AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION STATEMENT NO. 333-2724
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
COBB THEATRES, L.L.C.
(Exact Name of Registrant as Specified in its Charter)
<TABLE><CAPTION>
ALABAMA 7830 63-1161322
<S> <C> <C>
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Code Number) Identification Number)
</TABLE>
COBB FINANCE CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE><CAPTION>
ALABAMA 7830 63-1161888
<S> <C> <C>
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Code Number) Identification Number)
</TABLE>
COBB THEATRES II, INC
(Exact Name of Registrant as Specified in its Charter)
Alabama 7830 63-1111323
(State or Other Jurisdication (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Code Number) Identification Number)
R. C. COBB, INC.
(Exact Name of Registrant as Specified in its Charter)
Alabama 7830 63-0376608
(State or Other Jurisdication (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Code Number) Identification Number)
924 MONTCLAIR ROAD
BIRMINGHAM, ALABAMA 35213
(205) 591-2323
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrants' Principal Executive Offices)
-------------------
ROBERT M. COBB
PRESIDENT AND CHIEF EXECUTIVE OFFICER
924 MONTCLAIR ROAD
BIRMINGHAM, ALABAMA 35213
TEL: (205) 591-2323
FAX: (205) 595-2120
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
-------------------
COPIES OF COMMUNICATIONS TO:
J. BROOKE JOHNSTON, JR., ESQ.
MARK E. EZELL, ESQ.
F. HAMPTON MCFADDEN, JR., ESQ.
HASKELL SLAUGHTER & YOUNG L.L.C.
1200 AMSOUTH/HARBERT PLAZA
1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203
TEL: (205) 251-1000
FAX: (205) 324-1133
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER NOTE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
10 5/8% New Senior Secured
Notes due 2003 $85,000,000 100% $85,000,000 $29,310.34
Subsidiary Guarantees
of Senior Secured Notes $85,000,000 100% $85,000,000 (1)
</TABLE>
(1) No separate registration fee is required pursuant to Rule 457(n).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
COBB THEATRES, L.L.C.
COBB FINANCE CORP.
CROSS-REFERENCE SHEET
Items in Part I of the Registration Statement on Form S-4
and Prospectus Pursuant to Item 501(b) of Regulation S-K.
<TABLE>
<CAPTION>
ITEM
NUMBER REGISTRATION STATEMENT ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS
- ------ ----------------------------------------- -----------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Facing Page of the Registration
Statement; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
of Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Prospectus Summary; Risk Factors
4. Terms of the Transaction................. Prospectus Summary; The Exchange Offer
5. Pro Forma Financial Information.......... Not Applicable
6. Material Contracts with the Company Being
Acquired................................. Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters................ Not Applicable
8. Interests of Named Experts and Counsel... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
10. Information with Respect to S-3
Registrants.............................. Not Applicable
11. Incorporation of Certain Information by
Reference................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.............................. Not Applicable
13. Incorporation of Certain Information by
Reference................................ Not Applicable
14. Information with Respect to Registrants
Other than S-3 or S-2 Registrants........ Prospectus Summary; The Issuers; Risk
Factors; Capitalization; Selected
Combined Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Relationships and Related Transactions;
Principal Equityholders; Combined
Financial Statements
15. Information with Respect to S-3
Companies................................ Not Applicable
16. Information with Respect to S-2 or S-3
Companies................................ Not Applicable
17. Information with Respect to Companies
Other than S-2 or S-3 Companies.......... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................ Prospectus Summary; The Exchange Offer;
The Issuers; Risk Factors;
Capitalization; Selected Combined
Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Relationships and Related Transactions;
Principal Equityholders; Combined
Financial Statements
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 7, 1996
PROSPECTUS
OFFER TO EXCHANGE
10 5/8% NEW SENIOR SECURED NOTES DUE 2003
FOR ALL OUTSTANDING 10 5/8% SENIOR SECURED NOTES DUE 2003
OF
COBB THEATRES, L.L.C.
COBB FINANCE CORP.
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME ON , 1996
UNLESS EXTENDED.
Cobb Theatres, L.L.C., an Alabama limited liability company (the "Company" or
"Cobb") and Cobb Finance Corp., an Alabama corporation and a wholly owned
subsidiary of the Company ("Finance Corp." and, together with the Company, the
"Issuers"), jointly and severally hereby offer (the "Exchange Offer"), upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its 10 5/8% New Senior Secured Notes due 2003 (the
"New Senior Secured Notes"), which exchange has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 principal amount of its outstanding 10 5/8% Senior
Secured Notes due 2003 (the "Original Senior Secured Notes"), of which $85.0
million in aggregate principal amount are outstanding as of the date hereof. The
Exchange offer will remain open only until , 1996.
------------------------
NEW SENIOR SECURED NOTES SAME AS ORIGINAL SENIOR SECURED NOTES.
The form and terms of the New Senior Secured Notes are the same as the form
and terms of the Original Senior Secured Notes except that (i) the exchange will
have been registered under the Securities Act and hence the New Senior Secured
Notes will not bear legends restricting the transfer thereof, and (ii) holders
of the New Senior Secured Notes will not be entitled to certain rights of
holders of the Original Senior Secured Notes under the Registration Rights
Agreement (as defined herein), which rights will terminate upon the consummation
of the Exchange Offer. The New Senior Secured Notes will evidence the same debt
as the Original Senior Secured Notes (which they replace) and will be entitled
to the benefits of an Indenture dated as of March 6, 1996 governing the Original
Senior Secured Notes and the New Senior Secured Notes (the "Indenture"). The
Original Senior Secured Notes and the New Senior Secured Notes are sometimes
referred to herein collectively as the "Senior Secured Notes," where
appropriate. See "The Exchange Offer" and "Description of New Senior Secured
Notes."
------------------------
The New Senior Secured Notes will bear interest at the same rate and on the
same terms as the Original Senior Secured Notes. Consequently, the New Senior
Secured Notes will bear interest at the rate of 10 5/8% per annum and the
interest will be payable semi-annually on March 1 and September 1 of each year
commencing on September 1, 1996. The New Senior Secured Notes will bear interest
from and including the date of issuance of the Original Senior Secured Notes
(March 6, 1996). Holders whose Original Senior Secured Notes are accepted for
exchange will be deemed to have waived the right to receive any interest accrued
on the Original Senior Secured Notes.
The Senior Secured Notes are secured obligations of the Company and rank pari
passu with Indebtedness under the New Credit Facility (as defined herein),
future senior Indebtedness (as defined in the Indenture) of the Company and will
rank senior in right of payment to all future subordinated Indebtedness of the
Company. See "Description of New Senior Secured Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Interests"
for a description of the restrictions on the ability of the Company and its
subsidiaries to incur additional indebtedness. On March 6, 1996, the Company
entered into a Credit Agreement with First Union National Bank of North
Carolina, as Agent for the Lenders, pursuant to which the Company under certain
conditions may borrow up to $25.0 million (the "New Credit Facility"). The
Company's obligations under the New Credit Facility are secured pari passu by a
security interest on all of the assets of the Company or any of its subsidiaries
other than real property. As of March 6, 1996, the Company had availability
under the New Credit Facility of approximately $11.0 million. As of March 6,
1996, no amount was outstanding under the New Credit Facility. The Company also
had capital leases outstanding in the approximate amount of $1.8 million.
The payment, when due, of the principal of and interest on the Senior Secured
Notes has been unconditionally guaranteed, jointly and severally, by the two
operating companies, R.C. Cobb, Inc., an Alabama corporation and Cobb Theatres
II, Inc., an Alabama corporation, (each a "Guarantor" and collectively, the
"Guarantors"),both of which are wholly owned subsidiaries of the Company.
The New Senior Secured Notes may be redeemed at the option of the Company, in
whole or in part, on or after March 1, 2000 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, through the date of
redemption. Upon a Change of Control (as defined in the Indenture), the Company
will make an offer to purchase the Senior Secured Notes, at a purchase price of
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the purchase date. There can be no assurance the Company will have the
financial resources necessary to purchase the Senior Secured Notes upon a Change
of Control.
The Company will accept for exchange any and all validly tendered Original
Senior Secured Notes not withdrawn prior to 5:00 p.m., New York City time, on
, 1996 unless extended by the Company, in its sole discretion (the
"Expiration Date"). Tenders of Original Senior Secured Notes may be withdrawn at
any time prior to the Expiration Date. The Exchange Offer is subject to certain
customary conditions. See "The Exchange Offer--Conditions to the Exchange
Offer." Original Senior Secured Notes may be tendered only in integral multiples
of $1,000.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SEE "RISK FACTORS" ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS WHICH
INVESTORS SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER AND AN
INVESTMENT IN THE SENIOR SECURED NOTES.
------------------------
The date of this Prospectus is , 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the New Senior Secured Notes issued pursuant
to this Exchange Offer in exchange for Original Senior Secured Notes may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchases such New Senior Secured Notes directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the New Senior Secured
Notes in the ordinary course of its business and is not participating, and had
no arrangement or understanding with any person to participate, in the
distribution of the New Senior Secured Notes. Holders of Original Senior Secured
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met. Each broker-dealer that receives the New Senior Secured Notes for its own
account in exchange for the Original Senior Secured Notes, where such Original
Senior Secured Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Senior
Secured Notes. The Company believes that none of the registered holders of the
Original Senior Secured Notes is an affiliate (as such term is defined in Rule
405 under the Securities Act) of the Company.
Prior to this Exchange Offer, there has been no public market for the Senior
Secured Notes. The Company does not intend to list the Senior Secured Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the Senior
Secured Notes will develop. To the extent that a market for the Senior Secured
Notes does develop, the market value of the Senior Secured Notes will depend on
market conditions (such as yields on alternative investments), general economic
conditions, the Company's financial condition and other conditions. Such
conditions might cause the Senior Secured Notes, to the extent that they are
actively traded, to trade at a significant discount from face value. See "Risk
Factors--Absence of Public Market for the Senior Secured Notes; Restrictions on
Transfer."
Each broker-dealer that receives New Senior Secured Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Senior Secured Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Senior Secured Notes received in exchange for
Original Senior Secured Notes where such Original Senior Secured Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has indicated its intention to make this
Prospectus (as it may be amended or supplemented) available to any broker-dealer
for use in connection with any such resale for a period of 120 days after the
Expiration Date. See "Plan of Distribution."
The Company will not receive any proceeds from this Exchange Offer. The
Company has agreed to bear the expenses of this Exchange Offer. No underwriter
is being used in connection with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF ORIGINAL SENIOR SECURED NOTES IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
OR THE ACCOMPANYING LETTER OF TRANSMITTAL,
2
<PAGE>
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS EXCHANGE OFFER), ALL
DEALERS OFFERING TRANSACTIONS IN THE NEW SENIOR SECURED NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
The New Senior Secured Notes will be available initially only in book-entry
form. The Company expects that the New Senior Secured Notes issued pursuant to
this Exchange Offer will be issued in the form of one or more fully registered
global notes which will be deposited with, or on behalf of, the Depositary (as
defined herein) and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the global note representing the New Senior
Secured Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary and its participants. After the
initial issuance of such global note, New Senior Secured Notes in certificated
form will be issued in exchange for the global note only as set forth in the
Indenture. See "Description of New Senior Secured Notes--Book Entry--Delivery
and Form."
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. All financial and other information assumes completion of the
acquisition of R.C. Cobb, Inc., Cobb Theatres II, Inc. and R&J Concessions, Inc.
(collectively, the "Cobb Theatres Group") by Cobb Theatres, L.L.C., a newly
organized Alabama limited liability company, which occurred March 6, 1996 as
discussed below and under "Formation Transactions." Unless the context otherwise
requires, the term the "Company" or "Cobb" used herein shall mean the Cobb
Theatres Group prior to the Formation Transactions and shall mean Cobb Theatres,
L.L.C. and its consolidated subsidiaries after the completion of the Offering
(as defined herein). The Company's fiscal year ends on August 31. References to
fiscal years herein are to the twelve-month period ending on August 31 of the
year indicated.
FORMATION TRANSACTIONS
Concurrently with the closing of the offering of the Original Senior Secured
Notes, (i) R.C. Cobb, Inc. acquired all right, title and interest in and to all
of the outstanding equity securities of R & J Concessions, Inc., (ii) R & J
Concessions, Inc. was merged into its sole shareholder, R.C. Cobb, Inc. with
R.C. Cobb, Inc. being the surviving corporation, and (iii) Cobb Theaters, L.L.C.
acquired all right, title and interest in and to all of the outstanding equity
securities of R.C. Cobb, Inc. and Cobb Theaters II, Inc., which had previously
been held by members of the Cobb family. R & J Concessions, Inc. went out of
existance in this transaction. All of the outstanding equity interests of the
Company initially will be held by members of the Cobb family and by two
revocable trusts for the benefit of certain members of the Cobb family. See
"Principal Equityholders." As a result of the foregoing Formation Transactions,
each of R.C. Cobb, Inc. and Cobb Theaters II, Inc. became, together with Finance
Corp., the sole subsidiaries of the Company.
Finance Corp. is a wholly owned subsidiary of the Company and was formed to
serve as a co-issuer of the Senior Secured Notes in order to facilitate the
offering (as herein defined), whereby the Original Senior Secured Notes were
sold to Lehman Brothers, Inc. and First Union Capital Markets Corp. (the
"Initial Purchasers"). Cobb Finance Corp. will not have any operations or
material assets of any kind and will not have any revenues.
Cobb Theatres, L.L.C. has no significant assets or operations separate from its
investment in its subsidiaries. R.C. Cobb, Inc. and Cobb Theaters II, Inc. the
operating companies, have jointly and severally guaranteed the Issuers'
obligations under the Senior Secured Notes. See "Description of Senior Secured
Notes--Subsidiary Guarantees." Cobb Theatres, L.L.C. was recently formed as a
holding company to create a consolidated entity to facilitate the Offering.
GENERAL
The Company is the eleventh largest motion picture exhibitor in the United
States and the largest exhibitor in Florida, based on the number of screens
operated. At February 29, 1996, the Company operated 70 theatres with an
aggregate of 581 screens in Florida, Alabama, Arkansas and Mississippi,
including 54 theatres and 437 screens in Florida. The Company and its
predecessors have been involved in the motion picture exhibition industry since
1921 and have been owned and managed by members of the Cobb family throughout
this period. Moreover, the Company's six top executives have an average of over
28 years of experience in the industry. For the twelve months ended February 29,
1996, the Company's revenues and EBITDA (as defined herein) were $111.9 million
and $15.4 million, respectively.
Movie theatres are the primary initial distribution channel for new motion
picture releases. Management believes that the success of a movie in other
"downstream" delivery systems, such as home
4
<PAGE>
video and network, syndicated and pay television, is largely dependent on its
successful release in movie theatres in the United States. In addition,
management believes that, to date, the proliferation of these other distribution
channels, home video in particular, has enhanced the value of film product,
resulting in additional film product for exhibition. Management further believes
that the emergence of new forms of delivery systems has not adversely affected
attendance at movie theatres and that alternative delivery systems do not
provide an experience comparable to the out-of-home entertainment experience of
attending a movie in a theatre.
STRATEGY
The Company's strategy is to continue to grow revenues and EBITDA primarily
by expanding its theatre circuit. Key elements of the Company's operating
strategy include the following:
Maintain Market Leadership in Florida. Cobb is the largest motion picture
exhibitor in Florida based on number of theatres and screens operated. Cobb has
concentrated, and plans to continue to concentrate, its expansion efforts in
Florida. Management believes Florida is one of the more attractive theatre
markets in the United States due to its favorable demographic profile and
economic outlook. Florida's population is projected to grow at more than twice
the rate of the United States population through the end of the decade.
Moreover, approximately 25% of Florida's population consists of persons under 20
years of age. Industry data shows that nationally the 20 and under age group
represents approximately 15% of the total population but approximately 24% of
annual theatre admission revenues. This segment of the population is also
projected to grow in Florida at a rate that is more than twice that of the
United States as a whole. In addition, management believes that during the
winter months, Florida's relatively warm weather attracts a seasonal inflow of
tourists, which serves to increase the potential movie-going population.
Florida's economy is growing strongly, with GDP and income per capita expected
to increase at average annual rates of 3.3% and 1.7%, respectively, through the
balance of the decade, compared to 2.4% and 1.5%, respectively, for the entire
United States.
Target Non-Competitive Zones. The Company's strategy is to locate its
theatres in given areas or "zones" where it is the sole or a leading exhibitor
in order to strengthen its ability to negotiate more advantageous film licensing
terms. At February 29, 1996, approximately 76% of the Company's theatres were
located in zones where the Company is the sole exhibitor, and approximately
one-half of the Company's remaining theatres were located in zones where
management believes the Company is the leading exhibitor.
Maximize Revenue and Profitability with Multi-Screen Theatres. All of Cobb's
theatres are multi-screen facilities and 86% of its theatres have six or more
screens. Multi-screen theatres allow for a variety of films with differing
audience appeal to be shown simultaneously, or, alternatively, allow for an
increased number of showings of more popular films in multiple auditoriums. In
addition, the ability to shift films from larger auditoriums to smaller
auditoriums in a multi-screen theatre enables the Company to exhibit films for a
longer period of time, thereby taking advantage of lower licensing fees during
the latter part of a film's release period and reducing film rental costs as a
percentage of admission revenues. Operating efficiencies are also realized in
multi-screen theatres through the economies of having common box office,
concession, projection, lobby and restroom facilities, which enable the Company
to spread certain costs over a higher revenue base. Management believes that the
Company's average number of screens per theatre of 8.3 at February 29, 1996 is
the second highest among major theatre exhibitors and is considerably higher
than the 5.7 average number of screens per theatre for the top ten motion
picture exhibitors as of May 1, 1995.
Operate Attractive, High Quality Theatres. Cobb's management believes that
maintaining high quality theatres provides significant competitive advantages
because theatre patrons and, therefore, film distributors generally seek clean,
conveniently located, modern facilities with state-of-the-art equipment. As of
February 29, 1996, more than 72% of the Company's first-run theatres had one or
more
5
<PAGE>
auditoriums equipped with digital sound capabilities. Additionally, to enhance
its theatre patrons' comfort and enjoyment, the seats in all new Cobb theatres
are specially designed for the Company, with wider cushions, higher backs and
more spacing between rows than is standard in the theatre industry.
Focus on Cost Controls. Cobb seeks to be an efficient exhibitor through
careful control of operating expenses. The Company pursues a regional strategy
in operating its theatres in order to profitably serve its markets and minimize
corporate overhead costs. The grouping of theatres primarily along the Florida
coasts and in central Alabama has minimized the Company's need for branch
offices, thereby enabling the Company to acquire or develop additional theatres
without incurring substantial incremental corporate overhead. The Company also
controls costs and realizes operating efficiencies as a result of its focus on
multi-screen theatres. Cobb's high percentage of theatres in non-competitive
zones enables the Company to negotiate aggressively film licensing terms and
thereby minimize film rental costs. As a result of this strategy, the Company
believes, based on available data, that its film rental costs as a percentage of
admission revenues are among the lowest in the motion picture exhibition
industry.
FUTURE EXPANSION
Cobb continually evaluates existing and potential theatre locations in order
to increase profitability and maintain the Company's leadership position in
certain of its markets. Cobb generally seeks to develop or acquire theatres in
zones that are underscreened as a result of changing demographic trends or that
are served by aging theatre facilities. The Company targets theatre locations
with high visibility, proximity to retail establishments or entertainment venues
and convenient roadway access.
Cobb intends to continue to develop new theatres primarily with 16 to 24
screens in zones where the Company can be the sole or a leading exhibitor.
Management expects that Cobb's expansion for the foreseeable future will remain
focused primarily in Florida, where management believes it has extensive
knowledge of the grossing potential of film zones and the competitive
environment.
FINANCE CORP.
Finance Corp. is a wholly owned subsidiary of the Company that was
incorporated in Alabama for the purpose of serving as a co-issuer of the Senior
Secured Notes in order to facilitate the offering whereby the Original Senior
Secured Notes were sold to the Initial Purchasers who subsequently resold the
Original Senior Secured Notes in transactions exempt from the registration
requirements of the Securities Act under Rule 144A promulgated by the Commission
thereunder (the "Offering"). The Company believes that certain prospective
purchasers of Senior Secured Notes may be restricted in their ability to
purchase debt securities of limited liability companies, such as the Company,
unless such debt securities are jointly issued by a corporation. Finance Corp.
will not have any operations or material assets of any kind and will not have
any revenues. As a result, prospective purchasers of Senior Secured Notes should
not expect Finance Corp. to participate in servicing the interest and principal
obligations on the Senior Secured Notes. See "Description of New Senior Secured
Notes--Certain Covenants."
6
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<C> <S>
The Exchange Offer:............ The Company is offering to exchange $1,000 principal
amount of New Senior Secured Notes for each $1,000
principal amount of Original Senior Secured Notes that are
properly tendered and accepted. The Company will issue New
Senior Secured Notes on or promptly after the Expiration
Date. There is $85.0 million aggregate principal amount of
Original Senior Secured Notes outstanding. See "The
Exchange Offer."
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
the Company believes that the New Senior Secured Notes
issued pursuant to this Exchange Offer in exchange for
Original Senior Secured Notes may be offered for resale,
resold and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchases such New
Senior Secured Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption
under the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the
New Senior Secured Notes in the ordinary course of its
business and is not participating, and had no arrangement
or understanding with any person to participate, in the
distribution of the New Senior Secured Notes. Each broker-
dealer that receives the New Senior Secured Notes for its
own account in exchange for the Original Senior Secured
Notes, where such Original Senior Secured Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Senior Secured
Notes.
Registration Rights
Agreement:..................... The Original Senior Secured Notes were sold by the Company
on March 6, 1996 in the Offering to Lehman Brothers Inc.
and First Union Capital Markets Corp., the Initial
Purchasers, pursuant to a Purchase Agreement dated
February 29, 1996, by and among the Company, Finance Corp.
and the Initial Purchasers (the "Purchase Agreement").
Pursuant to the Purchase Agreement, the Company, Finance
Corp., the Guarantors and the Initial Purchasers entered
into a Registration Rights Agreement dated as of March 6,
1996 (the "Registration Rights Agreement"), which grants
the holders of the Original Senior Secured Notes certain
exchange and registration rights. See "The Exchange
Offer--Termination of Certain Rights." This Exchange Offer
is intended to satisfy such rights, which terminate upon
the consummation of the Exchange Offer. The holders of the
New Senior Secured Notes are not entitled to any exchange
or registration rights with respect to the New Senior
Secured Notes.
Expiration Date:............... The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1996, unless the Exchange Offer is
extended by the Company in its sole discretion, in which
case the term
</TABLE>
7
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<TABLE>
<S> <C>
"Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
Accrued Interest on the New
Senior Secured Notes and
Original Senior Secured
Notes:......................... The New Senior Secured Notes will bear interest from and
including the date of issuance of the Original Senior
Secured Notes (March 6, 1996). Holders whose Original
Senior Secured Notes are accepted for exchange will be
deemed to have waived the right to receive any interest
accrued on the Original Senior Secured Notes.
Conditions to the Exchange
Offer:......................... The Exchange Offer is subject to the general condition
that it shall not be undertaken or completed in a manner
that violates any applicable law, rule or regulation or
any applicable interpretation of the staff of the
Commission. See "The Exchange Offer--Conditions." The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Original Senior Secured
Notes being tendered for exchange.
Procedures for Tendering
Original Senior Secured
Notes:......................... Each holder of Original Senior Secured Notes wishing to
accept the Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Original Senior Secured Notes and any other required
documentation to IBJ Schroder Bank & Trust Company, as
Exchange Agent, at the address set forth herein. By
executing the Letter of Transmittal, each holder will
represent to the Company that, among other things, (i) the
New Senior Secured Notes to be acquired by the holder of
the Original Senior Secured Notes in connection with the
Exchange Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii) the holder
has no arrangement or understanding with any person to
participate in the distribution of New Senior Secured
Notes, (iii) the holder acknowledges and agrees that any
person who is a broker-dealer registered under the
Exchange Act or is participating in the Exchange Offer for
the purposes of distributing the New Senior Secured Notes
must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction of the New Senior Secured
Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in
no-action letters (See "The Exchange Offer--Resale of New
Senior Secured Notes") (iv) the holder understands that a
secondary resale transaction described in clause (iii)
above and any resales of New Senior Secured Notes obtained
by such holder in exchange for Original Senior Secured
Notes acquired by such holder directly from the Company
should be covered by an effective registration statement
containing the selling securityholder information required
by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission, and (v) the holder is not an
"affiliate," as defined in Rule 405 under the Securities
Act, of the Company. If the holder is a broker-dealer
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
that will receive New Senior Secured Notes for its own
account in exchange for Original Senior Secured Notes that
were acquired as a result of market-making activities or
other trading activities, the holder is required to
acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such
New Senior Secured Notes; however, by so acknowledging and
by delivering a prospectus, the holder will not deemed to
admit that it is an "underwriter" within the meaning of
the Securities Act. See "The Exchange Offer--Procedures
for Tendering."
Special Procedures for
Beneficial Owners:........... Any beneficial owner whose Original Senior Secured Notes
are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to
tender such Original Senior Secured Notes in the Exchange
Offer should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. See "The Exchange
Offer--Procedures for Tendering." If such beneficial owner
wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of
Transmittal and delivering his Original Senior Secured
Notes, either make appropriate arrangements to register
ownership of the Original Senior Secured Notes in such
owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered
ownership may take considerable time and may not be able
to be completed prior to the Expiration Date.
Guaranteed Delivery
Procedures:.................... Holders of Original Senior Secured Notes who wish to
tender their Original Senior Secured Notes and whose
Original Senior Secured Notes are not immediately
available or who cannot deliver their Original Senior
Secured Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to IBJ
Schroder Bank & Trust Company, as Exchange Agent, prior to
the Expiration Date, must tender their Original Senior
Secured Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer-- Guaranteed
Delivery Procedures."
Acceptance of the Original
Senior Secured Notes and
Delivery of the New Senior
Secured Notes:................. Subject to the satisfaction or waiver of the conditions to
the Exchange Offer, the Company will accept for exchange
any and all Original Senior Secured Notes which are
properly tendered in the Exchange Offer prior to the
Expiration Date. The New Senior Secured Notes issued
pursuant to the Exchange Offer will be delivered on or
before the date that is days after the Expiration
Date. See "The Exchange Offer--Terms of the Exchange
Offer."
Withdrawal Rights:............. Tenders of Original Senior Secured Notes may be withdrawn
at any time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
Certain Federal Income Tax
Considerations:................ For a discussion of certain federal income tax
considerations
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
relating to the exchange of the New Senior Secured Notes
for the Original Senior Secured Notes, see "Certain
Federal Income Tax Considerations."
Exchange Agent:................ IBJ Schroder Bank & Trust Company is serving as the
exchange agent (the "Exchange Agent") in connection with
the Exchange Offer.
Failure to Exchange Original
Senior Secured Notes........... Original Senior Secured Notes that are not tendered or are
tendered but not accepted will, following consummation of
the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof, including but not
limited to the fact that the Original Senior Secured Notes
may only be offered or sold pursuant to an exemption from
the registration requirements of the Securities Act and
applicable state securities laws or pursuant to an
effective registration statement under the Securities Act
and applicable state securities laws. See "The Exchange
Offer" and "Plan of Distribution." The Original Senior
Secured Notes will continue to benefit from and be bound
by the terms and conditions set forth in the Indenture. To
the extent that Original Senior Secured Notes are tendered
and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Original Senior
Secured Notes could be adversely affected. See "The
Exchange Offer."
</TABLE>
THE NEW SENIOR SECURED NOTES
The Exchange Offer applies to $85.0 million aggregate principal amount of
the Original Senior Secured Notes. The form and terms of the New Senior Secured
Notes are the same as the form and terms of the Original Senior Secured Notes
except that (i) the exchange will have been registered under the Securities Act
and, therefore, the New Senior Secured Notes will not bear legends restricting
their transfer pursuant to the Securities Act, and (ii) holders of the New
Senior Secured Notes will not be entitled to certain rights of holders of the
Original Senior Secured Notes under the Registration Rights Agreement, which
rights will terminate upon consummation of the Exchange Offer. The New Senior
Secured Notes will evidence the same debt as the Original Senior Secured Notes
(which they replace) and will be issued under, and be entitled to the benefits
of, the Indenture. See "Description of New Senior Secured Notes" for further
information and for definitions of certain capitalized terms used below.
<TABLE>
<S> <C>
The New Senior Secured Notes:
Maturity....................... March 1, 2003
Interest....................... The New Senior Secured Notes will bear interest at the
rate of 10 5/8% per annum, payable semiannually on March 1
and September 1, commencing September 1, 1996.
Optional Redemption............ The New Senior Secured Notes may be redeemed at the option
of the Company, in whole or in part, on or after March 1,
2000, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, through the
redemption date.
Change of Control.............. In the event of a Change of Control (as hereinafter
defined; see "Description of New Senior Secured
Notes--Repurchase at the Option of Holders--Change of
Control"), the Company will make an offer to purchase the
New Senior Secured Notes at a
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the
date of purchase.
Subsidiary Guarantees.......... The Company's payment obligations under the Senior Secured
Notes are jointly and severally guaranteed by the
Guarantors. See "Description of Senior Secured
Notes--Subsidiary Guarantees."
Ranking........................ The Senior Secured Notes rank pari passu in right of
payment with all existing and future senior Indebtedness
of the Issuers and senior in right of payment to all
future subordinated Indebtedness of the Issuers. As of
April 30, 1996, the aggregate principal amount of
outstanding senior Indebtedness of the Company and its
subsidiaries was approximately $86.9 million.
Security....................... The Senior Secured Notes are secured on an equal and
ratable basis with all obligations under the New Credit
Facility by a first priority pledge of the equity
interests of the subsidiaries of the Company and all
intercompany notes held by the Company or any of its
subsidiaries, and the Subsidiary Guarantees are secured by
a security interest in all of the assets (other than real
property) of the Company's subsidiaries. See "Description
of Senior Secured Notes--Security" and "Description of
Certain Indebtedness--Other Indebtedness--New Credit
Facility."
Covenants...................... The Indenture, dated as of March 6, 1996, pursuant to
which the Senior Secured Notes are issued contains certain
covenants that, among other things, limit the ability of
the Company and its subsidiaries to incur additional
Indebtedness and issue preferred stock, pay dividends or
make other distributions, repurchase Equity Interests or
subordinated Indebtedness, create certain liens, enter
into certain transactions with affiliates, sell assets of
the Company or its subsidiaries, issue or sell Equity
Interests of the Company's subsidiaries or enter into
certain mergers and consolidations. The Company
does not retain the ability to incur additional
indebtedness that is senior to the New Senior
Secured Notes. See "Description of
New Senior Secured Notes-- Certain Covenants." In
addition, in the event that at any time the Net Proceeds
from Asset Sales which have not been applied to reduce
commitments under the New Credit Facility, to acquire
another business or film exhibition facility, to make
capital expenditures or to acquire other long term assets
exceeds $5 million, the Company shall be required to make
an offer (the "Asset Sale Offer") to all Holders of Senior
Secured Notes to purchase the maximum principal amount of
Senior Secured Notes that may be purchased out of the
Excess Proceeds in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of
purchase. See "Description of Senior Secured
Notes--Repurchase at the Option of Holders--Asset Sales."
</TABLE>
11
<PAGE>
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
<TABLE><CAPTION>
SIX MONTHS
ENDED Twelve Months
YEARS ENDED AUGUST 31, ------------------- Ended
------------------------------------------------ FEB. 28, FEB. 29, February 29,
1991 1992 1993(A) 1994(B) 1995 1995 1996 1996
------- ------- ------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT TICKET PRICES AND CONCESSION REVENUES PER PATRON)
INCOME STATEMENT DATA:
Revenues.......................... $56,942 $68,878 $83,712 $94,097 $105,608 $ 45,916 $ 52,254 $111,946
Gross profit...................... 33,932 40,961 50,503 58,234 65,496 28,656 32,214 69,054
Other theatre operating costs..... 24,643 30,278 34,936 39,062 43,943 20,788 23,201 46,356
General and administrative
expense............................ 3,081 4,661 5,124 6,739 7,088 3,258 3,765 7,595
Depreciation and amortization..... 3,653 3,963 4,216 5,374 8,062 3,730 4,468 8,800
Operating income (loss)........... 2,555 2,059 6,227 7,059 6,403 880 780 6,303
Interest expense, net............. 2,638 1,858 1,904 2,736 4,992 2,415 3,708 6,285
Net income (loss)................. (105) (679) 1,622 2,456 216 (990) (1,877) (671)
OTHER FINANCIAL DATA:
Net cash provided (used) by
operating activities............ $ 6,341 $ 5,133 $ 9,195 $11,432 $ 7,423 $ 2,682 $ (636) $ 4,105
Net cash (used) in investing
activities......................... (6,647) (3,875) (3,462) (44,667) (24,730) (5,244) (6,768) (26,254)
Net cash provided (used) in
financing activities............ 519 (1,140) (4,188) 32,601 16,643 1,515 6,863 21,991
Capital expenditures and
acquisitions(c).................... 7,581 6,820 5,087 46,895 25,380 5,242 6,444 26,582
Ratio of earnings to fixed
charges(d)......................... -- -- 1.35x 1.42x -- -- -- --
Deficit of earnings to fixed
charges(d)......................... $ 74 $ 596 -- -- $ 253 $ 1,560 $ 3,407 $ 2,100
Pro forma deficit of earnings to
fixed charges(e)................ 4,896 4,007 4,437 5,326
EBITDA(f)......................... $ 6,661 $ 6,546 $10,685 $12,647 $ 14,716 $ 4,718 $ 5,357 $ 15,355
OPERATING DATA:
Number of theatres operated
(at period end)................. 46 56 56 68 71 70 70 70
Number of screens operated
(at period end)................. 335 409 411 525 575 545 581 581
Average screens per location
(at period end)(g).............. 7.3 7.3 7.3 7.7 8.1 7.8 8.3 8.3
Attendance (in thousands)......... 10,565 13,456 15,841 18,311 20,484 8,853 10,151 21,782
Average first-run ticket prices... $ 3.93 $ 3.92 $ 3.98 $ 4.07 $ 4.04 $ 4.17 $ 4.09 $ 4.04
Average first-run concession
revenues per patron............. $ 1.32 $ 1.29 $ 1.40 $ 1.46 $ 1.53 $ 1.47 $ 1.47 $ 1.52
<CAPTION>
AUGUST 31, FEBRUARY 29, 1996
------------------------------------------------ -----------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(H)
------- ------- ------- ------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.............. $ 877 $ 994 $ 2,539 $ 1,905 $ 1,241 $ 700 $ 3,830
Property and equipment, net....... 29,335 30,326 29,300 56,306 75,427 78,674 78,674
Total assets...................... 38,640 38,473 37,879 79,445 98,140 102,595 110,064
Total indebtedness................ 22,794 22,119 22,289 55,275 72,754 78,931 86,936
Stockholders' equity.............. 3,633 2,954 535 3,992 4,208 2,331 1,613
</TABLE>
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<TABLE>
<C> <S>
(a) Net income for 1993 includes a $444,000 charge (net of tax) for the cumulative effect
on prior years of adopting a change in an accounting principle for income taxes.
(b) In March 1994, the Company acquired 8 theatres (63 screens) from Wometco Theatres (as
defined herein) for approximately $22.0 million. Income statement data includes the
operating results of such theatres since the date of acquisition.
(c) Capital expenditures and acquisitions include assets acquired under capital leases and
$22.0 million for the Wometco Acquisition (as defined herein) in fiscal 1994.
(d) For the purpose of calculating the ratio of earnings to fixed charges and deficit of
earnings to fixed charges, (i) earnings consist of income (loss) before income taxes
and extraordinary items plus fixed charges less interest capitalized and (ii) fixed
charges consist of interest expense, interest capitalized, amortization of debt
issuance costs and the interest factor in rental expense.
(e) On a pro forma basis, after giving effect to the Formation Transactions and the
Offering as if each had occurred on September 1, 1994. The unaudited pro forma
financial information of the Company for the year ended August 31, 1995 and the twelve
months ended February 29, 1996 does not purport to represent what the Company's actual
results of operations would have been had such transactions occurred on the dates
presented or to project the Company's financial position or results of operations for
any future period.
</TABLE>
(Footnotes continued on following page)
12
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(f) EBITDA is defined as net income plus net interest expense, provision for income taxes,
depreciation and amortization, changes in deferred rent liability and other non-cash or
non-recurring items. EBITDA for fiscal 1995 and for the twelve months ended February
29, 1996 excludes $1.2 million of non-recurring charges related to unconsummated
financing transactions. Changes in deferred rent liability for the years ended August
31, 1991 through 1995, the six months ended February 28, 1995 and February 29, 1996 and
the twelve months ended February 29, 1996 amounted to approximately $453,000, $524,000,
$242,000, $214,000, $251,000, $108,000, $108,000 and $251,000, respectively. The
Company has included EBITDA (which is not a measure of financial performance under
generally accepted accounting principles) because it is a measure that will be used in
determining compliance with certain covenants in the Indenture. EBITDA should not be
construed as an alternative to operating income or cash flows from operations (as
determined in accordance with generally accepted accounting principles). EBITDA does
not represent cash flows available to the Company as it does not consider debt service,
income taxes or other operating cash flows. Additionally, actual cash expenditures for
various long-term assets and operating expenses have been, and will be, incurred which
are not reflected in EBITDA.
(g) Average screens per location is determined by dividing the number of screens operated
by the number of theatres operated at the end of the period.
(h) Pro forma information gives effect to the Formation Transactions and the Offering as if
each had occurred on February 29, 1996. See "Formation Transactions," "Use of Proceeds"
and "Capitalization."
</TABLE>
13
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Exchange Offer and an
investment in the New Senior Secured Notes offered by this Prospectus.
FAILURE TO EXCHANGE ORIGINAL SENIOR SECURED NOTES--CONTINUATION OF EXISTING
TRANSFER RESTRICTIONS
The New Senior Secured Notes will be issued in exchange for Original Senior
Secured Notes only after timely receipt by the Exchange Agent of such Original
Senior Secured Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Original
Senior Secured Notes desiring to tender such Original Senior Secured Notes in
exchange for New Senior Secured Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Senior Secured Notes for exchange. Original Senior Secured Notes that
are not tendered or are tendered but not accepted will, following consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. Accordingly, such Original Senior Secured Notes may be resold
only (i) to a person whom the seller reasonably believes is a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (iii) outside the United
States to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act, (iv) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Company so requests), (v) to the Company or (vi) pursuant to an
effective registration statement and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
In addition, any holder of Original Senior Secured Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Senior Secured Notes will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Senior Secured Notes
for its own account in exchange for Original Senior Secured Notes, where such
Original Senior Secured Notes were acquired by such broker-dealer as a result of
market-making activities or any other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Senior
Secured Notes. See "Plan of Distribution." To the extent that Original Senior
Secured Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Original Senior Secured Notes
could be adversely affected. See "The Exchange Offer."
HIGHLY LEVERAGED CONDITION OF COMPANY; POTENTIAL ADVERSE EFFECTS UPON ABILITY TO
SERVICE INDEBTEDNESS; POTENTIAL NEED TO REFINANCE SENIOR SECURED NOTES
The Company is, and will continue to be after the issuance of the New Senior
Secured Notes offered hereby, highly leveraged. On February 29, 1996, after
giving pro forma effect to the Offering, the Formation Transactions and the
establishment of the New Credit Facility, the Company would have had total
Indebtedness of approximately $86.9 million (of which $85.0 million would have
consisted of the Senior Secured Notes and the balance would have consisted of
capitalized lease obligations) and owners' equity of approximately $1.6 million.
Also after giving pro forma effect to such transactions, the Company's earnings
as computed for the ratio of earnings to fixed charges would have been
insufficient to cover its fixed charges by approximately $4.9 million and $4.4
million for fiscal 1995 and for the six months ended February 29, 1996,
respectively. A substantial number of the Company's facilities are leased
pursuant to operating leases. The Company may incur additional indebtedness in
the future, subject to limitations imposed by the Indenture and the New Credit
Facility, and may enter into
14
<PAGE>
additional operating leases with respect to its facilities. See "Capitalization"
and "Selected Combined Financial and Operating Data."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Senior Secured Notes) and to satisfy its obligations
under operating leases will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control. Based upon the
current level of operations and anticipated growth, management believes that
cash flow from operations and available cash, together with available borrowings
under the New Credit Facility, will be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures,
scheduled lease payments and scheduled payments of interest on its indebtedness,
including the Senior Secured Notes. The Company may, however, need to refinance
all or a portion of the principal of the Senior Secured Notes on or prior to
maturity. There can be no assurance that the Company's business will generate
sufficient cash flow from operations or that future borrowings will be available
under the New Credit Facility in an amount sufficient to enable the Company to
service its indebtedness, including the Senior Secured Notes, or make
anticipated capital expenditures and lease payments. In addition, there can be
no assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
POTENTIAL EFFECTS UPON COMPANY OPERATIONS AND EXPANSION
The degree to which the Company will be leveraged following the Offering and
the Exchange Offer could have important consequences to holders of the Senior
Secured Notes, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations will be required to be
dedicated to debt service and will not be available for other purposes; (ii) the
Company's ability to obtain additional financing in the future could be limited;
and (iii) the Indenture and the New Credit Facility will contain financial and
restrictive covenants that will limit the ability of the Company to, among other
things, borrow additional funds. Failure by the Company to comply with such
covenants could result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company.
POTENTIAL INABILITY TO EFFECT REQUIRED PURCHASE OF SENIOR SECURED NOTES
The degree to which the Company is leveraged could prevent it from
repurchasing all Senior Secured Notes tendered to it upon the occurrence of a
Change of Control. See "Description of Senior Secured Notes--Repurchase at
Option of Holder--Change of Control" and "Description of Certain
Indebtedness--Other Indebtedness--New Credit Facility."
COMPANY DEPENDENT UPON SUBSIDIARY OPERATIONS
The Company is a holding company, the only assets of which, after giving
effect to the Formation Transactions, will be the capital stock of R.C. Cobb,
Inc., Cobb Theatres II, Inc. and Cobb Finance Corp. All of the operations of the
Company will be conducted through R.C. Cobb, Inc. and Cobb Theatres II, Inc.
Accordingly, the Company's ability to service its indebtedness, including the
Senior Secured Notes, will be dependent upon (i) earnings and cash flow of its
subsidiaries and the payment of funds by those subsidiaries to the Company in
the form of loans, dividends and otherwise, and/or (ii) the Company's ability to
effect an offering of its capital stock, or to otherwise refinance the Senior
Secured Notes prior to maturity.
The Indenture provides that neither the Company nor any of its Subsidiaries
will create or cause or suffer to exist any restriction on the ability of any
Subsidiary to pay dividends, make distributions, pay indebtedness, make loans or
transfer properties or assets to the Company. See "Description of New
15
<PAGE>
Senior Secured Notes--Certain Covenants--Dividend and Other Repayment
Restrictions Affecting Subsidiaries."
The Company currently expects that interest payments and principal
repayments to it on the intercompany loans made to its subsidiaries in
connection with the Offering, together with borrowings available under the New
Credit Facility, will be sufficient to enable the Company to service the
interest on its indebtedness. There can be no assurance, however, that such
intercompany interest payments and principal repayments will be made in
accordance with their terms or in an amount that will be sufficient to service
the Company's indebtedness.
UNCERTAINTIES RELATING TO FUTURE EXPANSION PLANS
Historically, theatre acquisitions and new theatre openings have greatly
expanded the operations of the Company. The Company intends to continue to
pursue a strategy of expansion that will emphasize the development of new
theatres. While the Company's future expansion may involve acquisitions of
existing theatres and theatre circuits, possibly to provide initial entry into a
new market, management does not anticipate that such transactions will be a
material part of Cobb's strategy. The Company will endeavor to develop new
theatres in new markets or to strengthen Cobb's position in existing markets and
has budgeted substantial capital expenditures for such purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company anticipates that all
of its development activity during the next 12 months will be funded by cash
generated from operations, a portion of the net proceeds derived from the sale
of the Senior Secured Notes and borrowings under the New Credit Facility. There
can be no assurance that the Company will be able to develop and acquire
suitable theatres in the future or that the Company's expansion strategy will
result in improvements to the business, financial condition or profitability of
the Company. There is significant competition for potential site locations. As a
result of such competition, the Company may be unable to secure attractive site
locations on terms it considers acceptable. Further, the Company's expansion
programs may require financing in addition to cash generated from operations,
the proceeds from the sale of the Senior Secured Notes and borrowings under the
New Credit Facility. There can be no assurance that such additional financing
will be available to the Company on acceptable terms. See "Business--Future
Expansion."
Development of theatres involves certain risks, including the possibility of
construction cost overruns and delays, uncertainty of site acquisition costs and
availability, uncertainties as to market potential, market deterioration after
commencement of development and the emergence of market competition from
unanticipated sources. Although the Company manages its development projects so
as to minimize these risks, the Company may determine not to proceed with any of
its planned development projects and, accordingly, no assurance can be given
that any of the projects in the Company's development plans will open or will
perform in accordance with the Company's expectations.
COMPETITION
Cobb's operations are subject to varying degrees of competition with other
theatre circuits and individual theatres with respect to, among other things,
licensing films, attracting patrons and obtaining new theatre sites. Cobb
competes against both local and national exhibitors, many of whom have
substantially greater financial resources than the Company. Management believes
that the principal competitive factors with respect to film licensing include
acceptable licensing terms, seating capacity, prestige and location of an
exhibitor's theatres, the quality of a theatre in general, especially of
projection and sound equipment, and the exhibitor's ability and willingness to
promote films. Management also believes that ongoing relationships with film
distribution and production companies are important in continuously obtaining
the best mix of available films.
The competition for patrons is dependent upon factors such as the
availability of popular films, the location of the theatres, the comfort and
quality of the theatres and ticket prices. Film patrons are not
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necessarily "brand" conscious. Based on these factors, the Company believes that
it competes effectively for patrons with other motion picture exhibitors.
Other motion picture distribution methods include video cassette rentals,
pay-per-view, pay television, other basic cable television services and
broadcast and syndicated television. Despite the proliferation of these other
distribution systems, theatre admission revenues have increased during each of
the last four years, although there can be no assurance that such trend will
continue in the future. Theatrical distribution remains the focal distribution
window for the public's evaluation of films and for motion picture promotions.
The full extent, however, to which such other entertainment media and other
forms of home entertainment will compete with the business of Cobb may not be
known for several years. There can be no assurance that the development of such
alternative media will not materially adversely affect the business or financial
condition of Cobb in the future. See "Business-- Competition."
BUSINESS DEPENDENT UPON AVAILABILITY OF MOTION PICTURES
Cobb's business is dependent upon the availability and quality of motion
pictures. Accordingly, poorly performing motion pictures and/or any significant
disruption in the production of popular motion pictures by the major motion
picture production companies or independent producers may have an adverse effect
on the Company's financial position and results of operations.
DEPENDENCE ON KEY PERSONNEL
Cobb's success will depend, in large part, on the efforts, abilities and
experience of its executive officers and other key employees, including Robert
M. Cobb, who is President and Chief Executive Officer. The loss of the services
of such individuals, particularly Robert M. Cobb, could have a material adverse
effect on the Company's business. See "Management."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Issuers of indebtedness such as the Senior Secured
Notes and indebtedness under the New Credit Facility, or by the Guarantors of
indebtedness such as the Subsidiary Guarantees, may be subject to review under
relevant federal and state fraudulent conveyance laws if a bankruptcy case or a
lawsuit (including in circumstances where bankruptcy is not involved) is
commenced by or on behalf of unpaid creditors of the Issuers or Guarantors.
Under these laws, if a court were to find that, at the time the Senior Secured
Notes were issued, (a) the Issuers or the Guarantors either incurred
indebtedness represented by the Senior Secured Notes with the intent of
hindering, delaying or defrauding creditors or received less than reasonably
equivalent value or fair consideration for incurring such indebtedness and (b)
the Issuers and the Guarantors (i) were insolvent or were rendered insolvent by
reason of such transaction, (ii) were engaged in a business or transaction for
which the assets remaining with them constituted unreasonably small capital or
(iii) intended to incur, or believed that they would incur, debts beyond their
ability to pay such debts as they matured, such court may subordinate the Senior
Secured Notes or the Subsidiary Guarantees to presently existing and future
indebtedness of such entities, void the issuance of the Senior Secured Notes or
the Subsidiary Guarantees and direct the repayment of any amounts paid
thereunder to the Issuers or the Guarantors or a fund for the benefit of their
creditors or take other action detrimental to the holders of the Senior Secured
Notes. The Company has not obtained an opinion of counsel related to these
issues.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, an entity would
be considered insolvent for purposes of the foregoing if the sum of its debts,
including contingent liabilities, were greater than the fair saleable value of
all of its assets at a fair valuation, or if the present fair saleable value of
its assets were less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they
become absolute and matured.
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Based upon financial and other information currently available to management
of the Company, it is believed that the Issuers will receive equivalent value at
the time the indebtedness represented by the Senior Secured Notes and the
Subsidiary Guarantees is incurred. In addition, management believes that neither
the Issuers nor the Guarantors, as a result of the issuance of the Senior
Secured Notes and the Subsidiary Guarantees, (i) will be insolvent or rendered
insolvent under the foregoing standards, (ii) will be engaged in a business or
transaction for which its remaining assets constitute unreasonably small capital
or (iii) intends to incur, or believes that it will incur, debts beyond its
ability to pay such debts as they mature. These beliefs are based on Cobb's
operating history, the Issuers' net worth and management's analysis of internal
cash flow projections and estimated values of assets and liabilities of the
Issuers at the time of the Offering. There can be no assurance, however, that a
court passing on these issues would make the same determination.
TAX CLASSIFICATION OF LIMITED LIABILITY COMPANY; CONSEQUENCE OF ALTERNATIVE TAX
TREATMENT OF COMPANY
Concurrently with the closing of the Offering, the Company received an
opinion of counsel that, based on certain representations by the holders of
ownership interests in the Company (i.e. the Members), under current law the
Company will be classified as a partnership for federal income tax purposes. No
ruling has been requested from the Internal Revenue Service ("IRS") with respect
to the classification of the Company as a partnership for federal income tax
purposes and there can be no assurance that the IRS will not challenge this
position or that a court will not sustain such a challenge. In addition, the
continued applicability of counsel's opinion is conditioned upon continued
compliance by the Company with certain representations by its Members. The
Company does not believe that there is a substantial risk that it will be unable
to comply continuously with such representations.
If the Company were treated as an association or otherwise taxable as a
corporation in any taxable year, its items of income, gain, loss, deduction and
credit would be reflected only on its tax return rather than being passed
through to the Members, and the Company would be taxable on its net income at
corporate rates.
REQUIRED REPURCHASE OF SENIOR SECURED NOTES UPON A CHANGE OF CONTROL; POTENTIAL
ADVERSE EFFECT UPON COMPANY'S ABILITY TO PAY OTHER INDEBTEDNESS
The Indenture relating to the Senior Secured Notes provides that promptly
upon the occurrence of a Change of Control (as defined herein), the holders of
the Senior Secured Notes will have the right to require the Issuers to
repurchase any and all of the Senior Secured Notes at a purchase price equal to
101% of the aggregate principal amount, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. See "Description of Senior
Secured Notes--Repurchase at the Option of Holders--Change of Control." "Change
of Control" means the occurrence of any of the following: (i) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the Company consolidates with, or merges with or into, another
"person" (as defined above) in a transaction or series of related transactions
in which the Equity Interests of the Company are converted into or exchanged for
cash, securities or other property, other than any transaction where (A) the
outstanding Equity Interests of the Company are converted into or exchanged for
Equity Interests (other than Disqualified Interests) of the surviving or
transferee entity and (B) either (1) the "beneficial owners" (as such term is
defined in Rule 13d-3 and 13d-5 under the Exchange Act) of the voting power of
the Equity Interests of the Company immediately prior to such transaction own,
directly or indirectly through one or more Subsidiaries, not less than a
majority of the total voting power of the Equity Interests of the surviving or
transferee entity immediately after such transaction or (2) if immediately prior
to such transaction the
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Company is a direct or indirect Subsidiary of any other Person (the "Holding
Company"), then the "beneficial owners" (as defined above) of the Equity
Interests of such Holding Company immediately prior to such transaction own,
directly or indirectly through one or more Subsidiaries, not less than a
majority of the voting power of the Equity Interests of the surviving or
transferee entity immediately after such transaction; (iv) the consummation of
any transaction (including any merger or consolidation) the result of which is
that any "person" (as defined above), other than the Principals and their
Related Parties, becomes the "beneficial owner" (as defined above), directly or
indirectly, of (a) more than 35% of the voting stock of the Company and (b) more
of the voting stock of the Company than is at the time "beneficially owned" (as
defined above) by the Principals and their Related Parties in the aggregate, or
(v) the first day on which a majority of the members of the Board of the Company
are not Continuing Board Members (as defined in the Indenture). "Principals"
means Rowland C. Cobb, Jr., Robert M. Cobb and Jefferson R. Cobb. "Related
Party" with respect to any Principal means (A)(1) any spouse, parent or child of
such Principal or (2) the estate of any Principal during any period in which
such estate holds Equity Interests of the Company for the benefit of any person
referred to in clause (A)(1) or (B) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an 80% or more controlling interest of which consist of
such Principal and/or such other persons referred to in the immediately
preceding clause (A).
The Company's other senior Indebtedness prohibits certain events that would
constitute a Change of Control. In addition, the exercise by the Holders of
Senior Secured Notes of their right to require the Company to repurchase the
Notes could cause a default under such other senior Indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchases on the Company. Finally, the Company's ability to pay cash to the
Holders of Senior Secured Notes upon a repurchase may be limited by the
Company's then existing financial resources. See "Description of Senior Secured
Notes--Repurchase at the Option of Holders--Change of Control." The use by the
Company of available resources to purchase Senior Secured Notes could result in
a default by the Company in the due and timely payment of other senior
Indebtedness; any such payment default with respect to other senior Indebtedness
could trigger or result in a default under the Indenture. See "Description of
New Senior Secured Notes--Events of Default and Remedies."
ABSENCE OF PUBLIC MARKET FOR THE SENIOR SECURED NOTES; RESTRICTIONS ON TRANSFER
Prior to the Offering, there has been no market for the Senior Secured
Notes, and there can be no assurance that such a market will develop or, if such
a market develops, as to the liquidity of such market. The New Senior Secured
Notes will not be listed on any securities exchange but are expected to be
eligible for trading in the National Association of Securities Dealers, Inc.'s
Private Offerings, Resales and Trading through Automatic Linkages (PORTAL)
market. If the Senior Secured Notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the performance of
the Company and other factors. The Company has been advised by the Initial
Purchasers that they intend to make a market in the Senior Secured Notes after
consummation of the Offering, as permitted by applicable laws and regulations;
however, the Initial Purchasers are not obligated to do so and any such market
making activities may be discontinued at any time without notice. In addition,
such market making activities may be limited during the Exchange Offer and the
pendency of the Shelf Registration Statement. Therefore, there can be no
assurance that an active market for the Senior Secured Notes or the New Senior
Secured Notes will develop. Pursuant to the Registration Rights Agreement, the
Company is required to commence the Exchange Offer for the Senior Secured Notes
or file the Shelf Registration Statement covering resales of the Senior Secured
Notes. Until the Company performs its obligations under the Registration Rights
Agreement, the Senior Secured Notes may only be offered or sold pursuant to an
exemption from the registration requirements of the Securities Act and
applicable state securities laws or pursuant to an effective registration
statement under the Securities Act and applicable state securities laws. See
"The Exchange Offer" and "Plan of Distribution."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Senior Secured Notes were sold by the Company on March 6, 1996
(the "Closing Date") to the Initial Purchasers pursuant to the Purchase
Agreement. The Initial Purchasers subsequently placed the Original Senior
Secured Notes with qualified institutional buyers and "accredited investors" in
reliance on Rule 144A under the Securities Act. As a condition to the sale of
the Original Senior Secured Notes, the Issuers, the Guarantors and the Initial
Purchasers entered into the Registration Rights Agreement on March 6, 1996.
Pursuant to the Registration Rights Agreement, the Company agreed that, unless
the Exchange Offer is not permitted by applicable law or Commission policy, it
would (i) file with the Commission a Registration Statement under the Securities
Act with respect to the New Senior Secured Notes within 60 days after the
Closing Date, (ii) use its best efforts to cause such Registration Statement to
become effective under the Securities Act within 120 days after the Closing Date
and (iii) upon effectiveness of the Registration Statement, to commence the
Exchange Offer, maintain the effectiveness of the Registration Statement for at
least 20 business days (or a longer period if required by law) and deliver to
the Exchange Agent New Senior Secured Notes in the same aggregate principal
amount as the Original Senior Secured Notes that were tendered by holders
thereof pursuant to the Exchange Offer. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Registration Statement of which this Prospectus
is a part is intended to satisfy certain of the Company's obligations under the
Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE NEW SENIOR SECURED NOTES
With respect to the New Senior Secured Notes, based upon an interpretation
by the staff of the Commission set forth in certain no-action letters issued to
third parties, the Company believes that a holder (other than (i) a
broker-dealer who purchases such New Senior Secured Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who exchanges
the Original Senior Secured Notes for the New Senior Secured Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in the
distribution of the New Senior Secured Notes, will be allowed to resell the New
Senior Secured Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the New Senior
Secured Notes a prospectus that satisfies the requirements of Section 10 of the
Securities Act. However, if any holder acquires the New Senior Secured Notes in
the Exchange Offer for the purpose of distributing or participating in the
distribution of the New Senior Secured Notes or is a broker-dealer, such holder
cannot rely on the position of the staff of the Commission enumerated in certain
no-action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives New Senior Secured Notes for its own
account in exchange for Original Senior Secured Notes, where such Original
Senior Secured Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Senior
Secured Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Senior Secured Notes received in
exchange for Original Senior Secured Notes where such Original Senior Secured
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time,
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available to broker-dealers for use in connection with any resale for a period
of 120 days after the Expiration Date. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Original
Senior Secured Notes validly tendered and not withdrawn prior to the Expiration
Date. The Company will issue $1,000 principal amount of New Senior Secured Notes
in exchange for each $1,000 principal amount of outstanding Original Senior
Secured Notes surrendered pursuant to the Exchange Offer. Original Senior
Secured Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Senior Secured Notes are the same as the form
and terms of the Original Senior Secured Notes except that (i) the exchange will
be registered under the Securities Act and hence the New Notes will not bear
legends restricting their transfer and (ii) holders of the New Notes will not be
entitled to the certain rights of holders of Original Senior Secured Notes under
the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The New Senior Secured Notes will evidence
the same debt as the Original Senior Secured Notes (which they replace) and will
be issued under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Original Senior Secured Notes, such that both
series will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $85.0 million aggregate principal amount
of the Original Senior Secured Notes are outstanding and registered in the name
of Cede & Co., as nominee for the Depository Trust Company (the "Depositary").
Only a registered holder of the Original Senior Secured Notes (or such holder's
legal representative or attorney-in-fact) as reflected on the records of the
Trustee under the Indenture may participate in the Exchange Offer. There will be
no fixed record date for determining registered holders of the Original Senior
Secured Notes entitled to participate in the Exchange Offer.
Holders of the Original Senior Secured Notes do not have any appraisal or
dissenters' rights under the Indenture in connection with the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Securities Act, the Exchange Act and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original
Senior Secured Notes when, as and if the Company has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders of Original Senior Secured Notes for the purposes of
receiving the New Senior Secured Notes from the Issuers.
Holders who tender Original Senior Secured Notes in the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Original Senior Secured Notes pursuant to the Exchange Offer. The
Company will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the Exchange Offer. See "The Exchange
Offer--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1996 unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. In no event shall the Expiration
Date be later than , 1996.
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In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) will mail to the
registered holders an announcement thereof, (iii) will issue a press release or
other public announcement which shall include disclosure of the approximate
number of Original Senior Secured Notes deposited to date, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Company may
choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Senior Secured Notes, (ii) to extend the Exchange Offer,
or (iii) if any conditions set forth below under "The Exchange
Offer--Conditions" shall not have been satisfied, to terminate the Exchange
Offer by giving oral or written notice of such delay, extension or termination
to the Exchange Agent. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer for a period of five to 10 business days, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five to 10
business day period.
INTEREST ON THE NEW SENIOR SECURED NOTES
The New Senior Secured Notes bear interest at a rate equal to 10-5/8% per
annum. Interest on the New Senior Secured Notes is payable semi-annually on each
March 1 and September 1, commencing on the first such date following their date
of issuance. Holders of New Senior Secured Notes will receive interest on
September 1, 1996 from the date of initial issuance of the New Senior Secured
Notes, plus an amount equal to the accrued interest on the Original Senior
Secured Notes from the date of initial delivery to the date of exchange thereof
for New Senior Secured Notes. Holders of Original Senior Secured Notes that are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Original Senior Secured Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Original Senior Secured Notes may tender such
Original Senior Secured Notes in the Exchange Offer. To tender in the Exchange
Offer, a holder must complete, sign and date the Letter of Transmittal, or
facsimile thereof, have the signatures thereon guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal
or such facsimile to the Exchange Agent at the address set forth below under
"The Exchange Offer--Exchange Agent" for receipt prior to the Expiration Date.
In addition, either (i) certificates for such Original Senior Secured Notes must
be received by the Exchange Agent along with the Letter of Transmittal, or (ii)
a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Original Senior Secured Notes, if such procedure is available, into the
Exchange Agent's account at the Depositary pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
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THE METHOD OF DELIVERY OF ORIGINAL SENIOR SECURED NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL SENIOR
SECURED NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) of the Original Senior Secured Notes whose Original
Senior Secured Notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender should contact the
registered holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and executing the
Letter of Transmittal and delivering such owner's Original Senior Secured Notes,
either make appropriate arrangements to register ownership of the Original
Senior Secured Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "The Exchange Offer--Withdrawal of Tenders"), as the case may be,
must be guaranteed by an Eligible Institution (as defined below) unless the
Original Senior Secured Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be made by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. a commercial
bank or trust company having an office or correspondent in the United States or
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act which is a member of one of the recognized signature guarantee
programs identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Original Senior Secured Notes listed therein, such Original Senior
Secured Notes must be endorsed or accompanied by a properly completed bond
power, signed by such registered holder as such registered holder's name appears
on such Original Senior Secured Notes.
If the Letter of Transmittal or any Original Senior Secured Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Original Senior Secured
Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Senior Secured Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Original Senior Secured Notes not properly tendered or any Original
Senior Secured Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of
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tender as to particular Original Senior Secured Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Original Senior Secured Notes must be cured within such time as the Company
shall determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Original Senior Secured Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Original Senior Secured Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived.
While the Company has no present plan to acquire any Original Senior Secured
Notes which are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any Original Senior Secured Notes which are not
tendered pursuant to the Exchange Offer, the Company reserves the right in its
sole discretion to purchase or make offers for any Original Senior Secured Notes
that remain outstanding subsequent to the Expiration Date or, as set forth below
under "--Conditions," to terminate the Exchange Offer and, to the extent
permitted by applicable law, purchase Original Senior Secured Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Senior Secured Notes to be acquired by the holder of the
Original Senior Secured Notes in connection with the Exchange Offer are being
acquired by the holder in the ordinary course of business of the holder, (ii)
the holder has no arrangement or understanding with any person to participate in
the distribution of New Senior Secured Notes, (iii) the holder acknowledges and
agrees that any person who is a broker-dealer registered under the Exchange Act
or is participating in the Exchange Offer for the purposes of distributing the
New Senior Secured Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the New Senior Secured Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in certain
no-action letters, (iv) the holder understands that a secondary resale
transaction described in clause (iii) above and any resales of New Senior
Secured Notes obtained by such holder in exchange for Original Senior Secured
Notes acquired by such holder directly from the Company should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission, and (v) the holder is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company. If the holder is a broker-dealer that
will receive New Senior Secured Notes for its own account in exchange for
Original Senior Secured Notes that were acquired as a result of market-making
activities or other trading activities, the holder is required to acknowledge in
the Letter of Transmittal that it will deliver a prospectus in connection with
any resale of such New Senior Secured Notes; however, by so acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
RETURN OF ORIGINAL SENIOR SECURED NOTES
If any tendered Original Senior Secured Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if
Original Senior Secured Notes are withdrawn or are submitted for a greater
principal amount than the holders desire to exchange, such unaccepted, withdrawn
or non-exchanged Original Senior Secured Notes will be returned without expense
to the tendering holder thereof (or, in the case of Original Senior Secured
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Depositary pursuant to the book-entry transfer procedures described below, such
Original Senior Secured Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
24
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Senior Secured Notes at the Depositary for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Depositary's systems may
make book-entry delivery of Original Senior Secured Notes by causing the
Depositary to transfer such Original Senior Secured Notes into the Exchange
Agent's account at the Depositary in accordance with the Depositary's procedures
for transfer. However, although delivery of Original Senior Secured Notes may be
effected through book-entry transfer at the Depositary, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees and any
other required documents, must, in any case, be transmitted to and received by
the Exchange Agent at the address set forth below under "The Exchange
Offer--Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Senior Secured Notes and (i) whose
Original Senior Secured Notes are not immediately available or (ii) who cannot
deliver their Original Senior Secured Notes, the Letter of Transmittal or any
other required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Original Senior
Secured Notes and the principal amount of Original Senior Secured Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or a facsimile thereof) together with the
certificate(s) representing the Original Senior Secured Notes in proper form
for transfer or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Original Senior
Secured Notes in proper form for transfer and all other documents required
by the Letter of Transmittal are received by the Exchange Agent within five
New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Senior Secured Notes according
to the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Senior Secured
Notes may be withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Senior Secured Notes in the Exchange Offer,
a written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Original Senior Secured Notes to be withdrawn (the "Depositor"),
(ii) identify the Original Senior Secured Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Original Senior
Secured Notes), and (iii) be signed by the holder
25
<PAGE>
in the same manner as the original signature on the Letter of Transmittal by
which such Original Senior Secured Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, whose determination shall be final and binding on all
parties. Any Original Senior Secured Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no New Senior
Secured Notes will be issued with respect thereto unless the Original Senior
Secured Notes so withdrawn are validly retendered. Properly withdrawn Original
Senior Secured Notes may be retendered by following one of the procedures
described above under "The Exchange Offer--Procedures for Tendering" at any time
prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the New Senior Secured Notes for
any Original Senior Secured Notes, and may terminate the Exchange Offer as
provided herein before the acceptance of such Original Senior Secured Notes, if
the Exchange Offer violates applicable law, rule or regulation or an applicable
interpretation of the staff of the Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Senior Secured Notes and return all tendered Original Senior Secured Notes to
the tendering holders, (ii) extend the Exchange Offer and retain all Original
Senior Secured Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Original Senior
Secured Notes (see "The Exchange Offer-- Withdrawal of Tenders") or (iii) waive,
to the extent that it may lawfully do so, such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Original Senior
Secured Notes which have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered holders of the Original Senior Secured Notes, and the Company will
extend the Exchange Offer for a period of five to 10 business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to 10 business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Original Senior Secured Notes eligible to participate
in this Exchange Offer will terminate upon consummation of the Exchange Offer
except with respect to the Company's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Original Senior Secured Note, the information required by Rule 144A(d)(4) under
the Securities Act in order to permit resales of such Original Senior Secured
Notes pursuant to Rule 144A, (iii) to use its best efforts to keep the
Registration Statement effective to the extent necessary to ensure that it is
available for resales of transfer-restricted Original Senior Secured Notes by
broker-dealers for a period of 120 days from the date on which the Registration
Statement is declared effective and (iv) to provide copies of the latest version
of the Prospectus to broker-dealers upon their request for a period of 120 days
from the date on which the Registration Statement is declared effective.
LIQUIDATED DAMAGES
In the event of a failure to have the registration statement for the
Exchange Offer declared effective by no later than , 1996, or upon the
occurrence of any other Registration Default under and as defined in the
Registration Rights Agreement (see "Description of New Senior Secured
26
<PAGE>
Notes--Registration Rights; Liquidated Damages"), the Company is required to pay
liquidated damages to each holder of Transfer Restricted Securities (as defined
below), during the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $0.05 per week per $1,000
principal amount of Original Senior Secured Notes constituting Transfer
Restricted Securities held by such holder. Transfer Restricted Securities shall
mean each Senior Secured Note until (i) the date on which such Senior Secured
Note has been exchanged for a New Senior Secured Note in the Exchange Offer,
(ii) the date on which such Senior Secured Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement (as defined in the Registration Rights Agreement) or
(iii) the date on which such Senior Secured Note is distributed to the public
pursuant to Rule 144(k) under the Securities Act. The amount of the liquidated
damages will increase by an additional $0.05 per week per $1,000 principal
amount of Senior Secured Notes constituting Transfer Restricted Securities for
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of liquidated damages of $0.50 per week per $1,000
principal amount of Senior Secured Notes constituting Transfer Restricted
Securities. Following the cure of all Registration Defaults, the payment of
liquidated damages will cease. The filing and effectiveness of the Registration
Statement of which this Prospectus is a part and the consummation of the
Exchange Offer will eliminate all rights of the holders of Original Senior
Secured Notes eligible to participate in the Exchange Offer to receive damages
that would have been payable if such actions had not occurred.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER OR BY HAND DELIVERY:
<S> <C>
IBJ SCHRODER BANK & TRUST COMPANY IBJ SCHRODER BANK & TRUST COMPANY
ATTENTION: REORGANIZATION DEPARTMENT ONE STATE STREET
P.O. BOX 84 SECURITIES PROCESSING WINDOW
BOWLING GREEN STATION FLOOR SC-1
NEW YORK, NEW YORK 10274-0084 NEW YORK, NEW YORK 10004
ATTENTION: REORGANIZATION DEPARTMENT
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$200,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Senior Secured Notes pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason
27
<PAGE>
other than the exchange of the Original Senior Secured Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Senior Secured Notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take.
The Original Senior Secured Notes which are not exchanged for the New Senior
Secured Notes pursuant to the Exchange Offer will remain restricted securities.
Accordingly, such Original Senior Secured Notes may be resold only (i) to a
person whom the seller reasonably believes is a qualified institutional buyer
(as defined in Rule 144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A, (ii) in a transaction meeting the requirements of
Rule 144 under the Securities Act, (iii) outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904 under the
Securities Act or (iv) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Company so requests), (v) to the Company or (vi) pursuant to an
effective registration statement and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the New Senior Secured Notes.
28
<PAGE>
THE ISSUERS
COBB THEATRES, L.L.C.
The Company is an Alabama limited liability company recently formed to
acquire and operate the business of Cobb Theatres Group, a privately-held group
of companies based in Birmingham, Alabama, which, prior to the completion of the
Formation Transactions and the Offering, consisted of R.C. Cobb, Inc., Cobb
Theatres II, Inc. and R & J Concessions, Inc. The Company was formed to create a
consolidated entity to facilitate the Offering and the establishment of the New
Credit Facility.
R.C. Cobb, Inc. was incorporated in 1957 to operate the theatre business of
the Cobb family and, as of February 29, 1996, operated 59 theatres (470 screens)
in Florida, Alabama, Arkansas and Mississippi. R & J Concessions, Inc. was
incorporated in March 1990 by Robert M. Cobb and Jefferson R. Cobb to acquire
certain concession assets from a company that had previously provided concession
services to R.C. Cobb, Inc. and provided all of the concession services required
by R.C. Cobb, Inc. until March 6, 1996, the date of the Formation Transactions.
Cobb Theatres II, Inc. was organized in March 1994 to facilitate the acquisition
(the "Wometco Acquisition") of certain theatre properties from Theater
Acquisitions, Inc. d/b/a Wometco Theatres ("Wometco"). As of February 29, 1996,
Cobb Theatres II, Inc. operated 11 theatres (111 screens) in Florida. As part of
the Formation Transactions, R&J Concessions, Inc. was acquired by and merged
into R.C. Cobb, Inc. in a stock exchange transaction followed by a statutory
merger. See "Formation Transactions."
COBB FINANCE CORP.
Finance Corp., a wholly owned subsidiary of the Company, was incorporated in
Alabama for the purpose of serving as a co-issuer of the Senior Secured Notes in
order to facilitate the Offering. The Company believes that certain prospective
purchasers of Senior Secured Notes may be restricted in their ability to
purchase debt securities of limited liability companies, such as the Company,
unless such debt securities are jointly issued by a corporation. Finance Corp.
will not have any substantial operations or assets of any kind and will not have
any revenues. As a result, prospective purchasers of Senior Secured Notes should
not expect Finance Corp. to participate in servicing the interest and principal
obligations of the Senior Secured Notes. The Indenture imposes substantial
restrictions on the activities of Finance Corp. See "Description of New Senior
Secured Notes--Certain Covenants-- Restrictions on Activities of Finance Corp."
The principal executive offices of the Issuers are located at 924 Montclair
Road, Birmingham, Alabama 35213 and the telephone number is (205) 591-2323.
29
<PAGE>
FORMATION TRANSACTIONS
Concurrently with the closing of the Offering (i) R.C. Cobb, Inc. acquired
all right, title and interest in and to all of the outstanding equity securities
of R & J Concessions, Inc., (ii) R & J Concessions, Inc. was merged into its
sole shareholder, R.C. Cobb, Inc. and (iii) Cobb Theatres, L.L.C. acquired all
right, title and interest in and to all of the outstanding equity securities of
R.C. Cobb, Inc. and Cobb Theatres II, Inc., which had previously been held by
members of the Cobb family. All of the outstanding equity interests of the
Company initially will be held by members of the Cobb family and by two
revocable trusts for the benefit of certain members of the Cobb family. See
"Principal Equityholders." As a result of the foregoing Formation Transactions,
each of R.C. Cobb, Inc. and Cobb Theatres II, Inc. became, together with Finance
Corp., the sole subsidiaries of the Company.
The following chart depicts the organization of the Company after giving
effect to the Formation Transactions.
[COBB FLOWCHART]
30
<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of the Original Senior Secured Notes were
$85.0 million. Immediately upon consummation of the Offering, the Company loaned
the gross proceeds from the Offering to the Guarantors. The Guarantors, in turn,
used, or will use such proceeds as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
(IN MILLIONS)
Repay the Existing Credit Facilities and other bank loans having maturity dates
ranging from April 15, 1998, through February 28, 2001, and having variable
interest rates, the weighted average of which as of February 29, 1996 was
10.2%........................................................................... $67.0
Repay all outstanding senior subordinated increasing rate notes (the "Senior
Subordinated Notes")............................................................. 10.0
Pay discounts and commissions and other expenses associated with the Offering.... 3.5
For general corporate purposes, including interest and fees, funding working
capital and the development of additional theaters............................. 4.5
-----
Total proceeds................................................................... $85.0
-----
-----
</TABLE>
The Senior Subordinated Notes, which were repaid on March 6, 1996, were
issued on September 21, 1995 and were held by First Union Corporation, an
affiliate of one of the Initial Purchasers. The Senior Subordinated Notes were
to mature on December 31, 2001 and bore interest at 12.0%. See "Description of
Certain Indebtedness--Indebtedness to be Repaid--Senior Subordinated Notes."
CAPITALIZATION
The following table sets forth as of February 29, 1996, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the Formation Transactions and the Offering. The table should
be read in conjunction with the Combined Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF FEBRUARY 29, 1996
---------------------------
ACTUAL AS ADJUSTED
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and equivalents................................................. $ 700 $ 3,830(a)
--------- --------------
--------- --------------
Existing Credit Facilities........................................... $ 58,300 $ --
New Credit Facility(b)............................................... -- --
10 5/8% Senior Secured Notes due 2003................................ -- 85,000
Capitalized lease obligations........................................ 1,936 1,936
Other long-term debt................................................. 8,695 --
Senior Subordinated Notes............................................ 10,000 --
--------- --------------
Total long-term debt(c)........................................ 78,931 86,936
Stockholders' equity................................................. 2,331 1,613(d)
--------- --------------
Total capitalization........................................... $ 81,262 $ 88,549
--------- --------------
--------- --------------
</TABLE>
- ------------
(a) Gives effect to the payment of certain fees and expenses in connection with
the establishment of the New Credit Facility of approximately $400,000 paid
from the proceeds of the Offering.
(b) For a description of the terms of the New Credit Facility, see "Description
of Certain Indebtedness--Other Indebtedness--New Credit Facility."
(c) For further information regarding the Company's existing indebtedness see
"Description of Certain Indebtedness."
(d) Gives effect to the write-off of deferred unamortized financing costs and
prepayment fees relating to the repayment of existing debt.
31
<PAGE>
SELECTED COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth selected combined financial data for the
Company as of and for each of its most recent five fiscal years; as of and for
the six months ended February 28, 1995, and February 29, 1996; and as of and for
the twelve months ended February 29, 1996. The historical financial data has
been derived from the audited Combined Financial Statements of the Company for
the fiscal years 1993 through 1995 and from combining amounts from the separate
audited financial statements of R.C. Cobb, Inc. and R & J Concessions, Inc. for
the fiscal years 1991 and 1992. The historical financial data for the six months
ended February 28, 1995, and February 29, 1996 has been derived from the
Company's unaudited Combined Financial Statements, which, in the opinion of
management of the Company, contain all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of this information. The
historical information with respect to the results of operations for the six
months ended February 28, 1995, and February 29, 1996 should not be regarded as
necessarily indicative of the results that may be expected for the entire year.
The following information should be read in conjunction with the Company's
Combined Financial Statements and Notes thereto included elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED TWELVE
YEARS ENDED AUGUST 31, ------------------- MONTHS ENDED
------------------------------------------------ FEB. 28, FEB. 29, FEBRUARY 29,
1991 1992 1993(A) 1994(B) 1995 1995 1996 1996
------- ------- ------- ------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT TICKET PRICES AND CONCESSION REVENUES PER PATRON)
INCOME STATEMENT DATA:
Revenues.......................... $56,942 $68,878 $83,712 $94,097 $105,608 $ 45,916 $ 52,254 $ 111,946
Gross profit...................... 33,932 40,961 50,503 58,234 65,496 28,656 32,214 69,054
Other theatre operating costs..... 24,643 30,278 34,936 39,062 43,943 20,788 23,201 46,356
General and administrative
expense............................ 3,081 4,661 5,124 6,739 7,088 3,258 3,765 7,595
Depreciation and amortization..... 3,653 3,963 4,216 5,374 8,062 3,730 4,468 8,800
Operating income (loss)........... 2,555 2,059 6,227 7,059 6,403 880 780 6,303
Interest expense, net............. 2,638 1,858 1,904 2,736 4,992 2,415 3,708 6,285
Net income (loss)................. (105) (679) 1,622 2,456 216 (990) (1,877) (671)
OTHER FINANCIAL DATA:
Net cash provided (used) by
operating activities............ $ 6,341 $ 5,133 $ 9,195 $11,432 $ 7,423 $ 2,682 $ (636) $ 4,105
Net cash (used) in investing
activities......................... (6,647) (3,875) (3,462) (44,667) (24,730) (5,244) (6,768) (26,254)
Net cash provided (used) in
financing activities............ 519 (1,140) (4,188) 32,601 16,643 1,515 6,863 21,991
Capital expenditures and
acquisitions(c).................... 7,581 6,820 5,087 46,895 25,380 5,242 6,444 26,582
Ratio of earnings to fixed
charges(d)......................... -- -- 1.35x 1.42x -- -- -- --
Deficit of earnings to fixed
charges(d)......................... $ 74 $ 596 -- -- $ 253 $ 1,560 $ 3,407 $ 2,100
Pro forma deficit of earnings to
fixed charges(e)................ 4,896 4,007 4,437 5,326
EBITDA(f)......................... 6,661 6,546 $10,685 $12,647 14,716 4,718 5,357 15,355
OPERATING DATA:
Number of theatres operated
(at period end)................. 46 56 56 68 71 70 70 70
Number of screens operated
(at period end)................. 335 409 411 525 575 545 581 581
Average screens per location
(at period end)(g).............. 7.3 7.3 7.3 7.7 8.1 7.8 8.3 8.3
Attendance (in thousands)......... 10,565 13,456 15,841 18,311 20,484 8,853 10,151 21,782
Average first-run ticket prices... $ 3.93 $ 3.92 $ 3.98 $ 4.07 $ 4.04 $ 4.17 $ 4.09 $ 4.04
Average first-run concession
revenues per patron............. $ 1.32 $ 1.29 $ 1.40 $ 1.46 $ 1.53 $ 1.47 $ 1.47 $ 1.52
<CAPTION>
AUGUST 31, FEBRUARY 29, 1996
------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(H)
------- ------- ------- ------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.............. $ 877 $ 994 $ 2,539 $ 1,905 $ 1,241 $ 700 $ 3,830
Property and equipment, net....... 29,335 30,326 29,300 56,306 75,427 78,674 78,674
Total assets...................... 38,640 38,473 37,879 79,445 98,140 102,595 110,064
Total indebtedness................ 22,794 22,119 22,289 55,275 72,754 78,931 86,936
Stockholders' equity.............. 3,633 2,954 535 3,992 4,208 2,331 1,613
</TABLE>
(Footnotes on following page)
32
<PAGE>
(Footnotes for preceding page)
- ------------
<TABLE>
<C> <S>
(a) Net income for 1993 includes a $444,000 charge (net of tax) for the cumulative effect
on prior years of adopting a change in an accounting principle for income taxes.
(b) In March 1994, the Company acquired 8 theatres (63 screens) from Wometco Theatres (as
defined herein) for approximately $22.0 million. Income statement data includes the
operating results of such theatres since the date of acquisition.
(c) Capital expenditures and acquisitions include assets acquired under capital leases and
$22.0 million for the Wometco Acquisition (as defined herein) in fiscal 1994.
(d) For the purpose of calculating the ratio of earnings to fixed charges and deficit of
earnings to fixed charges, (i) earnings consist of income (loss) before income taxes
and extraordinary items plus fixed charges less interest capitalized and (ii) fixed
charges consist of interest expense, interest capitalized, amortization of debt
issuance costs and the interest factor in rental expense.
(e) On a pro forma basis, after giving effect to the Formation Transactions and the
Offering as if each had occurred on September 1, 1994. The unaudited pro forma
financial information of the Company for the year ended August 31, 1995 and the twelve
months ended February 29, 1996 does not purport to represent what the Company's actual
results of operations would have been had such transactions occurred on the dates
presented or to project the Company's financial position or results of operations for
any future period.
(f) EBITDA is defined as net income plus net interest expense, provision for income taxes,
depreciation and amortization, changes in deferred rent liability and other non-cash or
non-recurring items. EBITDA for fiscal 1995 and for the twelve months ended February
29, 1996 excludes $1.2 million of non-recurring charges related to unconsummated
financing transactions. Changes in deferred rent liability for the years ended August
31, 1991 through 1995, the six months ended February 28, 1995 and February 29, 1996 and
the 12 months ended February 29, 1996 amounted to approximately $453,000, $524,000,
$242,000, $214,000, $251,000, $108,000, $108,000 and $251,000, respectively. The
Company has included EBITDA (which is not a measure of financial performance under
generally accepted accounting principles) because it is a measure that will be used in
determining compliance with certain covenants in the Indenture. EBITDA should not be
construed as an alternative to operating income or cash flows from operations (as
determined in accordance with generally accepted accounting principles). EBITDA does
not represent cash flows available to the Company as it does not consider debt service,
income taxes or other operating cash flows. Additionally, actual cash expenditures for
various long-term assets and operating expenses have been, and will be, incurred which
are not reflected in EBITDA.
(g) Average screens per location is determined by dividing the number of screens operated
by the number of theatres operated at the end of the period.
(h) Pro forma information gives effect to the Formation Transactions and the Offering as if
each had occurred on February 29, 1996. See "Formation Transactions," "Use of Proceeds"
and "Capitalization."
</TABLE>
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company. The discussion should be read in conjunction with the
Combined Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company's revenues are generated primarily from admission revenues and
concession revenues. Additional revenues are generated by on-screen advertising
and electronic video games installed in the lobbies of the Company's theatres.
The two major components of admission revenues are attendance and ticket prices.
Attendance is most influenced by the quality of films released by distributors
and, to a lesser extent, by expansions into new markets, competition and
population growth in the geographic market. Although the Company's ticket prices
in a particular market may change in response to competition and other factors,
the Company's average ticket price has remained relatively stable throughout the
periods presented. The Company's principal costs of operations are film rentals,
cost of concessions, payroll, occupancy costs, such as theatre rentals and
utilities, advertising costs and other expenses, such as insurance.
Substantially all of the Company's revenue growth has been due to theatre
acquisitions and the development of new theatres. The largest acquisition took
place in March 1994, when the Company acquired eight theatres (63 screens) in
Florida from Wometco. The results of operations of the theatres acquired are
included in the Company's Combined Financial Statements from their dates of
acquisition. Fiscal years ended August 31, 1993, 1994 and 1995 are not directly
comparable due to the effects of acquired theatres, new theatre openings and the
impact of the debt service associated with the debt incurred in connection with
their acquisition and development. Theatre closings have had no significant
effect on the operations of the Company.
RESULTS OF OPERATIONS
The following table presents the sources of the Company's revenues and
revenues per average screen count. Growth in total revenues has been derived
principally from the growth in the average screen count. Although total revenues
increased throughout the periods, revenues per average screen count declined
during the periods principally due to the increase in the number of second-run
screens as a percentage of the total number of screens (6.9% in fiscal 1993
versus 15.1% in fiscal 1995). The increase in the number of second-run screens
as a percentage of the total number of screens has occurred as the Company has
opened new theatres and converted existing first-run theatres in the same zones
to second-run theatres. The average ticket price for second-run theatres has
historically been approximately one-third of the average ticket price for
first-run theatres, while the average concession revenues per patron for
second-run theatres has historically been approximately two-thirds of the
average concession revenues per patron for first-run theatres. First-run
revenues per average screen count remained relatively stable in fiscal 1993 and
fiscal 1994 due to the release in each of these years of several high grossing
box office films (such as Jurassic Park and Aladdin in 1993 and Forrest Gump and
Lion King in 1994). In fiscal 1995, however, the number of high grossing films
declined, causing the revenues per average first-run screen count to decline as
well. This decline in the number of high grossing films is evidenced by the
decline in admission revenues for the Company's ten highest grossing films as a
percentage of total admission revenues to 24.8% in fiscal 1995 from 33.1% and
34.5% in fiscal years 1994 and 1993, respectively.
The table also presents revenues of comparable theatres broken down by (i)
revenues generated from theatres that were opened or acquired by the Company
prior to September 1, 1992 (the "base group"), (ii) revenues generated from
theatres that were opened or acquired by the Company on or after September 1,
1992 in the same markets as the "base group" theatres (the "base markets"), and
34
<PAGE>
(iii) revenues attributable to theatres purchased from Wometco. Over the past
three years, theatre revenues in the base group have declined slightly, while
revenues in the base markets have increased as the Company has opened new,
larger theatres in base markets to replace existing theatres.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED AUGUST 31, ENDED
------------------------------ ----------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
------- ------- -------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Theatre admissions................... $59,132 $65,951 $ 73,190 $ 32,137 $ 36,584
Concessions.......................... 22,934 26,113 29,432 12,399 14,284
Other................................ 1,646 2,033 2,986 1,380 1,386
------- ------- -------- ------------ ------------
Total revenues..................... $83,712 $94,097 $105,608 $ 45,916 $ 52,254
------- ------- -------- ------------ ------------
------- ------- -------- ------------ ------------
Average screen count (weighted by
month)................................. 404 471 550 540 576
------- ------- -------- ------------ ------------
------- ------- -------- ------------ ------------
Revenues per average screen count
(all theatres)....................... $ 207.2 $ 199.8 $ 192.0 $ 85.0 $ 90.7
------- ------- -------- ------------ ------------
------- ------- -------- ------------ ------------
Revenues per average screen count
(first-run theatres)................. $ 213.9 $ 212.3 $ 207.9 $ 89.1 $ 97.8
------- ------- -------- ------------ ------------
------- ------- -------- ------------ ------------
Revenues of comparable theatres:
Theatres opened/acquired before
fiscal 1993 ("base group")......... $80,631 $80,310 $ 78,129 $ 34,498 $ 36,960
Theatres opened/acquired in existing
"base markets"......................... 3,081 5,972 10,063 4,248 6,156
------- ------- -------- ------------ ------------
Total "base markets"................. 83,712 86,282 88,192 38,746 43,116
Theatres purchased from Wometco...... -- 7,815 17,416 7,170 9,138
------- ------- -------- ------------ ------------
Total revenues..................... $83,712 $94,097 $105,608 $ 45,916 $ 52,254
------- ------- -------- ------------ ------------
------- ------- -------- ------------ ------------
</TABLE>
The following table presents certain income statement items as a percentage
of total revenues.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED AUGUST 31, ENDED
----------------------- ----------------------------
FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Theatre admissions.......................... 70.6% 70.1% 69.3% 70.0% 70.0%
Concessions................................. 27.4 27.8 27.9 27.0 27.3
Other....................................... 2.0 2.1 2.8 3.0 2.7
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
Cost of revenues.............................. 39.7 38.1 38.0 37.6 38.4
----- ----- ----- ----- -----
Gross profit.................................. 60.3 61.9 62.0 62.4 61.6
Other theatre operating costs................. 41.8 41.5 41.6 45.3 44.4
General and administrative expenses........... 6.1 7.2 6.7 7.1 7.2
Depreciation and amortization................. 5.0 5.7 7.6 8.1 8.6
----- ----- ----- ----- -----
Operating income (loss)....................... 7.4 7.5 6.1 1.9 1.5
Interest expense, net......................... 2.3 2.9 4.7 5.3 7.1
Net income (loss)............................. 1.9% 2.6% 0.2% (2.2)% (3.6)%
Other key ratios:
Film rental costs as a percentage of admission
revenues...................................... 50.7% 48.9% 49.0% 48.4% 48.8%
Cost of concessions as a percentage of
concession revenues......................... 14.0 13.8 14.3 13.8 15.3
</TABLE>
35
<PAGE>
Comparison of the Six Months Ended
February 28, 1995 and February 29, 1996
Revenues. Revenues increased 13.8% in the six months ended February 29, 1996
(the 1996 period) to $52.3 million from $45.9 million in the six months ended
February 28, 1995 (the 1995 period). Attendance increased 14.7% during the 1996
period versus the 1995 period. The increase in attendance resulted from the
popularity of films released during the period and from a 6.7% increase in the
average screen count. The average ticket price for first-run films decreased
2.0% to $4.09 in the 1996 period compared to $4.17 in the 1995 period. The
decrease in first-run ticket prices was primarily due to the commencement of
student and military discounts near the end of the second quarter of fiscal
1995. The average first-run concession revenue per patron remained stable at
$1.47 for both in the 1996 period and the 1995 period.
Comparable "base group" theatre revenues increased 7.1% to 37.0 million in
the six months ended February 29, 1996 from $34.5 million in the six months
ended February 28, 1995. Comparable "base markets" theatre revenues increased
11.3% in the six months ended February 29, 1996 to $43.1 million from $38.7
million in the six months ended February 28, 1995.
Gross Profit. Gross profit increased 12.4% in the six month period ended
February 29, 1996 to $32.2 million from $28.7 million in the six month period
ended February 28, 1995. This increase is primarily attributable to the 13.8%
increase in revenues. Gross profit as a percentage of total revenues decreased
to 61.6% in the 1996 period from 62.4% in the 1995 period.
Other Theatre Operating Costs. Other theatre operating costs increased 11.6%
in the six month period ended February 29, 1996 to $23.2 million from $20.8
million in the six month period ended February 28, 1995, primarily due to the
6.7% increase in the average screen count and a 14.7% increase in attendance.
Other theatre operating costs as a percentage of revenues, decreased to 44.4% in
the 1996 period from 45.3% in the 1995 period primarily due to economies gained
from the increase in the average number of screens per location and a 6.7%
increase in average revenues per screen.
General and Administrative Expenses. General and administrative expenses
increased 15.6% in the six month period ended February 29, 1996 to $3.8 million
from $3.3 million for the six month period ended February 28, 1995, primarily
due to the increase in the average screen count and increased salary expense and
professional fees. General and administrative expenses as a percentage of
revenues remained relatively stable at 7.2% in the 1996 period compared to 7.1%
in the 1995 period.
Depreciation and Amortization. Depreciation and amortization expense
increased 19.8% during the six months ended February 29, 1996 to $4.5million
from $3.7 million for the six months ended February 28, 1995. This increase was
primarily the result of theatre property additions.
Interest Expense, Net. Net interest expense increased 53.5% in the six month
period ended February 29, 1996 to $3.7 million from $2.4 million in the six
month period ended February 28, 1995. The increase was due to an increase in the
average debt outstanding, and higher interest rates on a significant portion of
the Company's debt in the 1996 period as compared to the 1995 period.
Net Loss. Net loss increased to $1.9 million in the six month period ended
February 29, 1996 from $1.0 million in the six month period ended February 28,
1995 due to the factors previously discussed.
Comparison of Years ended August 31, 1994 (fiscal 1994)
and August 31, 1995 (fiscal 1995)
Revenues. Revenues increased 12.2% in fiscal 1995 to $105.6 million from
$94.1 million in fiscal 1994. Attendance increased 11.9% primarily due to the
opening of 50 screens in fiscal 1995 and the first full year of operations of
114 screens added in fiscal 1994, including 84 screens that were acquired.
36
<PAGE>
Sixty-three of these acquired screens were acquired from Wometco in March 1994.
The average screen count increased 16.8% in fiscal 1994 to 550 from 471 in
fiscal 1995. The average ticket price for first-run films decreased 0.7% to
$4.04 in fiscal 1995 from $4.07 in fiscal 1994. The decrease in ticket prices
was primarily due to a management decision to discount ticket prices for a
period of time in fiscal 1995 in response to declining attendance as a result of
the reduced number of higher grossing box office films. The average first-run
concession revenues per patron increased by 4.9% in fiscal 1995 to $1.53 from
$1.46 in fiscal 1994.
"Base group" theatre revenues decreased 2.7% in fiscal 1995 to $78.1 million
from $80.3 million in fiscal 1994. However, "base markets" theatre revenues
increased 2.2% in fiscal 1995 to $88.2 million from $86.3 million in fiscal
1994. Theatre revenues in the base group declined slightly while revenues in the
base markets have increased as the Company has opened new, larger theatres in
base markets to replace existing theatres.
Gross Profit. Gross profit increased 12.5% in fiscal 1995 to $65.5 million
from $58.2 million in fiscal 1994. This increase is primarily attributable to
the 12.2% increase in revenues. The gross profit percentage remained relatively
flat at 62.0% in fiscal 1995 versus 61.9% in fiscal 1994.
Other Theatre Operating Costs. Other theatre operating costs increased 12.5%
in fiscal 1995 to $43.9 million from $39.1 million in fiscal 1994, primarily due
to the 16.8% increase in the average screen count. Other theatre operating costs
as a percentage of revenues remained relatively flat at 41.6% in fiscal 1995
versus 41.5% in fiscal 1994.
General and Administrative Expenses. General and administrative expenses
increased 5.2% in fiscal 1995 to $7.1 million from $6.7 million in fiscal 1994.
General and administrative expenses as a percentage of revenues decreased to
6.7% in fiscal 1995 from 7.2% in fiscal 1994. After adjusting for the increase
of $1.2 million in non-recurring executive bonuses in fiscal 1994, general and
administrative expenses increased $1.6 million or 29.0% in fiscal 1995 compared
to fiscal 1994 primarily due to a full year of operation of the theatres
acquired in the Wometco Acquisition.
Depreciation and Amortization. Depreciation and amortization expense in
fiscal 1995 increased to $8.1 million from $5.4 million in fiscal 1994. This
increase was primarily the result of theatre property additions.
Interest Expense, Net. Net interest expense increased in 1995 to $5.0
million from $2.7 million in fiscal 1994. The increase was due to an increase in
the average debt outstanding in fiscal 1995 versus fiscal 1994, which in turn
was primarily attributable to the Wometco Acquisition and other capital
expenditures. Net interest expense also increased as a result of higher interest
rates on a significant portion of the Company's debt in fiscal 1995 versus
fiscal 1994.
Net Income. Net income decreased in fiscal 1995 to $0.2 million from $2.5
million in fiscal 1994. In addition to the factors previously discussed, the
Company incurred $1.2 million of non-recurring expenses in 1995 due to an
unconsummated financing transaction. The non-recurring expenses included
development costs, financing costs and legal expenses associated with the
development of several theater projects which were abandoned when satisfactory
financing was not available.
37
<PAGE>
Comparison of Years Ended August 31, 1993 (fiscal 1993)
and August 31, 1994 (fiscal 1994)
Revenues. Revenues increased 12.4% in fiscal 1994 to $94.1 million from
$83.7 million in fiscal 1993. Attendance increased 15.6% primarily due to the
addition of 114 screens in fiscal 1994. The average screen count increased 16.6%
to 471 in fiscal 1994 from 404 in fiscal 1993. The average ticket price for
first-run films increased 2.3% in fiscal 1994 to $4.07 from $3.98 in fiscal
1993. The average first-run concession revenues per patron increased 4.3% in
fiscal 1994 to $1.46 from $1.40 in fiscal 1993.
Comparable "base group" theatre revenues decreased 0.4% in fiscal 1994 to
$80.3 million from $80.6 million in fiscal 1993. However, comparable "base
markets" theatre revenues increased 3.1% to $86.3 million in fiscal 1994 from
$83.7 million in fiscal 1993.
Gross Profit. Gross profit increased 15.3% in fiscal 1994 to $58.2 million
from $50.5 million in fiscal 1993. This increase resulted primarily from the
16.6% increase in the average screen count in fiscal 1994. Gross profit
percentage increased to 61.9% in fiscal 1994 from 60.3% in fiscal 1993. This
increase resulted primarily from lower film rental costs as a percentage of
admission revenues (48.9% in fiscal 1994 versus 50.7% in fiscal 1993) due to a
greater number of longer playing films.
Other Theatre Operating Costs. Other theatre operating costs increased 11.8%
in fiscal 1994 to $39.1 million from $34.9 million in fiscal 1993, primarily due
to the 16.6% increase in the average screen count. Other theatre operating costs
as a percentage of revenues decreased to 41.5% in fiscal 1994 from 41.8% in
fiscal 1993 due to economies gained from the increase in screens per location to
7.7 in fiscal 1994 from 7.3 in fiscal 1993.
General and Administrative Expenses. General and administrative expenses
increased 31.5% in fiscal 1994 to $6.7 million from $5.1 million in fiscal 1993,
primarily resulting from a $0.7 million increase in executive bonuses in fiscal
1994 and increases in salary, travel, insurance and other expenses relating to
the Wometco Acquisition. General and administrative expenses as a percentage of
revenues increased to 7.2% in fiscal 1994 from 6.1% in fiscal 1993.
Depreciation and Amortization. Depreciation and amortization expense in
fiscal 1994 increased to $5.4 million from $4.2 million in fiscal 1993. This
increase was primarily the result of theatre property additions.
Interest Expense, Net. Net interest expense increased in fiscal 1994 to $2.7
million from $1.9 million in fiscal 1993. The increase was due to the increase
in the average debt outstanding during fiscal 1994, which in turn was primarily
attributable to the Wometco Acquisition.
Net Income. Net income increased in fiscal 1994 to $2.5 million from $1.6
million in fiscal 1993 due to the factors previously discussed and due to the
effect of adopting the change in accounting principle for income taxes in fiscal
1993, which resulted in a charge (net of taxes) of $0.4 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, primarily through box office
admissions and theatre concession revenues. Because its revenues are received in
cash, while exhibition costs (primarily film rentals) are ordinarily paid to
distributors within 14 to 65 days following receipt of admissions revenues, the
Company has an operating "float" which partially finances its operations and
enables the Company to maintain a relatively small working capital facility.
The Company's primary capital requirements are for theatre openings and
acquisitions and for remodeling, expansion and maintenance of existing theatres.
While the Company has constructed fee-owned theatres from time to time, the
Company prefers to develop theatres as leasehold properties in order to preserve
the capital that would otherwise be required to develop fee-owned properties.
Fee-
38
<PAGE>
owned properties, including land, building and amenities, typically cost four to
five times as much to construct as leasehold properties cost to develop. Cobb
has historically developed, and plans to continue developing, a significant
portion of new theatres by entering into long-term, triple net leases which
provide for the incurrence by the landlord of the construction costs of the
theatre, other than those for furniture, fixtures and equipment, in exchange for
Cobb's entering into the lease.
The Company historically has funded its capital expansion needs primarily
through bank borrowings and with excess funds generated from its operations. The
table below summarizes net cash provided by operating activities and net cash
used for investing activities in fiscal 1994 and 1995 and in the first six
months of fiscal 1996.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
AUGUST 31, FEBRUARY 29,
-------------------- ------------
1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Net cash provided (used) by operating activities........... $ 11,432 $ 7,423 $ (636)
Net cash used for investing activities:
Wometco Acquisition...................................... (22,000) -- --
Purchase of land for the construction of theatres........ (4,124) (6,509) --
Construction of fee-owned theatres....................... (7,777) (10,766) (4,308)
Theatre openings (leasehold), expansions, remodeling and
acquisitions............................................... (11,608) (7,255) (2,136)
Other.................................................... 842 (200) (324)
-------- -------- ------------
Net cash used for investing activities................. (44,667) (24,730) (6,768)
-------- -------- ------------
Net cash provided (used) by operating activities less net
cash used for investing activities....................... $(33,235) $(17,307) $ (7,404)
-------- -------- ------------
-------- -------- ------------
</TABLE>
Notwithstanding the Company's preference to develop theatres on a leasehold
basis, the Company expended $11.9 million in fiscal 1994, $17.3 million in
fiscal 1995 and $4.3 million in the first six months of fiscal 1996 to construct
or expand fee-owned properties, including $4.1 million of land purchased in
fiscal 1994 and $6.5 million of land purchased in fiscal 1995 for the
construction of new theatres. The amount expended in the first six months of
fiscal 1996 primarily related to a 20-plex theatre in Naples, Florida, which
opened on December 15, 1995 (the "Naples Theatre").
In addition, since August 31, 1993, the Company incurred capital lease
expenses in connection with investing activities totaling approximately $2.2
million, consisting of approximately $1.4 million in fiscal 1994 and
approximately $850,000 in fiscal 1995.
The following table summarizes the growth in the Company's theatre circuit
since the beginning of fiscal 1994:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------------------
SIX MONTHS ENDED
1994 1995 FEBRUARY 29, 1996
------------------- ------------------- ---------------------
THEATRES SCREENS THEATRES SCREENS THEATRES SCREENS
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of the period.............. 56 411 68 525 71 575
Additions due to:
New development.................... 1 16 3 38 1 20
Expansion.......................... -- 14 -- 12 -- --
Acquisition........................ 13 98 -- -- -- --
--- ------- --- ------- --- -------
14 128 3 50 72 595
Theatre closings and sales........... (2) (14) -- -- (2) (14)
--- ------- --- ------- --- -------
End of the period.................... 68 525 71 575 70 581
--- ------- --- ------- --- -------
--- ------- --- ------- --- -------
</TABLE>
39
<PAGE>
Net cash provided (used) by operating activities was insufficient to meet
net cash used for investing activities by approximately $33.2 million in fiscal
1994, $17.3 million in fiscal 1995 and $7.4 million for the six months ended
February 29, 1996. The Company's cash needs during this period were provided
primarily by the Existing Credit Facilities entered into in March 1994 which
provided for up to $55.0 million of senior term loans and an $11.0 million
seasonal working capital revolver. In addition, the Company arranged $8.8
million of financing to construct two fee-owned properties during fiscal 1994.
In September 1995, the Company issued $10.0 million of Senior Subordinated
Notes, the proceeds of which were used to complete the Naples Theatre and repay
borrowings under the seasonal working capital revolver.
The Company estimates that total capital expenditures will be approximately
$13.9 million for fiscal 1996, consisting of $10.6 million for new theatre
openings and expansions which are expected to add 36 new screens, and $3.3
million for remodeling and maintenance. For fiscal 1997, the Company estimates
that total capital expenditures will be approximately $19.8 million, consisting
of $15.8 million for new theatre openings and expansions which are expected to
add 115 screens and $4.0 million for remodeling and maintenance. The Company
plans to fund these capital expenditures with cash provided by operating
activities, $4.5 million of funds provided to the Company by the Offering and
proceeds from the proposed sale of two undeveloped parcels of land in Ocala and
Tampa, Florida, expected to occur in fiscal 1997.
In March 1996, the Company issued $85.0 million of 10 5/8% Senior Secured
Notes due 2003 and repaid all existing indebtedness except for $1.9 million of
capitalized lease obligations. Concurrent with the completion of the Offering,
the Company established a $25.0 million New Credit Facility to fund working
capital requirements and capital expenditures. The New Credit Facility is
comprised of a $12.5 million senior secured seasonal revolver and a $12.5
million senior secured reducing revolver. Access to the availability under the
New Credit Facility will be dependent upon the achievement by the Company of
certain financial ratios. At the closing of the Offering, the Company had
available approximately $11.0 million of borrowing capacity under the New Credit
Facility. See "Description of Certain Indebtedness--Other Indebtedness--New
Credit Facility."
Based upon the current level of operations and anticipated growth,
management believes that cash flow from operations and available cash, together
with available borrowings under the New Credit Facility, will be adequate to
meet the Company's anticipated future requirements for working capital, capital
expenditures, scheduled lease payments and scheduled payments of interest on its
indebtedness, including the Senior Secured Notes over the next few years. The
Company may, however need to refinance all or a portion of the principal of the
Senior Secured Notes on or prior to maturity. There can be no assurance that the
Company's business will generate sufficient cash flow from operations or that
future borrowings will be available under the New Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, including the
Senior Secured Notes, or make anticipated capital expenditures and lease
payments. In addition, there can be no assurance that the Company will be able
to effect any such refinancing on commercially reasonable terms or at all. See
"Risk Factors--Highly Leveraged; Ability to Service Indebtedness."
The Company had one interest rate swap agreement with a $12.0 million
notional amount which matured in May 1996. The sole purpose of the swap was to
convert a portion of the Company's variable rate debt to fixed rate, with the
counterparty being one of the Company's primary lending institutions. The
Company has had no involvement with other derivatives in the past, with the
exception of basic swaps to convert variable rate debt to fixed rate debt, and
has no specific plans to use derivative products in the foreseeable future.
40
<PAGE>
SEASONALITY
Admission and concession revenues are subject to seasonal fluctuations which
affect all motion picture exhibitors. These fluctuations are the result of the
distribution practices of the major motion picture studios which have
historically concentrated the release of films during the summer and holiday
seasons. As a result, the Company's second and fourth fiscal quarters have been
historically strong compared to its first and third fiscal quarters.
INFLATION
For the three years ended August 31, 1995 and the six months ended February
29, 1996, inflation and changing prices have not had a significant impact on the
Company's results of operations and financial condition.
41
<PAGE>
BUSINESS
GENERAL
The Company is the eleventh largest motion picture exhibitor in the United
States and the largest exhibitor in Florida, based on the number of screens
operated. At February 29, 1996, the Company operated 70 theatres with an
aggregate of 581 screens in Florida, Alabama, Arkansas and Mississippi,
including 54 theatres and 437 screens in Florida. The Company has been a pioneer
in the development and operation of multi-screen theatres, and management
believes that its average number of screens per theatre of 8.3 at February 29,
1996 is the second highest among major theatre exhibitors. The Company seeks to
develop new theatres primarily with 16 to 24 screens in zones where the Company
can be the sole or a leading exhibitor in terms of the number of screens
operated. At February 29, 1996, approximately 76% of the Company's theatres were
located in zones where the Company is the sole exhibitor and approximately half
of the Company's remaining theatres were located in zones where management
believes the Company is the leading exhibitor. The Company and its predecessors
have been involved in the motion picture exhibition industry since 1921 and have
been owned and managed by members of the Cobb family throughout this period.
Moreover, the Company's six top executives have an average of over 28 years of
experience in the industry. See "Management--General."
The following table provides certain information with respect to the
Company's theatre circuit by region over the period from August 31, 1991 to
August 31, 1995.
<TABLE>
<CAPTION>
AS OF AUGUST 31,
-----------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
NO. OF PERCENT NO. OF PERCENT NO. OF PERCENT NO. OF PERCENT NO. OF PERCENT
SCREENS OF TOTAL SCREENS OF TOTAL SCREENS OF TOTAL SCREENS OF TOTAL SCREENS OF TOTAL
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Florida............. 219 65.4% 285 69.7% 287 69.8% 385 73.3% 425 73.9%
Alabama............. 86 25.7 90 22.0 90 21.9 114 21.7 124 21.6
Other............... 30 8.9 34 8.3 34 8.3 26 5.0 26 4.5
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
Total............... 335 100.0% 409 100.0% 411 100.0% 525 100.0% 575 100.0%
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
</TABLE>
THEATRE EXHIBITION INDUSTRY OVERVIEW
The theatre exhibition industry in the United States consists of more than
450 exhibitors, approximately 30 of which operated 100 or more screens as of May
1, 1995. The ten largest exhibitors (in terms of number of screens) operated
approximately 50% of the total screens, with no one exhibitor operating more
than 10% of the total screens.
Movie theatres are the primary initial distribution channel for new motion
picture releases. Management believes that the success of a movie in other
"downstream" delivery systems, such as home video and network, syndicated and
pay television, is largely dependent on its successful release in movie theatres
in the United States. In addition, management believes that, to date, the
proliferation of these other distribution channels, home video in particular,
has enhanced the value of film product, resulting in additional film product for
exhibition. Management further believes that the emergence of new forms of
delivery systems has not adversely affected attendance at movie theatres and
that alternative delivery systems do not provide an experience comparable to the
out-of-home entertainment experience of attending a movie in a theatre.
42
<PAGE>
According to data released by the Motion Picture Association of America
("MPAA"), total attendance of approximately 1.3 billion and total admission
revenues of approximately $5.4 billion each represented a record for the U.S.
motion picture exhibition industry in 1994. Additionally, industry sources
estimate that attendance and total admission revenues were approximately 1.26
billion and $5.5 billion, respectively, in 1995. Attendance has exceeded 1.0
billion during each of the past 19 years. Annual industry attendance and total
admission revenues for the period 1985 through 1994 as determined by the MPAA
are as follows:
<TABLE>
<CAPTION>
ANNUAL INDUSTRY AVERAGE TOTAL ADMISSION
YEAR ATTENDANCE(A) TICKET PRICES(A) REVENUES(A)
- --------------------------------- --------------- ---------------- ---------------
(IN BILLIONS) (IN BILLIONS)
<S> <C> <C> <C>
1985............................. 1.06 $ 3.55 $3.75
1986............................. 1.02 3.71 3.78
1987............................. 1.09 3.91 4.25
1988............................. 1.08 4.11 4.46
1989............................. 1.26 3.99 5.03
1990............................. 1.19 4.22 5.02
1991............................. 1.14 4.21 4.80
1992............................. 1.17 4.15 4.87
1993............................. 1.24 4.14 5.15
1994............................. 1.29 4.18 5.40
</TABLE>
- ------------
(a) Sources: MPAA; 1989-1994 figures for attendance and average ticket prices
based on Ernst & Young survey; previous years based on CPI-W index.
In addition to showing the relative stability of movie theatre attendance,
the MPAA study revealed that increases in ticket prices have not kept pace with
increases in the cost of living. During the period 1985 through 1994, according
to the MPAA's figures, the average ticket price has increased 17.7% (or 1.8%,
compounded annually), whereas the U.S. Consumer Price Index has increased 37.7%
(or 3.6%, compounded annually) during the same period. Cobb's management
believes that movie ticket prices are less expensive than the cost of many other
out-of-home entertainment options, such as music concerts, sporting events and
live theatre.
The Company believes that film production companies have increased, and will
continue to increase, the number of films being produced due to the realization
by film producers of significant profits from the exhibition of films in movie
theatres and via other downstream distribution channels. The increased profit
potential from film distribution in recent years can be attributed to increased
demand as a result of the growth of the movie theatre industry (particularly
outside of the United States) and the home video industry, and the significantly
increased channel capacity created by enhanced cable and satellite-based
transmission systems. Moreover, the emergence of stronger and better capitalized
independent producers and distributors, such as Gramercy Pictures, Turner
Pictures (which includes New Line Cinemas and Castle Rock Entertainment) and
Dreamworks SKG, the highly-publicized partnership among Jeffrey Katzenberg,
Steven Spielberg and David Geffen, should help maintain or increase motion
picture production. The Company believes that an increased supply of quality
feature films will positively impact its admission and concession revenues.
The Company also believes that certain demographic trends favor the theatre
exhibition industry. Information obtained from the U.S. Bureau of the Census
indicates that the number of 12 to 20 year olds in the United States, the
largest movie-going segment of the population, is projected to grow
approximately 60% faster than the U.S. population as a whole through the end of
the decade. In addition, information obtained from the MPAA indicates that the
number of patrons over 40 as a percentage of the total movie audience has
increased from approximately 14% in 1986 to approximately 36% in 1994. The
Company believes that film producers have recognized the importance of this
segment of the population and are producing an increased number of films
primarily targeted to this more
43
<PAGE>
mature audience, including such films as Sense and Sensibility, Grumpier Old
Men, Schindler's List and The Bridges of Madison County.
THEATRE OPERATIONS
Strategy
The Company manages its theatre operations in accordance with the following
five strategic initiatives: (1) maintain market leadership in Florida; (2)
target non-competitive zones; (3) maximize revenue and profitability with
multi-screen theatres; (4) operate attractive, high quality theatres; and (5)
focus on cost controls.
Maintain Market Leadership in Florida. Cobb is the largest motion
picture exhibitor in Florida based on number of theatres and screens
operated. Cobb has concentrated, and plans to continue to concentrate, its
expansion in Florida. Management believes Florida is one of the more
attractive theatre markets in the United States due to its favorable
demographic profile and economic outlook. Florida's population is projected
to grow at more than twice the rate of the United States population through
the end of the decade. Moreover, approximately 25% of Florida's population
consists of persons under 20 years of age. Industry data shows that
nationally the 20 and under age group represents approximately 15% of the
total population, but approximately 24% of the annual theatre admission
revenues. This segment of the population is also projected to grow in
Florida at a rate that is more than twice that of the United States as a
whole. In addition, management believes that during the winter months,
Florida's relatively warm weather attracts a seasonal inflow of tourists,
which serves to increase the potential movie-going population. The Florida
economy is also growing strongly, with GDP and income per capita expected to
increase at average annual rates of 3.3% and 1.7%, respectively, through the
balance of the decade, compared to 2.4% and 1.5%, respectively, for the
entire United States. Management believes these factors create the
possibility for stronger than average growth potential in terms of admission
revenues in Florida compared to other parts of the United States.
The rankings of the top five motion picture exhibitors in Florida as of
February 7, 1996 are set forth below.
<TABLE>
<CAPTION>
AVERAGE
TOTAL SCREENS PER
RANK THEATRE CHAIN SCREENS LOCATIONS LOCATION
---- ----------------------------------------------------- ------- --------- -----------
<S> <C> <C> <C> <C>
1 Cobb Theatres Group.................................. 437 54 8.1
2 American Multi-Cinema, Inc........................... 317 41 7.7
3 United Artist Theatre Circuit, Inc................... 241 30 8.0
4 Carmike Cinemas, Inc................................. 132 30 4.4
5 GC Companies, Inc.................................... 101 14 7.2
</TABLE>
Target Non-Competitive Zones. Film distributors typically license each
first-run film to only one theatre in a given zone. The size of a film zone
is generally determined by the population density, demographics and grossing
potential of a particular market and can range from small, highly
concentrated areas in major metropolitan markets to one or more towns in
more suburban and rural markets. Film distributors generally will not
license the same film to more than one theatre within the same zone. A
theatre exhibitor which operates all the theatres in a given zone will
experience little, if any, direct competition with respect to film licensing
and may therefore obtain more attractive film rental arrangements compared
to theatre exhibitors operating in more competitive zones. The Company's
strategy is to locate its theatres in zones where it is the sole or a
leading exhibitor in order to strengthen its ability to negotiate more
advantageous film licensing terms. At February 29, 1996, approximately 76%
of the Company's theatres were located in zones where the Company is the
sole exhibitor and approximately one-half of the Company's remaining
44
<PAGE>
theatres were located in zones where management believes that the Company is
the leading exhibitor.
Maximize Revenue and Profitability with Multi-Screen Theatres. Large,
multi-screen theatres provide certain benefits in comparison to smaller
theatres. Because of the wide selection of films exhibited by a multi-screen
theatre, such a theatre complex not only draws a larger number of patrons
within a particular market area, but may also increase the overall size of
the market area from which the theatre draws patrons. Multi-screen theatres
also allow for a variety of films with differing audience appeal to be shown
simultaneously or, alternatively, allow for an increased number of showings
of more popular films in multiple auditoriums. In addition, the ability to
shift films from larger auditoriums to smaller auditoriums in a multi-screen
theatre enables the Company to exhibit films for a longer period of time,
thereby taking advantage of lower licensing fees during the latter part of a
film's release period and reducing film rental costs as a percentage of
admission revenues. Operating efficiencies are also realized through the
economies of having common box office, concession, projection, lobby and
restroom facilities, which enable the Company to spread certain costs over a
higher revenue base.
Cobb has been one of the industry leaders in the introduction of the
multi-screen theatre concept. Cobb believes that it opened the first
eight-screen facility in the United States in 1978 and, in 1991, opened the
first 18-screen theatre outside of California. All of the Cobb theatres are
multi-screen facilities and 86% of its theatres have six or more screens.
Management believes that the Company's average number of screens per theatre
of 8.3 at February 29, 1996 is the second highest among major motion picture
exhibitors, and is considerably higher than the 5.7 average number of
screens per theatre for the top ten motion picture exhibitors as of May 1,
1995.
Operate Attractive, High Quality Theatres. Cobb's management believes
that maintaining high quality theatres provides significant competitive
advantages because theatre patrons and, therefore, film distributors
generally seek clean, conveniently located, modern facilities with state-
of-the-art equipment. Most of Cobb's theatres are located in or near malls
or large powerstrip centers which include a variety of retail and
entertainment operations, thus increasing the visibility of the theatre.
Cobb invests in high quality projection and stereo sound equipment to
enhance the movie going experience. The latest technical enhancements are
Digital Theatre Sound Systems ("DTS"), Dolby(R) Digital Sound ("DDS") and
Sony(R) Dynamic Digital Sound ("SDDS"). Jurassic Park, released in the
summer of 1993, was the first major motion picture to broadly utilize
digital sound. Management estimates that at least a majority of the films
produced in 1996 will have digital soundtracks available as an alternative
to the standard stereo soundtrack. More than 72% of the Company's first-run
theatres have one or more auditoriums with digital sound capabilities, and
the Company is continuing to add digital capabilities to its auditoriums.
Cobb's strategy is also to enhance its theatre patrons' comfort and
enjoyment. Seating for all new theatres is specially designed for the
Company. The chairs have cupholders, plush 4-inch padding, 36-inch high
backs (compared to the 34-inch industry standard), 22-inch wide seats
(compared to the 20-inch industry standard) and 44-inch spacing between rows
(compared to the 36-inch industry standard). The Company also plans to build
"stadium seating" in certain new theatres which will provide each customer
with an improved view of the screen.
Focus on Cost Controls. Cobb seeks to be an efficient exhibitor through
careful control of operating expenses. The Company pursues a regional
strategy in operating its theatres in order to profitably serve its markets
and minimize corporate overhead costs. The grouping of theatres primarily
along the Florida coasts and in central Alabama has minimized the Company's
need for branch offices, thereby enabling the Company to acquire or develop
additional theatres without incurring substantial incremental corporate
overhead. The Company also controls costs and realizes operating
efficiencies as a result of its focus on multi-screen theatres.
45
<PAGE>
Cobb's high percentage of theatres in non-competitive zones enables the
Company to aggressively negotiate film licensing terms and thereby minimize
film rental costs. As a result of this strategy, the Company believes, based
on available data, that its film rental costs as a percentage of admission
revenues are among the lowest in the motion picture exhibition industry.
In addition, the Company has made a significant commitment to its
management information systems in order to enhance further its ability to
manage effectively its box office and concession operations, as well as its
accounting and financial functions. See "--Systems."
Concessions
Sales of concession items accounted for approximately 28.0% of total
revenues for the twelve months ended February 29, 1996. Since concession sales
provide higher gross profit percentages than ticket sales, increasing concession
sales remains a focus of Cobb's management. The Company's primary concession
products are varying sizes of popcorn, soft drinks, candy and certain other
items such as hot dogs and nachos. In an effort to increase concession revenues
per patron, the Company is expanding its concession menus in many theatres to
include bulk-sized items and discounted "combo" menu items. The Company is also
devoting additional resources to training its concession personnel to "up-sell"
or "cross-sell" its products more effectively. The Company conducts quarterly
concession promotions in conjunction with suppliers who provide marketing funds
to the Company in order to offset advertising and food costs. Retail prices for
concession items vary by the size of the item and are generally market
sensitive.
The placement, design and appearance of concession stands are also key
factors in improving concession sales. The Company's new and remodeled theatres
are designed with multiple station concession stands to heighten visibility,
reduce the length of concession lines and improve traffic flow around the
concession stands. The Company's larger theatres have auxiliary concession
stands to make it easier for a greater number of patrons to gain quick access to
the concession counters. The Company also has equipped the concession stands in
all new theatres and certain existing theatres with its new Prysm point-of-sale
("POS") information system, which features touch screen technology, thereby
reducing customer waiting time and the possibility of errors by concession
station personnel. See "-- Systems."
As a result of the above changes, average concession revenues per patron in
the Company's first-run theatres has improved steadily during the last four
fiscal years and the six months ended February 29, 1996, and February 28, 1995,
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED AUGUST 31, -------------------
----------------------------- FEB. 28, FEB. 29,
1992 1993 1994 1995 1995 1996
----- ----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average first-run concession revenues per patron.... $1.29 $1.40 $1.46 $1.53 $ 1.47 $ 1.47
</TABLE>
Other Revenues
Other sources of revenue, consisting mainly of coin-operated video games and
on-screen advertising, accounted for approximately 2.7% of total revenues for
the twelve months ended February 29, 1996. Coin-operated video games are owned
by the Company and are placed in theatre lobbies to provide entertainment for
patrons before and after movies. On-screen advertisements, which promote both
local and national products, are displayed prior to the start of each movie.
FILM LICENSING
Cobb licenses movies from film distributors owned by major film production
companies and from independent film distributors that typically distribute films
for small production companies. The Company's licensing activities are conducted
from its booking office located in Dallas, Texas, the closest
46
<PAGE>
city to the Company's operations in which all of the major film distribution
companies have offices. The Company's three film buyers, each of whom has
responsibility for licensing films for particular theatres, are supervised by
the Company's Senior Vice President--Booking and Film Buying. This film
licensing strategy enables the Company to match film selections with local
customer preferences. Prior to negotiating for a particular film, the Company's
film buyers evaluate its prospects. The criteria considered for each film
include cast, director, plot, performance of similar films, estimated film
rental costs and expected MPAA rating, as well as the demographic
characteristics of the market in which such film is to be exhibited. Successful
licensing depends greatly upon the knowledge of the tastes of residents in
markets served by each theatre.
Film distributors typically license each first-run film to only one theatre
in a given market area or "zone." The size of a film zone is generally
determined by the population density, demographics and grossing potential of a
particular market, and can range from a radius of a few miles in major
metropolitan areas to one or more towns in more suburban and rural areas. The
Company believes that its strategy of maintaining an extensive circuit of modern
state-of-the-art multi-screen theatres enhances its ability to aggressively
license commercially popular films from distributors. In film zones where Cobb
has no competition, it obtains film licenses by selecting a film from among
those offered and negotiates directly with the distributor. In film zones where
there is competition, a distributor will generally allocate its films among the
exhibitors in the zone. When films are licensed under the allocation process, a
distributor will decide on a picture-by-picture, theatre-by-theatre basis which
exhibitor will be offered a movie and then that exhibitor will negotiate
directly with the distributor for the film. In recent years, distributors have
generally used this allocation process rather than a bidding process to license
their films.
Film licenses typically provide that a film distributor receives a specified
percentage of the gross box office receipts, determined on a weekly basis, with
the percentage generally declining over time. Final terms of the film licenses
(and hence the film rental costs) with many film distributors are agreed upon
subsequent to exhibition of the film in a process known as "settlement." The
settlement process considers, among other things, the actual success of a film
relative to original expectations.
The Company's business is dependent upon availability of popular motion
pictures and upon its relationship with motion picture distributors. There are
nine major distributors whose films accounted for approximately 94.0% of the
domestic admission revenues and which distributed the top 75 grossing films in
1995. These distributors consist of Buena Vista Pictures Distribution (Disney),
Miramax, MGM/United Artists, New Line Cinema, Paramount Pictures, Sony Releases,
Twentieth Century Fox, Universal Film Exchanges, Inc. and Warner Bros.
Distribution. There are also numerous smaller distributors. No single
distributor dominates the market. From year to year, the Company's revenues
attributable to individual distributors may vary significantly depending upon
the commercial success of such distributor's films in any given year. Cobb
believes that it generally has good relationships with the film distributors.
MARKETING
Cobb relies upon advertisements and movie schedules published in newspapers
to inform its patrons of film titles and show times. Distributors promote
specific films through television and radio advertisements. In selected markets,
newspaper advertisements are often purchased jointly by film distributors and
Cobb upon the introduction of a major motion picture. Cobb also pays for
"directory" advertisements which display information on films at Cobb's theatres
within a geographic area. In addition to newspaper, radio, television and
directory advertisements, Cobb advertises through traditional previews and its
pre-performance slide program. "Now Playing" or "Coming Soon" spots promote
films playing or to be played on the Company's other screens in the same market
area.
47
<PAGE>
SYSTEMS
Cobb has made a significant commitment to its management information systems
in order to enhance further its ability to control costs. POS information
systems provide to corporate management by 8:00 a.m. each day detailed admission
and concession revenue information from the previous day. This information
allows management to make quick adjustments to movie schedules, prolonging runs
or adding screens for movies with higher gross revenues and substituting films
when gross revenues cease to meet goals. Real-time seating and box office
information is available to box office personnel, making it possible for theatre
management to avoid overselling a particular film and providing faster and more
accurate response to customer inquiries regarding showings and available
seating. The POS information system also tracks concession sales, which leads to
better inventory management and control.
Cobb's newest POS information system, Prysm, installed in 33% of the
existing theatres, reduces the time required to train new employees due to its
simplicity. Moreover, the touch screen technology associated with Prysm reduces
the possibility of error and improves customer service and control. Prysm,
together with the Company's existing POS systems in the balance of its theatres,
provides accurate and complete box office and concession information. The
Company is continuing to install Prysm in its existing theatres, and plans to
add it to all newly built or renovated theatres in the future.
Cobb has recently completed the installation of a new general ledger and
financial reporting system which management believes will enhance the Company's
ability to manage its financial operations.
FUTURE EXPANSION
Cobb continually evaluates existing and potential theatre locations in order
to increase profitability and maintain the Company's leadership position in
certain of its markets. Cobb generally seeks to develop or acquire theatres in
zones that are underscreened as a result of changing demographic trends or that
are served by aging theatre facilities. The Company targets theatre locations
with high visibility, proximity to retail establishments or entertainment venues
and convenient roadway access.
When constructing, expanding or acquiring new theatres, the Company also
evaluates the effect such additional screens will have on the Company's existing
theatres, if any, in such market. In many cases where the Company constructs a
new theatre in an existing market, it may choose to convert its existing
first-run theatre to second-run. By operating both first-run and second-run
theatres in a specific zone, the Company can exhibit a wide variety of films
that appeal to a broad base of customers.
In the future, Cobb will develop new theatres primarily with 16 to 24
screens in zones where the Company can be the sole or a leading exhibitor.
Management expects that Cobb's expansion for the foreseeable future will remain
focused primarily in Florida, where management believes it has extensive
knowledge of the grossing potential of film zones and the competitive
environment.
The Company currently expects to open five additional theatres (86 screens)
and expand six theatres (35 screens) by August 31, 1997. The Company anticipates
that the new theatres will be developed pursuant to operating leases. The
Company prefers to develop theatres as leasehold properties in order to preserve
the capital that would otherwise be required to develop fee-owned properties.
Fee-owned properties, including land, building and amenities, typically cost
four to five times as much to construct as leasehold properties cost to develop.
Cobb has historically developed, and plans to continue to develop, a significant
portion of new theatres by entering into long-term, triple net leases which
provide for the incurrence by the landlord of the construction costs of the
theatre (other than costs for furniture, fixtures and equipment) in exchange for
Cobb's entering into the lease. Generally, it takes 18 to 24 months to open a
new multi-screen theatre from the time that the Company commits to opening such
a theatre. Most new multi-screen theatres generate positive cash flow from the
time of opening or within a few months of opening and exhibit significant
increases in cash flow during the first 12 to 24 months. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Accomplishing the Company's future expansion goals will depend on a number
of factors, including the Company's ability to locate and lease acceptable sites
and to complete construction of new
48
<PAGE>
theatres in a timely manner and, if necessary, to obtain financing on attractive
terms. There is significant competition for potential site locations. As a
result of such competition, the Company may be unable to acquire attractive site
locations on terms it considers acceptable. See "Risk Factors-- Uncertainties
Relating to Future Expansion Plans."
COMPETITION
Cobb is subject to varying degrees of competition in the geographic areas in
which it operates. Cobb competes aggressively with respect to licensing films,
attracting patrons and obtaining new theatre sites. Cobb competes against local
and national exhibitors, some of whom have greater financial resources than the
Company.
In terms of film licensing, Cobb's management believes that the principal
competitive factors include licensing terms, grossing potential, seating
capacity, location and quality of an exhibitor's theatres. The competition for
patrons is dependent upon factors such as the availability of popular films, the
location of theatres, the comfort and quality of theatres and ticket prices.
Cobb believes that its admission prices are competitive with admission prices of
competing theatres.
Certain of Cobb's competitors have sought to expand the number of theatres
and screens in operation through aggressive building programs. Such expansion
has caused certain zones in which the Company operates or portions thereof to
become overscreened, although to date this has not adversely affected the
Company's business. Moreover, the theatre exhibition industry has undergone
significant consolidation, and as a result, at May 1, 1995, the ten largest
motion picture exhibitors operated approximately 50% of the total number of
screens in the United States.
Cobb's theatres face competition from a number of other motion picture
delivery systems, such as video cassette rentals, pay-per-view, pay television,
other basic cable television services and broadcast and syndicated television.
While the future impact of such delivery systems on the motion picture
exhibition industry is difficult to determine precisely, there can be no
assurance that such delivery systems will not have an adverse impact on the
Company's business. Management believes, however, that these delivery systems
are helpful in that they encourage more film production and enhance public
awareness of the Company's business. Cobb's theatres also face competition from
other forms of entertainment which compete for the public's leisure time and
disposable income.
PROPERTIES
As of February 29, 1996, the Company operated 70 theatre locations (581
screens), 57 of which (representing 494 screens) were first-run theatres and the
balance of which were second-run theatres. Of these 70 theatres, the Company
leased 64 theatres (507 screens) and owned 6 theatres (74 screens). The
Company's leases typically have initial terms of either 15 or 20 years, with
three to five five-year renewal options. Rents may escalate during the initial
term and almost always escalate during the renewal periods. During the next five
years, approximately 18 theatre leases (97 screens) will expire, 17 of which (95
screens) will be subject to renewal options. Rent escalations on lease options
are negotiated upon the signing of the lease. Leases have a minimum annual rent,
and provide for additional rental in the form of percentage rent based upon the
performance of the theatre. The Company leases its headquarters building located
in Birmingham, Alabama.
EMPLOYEES
At February 29, 1996, Cobb employed approximately 320 full-time employees
(including 55 full-time employees at the corporate and booking offices) and
1,314 part-time employees. Virtually all of the part-time employees are paid
entry level wages. The number of part-time employees fluctuates because of the
seasonal nature of Cobb's business. At February 29, 1996, no employees were
represented by union organizations. The Company considers its employee relations
to be good.
REGULATORY ENVIRONMENT
The distribution of motion pictures is in large part regulated by federal
and state antitrust laws and has been the subject of numerous antitrust cases.
R.C. Cobb, Inc., along with a number of other film
49
<PAGE>
exhibitors, entered into a consent decree in May 1985, pursuant to which it
agreed not to engage in certain then-prevalent practices in Birmingham,
Huntsville and Tuscaloosa, Alabama. The limitations placed on the Company by
this decree have not materially affected its business. Cobb's licensing
operations are subject to certain decrees entered into by other exhibitors.
Consent decrees resulting from such cases apply to certain major film
distributors and require the films of such distributors to be offered and
licensed to exhibitors, including Cobb, on a theatre-by-theatre basis.
Consequently, exhibitors such as Cobb cannot assure themselves of a supply of
films by entering into long-term arrangements with major distributors, but must
instead compete for licenses on a film-by-film and theatre-by-theatre basis.
The Americans With Disabilities Act (the "Disabilities Act") prohibits
discrimination on the basis of disability in public accommodations and
employment. The Disabilities Act became effective as to public accommodation in
January 1992 and as to employment in July 1992. Because of the recent
effectiveness of the Disabilities Act and the absence of comprehensive
regulations thereunder, the Company is unable to predict precisely the extent to
which the Disabilities Act will impact its business. However, the Company
currently develops new theatres to be accessible to the disabled and believes
that it is otherwise in substantial compliance with all current regulations
relating to accommodations for the disabled. The Company intends to comply with
future regulations relating to accommodating the needs of the disabled, and the
Company does not currently anticipate that it will be adversely affected by such
expenditures.
LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of its business operations, such as personal
injury claims, employment matters and contractual disputes. Management believes
that Cobb's potential liability with respect to proceedings currently pending is
not material in the aggregate to Cobb's consolidated financial position or
results of operations.
R.C. Cobb, Inc., presently has an informal appeal pending with the Florida
Department of Revenue ("DOR") that is related to the result of a sales tax audit
for the period July 1, 1989, through July 31, 1993, and a proposed assessment
for that period in the amount of $3,028,203 which represents assessed sales tax,
penalties and accrued interest. The dispute relates to intercompany payments
paid pursuant to a Concession Lease Agreement between R.C. Cobb, Inc. and R&J
Concessions, Inc. ("R&J"). Proper sales tax was collected by R.C. Cobb, Inc.,
and paid at the point of sale of concessions to theatre patrons. Under Chapter
212, Florida Statutes, payments for a lease or license to use real property are
generally subject to sales tax. With regard to theatre concessions, however,
only licenses to use real property are subject to sales tax, while leases are
exempt from sales tax. The DOR has taken the position that certain payments made
by R&J to R.C. Cobb, Inc. under the written concession agreement constitute
payments for the license (as opposed to a lease) to use the theatre premises.
R.C. Cobb, Inc., in its appeal to the Bureau of Hearings and Appeals ("DOR-BHA")
dated June 26, 1995, has taken the position that no part of the payments it
received from R&J are for the right to use or possess real property.
Although the DOR-BHA has acknowledged receipt of the appeal, no response to
the appeal has been received. R.C. Cobb, Inc. will be afforded a conference and
an administrative hearing prior to the disposition by DOR-BHA. In the event R.C.
Cobb, Inc. is dissatisfied with the resolution reached at DOR-BHA, R.C. Cobb,
Inc. has the option to file a de novo action in the Circuit Court of Florida,
which is a court of original jurisdiction. Alternatively, in the event R.C.
Cobb, Inc. elects to remain in administrative law channels, it may file an
appeal from the DOR-BHA to the Division of Administrative Hearings for the State
of Florida. An appeal at the Division of Administrative Hearings would be heard
by a State of Florida Hearing Officer, and an appeal from that officer's
decision, if necessary, would go directly to the State appellate court system.
See "--Regulatory Environment" for a discussion of certain consent decrees
relating to compliance with antitrust laws to which a subsidiary of the Company
is a party.
50
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF COBB
The following table sets forth certain information with respect to the
directors and executive officers of Cobb. Each of the persons named below is
elected to his respective office or offices annually. The Indenture requires
that the Company add at least one additional member to its Board of Directors,
who will be an Independent Board Member (i.e., an individual who is neither an
officer nor an employee of the Company, any Subsidiary of the Company or any of
their respective Affiliates), no later than 120 days after the completion of the
Offering.
<TABLE>
<CAPTION>
POSITION
NAME AGE WITH THE COMPANY
- ----------------------------- --- -------------------------------------------------------
<S> <C> <C>
Rowland C. Cobb, Jr.......... 74 Chairman of the Board
Robert M. Cobb............... 46 President, Chief Executive Officer and Director
Jefferson R. Cobb............ 41 Executive Vice President, Secretary/Treasurer and
Director
Ricky W. Thomas.............. 38 Senior Vice President and Chief Financial Officer
Stephen L. Colson............ 49 Senior Vice President--Operations
Gary Golden.................. 47 Senior Vice President--Booking and Film Buying
</TABLE>
Rowland C. Cobb, Jr. served as Chairman of the Board and Chief Executive
Officer of R.C. Cobb, Inc. until December 1, 1995, when he was succeeded as
Chief Executive Officer by Robert M. Cobb, and will serve as Chairman of the
Board of the Company. Mr. Cobb began working in the theatre business started by
his grandfather. After graduating from the University of Alabama in 1943 with a
Bachelor of Arts degree and serving as an officer in the Navy from 1943 to 1946,
Mr. Cobb served as the film buyer and manager for Richards Theatres, a family
owned theatre business. In 1947, Mr. Cobb assumed control of his family's
business, and in 1957, he formed R.C. Cobb, Inc. He has held virtually every
operational and managerial position within R.C. Cobb, Inc. or its predecessors
and continues to oversee Cobb's operations.
Robert M. Cobb has served as Director, President and Chief Operating Officer
of R.C. Cobb, Inc. and R&J Concessions, Inc. since 1992, and of Cobb Theatres
II, Inc. from its inception in 1994. He has served as President and Chief
Executive Officer of the Cobb Theatres Group since December 1, 1995, and serves
as President, Chief Executive Officer and Director of the Company. He began
working in R.C. Cobb, Inc.'s theatres in the late 1950's. After graduating from
the University of Alabama in 1972 with a Bachelor of Science degree in Business,
he joined the Company and has held positions as usher, theatre manager, division
manager, film buyer and executive vice president.
Jefferson R. Cobb has served as Director, Executive Vice President and
Secretary/Treasurer of R.C. Cobb, Inc. and R&J Concessions, Inc. since 1992, and
Cobb Theatres II, Inc. from its inception in 1994. He serves as Director,
Executive Vice President and Secretary/Treasurer of the Company. Mr. Cobb is
responsible for the development of all theatre properties and is involved in the
administration of all other aspects of the business. He began working in the
Company's theatres in the mid-1960's and graduated from the University of
Mississippi in 1976 with a Bachelor of Science degree in Business and a minor in
Marketing. Mr. Cobb held several positions in theatre operations, later moving
into the financial and real estate procurement areas.
Ricky W. Thomas has served as Senior Vice President and Chief Financial
Officer of the Cobb Theatres Group since December 1, 1995 and serves as Senior
Vice President and Chief Financial Officer of the Company. From August 1993 to
November 1995, Mr. Thomas was employed by AmSouth Bancorporation, a $17 billion
bank holding company located in Birmingham, Alabama, most recently as Senior
Vice President and Controller. From November 1991 to July 1992, he served as
Treasurer of Brice Building Company, Inc. Prior thereto, he served as Chief
Financial Officer of Tricare Rehabilitation Systems, Inc. Mr. Thomas also has
nine years of public accounting experience with Coopers & Lybrand and is a
Certified Public Acountant. Mr. Thomas has a Bachelor of Science degree in
Accounting from Auburn University and a Masters degree from the University of
Alabama.
51
<PAGE>
Stephen L. Colson has served as Senior Vice President--Operations of the
Cobb Theatres Group since December 1, 1995 and serves as Senior Vice
President--Operations of the Company. Mr. Colson is responsible for theatre
operations, concessions, advertising and technical services. From 1992 to 1994,
Mr. Colson served as President, Chief Operating Officer and Director of
Litchfield Theatres, a theatre chain which operated approximately 24 theatres
(172 screens) in six states. Prior to serving as a theatre industry consultant
during 1991 and 1992, he served as Vice President--Operations with GC Companies,
Inc. (formerly known as General Cinema) for eight years and was responsible for
the operations of 92 theatres (over 400 screens) with revenues exceeding $100
million. Mr. Colson has a Masters degree in Business from Armstrong College. Mr.
Colson served six years in the U.S. Army, graduated from the Army Officers
Advanced Course and served in the U.S. Army's Special Forces.
Gary Golden is Senior Vice President--Booking and Film Buying of the Cobb
Theatres Group, a position he has held since March 1996, and serves the Company
in this capacity managing Cobb's booking department. On a daily basis he
maintains communications and negotiations with all film distribution companies
relating to film rentals and bookings. Mr. Golden's film industry experience
dates from 1968 when he began working in the booking department of United
Artists. He later held Head Booker/Film Buyer positions with Cinerama, Pacific
Theatres, Commonwealth Theatres, General Cinema and AMC. He was Vice
President--Head Film Buyer for Gulf States Theatres for six years. In 1988 he
became the Regional Vice President--Film for General Cinema and most recently
became associated with the Cobb Theatres Group.
Rowland C. Cobb, Jr. is the father of Robert M. Cobb and Jefferson R. Cobb.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual salary, bonuses and all other
compensation awards and payouts to the Chief Executive Officer and the named
executive officers of the Company for the fiscal years ended August 31, 1995,
1994 and 1993.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER
ANNUAL
NAME AND SALARY BONUS COMPENSATION
POSITION YEAR ($) ($) ($)
- ------------------------------------------------------ ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Rowland C. Cobb, Jr................................... 1995 423,544 -- 17,157
Chairman of the Board 1994 342,321 496,000(a) 16,965
1993 306,765 8,827 17,753
-------------------------------------------
Robert M. Cobb........................................ 1995 328,015 -- 37,567
President and Chief Executive Officer 1994 193,481 461,091(b) 30,848
1993 178,968 344,099(c) 23,902
-------------------------------------------
Jefferson R. Cobb..................................... 1995 328,015 -- 34,297
Executive Vice President and Secretary/Treasurer 1994 193,481 461,091(b) 22,425
1993 178,572 344,109(c) 21,758
-------------------------------------------
Jerry Brand (d)....................................... 1995 142,748 -- 79,471
Senior Vice President--Booking and Film Buying 1994 133,350 25,000 1,437
1993 125,920 3,588 1,335
-------------------------------------------
Milt Daly (e)......................................... 1995 118,800 -- 1,369
Senior Vice President--Operations 1994 110,000 25,000 1,273
1993 100,500 2,902 1,225
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Executive bonus in 1994 was non-cash and related to the foregiveness of debt owed by
Rowland C. Cobb, Jr. to R.C. Cobb, Inc.
(b) Executive bonuses in 1994 enabled the recipients initially to capitalize Cobb Theatres
II, Inc. for the purpose of the Wometco Acquisition.
(c) Executive bonuses in 1993 enabled the recipients to reduce debts that arose from the
dissolution of a company owned by Robert M. Cobb and Jefferson R. Cobb.
(d) Mr. Brand resigned in March 1996.
(e) Mr. Daly resigned in November 1995.
</TABLE>
52
<PAGE>
401(K) PLAN
The Company maintains a 401(k) Employee Capital Accumulation Plan to which
its eligible employees may make discretionary tax-deductible annual
contributions in amounts not exceeding the lesser of 15% of the employee's
compensation or the limit specified annually under the applicable tax
regulations in light of cost of living adjustments. The Company may make
discretionary matching contributions to the Plan for the benefit of its
employees in any year. National Bank of Commerce of Birmingham serves as Trustee
of the Plan's assets.
The Company also maintains a Flexible Benefit Plan (Cafeteria Plan) under
which eligible employees may select various health and accident insurance
benefit options which are funded by employee payroll deductions.
COMPENSATION OF DIRECTORS
The Company currently pays no additional remuneration to its employees (or
employees of, or legal counsel to, any subsidiary) for serving as directors.
Upon the appointment of one or more independent directors following the Exchange
Offer, the Company will compensate such independent director or directors with a
fee to be determined.
MANAGEMENT MATTERS
There are no arrangements or undertakings known to the Company between any
of the Directors, nominees for Director or executive officers of the Company and
any other person pursuant to which any such person was or is to be elected as a
Director or an executive officer.
Directors are elected annually at the Annual Meeting of Equityholders of the
Company and hold office until the next Annual Meeting and until their successors
are elected and qualified. Officers are elected annually by the Board of
Directors and serve at the discretion of the Board of Directors.
In November 1995, the Company's then Senior Vice President-Operations, Milt
Daly, and Chief Financial Officer, David Clifford, ceased to be employed by the
Company. They were succeeded on December 1, 1995 by Ricky W. Thomas, Senior Vice
President and Chief Financial Officer, and Stephen L. Colson, Senior Vice
President--Operations.
PRINCIPAL EQUITYHOLDERS
Following the Formation Transactions, as of March 6, 1996, the Company owns
all of the issued and outstanding shares of the capital stock of R.C. Cobb,
Inc., Cobb Theatres II, Inc. and Finance Corp. See "Formation Transactions." In
the Formation Transactions, each of Rowland C. Cobb, Jr., Robert M. Cobb and
Jefferson R. Cobb contributed to the capital of the Company all of the shares of
the capital stock of R.C. Cobb, Inc. and Cobb Theatres II, Inc. in the following
percentages:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
R.C. COBB, INC. COBB THEATRES II, INC.
EQUITYHOLDERS CONTRIBUTED CONTRIBUTED
- ---------------------------------------------- --------------- ----------------------
<S> <C> <C>
Rowland C. Cobb, Jr........................... 46% --
Robert M. Cobb................................ 27% 50%
Jefferson R. Cobb............................. 27% 50%
</TABLE>
One percent of the ownership interests of each of Robert M. Cobb and
Jefferson R. Cobb in the Company is held by each of two revocable trusts, one
naming Robert M. Cobb as trustee and one naming Jefferson R. Cobb as trustee,
for the benefit of their respective spouses and children. Each equityholder's
interest in the Company, including capital, profits, losses and distributions
(as defined in the Operating Agreement) initially shall be identified
specifically with the shares of capital stock contributed by such equityholder
to the Company. Each equityholder shall be credited with the capital associated
with such shares and shall be credited and/or charged with the profits, losses
and distributions made with respect to those shares of stock for so long as such
shares are owned by the Company. See "The Operating Agreement."
53
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
R.C. Cobb, Inc. leases three theatres from Tricob, a general partnership in
which Cobb family members are partners or beneficiaries. The related rent
expense for these theatres amounted to approximately $985,000, $941,000 and $1.0
million in fiscal years 1993, 1994 and 1995, respectively. The rental rates
under these leases are $12.52, $20.40 and $7.62 per square foot, respectively,
and may expire in 2006, 2011 and 2006, respectively. Amounts payable by
the Company at August 31, 1995 under these leases amounted to approximately
$115,000. The Company has a loan to Tricob with a balance of approximately
$407,000 as of August 31, 1995. The loan currently has an interest rate of 6.35%
and matures in October 2003.
R.C. Cobb, Inc. is a guarantor for aggregate indebtedness of Tricob of
approximately $3.6 million as of August 31, 1995. This indebtedness has a final
maturity of March 16, 1999 and is secured by a theatre located in Port
Charlotte, Florida owned by Tricob and leased to R.C. Cobb, Inc. The Company has
not succeeded to the obligations of R.C. Cobb, Inc. as guarantor with respect to
such indebtedness. Tricob and R.C. Cobb, Inc. also had cross-default provisions
with respect to indebtedness of R.C. Cobb, Inc. relating to the Hollywood 16
Theatre in Huntsville, Alabama owned by R.C. Cobb, Inc. and indebtedness of
Tricob relating to the Madison Square 12 and the Cinema Center 8 theatres, each
located in Huntsville, Alabama and owned by Tricob. The mortgage relating to the
Company's Hollywood 16 Theatre in Huntsville, Alabama and the cross-default
provisions related to that mortgage were terminated in connection with the
Offering. However, the personal property of R.C. Cobb, Inc. located at the
Madison Square 12 and Cinema Center 8 theatres in Huntsville continues to be
subject to a prior perfected security interest in favor of National Bank of
Commerce and AmSouth Bank, N.A.
R.C. Cobb, Inc. leases office and warehouse facilities from Rowland C. Cobb,
Jr., an owner of R.C. Cobb, Inc. and its Chairman. The related rent expense
amounted to approximately $243,000, $509,000 and $233,000 in fiscal years 1993,
1994 and 1995, respectively. The rental rates under these leases, which expire
in 2006 and 1999, are $15.00 per square foot for the office space and $7.20
per square foot for the warehouse space.
The amount payable by R.C. Cobb, Inc. at August 31,
1995 under these leases amounted to approximately $22,000.
R.C. Cobb, Inc. has an agreement with Sipsey River, Inc., a corporation
owned by Rowland C. Cobb, Jr., to provide aircraft services, i.e. the use of a
private aircraft with pilots and related services. The fees for such services
amounted to approximately $238,000 in fiscal years 1993 and 1994 and $335,000 in
fiscal 1995. The amount prepaid by R.C. Cobb, Inc. under this agreement amounted
to approximately $12,000 at August 31, 1995. The Company intends to continue
using these services.
Management believes that each of the transactions described above was
entered into on similar terms to those that would have resulted if such
transaction had been entered into on an arms-length basis with an unaffiliated
third party. See Note 3 of the Notes to the Combined Financial Statements of the
Company included elsewhere herein. The terms of such transactions will not be
presented for approval to the new independent member to be appointed to the
Company's Board of Directors.
THE OPERATING AGREEMENT
GENERAL
The rights and obligations of the equityholders of the Company (the
"Members") are governed by an agreement (the "Operating Agreement") entered into
concurrent with the Offering. Pursuant to the Alabama Limited Liability Company
Act and the Operating Agreement of the Company, the Members chose a mode of
ownership interest in the Company which equates such ownership interest to the
then current value of the property contributed to the Company by such Member,
rather than a percentage interest in the Company, thus allowing the owners'
interest in the subsidiaries to be "tracked". Each Member's interest in the
Company, including the capital, profits, losses and distributions, initially
shall be identified specifically with the shares of stock of R.C. Cobb, Inc. and
Cobb Theatres II, Inc. (each a "Corporation" and together, the "Corporations")
contributed by that Member in exchange for his respective interest in the
Company, rather than with a percentage interest in the Company. Each Member
shall be credited with the capital associated with such shares initially
recorded on the
54
<PAGE>
Company's books of account. Each Member shall also be credited and/or charged
with the profits, losses and distributions made with respect to or in respect of
those shares of stock at any time while they are owned by the Company. Each
Member shall be credited or charged with any gain or loss on any capital
transaction, sale, exchange or other disposition of such shares of stock and
with the proceeds of property received in exchange for such shares of stock in
any transaction. Each Member's interest shall be adjusted from time to time to
take into account subsequent contributions to and all distributions from the
Company, and sales or other transfers of all or a part of such Member's
interest. Accordingly, each Member's ownership interest in the Company is not
susceptible to a calculation which reflects such Member's interest in the
Company as a percentage interest in the Company.
Each Member has contributed to the capital of the Company the following
property:
<TABLE>
<CAPTION>
SHARES OF STOCK COMPRISING
THE FOLLOWING PERCENTAGES
MEMBER OF THE COMPANY
- ------------------------------------------ ------------------------------
<S> <C>
Rowland C. Cobb, Jr....................... 46% of R.C. Cobb, Inc.
Robert M. Cobb............................ 50% of Cobb Theatres II, Inc.
27% of R.C. Cobb, Inc.
Jefferson R. Cobb......................... 50% of Cobb Theatres II, Inc.
27% of R.C. Cobb, Inc.
</TABLE>
One percent of the ownership interests of each of Robert M. Cobb and
Jefferson R. Cobb in the Company is held by each of two revocable trusts, one
naming Robert M. Cobb as trustee and one naming Jefferson R. Cobb as trustee,
for the benefit of their respective spouses and children. The rights and
interests of the Members of the Company set forth below are subject in each case
to any restrictions contained in the agreements relating to the Offering and the
New Credit Facility. See "Principal Equityholders."
Voting Rights. The Company is managed by a board (the "Board") of managers
(the "Managers") consisting of Rowland C. Cobb, Jr., Robert M. Cobb, and
Jefferson R. Cobb. Rowland C. Cobb, Jr. is the Chairman of the Board and Robert
M. Cobb is the Chief Executive Officer of the Company. The Indenture requires
that from or after the earlier of 30 days after consummation of the Exchange
Offer or 120 days after the closing of the Offering, one or more additional
independent Managers will be appointed and will serve as Managers so long as any
of the Senior Secured Notes are outstanding. The Managers will be elected
annually by the Members on a cumulative basis as provided in the Operating
Agreement. Subject to the prior rights of the Company's creditors, including but
not limited to, the restrictions contained in the Indenture and the New Credit
Facility, each Member shall have the right to direct the Managers in all
respects concerning voting of all capital stock of the Corporations. The Members
shall direct the Managers to vote the same number of shares of stock in each
Corporation which the Member held before the transfer of title to the stock to
the Company. So long as not prohibited by the terms and conditions of the
agreements relating to borrowings by the Company, the managers shall vote the
stock of each Corporation in accordance with the direction of those Members who
held stock in each respective Corporation immediately prior to the assignment of
stock of the Company. The directors of each Corporation so elected shall operate
and manage each respective entity in accordance with and with full rights and
authority under applicable law.
Dividend and Other Income. Subject to the prior rights of the Company's
creditors, including but not limited to the restrictions contained in the
Indenture and the New Credit Facility, with respect to any dividends or other
income paid to the Company from either Corporation, the Company shall make a
distribution to the Members. Each Member shall receive a distribution from the
Company with respect to such income in proportion to the number of shares of
stock in such Corporation which the Member held before transfer of title to the
stock to the Company. Such distribution shall be made promptly after receipt of
such income by the Company.
55
<PAGE>
Rights to Extraordinary Distributions. Subject to the prior rights of the
Company's creditors, including but not limited to the restrictions contained in
the Indenture and the New Credit Facility, in the event either Corporation makes
a distribution to the Company in redemption of stock, dissolution or liquidation
of the Corporation, or resulting from any other extraordinary event relating to
the Corporation, the Company shall make a distribution to the Members. Each
Member shall receive a distribution from the Company equal to his proportionate
share of such extraordinary distribution. Such distribution shall be made
promptly after receipt of such income by the Company.
Distributions Relating to Income Taxes. Subject to the prior rights of the
Company's creditors, including but not limited to the restrictions contained in
the Indenture and the New Credit Facility, the Company will be required to
distribute to the Members each year an amount (the "Tax Amount") equal to the
Company's taxable income multiplied by the sum of the highest federal individual
tax rate for that year plus the highest Alabama individual tax rate for that
year, plus any additional income tax liability incurred by the Members as a
result of the reporting of the Company's income, deductions, gains or losses on
the Members' federal or state income tax returns.
Rights to Proceeds of Sale of Stock. Subject to the prior rights of the
Company's creditors, including but not limited to the restrictions contained in
the Indenture and the New Credit Facility, in the event the capital stock of
either Corporation is sold or exchanged, the Company shall make a distribution
to the Members. Each Member shall receive a distribution from the Company equal
to his proportionate share of the net proceeds or consideration received in such
sale. Such distribution shall be made promptly after receipt of such income by
the Company.
Other Rights and Interests. It is the intent of the parties to the Operating
Agreement that no reallocation of value among the shareholders of the
Corporation or the subsidiaries of the Company or among the Members shall result
from the organization of the Company, the Offering, the Exchange Offer, the New
Credit Facility or the transfer of capital stock by the Members to the Company.
If such a reallocation occurs through inadvertence, the parties shall take such
action as necessary, subject to the prior rights of the Company's creditors,
including but not limited to the restrictions contained in the Indenture and the
New Credit Facility to avoid any such transfer of value or to restore any Member
to the relative economic and beneficial rights he held before the formation of
the Company, subject in all events to any restrictions contained in the
agreements relating to the Offering, the Exchange Offer and the New Credit
Facility. Such action may include amendment of the Operating Agreement,
assignment of interest in the Company or any other action necessary to
accomplish this intended result. Subject to the prior right of the Company's
creditors and to restrictions contained in the Company's borrowing agreements,
the parties each agree to promptly take any action and execute any documents or
instruments necessary to accomplish this intended result.
AMENDMENT OF COMPANY OPERATING AGREEMENT
The Operating Agreement may be modified, altered, changed or amended in
accordance with the Alabama Limited Liability Company Act (the "Act"), provided,
however, that the Operating Agreement may not be amended as to matters which
would: (i) change adversely any Member's rights and interests in the income,
expenses, gains, losses or income tax allocations of the Company; (ii) change
any Member's rights with respect to liquidation of the Company without the
unanimous affirmative vote of the Members; or (iii) cause the Company to violate
the terms of the Indenture or the New Credit Facility.
TERMINATION AND DISSOLUTION
Subject to the prior rights of the Company's creditors, including but not
limited to the restrictions contained in the New Credit Facility, the existence
of the Company shall terminate and the Company shall be dissolved: (i) on
December 31, 2046, if not terminated earlier pursuant to clause (ii), (iii) or
(iv)
56
<PAGE>
below; (ii) upon the written consent of all the Members; (iii) as provided in
the Operating Agreement; or (iv) as may be required by the Act, as the same may
be amended from time to time.
The Company shall be dissolved and its affairs shall be wound up upon the
occurrence of any of the following: (i) termination of the Company as set forth
in the immediately preceding paragraph; (ii) an event of dissociation of a
Member unless there are two remaining Members or at least one remaining Member
and a new Member is admitted and the legal existence and business of the Company
is continued by a written consent of a majority in interest of the remaining
Members for 90 days after the occurrence of the event of dissociation; or (iii)
entry of a decree of judicial dissolution.
Upon the dissolution and winding up of the affairs of the Company, the
assets of the Company shall be distributed or sold for cash and any gain or loss
resulting therefrom shall be allocated among the Members as provided in the
Operating Agreement, subject to the prior rights of the Company's creditors.
Such proceeds of the Company shall be distributed in the following order of
priority: (i) to creditors (including Members who are creditors) in satisfaction
of the liabilities of the Company (other than liabilities to existing and former
members for distributions from the Company); (ii) to existing and former Members
in satisfaction of liabilities to them, if any, for distributions from the
Company; and (iii) any remaining assets shall be distributed to Members in
accordance with their interests as set forth in the Operating Agreement, as the
same may be amended from time to time.
57
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
INDEBTEDNESS REPAID WITH THE PROCEEDS OF THE OFFERING
Existing Credit Facilities. Under the Company's previous credit agreement
with the First National Bank of Boston, as agent, the Company had credit
facilities (the "Existing Credit Facilities") that included a total of $52.7
million of senior term loans and a total of $11.0 million of seasonal working
capital revolvers. The interest rates varied according to certain formulas based
on various London interbank offered rate ("LIBOR") indices and based upon
various margins over The First National Bank of Boston's base rate. Rates were
last determined based upon a margin over the base rate. Approximately $58.3
million of total indebtedness under the Existing Credit Facilities was
outstanding as of February 29, 1996.
Senior Subordinated Notes. On September 21, 1995, the Company issued $10.0
million aggregate principal amount of Senior Subordinated Notes to First Union
Corporation, an affiliate of one of the Initial Purchasers. The Senior
Subordinated Notes, bore interest at a rate of 12.0%.
Other Loans. The Company had outstanding approximately $8.7 million of other
Indebtedness with various lenders as of February 29, 1996. These loans bore
interest at rates ranging from 9.25% to 10.5% and had a final maturity of June
1, 2000.
OTHER INDEBTEDNESS
Upon completion of the Offering, the following indebtedness of the Company,
other than the Senior Secured Notes, became available (in the case of the New
Credit Facility) or outstanding (in the case of all other debt described
hereunder):
New Credit Facility. Concurrent with the Offering, the Company entered into
the New Credit Facility with First Union National Bank of North Carolina, as
agent for itself and other potential lenders (the "Agent"). The New Credit
Facility consists of a seasonal revolving loan facility in the aggregate
commitment amount of $12.5 million (the "Seasonal Revolver") and a reducing
revolving loan facility in the aggregate commitment amount of $12.5 million (the
"Reducing Revolver," and together with the Seasonal Revolver, the "Facilities").
The New Credit Facility has a final maturity of November 30, 2000.
Subject to compliance with the terms of the New Credit Facility, management
estimates that approximately $11.0 million under the Seasonal Revolver was
available at the time of the Offering. The Company will have access to the
Reducing Revolver if its ratio of net debt to EBITDA (calculated on a pro forma
basis after giving effect to such borrowing) is less than (i) 4.5 to 1.0, with
respect to the first $7.0 million and (ii) 4.25 to 1.0, with respect to the
remaining $5.5 million.
58
<PAGE>
Commencing February 28, 1998, availability under the Reducing Revolver will
be permanently reduced by the following amounts on the corresponding dates as
follows:
<TABLE>
<CAPTION>
OUTSTANDING
REDUCING
AMOUNT OF REVOLVER
DATE REDUCTION COMMITMENT
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
February 28, 1998...................................... $ 625,000 $11,875,000
May 31, 1998........................................... 625,000 11,250,000
August 31, 1998........................................ 625,000 10,625,000
November 30, 1998...................................... 625,000 10,000,000
February 28, 1999...................................... 1,093,750 8,906,250
May 31, 1999........................................... 1,093,750 7,812,500
August 31, 1999........................................ 1,093,750 6,718,750
November 30, 1999...................................... 1,093,750 5,625,000
February 29, 2000...................................... 1,406,250 4,218,750
May 31, 2000........................................... 1,406,250 2,812,500
August 31, 2000........................................ 1,406,250 1,406,250
November 30, 2000...................................... 1,406,250 -0-
-----------
Total Reductions $12,500,000
-----------
-----------
</TABLE>
Obligations under the Facilities are guaranteed (the "Guaranty Agreement")
by the Company's current and any future subsidiaries. The Facilities and the
Guaranty Agreement are secured by all of the equity interests of all the
Company's current and future subsidiaries, a pledge of all current and future
intercompany indebtedness and liens on all other assets of subsidiaries (other
than interests in real property). The security under the Facilities rank pari
passu with the security under the Senior Secured Notes.
At the Company's option, the interest rates per annum applicable to the
Facilities will be a fluctuating rate of interest measured by reference to
either: (a) an adjusted London inter-bank offered rate ("LIBOR") plus a
borrowing margin or (b) the base rate of the Agent for the Facilities (the "Base
Rate") (which is based on the higher of the Agent's published prime rate or
overnight federal funds rate plus 0.50%) plus a borrowing margin. The applicable
borrowing margin for such loans will vary, based on the Company's ratio of net
debt to EBITDA from 1.625% to 3.125% with respect to LIBOR borrowings and from
0.375% to 1.875% with respect to Base Rate borrowings. Amounts under the
Facilities not paid when due bear interest at a default rate of 2.0% above the
otherwise applicable rate.
In connection with the New Credit Facility, the Company paid certain fees to
the Agent, including a commitment fee, a facilities fee paid at the closing and
has agreed to pay an annual administrative fee. The Company also has agreed to
pay commitment fees in respect of the Facilities based on the unused portion of
the New Credit Facility.
The New Credit Facility contains a number of covenants that, among other
things, restrict the ability of the Company to incur additional debt, create
certain liens, make certain investments (including certain capital
expenditures), pay dividends or make other distributions, sell assets of the
Company or its subsidiaries, issue or sell equity interests of the Company's
subsidiaries or enter into certain mergers or consolidations. Under the New
Credit Facility the Company will be required to comply with specified financial
ratios, including maximum net debt to EBITDA and minimum interest coverage and
fixed charge coverage ratios. In addition, the New Credit Facility provides that
the commitment thereunder will be reduced by the amount in excess of $5 million
of proceeds from asset sales.
59
<PAGE>
The New Credit Facility also contains provisions that will prohibit any
modification of the Indenture in any material respect, and which would prohibit
the Company from repurchasing Senior Secured Notes in the event of a change of
control or with the proceeds of any asset sale.
The New Credit Facility contains customary events of default including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties in any material respect, cross default and cross
acceleration to certain other indebtedness, bankruptcy, material judgments and
liabilities and change of control.
Interest Rate Swap Agreement. Cobb Theatres II, Inc. had a two-year interest
rate swap agreement having a notional principal amount of $12.0 million which
matured in May 1996. The agreement effectively fixes the interest rate on the
variable rate debt starting at 5.30% at May 9, 1994 and incrementally increasing
to 7.4525% on May 9, 1996.
Capitalized Leases. The Company has obligations under various capital leases
that expire during the next five years for equipment with a net book value of
approximately $1.9 million as of February 29, 1996.
Guarantees. R.C. Cobb, Inc. is the Guarantor of approximately $3.5 million
of indebtedness of an affiliate. This indebtedness is secured by a first
priority mortgage on a theatre in Port Charlotte, Florida owned by the affiliate
and leased to R.C. Cobb, Inc. In addition, approximately $3.4 million of
Indebtedness of an affiliate was secured by a second mortgage on the Company's
Hollywood 16 Theatre located in Huntsville, Alabama. In March of 1996, that
second mortgage was released and the Company no longer secures or guarantees the
$3.4 million of affiliate debt in Huntsville, Alabama. See "Certain
Relationships and Related Transactions."
60
<PAGE>
DESCRIPTION OF NEW SENIOR SECURED NOTES
GENERAL
The New Senior Secured Notes will be issued pursuant to an Indenture (the
"Indenture") among the Company, Finance Corp. and IBJ Schroder Bank & Trust
Company, a New York banking corporation, as trustee (the "Trustee"). The terms
of the Senior Secured Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Senior Secured Notes are subject to all such terms,
and Holders of Senior Secured Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. The New Senior Secured Notes and the Original Senior
Secured Notes, to the extent that their terms are identical are sometimes
referred to together in this Prospectus as the "Senior Secured Notes." A copy of
the Indenture and Registration Rights Agreement is available as set forth under
"-- Available Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
The Senior Secured Notes will rank senior in right of payment to all
subordinated Indebtedness of the Issuers. The Senior Secured Notes will rank
pari passu in right of payment with all senior borrowings of the Issuers,
including borrowings of the Company under the New Credit Facility. The Senior
Secured Notes are guaranteed on a senior basis by each of the Company's current
and future Subsidiaries (the "Subsidiary Guarantees"). The Senior Secured Notes
are secured on an equal and ratable basis with all Obligations of the Company
under the New Credit Facility by a first priority pledge of the Equity Interests
of the Subsidiaries of the Company and all intercompany notes held by the
Company or any of its Subsidiaries. The Subsidiary Guarantees are secured on an
equal and ratable basis with the Subsidiary Guarantees of all Obligations of the
Company under the New Credit Facility by a security interest in all of the
assets (other than real property) of the Company's Subsidiaries. See
"--Security."
Finance Corp. was formed in connection with the Offering and has no
operations and no material assets. The Company is a holding company and has no
material operations or assets other than its 100% interest in the capital stock
of each of the Subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The Senior Secured Notes are limited in aggregate principal amount to $85.0
million and will mature on March 1, 2003. Interest on the Senior Secured Notes
will accrue at the rate of 10 5/8% per annum and will be payable semi-annually
in arrears on March 1 and September 1, commencing on September 1, 1996, to
Holders of record on the immediately preceding February 15 and August 15.
Interest on the Senior Secured Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest and
Liquidated Damages, if any, on the Senior Secured Notes will be payable at the
office or agency of the Issuers maintained for such purpose within the City and
State of New York or, at the option of the Issuers, payment of interest and
Liquidated Damages may be made by check mailed to the Holders of the Senior
Secured Notes at their respective addresses set forth in the register of Holders
of Senior Secured Notes; provided that all payments with respect to Global Notes
and Certificated Securities the Holders of whom have given wire transfer
instructions to the Issuers will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Issuers, the Issuers' office or agency in New
York will be the office of the Trustee maintained for such purpose. The Senior
Secured Notes will be issued in denominations of $1,000 and integral multiples
thereof.
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SUBSIDIARY GUARANTEES
The Company's payment obligations under the Senior Secured Notes have been
jointly and severally guaranteed by the Guarantors pursuant to the Subsidiary
Guarantees. The obligations of each Guarantor under its Subsidiary Guarantee
will be limited so as not to constitute a fraudulent conveyance under applicable
law (see "Risk Factors--Fraudulent Conveyance Matters"), but will otherwise
constitute full and unconditional obligations of each respective Guarantor.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture and appropriate Collateral Documents in form and
substance reasonably satisfactory to the Trustee, under the Senior Secured
Notes, the Indenture and the Collateral Documents; (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists; and (iii)
except in the case of a merger of such Guarantor with or into the Company or
another Guarantor, (A) such Guarantor, or any Person formed by or surviving any
such consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction) equal to or greater than the
Consolidated Net Worth of such Guarantor immediately preceding the transaction
and (B) the Company would be permitted to incur, immediately after giving effect
to such transaction, at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described below under
the caption "--Incurrence of Indebtedness and Issuance of Disqualified
Interests."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Repurchase at
Option of Holders--Asset Sales."
SECURITY
The Senior Secured Notes and the Subsidiary Guarantees are secured by a
pledge pursuant to the Pledge Agreement of all of the outstanding Equity
Interests of all of the Company's current and future Subsidiaries and all
current and future intercompany indebtedness payable to the Company or any of
its Subsidiaries as well as Liens on all other assets (other than real property)
of such Subsidiaries created pursuant to the Security Agreement.
The Company entered into a pledge agreement (the "Pledge Agreement")
providing for the pledge by the Company to the Trustee, as collateral agent (in
such capacity, the "Collateral Agent") for the Holders of the Senior Secured
Notes and the lenders under the New Credit Facility, of all of the Equity
Interests of all of its directly owned Subsidiaries and all Subsidiary
Intercompany Notes owed to the Company or any Subsidiary (collectively, the
"Pledged Securities"). There are no Subsidiaries of the Company's direct
Subsidiaries and the Pledge Agreement and the Indenture prohibits the creation
of any such Subsidiaries. The Company and each of its Subsidiaries have also
entered into a general security agreement (each, a "Security Agreement" and,
together with the Pledge Agreement, the "Collateral Documents") granting to the
Collateral Agent a security interest in all of their respective assets, other
than real property. Such Collateral Documents secure the payment and performance
when due of all of the Obligations of the Company and the Guarantors under the
Indenture and the Senior
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Secured Notes (including the Subsidiary Guarantees) and all Obligations of such
Subsidiaries under the New Credit Facility as provided in the Collateral
Documents.
So long as no Default or Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions in the Indenture and the
Collateral Documents, the Company and its Subsidiaries will be entitled to
receive all cash dividends, interest and other payments made upon or with
respect to the Equity Interests, the Subsidiary Intercompany Notes and the
assets subject to the security interests created by the Collateral Documents
(collectively the "Collateral") pledged by them (other than payments of
principal with respect to Subsidiary Intercompany Notes, which will be required
to be pledged to the Trustee until relent to a Subsidiary of the Company) and to
exercise any voting and other consensual rights pertaining to the Collateral
pledged by them. Upon the occurrence and during the continuance of a Default or
Event of Default, (a) all rights of the Company and its Subsidiaries to exercise
such voting or other consensual rights will cease, and all such rights will
become vested in the Collateral Agent, which, to the extent permitted by law,
will have the sole right to exercise such voting and other consensual rights and
(b) all rights of the Company and its Subsidiaries to receive all cash
dividends, interest and other payments made upon or with respect to the
Collateral will cease and such cash dividends, interest and other payments will
be required to be paid to the Collateral Agent, and (c) the Collateral Agent
will be permitted to sell the Collateral or any part thereof in accordance with
the terms of the Collateral Documents. All funds distributed under the
Collateral Documents and received by the Collateral Agent for the benefit of the
Holders of the Senior Secured Notes and the lenders under the New Credit
Facility will be distributed by the Collateral Agent pro rata to the Holders of
Senior Secured Notes and the lenders under the New Credit Facility in accordance
with the provisions of the Indenture and the Collateral Documents.
The Collateral Documents provide that the Collateral Agent will not commence
or otherwise take any action or proceeding to enforce any Collateral Document or
to realize upon any or all of the Collateral unless and until either the Credit
Agent under the New Credit Facility or the Holders of more than fifty percent
(50%) in aggregate principal amount of the then outstanding Senior Secured Notes
shall have notified the Collateral Agent in writing of the occurrence of an
acceleration event with respect to all the Obligations under the New Credit
Facility or the Senior Secured Notes and shall have directed the Collateral
Agent in writing to commence to enforce any Collateral Document and/or to
realize upon any or all of the Collateral. Upon receipt by the Collateral Agent
of any such notice and direction, the Collateral Agent will be required to (i)
promptly send copies thereof to all Secured Creditors and (ii) seek to enforce
the Collateral Documents and to realize upon the Collateral. After any such
notice and direction has been given, the Majority Secured Lenders will have the
right to give written directions to the Collateral Agent as to the time, place
and manner of the taking of such actions, and the Collateral Agent will be
required to seek to follow such directions; provided that only the class of
Secured Creditors that gave the Collateral Agent the written notice and
direction referred to above (i.e. the Credit Agent on behalf of the lenders
party to the New Credit Facility or the Holders of more than 50% in aggregate
principal amount of the then outstanding Senior Secured Notes, as applicable)
may give written directions to the Collateral Agent to cease or materially
curtail its efforts seeking to enforce any of the Collateral Documents or to
cease or materially curtail its efforts seeking to realize upon any or all of
the Collateral. Upon the receipt by the Collateral Agent of any such direction
to so cease, the Collateral Agent will be required to seek to do so, subject to
the rights of the Credit Agent and/or Holders of more than fifty percent (50%)
in aggregate principal amount of the then outstanding Senior Secured Notes to
give another written notice and direction of the type referred to above.
Under the terms of the Collateral Documents, the Collateral Agent will
determine the circumstances and manner in which the Collateral shall be disposed
of, including, but not limited to, the determination of whether to release all
or any portion of the Collateral from the Liens created by the Collateral
Documents and whether to foreclose on the Collateral following a Default or
Event of Default. Moreover, upon the full and final payment and performance of
all Obligations of the Company
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under the Indenture and the Senior Secured Notes and the New Credit Facility,
the Collateral Documents shall terminate and the Collateral shall be released.
The Security Agreement limits the proceeds from a sale of Collateral by a
Subsidiary that are distributed to Holders of Senior Secured Notes and to
lenders under the New Credit Facility to the maximum distribution that would not
be considered to be a fraudulent conveyance. As a result, the Holders of Senior
Secured Notes may not recover the full value of the Collateral pledged by
Subsidiaries pursuant to the Pledge Agreement and the Security Agreement. In
addition, the Collateral Documents do not require the Guarantors to take any
action to create or perfect security interests in real property, and no
mortgages or leasehold mortgages will be executed or recorded. There can be no
assurance that future lenders will not obtain security interests in such real
property in violation of the Indenture. In addition to not recording mortgages
or leasehold mortgages, the Collateral Agent is not making fixture filings
against the Company or the Guarantors. Accordingly, any perfected mortgage or
leasehold mortgage liens on the Company's and the Guarantors' real property
interests would take priority over the interest of the Holders of fixtures.
Finally, the security interest of Holders of Senior Secured Notes and the
Lenders under the New Credit Facility in personal property of R.C. Cobb, Inc.
located at the Madison Square 12 and Cinema Center 8 theatres (which theatres
are owned by Tricob), each located in Huntsville, Alabama, will be subject to a
prior perfected security interest in favor of National Bank of Commerce of
Birmingham and AmSouth Bank, N.A.
OPTIONAL REDEMPTION
The Senior Secured Notes will not be redeemable at the Issuers' option prior
to March 1, 2000. Thereafter, the Senior Secured Notes will be subject to
redemption at the option of the Issuers, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------- ----------
<S> <C>
2000............................................................ 105.313%
2001............................................................ 102.656%
2002 and thereafter............................................. 100.000%
</TABLE>
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Senior Secured Notes.
SELECTION AND NOTICE
If less than all of the Senior Secured Notes are to be redeemed at any time,
selection of Senior Secured Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Secured Notes are listed, or, if the Senior Secured
Notes are not so listed, on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided that no Senior Secured Notes
of $1,000 or less shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Senior Secured Notes to be redeemed at its
registered address. If any Senior Secured Note is to be redeemed in part only,
the notice of redemption that relates to such Senior Secured Note shall state
the portion of the principal amount thereof to be redeemed. A replacement Senior
Secured Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Senior Secured Note. On and after the redemption date, interest will cease to
accrue on Senior Secured Notes or portions thereof called for redemption.
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REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Secured
Notes will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Senior
Secured Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase (the "Change of Control Payment"). Within ten
days following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Senior Secured Notes pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior
Secured Notes as a result of a Change of Control.
On the date specified in the notice described above relating to the Change
of Control Offer (which will be no earlier than 30 days nor later than 60 days
from the date of such notice) (the "Change of Control Payment Date"), the
Company will, to the extent lawful, (1) accept for payment all Senior Secured
Notes or portions thereof properly tendered pursuant to the Change of Control
Offer, (2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Senior Secured Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Senior
Secured Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Senior Secured Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
Senior Secured Notes so tendered the Change of Control Payment for such Senior
Secured Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a replacement Senior Secured Note
equal in principal amount to any unpurchased portion of the Senior Secured Notes
surrendered, if any; provided that each such new Senior Secured Note will be in
a principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described herein will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
herein with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Senior Secured Notes to require that
the Company repurchase or redeem the Senior Secured Notes in the event of a
takeover, recapitalization or similar transaction.
The New Credit Facility prohibits certain events that would constitute a
Change of Control. In addition, the exercise by the Holders of Senior Secured
Notes of their right to require the Company to repurchase the Notes could cause
a default under the New Credit Facility, even if the Change of Control itself
does not, due to the financial effect of such repurchases on the Company.
Finally, the Company's ability to pay cash to the Holders of Senior Secured
Notes upon a repurchase may be limited by the Company's then existing financial
resources.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the Company consolidates with, or merges with or into, another
"person" (as defined above) in a transaction or series of related transactions
in which the Equity Interests of the Company are converted into or exchanged for
cash, securities or other property,
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other than any transaction where (A) the outstanding Equity Interests of the
Company are converted into or exchanged for Equity Interests (other than
Disqualified Interests) of the surviving or transferee entity and (B) either (1)
the "beneficial owners" (as such term is defined in Rule 13d-3 and 13d-5 under
the Exchange Act) of the voting power of the Equity Interests of the Company
immediately prior to such transaction own, directly or indirectly through one or
more Subsidiaries, not less than a majority of the total voting power of the
Equity Interests of the surviving or transferee entity immediately after such
transaction or (2) if immediately prior to such transaction the Company is a
direct or indirect Subsidiary of any other Person (the "Holding Company"), then
the "beneficial owners" (as defined above) of the Equity Interests of such
Holding Company immediately prior to such transaction own, directly or
indirectly through one or more Subsidiaries, not less than a majority of the
voting power of the Equity Interests of the surviving or transferee entity
immediately after such transaction; (iv) the consummation of any transaction
(including any merger or consolidation) the result of which is that any "person"
(as defined above), other than the Principals and their Related Parties, becomes
the "beneficial owner" (as defined above), directly or indirectly, of (a) more
than 35% of the voting stock of the Company and (b) more of the voting stock of
the Company than is at the time "beneficially owned" (as defined above) by the
Principals and their Related Parties in the aggregate, or (v) the first day on
which a majority of the members of the Board of the Company are not Continuing
Board Members.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Senior Secured Notes to require the
Company to repurchase such Senior Secured Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Board Members" means, as of any date of determination, any
member of the Board of the Company who (i) was a member of such Board on the
date of the Indenture or (ii) was nominated for election or elected to such
Board with the approval of a majority of the Continuing Board Members who were
members of such Board at the time of such nomination or election.
"Principals" means Rowland C. Cobb, Jr., Robert M. Cobb and Jefferson R.
Cobb.
"Related Party" with respect to any Principal means (A)(1) any spouse,
parent or child of such Principal or (2) the estate of any Principal during any
period in which such estate holds Equity Interests of the Company for the
benefit of any person referred to in clause (A)(1) or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or
the Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by a resolution of
the Board set forth in an Officers' Certificate delivered to the Trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii)
except in the case of an Approved Theatre Swap, no more than the greater of (a)
15% or (b) $500,000, of the consideration therefor received by the Company or
such Subsidiary is in a form other than cash or Cash Equivalents; provided that
(x) the amount of any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet or in the notes thereto), of the Company
or any Subsidiary (other than liabilities that are by their terms subordinated
to the Senior Secured Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement, and
(y) the amount of
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any notes or other obligations received by the Company or any such Subsidiary
from such transferee that are immediately converted by the Company or such
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce Indebtedness under the New Credit Facility (and to correspondingly reduce
commitments with respect thereto) or (b) to the acquisition of a controlling
interest in another business, the acquisition of another film exhibition
facility, the making of capital expenditures (including capital expenditures
relating to the maintenance of existing film exhibition facilities) or the
acquisition of other long-term assets, in each case, in the same line of
business as the Company was engaged in on the date of the Indenture. Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
borrowings under the New Credit Facility or otherwise invest such Net Proceeds
in any manner that is not prohibited by the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds that have accrued since the date of the
Indenture or since the most recent Asset Sale Offer, as applicable, exceeds $5.0
million, the Company will be required to make an offer to all Holders of Senior
Secured Notes (an "Asset Sale Offer") to purchase the maximum principal amount
of Senior Secured Notes that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Senior Secured Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Senior Secured Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Senior Secured Notes to be purchased on a pro rata basis. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any payment or distribution on account of the Company's Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of the
Company's Equity Interests in any capacity (other than (x) compensation paid to,
or reimbursement of expenses of, employees in the ordinary course of business
and consistent with past practice, (y) dividends or distributions payable in
Equity Interests (other than Disqualified Interests) of the Company, and (z)
dividends or distributions payable to the Company or any Wholly Owned Subsidiary
of the Company); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any direct or indirect parent of the
Company or other Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Wholly Owned Subsidiary of the Company that is a
Guarantor); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Senior Secured Notes; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
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(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under caption "--Incurrence of Indebtedness and Issuance of
Disqualified Interests"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (x),
(y) and (z) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of the
Company or of debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Interests or debt securities that have been converted into Disqualified
Interests), plus (iii) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (w) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (x) so long as no Event of Default shall have occurred and be
continuing, the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Interests);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c) (ii) of the preceding paragraph; (y) so long as no Event of
Default shall have occurred and be continuing, the defeasance, redemption or
repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness or the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Interests); provided that the amount of any
such net cash proceeds from the sale of Equity Interests that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c) (ii) of the preceding paragraph; or (z) so long as no
Event of Default shall have occurred and be continuing, quarterly distributions
to the Company's equityholders in respect of such equityholders' income tax
liability in an amount not to exceed the lesser of (a) the Tax Amount or (b) the
actual amount of the income tax liability incurred by the equityholders of the
Company as a result of the reporting of the Company's income, deductions, gains
or losses on such equityholders' federal or state income tax returns.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board set forth in an Officers'
Certificate delivered to the Trustee) on the date of the Restricted Payment of
the asset(s) proposed to be transferred by the Company or such Subsidiary, as
the case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
entitled "Restricted Payments" were computed, which calculations may be based
upon the Company's latest available financial statements.
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Incurrence of Indebtedness and Issuance of Disqualified Interests
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) and that the Company will not issue any Disqualified
Interests and will not permit any of its Subsidiaries to issue any Equity
Interests (other than to the Company or a Wholly Owned Subsidiary thereof);
provided, however, that the Company may incur Indebtedness (including Acquired
Indebtedness) if the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred would have been at least (a) 2.0 to 1.0, in the case of Indebtedness
incurred on or prior to August 31, 1996, (b) 2.25 to 1.0, in the case of
Indebtedness incurred after August 31, 1996 and on or prior to August 31, 1997
and (c) 2.5 to 1.0, in the case of Indebtedness incurred after August 31, 1997,
in each case, determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company (and the Guarantee thereof by its
Subsidiaries) of revolving credit Indebtedness and letters of credit
pursuant to the New Credit Facility (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
Company thereunder) in an aggregate principal amount at any one time
outstanding not to exceed $25.0 million less the aggregate amount of all
proceeds of Asset Sales that have been applied since the date of the
Indenture to permanently reduce the outstanding amount of such Indebtedness
pursuant to the covenant described above under the caption "--Asset Sales;"
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) the incurrence by the Issuers (and the Guarantee thereof by its
Subsidiaries) of Indebtedness represented by the Senior Secured Notes;
(iv) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred (other than
Indebtedness permitted to be incurred pursuant to clause (i) above);
(v) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinate to
the payment in full of all Obligations with respect to the Senior Secured
Notes, and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Subsidiary and (B) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a Wholly
Owned Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the terms of this Indenture to be outstanding;
(vii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations in addition to Capital Lease Obligations,
mortgage financings or purchase money obligations that constitute Existing
Indebtedness, in each case incurred for the purpose of financing all or any
part of the
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purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Subsidiary, in an
aggregate principal amount not to exceed $2.0 million at any one time
outstanding;
(viii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary of the Company; provided that such Indebtedness was incurred by
the prior owner of such assets or such new Subsidiary prior to such
acquisition by the Company or such Subsidiary and was not incurred in
connection with, or in contemplation of, such acquisition; and provided
further that the Company's Fixed Charge Coverage Ratio for its most recently
ended four fiscal quarters for which financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred would have been at least (a) 2.0 to 1.0, in the case of
Indebtedness incurred by the Company or any of its Subsidiaries on or prior
to August 31, 1996, (b) 2.25 to 1.0, in the case of Indebtedness incurred by
the Company or any of its Subsidiaries after August 31, 1996 and on or prior
to August 31, 1997 and (c) 2.5 to 1.0, in the case of Indebtedness incurred
by the Company or any of its Subsidiaries after August 31, 1997, in each
case, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred at the beginning of such four-quarter period; and
(ix) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding not
to exceed $1.0 million.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Liens created pursuant to the Collateral Documents and Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary to:
(i)(a) pay dividends or make any other distributions to the Company or
any of its Subsidiaries (1) on its Equity Interests or (2) with respect to
any other interest or participation in, or measured by, its profits, or (b)
pay any Indebtedness owed to the Company or any of its Subsidiaries;
(ii) make loans or advances to the Company or any of its Subsidiaries;
or
(iii) transfer any of its properties or assets to the Company or any of
its Subsidiaries,
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(a) the New Credit Facility as in effect as of the date of the
Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive with respect to such dividend and other payment restrictions
than those contained in the New Credit Facility as in effect on the date of
the Indenture;
(b) the Indenture and the Senior Secured Notes;
(c) applicable law;
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(d) any instrument governing Indebtedness or Equity Interests of a
Person acquired by the Company or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that the Consolidated Cash
Flow of such Person is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture;
(e) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired; or
(g) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
Independent Board Member
From and after the earlier of 30 days after the consummation of the Exchange
Offer or 120 days after the completion of the Offering, so long as any of the
Senior Secured Notes are outstanding, the Company will have at least one member
of its Board who is neither an officer nor an employee of the Company, any
Subsidiary of the Company or any of their respective Affiliates (the
"Independent Board Member"); provided that, if at any time after the first
Independent Board Member is appointed to the Board the Company shall fail to
comply with this sentence, the Company will have 30 days to cure such
non-compliance. Any transaction requiring the approval of the majority of the
Independent Board Members shall be prohibited at any time that there is not at
least one Independent Board Member on the Company's Board.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving entity or
the entity or the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Senior
Secured Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such transaction
no Default or Event of Default exists; and (iv) the Company or the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) except in the
case of a merger of the Company with or into one of its Subsidiaries, will, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Interests."
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The Indenture also provides that Finance Corp. may not consolidate or merge
with or into (whether or not Finance Corp. is the surviving Person), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) Finance Corp. is the surviving Person,
or the Person formed by or surviving any such consolidation or merger (if other
than Finance Corp.) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia and a Wholly Owned Subsidiary of the Company; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
Finance Corp.) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of Finance Corp. under the Senior Secured Notes and the Indenture; and (iii)
immediately after such transaction no Default or Event of Default exists.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate transactions involving aggregate
consideration in excess of $500,000, a resolution of the Board set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the Independent Board Members and (b) with respect to any Affiliate
Transaction or series of related Affiliate transactions involving aggregate
consideration in excess of $2.0 million, an opinion as to the fairness to the
Company or such Subsidiary of such Affiliate Transaction from a financial point
of view issued by an independent nationally recognized investment banking or
appraisal firm experienced in the appraisal or similar review of similar types
of transactions (or if an opinion is unavailable as to the fairness from a
financial point of view of any transaction for which a fairness opinion is not
customarily rendered, then an opinion that such transaction meets the
requirements of clause (i) above); provided that (u) any employment agreement
entered into by the Company or any of its Subsidiaries in the ordinary course of
business of the Company or such Subsidiary, (v) transactions between or among
the Company and/or its Subsidiaries, (w) transactions permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments," (x) transactions pursuant to and in accordance with the terms of the
Existing Tricob Contracts (as in effect on the date of the Indenture) and (y)
transactions pursuant to and in accordance with the terms of the Sipsey River
Contract (as in effect on the date of the Indenture), in each case, shall not be
deemed Affiliate Transactions; and provided further that the provisions of
clause (ii)(b) above will not apply to transactions pursuant to the Headquarters
Lease. See "Certain Relationships and Related Transactions."
Additional Subsidiary Guarantees
The Indenture provides that if the Company shall, after the date of the
Indenture, create or acquire any new Subsidiary, then such newly created or
acquired Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion
of counsel in accordance with the terms of the Indenture. The Collateral
Documents and the Indenture prohibits the formation of any Subsidiary that is
not a direct Subsidiary of the Company.
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Limitation on Issuances and Sales of Equity Interests of Wholly Owned
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests of any Wholly Owned Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Subsidiary of
the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Equity Interests of such Wholly Owned Subsidiary and
(b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption "--Asset Sales," and (ii) will not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, Equity Interests constituting directors' qualifying interests) to any
Person other than to the Company or a Wholly Owned Subsidiary of the Company.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than the film exhibition business, the film concession business
and such business activities as are incidental or related thereto.
Advances to Subsidiaries
The Indenture provides that all advances to Subsidiaries made by the Company
or any of its Subsidiaries from time to time after the date of the Indenture
will be evidenced by unsecured Subsidiary Intercompany Notes in favor of the
Company that will be pledged to the Collateral Agent as Collateral to secure the
Senior Secured Notes and, if applicable, outstanding Obligations under the New
Credit Facility. The Indenture also provides that all advances by the Company or
any of its Subsidiaries to any Subsidiary outstanding on the date of the
Indenture will be evidenced by an unsecured Subsidiary Intercompany Note that
will be pledged to the Collateral Agent as Collateral. Each Subsidiary
Intercompany Note will be payable upon demand and will bear interest at the same
rate as the Senior Secured Notes. A form of Subsidiary Intercompany Note is
attached as an annex to the Indenture. Repayments of principal with respect to
any Subsidiary Intercompany Note is required to be pledged to the Collateral
Agent as Collateral until such amounts are advanced to a Subsidiary in
accordance with the Indenture.
Restrictions on Activities of Finance Corp.
In addition to the restrictions set forth above, the Indenture provides that
Finance Corp. may not hold any material assets or engage in any significant
business activities; provided that Finance Corp. may be a co-obligor with
respect to Indebtedness if the Company is a primary obligor or guarantor of such
Indebtedness and the net proceeds of such Indebtedness are loaned to the Company
or any of its Subsidiaries.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Secured Notes are
outstanding, the Issuers will furnish to the Holders of Senior Secured Notes,
within 15 days after they are or would have been required to file such with the
Commission, (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Issuers were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
independent public accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In
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addition, the Company and the Subsidiary Guarantors have agreed that, for so
long as any Senior Secured Notes remain outstanding, they will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Senior Secured Notes; (ii) default in
the payment when due of the principal of or premium, if any, on the Senior
Secured Notes; (iii) failure by the Issuers or the Guarantors to comply with the
provisions described under the captions "--Change of Control," "--Asset Sales,"
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Disqualified Interests;" (iv) failure by the Issuers or the Guarantors for 30
days after notice to comply with any of its other agreements in the Indenture,
the Senior Secured Notes or the Subsidiary Guarantees; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of, premium, if any, or interest or
Liquidated Damages, if any, on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $2.0 million or more; (vi) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $2.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) breach by the Company or any Guarantor of any representation or
warranty set forth in any of the Collateral Documents, or default by the Company
or any Guarantor in the performance of any covenant set forth in any of the
Collateral Documents, or repudiation by the Company or any Guarantor of its
obligations under any of the Collateral Documents or the unenforceability of any
of the Collateral Documents against the Company or any Guarantor for any reason;
(viii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Significant Subsidiaries; and (ix) the ceasing of any Subsidiary
Guarantee to be in effect (except as otherwise permitted by the Indenture), or
the denial or disaffirmation by any Guarantor of its Obligations under its
Subsidiary Guarantee (except as permitted by the Indenture) of the Senior
Secured Notes then outstanding.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Secured Notes
may declare all the Senior Secured Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Senior Secured Notes will
become due and payable without further action or notice. Holders of the Senior
Secured Notes may not enforce the Indenture or the New Senior Secured Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Senior Secured Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Senior Secured Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have had
to pay if the Issuers then had elected to redeem the Senior Secured Notes
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pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Senior Secured Notes. If an Event
of Default occurs prior to March 1, 2000 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Issuers with the intention
of avoiding the prohibition on redemption of the Senior Secured Notes prior to
March 1, 2000, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Senior Secured Notes.
The Holders of a majority in aggregate principal amount of the Senior
Secured Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Senior Secured Notes waive any existing Default or Event
of Default and its consequences under the Indenture except a continuing Default
or Event of Default in the payment of interest or Liquidated Damages, if any,
on, or the principal of, the Senior Secured Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or equityholder of any Issuer
or any Guarantor, as such, shall have any liability for any obligations of the
Issuers or the Guarantors under the Senior Secured Notes, the Subsidiary
Guarantees, the Indenture or the Collateral Documents or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
of Original Senior Secured Notes by accepting a New Senior Secured Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the New Senior Secured Notes. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of their
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Senior Secured Notes and the Subsidiary Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Secured
Notes to receive payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages, if any, on such Senior Secured Notes when such
payments are due from the trust referred to below, (ii) the Issuers' obligations
with respect to the New Senior Secured Notes concerning issuing temporary New
Senior Secured Notes, registration of New Senior Secured Notes, mutilated,
destroyed, lost or stolen Senior Secured Notes and the maintenance of an office
or agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Issuers'
and Guarantors' obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Issuers may, at their
option and at any time, elect to have their obligations and the obligations of
the Guarantors released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Senior Secured Notes. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Senior Secured Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Secured Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the outstanding
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Senior Secured Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be, and the Issuers must specify whether the
Senior Secured Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Issuers shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Issuers have received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding Senior
Secured Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Senior Secured Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which either Issuer or any
of their Subsidiaries is a party or by which either Issuer or any of their
Subsidiaries is bound; (vi) the Issuers must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Issuers must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with the intent
of preferring the Holders of Senior Secured Notes over the other creditors of
the Issuers or the Guarantors, or with the intent of defeating, hindering,
delaying or defrauding creditors of the Issuers or the Guarantors; and (viii)
the Issuers must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Secured Notes in accordance with
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Secured Note selected for redemption. Also, the Company is not
required to transfer or exchange any Senior Secured Note for a period of 15 days
before a selection of Senior Secured Notes to be redeemed.
The registered Holder of a Senior Secured Note will be treated as the owner
of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided below, the Indenture or the Senior Secured Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Senior Secured Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for Senior
Secured Notes), and any existing default or compliance with any provision of the
Indenture or the Senior Secured Notes may be waived with the consent of the
Holders of a majority
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in principal amount of the then outstanding Senior Secured Notes (including
consents obtained in connection with a tender offer or exchange offer for Senior
Secured Notes).
Without the consent of at least 66 2/3% in principal amount of the Senior
Secured Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for Senior Secured Notes), no waiver or amendment
to the Indenture may make any change in the provisions described above under the
captions "--Change of Control," "--Asset Sales" and "Security" (including
related definitions, and including any Collateral Document) that adversely
affect the rights of any Holder of Senior Secured Notes.
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Secured Notes held by a non-consenting Holder): (i)
reduce the principal amount of Senior Secured Notes whose Holders must consent
to an amendment, supplement or waiver, (ii) reduce the principal of or change
the fixed maturity of any Senior Secured Note or alter the provisions with
respect to the redemption of the Senior Secured Notes (other than provisions
relating to the covenants described above under the caption "--Repurchase at the
Option of Holders"), (iii) reduce the rate of or change the time for payment of
interest on any Senior Secured Note, (iv) waive a Default or Event of Default in
the payment of principal of or premium, if any, or interest or Liquidated
Damages, if any, on the Senior Secured Notes (except a rescission of
acceleration of the Senior Secured Notes by the Holders of at least a majority
in aggregate principal amount of the Senior Secured Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Senior
Secured Note payable in money other than that stated in the Senior Secured
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Senior Secured Notes to
receive payments of principal of, premium, if any, or interest or Liquidated
Damages on the Senior Secured Notes, (vii) waive a redemption payment with
respect to any Senior Secured Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders") or (viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Secured Notes, the Issuers and the Trustee may amend or supplement the
Indenture, any Collateral Document or the Senior Secured Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Senior Secured
Notes in addition to or in place of certificated Senior Secured Notes, to
provide for the assumption of the Issuers' obligations to Holders of Senior
Secured Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders of Senior Secured
Notes or that does not adversely affect the legal rights under the Indenture of
any such Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Secured Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Secured Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture, the
Collateral Documents and Registration Rights Agreement without charge by writing
to the Company, in care of R.C. Cobb, Inc., 924 Montclair Road, Birmingham, AL
35213, Attn: Ricky W. Thomas.
BOOK-ENTRY, DELIVERY AND FORM
The Original Senior Secured Notes sold in the Offering were initially issued
in the form of two Global Notes (together, the "Global Note"). The Global Note
was deposited on the Closing Date with, or on behalf of, the Depositary and
registered in the name of Cede & Co., as nominee of the Depositary (such nominee
being referred to herein as the "Global Note Holder"). It is anticipated that
upon completion of the Exchange Offer a single new "Global Note" evidencing the
New Senior Secured Notes will be exchanged for the "Global Note" evidencing the
Original Senior Secured Notes.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Original
Senior Secured Notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Original Senior
Secured Notes evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Senior
Secured Notes, the Global Note Holder will be considered the sole Holder under
the Indenture of any Senior Secured Notes evidenced by the Global Note.
Beneficial owners of Senior Secured Notes evidenced by the Global Note will not
be considered the owners or Holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Senior Secured Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior Secured Notes registered in the name
of the Global Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Senior Secured
Notes, including the Global Note, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Company nor the
Trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Senior Secured Notes. The Company believes,
however, that it is currently the
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policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Senior Secured
Notes will be governed by standing instructions and customary practice and will
be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Senior Secured Notes in the form of registered definitive
certificates ("Certificated Securities"). Upon any such issuance, the Trustee is
required to register such Certificated Securities in the name of, and cause the
same to be delivered to, such person or persons (or the nominee of any thereof).
All such Certificated Securities evidencing Original Senior Secured Notes would
be subject to the legend requirements applicable to the Original Senior Secured
Notes. In addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Senior Secured Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the Global Note Holder of its Global Note,
Senior Secured Notes in such form will be issued to each person that the Global
Note Holder and the Depositary identify as being the beneficial owner of the
related Senior Secured Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Secured Notes and the Company and the Trustee may conclusively rely on,
and will be protected in relying on, instructions from the Global Note Holder or
the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Senior Secured Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. Secondary trading in long-term notes and debentures
of corporate issuers is generally settled in clearing-house or next-day funds.
In contrast, the Senior Secured Notes represented by the Global Note are
expected to be eligible to trade in the PORTAL Market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Senior Secured Notes will, therefore, be
required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Securities will also
be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Issuers, the Guarantors and the Initial Purchasers have entered into the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Issuers and the Guarantors have agreed to file with the Commission the
Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the New Senior Secured Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the Holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for New Senior Secured Notes. If (i) the
Issuers and the Guarantors are not required to file the Exchange Offer
Registration Statement or permitted to
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consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any Holder of Transfer Restricted
Securities that is a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) or an "accredited investor" (as defined in Rule
501(A)(1), (2), (3), or (7) under the Securities Act) notifies the Issuers
within 20 business days following consummation of the Exchange Offer that (A) it
is prohibited by law or Commission policy from participating in the Exchange
Offer or (B) that it may not resell the New Senior Secured Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer and
owns Senior Secured Notes acquired directly from the Issuers or an affiliate of
the Issuers, the Issuers and the Guarantors will file with the Commission a
Shelf Registration Statement to cover resales of the Original Senior Secured
Notes by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Issuers and the Guarantors will use their best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Original Senior Secured Note until (i) the date on which
such Original Senior Secured Note has been exchanged by a person other than a
broker-dealer for a New Senior Secured Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of Original
Senior Secured Note for a New Senior Secured Note, the date on which such New
Senior Secured Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Original
Senior Secured Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Original Senior Secured Note is distributed to the public pursuant
to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) the Issuers and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the Closing Date, (ii) the Issuers and
the Guarantors will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 120
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Issuers and the Guarantors
will commence the Exchange Offer and use their best efforts to issue on or prior
to 30 business days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, New Senior Secured Notes in
exchange for all Original Senior Secured Notes tendered prior thereto in the
Exchange Offer and (iv) if obligated to file the Shelf Registration Statement,
the Issuers and the Guarantors will use their best efforts to file the Shelf
Registration Statement with the Commission on or prior to 60 days after such
filing obligation arises and to cause the Shelf Registration to be declared
effective by the Commission within 60 days of such filing. If (a) the Issuers
and the Guarantors fail to file any of the Registration Statements required by
the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Issuers and the Guarantors fail to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Issuers will pay
Liquidated Damages to each Holder of Original Senior Secured Notes, with respect
to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Original Senior Secured Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Original Senior Secured Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated
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Damages of $.50 per week per $1,000 principal amount of Original Senior Secured
Notes. All accrued Liquidated Damages will be paid by the Issuers on each
interest payment date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Original Senior Secured Notes will be required to make certain
representations to the Issuers (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Original Senior Secured Notes included in the Shelf Registration Statement
and benefit from the provisions regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities or other Equity
Interests of a Person shall be deemed to be control.
"Approved Theatre Swap" means an exchange by the Company or any of its
Subsidiaries of one or more Film Exhibition Facilities owned or leased by the
Company or such Subsidiary, as applicable, for consideration a portion of which
consists of an ownership or leasehold interest in one or more other Film
Exhibition Facilities; provided that (i) such exchange has been approved by a
majority of the Board and (ii) no more than the greater of (a) 15% or (b)
$500,000 of the portion of the consideration therefor received by the Company or
such Subsidiary that does not consist of Film Exhibition Facilities is in a form
other than cash or Cash Equivalents.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback
transaction) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have
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a fair market value in excess of $1.0 million or (b) for net proceeds in excess
of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the
Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments" will not be deemed to
be Asset Sales.
"Board" means the Board of Directors, the Managers or other similar
governing entity of the Company the members of which are elected by the
equityholders of the Company.
"Capital Interests" means (i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (iii) in the case of a partnership, partnership interests
(whether general or limited); (iv) in the case of a limited liability company,
membership interests (whether general or limited); and (v) in the case of any
entity of any kind, any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of such entity.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the New Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition, and (vi)
investments in mutual funds whose only assets are investments of the kind
described in clauses (i) through (v) above.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period) of such Person and
its Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash charges were deducted in computing such
Consolidated Net Income, less (v) all non-cash items increasing Consolidated Net
Income for such
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period (excluding any such non-cash income to the extent it represents an
accrual of cash income in any future period or amortization of cash income
received in a prior period), in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation, amortization and
other non-cash charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow, and the non-cash
items increasing Consolidated Net Income shall be subtracted from Consolidated
Net Income to compute Consolidated Cash Flow, in each case, only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof that is a Guarantor, (ii)
the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded and (iv) the cumulative effect of
a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the equityholders of such Person and
its consolidated Subsidiaries as of such date plus (ii) the respective amounts
reported on such Person's balance sheet as of such date with respect to any
series of preferred stock (other than Disqualified Interests) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Agent" means First Union National Bank of North Carolina, agent for
the lenders party to the New Credit Facility and any successor agent under the
New Credit Facility.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Interests" means any Equity Interests that, by their terms (or
by the terms of any security into which they are convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Secured Notes mature.
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"Equity Interests" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security that
is convertible into, or exchangeable for, Capital Interests).
"Exchange Offer" means the offer that will be made by the Company pursuant
to the Registration Rights Agreement to exchange New Senior Secured Notes for
Original Senior Secured Notes.
"Exchange Offer Registration Statement" means the registration statement
relating to the Exchange Offer to be filed by the Company pursuant to the
Registration Rights Agreement.
"Existing Indebtedness" means up to $2.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the New Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"Existing Tricob Contracts" means: (i) that certain lease relating to the
Cinema Center Theatre in Port Charlotte, Florida, dated January 21, 1986, by and
between Tricob, an Alabama general partnership whose sole partners are Rowland
C. Cobb, Jr., Robert M. Cobb, Jefferson R. Cobb and certain trusts the
beneficiaries of which are members of their respective families, and R.C. Cobb,
Inc., as amended; (ii) that certain lease relating to the Cinema Center 8
Theatre in Huntsville, Alabama, dated February 8, 1983, by and between Tricob
and R.C. Cobb, Inc., as amended; (ii) that certain lease relating to the Madison
Square 12 Theatre in Huntsville, Alabama, dated August 13, 1985, by and between
Tricob and R.C. Cobb, Inc., as amended; and (iv) those certain Guarantees by
R.C. Cobb, Inc. of Indebtedness of Tricob in an aggregate amount not to exceed
$4.1 million, in each case, as the same are in effect on the date of the
Indenture.
"Film Exhibition Facility" means the premises of a theatre, including the
building, whether leased or owned, and the trade fixtures and equipment located
therein.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such Guarantee or Lien is called upon and
whether or not such interest is capitalized by such other Person) and (iv) the
product of (a) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Subsidiary) on any series of preferred stock of such
Person, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that the Company or any of its
Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than
revolving credit borrowings) or issues preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. For purposes of
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making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period (and Consolidated Cash Flow shall be
calculated without regard to clause (iii) of the definition of Consolidated Net
Income), and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) R.C. Cobb, Inc. and Cobb Theatres II, Inc.
and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture, and their respective successors and
assigns.
"Headquarters Lease" means that certain Lease Agreement, dated September 11,
1979 between R.C. Cobb, Inc. and Rowland C. Cobb, Jr., relating to the corporate
headquarters of the Company located at 924 Montclair Road, Birmingham, Alabama,
as in effect on the date of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Independent Board Member" means a member of the Board of the Company who
(i) is not an employee or Affiliate of the Company or any of its Subsidiaries
(other than by reason of his status as a member of the Board of the Company or
one or more of its Subsidiaries) and (ii) has no material business or
professional relationship with the Company or any Subsidiary of the Company, or
any of their Affiliates. For purposes of this definition, a "material business
or professional relationship" means any business or professional relationship
with the Company or a Subsidiary of the Company of
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any of the types described in, and which exceeds any applicable disclosure
threshold set forth in, Item 404(b) of Regulation S-K or any successor provision
promulgated under the Securities Act.
"Investment" means, with respect to any Person, any investment by such
Person in other Persons (including Affiliates) in the form of a direct or
indirect loan (including any guarantee of Indebtedness or other obligation), any
advance or capital contribution (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business), any
purchase or other acquisition for consideration of Indebtedness, any Equity
Interest or other security and any other item that is or would be classified as
an investment on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of common equity securities of the Company shall
not be deemed to be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Majority Secured Lenders" means, at any time of determination, the holders
of more than fifty percent (50%) of the then outstanding principal amount of
Indebtedness pursuant to (a) the New Credit Facility and (b) the Indenture and
the Senior Secured Notes.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness pursuant to the New Credit Facility) secured by a Lien
on the asset or assets that were the subject of such Asset Sale and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
"New Credit Facility" means that certain New Credit Facility, dated as of
March 6, 1996, by and among the Company, Finance Corp., First Union National
Bank of North Carolina, The Bank of California, N.A. and the Credit Agent
providing for revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced, increased or refinanced from time to time.
"New Senior Secured Notes" means the 10 5/8% Senior Secured Notes due 2003
of the Issuers to be issued pursuant to the Exchange Offer.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Agreement" means that certain Operating Agreement of Cobb
Theatres, L.L.C., to be dated the date of the Indenture, by and among Rowland C.
Cobb, Jr., Robert M. Cobb, Jefferson R. Cobb, The Robert M. Cobb Revocable
Management Trust and The Jefferson R. Cobb Revocable Management Trust.
"Permitted Investments" means (a) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company that is a Guarantor; (b) any Investments
in Cash Equivalents; (c) Investments by the Company or any Subsidiary of the
Company in a Person, if as a result of such Investment (i) such Person becomes a
Wholly Owned Subsidiary of the Company and a Guarantor or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary of the Company that is a Guarantor; (d) Investments made
as a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales;" and (e) other
Investments in any Person that do not exceed $500,000 at any time outstanding.
"Permitted Liens" means (i) Liens on the Collateral created by the
Collateral Documents (ii) Liens on real property of the Company or any of its
Subsidiaries (provided that all Obligations with respect to the Senior Secured
Notes and all Indebtedness outstanding pursuant to the New Credit Facility are
equally and ratably secured thereby pursuant to documentation reasonably
satisfactory to the Trustee), in each case, securing Indebtedness pursuant to
the New Credit Facility; (iii) Liens in favor of the Company; (iv) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (v) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition and do not extend to any property other than the property so
acquired; (vi) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vii) Liens existing on the date of
the Indenture; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (ix) Liens securing Acquired
Indebtedness; provided that such Liens (A) secure Acquired Indebtedness that was
not incurred in connection with or contemplation of the acquisition pursuant to
which such Acquired Indebtedness was incurred by the Company or one of its
Subsidiaries and (B) does not extend to assets other than those assets to which
it extended immediately prior to such acquisition; (x) Liens securing
Indebtedness permitted to be incurred by clause (vii) of the second paragraph of
the covenant described above under the caption, "--Incurrence of Indebtedness
and Issuance of Disqualified Interests;" and (xi) other Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company with
respect to obligations that do not exceed $1.0 million at any one time
outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable premiums and expenses
incurred or paid in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and
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has a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Senior Secured Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Senior Secured Notes on terms at
least as favorable to the Holders of Senior Secured Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Secured Creditors" means (i) the holders from time to time of the Senior
Secured Notes and (ii) the lenders party to the New Credit Facility.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"Sipsey River Contract" means that certain Aircraft Services Agreement,
dated as of January 1, 1996, between R.C. Cobb, Inc. and Sipsey River, Inc., an
Alabama corporation whose sole shareholder is Rowland C. Cobb, Jr., as the same
is in effect on the date of the Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Equity Interests entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Intercompany Notes" means the intercompany notes issued by
Subsidiaries of the Company in favor of the Company or one of its Subsidiaries
to evidence advances by the Company or one of its Subsidiaries to the issuing
Subsidiary, in each case in the form attached to the Indenture.
"Tax Amount" shall have the meaning set forth in the Operating Agreement.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Interests or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is the opinion of Haskell Slaughter & Young L.L.C., counsel to the
Company, that the material federal income tax consequences to holders whose
Original Senior Secured Notes are exchanged for New Senior Secured Notes in the
Exchange Offer are as described herein, subject to the limitations and
qualifications set forth below. Because the New Senior Secured Notes should not
be considered to differ materially either in kind or in extent from the Original
Senior Secured Notes, the exchange of the New Senior Secured Notes for the
Original Senior Secured Notes pursuant to the Exchange Offer should not be
treated as an "exchange" for federal income tax purposes pursuant to Treasury
regulations promulgated under Section 1001 of the Internal Revenue Code of 1986,
as amended (the "Code") and proposed Treasury Regulation Section 1.1001-3, which
will be applicable only to modifications of debt instruments following a period
of time after the publication of final regulations. As a result, no material
federal income tax consequences should result to holders exchanging Original
Senior Secured Notes for New Senior Secured Notes. If, however, the exchange of
Original Senior Secured Notes for New Senior Secured Notes were treated as a
taxable event, such transaction should constitute a recapitalization for federal
income tax purposes and holders would not recognize any gain or loss upon such
exchange.
The foregoing opinion is based upon the current provisions of the Code,
applicable existing and proposed Treasury Regulations promulgated thereunder,
judicial authority and current administrative rulings and practice. There can be
no assurance that the final Treasury Regulations will not differ materially from
those which are presently proposed nor that the IRS will not take a contrary
view. No ruling from the IRS has been or will be sought. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements or conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and individuals who are not citizens or residents of the United
States) may be subject to special rules not discussed herein. AS A RESULT, EACH
HOLDER OF ORIGINAL SENIOR SECURED NOTES SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING HIS OR HER
ORIGINAL SENIOR SECURED NOTES FOR NEW SENIOR SECURED NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Senior Secured Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Senior Secured Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with the resales of New Senior Secured Notes
received in exchange for Original Senior Secured Notes where such Original
Senior Secured Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of 120 days
after the date on which the Registration Statement is declared effective, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer that requests such documents in the Letter of Transmittal for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of New Senior
Secured Notes by broker-dealers or any other persons. New Senior Secured Notes
received by broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Senior Secured Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any
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such New Senior Secured Notes. Any broker-dealer that resells New Senior Secured
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such New
Senior Secured Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Senior Secured Notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Legal matters in connection with the issuance of the New Senior Secured
Notes will be passed upon for the Company by Haskell Slaughter & Young L.L.C.,
Birmingham, Alabama.
CHANGES IN ACCOUNTANTS
In September, 1995, the Company with the approval of the Board of Directors,
retained the accounting firm of Ernst & Young LLP as independent public
accountants for the Company and its subsidiaries for the fiscal year ended
August 31, 1995. The decision to retain Ernst & Young LLP was not motivated by
any disagreements between the Company and LaRocca & Co., P.C. concerning any
accounting matter, but resulted from the perceived need for a national
accounting firm in order to facilitate the Offering. LaRocca & Co., P.C. had
been retained since June 1991, and during the entire period of their engagement
with the Company, relative to accounting principles or practices, financial
statement disclosure, and auditing scope of procedures, there were no
disagreements which, if not resolved to LaRocca & Co., P.C.'s satisfaction,
would have resulted in a reference to the subject matters of the disagreement in
connection with its report. The LaRocca & Co., P.C. reports on the Company's
financial statements have not contained an adverse opinion or disclaimer of
opinion, nor were the opinions qualified or modified as to uncertainty, audit
scope or accounting principles, nor were there any events
of the type requiring disclosure under Item 304(a)(l)(v) of Regulation S-K.
During the two-year period prior to September 1995, the Company did not consult
Ernst & Young LLP concerning any matter.
EXPERTS
The combined financial statements of Cobb Theatres Group as of August 31,
1995 and for the year then ended, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as
stated in their report appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements of Cobb Theatres Group as of August 31,
1994 and for each of the two fiscal years in the period ended August 31, 1994,
appearing in this Prospectus and Registration Statement, have been audited by
LaRocca & Co., P.C., independent auditors, as stated in their report appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the New Senior Secured Notes
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information, exhibits and undertakings contained
in the Registration Statement. For further information with respect to the
Company and the New Senior Secured Notes offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. As result of the
Exchange Offer, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Registration Statement (and the exhibits and schedules thereto), as
well as the periodic reports and other information filed by the Company with the
Commission, may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 6061-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
its public reference facilities in New York, New York and Chicago, Illinois at
the prescribed rates. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and to registered holders of the Senior Secured Notes, without cost to the
Trustee or such registered holders, copies of all reports and other information
that would be required to be filed by the Company with the Commission under the
Exchange Act, whether or not the Company is then required to file reports with
the Commission. As a result of this Exchange Offer, the Company will become
subject to the periodic reporting and other informational requirements of the
Exchange Act. In the event that the Company ceases to be subject to the
informational requirements of the Exchange Act, the Company has agreed that, so
long as any Senior Secured Notes remain outstanding, it will file with the
Commission (but only if the Commission at such time is accepting such voluntary
filings) and distribute to holders of the Original Senior Secured Notes or the
New Senior Secured Notes, as applicable, copies of the financial information
that would have been contained in such annual reports and quarterly reports,
including management's discussion and analysis of financial condition and
results of operations, that would have been required to be filed with the
Commission pursuant to the Exchange Act. The Company will also furnish such
other reports as it may determine or as may be required by law.
The principal address of the Company is 924 Montclair Road, Birmingham,
Alabama 35213, telephone number (205) 591-2323.
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INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
COBB THEATRES GROUP
Reports of Independent Auditors...................................................... F-2
Combined Balance Sheets as of August 31, 1994 and 1995............................... F-4
Combined Statements of Operations for the years ended August 31, 1993, 1994 and 1995. F-5
Combined Statements of Stockholders' Equity for the years ended August 31, 1993, 1994
and 1995 ............................................................................ F-6
Combined Statements of Cash Flows for the years ended August 31, 1993, 1994 and
1995 ................................................................................ F-7
Notes to Combined Financial Statements............................................... F-8
COBB THEATRES, L.L.C.
Condensed Consolidated Balance Sheets as of February 29, 1996 (unaudited)............ F-21
Condensed Consolidated Statements of Operations for the three months
and six months ended February 28, 1995 and February 29, 1996 (unaudited).......... F-22
Condensed Consolidated Statements of Cash Flows for the six months
ended February 28, 1995 and February 29, 1996 (unaudited)......................... F-23
Notes to Condensed Consolidated Financial Statements................................. F-24
</TABLE>
F-1
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
COBB THEATRES GROUP
We have audited the accompanying combined balance sheet as of August 31,
1995 of the corporations listed in Note 1, and the related combined statements
of operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these combined financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position at August 31,
1995 of the corporations listed in Note 1, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
November 27, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
COBB THEATRES GROUP
We have audited the accompanying combined balance sheet of Cobb Theatres
Group (as defined in Note 1) as of August 31, 1994, and the related combined
statements of operations, stockholders' equity, and cash flows for each of the
two fiscal years in the period ended August 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Cobb
Theatres Group at August 31, 1994 and the combined results of their operations
and their cash flows for each of the two fiscal years in the period ended August
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 14 to the financial statements, the Company changed its
method of accounting for income taxes in 1993.
LAROCCA & CO., P.C.
Birmingham, Alabama
November 15, 1994
F-3
<PAGE>
COBB THEATRES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31,
--------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................. $ 1,905 $ 1,241
Receivables.......................................................... 463 863
Other assets......................................................... 2,969 3,557
-------- --------
Total current assets............................................... 5,337 5,661
Property and equipment, net............................................ 56,306 75,427
Intangible assets, net................................................. 16,126 14,323
Other assets........................................................... 1,676 2,729
-------- --------
Total assets....................................................... $ 79,445 $ 98,140
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 3,622 $ 5,397
Accrued film rentals................................................. 7,174 5,545
Accrued expenses and other liabilities............................... 5,502 5,768
Revolving line of credit............................................. 1,000 9,700
Long-term debt, current installments................................. 5,090 2,069
Obligations under capital leases, current installments............... 147 248
-------- --------
Total current liabilities.......................................... 22,535 28,727
Long-term debt......................................................... 47,796 58,966
Obligations under capital leases....................................... 1,242 1,771
Other long-term liabilities............................................ 3,880 4,468
-------- --------
Total liabilities.................................................. 75,453 93,932
Commitments and contingencies
Stockholders' equity:
Common stock......................................................... 3 3
Additional paid-in capital........................................... 1,001 1,001
Retained earnings.................................................... 2,988 3,204
-------- --------
Total stockholders' equity......................................... 3,992 4,208
-------- --------
Total liabilities and stockholders' equity......................... $ 79,445 $ 98,140
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
COBB THEATRES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Theatre admissions......................................... $59,132 $65,951 $73,190
Concessions................................................ 22,934 26,113 29,432
Other...................................................... 1,646 2,033 2,986
------- ------- -------
Total revenues........................................... 83,712 94,097 105,608
Costs of revenues:
Film rental................................................ 29,997 32,255 35,896
Concession................................................. 3,212 3,608 4,216
------- ------- -------
Total cost of revenues................................... 33,209 35,863 40,112
------- ------- -------
Gross profit............................................. 50,503 58,234 65,496
Operating expenses:
General and administrative................................. 5,124 6,739 7,088
Advertising................................................ 2,263 2,425 2,914
Payroll and related costs.................................. 9,680 10,959 12,364
Occupancy.................................................. 18,225 20,424 23,891
Equipment rental........................................... 1,632 755 --
Repairs and maintenance.................................... 999 1,238 1,291
Depreciation and amortization.............................. 4,216 5,374 8,062
Other...................................................... 2,137 3,261 3,483
------- ------- -------
Total operating expenses................................. 44,276 51,175 59,093
------- ------- -------
Operating income......................................... 6,227 7,059 6,403
------- ------- -------
Other income (deductions):
Other...................................................... (142) (19) (6)
Non-recurring charge (Note 10)............................. -- -- (1,181)
Interest expense........................................... (2,064) (2,804) (5,067)
Interest income............................................ 160 68 75
Loss from disposition of assets............................ (1,411) (342) (130)
------- ------- -------
(3,457) (3,097) (6,309)
------- ------- -------
Income before income taxes and cumulative effect of
change in accounting principle............................... 2,770 3,962 94
Income tax expense (benefit)................................. 704 1,506 (122)
------- ------- -------
Income before cumulative effect of change in
accounting principle......................................... 2,066 2,456 216
Cumulative effect on prior years of adopting new standard for
accounting for income taxes.................................. 444 -- --
------- ------- -------
Net income .............................................. $ 1,622 $ 2,456 $ 216
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
COBB THEATRES GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance as of September 1, 1992..................... $ 3 $ -- $ 2,951 $ 2,954
Net income.......................................... -- -- 1,622 1,622
Distributions to stockholders....................... -- -- (4,041) (4,041)
------ ---------- -------- -------------
Balance as of August 31, 1993....................... 3 -- 532 535
Issuance of 1,000 shares common stock............... -- 1 -- 1
Contribution of additional paid-in capital.......... -- 1,000 -- 1,000
Net income.......................................... -- -- 2,456 2,456
------ ---------- -------- -------------
Balance as of August 31, 1994....................... 3 1,001 2,988 3,992
Net income.......................................... -- -- 216 216
------ ---------- -------- -------------
Balance as of August 31, 1995....................... $ 3 $ 1,001 $ 3,204 $ 4,208
------ ---------- -------- -------------
------ ---------- -------- -------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
COBB THEATRES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1993 1994 1995
------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 1,622 $ 2,456 $ 216
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 4,216 5,374 8,062
Loss on asset dispositions.................................. 1,411 342 130
Provision for deferred income taxes......................... (260) (81) (700)
Cumulative effect on deferred taxes for change in accounting
principle........................................................ 444 -- --
(Increase) decrease in assets:
Receivables................................................. 792 178 (400)
Other assets................................................ (305) (2,074) (482)
Increase (decrease) in liabilities:
Accounts payable............................................ (72) 713 1,775
Accrued film rental......................................... 19 2,138 (1,628)
Accrued expenses and other liabilities...................... 1,328 2,386 450
------- -------- --------
Total adjustments....................................... 7,573 8,976 7,207
------- -------- --------
Net cash provided by operating activities............... 9,195 11,432 7,423
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition............................................ -- (22,000) --
Capital expenditures............................................ (4,608) (17,714) (14,894)
Proceeds from asset dispositions................................ 1,352 1,010 6
Purchase of land for construction of theatres................... -- (4,124) (6,509)
Construction in progress........................................ (161) (1,671) (3,127)
Other........................................................... (45) (168) (206)
------- -------- --------
Net cash used in investing activities................... (3,462) (44,667) (24,730)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................................... 1,900 35,217 10,861
Proceeds from issuance of common stock.......................... -- 1 --
Contribution of additional paid-in capital...................... -- 1,000 --
Distributions to stockholders................................... (4,041) -- --
Proceeds (payments) from revolving line of credit, net.......... -- -- 8,700
Principal payments from related parties......................... -- -- 15
Principal payments of short term debt, net...................... (96) -- --
Principal payments of long-term debt............................ (1,368) (2,060) (2,713)
Principal payments under capital lease.......................... (583) (1,557) (220)
------- -------- --------
Net cash provided (used) in financing activities........ (4,188) 32,601 16,643
------- -------- --------
Net increase (decrease) in cash and equivalents................. 1,545 (634) (664)
Cash and equivalents--beginning of year......................... 994 2,539 1,905
------- -------- --------
Cash and equivalents--end of year............................... $ 2,539 $ 1,905 $ 1,241
------- -------- --------
------- -------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for: Interest......................................... $ 2,058 $ 1,935 $ 5,471
------- -------- --------
------- -------- --------
Income Taxes....................................... $ 885 $ 2,013 $ 162
------- -------- --------
------- -------- --------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligation incurred to lease equipment............ $ 318 $ 1,386 $ 850
------- -------- --------
------- -------- --------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements of Cobb Theatres Group ("Cobb Theatres")
include the accounts of R.C. Cobb, Inc. ("Cobb"), R&J Concessions, Inc. ("R&J")
and Cobb Theatres II, Inc. ("Cobb II"). The three companies are affiliated
through common ownership and management.
All significant intercompany balances and transactions have been eliminated
in combination.
NATURE OF BUSINESS
Cobb is engaged in the operation and management of multi-screen motion
picture theatres. Cobb currently operates in Florida, Alabama, Mississippi and
Arkansas.
R&J is engaged in the theatre concession business and is economically
dependent on Cobb as its major customer. R&J currently operates in Florida,
Alabama, Mississippi and Arkansas.
Cobb II is engaged in the operation and management of multi-screen theatres,
including concessions. Cobb II currently operates in Florida.
In March 1994, Cobb II purchased certain assets, consisting of 8 multiplex
theatres, and assumed the Florida theatre facility operating lease obligations
of Theatre Acquisitions, L. P. d/b/a Wometco Theatres. Cobb II paid $22 million
in cash which was financed through bank debt.
The acquisition has been recorded using the purchase method of accounting
and the results of operations of the purchased theatres have been included in
the Company's combined results of operations since the date of acquisition. The
excess of the aggregate purchase price over the fair market value of net assets
acquired of approximately $8.1 is amortized over the term (including all renewal
options) of the underlying facility leases for periods of 4 to 19 years.
The following summarizes the unaudited pro forma results of operations
assuming the acquisition of the purchased theatres occurred at the beginning of
each of the following periods. This pro forma summary does not necessarily
reflect what the results of operations would have been had the acquisition
occurred on September 1, 1992.
F-8
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST
31,
--------------------
1993 1994
-------- --------
<S> <C> <C>
Revenues.............................................. $102,430 $103,663
-------- --------
-------- --------
Income before cumulative effect of change in
accounting principle................................ $ 2,038 $ 1,847
-------- --------
-------- --------
Net income............................................ $ 1,594 $ 1,847
-------- --------
-------- --------
</TABLE>
CASH AND EQUIVALENTS
Cobb Theatres considers all temporary cash investments with original
maturities of three months or less to be cash equivalents.
REVENUES AND FILM RENTAL COSTS
Revenues are recognized when admissions and concessions sales are received
at the theatres. Film rental costs are accrued based on the applicable box
office receipts and the terms of the film licenses.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for additions
(including interest during construction), major renewals and betterments are
capitalized, and expenditures for maintenance and repairs are charged to expense
as incurred. Property and equipment under capital leases are stated at the lower
of the present value of minimum lease payments at the beginning of the lease
term or fair value at the inception of the lease.
Cobb Theatres uses the straight-line method in computing depreciation and
amortization over the estimated useful lives of assets as follows:
<TABLE>
<S> <C>
Buildings and improvements................................. 20 to 30 years
Fixtures and equipment..................................... 5 to 15 years
Leasehold improvements..................................... 10 to 20 years
</TABLE>
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over the estimated
useful lives of the assets. A noncompete agreement is amortized over its five
year term. Concession rights are amortized over an estimated useful life of six
years. Excess of purchase price over the fair value of net assets acquired is
amortized over the term (including all renewal options) of the underlying
facility leases for periods of 19 to 35 years. Favorable lease terms are
amortized over the term (excluding renewal options) of the underlying facility
leases for periods of 4 to 19 years. The carrying values of intangible assets
are reviewed if the facts and circumstances suggest that they may be impaired.
If this review is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow is required.
F-9
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INCOME TAXES
The companies of Cobb Theatres will file separate federal income tax returns
for the year ended August 31, 1995. Separate returns were also filed for the
years ended August 31, 1993 and 1994.
For financial statement purposes income taxes are calculated in accordance
with Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
Accounting for Income Taxes. The statement requires that deferred income taxes
reflect the impact of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured by tax
laws and regulations.
ADVERTISING COSTS
All costs related to advertising are expensed in the period incurred.
FINANCIAL INSTRUMENTS AND HEDGING
The Company uses interest rate swap agreements to manage interest costs and
risks associated with changing interest rates. The Company designates interest
rate swaps as hedges of specific debt instruments and the differential to be
paid or received is accrued as interest rates change and is recognized over the
life of the agreements as an adjustment to interest expense. Counterparties to
the interest rate swap contracts are major financial institutions and credit
loss from counterparty non-performance is not anticipated. The Company does not
enter into financial instruments for trading purposes.
IMPACT OF ADOPTION OF RECENTLY ISSUED PRONOUNCEMENT
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. Cobb Theatres will adopt Statement
121 in the first quarter of fiscal 1996 and, based on current circumstances,
does not believe the effect of adoption will be material.
NOTE 2--LIQUIDITY AND REFINANCING OPTIONS
Cobb Theatres plans to refinance its existing debt and senior subordinated
debt during fiscal 1996 through a debt offering and new revolving credit
facility. Cobb Theatres considers this refinancing necessary as: (i) the current
financing structure does not provide sufficient borrowing availability to fund
future growth plans, (ii) the interest rate on the senior subordinated debt loan
is above the rate that can be secured in a refinancing, (iii) it anticipates
approaching the maximum available borrowings under its existing lines of credit
in fiscal 1996, and (iv) it will not be able to meet fiscal 1997 debt maturities
under its current financing arrangements without significant disposition of
assets. In the event the offering is not consummated, Cobb Theatres will
continue to explore a full range of options, including the sale of certain
locations and/or the sale and leaseback of assets. Cobb Theatres believes it
will be able to meet its seasonal peak requirements during 1996 from these
sources.
F-10
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS
TRICOB PARTNERSHIP
Cobb leases four locations from Tricob, a partnership engaged in the
ownership and leasing of real property in which Cobb Theatres' stockholders are
partners. The related rent expense for these leases amounted to approximately,
$985,000, $941,000 and $1.0 million in 1993, 1994 and 1995, respectively.
Amounts payable at August 31, 1994 and 1995, under these leases amounted to
approximately $80,000 and $115,000, respectively.
Cobb has a loan to Tricob with a balance of approximately $444,000 and
$407,000 as of August 31, 1994 and 1995, respectively. Interest on the loan
accrues at 6.35% and amounted to approximately $22,000, $29,000 and $27,000 in
1993, 1994 and 1995, respectively. The loan matures in October 2003.
Cobb is a guarantor for debts of Tricob amounting to approximately $3.6
million with final maturity in March 1999 and secured by property. Tricob and
Cobb have cross-default commitments.
STOCKHOLDERS
Cobb leases office and warehouse facilities from a stockholder. The related
rent expense amounted to approximately $243,000, $509,000 and $233,000 in 1993,
1994 and 1995, respectively. The amount payable at August 31, 1994 and 1995
under these leases amounted to approximately $19,000 and $22,000, respectively.
SIPSEY RIVER, INC.
Cobb has an agreement with Sipsey River, Inc., a corporation owned by a
stockholder, to provide aircraft services. The fees for such services amounted
to approximately $238,000 in both 1993 and 1994, and $335,000 in 1995. Amounts
payable under this lease amounted to approximately $20,000 at August 31, 1994.
The amount prepaid under this agreement amounted to approximately $12,000 at
August 31, 1995.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE><CAPTION>
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................................... $ 5,161 $ 11,670
Buildings and leasehold improvements.................................... 22,161 30,428
Fixtures and equipment.................................................. 46,483 52,625
Construction in progress................................................ 2,020 5,147
Capital leases.......................................................... 1,242 2,083
Other assets............................................................ 248 379
------- --------
77,315 102,332
Less accumulated depreciation........................................... 21,009 26,905
------- --------
$56,306 $ 75,427
------- --------
------- --------
</TABLE>
Interest of approximately $113,000 and $347,000 has been capitalized in 1994
and 1995, respectively.
F-11
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
(IN THOUSANDS)
Excess of purchase price over the fair value of net assets acquired...... $ 8,103 $ 8,103
Noncompete agreement..................................................... 1,800 1,800
Favorable lease terms.................................................... 5,300 5,300
Concession rights........................................................ 3,571 3,571
Loan costs............................................................... 630 734
------- -------
19,404 19,508
Less accumulated amortization............................................ 3,278 5,185
------- -------
$16,126 $14,323
------- -------
------- -------
</TABLE>
Amortization expense totaled approximately $735,000, $1.3 million and $1.9
million for 1993, 1994 and 1995, respectively.
NOTE 6--OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
(IN THOUSANDS)
Other current assets:
Concession inventory..................................................... $ 342 $ 403
Due from related parties................................................. 37 39
Refundable income taxes.................................................. 404 530
Prepaid and other assets................................................. 2,051 2,585
Deferred income tax assets............................................... 135 --
------ ------
$2,969 $3,557
------ ------
------ ------
Other assets:
Deferred income tax benefit.............................................. $ 91 $1,263
Due from related parties, non-current.................................... 371 356
Cash value of life insurance, net........................................ 708 915
Other assets............................................................. 506 195
------ ------
$1,676 $2,729
------ ------
------ ------
Accrued expenses and other liabilities:
Due to related parties................................................... $ 128 $ 127
Accrued liabilities...................................................... 4,794 3,555
Income taxes payable..................................................... -- 821
Deferred income.......................................................... 580 1,265
------ ------
$5,502 $5,768
------ ------
------ ------
Other long-term liabilities:
Deferred rent............................................................ $2,331 $2,582
Deferred income tax liabilities.......................................... 1,549 1,886
------ ------
$3,880 $4,468
------ ------
------ ------
</TABLE>
F-12
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior term loan payable by Cobb to bank group (Bank).................... $25,000 $23,750
Senior term loans payable by Cobb II to Bank............................. 21,000 28,950
Note payable to a bank with monthly principal payments of $24,000 plus 3,539
variable interest at prime plus 1% (8.75% and 9.75% at August 31, 1994
and 1995, respectively), maturity in May 1998 with a final balloon
payment of $3.3 million secured by a building, the personal property
contained therein and assignment of any future leases.................. 4,037
Note payable to a bank with monthly fixed increasing principal payments 2,760
(ranging from approximately $12,000 to $19,000) including interest at
prime plus .5% (8.25% and 9.25% at August 31, 1994 and 1995,
respectively), maturity in June 2000 with a final balloon of
approximately $3.1 million secured by land, building, the personal
property contained therein, and assignment of any future leases........ 3,826
Various notes payable with total monthly payments of $14,000 including 587
interest at rates ranging from prime plus .5% (8.25% and 9.25% at
August 31, 1994 and 1995, respectively) to a 10.5% fixed rate with
latest maturity date January 1999, secured by equipment and personal
guarantees............................................................... 472
------- -------
52,886 61,035
Less current installments................................................ 5,090 2,069
------- -------
$47,796 $58,966
-------
------- -------
-------
</TABLE>
SENIOR TERM LOANS
Under their amended revolving credit agreement Cobb and Cobb II (the
Companies) have credit facilities that include senior term loans and an $11.0
million seasonal working capital revolver. In 1994, Cobb had an $8.0 million
seasonal working capital revolver. The Companies have the option to borrow at
various indices to the London Interbank Offering Rate (LIBOR) ranging from LIBOR
plus 1.625% to 2.375% when the leverage to cash flow ratio of Cobb Theatres is
less than 4 to 1. When the Companies borrow under the LIBOR rate option, the
amount borrowed and the rate are fixed for a specified time period. The
Companies also have an option to borrow at an index to the Bank's base rate
which ranges from the Bank's base rate plus .375% to 2%, dependent upon the
extent of leverage. As of August 31, 1995, the borrowing rate was approximately
10.25% on the senior term loans and the seasonal working capital revolvers. The
interest is payable quarterly in arrears on the last business day of each
November, February, May and August. Principal payments are due semi-annually on
the last business day of February and August commencing August 1996 with the
final maturity in February 2001. In February 1997, $22.5 million of principal is
due.
Cobb had a two year interest rate swap agreement having a notional principal
amount of $10.0 million which matured in June 1995. The agreement effectively
fixed the interest rate on a portion of the variable rate senior term loan at
4.38%. Cobb received approximately $109,000 of income related to the interest
rate swap to offset interest expense in 1995. Cobb incurred approximately
$60,000 of additional expenses in 1994 related to the interest rate swap.
F-13
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LONG TERM DEBT--(CONTINUED)
Cobb II has a two year interest rate swap agreement having a notional
principal amount of $12.0 million which matures in May 1996. The agreement
effectively fixes the interest rate on a portion of the variable rate senior
term loan starting at 5.3% at May 9, 1994 and incrementally increasing by .3075%
per quarter to 7.45% on May 9, 1996. The rate at August 31, 1995 is 6.84%. Cobb
II incurred an additional $45,000 of expenses in both 1994 and 1995,
respectively, related to the interest rate swap.
Under the terms of the seasonal working capital revolver, the Companies must
reduce the balance outstanding for a period of at least thirty consecutive days
during each fiscal year to no more than $5.0 million commencing with the fiscal
year ending August 31, 1996. The final maturity date of the seasonal revolver
credit loan is August 2000. As of August 31, 1994 and 1995, respectively, $1.0
million and $9.7 million was outstanding under the seasonal working capital
revolver.
COMBINED
Combined future aggregate maturities of long-term debt as of August 31, 1995
are:
<TABLE>
<CAPTION>
SENIOR OTHER
TERM LOANS LOANS TOTALS
---------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
1996........................................................... $ 1,500 $ 569 $ 2,069
1997........................................................... 25,000 575 25,575
1998........................................................... 6,000 3,776 9,776
1999........................................................... 7,000 301 7,301
2000........................................................... 8,250 3,114 11,364
Thereafter..................................................... 4,950 -- 4,950
---------- ------ -------
$ 52,700 $8,335 $61,035
---------- ------ -------
---------- ------ -------
</TABLE>
The credit facilities require compliance with specific financial covenants
as defined in the loan agreements. Cobb Theatres is required to meet minimum
levels of cash flow, interest coverage, leverage, fixed charge coverage and must
comply with debt and personal guarantee restrictions. The loan agreement was
amended February 1995 (Amendment 1), June 1995 (Amendment 2) and September 1995
(Amendment 3).
Amendment 1 principally revised certain definitions in the loan agreements
that related to financial covenants and made corrections to the original
agreement. The Bank also temporarily waived the 90 day deadline for submitting
year end audited financial statements.
Amendment 2 revised the principal payout schedule so that payments up to
$22.5 million are required to be made on February 28, 1997. In addition, the
amendment expanded the interest rate adjustment ranges that are based on
leverage ratio levels; extended maturity dates; revised financial covenants;
inserted personal guarantees from stockholders; and, revised certain definitions
in the loan agreements. The Bank also waived an event of default caused from
Cobb Theatres exceeding the maximum leverage ratio covenant for the third
quarter of 1995.
Amendment 3 revised financial covenants and permitted the Companies to incur
additional debt. The Bank also waived a default caused by Cobb II for failing to
keep sufficient availability on the line of credit to fund the completion of the
construction of a specified theatre location. On September 21, 1995, the
Companies borrowed $10.0 million senior subordinated debt from a bank that has a
final maturity in
F-14
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LONG TERM DEBT--(CONTINUED)
December 2001. The loan bears interest at 12% through December 15, 1995 at which
time the rate increases 1.5% each month until March 16, 1996 and increases 2% on
April 16, 1996 for a maximum rate of 20% on April 16, 1996.
The management of Cobb Theatres believes it is in compliance with all
financial covenants as of August 31, 1995.
The credit facilities are secured by the outstanding stock of Cobb Theatres
and assets not otherwise pledged. R&J is a guarantor of the facilities.
NOTE 8--LEASES
CAPITAL LEASES
Cobb Theatres is obligated under various capital leases that expire during
the next five years for equipment with a net book value of approximately $2.1
million.
Combined future minimum lease payments and the present value of future
minimum lease payments under equipment capital leases as of August 31, 1995 are
(in thousands):
<TABLE>
<S> <C>
1996............................................................................... $ 401
1997............................................................................... 401
1998............................................................................... 401
1999............................................................................... 399
2000............................................................................... 909
------
Total.............................................................................. 2,511
Less amount representing interest (approximating 8.01%)............................ 492
------
Present value of future minimum capital lease payments............................. 2,019
Less current portion............................................................... 248
------
Obligation under capital leases, excluding current portion......................... $1,771
------
------
</TABLE>
OPERATING LEASES
The majority of Cobb Theatre's operations are conducted in premises occupied
under operating lease agreements with base terms ranging generally from 15 to 20
years, with certain leases containing options, primarily in 5 year increments,
to extend up to an additional 30 years. The leases provide for fixed rentals
and/or contingent rentals based on revenues. Cobb guarantees all of the
operating leases of Cobb II.
F-15
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LEASES--(CONTINUED)
Combined future minimum lease payments under these operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year:
<S> <C>
1996............................................................ $ 16,285
1997............................................................ 16,796
1998............................................................ 16,806
1999............................................................ 16,188
2000............................................................ 15,813
Thereafter...................................................... 100,405
--------
$182,293
--------
--------
</TABLE>
Total rent expense for theatre facility operating leases for 1993, 1994 and
1995, respectively, was approximately $13.8 million, $14.8 million and $15.8
million, including contingent rentals of approximately $52,000 in 1995 and net
of sublease payments received of approximately $171,000, $201,000 and $164,000
in 1993, 1994 and 1995, respectively. Cobb Theatres entered into lease
agreements for locations to open subsequent to August 31, 1995 which have total
minimum lease payments amounting to approximately $4.5 million and are included
in the future minimum lease payments schedule above.
NOTE 9--STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
PAR SHARES SHARES ISSUED COMMON
AUGUST 31, 1994 AND 1995: VALUE AUTHORIZED AND OUTSTANDING STOCK
----- ---------- --------------- ------
<S> <C> <C> <C> <C>
R. C. Cobb, Inc................................... $1.00 20,000 2,000 $2,000
R&J Concessions, Inc.............................. 1.00 10,000 1,000 1,000
Cobb Theatres II, Inc............................. .01 1,000,000 1,000 10
---------- ----- ------
1,030,000 4,000 $3,010
---------- ----- ------
---------- ----- ------
</TABLE>
NOTE 10--NON-RECURRING CHARGE
In 1995, approximately $1.2 million of expenses were incurred due to an
unconsummated financing transaction.
F-16
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES
Income tax expense (benefit) in the combined statement of operations for the
years ended August 31, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
COBB R&J COBB II TOTAL
----- ---- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1993:
Current
Federal................................................... $ 509 $294 $ -- $ 803
State..................................................... 101 60 -- 161
----- ---- ------- ------
610 354 -- 964
----- ---- ------- ------
Deferred
Federal................................................... (228) (55) -- (283)
State..................................................... 28 (5) -- 23
----- ---- ------- ------
(200) (60) -- (260)
----- ---- ------- ------
$ 410 $294 $ -- $ 704
----- ---- ------- ------
----- ---- ------- ------
1994:
Current
Federal................................................... $ 840 $511 $ -- $1,351
State..................................................... 145 91 -- 236
----- ---- ------- ------
985 602 -- 1,587
----- ---- ------- ------
Deferred
Federal................................................... (47) 96 (115) (66)
State..................................................... (13) 8 (10) (15)
----- ---- ------- ------
(60) 104 (125) (81)
----- ---- ------- ------
$ 925 $706 $ (125) $1,506
----- ---- ------- ------
----- ---- ------- ------
1995:
Current
Federal................................................... $(187) $690 $ -- $ 503
State..................................................... (30) 105 -- 75
----- ---- ------- ------
(217) 795 -- 578
----- ---- ------- ------
Deferred
Federal................................................... 318 (30) (932) (644)
State..................................................... 28 (2) (82) (56)
----- ---- ------- ------
346 (32) (1,014) (700)
----- ---- ------- ------
$ 129 $763 $(1,014) $ (122)
----- ---- ------- ------
----- ---- ------- ------
</TABLE>
F-17
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES--(CONTINUED)
The difference between the effective rate and the U.S. federal income tax
statutory rate is as follows:
<TABLE>
<CAPTION>
COBB R&J COBB II COMBINED
----- ----- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1993:
Effective rate............................................ 25% 26% -- 25%
Statutory rate............................................ 34% 34% -- 34%
Tax at statutory rate..................................... $ 552 $ 390 $ -- 34%
Add (subtract) tax effect of:
State income tax, net of federal benefit................ 94 35 -- 4%
Utilization of tax credits.............................. (246) -- -- (9)%
Effect of IRS audit..................................... -- (126) -- (5)%
Other................................................... 10 (5) -- 1%
----- ----- ------- --------
$ 410 $ 294 $ -- 25%
----- ----- ------- --------
----- ----- ------- --------
1994:
Effective rate............................................ 34% 46% (37)% 38%
Statutory rate............................................ 34% 34% 34% 34%
Tax at statutory rate..................................... $ 938 $ 525 $ (116) 34%
Add (subtract) tax effect of:
State income tax, net of federal benefit................ 83 69 (10) 4%
Utilization of tax credits.............................. (24) -- -- (1)%
Effect of IRS audit..................................... -- 96 -- 2%
Other................................................... (72) 16 1 (1)%
----- ----- ------- --------
$ 925 $ 706 $ (125) 38%
----- ----- ------- --------
----- ----- ------- --------
1995:
Effective rate............................................ 20% 35% (37)% (130)%
Statutory rate............................................ 34% 34% 34% 34%
Tax at statutory rate..................................... $ 221 $ 746 $ (935) 34%
Add (subtract) tax effect of:
State income tax, net of federal benefit................ 8 67 (81) (7)%
Effect of amended returns............................... (41) -- -- (44)%
Other................................................... (59) (50) 2 (113)%
----- ----- ------- --------
$ 129 $ 763 $(1,014) (130)%
----- ----- ------- --------
----- ----- ------- --------
</TABLE>
F-18
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES--(CONTINUED)
The significant components of deferred income tax assets and (liabilities)
at August 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
COBB R&J COBB II COMBINED
------- ----- ------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
1994:
Accrued liabilities..................................... $ 863 $ -- $ -- $ 863
Amortization............................................ 17 392 61 470
Depreciation............................................ (2,419) (301) (71) (2,791)
Net operating loss...................................... -- -- 135 135
------- ----- ------- --------
Total............................................. (1,539) 91 125 (1,323)
Less current deferred income tax asset.................. -- -- 135 135
------- ----- ------- --------
Non-current deferred income tax asset (liability)....... $(1,539) $ 91 $ (10) $(1,458)
------- ----- ------- --------
------- ----- ------- --------
1995:
Accrued liabilities..................................... $ 945 $ -- $ 10 $ 955
Amortization............................................ 29 480 207 716
Depreciation............................................ (2,860) (356) (560) (3,776)
Net operating loss...................................... -- -- 1,482 1,482
------- ----- ------- --------
Non-current deferred income tax asset (liability)....... $(1,886) $ 124 $ 1,139 $ (623)
------- ----- ------- --------
------- ----- ------- --------
</TABLE>
Cobb II has a loss carryforward of $4.0 million that may be offset against
future taxable income. Substantially all of the carryforward expires in 2010.
R&J and Cobb II have not recorded a valuation allowance related to their
deferred tax assets as management considers it more likely than not that
available tax strategies and future taxable income will allow the deferred tax
assets to be realized.
NOTE 12--EMPLOYEE BENEFIT PLAN
Cobb Theatres sponsors defined contribution 401(k) plans covering all
full-time employees who have one year of service and are age 21 or older. Cobb
Theatres may contribute a discretionary percentage of the participant's elective
deferral, to be determined by the plans' sponsors. Company contributions
amounted to $71,000, $133,000 and $0 in 1993, 1994 and 1995, respectively.
NOTE 13--COMMITMENTS AND CONTINGENCIES
Cobb Theatres is a party to various legal proceedings incidental to its
business. In the opinion of management, the ultimate liability with respect to
these actions will not materially affect the combined financial position or
results of operations of Cobb Theatres.
The State of Florida has substantially completed an audit (primarily sales,
use and rental taxes) for fiscal years 1990 through 1993. Management has accrued
for additional taxes on undisputed issues. Management vigorously disputes the
State's assertion that taxes are due on commissions received from concession
operations in addition to the taxes assessed at the point of sale. The maximum
potential claim arising from this disputed issue approximates $3.0 million in
taxes, penalties and interest.
Management believes that the ultimate outcome from the resolution of this
dispute will not materially impact the combined financial position or the
results of operations of Cobb Theatres.
F-19
<PAGE>
COBB THEATRES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Cobb Theatres has commitments at August 31, 1995 under construction
contracts of approximately $2.0 million.
NOTE 14--CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
During 1993, the Company adopted SFAS 109, "Accounting for Income Taxes."
The cumulative effect of the accounting change is the adjustment to beginning
retained earnings that would have been required to restate the financial
statements to retroactively apply the change. The effect of initially applying
this new pronouncement in 1993 is reported as the cumulative effect of a change
in accounting principle in the Company's results of operations as a decrease of
$444,000 to net income for the year ended August 31, 1993.
F-20
<PAGE>
COBB THEATRES, L.L.C.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
1995 1996
----------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents................................................ $ 1,241 $ 700
Receivables......................................................... 863 914
Other assets........................................................ 3,557 5,646
---------- ---------
Total current assets.............................................. 5,661 7,260
Property and equipment, net........................................... 75,427 78,674
Intangible assets, net................................................ 14,323 13,827
Other assets.......................................................... 2,729 2,834
---------- ---------
Total assets...................................................... $ 98,140 $102,595
----------- ---------
----------- ---------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 5,397 $ 3,497
Accrued film rentals................................................ 5,545 6,076
Accrued expenses and other liabilities.............................. 5,768 6,606
Revolving line of credit............................................ 9,700 5,600
Long-term debt, current installments................................ 2,069 2,056
Obligations under capital leases, current installments.............. 248 253
---------- ---------
Total current liabilities......................................... 28,727 24,088
Long-term debt........................................................ 58,966 69,339
Obligations under capital leases...................................... 1,771 1,683
Other long-term liabilities........................................... 4,468 5,154
---------- ---------
Total liabilities................................................. 93,932 100,264
Commitments and contingencies
Members' equity....................................................... 4,208 2,331
---------- ---------
Total liabilities and members' equity............................. $ 98,140 $102,595
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
COBB THEATRES, L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------------------- ----------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Theatre admissions......................... $ 36,584 $ 32,137 $ 21,697 $ 17,699
Concessions................................ 14,284 12,399 8,177 6,668
Other...................................... 1,386 1,380 697 497
------------ ------------ ------------ ------------
Total revenues......................... 52,254 45,916 30,571 24,864
Costs of revenues:
Film rental................................ 17,853 15,550 10,595 8,201
Concession................................. 2,187 1,710 1,257 930
------------ ------------ ------------ ------------
Total cost of revenues................. 20,040 17,260 11,852 9,131
------------ ------------ ------------ ------------
Gross profit........................... 32,214 28,656 18,719 15,733
Operating expenses:
Advertising................................ 1,580 1,355 881 688
Payroll and related costs 6,404 5,635 3,505 2,891
Occupancy.................................. 12,418 11,555 6,257 5,712
Repairs and maintenance.................... 562 698 306 368
Other...................................... 2,237 1,545 1,220 800
General and administrative................. 3,765 3,258 2,007 1,836
Depreciation and amortization.............. 4,468 3,730 2,358 1,927
------------ ------------ ------------ ------------
Total operating expenses............... 31,434 27,776 16,534 14,222
------------ ------------ ------------ ------------
Operating income....................... 780 880 2,185 1,511
------------ ------------ ------------ ------------
Other income (deductions):
Interest expense, net...................... (3,708) (2,415) (1,926) (1,265)
Other...................................... (28) (24) (24) (25)
------------ ------------ ------------ ------------
(3,736) (2,439) (1,950) (1,290)
------------ ------------ ------------ ------------
Income (loss) before income taxes............ (2,956) (1,559) 235 221
Income tax expense (benefit)................. (1,079) (569) 86 81
------------ ------------ ------------ ------------
Net income (loss)...................... $ (1,877) $ (990) $ 149 $ 140
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
COBB THEATRES, L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $ (990) $ (1,877)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................... 3,730 4,468
(Gain) loss on asset dispositions............................... (4) 28
Provision for deferred income taxes............................. (435) (584)
(Increase) decrease in assets:
Receivables..................................................... (478) (51)
Other current assets............................................ (377) (2,089)
Increase (decrease) in liabilities:
Accounts payable................................................ 1,570 (1,900)
Accrued film rental............................................. (1,315) 531
Accrued expenses and other liabilities.......................... 981 838
------------ ------------
Total adjustments............................................. 3,672 1,241
------------ ------------
Net cash provided (used) by operating activities.............. 2,682 (636)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............................... (5,365) (8,853)
Construction in progress.......................................... 123 2,409
Other............................................................. (2) (324)
------------ ------------
Net cash used in investing activities......................... (5,244) (6,768)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) from long-term debt........................... (1,706) 11,046
Proceeds (payments) from revolving line of credit................. 2,500 (4,100)
Principal payments from related parties........................... (18) -
Principal payments under capital lease............................ 739 (83)
------------ ------------
Net cash provided by financing activities..................... 1,515 6,863
------------ ------------
Net decrease in cash and equivalents.............................. (1,047) (541)
Cash and equivalents--beginning of period......................... 1,905 1,241
------------ ------------
Cash and equivalents--end of period............................... $ 858 $ 700
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for: Interest........................................... $ 2,415 $ 3,708
------------ ------------
------------ ------------
Income Taxes........................................ $ 101 $ 1,252
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligation incurred to lease equipment.............. $ 842 $ -
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(UNAUDITED)
NOTE 1--THE COMPANY
Cobb Theatres, L.L.C. (the Company) is an Alabama limited liability company
formed to acquire and operate the business of Cobb Theatres Group, a
privately-held group of companies based in Birmingham, Alabama. The Company was
formed to create a consolidated entity to facilitate the offering of $85 million
of Senior Secured Notes (the "Debt Offering") and the establishment of the New
Credit Facility (as discussed in Note 3). Prior to the completion of certain
Formation Transactions on March 6, 1996 (as discussed below) the Company
consisted of R.C. Cobb, Inc., Cobb Theatres II, Inc. and R & J Concessions, Inc.
Cobb Finance Corp., a wholly-owned subsidiary of the Company, was
incorporated for the purpose of serving as a co-issuer of the Senior Secured
Notes in order to facilitate the Debt Offering. Cobb Finance Corp. will not have
any substantial operations or assets of any kind.
Concurrently with the closing of the Debt Offering on March 6, 1996 (i) R.C.
Cobb, Inc. acquired the outstanding equity of R & J Concessions, Inc., (ii) R &
J Concessions, Inc. was merged into its sole shareholder, R.C. Cobb, Inc. and
(iii) Cobb Theatres, L.L.C. acquired the outstanding equity of R.C. Cobb, Inc.
and Cobb Theatres II, Inc. which had previously been held by members of the Cobb
family (the "Formation Transactions"). As a result of the foregoing Formation
Transactions, R.C. Cobb, Inc. and Cobb Theatres II, Inc. became, together with
Cobb Finance Corp., subsidiaries of the Company. The Cobb family as members own
all of the equity interest of Cobb Theatres, L.L.C.
The term "Company" or "Cobb Theatres" used herein shall mean the Cobb
Theatre Group prior to the Formation Transactions and shall mean Cobb Theatres,
L.L.C. and its consolidated subsidiaries after the completion of the Debt
Offering.
NOTE 2--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and reflect the formation of Cobb Theatres,
L.L.C., which includes the reclassification of stockholders' equity as members'
equity. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
Due to the seasonal nature of the Company's business, operating results for
the three months and six months ended February 29, 1996 are not necessarily
indicative of the results that may be expected for the year ending August 31,
1996. For further information, refer to the audited consolidated financial
statements and footnotes thereto for the year ended August 31, 1995.
NOTE 3--SUBSEQUENT EVENTS
On March 6, 1996, the Company issued $85 million of 10 5/8% Senior Secured
Notes due March 1, 2003. Interest on the Senior Secured Notes will be due
semi-annually and commences on September 1, 1996. The proceeds from the Debt
Offering were primarily used to repay $76.6 million of existing debt and pay
approximately $3.5 million of commissions and other expenses associated with the
Debt Offering, with the remaining proceeds of approximately $4.5 million
available for general corporate purposes, including interest and fees, funding
working capital and the development of additional theatres.
F-24
<PAGE>
COBB THEATRES, L.L.C.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 29, 1996
(UNAUDITED)
NOTE 3--SUBSEQUENT EVENTS--(CONTINUED)
Concurrent with the issuance of the Senior Secured Notes, the Company
entered into a $25 million New Credit Facility, led by one of its existing
banks. The New Credit Facility is comprised of a $12.5 million senior secured
seasonal revolver available for working capital purposes and a $12.5 million
senior secured reducing revolver available for future capital expenditures.
Access to the availability under the New Credit Facility will be dependent upon
the achievement by the Company of certain financial ratios.
The Senior Secured Notes and the New Credit Facility are secured on an equal
and ratable basis by a first pledge of the equity interests of the subsidiaries
of the Company, all intercompany notes and a security interest in all of the
assets (other than real property) of the Company's subsidiaries.
The New Credit Facility contains covenants that, among other things,
restrict the ability of the Company to incur additional debt, create certain
liens, make certain investments (including certain capital expenditures), pay
dividends or make other distributions, sell assets of the Company or its
subsidiaries, issue or sell equity interests of the Company's subsidiaries or
enter into certain mergers or consolidations. Under the New Credit Facility the
Company will be required to comply with specified financial ratios, including
maximum net debt to EBITDA and minimum interest coverage and fixed charge
coverage ratios.
The Company has one interest rate swap agreement with a $12.0 million
notional amount which matures in May 1996. The sole purpose of the swap was to
convert a portion of the Company's variable rate senior term debt to fixed rate.
This debt was repaid as of March 6, 1996 as a result of the issuance of the
Senior Secured Notes. The swap contract no longer qualified for hedge accounting
treatment for the two months prior to maturity at a cost of approximately
$20,000 per month. The Company has had no involvement with other derivatives in
the past, with the exception of basic swaps to convert variable rate debt to
fixed rate debt, and has no specific plans to use derivative products in the
foreseeable future.
NOTE 4--EARNINGS PER SHARE
Earnings per share information is not presented as the Company is a limited
liability company consisting of member interests rather than shareholder
interests.
NOTE 5--CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. In the opinion of management, the ultimate liability with respect to
these actions will not materially affect the consolidated financial positions or
results of operations of the Company.
The State of Florida has substantially completed an audit (primarily sales,
use and rental taxes) for fiscal years 1990 through 1993. Management disputes
the State's assertion that additional taxes are due on commissions received from
concession operations, in addition to the taxes assessed at the point of the
sale. The maximum potential claim arising from this disputed issue approximates
$3.0 million in taxes, penalties and interest. Management believes that the
ultimate outcome of this dispute will not materially impact the consolidated
financial position or the results of operations of Cobb Theatres.
F-25
<PAGE>
========================================= =====================================
- ----------------------------------------- -------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY $85,000,000
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER
MADE IN THIS PROSPECTUS, AND, IF GIVEN OR
[COBB THEATRES LOGO]
MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN 10 5/8% NEW SENIOR SECURED NOTES
IMPLICATION THAT THERE HAS BEEN NO DUE 2003
CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary......... 4
Risk Factors............... 14
The Exchange Offer......... 20
---------------------
The Issuers................ 29
Formation Transactions..... 30 PROSPECTUS
---------------------
Use of Proceeds............ 31
Capitalization............. 31
Selected Combined Financial
and Operating Data......... 32
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................. 34
Business................... 42
Management................. 51
Principal Equityholders.... 53
Certain Relationships and
Related Transactions....... 54
The Operating Agreement.... 54
Description of Certain
Indebtedness............... 58
Description of New Senior
Secured Notes.............. 61
Certain Federal Income
Tax Consequences........... 89
Plan of Distribution....... 89
Legal Matters.............. 90 , 1996
Experts.................... 90
Available Information...... 91
Index to Combined Financial
Statements................. F-1
- ----------------------------------------- -------------------------------------
========================================= =====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the Exchange Offer:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................... $ 29,310.34*
Blue Sky Fees and Expenses.................................................... 5,000.00
Legal Fees and Expenses....................................................... 25,000.00
Accounting Fees............................................................... 100,000.00
Trustee's and Exchange Agent Fees............................................. 5,000.00
Printing and Engraving Costs.................................................. 25,000.00
Miscellaneous Expenses........................................................ 10,689.66
-----------
Total................................................................... $200,000.00
-----------
-----------
</TABLE>
- ------------
* Actual amount.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of Cobb Finance Corp. contains a provision
eliminating or limiting director liability to the Company and its shareholders
for money damages arising from acts or omissions in the director's capacity as a
director. The provision does not, however, eliminate or limit the personal
liability of a director (a) the amount of a financial benefit received by a
director to which he or she is not entitled, (b) an intentional infliction of
harm on the corporation or its shareholders, (c) a violation of Section
10-2B-8.33 of the Code of Alabama 1975, as amended, (d) an intentional violation
of criminal law, or (e) a breach of the director's duty of loyalty to the
corporation or its shareholders. This provision offers persons who serve on the
Board of directors of the Company protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of the Cobb Finance Corp. or a shareholder
thereof to successfully prosecute an action against a director for a breach of
his duty of care is limited. However, the provision does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The Commission has taken the
position that the provision will have no effect on claims arising under the
federal securities laws.
In addition, the Operating Agreement of Cobb Theatres, L.L.C. and By-Laws of
Cobb Finance Corp. provide for mandatory indemnification rights, subject to
limited exceptions, to any director, officer, employee, Manager, in the case of
the Cobb Theatres, L.L.C., or agent of the Company who by reason of the fact
that he or she is a director, officer, employee, Manager or agent of such
Registrant, is involved in a legal proceeding of any nature to the fullest
extent permissible under Alabama law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below are all sales of unregistered securities by Cobb Theatres,
L.L.C. and Cobb Finance Corp. within the past three years:
1. On March 6, 1996, as part of the Formation Transactions, Cobb
Theatres, L.L.C. issued all of its equity interests to Rowland C. Cobb, Jr.,
Robert M. Cobb and Jefferson R. Cobb and two revocable trusts for the
benefit of the spouses and children of Robert M. Cobb and Jefferson R. Cobb,
respectively, in exchange for all of the capital stock of R.C. Cobb, Inc.
and Cobb Theatres II, Inc. as described under "Formation Transactions" and
"Principal Equityholders" in the Prospectus which forms a part of this
Registration Statement, which descriptions are hereby incorporated herein by
reference.
2. On March 1, 1996, in connection with its organization, all of the
issued and outstanding capital stock of Cobb Finance Corp. was issued to
Cobb Theatres, L.L.C.
3. The 10 5/8 Senior Secured Notes due 2003 of Cobb Theatres, L.L.C. and
Cobb Finance Corp. were sold, on March 6, 1996, to Lehman Brothers Inc. and
First Union Capital Markets Corp. Said Initial Purchasers received discounts
and commissions of $2,975,000 in connection with such transaction.
Except as set forth above, none of the transactions described above was
underwritten and there were no underwriting discounts or commissions. The
Company believes that all securities issued in connection with the transactions
described above were exempt from registration under Section 4(2) of the
Securities Act as transactions not involving a public offering.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
(2)-1 --R&J Stock Purchase Agreement, dated March 6, 1996, between R.C. Cobb, Inc. and the
shareholders of R&J Concessions, Inc.*
(2)-2 --Agreement and Articles of Merger, dated March 6, 1996, between R&J Concessions,
and R.C. Cobb, Inc.*
(3)-1 --Articles of Organization, dated January 15, 1996, of Cobb Theatres, L.L.C.
Operating Agreement, dated March 4, 1996, of Cobb Theatres, L.L.C.*
(3)-2 --Articles of Incorporation of Cobb Finance Corp.*
(3)-3 --By-laws of Cobb Finance Corp.*
(4)-1 --Indenture, dated as of March 6, 1996, among Cobb Theatres L.L.C., Cobb Finance
Corp., and IBJ Shroder Bank & Trust Company.*
(4)-2 --Pledge Agreement, dated as of March 6, 1996, among Cobb Theatres L.L.C. and IBJ
Schroder Bank & Trust Company, as Collateral Agent.*
(4)-3 --Security Agreement, dated as of March 6, 1996, among Cobb Theatres L.L.C., R.C.
Cobb, Inc., Cobb Theatres II, Inc. and IBJ Schroder Bank & Trust Company, as
Collateral Agent.*
(4)-4 --Global 10 5/8% Senior Notes Due 2003, including Subsidiary Guarantees.
(4)-5 --Registration Rights Agreement, dated as of March 6, 1996, by and among Cobb
Theatres L.L.C., Cobb Finance Corp., R.C. Cobb, Inc., Cobb Theatres II, Inc.,
Lehman Brothers Inc. and First Union Capital Markets Corp.*
(5) --Opinion of Haskell Slaughter & Young, L.L.C., as to the legality of New Senior
Secured Notes being registered.
(8) --Opinion of Haskell Slaughter & Young, L.L.C., as to certain federal income tax
consequences.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
(10)-1 --Credit Agreement, dated as of March 6, 1996, among Cobb Theatres L.L.C., Cobb
Finance Corp. and First Union National Bank of North Carolina, as Agent.*
(10)-2 --Unconditional Guaranty Agreement, dated as of March 6, 1996, executed by R.C.
Cobb, Inc. and Cobb Theatres II, Inc., in favor of First Union National Bank of
North Carolina, as Agent.*
(10)-3 --Facility A Revolving Credit Note, dated March 6, 1996, of Cobb Theatres L.L.C. and
Cobb Finance Corp. in the principal amount of $7,500,000 drawn to the order of
First Union Bank of North Carolina.*
(10)-4 --Facility B Revolving Credit Note, dated March 6, 1996, of Cobb Theatres L.L.C. and
Cobb Finance Corp. in the principal amount of $7,500,000 drawn to the order of
First Union National Bank of North Carolina.*
(10)- 5 --Aircraft Service Agreement, dated as of January 1, 1996, between R.C. Cobb, Inc.
and Sipsey River, Inc.*
(10)-6 --Lease, dated January 21, 1986, between Tricob and R.C. Cobb, Inc., as amended,
related to the Port Charlotte Theatre.*
(10)-7 --Agreement of Lease, dated February 8, 1983, between Tricob Realty and R.C. Cobb,
Inc., as amended, related to the Huntsville Theatre.*
(10)-8 --Lease, dated August 13, 1985, between Tricob and R.C. Cobb, Inc., as amended,
related to the Madison Square Theatre.*
(10)-9 --Lease Agreement, dated September 11, 1979, between Rowland C. Cobb, Jr. and R.C.
Cobb, Inc., as amended, related to the headquarters building located in
Birmingham, Alabama.*
(10)-10 --Purchase Agreement, dated February 29, 1996, among Cobb Theatres, L.L.C., Cobb
Finance Corp., R.C. Cobb, Inc., Cobb Theatres II, Inc. and Lehman Brothers Inc.
and First Union Capital Markets Corp.*
(12) --Statement re: Computation of Ratio of Earnings to Fixed Charges.*
(21) --Subsidiaries of the Registrants.*
(23)-1 --Consent of Ernst & Young LLP. See pages immediately following signature pages to
the Registration Statement.
(23)-2 --Consent of LaRocca & Co., P.C. See pages immediately following signature pages to
the Registration Statement.
(23)-3 --Consent of Haskell Slaughter & Young, L.L.C. (included in the opinion filed as
Exhibit (5)).
(24) --Powers of Attorney. See the signature pages to this Amendment No. 1 to the
Registration Statement on Form S-4.
(25) --Form T-1 Statement of Eligibility of Trustee.
</TABLE>
* Filed with the initial Filing of the Registration Statement.
(b) Financial Statement Schedules:
None are applicable.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to Item 14 hereof, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama on June 6, 1996.
COBB THEATRES, L.L.C.
By: /s/ ROBERT M. COBB
..................................
Robert M. Cobb
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert M. Cobb and Ricky W. Thomas, and each of
them, his attorney-in-fact with power of substitution for him in any and all
capacities, to sign any amendments, supplements or other instruments he deems
necessary or appropriate, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact or his
substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- --------------------------------- --------------
<S> <C> <C>
/s/ ROBERT M. COBB President and Chief Executive June 6, 1996
........................................ Officer and Manager
Robert M. Cobb
/s/ RICKY W. THOMAS Senior Vice President and Chief June 6, 1996
........................................ Financial Officer (Principal
Ricky W. Thomas Financial and Accounting
Officer)
/s/ ROWLAND C. COBB, JR. Manager June 6, 1996
........................................
Rowland C. Cobb, Jr.
/s/ JEFFERSON R. COBB Manager June 6, 1996
........................................
Jefferson R. Cobb
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama on June 6, 1996.
COBB FINANCE CORP.
By: /s/ ROBERT M. COBB
..................................
Robert M. Cobb
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert M. Cobb and Ricky W. Thomas, and each of
them, his attorney-in-fact with power of substitution for him in any and all
capacities, to sign any amendments, supplements or other instruments he deems
necessary or appropriate, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact or his
substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- --------------------------------- --------------
<S> <C> <C>
/s/ ROBERT M. COBB President and Chief Executive June 6, 1996
........................................ Officer and Director
Robert M. Cobb
/s/ RICKY W. THOMAS Senior Vice President and Chief June 6, 1996
........................................ Financial Officer (Principal
Ricky W. Thomas Financial and Accounting
Officer)
/s/ ROWLAND C. COBB, JR. Chairman of the Board June 6, 1996
........................................
Rowland C. Cobb, Jr.
/s/ JEFFERSON R. COBB Director June 6, 1996
........................................
Jefferson R. Cobb
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama on June 6, 1996.
R.C. COBB, INC.
By: /s/ ROBERT M. COBB
..................................
Robert M. Cobb
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert M. Cobb and Ricky W. Thomas, and each of
them, his attorney-in-fact with power of substitution for him in any and all
capacities, to sign any amendments, supplements or other instruments he deems
necessary or appropriate, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact or his
substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- --------------------------------- --------------
<S> <C> <C>
/s/ ROBERT M. COBB President and Chief Executive June 6, 1996
........................................ Officer and Director
Robert M. Cobb
/s/ RICKY W. THOMAS Senior Vice President and Chief June 6, 1996
........................................ Financial Officer (Principal
Ricky W. Thomas Financial and Accounting
Officer)
/s/ ROWLAND C. COBB, JR. Chairman of the Board June 6, 1996
........................................
Rowland C. Cobb, Jr.
/s/ JEFFERSON R. COBB Director June 6, 1996
........................................
Jefferson R. Cobb
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama on June 6, 1996.
COBB THEATRES II, INC.
By: /s/ ROBERT M. COBB
..................................
Robert M. Cobb
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert M. Cobb and Ricky W. Thomas, and each of
them, his attorney-in-fact with power of substitution for him in any and all
capacities, to sign any amendments, supplements or other instruments he deems
necessary or appropriate, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact or his
substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- --------------------------------- --------------
<S> <C> <C>
/s/ ROBERT M. COBB President and Chief Executive June 6, 1996
........................................ Officer and Director
Robert M. Cobb
/s/ RICKY W. THOMAS Senior Vice President and Chief June 6, 1996
........................................ Financial Officer (Principal
Ricky W. Thomas Financial and Accounting
Officer)
/s/ ROWLAND C. COBB, JR. Chairman of the Board June 6, 1996
........................................
Rowland C. Cobb, Jr.
/s/ JEFFERSON R. COBB Director June 6, 1996
........................................
Jefferson R. Cobb
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
(2)-1 --R&J Stock Purchase Agreement, dated March 6, 1996, between R.C. Cobb, Inc. and the
shareholders of R&J Concessions, Inc.*
(2)-2 --Agreement and Articles of Merger, dated March 6, 1996, between R&J Concessions,
and R.C. Cobb, Inc.*
(3)-1 --Articles of Organization, dated January 15, 1996, of Cobb Theatres, L.L.C.
Operating Agreement, dated March 4, 1996, of Cobb Theatres, L.L.C.*
(3)-2 --Articles of Incorporation of Cobb Finance Corp.*
(3)-3 --By-laws of Cobb Finance Corp.*
(4)-1 --Indenture, dated as of March 6, 1996, among Cobb Theatres L.L.C., Cobb Finance
Corp., and IBJ Shroder Bank & Trust Company.*
(4)-2 --Pledge Agreement, dated as of March 6, 1996, among Cobb Theatres L.L.C. and IBJ
Schroder Bank & Trust Company, as Collateral Agent.*
(4)-3 --Security Agreement, dated as of March 6, 1996, among Cobb Theatres L.L.C., R.C.
Cobb, Inc., Cobb Theatres II, Inc. and IBJ Schroder Bank & Trust Company, as
Collateral Agent.*
(4)-4 --Global 10 5/8% Senior Notes Due 2003, including Subsidiary Guarantees.
(4)-5 --Registration Rights Agreement, dated as of March 6, 1996, by and among Cobb
Theatres L.L.C., Cobb Finance Corp., R.C. Cobb, Inc., Cobb Theatres II, Inc.,
Lehman Brothers Inc. and First Union Capital Markets Corp.*
(5) --Opinion of Haskell Slaughter & Young, L.L.C., as to the legality of New Senior
Secured Notes being registered.
(8) --Opinion of Haskell Slaughter & Young, L.L.C., as to certain federal income tax
consequences.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
(10)-1 --Credit Agreement, dated as of March 6, 1996, among Cobb Theatres L.L.C., Cobb
Finance Corp. and First Union National Bank of North Carolina, as Agent.*
(10)-2 --Unconditional Guaranty Agreement, dated as of March 6, 1996, executed by R.C.
Cobb, Inc. and Cobb Theatres II, Inc., in favor of First Union National Bank of
North Carolina, as Agent.*
(10)-3 --Facility A Revolving Credit Note, dated March 6, 1996, of Cobb Theatres L.L.C. and
Cobb Finance Corp. in the principal amount of $7,500,000 drawn to the order of
First Union Bank of North Carolina.*
(10)-4 --Facility B Revolving Credit Note, dated March 6, 1996, of Cobb Theatres L.L.C. and
Cobb Finance Corp. in the principal amount of $7,500,000 drawn to the order of
First Union National Bank of North Carolina.*
(10)- 5 --Aircraft Service Agreement, dated as of January 1, 1996, between R.C. Cobb, Inc.
and Sipsey River, Inc.*
(10)-6 --Lease, dated January 21, 1986, between Tricob and R.C. Cobb, Inc., as amended,
related to the Port Charlotte Theatre.*
(10)-7 --Agreement of Lease, dated February 8, 1983, between Tricob Realty and R.C. Cobb,
Inc., as amended, related to the Huntsville Theatre.*
(10)-8 --Lease, dated August 13, 1985, between Tricob and R.C. Cobb, Inc., as amended,
related to the Madison Square Theatre.*
(10)-9 --Lease Agreement, dated September 11, 1979, between Rowland C. Cobb, Jr. and R.C.
Cobb, Inc., as amended, related to the headquarters building located in
Birmingham, Alabama.*
(10)-10 --Purchase Agreement, dated February 29, 1996, among Cobb Theatres, L.L.C., Cobb
Finance Corp., R.C. Cobb, Inc., Cobb Theatres II, Inc. and Lehman Brothers Inc.
and First Union Capital Markets Corp.*
(12) --Statement re: Computation of Ratio of Earnings to Fixed Charges.*
(21) --Subsidiaries of the Registrants.*
(23)-1 --Consent of Ernst & Young LLP. See pages immediately following signature pages to
the Registration Statement.
(23)-2 --Consent of LaRocca & Co., P.C. See pages immediately following signature pages to
the Registration Statement.
(23)-3 --Consent of Haskell Slaughter & Young, L.L.C. (included in the opinion filed as
Exhibit (5)).
(24) --Powers of Attorney. See the signature page to the original filing of this
Registration Statement on Form S-4.
(25) --Form T-1 Statement of Eligibility of Trustee.*
</TABLE>
* Filed with the initial Filing of the Registration Statement.
(b) Financial Statement Schedules:
None are applicable.
EXHIBIT 4.4
10-5/8% Senior Secured Notes due 2003
CUSIP: 19088K AB 6
No. 001 $500,000
COBB THEATRES, L.L.C. and COBB FINANCE CORP.
promise to pay to CEDE & CO
or registered assigns,
the principal sum of 500,000.00
Dollars on March 1, 2003.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
Dated: March 6, 1996
COBB THEATRES, L.L.C.
By: /s/ JEFFERSON R. COBB
--------------------------
Name: Jefferson R. Cobb
Title: Executive V.P.
and Secretary/Treasurer
By: /s/ JOE G. DAVIS JR.
---------------------------
Name: Joe G. Davis Jr.
Title: Assistant Secretary
Dated: March 6, 1996
COBB FINANCE CORP.
By: /s/ JEFFERSON R. COBB
---------------------------
Name: Jefferson R. Cobb
Title: Executive V.P. and
Secretary/Treasurer
By: /s/ JOE G. DAVIS JR.
---------------------------
Name: Joe G. Davis Jr.
Title: Assistant Secretary
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/
-------------------------------
<PAGE>
10-5/8% Senior Secured Notes due 2003
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depositary Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuers or their agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE
SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE ISSUERS THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF
THE ISSUERS SO REQUEST), (2) TO THE ISSUERS OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE
RESALE RESTRICTIONS SET FORTH IN (1) ABOVE.
2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. Cobb Theatres, L.L.C., an Alabama limited liability company
(the "Company") and Cobb Finance Corp., Inc., an Alabama corporation ("Finance
Corp." and, together with the Company, the "Issuers") promise to pay interest on
the principal amount of this Note at 10 5/8% per annum from March 1, 1996 until
maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of
the Registration Rights Agreement referred to below. The Issuers will pay
interest and Liquidated Damages semi-annually on March 1 and September 1 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be September 1,
1996. The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; they shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Issuers will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the February 15 or August 15 next
preceding the Interest Payment Date, even if such Notes are cancelled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered Holders on such Interest Payment Date, and
may be paid to the registered Holders at the close of business on a special
interest payment date to be fixed by the Trustee for the payment of such
defaulted interest, notice whereof shall be given to the registered Holders not
less than 10 days prior to such special interest payment date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in the
Indenture. The Notes will be payable as the principal, premium, interest and
Liquidated Damages at the office or agency of the Issuers maintained for such
purpose within or without the City and State of New York, or, at the option of
the issuers, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Issuers or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust
Company, a New York banking corporation and the Trustee under the Indenture,
will act as Paying Agent and Registrar. The Issuers may change any Paying Agent
or Registrar without notice to any Holder. The Issuers or any of their
Subsidiaries may act in any such capacity.
3
<PAGE>
4. INDENTURE AND COLLATERAL DOCUMENTS. The Issuers issued the Notes under
an Indenture dated as of March 6, 1996 (the "Indenture") between the Issuers,
the Guarantors and the Trustee. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sec. 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. The Notes are secured obligations
of the Issuers limited to $85.0 million in aggregate principal amount, plus
amounts, if any, issued to pay Liquidated Damages on outstanding Notes as set
forth in Paragraph 2 hereof. The Notes are secured by a pledge of Equity
Interests and by the a security interest in all of the assets (other than real
property) of the Issuers and Guarantors pursuant to the Collateral Documents
referred to in the Indenture.
5. OPTIONAL REDEMPTION. The Issuers shall have the option to redeem the
Notes, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 1 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2000 . . . . . . . . . . . . . . . . . . . 105.313%
2001 . . . . . . . . . . . . . . . . . . . 102.656%
2002 and thereafter . . . . . . . . . . . 100.000%
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the
Issuers shall not be required to make mandatory redemption payments with respect
to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Issuers shall by required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the principal amount thereof plus, in each case, accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase (in
either case, the "Change of Control Payment"). Within 10 days following any
Change of Control, the Issuers shall mail a notice to each Holder setting forth
the procedures governing the Change of Control Offer as required by the
Indenture.
(b) If the Issuers or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5 million, the Issuers shall commence an offer to all Holders of Notes (as
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Issuers (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Issuers prior to any related purchase date and may
4
<PAGE>
elect to have such Notes purchased by completing the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at lest 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions
thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Issuers' and Guarantors' obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Issuers to comply with Section 4.07, 4.09, 4.10 or 4.15 of the Indenture,
which failure remains uncured for 30 days; (iv) failure by the Issuers for 60
days after notice to the Issuers by the Trustee or the Holders of at least 25%
in principal amount of the Notes then outstanding to comply with certain other
agreements in the Indenture, the Notes, the Subsidiary Guarantees or the
Collateral Documents; (v) default under certain other agreements relating to
Indebtedness of the Issuers which default results in the acceleration of such
Indebtedness prior to its express maturity; (vi) certain final judgments for the
payment of money that remain undischarged for a period of 60 days; (vii) certain
events of bankruptcy or insolvency with respect to the Issuers or any of its
Material Subsidiaries; and (viii) the breach of certain covenants in the
Collateral Documents or the Collateral Documents shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect. If any Event of
5
<PAGE>
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Notes will become due and payable without further action or notice. Holders may
not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default in the payment of interest on, or the principal of, the Notes. The
Issuers are required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Issuers are required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH ISSUERS. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuers or their Affiliates, and may otherwise deal with the Issuers or
their Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Issuers or the Guarantors, as such, shall
not have any liability for any obligations of the Issuers under the Notes, the
Subsidiary Guarantees, the Collateral Documents or the Indenture or for any
claim based on, in respect of, or by reason of, such obligation or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of March 6, 1996, between the Issuers and
the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
6
<PAGE>
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Cobb Theatres, L.L.C.
Cobb Finance Corp.
924 Montclair Road
Birmingham, Alabama 35213
Attention: Ricky W. Thomas
7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- ------------------------------------------------------------------------------
Date:
---------------
Your Signature:
-----------------------
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee.
8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.10 or 4.15 of the Indenture, check the box below:
/_/ Section 4.10 /_/ Section 4.15
If you want to elect to have only part of the Note purchased by the Issuers
pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you
elect to have purchased: $
-----------
Date: Your Signature:
--------------- ------------------------
(Sign exactly as your name
appears on the Note)
Tax Identification No.:
-----------------
Signature Guarantee.
9
<PAGE>
<TABLE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES
The following exchanges of a part of this Global Note for Certificated Notes
have been made:
<S> <C> <C> <C> <C>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- ---------------------- ---------------------- ----------------------- ---------------------
</TABLE>
10
<PAGE>
================================================================================
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 10 5/8% Senior Secured Notes due 2003 of Cobb Theatres, L.L.C.
This Certificate relates to $ principal amount of Notes held in *
------ --
book-entry or * certificated form by (the
- ---- -------- -----------------
"Transferor").
The Transferor*:
/_/ has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depositary a Note or
Notes in certificated, registered form of authorized denominations in an
aggregate principal amount equal to its beneficial interest in such Global
Note (or the portion thereof indicated above); or
/_/ has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that Transferor is familiar with the Indenture
relating to the above captioned Notes and as provided in Section 2.06 of such
Indenture, the transfer of this Note does not require registration under the
Securities Act (as defined below) because:*
/_/ Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
/_/ Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) in reliance on Rule 144A or to an "Accredited Investor," (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in
accordance with Regulation D under the Securities Act (in satisfaction of
Section 2.06(a)(ii)(B), Section 2.06(b)(i) or Section 2.06(d)(i)(B) of the
Indenture) or pursuant to an exemption from registration in accordance with Rule
904 under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or
Section 2.06(d)(i)(B) of the Indenture.)
- ------------
*Check applicable box.
11
<PAGE>
/_/ Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
/_/ Such Note is being transferred in reliance on and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to
the effect that such transfer does not require registration under the Securities
Act accompanies this Certificate (in satisfaction of Section 2.06(a)(ii)(C) or
Section 2.06(d)(i)(C) of the Indenture).
------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
--------------------------------
Date:
--------------------
- -------------
*Check applicable box.
12
<PAGE>
GUARANTORS
1. R.C. Cobb, Inc.
2. Cobb Theatres II, Inc.
13
<PAGE>
SUBSIDIARY GUARANTEE
Each Guarantor hereby, jointly and severally, unconditionally guarantees to
each Holder of Notes authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, irrespective of the validity and
enforceability of the Indenture, the Notes or the Obligations of the Issuers to
the Holders or the Trustee under the Notes or under the Indenture, that: (a) the
principal of, and premium and Liquidated Damages, if any, and interest on the
Notes will be duly and punctually paid in full when due, whether at maturity, by
acceleration or otherwise, and interest on overdue principal, premium and
Liquidated Damages, if any, and (to the extent permitted by law) interest on any
interest, if any, on the Notes and all other payment Obligations of the Issuers
to the Holders or the Trustee under the Indenture or under the Notes (including
fees, expenses or other) will be promptly paid in full, all in accordance with
the terms thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other payment Obligations, the same will be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed, for whatever reason, the
Guarantors will be jointly and severally obligated to pay the same immediately.
The obligations of the Guarantors to the Holders of Notes and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 11 of the Indenture, and reference is hereby made to such
Indenture for the precise terms of this Subsidiary Guarantee. The terms of
Article 11 of the Indenture are incorporated herein by reference.
This is a continuing Subsidiary Guarantee and shall remain in full force
and effect and shall be binding upon each Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Issuers' Obligations under the Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders of Notes and, in the event of any transfer or assignment
of rights by any Holder of Notes or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This a Subsidiary Guarantee of payment and not a guarantee of collection.
In certain circumstances more fully described in the Indenture, any
Guarantor may be released from its liability under this Subsidiary Guarantee,
and any such release will be effective whether or not noted hereon.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Subsidiary
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
For purposes, hereof, each Guarantor's liability will be that amount from
time to time equal to the aggregate liability of such Guarantor hereunder, but
shall be limited to the lesser of (i) the aggregate amount of the obligations of
the Issuers under the Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered such Guarantor "insolvent" (as such term is defined
in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of
New York) or (B) left it with unreasonably small capital at the time its
Subsidiary Guarantee of the Notes was entered into, after giving effect to the
incurrence of existing Indebtedness immediately prior to such time; provided
that, it shall
14
<PAGE>
be a presumption in any lawsuit or other proceeding in which such Guarantor is a
party that the amount guaranteed pursuant to its Subsidiary Guarantee is the
amount set forth in clause (i) above unless any creditor, or representative of
creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of
such Guarantor, otherwise proves in such a lawsuit that the aggregate liability
of such Guarantor is limited to the amount set forth in clause (ii). The
Indenture provides that, in making any determination as to the solvency or
sufficiency of capital of a Guarantor in accordance with the previous sentence,
the right of such Guarantor to contribution from other Guarantors and any other
rights such Guarantor may have, contractual or otherwise, shall be taken into
account.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
R.C. COBB INC.
By: _____________________
Name: Jefferson R. Cobb
Title: Executive Vice President
and Secretary/Treasurer
By: _____________________
Name: Ricky W. Thomas
Title: Senior Vice President and
Chief Financial Officer
COBB THEATRES II, INC.
By: ____________________
Name: Jefferson R. Cobb
Title: Executive Vice President and
Secretary/Treasurer
By: ____________________
Name: Ricky W. Thomas
Title: Senior Vice President and
Chief Financial Officer
15
<PAGE>
10-5/8% Senior Secured Notes due 2003
CUSIP: 19088K AA 8
No. 001 $84,500,000
COBB THEATRES, L.L.C. and COBB FINANCE CORP.
promise to pay to CEDE & CO
or registered assigns,
the principal sum of 84,500,000.00
Dollars on March 1, 2003.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
Dated: March 6, 1996
COBB THEATRES, L.L.C.
By: /s/ JEFFERSON R. COBB
---------------------------
Name: Jefferson R. Cobb
Title: Executive V.P. and
Secretary/Treasurer
By: /s/ JOE G. DAVIS JR.
---------------------------
Name: Joe G. Davis Jr.
Title: Assistant Secretary
Dated: March 6, 1996
COBB FINANCE CORP.
By: /s/ JEFFERSON R. COBB
---------------------------
Name: Jefferson R. Cobb
Title: Executive V.P. and
Secretary/Treasurer
By: /s/ JOE G. DAVIS JR.
---------------------------
Name: Joe G. Davis Jr.
Title: Assistant Secretary
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/
-------------------------
<PAGE>
10-5/8% Senior Secured Notes due 2003
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depositary Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuers or their agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE
SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE ISSUERS THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF
THE ISSUERS SO REQUEST), (2) TO THE ISSUERS OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE
RESALE RESTRICTIONS SET FORTH IN (1) ABOVE.
2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. Cobb Theatres, L.L.C., an Alabama limited liability company
(the "Company") and Cobb Finance Corp., Inc., an Alabama corporation ("Finance
Corp." and, together with the Company, the "Issuers") promise to pay interest on
the principal amount of this Note at 10 5/8% per annum from March 1, 1996 until
maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of
the Registration Rights Agreement referred to below. The Issuers will pay
interest and Liquidated Damages semi-annually on March 1 and September 1 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be September 1,
1996. The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; they shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Issuers will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the February 15 or August 15 next
preceding the Interest Payment Date, even if such Notes are cancelled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered Holders on such Interest Payment Date, and
may be paid to the registered Holders at the close of business on a special
interest payment date to be fixed by the Trustee for the payment of such
defaulted interest, notice whereof shall be given to the registered Holders not
less than 10 days prior to such special interest payment date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in the
Indenture. The Notes will be payable as the principal, premium, interest and
Liquidated Damages at the office or agency of the Issuers maintained for such
purpose within or without the City and State of New York, or, at the option of
the issuers, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Issuers or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust
Company, a New York banking corporation and the Trustee under the Indenture,
will act as Paying Agent and Registrar. The Issuers may change any Paying Agent
or Registrar without notice to any Holder. The Issuers or any of their
Subsidiaries may act in any such capacity.
3
<PAGE>
4. INDENTURE AND COLLATERAL DOCUMENTS. The Issuers issued the Notes under
an Indenture dated as of March 6, 1996 (the "Indenture") between the Issuers,
the Guarantors and the Trustee. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sec. 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. The Notes are secured obligations
of the Issuers limited to $85.0 million in aggregate principal amount, plus
amounts, if any, issued to pay Liquidated Damages on outstanding Notes as set
forth in Paragraph 2 hereof. The Notes are secured by a pledge of Equity
Interests and by the a security interest in all of the assets (other than real
property) of the Issuers and Guarantors pursuant to the Collateral Documents
referred to in the Indenture.
5. OPTIONAL REDEMPTION. The Issuers shall have the option to redeem the
Notes, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 1 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2000 . . . . . . . . . . . . . . . . . . . 105.313%
2001 . . . . . . . . . . . . . . . . . . . 102.656%
2002 and thereafter . . . . . . . . . . . 100.000%
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the
Issuers shall not be required to make mandatory redemption payments with respect
to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Issuers shall by required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the principal amount thereof plus, in each case, accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase (in
either case, the "Change of Control Payment"). Within 10 days following any
Change of Control, the Issuers shall mail a notice to each Holder setting forth
the procedures governing the Change of Control Offer as required by the
Indenture.
(b) If the Issuers or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5 million, the Issuers shall commence an offer to all Holders of Notes (as
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Issuers (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Issuers prior to any related purchase date and may
4
<PAGE>
elect to have such Notes purchased by completing the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at lest 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions
thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Issuers' and Guarantors' obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Issuers to comply with Section 4.07, 4.09, 4.10 or 4.15 of the Indenture,
which failure remains uncured for 30 days; (iv) failure by the Issuers for 60
days after notice to the Issuers by the Trustee or the Holders of at least 25%
in principal amount of the Notes then outstanding to comply with certain other
agreements in the Indenture, the Notes, the Subsidiary Guarantees or the
Collateral Documents; (v) default under certain other agreements relating to
Indebtedness of the Issuers which default results in the acceleration of such
Indebtedness prior to its express maturity; (vi) certain final judgments for the
payment of money that remain undischarged for a period of 60 days; (vii) certain
events of bankruptcy or insolvency with respect to the Issuers or any of its
Material Subsidiaries; and (viii) the breach of certain covenants in the
Collateral Documents or the Collateral Documents shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect. If any Event of
5
<PAGE>
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Notes will become due and payable without further action or notice. Holders may
not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default in the payment of interest on, or the principal of, the Notes. The
Issuers are required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Issuers are required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH ISSUERS. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuers or their Affiliates, and may otherwise deal with the Issuers or
their Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Issuers or the Guarantors, as such, shall
not have any liability for any obligations of the Issuers under the Notes, the
Subsidiary Guarantees, the Collateral Documents or the Indenture or for any
claim based on, in respect of, or by reason of, such obligation or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of March 6, 1996, between the Issuers and
the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
6
<PAGE>
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Cobb Theatres, L.L.C.
Cobb Finance Corp.
924 Montclair Road
Birmingham, Alabama 35213
Attention: Ricky W. Thomas
7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- ------------------------------------------------------------------------------
Date:
---------------
Your Signature:
-----------------------
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee.
8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.10 or 4.15 of the Indenture, check the box below:
/_/ Section 4.10 /_/ Section 4.15
If you want to elect to have only part of the Note purchased by the Issuers
pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you
elect to have purchased: $
-----------
Date: Your Signature:
--------------- ------------------------
(Sign exactly as your name
appears on the Note)
Tax Identification No.:
-----------------
Signature Guarantee.
9
<PAGE>
<TABLE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES
The following exchanges of a part of this Global Note for Certificated Notes
have been made:
<S> <C> <C> <C> <C>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- ---------------------- ---------------------- ----------------------- ---------------------
</TABLE>
10
<PAGE>
================================================================================
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 10 5/8% Senior Secured Notes due 2003 of Cobb Theatres, L.L.C.
This Certificate relates to $ principal amount of Notes held in *
------ --
book-entry or * certificated form by (the
- ---- -------- -----------------
"Transferor").
The Transferor*:
/_/ has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depositary a Note or
Notes in certificated, registered form of authorized denominations in an
aggregate principal amount equal to its beneficial interest in such Global
Note (or the portion thereof indicated above); or
/_/ has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that Transferor is familiar with the Indenture
relating to the above captioned Notes and as provided in Section 2.06 of such
Indenture, the transfer of this Note does not require registration under the
Securities Act (as defined below) because:*
/_/ Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
/_/ Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) in reliance on Rule 144A or to an "Accredited Investor," (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in
accordance with Regulation D under the Securities Act (in satisfaction of
Section 2.06(a)(ii)(B), Section 2.06(b)(i) or Section 2.06(d)(i)(B) of the
Indenture) or pursuant to an exemption from registration in accordance with Rule
904 under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or
Section 2.06(d)(i)(B) of the Indenture.)
- ------------
*Check applicable box.
11
<PAGE>
/_/ Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
/_/ Such Note is being transferred in reliance on and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to
the effect that such transfer does not require registration under the Securities
Act accompanies this Certificate (in satisfaction of Section 2.06(a)(ii)(C) or
Section 2.06(d)(i)(C) of the Indenture).
------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
--------------------------------
Date:
--------------------
- -------------
*Check applicable box.
12
<PAGE>
GUARANTORS
1. R.C. Cobb, Inc.
2. Cobb Theatres II, Inc.
13
<PAGE>
SUBSIDIARY GUARANTEE
Each Guarantor hereby, jointly and severally, unconditionally guarantees to
each Holder of Notes authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, irrespective of the validity and
enforceability of the Indenture, the Notes or the Obligations of the Issuers to
the Holders or the Trustee under the Notes or under the Indenture, that: (a) the
principal of, and premium and Liquidated Damages, if any, and interest on the
Notes will be duly and punctually paid in full when due, whether at maturity, by
acceleration or otherwise, and interest on overdue principal, premium and
Liquidated Damages, if any, and (to the extent permitted by law) interest on any
interest, if any, on the Notes and all other payment Obligations of the Issuers
to the Holders or the Trustee under the Indenture or under the Notes (including
fees, expenses or other) will be promptly paid in full, all in accordance with
the terms thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other payment Obligations, the same will be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed, for whatever reason, the
Guarantors will be jointly and severally obligated to pay the same immediately.
The obligations of the Guarantors to the Holders of Notes and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 11 of the Indenture, and reference is hereby made to such
Indenture for the precise terms of this Subsidiary Guarantee. The terms of
Article 11 of the Indenture are incorporated herein by reference.
This is a continuing Subsidiary Guarantee and shall remain in full force
and effect and shall be binding upon each Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Issuers' Obligations under the Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders of Notes and, in the event of any transfer or assignment
of rights by any Holder of Notes or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This a Subsidiary Guarantee of payment and not a guarantee of collection.
In certain circumstances more fully described in the Indenture, any
Guarantor may be released from its liability under this Subsidiary Guarantee,
and any such release will be effective whether or not noted hereon.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Subsidiary
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
For purposes, hereof, each Guarantor's liability will be that amount from
time to time equal to the aggregate liability of such Guarantor hereunder, but
shall be limited to the lesser of (i) the aggregate amount of the obligations of
the Issuers under the Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered such Guarantor "insolvent" (as such term is defined
in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of
New York) or (B) left it with unreasonably small capital at the time its
Subsidiary Guarantee of the Notes was entered into, after giving effect to the
incurrence of existing Indebtedness immediately prior to such time; provided
that, it shall
14
<PAGE>
be a presumption in any lawsuit or other proceeding in which such Guarantor is a
party that the amount guaranteed pursuant to its Subsidiary Guarantee is the
amount set forth in clause (i) above unless any creditor, or representative of
creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of
such Guarantor, otherwise proves in such a lawsuit that the aggregate liability
of such Guarantor is limited to the amount set forth in clause (ii). The
Indenture provides that, in making any determination as to the solvency or
sufficiency of capital of a Guarantor in accordance with the previous sentence,
the right of such Guarantor to contribution from other Guarantors and any other
rights such Guarantor may have, contractual or otherwise, shall be taken into
account.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
R.C. COBB INC.
By: _____________________
Name: Jefferson R. Cobb
Title: Executive Vice President
and Secretary/Treasurer
By: _____________________
Name: Ricky W. Thomas
Title: Senior Vice President and
Chief Financial Officer
COBB THEATRES II, INC.
By: ____________________
Name: Jefferson R. Cobb
Title: Executive Vice President and
Secretary/Treasurer
By: ____________________
Name: Ricky W. Thomas
Title: Senior Vice President and
Chief Financial Officer
15
Exhibit 5
[HASKELL SLAUGHTER & YOUNG, LLC LETTERHEAD]
June 6, 1996
Cobb Theatres, L.L.C.
Cobb Finance Corp.
The Cobb Building
24 Montclair Road
Birmingham, Alabama 35213
Re: Registration Statement on Form S-4
Gentlemen:
We have served as counsel for Cobb Theatres, L.L.C., an Alabama limited
liability company (the "Company" or "Cobb"), and Cobb Finance Corp., an Alabama
corporation and wholly-owned subsidiary of the Company ("Finance Corp." and,
together with the Company, the "Issuers"), in connection with the proposed
exchange offer (the "Exchange Offer") which is more fully described in the
Registration Statement on Form S-4 (Commission File No. 333-2724) filed under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission on June 6, 1996 (the "Registration Statement"), to exchange $1,000
principal amount of its 10-5/8% New Senior Secured Notes due 2003 (the "New
Senior Secured Notes") for each $1,000 principal amount of its outstanding
10-5/8% Senior Secured Notes due 2003 (the "Original Senior Secured Notes"), of
which $85,000,000 in aggregate principal amount are outstanding as of the date
hereof. This opinion is furnished to you pursuant to the requirements of Form
S-4.
In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
formation of the Company and the incorporation of Finance Corp. and to the
authorization and issuance of the New Senior Secured Notes as we have deemed
necessary and appropriate.
Based upon the foregoing, and having regard for such legal considerations
as we have deemed relevant, it is our opinion that:
<PAGE>
Cobb Theatres, L.L.C.
Cobb Finance Corp.
June 6, 1996
Page 2
- --------------------------------------------
1. The New Senior Secured Notes have been duly authorized; and
2. Upon issuance, sale and delivery of the New Senior Secured Notes as
contemplated in the Registration Statement, the New Senior Secured Notes will be
legally issued, fully paid and nonassessable and will constitute the valid and
binding obligations of the Issuers.
We do hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectus which forms a part of the Registration Statement, and
to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Ross N. Cohen
--------------------------------------
Ross N. Cohen
Exhibit 8
[HASKELL SLAUGHTER & YOUNG LLC LETTERHEAD]
June 6, 1996
Cobb Theatres, L.L.C.
Cobb Finance Corp.
The Cobb Building
24 Montclair Road
Birmingham, Alabama 35213
Re: Exchange Offer, 10-5/8% New Senior Secured Notes due
2003 for 10-5/8% Senior Secured Notes Due 2003
Gentlemen:
We have served as counsel for Cobb Theatres, L.L.C., an Alabama limited
liability company (the "Company" or "Cobb"), and Cobb Finance Corp., an Alabama
corporation and a wholly-owned subsidiary of the Company ("Finance Corp." and,
together with the Company, the "Issuers"), in connection with the proposed
exchange offer (the "Exchange Offer") which is more fully described in the
Registration Statement on Form S-4 (Commission File No. 333-2724) filed under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission on June 6, 1996 (the "Registration Statement"), by the Issuers, to
exchange $1,000 principal amount of its 10-5/8% New Senior Secured Notes due
2003 (the "New Senior Secured Notes") for each $1,000 principal amount of its
outstanding 10-5/8% Senior Secured Notes due 2003 (the "Original Senior Secured
Notes"), of which $85,000,000 in aggregate principal amount are outstanding as
of the date hereof. All capitalized terms, unless otherwise specified, shall
have the meanings assigned to them in the Registration Statement.
In connection with our opinion, we have examined or are familiar with the
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we deem necessary or
appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness of all signatures, legal capacity
of all natural persons, authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified, conformed or photostatic copies, and the authenticity of the
originals of such copies. In rendering the opinion
<PAGE>
Cobb Theatres, L.L.C.
Cobb Finance Corp.
June 6, 1996
Page 2
- ---------------------------
set forth below, we relied upon certain written representations and covenants of
the Company and Finance Corp., which are annexed hereto.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretative rulings of the
Internal Revenue Service and such other authorities as we considered relevant.
Based upon and subject to the foregoing, we are of the opinion that,
because the New Senior Secured Notes should not be considered to differ
materially either in kind or in extent from the Original Senior Secured Notes
pursuant to Treasury Regulations promulgated under Section 1001 of the Code and
proposed Treasury Regulation Sec. 1.1001-3, which will be applicable only to
modifications of debt instruments following a period of time after the
publication of final regulations, the exchange of the New Senior Secured Notes
for the Original Senior Secured Notes pursuant to the Exchange Offer will not be
treated as an "exchange" for federal income tax purposes. As a result, no
material federal income tax consequences should result to holders exchanging
Original Senior Secured Notes for New Senior Secured Notes. If, however, the
exchange of Original Senior Secured Notes for New Senior Secured Notes were
treated as an "exchange" for federal income tax purposes, such transaction will
constitute a reorganization under Section 368(a) of the Code for federal income
tax purposes and holders of the Original Senior Secured Notes, who receive
solely New Senior Secured Notes in exchange therefor, will not recognize any
gain or loss upon such exchange.
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Exchange Offer or any other transaction related to the Exchange Offer or
contemplated by the Exchange Offer.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Ross N. Cohen
--------------------------------------
Ross N. Cohen
EXHIBIT (12)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS TWELVE TWELVE
ENDED MONTHS MONTHS
YEARS ENDED AUGUST 31, ------------------- ENDED ENDED
---------------------------------------- FEB. 28, FEB. 29, FEB. 29, FEB. 29,
1991 1992 1993 1994 1995 1995 1996 1996 1996
----- ----- ------ ------ ------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income
taxes.............................. (74) (596) 2,770 3,962 94 (1,560) (2,956) (1,302) (4,528)
Fixed charges (see computation
below)............................. 7,527 7,803 7,911 9,251 11,631 5,619 7,433 13,445 16,671
Reduced by: Interest
capitalized........................ (4) (113) (347) -- (451) (798) (798)
----- ----- ------ ------ ------ -------- -------- -------- ---------
Total earnings available for
fixed charges................. 7,453 7,007 10,677 13,100 11,378 4,059 4,026 11,345 11,345
Fixed charges:
Interest expense.................. 2,820 2,039 2,064 2,804 5,067 2,415 3,737 6,389 9,201
Capitalized interest.............. -- -- 4 113 347 -- 451 798 798
Amortization...................... 97 93 144 63 75 40 122 157 571
Interest component of rent
expense............................ 4,610 5,471 5,699 6,271 6,142 3,164 3,123 6,101 6,101
----- ----- ------ ------ ------ -------- -------- -------- ---------
Total fixed charges............. 7,527 7,603 7,911 9,251 11,631 5,619 7,433 13,445 16,671
Ratio of earnings to fixed
charges............................ 1.35 1.42 -- -- -- --
Deficit of earnings to fixed
charges............................ 74 596 -- -- 253 1,560 3,407 2,100 5,326
</TABLE>
EXHIBIT (23)-1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-2724) and the
related Prospectus of Cobb Theatres, L.L.C. and Cobb Finance Corp. for the
registration of $85,000,000 of 10 5/8% New Senior Securied Notes due 2003 and
also to the use of our report dated November 27, 1995 on the Combined Financial
Statements of Cobb Theatres Group included in the Registration Statement.
ERNST & YOUNG LLP
Birmingham, Alabama
June 6, 1996
EXHIBIT (23)-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (From S-4 N0. 333-2724) and
the related Prospectus of Cobb Theatres, L.L.C. and Cobb Finance Corp. for
the registration of $85,000,000 of 10 5/8% New Senior Secured Notes due
2003 and also to the use of our report dated November 15, 1994 on the
Combined Financial Statements of Cobb Theatres Group included in the
Registration Statement.
LAROCCA & CO., P.C.
Birmingham, Alabama
June 6, 1996
