UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-26526
MOOVIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-1012733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 BROOKFIELD PARKWAY, SUITE 200
GREENVILLE, SOUTH CAROLINA 29607
(Address of principal executive offices)
(Zip code)
(864) 213-1700
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
The number of shares of common stock, par value $0.001 per share, outstanding at
August 14, 1997 is 12,359,800.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MOOVIES, INC.
Consolidated Balance Sheets
(in thousands)
June 30, December 31,
Assets 1997 1996
------ ---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 2,942 $ 4,196
Receivables 1,404 927
Merchandise inventory 7,748 8,265
Deferred income tax benefit 2,941 1,517
Other 5,422 2,276
------------- -------------
Total current assets 20,457 17,181
Videocassette rental inventory, net 30,874 24,885
Furnishings and equipment, net 39,209 30,903
Goodwill 46,947 39,718
Deposits and other assets 3,434 1,099
------------- -------------
$ 140,921 $ 113,786
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ 15,000 $ 19,000
Notes payable - 2,600
Current portion of long-term debt 3,000 168
Accounts payable 20,169 18,864
Accrued liabilities 2,924 3,165
------------- -------------
Total current liabilities 41,093 43,797
Long-term debt, less current portion 27,833 101
Deferred income tax payable 7,954 7,677
------------- -------------
76,880 51,575
Commitments
Stockholders' equity:
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 12,359,800
shares at June 30, 1997 and
11,926,620 shares at
December 31, 1996 12 12
Additional paid-in capital 61,885 58,336
Retained earnings 2,144 3,863
------------- -------------
Total stockholders' equity 64,041 62,211
------------- -------------
$ 140,921 $ 113,786
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
MOOVIES, INC.
Consolidated Statements of Operations
(unaudited, in thousands)
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
Revenues:
Rental revenues $ 22,809 $ 15,676 $ 45,458 $ 32,634
Product sales 4,753 2,609 8,693 4,967
------- ------- ------- --------
27,562 18,285 54,151 37,601
Operating costs and expenses:
Operating expenses 21,521 12,609 41,003 26,338
Cost of product sales 3,329 1,631 6,481 3,168
Selling, general and
administrative 3,919 2,281 6,533 4,610
Amortization of goodwill 622 393 1,140 754
------- ------- ------- --------
29,391 16,914 55,157 34,870
------- ------- ------- --------
Operating income (1,829) 1,371 (1,006) 2,731
Interest expense, net (907) (399) (1,378) (701)
Other, net (83) 6 (101) (14)
------- ------- ------- ---------
Income (loss) before income
taxes and extinguishment
of debt (2,819) 978 (2,485) 2,016
Income tax expense (benefit) (1,128) 387 (994) 802
------- ------ ------- --------
Income (loss) before
extraordinary item (1,691) 591 (1,491) 1,214
Extraordinary item - loss on
early extinguishment of debt - - (229) -
------- ------- ------- -------
Net income (loss) $ (1,691) $ 591 $(1,720) $ 1,214
======== ======= ======= =======
Net income (loss) per share:
Income (loss) before
extraordinary item $ (0.13) $ 0.07 $ (0.12) $ 0.14
Extraordinary item - - (0.02) -
-------- ------- ------- --------
Net income (loss)
per share: $ (0.13) $ 0.07 $ (0.14) $ 0.14
======== ======= ======== =======
Weighted average shares
outstanding 12,532 8,887 12,362 8,931
======== ======= ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
MOOVIES, INC.
Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30,
1997 1996
(in thousands)
Operating activities:
Net income (loss) $ (1,720) $ 1,214
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 13,330 9,938
Changes in operating assets and liabilities:
Receivables (477) 796
Merchandise inventory 580 (89)
Other current assets (3,146) (1,343)
Deposits and other assets (2,666) (367)
Accounts payable 1,266 (779)
Accrued liabilities (741) (27)
Deferred income taxes (1,147) 801
-------- -------
Net cash provided by operating activities 5,279 10,144
------- -------
Investing activities:
Purchases of videocassette rental inventory, net (14,211) (10,765)
Purchases of furnishings and equipment, net (10,449) (7,085)
Proceeds from the sale of the grocery division - 746
Business acquisitions (5,004) (2,434)
-------- -------
Net cash used in investing activities (29,664) (19,539)
-------- -------
Financing activities:
Proceeds from line of credit borrowings 15,000 10,296
Proceeds from issuance of long-term debt 30,000 2,000
Principal payments on line of credit borrowings (19,000) -
Principal payments on long-term debt (2,869) (6,274)
-------- --------
Net cash provided by financing activities 23,131 6,022
------- -------
Decrease in cash and cash equivalents (1,254) (3,373)
Cash and cash equivalents at beginning of period 4,196 3,564
------- -------
Cash and cash equivalents at end of period $ 2,942 $ 191
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,333 $ 176
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
MOOVIES, INC.
NOTES TO CONDENSED FINANCIAL INFORMATION
(1) Basis of Presentation
Moovies, Inc. (the "Company") currently operates 270 video specialty
superstores located in Georgia, South Carolina, North Carolina,
Tennessee, Virginia, Pennsylvania, New Jersey, New York, Connecticut,
Ohio, Iowa, Colorado, Minnesota, Wisconsin, South Dakota, Nebraska and
Michigan. In addition, the Company is the franchisor for an additional
43 stores located in Florida, Texas, Louisiana and Kentucky. Moovies'
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.
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"), although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. This financial information should
be read in conjunction with the consolidated financial statements and
related notes contained in the Company's Annual Report on Form 10-K
which was previously filed with the SEC. Other than as indicated
herein, there have been no significant changes from the financial data
published in that report. In the opinion of management, such unaudited
information reflects all adjustments, consisting only of normal
recurring accruals and other adjustments as disclosed herein, necessary
for a fair presentation of the unaudited information. The results of
operations for interim periods are not necessarily indicative of the
results expected for the full year.
(2) Senior Credit Facility
In March 1997, the Company signed a new senior credit facility (the
"Senior Facility") for up to $75.0 million. The Senior Facility
consists of (i) a five year $30.0 million long-term note with quarterly
repayments beginning on September 30, 1997; (ii) a $41.0 million
capital facilities line and (iii) a $4.0 million revolver. The Senior
Facility replaced the Company's existing credit facility. The Company
may borrow amounts under the capital facilities line until March 31,
1999 at which time it will begin repaying any amount outstanding
quarterly over the next three years. The interest rate of the Senior
Facility is variable based on LIBOR and the Company may repay the
Senior Facility at any time without penalty. At June 30, 1997, the
Company had outstanding borrowings of $45.0 million under the Senior
Facility which consisted of a $30.0 million long-term note, $11.0
million under the capital facilities line and $4.0 million under the
revolver. During June 1997, certain covenants of the Senior Facility
were amended. At June 30, 1997, the Company was in compliance with all
covenants.
In connection with the Senior Facility, the syndication agent received
a warrant to purchase up to 500,000 shares of common stock of the
Company at an exercise price of $6.35 which was the average stock price
over the 30 days prior to signing the commitment. The warrant was
valued at $1,250,000 and is included in additional paid-in-capital,
with the resulting original issue discount (OID) on the loan being
amortized using a method which approximates the interest method over
the term of the note.
(3) General and Administrative Expenses
In May 1997, the Company announced it would reduce the number of new
stores to be developed in 1997 and as a result of the reduced growth
plans it would make immediate reductions in general and administrative
expenses. The cost of implementing these reductions resulted in a
one-time charge of $1.5 million or $0.07 per share, which was recorded
in the second quarter.
(4) Extraordinary item
In connection with the repayment and replacement of its previous credit
facility, the Company wrote off the remaining unamortized capitalized
costs associated with that credit facility. Accordingly, the Company
recorded an extraordinary item of approximately $229,000, net of income
taxes, in the first quarter of 1997.
(5) Movie Warehouse Acquisition
Concurrently with the closing of the Senior Facility, the Company
acquired certain assets and business of Movie Warehouse, Inc. and
affiliates ("Movie Warehouse") in an asset purchase transaction. The
Company acquired 21 video specialty stores and the franchiser's
interest with respect to an additional 43 video specialty stores which
will continue to operate under the Movie Warehouse name. The aggregate
consideration for the acquisition was approximately $9.6 million,
consisting of $5.0 million in cash, $2.0 million in promissory notes
due in March 1999 and $2.6 million in common stock (427,672 shares).
(6) Video Update Acquisition
In July 1997, the Company announced that it had entered into an
agreement with Video Update, Inc. ("Video Update") pursuant to which
Video Update would acquire Moovies in a stock-for-stock merger
transaction. Terms of the agreement call for each stockholder of
Moovies to receive 1.1 shares of Video Update Class A Common Stock for
each share of Moovies Common Stock. The transaction is subject to
stockholder approval of both companies, and is anticipated to be
completed some time in late calendar 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The Company's results of operations for the three and six months ended June 30,
1997 and 1996, reflect the operations of the Company and include the results of
various acquisitions from and after their acquisition date.
Revenues. Revenues for the three and six months ended June 30, 1997 were
$27,562,000 and $54,151,000, respectively, compared to revenues of $18,285,000
and $37,601,000 for the same periods in 1996. The increased revenues were a
result of the additional 65 stores opened and 46 stores acquired by the Company
subsequent to June 30, 1996. Product sales as a percentage of total revenues
increased to 17.2% and 16.1% for the three and six months ended June 30, 1997,
respectively, compared to 14.3% and 13.2% for the same periods in 1996. This
increase is the result of several special sell-through promotions conducted by
the Company during 1997 in addition to same store rental revenue decreases
compared to the prior year which resulted in a higher percentage for product
sales.
During the second quarter of 1997, same store revenues declined by approximately
5.5% principally due to (i) a lack of consumer acceptance of a weaker selection
of new release product during 1997, (ii) an increased number of competitive
openings in several of the Company's major markets, and (iii) overall industry
softness that began in the first quarter of 1997. The Company anticipates that
same store revenues will continue to decline in the quarter ended September 30,
1997 due to the same factors discussed above.
Operating Costs and Expenses. Operating expenses were $21,521,000 and
$41,003,000 for the three and six months ended June 30, 1997 compared to
$12,609,000 and $26,338,000 for comparable prior year periods. Operating
expenses as a percentage of total revenues were 78.1% and 75.7% for 1997
compared to 69.0% and 70.0% for 1996. The increases reflect the effect of
substantially fixed operating expenses on a per store basis being compared to
revenue levels that were less than the previous year on a per store basis.
Cost of product sales increased $1,698,000 to $3,329,000 and $3,313,000 to
$6,481,000 for the three and six months ended June 30, 1997. These increases are
directly related to the increase in product sales. Cost of product sales as a
percentage of product sales were 70.0% and 74.6% for the three and six months
ended June 30, 1997 compared to 62.5% and 63.8% for 1996. The percentage
increases are due to the lower margins accepted by the Company on the
sell-through promotions and sales of previously viewed tapes conducted during
the respective periods.
General and administrative expenses increased to $3,919,000 and $6,533,000 for
the three and six months ended June 30, 1997, respectively, from $2,281,000 and
$4,610,000 for the comparable prior year periods, reflecting the acquisitions
and additional store openings. In addition, in May 1997, the Company announced
it would reduce the number of new stores to be developed in 1997 and as a result
of the reduced growth it would make immediate reductions in general and
administrative expense. The cost of implementing these reductions resulted in a
one-time charge of $1.5 million in second quarter of 1997 which was recorded as
additional general and administrative expense. Excluding this one-time charge,
general and administrative expense would have been $2,419,000 and $5,033,000, or
8.8% and 9.3% of total revenues for the three and six month periods,
respectively, compared to 12.5% and 12.3%, respectively, for the same period in
1996. 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, net. Interest expense increased to $907,000 and $1,378,000 for
the three and six months ended June 30, 1997 from $399,000 and $701,000 for the
comparable prior year periods. The increases are related primarily to the
increased borrowings under the Company's Senior Facility which were used to fund
acquisitions and additional new store development.
Income Tax Expense. Income tax benefit for the three and six months ended June
30, 1997 was $1,128,000 and $994,000, respectively, compared to income tax
expense for the three and six months ended June 30, 1996 of $387,000 and
$802,000, respectively, representing an effective income tax rate of 40% for
each period presented.
<PAGE>
Liquidity and Capital Resources
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 March 1997, the Company signed a new senior credit facility (the "Senior
Facility") for up to $75.0 million. The Senior Facility consists of (i) a five
year $30.0 million long-term note with quarterly repayments beginning on
September 30, 1997; (ii) a $41.0 million capital facilities line and (iii) a
$4.0 million Revolver and replaced the Company's existing credit facility. The
Company may borrow amounts under the capital facilities line until March 31,
1999 at which time it will begin repaying any amount outstanding quarterly over
the next three years. The interest rate of the Senior Facility is variable based
on LIBOR and the Company may repay the Senior Facility at any time without
penalty. At June 30, 1997, the Company had outstanding borrowings of $45.0
million under the Senior Facility which consisted of the $30.0 million long-term
note, $11.0 million under the capital facilities line and $4.0 million under a
revolving line of credit. During June 1997 certain covenants of the Senior
Facility were amended. At June 30, 1997 the Company was in compliance with all
covenants.
Concurrently with the closing of the Senior Facility, the Company acquired
certain assets and business of Movie Warehouse, Inc. and affiliates ("Movie
Warehouse") in an asset purchase transaction, including 21 video specialty
stores and the franchiser's interest with respect to an additional 43 specialty
stores which will continue to operate under the Movie Warehouse name. The
aggregate consideration for the acquisition was approximately $9.6 million,
consisting of $5.0 million in cash, $2.0 million in promissory notes due in
March 1999, and $2.55 million in common stock (427,672 shares).
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 and other inventory purchases and other working capital needs,
although unanticipated expenses or revenue shortfalls may cause the Company to
require additional financing to fund operations. 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 1997.
In July 1997, the Company announced it had entered into an agreement ("Merger
Agreement") with Video Update Inc. ("Video Update") pursuant to which Video
Update would acquire Moovies in a stock-for-stock merger transaction. (the
"Merger") Terms of the agreement call for each stockholder of Moovies to receive
1.1 shares of Video Update Class A Common Stock for each share of Moovies Common
Stock. The transaction is subject to stockholder approval of both companies, and
is anticipated to be completed some time in late calendar 1997.
The obligations of Video Update and the Company to consummate the Merger are
subject to the satisfaction of certain conditions, including, but not limited
to, obtaining requisite approvals of the stockholders of Video Update and the
Company, obtaining consents under the respective bank credit agreements of Video
Update and the Company (which in respect to the Company's Senior Facility
agreement requires payoff of all amounts outstanding at the time the Merger is
consummated (the "Effective Time")), obtaining adequate financing, obtaining
requisite regulatory approvals (including under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act")), the continuing accuracy,
in all material respects, as of the Effective Time of the representations and
warranties made by Video Update and the Company in the Merger Agreement, and the
receipt of a certain legal opinion with respect to tax matters. Each party has
the right to waive certain of the closing conditions referred to above. There
can be no assurance that these conditions will be met and that the Merger will
be consummated.
The Company's capital expenditures during the remainder of 1997 will focus on
opening new stores and relocating or upgrading certain existing stores. In May
1997, the Company reassessed its new store development program and reduced the
number of new stores expected to be opened during 1997. The Company opened 12
new stores during the second quarter of 1997 and 29 during the first six months
of 1997. Because of reduced revenues and related cash flows from operations and
the recently announced Merger Agreement, the Company has further reduced its new
store development plans and currently expects that it will only open four
additional video superstores during the remainder of 1997.
The Company estimates that the net cash required to open a new Moovies
superstore, including store fixtures and equipment, leasehold improvements and
rental and sale inventory, typically ranges from $275,000 to $325,000 per
superstore.
Although the Company believes that cash from operations and borrowing
availability under the Senior Credit Facility will be sufficient to fund
existing operations through December 31, 1997, unanticipated expenses or revenue
shortfalls may cause the Company to require additional financing to fund
operations. To the extent that such sources are not adequate to fund existing
operations, other sources of funds will be required. There can be no assurance
that any such sources of funds will be available or, if available, that it will
be on terms and conditions satisfactory or favorable to the Company.
<PAGE>
Note regarding Private Securities Litigation Reform Act: Statements made by the
Company which are not historical facts are forward looking statements that
involve risks and uncertainties. Actual results could differ materially from
those expressed or implied in forward looking statements. All such forward
looking statements are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. Important factors that could cause
financial performance to differ materially from past results and from those
expressed or implied in this document include, without limitation, the risks of
acquisition of businesses (including limited knowledge of the businesses
acquired and misrepresentations by sellers), changes in business strategy or
development plans, new store openings, availability of financing, competition,
management, ability to manage growth, loss of customers, the availability of
products, the difficulty of managing leased inventory, and a variety of other
factors. The obligations of Video Update and the Company to consummate the
Merger are subject to the satisfaction of certain conditions, including, but not
limited to, obtaining requisite approvals of the stockholders of Video Update
and the Company, obtaining consents under the respective bank credit agreement
of Video Update and the Company (which in respect to the Company Senior Credit
Facility agreement requires payoff at of all an outstanding thereon at the time
the Merger is consummated (the "Effective Time")), obtaining adequate financing,
obtaining requisite regulatory approvals (including under the HSR Act), the
continuing accuracy, in all material respects, as of the Effective Time of the
representations and warranties made by Video Update and the Company in the
Merger Agreement, and the receipt of a certain legal opinion with respect to tax
matters. There can be no assurance that these conditions will be met and that
the Merger will be consummated. For further information on these and other
risks, see the "Risk Factors" section of Item 1 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, as well as the Company's
other filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
(a) None
(b) None
(c) Recent Sales of Unregistered Securities
The following information relates to securities to Moovies, Inc. issued
or sold during the quarter ended June 30, 1997 which were not
registered under the Securities Act in 1933, as amended (the
"Securities Act"):
From April 1997 through June 1997, an aggregate of 1,692
shares of Common Stock were purchased on the Nasdaq Stock
Market and credited to participant's accounts pursuant to the
Moovies, Inc. 401(k) Plan. The Company believes that these
issuances were exempt from registration under the Securities
Act by virtue of Section 4(2) as transactions not involving a
public offering.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
During the period covered by this report, the Company filed with the
Securities and Exchange (the "Commission") and delivered to its stockholders the
Company's Proxy Statement for Annual Meeting of Stockholder held May 15, 1997
(the "Proxy Statement").
(a) The Company's Annual Meeting of Stockholders was held on May 15,
1997.
(b) Management's nominees to the Board of Directors of the Company as
previously reported to the Commission were elected by the holders of common
stock. The election was uncontested. (c) With respect to the election of
directors (as more fully described in the Proxy Statement) voted upon at the
meeting, the inspector of election tabulated the following votes:
Number of Number Votes Abstentions
Votes Withheld and Broker
For Non-Votes
------------ --------------- ----------------
Nominee for Office
Arthur F. Greeder 9,740,706 -0- 12,625
Charles D. Way 9,741,531 -0- 11,800
(d) There was no solicitation subject to Rule 14a-11 of Regulation 14A
under the Securities Exchange Act of 1934.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) See the Index to Exhibits.
(b) Current Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K with the
Commission on July 9, 1997 with respect to the Company's Merger
Agreement with Video Update
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized on August 14, 1997.
MOOVIES, INC.
By: /s/ John L. Taylor
John L. Taylor
President and Chief Executive Officer
(principal executive officer)
By: /s/ F. Andrew Mitchell
F. Andrew Mitchell
Chief Financial Officer and Director
(principal financial officer)
<PAGE>
EXHIBIT INDEX
(a) The following exhibits, which are furnished with this Form 10-Q, are filed
as part of this Form 10-Q:
EXHIBIT NO. EXHIBIT DESCRIPTION
2 --Agreement and Plan of Merger by and among Video Update, Inc., VUI
Merger Corp. and Moovies, Inc., dated July 9, 1997 (incorporated by
reference to Exhibit 2Current Report on Form 8-K dated July 9, 1997)
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).
3.3** --Certificate of Designation, Preferences and Rights of
Participating Preferred Stock.
10.1.1** * --First Amendment to Credit Agreement dated June 17, 1997 among
Moovies, Inc., various banks party thereto from time to time, and
Banque Paribas as agent.
10.2*** --Agreement dated July 9, 1997 by and among Rentrak Corporation,
Video Update, Inc. and Moovies, Inc.
10.3*** --Agreement dated June 18, 1997 by and among Moovies, Inc., and John
L. Taylor
10.4*** --Agreement dated June 18, 1997 by and among Moovies, Inc., and F.
Andrew Mitchell
10.5*** --Agreement dated April 1, 1997 by and among Moovies, Inc., and
Robert J. Klein
10.6*** --Non-Qualified Stock Option Agreement dated as of April 17, 1997 by
and between Moovies, Inc. and Robert J. Klein.
11.1*** --Statement Re Computation of Per Share Earnings
27.1*** --Financial Data Schedule
* 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 quarterly Report on Form 10-Q for the Quarter ended
March 31, 1997.
*** Filed herewith.
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
June 17, 1997, among MOOVIES, INC., a corporation organized and existing under
the laws of the state of Delaware (the "Borrower"), the Banks party to the
Credit Agreement referred to below and BANQUE PARIBAS, as Agent (the "Agent").
Unless otherwise defined herein, capitalized terms used herein and defined in
the Credit Agreement referred to below are used herein as so defined.
W I T N E S S E T H:
WHEREAS, the Borrower, various financial institutions from time to time
party thereto (the "Banks") and Banque Paribas, as Agent, have entered into a
Credit Agreement dated as of March 14, 1997 (as in effect on the date hereof,
the "Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided; and
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. Section 1.01(b) of the Credit Agreement is hereby amended by
inserting the following text immediately prior to the last sentence appearing
therein:
"Notwithstanding anything to the contrary contained herein, the
aggregate principal amount of Capital Expenditure Loans incurred during the
period commencing on the First Amendment Effective Date and ending on December
31, 1997, shall not exceed an amount equal to the remainder of (x) $7,000,000
less (y) the aggregate principal amount of Revolving Loans incurred during such
period, provided, that the limitation contained in the preceding clause shall
not apply to a Borrowing of Capital Expenditure Loans if, on or
459993.1
0000FJ74.W51
<PAGE>
prior to the date of such Borrowing, the Borrower delivers to the Agent a
certification from its chief financial officer stating that the Borrower will be
in compliance with the covenants contained in Sections 9.09 through 9.14,
inclusive, as of December 31, 1997 and thereafter."
2. Section 1.01(c) of the Credit Agreement is hereby amended by
inserting the following text immediately following the last sentence appearing
therein:
"Notwithstanding anything to the contrary contained herein, the
aggregate principal amount of Revolving Loans incurred during the period
commencing on the First Amendment Effective Date and ending on December 31,
1997, shall not exceed an amount equal to the remainder of (x) $7,000,000 less
(y) the aggregate principal amount of Capital Expenditure Loans incurred during
such period, provided, that the limitation contained in the preceding clause
shall not apply to a Borrowing of Revolving Loans if, on or prior to the date of
such Borrowing, the Borrower delivers to the Agent a certification from its
chief financial officer stating that the Borrower will be in compliance with the
covenants contained in Sections 9.09 through 9.14, inclusive, as of December 31,
1997 and thereafter."
3. Section 9.02(ii) of the Credit Agreement is hereby amended by
inserting the following text "provided, that, without the consent of the
Required Banks, during the period commencing on the First Amendment Effective
Date and ending on December 31, 1997, the Borrower will not enter into any
obligation or commitment in connection with the opening of any new video store
(including, but not limited to, any new lease (as lessee) of real property)
unless the Borrower first delivers to the Agent written notice thereof (which
notice shall contain a certification from the chief financial officer of the
Borrower stating that the Borrower is and will be in compliance with the
covenants contained in Sections 9.09 through 9.14, inclusive, as of December 31,
1997 and thereafter" immediately prior to the semicolon appearing therein.
4. Section 9.10 of the Credit Agreement is hereby amended by (i)
deleting the following portion of the table appearing therein:
"June 30, 1997 3.20:1.0"
and (ii) inserting in lieu thereof the following new portion of the table:
459993.1
0000FJ74.W51
<PAGE>
"June 30, 1997 2.80:1.0"
5. Section 9.11 of the Credit Agreement is hereby amended by (i)
deleting the following portion of the table appearing therein:
"June 30, 1997 2.60:1.0
September 30, 1997 2.60:1.0"
and (ii) inserting in lieu thereof the following new portion of the table:
"June 30, 1997 3.90:1.0
September 30, 1997 3.55:1.0"
6. Section 9.14 of the Credit Agreement is hereby amended by (i)
deleting the following portion of the table appearing therein:
"June 30, 1997 $24,750"
and (ii) inserting in lieu thereof the following new portion of the table:
"June 30, 1997 $22,000"
7. Section 11 of the Credit Agreement is hereby amended by (i) deleting
the definition of Applicable Margin appearing therein and (ii) inserting the
following new definition in lieu thereof:
"Applicable Margin" shall mean a percentage per annum equal to, (A)
until such time as the Borrower demonstrates compliance with Section 9.11 of the
Credit Agreement (as such Section 9.11 exists immediately prior to the First
Amendment Effective Date), (i) in the case of Base Rate Loans, 2.00% and (ii) in
the case of Eurodollar Loans, 3.00% or (B) thereafter, (i) in the case of Base
Rate Loans, 1.75% and (ii) in the case of Eurodollar Loans, 2.75%.
8. Section 11 of the Credit Agreement is hereby further amended by
inserting in the appropriate alphabetical order the following definition:
"First Amendment Effective Date" shall mean the date on which the First
Amendment to this Agreement, dated as of June 17, 1997, becomes effective.
459993.1
0000FJ74.W51
<PAGE>
9. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (i) the representations, warranties
and agreements contained in Section 7 of the Credit Agreement are true and
correct in all material respects on and as of the First Amendment Effective Date
(except with respect to any representations and warranties limited by their
terms to a specific date, which shall be true and correct in all material
respects as of such date) and (ii) there exists no Default or Event of Default
on the First Amendment Effective Date after giving effect to this Amendment.
10. The Borrower agrees to pay a non-refundable consent fee (such fee
being in addition to and not creditable against any other amounts due in
connection with any of the Credit Documents) equal to 1/8 of 1% of the aggregate
Commitments and, without duplication, Loans of each Bank which shall have signed
a written counterpart hereof and shall have delivered the same (including by way
of telecopier) to the Agent at the Notice Office prior to 3:00 p.m. on June 17,
1997.
11. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
12. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
13. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
14. This Amendment shall become effective on the date (the "First
Amendment Effective Date") when the Borrower and the Required Banks shall have
signed a written counterpart hereof (whether the same or different counterparts)
and shall have delivered (including by way of telecopier) the same to the Agent
at the Notice Office.
459993.1
0000FJ74.W51
<PAGE>
15. From and after the First Amendment Effective Date, all references
in the Credit Agreement and the other Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as modified hereby.
* * *
0000FJ74.W51
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Amendment to be
duly executed and delivered as of the date first above written.
MOOVIES, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
BANQUE PARIBAS,
Individually and as Agent
By:___________________________________
Name:_________________________________
Title:________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
CAROLINA FIRST BANK
By:__________________________________
Name:________________________________
Title:_______________________________
0000FJ74.W51
<PAGE>
CREDITANSTALT-BANKVEREIN
By
Name :
Title:
By
Name :
Title:
FIRST SOURCE FINANCIAL LLP
By: FIRST SOURCE FINANCIAL, INC.,
its agent/manager
By:__________________________________
Name:________________________________
Title:_______________________________
FLEET FINANCIAL GROUP
By:_________________________________
Name:_______________________________
Title:______________________________
0000FJ74.W51
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY,
By:PPM AMERICA, Inc., as attorney in fact,
on behalf of Jackson National Life
Insurance Company
By:___________________________________
Name:_________________________________
Title:________________________________
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By:____________________________________
Name:__________________________________
Title:_________________________________
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
0000FJ74.W51
<PAGE>
PARIBAS CAPITAL FUNDING LLC
By:____________________________________
Name:__________________________________
Title:_________________________________
0000FJ74.W51
AGREEMENT
THIS AGREEMENT is entered into this 9th day of July, 1997, by and among
RENTRAK CORPORATION, an Oregon corporation ("Rentrak"), VIDEO UPDATE, INC., a
Delaware corporation ("VU"), and MOOVIES, INC., a Delaware corporation
("Moovies").
RECITALS
WHEREAS, Moovies is a participant in Rentrak's pay-per-transaction
("PPT") system pursuant to a Rentrak National Account Agreement, dated March 8,
1995, as modified by a First Addendum to Rentrak National Account Agreement, of
even date therewith, as further modified by a Second Addendum to Rentrak
National Account Agreement, dated May 18, 1995, and an Amendment to First
Addendum to Rentrak National Account Agreement, dated June 16, 1995
(collectively, the "PPT Agreement");
WHEREAS, VU desires to acquire Moovies and Moovies desires to be
acquired by VU through a merger transaction in which Moovies will be merged into
a wholly owned subsidiary of VU and Moovies will be the surviving corporation
(the "Acquisition");
WHEREAS, Pursuant to Section 37 of the PPT Agreement, VU and Moovies
cannot consummate the Acquisition without Rentrak's consent, which consent may
be withheld in Rentrak's sole discretion;
WHEREAS, VU and Rentrak have simultaneously herewith entered into a
Rentrak National Account Agreement, as modified by a First Addendum to Rentrak
National Account Agreement, of even date (together, the "VU PPT Agreement"),
which VU PPT Agreement shall become effective and legally binding upon VU and
Rentrak in accordance with the terms thereof on the closing and effectiveness of
the Acquisition (the "Effective Time");
WHEREAS, Rentrak desires to consent to the Acquisition subject to the
terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
Page 1 - AGREEMENT
<PAGE>
1. ACKNOWLEDGEMENT OF MOOVIES OBLIGATIONS. Rentrak and Moovies
acknowledge and agree that, as of July 7, 1997 (taking into account invoices
dated as of July 7, 1997 and payments by Moovies received through July 7, 1997),
Moovies owes Rentrak the following amounts under the PPT Agreement: (i)
$1,685,567.71 in accounts receivable, of which $354,698.32 is past due. The
parties further acknowledge that between the date of this Agreement and the
Effective Time Moovies will continue to incur fees and/or other amounts due
Rentrak under the PPT Agreement.
2. CONSENT TO ACQUISITION. Rentrak hereby consents to the Acquisition;
provided, however, that such consent shall not be effective or legally binding
upon Rentrak until and unless all of the following conditions precedent are
fully satisfied on or before the earlier of the Effective Time or March 31,
1998:
A. EXECUTION OF MERGER AGREEMENT. VU and Moovies shall have
executed a definitive merger agreement pursuant to which VU will
acquire Moovies;
B. FULL PAYMENT OF ALL PAST DUE MOOVIES OBLIGATIONS. All
accounts due and payable by Moovies to Rentrak under the PPT Agreement
as of 10 business days prior to the Effective Time and all other
amounts then owed to Rentrak by Moovies, including without limitation,
audit fees and other costs, shall be paid in full to Rentrak on or
before the Effective Time. In this regard, Rentrak shall submit an
invoice to Moovies at least 10 business days prior to the Effective
Time setting forth the past due accounts payable owed by Moovies and
such other amounts then owed. In the event that there is a dispute in
respect of the invoice, Rentrak and Moovies will attempt in good faith
to resolve such dispute, and, if resolved, any payments shall be paid
by Moovies prior to the Effective Time. If any such dispute is not
resolved by Rentrak and Moovies within 5 business days after Moovies
receives a written copy of such invoice from Rentrak, then (a) Moovies
will pay Rentrak prior to the Effective Time all undisputed amounts and
(b) the specific matters or amounts on the invoice in dispute shall be
resolved exclusively through submission by either Moovies or Rentrak to
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, in Portland, Oregon,
before a single arbitrator selected in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in
effect. Moovies's payment to Rentrak prior to the Effective Time of all
undisputed amounts and submission of any disputed amounts to
arbitration in accordance with this Section 2(b) shall be deemed to
satisfy the condition precedent of this Section 2(b). Rentrak and
Moovies agree that the arbitrator's award shall be final and binding
upon them with respect to the dispute. All costs and expenses incurred
by the parties hereto in connection with the arbitration (including
reasonable legal expenses of all parties) shall be borne by the party
against whom the arbitrator's award is directed. Such costs and
expenses shall be prorated in the event the arbitrator splits the award
between the parties in proportion to the amounts awarded
Page 2 - AGREEMENT
<PAGE>
(e.g. if Rentrak is awarded 70% of the disputed amount and Moovies is
awarded 30%, Moovies would pay 70% of Rentrak's costs, expenses and
reasonable legal fees and Rentrak would pay 30% of Moovies' costs,
expenses and reasonable legal fees). In the event an award of the
disputed amount is made to Rentrak such award shall include interest
which shall accrue at the rate of 1.0% per month from the Effective
Time until the date such award is fully paid. If the arbitrator
determines that a party has not acted in good faith in connection with
the matters presented in the invoice or in disputing such matters or
that the matters presented in the invoice are frivolous or that in
challenging or maintaining its challenge throughout the arbitration
with respect to the matter in dispute that such dispute is frivolous or
designed to delay payment, the arbitrator shall award the other party
an additional amount, if any, as determined by the arbitrator in his
discretion as he deems appropriate under the circumstances, up to 50%
of the amount awarded to such party. Rentrak and Moovies agree to
cooperate in good faith with each other, each other's authorized
representatives and any arbitrator selected pursuant hereto in order
that any and all matters in dispute may be resolved as soon as
practicable;
C. CLOSING OF THE ACQUISITION. The Acquisition shall have
closed and become effective and the VU PPT Agreement shall have become
effective and legally binding upon VU and Rentrak;
D. PAYMENT OF RENTRAK LEGAL FEES. VU shall have paid the
reasonable attorneys' fees and costs and other out of pocket expenses
and costs incurred by Rentrak in the VU PPT Agreement in accordance
with the Legal Fees Agreement, dated June 3, 1997 by and between
Rentrak and VU.
3. AMENDMENT TO PPT AGREEMENT. As an inducement to and consideration
for Rentrak providing its conditional consent as set forth in Section 2 above,
Rentrak and Moovies agree to amend the PPT Agreement, effective as of the date
of this Agreement, as follows:
A. Section 36 - Term of Agreement. The last two sentences of
Section 36 beginning with the words "In the event Ron
Berger..." are deleted from the PPT Agreement in their
entirety and shall have no further force or effect whatsoever.
B. Section 41 - Alternate Terms. Section 41 is hereby deleted in
its entirety and shall have no further force or effect
whatsoever.
Page 3 - AGREEMENT
<PAGE>
Except as amended above and subject to Section 9 below, all terms and
conditions of the PPT Agreement are unchanged and shall remain in full
force and effect. The amendments contained in this Section 3 shall be
legally binding and shall be given full force and effect whether or not
VU acquires Moovies or the conditions precedent for Rentrak's consent
set forth in Section 2 are satisfied.
4. GUARANTEE OF VU. Upon the closing and effectiveness of the
Acquisition, VU hereby unconditionally guarantees to Rentrak (i) the prompt
payment by Moovies to Rentrak of all accounts payable owed by Moovies but not
yet due and payable to Rentrak as of the closing date of the Acquisition, which
amount shall be paid in the ordinary course of business pursuant to the payment
terms contained in Section 2(b) of the PPT Agreement and (ii) the payment by
Moovies of the amounts, if any, awarded to Rentrak by the arbitrator pursuant to
Section 2(b) above. In no event shall Rentrak have any obligation (although it
is entitled, at its option) to proceed or take enforcement action against
Moovies before seeking satisfaction from VU pursuant to said guaranty.
5. RELEASE BY RENTRAK. Except as provided herein, Rentrak, for itself
and its assigns, hereby remises, releases, acquits, satisfies and forever
discharges Moovies and its affiliates, assigns, employees, agents and
representatives, of and from all past or present claims, demands, obligations,
actions, causes of action, rights, damages, costs, expenses, profits or any
other compensation of any nature whatsoever, whether based in contract, tort or
any other theory of recovery, whether at law or in equity and whether for
compensatory, punitive or other damages which Rentrak ever had, for, on or by
reason of any matter, cause or thing whatsoever arising out of events occurring
on or prior to the date hereof, provided, however, notwithstanding the above,
Rentrak specifically does not and Moovies specifically acknowledges that Rentrak
does not, release Moovies in any respect from any and all claims, obligations,
causes of action, damages, costs, expenses or any other compensation whatsoever
arising from or connected with (i) Rentrak's audit of Moovies conducted in 1997
or (ii) accounts payable owed by Moovies to Rentrak under the PPT Agreement
described in Section 1 of the Agreement or that arise based on events that occur
on or after the date hereof.
6. RELEASE BY MOOVIES. Except as provided herein, Moovies, for itself
and its assigns, hereby remises, releases, acquits, satisfies and forever
discharges Rentrak and its affiliates, assigns, employees, agents and
representatives, of and from all past or present claims, demands, obligations,
actions, causes of action, rights, damages, costs, expenses, profits or any
other compensation of any nature whatsoever, whether based in contract, tort or
any other theory of recovery, whether at law or in equity and whether for
compensatory, punitive or other damages which Moovies ever had, for, on or by
reason of any matter, cause or thing whatsoever arising out of events occurring
on or prior to the date hereof, provided, however, notwithstanding the above,
Moovies specifically does not and Rentrak specifically acknowledges that Moovies
does not, release Rentrak in any respect from any and all claims, obligations,
causes of action, damages, costs, expenses or any other
Page 4 - AGREEMENT
<PAGE>
compensation whatsoever arising from or connected with (i) Rentrak's audit of
Moovies conducted in 1997 or (ii) accounts payable owed by Moovies to Rentrak
under the PPT Agreement described in Section 1 of the Agreement or that arise
based on events that occur on or after the date hereof.
7. NO ADMISSION OF LIABILITY. It is understood and agreed by Rentrak
and Moovies that this Agreement is a compromise and settlement of doubtful and
disputed claims and that the execution of this Agreement is not to be construed
as an admission of liability whatsoever on the part of either party hereto.
8. VOLUNTARY CHOICE. In entering into this Agreement, the undersigned
each represent that: (a) they have authority to enter into this Agreement; (b)
the terms of this Agreement have been read in their entirety and are fully
understood; (c) they have proceeded upon the advice of an attorney of their own
choice or have had the opportunity to do so; and (d) the terms of this Agreement
are knowingly and voluntarily accepted.
9. EFFECTIVENESS OF PPT AGREEMENT. The parties hereto acknowledge and
agree that upon the closing and effectiveness of the Acquisition and provided
that Moovies pays Rentrak in full the undisputed amounts specified under Section
2(b) above and any disputed amounts have been submitted to arbitration in
accordance with Section 2(b), except for VU's guarantee of all the amounts which
at the Effective Time were outstanding but not yet due from Moovies as provided
in Section 4 above or as otherwise agreed in writing between VU and Rentrak, the
PPT Agreement with Moovies shall no longer be legally binding on or apply to the
parties thereto and such PPT Agreement as of the Effective Time shall otherwise
be of no further force and effect and shall be superseded by the VU PPT
Agreement.
10. WAIVERS AND AMENDMENTS. This Agreement may not be amended,
superseded, or cancelled, and the terms hereof may not be waived, except by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power, or privilege hereunder shall operate as a waiver thereof.
11. PARTIES IN INTEREST. All the terms, covenants, and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not.
12. CHOICE OF LAW. It is the intention of the parties hereto that the
laws of the State of Oregon shall govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties of
the parties. This Agreement is and shall be deemed accepted in Oregon and
interpreted and enforced in accordance with the laws of the State of Oregon
applicable to contracts to be made and performed entirely within this state.
Page 5 - AGREEMENT
<PAGE>
13. JURISDICTION; VENUE; WAIVER OF JURY TRIAL. For any action related
to the judicial enforcement or interpretation of this Agreement, and all other
agreements or documents contemplated in or by this Agreement, the parties hereto
expressly consent to the exclusive jurisdiction of the Circuit Court for the
County of Multnomah, State of Oregon, or the Federal Court for the District of
Oregon, and irrevocably waive, to the fullest extent permitted by law, any
objection they may now have or hereafter have to the venue of any such suit or
action in any such court and any claim that any suit or action has been brought
in an inconvenient forum. The parties hereby waive their respective right to a
jury trial of any claim or cause of action based upon or arising out of this
Agreement or any dealings between VU and Rentrak relating to this Agreement.
14. RECITALS AS PART OF AGREEMENT. The recitals to this Agreement are
hereby incorporated into and made a legally binding part of this Agreement.
15. SEVERABILITY. If any provision of this Agreement shall be deemed or
declared to be unenforceable, invalid or void, the same shall not impair any of
the other provisions of this Agreement, which shall be enforced in accordance
with their respective terms.
16. ASSIGNABILITY. Except in respect of the Acquisition, this Agreement
shall not be assignable by operation of law or otherwise without the prior
written consent of Rentrak, which consent may be withheld in Rentrak's sole and
absolute discretion.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
///
///
///
///
///
///
///
Page 6 - AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MOOVIES, INC. RENTRAK CORPORATION
By:/s/ John Taylor By:/s/ Ron Berger
----------------------------- --------------------------------
John Taylor, Chief Executive Ron Berger, Chief Executive
Officer and President Officer and President
VIDEO UPDATE, INC.
By:/s/ Daniel A. Potter
----------------------------
Daniel A. Potter, Chief
Executive Officer
Page 7 - AGREEMENT
Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
June 18, 1997
Mr. John L. Taylor
President and Chief Executive Officer
Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
Dear John:
This letter is to set forth the terms and provisions pursuant to which
you are, effective on the date hereof, entitled to receive certain payments and
consideration in the event there is a Change of Control (as defined herein) of
Moovies, Inc., provided that you are employed by Moovies, Inc. on the date that
such Change in Control occurs (even if the term of your employment agreement (if
any) has expired). For purposes of this letter, the "Company" shall refer to
Moovies, Inc., or, as appropriate, to the successor to the business of Moovies,
Inc., if a Change in Control shall occur in which Moovies, Inc. is not the
surviving corporation. The Company has agreed to provide you with these benefits
in consideration of your contributions to the Company and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by you and the Company. These payments and consideration are in
addition to the compensation you are entitled to under your employment agreement
(if any) and in addition to all options now or hereafter granted to you.
1. Definition of "Change of Control". As used herein, the term "Change
of Control" means the occurrence of any of the following:
(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
<PAGE>
Mr. John L. Taylor
President and Chief Executive Officer
June 18, 1997
Page 2
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 shareholders of the Company of a
plan of liquidation.
2. Effect of Change of Control. If there is a Change of Control of the
Company, and (i) you resign your employment within six months after such event,
or (ii) you are terminated without cause (as defined in your employment
agreement (if any) with the Company; otherwise, as defined in your Non-Qualified
Stock Option Agreement - 1995 Stock Plan with the Company) by the Company within
six months after such event, you shall be entitled to receive an amount, payable
in a lump sum within 30 days after the effective date of such resignation or
termination, equal to the product of your average total annual compensation
(defined for purposes of this Section as the average annual total of your
compensation includable in taxable income for federal tax purposes, including
without limitation, Base Salary, Annual Bonus, all insurance benefit costs and
car allowance (collectively, "Compensation"), during the two (2) years
immediately preceding the termination of your employment (or if you have been
employed for less than 2 years on the date of such termination, the total of
your Compensation for such full year, if any, and compensation includable in
taxable income for federal tax purposes, including without limitation, Base
Salary, the maximum Annual Bonus to which you would be entitled for such partial
year, all insurance benefit costs and car allowance for such partial year on an
annualized basis) multiplied by 3. Serving as a director of the Company, or the
entity that controls the Company, after a Change of Control will not constitute
employment by the Company. In the event that any payment to be received by you
pursuant to this Section 2 or the value of any acceleration right occurring
pursuant to Section 3 of this Agreement in connection with the Change of Control
of the Company would be subject to an excise tax pursuant to Section 4999 of the
Internal Revenue Code of 1986 (the "Code"), whether in whole or in part, as a
result of being an "excess parachute payment" within the meaning of such term in
Section 280G(b) of the Code, the amount payable under this Section 2 shall be
reduced so that no portion of such payment or the value of such acceleration
rights is subject to excise tax pursuant to Section 4999 of the Code. If the
amount necessary to eliminate such excise tax exceeds the amount otherwise
payable under this Section 2, no payment shall be made under this paragraph and
no further adjustment shall be made. Notwithstanding the preceding sentence, (a)
no portion of such payment or any acceleration right which tax counsel, selected
by the Company's independent auditors and acceptable to you, determines not to
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code will be taken into account and (b) no portion of the total of your
compensation which tax counsel, selected by the Company's independent auditors
and acceptable to you, determines to be
<PAGE>
Mr. John L. Taylor
President and Chief Executive Officer
June 18, 1997
Page 3
reasonable compensation for services rendered within the meaning of Section
280G(b)(4) of the Code will be taken into account.
3. Effect of Change of Control on Options. In the event of a Change of
Control, all options granted to you prior to such Change of Control shall
immediately vest and be exercisable by you, regardless of your employment or
termination of employment with the Company.
If the foregoing is acceptable to you, please sign where provided below
and return a signed original of this letter to me.
Yours truly,
MOOVIES, INC.
F. Andrew Mitchell
Chief Financial Officer
Accepted and Agreed:
________________________________[Signature]
John L. Taylor
____________________[Date]
Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
June 18, 1997
Mr. F. Andrew Mitchell
Chief Financial Officer
Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
Dear Andy:
This letter is to set forth the terms and provisions pursuant to which
you are, effective on the date hereof, entitled to receive certain payments and
consideration in the event there is a Change of Control (as defined herein) of
Moovies, Inc., provided that you are employed by Moovies, Inc. on the date that
such Change in Control occurs (even if the term of your employment agreement (if
any) has expired). For purposes of this letter, the "Company" shall refer to
Moovies, Inc., or, as appropriate, to the successor to the business of Moovies,
Inc., if a Change in Control shall occur in which Moovies, Inc. is not the
surviving corporation. The Company has agreed to provide you with these benefits
in consideration of your contributions to the Company and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by you and the Company. These payments and consideration are in
addition to the compensation you are entitled to under your employment agreement
(if any) and in addition to all options now or hereafter granted to you.
1. Definition of "Change of Control". As used herein, the term "Change
of Control" means the occurrence of any of the following:
(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
<PAGE>
Mr. F. Andrew Mitchell
Chief Financial Officer
June 18, 1997
Page 2
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 shareholders of the Company of a plan
of liquidation.
2. Effect of Change of Control. If there is a Change of Control of the
Company, and (i) you resign your employment within six months after such event,
or (ii) you are terminated without cause (as defined in your employment
agreement (if any) with the Company; otherwise, as defined in your Non-Qualified
Stock Option Agreement - 1995 Stock Plan with the Company) by the Company within
six months after such event, you shall be entitled to receive an amount, payable
in a lump sum within 30 days after the effective date of such resignation or
termination, equal to the product of your average total annual compensation
(defined for purposes of this Section as the average annual total of your
compensation includable in taxable income for federal tax purposes, including
without limitation, Base Salary, Annual Bonus, all insurance benefits costs and
car allowance (collectively, "Compensation"), during the two (2) years
immediately preceding the termination of your employment (or if you have been
employed for less than 2 years on the date of such termination, the total of
your Compensation for such full year, if any, and compensation includable in
taxable income for federal tax purposes, including without limitation, Base
Salary, the maximum Annual Bonus to which you would be entitled, all insurance
benefit costs and car allowance for such partial year on an annualized basis)
multiplied by 3. Serving as a director of the Company, or the entity that
controls the Company, after a Change of Control will not constitute employment
by the Company. In the event that any payment to be received by you pursuant to
this Section 2 or the value of any acceleration right occurring pursuant to
Section 3 of this Agreement in connection with the Change of Control of the
Company would be subject to an excise tax pursuant to Section 4999 of the
Internal Revenue Code of 1986 (the "Code"), whether in whole or in part, as a
result of being an "excess parachute payment" within the meaning of such term in
Section 280G(b) of the Code, the amount payable under this Section 2 shall be
reduced so that no portion of such payment or the value of such acceleration
rights is subject to excise tax pursuant to Section 4999 of the Code. If the
amount necessary to eliminate such excise tax exceeds the amount otherwise
payable under this Section 2, no payment shall be made under this paragraph and
no further adjustment shall be made. Notwithstanding the preceding sentence, (a)
no portion of such payment or any acceleration right which tax counsel, selected
by the Company's independent auditors and acceptable to you, determines not to
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code will be taken into account and (b) no portion of the total of your
compensation which tax counsel, selected by the Company's independent auditors
and acceptable to you, determines to be reasonable compensation for
<PAGE>
Mr. F. Andrew Mitchell
Chief Financial Officer
June 18, 1997
Page 3
services rendered within the meaning of Section 280G(b)(4) of the Code will be
taken into account.
3. Effect of Change of Control on Options. In the event of a Change of
Control, all options granted to you prior to such Change of Control shall
immediately vest and be exercisable by you, regardless of your employment or
termination of employment with the Company.
If the foregoing is acceptable to you, please sign where provided below
and return a signed original of this letter to me.
Yours truly,
MOOVIES, INC.
John L. Taylor
Chairman of the Board, President and
Chief Executive Officer
Accepted and Agreed:
________________________________[Signature]
F. Andrew Mitchell
____________________[Date]
AGREEMENT
THIS AGREEMENT ("Agreement"), entered into as of the first day of
April, 1997, between ROBERT J. KLEIN (hereinafter "Klein") and MOOVIES, INC.
(hereinafter, "Company").
W I T N E S S E T H:
WHEREAS, Klein is currently employed by Company and serves on its
Board of Directors (the "Board"); and
WHEREAS, Klein and Company have agreed that it is in their mutual best
interest to terminate their employer/employee relationship and to resolve by
full and final settlement all matters arising out of or pertaining to the past,
present or future employment of Klein with Company and certain other matters and
for Klein to resign from the Board and from his offices with Company and its
subsidiaries and affiliates, in accordance with the terms hereof.
NOW, THEREFORE, IN CONSIDERATION of the mutual promises and
undertakings contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Effective as of April 1, 1997 (the "Effective Date"), the
employment of Klein with Company is terminated by mutual agreement. The
Employment Agreement, made effective as of October 1, 1995, as amended, between
Klein and Company (the "Employment Agreement"), is hereby terminated effective
as of the Effective Date (except for Sections 5, 7 and 8 of the Employment
Agreement, which provisions survive the termination of the Employment Agreement
and, as modified hereby, remain in full force and effect). The 1996 "change of
control" severance agreement between Company and Klein is also hereby terminated
effective as of the Effective Date. By his execution of this Agreement, Klein
hereby tenders his resignation, effective as of the Effective Date, from all
corporate offices held by Klein with Company or any subsidiary or affiliate of
Company and resigns, effective as of the Effective Date, as a member of the
Board of Directors of Company and such resignations are hereby accepted on
behalf of Company and every such subsidiary and affiliate. Klein and the Company
acknowledge that Klein did not attend or otherwise participate in any Board of
Directors meetings that my have been held on or after the Effective Date.
2. Klein and Company agree that all vested and unvested stock options
for the purchase of shares of Company's common stock at any time heretofore
granted to Klein (other than the "New Options: (as hereinafter defined)) are
hereby cancelled and terminated and are non-exercisable, null and void,
effective as of the Effective Date. Company hereby agrees that Klein's vested
stock options (the "New Options") for the purchase of shares of Company's common
stock granted pursuant to that certain Moovies, Inc. Non-Qualified Stock Option
Agreement substantially in the form attached as Exhibit A hereto (the "New
Option Agreement") shall remain in full force and effect and be exercisable in
accordance with its terms, provided such exercise is effected in any event no
later than March 31, 1999 (or such earlier date as provided therein) (the
"Option Termination Date"). Thereafter, any portion of such New Options which
has not been exercised shall be cancelled, terminated and made null and void.
3. Starting from the Effective Date, Klein shall receive (a) 12
months' salary/compensation payments (at the rate of $175,000 per annum), less
all applicable taxes and withholdings, if any, payable in bi-weekly or monthly
installments in accordance with customary Company procedures; and (b) car
allowance (at the rate of $1,500 per month) for 12 months, payable monthly; and
(c) 3 weeks' vacation pay (at the rate of $175,000 per annum), payable on or
before March 31, 1998. (In the event that, at any time after May 31, 1997,
Company fails to timely make when due a payment described in the foregoing
sentence, and such default continues uncured for more than 10 business days
following written notice thereof from Klein to Company, then all unpaid amounts
described in the foregoing sentence not previously paid to Klein shall become
immediately due and payable and, if thereafter Company receives a second written
notice thereof from Klein and such default continues uncured for more than
twenty (20) days following such second written notice, then Klein may
immediately exercise his one-time special election (as provided for in Section 7
of the New Option Agreement).) Klein may elect COBRA coverage as provided for by
law; if such coverage is elected, Company agrees to reimburse Klein, promptly
following submission of appropriate documentation, to the extent that Klein's
actual monthly COBRA contribution payments exceed the contribution amounts which
Klein would have paid under the Company's health plan if Klein had remained a
full time employee of Company during the period of actual COBRA coverage.
Company will make reasonable efforts to assist Klein in obtaining health
insurance coverage for up to an additional 18 months so long as such coverage
would involve no additional cost, exposure or risk to Company and, if it affects
the Company's health plan, Company's reinsurer shall have given its prior
written consent.
4. Klein agrees to provide consulting services to Company for up to 20
hours per month for 6 months following the Effective Date as reasonably
requested by Company on any matter, and thereafter as reasonably requested by
Company but only in connection with defense or settlement of claims or
litigation which related to matters or events occurring during the period of
Klein's employment with Company. (If the above-mentioned 20-hour per month limit
is exceeded, Klein's fee for additional services in such month would be at the
rate of $750 per diem.) As a consultant, Klein shall perform and carry out such
projects and assignments as reasonably directed by the President of Company and
shall report to the President of Company. All such consulting services shall be
provided by Klein to Company on an independent contractor basis. Company agrees
to reimburse Klein, promptly following submission of appropriate documentation,
for all reasonable out-of-pocket travel expenses (air (coach), car, hotel,
meals) incurred at Company's request in connection with such consulting
services, claims or litigation. In addition, Company will provide to Klein (i)
use of an office until June 30, 1997 and (ii) continuing answering/voicemail of
the direct dial phone number previously designated for Klein's use until March
31, 1998.
5. Employee hereby acknowledges that Company is engaged in the
business of owning, operating and licensing video specialty stores for the
rental and sale of videos and video games and other related products, the rental
and sale of video recorders, players and video game equipment and the sale of
video accessories, cleaning equipment and confectionery items (the "Business of
the Company") at Company's "Video Rental Store Locations" (as defined below).
Klein covenants and agrees that, for a period starting as of the Effective Date
and continuing until one (1) year after the "Final Payment Date" (as herein
defined), he will not, within a five (5) mile radius of any of Company's Video
Rental Store Locations (which 5-mile radius of each of such Video Rental Store
Locations the parties hereto agree is the "Territory"), without the prior
written consent of Company, directly or indirectly, (a) for himself or (b) as a
consultant, management, supervisory or executive employee or owner of a business
engaging in the same or substantially similar business as the Business of the
Company ("Competing Business"), or (c) as an independent contractor, engage in
any business for which he provides services to or on behalf of a Competing
Business which are the same or substantially similar to the duties he executed
or the services he provided during his employment with Company. As used herein,
"Video Rental Store Locations" shall mean those locations listed on Schedule A
delivered on or about the date of execution of this Agreement (which locations
the parties hereto agree are those in respect of which Klein has provided
services or executed duties during his employment with Company). As used herein,
the "Final Payment Date" shall mean the earlier of (i) the actual date of
payment, if any, by Company of the amount described in Section 7(b) of the New
Option Agreement or (ii) September 30, 1998. Notwithstanding the foregoing, (a)
"Competing Business" shall specifically exclude any business whose revenues,
direct or indirect, from rental or sale of videos, video games and/or related
products are less than 50% of its total revenues and (b) any and all references
herein to "within the Territory" shall be deemed deleted with respect to any of
the following companies and their affiliates (each of which shall be deemed to
be a "Competing Business" on a national basis): Movie Gallery, Inc., Video
Update, Inc., Hollywood Entertainment Corporation, Blockbuster Entertainment
Corporation and West Coast Entertainment Corporation.
6. All payments and benefits hereunder, as well as the exercisability
of the New Options and the one-time special election provided for in Section 7
of the New Option Agreement, are conditioned upon and subject to no "Default" or
"Event of Default" (as such terms are hereinafter defined) having occurred and
being then existing. The payments and benefits expressly provided to Klein
hereunder are in lieu of all other entitlements which Klein may have at law, in
equity or by contract. As used herein, an "Event of Default" shall mean:
(i) default or failure by Klein to comply with any of the terms of (x)
this Agreement and/or (y) the Non- Competition Agreement dated August 9, 1995 by
and between Company and Klein (the "Non-Competition Agreement") and/or (z)
Section 5, 7 and/or 8 of the Employment Agreement as modified hereby; and
(ii) such default or failure to comply shall continue uncured for a
period of 30 days following the giving of notice thereof by Company to Klein.
As used herein, a "Default" shall mean any event, act or condition which, with
notice or lapse of time, or both, would constitute an Event of Default
hereunder.
7. All Company property in Klein's possession, including, but not
limited to, keys, credit cards, computers, mobile or portable phones, files,
documents, correspondence, data and any other Company property and information,
will be returned to Company immediately and Klein will not retain any copies or
reproductions of an property of Company. All amounts owing by Klein to Company,
if any, will be repaid immediately. Klein agrees that any and all amounts which
may be refundable in connection with any termination of or change in membership
status at Thornblade Country Club shall belong to (and shall be paid over to)
Company rather than Klein.
8. Klein accepts the terms of the Agreement in full, final and complete
satisfaction and settlement of any and all claims which in any way related or
pertain to or arise out of any past or present employment of Klein with Company
or any of its subsidiaries or affiliates. Accordingly, except as specifically
provided in the Agreement, each of Klein and each member of his family does
hereby release and discharge in full, final and complete satisfaction and
settlement the Company and any and all of its subsidiaries and affiliates and
any and all of their past or present employees, officers, agents, directors,
attorneys or others acting on behalf of any of the foregoing from any and all
actions, causes of action, suits, debts, dues, sums, covenants, agreements,
damages, judgments, obligations, liabilities, claims and demands whatsoever, in
law or in equity, of whatever nature or description (collectively, "Claims")
that any of them may have which in any way relate or pertain to or arise out of
the past or present employment of Klein with Company or any of its subsidiaries
or affiliates; provided, however, that Klein retains any and all Claims which he
may hereafter have against Company for breach by Company of this Agreement.
Except as specifically provided in this Agreement, Company does hereby release
and discharge in full, final and complete satisfaction and settlement each of
Klein and each member of his family from any and all Claims that Company may
have which in any way relate or pertain to or arise out of the past or present
employment of Klein with Company or any of its subsidiaries or affiliates;
provided, however, that Company retains any and all Claims which it may
hereafter have against Klein for breach by Klein of this Agreement or if any
Default or Event of Default shall occur.
9. It is further understood and agreed that this Agreement is intended
to be a total accord, settlement and satisfaction of any and all claims which
Klein has or may have against Company or any of its subsidiaries or affiliates
or any of their past or present employees, officers, agents, directors,
attorneys or others acting for or on behalf of the foregoing in respect of his
employment, including but not limited to under any federal, state or local
statute, ordinance or under the common law, including, but not limited to, the
Age Discrimination in Employment Act of 1967, as amended, the Older Workers'
Benefit Protection Act, Title VII of the Civil Rights Act of 1964, as amended,
the Civil Rights Act of 1991, the Employee Retirement Income Security Act, 29
U.S.C., et seq., 42 U.S.C. Section 1981, the Americans with Disabilities Act,
the Equal Pay Act, the Fair Labor Standards Act, the Workers Compensation Act
and any other employment discrimination law, as well as any other claims based
on contract or any constitutional, statutory, common law or regulatory grounds,
that he has now or may have in the future against Company or any of its
subsidiaries or affiliates, whether known or unknown, which are based on acts or
facts arising or occurring prior to the date of this Agreement. Klein
acknowledges that, pursuant to the Older Workers Benefit Protection Act of 1990,
he has the right to, and has been advised to, consult with an attorney before
signing this Agreement. He further acknowledges his understanding that he has 45
days to consider the release contained in Section 9 before signing this
Agreement, that he may revoke the release contained in this Section 9 of this
Agreement with seven calendar days after signing it, and the release contained
in this Section 9 of this Agreement will not be effective or enforceable until
expiration of that seven-day revocation period.
10. Klein acknowledges that Klein has had the opportunity to consult
with an attorney with respect to the terms of this Agreement including the
general release set forth above.
11. (a) For a period of two years starting with the Effective Date,
Klein agrees to fully cooperate with Company and to provide all information and
sign any corporate records and instruments that Company may hereafter reasonably
request with respect to any matter involving Klein's present or former
relationship with Company, the work Klein has performed, the compensation he has
received, or present or former employees, customers, vendors or service
providers of Company, defense or settlement of any claim or litigation asserted
against Company, this Agreement, the Purchase Agreement and related documents,
and is required or, in the Company's reasonable good faith belief, is desirable
in respect of any filings or reports made, or information given, by Company in
respect of state or federal securities or other laws.
(b) For a period of two years starting with the Effective Date, Klein
agrees not to make slanderous or disparaging remarks concerning Company or any
of its subsidiaries or affiliates or any of their past or present officers,
directors, employees, agents, attorneys to any person or entity and, more
specifically, Klein will not make any such statements to, or otherwise attempt
to be a negative influence on, any past or present employee of Company. For a
period of two years starting with the Effective Date, Company agrees not to make
slanderous or disparaging remarks concerning Klein.
(c) Klein understands and agrees that as a condition precedent to the
receipt by Klein of consideration described in this Agreement, the terms and
conditions of this Agreement, the New Option Agreement and any underlying or
related agreements or documents, shall be kept confidential by Klein, except
when disclosure may be required by law or by order of any court or other body
with the authority to make such an order.
(d) Except as specifically modified, amended or terminated as provided
herein, Klein and Company acknowledge and agree that the Purchase Agreement, the
Non-Competition Agreement and all other agreements, documents and instruments
delivered pursuant to or in connection with the Purchase Agreement (other than
the Employment Agreement) remain in full force and effect and unchanged hereby;
except for Section 5, 7 and 8 of the Employment Agreement (which provisions
survive the termination of the Employment Agreement and, as modified hereby,
remain in full force and effect), the Employment Agreement is hereby terminated
as of the Effective Date. No amendment or waiver of this Agreement or any
provision hereof shall be effective unless in writing signed by the party to be
so bound. In the event that any provision of this Agreement shall be held void
or unenforceable, the remaining portions hereof shall remain in full force and
effect and this Agreement shall be deemed amended to excuse such provisions to
the extent that they were held void or unenforceable and, as amended, shall
continue in full force and effect. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns. Company may
assign this Agreement provided, however, that any assignment of this Agreement
by Company without the written consent of Klein will not release Company from
its obligations hereunder.
(e) 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, or sent by a recognized overnight delivery service
which guarantees next day delivery ("Overnight Delivery") or mailed registered
or certified mail, return receipt requested, postage prepaid, transmitted or
addressed to the intended recipient as set forth below:
If to Klein: Mr. Robert J. Klein
43 Latour Way
Greer, SC 29650
with a copy to:
Howard N. Greenberg, Esq.
Kleinbard, Ball & Brecker
Suite 700
1900 Market Street
Philadelphia, PA 19103
Telefax: (215) 568-0140
If to Company: Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
Attention: President
Telefax: (864) 213-1702
and
Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
Attention: General Counsel
Telefax: (864) 213-1702
(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 on the first 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 Company is open
for business but shall not include a Saturday or Sunday or legal holiday.
Notwithstanding anything to the contrary in this Agreement, no action is
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.
<PAGE>
RECEIPT: I acknowledge receipt of a copy of this Agreement this ___ day of May,
1997. Unless and until I execute this Agreement in the other space provided
below, I have not agreed to it.
- -----------------------------------
Robert J. Klein
Signature for Purposes of Receipt Only
<PAGE>
I HAVE READ THIS AGREEMENT AND UNDERSTAND THAT I AM GIVING UP IMPORTANT RIGHTS.
I AM AWARE OF MY RIGHT TO CONSULT AN ATTORNEY BEFORE SIGNING AND HAVE SIGNED
BELOW KNOWINGLY AND VOLUNTARILY.
ROBERT J. KLEIN
------------------------------------
PRINTED NAME
------------------------------------
SIGNATURE
Date Signed: May ___, 1997
Sworn to and subscribed before me
this ___ day of May, 1997.
- ----------------------------
Notary Public
MOOVIES, INC.
By: ______________________________
Its: President
Date Signed: May ___, 1997
Sworn to and subscribed before me
this ___ day of May, 1997.
- ----------------------------
Notary Public
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT ("Option Agreement") is made as of the 17th day of
April, 1997 (the "Effective Date") by and between MOOVIES, INC., a Delaware
corporation (the "Company"), and ROBERT J. KLEIN ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee desires to be granted and the Company desires to
grant to Grantee a Non-Qualified Stock Option to acquire shares of Common Stock
of the Company, $.001 par value, pursuant to the Moovies, Inc. 1995 Stock Plan
(the "Plan"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Grant of Option. The Company hereby grants to Grantee and Grantee
accepts a Non Qualified Stock Option ("Option"), subject to the provisions of
this Option Agreement, to purchase such shares of Common Stock (the "Option
Shares") at such exercise price (the "Option Price") as set forth on Exhibit A
hereto and by this reference made a part hereof.
2. Vesting of Option. Except as may otherwise be provided in this
Option Agreement or the Plan, the Option will vest and may be exercised as to
the Option Shares prior to its termination (as such termination is described in
Section 4 hereof) on a cumulative basis as provided in Exhibit B hereto and by
this reference made a part hereof. This Option may not be exercised at any time
after its termination.
3. Method of Exercise. The Option to purchase Option Shares shall be
exercised by written notice directed to the Stock Plan Committee (as defined in
the Plan), at the Company's principal executive office, specifying the number of
Option Shares to be purchased, and accompanied by payment of the Option Price
payable (a) in U.S. dollars in cash or by check or (b) through delivery of
shares of Common Stock (including those underlying this Option on a "net
exercise" or "cashless exercise" basis) having a fair market value per share of
Common Stock determined in accordance with this Section 3, as described in the
attached Examples 1 and 2, or (c) in accordance with the Company's Stock Plan.
The written notice of exercise shall indicate the manner in which payment of the
Option Price is being made. Except as otherwise provided in Section 7 hereof,
the fair market value per share of Common Stock used as payment or partial
payment of the Option Price hereunder shall be the per share closing price (as
reported in The Wall Street Journal) of the Company's Common Stock for the
trading date immediately preceding the date on which the Company receives such
written notice of exercise.
4. Termination of Option; Non-Exercisability. The Option, to the
extent vested and to the extent not previously exercised, shall immediately
terminate and become non-exercisable, null and void upon the first to occur of
the following events:
(i) March 31, 1999; or
(ii) The occurrence of an "Event of Default" as defined in
that certain Agreement dated as of April 1, 1997 (the "Agreement") by and
between the Company and Grantee.
In addition, the Option, to the extent vested and to the extent not previously
exercised, shall immediately become non-exercisable at any time when a "Default"
(as defined in the Agreement) exists (and shall remain non-exercisable
thereafter unless and until such Default is timely cured as provided for in the
Agreement.)
5. Reclassification, Consolidation, or Merger. The number of shares
for which an Option has been granted shall be adjusted in accordance with the
Plan (and the calculations contemplated by Section 7 hereof shall be equitably
adjusted) if certain events such as recapitalization, merger or stock dividends
occur.
6. Rights Prior to Exercise of Option. The Option granted herein is
not transferable by Grantee, except in the event of Grantee's death, and then
only by Grantee's estate, heirs, executors, personal representatives or
administrators, and during Grantee's lifetime shall be exercisable only by
Grantee. This Option shall confer no rights of the holder hereof to act as a
shareholder with respect to any of the Option Shares until payment of the option
price and delivery of a share certificate has been made.
7. Special One-Time Election. Provided there has been no prior
termination of the Option under any other provision of this Option Agreement
(and only under any other provision of this Option Agreement), and provided that
no Default or Event of Default (as defined in the Agreement) then exists, if
Grantee so elects by giving written notice to the Company at least five (5)
business days prior to the last trading day in any of the calendar months
commencing with March 1998 through and including September 1998 (the last
trading day in such calendar month being herein referred to as the "Month End
Trading Date"), provided further, however, that if Grantee shall be in Default
as of September 1998, then the date for giving of said written notice shall,
provided such Default is timely cured, be extended to five (5) business days
prior to the last trading day in October 1998 (which, in such event, would be
treated as a Month End Trading Date):
(a) (i) if such Option were then "in the money" (i.e., the Month
End Trading Price exceeded the Option Price), then all (or a
portion) of the Option then outstanding (not previously
exercised or terminated) shall be exercised by Grantee (as
provided for in Section 3 above but using the Month End
Trading Price for determining the fair market value, if
applicable) as of the close of the applicable Month End
Trading Date, or
(ii) if such Option were not then "in the money" (i.e., the
Month End Trading Price did not exceed the Option Price),
then all of the Option then outstanding (not previously
exercised or terminated) would be then cancelled and
terminated and would thereafter be non-exercisable, null and
void as of the closing of the applicable Month End Trading
Date; and
(b) if the closing price of the Company's common stock as of the
applicable Month End Trading Date (The "Month End Trading
Price") were not $2.715 (or more) greater than the Option
Price of the Option, then the Company would pay to Grantee,
no later than 30 days after such Month End Trading Date, an
amount per then outstanding Option which was actually
exercised (per (a) (i) above) or cancelled (per (a) (ii)
above), or cancelled for reasons other than as provided
under any other provision of this Option Agreement, as of
such Month End Trading Date equal to the lesser of:
(i) an amount equal to (A) the Option Price of the Option
plus (B) $2.715 minus (C) such Month End Trading Price, OR
(ii) $2.715.
Any amounts to be paid by Company to Grantee under Section 7(b) hereof
which are not timely paid when due shall bear interest at the rate of 12% per
annum.
Notwithstanding anything contained in this Option Agreement which may
appear to the contrary, and without limitation of any right of Grantee to timely
cure any Default as provided for in the Agreement, (i) Grantee may not make the
special election provided for in this Section 7 if a Default or Event of Default
(as defined in the Agreement) then exists and (ii) no payment pursuant to the
special election provided for in this Section 7 shall be made if a Default or
Event of Default (as defined in the Agreement) then exists.
Notwithstanding anything contained in this Option Agreement which may
appear to the contrary, in the event that Employee makes the special election
provided for in this Section 7:
(i) the aggregate cash payments made by Company with respect to this
Section 7 shall in no event ever exceed $271,500; and
(ii) following such special election, none of the Option (except, in
the case of (a)(i) above, for the portion, if any, of the Option outstanding and
not exercised by Grantee as of the close of the applicable Month End Trading
Date) shall remain outstanding after the close of the applicable Month End
Trading Date.
8. Plan; Registration. The grant of the Option is, and the purchase of
the Option Shares described herein will be, pursuant to the Plan and the Option
Shares are and will be covered by a registration statement covering shares
underlying options granted pursuant to the Plan.
9. Binding Effect. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns.
10. Miscellaneous. This Option Agreement shall be governed by and
construed under the laws of the State of Delaware. If any term or provision
hereof shall be held invalid or unenforceable, the remaining terms and
provisions hereof shall continue in full force and effect. Any modification to
this Agreement shall not be effective unless the same shall be in writing and
such writing shall be signed by the parties hereto. This Option Agreement
constitutes the entire agreement between the parties with respect to the Option
granted hereunder and supersedes and terminates all prior understandings,
agreements, or arrangements between the parties, if any, both oral or written,
with respect thereto.
11. 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, or sent by a recognized overnight
delivery service which guarantees next day delivery ("Overnight Delivery") or
mailed registered or certified mail, return receipt requested, postage prepaid,
transmitted or addressed to the intended recipient as set forth below:
If to Grantee: Mr. Robert J. Klein
42 Latour Way
Greer, SC 29650
with a copy to:
Howard N. Greenberg, Esq.
Kleinbard, Ball & Brecker
Suite 700
1900 Market Street
Philadelphia, PA 19103
Telefax: (215) 568-0140
If to the Company: Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
Attention: President
Telefax: (864) 213-1702
and
Moovies, Inc.
201 Brookfield Parkway
Suite 200
Greenville, SC 29607
Attention: Corporate Secretary
Telefax: (864) 213-1702
(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 on the first 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 the Company is
open for business but shall not include a Saturday or Sunday or legal holiday.
Notwithstanding anything to the contrary in this Agreement, no action is
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.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
MOOVIES, INC.
By:_________________________________
John L. Taylor,
Chief Executive Officer and President
GRANTEE:
__________________________[Signature]
_________________________[Print Name]
State of Residence:____________________
Mailing Address:
------------------------------------
------------------------------------
------------------------------------
<PAGE>
EXHIBIT A
Options Granted; Exercise Price
Number of Options Granted Option Price
------------------------- ------------
100,000 $4.69
<PAGE>
EXHIBIT B
Vesting Schedule
Cumulative Number of
Period Option Shares Vested
Prior to the execution, delivery and
effectiveness of the Agreement Zero
From and after the execution, delivery
and effectiveness of the Agreement until
termination of the Option 100,000
The right of exercise shall be cumulative so that if the Option is not exercised
to the maximum extent permissible during an exercise period, it shall be
exercisable, in whole or in part, with respect to all Option Shares not so
purchased at any time thereafter and prior to the termination of the Option.
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Six
Months Months
Years Ended December 31, Ended Ended
June 30, June 30,
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1997
Income per share calculations:
Income before extraordinary item $ 281 $ 1,765 $ 2,331 $ (1,691) $ (1,491)
Extraordinary item - - (64) - ( 229)
Net income $ 281 $ 1,765 $ 2,267 $ (1,691) $ (1,720)
Weighted average number of
common and common equivalent
shares are as follows:
Weighted average common
shares outstanding 3,184 10,273 12,359 12,184
Shares issued from
assumed exercise of
options and warrants (1) _____ 211 182 173 178
Weighted average number
of shares outstanding N/A ,395 10,455 12,532 2,362
Income per common and
common equivalent shares:
Income before extraordinary
item $ 0.52 $ 0.23 $ (0.13) $ (0.12)
Extraordinary item _____ - (0.01) - (0.02)
Net income N/A $ 0.52 $ 0.22 $ (0.13) $ (0.14)
_______________________
<FN>
(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
</FN>
</TABLE>
462815.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF MOOVIES, INC. AS OF JUNE 30, 1997 AND THE RELATED
CONSOLIDATED STATEMENTS OF EARNINGS AND CASH FLOWS FOR THE THREE MONTHS ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,942
<SECURITIES> 0
<RECEIVABLES> 1,404
<ALLOWANCES> 0
<INVENTORY> 7,748
<CURRENT-ASSETS> 20,457
<PP&E> 48,027
<DEPRECIATION> (8,818)
<TOTAL-ASSETS> 140,921
<CURRENT-LIABILITIES> 41,093
<BONDS> 27,833
0
0
<COMMON> 12
<OTHER-SE> 64,029
<TOTAL-LIABILITY-AND-EQUITY> 140,921
<SALES> 8,693
<TOTAL-REVENUES> 54,151
<CGS> 6,481
<TOTAL-COSTS> 41,003
<OTHER-EXPENSES> 6,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,378
<INCOME-PRETAX> (2,485)
<INCOME-TAX> (994)
<INCOME-CONTINUING> (1,491)
<DISCONTINUED> 0
<EXTRAORDINARY> (229)
<CHANGES> 0
<NET-INCOME> (1,720)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
