Saturday, February 14, 2009
By Erik Gruenwedel | Posted: 12 Dec 2007
The last time anyone heard from Mark Wattles the founder and former CEO of Hollywood Entertainment Corp. was basking in the $1.1 billion 2005 sale of his No. 2 video rental chain to then No. 3 Movie Gallery.
Now Dothan, Ala.-based Gallery is bankrupt and Wattles wants Hollywood Video back, or at least trademark rights to 20 store locations he has owned and operated since 2001 under a special license agreement.
Following the Oct. 16 bankruptcy filing, Gallery said it no longer wished to remain in a business relationship with Wattles and now seeks to forbid him from operating the stores under the Hollywood Video name.
The dispute has become contentious due in part to Wattles' role as a potential investor in a competing fiscal reorganization plan for Gallery, according to court records.
Gallery has a separate fiscal reorganization plan before the court with private equity firm Sopris Capital Advisors.
The stores, operated by Wattles' Boards Video Company LLC, generate about $30 million in annual revenue and employ about 400 people, according to a Dec. 11 filing by Boards Video with the U.S. Bankruptcy Court in Virginia.
The objection was in response to a Nov. 28 motion by Gallery that sought to reject the license. Wattles claimed that failure to operate his stores under the Hollywood name would negatively impact the businesses.
Wattles has personally guaranteed many of the stores' leases and faces about $19 million in costs should the stores cease operations, according to the filing.
The Wattles-owned Hollywood Video stores have resulted in more than $600,000 in annual royalties (2% quarterly) and $385,000 yearly in distribution fees paid to Gallery since 2003. Gallery earned more than $1 million in fees this year, according to court records.
According to the 2001 agreement between Wattles and Hollywood Entertainment Corp., parent of Hollywood Video, the then-CEO had the right to force a sale of his stores to Gallery.
Gallery or Wattles never agreed to a purchase price for the stores, and in March Wattles demanded arbitration to resolve the matter, which is currently on hold, stayed by the court.
A hearing on the matter is scheduled Dec. 18.