shares the rental revenue with the vendor.
F-14
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES
Income tax expense is as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Year Ended December 31, 1995:
Federal......................................................... $ -- $ 822,580 $ 822,580
State........................................................... -- 223,242 223,242
Total...................................................... $ -- $1,045,822 $1,045,822
Three months ended March 31, 1996 (unaudited):
Federal....................................................... $ -- $ 650,221 $ 650,221
State......................................................... -- 128,983 128,983
Total...................................................... $ -- $ 779,204 $ 779,204
</TABLE>
Income tax expense differed from the amounts computed by applying the
Federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
1993 1994 1995 MARCH 31, 1996
<S> <C> <C> <C> <C>
(UNAUDITED)
Computed "expected" tax expense........................................ $ 80,009 $ 95,575 $ 955,719 $662,345
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of Federal income tax benefits..... -- -- 147,340 85,129
Goodwill amortization................................................ -- -- -- 31,730
Income from partnership, taxable to partners......................... (80,009) (95,575) (57,237) --
Actual tax expense..................................................... $ -- $ -- $1,045,822 $779,204
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
<S> <C> <C>
(UNAUDITED)
Deferred tax assets:
Net operating loss carryforwards........................................................ $ 789,196 $ 113,285
Accrued expenses and allowances deductible for books, but not for tax................... 992,848 1,110,149
$ 1,782,044 $1,223,434
Deferred tax liabilities:
Furnishings and equipment, principally due to differences in depreciation............... $ 3,403,544 $3,019,139
Intangibles, principally due to differences in amortization............................. 2,744,969 2,783,360
Other................................................................................... 445,446 418,179
6,593,959 6,220,678
Net deferred tax liabilities.............................................................. $ 4,811,915 $4,997,244
</TABLE>
Management believes that a valuation allowance is not considered necessary
based upon projections of future taxable income and the reversal of taxable
temporary differences over the periods during which the deferred tax assets are
deductible.
At December 31, 1995, the Company has a net operating loss carryforward for
Federal income tax purposes of approximately $1,950,000 which is available to
offset future taxable income, if any, through 2010.
F-15
<PAGE>
MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) SUBSEQUENT EVENTS (UNAUDITED)
Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. Under this new method,
videocassette rental inventory, which includes video games, is stated at cost,
including the related costs to prepare such videocassettes for rent, and is
amortized over its estimated economic life of 36 months, to its estimated
salvage value ($6 per videocassette during 1996). All copies of new release
videocassettes are amortized on an accelerated basis during their first four
months to an average net book value of $15 and then on a straight-line basis to
their estimated salvage value of $6 over the next 32 months. All copies of new
release videocassette that are purchased for less than $15 are amortized on a
straight-line basis to this estimated salvage value of $6 over 36 months.
The new method of amortization was adopted because the Company believes
accelerating expense recognition for new release videocassettes during the first
four months more closely matches the typically higher revenue generated
following a title's release, and believes $15 represents a reasonable average
carrying value for tapes to be rented or sold after four months and $6
represents a reasonable salvage value for all tapes after 36 months.
The new method of amortization has been applied to videocassette rental
inventory that was held at January 1, 1996. The cumulative effect of the change
as of January 1, 1996 was to reduce net income by $890,814 after income taxes of
$593,876 for the three months ended March 31, 1996. The application of the new
method of amortizing videocassette rental inventory increased amortization
expense by approximately $575,000 to approximately $3.6 million and reduced net
income by approximately $345,000 and earnings per share by $0.04 for the three
months ended March 31, 1996.
In March 1996, the Company acquired five video specialty stores in Colorado
for approximately $2.4 million.
In March 1996, the Company signed a revolving credit facility (the
"Facility") for up to $22.5 million to replace its existing revolving credit
facility. The available amount of the Facility will reduce quarterly beginning
on March 31, 1997 with a final maturity of June 30, 1998. The interest rate of
the facility is variable based on LIBOR and the Company may repay the Facility
at any time without penalty. Borrowings are secured by substantially all of the
Company's assets. The more restrictive covenants under the facility require the
Company to maintain certain debt to equity ratios and require the Company to
maintain certain cash flow levels. Borrowings under this line of credit amounted
to $12,795,934 at March 31, 1996 (unaudited).
In April 1996, the Company signed an asset purchase agreement to purchase
certain assets and business of American Multi-Entertainment, Inc. d/b/a Premiere
Video ("Premiere Video") for a purchase price of approximately $11.5 million,
consisting of $8.9 million in cash at closing and a final payment of $2.6
million payable in January 1997 which will be secured by a bank letter of
credit. Premiere Video operates 23 stores in Minnesota, Iowa, Wisconsin, South
Dakota and Nebraska. The Company's obligation to complete the acquisition is
contingent upon the availability of financing on terms acceptable to the
Company. The Company anticipates closing the acquisition concurrently with the
completion of a public offering of stock, however, there can be no assurance
that the acquisition will be consummated.
On May 1, 1996 the Company filed a Registration Statement with the SEC
covering the issuance and sale by the Company of up to 3,200,000 shares of
Common Stock.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Movie Stars Entertainment Corp.:
We have audited the accompanying statements of operating revenues and
expenses and cash flows of Movie Stars (a division of Movie Stars Entertainment
Corp.) for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the operating revenues and expenses and cash flows of
Movie Stars (a division of Movie Stars Entertainment Corp.) for the years ended
December 31, 1993 and 1994 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 19, 1995
F-17
<PAGE>
MOVIE STARS
(A DIVISION OF MOVIE STAR ENTERTAINMENT CORP.)
STATEMENTS OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Revenues:
Rental revenues.................................................................. $2,373,943 $2,805,350 $791,515
Product sales.................................................................... 693,780 693,321 184,965
3,067,723 3,498,671 976,480
Operating costs and expenses:
Operating expenses............................................................... 2,168,119 2,134,053 633,873
Cost of product sales............................................................ 515,910 639,234 170,168
General and administrative....................................................... 274,240 508,326 115,880
Interest, net.................................................................... 12,315 15,410 5,914
Other income..................................................................... (19,727) (9,153) (1,997)
2,950,857 3,287,870 923,838
Operating revenues in excess of operating expenses................................. $ 116,866 $ 210,801 $ 52,642
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
MOVIE STARS
(A DIVISION OF MOVIE STAR ENTERTAINMENT CORP.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Operating revenues in excess of operating expenses.............................. $ 116,866 $ 210,801 $ 52,642
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization................................................ 908,250 827,250 271,133
Changes in operating assets and liabilities:
Merchandise inventory...................................................... (115,573) (25,514) 139,934
Other current assets....................................................... (767) (10,539) (25,650)
Deposits and other assets.................................................. (11,334) (40,720) (113,188)
Accounts payable........................................................... 144,525 81,516 (123,281)
Accrued liabilities........................................................ 25,295 14,159 (59,622)
Net cash provided by operating activities............................... 1,067,262 1,056,953 141,968
Investing activities:
Purchases of videocassette rental inventory, net................................ (805,128) (878,023) (259,651)
Purchases of furnishings and equipment.......................................... (54,961) (168,774) (159,681)
Net cash used in investing activities................................... (860,089) (1,046,797) (419,332)
Financing activities:
Increase in advances from shareholder........................................... 115,009 60,265 11,314
Capital withdrawals............................................................. (134,353) (60,954) --
Proceeds from issuance of long-term debt........................................ -- -- 225,000
Principal payments on long-term debt............................................ (10,971) (24,021) (5,989)
Net cash (used in) provided by financing activities..................... (30,315) (24,710) 230,325
Increase (decrease) in cash....................................................... 176,858 (14,554) (47,039)
Cash at beginning of period....................................................... 22,334 199,192 184,638
Cash at end of period............................................................. $ 199,192 $ 184,638 $ 137,599
Supplemental disclosures of cash flow information
Cash paid during the period for interest........................................ $ 13,518 $ 15,488 $ 9,014
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
MOVIE STARS
(A DIVISION OF MOVIE STAR ENTERTAINMENT CORP.)
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Movie Stars (a division of Movie
Star Entertainment Corp.) include substantially all operating revenues and
expenses and cash flows of Movie Stars. As of December 31, 1994, Movie Stars
owned and operated ten video specialty stores in New York.
The statements of revenues and expenses and cash flows for the three months
ended March 31, 1995 have been prepared by the Company without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of operating revenues and
expenses and cash flows for the three months ended March 31, 1995 have been
included.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of videocassettes, children's books and
confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in each of the second and third years;
and the tenth and any succeeding copies of each title per store are amortized
over nine months on a straight-line basis.
Videocassette rental inventory and related amortization are as follows:
Amortization expense related to videocassette rental inventory totaled
$874,728 and $782,009 for the years ended December 31, 1993 and 1994,
respectively, and $254,151 for the three months ended March 31, 1995
(unaudited). As videocassette rental inventory is sold or retired, the
applicable cost and accumulated amortization are eliminated from the accounts
and any related gain or loss is recognized.
INCOME TAXES
Movie Stars operates as a subchapter S corporation for income tax purposes.
Accordingly, income taxes are paid by the Corporation's shareholder and Movie
Stars has no income tax liability.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to 10 years) for leased items using the straight-line method.
Depreciation and amortization expense on furniture and equipment was
$33,522 and $45,241 for the years ended December 31, 1993 and 1994,
respectively, and $16,982 for the three months ended March 31, 1995 (unaudited).
Maintenance and repair expenditures are expensed as incurred and amounted to
$20,324 and $26,405 for the years ended December 31, 1993 and 1994,
respectively, and $9,378 for the three months ended March 31, 1995 (unaudited).
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
F-20
<PAGE>
MOVIE STARS
(A DIVISION OF MOVIE STAR ENTERTAINMENT CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) COMMITMENTS
The Company leases all of its retail facilities under noncancelable
operating leases. Future minimum lease payments required under these leases as
of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995............................................................ $ 360,517
1996............................................................ 317,025
1997............................................................ 279,589
1998............................................................ 242,532
1999............................................................ 229,439
Thereafter...................................................... 322,767
$1,751,869
</TABLE>
Rental and related expenses totaled $279,151 and $323,014 for the years
ended December 31, 1993 and 1994, respectively, and $108,524 for the three
months ended March 31, 1995 (unaudited).
(3) SUBSEQUENT EVENT (UNAUDITED)
Under an asset purchase agreement, substantially all of the assets, certain
liabilities (principally store leases) and the business of Movie Stars were sold
to Moovies, Inc. concurrently with the closing of the initial public offering of
common stock by Moovies, Inc.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Parr-Four, Inc.:
We have audited the accompanying statements of operations and cash flows of
Parr-Four, Inc. (d/b/a/ Video Express) for the years ended March 31, 1994 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Parr Four,
Inc. (d/b/a/ Video Express) for the years ended March 31, 1994 and 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 12, 1995
F-22
<PAGE>
PARR FOUR, INC.
(D/B/A VIDEO EXPRESS)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1994 1995
<S> <C> <C>
Revenues:
Rental revenues................................................................................. $3,771,153 $4,657,855
Product sales................................................................................... 580,379 879,361
4,351,532 5,537,216
Operating costs and expenses:
Operating expenses.............................................................................. 2,577,255 3,097,962
Cost of product sales........................................................................... 505,682 790,535
General and administrative...................................................................... 1,005,974 1,411,296
4,088,911 5,299,793
Operating income.................................................................................. 262,621 237,423
Other income (expense):
Interest expense................................................................................ (9,706) (18,191)
Other income, net............................................................................... 19,391 35,979
Income before income taxes........................................................................ 272,306 255,211
Income taxes...................................................................................... 102,000 115,000
Net income........................................................................................ $ 170,306 $ 140,211
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
PARR FOUR, INC.
(D/B/A VIDEO EXPRESS)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1994 1995
<S> <C> <C>
Operating activities:
Net income.................................................................................... $ 170,306 $ 140,211
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.............................................................. 733,763 1,098,527
Changes in operating assets and liabilities:
Accounts receivable...................................................................... (2,165) 2,612
Merchandise inventory.................................................................... (35,874) (98,204)
Deferred income tax expense (benefit), net............................................... (12,271) 138,575
Income taxes receivable, net............................................................. 114,271 (156,086)
Deposits and other assets................................................................ (8,553) (53,070)
Accounts payable......................................................................... 45,742 119,838
Accrued officers' bonus.................................................................. 307,125 (169,998)
Accrued liabilities...................................................................... 40,678 24,685
Net cash provided by operating activities............................................. 1,353,022 1,047,090
Investing activities:
Purchases of videocassette rental inventory, net.............................................. (907,818) (1,228,500)
Purchases of furnishings and equipment........................................................ (297,025) (221,425)
Net cash used in investing activities................................................. (1,204,843) (1,449,925)
Financing activities:
Increase (decrease) in advances from shareholder.............................................. (250,816) 309,450
Proceeds from issuance of long-term debt...................................................... 214,000 173,685
Principal payments on long-term debt.......................................................... (100,649) (164,790)
Net cash provided by (used in) financing activities................................... (137,465) 318,345
Increase (decrease) in cash..................................................................... 10,714 (84,490)
Cash at beginning of year....................................................................... 104,828 115,542
Cash at end of year............................................................................. $ 115,542 $ 31,052
Supplemental disclosures of cash flow information
Cash paid during the year for interest........................................................ $ 9,706 $ 18,191
Cash paid during the year for income taxes.................................................... $ 10,240 $ 122,226
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
PARR FOUR, INC.
(D/B/A VIDEO EXPRESS)
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
As of March 31, 1995, Parr Four, Inc. owned and operated ten video
specialty stores in the Norfolk, Virginia area.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of videocassettes, children's books and
confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in each of the second and third years;
and the tenth and any succeeding copies of each title per store are amortized
over nine months on a straight-line basis.
Certain videocassettes in the rental inventory are leased under a revenue
sharing agreement with a vendor, as broker for various studios. During the
revenue sharing period, which is generally one year (but does not exceed two
years), the studios retain ownership of the videocassette and Parr Four, Inc.
shares the rental revenue with a vendor rather than purchasing the videocassette
for a fixed cost (typically $60 to $67). Under this agreement, the percentage of
rental revenue retained by Parr Four, Inc. generally is fixed for the first
sixty days of the revenue sharing period and is then set at a higher rate for
the remainder of the term. The associated handling fee per leased videocassette
is amortized on a straight-line basis over the term of the lease. Revenue
sharing allows Parr Four, Inc. to order a larger number of copies to meet most
of the temporarily heavy demand that exists during the first few weekends of a
title's release. Revenue sharing reduces the risk that Parr Four, Inc. will be
unable to recover the acquisition cost of a videocassette through rental revenue
before the popularity of the title declines significantly. At the end of the
revenue sharing period for a title, Parr Four, Inc. may purchase the remaining
copies of that title for generally less than $5 per copy. The purchased copies
are then amortized as base stock.
Amortization expense related to videocassette rental inventory totaled
$640,716 and $969,721 for the years ended March 31, 1994 and 1995, respectively.
As videocassette rental inventory is sold or retired, the applicable cost and
accumulated amortization are eliminated from the accounts and any related gain
or loss is recognized.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to 10 years) for leased items using the straight-line method.
Depreciation and amortization expense on furnishings and equipment was
$93,047 and $128,806 for the years ended March 31, 1994 and 1995, respectively.
Maintenance and repair expenditures are expensed as incurred and amounted to
$76,911 and $92,766 for the years ended March 31, 1994 and 1995, respectively.
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or
F-25
<PAGE>
PARR FOUR, INC.
(D/B/A VIDEO EXPRESS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(2) COMMITMENTS
Retail facilities are leased under noncancelable operating leases. Future
minimum lease payments required under these leases as of March 31, 1995 are as
follows:
<TABLE>
<S> <C>
1995............................................................ $ 654,595
1996............................................................ 591,857
1997............................................................ 490,214
1998............................................................ 300,812
1999............................................................ 200,840
Thereafter...................................................... 70,500
$2,308,818
</TABLE>
Rental and related expenses amounted to $527,975 and $600,612 for the years
ended March 31, 1994 and 1995, respectively.
(3) INCOME TAXES
Income tax expense (benefit) for the years ended March 31, 1994 and 1995 is
as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
1994:
Federal........................................................ $ 95,843 $(10,604) $ 85,239
State.......................................................... 18,428 (1,667) 16,761
Total....................................................... $114,271 $(12,271) $102,000
1995:
Federal........................................................ $(15,575) $116,767 $101,192
State.......................................................... (8,000) 21,808 13,808
Total....................................................... $(23,575) $138,575 $115,000
</TABLE>
Income tax expense differed from the amounts computed by applying the
Federal income tax rate of 34% as a result of the following for the years ended
March 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Computed "expected" tax expense....................................................................... $ 92,584 $ 86,765
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of Federal income tax benefits.................................... 11,062 9,113
Increase (decrease) for surtax exemption............................................................ (1,764) 18,111
Other, net.......................................................................................... 118 1,011
Actual tax expense.................................................................................... $102,000 $115,000
</TABLE>
(4) RELATED PARTY TRANSACTIONS
Parr-Four, Inc. leases one of its retail locations from its sole
stockholder. Rental expense relating to the lease amounted to $85,200 annually
for each of the years ended March 31, 1994 and 1995.
F-26
<PAGE>
PARR FOUR, INC.
(D/B/A VIDEO EXPRESS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) SUBSEQUENT EVENT (UNAUDITED)
Under a merger agreement, all of the assets, liabilities and the business
of Parr-Four, Inc. were sold to Moovies, Inc. concurrently with the closing of
the initial public offering of common stock by Moovies, Inc.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
BREM, Inc.:
We have audited the accompanying statements of operating revenues and
expenses and cash flows of Video Stars (a division of BREM, Inc.) for the nine
months ended March 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the operating revenues and expenses and cash flows of
Video Stars (a division of BREM, Inc.) for the nine months ended March 31, 1995
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 5, 1995
F-28
<PAGE>
VIDEO STARS
(A DIVISION OF BREM, INC.)
STATEMENT OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1995
<S> <C>
Revenues:
Rental revenues.......................................................................................... $ 1,796,272
Product sales............................................................................................ 415,066
2,211,338
Operating costs and expenses:
Operating expenses....................................................................................... 1,596,643
Cost of product sales.................................................................................... 282,658
General and administrative............................................................................... 150,769
Interest, net............................................................................................ 3,966
2,034,036
Operating revenues in excess of operating expenses......................................................... $ 177,302
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
VIDEO STARS
(A DIVISION OF BREM, INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1995
<S> <C>
Operating activities:
Operating revenues in excess of operating expenses....................................................... $ 177,302
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization......................................................................... 471,360
Changes in operating assets and liabilities:
Merchandise inventory............................................................................... (2,244)
Deposits and other assets........................................................................... (42,693)
Accounts payable.................................................................................... 40,330
Accrued liabilities................................................................................. (8,722)
Net cash provided by operating activities........................................................ 635,333
Investing activities:
Purchases of videocassette rental inventory, net......................................................... (497,842)
Purchases of furnishings and equipment................................................................... (29,899)
Net cash used in investing activities............................................................ (527,741)
Financing activities:
Proceeds from issuance of long-term debt................................................................. 7,673
Principal payments on long-term debt..................................................................... (11,018)
Principal payments on capital lease...................................................................... (17,509)
Capital withdrawals...................................................................................... (62,450)
Net cash used in financing activities............................................................ (83,304)
Increase in cash........................................................................................... 24,288
Cash at beginning of period................................................................................ 118,475
Cash at end of period...................................................................................... $ 142,763
Supplemental disclosures of cash flow information
Cash paid during the period for interest................................................................. $ 5,974
Non-cash financing activity related to capital lease..................................................... $ 23,850
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
VIDEO STARS
(A DIVISION OF BREM, INC.)
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Video Stars (a division of BREM,
Inc., "BREM") include substantially all operating revenues and expenses and cash
flows of Video Stars. As of March 31, 1995, Video Stars owned and operated eight
video specialty stores in the Norfolk, Virginia area.
Video Stars' fiscal year end is June 30; the financial statements presented
reflect operations for the nine months ended March 31, 1995.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of videocassettes, children's books and
confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in each of the second and third years;
and the tenth and any succeeding copies of each title per store are amortized
over nine months on a straight-line basis.
Certain videocassettes in the rental inventory are leased under a revenue
sharing agreement with a vendor, as broker for various studios. During the
revenue sharing period, which generally is one year (but does not exceed two
years), the studios retain ownership of the videocassette and Video Stars shares
the rental revenue with a vendor rather than purchasing the videocassette for a
fixed cost (typically $60 to $67). Under this agreement, the percentage of
rental revenue retained by Video Stars generally is fixed for the first sixty
days of the revenue sharing period and is then set at a higher rate for the
remainder of the term. The associated handling fee per leased videocassette is
amortized on a straight-line basis over the term of the lease. Revenue sharing
allows Video Stars to order a larger number of copies to meet most of the
temporarily heavy demand that exists during the first few weekends of a title's
release. Revenue sharing reduces the risk that Video Stars will be unable to
recover the acquisition cost of a videocassette through rental revenue before
the popularity of the title declines significantly. At the end of the revenue
sharing period for a title, Video Stars may purchase the copies of that title
for generally less than $5 per copy. The purchased copies are then amortized as
base stock.
Amortization expense related to videocassette rental inventory totaled
$440,754 for the nine months ended March 31, 1995. As videocassette rental
inventory is sold or retired, the applicable cost and accumulated amortization
are eliminated from the accounts and any related gain or loss is recognized.
INCOME TAXES
Video Stars operates as a subchapter S corporation for income tax purposes.
Accordingly, income taxes are paid by the Corporation's shareholder and Video
Stars has no income tax liability.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to 10 years) for leased items using the straight-line method.
Depreciation and amortization expense on furniture and equipment was
$30,606 for the nine months ended March 31, 1995. Maintenance and repair
expenditures are expensed as incurred and amounted to $20,425 for the nine
months ended March 31, 1995.
F-31
<PAGE>
VIDEO STARS
(A DIVISION OF BREM, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
(2) CAPITAL LEASE OBLIGATION
Video Stars has capital lease obligations with monthly principal and
interest payments of approximately $2,200. All lease arrangements expire during
fiscal 1996.
(3) COMMITMENTS
The Company leases all of its retail facilities under noncancelable
operating leases. Future minimum lease payments required under these leases as
of March 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 179,654
1997.............................................................. 160,366
1998.............................................................. 122,432
1999.............................................................. 73,593
2000.............................................................. 71,477
Thereafter........................................................ 215,820
$ 823,342
</TABLE>
Rental and related expenses amounted to $174,660 for the nine months ended
March 31, 1995.
(4) SUBSEQUENT EVENT (UNAUDITED)
Under a merger agreement, substantially all of the assets, liabilities and
the business of Video Stars were sold to Moovies, Inc. concurrently with the
closing of the initial public offering of common stock by Moovies, Inc.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Video Warehouse I Group:
We have audited the accompanying combined statements of operating revenues
and expenses and cash flows of Video Warehouse I Group for the years ended
December 31, 1993 and 1994. These financial statements are the responsibility of
the Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the operating revenues and expenses and cash
flows of Video Warehouse I Group for the years ended December 31, 1993 and 1994
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 17, 1995
F-33
<PAGE>
VIDEO WAREHOUSE I GROUP
COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Revenues........................................................................ $2,800,471 $3,348,190 $ 1,021,550
Operating costs and expenses:
Operating expenses............................................................ 1,568,015 2,035,877 529,214
Cost of product sales......................................................... 592,572 705,117 274,884
General and administrative.................................................... 382,583 386,182 61,310
Interest, net................................................................. 1,004 -- --
2,544,174 3,127,176 865,408
Operating revenues in excess of operating expenses.............................. $ 256,297 $ 221,014 $ 156,142
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE>
VIDEO WAREHOUSE I GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Operating revenues in excess of operating expenses........................... $ 256,297 $ 221,014 $ 156,142
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization............................................. 728,913 1,013,167 257,973
Changes in operating assets and liabilities:
Accounts payable........................................................ 72,797 (84,657) 112,615
Accrued liabilities..................................................... 50,853 82,160 (46,843)
Net cash provided by operating activities............................... 1,108,860 1,231,684 479,887
Investing activities:
Purchases of videocassette rental inventory, net............................. (793,687) (1,093,482) (285,938)
Purchases of furnishings and equipment....................................... (8,858) (50,464) (614)
Net cash used in investing activities................................... (802,545) (1,143,946) (286,552)
Financing activities:
Capital withdrawals.......................................................... (152,370) (340,157) (182,103)
Principal payments on long-term debt......................................... (5,008) -- --
Net cash used in financing activities................................... (157,378) (340,157) (182,103)
Increase (decrease) in cash.................................................... 148,937 (252,419) 11,232
Cash at beginning of period.................................................... 150,425 299,362 46,943
Cash at end of period.......................................................... $ 299,362 $ 46,943 $ 58,175
Supplemental disclosures of cash flow information
Cash paid during the period for interest..................................... $ 1,072 $ -- $ --
</TABLE>
See accompanying notes to combined financial statements.
F-35
<PAGE>
VIDEO WAREHOUSE I GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of Video Warehouse I Group
include substantially all operating revenues and expenses and cash flows of the
following subchapter S corporations, all commonly controlled by two
shareholders; Lott's Video Warehouse of Athens, Inc., No. 1, Lott's Video
Warehouse of Athens, Inc., No. 2, Lott's Video Warehouse of Dublin, Inc., Lott's
Video Warehouse of Gainesville, Inc. and Lott's Video Warehouse of
Milledgeville, Inc. As of December 31, 1994 Video Warehouse I Group owned and
operated five video specialty stores in Georgia.
The combined statements of operating revenues and expenses and cash flows
for the three months ended March 31, 1995 have been prepared by the Group
without audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
operating revenues and expenses and cash flows for the three months ended March
31, 1995 have been included.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in each of the second and third years;
and the tenth and any succeeding copies of each title per store are amortized
over nine months on a straight-line basis.
Amortization expense related to videocassette rental inventory amounted to
$713,758 and $996,696 for the years ended December 31, 1993 and 1994,
respectively, and $253,198 for the three months ended March 31, 1995
(unaudited). As videocassette rental inventory is sold or retired, the
applicable cost and accumulated amortization are eliminated from the accounts
and any related gain or loss is recognized.
INCOME TAXES
Each of the corporations of Video Warehouse I Group operates as a
subchapter S corporation for income tax purposes. Accordingly, income taxes are
paid by the shareholders and Video Warehouse I Group has no income tax
liability.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to 10 years) for leased items using the straight-line method.
Depreciation and amortization expense on furnishings and equipment was
$15,155 and $16,471 for the years ended December 31, 1993 and 1994,
respectively, and $4,775 for the three months ended March 31, 1995 (unaudited).
Maintenance and repair expenditures are expensed as incurred and amounted to
$16,698 and $17,739 for the years ended December 31, 1993 and 1994,
respectively, and $14,447 for the three months ended March 31, 1995 (unaudited).
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
F-36
<PAGE>
VIDEO WAREHOUSE I GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) COMMITMENTS
Video Warehouse I Group leases all of its retail facilities under
noncancelable operating leases. Future minimum payments under these leases as of
December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995.............................................................. $133,296
1996.............................................................. 80,990
1997.............................................................. 3,117
$217,403
</TABLE>
Rent and related expenses totaled approximately $143,793 and 177,493, for
the years ended December 31, 1993 and 1994, respectively, and $52,587 for the
three months ended March 31, 1995 (unaudited).
(3) RELATED PARTY TRANSACTIONS
Video Warehouse I Group pays a fee to BEL management for management
advisory services. Expense for these services amounted to $317,686 and $338,078
for the years ended December 31, 1993 and 1994, respectively, and $51,099 for
the three months ended March 31, 1995 (unaudited).
(4) SUBSEQUENT EVENTS (UNAUDITED)
Under an asset purchase agreement, substantially all of the assets, certain
liabilities (principally store leases) and the business of Video Warehouse I
Group were sold to Moovies, Inc. concurrently with the closing of the initial
public offering of common stock by Moovies, Inc.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Video Warehouse II Group:
We have audited the accompanying combined statements of operating revenues
and expenses and cash flows of Video Warehouse II Group for the years ended
December 31, 1993 and 1994. These financial statements are the responsibility of
the Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the operating revenues and expenses and cash
flows of Video Warehouse II Group for the years ended December 31, 1993 and 1994
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 19, 1995
F-38
<PAGE>
VIDEO WAREHOUSE II GROUP
COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Revenues................................................................... $3,369,577 $4,551,324 $1,225,005
Operating costs and expenses:
Operating expenses....................................................... 2,002,364 2,461,318 657,339
Cost of product sales.................................................... 500,972 942,704 200,798
General and administrative............................................... 454,942 477,370 142,106
Interest, net............................................................ 12,883 24,355 9,082
2,971,161 3,905,747 1,009,325
Operating revenues in excess of operating expenses......................... $ 398,416 $ 645,577 $ 215,680
</TABLE>
See accompanying notes to combined financial statements.
F-39
<PAGE>
VIDEO WAREHOUSE II GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Operating revenues in excess of operating expense.............................. $ 398,416 $ 645,577 $ 215,680
Adjustments to reconcile to net cash provided by operating activities:
(Gain) loss on disposal of furnishings and equipment........................ 41,246 (14,170) --
Depreciation and amortization............................................... 841,005 1,168,695 332,191
Changes in operating assets and liabilities:
Other receivables......................................................... 36,775 22,912 (13,067)
Merchandise inventory..................................................... -- (16,705) 6,017
Deposits and other assets................................................. -- (5,000) --
Accounts payable.......................................................... (148,925) 38,151 369,204
Accrued liabilities....................................................... (12,803) (3,974) 11,883
Net cash provided by operating activities................................. 1,155,714 1,835,486 921,908
Investing activities:
Purchases of videocassette rental inventory, net............................... (1,140,764) (1,136,052) (320,893)
Purchases of furnishings and equipment......................................... (93,861) (107,809) (23,868)
Net cash used in investing activities..................................... (1,234,625) (1,243,861) (344,761)
Financing activities:
Proceeds from issuance of long-term debt....................................... 129,360 58,640 --
Principal payments on long-term debt........................................... (41,578) (19,195) (65,304)
Capital withdrawals, net....................................................... (8,344) (631,170) (514,977)
Net cash (used in) provided by financing activities....................... 79,438 (591,725) (580,281)
Increase (decrease) in cash...................................................... 527 (100) (3,134)
Cash at beginning of period...................................................... 5,423 5,950 5,850
Cash at end of period............................................................ $ 5,950 $ 5,850 $ 2,716
Supplemental disclosures of cash flow information
Cash paid during the year for interest......................................... $ 4,430 $ 31,943 $ 9,082
</TABLE>
See accompanying notes to combined financial statements.
F-40
<PAGE>
VIDEO WAREHOUSE II GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include substantially all
operating revenues and expenses and cash flows of the following commonly
controlled subchapter S corporations and partnerships: Video Warehouse of August
No. 1, Inc., Video Warehouse of Augusta No. 2, Inc., Video Warehouse of Macon
No. 3, Inc., Video Warehouse of Savannah No, 1, Inc., Video Warehouse of Augusta
No. 3, Video Warehouse of Macon No. 1 and Video Warehouse of Savannah No. 2. As
of December 31, 1994, Video Warehouse II Group owned and operated seven video
specialty stores in Georgia.
The combined statements of operating revenues and expenses and cash flows
for the three months ended March 31, 1995 have been prepared by the Group
without audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of operating
revenues and expenses and cash flows for the three months ended March 31, 1995
have been included.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of videocassettes, children's books and
confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in each of the second and third years;
and the tenth and any succeeding copies of each title per store are amortized
over nine months on a straight-line basis.
Amortization expense related to videocassette rental inventory totaled
$801,150 and $1,118,393 for the years ended December 31, 1993 and 1994,
respectively, and $319,616 for the three months ended March 31, 1995
(unaudited). As videocassette rental inventory is sold or retired, the
applicable cost and accumulated amortization are eliminated from the accounts
and any related gain or loss is recognized.
INCOME TAXES
All of the entities of Video Warehouse II Group operate as subchapter S
corporations or partnerships for income tax purposes. Accordingly, income taxes
are paid by the shareholders or partners and Video Warehouse II Group has no
income tax liability.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to 10 years) for leased items using the straight-line method.
Depreciation and amortization expense on furnishings and equipment was
$39,855 and $50,302 for the years ended December 31, 1993 and 1994,
respectively, and $12,575 for the three months ended March 31, 1995 (unaudited).
Maintenance and repair expenditures are expensed as incurred and amounted to
$12,352 and $12,276 for the years ended December 31, 1993 and 1994,
respectively, and $5,933 for the three months ended March 31, 1995 (unaudited).
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
F-41
<PAGE>
VIDEO WAREHOUSE II GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) COMMITMENTS
Video Warehouse II Group leases one of its seven retail facilities under
noncancelable operating leases from non-related parties. Future minimum payments
under noncancelable operating leases as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995.............................................................................. $25,200
</TABLE>
Rental and related expenses amounted to $43,200 for the years ended
December 31, 1993 and 1994, respectively, and $10,800 for the three months ended
March 31, 1995 (unaudited).
(3) RELATED PARTY TRANSACTIONS
Six of the seven stores which comprise Video Warehouse II Group are owned
by the majority shareholders of Video Warehouse II Group. The Group pays monthly
rent to the owners of these stores and there are no long-term lease agreements.
The amount of rent paid on these stores was $207,644 and $177,711 for the years
ended December 31, 1993 and 1994, respectively, and $44,428 for the three months
ended March 31, 1995 (unaudited).
(4) SUBSEQUENT EVENT (UNAUDITED)
Under three asset purchase agreements and four merger agreements,
substantially all of the assets, certain liabilities (principally store leases)
and the business of Video Warehouse II Group were sold to Moovies, Inc.
concurrently with the closing of the initial public offering of common stock by
Moovies, Inc.
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
XIMPEC, Inc. and Planet Video, Inc.:
We have audited the accompanying combined statements of operating revenues
and expenses and cash flows of Planet Video (combined statements of XIMPEC, Inc.
and Planet Video, Inc.) for the year ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the operating revenues and expenses and cash
flows of Planet Video (combined statements of XIMPEC, Inc. and Planet Video,
Inc.) for the year ended December 31, 1994 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 24, 1995
F-43
<PAGE>
PLANET VIDEO
COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1994 1995
<S> <C> <C>
(UNAUDITED)
Revenues:
Rental revenues............................................................................. $586,648 $ 202,941
Product sales............................................................................... 121,313 41,966
707,961 244,907
Operating costs and expenses:
Operating expenses.......................................................................... 492,035 181,335
Cost of product sales....................................................................... 71,121 18,094
General and administrative.................................................................. 101,903 32,577
Interest, net............................................................................... 17,224 6,609
682,283 238,615
Operating revenues in excess of operating expenses............................................ $ 25,678 $ 6,292
</TABLE>
See accompanying notes to combined financial statements.
F-44
<PAGE>
PLANET VIDEO
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1994 1995
<S> <C> <C>
(UNAUDITED)
Operating activities:
Operating revenues in excess of operating expenses.......................................... $ 25,678 $ 6,292
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization............................................................ 106,504 36,010
Changes in operating assets and liabilities:
Merchandise inventory.................................................................. (24,437) 5,050
Deposits and other assets.............................................................. (57,267) (18,635)
Accounts payable....................................................................... 134,253 (29,498)
Accrued liabilities.................................................................... 19,248 7,133
Net cash provided by operating activities........................................... 203,979 6,352
Investing activities:
Purchases of videocassette rental inventory, net............................................ (240,565) (29,095)
Purchases of furnishings and equipment...................................................... (165,116) --
Net cash used in investing activities............................................... (405,681) (29,095)
Financing activities:
Proceeds from issuance of long-term debt.................................................... 265,000 --
Principal payments on long-term debt........................................................ -- (18,499)
Net cash provided by (used in) financing activities................................. 265,000 (18,499)
Increase (decrease) in cash................................................................... 63,298 (41,242)
Cash at beginning of period................................................................... -- 63,298
Cash at end of period......................................................................... $ 63,298 $ 22,056
Supplemental disclosures of cash flow information
Cash paid during the period for interest.................................................... $ 17,224 $ 5,752
Capital contribution of videocassette rental inventory...................................... $ 24,743 $ --
</TABLE>
See accompanying notes to combined financial statements.
F-45
<PAGE>
PLANET VIDEO
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of Planet Video (a combined
entity consisting of Ximpec, Inc. and Planet Video, Inc.) include substantially
all operating revenues and expenses and cash flows of Planet Video. As of
December 31, 1994, Planet Video owned and operated two video specialty stores in
New Jersey and Pennsylvania.
The combined statements of operating revenues and expenses and cash flows
for the three month period ended March 31, 1995 have been prepared by the
Company without audit. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
operating revenues and expenses and cash flows for the three months ended March
31, 1995 have been included.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of videocassettes, children's books and
confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third of the titles per store are amortized as base
stock; the fourth through ninth copies of each title per store are amortized 40%
in the first year and 30% in each of the second and third years; and the tenth
and any succeeding copies of each title per store are amortized over nine months
on a straight-line basis.
Certain videocassettes in the rental inventory are leased under a revenue
sharing agreement with a vendor, as broker for various studios. During the
revenue sharing period, which generally is one year (but does not exceed two
years), the studios retain ownership of the videocassette and Planet Video
shares the rental revenue with a vendor rather than purchasing the videocassette
for a fixed cost (typically $60 to $67). Under this agreement, the percentage of
rental revenue retained by Planet Video generally is fixed for the first sixty
days of the revenue sharing period and is then set at a higher rate for the
remainder of the term. The associated handling fee per leased videocassette is
amortized on a straight-line basis over the term of the lease. Revenue sharing
allows Planet Video to order a larger number of copies to meet most of the
temporarily heavy demand that exists during the first few weekends of a title's
release. Revenue sharing reduces the risk that Planet Video will be unable to
recover the acquisition cost of a videocassette through rental revenue before
the popularity of the title declines significantly. At the end of the revenue
sharing period for a title, Planet Video may purchase the copies of that title
for generally less than $5 per copy. The purchased copies are then amortized as
base stock.
Amortization expense related to videocassette rental inventory totaled
$89,653 for the year ended December 31, 1994 and $27,134 for the three months
ended March 31, 1995 (unaudited). As videocassette rental inventory is sold or
retired, the applicable cost and accumulated amortization are eliminated from
the accounts and any related gain or loss is recognized.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to 10 years) for leased items using the straight-line method.
Depreciation and amortization expense on furniture and equipment was
$16,851 for the year ended December 31, 1994 and $8,876 for the three months
ended March 31, 1995 (unaudited). Maintenance and repair expenditures are
expensed as incurred and amounted to $4,679 for the year ended December 31, 1994
and $685 for the three months ended March 31, 1995 (unaudited).
F-46
<PAGE>
PLANET VIDEO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Each of the corporations of Planet Video operates as subchapter S
corporations for income tax purposes. Accordingly, income taxes are paid by the
Shareholders and Planet Video has no income tax liability.
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
(2) COMMITMENTS
The Company leases all of its retail facilities under noncancelable
operating leases. Future minimum lease payments required under these leases as
of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995.............................................................. $136,879
1996.............................................................. 139,266
1997.............................................................. 141,723
1998.............................................................. 144,255
1999.............................................................. 26,079
$588,202
</TABLE>
Rental and related expenses amounted to $120,675 for the year ended
December 31, 1994 and $43,031 for the three months ended March 31, 1995
(unaudited).
(3) SUBSEQUENT EVENT (UNAUDITED)
Under an asset purchase agreement, substantially all of the assets, certain
liabilities (principally store leases) and the business of Planet Video were
sold to Moovies, Inc. concurrently with the closing of the initial public
offering of common stock by Moovies, Inc.
F-47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Row Video, Inc.:
We have audited the accompanying statements of income and cash flows of
First Row Video, Inc. for the years ended December 31, 1993 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of First Row
Video, Inc. for the years ended December 31, 1993 and 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of computing the amortization of its videocassette rental inventory
effective January 1, 1994.
KPMG PEAT MARWICK LLP
Cleveland, Ohio
April 12, 1995
F-48
<PAGE>
FIRST ROW VIDEO, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Revenues
Rental revenues................................................................. $7,567,608 $ 9,680,173 $2,528,163
Product sales................................................................... 1,125,132 1,418,894 733,849
8,692,740 11,099,067 3,262,012
Operating costs and expenses
Operating expenses.............................................................. 6,909,559 8,722,370 2,148,439
Cost of product sales........................................................... 233,838 471,871 310,528
General and administrative...................................................... 993,551 1,100,297 342,099
8,136,948 10,294,538 2,801,066
Operating income.................................................................. 555,792 804,529 460,946
Other income (expenses)
Interest expense, net........................................................... (63,331) (72,623) (30,400)
Other........................................................................... (157,374) 56,938 15,578
Income before income taxes................................................... 335,087 788,844 446,124
Income taxes...................................................................... 135,362 311,170 173,988
Net income................................................................... $ 199,725 $ 477,674 $ 272,136
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
FIRST ROW VIDEO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net income....................................................................... $ 199,725 $ 477,674 $ 272,136
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................................. 3,188,770 3,737,668 948,255
(Gain) loss on disposal of equipment........................................... 67,712 (30,082) --
Deferred income tax expense.................................................... 135,362 279,795 120,900
Change in operating assets and liabilities:
Accounts receivable......................................................... 67,050 (14,456) (149,939 )
Merchandise inventories..................................................... (23,300) (573,136) (1,317 )
Related party receivable and other assets................................... (117,947) (295,108) (25,315 )
Accounts payable, accrued liabilities, and other liabilities................ 389,742 436,884 140,406
Net cash provided by operating activities................................. 3,907,114 4,019,239 1,305,126
Investing activities:
Purchases of videocassette rental inventory, net............................... (3,520,985) (3,546,404) (1,116,891 )
Purchases of furnishing and equipment.......................................... (645,299) (1,050,559) (117,716 )
Proceeds from sale of fixed assets............................................. -- 143,877 --
Net cash used in investing activities..................................... (4,166,284) (4,453,086) (1,234,607 )
Financing activities:
Increase (decrease) in notes payable, net...................................... 2,011 (7,307) --
Increase (decrease) in long-term debt.......................................... 180,687 393,099 (117,449 )
Net cash provided by (used in) financing activities....................... 182,698 385,792 (117,449 )
Net decrease in cash...................................................... (76,472) (48,055) (46,930 )
Cash and cash equivalents at beginning of year................................... 247,562 171,090 123,035
Cash and cash equivalents at end of year......................................... $ 171,090 $ 123,035 $ 76,105
Supplementary disclosure of cash flow information
Cash paid during the year for Interest........................................... $ 63,998 $ 92,716 $ 30,590
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
FIRST ROW VIDEO, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY
First Row Video, Inc. (the Company), an Ohio corporation, owns and operates
video specialty stores located in Ohio and Pennsylvania. As of December 31,
1994, the Company operated 24 stores.
The statements of income and cash flows for the three months ended March
31, 1995 have been prepared by the Company without audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of income and cash flows for the three
months ended March 31, 1995 have been included.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments purchased with
maturities of three months or less.
MERCHANDISE INVENTORIES
Merchandise inventories, consisting primarily of prerecorded videocassettes
and video games available for resale, are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is recorded at
cost and amortized over their estimated economic life with no provision for
salvage value. Prior to 1994, videocassettes were amortized over 36 months on an
accelerated basis. Effective January 1, 1994, the Company changed its method of
amortization. Videocassettes which are considered base stock are amortized over
36 months on a straight-line basis. Purchases of new release videocassettes and
video games are amortized whereby the first through third of each title per
store are amortized as base stock; the fourth through ninth copies of each title
per store are amortized over 36 months on an accelerated basis; and the tenth
and any succeeding copies of each title per store are amortized over nine months
on a straight-line basis. The adoption of this change in method of amortization
increased net income for the year ended December 31, 1994 by approximately
$61,000.
Amortization expense related to videocassette rental inventory totaled
$2,809,819 and $3,315,028 for the years ended December 31, 1993 and 1994,
respectively, and $815,195 for the three months ended March 31, 1995
(unaudited). As videocassettes are sold or retired, the applicable cost and
accumulated amortization are eliminated from the accounts, and any gain or loss
is recorded.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ seven years
Equipment and vehicles............................ five years
Leasehold improvements............................ Shorter of estimated useful life or lease term
</TABLE>
Depreciation and amortization expense on furnishings and equipment was
$378,951 and $422,640 for the years ended December 31, 1993 and 1994,
respectively, and $133,060 for the three months ended March 31, 1995
(unaudited).
REVENUE RECOGNITION
Revenue is recognized at the time of rental or sale of the videocassette.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the
asset and liability method of Statement 109, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected
F-51
<PAGE>
FIRST ROW VIDEO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The Company adopted Statement 109 effective January 1, 1993. The adoption
of Statement 109 had no material effect on the amount of income tax expense
reported in the year ended December 31, 1993. Prior to January 1, 1992, the
Company followed Statement of Financial Accounting Standards No. 96 to account
for income taxes.
(3) INCOME TAXES
The components of the provision for income tax expense are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER ENDED
31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Current:
Federal............................................................................ $ -- $ 25,000 $ 42,301
State.............................................................................. -- 6,375 10,787
Total current........................................................................ -- 31,375 53,088
Deferred:
Federal............................................................................ 115,058 237,826 102,765
State.............................................................................. 20,304 41,969 18,135
Total deferred....................................................................... 135,362 279,795 120,900
Total provision...................................................................... $135,362 $311,170 $173,988
</TABLE>
A reconciliation of the income tax at the federal statutory rate to the
Company's income tax expense is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER ENDED
31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Income tax at statutory rate......................................................... $113,930 $268,207 $151,682
State tax expense, net of federal income tax benefit................................. 20,304 48,344 27,341
Other................................................................................ 1,128 (5,381) (5,035)
$135,362 $311,170 $173,988
</TABLE>
(4) LEASE COMMITMENTS
The Company occupies store facilities and a warehouse and uses equipment
under operating leases extending to 2004. Rent expense charged to operations
totaled $661,000 and $832,000 for 1993 and 1994, respectively, and $262,572 for
the three months ended March 31, 1995 (unaudited). Most leases contain options
for renewal periods. In most cases, management expects that in the normal course
of business, all leases will be renewed or replaced with other leases. The
following is a schedule of future minimum lease payments under leases that have
initial or remaining noncancelable terms in excess of one year as of December
31, 1994:
<TABLE>
<S> <C>
1995............................................................ $ 781,154
1996............................................................ 760,286
1997............................................................ 747,121
1998............................................................ 744,551
1999............................................................ 724,160
Thereafter...................................................... 3,941,229
$7,698,501
</TABLE>
F-52
<PAGE>
FIRST ROW VIDEO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) CONTROLLING INTEREST AND RELATED PARTY TRANSACTIONS
All of the outstanding common stock is owned by two individuals.
The Company leases various store facilities and a warehouse from an
affiliated company through common ownership. Rent expense charged to operations
for these facilities totaled $75,500 and $113,610 for 1993 and 1994,
respectively, and $72,993 for the three months ended March 31, 1995 (unaudited).
Management fee income of $38,744 and $50,704 was charged during 1993 and 1994,
respectively, and $14,224 for the three months ended March 31, 1995 (unaudited)
by the Company to other entities owned by the stockholders.
(6) RETIREMENT PLAN
During 1993, the Company adopted a 401(k) defined contribution retirement
plan which covers substantially all employees. The Company matches 50 percent of
employees' voluntary contributions up to 6 percent of gross pay. Participants
may make voluntary contributions to the plan up to 15 percent of gross wages.
Total expense under the plan was $3,934 and $21,952 for 1993 and 1994,
respectively, and $4,478 for the three months ended March 31, 1995 (unaudited).
(7) OTHER INCOME
During 1994, the Company sold assets related to its "store within a store"
operations. These assets included equipment and videocassette rental inventory.
The total proceeds on the sale of these assets was $262,252, resulting in a gain
of $53,352 which is included in other income on the statement of income and
retained earnings.
(8) SUBSEQUENT EVENT (UNAUDITED)
Under a merger agreement dated June 14, 1995, all of the assets,
liabilities and the business of First Row Video, Inc. were sold to Moovies, Inc.
concurrently with the closing of the initial public offering of common stock by
Moovies, Inc.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Video Game Trader, Inc.:
We have audited the accompanying statements of operations and cash flows of
Video Game Trader, Inc. for the years ended December 31, 1993 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Video Game
Trader, Inc. for the years ended December 31, 1993 and 1994 ended in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Cleveland, Ohio
April 12, 1995
F-54
<PAGE>
VIDEO GAME TRADER, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Revenues
Merchandise sales................................................................... $1,285,286 $2,618,785 $ 549,074
Operating costs and expenses
Operating expenses.................................................................. 485,000 983,534 217,819
Cost of merchandise sales........................................................... 824,957 1,614,061 301,485
General and administrative.......................................................... 9,408 21,168 6,272
1,319,365 2,618,763 525,576
Operating income (loss)............................................................... (34,079) 22 23,498
Other income (expenses):
Interest expense, net............................................................... (12,995) (41,048) (11,953)
Net income (loss)................................................................ $ (47,074) $ (41,026) $ 11,545
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE>
VIDEO GAME TRADER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED DECEMBER ENDED MARCH
31, 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net income (loss)...................................................................... $ (47,074) $ (41,026) $ 11,545
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities
Depreciation and amortization..................................................... 42,243 98,239 30,796
Change in operating assets and liabilities
Accounts receivable............................................................. (355) (947) (2,373)
Merchandise inventories......................................................... (415,395) (93,024) (49,076)
Prepaid expenses................................................................ (2,859) -- 1,910
Other assets.................................................................... (19,580) (1,497) --
Accounts payable and accrued expenses........................................... 378,743 52,692 (136,735)
Net cash provided by (used in) operating activities.......................... (64,277) 14,437 (143,933)
Investing activities:
Purchases of video game rental inventory, net.......................................... -- (116,558) (11,205)
Purchases of equipment, net............................................................ (261,698) (130,246) (8,128)
Net cash used in investing activities........................................ (261,698) (246,804) (19,333)
Financing activities:
Proceeds from notes payable............................................................ 57,994 114,839 93,751
Proceeds from repayment of long-term debt, net......................................... 335,557 161,613 (44,121)
Net cash provided by financing activities.................................... 393,551 276,452 49,630
Net increase (decrease) in cash.............................................. 67,576 44,085 (113,636)
Cash and cash equivalents at beginning of year......................................... 10,871 78,447 122,532
Cash and cash equivalents at end of year............................................... $ 78,447 $ 122,532 $ 8,896
Supplementary disclosure of cash flow information
Cash paid during the year for
Interest............................................................................. $ 12,995 $ 34,365 $ 12,311
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
VIDEO GAME TRADER, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY
Video Game Trader, Inc. (Company), an Ohio corporation incorporated March
4, 1992, owns and operates video game specialty stores located primarily in Ohio
and Pennsylvania. As of December 31, 1994, the Company operated eight stores.
The statements of operations and cash flows for the three months ended
March 31, 1995 have been prepared by the Company without audit. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of income and cash flows for the three
months ended March 31, 1995 have been included.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MERCHANDISE INVENTORIES
Merchandise inventories, consisting primarily of video games, is stated at
the lower of cost of market. Cost is determined by the first-in, first-out
method.
VIDEO GAME RENTAL INVENTORY
Video game rental inventory is recorded at cost, and amortized over their
estimated economic life with no provision for salvage value. Video games which
are considered base stock are amortized over 36 months on a straight-line basis.
Purchases of video games are amortized whereby the first through third copies of
each game per store are amortized as base stock; the fourth through ninth copies
of each game per store are amortized over 36 months on an accelerated basis; the
tenth and any succeeding copies of each title per store are amortized over nine
months on a straight-line basis.
Amortization expense related to video game rental inventory totaled $21,421
for the year ended December 31, 1994 and $10,559 for the three months ended
March 31, 1995 (unaudited).
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................... seven years
Equipment and vehicles............................... five years
Leasehold improvements and signs..................... Shorter of estimated useful life or lease term
</TABLE>
Depreciation and amortization expense on furnishings and equipment was
$42,243 and $76,818 for the years ended December 31, 1993 and 1994,
respectively, and $20,237 for the three months ended March 31, 1995 (unaudited).
REVENUE RECOGNITION
Revenue is recognized at the time of rental or sale.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the
asset and liability method of Statement 109, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
(3) INCOME TAXES
At December 31, 1994, the Company had an unused net operating loss
carryforward of approximately $76,000 for federal income tax purposes, expiring
in 2009, available for offset against future taxable income.
F-57
<PAGE>
VIDEO GAME TRADER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences relate to net operating loss carryforwards.
(4) LEASE COMMITMENTS
The Company leases its facilities under operating leases extending to 2004.
Following is a summary of future minimum rental payments under these leases as
of December 31 1994:
<TABLE>
<S> <C>
1995.......................................................................... $164,513
1996.......................................................................... 165,788
1997.......................................................................... 150,666
1998.......................................................................... 152,166
1999.......................................................................... 87,713
Thereafter.................................................................... 72,408
$793,254
</TABLE>
Rent expense was $57,562, and $152,346 for the years ended December 31,
1993 and 1994, respectively, and $40,216 for the three months ended March 31,
1995 (unaudited).
(5) CONTROLLING INTEREST AND RELATED PARTY TRANSACTIONS
All of the outstanding common stock is owned by two individuals.
The Company pays management fees to a company owned by the stockholders;
such management fees charged to operations totaled $9,408 and $21,168 during
1993 and 1994, respectively, and $6,272 for the three months ended March 31,
1995 (unaudited). The Company also leases one of its store facilities from its
stockholders; rent expense charged to operations for this facility totaled
$15,750 and $21,000 during 1993 and 1994, respectively, and $5,250 for the three
months ended March 31, 1995 (unaudited).
(6) PENSION PLAN
During 1993, the Company adopted a 401(k) defined contribution retirement
plan which covers substantially all employees. The Company matches 50 percent of
employees' voluntary contributions up to 6 percent of gross wages. Participants
may make voluntary contributions to the plan up to 15 percent of gross wages.
Total expense under the plan was $43 and $1,192 for 1993 and 1994, respectively,
and $444 for the three months period March 31, 1995 (unaudited).
(7) SUBSEQUENT EVENT (UNAUDITED)
Under a merger agreement dated June 14, 1995, all of the assets,
liabilities and the business of Video Game Trader, Inc. were sold to Moovies,
Inc. concurrently with the closing of the initial public offering of common
stock by Moovies, Inc.
F-58
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
L.A. Video:
We have audited the accompanying combined statements of operating revenues
and expenses and cash flows of L.A. Video for the years ended December 31, 1993
and 1994. These financial statements are the responsibility of L.A. Video's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the operating revenues and expenses and cash
flows of L.A. Video for the years ended December 31, 1993 and 1994 in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
June 30, 1995
F-59
<PAGE>
L.A. VIDEO
COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Revenues:
Rental revenues................................................................... $2,399,088 $2,578,482 $ 889,205
Product sales..................................................................... 353,082 485,269 148,650
2,752,170 3,063,751 1,037,855
Operating costs and expenses:
Operating expenses................................................................ 1,656,928 1,919,817 693,527
Cost of product sales............................................................. 286,858 384,675 111,114
General and administrative........................................................ 164,779 182,621 59,992
Interest, net..................................................................... 27,049 28,457 7,625
2,135,614 2,515,570 872,258
Operating revenues in excess of operating expenses.................................. $ 616,556 $ 548,181 $ 165,597
</TABLE>
See accompanying notes to combined financial statements.
F-60
<PAGE>
L.A. VIDEO
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Operating revenues in excess of operating expenses................................ $ 616,556 $ 548,181 $ 165,597
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization.................................................. 872,568 813,699 301,897
Changes in operating assets and liabilities:
Merchandise inventory........................................................ (2,000) (11,000) (1,123)
Prepaid rent................................................................. -- (8,533) --
Accounts payable............................................................. (35,296) 154,653 (2,621)
Accrued liabilities.......................................................... (1,381) 21,530 (3,022)
Net cash provided by operating activities................................. 1,450,447 1,518,530 460,728
Investing activities:
Purchases of videocassette rental inventory, net.................................. (838,441) (986,612) (282,359)
Purchases of furnishings and equipment............................................ (27,894) (353,085) (31,023)
Net cash used in investing activities..................................... (866,335) (1,339,697) (313,382)
Financing activities:
Increase in advances from shareholder............................................. -- 198,035 40,000
Capital withdrawals............................................................... (572,956) (715,501) (139,362)
Proceeds from issuance of long-term debt.......................................... 218,654 343,688 --
Principal payments on long-term debt.............................................. (227,652) (77,943) (27,695)
Net cash used in financing activities..................................... (581,954) (251,721) (127,057)
Increase (decrease) in cash......................................................... 2,158 (72,888) 20,289
Cash at beginning of period......................................................... 100,092 102,250 29,362
Cash at end of period............................................................... $ 102,250 $ 29,362 $ 49,651
Supplemental disclosures of cash flow information
Cash paid during the period for interest.......................................... $ 28,396 $ 30,130 $ 7,925
</TABLE>
See accompanying notes to combined financial statements.
F-61
<PAGE>
L.A. VIDEO
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of L.A. Video include
substantially all operating revenues and expenses and cash flows of the
following sole proprietorships or subchapter S corporations, all commonly
controlled by one or two shareholders; L.A. Video of Upper Darby; L.A. Video of
Upper Dublin, Inc.; and, L.A. Video of Aldan, Inc. As of December 31, 1994, L.A.
Video owned and operated five video specialty stores in the Philadelphia area.
The combined statements of operating revenues and expenses and cash flows
for the three months ended March 31, 1995 have been prepared by the Company
without audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
operating revenues and expenses and cash flows for the three months ended March
31, 1995 have been included.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of prerecorded videocassettes, children
books and confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: and first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in each of the second and third years;
and the tenth and any succeeding copies of each title per store are amortized
over nine months on a straight-line basis.
Amortization expense related to videocassette rental inventory totaled
$734,734 and $728,867 for the years ended December 31, 1993 and 1994,
respectively, and $273,447 for the three months ended March 31, 1995
(unaudited). As videocassette rental inventory is sold or retired, the
applicable cost and accumulated amortization are eliminated from the accounts
and any related gain or loss is recognized.
INCOME TAXES
Each of the entities comprising L.A. Video operate as subchapter S
corporations or sole proprietorship for income tax purposes. Income taxes are
paid by of the shareholders or owner. L.A. Video has no income tax liability.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to seven years) for leasehold improvements using the
straight-line method.
Depreciation and amortization expense on furniture and equipment was
$65,828 and $84,832 for the years ended December 31, 1993 and 1994,
respectively, and $28,450 for the three months ended March 31, 1995 (unaudited).
Maintenance and repair expenditures are expensed as incurred and amounted to
$12,086 and $19,213 for the years ended December 31, 1993 and 1994,
respectively, and $28,450 for the three months ended March 31, 1995 (unaudited).
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
F-62
<PAGE>
L.A. VIDEO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) COMMITMENTS
L.A. Video leases all of its retail facilities under noncancelable
operating leases. Future minimum lease payments required under these leases as
of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995......................................................... $ 388,119
1996......................................................... 305,118
1997......................................................... 242,567
1998......................................................... 207,727
1999......................................................... 204,589
Thereafter................................................... 555,464
$1,903,584
</TABLE>
Rental and related expenses totaled $247,886 and $281,657 for the years
ended December 31, 1993 and 1994, respectively, and $115,891 for the three
months ended March 31, 1995 (unaudited).
(3) SUBSEQUENT EVENTS (UNAUDITED)
Under an asset purchase agreement, substantially all of the assets, certain
liabilities (principally store leases) and the business of L.A. Video were sold
to Moovies, Inc. concurrently with the closing of the initial public offering of
common stock by Moovies, Inc.
F-63
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
MoveAmerica, Incorporated
We have audited the accompanying statements of income and cash flows of
MoveAmerica, Incorporated for the years ended November 30, 1994 and 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operation and cash flows of
MoveAmerica, Incorporated for the years ended November 30, 1994 and 1993, in
conformity with generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
Des Moines, Iowa
December 21, 1994
F-64
<PAGE>
MOVEAMERICA, INCORPORATED
D/B/A/ MOVIES TO GO AND
GAMES TO GO
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED NOVEMBER 30, AUGUST 31,
1994 1993 1995 1994
<S> <C> <C> <C> <C>
(UNAUDITED)
Operating revenues:
Movies To Go
Rental revenues.............................................. $4,863,033 $3,852,314 $3,652,954 $3,520,412
Product sales................................................ 523,934 622,053 409,806 418,980
5,386,967 4,474,367 4,062,760 3,939,392
Games To Go product sales....................................... 1,138,143 298,617 694,094 946,730
Other........................................................... 11,311 19,747 206,585 212,521
6,536,421 4,792,731 4,963,439 5,098,643
Operating costs and expenses:
Cost of product sales -- Movies To Go........................... 381,461 380,341 362,192 291,943
Cost of product sales -- Games To Go............................ 544,934 133,414 401,638 434,255
Compensation and related payroll costs.......................... 1,647,040 1,207,517 1,087,629 1,278,973
Depreciation.................................................... 1,297,129 869,511 1,008,702 970,960
Repairs and maintenance......................................... 116,804 87,528 223,774 190,418
Occupancy....................................................... 1,241,509 880,818 855,532 737,245
Advertising..................................................... 355,788 359,798 137,045 368,881
Selling, general and administrative............................. 371,574 396,611 401,064 383,908
5,956,239 4,315,538 4,477,576 4,656,583
Operating income........................................... 580,182 477,193 485,863 442,060
Financial income (expense):
Interest income................................................. 361 887 414 259
Interest expense................................................ (106,418) (84,098) (67,817) (52,535)
Other........................................................... -- -- (50,089) (67,569)
(106,057) (83,211) (117,492) (119,845)
Income before income taxes................................. 474,125 393,982 368,371 322,215
Federal and state income taxes:
Current......................................................... 101,891 65,982 90,540 63,000
Deferred........................................................ 83,000 86,000 -- --
184,891 151,982 90,540 63,000
Net income................................................. $ 289,234 $ 242,000 $ 277,831 $ 259,215
</TABLE>
See notes to financial statements.
F-65
<PAGE>
MOVEAMERICA, INCORPORATED
D/B/A/ MOVIES TO GO AND
GAMES TO GO
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST
YEARS ENDED NOVEMBER 30, 31,
1994 1993 1995 1994
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net Income......................................................... $ 289,234 $ 242,000 $ 277,831 $ 259,215
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 1,297,129 869,511 968,336 933,549
Loss on disposal of equipment................................... -- 4,142 -- --
(Gain) on capital lease termination............................. (44,136) -- -- --
Deferred taxes.................................................. 83,000 86,000 83,000 --
Change in assets and liabilities:
(Increase) decrease in income tax refund claim
receivable................................................. 7,571 (7,571) 68 6,847
(Increase) decrease in merchandise inventories................ (27,152) (116,163) 27,211 549
Decrease in prepaid expenses.................................. 9,191 2,335 5,407 8,560
Increase (decrease) in accounts payable....................... (89,588) 219,099 (182,740) (128,678)
Increase (decrease) in accrued expenses....................... (28,954) 61,585 16,509 (57,659)
Increase (decrease) in income taxes payable................... 74,109 (46,161) (40,140) 52,389
Net cash provided by operating activities.................. 1,570,404 1,314,777 1,155,482 1,074,772
Cash flows from investing activities:
Purchase of property and equipment................................. (1,400,249) (997,622) (578,669) (1,560,776)
Cash flows from financing activities:
Proceeds from long-term borrowings................................. 387,847 138,990 -- 480,463
Proceeds from sale of common stock................................. 6,400 5,874 3,750 1,000
Principal payments on long-term borrowings, including capital lease
obligations..................................................... (382,209) (382,305) (588,250) --
Payment on property and equipment purchased on account............. (268,306) (61,918) -- --
Purchase of common stock for retirement............................ (2,000) -- -- --
Net cash (used in) provided by financing activities........ (258,268) (299,359) (584,500) 481,463
Net increase (decrease) in cash............................ (88,113) 17,796 (7,687) (4,541)
Cash
Beginning.......................................................... 349,405 331,609 344,864 349,405
Ending............................................................. $ 261,292 $ 349,405 $ 337,177 $ 344,864
Supplemental disclosures of cash flow information:
Cash payments for:
Interest........................................................ $ 106,418 $ 84,098 $ 67,817 $ 52,535
Income taxes.................................................... $ 20,211 $ 119,714 $ 90,540 $ 63,000
Supplemental schedule of noncash investing and financing activities:
Property and equipment purchased on account..................... $ 249,635 $ 268,306 $ 124,874 $ 363,284
Property and equipment acquired through notes payable........... $ 307,161 $ 129,149 $ -- $ 307,161
Capital lease termination....................................... $ 212,886 $ -- $ -- $ --
</TABLE>
See notes to financial statements.
F-66
<PAGE>
MOVEAMERICA, INCORPORATED
D/B/A/ MOVIES TO GO AND
GAMES TO GO
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company is principally engaged in the business of renting and selling
prerecorded video movies, video games and video equipment with operations
located in Des Moines, Ames, Ankeny, Davenport, Cedar Rapids and Coralville,
Iowa. The Company has 13 Movies To Go stores and 5 Games To Go stores
The combined statements of income and cash flows for the nine months ended
August 31, 1994 and 1995 have been prepared by the Company without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of income and cash flows for
the nine months ended August 31, 1994 and 1995 have been included.
SIGNIFICANT ACCOUNTING POLICIES:
MERCHANDISE INVENTORIES:
Merchandise inventories, which consist primarily of prerecorded video
cassettes and video games held for sale, are stated at the lower of cost
(specific identification method) or market.
DEPRECIATION:
The leasehold interest in building and the leasehold improvements are
depreciated over the related lease terms. Depreciation of movie cassettes held
for rental and rental equipment is computed over a one to three-year estimated
useful life by the straight-line method. Depreciation of office furniture and
equipment is computed primarily by declining-balance methods over their
estimated useful lives. It is the Company's policy to include amortization
expense on assets acquired under capital lease with depreciation expense on
owned assets.
INCOME TAXES:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases.
VIDEOCASSETTE REVENUE:
Revenue is recognized at the time of rental or sale of the videocassette.
(2) RENT EXPENSE
The Company leases sixteen of its buildings and its office space under
noncancellable agreements which expire between December 1994 and April 2004 and
require minimum annual rentals. These leases may be renewed for periods ranging
from one to five years and require payment of property taxes, insurance and
maintenance. Seven of the building leases are leased from parties related to the
Company. The Company has subleased one of its buildings to another company under
a noncancellable agreement which begins December 1, 1994 and expires August 31,
1996 and requires annual rentals of $78,000.
The minimum rental commitment at November 30, 1994 is due as follows:
<TABLE>
<CAPTION>
RELATED
TOTAL PARTIES
<S> <C> <C>
Year ending November 30:
1995.......................................... $ 930,109 436,275
1996.......................................... 861,383 369,298
1997.......................................... 629,024 333,298
1998.......................................... 607,278 333,298
1999.......................................... 429,816 178,929
Thereafter....................................... 666,616 --
$4,124,226 1,651,098
</TABLE>
F-67
<PAGE>
MOVEAMERICA, INCORPORATED
D/B/A/ MOVIES TO GO AND
GAMES TO GO
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The preceding minimum rental commitment amounts have not been reduced by
the sublease rentals mentioned above totaling $136,500 which are to be received
in the future.
Rent expense for the years ended November 30, 1994 and 1993 was $851,552
and $644,112, respectively, including rent expense to related parties of
$362,265 and $273,970, respectively. Rent expense for the nine months ended
August 31, 1995 and 1994 (unaudited) was $749,961 and $744,866, respectively,
including rent expense to related parties of $358,195 and $259,726,
respectively.
(3) COMMITMENT
The Company has pledged $10,000 to the Iowa Film Awards to be paid next
year.
F-68
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Movie Store Group:
We have audited the accompanying combined statements of operating revenues
and expenses and cash flows of Movie Store Group for the eleven months ended
November 30, 1995. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the operating revenues and expenses and cash
flows of Movie Store Group for the eleven months ended November 30, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
February 2, 1996
F-69
<PAGE>
MOVIE STORE GROUP
COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
ELEVEN MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, MARCH 31,
1995 1995
<S> <C> <C>
(UNAUDITED)
Revenues........................................................................................ $ 3,612,619 $895,084
Operating costs and expenses:
Operating expenses............................................................................ 2,391,752 620,901
Cost of product sales......................................................................... 300,653 7,999
General and administrative.................................................................... 482,276 106,288
3,174,681 735,188
Operating income................................................................................ 437,938 159,896
Interest expense, net........................................................................... 34,267 4,705
Other income, net............................................................................... 6,446 6,035
Income before income taxes...................................................................... 410,117 161,226
Income tax expense.............................................................................. 53,875 21,178
Net income...................................................................................... $ 356,242 $140,048
</TABLE>
See accompanying notes to combined financial statements.
F-70
<PAGE>
MOVIE STORE GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, MARCH 31,
1995 1995
<S> <C> <C>
(UNAUDITED)
Operating activities:
Net income.................................................................................... $ 356,242 $ 140,048
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization.............................................................. 873,824 238,418
Changes in operating assets and liabilities:
Other receivables........................................................................ 1,000 --
Merchandise inventory.................................................................... (5,706) (2,689)
Deposits and other assets................................................................ 557 657
Accounts payable......................................................................... 95,894 10,054
Accrued liabilities...................................................................... 16,778 27,138
Income taxes payable..................................................................... (409) --
Deferred income tax, net................................................................. (21,520) 21,178
Net cash provided by operating activities............................................. 1,316,660 434,804
Investing activities:
Purchases of videocassette rental inventory, net.............................................. (1,010,657) (311,305)
Purchases of furnishings and equipment........................................................ (83,567) (77,944)
Net cash used in investing activities................................................. (1,094,224) (389,249)
Financing activities:
Proceeds from issuance of long-term debt...................................................... 25,000 --
Principal payments on long-term debt.......................................................... (665) --
Proceeds from issuance of notes payable to related parties.................................... 150,000 127,900
Principal payments on notes payable to related parties........................................ (91,335) (31,144)
Capital withdrawals........................................................................... (265,400) --
Net cash (used in) provided by financing activities................................... (182,400) 96,756
Increase in cash................................................................................ 40,036 142,311
Cash at beginning of period..................................................................... 66,584 66,584
Cash at end of period........................................................................... $ 106,620 $ 208,895
Supplemental disclosures of cash flow information:
Cash paid for:
Interest...................................................................................... $ 36,515 $ 5,656
Income taxes.................................................................................. $ 76,054 $ --
</TABLE>
See accompanying notes to combined financial statements.
F-71
<PAGE>
MOVIE STORE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of Movie Store Group include
substantially all operating revenues and expenses and cash flows of the
following commonly controlled subchapter S and subchapter C corporations: The
Movie Store, Inc., The Movie Store VI, Inc., Parkaire Media Associates, Ltd.,
and The Movie Store VII, Inc. As of November 30, 1995, Movie Store Group owned
and operated eight video specialty stores in Georgia.
The combined statements of operating revenues and expenses and cash flows
for the three months ended March 31, 1995 have been prepared by the Group
without audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of operating
revenues and expenses and cash flows for the three months ended March 31, 1995
have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of videocassettes, children's books and
confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in the each of the second and third
years; and the tenth and any succeeding copies of each title per store are
amortized over nine months on a straight-line basis.
Amortization expense related to videocassette rental inventory totaled
$823,371 for the eleven months ended November 30, 1995 and $227,419 for the
three months ended March 31, 1995 (unaudited). As videocassette rental inventory
is sold or retired, the applicable cost and accumulated amortization are
eliminated from the accounts and any related gain or loss is recognized.
INCOME TAXES
Each of the entities of Movie Store Group operate as subchapter S
corporations or subchapter C corporations for income tax purposes. Income taxes
are paid by the shareholders in the case of the S corporations.
The C corporations account for income taxes under SFAS No. 109, "Accounting
for Income Taxes." Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to 10 years) for leasehold improvements using the straight-line
method.
Depreciation and amortization on furnishings and equipment was $50,453 for
the eleven months ended November 30, 1995 and $10,999 for the three months ended
March 31, 1995 (unaudited). Maintenance and repair expenditures are expensed
F-72
<PAGE>
MOVIE STORE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
as incurred and amounted to $48,593 for the eleven months ended November 30,
1995 and $3,880 for the three months ended March 31, 1995 (unaudited).
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
(2) COMMITMENTS
Movie Store Group leases eight of its retail facilities and one corporate
office under noncancelable operating leases from non-related parties. Future
minimum payments under these leases as of November 30, 1995 are as follows:
<TABLE>
<S> <C>
1996.................................................................... $ 720,781
1997.................................................................... 671,496
1998.................................................................... 634,222
1999.................................................................... 456,496
Thereafter.............................................................. 995,747
$3,478,742
</TABLE>
Rental and related expenses amounted to $588,643 for the eleven months
ended November 30, 1995 and $135,706 for the three months ended March 31, 1995
(unaudited).
(3) INCOME TAXES
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Eleven months ended November 30, 1995:
Federal........................................................... $60,750 $(17,340) $43,410
State............................................................. 14,645 (4,180) 10,465
Total........................................................ $75,395 $(21,520) $53,875
Three months ended March 31, 1995 (unaudited):
Federal........................................................... $23,881 $ (6,816) $17,065
State............................................................. 5,755 (1,642) 4,113
Total........................................................ $29,636 $ (8,458) $21,178
</TABLE>
Income tax expense differed from the amounts computed by applying the
Federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
ELEVEN THREE
MONTHS ENDED MONTHS
NOVEMBER 30, ENDED MARCH
1995 31, 1995
<S> <C> <C>
(UNAUDITED)
Computed "expected" tax expense....................................................... $139,440 $ 54,816
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of Federal income tax benefits.................... 6,907 2,715
Income from Subchapter S corporations, taxable to shareholders...................... (92,472) (36,353)
Actual tax expense.................................................................... $ 53,875 $ 21,178
</TABLE>
F-73
<PAGE>
MOVIE STORE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) RELATED PARTY TRANSACTIONS
One of the eight stores which comprise Movie Store Group is owned by Rio
Media Associates, Inc., which is owned by a shareholder of Movie Store Group.
Movie Store pays monthly rent to the company. The amount of rent paid on this
store for the eleven months ended November 30, 1995 was $42,020. No rent was
paid for this store for the three months ended March 31, 1995 (unaudited).
(5) SUBSEQUENT EVENT
Under merger and purchase agreements dated December 21, 1995, all of the
assets, liabilities and the business of Movie Store Group were sold to Moovies,
Inc.
F-74
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Pic-A-Flick Group:
We have audited the accompanying combined statements of operating revenues
and expenses and cash flows of Pic-A-Flick Group for the year ended December 31,
1994 and the eleven months ended November 30, 1995. These financial statements
are the responsibility of the Group's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the operating revenues and expenses and cash
flows of Pic-A-Flick Group for the year ended December 31, 1994 and the eleven
months ended November 30, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
January 26, 1996
F-75
<PAGE>
PIC-A-FLICK GROUP
COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES
<TABLE>
<CAPTION>
THREE
ELEVEN MONTHS
YEAR ENDED MONTHS ENDED ENDED
DECEMBER 31, NOVEMBER 30, MARCH 31,
1994 1995 1995
<S> <C> <C> <C>
(UNAUDITED)
Revenues.......................................................................... $6,152,378 $6,898,792 $2,025,071
Operating costs and expenses:
Operating expenses.............................................................. 4,297,992 5,226,974 1,077,846
Cost of product sales........................................................... 468,974 543,547 727,440
General and administrative...................................................... 758,289 642,329 71,546
5,525,255 6,412,850 1,876,832
Operating income.................................................................. 627,123 485,942 148,239
Interest expense, net............................................................. 55,524 59,380 14,733
Other (income) expense, net....................................................... (23,487) 86,294 (727)
32,037 145,674 14,006
Income before income taxes........................................................ 595,086 340,268 134,233
Income tax expense................................................................ 150,041 121,258 47,786
Net income........................................................................ $ 445,045 $ 219,010 $ 86,447
</TABLE>
See accompanying notes to combined financial statements.
F-76
<PAGE>
PIC-A-FLICK GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
ELEVEN MONTHS
YEAR ENDED MONTHS ENDED ENDED MARCH
DECEMBER 31, NOVEMBER 30, 31,
1994 1995 1995
<S> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net income....................................................................... $ 445,045 $ 219,010 $ 86,447
Adjustments to reconcile to net cash provided by operating activities:
Loss on disposal of furnishings and equipment................................. 7,675 110,596 --
Depreciation and amortization................................................. 1,391,212 1,714,073 384,424
Changes in operating assets and liabilities:
Other receivables........................................................... (652) (1,246) (4,332)
Merchandise inventory.................................................... (55,000) (28,330) (26,206)
Deposits and other assets................................................... (3,569) (2,432) (51,290)
Accounts payable............................................................ 94,037 219,251 63,543
Accrued liabilities......................................................... 38,961 (32,605) 36,899
Deferred income tax, net.................................................... 150,041 121,258 13,204
Net cash provided by operating activities..................................... 2,067,750 2,319,575 502,689
Investing activities:
Purchases of videocassette rental inventory, net................................. (1,570,045) (1,819,703) (346,007)
Purchases of furnishings and equipment........................................... (363,220) (498,023) (66,589)
Proceeds from the sale of furnishing and equipment............................... 31,116 22,111 --
Net cash used in investing activities......................................... (1,902,149) (2,295,615) (412,596)
Financing activities:
Principal payments on long-term debt............................................. (85,491) (82,520) 7,950
Capital withdrawals.............................................................. (14,050) (7,500) --
Net cash used in financing activities......................................... (99,541) (90,020) 7,950
Increase (decrease) in cash........................................................ 66,060 (66,060) 98,043
Cash at beginning of period........................................................ -- 66,060 66,060
Cash at end of period.............................................................. $ 66,060 $ -- $ 164,103
Supplemental disclosures of cash flow information:
Cash paid for:
Interest...................................................................... $ 58,745 $ 72,490 $ 17,931
</TABLE>
Supplemental disclosure regarding land and buildings:
In 1994, the Group acquired land and a building with a note to the sellers for
$396,000 and a note to the principle shareholder for $433,225. In 1995, the
land and building were transferred to the principle shareholder in exchange
for the note to the principle shareholder and the principle shareholder
assumed the remaining balance of the note to the sellers. A loss of $90,220
was recorded on this transaction.
See accompanying notes to combined financials
F-77
<PAGE>
PIC-A-FLICK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of Pic-A-Flick Group include
substantially all operating revenues and expenses and cash flows of the
following commonly controlled subchapter S and subchapter C corporations:
Pic-A-Flick of Seneca, Inc.; Video Warehouse of Greenville, Inc.; Pic-A-Flick of
Greenville, Inc.; Pic-A-Flick Video International, Inc.; Pic-A-Flick of Berea,
Inc.; PAF-NC, Inc.; Take One Video of Simpsonville, SC, Inc.; and Pic-A-Flick of
Chester, Inc. As of November 30, 1995, Pic-A-Flick Group owned and operated
twenty-three video specialty stores in North and South Carolina.
The combined statements of operating revenues and expenses and cash flows
for the three months ended March 31, 1995 have been prepared by the Group
without audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of operating
revenues and expenses and cash flows for the three months ended March 31, 1995
have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MERCHANDISE INVENTORY
Merchandise inventory, consisting of videocassettes, children's books and
confectionery items, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method of accounting.
VIDEOCASSETTE RENTAL INVENTORY
Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the first through third copies of the titles per store are amortized as
base stock; the fourth through ninth copies of each title per store are
amortized 40% in the first year and 30% in the each of the second and third
years; and the tenth and any succeeding copies of each title per store are
amortized over nine months on a straight-line basis.
Amortization expense related to videocassette rental inventory totaled
$1,179,317 and $1,473,800 for the year ended December 31, 1994 and the eleven
months ended November 30, 1995, respectively, and $325,678 for the three months
ended March 31, 1995 (unaudited). As videocassette rental inventory is sold or
retired, the applicable cost and accumulated amortization are eliminated from
the accounts and any related gain or loss is recognized.
INCOME TAXES
Each of the entities of Pic-A-Flick Group operate as subchapter S
corporations or subchapter C corporations for income tax purposes. Income taxes
are paid by the shareholders in the case of the S corporations.
The C corporations account for income taxes under SFAS No. 109, "Accounting
for Income Taxes." Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
FURNISHINGS AND EQUIPMENT
Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (five to seven years) for
furnishings and equipment and the lesser of the useful lives or lease term
(primarily five to ten years) for leasehold improvements using the straight-line
method.
F-78
<PAGE>
PIC-A-FLICK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense on furnishings and equipment was
$211,895 and $240,273 for the year ended December 31, 1994 and the eleven months
ended November 30, 1995, respectively, and $41,558 for the three months ended
March 31, 1995 (unaudited). Maintenance and repair expenditures are expensed as
incurred and amounted to $101,818 and $87,176 for the year ended December 31,
1994 and the eleven months ended November 30, 1995, respectively, and $16,144
for the three months ended March 31, 1995 (unaudited).
VIDEOCASSETTE REVENUE
Revenue is recognized at the time of rental or sale of the videocassette.
(2) COMMITMENTS
Pic-A-Flick Group leases 16 of its 23 retail facilities under noncancelable
operating leases from non-related parties. Future minimum payments under these
leases as of November 30, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................................ $ 983,772
1997........................................................................ 908,850
1998........................................................................ 769,473
1999........................................................................ 627,789
2000........................................................................ 531,987
Thereafter.................................................................. 970,096
$4,791,967
</TABLE>
Rental and related expenses amounted to $854,893 and $929,453 for the year
ended December 31, 1994 and the eleven months ended November 30, 1995,
respectively, and $245,056 for the three months ended March 31, 1995
(unaudited).
(3) INCOME TAXES
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Year ended December 31, 1994:
Federal........................................................... $ -- $120,896 $120,896
State............................................................. -- 29,145 29,145
Total.......................................................... $ -- $150,041 $150,041
Eleven months ended November 30, 1995:
Federal........................................................... $ -- $ 97,703 $ 97,703
State............................................................. -- 23,555 23,555
Total.......................................................... $ -- $121,258 $121,258
Three months ended March 31, 1995 (unaudited):
Federal........................................................... $ -- $ 38,494 $ 38,394
State............................................................. -- 9,292 9,292
Total $ -- $ 47,786 $ 47,786
</TABLE>
F-79
<PAGE>
PIC-A-FLICK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differed from the amounts computed by applying the
Federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED MONTHS ENDED THREE MONTHS
DECEMBER 31, NOVEMBER 30, ENDED MARCH
1994 1995 31, 1995
<S> <C> <C> <C>
(UNAUDITED)
Computed "expected" tax expense.................................................... $202,329 $115,691 $ 45,639
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of Federal income tax benefits.............. 19,236 15,546 6,133
Income from subchapter S corporations, taxable to shareholders................ (71,524) (9,979) (3,986)
Actual tax expense............................................................ $150,041 $121,258 $ 47,786
</TABLE>
(4) RELATED PARTY TRANSACTIONS
Seven of the 23 stores which comprise Pic-A-Flick Group are owned by the
principle shareholder. Pic-A-Flick Group pays monthly rent to the principle
shareholder and there are no long-term lease agreements for the periods
presented. The amount of rent paid on these stores was $361,683 and $352,833 for
the year ended December 31, 1994 and the eleven months ended November 30, 1995,
respectively, and $75,814 for the three months ended March 31, 1995 (unaudited).
(5) SUBSEQUENT EVENT
Under merger and purchase agreements dated December 11, 1995, all of the
assets, liabilities and the business of Pic-A-Flick Group were sold to Moovies,
Inc.
F-80
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
American Multi-Entertainment, Inc.,
d/b/a: Premiere Video
St. Cloud, Minnesota
Members of the Board:
We have audited the accompanying combined statements of net assets of
certain stores of American Multi-Entertainment, Inc., d/b/a Premiere Video as of
December 31, 1994 and those respective stores as of December 31, 1995, and the
related combined statements of operations, stores' capital, and cash flows, for
the years in the three year period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of certain stores of American
Multi-Entertainment, Inc., d/b/a Premiere Video as of December 31, 1994, and
those respective stores as of December 31, 1995, and the results of their
operations and cash flows for the years in the three year period ended December
31, 1995, in conformity with generally accepted accounting principles.
MCMAHON, HARTMANN, AMUNDSON & CO., LLP
St. Cloud, Minnesota
May 7, 1996
F-81
<PAGE>
CERTAIN STORES OF AMERICAN MULTI-ENTERTAINMENT, INC.
D/B/A PREMIERE VIDEO
COMBINED STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash..................................................................... $ 6,000 $ 11,000 $ 11,000
Merchandise inventory.................................................... 35,756 48,036 48,602
Prepaid expenses......................................................... 10,800 19,800 19,800
Total current assets.................................................. 52,556 78,836 79,402
Rental tape and game inventory............................................. 1,043,339 1,938,527 1,888,232
Furnishings and equipment, net............................................. 1,198,558 2,162,243 2,161,884
Deposits and other assets.................................................. 292,095 280,574 264,199
$2,586,548 4,460,180 $ 4,393,717
LIABILITIES AND STORES' CAPITAL
Due to AMI corporate....................................................... $1,400,836 $3,237,684 $ 2,849,616
Stores' capital............................................................ 1,185,712 1,222,496 1,544,101
$2,586,548 $4,460,180 $ 4,393,717
</TABLE>
See accompanying notes to combined financial statements.
F-82
<PAGE>
CERTAIN STORES OF AMERICAN MULTI-ENTERTAINMENT, INC.
D/B/A PREMIERE VIDEO
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues
Rental revenues...................................... $3,747,219 $4,606,308 $6,428,863 $1,446,396 $ 2,438,788
Product sales........................................ 381,163 562,933 797,482 162,353 284,637
4,128,382 5,169,241 7,226,345 1,608,749 2,723,425
Expenses
Operating expenses................................... 2,514,952 3,348,625 4,765,157 912,301 1,613,087
Cost of product sales................................ 596,778 910,478 1,251,830 252,414 464,606
General and administrative........................... 281,755 276,772 397,063 61,802 119,110
3,393,485 4,535,875 6,414,050 1,226,517 2,196,803
Operating income....................................... 734,897 633,366 812,295 382,232 526,622
Interest expense....................................... 110,184 119,132 139,994 38,459 30,017
Net income............................................. $ 624,713 $ 514,234 $ 672,301 $ 343,773 $ 496,605
</TABLE>
See accompanying notes to combined financial statements.
F-83
<PAGE>
CERTAIN STORES OF AMERICAN MULTI-ENTERTAINMENT, INC.
D/B/A PREMIERE VIDEO
STATEMENT OF CHANGES IN STORES' CAPITAL
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
MARCH 31,
1993 1994 1995 1996
<S> <C> <C> <C> <C>
(UNAUDITED)
Stores' capital at beginning of period.............................. $ 606,941 $1,013,878 $1,185,712 $ 1,222,496
Distributions..................................................... (301,546) (342,400) (635,517) (175,000)
Net income........................................................ 624,713 514,234 672,301 496,605
Capital contributions............................................. 83,770 -- -- --
Stores' capital at end of period.................................... $1,013,878 $1,185,712 $1,222,496 $ 1,544,101
</TABLE>
See accompanying notes to combined financial statements.
F-84
<PAGE>
CERTAIN STORES OF AMERICAN MULTI-ENTERTAINMENT, INC.
D/B/A PREMIERE VIDEO
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
MARCH 31,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Operating Activities:
Net Income........................................... $ 624,713 $ 514,234 $ 672,301 $ 343,773 $ 496,605
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation.................................... 230,703 278,504 548,849 79,627 162,077
Amortization.................................... 916,787 1,382,729 1,695,211 347,984 619,177
Merchandise Inventory........................... 11,920 39,916 (12,280) (979) (566)
Prepaid Expenses................................ (3,895) (2,700) (9,000) (900) --
Net Cash Provided by Operating Activities.... 1,780,228 2,212,683 2,895,081 769,505 1,277,293
Investing Activities:
Purchase of Furnishings and Equipment................ 283 (653,004) (1,512,534) (181,638) (161,718)
Purchase of Rental Tape and Game Inventory, Net...... (969,857) (1,353,744) (2,499,056) (453,601) (544,342)
(Increase) Decrease in Deposits and Other Assets..... 10,583 (92,417) (79,822) (1,355) (8,165)
Net Cash Used by Investing
Activities................................. (958,991) (2,099,165) (4,091,412) (636,594) (714,225)
Financing Activities:
Due to AMI Corporate................................. (603,461) 230,382 1,836,848 (132,411) (388,068)
Issuance of Common Stock............................. 83,770
Distributions Paid to Stockholders................... (301,546) (342,400) (635,517) -- (175,000)
Net Cash (Used by) Provided by Financing
Activities................................. (821,237) (112,018) 1,201,331 (132,411) (563,068)
Increase in Cash....................................... -- 1,500 5,000 500 --
Cash -- Beginning of Period............................ 4,500 4,500 6,000 6,000 11,000
Cash -- End of Period.................................. $ 4,500 $ 6,000 $ 11,000 $ 6,500 $ 11,000
</TABLE>
See accompanying notes to combined financials.
F-85
<PAGE>
CERTAIN STORES OF AMERICAN MULTI-ENTERTAINMENT, INC.
D/B/A PREMIERE VIDEO
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS
The financial statements of certain stores of American Multi-Entertainment,
Inc., d/b/a Premiere Video include substantially all assets and liabilities,
operating revenues and expenses and cash flows of certain stores of American
Multi-Entertainment, Inc., d/b/a Premiere Video. Excluded from the financial
statements are certain assets of American Multi-Entertainment, Inc. which are
not included in the purchase agreement. The excess of assets over liabilities is
presented herein as stores' capital. Certain stores of American
Multi-Entertainment, Inc., d/b/a Premiere Video is engaged in the video and game
rental business in Iowa, Minnesota, Nebraska, South Dakota, and Wisconsin.
The combined statement of net assets as of March 31, 1996 and the combined
statements of operations, stores' capital and cash flows for the three months
ended March 31, 1995 and 1996 have been prepared by the Company without audit.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position, results of operations and cash flows as of March 31, 1995 and for the
three months ended March 31, 1995 and 1996, have been included.
BASIS OF PRESENTATION
The accompanying combined statements of net assets, statements of
operations, and statements of stores' capital have been prepared from the books
and records of American Multi-Entertainment, Inc. Allocations and assumptions
have been made in accordance with the purchase agreement with Moovies, Inc. (See
note 6)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
MERCHANDISE INVENTORY
Merchandise inventory, consisting primarily of confectionary items, is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out method of accounting.
RENTAL TAPE AND GAME INVENTORY
Rental tapes and games are recorded at the lower of cost or market. Market
is determined by reducing the original cost by 1/24 per month for new store
openings and 1/12 per month for subsequent purchases, which has been determined
to be the estimated useful life of the rentals.
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Rental tape and game inventory and related amortization are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
Rental tape and game inventory................................. $2,113,530 $3,389,292 $3,607,882
Accumulated amortization....................................... 1,070,191 1,450,765 1,719,650
$1,043,339 $1,938,527 $1,888,232
</TABLE>
Amortization expense related to rental tape and game inventory amounted to
$842,719, $1,297,661, and $1,603,868 for the years ended December 31, 1993, 1994
and 1995, respectively, $325,752 and $594,637 for the three months ended March
31, 1995 and 1996 (unaudited), respectively.
F-86
<PAGE>
CERTAIN STORES OF AMERICAN MULTI-ENTERTAINMENT, INC.
D/B/A PREMIERE VIDEO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
FURNISHINGS AND EQUIPMENT
Leasehold improvements, equipment, and vehicles are carried at cost. Major
additions and betterments are charged to the property accounts while
replacements, maintenance, and repairs which do not improve or extend the life
of the respective assets are expensed currently.
Depreciation of physical properties for financial reporting purposes is
computed using the straight-line and declining balance methods based on the
estimated useful lives of the properties as follows:
<TABLE>
<S> <C>
Leasehold Improvements 5-10 years
Equipment 5-7 years
Vehicles 5 years
</TABLE>
INCOME TAXES
Effective February 1, 1993, the Company elected to be treated as a small
business corporation for income tax purposes as provided in Section 1362(a) of
the Internal Revenue Code. As such, income taxes have not been provided because
the Company's income or loss and credits are passed through to the stockholders
and combined with their other personal income and deductions to determine
taxable income on their individual tax returns.
ADVERTISING
The Company expenses advertising costs as incurred.
DUE TO AMI CORPORATE
American Multi-Entertainment, Inc. is responsible for paying all operating
costs and expenses and indebtedness of Premiere Video. Due to AMI Corporate
represents the amount owed to American Multi-Entertainment, Inc. as of the end
of the periods presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following method and assumption were used to estimate the fair value of
the class of the financial instrument:
Cash: The carrying amount approximates fair value because of the short
maturity of those investments.
(2) FURNISHINGS AND EQUIPMENT
Furnishings and equipment consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
Equipment and fixtures................................................ $1,303,287 $ 2,409,471 $ 2,465,003
Leasehold improvements................................................ 438,062 829,586 859,027
1,741,349 3,239,057 3,324,030
Accumulated depreciation.............................................. (542,791) (1,076,814) (1,162,146)
$1,198,558 $ 2,162,243 $ 2,161,884
</TABLE>
Depreciation expense on furnishings and equipment was $230,703, $278,504
and $548,849 for the years ended December 31, 1993, 1994, and 1995,
respectively, and $79,627 and $162,077 for the three months ended March 31, 1995
and 1996 (unaudited), respectively.
F-87
<PAGE>
CERTAIN STORES OF AMERICAN MULTI-ENTERTAINMENT, INC.
D/B/A PREMIERE VIDEO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) DEPOSITS AND OTHER ASSETS
Deposits and Other Assets consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
Lease and utility deposits.......................................... $ 5,575 $ 25,088 $ 25,603
Covenants not to compete............................................ 286,520 255,486 238,596
$292,095 $280,574 $ 264,199
</TABLE>
Covenants not to compete are recorded at cost and are being amortized over
the life of the agreements. Amortization expense on covenants not to compete
were $74,068, $85,068 and $91,343 for the years ended December 1993, 1994 and
1995, respectively, and $22,232, and $24,540 for the three months ended March
31, 1995 and 1996 (unaudited), respectively.
(4) COMMITMENTS AND CONTINGENCIES
The Company is a party to several operating leases for various facilities.
The majority of the leases provide that the Company pay, in addition to the
minimum rent, all real estate taxes and insurance. Rent expense totaled
$391,175, $456,837 and $679,340 for the years ended December 31, 1993, 1994 and
1995, respectively and $137,063 and $229,094 for the three months ended March
31, 1995 and 1996 (unaudited), respectively. The following is a schedule of
future minimum rent payments required under noncancellable operating leases:
<TABLE>
<S> <C>
1996........................................................................ $ 835,583
1997........................................................................ 730,737
1998........................................................................ 641,268
1999........................................................................ 533,479
2000........................................................................ 292,536
Thereafter.................................................................. 241,207
$3,274,810
</TABLE>
(5) RELATED PARTY TRANSACTIONS
The Company pays an annual management fee to Cinema Entertainment Corp., a
company related through common ownership and control. Charges to income totaled
$14,063, $13,637 and $30,609 for the years ended December 31, 1993, 1994, and
1995, respectively, and $5,563 and $5,000 for the three months ended March 31,
1995 and 1996 (unaudited), respectively.
(6) SUBSEQUENT EVENT (UNAUDITED)
Under an asset purchase agreement, substantially all of the assets, certain
liabilities (principally store leases) and the business of Premiere Video are to
be sold to Moovies, Inc. no later than the date of the proposed public offering
of common stock by Moovies, Inc.
F-88
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN SHARES OF COMMON STOCK TO WHICH THIS PROSPECTUS RELATES, OR AN OFFER
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 6
The Acquisitions..................................... 11
Use of Proceeds...................................... 13
Price Range of Common Stock.......................... 13
Dividend Policy...................................... 14
Capitalization....................................... 14
Pro Forma Financial Information...................... 15
Selected Historical and Pro Forma
Financial Data..................................... 22
Management's Discussion and Analysis of
Financial Condition and
Results of Operations.............................. 24
Business............................................. 34
Management........................................... 41
Certain Transactions................................. 50
Principal Stockholders............................... 51
Description of Capital Stock......................... 52
Shares Eligible for Future Sale...................... 54
Underwriting......................................... 56
Legal Matters........................................ 57
Experts.............................................. 57
Additional Information............................... 58
Index to Financial Statements........................ F-1
</TABLE>
Shares
(Moovies Logo appears here)
Common Stock
PROSPECTUS
NEEDHAM & COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
SCOTT & STRINGFELLOW, INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities that
are the subject of this Registration Statement. All amounts shown, other than
the Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq Stock Market listing fee are estimates only.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..................................... $ 15,545
NASD filing fee......................................................................... $ 4,500
NASDAQ/NMS listing fee.................................................................. $ 64,000
Printing expenses....................................................................... $ *
Transfer agent fees..................................................................... $ *
Legal fees and expenses................................................................. $ *
Accounting fees and expenses............................................................ $ 100,000
"Blue sky" fees and expenses............................................................ $ *
Miscellaneous expenses.................................................................. $ *
Total................................................................................... $1,000,000
</TABLE>
* To be provided.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and the Bylaws of the Company provide for
the indemnification of directors and officers to the fullest extent permitted by
the General Corporation Law of the State of Delaware (the "Delaware Code").
Section 145 of the Delaware Code authorizes indemnification when a person
is made a party to any proceeding by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation or was serving as
a director, officer, employee or agent of another enterprise, at the request of
the corporation, and if such person acted in good faith and in a manner
reasonably believed by him or her to be in or not opposed to the best interests
of the corporation. With respect to any criminal proceeding, such person must
have had no reasonable cause to believe that his or her conduct was unlawful. If
it is determined that the conduct of such person meets these standards, he or
she may be indemnified for expenses incurred and amounts paid in such proceeding
if actually and reasonably incurred by him or her in connection therewith. If
such a proceeding is brought by or on behalf of the corporation (i.e., a
derivative suit), such person may be indemnified against expenses actually and
reasonably incurred if he or she acted in good faith and in a manner reasonably
believed by him or her to be in, or not opposed to, the best interests of the
corporation. There can be no indemnification with respect to any matter as to
which such person is adjudged to be liable to the corporation; however, a court
may, even in such case, allow such indemnification to such person for such
expenses as the court deems proper. Where such person is successful in any such
proceeding, he or she is entitled to be indemnified against expenses actually
and reasonably incurred by him or her. In all other cases, indemnification is
made by the corporation upon determination by it that indemnification of such
person is proper because such person has met the applicable standard of conduct.
Article Six of the Company's Certificate of Incorporation provides that the
Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except for liability (a) for any breach of their duty of
loyalty to the Company or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, under Section 174 of the Delaware Code, which makes directors liable for
unlawful dividends or unlawful stock repurchases or redemptions or (d) for
transactions from which directors derive an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities of Moovies, Inc. issued or
sold within the past three years which were not registered under the Securities
Act in 1933, as amended (the "Securities Act"):
(a) From December 1994 through June 13, 1995, Moovies, Inc. issued an
aggregate of 767,449 shares of Common Stock (after giving effect to a
76.7449 for one stock split payable as a stock dividend on June 13, 1995 to
common stockholders of record on June 13, 1995) to John L. Taylor (442,127
shares), F. Andrew Mitchell (209,360 shares),
II-1
<PAGE>
Belinda C. Finley (70,298 shares), Cynthia A. Simister (35,149 shares) and
Hailey Batson (10,515 shares) for nominal consideration. Moovies, Inc.
believes that these issuances are exempt from registration under the
Securities Act by virtue of Section 4(2) and Rule 152 thereof as
transactions not involving a public offering.
(b) In November 1994, the Company granted to Theodore J. Coburn a
warrant to purchase 150,000 shares of Common Stock of the Company at $1.00
per share. No consideration was paid for the warrant. In April 1995, the
Company granted to 19 former limited partners of Tonight's Feature warrants
to purchase an aggregate of 74,352 shares of Common Stock of the Company at
$.01 per share. No consideration was paid for these warrants. In April
1995, a warrant was granted to Mortco, Inc. to acquire 40,877 shares of
Common Stock at an exercise price equal to the initial public offering
price of $12.00 per share. No consideration was paid for this warrant. In
April 1995, Moovies, Inc. granted to Sirrom Capital Corporation a warrant
to acquire 156,110 shares of Common Stock at $.01 per share in connection
with a loan from Sirrom Capital to Tonight's Feature, the predecessor to
Moovies, Inc. In January 1996 the Company granted to Sirrom Capital a
warrant to acquire 20,000 shares of Common Stock at $10.80 per share in
connection with the renegotiation of the Company's loan facility. The
Company believes that these issuances were exempt from registration under
the Securities Act by virtue of Section 4(2) and Rule 152 thereof as
transactions not involving a public offering.
(c) In June 1995, Moovies, Inc. entered into an Agreement and Plan of
Merger with Tonight's Feature, Inc. ("TFI") and Mortco, Inc., the partners
of Tonight's Feature. Under the agreement, TFI merged into Moovies, Inc.
and Mortco, Inc. transferred its limited partner interest in Tonight's
Feature to Moovies, Inc. As full consideration for the merger and transfer,
Moovies, Inc. issued an aggregate of 1,325,974 shares of Common Stock,
597,351 shares each were issued to Douglas Raines and Michael Yeargin, the
sole shareholders of TFI, and 131,272 shares were issued to Mortco, Inc.
Under the agreement, TFI merged into, and Mortco, Inc. transferred its
interest to, Moovies, Inc. The Company believes that these issuances were
exempt from registration under the Securities Act by virtue of Section 4(2)
and Rule 152 thereof as transactions not involving a public offering.
(d) In June 1995, Moovies, Inc. entered into Asset Purchase Agreements
and Merger Agreements under which video specialty stores were sold to
Moovies, Inc. The Initial Acquisitions were consummated in August 1995. As
partial consideration, Moovies, Inc. issued an aggregate of approximately
1.8 million shares of Common Stock. Under these agreements, the sellers
sold their video specialty stores. The Company believes that these
issuances were exempt from registration under the Securities Act by virtue
of Section 4(2) and Rule 152 thereof as transactions not involving a public
offering. The table below sets forth the date of the agreement, the Initial
Acquisition, the purchaser and the number of shares of Common Stock
purchased:
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
DATE ACQUISITION PURCHASER PURCHASED*
<S> <C> <C> <C>
June 14, 1995 First Row Rokki Rogan 400,000
June 14, 1995 First Row Robert Ulam 150,000
June 15, 1995 Movie Stars Movie Stars Entertainment Corp. 252,083
June 14, 1995 Video Express Arthur F. Greeder, III 181,250
June 14, 1995 Video Express Arthur F. Greeder, III and Ann E. Greeder 181,250
June 14, 1995 Video Stars Robert L. Brown, Jr. 116,666
June 14, 1995 Video Warehouse 1 Lott's Video Warehouse of Athens, Inc. 16,731
June 14, 1995 Video Warehouse 1 Lott's Video Warehouse of Athens, Inc., No. 2 16,731
June 14, 1995 Video Warehouse 1 Lott's Video Warehouse of Dublin, Inc. 16,731
June 14, 1995 Video Warehouse 1 Lott's Video Warehouse of Gainesville, Inc. 11,540
June 14, 1995 Video Warehouse 1 Lott's Video Warehouse of Milledgeville, Inc. 16,731
June 14, 1995 Video Warehouse 2 Gerald Pryor 166,666
June 14, 1995 Video Warehouse 2 Kevin Griffin 10,737
June 14, 1995 L.A. Video L.A. Video of Upper Dublin, Inc. 80,813
June 14, 1995 L.A. Video L.A. Video of Aldan, Inc. 68,312
June 14, 1995 King Video Tom King 66,666
June 14, 1995 Planet Video XIMPEC, Inc. 27,083
</TABLE>
* At the initial public offering price of $12.00 per share.
II-2
<PAGE>
(e) From August 1995 through April 1996, the Company issued options to
purchase an aggregate of 802,000 shares of Common Stock pursuant to the
1995 Stock Plan. The Company believes that these issuances were exempt from
registration under the Securities Act by virtue of Section 4(2) and Rule
152 thereof as transactions not involving a public offering.
(f) In September and December 1995, Moovies, Inc. Entered into Asset
Purchase Agreements and Merger Agreements under which video specialty
stores were sold to Moovies, Inc. As partial consideration, Moovies, Inc.
issued an aggregate of approximately 842,000 shares of Common Stock. The
Company believes that these issuances were exempt from registration under
the Securities Act by virtue of Section 4(2) and Rule 152 thereof as
transactions not involving a public offering. The table below sets forth
the date of the issuance, the related acquisition, the purchaser, the price
and the number of shares of Common Stock purchased by each purchaser.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
DATE ACQUISITION PURCHASER PRICE PURCHASED
<S> <C> <C> <C> <C>
September 8, 1995 Movie America, Inc. Richard C. Eychaner $16.50 253,781
Andrew L. Burton and Sheila S. Burton $16.50 29,369
D. Keith West $16.50 23,496
Howard Eychaner $16.50 34,086
Mark E. Peters $16.50 411
David M. Ryan $16.50 905
Brian Gosnell $16.50 1,216
Kurt Vanderhoef $16.50 370
Kirk Reinert $16.50 294
Robert A. Keenan $16.50 493
December 11, 1995 Pic-A-Flick Pic-A-Flick of Berea, Inc. $14.875 70,386**
Pic-A-Flick of Seneca, Inc. $14.875 20,168
PAF-NC, Inc. $14.875 164,908
Pic-A-Flick Video International, Inc. $14.875 80,672
December 21, 1995 Movie Store Pam Love $14.375 161,449***
</TABLE>
** In addition, the Company issued a warrant to purchase 25,000 shares of
Common Stock at a price of $14.875 per share to Joseph G. Mahaffey, Sr., the
principal stockholder of the "Pic-A-Flick" corporations.
*** In addition, the Merger Agreement requires the Company to issue up to 42,580
shares of Common Stock if the trading price thereof does not equal or exceed
$14.375 for a ten consecutive trading day period between December 21, 1995
and September 3, 1996.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S> <C>
1.1**** -- Form of Underwriting Agreement.
1.2* -- Underwriters' Warrant.
2.1* -- Agreement and Plan of Merger dated June 15, 1995 among Moovies, Inc., Tonight's Feature, Inc., Douglas
Raines, Michael Yeargin and Mortco, Inc.
2.2* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated July 13, 1995 among Moovies, Inc., First Row Video, Inc., Video Game Trader, Inc.
Rokki Rogan and Robert Ulam.
2.3** -- Asset Purchase Agreement dated June 15, 1995 as amended by First Amendment to Asset Purchase Agreement and
Waiver dated June 30, 1995 among Moovies, Inc. and Movie Stars Entertainment Corp. and Alan Daniels.
2.4* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated July 8, 1995 among Moovies, Inc., PARR-Four, Inc. d/b/a Video Express, Arthur F.
Greeder, III and Ann E. Greeder.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S> <C>
2.5* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated July 8, 1995 among Moovies, Inc., BREM, Inc. d/b/a Video Stars and Robert L. Brown,
Jr.
2.6* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase Agreement and
Waiver dated July 13, 1995 among Moovies, Inc., Lott's Video Warehouse of Athens, Lott's Video Warehouse of
Athens, Inc., No. 2, Lott's Video Warehouse of Dublin, Inc., Lott's Video Warehouse of Gainesville, Inc.,
Lott's Video Warehouse of Milledgeville, Inc., Bryant Lott and Jerry W. Lott.
2.7* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase Agreement and
Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Augusta #3, Gerald Pryor and Michael
Harden.
2.8* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase Agreement and
Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Macon #1, Gerald Pryor and Kevin
Griffin.
2.9* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase Agreement and
Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Savannah #2, Gerald Pryor and Kevin
Griffin.
2.10* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Savannah #1, Inc., Gerald
Pryor and Kevin Griffin.
2.11* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Augusta #2, Inc. and Gerald
Pryor.
2.12* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Macon #3, Inc., Gerald Pryor,
Michael Harden and Eddie Williams.
2.13* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Augusta #1, Inc. and Gerald
Pryor.
2.14* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase Agreement and
Waiver dated July 13, 1995 among Moovies, Inc., L.A. Video, L.A. Video of Upper Dublin, Inc., L.A. Video of
Aldan, Inc., Alan Warshaw and Linda Warshaw.
2.15* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and Plan of
Merger and Waiver dated June 30, 1995 among Moovies, Inc., King Video, Inc. and Thomas C. King.
2.16* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase Agreement and
Waiver dated July 13, 1995 among Moovies, Inc., Planet Video, Inc., XIMPEC, Inc. and Robert Klein.
2.17* -- Asset Purchase Agreement dated August 25, 1995 among Moovies, Inc., Moviemax Video Supersotres, Inc., David
Thomas Roberts, Deborah C. Roberts, Freeman C. Todd and Carolyn C. Todd.
2.18 -- Agreement and Plan of Merger dated September 15, 1995 among Moovies, Inc., Moovies of Iowa, Inc.,
MoveAmerica, Incorporated d/b/a Movies to Go, Richard C. Eychaner, Andy Burton, Sheila Burton, Keith West,
Howard Eychaner, Mark Peters, Dave Ryan, Brian Gosnell, Kurt Vanderhoef, Kirk Reinert, and Robert Keenan
(Incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K dated September 18,
1995).
2.19** -- Asset Purchase Agreement dated October 11, 1995 among Moovies, Inc., First Row Video #6 of Belmonte Avenue,
Inc. d/b/a First Row Video, Mark A. Mallen, and Stephanie R. Mallen.
2.20** -- Asset Purchase Agreement dated November 20, 1995 among Moovies, Inc., Smash Video, Inc., Bobby Harrelson,
Rex Stephens, and Robert Exum.
2.21 -- Agreement and Plan of Merger dated December 11, 1995 among Moovies, Inc., Moovies of the Carolinas, Inc.,
Pic-A-Flick of Berea, Inc., PAF-NC, Inc., Pic-A-Flick of Seneca, Inc., Video Warehouse of Greenville, Inc.,
Pic-A-Flick Video International, Inc., Joseph G. Mahaffey, Sr., Joseph G. Mahaffey, Jr., and Susan J.
Mahaffey (Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated
December 11, 1995).
2.22 -- Asset Purchase Agreement dated December 11, 1995 among Moovies, Inc., Moovies of the Carolinas, Inc.,
Pic-A-Flick of Chester, Inc., Take One Video of Simpsonville, S.C., Inc., Joseph G. Mahaffey, Sr. and
Alinda W. Mahaffey (Incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K
dated December 11, 1995).
2.23 -- Stock Purchase Agreement dated December 11, 1995 among Moovies, Inc., Moovies of the Carolinas, Inc.,
Pic-A-Flick of Greenville, Inc., and Joseph G. Mahaffey, Sr. (Incorporated by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K dated December 11, 1995).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S> <C>
2.24 -- Agreement and Plan of Merger dated December 21, 1995 among Moovies, Inc., Moovies of Georgia, Inc., The
Movie Store, Inc., The Movie Store VI, Inc., and Paul D. Love (Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated December 21, 1995).
2.25 -- Asset Purchase Agreement dated December 21, 1995 among Moovies, Inc., Moovies of Georgia, Inc., and Movie
Store VII, Inc. (Incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K dated
December 21, 1995).
2.26 -- Asset Purchase Agreement dated December 21, 1995 among Moovies, Inc., Moovies of Georgia, Inc., and Movie
Store VII, Inc. and Parkaire Media Associates, Inc. (Incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated December 21, 1995).
2.27*** -- Asset Purchase Agreement dated March 19, 1996, among Moovies, Inc., Showtime U.S.A., Ltd., Jerry Hilburn,
Lois Hilburn, Justin Hilburn, Phil Blanton, Paige Wood, and Neil Granath.
2.28*** -- Asset Purchase Agreement dated April 30, 1996 among Moovies, Inc., American Mult-Entertainment, Inc. d/b/a
Premier Video, Dave Ross, Tony Tillemans, Matthew Otto, Nicole Ross, Anthony Ross, and Catherine Ross as
Custodian for Mark Ross.
3.1* -- Restated Certificate of Incorporation of Moovies, Inc.
3.2 -- Restated Bylaws of Moovies, Inc. (Incorporated by reference to Exhibit 3.2 in the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996).
4.1* -- Specimen Common Stock Certificate.
5.1***** -- Opinion of Arnall Golden & Gregory.
10.1* -- Form of Registration Rights Agreement.
10.1.1**** -- Registration Rights Agreement dated August 9, 1995 between Moovies, Inc. and Martco, Inc.
10.1.2**** -- Amendment and Joint Agreement dated September 18, 1995 among Moovies, Inc., Richard C. Eychaner, Andy
Burton, Sheila Burton, Keith West, Howard Eychaner, Mark Peters, Dave Ryan, Brian Gosnett, Kurt Vanderhoef,
Kirk Reinert and Robert Keenan.
10.1.3**** -- Piggybank Registration Rights Agreement dated December 11, 1995 among Moovies, Inc., Joseph G. Mahaffey,
Sr., Joseph G. Mahaffey, Jr. and Susan J. Mahaffey.
10.1.4**** -- Piggyback Registration Rights Agreement dated December 21, 1995 between Moovies, Inc. and Paul D. Love.
10.2* -- Rentrak National Account Agreement dated March 8, 1995, as amended by First Addendum dated March 8, 1995
and Amendment to First Addendum dated as of June 16, 1995.
10.2.1* -- Letter Agreement dated January 17, 1996, between Moovies, Inc. and Baker & Taylor Entertainment, a division
of Baker & Taylor.
10.3* -- 1995 Stock Plan and forms of Stock Option Agreements.
10.3.1**** -- First Amendment to 1995 Stock Plan.
10.4* -- Employment Agreement effective September 1994 between Tonight's Feature, Inc. and John L. Taylor.
10.5* -- Employment Agreement effective March 1995 between Tonight's Feature Limited Partnership II and F. Andrew
Mitchell.
10.6* -- Form of Employment Agreement between Moovies, Inc. and Douglas Raines.
10.7* -- Form of Employment Agreement between Moovies, Inc. and Michael Yeargin.
10.8* -- Form of Employment Agreement between Moovies, Inc. and Alan Daniels.
10.9* -- Form of Employment Agreement between Moovies, Inc. and Robert Klein.
10.10* -- Form of Employment Agreement between Moovies, Inc. and Rokki Rogan.
10.11* -- Form of Employment Agreement between Moovies, Inc. and Arthur F. Greeder, III.
10.12* -- Form of Employment Agreement between Moovies, Inc. and Alan Warshaw.
10.13* -- Loan Agreement, in the principal amount of $550,000 dated August 31, 1993 between Tonight's Feature Limited
Partnership II and BB&T.
10.14* -- Promissory Note in the principal amount of $550,000 dated August 31, 1993, between Tonight's Feature
Limited Partnership II and BB&T.
10.15* -- Promissory Note in the principal amount of $150,000 dated August 25, 1994, between Tonight's Feature
Limited Partnership II and BB&T.
10.16* -- Promissory Note in the principal amount of $125,000 dated December 15, 1994, between Tonight's Feature
Limited Partnership II and BB&T.
10.17* -- Secured Revolving Note in the principal amount of $250,000 dated November 24, 1993 between Tonight's
Feature Limited Partnership II and Rentrak.
10.18* -- Security Agreement dated November 24, 1993 between Tonight's Feature Limited Partnership II and Mortco,
Inc.
10.19* -- Revolving Credit Agreement dated March 8, 1995 between Tonight's Feature Limited Partnership II, Tonight's
Feature, Inc. and Mortco, Inc., as amended by First Amendment dated June 13, 1995.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S> <C>
10.20* -- Secured Revolving Note in the principal amount of $750,000 dated March 8, 1995 between Tonight's Feature
and Mortco, Inc.
10.21* -- Security Agreement dated March 8, 1995 between Tonight's Feature and Mortco, Inc.
10.22* -- Promissory Notes dated August 31, 1993 between Tonight's Feature and former limited partners.
10.23* -- Warrant Agreement dated April 19, 1995 with Sirrom Capital Corporation, as amended June 14, 1995.
10.23.1*** -- Warrant Agreement dated January 5, 1996 with Sirrom Capital Corporation.
10.24* -- Warrant Agreement dated April 19, 1995 with Mortco, Inc., as amended June 13, 1995.
10.25* -- Stock Purchase Warrant dated November 30, 1994 with Theodore J. Coburn.
10.26* -- Form of Warrant for former limited partners.
10.27* -- Loan Agreement dated April 19, 1995 by and between Tonight's Feature Limited Partnership II and Sirrom
Capital Corporation.
10.27.1*** -- First Amendment to Loan Agreement and Loan Documents dated January 5, 1996 between Moovies, Inc. and Sirrom
Capital Corporation.
10.27.2*** -- Secured Promissory Note in the original principal amount of $2,000,000 between Moovies, Inc. and Sirrom
Capital Corporation.
10.28** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Take One Video of Simpsonville, S.C., Inc.
in the amount of $1,625,000, with related Letter of Credit to secure payment thereof from Carolina First
Bank.
10.29** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Pic-A-Flick of Chester, Inc. in the amount
of $375,000, with related Letter of Credit to secure payment thereof from Carolina First Bank.
10.30** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Joseph G. Mahaffey, Sr., in the principal
amount of $3,000,000, with related Letter of Credit to secure payment thereof from Carolina First Bank.
10.31** -- Promissory Note dated December 21, 1995 from Moovies, Inc. in favor of Movie Store VII, Inc. in the
original principal amount of $435,215 .
10.32** -- Promissory Note dated December 21, 1995 from Moovies, Inc., in favor of Parkaire Media Associates, Ltd. in
the original principal amount of $468,650.
10.33** -- Stock Purchase Warrant from Moovies, Inc. to Joseph G. Mahaffey, Sr.
10.34*** -- Credit Agreement dated March 29, 1996, between Moovies, Inc. and First Union National Bank as agent.
10.35*** -- Sublease Agreement dated December 1, 1995 between Dow Brands, L.P. and Moovies, Inc.
11**** -- Statement re computation of per share earnings.
21.1*** -- Subsidiaries of the Company.
23.1**** -- Consent of KPMG Peat Marwick LLP.
23.2**** -- Consent of McGladrey & Pullen, LLP.
23.3***** -- Consent of Arnall Golden & Gregory (contained in Exhibit 5.1).
23.4**** -- Consent of McMahon, Hartmann, Amundson & Co., LLP
24.1*** -- Power of Attorney (contained on Signature page of the Registration Statement).
</TABLE>
* Incorporated by reference to the same Exhibit number in the Registrant's
Registration Statement on Form S-1 (No. 33-93562).
** Incorporated by reference to the same Exhibit number in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
*** Previously filed.
**** Filed herewith.
***** To be filed by Amendment.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification of liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registration
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
II-6
<PAGE>
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Greenville,
State of South Carolina on May 16, 1996.
MOOVIES, INC.
By: /s/ JOHN L. TAYLOR
John L. Taylor
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on May 16, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
/s/ JOHN L. TAYLOR Chairman, President and Chief Executive Officer
JOHN L. TAYLOR (Principal Executive Officer) and Director
/s/ F. ANDREW MITCHELL Chief Financial Officer and Director (Principal
F. ANDREW MITCHELL Financial and Accounting Officer)
/s/ DOUGLAS RAINES** Director
DOUGLAS RAINES
/s/ MICHAEL YEARGIN** Director
MICHAEL YEARGIN
/s/ THEODORE J. COBURN** Director
THEODORE J. COBURN
/s/ ARTHUR F. GREEDER III** Director
ARTHUR F. GREEDER III
/s/ ROKKI ROGAN** Director
ROKKI ROGAN
/s/ CHARLES D. WAY** Director
CHARLES D. WAY
/s/ ROBERT J. KLEIN*** Director***
ROBERT J. KLEIN
**By: /s/ F. ANDREW MITCHELL
F. ANDREW MITCHELL,
ATTORNEY-IN-FACT
</TABLE>
*** Mr. Klein hereby reiterates the power of attorney contained in the signature
page to the Registrant's Registration Statement as Form S-1 in his capacity
as a Director of the Registrant.
II-8
<PAGE>
REGISTRATION NO. 333-4270
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 1
TO REGISTRATION
STATEMENT ON
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
MOOVIES, INC.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S> <C>
1.1**** -- Form of Underwriting Agreement.
1.2* -- Underwriters' Warrant.
2.1* -- Agreement and Plan of Merger dated June 15, 1995 among Moovies, Inc., Tonight's Feature, Inc.,
Douglas Raines, Michael Yeargin and Mortco, Inc.
2.2* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated July 13, 1995 among Moovies, Inc., First Row Video, Inc., Video
Game Trader, Inc. Rokki Rogan and Robert Ulam.
2.3** -- Asset Purchase Agreement dated June 15, 1995 as amended by First Amendment to Asset Purchase
Agreement and Waiver dated June 30, 1995 among Moovies, Inc. and Movie Stars Entertainment Corp.
and Alan Daniels.
2.4* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated July 8, 1995 among Moovies, Inc., PARR-Four, Inc. d/b/a Video
Express, Arthur F. Greeder, III and Ann E. Greeder.
2.5* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated July 8, 1995 among Moovies, Inc., BREM, Inc. d/b/a Video Stars
and Robert L. Brown, Jr.
2.6* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase
Agreement and Waiver dated July 13, 1995 among Moovies, Inc., Lott's Video Warehouse of Athens,
Lott's Video Warehouse of Athens, Inc., No. 2, Lott's Video Warehouse of Dublin, Inc., Lott's
Video Warehouse of Gainesville, Inc., Lott's Video Warehouse of Milledgeville, Inc., Bryant Lott
and Jerry W. Lott.
2.7* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase
Agreement and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Augusta #3,
Gerald Pryor and Michael Harden.
2.8* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase
Agreement and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Macon #1, Gerald
Pryor and Kevin Griffin.
2.9* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase
Agreement and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Savannah #2,
Gerald Pryor and Kevin Griffin.
2.10* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Savannah
#1, Inc., Gerald Pryor and Kevin Griffin.
2.11* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Augusta #2,
Inc. and Gerald Pryor.
2.12* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Macon #3,
Inc., Gerald Pryor, Michael Harden and Eddie Williams.
2.13* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated July 13, 1995 among Moovies, Inc., Video Warehouse of Augusta #1,
Inc. and Gerald Pryor.
2.14* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase
Agreement and Waiver dated July 13, 1995 among Moovies, Inc., L.A. Video, L.A. Video of Upper
Dublin, Inc., L.A. Video of Aldan, Inc., Alan Warshaw and Linda Warshaw.
2.15* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First Amendment to Agreement and
Plan of Merger and Waiver dated June 30, 1995 among Moovies, Inc., King Video, Inc. and Thomas C.
King.
2.16* -- Asset Purchase Agreement dated June 14, 1995 as amended by First Amendment to Asset Purchase
Agreement and Waiver dated July 13, 1995 among Moovies, Inc., Planet Video, Inc., XIMPEC, Inc.
and Robert Klein.
2.17* -- Asset Purchase Agreement dated August 25, 1995 among Moovies, Inc., Moviemax Video Supersotres,
Inc., David Thomas Roberts, Deborah C. Roberts, Freeman C. Todd and Carolyn C. Todd.
2.18 -- Agreement and Plan of Merger dated September 15, 1995 among Moovies, Inc., Moovies of Iowa, Inc.,
MoveAmerica, Incorporated d/b/a Movies to Go, Richard C. Eychaner, Andy Burton, Sheila Burton,
Keith West, Howard Eychaner, Mark Peters, Dave Ryan, Brian Gosnell, Kurt Vanderhoef, Kirk
Reinert, and Robert Keenan (Incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K dated September 18, 1995).
<PAGE>
EXHIBIT NO. DESCRIPTION
2.19** -- Asset Purchase Agreement dated October 11, 1995 among Moovies, Inc., First Row Video #6 of
Belmonte Avenue, Inc. d/b/a First Row Video, Mark A. Mallen, and Stephanie R. Mallen.
2.20** -- Asset Purchase Agreement dated November 20, 1995 among Moovies, Inc., Smash Video, Inc., Bobby
Harrelson, Rex Stephens, and Robert Exum.
2.21 -- Agreement and Plan of Merger dated December 11, 1995 among Moovies, Inc., Moovies of the
Carolinas, Inc., Pic-A-Flick of Berea, Inc., PAF-NC, Inc., Pic-A-Flick of Seneca, Inc., Video
Warehouse of Greenville, Inc., Pic-A-Flick Video International, Inc., Joseph G. Mahaffey, Sr.,
Joseph G. Mahaffey, Jr., and Susan J. Mahaffey (Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 11, 1995).
2.22 -- Asset Purchase Agreement dated December 11, 1995 among Moovies, Inc., Moovies of the Carolinas,
Inc., Pic-A-Flick of Chester, Inc., Take One Video of Simpsonville, S.C., Inc., Joseph G.
Mahaffey, Sr. and Alinda W. Mahaffey (Incorporated by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K dated December 11, 1995).
2.23 -- Stock Purchase Agreement dated December 11, 1995 among Moovies, Inc., Moovies of the Carolinas,
Inc., Pic-A-Flick of Greenville, Inc., and Joseph G. Mahaffey, Sr. (Incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K dated December 11, 1995).
2.24 -- Agreement and Plan of Merger dated December 21, 1995 among Moovies, Inc., Moovies of Georgia,
Inc., The Movie Store, Inc., The Movie Store VI, Inc., and Paul D. Love (Incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 21, 1995).
2.25 -- Asset Purchase Agreement dated December 21, 1995 among Moovies, Inc., Moovies of Georgia, Inc.,
and Movie Store VII, Inc. (Incorporated by reference to Exhibit 2.3 to the Company's Current
Report on Form 8-K dated December 21, 1995).
2.26 -- Asset Purchase Agreement dated December 21, 1995 among Moovies, Inc., Moovies of Georgia, Inc.,
and Movie Store VII, Inc. and Parkaire Media Associates, Inc. (Incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K dated December 21, 1995).
2.27*** -- Asset Purchase Agreement dated March 19, 1996, among Moovies, Inc., Showtime U.S.A., Ltd., Jerry
Hilburn, Lois Hilburn, Justin Hilburn, Phil Blanton, Paige Wood, and Neil Granath.
2.28*** -- Asset Purchase Agreement dated April 30, 1996 among Moovies, Inc., American Mult-Entertainment,
Inc. d/b/a Premier Video, Dave Ross, Tony Tillemans, Matthew Otto, Nicole Ross, Anthony Ross, and
Catherine Ross as Custodian for Mark Ross.
3.1* -- Restated Certificate of Incorporation of Moovies, Inc.
3.2 -- Restated Bylaws of Moovies, Inc. (Incorporated by reference to Exhibit 3.2 in the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
4.1* -- Specimen Common Stock Certificate.
5.1***** -- Opinion of Arnall Golden & Gregory.
10.1* -- Form of Registration Rights Agreement.
10.1.1**** -- Registration Rights Agreement dated August 9, 1995 between Moovies, Inc. and Martco, Inc.
10.1.2**** -- Amendment and Joint Agreement dated September 18, 1995 among Moovies, Inc., Richard C. Eychaner,
Andy Burton, Sheila Burton, Keith West, Howard Eychaner, Mark Peters, Dave Ryan, Brian Gosnett,
Kurt Vanderhoef, Kirk Reinert and Robert Keenan.
10.1.3**** -- Piggybank Registration Rights Agreement dated December 11, 1995 among Moovies, Inc., Joseph G.
Mahaffey, Sr., Joseph G. Mahaffey, Jr. and Susan J. Mahaffey.
10.1.4**** -- Piggyback Registration Rights Agreement dated December 21, 1995 between Moovies, Inc. and Paul D.
Love.
10.2* -- Rentrak National Account Agreement dated March 8, 1995, as amended by First Addendum dated March
8, 1995 and Amendment to First Addendum dated as of June 16, 1995.
10.2.1* -- Letter Agreement dated January 17, 1996, between Moovies, Inc. and Baker & Taylor Entertainment,
a division of Baker & Taylor.
10.3* -- 1995 Stock Plan and forms of Stock Option Agreements.
10.3.1**** -- First Amendment to 1995 Stock Plan.
10.4* -- Employment Agreement effective September 1994 between Tonight's Feature, Inc. and John L. Taylor.
10.5* -- Employment Agreement effective March 1995 between Tonight's Feature Limited Partnership II and F.
Andrew Mitchell.
10.6* -- Form of Employment Agreement between Moovies, Inc. and Douglas Raines.
<PAGE>
EXHIBIT NO. DESCRIPTION
10.7* -- Form of Employment Agreement between Moovies, Inc. and Michael Yeargin.
10.8* -- Form of Employment Agreement between Moovies, Inc. and Alan Daniels.
10.9* -- Form of Employment Agreement between Moovies, Inc. and Robert Klein.
10.10* -- Form of Employment Agreement between Moovies, Inc. and Rokki Rogan.
10.11* -- Form of Employment Agreement between Moovies, Inc. and Arthur F. Greeder, III.
10.12* -- Form of Employment Agreement between Moovies, Inc. and Alan Warshaw.
10.13* -- Loan Agreement, in the principal amount of $550,000 dated August 31, 1993 between Tonight's
Feature Limited Partnership II and BB&T.
10.14* -- Promissory Note in the principal amount of $550,000 dated August 31, 1993, between Tonight's
Feature Limited Partnership II and BB&T.
10.15* -- Promissory Note in the principal amount of $150,000 dated August 25, 1994, between Tonight's
Feature Limited Partnership II and BB&T.
10.16* -- Promissory Note in the principal amount of $125,000 dated December 15, 1994, between Tonight's
Feature Limited Partnership II and BB&T.
10.17* -- Secured Revolving Note in the principal amount of $250,000 dated November 24, 1993 between
Tonight's Feature Limited Partnership II and Rentrak.
10.18* -- Security Agreement dated November 24, 1993 between Tonight's Feature Limited Partnership II and
Mortco, Inc.
10.19* -- Revolving Credit Agreement dated March 8, 1995 between Tonight's Feature Limited Partnership II,
Tonight's Feature, Inc. and Mortco, Inc., as amended by First Amendment dated June 13, 1995.
10.20* -- Secured Revolving Note in the principal amount of $750,000 dated March 8, 1995 between Tonight's
Feature and Mortco, Inc.
10.21* -- Security Agreement dated March 8, 1995 between Tonight's Feature and Mortco, Inc.
10.22* -- Promissory Notes dated August 31, 1993 between Tonight's Feature and former limited partners.
10.23* -- Warrant Agreement dated April 19, 1995 with Sirrom Capital Corporation, as amended June 14, 1995.
10.23.1*** -- Warrant Agreement dated January 5, 1996 with Sirrom Capital Corporation.
10.24* -- Warrant Agreement dated April 19, 1995 with Mortco, Inc., as amended June 13, 1995.
10.25* -- Stock Purchase Warrant dated November 30, 1994 with Theodore J. Coburn.
10.26* -- Form of Warrant for former limited partners.
10.27* -- Loan Agreement dated April 19, 1995 by and between Tonight's Feature Limited Partnership II and
Sirrom Capital Corporation.
10.27.1*** -- First Amendment to Loan Agreement and Loan Documents dated January 5, 1996 between Moovies, Inc.
and Sirrom Capital Corporation.
10.27.2*** -- Secured Promissory Note in the original principal amount of $2,000,000 between Moovies, Inc. and
Sirrom Capital Corporation.
10.28** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Take One Video of Simpsonville,
S.C., Inc. in the amount of $1,625,000, with related Letter of Credit to secure payment thereof
from Carolina First Bank.
10.29** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Pic-A-Flick of Chester, Inc. in
the amount of $375,000, with related Letter of Credit to secure payment thereof from Carolina
First Bank.
10.30** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Joseph G. Mahaffey, Sr., in the
principal amount of $3,000,000, with related Letter of Credit to secure payment thereof from
Carolina First Bank.
10.31** -- Promissory Note dated December 21, 1995 from Moovies, Inc. in favor of Movie Store VII, Inc. in
the original principal amount of $435,215 .
10.32** -- Promissory Note dated December 21, 1995 from Moovies, Inc., in favor of Parkaire Media
Associates, Ltd. in the original principal amount of $468,650.
10.33** -- Stock Purchase Warrant from Moovies, Inc. to Joseph G. Mahaffey, Sr.
10.34*** -- Credit Agreement dated March 29, 1996, between Moovies, Inc. and First Union National Bank as
agent.
10.35*** -- Sublease Agreement dated December 1, 1995 between Dow Brands, L.P. and Moovies, Inc.
11**** -- Statement re computation of per share earnings.
21.1*** -- Subsidiaries of the Company.
23.1**** -- Consent of KPMG Peat Marwick LLP.
23.2**** -- Consent of McGladrey & Pullen, LLP.
<PAGE>
EXHIBIT NO. DESCRIPTION
23.3***** -- Consent of Arnall Golden & Gregory (contained in Exhibit 5.1).
23.4**** -- Consent of McMahon, Hartmann, Amundson & Co., LLP
24.1*** -- Power of Attorney (contained on Signature page of the Registration Statement).
</TABLE>
* Incorporated by reference to the same Exhibit number in the Registrant's
Registration Statement on Form S-1 (No. 33-93562).
** Incorporated by reference to the same Exhibit number in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
*** Previously filed.
**** Filed herewith.
***** To be filed by Amendment.
Proof of May 16, 1996
3,200,000 Shares*
MOOVIES, INC.
Common Stock
UNDERWRITING AGREEMENT
_________ ___,1996
NEEDHAM & COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
SCOTT & STRINGFELLOW, INC.
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
400 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
Moovies, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell 3,200,000 shares (the "Firm Shares") of the Company's Common
Stock, par value $.001 per share (the "Common Stock"), to you and to the several
other Underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 480,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section 1(b). The Firm Shares and the Option Shares are referred to
collectively herein as the "Shares".
- --------
* Plus an option to purchase up to an additional 480,000 shares to cover
over-allotments.
<PAGE>
The Company confirms as follows its agreement with the
Representatives and the several other Underwriters.
I. Agreement to Sell and Purchase.
A. On the basis of the representations, warranties and agreements of
the Company herein contained and subject to all the terms and conditions of this
Agreement, (i) the Company agrees to issue and sell the Company Shares to the
several Underwriters and (ii) each of the Underwriters, severally and not
jointly, agrees to purchase from the Company the respective number of Firm
Shares set forth opposite that Underwriter's name in Schedule I hereto, at the
purchase price of $_______ per share for each Firm Share.
B. Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to 480,000 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover overallotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, New York City time, at
least two and no more than five business days before the date specified for
closing in the Option Shares Notice (the "Option Closing Date") setting forth
the aggregate number of Option Shares to be purchased and the time and date for
such purchase. On the Option Closing Date, the Company will issue and sell to
the Underwriters the number of Option Shares set forth in the Option Shares
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
II. Delivery and Payment. Delivery of the Firm Shares shall be made to
the Representatives for the accounts of the Underwriters against payment of the
purchase price by certified or official bank checks payable in New York Clearing
House (next-day) funds to the order of the Company at the office of Needham &
Company, Inc., 400 Park Avenue, New York, New York 10022, at 10:00 a.m., New
York City time, on _____ __, 1996 or at such time and place on such other date
as may be agreed upon by the Company and the Representatives (such date is
hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
-2-
<PAGE>
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Shares.
III. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
A. A registration statement (Registration No. 333-4270) on
Form S-1 relating to the Shares, including a preliminary prospectus and
such amendments to such registration statement as may have been made
prior to the date of this Agreement, has been prepared by the Company
under the provisions of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (collectively referred to as the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
term "preliminary prospectus" as used herein means a preliminary
prospectus subject to completion as contemplated by Rule 430 or Rule
430A of the Rules and Regulations included at any time as part of the
registration statement. Copies of such registration statement and
amendments and of each related preliminary prospectus have been
delivered to the Representatives. If such registration statement has
not become effective, a further amendment to such registration
statement, including a form of final prospectus necessary to permit
such registration statement to become effective, will be filed promptly
by the Company with the Commission. If such registration statement has
become effective, either (i) if the Company relies on Rule 434 under
the Act, a term sheet relating to the Shares, that shall identify the
preliminary prospectus that it supplements containing such information
as is required or permitted by Rules 434, 430A and 424(b) of the Rules
and Regulations or (ii) if the Company does not rely on Rule 434 under
the Act, a final prospectus containing information permitted to be
omitted at the time of effectiveness by Rule 430A of the Rules and
Regulations, will be filed promptly by the Company with the Commission
in accordance with the Rules and Regulations. The term "Registration
Statement" means the registration statement as amended at the time it
becomes or became effective (the "Effective Date"), including all
financial statements and exhibits and any information deemed to be
included by Rule 430A of the Rules and Regulations. The term
"Prospectus" means (A) if the Company relies on Rule 434 of the Rules
and Regulations, the Term Sheet relating to the Shares that is first
filed pursuant to Rule 424(b)(7) of the Rules and Regulations, together
with the Preliminary Prospectus identified therein that such Term Sheet
supplements; (B) if the Company does not rely on Rule 434 of the Rules
and Regulations, the prospectus as first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or (C) if the
-3-
<PAGE>
Company does not rely on Rule 434 of the Rules and Regulations and if
no prospectus is required to be filed pursuant to Rule 424(b) of the
Rules and Regulations, the form of final prospectus included in the
Registration Statement at the Effective Date. The term "Term Sheet"
means any term sheet that satisfies the requirements of Rule 434 of the
Rules and Regulations. Any reference to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
B. No order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission and no
proceeding for that purpose has been instituted or threatened by the
Commission or the securities authority of any state or other
jurisdiction. If the Registration Statement has become effective, no
stop order suspending the effectiveness of the Registration Statement
or any part thereof has been issued by the Commission and no proceeding
for that purpose has been instituted or threatened or, to the best
knowledge of the Company, contemplated by the Commission or the
securities authority of any state or other jurisdiction.
C. On the date any preliminary prospectus was filed with the
Commission on or after May 1, 1996, the Effective Date, the date the
Prospectus is first filed with the Commission pursuant to Rule 424(b)
(if required), the date the Term Sheet that is a part of the Prospectus
is first filed with the Commission pursuant to Rule 434 (if required)
at all times subsequent to and including the Closing Date and, if
later, the Option Closing Date and when any post-effective amendment to
the Registration Statement becomes effective or any amendment or
supplement to the Prospectus is filed with the Commission, the
Registration Statement, such preliminary prospectus and the Prospectus
(as amended or as supplemented if the Company shall have filed with the
Commission any amendment or supplement thereto), including the
financial statements included in the Prospectus, did or will comply in
all material respects with all applicable provisions of the Act and the
Rules and Regulations and did or will contain all statements required
to be stated therein in accordance with the Act and the Rules and
Regulations, except for the financial statements for Premiere Video,
which were excluded from the initial Registration Statement but were
included in Amendment No. 1 to the Registration Statement. At the date
any preliminary prospectus was filed with the Commission on or after
May 1, 1996, the Effective Date, the date the Prospectus or any
amendment or supplement to the Prospectus is filed with the Commission
and at the Closing Date and, if later, the Option Closing Date, such
preliminary prospectus or the Prospectus, as the case may be, did not
or will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The foregoing representations and warranties in this Section 3(c) do
not apply to any statements or omissions made in reliance on and in
conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives specifically for
inclusion in the Registration Statement or Prospectus or any amendment
or supplement thereto. The Company acknowledges that the (i) list of
Underwriters under the heading "Underwriting" in the Registration
Statement and the Prospectus and (ii) the statements in the first
paragraph under the list of Underwriters under
-4-
<PAGE>
the heading "Underwriting" in the Registration Statement and the
Prospectus relating to the selling concession and underwriting discount
constitute the only information relating to any Underwriter furnished
in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement and the Prospectus.
D. The Company is, and at the Closing Date and, if later, the
Option Closing Date, will be, a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Company has, and at the Closing Date and, if later,
the Option Closing Date, will have, full power and authority (corporate
and other) to conduct all the activities conducted by it, to own or
lease all the assets owned or leased by it and to conduct its business
as described in the Registration Statement and the Prospectus. The
Company is, and at the Closing Date and, if later, the Option Closing
Date, will be, duly licensed or qualified to do business and in good
standing as a foreign corporation in all jurisdictions in which the
nature of the activities conducted by it or the character of the assets
owned or leased by it, in either case as of the date of this Agreement
makes such license or qualification necessary, except where failure to
be so qualified or licensed would not have a material adverse effect on
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company. Other than the
entities described in Exhibit 2.1.1 to the Registration Statement (the
"Subsidiaries"), the Company (i) does not own, and at the Closing Date
and, if later, the Option Closing Date, will not own, directly or
indirectly, any capital stock or any other equity or debt securities of
any corporation or have any equity interest in any corporation, firm,
partnership, joint venture, association or other entity and (ii) is
not, and at the Closing Date and, if later, the Option Closing Date,
will not be, engaged in any discussions or a party to any agreement or
understanding, written or oral, regarding the acquisition of an
interest in any corporation, firm, partnership, joint venture,
association or other entity where such discussions, agreements or
understandings would require amendment to the Registration Statement
pursuant to applicable securities laws. Complete and correct copies of
the Certificate of Incorporation and the By-laws of the Company and all
amendments thereto have been delivered to the Representatives, and no
changes therein will be made subsequent to the date hereof and prior to
the Closing Date or, if later, the Option Closing Date.
E. Each of the Subsidiaries is validly existing as a
corporation in good standing under the laws of the state of its
incorporation. Each Subsidiary has all requisite corporate power and
authority to own, lease and operate its properties and conduct its
business as now conducted. Each Subsidiary is duly qualified to do
business and is in good standing as a foreign corporation in each other
jurisdiction in which the ownership or leasing of its properties or the
nature or conduct of its business as now conducted requires such
qualification, except where failure to be so qualified would not have a
material adverse affect on the business, properties, business
prospects, condition (financial or otherwise) or results of operations
of the Company and the Subsidiaries, taken as a whole. The outstanding
shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable and,
except as set forth in the Prospectus, are owned by the
-5-
<PAGE>
Company free and clear of all liens, encumbrances and security
interests; and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the
Subsidiaries are outstanding.
F. All of the outstanding shares of capital stock of the
Company have been duly authorized, validly issued and are fully paid
and nonassessable; the Shares have been duly authorized and when issued
and delivered against payment therefor as contemplated by this
Agreement will be validly issued, fully paid and nonassessable; the
form of certificates evidencing the Shares comply with all applicable
requirements of Delaware Law; and no preemptive or similar rights exist
with respect to any of the Shares or the issue and sale thereof. The
description of the capital stock of the Company in the Registration
Statement and the Prospectus is, and at the Closing Date and, if later,
the Option Closing Date, will be, complete and accurate in all material
respects. Except as set forth in the Prospectus, the Company does not
have outstanding, and at the Closing Date and, if later, the Option
Closing Date, will not have outstanding, any options to purchase, or
any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, any shares of capital stock or partnership interests, or any
such warrants, convertible securities or obligations, except for
options granted in ordinary course under the 1995 Stock Plan subsequent
to the date of the Prospectus.
G. The consolidated financial statements and schedules of the
Company and the Subsidiaries included in the Registration Statement or
the Prospectus present fairly the financial condition of the Company
and the Subsidiaries consolidated as of the respective dates thereof
and the results of operations and cash flows of the Company as the case
may be, for the respective periods covered thereby, all in conformity
with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, except as otherwise disclosed in
the Prospectus. No other financial statements or schedules of the
Company or any other company or entity are required by the Act or the
Rules and Regulations to be included in the Registration Statement or
the Prospectus. KPMG Peat Marwick LLP (the "Accountants"), who have
reported on certain of such financial statements and schedules, are,
and were during the periods covered by their reports included in the
Registration Statement and the Prospectus, independent accountants with
respect to the Company, as the case may be, as required by the Act and
the Rules and Regulations. The summary financial and statistical data
included in the Registration Statement present fairly the information
shown therein and have been compiled on a basis consistent with the
financial statements presented therein. The unaudited pro forma
combined financial statements included in the Registration Statement
and the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations and management of the Company believes (A) the assumptions
underlying the pro forma adjustments are reasonable, (B) that such
adjustments have been properly applied to the historical amounts in the
compilation of such statements and (C) that such statements fairly
present, with respect to the Company and the Subsidiaries, the combined
pro forma
-6-
<PAGE>
financial position and results of operations and the other information
purported to be shown therein at the respective dates or for the
respective periods therein specified.
H. Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to
the Closing Date and, if later, the Option Closing Date, except as set
forth in or contemplated by the Registration Statement and the
Prospectus, (i) other than scheduled debt payments there has not been
any change in the capital stock, long-term debt or short-term debt of
the Company or any Subsidiary or any material adverse change or any
development involving a prospective material adverse change, in the
business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company or any Subsidiary,
arising for any reason whatsoever, (ii) neither the Company nor any
Subsidiary has incurred or will incur any material liabilities or
obligations, direct or contingent, nor has the Company or any
Subsidiary entered into nor will it enter into any material
transactions other than pursuant to this Agreement and the transactions
referred to herein and therein and (iii) Neither the Company nor any
Subsidiary has or will have purchased any of its outstanding capital
stock or paid or declared any dividends or other distributions of any
kind on any class of its capital stock.
I. Neither the Company nor any Subsidiary is, will become as a
result of the transactions contemplated hereby, or intends to conduct
its business in a manner that would cause it to become, an "investment
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended.
J. Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings (formal or
informal) pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any Subsidiary or its respective
properties or assets or any of its respective officers in their
capacity as such, before or by any Federal or state court, commission,
regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding
might reasonably be expected to, individually or in the aggregate,
materially and adversely affect the Company and the subsidiaries taken
as a whole, the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and
the subsidiaries taken as a whole, or the transactions contemplated by
this Agreement.
K. The Company and each Subsidiary has, and at the Closing
Date and, if later, the Option Closing Date, will have, performed all
the obligations required to be performed by it, and is not, and at the
Closing Date, and, if later, the Option Closing Date, will not be, in
default, under any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by
which its property is bound or affected, which failure to perform or
default might reasonably be expected to materially and adversely affect
the Company and its Subsidiaries taken as a whole, the business,
properties, business prospects, condition (financial or other) or
results of operations of the Company and its
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<PAGE>
Subsidiaries taken as a whole, or the transactions contemplated by this
Agreement. To the best knowledge of the Company, no other party under
any contract or other instrument to which it is a party is in default
in any respect thereunder, which default might materially and adversely
affect the Company and its Subsidiaries taken as a whole, or the
business, properties, business prospects, condition (financial or
other) or results of operations of the Company and its Subsidiaries
taken as a whole, or the transactions contemplated by this Agreement.
Neither the Company nor any Subsidiary is, and at the Closing Date and,
if later, the Option Closing Date, will be, in violation of any
provision of its Certificate of Incorporation, By-laws or other
organizational documents.
L. No consent, approval, authorization, order or declaration
of or from, or any filing or registration with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except such as have been obtained under
the Act or the Rules and Regulations (or, if the Registration Statement
is not effective as of the time of execution hereof, shall be obtained
as provided in this Agreement) and such as may be required under state
securities or Blue Sky laws or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with
the offer, sale and distribution by the Underwriters of the Shares.
M. The Company has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder and
thereunder. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement
of the Company, enforceable against the Company in accordance with its
terms. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby and thereby
will not (i) result in the creation or imposition of any lien, charge
or encumbrance upon any of the assets of the Company or any Subsidiary
pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or give any party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, the
Certificate of Incorporation or By-laws or other organizational
documents of the Company or any Subsidiary or any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument to which the Company or any Subsidiary is
a party or by which the Company or any of its respective properties is
bound or affected, or (ii) violate or conflict with any judgment,
ruling, decree or order, or statute, rule or regulation of any court or
other governmental agency or body, in either case applicable to the
business or properties of the Company or any Subsidiary.
N. The Company and the Subsidiaries have good and marketable
title to all properties and assets described in the Prospectus, as
owned by them, free and clear of all liens, security interests,
pledges, charges, encumbrances, mortgages, defects or restrictions,
except such as are described in the Prospectus or are not material to
the business of the
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<PAGE>
Company or any Subsidiaries. The Company and the Subsidiaries have
valid, subsisting and enforceable leases for the properties described
in the Prospectus, as leased by them. The Company and each Subsidiary
owns or leases all such properties as are necessary to its operations
as now conducted or as proposed to be conducted, except where the
failure to so own or lease would not materially and adversely affect
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole.
O. The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or contracts
and other documents are accurate in all material respects and fairly
present the information required to be shown; and there are no statutes
or legal or governmental proceedings required to be described in the
Registration Statement or the Prospectus that are not described as
required and there is no document or contract of a character required
to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not
described or filed as required. All such contracts to which the Company
or a Subsidiary is a party have been duly authorized, executed and
delivered by the Company or such Subsidiary , constitute valid and
binding agreements of the Company or such Subsidiary and are
enforceable against and by the Company in accordance with the terms
thereof, except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other law
affecting creditors' rights and by general equitable principles.
P. No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document
required by Section 5 of this Agreement to be delivered to the
Representatives was or will be, when made, inaccurate, untrue or
incorrect.
Q. Neither the Company, the Subsidiaries nor any of its
respective directors, officers or controlling persons has (i) taken,
directly or indirectly, any action designed, or which might reasonably
be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Shares other than entering into the lock-up agreements described in the
Prospectus, or (ii) since the filing of the Registration Statement (A)
sold, bid for, purchased or paid anyone any compensation for soliciting
purchases of, the Shares or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company.
R. Except for (i) the Registration Rights Agreements filed as
exhibits to the Registration Statement (collectively, the "Registration
Rights Agreements") and (ii) the warrants issued to Needham & Company,
Inc. and Scott & Stringfellow, Inc. in connection with the Company's
initial public offering, there are no contracts, agreements or
understandings between the Company and any person granting such person
the right to require the Company to file a registration statement under
the Act with respect to any
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<PAGE>
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act.
S. The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and has registered the Common Stock under the Exchange
Act. The Company has filed an application to list the Shares on the
Nasdaq Stock Market's National Market ("NMS"), and has received
notification that the listing has been approved, subject to notice of
issuance of the Shares.
T. Except as disclosed in or contemplated by the Prospectus,
the Company and each of the Subsidiaries owns or has the right to use
all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets
(collectively, "Intangibles") necessary to conduct their businesses as
now conducted or as proposed to be conducted; and the Company has no
knowledge of any infringement by it or any Subsidiary of Intangibles of
others, and there is no claim being made against the Company or any
Subsidiary , or to the best of the Company's knowledge, any employee of
the Company or any Subsidiary, regarding infringement of any
Intangibles of others which could have a material and adverse effect on
the Company and its Subsidiaries, taken as a whole, or the business,
properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and the Subsidiaries taken as a
whole, as the case may be, and, to the best knowledge of the Company,
there is no infringement by others of Intangibles of the Company or any
Subsidiary.
U. The Company and each Subsidiary has filed all federal,
state, local and foreign income tax returns which have been required to
be filed and has paid all taxes and assessments received by it to the
extent that such taxes have become due. Neither the Company nor any
Subsidiary has any tax deficiency which has been or might be asserted
or threatened against it which could have a material and adverse effect
on the business, properties, business prospects, condition (financial
or otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole.
V. The operations of the Company and each Subsidiary with
respect to any real property currently leased or owned or by any means
controlled by it (the "Real Property") are in compliance in all
material respects with all applicable federal, state, and local laws,
ordinances, rules, and regulations relating to occupational health and
safety and the environment (collectively, "Laws"), and the Company and
each Subsidiary has all licenses, permits and authorizations necessary
to operate under all Laws and are in compliance with all terms and
conditions of such licenses, permits and authorizations except where
the failure to comply would not have a material adverse effect on the
business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and the
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<PAGE>
Subsidiaries, taken as a whole; neither the Company nor any Subsidiary
has authorized or conducted or has knowledge of the generation,
transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material, hazardous
constituent, toxic substance, pollutant, contaminant, petroleum
product, natural gas, liquefied gas or synthetic gas defined or
regulated under any environmental law on, in or under any Real
Property; and there is no pending or, to the best knowledge of the
Company, any threatened claim, litigation or any administrative agency
proceeding, nor has the Company or any Subsidiary received any written
or oral notice from any governmental entity or third party, that: (i)
alleges a violation of any Laws by the Company or such Subsidiary ;
(ii) alleges the Company or such Subsidiary is a liable party under the
Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. ss. 9601 et seq. or any state superfund law; (iii) alleges
possible contamination of the environment by the Company or such
Subsidiary ; or (iv) alleges possible contamination of the Real
Property.
W. The Company and each Subsidiary owns or possesses all
authorizations, approvals, orders, licenses, registrations, other
certificates and permits of and from all governmental regulatory
officials and bodies, necessary to conduct its respective business as
contemplated in the Prospectus except where the failure to own or
possess all such authorizations, approvals, orders, licenses,
registrations, other certificates and permits would not materially and
adversely affect the Company and the Subsidiaries, taken as a whole, or
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole, as the case may be. There is no
proceeding pending or, to the best knowledge of the Company, threatened
(or any basis therefor known to the Company) which may cause any such
authorization, approval, order, license, registration, certificate or
permit to be revoked, withdrawn, cancelled, suspended or not renewed;
and the Company and each Subsidiary is conducting its respective
business in compliance with all laws, rules and regulations applicable
thereto except where such noncompliance would not materially and
adversely affect the Company and the Subsidiaries, taken as a whole or
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole, as the case may be.
X. The Company and each Subsidiary maintains insurance of the
types and in the amounts generally deemed adequate for its respective
business, including, but not limited to, insurance covering real and
personal property owned or leased by the Company or such Subsidiary
against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full
force and effect.
Y. Neither the Company nor any Subsidiary has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person
charged with similar public or quasi-
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<PAGE>
public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
Z. No labor dispute with the employees of the Company or any
Subsidiary exists or, to the best knowledge of the Company, is
threatened; and the Company is not aware of any existing or threatened
labor disturbance by the employees of any of its principal suppliers or
any movie studio, that might reasonably be expected to result in any
material adverse change in the business, properties, business
prospects, condition (financial or otherwise) or results of operations
of the Company and the Subsidiaries, taken as a whole.
AA. Since August 3, 1995, neither the Company nor any
Subsidiary has sustained any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as disclosed in or
contemplated by the Prospectus.
BB. All offers and sales of the Company's securities prior to
the date hereof were at all relevant times duly registered under the
Act or exempt from the registration requirements of the Act by reason
of Sections 3(b), 4(2) or 4(6) thereof and were duly registered or the
subject of an available exemption from the registration requirements of
the applicable state securities or Blue Sky laws.
IV. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
A. The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to
be delivered in connection with sales of the Shares by an Underwriter
or dealer, file any amendment or supplement to the Registration
Statement or the Prospectus, or file a Term Sheet, unless a copy
thereof shall first have been submitted to the Representatives within a
reasonable period of time prior to the filing thereof and the
Representatives shall not have objected thereto in good faith.
B. The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the
Representatives promptly and will confirm such advice in writing, (i)
when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (ii) of any request
by the Commission for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (iv) of the
happening of any event during the period mentioned in the second
sentence of Section 4(e) that in the judgment of the Company makes any
statement made in the Registration Statement or the Prospectus untrue
or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in
light of the circumstances in which they are made, not misleading and
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<PAGE>
(v) of receipt by the Company or any representative or attorney of the
Company of any other communication from the Commission relating to the
Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order
suspending the effectiveness of the Registration Statement, the Company
will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A of
the Rules and Regulations, the Company will comply with the provisions
of and make all requisite filings with the Commission pursuant to Rule
430A or Rule 434, as applicable, and will notify the Representatives
promptly of all such filings.
C. The Company will furnish to the Representatives, without
charge, three signed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and
schedules, and all exhibits thereto and will furnish to the
Representatives, without charge, for transmittal to each of the other
Underwriters, a copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules but without exhibits.
D. The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
E. On the Effective Date, and thereafter from time to time,
the Company will deliver to each of the Underwriters, without charge,
as many copies of the Prospectus or any amendment or supplement thereto
as the Representatives may reasonably request; without limiting the
foregoing, the Company, not later than 10:00 a.m. on the business day
following the date of determination of the public offering price will
deliver to the Representatives, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming
orders that are expected to settle on the Closing Date. The Company
consents to the use of the Prospectus or any amendment or supplement
thereto by the several Underwriters and by all dealers to whom the
Shares may be sold, both in connection with the offering or sale of the
Shares and for any period of time thereafter during which the
Prospectus is required by law to be delivered in connection therewith.
If during such period of time any event shall occur which in the
judgment of the Company or opinion of counsel to the Underwriters
should be set forth in the Prospectus in order to make any statement
therein, in light of the circumstances under which it was made, not
misleading or if it is necessary to supplement or amend the Prospectus
to comply with law, the Company will forthwith prepare and duly file
with the Commission an appropriate supplement or amendment thereto, and
will deliver to each of the Underwriters, without charge, such number
of copies of such supplement or amendment to the Prospectus as the
Representatives may reasonably request. Neither your consent to, nor
the Underwriters' delivery of, any such supplement or amendment shall
constitute a waiver of any of the conditions set forth in Section 5.
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<PAGE>
F. Prior to any public offering of the Shares, the Company
will cooperate with the Representatives and counsel to the Underwriters
in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives may request; provided, that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
which would subject it to general service of process in any
jurisdiction where it is not now so subject.
G. The Company will furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, stockholders'
equity and cash flow of the Company and its consolidated subsidiaries,
if any, certified by the Company's independent public accountants) and,
as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), consolidated
summary financial information of the Company and its subsidiaries, if
any, for such quarter in reasonable detail.
H. During the period of five years commencing on the Effective
Date, the Company will furnish to the Representatives and each other
Underwriter who may so request copies of such financial statements and
other periodic and special reports and definitive proxy statements as
the Company may from time to time distribute generally to the holders
of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of
each annual or other report it shall be required to file with the
Commission.
I. The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the
last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement (which
need not be audited but shall be in reasonable detail) for a period of
12 months ended commencing after the Effective Date, and satisfying the
provisions of Section 11(a) of the Act (including Rule 158 of the Rules
and Regulations).
J. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company
will pay, or reimburse if paid by the Representatives, all costs and
expenses incident to the performance of the obligations of the Company
under this Agreement, including but not limited to costs and expenses
of or relating to (i) the preparation, printing and filing of the
Registration Statement and exhibits to it, each preliminary prospectus,
Prospectus and any amendment or supplement to the Registration
Statement or Prospectus, (ii) the preparation and delivery of
certificates representing the Shares, (iii) the printing of this
Agreement, the Agreement Among Underwriters, any Dealer Agreements and
any Underwriters' Questionnaires, (iv) furnishing (including costs of
shipping and mailing) such copies of the Registration Statement, the
Prospectus and any preliminary prospectus, and all amendments and
supplements thereto, as may be requested for use in connection with the
offering and sale of the Shares by the
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<PAGE>
Underwriters or by dealers to whom Shares may be sold, (v) the listing
of the Shares on the NMS, (vi) any filings required to be made by the
Underwriters with the NASD, and the reasonable fees and all
disbursements and other charges of counsel for the Underwriters in
connection therewith, (vii) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(f), including the
reasonable fees, disbursements and other charges of counsel to the
Underwriters in connection therewith, and the preparation and printing
of preliminary, supplemental and final Blue Sky memoranda, (viii) fees,
disbursements and other charges of counsel to the Company (but not
those of counsel for the Underwriters, except as otherwise provided
herein) and (ix) the transfer agent for the Shares.
K. If this Agreement shall be terminated by the Company
pursuant to any of the provisions hereof (otherwise than pursuant to
Section 7 hereof) or if for any reason the Company shall be unable to
perform its obligations hereunder or thereunder (other than as a direct
result of a default by the Underwriters hereunder), the Company will
reimburse the several Underwriters for all out-of-pocket expenses
(including the fees, disbursements and other charges of counsel to the
Underwriters) reasonably incurred by them in connection herewith.
L. The Company will not at any time, (i) directly or
indirectly, take any action designed, or which might reasonably be
expected, to cause or result in, or which will constitute,
stabilization of the price of the shares of Common Stock to facilitate
the sale or resale of any of the Shares, (ii) sell, bid for, purchase
or pay anyone any compensation for soliciting purchases of, the Shares
or (iii) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
M. The Company will apply the net proceeds from the offering
and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds" and shall file such
reports with the Commission with respect to the sale of the Shares and
the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
N. The Company will not, and will cause each of its officers,
directors and certain stockholders designated by the Representative to
enter into agreements with the Representatives to the effect that they
will not, without the prior written consent of the Representatives,
offer, sell, offer to sell, contract to sell, assign, grant any option
to purchase, or otherwise dispose of or transfer any Common Stock of
the Company or any other security of the Company, convertible into, or
exchangeable or exercisable for, Common Stock for a period of 90 days
after the date of the Prospectus except (i) directors, officers and
stockholders may make bona fide gifts to donees who agree to be bound
by such restrictions and (ii) the Company may (A) issue Common Stock or
options to purchase Common Stock under the Moovies, Inc. 1995 Stock
Plan, (B) may issue Common Stock upon the exercise of presently
outstanding warrants and (C) may issue Common Stock in connection with
the
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Company's express strategy of growth through acquisitions provided that
such Common Stock is restricted and is not tradeable prior to the
expiration of the lockup period.
O. The Company shall have the Accountants perform the
procedures specified by the American Institute of Certified Public
Accountants for a review of interim financial information as described
in SAS 71, Interim Financial Information, on the unaudited consolidated
financial statements of the Company for the three-month periods ending
June 30, 1996 and September 30, 1996.
V. Conditions of the Obligations of the Underwriters. The obligations of
each Underwriter hereunder are subject to the following conditions:
A. Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00
p.m., New York City time, on the date of this Agreement or at such
later date and time as shall be consented to in writing by the
Representatives and all filings required by Rule 424, Rule 434 and Rule
430A of the Rules and Regulations shall have been made.
B. (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall be pending or threatened by the Commission, (ii) no
order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or
Blue Sky laws of any jurisdiction shall be in effect and no proceeding
for such purpose shall be pending before or threatened or contemplated
by the Commission or the authorities of any such jurisdiction, (iii)
any request for additional information on the part of the staff of the
Commission or any such authorities shall have been complied with to the
satisfaction of the staff of the Commission or such authorities and
(iv) after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a
copy thereof was first submitted to the Representatives and the
Representatives did not object thereto in good faith, and the
Representatives shall have received certificates, dated the Closing
Date and, if later, the Option Closing Date and signed by the Chief
Executive Officer and the Chief Financial Officer of the Company (who
may, as to proceedings threatened, rely upon the best of their
information and belief), to the effect of clauses (i), (ii) and (iii)
of this paragraph.
C. Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) there shall not
have been a material adverse change in the general affairs, business,
business prospects, properties, management, condition (financial or
otherwise) or results of operations of the Company, whether or not
arising from transactions in the ordinary course of business, in each
case other than as set forth in or contemplated by the Registration
Statement and the Prospectus and (ii) the Company shall not have
sustained any material loss or interference with its business or
properties from fire, explosion, flood or
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other casualty, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action, order
or decree, which is not set forth in the Registration Statement and the
Prospectus, if in the judgment of the Representatives any such
development makes it impracticable or inadvisable to consummate the
sale and delivery of the Shares by the Underwriters at the initial
public offering price.
D. Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall have been
no litigation or other proceeding instituted against the Company or any
Subsidiary or any of its respective officers or directors in their
capacities as such, before or by any Federal, state or local court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding would materially
and adversely affect the Company and the Subsidiaries, taken as a
whole, the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and
the Subsidiaries, taken as a whole or the transactions contemplated by
this Agreement.
E. Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at
the Closing Date and, with respect to the Option Shares, at the Option
Closing Date, and all covenants and agreements contained herein to be
performed on the part of the Company and all conditions contained
herein to be fulfilled or complied with by the Company at or prior to
the Closing Date and, with respect to the Option Shares, at or prior to
the Option Closing Date, shall have been duly performed, fulfilled or
complied with.
F. The Representatives shall have received an opinion, dated
the Closing Date and, with respect to the Option Shares, the Option
Closing Date, satisfactory in form and substance to the Representatives
and counsel for the Underwriters from Ross Miller, General Counsel of
the Company, with respect to the following matters:
1. Except as set forth in the Prospectus, to the best
knowledge of such counsel, the Company does not have
outstanding any options to purchase, or any rights or warrants
to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any
shares of capital stock, or any such warrants, convertible
securities or obligations.
2. To the best knowledge of such counsel, other than
the Subsidiaries and the Pending Acquisition (as defined in
the Registration Statement), the Company does not own or
control, directly or indirectly, any capital stock or any
other equity or debt securities of any corporation or have any
equity interest in any corporation, firm, partnership, joint
venture, association or other entity.
3. To the best knowledge of such counsel, except as
set forth in the Registration Statement and the Prospectus,
there are no actions, suits or proceedings
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(formal or informal) pending or threatened against or
affecting the Company or any Subsidiary or its respective
properties or assets or any of its officers in their capacity
as such before or by any Federal or state court, commission,
regulatory body, administrative agency or other governmental
body, domestic or foreign, wherein an unfavorable ruling,
decision or finding might reasonably be expected to,
individually or in the aggregate, materially and adversely
affect the Company or the business, properties, business
prospects, condition (financial or otherwise) or results of
operations of the Company and the Subsidiaries, taken as a
whole, or the transactions contemplated by this Agreement.
4. The descriptions in the Registration Statement and
the Prospectus of statutes, legal and governmental proceedings
or contracts and other documents are accurate in all material
respects and fairly present the information required to be
shown; and there are no statutes or legal or governmental
proceedings required to be described in the Registration
Statement or the Prospectus that are not described as required
and, to the best knowledge of such counsel, there is no
document or contract of a character required to be described
in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement which is not
described or filed as required.
5. No consent, approval, authorization, order or
declaration of or from, or any filing or registration with,
any court or governmental agency or body is required for the
consummation by the Company of the transactions contemplated
by this Agreement, except such as may be required under state
securities or Blue Sky laws or the by-laws and rules of the
NASD in connection with the purchase and distribution by the
Underwriters of the Shares (as to which such counsel need
express no opinion) and such as have been obtained or made
under the Act or the Rules and Regulations.
6. The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby will not (A) result in the creation or
imposition of any lien, charge or incumbrance upon any of the
assets of the Company or any Subsidiary pursuant to the terms
or provisions of, or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or
give any party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under,
the Certificate of Incorporation or By-Laws of the Company or
any Subsidiary or any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract
or other agreement or instrument that is filed as an Exhibit
to the Registration Statement to which the Company or any
Subsidiary is a party or by which the Company or any
Subsidiary or any of its respective properties is bound or
affected, or (B) violate or conflict with any judgment,
ruling, decree or order, or any statute, rule or regulation of
any court or other governmental agency or
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body, in either case, applicable to the business or properties
of the Company or any Subsidiary (except that such counsel
need express no opinion as to state securities or Blue Sky
laws).
7. The statements under the captions "Risk Factors -
Inability to Obtain and Adequately Manage Leased Inventory;
Risk Factors - Dependence Upon Suppliers; Risk Factors -
Shares Eligible for Future Sale; Risk Factors - Anti-Takeover
Provisions; Business - Suppliers; Management - Employment
Agreements; Covenants Not to Compete; Description of Capital
Stock; and Shares Eligible for Future Sale" in the Prospectus,
insofar as the statements constitute a summary of documents
referred to therein or matters of law, are materially accurate
summaries and fairly present the information called for with
respect to such documents and matters (provided, however, that
such counsel may rely on representations of the Company with
respect to the factual matters contained in such statements,
and provided further that such counsel shall state that
nothing has come to the attention of such counsel which leads
them to believe that such representations are not true and
correct in all material respects).
8. Except for (i) the Registration Rights Agreement
and (ii) the underwriters' warrants to the best of such
counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement
or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
Such counsel shall also include a statement in such opinion as to the
matters set forth in this paragraph. Such counsel has not independently
verified the accuracy, completeness or fairness of the statements made
or the information contained in the Registration Statement or the
Prospectus, and, except with respect to the descriptions referred to in
clause 7 above, such counsel is not passing upon and does not assume
any responsibility therefor. In the course of the preparation by the
Company of the Registration Statement and the Prospectus, such counsel
has participated in discussions with representatives of the
Underwriters and the Company and its independent accountants, in which
the business and affairs of the Company and the contents of the
Registration Statement and the Prospectus were discussed. Such counsel
has no reason to believe that (i) as of its effective date, the
Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(ii) as of its date, as of the date of this Agreement and as of the
Closing Date, the Prospectus or any amendment or supplement thereto
contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Such counsel
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need express no opinion, however, as to the financial statements,
including the notes and schedules thereto, or any other information of
a financial or accounting nature set forth or referred to in the
Registration Statement or in the Prospectus.
G. The Representatives shall have received an opinion, dated
the Closing Date and, with respect to the Option Shares, the Option
Closing Date, satisfactory in form and substance to the Representatives
and counsel for the Underwriters from Arnall, Golden & Gregory, counsel
to the Company, with respect to the following matters:
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company has adequate
corporate power and authority to own or lease all the assets
owned or leased by it and to conduct its business as described
in the Registration Statement and Prospectus. The Company is
duly licensed or qualified to do business and is in good
standing as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it or the
character of the assets owned or leased by it, in either case
as of the date of this Agreement, make such license or
qualification necessary except where failure to be so licensed
or qualified would not have a material adverse effect on the
business properties, business prospects, condition (financial
or otherwise) or results of operations of the Company.
2. Each of the Subsidiaries is validly existing as a
corporation in good standing under the laws of the state of
its incorporation. Each Subsidiary has all requisite corporate
power and authority to own, lease and operate its properties
and conduct its business as now conducted. Each Subsidiary is
duly qualified to do business and is in good standing as a
foreign corporation in each other jurisdiction in which the
ownership or leasing of its properties or the nature or
conduct of its business as now conducted requires such
qualification. The outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable and are owned by the
Company free and clear of all liens, encumbrances and security
interests; and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock
or ownership interests in the Subsidiaries are outstanding.
3. All of the outstanding shares of capital stock of
the Company have been duly authorized, validly issued and are
fully paid and nonassessable; the Shares have been duly
authorized and when issued and paid for as contemplated by this
Agreement will be validly issued, fully paid and nonassessable
and will conform to the description of the Common Stock
contained in the Prospectus; the certificates evidencing the
Shares comply with all applicable requirements of Delaware Law;
and no statutory or, to the best knowledge of such counsel,
contractual preemptive or similar rights exist with respect to
any of the Shares or the issue and sale thereof. The
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description of the capital stock of the Company in the
Registration Statement and the Prospectus is complete and
accurate in all material respects.
4. Except as set forth in the Prospectus, to the best
knowledge of such counsel, the Company does not have
outstanding any options to purchase, or any rights or warrants
to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any
shares of capital stock, or any such warrants, convertible
securities or obligations.
5. To the best knowledge of such counsel, other than
the Subsidiaries and the Pending Acquisition (as defined in
the Registration Statement), the Company does not own or
control, directly or indirectly, any capital stock or any
other equity or debt securities of any corporation or have any
equity interest in any corporation, firm, partnership, joint
venture, association or other entity.
6. The authorized and outstanding capital stock of
the Company is as set forth under the caption "Description of
Capital" in the Registration Statement and the Prospectus.
7. To the best knowledge of such counsel, except as
set forth in the Registration Statement and the Prospectus,
there are no actions, suits or proceedings (formal or
informal) pending or threatened against or affecting the
Company or any Subsidiary or its respective properties or
assets or any of its officers in their capacity as such before
or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding
might reasonably be expected to, individually or in the
aggregate, materially and adversely affect the Company or the
business, properties, business prospects, condition (financial
or otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole or the transactions
contemplated by this Agreement.
8. The descriptions in the Registration Statement and
the Prospectus of statutes, legal and governmental proceedings
or contracts and other documents are accurate in all material
respects and fairly present the information required to be
shown; and there are no statutes or legal or governmental
proceedings required to be described in the Registration
Statement or the Prospectus that are not described as required
and, to the best knowledge of such counsel, there is no
document or contract of a character required to be described
in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement which is not
described or filed as required.
9. No consent, approval, authorization, order or
declaration of or from, or any filing or registration with, any
court or governmental agency or body is
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required for the consummation by the Company of the
transactions contemplated by this Agreement, except such as
may be required under state securities or Blue Sky laws or the
by-laws and rules of the NASD in connection with the purchase
and distribution by the Underwriters of the Shares (as to
which such counsel need express no opinion) and such as have
been obtained or made under the Act or the Rules and
Regulations.
10. The Company has adequate corporate power and
authority to enter into this Agreement and to perform its
obligations hereunder. This Agreement has been duly
authorized, executed and delivered by the Company and
constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms,
except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other
law affecting creditors' rights and by general equitable
principles, and except to the extent that the indemnification
provisions set forth in Section of this Agreement may be
limited by federal or state securities laws or the public
policy underlying such laws.
11. The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby will not (A) result in the creation or
imposition of any lien, charge or incumbrance upon any of the
assets of the Company or any Subsidiary pursuant to the terms
or provisions of, or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or
give any party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under,
the Certificate of Incorporation or By-Laws of the Company or
any Subsidiary or any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract
or other agreement or instrument that is filed as an Exhibit
to the Registration Statement to which the Company or any
Subsidiary is a party or by which the Company or any
Subsidiary or any of its respective properties is bound or
affected, or (B) violate or conflict with any judgment,
ruling, decree or order, or any statute, rule or regulation of
any court or other governmental agency or body, in either
case, applicable to the business or properties of the Company
or any Subsidiary (except that such counsel need express no
opinion as to state securities or Blue Sky laws).
12. The statements under the captions "Risk Factors -
Inability to Obtain and Adequately Manage Leased Inventory;
Risk Factors - Dependence Upon Suppliers; Risk Factors -
Shares Eligible for Future Sale; Risk Factors - Anti-Takeover
Provisions; Business - Suppliers; Management - Employment
Agreements; Covenants Not to Compete; Description of Capital
Stock; and Shares Eligible for Future Sale" in the Prospectus,
insofar as the statements constitute a summary of documents
referred to therein or matters of law, are materially accurate
summaries and fairly present the information called for with
respect to such documents and
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<PAGE>
matters (provided, however, that such counsel may rely on
representations of the Company with respect to the factual
matters contained in such statements, and provided further
that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that
such representations are not true and correct in all material
respects).
13. Neither the Company nor any Subsidiary is or will
become as a result of the transactions contemplated hereby, an
"investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment
company", as such terms are defined in the Investment Company
Act of 1940, as amended.
14. The Shares have been approved for listing on the
NMS, subject to notice of issuance.
15. Except for (i) the Registration Rights Agreement
and (ii) the underwriters' warrants to the best of such
counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement
or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
16. All offers and sales of the Company's securities
prior to the date hereof were at all relevant times duly
registered under the Act or exempt from the registration
requirements of the Act by reason of Sections 3(b), 4(2) or
4(6) thereof and were duly registered or the subject of an
available exemption from the registration requirements of the
applicable state securities or Blue Sky laws.
Such counsel shall also include a statement in such opinion as to the
matters set forth in this and the next succeeding paragraph. The
Registration Statement has become effective under the Act. to the best
of such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued by the Commission nor has
an proceeding been instituted or contemplated for that purpose under
the Act. The Prospectus or any Term Sheet that constitutes a part
thereof has been filed with the Commission pursuant to Rules 424(b) and
434 of the Rules and Regulations under the Act within the time period
required thereby.
Such counsel has not independently verified the accuracy, completeness
or fairness of the statements made or the information contained in the
Registration Statement or the Prospectus, and, except with respect to the
descriptions referred to in clauses 6 and 12 above, such counsel is not passing
upon and does not assume any responsibility therefor. In the course of the
preparation by the Company of the Registration Statement and the Prospectus,
such counsel has participated in
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discussions with representatives of the Underwriters and the Company and its
independent accountants, in which the business and affairs of the Company and
the contents of the Registration Statement and the Prospectus were discussed. On
the basis of information that such counsel has gained in the course of its
representation of the Company in connection with the Company's preparation of
the Registration Statement and the Prospectus and such counsel's participation
in the discussions referred to above, such counsel is of the opinion that the
Registration Statement, as of its effective date, and the Prospectus, as of its
date, complied as to form in all material respects with the requirements of the
Act and the published Rules and Regulations of the Commission thereunder.
Further, such counsel has no reason to believe that (i) as of its effective
date, the Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) as of its date,
as of the date of this Agreement and as of the Closing Date, the Prospectus or
any amendment or supplement thereto contained or contains any untrue statement
of a material fact or omitted or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Such counsel need express no opinion, however, as to
the financial statements, including the notes and schedules thereto, or any
other information of a financial or accounting nature set forth or referred to
in the Registration Statement or in the Prospectus.
In rendering such opinion, such counsel may rely as to matters of local law on
opinions of counsel, satisfactory in form and substance to the Representatives
and counsel for the Underwriters, in which case the opinion of counsel for the
Company shall state that they have no reason to believe that they and the
Representatives are not entitled to so rely.
H. The Representatives shall have received an opinion, dated
the Closing Date and the Option Closing Date, from King & Spalding,
counsel to the Underwriters, with respect to the Registration
Statement, the Prospectus and this Agreement, which opinion shall be
satisfactory in all respects to the Representatives.
I. Concurrently with the execution and delivery of this
Agreement, the Accountants shall have furnished to the Representatives
a letter, dated the date of its delivery, addressed to the
Representatives and in form and substance satisfactory to the
Representatives, confirming that they are independent accountants with
respect to the Company as required by the Act and the Rules and
Regulations and with respect to certain financial and other statistical
and numerical information contained in the Registration Statement. At
the Closing Date and, as to the Option Shares, the Option Closing Date,
the Accountants shall have furnished to the Representatives a letter,
dated the date of its delivery, which shall confirm, on the basis of a
review in accordance with the procedures set forth in the letter from
the Accountants, that nothing has come to their attention during the
period from the date of the letter referred to in the prior sentence to
a date (specified in the letter) not more than five days prior to the
Closing Date and the Option Closing Date, as the case may be, which
would require any change in their letter dated the date hereof if it
were required to be dated and delivered at the Closing Date and the
Option Closing Date.
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<PAGE>
J. Concurrently with the execution and delivery of this
Agreement and at the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives a
certificate, dated the date of its delivery, signed by each of the
Chief Executive Officer and the Chief Financial Officer of the Company,
in form and substance satisfactory to the Representatives, to the
effect that:
1. Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A)
as of the date of such certificate, such documents are true
and correct in all material respects and do not omit to state
a material fact required to be stated therein or necessary in
order to make the statements therein not untrue or misleading
and (B) in the case of the certificate delivered at the
Closing Date and the Option Closing Date, since the Effective
Date no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to
make the statements therein not untrue or misleading.
2. Each of the representations and warranties of
the Company contained in this Agreement were, when originally
made, and are, at the time such certificate is delivered, true
and correct.
3. Each of the covenants required to be performed
by the Company herein on or prior to the date of such
certificate has been duly, timely and fully performed and each
condition herein required to be satisfied or fulfilled on or
prior to the date of such certificate has been duly, timely
and fully satisfied or fulfilled.
K. On or prior to the Closing Date, the Representatives shall
have received the executed agreements referred to in Section 4(n).
L. The Shares shall be qualified for sale in such
jurisdictions as the Representatives may reasonably request and each
such qualification shall be in effect and not subject to any stop order
or other proceeding on the Closing Date or the Option Closing Date.
M. Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the NMS upon official notice of issuance.
N. The Company shall have furnished to the Representatives
such certificates, in addition to those specifically mentioned herein,
as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus, as to the
accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company herein, as to the
performance by the Company of its obligations hereunder, or as
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to the fulfillment of the conditions concurrent and precedent to the
obligations hereunder of the Representatives.
VI. Indemnification.
A. The Company will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person,
if any, who controls each Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, liabilities, expenses and damages (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances in which
they were made; provided, however, that (i) the Company will not be liable to
the extent that such loss, claim, liability, expense or damage arises from the
sale of the Shares in the public offering to any person by an Underwriter and is
based on an untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of any Underwriter expressly for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus; and (ii) the Company will not be
liable to any Underwriter, the directors, officers, employees or agents of such
Underwriter or any person controlling such Underwriter with respect to any loss,
claim, liability, expense, charge or damage arising out of or based on any
untrue statement or omission or alleged untrue statement or omission or alleged
omission to state a material fact in the preliminary prospectus which is
corrected in the Prospectus if the person asserting any such loss, claim,
liability, charge or damage purchased Shares from such Underwriter but was not
sent or given a copy of the Prospectus at or prior to the written confirmation
of the sale of such Shares to such person. This indemnity agreement will be in
addition to any liability that the Company might otherwise have.
B. Each Underwriter will indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, each director of the Company, each
officer of the Company who signs the Registration Statement to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out of or are
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of such Underwriter expressly for use in the Registration Statement, the
preliminary prospectus or the Prospectus. This indemnity agreement will be in
addition to any liability that each Underwriter might otherwise have.
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C. Any party that proposes to assert the right to be indemnified under
this Section 6 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 6, notify each such
indemnifying party in writing of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section unless, and only to the extent
that, such omission results in the loss of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (i) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (ii) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (iii) a
conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (iv) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm admitted to practice in such jurisdiction at any one time for such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. Any
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld).
D. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters,
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such as persons who control the Company within the meaning of the Act, officers
of the Company who signed the Registration Statement and directors of the
Company, who also may be liable for contribution) to which the Company and any
one or more of the Underwriters may be subject in such proportion as shall be
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Underwriters, on the other, with respect to the statements or omissions
which resulted in such loss, claim, liability, expenses or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the Company or the Representatives on behalf of the Underwriters, the intent of
the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 6(d) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 6(d) shall be deemed to
include, for purposes of this Section 6(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts received by it and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 6(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 6(d), any
person who controls a party to this Agreement within the meaning of the Act or
the Exchange Act will have the same rights to contribution as that party, and
each director and officer of the Company who signed the Registration Statement
will have the same rights to contribution as the Company, subject in each case
to the provisions hereof. Any party entitled to contribution, promptly after
receipt of notice of commencement of any action against any such party in
respect of which a claim for contribution may be made under this Section 6(d),
will notify any such party or parties from whom contribution may be sought, but
the omission so to notify will not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have under
this Section 6(d). No party will be liable for contribution with respect to any
action or claim settled without its written consent (which consent will not be
unreasonably withheld).
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<PAGE>
E. The indemnity and contribution agreements contained in this Section
6 and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Underwriters, (ii) acceptance of
any of the Shares and payment therefor or (iii) any termination of this
Agreement.
VII. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), in
the sole judgment of the Representatives, by notice to the Company from the
Representatives without liability on the part of any Underwriter to the Company
if, prior to delivery and payment for the Shares, as the case may be, (i)
trading in any of the equity securities of the Company shall have been suspended
by the Commission, by an exchange that lists the Shares or by the NMS, (ii)
trading in securities generally on the New York Stock Exchange shall have been
suspended or limited or minimum or maximum prices shall have been generally
established on such exchange, or additional material governmental restrictions,
not in force on the date of this Agreement, shall have been imposed upon trading
in securities generally by such exchange or by order of the Commission or any
court or other governmental authority, (iii) a general banking moratorium shall
have been declared by either Federal or New York State authorities or (iv) any
material adverse change in the financial or securities markets in the United
States or in political, financial or economic conditions in the United States or
any outbreak or material escalation of hostilities or other calamity or crisis
shall have occurred, the effect of which is such as to make it, in the
reasonable judgment of the Representatives, impracticable to market the Shares.
VIII. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it or
they have agreed to purchase hereunder, and the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate number of Firm Shares,
the other Underwriters shall be obligated, severally, to purchase the Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the number of Firm Shares which
they have respectively agreed to purchase pursuant to Section 1 bears to the
aggregate number of Firm Shares which all such non-defaulting Underwriters have
so agreed to purchase, or in such other proportions as the Representatives may
specify; provided that in no event shall the maximum number of Firm Shares which
any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 8 by more than one-tenth of such number of
Firm Shares without the prior written consent of such Underwriter. If any
Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the
Representatives and the Company for the purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company for the
purchase or sale of any Shares under this Agreement. In any such case either the
Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the
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<PAGE>
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this Section 8 shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
IX. Survival. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person referred to in
Section 6 or the Company, or any officer or director or controlling person of
the Company referred to in Section 6, and shall survive delivery of and payment
for the Shares. The respective agreements, covenants, indemnities and other
statements set forth in Sections 4(j) and 6 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
X. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 201
Brookfield Parkway, Greenville, South Carolina 29607, Attention: Chief Executive
Officer, with a copy to T. Clark Fitzgerald III, Esq., Arnall Golden & Gregory,
2800 One Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309 or
(b) if to the Underwriters, to the Representatives at the offices of Needham &
Company, Inc., 400 Park Avenue, New York, New York 10022, Attention: Corporate
Finance Department, with a copy to Bruce N. Hawthorne, Esq., King & Spalding,
191 Peachtree Street, Atlanta, Georgia 30303. Any such notice shall be effective
only upon receipt. Any notice under such Section 7 or 8 may be made by telex or
telephone, but if so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company and the controlling persons, directors and
officers referred to in Section 6, and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" as used in this Agreement shall not
include a purchaser, as such purchaser, of Shares from any of the several
Underwriters.
Any action required or permitted to be made by the Representatives
under this Agreement may be taken by them jointly or by Needham & Company, Inc.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
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<PAGE>
The Company and the Underwriters each hereby waive any right they may
have to a trial by jury in respect of any claim based upon or arising out of
this Agreement or the transactions contemplated hereby.
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
MOOVIES, INC.
By:
(Authorized Officer)
Confirmed as of the date first above mentioned:
NEEDHAM & COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
SCOTT & STRINGFELLOW, INC.
Acting on behalf of themselves and as the
Representatives of the other several
Underwriters named in Schedule I hereof.
By: NEEDHAM & COMPANY, INC.
By: _____________________________
(Authorized Officer)
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<PAGE>
SCHEDULE I
UNDERWRITERS
Number of
Firm Shares to
Name of Underwriter be purchased
Needham & Company, Inc
Wheat, First Securities, Inc.
Scott & Stringfellow, Inc.
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<PAGE>
Proof of May 16, 1996
3,200,000 Shares
Moovies, Inc.
Common Stock
(Par Value $.001 Per Share)
AGREEMENT AMONG UNDERWRITERS
___________ ____, 1996
NEEDHAM & COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
SCOTT & STRINGFELLOW, INC.
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
400 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
1. Underwriting Agreement. We understand that Moovies, Inc., a Delaware
corporation (the "Company") proposes to enter into an Underwriting Agreement in
the form annexed hereto as Exhibit A (the "Underwriting Agreement") with you and
other prospective Underwriters, including ourselves, acting severally and not
jointly, providing for the purchase by the Underwriters from the Company of an
aggregate of 3,200,000 shares of the Company's Common Stock, par value $.001 per
share (the "Firm Shares"), and providing further for the grant of an option by
the Company to the Underwriters to purchase up to an aggregate of 480,000
additional shares of the Company's Common Stock (the "Option Shares") from the
Company for the purpose of covering over-allotments, upon the conditions stated
in the Underwriting Agreement, in which Underwriting Agreement we agree to
purchase the number of Firm Shares set forth opposite our name in Schedule I
thereto, subject to such adjustments as might be necessary as the result of a
default, as more particularly described herein. The number of Firm Shares set
forth opposite each Underwriter's name in Schedule I to the Underwriting
Agreement, or as adjusted as a result of a default, is herein referred to as the
original underwriting commitment of such Underwriter. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively referred to as the "Shares."
2. Registration Statement and Prospectus. We have received copies of
the registration statement, the related prospectus and the amendment(s) thereto
filed with the Securities and Exchange Commission (the "Commission") in respect
of the Shares, and we
<PAGE>
confirm that the statements made under the heading "Underwriting" in the
proposed final form of prospectus, insofar as they relate to us, do not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. We understand that the registration statement may not yet be
effective and may be further amended, and that, if not already effective,
immediately after it becomes effective you will notify us. As hereinafter
mentioned, the "Registration Statement" and the "Prospectus" refer to the
Registration Statement and Prospectus included as a part thereof, in the form in
which the Registration Statement becomes effective (which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus or a Term Sheet thereto), and the form in which the
Prospectus or any Term Sheet thereto is filed pursuant to Rule 424(b), Rule 434
and Rule 430A under the Securities Act of 1933, as amended (the "Act"), if
applicable. Each preliminary prospectus with respect to the Shares is herein
referred to as a "Preliminary Prospectus." The use of our name in the Prospectus
and any Preliminary Prospectus, as one of the Underwriters, has our consent. You
are authorized, with the approval of counsel for the Underwriters, to approve on
our behalf any further amendments or supplements to the Registration Statement
or the Prospectus which may be necessary or appropriate.
3. Authority. We authorize you on our behalf to negotiate the terms of,
and to execute and deliver, the Underwriting Agreement substantially in the form
in which it is attached to this Agreement with such changes therein as you may
approve, to consent to such changes in or waivers of compliance with the
Underwriting Agreement as in your judgment do not materially and adversely
affect our rights and obligations and to execute on our behalf any supplementary
agreement with the Company. We authorize you to act as Representatives under
this Agreement, and, as Representatives, to exercise all authority and
discretion vested in the Underwriters or in the Representatives by the
provisions of the Underwriting Agreement and to take such action as you deem
advisable in connection with the performance of the Underwriting Agreement and
this Agreement, and the purchase, carrying, sale and distribution of the Shares.
Without limiting the foregoing, we authorize you to (a) make changes in those
who are to be Underwriters and in the respective number of the Firm Shares to be
purchased by them, provided that the original underwriting commitment of any
Underwriter shall not be changed without the consent of such Underwriter, (b)
determine all matters relating to advertising and communications with dealers or
others, (c) extend the time within which the Registration Statement may become
effective by not more than twenty-four hours, (d) postpone the Closing Date, as
defined in the Underwriting Agreement, and (e) exercise any right of
cancellation or termination.
4. Compensation. As compensation for your services as Representatives,
we will pay you a sum equal to $____ for each of the Shares which we agree to
purchase under the Underwriting Agreement, and you may charge our account
therefor. This sum may be divided among the Representatives as you may
determine.
5. Terms of the Public Offering. We authorize you, as Representatives
of the several Underwriters, to manage the underwriting and the public offering
of the Shares and to take such action in connection therewith and in connection
with the purchase, carrying and resale of the Shares as you in your sole
discretion deem appropriate or desirable. Without limiting the foregoing, we
authorize you to determine the time of the initial public offering of the
Shares, the initial public
<PAGE>
offering price and the Underwriters' gross spread, whether to purchase any
Option Shares and the amount, if any, of the Option Shares to be so purchased.
You are also authorized to make any changes in the public offering price or
other terms of the offering after the initial public offering and to fix the
concession to Selected Dealers (hereinafter defined) and the reallowance to
dealers and, after the initial public offering of the Shares, to make changes in
the concession and reallowance.
We further authorize you for our account to reserve, offer for sale,
and deliver against payment therefor, such amount of Shares as you may determine
to (a) various members of the National Association of Securities Dealers, Inc.
("NASD"), including you and any of the other Underwriters, or foreign dealers
who are not eligible for membership in the NASD and who agree not to reoffer,
resell or deliver Shares in the United States or to persons who they have reason
to believe are residents of the United States ("Selected Dealers"), according to
Selected Dealer Agreements in the form annexed hereto as Exhibit B, with such
changes therein as you may make pursuant to authority granted to you herein (the
"Selected Dealer Agreement"), at the public offering price, less such concession
or concessions as you may from time to time determine, and (b) institutions,
trustees and individuals ("Special Purchasers"), at the public offering price.
Except for sales which are designated by a purchaser to be for the account of a
particular Underwriter, sales made by you to Special Purchasers for our account
shall be as nearly as practicable in the same proportion to all such sales as
the amount which our underwriting obligation bears to the total underwriting.
Sales made by you to Selected Dealers for our account shall be approximately in
the proportion that the amount of our Shares reserved for such sales bears to
the total Shares so reserved for sale to such dealers.
In making direct sales of the Shares, the several Underwriters may
allow and the Selected Dealers, if any, may reallow, such concession or
concessions as you may determine from time to time to (a) dealers who are
members of the NASD and who agree to comply with Section 24 of Article III of
the Rules of Fair Practice of the NASD or (b) foreign dealers who are not
eligible for membership in the NASD and who agree not to reoffer, resell or
deliver Shares in the United States or to persons whom they have reason to
believe are residents of the United States and who agree to comply with the
NASD's Interpretation with Respect to Free-Riding and Withholding, and to
comply, as though they were members of the NASD, with the provisions of Sections
8, 24 and 36 of such Rules of Fair Practice and to comply with Section 25
thereof as that Section applies to a nonmember foreign dealer.
On the date of the initial public offering you will advise us of the
amount of the Firm Shares which we have agreed to purchase and which you have
reserved for our account and we will offer such Firm Shares to the public in
conformity with the terms of the offering set forth in the Prospectus.
At any time prior to the termination of this Agreement, any of the
Shares purchased by us which are reserved by you for sale for our account as set
forth above but not sold, may, on our request, and at your discretion, be
released to us for direct sale, and the Shares so released to us shall no longer
be deemed reserved for sale by you. From time to time prior to the termination
of this Agreement, on your request, we shall advise you of the amount of the
Shares remaining unsold, which
<PAGE>
were retained by or released to us for direct sale, or of the Common Stock
delivered to us pursuant to Section 8 hereof, and, on your request, we shall
release to you any such Shares remaining unsold for sale by you for our account.
The Underwriters and Selected Dealers may, with your consent, purchase
Shares from and sell Shares to each other at the public offering price less a
concession not in excess of the concession to Selected Dealers.
We agree that without your consent we will not sell to any account over
which we exercise discretionary authority any of the Shares which we have agreed
to purchase under the Underwriting Agreement.
6. Payment and Delivery. At or before 9:30 a.m., New York City time, on
the Closing Date, and, if applicable, the Option Closing Date, as each are
defined in the Underwriting Agreement, we will deliver to you a certified or
bank cashier's check payable to the order of Needham & Company, Inc. in New York
Clearing House (next-day) funds in an amount equal to the public offering price
of the Shares to be purchased by us under the Underwriting Agreement on such
date less the selling concession to Selected Dealers, in respect of such Shares.
Acting as our agent, you will pay the Company for our Shares upon delivery
thereof to you. You will deliver to us, as soon as practicable thereafter, such
of our Shares as we shall have retained for direct sale.
We agree that delivery of any Shares purchased by us shall be made
though the facilities of the Depository Trust Company if we are a member
thereof, unless we are otherwise notified by you in your discretion. If we are
not a member of the Depository Trust Company, such delivery shall be made
through a correspondent who is such a member, if we shall have furnished
instructions to you naming a correspondent, unless we are otherwise notified by
you in your discretion.
We authorize you to hold and deliver to Selected Dealers and Special
Purchasers against payment the portion of our Shares reserved by you for
offering to them. Upon receiving payment for the Shares so sold for our account,
you will remit to us promptly an amount equal to either the purchase price
stated in the Underwriting Agreement or the net sales proceeds, as you may
elect.
In connection with the purchase or carrying for our account of any
Common Stock under this Agreement or the Underwriting Agreement, we authorize
you, in your discretion, to advance your own funds for our account, or, as
Representatives, to arrange and make loans on our behalf and for our account and
to execute and deliver any notes or instruments and hold or pledge as security
any of our Shares, or any other shares of Common Stock of the Company acquired
pursuant to Section 8 hereof, as may be necessary or advisable in your
discretion. Our obligation in respect to any such loans shall be several and not
joint. Any lending bank is hereby authorized and may rely upon your instructions
in all matters relating to any such loans.
You may deliver to us from time to time, for carrying purposes only,
any Shares reserved for our account but which have not been sold or paid for. We
will redeliver to you on demand any stock so delivered to us for carrying
purposes.
<PAGE>
7. Allocation of Expenses. We agree to pay and authorize you to charge
our account with all transfer taxes on sales made by you for our account and our
proportionate shares, based upon our underwriting obligation, of all other
expenses incurred by you under the terms of this Agreement and the Underwriting
Agreement. Your determination of the amount and the allocation of any such
charges or expenses shall be final and conclusive.
8. Stabilization. We authorize Needham & Company, Inc. for our account
during the life of this Agreement, in its discretion, to buy and sell shares of
Common Stock of the Company, in the open market or otherwise, for either short
or long account, on such terms and at such prices as Needham & Company, Inc.,
may determine, or over-allot in arranging sales, and to cover any short position
incurred pursuant to this Section. Subject to the provisions of Section 6
hereof, all such purchases and sales and overallotments shall be made for the
respective accounts of the several Underwriters as nearly as practical in
proportion to their respective original underwriting commitments; provided,
however, that at no time shall our net commitment resulting from such purchases
and sales and overallotments (except for overallotments which may be covered by
the purchase of Option Shares), exceed, either for long or short account, 15% of
our original underwriting commitment. We agree on demand to take up at cost any
stock of the Company so purchased and to deliver any such stock so sold or
over-allotted for our account. In the event of default by one or more
Underwriters in respect of their obligations under this Section, each
non-defaulting Underwriter shall assume its proportionate share of the
obligations of such defaulting Underwriter without relieving such defaulting
Underwriter of its liability hereunder. The existence of this provision is no
assurance that the price of the Shares will be stabilized or that stabilizing,
if commenced, may not be discontinued at any time.
We agree to advise you from time to time upon your request of the
amount of our Shares retained by us remaining unsold and will upon your request
sell to you for the accounts of one or more of the several Underwriters such
amount of Shares as you may designate at such price, not less than the public
offering price less the Selected Dealer's concession or more than the initial
public offering price, as you may determine.
If prior to the termination of this Agreement, you shall purchase or
contract to purchase any of the Shares which were sold by us pursuant to this
Agreement, in your discretion you may (i) sell for our account the Shares so
purchased and debit or credit our account for the loss or profit resulting from
such sale, (ii) charge our account with an amount equal to the concession to
Selected Dealers with respect thereto and credit such amount against the cost
thereof or (iii) require us to repurchase such Shares at a price equal to the
total cost of such purchase made by you as Representatives, including
commissions, if any, and transfer tax on the redelivery. Certificates for the
Shares delivered on such repurchase need not be identical to the certificates so
purchased by you.
We understand that, in the event that you effect stabilization pursuant
to this Section, you will notify us promptly of the date and time when the first
stabilizing purchase is effected and the date and time when stabilizing is
terminated. We agree that stabilizing by us may be effected only with the
consent of Needham & Company, Inc. and we will furnish Needham & Company, Inc.
with such
<PAGE>
information and reports relating to such stabilization as required by the rules
and regulations of the Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
With reference to the overallotment option granted to the Underwriters
in Section 2 of the Underwriting Agreement, we authorize you, in your sole
discretion, to exercise such option in whole or in part, or to cancel the same
at such time as you may determine. To the extent, if at all, that you exercise
such option, we agree to take down and pay for our portion of such Option Shares
in the proportion that our underwriting obligation bears to the underwriting
obligations of all Underwriters. You will advise us of the amount of our Option
Shares and we will offer such Shares to the public in conformity with the terms
of the offering set forth in the Prospectus.
9. Open Market Transactions. We and you agree that, until the
termination of the provisions of this Section of this Agreement, neither we nor
you will make purchases or sales of the Common Stock of the Company or
securities exchangeable for, convertible into, or exercisable against Common
Stock of the Company other than (a) as provided for in this Agreement or in the
Underwriting Agreement or (b) as a broker in executing unsolicited orders.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule 10b-6 of the Exchange Act applicable to this
offering.
10. Termination and Settlement. This Agreement shall terminate 30 days
after the initial public offering date, or at such earlier date as you may
determine in your discretion, or may be extended by you, in your discretion, for
an additional period or periods not exceeding fifteen days in the aggregate, in
each case, except as to accrued obligations and except as otherwise provided
herein. You may, in your discretion, on notice to us prior to such time,
terminate the effectiveness of Section 9 of this Agreement.
Upon termination of this Agreement, or prior thereto at your
discretion, you shall deliver to us any of the Shares purchased by us from the
Company and held by you for sale for our account but not sold and paid for and
any other shares of Common Stock of the Company which are held by you for our
account pursuant to the provisions of Section 8 hereof.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant thereto shall be settled and paid. The determination
by you of the amounts to be paid to or by us hereunder shall be final and
conclusive. You shall not be under any obligation to account for any interest on
any of our funds at any time in your hands.
Notwithstanding any settlement or settlements hereunder we agree to pay
any transfer taxes which may be assessed and paid thereafter on account of any
sale or transfer of any securities as contemplated herein for our account and we
will remain liable for our proportionate share of all expenses and liabilities
which may have been incurred by or for the accounts of the Underwriters.
11. Default by Underwriter. Default by one or more Underwriters
hereunder or under the Underwriting Agreement will not release the Underwriters
from their obligations or affect the
<PAGE>
liability of any defaulting Underwriter to the other Underwriters for damage
resulting from such default. If one or more Underwriters default under the
Underwriting Agreement, you may arrange for the purchase by one or more
non-defaulting Underwriters of shares not taken up by the defaulting Underwriter
or Underwriters and we will, at your request, increase pro rata with the other
non-defaulting Underwriters the amount of our underwriting obligations by an
amount not exceeding 10% of our underwriting obligation with respect to the
Shares.
12. Legal Qualifications. You shall inform us, upon request, of the
states and other jurisdictions of the United States in which it is believed that
the Shares are qualified for sale under, or are exempt from the requirements of,
their respective securities laws, but you assume no responsibility with respect
to the right of any Underwriter or other person to sell Shares in any
jurisdiction. You are authorized to file with the Department of State of the
State of New York a Further State Notice with respect to the Shares, if
necessary.
If we propose to offer Shares outside of the United States, its
territories or its possessions, we will take, at our own expense, such action,
if any, as may be necessary to comply with the laws of each foreign jurisdiction
in which we propose to offer Shares.
13. Liability of Representatives. You shall be under no liability
(except for your own want of good faith and for obligations expressly assumed by
you hereunder) for or in respect of the validity or value of, or title to, any
Shares; the form of, or the statements contained in, or the validity of, the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or any other letters or instruments executed by
or on behalf of the Company or other persons; the form or validity of the
Underwriting Agreement or this Agreement; the delivery of the Shares; the
performance by the Company or others of any agreement on its or their part; or
any matter in connection with any of the foregoing. However, nothing in this
Section 13 shall be deemed to relieve you from any liability imposed by the Act.
14. Indemnification of Claims. Each Underwriter agrees to indemnify,
hold harmless or reimburse each other Underwriter and each person, if any, who
controls such other Underwriter within the meaning of Section 15 of the Act, to
the extent, and upon the terms, that such Underwriter agrees to indemnify, hold
harmless and reimburse the Company and certain other persons pursuant to Section
8 of the Underwriting Agreement. This indemnity agreement shall remain in full
force and effect regardless of any investigation made by or on behalf of such
other Underwriter or controlling person or any statement made to the Commission
as to the result thereof.
In the event that at any time any person other than an Underwriter
asserts a claim against one or more of the Underwriters or against you as
Representatives of the Underwriters arising out of an alleged untrue statement
or omission in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or relating to any transaction
contemplated by this Agreement, we authorize you to make such investigation, to
retain such counsel for the Underwriters and to take such action in the defense
of such claim as you may deem necessary or advisable. You may settle such claim
with the approval of a majority of interest of the Underwriters.
<PAGE>
We will pay our proportionate share (based upon our underwriting obligation) of
all expenses incurred by you, including the fees and expenses of counsel for the
Underwriters, in investigating and defending against such claim and our
proportionate share of the aggregate liability incurred by all Underwriters in
respect of such claim after deducting any contribution or indemnification
obtained pursuant to the Underwriting Agreement, or otherwise, from persons
other than the Underwriters, whether such liability is the result of a judgment
against one or more of the Underwriters or the result of any such settlement.
Any Underwriter may retain separate counsel at its own expense. A claim against
or liability incurred by a person who controls an Underwriter shall be deemed to
have been made against or incurred by such Underwriter. In the event of default
by any Underwriter in respect of its obligations under this Section, each
non-defaulting Underwriter shall assume its proportionate share of the
obligations of such defaulting Underwriter without relieving such defaulting
Underwriter of its liability hereunder.
15. Distribution of Prospectuses and Other Matters. We are familiar
with Release No. 33-4968 under the Act and Rule 15c2-8 under the Exchange Act,
relating to the distribution of preliminary and final prospectuses and we
confirm that we will comply therewith, to the extent applicable, in connection
with any sale of Shares. You shall cause to be made available to us, to the
extent made available to you by the Company, such number of copies of the
Prospectus and any Preliminary Prospectuses as we may reasonably request for
purposes contemplated by the Exchange Act and the rules and regulations
thereunder.
We agree to keep an accurate record of the distribution (including
dates, number of copies and persons to whom sent) by us of the Registration
Statement, any amendment thereto and any related Preliminary Prospectus and
supplement thereto and also agree, upon request by Needham & Company, Inc., to
furnish promptly to the persons who received copies of the above, copies of any
subsequent amendment to the Registration Statement or any revised Preliminary
Prospectus or any revised Preliminary Prospectus supplement or of any memorandum
furnished to us outlining changes in any such document.
16. Miscellaneous. Nothing in this Agreement shall constitute us
partners with you or with the other Underwriters and the obligations of
ourselves and of each of the other Underwriters are several and not joint. Each
Underwriter elects to be excluded from the application of Subchapter K, Chapter
1, Subtitle A, of the Internal Revenue Code of 1986, as amended.
Your authority under this Agreement and under the Underwriting
Agreement may be exercised by you jointly or by Needham & Company, Inc.
Any notice from you to us shall be deemed duly given if mailed to our
address as set forth in the Underwriters' Questionnaire which we have
transmitted to you. Any notice from us to you shall be deemed duly given if
mailed to Needham & Company, Inc., 400 Park Avenue, New York, New York 10022,
Attention: A. Churchill Lewis.
We confirm that we are actually engaged in the investment banking or
securities business and are either (a) a member of the NASD and our commitment
to purchase shares pursuant to the Underwriting Agreement will not result in a
violation of the financial responsibility requirements of
<PAGE>
Rule 15c3-l of the Exchange Act, or of any similar provisions of any applicable
rules of a securities exchange to which we are subject or of any restriction
imposed upon us by any such exchange or any governmental authority or (b) a
foreign dealer not eligible for membership in the NASD who hereby agrees to make
no sales to Special Purchasers under Section 5 hereof or to persons who are
citizens of or resident in the United States of America. In making sales of
Shares, if we are such a member, we agree to comply with all applicable rules of
the NASD, including, without limitation, the NASD's Interpretation with Respect
to Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules
of Fair Practice, or, if we are such a foreign dealer, we agree to comply with
such Interpretation and Sections 8, 24 and 36 of such Article as though we were
such a member and Section 25 of such Article as that Section applies to a
nonmember foreign dealer.
<PAGE>
This Agreement in all respects shall be governed by the laws of New
York and shall inure to the benefit of and be binding upon the successors,
assigns, executors and administrators of the parties hereto. It is being
executed by us and delivered to you, in duplicate, and we request that you
confirm by signature, in the space provided below, and return one copy to us.
Very truly yours,
Attorney-in-fact for each of
the several Underwriters named
in Schedule I of the
Underwriting Agreement
Confirmed as of the date first above written:
NEEDHAM & COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
SCOTT & STRINGFELLOW, INC.
By: Needham & Company, Inc.
By:
(Authorized Officer)
<PAGE>
Proof of May 16, 1996
3,200,000 Shares(1)
MOOVIES, INC.
Common Stock
(Par Value $.001 Per Share)
SELECTED DEALER AGREEMENT
__________ _____, 1996
Dear Sirs:
The Underwriters named in the enclosed Prospectus, on whose behalf we
are acting as Representatives, have severally agreed to purchase from Moovies,
Inc., a Delaware corporation (the "Company"), an aggregate of 3,200,000 shares
of Common Stock (the "Shares") of the Company, as set forth in the enclosed
Prospectus and subject to the terms of the Underwriting Agreement referred to
therein. The Shares are described in the Prospectus, additional copies of which
will be supplied in reasonable quantities upon request to us.
1. Offering to Dealers. One or more of the several Underwriters acting
through us are severally offering a portion of the Shares to certain dealers
(the "Dealers") as principals, at the public offering price thereof set forth on
the cover of the Prospectus less a concession of $____ per Share. The offering
of Shares to Dealers may be made on the basis of reservations or allotments
against subscription. We are advising you by telegram of the method and terms of
the offering. Acceptances of any reserved Shares received at the office of
Needham & Company, Inc., 400 Park Avenue, New York, New York 10022, after the
time specified therefor in the telegram and any subscriptions for additional
Shares, will be subject to rejection in whole or in part. Subscription books may
be closed by us at any time without notice and the right is reserved to reject
any subscription in whole or in part.
2. Offering by Dealers. Upon receipt of the aforementioned telegram,
the Shares purchased by you may be re-offered to the public in conformity with
the terms of offering set forth in the Prospectus. You may, in accordance with
the rules of the National Association of Securities Dealers, Inc. (the "NASD"),
allow a discount from the public offering price of not more than $__ per
- --------
1 Plus an option to purchase up to 480,000 shares from the Company to cover
over allotments.
<PAGE>
Share with respect to Shares sold by you to (i) certain dealers that are members
of the NASD and that agree to comply with the provisions of Section 24 of
Article III of the Rules of Fair Practice of the NASD and (ii) foreign dealers
or institutions ineligible for membership in the NASD that agree (x) not to
resell Shares (A) to purchasers in, or to persons who are nationals of, the
United States of America or (B) when there is a public demand for the Shares, to
persons specified as those to whom members of the NASD participating in a
distribution may not sell, and (y) to comply, as though such foreign dealer or
institution were a member of the NASD, with Sections 8, 24, 25 (to the extent
applicable to foreign nonmember brokers or dealers) and Section 36 of such
Article.
Neither you nor any other person is, or has been, authorized by the
Company or us to give any information or make any representation in connection
with the sale of the Shares other than those contained in the Prospectus.
It is assumed that the Shares will be effectively placed for
investment. In the event that, during the term of this Agreement, we shall
purchase or contract to purchase any shares purchased by you hereunder, we may,
at our election, either (a) require you to repurchase such Shares at a price
equal to the total cost of such purchase by us, including brokerage commissions,
if any, and transfer taxes on the redelivery or (b) charge you with and collect
from you an amount equal to the selling concession originally allowed to you
with respect to the Shares so purchased by us.
3. Payment and Delivery. Payment for the Shares which you shall have
agreed to purchase hereunder shall be made by you at such time and place as we
shall direct by certified or bank cashier's check payable in next-day funds to
our order, against delivery of such Shares. Additional Shares confirmed to you
shall be delivered on such date or dates as we shall advise you.
4. Blue Sky Matters. This offer of Shares to Dealers is made in each
jurisdiction only by such of the Underwriters as lawfully may sell the Shares to
Dealers in such jurisdiction. Upon application to us, we will inform you as to
the jurisdictions in which we believe the shares have been qualified for sale
under the respective securities or "blue sky" laws of such jurisdictions. You
understand and agree that compliance with the securities or "blue sky" laws in
each jurisdiction where you shall offer or sell any of the Shares shall be your
responsibility and that we assume no responsibility to the eligibility of the
Shares for sale or your right to sell Shares in any jurisdiction.
5. Termination. This Agreement shall terminate 30 days after the
initial public offering but may be extended for a period or periods not
exceeding in the aggregate 15 days as we may determine. We may terminate this
Agreement at any time without prior notice. Notwithstanding termination of this
Agreement, you shall remain liable for your proportion of any transfer tax or
other liability which may be asserted or assessed against us or any of the
Dealers based upon the claim that the Dealers or any of them constitute a
partnership, an unincorporated business or other separate entity.
6. Obligations and Positions of Dealers. Your acceptance hereof will
constitute an obligation on your part to purchase, upon the terms and conditions
hereof, the aggregate amount of Shares reserved for and accepted by you and to
perform and observe all of the terms and conditions hereof.
<PAGE>
You are not authorized to act as our agent for any of the Underwriters
in offering shares to the public or otherwise. Nothing contained herein shall
constitute the Dealers an association, or partners with us, or any of the
Underwriters, or with each other.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares
purchased by you under this Agreement which then remain unsold by you and will,
upon our request at such time or times, sell to us for our account such unsold
shares as we may designate, at the public offering price less an amount to be
determined by us, not in excess of the total concession allowed to you.
Dealers agree in re-offering the Shares to comply with all applicable
requirements of the federal securities laws and all applicable rules and
regulations promulgated thereunder. If any Dealer fails to pay for the Shares
confirmed to such Dealer or fails to perform any of such Dealer's other
obligations hereunder, the Representatives may, in the Representatives'
discretion and without demand or notice of legal proceedings, and in addition to
any and all remedies otherwise available to the Representatives and to the other
several Underwriters, (a) terminate any right or interest on such Dealer's part,
and (b) at any time and from time to time sell, without notice to such Dealer,
any of the Shares then held for such Dealer's account at public or private sale
at such price or prices and upon such terms and conditions as the
Representatives may deem fair and apply the net proceeds so realized, as
determined by the Representatives, toward payment of any obligations in respect
of which such Dealer is in default, and, notwithstanding any action taken under
(a) or (b) above, or both, such Dealer shall remain liable to the Underwriters,
severally, to the extent of such Dealer's respective interest, or at the
Representatives' election, to the representatives for the respective accounts of
the several Underwriters to a like extent, for all loss and expense resulting
from such Dealer's default. At any such sale or sales, any of the Underwriters
may for such Underwriter's own account or for the account of any other person
become the purchaser of any Shares so sold, free from any right or interest on
any Dealer's part in such Shares. A default by one or more Dealer shall not
release any other Dealer from any obligation hereunder.
We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the offering or arising
hereunder. We shall be under no liability to you, except for our own want of
good faith and for obligations expressly assumed in this Agreement and any
liabilities arising under the Securities Act of 1933, as amended. No obligations
shall be implied hereby or inferred herefrom unless expressly assumed by us in
this Agreement.
7. Representations. Each Dealer confirms that such Dealer is familiar
with the Interpretation of the Board of Governors of the NASD with respect to
Free-Riding and Withholding and each Dealer agrees to comply with such
Interpretation in offering and selling Shares to the public. Each Dealer, by its
participation in an offering of Shares, further represents that neither such
Dealer nor any of its directors, officers, partners or "persons associated with"
such Dealer (as defined in the By-Laws of the NASD), nor, to such Dealer's
knowledge, any "related person" (as defined by the NASD in its Corporate
Financing Rule) have participated or intend to participate in any transaction
<PAGE>
or dealing as to which documents or information are required to be filed with
the NASD pursuant to such Rule.
8. Notices. All communications from you should be addressed to us at
the office of Needham & Company, Inc., 400 Park Avenue, New York, New York
10022. Any notice from us to you shall be deemed to have been duly given if
mailed or telegraphed to you at the address to which this letter is mailed.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
Please confirm your acceptance of this Agreement by signing and
returning at once the duplicate copy of the letter enclosed herewith.
Very truly yours,
NEEDHAM & COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
SCOTT & STRINGFELLOW, INC.
By: NEEDHAM & COMPANY
By: __________________________
(Authorized Officer)
Agreed to:
By:
(Authorized Officer)
(Title)
(Firm)
, 1996
(Date)
<PAGE>
MOOVIES/MORTCO
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of the
9th day of August 1995 (the "Effective Date"), among MOOVIES, INC., a Delaware
corporation (the "Company"), and MORTCO, INC., an Oregon corporation (Mortco and
any subsequent assignee or transferee hereof are hereinafter referred to as
"Holder" or "Holders").
The Company and Holder covenant and agree as follows:
1.1 Definitions.
(a) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of
1933, and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) shares of
Common Stock of the Company, and (ii) any securities issued by the
Company as (or issuable upon the conversion or exercise of any option,
right or other security which is issued as) a distribution with respect
to, or in exchange for or in replacement of the shares of Common Stock
of the Company;
(c) The term "Holder" means Mortco, Inc. or any assignee
thereof in accordance with Section 1.11 hereof.
1.2 Request for Registration.
(a) If the Company shall receive, at any time following the
Company's first anniversary date of the closing of its August 1995
initial public offering of Common Stock, a written request from the
Holder that the Company file a registration statement under the
Securities Act covering the sale of any Registrable Securities then
outstanding, then the Company shall use its best efforts to effect as
soon as practicable, and in any event within 20 days of the receipt of
such request, the registration under the Securities Act of all
Registrable Securities which the Holder requests to be registered
within 30 days of the mailing of such notice by
<PAGE>
the Company. If requested by the Holder and a shelf registration on a
Form S-3 registration statement is available for use by the Company,
the Company shall effect the registration requested hereunder as a
shelf registration of the Registrable Securities on Form S-3.
(b) The Company shall give prior written notice to the Holder
of any proposed registration of the Company's securities under the
Securities Act of 1933, as amended. If the Company shall receive,
within ten (10) days of such notice a written request from the Holder
that the Company file a registration statement under the Securities Act
covering the sale of any Registrable Securities then outstanding
Company shall use its best efforts to effect as soon as practicable,
and in any event within 120 days of the receipt of such request, the
registration under the Securities Act of all Registrable Securities
which the Holder requests to be registered within 30 days of the
mailing of such notice by the Company.
(c) The Company is obligated to effect only two (2) such
demand registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, (i) the Company shall not
be obligated to effect a registration pursuant to this Section 1.2
prior to the Company having first filed a registration statement under
the Securities Act and having completed an initial public offering of
the Company's securities or the Company registering a class of equity
securities under the Securities Exchange Act of 1934, and (ii) the
Company shall not be obligated to effect a registration pursuant to
this Section 1.2 during the period starting with the date 60 days prior
to the Company's good-faith estimate date of filing of, and ending on
the date 180 days following the effective date of, a registration
statement pertaining to an underwritten public offering of securities
for the account of the Company, provided the Company is at all times
during such period diligently pursuing such registration.
1.3 Company Registration. At any time (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders of the Company other than the Holders)
any of its securities under the Securities Act in connection with the public
offering of such securities, the Company shall, at such time, promptly give each
Holder written notice of such proposed registration. Upon the written request of
any Holder given within 30 days after mailing of such notice by the Company, the
Company shall, subject to the provisions of Section 1.8 hereof, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.
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<PAGE>
1.4 Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement with respect such
Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 90
days or in the case of a shelf registration, the earlier of the time at
which all of the Registrable Securities registered on the shelf
registration have been sold or two years.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) 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 requested
by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business in any such states or jurisdictions, provided that this
section shall be limited to the United States.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be
delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to
-3-
<PAGE>
make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Agreement, on
the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to
this Agreement, if such securities are being sold through underwriters,
on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of
counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the Holders requesting registration of Registrable Securities,
and (ii) a letter dated such date, from the independent certified
public accounts of the Company, in form and substance as customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the Holders requesting registration of Registrable Securities.
(h) List the Registrable Securities being registered on any
national securities exchange on which a class of the Company's equity
securities is listed or exercise its best efforts to qualify the
Registrable Securities being registered for inclusion on the automated
quotation system of the National Association of Securities Dealers,
Inc. ("NASD"), if the Company does not have a class of equity
securities listed on a national securities exchange.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
1.6 Expenses of Demand Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to registrations pursuant to Section 1.2,
including, without limitation, all registration, filing and qualification fees,
printers' bills, accounting fees and the fees and disbursements of counsel for
the Company, but excluding underwriting discounts and commissions relating to
Registrable Securities and the fees and disbursements of special counsel for the
selling Holders.
1.7 Expenses of Company Registration. The Company shall bear and pay
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to registrations pursuant to Section 1.3
for each Holder (which
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<PAGE>
right may be assigned as provided in Section 1.12), including, without
limitation, all printers' bills and accounting fees and the fees and
disbursements of counsel for the Company, but excluding underwriting discounts
and commissions relating to Registrable Securities and the fees and
disbursements of special counsel for the selling Holders.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity, as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by Holders to be
included in such offering exceeds the amount of securities sold (other than by
the Company) that the underwriters reasonably believe are compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities including Registrable Securities,
which the underwriters believe will not jeopardize the success of the offering
(the securities so included to be apportioned pro rata among all selling
shareholders according to the total amount of securities entitled to be included
therein owned by each selling holder or in such other proportions as shall
mutually be agreed to by such selling holders).
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers and directors or
controlling persons thereof of each Holder, any underwriter (as defined
in the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934 (the "1934 Act"),
against any losses, claims, damages or liabilities (joint or several)
to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) 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 (iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, or any state law; and the
Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expense
reasonably incurred by them in connection
-5-
<PAGE>
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the indemnity agreement contained in
this Section 1.9(a) 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 the Company, nor shall the Company be
liable any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, the Holders will indemnify
and hold harmless the Company and its underwriter and any officers,
directors or controlling persons thereof, against losses, claims,
damages or liabilities that arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto
or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading to the extent that any such untrue statement,
alleged untrue statement, omission or alleged omission occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by the Holder or
(ii) any violation or alleged violation by the Holder of the Securities
Act, the 1934 Act, or any state law.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 1.9, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties,
in which case the indemnifying party shall not be liable to the
indemnified party for any attorneys fees or expenses incurred by the
indemnified party; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to
be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time 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
-6-
<PAGE>
party under this Section 1.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this
Section 1.9.
(d) In order to provide for just and equitable contribution in
any case in which any indemnified party makes claim for indemnification
pursuant to this Section 1.9 but it is judicially determined (by entry
of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of
appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the provisions of this Section 1.9 hereof
so provide for indemnification in such case, then, and in each such
case, each indemnifying party and the indemnified party shall
contribute to the aggregate losses, claims, damages, or liabilities to
which they may be subject (after contribution from all others) in such
proportion as is appropriate to reflect the relative benefits received
by each indemnifying party and the indemnified Party from the
registration of Registrable Securities; provided, however, that if such
allocation is not permitted by applicable law then the relative fault
of each indemnifying party and the indemnified party in connection with
the statements or omissions which resulted in such damages and other
relevant equitable considerations shall also be considered. The
relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the
omission to state a material fact, such statement or omission relates
to information supplied by the indemnified party or by the indemnifying
parties and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement
or omission. The parties hereto agree that it would not be just and
equitable if the respective obligations of the parties to contribute
pursuant to this Section 1.9(d) were to be determined by pro rata or
per capita allocation of the aggregate damages or by any other method
of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 1.
9(d). For purposes of this Section 1.9(d), the term "damages" shall
include any legal or other expenses reasonably incurred by the
indemnified party in connection with investigating or defending against
or appearing as a third party witness in any action or claim that is
the subject of the contribution provisions of this Section 1.9(d).
Notwithstanding the provisions of this Section 1.9(d), a Holder, the
officers and directors of each Holder, any underwriter (as defined in
the Securities Act) for such Holder, if any, and any person who
controls such Holder or underwriter within the meaning of the 1934 Act
in the aggregate not be required to contribute any amount in excess of
the amount by which the total price of the Registrable Securities
purchased by any such person or entity, director or indirectly, from
the Company exceeds the amount of any damages that such person in the
aggregate have otherwise been required to pay by reason of such untrue
statement or omission. No person guilty of a
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<PAGE>
fraudulent misrepresentation (within the meaning of Section 119(f) of
the 1933 Act) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation. The foregoing
contribution agreement shall in no way affect the contribution
liabilities of any person having liability under applicable law, other
than the parties hereto and the person controlling the parties hereto.
(e) The obligations of the Company under this Section 1.9
shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement.
1.10 Reports Under 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 and Rule 144A promulgated under the Securities
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public if the Company is subject
to the reporting requirements of Section 1.13 or 15(d) of the 1934 Act, the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents as may be required of the Company under the Securities Act
and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request such information as may
be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities
without registration.
1.11 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned by
a Holder to a transferee or assignee of such securities; provided that the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act.
1.12 No Obligation to Sell. Neither the giving of any notice nor the
making of any request hereunder shall impose an obligation on any Holder to sell
any Securities.
1.13 Future Registration Rights. If, subsequent to the date hereof, the
Company grants piggyback or demand registration rights to holders or prospective
holders of its securities to include their securities on any registration
statement proposed to be filed by
-8-
<PAGE>
the Company, such piggyback registration rights shall provide for the exclusion
of such holders' securities from the registration statement if the managing
underwriter of the offering proposed to be made of the Registrable Securities
determines that the inclusion of such holders' securities would be detrimental
to the offering of the Registrable Securities or, if the Holder so determines.
Any further demand or piggyback registration rights granted by the Company shall
be junior to the Holder's registration rights granted hereunder.
If, subsequent to the date hereof, the Company grants demand
registration rights to holders or prospective holders of its securities to
demand that the Company register any securities of the Company under the Act,
such demand registration rights shall be granted under and subject to the demand
and piggyback registration right of the Holders to include all or part of their
Registrable Securities in any such registration on the terms and conditions of
this Agreement.
Notwithstanding the foregoing in this Section 1.13, the parties hereto
acknowledge and agree that the obligations of the Company under this Section
1.13 shall apply only to any demand or piggyback registration rights granted by
the Company following the consummation of the Concurrent Transactions, as such
term is defined in the Prospectus of the Company for its initial public offering
of Common Stock in August 1995. The Company represents and warrants to Holder
that the Company has not granted, and through the consummation of the Concurrent
Transactions will not grant, registration rights that are superior to Holder's
registration rights to any parties other than the underwriters in the Company's
August 1995 initial public offering of Common Stock.
1.14 Participation in Underwritten Registrations. No person may
participate in any registration hereunder which is underwritten unless such
person (a) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person or persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
1.15 Miscellaneous.
(a) Remedies. Any person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other
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<PAGE>
security) for specific performance and for other injunctive relief in
order to enforce or prevent violation of the provisions of this
Agreement.
(b) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only
upon the prior written consent of (i) the Company and a majority of the
Holders if all Holders are treated the same by such amendment or waiver
or (ii) the Company and all of the Holders if the Holders are to be
treated differently by such amendment or waiver.
(c) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind
and inure to the benefit of the respective successors and assigns of
the parties hereto whether so expressed or not.
(d) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is
held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of this Agreement.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall
constitute one and the same Agreement.
(f) Headings; Interpretation. The headings of this Agreement
are inserted for convenience only and do not constitute a Section of
this Agreement. The use of the word "including" in this Agreement shall
be by way of example rather than by limitation.
(g) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been given
when delivered personally to the recipient, sent to the recipient by
reputable express courier service (charges prepaid) or mailed to the
recipient by certified or registered mail, return receipt requested and
postage prepaid. Such notices, demands and other communications shall
be sent to the Holders and to the Company at the addresses indicated
below:
If to the Company: MOOVIES, Inc.
3172 Wade Hampton Boulevard
Taylors, South Carolina 29687
Attn: President
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<PAGE>
With a copy to: Arnall Golden & Gregory
2800 One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309-3450
Attn: Jonathan Golden, Esq.
If to the Holder: MORTCO, INC.
c/o Rentrak Corporation
7227 NE 55th Avenue
Portland, Oregon 97218
Attn: Ron Berger
With a copy to: A. Jeffery Bird, Esq.
Garvey, Schubert & Barer
Eleventh Floor
121 S.W. Morrison Street
Portland, Oregon 97204
or to such other address or to the attention of such other person as
the recipient party requested in writing in accordance with this
paragraph.
(h) Prior Rights. This Agreement supersedes and replaces all
registration rights of any nature which were previously granted by the
Company or its predecessor, Tonight's Feature Limited Partnership II,
to Mortco, Inc. under any document, instrument or agreement, and
Mortco, Inc. agrees and acknowledges that all such prior rights are
void and of no effect.
(i) Lock-Up Agreement. This Agreement does not supersede,
modify or amend the obligations of Mortco, Inc. set forth under that
certain Lock-Up Agreement letter dated June 30, 1995 executed by
Mortco, Inc. in favor of the underwriters to the Company's initial
public offering of Common Stock.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
COMPANY:
MOOVIES, INC.
By: ________________________________
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<PAGE>
John L. Taylor
President
HOLDER:
MORTCO, INC.
By: ________________________________
Title: _____________________________
-12-
<PAGE>
AMENDMENT AND JOINDER AGREEMENT
FOR REGISTRATION RIGHTS AGREEMENT
This Amendment and Joinder Agreement for Registration Rights Agreement
(the "Agreement") is entered into as of this 18th day of September, 1995, among
MOOVIES, INC., a Delaware corporation (the "Company"); RICHARD C. EYCHANER, ANDY
BURTON, SHEILA BURTON, KEITH WEST, HOWARD EYCHANER, MARK PETERS, DAVE RYAN,
BRIAN GOSNELL, KURT VANDERHOEF, KIRK REINERT, and ROBERT KEENAN, (collectively,
the "New Stockholders"); and the parties (other than the Company and the New
Stockholders) listed on the signature page attached hereto (collectively, the
"Existing Parties").
WHEREAS, the Existing Parties are either (a) holders of shares of the
Company's Common Stock or (b) holders of warrants to acquire shares of the
Company's Common Stock;
WHEREAS, the Company and the Existing Parties entered into that certain
Registration Rights Agreement (the "Registration Rights Agreement") dated August
9, 1995, pursuant to which the Existing Parties were granted certain rights with
respect to the registration of (a) the shares of the Company's Common Stock and
(b) the shares underlying the warrants to acquire shares of the Company's Common
Stock held by them;
WHEREAS, pursuant to an Agreement and Plan of Merger dated September
15, 1995, by and among the Company, the New Stockholders and MoveAmerica, Inc.
d/b/a Movies To Go, an Iowa corporation ("MoveAmerica"), Move America is being
merged with and into a wholly-owned subsidiary of the Company, and the New
Stockholders are receiving shares (collectively, the "New Shares") of the
Company's Common Stock in exchange for their capital stock of MoveAmerica;
WHEREAS, the parties desire to amend the Registration Rights Agreement
by adding the New Stockholders as parties, and the New Stockholders desire to
formally join in and adopt the Registration Rights Agreement, in accordance with
the terms set forth below in accordance with Section 3.8 of the Merger
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Addition of New Stockholders as Parties. The New Stockholders hereby
formally join in, adopt and execute the Registration Rights Agreement. The
Existing Parties agree that the New Stockholders are hereby added as a party to
the Registration Rights Agreement with all rights and obligations assigned to a
"Holder" and a "Target Company Stockholder" as set forth and defined in the
Registration Rights Agreement.
2. Ratification. Except to the extent amended hereby to include the New
Stockholders as parties, the Registration Rights Agreement shall remain in full
force and effect.
3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment and
Joinder Agreement for Registration Rights Agreement as of the date set forth
above.
MOOVIES, INC.
BY:
John L. Taylor, CEO and President
NEW STOCKHOLDERS:
RICHARD C. EYCHANER
ANDY BURTON
SHEILA BURTON
KEITH WEST
HOWARD EYCHANER
MARK PETERS
DAVE RYAN
BRIAN GOSNELL
KURT VANDERHOEF
KIRK REINERT
ROBERT KEENAN
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<PAGE>
EXISTING STOCKHOLDERS:
L.A. VIDEO OF ALDAN, INC.
L.A. VIDEO OF UPPER DUBLIN, INC.
By: _________________________
Alan Warshaw, President
LOTT'S VIDEO WAREHOUSE OF ATHENS, INC.
LOTT'S VIDEO WAREHOUSE OF ATHENS, INC., NO. 2
LOTT'S VIDEO WAREHOUSE OF DUBLIN, INC.
LOTT'S VIDEO WAREHOUSE OF GAINESVILLE, INC.
LOTT'S VIDEO WAREHOUSE OF MILLEDGEVILLE, INC.
By: _________________________
Bryant Lott, President
MOVIE STARS ENTERTAINMENT CORP.
By: _____________________________
Alan Daniels, President
XIMPEC, INC.
By: _____________________________
Robert Klein, President
-------------------------------------
H. HAIG BROWN
--------------------------------------
ROBERT L. BROWN, JR.
-------------------------------------
THEODORE J. COBURN
-------------------------------------
ANN E. GREEDER, Joint Tenant with the
Right of Survivorship
-------------------------------------
ARTHUR F. GREEDER, III, Joint Tenant
with the Right of Survivorship
-------------------------------------
ARTHUR F. GREEDER, III
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<PAGE>
------------------------------------
KEVIN GRIFFIN
-------------------------------------
THOMAS C. KING
-------------------------------------
F. ANDREW MITCHELL
------------------------------------
GERALD PRYOR
------------------------------------
DOUGLAS RAINES
------------------------------------
ROKKI ROGAN
------------------------------------
JOHN L. TAYLOR
------------------------------------
ROBERT ULAM
------------------------------------
MICHAEL YEARGIN
SIRROM CAPITAL CORPORATION
By:
Name:
Title:
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<PAGE>
PIGGYBACK REGISTRATION RIGHTS AGREEMENT
THIS PIGGYBACK REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of the 16th day of May, 1995 (the "Effective Date"), among MOOVIES,
INC., a Delaware corporation (the "Company") and Joseph G. Mahaffey, Sr.,
Joseph G. Mahaffey, Jr., and Susan J. Mahaffey (individually, a "Holder"
and collectively, together with assigns, the "Holders").
Holder is a holder of shares (the "Shares") of the Company's Common
Stock. For purposes of this Agreement, "Registrable Securities" means,
collectively, (a) the Shares and (b) any shares of Common Stock issued with
respect to the Shares by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
The parties hereto agree as follows:
1. Piggyback Registrations.
(a) Right to Piggyback. Subject to Section 2 below, whenever
the Company shall propose to file a registration statement with respect to any
of its Common Stock on a form eligible for the sale of shares by selling
shareholders (a "Piggyback Registration"), the Company will give prompt written
notice (in any event within five business days after its receipt of notice of
any exercise of demand registration rights) to the Holder of its intention to
effect such a registration and will use its reasonable best efforts to include
in such registration all Registrable Securities requested to be included within
15 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses (as defined
in Section 4 below) of the Holder, other than Stockholder Costs (as defined in
Section 4 below) will be paid by the Company in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company will include in such
registration (i) first, the securities the Company proposes to sell, and (ii)
second, other securities requested to be included therein, including the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such securities on the basis of the number of shares
requested to be registered by each holder thereof, including each Holder, except
that Holder's rights shall be junior to (1) the piggyback registration rights of
the underwriters in the Company's initial public offering of Common Stock (the
"Initial Offering") pursuant to those certain Warrants each dated August 9,
1995, from the Company in favor of Needham & Company, Inc. and Scott &
Stringfellow, Inc., respectively, (2) if the Company then requires, to the
piggyback registration rights of Mortco, Inc. ("Mortco") and its respective
assigns granted pursuant to that certain Registration Rights Agreement dated
August 9, 1995 between Mortco and the Company and (3) the individuals and
entities defined as "Holders" under that certain Registration Rights Agreement,
dated August 9, 1995, between Company and L.A. Video of Aldan, Inc., L.A. Video
of Upper Dublin, Inc., Lott's Video Warehouse of Athens, Inc., Lott's Video
Warehouse of Athens, Inc., No. 2, Lott's Video Warehouse of Dublin, Inc., Lott's
Video Warehouse of Gainesville, Inc., Lott's Video Warehouse of Milledgeville,
Inc., Movie Stars Entertainment Corp., XIMPEC, Inc., H. Haig Brown, Robert L.
Brown, Jr., Theodore J. Coburn, Ann E. Greeder, Arthur F. Greeder, III, Kevin
Griffin, Thomas C. King, F. Andrew Mitchell, Gerald Pryor, Douglas Raines, Rokki
Rogan, John L. Taylor, Robert Ulam, Michael Yeargin, Sirrom Capital Corporation,
as amended to include Richard C. Eychaner, Andy Burton, Sheila Burton, Keith
West, Howard Eychaner, Mark Peters, Dave Ryan, Brian Gosnell, Kurt Vanderhoef,
Kirk Reinert, and Robert Keenan. (The
<PAGE>
piggyback registration rights described in
subsections (1) through (3) of the foregoing sentence are referred to
collectively as the "Existing Registration Rights.")
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities (other than the Holder), and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the holders requesting such registration, the Company will include in such
registration the securities requested to be included therein, pro rata among the
holders of such securities on the basis of the number of shares requested to be
registered by each such holder, including the Holder, except that the Holder's
rights shall be junior to the Existing Registration Rights.
(e) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the selection of investment banker(s) and
manager(s) for the offering shall be made by the Company in its sole discretion.
(f) Termination. The registration rights granted pursuant to
this Section 1 shall terminate and expire to the extent that Registrable
Securities held by the Holders are eligible for sale under the provisions of
Rule 144(k) as promulgated pursuant to the Securities Act of 1933, as amended.
2. Lock-Up Agreements. In the event of any underwritten
public offering (whether or not Holder participates therein), each Holder agrees
not to sell or otherwise transfer any shares of the Common Stock of the Company,
whether now owned or hereafter acquired, for any period of time reasonably
requested by the underwriters, provided any period agreed to by management
of the Company with respect to shares of Common Stock held by them shall be
deemed to be reasonable. Upon the request of the underwriters, Holders
agree to execute such further documents and agreements in such form as may be
entered into by management of the Company to further the evidence the
agreements set forth herein.
3. Registration Covenants. In connection with a Piggyback
Registration which includes Registrable Securities, the Company may require
the Holder to furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time reasonably
request in writing.
4. Registration Expenses. All expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation all registration, filing and listing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other persons retained by the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company, except
for Stockholder Costs. "Stockholder Costs" shall be include the fees and
expenses of counsel engaged by such holder(s), underwriting discounts, and
commissions and transfer taxes (if any) attributable to such of the
Registrable Securities as such holder(s) shall request to be included in a
Piggyback Registration.
5. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, Holders who participate in a Piggyback Registration ("Selling Holders"),
its officers and directors and each Person who controls such Selling Holders
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
-2-
<PAGE>
the Selling Holders expressly for use therein or by the Selling Holders's
failure to deliver a copy of the registration statement or prospectus or any
amendments thereof or supplements thereto after the Company has furnished the
Holder with a sufficient number of copies of the same.
(b) In connection with any registration statement in which a
Selling Holder is participating, each Selling Holder covenants and agrees to
furnish to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such Selling Holders.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one (1) counsel for all parties indemnified by such
indemnifying party with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
indemnifying party also agrees to make such provisions as are reasonably
requested by any indemnified party for contribution to such party in the event
the indemnifying party's indemnification is unavailable for any reason.
(e) The foregoing Section 5 shall be superseded and terminated
upon the execution of a customary underwriting agreement, if any, containing
indemnification and contribution provisions. Holder agrees that it will make any
and all customary representations and warranties requested by the underwriter in
connection with any such registration.
6. Participation in Underwritten Registrations. No
person may participate in any registration hereunder which is underwritten
unless such person (a) agrees to sell such person's securities on the basis
provided in any underwriting arrangements approved by the person or persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting arrangements.
7. Miscellaneous.
(a) Remedies. Any person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
-3-
<PAGE>
(b) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and the Holder.
(c) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. The Holders may not assign their rights or
obligations hereunder without Moovies' written consent.
(d) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
(f) Headings; Interpretation. The headings of this Agreement
are inserted for convenience only and do not constitute a Section of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation.
(g) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable express courier
service (charges prepaid) or mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid. Such notices, demands and
other communications shall be sent to the Holder and to the Company at the
addresses indicated below:
If to the Company: MOOVIES, Inc.
3305 Rutherford Road
Suites F, G and H
Taylors, South Carolina 29687
Attn: President
With a copy to: Arnall Golden & Gregory
2800 One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309-3450
Attn: Jonathan Golden, Esq.
If to the Holder: To the addresses shown on the Company's stock records.
or to such other address or to the attention of such other person as the
recipient party requested in writing in accordance with this paragraph.
8. Prior Rights. This Agreement supersedes and replaces
all registration rights of any nature which were previously granted by the
Company to Holder under any document, instrument or agreement, and Holder agrees
and acknowledges that all such prior rights are void and of no effect.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
MOOVIES, INC.
By:__________________________________
John L. Taylor,
Chief Executive Officer and President
HOLDERS:
-------------------------------------
Joseph G. Mahaffey, Sr.
-------------------------------------
Joseph G. Mahaffey, Jr.
-------------------------------------
Susan J. Mahaffey
<PAGE>
PIGGYBACK REGISTRATION RIGHTS AGREEMENT
THIS PIGGYBACK REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of the 21st day of December, 1995 (the "Effective Date"), among Moovies,
Inc., a Delaware corporation (the "Company") and Paul D. Love (individually, a
"Holder" and collectively, with his assigns, the "Holders").
Holder is a holder of 161,449 shares (the "Shares") of the Company's
Common Stock. For purposes of this Agreement, "Registrable Securities" means,
collectively, (a) the Shares, (b) the Additional Shares (as that term is defined
in that certain Merger Agreement among the Company, Holder and others of even
date herewith) and (c) any shares of Common Stock issued with respect to the
Shares or Additional Shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization.
The parties hereto agree as follows:
1. Piggyback Registrations.
(a) Right to Piggyback. Subject to Section 2 below, whenever
the Company shall propose to file a registration statement with respect to any
of its Common Stock on a form eligible for the sale of shares by selling
shareholders (a "Piggyback Registration"), the Company will give prompt written
notice (in any event within five (5) business days after its receipt of notice
of any exercise of demand registration rights) to the Holder of its intention to
effect such a registration and will use its reasonable best efforts to include
in such registration, and in any underwriting involved therein, all Registrable
Securities requested by the Holder to be included within twenty (20) days after
the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses (as defined
in Section 4 below) of the Holder, other than Stockholder Costs (as defined in
Section 4 below) will be paid by the Company in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company will include in such
registration (i) first, the securities the Company proposes to sell, and (ii)
second, other securities requested to be included therein, including the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such securities on the basis of the number of shares
requested to be registered by each holder thereof, including each Holder, except
that the Holder's rights to registration hereunder shall be junior to (1) the
piggyback registration rights of the underwriters in the Company's initial
public offering of Common Stock (the "Initial Offering") pursuant to those
certain Warrants each dated August 9, 1995, from the Company in
<PAGE>
favor of Needham & Company, Inc. and Scott & Stringfellow, Inc., respectively,
(2) if the Company then requires, to the piggyback registration rights of
Mortco, Inc. ("Mortco") and its respective assigns granted pursuant to that
certain Registration Rights Agreement dated August 9, 1995 between Mortco and
the Company and (3) the individuals and entities defined as "Holders" under that
certain Registration Rights Agreement, as amended, dated August 9, 1995, between
Company and L.A. Video of Aldan, Inc., L.A. Video of Upper Dublin, Inc., Lott's
Video Warehouse of Athens, Inc., Lott's Video Warehouse of Athens, Inc., No. 2,
Lott's Video Warehouse of Dublin, Inc., Lott's Video Warehouse of Gainesville,
Inc., Lott's Video Warehouse of Milledgeville, Inc., Movie Stars Entertainment
Corp., XIMPEC, Inc., H. Haig Brown, Robert L. Brown, Jr., Theodore J. Coburn,
Ann E. Greeder, Arthur F. Greeder, III, Kevin Griffin, Thomas C. King, F. Andrew
Mitchell, Gerald Pryor, Douglas Raines, Rokki Rogan, John L. Taylor, Robert
Ulam, Michael Yeargin, Sirrom Capital Corporation, Richard C. Eychaner, Andy
Burton, Sheila Burton, Keith West, Howard Eychaner, Mark Peters, Dave Ryan,
Brian Gosnell, Kurt Vanerhoef, Kirk Reinert, and Robert Keenan. (The piggyback
registration rights described in subsections (1) through (3) of the foregoing
sentence are referred to collectively as the "Existing Registration Rights.")
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities (other than the Holder), and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the holders requesting such registration, the Company will include in such
registration the securities requested to be included therein, pro rata among the
holders of such securities on the basis of the number of shares requested to be
registered by each such holder, including the Holder, except that the Holder's
rights to registration hereunder shall be junior to the Existing Registration
Rights.
(e) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the selection of investment banker(s) and
manager(s) for the offering shall be made by the Company in its sole discretion.
(f) Termination. The registration rights granted pursuant to
this Section 1 shall terminate and expire to the extent that Registrable
Securities held by the Holders are eligible for sale under the provisions of
Rule 144(k) as promulgated pursuant to the Securities Act of 1933, as amended
(the "Securities Act").
2. Lock-Up Agreements. In the event of any underwritten public
offering in which Holder participates, each Holder agrees not to sell or
otherwise transfer any shares of the Common Stock of the Company, whether now
owned or hereafter acquired, for any period of time reasonably requested
by the underwriters, provided any period agreed to by management of the Company
with respect to shares of Common Stock held by them shall be deemed to be
reasonable if the same period also governs the Common Stock held by the holders
of the Existing Registration Rights who participate in such underwritten
public offering. Upon the request of the underwriters, Holders agree to execute
such further documents and agreements in such form
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<PAGE>
as may be entered into by management of the Company to further the evidence the
agreements set forth herein.
3. Registration Covenants.
In connection with a Piggyback Registration which includes
Registrable Securities, the Company may require the Holder to furnish to the
Company such information regarding the distribution of such securities as the
Company may from time to time reasonably request in writing.
4. Registration Expenses.
All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration,
qualification, filing and listing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, escrow fees, messenger and
delivery expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other persons retained by the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company, except for
Stockholder Costs. "Stockholder Costs" shall include the fees and expenses of
counsel engaged by the Holder, underwriting discounts, and commissions and
transfer taxes (if any) attributable to such of the Registrable Securities as
the Holder shall request to be included in a Piggyback Registration.
5. Registration Procedures.
In the case of each Piggyback Registration effected by the
Company pursuant to this Agreement, the Company will keep the Holder advised in
writing as to the initiation of such registration and as to the completion
thereof. At its sole expense, the Company will use its reasonable best efforts
to:
(a) keep such registration effective for a period of one
hundred twenty (120) days or until the Holder has completed the distribution of
those Registrable Securities described in the registration statement relating
thereto, whichever first occurs; provided, however, that such one hundred twenty
(120) day period shall be extended for a period of time equal to the period the
Holder refrains from selling any of the Registrable Securities included in such
registration at the request of an underwriter of Common Stock of the Company;
(b) prepare and file with the Securities and Exchange
Commission 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 Securities Act with respect to
the disposition of all securities covered by such registration statement;
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<PAGE>
(c) furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
the Holder from time to time reasonably requests;
(d) notify the Holder, at any time when a prospectus relating
to a registration statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or incomplete in
light of the circumstances then existing, and at the request of the Holder,
prepare and furnish to the Holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in light of the circumstances then existing;
(e) cause all such Registrable Securities registered pursuant
to this Agreement to be listed on each securities exchange on which similar
securities issued by the Company are then listed;
(f) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereto, and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration; and
(g) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Securities and Exchange Commission
in connection with such registration.
6. Indemnification.
(a) The Company shall indemnify, to the extent permitted by
law, each Holder who participates in a Piggyback Registration (individually, a
"Selling Holder" and collectively, the "Selling Holders"), its officers and
directors and each person who controls such Selling Holder (within the meaning
of Section 15 of the Securities Act) against all losses, claims, damages,
liabilities and expenses (or actions, proceedings, or settlements in respect
thereof) arising out of, based on, related to or caused by (i) any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus, preliminary prospectus, offering circular or other
offering document or any amendment thereof or supplement thereto, (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to actions or
inactions required of the Company in connection with any registration described
in this Agreement, and the Company shall reimburse the Holder and each person
who controls the Holder (within the meaning of Section 15 of the Securities Act)
for any legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action; except insofar as the same are caused by or contained in
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<PAGE>
any information furnished in writing to the Company by the Selling Holder
expressly for use therein or by the Selling Holder's failure to deliver a copy
of the registration statement or prospectus or any amendments thereof or
supplements thereto after the Company has furnished the Selling Holder with a
sufficient number of copies of the same; provided, however, that the obligations
of the Company under this Section 6 shall not apply to amounts paid in
settlement of any such claims, losses, damages, liabilities or actions, if such
settlement is effected without the prior written consent of the Company, which
consent will not be unreasonably withheld.
(b) In connection with any registration statement in which the
Holder is participating as a Selling Holder, the Selling Holder covenants and
agrees to furnish to the Company in writing such information and affidavits as
the Company reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify the
Company, its directors and officers and each person who controls the Company
(within the meaning of Section 15 of the Securities Act) against any losses,
claims, damages, liabilities and expenses (or actions, proceedings, or
settlements in respect thereof) arising out of, based on, related to or caused
by (i) any untrue or alleged untrue statement of a material fact contained in
the registration statement, prospectus, preliminary prospectus, offering
circular or other offering document or any amendment thereof or supplement
thereto (the "Offering Materials") to the extent, and only to the extent, that
such untrue statement or alleged untrue statement is contained in any written
information or affidavit furnished to the Company, its directors, officers,
employees, or representatives by such Selling Holder (the "Seller Information")
or (ii) any omission or alleged omission of a material fact required to be
stated in the Offering Materials or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such omission or alleged
omission is contained in any Seller Information or (iii) any violation by the
Selling Holder of the Securities Act or any rule or regulation thereunder
applicable to the Selling Holder and relating to actions or inactions required
of the Selling Holder in connection with any registration described in this
Agreement, and the Selling Holder shall reimburse the Company, and each person
who controls the Company (within the meaning of Section 15 of the Securities
Act) for any legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action; provided, however, that the obligations of the Selling Holder under
this Section 6 shall not apply to amounts paid in settlement of any such claims,
losses, damages, liabilities or actions, if such settlement is effected without
the prior written consent of the Selling Holder, which consent shall not be
unreasonably withheld.
(c) Any person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. The indemnified party may participate in
such defense at such party's expense. The failure of the indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under Section 6. Each indemnified party shall furnish such
information regarding itself or the claim in question as the indemnifying party
-5-
<PAGE>
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim or litigation resulting therefrom.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities. If the
indemnification provided for in this Section 6 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The foregoing Section 6 shall be superseded and terminated
upon the execution of a customary underwriting agreement, if any, to the extent
the provisions of Section 6 conflict with the indemnification and contribution
provisions. Holder agrees that it will make any and all customary
representations and warranties requested by the underwriter in connection with
any such registration.
7. Participation in Underwritten Registrations.
No person may participate in any registration hereunder which
is underwritten unless such person (a) agrees to sell such person's securities
on the basis provided in any customary underwriting arrangements approved by the
person or persons entitled hereunder to approve such arrangements and (b)
completes and executes all customary questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
8. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Securities and Exchange Commission which
may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its reasonable best efforts to (a) make
and keep public information available, as those terms are understood and defined
in Rule 144 of the Securities Act, at all times from and after the date hereof;
(b) file with the Securities and Exchange Commission in a timely manner all
reports and other documents required of the Company under the Securities Act,
and the Securities Exchange Act of 1934, as amended (the "34 Act"), at any time
after it has become subject to such reporting requirements; and (c) furnish to
the Holder forthwith upon written request a written statement by the Company
-6-
<PAGE>
as to its compliance with the reporting and other requirements of Rule 144, the
Securities Act and the 34 Act, and such other reports and documents as the
Holder may reasonably request in availing himself of any rule or regulation of
the Securities and Exchange Commission allowing the Holder to sell any such
Registrable Securities without registration.
9. Miscellaneous.
(a) Remedies. Any person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(b) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and the Holder.
(c) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. The Holders may not assign their rights or
obligations hereunder without Moovies' prior written consent.
(d) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
(f) Headings; Interpretation. The headings of this Agreement
are inserted for convenience only and do not constitute a Section of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation.
(g) Notices. All notices, requests, demands, claims or other
communications hereunder will be in writing and shall be deemed duly given if
personally delivered, sent by telefax, sent by a recognized overnight delivery
service which guarantees next day delivery ("Overnight Delivery") or mailed by
registered or certified mail, return receipt requested, postage prepaid and
addressed to the intended recipient as set forth below:
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<PAGE>
If to the Holder: Mr. Paul D. Love
7094 Peachtree Industrial Blvd.
Suite 205
Norcross, Georgia 30071
Telefax: (770) 662-0889
or such other address as shown on the
Company's stock records
with a copy to: Vincent, Chorey, Taylor & Feil,
A Professional Corporation
The Lenox Building
3399 Peachtree Road
Suite 1700
Atlanta, Georgia 30326
Attention: Thomas V. Chorey, Jr., Esq.
Telefax: (404) 841-3221
If to Moovies: Moovies, Inc.
P.O. Box 597
3305 Rutherford Road
Taylors, South Carolina 29687
Attention: Mr. John L. Taylor
Facsimile: (803) 322-4148
with a copy to: Arnall Golden & Gregory
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
Attention: Jonathan Golden, Esq.
Telefax: (404) 873-8701
or at such other address as any party hereto notifies the other parties hereof
in writing. The parties hereto agree that notices or other communications that
are sent in accordance herewith (i) by personal delivery or telefax, will be
deemed received on the day sent or on the first business day thereafter if not
sent on a business day, (ii) by Overnight Delivery, will be deemed received the
business day immediately following the date sent, and (iii) by U.S. mail, will
be deemed received three (3) business days immediately following the date sent.
For purposes of this Agreement, a "business day" is a day on which Moovies is
open for business and shall not include a Saturday or Sunday or legal holiday.
Notwithstanding anything to the contrary in this Agreement, no action shall be
required of Moovies or the Holder except on a business day and in the event an
action would otherwise be required on a day which is not a business day, such
action shall be required to be performed on the next succeeding day which is a
business day.
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<PAGE>
10. Prior Rights.
This Agreement supersedes and replaces all registration rights
of any nature which were previously granted by the Company to Holder under any
document, instrument or agreement, and Holder agrees and acknowledges that all
such prior rights are void and of no effect.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
MOOVIES, INC.
By:____________________________________
John L. Taylor, CEO and President
HOLDER:
---------------------------------------
Paul D. Love
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<PAGE>
FIRST AMENDMENT TO
MOOVIES, INC.
1995 STOCK PLAN
This First Amendment (this "Amendment") is entered into by MOOVIES,
INC., a Delaware corporation (the "Company") and the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") of the Company, in order to
amend the MOOVIES, INC. 1995 STOCK PLAN (the "Plan") as set forth below.
W I T N E S S E T H:
WHEREAS, Section 4 of the Plan provides that the aggregate number of
shares of the Corporation's Common Stock which may be issued pursuant to the
Plan is 560,000, subject to certain adjustments for stock splits and similar
events;
WHEREAS, the Corporation desires to amend the 1995 Stock Plan ("Plan")
to increase the number of shares of Common Stock subject to the Plan from
560,000 to 1,500,000 shares;
WHEREAS, in November 1995 the Board approved an amendment to increase
the number of shares of Common Stock subject to the Plan from 560,000 shares to
900,000 shares, subject to stockholder approval;
WHEREAS, in February 1996 the Board approved an amendment to increase
the number of shares of Common Stock subject to the Plan from 900,000 shares to
1,200,000 shares, subject to stockholder approval;
WHEREAS, in April 1996 the Board approved an amendment to increase the
number of shares of Common Stock subject to the Plan from 1,200,000 shares to
1,500,000 shares, subject to stockholder approval;
WHEREAS, Section 15(b) of the Plan provides that any increase in the
total number of shares that may be issued under the Plan must be approved by the
stockholders of the Corporation;
WHEREAS, the Stockholders of the Company approved the increase for the
number of shares subject to the Plan to 1,500,000 shares at the Annual Meeting
of Stockholders on May 15, 1996;
WHEREAS, the parties desire to modify, amend, and restate the said plan
agreement in various respects.
NOW, THEREFORE, the Plan is hereby modified and amended as follows:
<PAGE>
Section 4 of the Moovies, Inc. 1995 Stock Plan is hereby amended to
delete the numeral "560,000" set forth in the fourth line thereof, and to insert
the numeral "1,500,000" in lieu thereof, effective January 1, 1996.
IN WITNESS WHEREOF, this Amendment has been duly executed by the
parties hereto as of the 16th day of May, 1996.
MOOVIES, INC.
By:
F. Andrew Mitchell,
Chief Financial Officer
COMPENSATION COMMITTEE:
John L. Taylor
Theodore J. Coburn
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<PAGE>
<PAGE>
EXHIBIT 11.0
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Income per share calculations:
Income before cumulative effect of a change in accounting
principle................................................ $235,188 $281,102 $1,765,118 $46,533 $1,168,870
Cumulative effect of a change in accounting principle, net
of taxes................................................. -- -- -- -- 890,814
Net income.................................................... $235,188 $281,102 $1,765,118 $46,533 $ 278,056
Weighted average number of common and common equivalent shares
are as follows:
Weighted average common shares outstanding.................. 3,183,839 8,658,532
Shares issued from assumed exercise of options and warrants
(1)...................................................... 211,161 317,800
Weighted average number of shares outstanding............... N/A N/A 3,395,000 N/A 8,976,332
Income per common and common equivalent shares:
Income before cumulative effect of a change in accounting
principle................................................ $ 0.52 $ 0.13
Cumulative effect of a change in accounting principle, net
of taxes................................................. -- 0.10
Net income.................................................... N/A N/A $ 0.52 N/A $ 0.03
</TABLE>
(1) Shares issued from assumed exercise of options and warrants include the
number of incremental shares which would result from applying the treasury
stock method for options and warrants, APB 15, paragraph 38 and Staff
Accounting Bulletin No. 83.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
THE BOARD OF DIRECTORS
MOOVIES, INC.:
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Selected Historical and Pro Form Financial Data"
and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 16, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
THE BOARD OF DIRECTORS
MOOVIES, INC.:
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Selected Historical and Pro Form Financial Data"
and "Experts" in the prospectus.
Our report on First Row Video, Inc. refers to a change in the method of
computing the amortization of videocassette rental inventory effective January
1, 1994.
KPMG PEAT MARWICK LLP
Cleveland, Ohio
May 16, 1996
<PAGE>
EXHIBIT 23.2
We hereby consent to the use in the Registration Statement of Moovies, Inc.
on Form S-1, dated May 16, 1996, of our report dated December 21, 1994 relating
to the statements of income and cash flows of Move America, Incorporated, and to
the reference to our Firm under the caption "Experts" in the Prospectus.
MCGLADREY & PULLEN, LLP
Des Moines, Iowa
May 16, 1996
<PAGE>
EXHIBIT 23.4
May 16, 1996
Moovies, Inc.
201 Brookfield Parkway
Greenville, South Carolina
Members of the Board:
We hereby consent to the use in this Registration Statement of our report,
dated May 7, 1996, relating to the financial statements of American
Multi-Entertainment, Inc., DBA: Premiere Video, and the reference to our Firm
under the caption "Experts" in the Prospectus.
MCMAHON, HARTMANN, AMUNDSON & CO., LLP