<B>SECURITIES AND EXCHANGE COMMISSION

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EOR/oXOcBliZIYSmdZ+Z9NCXwt4PoaBMv1PYZec97y8ynrGIyUlcgCbDeMd/iITf 0/351cGE6fx+hpkTcdsw+A== 0000773135-03-000001.txt : 20031119 0000773135-03-000001.hdr.sgml : 20031119 20031119161325 ACCESSION NUMBER: 0000773135-03-000001 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20031001 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIDEO CITY INC CENTRAL INDEX KEY: 0000773135 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-VIDEO TAPE RENTAL [7841] IRS NUMBER: 953897052 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14023 FILM NUMBER: 031013073 BUSINESS ADDRESS: STREET 1: 4800 EASTON DR SUITE 108 CITY: BAKERSFIELD STATE: CA ZIP: 93309 BUSINESS PHONE: 6616349171 MAIL ADDRESS: STREET 1: 4800 EASTON DR SUITE 108 CITY: BAKERSFIELD STATE: CA ZIP: 93309 FORMER COMPANY: FORMER CONFORMED NAME: PRISM ENTERTAINMENT CORP DATE OF NAME CHANGE: 19920703 8-K 1 f8kfiling.htm <B>SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 1, 2003

________________

Video City, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

0-14033

95-3897052

(Commission File Number)

(I.R.S. Employer Identification No.)

5060 California Avenue, Suite 401, Bakersfield, CA

93309

(Address of Principal Executive Offices)

(Zip Code)

(661) 843-5553

Registrant's Telephone Number, Including Area Code

4800 Easton Drive, Suite 108, Bakersfield, CA 93309

(Former Name or Former Address, if Changed Since Last Report)

Item 2.

Acquisition or Disposition of Assets.

On October 1, 2003, Video City, Inc. (the “Company”) sold twelve of its retail video stores to M.G. Midwest, Inc., an affiliate of Movie Gallery, Inc. (collectively, “Movie Gallery”). The sale of the twelve stores was made pursuant to an Asset Purchase Agreement, dated as of June 20, 2003, by and between the Company and Movie Gallery (the “Asset Purchase Agreement”), a copy of which is included as Exhibit 2.1 to this report and incorporated herein by reference. The twelve stores sold represented all of the remaining retail video stores of the Company other than the two stores located in Ventura, California. The aggregate purchase price for the twelve sold stores consisted of cash in the amount of $3,250,000, and was determined as a result of arms-length negotiations between the Company and Movie Gallery. $50,000 of the purchase pr ice was held back by Movie Gallery, pending the determination by Movie Gallery, on or before December 31, 2003, that there are no outstanding claims or liabilities related to the assets sold.

At the time of the sale there were no material relationships between the Company and Movie Gallery or any of its shareholders or affiliates, on the one hand, and the Company, any of the Company’s affiliates, any director or officer of the Company or any associate of any such director or officer, on the other hand.

In addition on October 10, 2003, the Company sold one of its stores located in Ventura, California to an entity controlled by Timothy L. Ford. The purchase price for such sale was $180,000, consisting of a promissory note issued by such entity in the amount of $157,083 and the assumption by such entity of certain of the Company’s accounts payable to a product supplier in the amount of $22,917. The purchase price offered by the entity controlled by Mr. Ford was the highest bid offered by any party, and constituted a multiple of cash flow of approximately 5X. The transaction between the Company and the entity controlled by Mr. Ford took place as a result of arm’s length negotiations between the Company and such entity. Mr. Ford resigned as the Chief Executive Officer and President of the Company on October 9, 2003. The Company closed the other Ve ntura, California store and sold the inventory for such store.

In November 2002, the Company had sold 19 of its retail video stores, then representing all stores owned by the Company outside of California, to Movie Gallery. In May 2003, the Company had sold two its retail video stores, located in Salinas and San Francisco, California to Movie Gallery.

After the sales described above, the Company does not own any operating assets, and is currently exploring all possibilities regarding future plans for its business, if any.

The foregoing description of the terms of the asset purchase agreements does not purport to be complete statements of the parties' rights and obligations thereunder, and is qualified in its entirety by reference to the applicable asset purchase agreements.

Item 5.

Other Events and Regulation FD Disclosure

On October 9, 2003, Timothy L. Ford resigned as Chief Executive Officer and President of the Company. As described above, Mr. Ford purchased one of the Company’s stores located in Ventura, California. On October 13, 2003, Rudolph R. Patino resigned as the Chief Financial Officer and a member of the board of directors of the Company. On October 17, 2003, Robert Y. Lee resigned as the Chairman of the board of directors of the Company. The Company moved its principal executive offices to 5060 California Avenue, Suite 401, Bakersfield, CA, 93309.

A press release announcing the sale of the Company’s stores is filed as Exhibit 99.1 hereto.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, such as statements of the Company’s plans, activities, expectations and intentions, that involve risks and uncertainties that could cause actual results to differ materially from those discussed in such forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the company’s future plans for its business, if any; the availability of financing and capital resources; the company’s ability to achieve value from its remaining assets; the company’s ability to manage its financial and other obligations and liabilities; and other factors discussed herein and in the company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2003 .

Item 7.

Financial Statements and Exhibits.

(a)	Financial statements of businesses acquired.
	N/A
(b)	Pro forma financial information.
	It is impracticable for the Company to file pro forma financial information required by Article 11 of Regulation S-X at this time. Such financial information will be filed by amendment to this current report on Form 8-K as soon as practicable.
(c)	The following exhibits are filed as part of this current report on Form 8-K:

Exhibit No.	Description
2.1	Asset Purchase Agreement dated as of June 20, 2003, between Video City, Inc. and M.G. Midwest, Inc. (previously filed as an exhibit to Video City’s quarterly report on Form 10-QSB for the fiscal quarter ended April 30, 2003, and incorporated herein by reference)
2.2	Asset Purchase Agreement dated as of October 10, 2003, between Video City, Inc. and 3 XTREME ENTERPRISES.
99.1	Press release issued November 17, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: October 10, 2003

VIDEO CITY, INC.

(Registrant)

By: /s/

Name: Gerald Weber

Title: Director

By: /s/

Name:

Barry Collier

Title: Director

By: /s/

Name:

David Ballstadt

Title: Director

EXHIBIT INDEX

Exhibit No.	Description
2.1	Asset Purchase Agreement dated as of June 20, 2003, between Video City, Inc. and M.G. Midwest, Inc. (previously filed as an exhibit to Video City’s quarterly report on Form 10-QSB for the fiscal quarter ended April 30, 2003, and incorporated herein by reference)
2.2	Asset Purchase Agreement dated as of October 10, 2003, between Video City, Inc. and 3 XTREME ENTERPRISES.
99.1	Press release issued November 17, 2003.

EX-2 3 f8kexhibit22apa.htm ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT

THIS AGREEMENT (“Agreement”) is made this 9 th day of October 2003, by and between VIDEO CITY, INC., a Delaware corporation d/b/a “Video City,” whose address is 4800 Easton Drive, Suite 108, Bakersfield, CA 93309 (“Seller”) and 3 XTREME ENTERPRISES, a California corporation, whose address is _________________________ (“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 the consummation 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 sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

1.1 Purchased Assets. 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 will purchase, acquire and take assignment and delivery of, the assets of Seller located at Seller's leased store spaces listed on Schedule 1.1 (the "Store"), used in connection with the operation of the Store, or that otherwise relate primarily to Seller's business at the Store, 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, leasehold improvements, construction in progress, furniture and fixtures of Seller located at, or related to, the Store; (b) except as provided below, real property leaseholds and subleaseholds therein, improvements, fixtures and fittings thereon, and easements, rights-of-way, and other appurtenants thereto (such as appurtenant rights in and to public streets) for the Store; (c) tangible personal property located at, or related to, the Store (such as inventories, equipment, supplies and furniture ); (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 therein under the laws of all jurisdictions; (e) accounts receivable and other receivables at the Store (such as customer account balances); (f) claims and rent credits for the leased premises at the Store, provided, however, Purchaser shall return to Seller the rent/security deposit for the Assumed Store Lease (as defined below) within twenty-four (24) months after the date of this Agreement; (g) franchises, approvals, permits, licenses, orders, registrations, certificates, variances, and similar rights obtained from governments and governmental agencies related to the Store; and (h) copies of all books, records, ledgers, files, documents, correspondence, customer lists, creative materials, advertising and promotional materials for, or with respect to, the Store.

1.1.2 All inventory and equipment held by Seller for rental or sale, located at the Store or in the possession of customers, 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 Store 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 and books at the Store, 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) by Seller for the Store, with in 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 hand at the Store 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 premises specifically listed on Schedule 5.1.3 (the “Assumed Store Lease”) .

1.1.4 Customer lists and related information of the Store.

1.1.5 All of Seller's right, title and interest in and to any and a1l other tangible or intangible assets located at the Store, including goodwill, used in connection with the operation of the Store, or that otherwise relate primarily to the Store and the business conducted thereat.

1.1.6 All of Seller'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 shall exclude 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.

1.2.2 All cash, bank deposits and/or cash equivalents; provided, however, Seller shall leave cash in the Store 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 actual amount 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 Store.

1.2.5 A ll video cassette tape, DVD, and video game inventory located at the Store 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 Store 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 Store, or which otherwise do not relate directly to the Store or 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 by Seller from any third party.

1.2.8 Any real property leases for stores that are not Assumed Store Lease (the “Excluded Leases”).

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. The purchase price due from Purchaser to Seller for the Assets shall be One Hundred Eighty Thousand and No/100 Dollars ($ 180,000.00) (the "Purchase Price").

1.1

Payment. The Purchase Price shall be paid to Seller by Purchaser as follows:

1.1.1

Purchaser shall expressly assume and be obligated to pay the trade debt owed and payable by Seller to VPD, Inc. in the amount of $22,917; and

1.1.2

Purchaser shall issue Secured Promissory Notes in the aggregate principal amount of $157,083, in the form attached to this Agreement as Exhibit A. Such Secured Promissory Notes shall accrue interest at a rate of 8.0% per annum, have a term of 24 months and shall be secured by the Assets of the Store.

2.3 In addition Purchase Price payable by Purchaser as set forth above, Purchaser shall pay the landlord for the Store a payment in the amount of $6,906 on or before the Closing Date.

2.4 [INTENTIONALLY OMITTED]

2.5 Assumed Liabilities. The Purchaser agrees to and will at Closing assume and agree to pay, discharge and perform when lawfully due (i) all obligations and liabilities of Seller under the Assumed Store Lease accruing and/or arising on or after the Closing Date. Purchaser assumes no liabilities of Seller of any nature. The Purchaser does not assume any 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 the Store.

2.6 Allocation of the Purchase Price Among the Purchased 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 any notice 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 its reasonable best efforts to persuade its employees at the Store 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 the Closing 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, Purchaser intends to retain in his 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 2.7 to make Seller's employees third party beneficiaries to this Agreement. Employ ment of Seller's personnel by Purchaser shall be solely at Purchaser's option in the exercise of his business judgment. Purchaser is not assuming any of Seller'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, obligations under 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 obligation under any employee benefit plans of Seller.

2.8 Taxes and Prorations. Seller shall be responsible for all bulk sales 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 the Closing 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 a charge 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 of taxes for proration at Closing, or if the taxes or assessments ar e 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 responsible for any gift certificates issued by Seller prior to the Closing Date and all rent and other payments due under the Assumed Store Lease prior to the Closing Date, or otherwise attributable to the period prior to Closing (including all CAM, tax and insurance charges and other amounts due and payable under the Assumed Store Lease); provided, however, the rent and other lease charges paid by Seller for the month in which the Closing occurs shall be prorated between Seller and Purchaser 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 has agreed 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 is agreed 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 and Agreements. Except for the Assumed Store Lease and the assumption of the VPD Payable or as otherwise specifically provided herein, Purchaser is not assuming any of Seller’s contracts or agreements, or any of Seller’s obligations or liabilities thereunder.

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, and security interests granted by Seller to VPD, Inc. for which Buyer has assumed or paid off the liability relating to this Store only. Purchaser does not assume, and shall not be liable for, any obligations or liabilities whatsoever of Seller relating to the Assets, or the ownership or operation of the Assets or the Store, accruing, arising, or otherwise attributable to the period prior to the Closing Date, unless specifically provided for elsewhere in this Agreement.

2.11 Other Closing Costs. 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 or employees 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 Purchaser and/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.

2.12 Bulk Sales. Seller and Purchaser do not believe that 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 for compliance 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 comply with 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 may be asserted to be applicable.

ARTICLE III

CLOSING

3.1 Closing. The closing of the transaction contemplated by this Agreement (the “Closing”) shall take place at the offices of the Seller, 4800 Easton Drive, Suite 108, Bakersfield, CA 93309, or by facsimile and overnight mail for the convenience of the parties, on October 9th, 2003 (the “Closing Date”). 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 Closing Documents. 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 [INTENTIONALLY OMITTED]

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 other documents 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 current employees of Seller. If any are due and payable, Seller shall be responsible for the payment thereof at or prior to Closing.

3.2.7 [INTENTIONALLY OMITTED]

0.0.2

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

ARTICLE IV

INDEMNIFICATION

4.1 Each party shall indemnify and hold harmless the other 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, or non-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 the non-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 reasonable attorney’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 specifically assumed 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’s fees 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 assumed by 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 expressly assumed 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 other federal, 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 hold harmless 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 claims of third parties against Seller, for debts, services, contracts, obligations, liabilities or actions by Purchaser, attributable to the period of operations of the Store on or after the Closing Date, or otherwise assumed by Purchaser.

4.6 Purchaser agrees to indemnify and hold harmless Seller from and against all losses, damages, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including reasonable attorney’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 any liability 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 obligation would 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, the Indemnified 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 the Indemnifying Party.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

5.1 Representations and Warranties of Seller. 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 and warranties 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 Store, as is now being conducted and as presently proposed to be conducted. The Assets and any other tangible assets necessary for the conduct of its business at the Store are free from defects (patent and latent), have been maintained in accordance with normal industry practice and are in good operating 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 transferred pursuant to this Agreement, subject to no Security Interest, except for:

0.0.1.1

Liens for current taxes and assessments not yet due and payable.

0.0.1.2

Security interest of VPD, Inc. on the Assets.

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 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 interfered with, 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 interfered with, 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 its intellectual 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 third party 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 to date) 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 any third 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 Store Lease. Seller has delivered to the Purchaser a correct and complete copy of the Assumed Store Lease (as amended to date) , which lease is listed and more particularly described in Schedule 5.1.3. With respect to the Assumed Store Lease and subject to each landlord's consent to and approval of the assignment and transfer of the Assumed Store Lease 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 Lease will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing;

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 no disputes, 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 in the 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 operated and maintained in accordance with applicable laws, rules and regulations.

5.1.4 Violations, Suits, Etc. To the best of Seller’s knowledge, i n all respects material to the Store 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 wherever located. To the best of Seller’s knowledge , in all respects material to the Store and Assets, and e xcept 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 proceedings threatened presently, or which in the future may be threatened against or affecting Seller, the Store, 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 referred to 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 its charter or bylaws or (ii) conflict with, result in a breach of, constitute a default under, re sult 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 its assets 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 contemplated by this Agreement (including the assignments and assumptions referred to hereinabove).

5.1.5 Tax Returns. 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 be or 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 sheet and 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 of and for the three (3) months ended July 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, and accurately reflect Seller’s assets and liabilities, revenues and expenses, and the operations of the business, at the Store.

5.1.7 Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent Fiscal Month 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 Store.

5.1.8 Present Status. With respect to the Store 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 current liabilities 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 each case, 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; wa ived any rights of substantial value; nor entered into any transaction other than in the ordinary course of business.

5.1.9 Undisclosed Liabilities. With respect to the Store 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 which have 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:

5.1.10.1 Carry on its business and operate the Store in the ordinary 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 Store. On the Closing Date, Seller shall transfer to Purchaser a full complement of rental and sell-through video cassette tapes, DVDs, video games, music CDs and cassettes and books, as is customary with Seller's operations at Store 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 Store which is set 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 and rights.

5.1.10.4 Keep in 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 normal consumer 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 or otherwise 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 any employment 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 Store as of the Closing Date.

5.1.12 Organizational Representations and Warranties of Seller. 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 delivery of this Agreement by Seller has been duly authorized, and on the Closing Date, Seller will have all necessary power and authority to consummate the transactions provided herein.

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 assign or 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, and records at or directly related to the Store, 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's covenants, 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 or hereafter 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 reasonable best 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 to Purchaser 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 Store and the Assets:

5.1.17.1 Seller has complied with all laws (including rules and regulations thereunder) of federal, state and local governments (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 or commenced 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 or facilities 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 and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse 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 or threatened 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 the disposal 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 or pursuant 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 future charge, 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 any federal, 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, licenses and 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 and local 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 otherwise relating to the manufacture, p rocessing, 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 Without Hazardous Wastes. In the operation of Seller's business at the Store, Seller has complied with all applicable laws and regulations, including permits, during its possession, and during its possession, there has been no 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 from any 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 governmental entity. Seller also agrees to allow Purchaser, at Purchaser's option and expense, to have 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's option, 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 federal standards. 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 or commissions 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 [INTENTIONALLY OMITTED]

5.2.2 The execution and delivery of this Agreement by Purchaser has been duly authorized by proper corporate action, if necessary, 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 or commissions 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. The obligation of the Purchaser to consummate the transactions to be performed by him 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 be true 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.

6.1.1.3 Seller and Purchaser shall have procured all of the third party consents specified hereinabove.

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

6.1.2 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 is subject 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 have performed and complied with all of its covenants hereunder in all material respects through the Closing.

ARTICLE VII

ADDITIONAL PROVISIONS

7.1 [INTENTIONALLY OMITTED]

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 to examine 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 Store. 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 Store.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.1 [INTENTIONALLY OMITTED]

8.2 [INTENTIONALLY OMITTED]

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, that provision 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 any other jurisdiction.

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

8.5 Modification. This Agreement 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 all of 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 by statutory 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 same instrument.

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 or terms 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 and equity 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, except that 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 making such disclosure). No press 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.

8.9 Assignment; Successors and Assigns. Neither party to this Agreement may assign any of its rights or delegate any of its responsibilities under this Agreement. This Agreement shall inure to the benefit of and be binding upon the parties and their respective 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 be deemed 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 forth below:

If to Seller:

Video City, Inc.

4800 Easton Drive

Suite 108

Bakersfield, CA 93309

Attention: CEO

If to Purchaser:

3 Xtreme Enterprises, Inc.

__________________

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 the event 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 incurred by 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 required to 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 this Agreement supersedes all prior agreements and understandings between the parties hereto relating to the subject matter hereof.

THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.

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

PURCHASER:

ATTEST:

3 Extreme Enterprises, Inc.

By:____________________________

Its__________________________

SELLER:

ATTEST:

Video City, Inc.

By:____________________________

Its__________________________

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SCHEDULE 1.1

STORE

Video City (VC # 32)

(“Ventura Store 32”)

2723 E. Main Street

Ventura, CA _____

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SCHEDULE 1.1.2

STORE INVENTORY

As previously provided to Buyer and approved on October 9, 2003

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SCHEDULE 1.1.6

INTELLECTUAL PROPERTY

All Seller ’ s rights, title and interest, if any, to the computer software programs utilized by Seller in the operation of the Store, and all computer files and data contained therein.

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SCHEDULE 1.2.2

CHANGE FUNDS

STORE

AMOUNT OF CHANGE FUNDS

Ventura Store 32

(VC # 32)

$ 6 00.00

TOTAL CHANGE FUNDS: $ 600 .00

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SCHEDULE 1.2.5

EXCLUDED INVENTORY

None

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SCHEDULE 2.5

ASSUMED LIABILITIES

VPD, Inc in the amount of $22,917

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SCHEDULE 2.6

ALLOCATION OF PURCHASE PRICE

1. Video Cassette Tapes, DVDs, Video Games & Other Inventory

$ 26,000 .00

2. Fixtures, Equipment & other Tangible Personal Property

$ 4,000.00

3. Business Goodwill and Intellectual Property

$ 150,000 .00

TOTAL

$ 180,000.00

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SCHEDULE 5.1.1

LEASED PROPERTY

None

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SCHEDULE 5.1.3

ASSUMED STORE LEASE

The Real Estate lease between Katz Family Trust, A California general partnership, and VIDEO CITY, INC., a Delaware corporation for the 7,600 square feet of leased premises located at 2723 Main Street, Ventura, California, 93303

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SCHEDULE 5.1.4

SUITS AND CLAIMS

None

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SCHEDULE 5.1.6

FINANCIAL STATEMENTS

Previously provided and approved by Buyer

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EXHIBIT A

FORM OF SECURED PROMISSORY NOTE AND SECURITY AGREEMENT

See attached

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EX-2 4 f8kexhibit22billofsale.htm Converted by FileMerlin

BILL OF SALE

The undersigned, VIDEO CITY, INC., a Delaware corporation d/b/a “Video City,” whose address is 4800 Easton Drive, Suite 108, Bakersfield, CA 93309 (the "Seller") for and in consideration of the payment of the sums set out in the attached Exhibit "A," the receipt of which is hereby acknowledged, does hereby grant, bargain, sell, assign and transfer to 3XTREME ENTERPRISES, a California corporation, whose address is 3845 Stockdale Hwy., Bakersfield, California, 93309 (the "Purchaser"), its successors and assigns, the following described personal property located in the State of California:

See Exhibit "B", attached hereto, made a part hereof and incorporated herein by reference.

To have and hold, all and singular, the said personal property to the Purchaser, its successors and assigns, to its own use forever.

The Seller warrants that it is the lawful owner in every respect of all the herein described property and that it is free and clear of any and all liens, security agreements, encumbrances, claims, demands, and charges of every kind and character whatsoever.

The Seller hereby binds the Seller, its successors and assigns, to warrant and defend the title to all the herein described property unto the Purchaser, its successors and assigns, forever against every person whomsoever lawfully claiming or to claim such herein described property or any part thereof.

This Bill of Sale shall be effective as to the transfer of all property listed herein as of the 9^th day of October, 2003.

IN WITNESS WHEREOF, this Bill of Sale is executed on the 9th day of October, 2003.

SELLER:

VIDEO CITY, INC.

____________________________

By:___________________________

Witness

Its: ________________________

EXHIBIT "A"

TO BILL OF SALE

FROM

VIDEO CITY, INC.

3XTREME ENTERPRISES

ALLOCATION OF PURCHASE PRICE

1. Video Cassette Tapes, DVDs, Video Games & Other Inventory

$ 22,000 .00

2. Fixtures, Equipment & other Tangible Personal Property

$ 4,000.00

3. Business Goodwill and Intellectual Property

$ 154,000 .00

TOTAL

$ 180,000.00

EXHIBIT "B"

TO BILL OF SALE

FROM

VIDEO CITY, INC.

3XTREME ENTERPRISES

All of Seller's right, title and interest in and to all the assets of Seller located at the video specialty stores identified below (the “Stores”), used in connection with the operating of the Stores, or that otherwise relate primarily to Seller’s business at the Stores (the "Assets"), including, but not limited to:

All machinery, appliances, equipment, tools, supplies, leasehold improvements, construction in progress, furniture and fixtures of Seller located at, or related to, the Stores; except as provided below, real property leaseholds and subleaseholds therein, improvements, fixtures and fittings thereon, and easements, rights-of-way, and other appurtenants thereto (such as appurtenant rights in and to public streets) for the Stores; tangible personal property located at, or related to, the Stores (such as inventories, equipment, supplies and furniture); 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 therein under the laws of all jurisdictions; accounts receivable and other receivables at the Stores (such as customer account balances); claims, rent/security deposits, prepayments, and rent credits for the leased premises at the Stores; franchises, approvals, permits, licenses, orders, registrations, certificates, variances, and similar rights obtained from governments and governmental agencies related to the Stores; and copies of all books, records, ledgers, files, documents, correspondence, customer lists, creative materials, advertising and promotional materials for, or with respect to, the Stores.

All inventory and equipment held by Seller for rental or sale, located at the Stores or in the possession of customers, 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 and books at the Stores, which is set forth in the Asset Purchase Agreement between Seller and Purchaser dated October 9, 2003 (the “Asset Purchase Agreement”).

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 premises specifically listed on Schedule 5.1.3 of the Asset Purchase Agreement (the “Assumed Store Leases”).

Customer lists and related information of the Stores.

All of Seller's right, title and interest in and to any and a1l 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 conducted thereat.

All of Seller'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 of the Asset Purchase Agreement.

Anything to the contrary in Section 1.1 of the Asset Purchase Agreement notwithstanding, the Assets shall exclude all of the assets and property of Seller which are not specifically listed in Section 1.1 of the Asset Purchase Agreement, including, but not limited to the following:

Any real property owned by Seller in fee simple.

All cash, bank deposits and/or cash equivalents.

All vehicles owned or leased by Seller.

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

A ll 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 of the Asset Purchase Agreement, and removed from the Stores by Seller prior to the Closing Date.

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 Stores or the business conducted thereat, including, but not limited to, all tangible and intangible assets located at Seller’s support center (“Seller’s Support Center”).

Any tangible personal property or intellectual property, which is leased by Seller from any third party.

Any real property leases for Stores that are not Assumed Store Leases (the “Excluded Leases”).

Any assets or property of Seller not specifically identified as an Asset in Section 1.1 of the Asset Purchase Agreement .

STORES

Video City (VC # 35)

(“Ventura Store”)

2723 Main Street

Ventura, CA 93003

EX-2 5 f8kexhibit22notes.htm <B>PROMISSORY NOTE

SECURED PROMISSORY NOTE

$ 117,083

Bakersfield, California

October 9, 2003

FOR VALUE RECEIVED, the undersigned, 3 Extreme Enterprises, Inc., a California corporation (“Maker”), promises to pay to Video City, Inc. (“Holder”) the aggregate principal sum set forth above.

Interest shall accrue from the date of this Note on the unpaid principal amount at a rate of 8% per annum, compounded annually, until paid. The principal amount of this Note, together with all accrued and unpaid interest thereon, shall be payable on October 9, 2005.

Payment shall be made in lawful tender of the United States and shall be credited first to accrued interest and the remainder applied to principal. Payments of interest only shall be made commencing on December 10, 2003, and shall continue to be made on the 10^th calendar day of each month until the Note is repaid in full. Prepayment of principal may be made at any time.

In the event that (i) all or substantially all of the assets of the Maker are sold, transferred, licensed or otherwise disposed of, (ii) the Maker consummates a merger, acquisition or consolidation in which the current shareholders transfer more than 50% of the currently outstanding capital stock for the Maker, or (iii) the stockholders of the Maker consummate a stock purchase transaction in which more than 50% of the currently outstanding capital stock of the Maker is transferred or sold, the Holder will have the option of having the principal and accrued interest of the Note repaid in full.

Maker hereby agrees that until this Note is repaid in full or converted, all obligations under this Note and any other amounts that Maker may owe to Holder shall be secured by a security interest in all of Maker’s tangible and intangible assets pursuant to the terms of the Security Agreement attached hereto as Exhibit A (the "Security Agreement"). The Maker agrees to cooperate fully with Holder to file a UCC-1 and other appropriate filings to perfect Holder's security interests.

A "Default" under this Note shall include (i) the Maker's failure to pay the outstanding principal balance of this Note and all accrued and unpaid interest thereon by the due date thereof, (ii) the Maker's breach of any obligation to the Holder under this Note or under the Security Agreement, (iii) the appointment of a receiver, trustee, custodian, conservator or other similar official for any part of the Maker's property, the Maker making an assignment for the benefit of creditors, or the Maker becoming a debtor or alleged debtor in a case under the U.S. Bankruptcy Code or becoming the subject of any other bankruptcy, assignment or similar proceeding for the general adjustment of its debts or seeking reorganization, arrangement, adjustment, winding up, liquidation, dissolution, composition, or other relief with respect to it or its debts, or if the Maker shall generally not be paying the Maker's debt s as they become due, or the Maker shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, and/or (iv) the Maker's breach of or default under its Certificate of Incorporation or Bylaws, or any agreement or obligation that Maker has to Holder.

Upon the occurrence of a Default, the Holder of this Note may accelerate all outstanding principal and accrued interest under this Note and declare them immediately due and payable and exercise all of Holder's rights and remedies under the Security Agreement.

If any action is instituted to collect this Note, the Maker promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such action.

This Note shall be construed in accordance with the laws of the State of California.

By “Maker”

3 EXTREME ENTERPRISES, INC.

By:

Timothy Ford, President

This Note and the terms and conditions contained herein are hereby expressly acknowledged and accepted:

HOLDER:

By:

Name:

Title:

SECURED PROMISSORY NOTE

$ 50,000

Bakersfield, California

October 9, 2003

If any action is instituted to collect this Note, the Maker promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such action.

This Note shall be construed in accordance with the laws of the State of California.

By “Maker”

3 EXTREME ENTERPRISES, INC.

By:

Timothy Ford, President

This Note and the terms and conditions contained herein are hereby expressly acknowledged and accepted:

HOLDER:

By:

Name:

Title:

EXHIBIT A

Form of Security Agreement

EXHIBIT #

SECURITY AGREEMENT

THIS SECURITY AGREEMENT ("Agreement"), dated as of October 9, 2003, is made by 3 Extreme Enterprises, Inc., a California corporation ("Debtor"), in favor of Video City, Inc., a Delaware corporation (the "Secured Party").

R E C I T A L S :

Contemporaneously herewith, the Secured Party is loaning to Debtor the amount set forth on Exhibit A attached hereto (the "Loan"), as evidenced by those certain Secured Promissory Notes of even date herewith in the principal amount of the Loan executed and delivered by Debtor to Secured Party (collectively the "Note").

In connection with the making of the Loan and as security for all obligations of Debtor (the "Obligations") under the Note, Secured Party is requiring that Debtor execute and deliver this Agreement and grant to Secured Party the security interest contemplated by this Agreement.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

DEFINED TERMS. Except as otherwise defined or redefined herein, the defined terms used herein shall have the meanings defined in the Note. The following terms shall have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined):

1.1

"Accounts" shall mean all "accounts," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.2

"Cash" shall mean all cash and cash equivalents now owned or hereafter acquired by Debtor.

1.3

"Chattel Paper" shall mean all "chattel paper," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.4

"Commercial Tort Claims" shall mean all "commercial tort claims," as such term is defined in the UCC, in which Debtor now or hereafter has rights.

1.5

"Contracts" shall mean all contracts, undertakings, or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Debtor may now own or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof, except to the extent that the assignment or pledge of Debtor's rights thereunder would constitute a breach of or default under such contract, undertaking or other agreement.

1.6

"Copyrights" shall mean all of the following now or hereafter acquired by Debtor: (i) all copyrights and registrations and applications therefor, (ii) all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable or both with respect thereto, including, without limitation, damages and payments for past or future infringements or misappropriations thereof, (iv) all rights to sue for past, present and future infringements or misappropriations thereof, and (v) all other rights corresponding thereto throughout the world.

1.7

"Deposit Accounts" shall mean all "deposit accounts," as such term is defined in the UCC, in which Debtor now or hereafter has rights.

1.8

"Documents" shall mean all "documents," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.9

"Electronic Chattel Paper" shall mean all "electronic chattel paper," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.10

"Equipment" shall mean all "equipment," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.11

"Fixtures" shall mean all "fixtures," as such term is defined in the UCC, now or hereafter owned by Debtor.

1.12

"General Intangibles" shall mean all "general intangibles," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.13

"Goods" shall mean all "goods," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.14

"Instruments" shall mean all "instruments," as such term is defined in the UCC, now owned or hereafter acquired by Debtor, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

1.15

"Inventory" shall mean all "inventory," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.16

"Letter-of-Credit Rights" shall mean all "letter-of-credit rights," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.17

"Non-Cash Proceeds" shall mean all "non-cash proceeds," as defined in the UCC, in which Debtor now or hereafter has rights.

1.18

"Patent Licenses" shall mean all written agreements granting any right to practice any invention on which a Patent is in existence.

1.19

"Patents" shall mean all of the following now or hereafter owned by Debtor: (i) all patents and patent applications, (ii) all inventions and improvements described and claimed therein, (iii) all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, (iv) all income, royalties, damages and payments now and hereafter due and/or payable to Debtor with respect thereto, including, without limitation, damages and payments for past or future infringements or misappropriations thereof, (v) all rights to sue for past, present and future infringements or misappropriations thereof, and (vi) all other rights corresponding thereto throughout the world.

1.20

"Payment Intangibles" shall mean all "payment intangibles," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.21

"Proceeds" shall mean all "proceeds," as such term is defined in the UCC and, in any event, shall include, without limitation, (i) all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral (as defined below), (ii) all payments (in any form whatsoever) made or due and payable to Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), (iii) all claims of Debtor against third parties (A) for past, present or future infringement of any Patent or breach of a Patent License or (B) for past, present or future infringement or dilution of any Trademark or breach of a Trademark Licen se or for injury to the goodwill associated with any Trademark or Trademark registration and (iv) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

1.22

"Pro Rata Share" means, with respect to a Secured Party, the pro rata share percentage for such Secured Party set forth on Exhibit A attached hereto.

1.23

"Protective Advances" means any amount advanced or expended by Secured Party to preserve or protect any collateral securing the Loan or the Secured Party's liens, security interests or other right or title thereto, including, without limitation, expenses for taxes, insurance, utilities, maintenance and repairs for the Collateral (including any amount expended to make the Collateral comply with legal requirements or to avoid or satisfy any lien on the Collateral).

1.24

"Securities" shall mean all "securities," as such term is defined in of the UCC or under federal securities law, whether or not such securities are marketable.

1.25

"Software" shall mean all "software," as such term is defined in the UCC, now owned or hereafter acquired by Debtor.

1.26

"Supporting Obligations" shall mean all "supporting obligations," as such term is defined in the UCC, now owned or hereafter acquired by Debtor or in which Debtor now or hereafter acquires rights.

1.27

"Tangible Chattel Paper" shall mean all "tangible chattel paper," as such term is defined in the UCC, now or hereafter owned by Debtor.

1.28

"Trade Secrets" shall mean all trade secrets, along with all (i) income, royalties, damages and payments now and hereafter due and/or payable to Debtor with respect thereto, including, without limitation, damages and payments for past or future infringements or misappropriations thereof, (ii) rights to sue for past, present and future infringements or misappropriations thereof, and (iii) all other rights corresponding thereto throughout the world.

1.29

"Trademark Licenses" shall mean all written agreements granting any right to use any Trademark or Trademark registration.

1.30

"Trademarks" shall mean all of the following now owned or hereafter acquired by Debtor: (i) all trade-marks (including service marks, logos and trade names, whether registered or at common law), registrations and applications therefor, and the goodwill of Debtor's product or business associated therewith and symbolized thereby, (ii) all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable or both with respect thereto, including, without limitation, damages and payments for past or future infringements, dilutions or misappropriations thereof, (iv) all rights to sue for past, present and future infringements or misappropriations thereof, and (v) all other rights corresponding thereto throughout the world.

1.31

"UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of California; provided, however, if, by reason of mandatory provisions of law, any or all of the perfection or priority of the security interest in any Collateral granted to Secured Party, is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions related to such provisions.

GRANT OF SECURITY INTEREST.

2.1

As collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Obligations and to induce the Secured Party to make the Loan, Debtor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to the Secured Party, and hereby grants to the Secured Party, a security interest in, all of Debtor's right, title and interest in, to and under the following items of personal property (all of which being referred to herein collectively as the "Collateral"):

2.1.1

all Accounts;

2.1.2

all Cash;

2.1.3

all Chattel Paper;

2.1.4

all Commercial Tort Claims;

2.1.5

all Contracts;

2.1.6

all Copyrights;

2.1.7

all Deposit Accounts;

2.1.8

all Documents;

2.1.9

all Electronic Chattel Paper;

2.1.10

all Equipment;

2.1.11

all Fixtures;

2.1.12

all General Intangibles;

2.1.13

all Goods;

2.1.14

all Instruments;

2.1.15

all Inventory;

2.1.16

all Letter-of-Credit Rights;

2.1.17

all Patents;

2.1.18

all Patent Licenses;

2.1.19

all Payment Intangibles;

2.1.20

all Securities to the extent such Securities constitute proceeds of any other items included in the Collateral;

2.1.21

all Software;

2.1.22

all Supporting Obligations;

2.1.23

all Tangible Chattel Paper;

2.1.24

all Trade Secrets;

2.1.25

all Trademark Licenses;

2.1.26

all other goods of Debtor whether tangible or intangible or whether now owned or hereafter acquired by Debtor and wherever located; and

2.1.27

to the extent not otherwise included, all Proceeds and Non-Cash Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.

2.2

If Debtor, any successor owner of or any subordinate or competing creditor claiming a security interest in the property of Debtor, shall assert in any action or proceeding that items of personal property owned by Debtor of the type included in the Collateral are not covered by the security interest granted and created pursuant to this Agreement, then the burden of proof in such action or proceeding shall be on Debtor, such successor owner or subordinate or competing creditor to establish that such personal property is not part of the Collateral.

2.3

This Agreement is a continuing and irrevocable agreement and all the rights, powers, privileges and remedies hereunder shall apply to any and all of the Obligations, including those arising under successive transactions which shall either continue the Obligations, increase or decrease them, or from time to time create new Obligations after all or any prior Obligations have been satisfied, and notwithstanding the bankruptcy of Debtor or any other person or any other event or proceeding affecting any person.

FINANCING STATEMENTS; FURTHER ASSURANCES.

3.1

By the execution of this Agreement, Debtor authorizes the filing of such initial financing statements and any amendments and extensions thereto as required by Secured Party to establish, maintain or extend the validity, perfection and priority of the security interests granted herein. At any time and from time to time at the request of Secured Party, Debtor shall execute and deliver to Secured Party all such financing statements and other instruments and documents in form and substance satisfactory to Secured Party as shall be reasonably necessary or desirable to fully perfect, when filed and/or recorded, the security interests granted pursuant to this Agreement.

3.2

At any time and from time to time, Debtor shall take all such other actions as Secured Party may reasonably deem appropriate to perfect and to maintain perfected the security interests granted in this Agreement. At Secured Party's request, Debtor shall execute all such further financing statements, instruments and documents, and shall do all such further acts and things, as may be deemed reasonably necessary or desirable by Secured Party to create and perfect, and to continue and preserve, a security interest in the Collateral in favor of Secured Party, or the priority thereof.

3.3

With respect to any of the Collateral consisting of certificated securities, instruments, documents, certificates of title or the like, as to which the security interest need be perfected by, or the priority thereof need be assured by, possession of such Collateral, Debtor shall upon demand of Secured Party deliver possession of same in pledge to Secured Party. With respect to any Collateral consisting of securities or instruments, Debtor hereby consents and agrees that the issuers of, or obligors on, any such Collateral, or any registrar or transfer agent or trustee for any such Collateral, shall be entitled to accept the provisions of this Agreement as conclusive evidence of the right of Secured Party, to effect any transfer or exercise any right hereunder or with respect to any such Collateral, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Debtor or any other person to such issuers or such obligors or to any such registrar or transfer agent or trustee.

LIMITATIONS ON SECURED PARTY'S OBLIGATIONS. Except to the extent arising subsequent to acquisition of all right pertaining thereto pursuant to foreclosure or otherwise, Secured Party shall not have any obligation or liability under any contract or by reason of or arising out of this Agreement or the granting to Secured Party of a security interest therein or the receipt by Secured Party of any payment relating to any contract or pursuant hereto, nor shall Secured Party be required or obligated in any manner to perform or fulfill any of the obligations of Debtor under or pursuant to any contract or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any contract or to present or file any claim, or to take any action to collect or enfor ce any performance or the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.

REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants that:

5.1

Except for the security interest granted to Secured Party, pursuant to this Agreement, Debtor is the sole owner of each item of the Collateral in which it purports to grant a security interest hereunder, having good and marketable title thereto, free and clear of any and all liens.

5.2

No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed by Debtor in favor of Secured Party, pursuant to this Agreement.

5.3

There exist no (i) contracts, undertakings, or other agreements in or under which Debtor has any right, title or interest or (ii) other license under which Debtor has rights, which would be breached by the assignment or pledge or Debtor's rights thereunder pursuant to the terms of this Agreement.

COVENANTS. Debtor covenants and agrees with Secured Party that from and after the date of this Agreement and until the Obligations are fully satisfied:

6.1

Payment of Liens and Assessments. Debtor shall pay, prior to delinquency, all taxes, charges, liens and assessments against the Collateral owned by Debtor, except such as are timely contested in good faith, and upon its failure to pay or so contest such taxes, charges, liens and assessments, Secured Party at Secured Party's option may pay any of them, and Secured Party shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same.

6.2

Repair and Maintenance. Debtor shall, to the extent consistent with good business practice, keep the Collateral owned by Debtor in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto and, as appropriate and applicable, otherwise deal with the Collateral in all such ways as are considered good practice by owners of like property.

6.3

Preservation and Protection. Debtor shall take all steps to preserve and protect the Collateral.

6.4

Insurance. Debtor shall maintain, with responsible insurance companies, insurance covering the Collateral against such insurable losses as is consistent with sound business practice. Debtor shall cause Secured Party, to be designated as an additional insured and loss payee with respect to such insurance, and obtain the written agreement of the insurers that such insurance shall not be canceled, terminated or materially modified to the detriment of Secured Party without at least thirty (30) days prior written notice to Secured Party. Debtor shall furnish copies of such insurance policies or certificates to Secured Party promptly upon request therefor. If Debtor fails to maintain such insurance, Secured Party may arrange for such insurance at Debtor's expense and without any responsibility on Secured Party's part for obtaining the insurance, the solvency of the insurance compan ies, the adequacy of the coverage, or the collection of claims. Upon the occurrence and during the continuance of an Event of Default, Secured Party shall have the sole right, in the name of Secured Party, or Debtor, to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies.

6.5

Damage; Removal. Debtor shall promptly notify Secured Party in writing in the event of any substantial or material damage to the Collateral from any source whatsoever, and except for the disposition of collections and other Proceeds of the Collateral permitted under this Agreement, Debtor shall not remove or permit to be removed any part of the Collateral from Debtor's place of business without the prior written consent of Secured Party, except for such items of the Collateral as are removed in the ordinary course of business.

6.6

Compliance with Laws, Etc. Debtor shall not, nor cause or allow, the Collateral to be used for any unlawful purpose or in violation of any law, regulation or ordinance, nor used in any way that will void or impair any insurance required to be carried in connection therewith. Debtor shall comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any governmental authority applicable to the Collateral or any part thereof or to the operation of Debtor's business, except where the failure to comply would not have a material adverse effect; provided, however, that Debtor may contest any act, regulation, order, decree or direction in any reasonable manner that shall not materially and adversely affect Secured Party's rights hereunder or the priority of the security interests in the Collateral created by this Agreement.

6.7

Indemnification. In any suit, proceeding or action brought by Secured Party, relating to the Collateral, or to enforce any provision of the Collateral, Debtor shall save, indemnify and keep Secured Party harmless from and against all expense, loss or damage suffered by reason of any defense, set off, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach or default by Debtor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from Debtor, and all such obligations of Debtor shall be and remain enforceable against and only against Debtor and shall not be enforceable against Secured Party.

6.8

Further Identification of Collateral. Debtor shall, if requested by Secured Party, furnish to Secured Party, as often as Secured Party requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may request, all in reasonable detail.

6.9

Name/Address Change. If Debtor changes Debtor's name, business address or partnership/corporate structure as they are set forth herein or in the Note, Debtor shall notify Secured Party in writing of such name and/or address change promptly, but in any event, within thirty (30) days thereof; provided that if such change may make any financing statement filed in connection herewith materially misleading, Debtor shall provide Secured Party with such notice at least thirty (30) days prior to the effective date of the change.

6.10

Notification of Third Parties. If any Collateral at any time is in the possession of one or more persons other than Debtor, Debtor, if requested by Secured Party, shall notify such person(s), in writing, of the security interest created by this Agreement covering such Collateral and shall instruct such person(s) to hold such Collateral for the account and benefit of Secured Party, and subject to the instructions of Secured Party.

6.11

Limitation on Liens on Collateral. Debtor shall not create, permit or suffer to exist, and shall defend the Collateral against and take such other action as is necessary to remove, any lien on the Collateral except Permitted Encumbrances, and shall defend the right, title and interest of Secured Party, in and to any of Debtor's rights under the Collateral.

6.12

Notification of Liens. Debtor shall advise Secured Party promptly, in reasonable detail, (a) of any lien, security interest, encumbrance or claim made or asserted against any of the Collateral and (b) of the occurrence of any other event that would have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereunder.

RIGHTS OF SECURED PARTY.

7.1

At any time necessary in the reasonable judgment of Secured Party (whether or not an Event of Default has occurred), without notice or demand and at the expense of Debtor, Secured Party may, to protect the security hereunder, but Secured Party shall not be obligated to: (a) enter upon any premises on which Collateral is situated and examine the same or (b) perform any obligation of Debtor under this Agreement or any other document, instrument or agreement executed in connection herewith.

7.2

At any time and from time to time, at the expense of Debtor with regard to the portion of the Collateral, Secured Party, may, to the extent it may be necessary or desirable to protect the security hereunder, but Secured shall not be obligated to: (a) notify obligors on the Collateral that the Collateral has been assigned to Secured Party; (b) at any time and from time to time request from obligors on the Collateral, in the name of Debtor or in the name of Secured Party, information concerning the Collateral and the amounts owing thereon; and (c) cause the Collateral to be registered in the name of Secured Party, as legal owner for purposes of security hereunder.

7.3

Debtor shall maintain books and records pertaining to the Collateral in such detail, form and scope as Secured Party shall reasonably require consistent with the interests of Secured Party, hereunder. Debtor shall at any time at Secured Party's request mark the Collateral and/or such Debtor's ledger cards, books of account and other records relating to the Collateral with appropriate notations satisfactory to Secured Party disclosing that they are subject to the security interests in favor of Secured Party. Secured Party shall at all times have full access to and the right to audit any and all of Debtor's books and records pertaining to the Collateral, and to confirm and verify the value of the Collateral and to do whatever else Secured Party may reasonably deem necessary or desirable to protect its interests.

7.4

Secured Party shall not be under any duty or obligation whatsoever to take any action to preserve any rights of or against any prior or other parties in connection with the Collateral, to exercise any voting rights or managerial rights with respect to any Collateral, whether or not an Event of Default shall have occurred, or to make or give any presentments, demands for performance, notices of non-performance, protests, notices of protests, notices of dishonor or notices of any other nature whatsoever in connection with the Collateral or the Obligations. Secured Party shall not be under any duty or obligation whatsoever to take any action to protect or preserve the Collateral or any rights of Debtor therein, or to make collections or enforce payment thereon, or to participate in any foreclosure or other proceeding in connection therewith.

POSSESSION OF COLLATERAL BY SECURED PARTY. All the Collateral now, heretofore or hereafter delivered to Secured Party, shall be held by Secured Party in Secured Party's possession, custody and control. Any or all of the Collateral delivered to Secured Party may be held in an interest bearing or non-interest bearing account, in Secured Party's sole and absolute discretion, and Secured Party may, in Secured Party's discretion, apply any such interest to payment of the Obligations. Nothing herein shall obligate Secured Party to invest any Collateral or obtain any particular return thereon. Upon the occurrence and during the continuation of an Event of Default, whenever any of the Collateral is in Secured Party's possession, custody or control, Secured Party, may use, operate and consume the Collateral, whether for the purpose of pre serving and/or protecting the Collateral, or for the purpose of performing any of Debtor's obligations with respect thereto, or otherwise. Secured Party may at any time deliver or redeliver the Collateral or any part thereof to Debtor, and the receipt of any of the same by any Debtor shall be complete and full acquittance for the Collateral so delivered, and Secured Party thereafter shall be discharged from any liability or responsibility therefor. So long as Secured Party exercises reasonable care with respect to any Collateral in its possession, custody or control, Secured Party shall not have any liability for any loss of or damage to such Collateral, and in no event shall Secured Party have liability for any diminution in value of Collateral occasioned by economic or market conditions or events. Secured Party shall be deemed to have exercised reasonable care within the meaning of the preceding sentence if the Collateral in the possession, custody or control of Secured Party is accorded treatment substantially equal to that which Secured Party accords its own Collateral, it being understood that Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any person with respect to any Collateral.

SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT.

9.1

Debtor hereby irrevocably constitutes and appoints Secured Party, and any officer or Secured Party thereof, with full power of substitution, as Debtor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Debtor and in the name of Debtor or in its own name, from time to time in Secured Party's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives Secured Party, the power and right, on behalf of Debtor, without notice to or assent by Debtor to do the following:

9.1.1

to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due under any Collateral and, in the name of Debtor or Secured Party's own name or otherwise, to take possession of and endorse and collect any checks, drafts, Note, acceptances or other instruments for the payment of moneys due under any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Secured Party for the purpose of collecting any and all such moneys due under any Collateral whenever payable and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Secured Party for the purpose of collecting any and all such moneys due under any Collateral whenever payable;

9.1.2

to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; and

9.1.3

to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due, and to become due thereunder, directly to Secured Party or as Secured Party shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due, and to become due at any time, in respect of or arising out of any Collateral; (C) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other documents constituting or relating to the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, act ion or proceeding brought against Debtor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Secured Party may deem appropriate; and (G) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party, were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time, or from time to time, all acts and things that Secured Party reasonably deems necessary to protect, preserve or realize upon the Collateral and the security interest and lien therein created by this Agreement, in order to effect the intent of this Agreement, all as fully and effectively as Debtor might do.

9.2

Secured Party agrees that, except upon the occurrence and during the continuation of an Event of Default, Secured Party will forbear from exercising the power of attorney or any rights granted to Secured Party pursuant to this Section. Debtor hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant to this Section is a power coupled with an interest and shall be irrevocable until the Obligations are indefeasibly paid in full.

9.3

The powers conferred on Secured Party hereunder are solely to protect the interests in the Collateral created by this Agreement and shall not impose any duty upon Secured Party to exercise any such powers. Secured Party shall be accountable only for amounts that Secured Party actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to Debtor for any act or failure to act, except for Secured Party's own gross negligence or willful misconduct.

9.4

Debtor authorizes Secured Party, at any time and from time to time upon the occurrence and during the continuation of any Event of Default, (i) to communicate in Secured Party's own name with any party to any contract with regard to the assignment of the right, title and interest of Debtor in and under the contracts hereunder and other matters relating thereto, and (ii) to execute, in connection with the sale provided for in Section 11 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

10.

PERFORMANCE BY SECURED PARTY OF DEBTOR'S OBLIGATIONS. If Debtor fails to perform or comply with any of Debtor's agreements contained herein and Secured Party, as provided for by the terms of this Agreement, shall itself elect to perform or comply, or otherwise cause performance or compliance, with such agreement, then the expenses of Secured Party incurred in connection with such performance or compliance, together with interest thereon at the interest rate provided in the Note, shall be payable by Debtor to Secured Party on demand and shall constitute Obligations secured hereby.

11.

REMEDIES, RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence and during the continuance of an Event of Default, Secured Party shall have, in any jurisdiction where enforcement hereof is sought, in addition to all other rights and remedies that Secured Party may have under applicable law or in equity or under this Agreement or under any other Loan Document, all rights and remedies of a secured party under the UCC as enacted in any jurisdiction, and, in addition, the following rights and remedies, all of which may be exercised with or without notice to Debtor and without affecting the Obligations of Debtor hereunder or under any other Loan Document, or the enforceability of the liens and security interests created hereby:

11.1

to foreclose the liens and security interests created hereunder or under any other agreement relating to any Collateral by any available judicial procedure or without judicial process;

11.2

to enter any premises where any Collateral may be located for the purpose of securing, protecting, inventorying, appraising, inspecting, repairing, preserving, storing, preparing, processing, taking possession of or removing the same;

11.3

to sell, assign, lease or otherwise dispose of any Collateral or any part thereof, either at public or private sale or at any broker's board, in lot or in bulk, for cash, on credit or otherwise, with or without representations or warranties and upon such terms as shall be acceptable to Secured Party;

11.4

to notify obligors on the Collateral that the Collateral has been assigned to Secured Party, and that all payments thereon are to be made directly and exclusively to Secured Party;

11.5

to collect by legal proceedings or otherwise all dividends, distributions, interest, principal or other sums now or hereafter payable upon or on account of the collateral;

11.6

to enter into any extension, reorganization, deposit, merger or consolidation agreement, or any other agreement relating to or affecting the Collateral, and in connection therewith Secured Party may deposit or surrender control of the Collateral and/or accept other property in exchange for the Collateral;

11.7

to settle, compromise or release, on terms acceptable to Secured Party, in whole or in part, any amounts owing on the Collateral and/or any disputes with respect thereto;

11.8

to extend the time of payment, make allowances and adjustments and issue credits in connection with the Collateral in the name of Secured Party, or in the name of any Debtor;

11.9

to enforce payment and prosecute any action or proceeding with respect to any or all of the Collateral and take or bring, in the name of Secured Party, or in the name of any Debtor, any and all steps, actions, suits or proceedings deemed by Secured Party necessary or desirable to effect collection of or to realize upon the Collateral, including any judicial or nonjudicial foreclosure thereof or thereon, and Debtor specifically consents to any nonjudicial foreclosure of any or all of the Collateral or any other action taken by Secured Party which may release any obligor from personal liability on any of the Collateral, and Debtor waives any right not expressly provided for in this Agreement or in any other document, instrument or agreement executed in connection herewith to receive notice of any public or private judicial or nonjudicial sale or foreclosure of any security or any of the Collateral; and any m oney or other property received by Secured Party in exchange for or on account of the Collateral, whether representing collections or proceeds of Collateral, and whether resulting from voluntary payments or foreclosure proceedings or other legal action taken by Secured Party or Debtor may be applied by Secured Party without notice to Debtor to the Obligations in such order and manner as Secured Party in its sole discretion shall determine;

11.10

to insure, process and preserve the Collateral;

11.11

to exercise all rights, remedies, powers or privileges provided under the Note and every other document, instrument or agreement executed in connection herewith;

11.12

to remove, from any premises where the same may be located, the Collateral and any and all documents, instruments, files and records, and any receptacles and cabinets containing the same, relating to the Collateral, and Secured Party may, at the cost and expense of Debtor, use such of Debtor's supplies, equipment, facilities and space at Debtor's places of business as may be necessary or appropriate to properly administer, process, store, control, prepare for sale or disposition and/or sell or dispose of the Collateral owned by Debtor or to properly administer and control the handling of collections and realizations thereon, and Secured Party, shall be deemed to have a rent-free tenancy (as between Debtor and Secured Party) of any premises owned, leased or otherwise used by Debtor for such purposes and for such periods of time as reasonably required by Secured Party; and

11.13

to exercise all other rights, powers, privileges and remedies of an owner of the Collateral, all at Secured Party's sole option and as Secured Party in Secured Party's sole discretion may deem advisable. Debtor shall, at Secured Party's request, assemble the Collateral and make it available to Secured Party at places which Secured Party may reasonably designate, whether at the premises of Debtor or elsewhere, and shall make available to Secured Party, free of cost, all premises, equipment and facilities of Debtor for the purpose of Secured Party's taking possession of the Collateral or storing same or removing or putting the Collateral in salable form or selling or disposing of same.

Upon the occurrence and during the continuation of an Event of Default, Secured Party also shall have the right, without notice or demand, either in person, by agent or by a receiver to be appointed by a court (and Debtor hereby expressly consents upon the occurrence and during the continuance of an Event of Default to the appointment of such a receiver), and without regard to the adequacy of any security for the Obligations, to take possession of the Collateral or any part thereof and to collect and receive the rents, issues, profits, income and Proceeds thereof. Taking possession of the Collateral shall not cure or waive any Event of Default or notice thereof or invalidate any act done pursuant to such notice. The rights, remedies and powers of any receiver appointed by a court shall be as ordered by said court.

Any public or private sale or other disposition of the Collateral may be held at any office of Secured Party, or at Debtor's place of business, or at any other place permitted by applicable law, and without the necessity of the Collateral being within the view of prospective purchasers. Secured Party may direct the order and manner of sale of the Collateral, or portions thereof, as Secured Party in Secured Party's sole and absolute discretion may determine, and Debtor expressly waives any right to direct the order and manner of sale of any Collateral. Secured Party or any person on Secured Party's behalf may bid and purchase at any such sale or other disposition. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied, first, to the expenses (including attorneys' fees and disbursements) of retaking, holding, storing, processing and preparing for sale or lease, selling, leasing, collecting, liquidating and the like, and then to the satisfaction of the Obligations in such order as shall be determined by Secured Party in its sole and absolute discretion. Debtor and any other person then obligated therefor shall pay to Secured Party, on demand any deficiency with regard thereto which may remain after such sale, disposition, collection or liquidation of the Collateral.

Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will send or otherwise make available to Debtor, notice of the time and place of any public sale thereof or of the time on or after which any private sale thereof is to be made in accordance with the provisions of the UCC. Secured Party shall be entitled to conduct any public or private sale in any other commercially reasonable manner permitted by law.

Upon consummation of any sale of Collateral hereunder, Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the Collateral so sold absolutely free from any claim or right upon the part of Debtor or any other person claiming through Debtor, and Debtor hereby waives (to the extent permitted by applicable laws) all rights of redemption, stay and appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. If the sale of all or any part of the Collateral is made on credit or for future delivery, Secured Party shall not be required to apply any portion of the sale price to the Obligations until such amount actually is received by Secured Party, and any Collateral so sold may be retai ned by Secured Party, until the sale price is paid in full by the purchaser or purchasers thereof. Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to pay for the Collateral so sold, and, in case of any such failure, the Collateral may be sold again.

12.

REINSTATEMENT. This Agreement shall remain in full force and effect and continue to be effective, if any petition is filed by or against Debtor for liquidation or reorganization, if Debtor becomes insolvent or makes an assignment for the benefit of creditors or if a receiver or trustee is appointed for all or any significant part of Debtor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. If any payment, or any part thereof, is rescinded, r educed, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

13.

SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.

COSTS AND EXPENSES. Debtor agrees to pay to Secured Party all costs and expenses (including attorneys' fees and disbursements) incurred by Secured Party in the enforcement or attempted enforcement of this Agreement, whether or not an action is filed in connection therewith, and in connection with any waiver or amendment of any term or provision hereof. All advances, charges, costs and expenses, including attorneys' fees and disbursements, incurred or paid by Secured Party in exercising any right, privilege, power or remedy conferred by this Agreement (including the right to perform any Obligation of Debtor), or in the enforcement or attempted enforcement thereof, shall be secured hereby and shall become a part of the Obligations and shall be paid to Secured Party by Debtor, immediately upon demand, together with interest thereon at the inter est rate provided for under the Note.

15.

NO WAIVER; CUMULATIVE REMEDIES. Secured Party shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Secured Party, and then only to the extent therein set forth. A waiver by Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that Secured Party would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Secured Party, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights an d remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Secured Party and, if applicable, by Debtor.

16.

SUCCESSORS AND ASSIGNS; GOVERNING LAW.

16.1

This Agreement and all obligations of Debtor hereunder shall be binding upon the successors and assigns of Debtor, and shall, together with the rights and remedies of Secured Party hereunder, inure to the benefit of Secured Party, all future holders of an interest in the Note and their respective successors and assigns as permitted under the Note. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the security interest granted to Secured Party hereunder.

16.2

THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO THE RULES OF CONFLICTS OF LAW.

17.

FURTHER INDEMNIFICATION. Debtor shall indemnify and hold Secured Party, and each of their respective directors, officers, employees, agents, attorneys and advisors (each an "Indemnified Party") harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including, without limitation, attorneys' fees and disbursements, including those incurred upon any appeal) which may be instituted or asserted against or incurred by an Indemnified Party as a result of Secured Party having entered into this Agreement or exercised any of their rights or remedies hereunder; provided, however, that Debtor shall not be liable for such indemnification of an Indemnified Party to the extent that any such suit, claim, damage, loss, liability or expense results solely from the Indemnified Party's gr oss negligence or willful misconduct. Debtor shall pay, and hold Secured Party harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes that may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement, other than liabilities which result from Secured Party's own gross negligence or willful misconduct.

18.

WAIVER OF MARSHALLING. Debtor agrees that Secured Party, shall be under no obligation to marshal any assets in favor of Debtor in payment of any or all of the Obligations and Debtor hereby waives any statutory, implied or legal right to require marshalling of any assets in connection with any enforcement of any right by Secured Party.

19.

WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION HEREWITH, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THE SECURED PARTY/DEBTOR RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Secured Party and Debtor each acknowledge that this waiver is a material inducement to enter into a business relationship , that each has already relied on the waiver in entering into this Agreement, and that each will continue to rely on the waiver in their related future dealings. Secured Party and Debtor further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER MAY ONLY BE MODIFIED IN WRITING SIGNED BY ALL PARTIES TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.

20.

WAIVER OF PRESENTMENT. Debtor hereby waives any right to presentment, demand, protest or any notice of any kind in connection with this Agreement or any of the Collateral to the maximum extent permitted by applicable law.

21.

STATUTE OF LIMITATIONS AND OTHER LAWS. Until the Obligations shall have been paid and performed in full, the power of sale and all other rights, privileges, powers and remedies granted to Secured Party, hereunder shall continue to exist and may be exercised by Secured Party, at any time and from time to time irrespective of the fact that any of the Obligations may have become barred by any statute of limitations. Debtor expressly waives the benefit of any and all statutes of limitation, and any and all laws providing for exemption of property from execution or for valuation and appraisal upon foreclosure, to the maximum extent permitted by applicable law.

22.

OTHER AGREEMENTS. Nothing herein shall in any way modify or limit the effect of terms or conditions set forth in the Note or any of the other documents, instruments and agreements executed in connection herewith, but each and every term and condition hereof shall be in addition thereto. All provisions contained in the Note or any of such other documents, instruments and agreements executed in connection herewith are incorporated herein by this reference.

23.

NOTICES. Any notice, demand, request, statement or consent made hereunder shall be in writing, signed by the party giving such notice, request, demand, statement, or consent, and shall be deemed to have been properly given or served when actually received by the party to which such notice is addressed at their address set forth below. If delivery of such notice is refused by addressee, such notice shall be deemed to have been properly given on the date delivery to such addressee is attempted and refused. Delivery shall be by certified mail return receipt requested, national overnight courier or personal delivery. The effective date of any notice given as aforesaid shall be the date of actual receipt by the addressee, or if delivery is refused, the date delivery is attempted. For purposes hereof, the addresses are as follows :

If to Debtor:

Attention:

Telecopier:

If to Secured Party:

The addresses set forth on Exhibit A.

Notwithstanding the foregoing agreement to provide a courtesy copy, such copy shall be a courtesy copy only, and failure to provide such courtesy copy shall have absolutely no effect or entitle Debtor to any remedy whatsoever. Any notice duly given to Debtor shall be effective whether or not the courtesy copy was given. Any party may designate a change of address by written notice to the others, which notice must be received at least ten (10) days before such change of address is to become effective.

24.

TERMINATION. This Agreement shall terminate and be of no further force or effect at such time when all of the Obligations have been paid in full and fully performed. Upon full payment and full performance of the Obligations, Secured Party, shall deliver to Debtor, at Debtor's sole cost and expense, such documents as Debtor may reasonably request to evidence such termination.

25.

[INTENTIONALLY OMITTED]

[Signatures on Next Page]

IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above.

DEBTOR:

3 Extreme Enterprises, Inc.,

a California corporation

By:

Name:

Title:

SECURED PARTY:

Video City, Inc.,
a Delaware corporation

By:

Name:

Title:

EXHIBIT A

Secured Party

Name/Address	Loan Amount	Pro Rata Share
	$_____________	______%
	$_____________	______%
	$_____________	______%
	$_____________	______%
	$_____________	______%
	$_____________	______%

C:\Documents and Settings\Dad\Desktop\3 extreme enterprises note and security agreement.doc

INTELLECTUAL PROPERTY SECURITY AGREEMENT

This Intellectual Property Security Agreement, dated as of October 9, 2003, is made by 3 Extreme Enterprises, Inc., a California corporation ("Grantor"), in favor of Video City, Inc., a Delaware corporation ("Secured Party").

R E C I T A L S :

Secured Party have agreed to make certain Loan (the "Loan") to Grantor in the principal amount set forth adjacent to each Secured Party's name on Schedule 1 attached hereto, as evidenced by those certain Secured Promissory Note of even date herewith payable to Secured Party in the principal amount of the applicable loan, executed by Grantor in favor of Secured Party (collectively, the "Note").

Pursuant to that certain Security Agreement of even date herewith between Secured Party and Grantor (the "Security Agreement"), Grantor has granted to Secured Party, a continuing lien on and security interest in certain assets of Grantor as more specifically described in the Security Agreement. Capitalized terms appearing in this Intellectual Property Security Agreement without definition shall have the respective meanings given to such terms in the Security Agreement.

Secured Party is willing to make the Loan to Grantor, upon the condition, among others, that Grantor shall grant to Secured Party, a security interest in all of Grantor's right, title and interest in and to all Copyrights, Patents, Patent Licenses, Trademarks, Trademark Licenses and Trade Secrets (collectively, the "Intellectual Property Collateral") to secure the obligations of Grantor under the Note.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, as collateral security for the prompt and complete payment when due of its obligations under the Note and the Security Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:

A G R E E M E N T :

To secure its obligations under the Note, Grantor grants and pledges to Secured Party, a security interest in all of Grantor's right, title and interest in, to and under the Intellectual Property Collateral, including without limitation those Copyrights, Patents and Trademarks listed on Exhibits A, B and C hereto, and further including, without limitation, all Proceeds thereof, the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world and all re-issues, divisions continuations, renewals, extensions and continuations-in-part thereof.

This security interest is granted in conjunction with the security interest granted to Secured Party, under the Security Agreement. The rights and remedies of Secured Party, with respect to the security interest granted hereby are in addition to those set forth in the Security Agreement, and those which are now or hereafter available to Secured Party, at law or in equity.

Each right, power and remedy of Secured Party, provided for herein or in the Security Agreement or the Note, or now or hereafter existing at law or in equity shall be cumulative and concurrent and shall be in addition to every right, power or remedy provided for herein and the exercise by Secured Party, of any one or more of the rights, powers or remedies provided for in this Intellectual Property Security Agreement, the Security Agreement or the Note, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Secured Party, of any or all other rights, powers or remedies.

Grantor represents and warrants that Exhibits A, B, and C attached hereto set forth any and all intellectual property rights in connection to which Grantor has registered or filed an application with either the United States Patent and Trademark Office or the United States Copyright Office, as applicable.

[Signatures on Next Page]

C:\Documents and Settings\Dad\Desktop\3 extreme enterprises note and security agreement.doc

IN WITNESS WHEREOF, the parties have caused this Intellectual Property Security Agreement to be duly executed by its officers thereunto duly authorized as of the first date written above.

GRANTOR:

3 Extreme Enterprises, Inc.,
a California corporation

By:

__________________________________

Name:

Title:

SECURED PARTY:

Video City, Inc.,
a Delaware corporation

By:

__________________________________

Name:

Title:

C:\Documents and Settings\Dad\Desktop\3 extreme enterprises note and security agreement.doc

SCHEDULE 1

Secured Party

Name/Address	Loan Amount
___________________________ ___________________________ ___________________________	$____________________
___________________________ ___________________________ ___________________________	$____________________
___________________________ ___________________________ ___________________________	$____________________

C:\Documents and Settings\Dad\Desktop\3 extreme enterprises note and security agreement.doc

EXHIBIT A

Copyrights

NONE

-///

EXHIBIT B

Patents

Description	Registration/ Application Number	Registration Application Date
________________________________	______________	________________
________________________________	______________	________________
________________________________	______________	________________

-///

EXHIBIT C

Trademarks

Description	Registration/ Application Number	Registration Application Date
________________________________	______________	________________
________________________________	______________	________________
________________________________	______________	________________

-///

EX-2 6 f8kexhibit22assgn.htm ASSIGNMENT OF PARTNERSHIP INTEREST -

ASSIGNMENT OF PROMISSORY NOTE AND SECURITY AGREEMENT

THIS ASSIGNMENT OF PROMISSORY NOTE AND SECURITY AGREEMENT (this “Assignment”) is made this tenth (10th) day of October, 2003, by and between VIDEO CITY, INC., a Delaware corporation ("Assignor"), and TIMOTHY J. DENARI, INC., a California corporation ("Assignee"), as described below. Assignor and Assignee are singularly referred to as a “party” and collectively as the “parties”.

Recitals

This Assignment is made with reference to the following facts and circumstances:

TIM FORD, an individual ("Guarantor") is a director and officer, and a stockholder of 3 XTREME ENTERPRISES, INC., an California corporation ("Consentor");

Consentor made the "Secured Promissory Note" in favor of Assignor in the principal amount of Fifty Thousand Dollars and No Cents ($50,000.00) dated October 9, 2003 and executed the “Security Agreement” in favor of Assignor dated October 9, 2003 (the Secured Promissory Note and the Security Agreement are collectively referred to as the “Note”);

In order to repay an indebtedness to Assignee, the parties agree that Assignor will assign all of its interest, right and title in, and duties, obligations and responsibilities under the Note as the beneficiary thereunder to Assignee with the knowledge and consent of Consentor and Guarantor; and,

Contemporaneously with the execution of this Assignment and in order to effectuate the foregoing, Guarantor and Assignee shall be executing the "Guaranty Agreement" dated October 10, 2003. (Such express written agreements or contracts along with the Note are collectively referred to as the "Obligations");

NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Assignment, the parties expressly agree and contract as follows:

Assignment

Assignment and Assumption of the Note. For good and valuable consideration, the receipt and adequacy of which Assignor acknowledges, Assignor assigns all of its interest, right and title in, and duties, obligations and responsibilities under the Note as the beneficiary thereunder to Assignee. This Assignment shall be subject to the express material condition subsequent that the Consentor approve and consent to this Assignment. By this Assignment, Assignor delegates to Assignee all of Assignor's interest, right and title in, and duties, obligations and responsibilities under the Note. By accepting this Assignment, Assignee agrees to assume or perform that interest, right and title in, and those duties, obligations and responsibilities as if it had been an original party to the Note.

Enforceability. The rights granted to the parties are of a special and unique kind and character, and if there is a breach by any party of any material provision of this Assignment, the other party would not have any adequate remedy at law. It is expressly agreed that the rights of the parties may be enforced by any action for specific performance and such other equitable remedies as provided under the laws of the State of California.

Remedies Not Exclusive. Any party's use of any remedy specified herein for the enforcement of this Assignment is not exclusive and shall not deprive such party of, or limit the application of, any other remedy provided by law, at equity or otherwise.

Attorneys' Fees and Costs. In the event of any action at law or in equity between the parties to enforce or interpret this Assignment, the unsuccessful party to such litigation shall pay to the successful party all costs and expenses, including reasonable attorneys' fees and disbursements, incurred therein by such successful party and, if such successful party shall recover judgment in any such action or proceedings, such costs, expenses and attorneys' fees and disbursements may be included in and as a part of such judgment. The successful party shall be the party who is entitled to recover his costs of suit, whether or not the suit proceeds to final judgment. If no costs of suit are awarded, then the successful party shall be determined by the court. For the purpose of this Section, the term "attorneys' fees and disbursements" shall include, but not be limited to, fees and disbursements incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind or nature in connection with a bankruptcy proceeding or case arising out, concerning or related in any way to any petition under Title 11 of the United States Code, as the same shall be in effect from time to time, or any similar law; (iv) garnishment, levy, and debtor and third party examinations; and, (iv) postjudgment motions, proceedings or activity of any kind or nature, including, but not limited to, any activity taken to collect or enforce any judgment.

Waiver. No waiver of any default or failure or delay to exercise any right or remedy by a party shall operate as a waiver of any other default or of the same default in the future or as a waiver of any right or remedy with respect to the same or any other occurrence.

Warranties of the Parties. Each party understands, acknowledges, agrees, represents and warrants to the other party that it has received independent legal advice from its attorneys with respect to the advisability of entering into this Assignment or has intentionally elected not to seek the advise of counsel and has carefully reviewed and considered the terms and conditions of this Assignment, that it is empowered to execute this Assignment, and that its execution of this Assignment is free and voluntary.

Further Assurances. Each party agrees to and will cooperate fully with the other parties in the performance of this Assignment. Each party also shall execute and deliver any and all additional documents, instruments, papers or other assurances and shall perform any further acts which may be reasonably necessary to carry out the intent of the parties and this Assignment.

Notices. All notices, demands, or other communications that either party desires or is required or permitted to give or make to the other party under or pursuant to this Assignment (collectively referred to as "notices") shall be made or given in writing and shall either be: (i) personally served; (ii) sent by registered or certified mail, postage prepaid; (iii) sent by telex or facsimile ("fax"); or, (iv) sent by a nationally recognized overnight delivery service or courier (such as Federal Express or DHL). All notices shall be addressed or faxed to or personally served on the parties as follows:

Assignor:

Mr. Rudolf Patino

Chief Financial Officer

VIDEO CITY, INC.

4800 Easton Drive, Suite 108

Bakersfield, CA 93309

Telephone No. (661) 634-9171

Telefax No. (661) 634-9180

Assignee:

Mr. Timothy J. Denari

President

TIMOTHY J. DENARI, INC.

7850 White Lane, Suite E140

Bakersfield, CA 93309

Telephone No. (661) 203-9900

Telefax No. (661) 760-7822

Guarantor:

MR. TIM FORD

3845 Stockdale Highway, Suite 217

Bakersfield, CA 93309

Telephone No. (661) ______-________

Telefax No. (661) ______-________

Consentor:

Mr. Tim Ford

President

3 XTREME ENTERPRISES, INC.

3845 Stockdale Highway, Suite 217

Bakersfield, CA 93309

Telephone No. (661) ______-________

Telefax No. (661) ______-________

Notices given by a party pursuant to the alternative methods described in this section shall be deemed to have been delivered to and received by the other party at the following times: (a) for notices personally served, on the date of hand delivery to the other party or its duly authorized employee, representative, or agent; (b) for notices given by registered or certified mail, on the date shown on the return receipt as having been delivered to and received by the other party or parties; (c) for notices given by fax, on the date the notice is faxed to the other party or parties; provided, however, that notices given by fax shall not be effective unless either (i) a duplicate copy of such faxed notice is promptly given by first-class mail, postage prepaid, and addressed as provided above, or (ii) the sending party's facsimile equipment is capable of providing a written confirmation of the rece iving party's receipt of such notice; provided further, however, any notice given by fax shall be deemed received on the next business day if such notice is received after 5:00 p.m. (recipient's time) or on a nonbusiness day; or, (d) for notices delivered by overnight courier, on the next business day after same has been deposited with the courier as evidenced by the receipt provided by such courier to the party giving notice.

Each party shall make an ordinary, good faith effort to ensure that it will accept or receive notices that are given in accordance with this section, and that any person to be given notice actually receives such notice. A party may change or supplement its designated agent, address, or fax number given above, or designate additional agents, addresses or fax numbers for notice purposes, by giving notice to the other party in the manner set forth in this section, provided that any such address change shall not be effective until five (5) days after the notice is delivered or received by the other party.

Binding Effect. Subject to Section 10, this Assignment shall inure to and for the benefit of and be binding upon each party's respective parent, subsidiary or affiliated organizations, administrators, agents, attorneys, beneficiaries, conservators, custodians, directors, employees, executors, guardians, heirs, independent contractors, joint venturers, members, officers, partners, predecessors, representatives, servants, stockholders, successors, and all others acting for, under, or in concert with it, including associations, corporations, limited liability companies, and general or limited partnerships, past, present, and future.

10.

Assignment. Notwithstanding Section 9, neither party shall assign, convey, encumber, hypothecate, sell or otherwise transfer this Assignment or any right or interest therein or thereunder, or permit or suffer any such assignment, conveyance, encumbrance, hypothecation, sale or transference to occur by operation of law without the prior written consent of the other party, which consent shall not be unreasonably withheld. Any attempted any such assignment, conveyance, encumbrance, hypothecation, sale or transference without such consent shall be voidable by the nonconsenting party. No consent to any assignment, conveyance, encumbrance, hypothecation, sale or transference shall constitute a further waiver of the provisions of this Section.

11.

No Third Party Beneficiary. This Assignment is made for the sole benefit of the parties and their respective successors and assigns and no other person or persons shall have any right of action hereon.

12.

No Partnership or Joint Venture Created. Nothing in this Assignment shall be construed, deemed or interpreted by the parties or by any third person to create the relationship of principal and agent or of partnership, joint venture or any other association other than that of debtor-creditor between the parties.

13.

Entire Agreement. This Assignment, the Obligations and the other documents described in this guaranty and the Obligations contain the entire agreement between the parties and constitute an integration of the entire agreement, contract, promise and understandings of the parties. All prior agreements, conditions, contracts, promises, representations, understandings, or warranties, whether oral of written, express or implied, concerning the subject matter of this Assignment are expressly superseded hereby and have no further force or effect, except for this Assignment, the Obligations and the other documents described in this Assignment and the Obligations.

14.

No Novation. This Assignment shall not be construed or otherwise interpreted as a novation of any prior or contemporaneous agreements, contracts or other understandings, whether oral or written, express or implied, between the parties. The rights, and also the duties, obligations and responsibilities of the parties under this Assignment are not in substitution, but in addition to, any prior or contemporaneous agreements, contracts or other understandings, whether oral or written, express or implied, between the parties.

15.

Modification. This Assignment may not be altered, amended, or modified in any respect, except by a writing duly executed by all the parties.

16.

Governing Law; Venue. This Assignment shall be construed and enforced in accordance with the internal laws, and not the law of conflicts, of California, where it is to be executed, delivered and performed. This Assignment is entered into and is to be performed in Kern County, California, and accordingly the only appropriate venue for a dispute under this Assignment or the Obligations is in the Kern County Superior Court, Metropolitan Division.

17.

Construction; Computation of Time. Headings are used herein for convenience only and shall have no force or effect in the construction or interpretation of this Assignment. As used in this Assignment, the singular includes the plural and masculine includes the feminine and neuter. This Assignment shall not be construed against the party drafting it but shall be construed fairly and equitably as though it was the joint product of the parties. Except where the context otherwise requires, all references to the term of this Assignment shall include any extensions of such term. The time in which any act under this Assignment is to be done shall be computed by excluding the first day and including the last day. If the last day of any time period shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be extended so tha t it shall end on the next succeeding day which is not a Saturday, Sunday or legal holiday. To the extent used or subsequently used in an amendment to this Assignment, the word "day" shall mean a "calendar" day and the phrase "business day" shall mean those days on which the Kern County Superior Court is open for business.

18.

Partial Invalidity. If any clause, paragraph, phrase, provision, section or sentence of this Assignment shall become illegal, null or void for any reason or shall be held by any court of competent jurisdiction to be illegal, null or void, or against public policy, the remaining clauses, Sections, phrases and sentences of this Assignment shall not be affected thereby and the parties shall negotiate an equitable adjustment of the affected provision with a view toward effecting the purpose of this Assignment.

19.

Time of the Essence. Time is of the essence under this Assignment.

20.

Separate Counterparts; Facsimile Signatures. This Assignment may be executed in four (4) separate counterparts, each of which, when so executed, shall be deemed to be an original and to constitute the one and same contract. This Assignment may be signed and signatures transmitted by facsimile, and any such facsimile copy shall be equivalent to a binding signed original for all purposes, and the party transmitting facsimile signatures shall transmit original "hard copies" of the signature pages as provided in Section 7 within twenty-four (24) hours after transmission of such facsimile copy.

21.

Independent Counsel. The parties, Consentor and Guarantor each acknowledge and agree that it/he has been advised to obtain independent counsel to advise it/him as to the contents of this Assignment, the effects of this Assignment and the rights that have been acquired by way of executing this Assignment.

22.

Warranty of Signers. Each individual executing and delivering this Assignment on behalf of a party hereby covenants, represents and warrants to the other party that such individual has been duly authorized and empowered to make such execution and delivery on its behalf.

23.

Effective Date. This Assignment shall become effective as of the date first (1st) written above.

DATED: October 10, 2003

VIDEO CITY, INC., a Delaware corporation ("Assignor")

By:

/s/

ROBERT Y. LEE

Its:

Chairman

DATED: October 10, 2003

TIMOTHY J. DENARI, INC., a California corporation ("Assignee")

By:

/s/

TIMOTHY J. DENARI

Its:

President

AGREED AND APPROVED:

DATED: October 10, 2003

TIM FORD, an individual ("Guarantor")

/s/

TIM FORD

Acceptance of Assignment

The Consentor acknowledges receipt of this Assignment and agrees to be bound by this Assignment. The Consentor also agrees to release Assignor and its agents, attorneys, employees, representatives, servants, successors, and all others acting for, under, or in concert with it, past, present, and future, of and from any and all duties, obligations or responsibilities under the Note. The Consentor additionally agrees to waive and relinquish any rights against Assignor under the Note. Consentor further agrees to direct any and all future payments under the Note to Assignee at its address in Section 8.

DATED: October 10, 2003

3 XTREME ENTERPRISES, INC., a California corporation ("Consentor")

By:

/s/

TIM FORD

Its:

President

_{118/48740-1/ASSIGNMENT OF PROMISSORY NOTE}

EX-99 7 f8kexhibit991.htm EXHIBIT 99

Video City Sells All of its Remaining Stores

BAKERSFIELD, California, November 18, 2003 – On November 18, 2003, Video City, Inc. (OTC: VDCY) announced the sale of all of Video City’s 14 remaining retail video stores. Video City sold 12 of its retail video stores to M.G. Midwest, Inc., a wholly owned subsidiary of Movie Gallery, Inc. (Nasdaq: MOVI).

In addition, Timothy L. Ford, Rudolph R. Patino, and Robert Y. Lee resigned as the Chief Executive Officer, Chief Financial Officer and director, and Chairman of the board respectively of Video City. Video City sold one of the stores located in Ventura, California to an entity controlled by Mr. Ford. Video City closed the other Ventura, California store and sold the inventory for such store. The transaction between Video City and the entity controlled by Mr. Ford took place as a result of arm’s length negotiations between Video City and such entity.

Video City has moved its principal executive offices to 5060 California Avenue, Suite 401, Bakersfield, CA, 93309. The Company’s phone number was changed to (661) 843-5553.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, such as statements of the company’s plans, activities, expectations and intentions, that involve risks and uncertainties that could cause actual results to differ materially from those discussed in such forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the company’s future plans for its business, if any; the availability of financing and capital resources; the company’s ability to achieve value from its remaining assets; the company’s ability to manage its financial and other obligations and liabilities; and other factors discussed herein and in the company’s Annual Report on Form 10-K for the fiscal year ended January 31, 200 3.

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