**Exhibit 2.1**

 

**ASSET PURCHASE AGREEMENT**

 

THIS AGREEMENT (“Agreement”) is made this 20th day of June, 2003, by and between VIDEO CITY, INC., a Delaware corporation d/b/a “VideoCity,” “Video Land,” “Adventures in Video” and “Video Tyme”, whose address is 4800 Easton Drive, Suite 108, Bakersfield, CA 93309 (“Seller”) and M.G. MIDWEST, INC., a Delaware corporation, whose addressis 900 W. Main Street, Dothan, Alabama 36301 (“Purchaser”). 

 

WHEREAS, Seller and Purchaser desire that certain assets of Seller be sold to Purchaser pursuant to this Agreement; and 

 

WHEREAS, Seller and Purchaser desire to set forth certain representations, warranties and covenants made by each to the other as an inducement to theconsummation of the sale and certain additional agreements related to the sale; 

 

NOW, THEREFORE, in consideration of the foregoing, the mutual promises, conditions, representation, warranties and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiencyof which is hereby acknowledged, the parties hereby agree as follows: 

 

**ARTICLE I**

 

**PURCHASE AND SALE OF ASSETS**

 

1.1    PurchasedAssets.    Subject to and upon the terms and conditions set forth herein, Seller agrees to and will sell, transfer, assign and deliver to Purchaser at Closing (as hereinafter defined), and Purchaser agrees to and willpurchase, acquire and take assignment and delivery of, the assets of Seller located at Seller’s leased store spaces listed on Schedule 1.1 (the “Stores”), used in connection with the operation of the Stores, or that otherwise relateprimarily to Seller’s business at the Stores, as same shall exist on the Closing Date (as hereinafter defined) (collectively, the “Assets”) including, but not limited to: 

 

1.1.1    (a) All machinery, appliances, equipment, tools, supplies, leaseholdimprovements, construction in progress, furniture and fixtures of Seller located at, or related to, the Stores; (b) except as provided below, real property leaseholds and subleaseholds therein, improvements, fixtures and fittings thereon, andeasements, rights-of-way, and other appurtenants thereto (such as appurtenant rights in and to public streets) for the Stores; (c) tangible personal property located at, or related to, the Stores (such as inventories, equipment, supplies andfurniture ); (d) intellectual property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests thereinunder the laws of all jurisdictions; (e) accounts receivable and other receivables at the Stores (such as customer account balances); (f) claims, rent/security deposits, prepayments, and rent credits for the leased premises at the Stores,provided, however, that Purchaser shall reimburse Seller on or before December 31, 2003, up to Twenty Five Thousand and No/100 

 

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Dollars ($25,000.00) in the event that Seller is unable to recover such claims, rent/security deposits,prepayments, and rent credits for the leased premises at the Stores prior to the December 31, 2003, provided, further, however, that such Twenty Five Thousand and No/100 Dollars ($25,000.00) shall be reduced dollar for dollarfor any such claims, rent/security deposits, prepayments, and rent credits for the leased premises at the Stores that Seller is able to recover from any landlord or other holder thereof; (g) franchises, approvals, permits, licenses, orders,registrations, certificates, variances, and similar rights obtained from governments and governmental agencies related to the Stores; and (h) copies of all books, records, ledgers, files, documents, correspondence, customer lists, creativematerials, advertising and promotional materials for, or with respect to, the Stores. 

 

1.1.2    All inventory and equipment held by Seller for rental or sale, located at the Stores or in the possession ofcustomers, including without limitation, video cassette tapes, digital video discs (“DVDs”), and video games, audio books, laser discs, music CDs and cassettes, books, video hardware and software, video cassette recorders and players,video game players and DVD players held at the Stores for rental and sale; provided that Seller shall deliver to Purchaser at Closing not less than the quantity of pre-recorded video cassette tapes, DVDs, video games, music CDs and cassettes andbooks at the Stores, which is set forth on Schedule 1.1.2. Schedule 1.1.2 further identifies all orders for new release title (“New Release Title”) and the number of copies of each such title by format purchased (or to be purchased) bySeller for each of the Stores, within the ninety (90) day period prior to the Closing Date. At Closing, Seller and Purchaser shall reinspect the Assets and determine the number of copies of inventory and New Release Title owned by Seller and on handat each of the Stores on the Closing Date. 

 

1.1.3    Except as provided in Section 1.2.8 below, all of the interest of and the rights and benefits accruing to Seller as lessee under the leases by and between Seller and the landlords for the leased premisesspecifically listed on Schedule 5.1.3 (the “Assumed Store Leases”) . 

 

1.1.4    Customer lists and related information of the Stores. 

 

1.1.5    All of Seller’s right,title and interest in and to any and all other tangible or intangible assets located at the Stores, including goodwill, used in connection with the operation of the Stores, or that otherwise relate primarily to the Stores and the business conductedthereat. 

 

1.1.6    All ofSeller’s right, title, and interest in and to the intellectual property further described, but not limited to, the assets listed on Schedule 1.1.6. 

 

1.2    Excluded Assets.    Anything to the contrary in Section 1.1 notwithstanding, the Assets shallexclude all of the assets and property of Seller which are not specifically listed in Section 1.1, including, but not limited to the following: 

 

1.2.1    Any real property owned by Seller in fee simple. 

 

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1.2.2    All cash, bank deposits and/or cash equivalents;provided, however, Seller shall leave cash in the Stores in an amount not less than the amounts indicated on the attached Schedule 1.2.2 (the “Change Funds”), and Purchaser shall separately reimburse Seller for the actualamount of the Change Funds at Closing. 

 

1.2.3    All vehicles owned or leased by Seller. 

 

1.2.4    All books, ledgers, files, documents, correspondence, customer lists, creative materials, advertising and promotional materials that do not relate to the Stores. 

 

1.2.5    All video cassette tape, DVD,and video game inventory located at the Stores which is leased by Seller from any distributor or movie studio or subject to any contractual restrictions on the sale or transfer thereof, all of which shall be identified by Seller on Schedule 1.2.5,and removed from the Stores by Seller prior to the Closing Date. 

 

1.2.6    Any other tangible or intangible assets owned by Seller which are not used directly in connection with the operation of the Stores, or which otherwise do not relate directly to the Storesor the business conducted thereat, including, but not limited to, all tangible and intangible assets located at Seller’s support center (“Seller’s Support Center”). 

 

1.2.7    Any tangible personal property or intellectual property, which is leased bySeller from any third party. 

 

1.2.8    The real property leases for the stores located at: 2723 E. Main Street, Ventura, California 93003; and 5944 Telegraph Road, Ventura, California 93003 (individually, an “Excluded Lease,” andcollectively, the “Excluded Leases”). 

 

1.2.9    Any assets or property of Seller not specifically identified as an Asset in Section 1.1 above. 

 

1.2.10    Any assets or property of Seller not specifically identified as an Asset in Section 1.1 above 

 

**ARTICLE II**

 

**PURCHASE PRICE; ASSUMPTION OF LIABILITIES**

 

2.1    Purchase Price.    Thepurchase price due from Purchaser to Seller for the Assets and the Covenants Not To Compete shall be Three Million Two Hundred Fifty Thousand and No/100 Dollars ($3,250,000.00) (the “Purchase Price”). 

 

2.2    Payment.    ThePurchase Price shall be paid to Seller by Purchaser by wire transfer at Closing to the bank account(s) designated by Seller. 

 

2.3    Hold Back.    Fifty Thousand and No/100 Dollars ($50,000.00) of the Purchase Price shall be heldback by the Purchaser (the “Hold Back Amount”) pending the determination by the 

 

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Purchaser, on or before December 31, 2003, that there are no outstanding claims, damages, losses or liabilities relatedto the Assets. 

 

2.4    NoShop.    Seller agrees that during the period commencing on the date hereof and ending on the earlier of the Closing Date or the termination of this Agreement, Seller will not, directly or indirectly (a) encourage, solicit orinitiate discussions or negotiations with any corporation, partnership, person, entity or group, other than Purchaser, concerning any merger, consolidation, sale of assets, sale of securities or acquisition of beneficial ownership with respect tothe Assets or the Stores, or (b) otherwise initiate any action (unless in response to an unsolicited offer) which would prejudice the ability of Purchaser to close under this Agreement. 

 

2.5    Assumed Liabilities.    The Purchaser agrees to and will at Closingassume and agree to pay, discharge and perform when lawfully due (i) all obligations and liabilities of Seller under the Assumed Store Leases accruing and/or arising on or after the Closing Date; and (ii) all obligations and liabilities of theSeller with respect to all rental inventory (including video cassette tapes, DVDs and video games) purchased or ordered by Seller in the ordinary and normal course of business, which has a “street date” (as such term is normally used andunderstood in the video business) during the two weeks prior to the Closing Date, during the calendar week of Closing, or after the Closing Date; and otherwise, Purchaser assumes no liabilities of Seller of any nature. The Purchaser does not assumeany obligations of Seller with respect to any gift certificates issued by Seller prior to the Closing Date that are charged to the account of Seller when tendered as payment by the holder thereof at any of the Stores. 

 

2.6    Allocation of the Purchase Price Among thePurchased Assets.    The Purchase Price shall be allocated, for tax purposes, among each item or class of the Assets pursuant to Schedule 2.6 hereof. The Seller and the Purchaser agree that they will prepare and file anynotice or other filings required pursuant to section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”), and that any such notices or filings will be prepared based on such tax allocation of the Purchase Price. At Closing,Seller and Purchaser shall agree to the terms of and complete an IRS Form 8594 (“Asset Acquisition Statement” under Section 1060 of the Code) with respect to this transaction. 

 

2.7    Employment of Seller’s Personnel.    The Seller will use itsreasonable best efforts to persuade its employees at the Stores to make themselves available for employment by the Purchaser. Purchaser shall use its reasonable best efforts to interview and review said current employees of Seller prior to theClosing Date. Purchaser will only be able to offer employment to those of Seller’s employees who meet Purchaser’s normal employment criteria and to the extent job openings then exist. To the extent job openings are not available, Purchaserintends to retain in its files the personnel information about Seller’s employees who meet Purchaser’s criteria and to consider the same for other suitable job openings as they may become available. It is not the intent of this Section 2.7to make Seller’s employees third party beneficiaries to this Agreement. Employment of Seller’s personnel by Purchaser shall be solely at Purchaser’s option in the exercise of its business judgment. Purchaser is not assuming any ofSeller’s employment liabilities that have accrued, including but not limited to, unpaid FICA, FUTA, unemployment tax, pension or profit-sharing plan contributions, employee fringe benefits, bonuses or incentive programs of any type, obligationsunder COBRA or any other federal, state or local law, statute or regulation, or accrued and/or unpaid vacation time or allowances, nor is Purchaser acquiring or assuming any interest or 

 

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obligation under any employee benefit plans of Seller. 

 

2.8    Taxes and Prorations.    Seller shall be responsible for all bulksales taxes, ad valorem taxes or assessments relating to the Assets for taxable periods up to the Closing Date, regardless of when the same shall become due and payable, and such taxes shall be pro-rated between Seller and Purchaser as of theClosing Date. Back taxes and assessments for back taxes, if any, shall be paid by Seller. If, at the time of Closing, the Assets shall be subject to or affected by any assessment payable in installments of which the first installment shall be acharge or lien or shall have been paid, all the remaining installments shall be deemed due and payable for the purposes of this Agreement and shall be paid by Seller at the time of Closing. If the parties are unable to determine the exact amount oftaxes for proration at Closing, or if the taxes or assessments are reassessed subsequent to Closing, it is agreed that the parties will make the necessary financial adjustments at the time the assessment is determined. Seller shall be responsiblefor any gift certificates issued by Seller prior to the Closing Date and all rent and other payments due under the Assumed Store Leases prior to the Closing Date, or otherwise attributable to the period prior to Closing (including all CAM, tax andinsurance charges and other amounts due and payable under the Assumed Store Leases); provided, however, the rent and other lease charges paid by Seller for the month in which the Closing occurs shall be prorated between Seller andPurchaser as of the Closing Date, and upon proof of payment, Purchaser shall reimburse Seller at Closing for Purchaser’s pro-rated share thereof. The parties shall reimburse one another for any expense paid by one party that the other party hasagreed to pay or share pursuant to this Agreement. If Seller and Purchaser are unable to determine the exact amount of any expenses for proration at Closing, or if it is determined subsequent to the Closing that any proration was not correct, it isagreed that Seller and Purchaser shall make any necessary financial readjustments at the time such incorrect proration is determined. The obligations of the parties under this Section 2.8 shall survive the Closing. 

 

2.9    Contracts andAgreements.    Except for the Assumed Store Leases or as otherwise specifically provided herein, Purchaser is not assuming any of Seller’s contracts or agreements, or any of Seller’s obligations or liabilitiesthereunder. 

 

2.10    Liens.    The Assets shall be transferred by Seller to Purchaser free and clear of any and all liens, claims, encumbrances, security interests, pledges and charges (collectively,“Security Interests”), other than liens for taxes and assessments for the current year and taxes and assessments, which are not yet due and payable. Purchaser does not assume, and shall not be liable for, any obligations or liabilitieswhatsoever of Seller relating to the Assets, or the ownership or operation of the Assets or the Stores, accruing, arising, or otherwise attributable to the period prior to the Closing Date, unless specifically provided for elsewhere in thisAgreement. 

 

2.11    Other ClosingCosts.    Seller and Purchaser shall each remain liable for their own closing expenses including attorney’s fees. Seller shall remain liable for any closing expenses incurred by Seller and/or Seller’s agents oremployees and shall indemnify Purchaser against any actions brought against Purchaser or the Assets resulting from Seller’s failure to pay any such closing expenses. Purchaser shall remain liable for any closing expenses incurred by Purchaserand/or Purchaser’s agents or employees and shall indemnify Seller against any actions brought against Seller resulting from Purchaser’s failure to pay any such closing expenses. 

 

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2.12    Bulk Sales.    Seller and Purchaser do not believethat this transfer is subject to any “Bulk Sales Act” provisions or other similar legal requirements. Notwithstanding the accuracy of this belief, it will not be practicable to comply or to attempt to comply with the procedures of the“Bulk Sales Act” or any similar law of the State of California, or of any other state which may be asserted to be applicable to the transactions anticipated in this Agreement. Accordingly, to induce Purchaser to waive any requirement forcompliance with the procedures of any Bulk Sale law, Seller agrees that the indemnity provisions of this Agreement shall apply to any claim asserted against Purchaser arising out of, or resulting from the failure of Purchaser or Seller to complywith or perform, any actions in connection with, in preparation for, or incident to, the transactions anticipated in this Agreement which might be required under the terms and provisions of any “Bulk Sales Act” or similar law, or which maybe asserted to be applicable. 

 

**ARTICLE III**

 

**CLOSING**

 

3.1    Closing.    The closing of the transaction contemplated by thisAgreement (the “Closing”) shall take place at the offices of the Purchaser, 900 West Main Street, Dothan, Alabama 36301, or by facsimile and overnight mail for the convenience of the parties, on August 1, 2003 (the “ClosingDate”). All computations, adjustments, and transfers for the purposes herein shall be effective as of the opening of business on the Closing Date. Time is of the essence of this Agreement. 

 

3.2    ClosingDocuments.    At closing and thereafter if requested by Purchaser, the Seller shall tender to Purchaser fully executed affidavits, assignments, bills of sale and other documentation as Purchaser may require for all Assets,including but not limited to the following items: 

 

3.2.1    Bill of Sale covering the Assets being conveyed. 

 

3.2.2    Assignment and Amendment of Lease executed by Seller and Seller’s landlord for each of the Assumed StoreLeases. 

 

3.2.3    Possession of the Assets. 

 

3.2.4    All records and the executed originals of all lease agreements, service contracts, warranties, maintenance agreements that may be in effect and other documents affecting the Assets.

 

3.2.5    Such otherdocuments as may be reasonably requested by Purchaser in connection with the conveyance of the Assets and the continued effective operation thereof. 

 

3.2.6    A statement that there is no accrued vacation pay or other benefits which are due and payable to the currentemployees of Seller. If any are due and payable, Seller shall be responsible for the payment thereof at or prior to Closing. 

 

 

 

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3.2.7    Opinion of Seller’s counsel as to the matters set forthon the attached Exhibit 3.2.7 and in a form reasonably satisfactory to Purchaser. 

 

3.2.8    Assignments for all warranties and other documents related to the Assets. 

 

**ARTICLE IV**

 

**INDEMNIFICATION**

 

4.1    Each party shall indemnify and hold harmless theother against and in respect of any and all losses, damages, costs, expenses or deficiencies (including reasonable attorney’s fees and costs) resulting from, arising out of, or relating to, any misrepresentation, breach of warranty, ornon-fulfillment of any agreement on the part of the breaching party under this Agreement or from any misrepresentation in or omission from any exhibit, transfer document, certificate or other instrument furnished or to be furnished to thenon-breaching party under this Agreement. 

 

4.2    Seller shall indemnify and hold harmless Purchaser against and in respect of all losses, damages, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including reasonableattorney’s fees and costs) incident to any of the foregoing, including claims of third parties against Purchaser, for debts, services, contracts, liabilities, obligations or actions by Seller prior to the Closing Date and not specificallyassumed by Purchaser under the terms of this Agreement. 

 

4.3    Seller agrees to indemnify and hold harmless Purchaser from and against all losses, damages, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including reasonable attorney’sfees and costs) resulting from, arising out of, relating to, or caused by, the breach of any of Seller’s representations, warranties or covenants contained in this Agreement, any liability or obligation of Seller which is not expressly assumedby Purchaser under this Agreement, or any liability of Purchaser arising by operation of law (including under any bulk transfer law of any jurisdiction or under any common law doctrine of defacto merger or successor liability) which is not expresslyassumed by Purchaser under this Agreement. 

 

4.4    Seller agrees to indemnify and hold harmless Purchaser against and in respect of all income, gross receipts, value added, service, sales, bulk sales, use, rental, excise, ad valorem and property taxes or otherfederal, state or local taxes or assessments levied upon or relating to the Assets or Seller for taxable periods up to the Closing Date, regardless of when the same shall become due and payable, unless otherwise specifically agreed to herein.

 

4.5    Purchaser shall indemnify and holdharmless Seller against and in respect of all losses, damages, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including reasonable attorney’s fees and costs) incident to any of the foregoing, including claimsof third parties against Seller, for debts, services, contracts, obligations, liabilities or actions by Purchaser, attributable to the period of operations of the Stores on or after the Closing Date, or otherwise assumed by Purchaser. 

 

4.6    Purchaser agrees to indemnify and hold harmlessSeller from and against all losses, 

 

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damages, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including reasonableattorney’s fees and costs) resulting from, arising out of, relating to, or caused by, the breach of any of Purchaser’s representations, warranties or covenants contained in this Agreement, or Purchaser’s failure to pay or perform anyliability or obligation expressly assumed by Purchaser under this Agreement. 

 

4.7    The Indemnified Party shall promptly notify the Indemnifying Party of the existence of any claim, demand, or other matter to which the Indemnifying Party’s indemnification obligationwould apply, and shall give the Indemnifying Party a reasonable opportunity to defend the same at Indemnifying Party’s own expense, and with counsel of Indemnifying Party’s own selection reasonably satisfactory to Indemnified Party.Indemnified Party shall at all times also have the right to fully participate in the defense at its own expense. If the Indemnifying Party within reasonable time after that notice, but no later than fifteen (15) days, fails to defend, theIndemnified Party shall have the right, but not the obligation, to undertake the defense of, and to compromise or settle (exercising reasonable business judgment) the claim, demand, or other matter on behalf, for the account, and at the risk, of theIndemnifying Party. 

 

**ARTICLE V**

 

**REPRESENTATIONS AND WARRANTIES**

 

5.1    Representations and Warranties ofSeller.    In addition to any warranties and representations otherwise contained herein, Seller also represents and warrants to Purchaser as of the date hereof and on the Closing Date as follows (all representations andwarranties shall survive the Closing): 

 

5.1.1    Title.    Seller owns licenses or leases the Assets and any other tangible assets necessary for the conduct of its business at the Stores, as is now being conducted and as presentlyproposed to be conducted. The Assets and any other tangible assets necessary for the conduct of its business at the Stores are free from defects (patent and latent), have been maintained in accordance with normal industry practice and are in goodoperating condition and repair (subject to normal wear and tear and breakage). Seller leases no such assets except for ones specifically identified as leased on Schedule 5.1.1. Seller has good and marketable title to the Assets to be transferredpursuant to this Agreement, subject to no Security Interest, except for: 

 

5.1.1.1    Liens reflected, which shall be fully satisfied at or before the Closing, on Schedule 5.1.1.1 as securing specified liabilities with respect to which no default exists. 

 

5.1.1.2    Liens for current taxes andassessments not yet due and payable. 

 

5.1.2    Intellectual Property.

 

5.1.2.1    Seller has title to or has the right to use pursuant to license, sublicense, agreement or permission all intellectual property necessary for the 

 

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operation of the business of the Seller as presently conducted and as presently proposed to be conducted.Each item of intellectual property owned or used by Seller immediately prior to the Closing hereunder will be owned or available for use by the Purchaser on identical terms and conditions immediately subsequent to the Closing hereunder. 

 

5.1.2.2    Seller has not interferedwith, infringed upon, misappropriated or otherwise come into conflict with any intellectual property rights of third parties, and none of the employees with responsibility for intellectual property matters of Seller has ever received any charge,complaint, claim or notice alleging any such interference, infringement, misappropriation, or violation. To the knowledge of the Seller and its employees with responsibility for intellectual property matters of Seller, no third party has interferedwith, infringed upon, misappropriated, or otherwise come into conflict with any intellectual property rights of Seller. 

 

5.1.2.3    Schedule 1.1.6 identifies each registration which has been issued to Seller with respect to any of itsintellectual property, identifies each pending application for registration which Seller has made with respect to any of its intellectual property, and identifies each license, agreement, or other permission which Seller has granted to any thirdparty with respect to any of its intellectual property (together with any exceptions). Seller has delivered to the Purchaser correct and complete copies of all such registrations, applications, licenses, agreements and permissions (as amended todate) and has made available to the Purchaser correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. 

 

5.1.2.4    Schedule 1.1.6 also identifies each item of intellectual property that anythird party owns and that Seller uses pursuant to license, sublicense, agreement or permission. Seller has supplied the Purchaser with correct and complete copies of all such licenses, sublicense, agreements and permissions (as amended to date).

 

5.1.3    Assumed StoreLeases.    Seller has delivered to the Purchaser a correct and complete copy of each of the Assumed Store Leases (as amended to date), which leases are listed and more particularly described in Schedule 5.1.3, and ExcludedLeases (as amended to date). With respect to each of the Assumed Store Leases and Excluded Leases and subject to each landlord’s consent to and approval of the assignment and transfer of the Assumed Store Leases to Purchaser as provided herein,Seller warrants that: 

 

5.1.3.1    The lease or sublease is legal, valid, binding, enforceable and in full force and effect; 

 

5.1.3.2    The Assumed Store Leases will continue to be legal, valid, binding, enforceable and in full force andeffect on identical terms following the Closing and the Excluded Leases will continue to be legal, valid, binding, enforceable and full force and effect on identical terms up to the Closing; 

 

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5.1.3.3    No party to the lease or sublease is in breach or default,and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification or acceleration thereunder; 

 

5.1.3.4    No party to the lease or sublease has repudiated any provision thereof;

 

5.1.3.5    There are nodisputes, oral agreements or forbearance programs in effect as to the lease or sublease; 

 

5.1.3.6    Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest inthe leasehold or sub-leasehold; and 

 

5.1.3.7    All facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operatedand maintained in accordance with applicable laws, rules and regulations. 

 

5.1.3.8    Seller shall, prior to Closing, cure any breach or default in any of the Assumed Store Leases or Excluded Leases and shall cooperate with the Purchaser to ensure that Purchaser andSeller’s landlords for each Store subject to an Excluded Lease, enter into a new lease for such store as of the Closing Date. 

 

5.1.4    Violations, Suits, Etc.    To the best of Seller’s knowledge, in all respectsmaterial to the Stores and Assets, Seller is not in default under any law or regulation, or under any order of any court of federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality whereverlocated. To the best of Seller’s knowledge and except to the extent set forth on the Schedule 5.1.4, there are (1) no claims, actions, suits or proceedings instituted or filed and, (2) there are no claims, actions, suits or proceedingsthreatened presently, or which in the future may be threatened against or affecting Seller, the Stores, or the Assets at law or in equity, by any person or entity before or by any federal, state, municipal or other governmental department,commission, board, court, bureau, agency or instrumentality wherever located. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (including the assignments and assumptions referredto hereinabove), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of itscharter or bylaws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease,sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Seller is a party or by which it is bound or to which any of itsassets is subject. The Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the parties to consummate the transactions contemplatedby this Agreement (including the assignments 

 

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and assumptions referred to hereinabove). 

 

5.1.5    TaxReturns.    Seller has filed or will file all requisite federal, state and other tax returns due for all fiscal periods ended within 120 days of the Closing Date relevant to the Assets. All such taxes due and owing shall beor have been paid by Seller. 

 

5.1.6    Financial Statements.    Attached hereto as Schedule 5.1.6 are the following financial statements for the Seller (collectively the “Financial Statements”): (i) balance sheetand profit and loss statements as of and for the fiscal year ended January 31, 2003 (the “Most Recent Fiscal Year End”) and (ii) fixed asset listing and profit and loss statements (the “Most Recent Financial Statements”) as ofand for the four (4) months ended May 31, 2003 (the “Most Recent Fiscal Month End”). The Financial Statements have been prepared on a consistent basis throughout the periods covered thereby, are materially correct and complete, andaccurately reflect Seller’s assets and liabilities, revenues and expenses, and the operations of the business, at the Stores. 

 

5.1.7    Events Subsequent to Most Recent Fiscal Year End.    Since the Most Recent FiscalMonth End, there has not been any adverse change in the assets, liabilities, business, financial condition, operations, and results of operations or future prospects of the Seller or the Stores. 

 

5.1.8    PresentStatus.    With respect to the Stores and the Assets, since the Most Recent Fiscal Month End, the Seller has not: incurred any obligations or liabilities, absolute, accrued, contingent, or otherwise, except currentliabilities in the ordinary course of business; discharged or satisfied any lien or encumbrances, or paid any obligations or liabilities, except current liabilities and current liabilities incurred since the Most Recent Fiscal Month End, in eachcase, in the ordinary course of business; mortgaged, pledged or subjected to lien, encumbrance, or charge any of its assets; canceled any debt or claim; sold or transferred any assets, except sales from inventory in the ordinary course of business;suffered any damage, destruction, or loss (whether or not covered by insurance) materially affecting its properties, business or prospects; waived any rights of substantial value; nor entered into any transaction other than in the ordinary course ofbusiness. 

 

5.1.9    Undisclosed Liabilities.    With respect to the Stores and the Assets, Seller has no liability (and there is no basis for any present or future charge, complaint, action, suit,proceeding, hearing, investigation, claim or demand against Seller giving rise to any liability), except for (i) liabilities set forth on the face of the Most Recent Financial Statements (other than in any notes thereto) and (ii) liabilities whichhave arisen after the Most Recent Fiscal Month End in the ordinary course of business (none of which relates to any breach of contract, breach of warranty, tort, infringement or violation of law or arose out of any charge, complaint, action, suit,proceeding, hearing, investigation, claim or demand). 

 

5.1.10    Operations Until Closing.    Between the date of this Agreement and the Closing Date, the Seller shall: 

 

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5.1.10.1    Carry on its business and operate the Stores in theordinary and normal course of business and maintain normal levels of rental and sell-through inventory and equipment; and specifically, Seller shall continue to purchase “new release” video cassette tape, DVD, and video game inventory,music CDs and cassettes and books consistent with its present and prior operation of the Stores. On the Closing Date, Seller shall transfer to Purchaser a full complement of rental and sell-through video cassette tapes, DVDs, video games, music CDsand cassettes and books, as is customary with Seller’s operations at Stores prior to the date hereof, but in no event less than the quantity of video cassette tapes, DVDs, video games, music CDs and cassettes and books at the Stores which isset forth in Schedule 1.1.2. 

 

5.1.10.2    Maintain the Assets in as good working order and condition as at present, ordinary wear and tear excepted. 

 

5.1.10.3    Perform all material obligations under agreements relating to or affecting its Assets, properties andrights. 

 

5.1.10.4    Keepin full force and effect until Closing present insurance policies or other comparable insurance coverage. 

 

5.1.10.5    Not, without Purchaser’s consent, enter into any contracts or obligations, other than those normalconsumer contracts in the ordinary course of business, which by their terms would either necessitate or, require as a practical business matter, assumption of or action by Purchaser after the Closing Date. 

 

5.1.10.6    Not sell, assign, lease orotherwise transfer or dispose of the Assets except in the ordinary course of business. Sales of used/previously viewed video cassette tapes, DVDs and video games shall be consistent with Seller’s prior operations. 

 

5.1.10.7    Not enter into anyemployment contracts which are not terminable at will. 

 

5.1.11    Operations after Closing.

 

5.1.11.1    Seller represents and warrants that it shall cease operations at the Stores as of the Closing Date. 

 

5.1.12    Organizational Representations and Warranties ofSeller.    Seller represents and warrants as follows: 

 

5.1.12.1    Seller is a corporation duly organized, validly existing and as of the Closing Date in good standing under the laws of the State of Delaware. 

 

5.1.12.2    The execution and deliveryof this Agreement by Seller has been duly authorized, and on the Closing Date, Seller will have all necessary power and 

 

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authority to consummate the transactions provided herein, subject to any stockholder approval requiredunder applicable law. 

 

5.1.12.3    The officers whose signatures are affixed hereto have all power and authority to bind Seller. 

 

5.1.13    Title to Assets.    In the event that any Agreements, contracts, warranties,maintenance agreements and other documents related to the Assets are titled in any person or entity other than the Seller and are required to be assigned or transferred to Purchaser hereunder, the Seller shall cause such person or entity to assignor transfer its interest in such agreements to the Purchaser. 

 

5.1.14    Access to Records.    The Seller will afford the Purchaser access, during normal business hours, to all its business operations, properties, books, files, andrecords at or directly related to the Stores, and will cooperate in the Purchaser’s examination thereof. No such examination, however, shall constitute a waiver or relinquishment by the Purchaser of its right to rely upon the Seller’scovenants, representations, and warranties as made herein or pursuant hereto. Until the Closing, the Purchaser will hold in confidence all information so obtained, except as hereinafter provided, and any document or instrument heretofore orhereafter obtained by the Purchaser in connection herewith shall be held on an express trust for and on behalf of the Seller, except as hereinafter provided. 

 

5.1.15    Compliance.    Through the Closing Date, the Seller will use its reasonablebest efforts to cause its employees to comply with all applicable provisions of this Agreement. 

 

5.1.16    Financial Reports.    The Seller’s revenue and expense data provided toPurchaser and the Seller’s Sales Tax Returns for 2001 and 2002 to date, copies of which are hereby furnished to Purchaser by Seller upon execution of this Agreement, are true, accurate and complete as of their dates, and as of the date hereof.

 

5.1.17    Environment,Health and Safety.    With respect to the Stores and the Assets: 

 

5.1.17.1    Seller has complied with all laws (including rules and regulations thereunder) of federal, state and localgovernments (and all agencies thereof) concerning the environment, public health and safety, and employee health and safety, and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand or notice has been filed orcommenced against Seller alleging any failure to comply with any such law or regulation. 

 

5.1.17.2    Seller has no liability (and there is no basis related to the past or present operations, properties orfacilities of Seller for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand against Seller giving rise to any liability) under the Comprehensive Environmental Response, Compensation andLiability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean 

 

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Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, theRefuse Act of 1899, or the Emergency Planning and Community Right-To-Know Act of 1986 (each as amended), or any other law (or rule or regulation thereunder) of any federal, state or local government (or agency thereof), concerning release orthreatened release of hazardous substances, public health and safety, or pollution or protection of the environment. 

 

5.1.17.3    Seller has no liability (and Seller has not handled or disposed of any substance, arranged for thedisposal of any substance or owned or operated any property or facility in any manner that could form the basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand (under the common law orpursuant to any statute) against Seller giving rise to any Liability) for damage to any site, location or body of water (surface or subsurface) or for illness or personal injury. 

 

5.1.17.4    Seller has no liability (and there is no basis for any present or futurecharge, complaint, action, suit, proceeding, hearing, investigation, claim or demand against Seller giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of anyfederal, state or local government (or agency thereof) concerning employee health and safety. 

 

5.1.17.5    Seller has obtained and been in compliance with all of the terms and conditions of all permits, licensesand other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables which are contained in, all federal, state andlocal laws (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions and charges thereunder) relating to public health and safety, worker health and safety, and pollution or protection of the environment,including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwiserelating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes. 

 

5.1.17.6    Lawful Operations WithoutHazardous Wastes.    In the operation of Seller’s business at the Stores, Seller has complied with all applicable laws and regulations, including permits, during its possession, and during its possession, there has beenno on site disposal at the leased spaces of hazardous or toxic waste as defined by federal or state laws and there has been no storage of hazardous or toxic waste at the leased spaces, nor off site disposal of hazardous or toxic waste generated fromany operation at the leased spaces. 

 

Further,Seller agrees to provide Purchaser with any hazardous or toxic waste evaluations that have been prepared by a private engineer, business, or a 

 

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governmental entity. Seller also agrees to allow Purchaser, at Purchaser’s option and expense, tohave facilities and premises at the leased spaces evaluated and inspected for hazardous or toxic waste. If any of these evaluations demonstrate the presence of hazardous or toxic waste or the likelihood thereof, the Purchaser, at Purchaser’soption, may terminate this Agreement entirely at any time prior to Closing Date. After Closing, Purchaser relinquishes such right to terminate this Agreement, but nothing shall be construed to terminate Purchaser’s rights under this Agreement.

 

5.1.17.7    Construction Assurances.    The construction of the facilities and premises at the leased spaces is according to plans and specifications of any applicable county, state or federalstandards. Seller agrees to furnish Purchaser with a set of plans and specifications for the facilities and premises at the leased spaces, where available. 

 

5.1.18    Brokers’ Fees.    Seller has no liability or obligation to pay any fees orcommissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Purchaser could become liable or obligated. 

 

5.2    Representations and Warranties of Purchaser.

 

5.2.1    Purchaser is a corporation dulyorganized, validly existing and in good standing under the laws of the State of Delaware. 

 

5.2.2    The execution and delivery of this Agreement by Purchaser has been duly authorized by proper Corporateaction, and on the Closing Date, Purchaser will have all necessary power and authority to consummate the transactions provided herein. 

 

5.2.3    Brokers’ Fees.    Purchaser has no liability or obligation to pay any fees orcommissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. 

 

**ARTICLE VI**

 

**CONDITIONS TO OBLIGATION TO CLOSE**

 

6.1    Conditions to Obligation to Close.

 

6.1.1    Conditions to Obligation of the Purchaser.    Theobligation of the Purchaser to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: 

 

6.1.1.1    The representations and warranties of Seller set forth hereinabove shall betrue and correct in all material respects at and as of the Closing Date. 

 

6.1.1.2    Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing. 

 

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6.1.1.3    Seller and Purchaser shall have procured all of the thirdparty consents specified hereinabove, including, but not limited to, the written consent of Seller’s landlords to the assignment of the Assumed Store Leases by Seller to Purchaser. 

 

6.1.1.4    Seller and Purchaser shall have re-inspected the Assets, and based upon suchre-inspection, Purchaser shall be satisfied that the purchase and sale of inventory by Seller has been substantially consistent with Seller’s prior operations. 

 

6.1.1.5    Seller shall deliver to Purchaser executed covenants not to compete fromSeller in the form attached hereto as Exhibit 6.1.1.5 (the “Covenant Not To Compete”). 

 

6.1.1.6****    Purchaser and Seller shall have resolved any of the matters related to the Assumed Lease set forthon Schedule 6.1.1.6 to the reasonable satisfaction of Purchaser. 

 

6.1.2    Conditions to Obligation of the Seller.    The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing issubject to satisfaction of the following conditions: 

 

6.1.2.1    The representations and warranties of Purchaser set forth hereinabove shall be true and correct in all material respects at and as of the Closing Date. 

 

6.1.2.2    The Purchaser shall haveperformed and complied with all of its covenants hereunder in all material respects through the Closing. 

 

6.1.2.3    Seller shall have obtained the approval of its stockholders required under applicable law. Seller shall useits best efforts to obtain such approval of its stockholders. 

 

**ARTICLE VII**

 

**ADDITIONAL PROVISIONS**

 

7.1    Default. 

 

7.1.1    In the event that Seller failsfor any reason to close the transaction contemplated by this Agreement, or in the event that Purchaser, based upon a material failure by Seller for any reason to operate the Stores in the normal course of business, determines not to close thetransaction contemplated by this Agreement, or in the event that Seller does not receive approval of its stockholders to consummate the transaction contemplated by this Agreement, then Seller shall pay, or cause to be paid, to Purchaser a break-upfee in the amount of Sixty Thousand and No/100 Dollars ($60,000.00) (the “Break-up Fee”) for the time and resources invested and the costs and expenses incurred by 

 

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Purchaser in connection with its evaluation, due diligence examination of Seller and the negotiation andexecution of this Agreement. Any occurrence, act or omission (“Triggering Event”) that would constitute a cause for the payment of the Break-up Fee to Purchaser under this Agreement shall require payment to Purchaser For the purposes ofthis Section 7.1.1, the term “material failure” shall mean a failure that is reasonably likely to have a material adverse effect on the Assets or business of Seller at the Stores. 

 

7.1.2    In the event all conditions andcontingencies contained herein shall be met and Purchaser shall fail to purchase the Assets as provided herein, Purchaser shall reimburse Seller for the cost of all fees, costs and expenses it may have incurred or thereafter incur, including, butnot limited to, reasonable attorney’s fees. 

 

7.2    Continued Inspection.    With reasonable advance notice given to Seller, the Purchaser has the right to examine the Assets after acceptance of this Agreement by Seller. This right toexamine the Assets shall continue until Closing Date. Purchaser’s right to examine shall be during normal business hours, or as otherwise arranged and shall not unreasonably interfere with the operation of Seller’s business at the Stores.Upon the request of Purchaser, Seller shall provide for Purchaser’s review copies of all leases, agreements or other documents relating to Seller’s business at the Stores. 

 

**ARTICLE VIII**

 

**MISCELLANEOUS PROVISIONS**

 

8.1    Audit Requirements.    Seller hereby agrees that at any time prior to Closing and for a period ofthree (3) years after Closing, and upon reasonable notice to Seller, the Purchaser, its parent corporation, Movie Gallery, Inc., and their respective officers, employees, agents, independent auditors and financial consultants, shall have full accessto all financial records of Seller for the current fiscal year and for the prior three complete fiscal years of Seller, for the purpose of conducting and completing an unqualified audit of Seller’s financial statements and business operationutilizing GAAP. Seller agrees to cooperate fully with Purchaser in this effort and to maintain and provide Purchaser with the financial records necessary to conduct and complete such audit. Purchaser shall reimburse Seller for any expenses incurredby Seller in connection with any such post-closing audit. Seller agrees that Purchaser’s parent corporation, Movie Gallery, Inc., shall have the right to include the audited financial statements of Seller in any of its public filings with theSecurities and Exchange Commission, as may be required by law or by the terms of any listing agreement with a securities exchange, and to present such financial statements to any interested parties, including but not limited to potentialunderwriters and potential investors in a private or public offering of the Purchaser’s capital stock, debentures, or other securities of Purchaser or its parent corporation, Movie Gallery, Inc. 

 

8.2    Risk of Loss.    Therisk of loss prior to the Closing Date shall be with Seller. In the event the Assets or the operations at the Stores shall have been damaged adversely or affected in any material way as a result of any strike, accident or other casualty or act ofGod or the public enemy, or any judicial, administrative or governmental proceeding at such time as Seller proposed to close, then Purchaser shall have the options of either (i) prorating the Purchase Price to adjust for 

 

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the loss; or (ii) proceeding to close with an assignment of any insurance proceeds which may be paid to reflect such lossor damage, or (iii) terminating this Agreement and the transaction contemplated therein. 

 

8.3    Severability and Operations of Law.    If any provision of this Agreement is prohibited by the laws of any jurisdiction as those laws apply to this Agreement, thatprovision is ineffective to the extent of such prohibition and/or is modified to conform with such laws, without invalidating the remaining provisions hereto; and any such prohibition in any jurisdiction shall not invalidate such provision in anyother jurisdiction. 

 

8.4    Choice ofLaw.    This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama applicable to contracts executed and to be performed in such state. The parties to this Agreement hereby submit tothe exclusive jurisdiction of the federal and state courts sitting in Dothan, Alabama, and agree that any action hereunder or in any way related to this Agreement shall be brought in such courts. 

 

8.5    Modification.    ThisAgreement may not be changed or modified except in writing specifically referring to this Agreement and signed by the undersigned Purchaser and Seller. 

 

8.6    Continuation and Survival.    The representations and warranties of the respective parties and allof the other terms, covenants and conditions contained herein shall be deemed material and shall survive the Closing for three (3) years after the Closing Date, except in the case of Sections 5.1.1, 5.1.5 and 5.1.17, which shall be governed bystatutory time limits. 

 

8.7    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 one and the sameinstrument. 

 

8.8    Confidentiality;Publicity.    Except as may be required by law or as otherwise permitted herein, no party hereto or their respective affiliates, employees, agents and representatives shall disclose to any third party the subject matter orterms of this Agreement without the prior consent of the other parties; provided, however, that any party hereto may discuss the terms of this Agreement and the transactions contemplated herein with its counsel, financial advisors, lenders andequity investors and their respective counsel. No press release or other public announcement related to this Agreement or the transactions contemplated hereby will be issued by any party hereto without the prior approval of the other parties, exceptthat any party may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with a securities exchange (in which case such party will consult with the other parties prior to makingsuch disclosure). Notwithstanding anything above to the contrary, Seller and Purchaser shall issue a joint press release upon the execution of this Agreement. The content of such press release shall be agreed upon by both Seller and Purchaser. Nopress release shall be issued by either Seller or Purchaser unless the content thereof is agreed upon. Disclosure of any financial data provided either party by the other is strictly prohibited without the other party’s prior written consent.Notwithstanding anything herein to the contrary, the parties acknowledge that Purchaser may pursue a private or public sale of the assets, capital stock or securities of the Purchaser in the future. The Seller agrees that Purchaser is herebypermitted to reveal any information provided by Seller 

 

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as is reasonably required by Purchaser, in order to facilitate the closing of any such sale or offer to sell, or requiredby law. 

 

8.9    Assignment; Successorsand Assigns.    Neither party to this Agreement may assign any of its rights or delegate any of its responsibilities under this Agreement, except that Purchaser may assign this Agreement to any subsidiary of Purchaser or itsparent corporation, or to any person that succeeds to all or substantially all of the business of Purchaser through a purchase of assets, merger or otherwise. This Agreement shall inure to the benefit of and be binding upon the parties and theirrespective heirs, successors, assigns and personal representatives. 

 

8.10    Notices.    All notices, requests, demands, claims and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall bedeemed duly given if (and then two business days after) it is sent by overnight courier (i.e. Federal Express), or by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forthbelow: 

 

If to Seller:
 With a copy to:
Video City, Inc.

4800 Easton Drive

Suite 108

Bakersfield, CA 93309

Attention: CEO
  If to Purchaser:  
M.G. Midwest, Inc.

900 West Main Street

Dothan, Alabama 36301

Attention: General Counsel
  
 

8.11    Enforcement.    In the event either party hereto fails to perform any of its obligations under this Agreement (including any breach or misrepresentation by either party), or in theevent a dispute arises concerning the meaning or interpretation of any provision of this Agreement, the defaulting or breaching party, or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurredby the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable attorneys’ fees. 

 

8.12    Entire Agreement; Merger of Prior Agreements.    This Agreement and the other agreements requiredto be executed and delivered by the parties in connection herewith contain the entire agreement of the parties relating to the subject matter hereof. There are no other agreements or understandings, written or oral concerning the same and thisAgreement supersedes all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 
    PURCHASER:
ATTEST:
   
M.G. Midwest, Inc.

By: /S/ Rebecca Brown
   
By: /S/ Jeff Gordon

    Its: Assistant Secretary
   
    Its: Senior Vice President—Legal

 

 

 
    
SELLER:

ATTEST:
   
Video City, Inc.
     
By: /S/ Tim Denari
   
By: /S/ Tim Ford

    Its: Advisor
   
    Its: Chief Executive Officer

 

*20*

EXHIBIT 6.1.1.5 

 

COVENANT NOT TO COMPETE 

 

THIS AGREEMENT (“Agreement”) is made and entered this 1st day of August, 2003, by and between Video City, Inc. (“Covenantor”), whoseaddress is 4800 Easton Drive, Bakersfield, California 93309 and M.G. Midwest, Inc. (“M.G.M.”), whose address is 900 West Main Street, Dothan, Alabama 36301. 

 

WITNESSETH: 

 

M.G.M. and its affiliates are in the business of renting and retail sales of pre-recorded video cassettes, digital video disks (“DVDs”), andvideo games, video related equipment and other related merchandise, and services, including tanning, to the general public (hereinafter referred to as the “Business”) within the continental United States of America. In consideration ofM.G.M. paying to Covenantor the sum which is included in the Purchase Price set out in the Asset Purchase Agreement between Covenantor and M.G.M., dated June 20, 2003 (the “Asset Purchase Agreement”) it is agreed that Covenantor willexecute this Covenant Not to Compete. 

 

NOW, THEREFORE, theparties hereto mutually covenant and agree as follows: 

 

Thatfor a period of five (5) years from the date hereof, and within 10 miles from the Stores (as defined in the Asset Purchase Agreement) (the “Business Area”), Covenantor will not: 

 

(A)    compete with M.G.M. in the Business, or engage in or carry on the Businessdirectly or indirectly, through any person or entity, or in any capacity, including, without limitation, agent, lender, trustee, consultant, shareholder, director, officer, employee, or partner; 

 

(B)    be employed by, or perform anyservices as employee, consultant, or otherwise, for, any person, firm, partnership, joint venture, corporation or other entity that competes with M.G.M. in the Business or that is engaged in the Business within the Business Area. 

 

(C)    employ, solicit for employment, oradvise or recommend to any other person that such person employ, or solicit for employment, any employee of M.G.M. or any corporation owned directly or indirectly by M.G.M. engaged in the Business; 

 

(D)    deal with, invest in, lend moneyto, guarantee loans of, make gifts to, advise, or by any other means assist any other person or entity that competes with M.G.M. or any corporation owned directly or indirectly by M.G.M. in the Business or that is engaged in the Business within theBusiness Area. 

(E)    disclose to anyone other than key officers ofM.G.M. any trade secrets or information about the Business or affairs of M.G.M. or any corporation owned directly or 

 

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indirectly by M.G.M. not generally available to the public, including, without limitation, informationrelating to the actual and potential customers of the Business and their needs and requirements for products or services supplied by the Business. 

 

M.G.M. and Covenantor agree that the period of time and the Business Area applicable to the covenants herein are reasonable, in view of the receipt of thepayments made to Covenantor, directly or indirectly, as described above, the geographic scope and nature of the Business in which M.G.A is and will be engaged and Covenantor’s knowledge of the Business. If for any reason any Court of competentjurisdiction shall find the provisions of this Agreement unreasonable in duration or in geographic scope, the prohibitions herein shall be restricted to such time and geographic areas as such court determines to be reasonable. 

 

Covenantor recognizes that any breach of this Agreement by any of them islikely to result in irreparable injury to M.G.M. and agree that M.G.M. shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach ofthis Agreement by Covenantor or to enjoin Covenantor from activities in violation of this Agreement. The rights and remedies provided in this section in favor of M.G.M. shall not be deemed exclusive, but shall be cumulative and shall be in additionto all other rights and remedies available to M.G.M. under this Agreement, the instruments and agreements delivered pursuant to this Agreement, any statute, or at law or in equity. 

 

Notwithstanding the foregoing, nothing in this Agreement shall prevent any person from owning shares of a corporation havinga class of stock which is (i) traded on a stock exchange registered with the Securities and Exchange Commission, or (ii) traded on the over-the-counter market and quoted in the automated quotation system of the NASD, so long as such ownership isless than five percent (5%) of the outstanding stock of any such competing corporation. 

 

Neither this Covenant nor any term or condition hereof may be waived or modified in whole or in part as against Covenantor except by written instrument executed by or on behalf of the party other than the partyseeking such waiver or modification, expressly stating that it is intended to operate as a waiver or modification of this Covenant or the applicable term or condition hereof. 

 

If any provision of this Covenant shall be held or deemed to be invalid, inoperative or unenforceable in any jurisdiction orjurisdictions, because of conflicts with any constitution, statute, rule or public policy or for any other reason, such circumstance shall not have the effect of rendering the provision in question unenforceable in any other jurisdiction or in anyother case or circumstance or of rendering any other provisions herein contained unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but thisCovenant shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative, or unenforceable provision had never been contained herein and such provision reformed so that it would be enforceable to the maximum extentpermitted in such jurisdiction or in such case. 

 

Covenantoracknowledges that the consideration provided by M.G.M. is full and adequate and that such consideration has been received by Covenantor. Covenantor acknowledges that this consideration consists of the assumption by M.G.M., of certain obligations ofCovenantor, and 

 

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includes the other promises and premises set out in the other agreements executed in conjunctionherewith. 

 

This Agreement shall be governed by and construed inaccordance with the laws of the State of Alabama applicable to contracts executed and to be performed in such state. M.G.M. and Covenantor hereby consent to the jurisdiction of any state or federal court located within Houston County, Alabama.

 

Neither party to this Agreement may assign any of its rightsor delegate any of its responsibilities under this Agreement except that Buyer may assign this agreement to any person that succeeds to all or substantially all of the business of Buyer through a purchase of assets, merger or otherwise. ThisAgreement shall inure to the benefit of and be binding upon the parties and their respective heirs, personal representatives, successors and assigns. 

 

IN WITNESS WHEREOF, the parties hereto by their duly authorized agents or representatives have caused this Agreement to be executed in duplicate as of thedate first above written. 

 

 
    
Video City, Inc.
   
By:                                                                                                                    

Witness
   
    Its:                                                                                                                

 

 

 
    
M.G. Midwest, Inc.
   
By:                                                                                                                    

Witness
   
    Its:                                                                                                                

 

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