<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Reading Entertainment, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Reading Entertainment, Inc.
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 16, 1997
-----------
TO THE STOCKHOLDERS OF READING ENTERTAINMENT, INC.:
The Annual Meeting of Stockholders of Reading Entertainment, Inc., (the
"Company") will be held on Tuesday, September 16, 1997 at 9:00 a.m., prevailing
time, at the Cinema 1 Theater, 1001 Third Avenue, New York, New York for the
following purposes:
1. To elect six directors to serve until the expiration of their terms and
until their successors are duly elected.
2. To consider and take action upon a proposal to approve the 1997 Equity
Incentive Plan.
3. To consider and take action upon a proposal to approve the grant to
James J. Cotter, Chairman of the Board of the Company, of an option to
purchase, subject to satisfaction of certain conditions, up to 460,000
shares of Common Stock of the Company.
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
A complete list of stockholders entitled to vote at the Annual Meeting will
be kept at the offices of the Company, 950 Third Avenue, 30th Floor, New York,
New York, for examination by any stockholder, during ordinary business hours,
for a period of not less than ten days prior to the Annual Meeting.
The Board of Directors has fixed the close of business on August 15, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting.
A copy of the Company's Annual Report for the year ended December 31, 1996
and a quarterly report for the three and six-month periods ending June 30, 1997
are enclosed.
Whether or not you expect to attend the Annual Meeting in person, please
fill in, sign and return the enclosed form of proxy in the envelope provided.
By Order of the Board of Directors,
Robert F. Smerling, President
Dated: August 20, 1997
<PAGE>
READING ENTERTAINMENT, INC.
One Penn Square West, Suite 1300
Philadelphia, Pennsylvania 19102
215-569-3344
-----------
PROXY STATEMENT
-----------
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Reading
Entertainment, Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors for use at the annual
meeting of stockholders (the "Annual Meeting") of the Company to be held on
Tuesday, September 16, 1997, at 9:00 a.m., prevailing time, and any adjournment
or postponement thereof, at the Cinema 1 Theatres, 1001 Third Avenue, New York,
New York. A copy of the notice of meeting accompanies this Proxy Statement. It
is anticipated that the mailing of this Proxy Statement will commence on or
about August 20, 1997.
VOTING AND PROXIES
Only stockholders of record at the close of business on August 15, 1997,
the record date for the Annual Meeting, will be entitled to notice of and to
vote at the Annual Meeting. On the record date, the Company had outstanding
7,449,364 shares of common stock ("Common Stock"), each of which is entitled to
one vote, and 70,000 shares of Series A Voting Cumulative Convertible Preferred
Stock (the "Series A Stock") and 550,000 shares of Series B Voting Cumulative
Convertible Preferred Stock (the "Series B Stock" and, together with the Series
A Stock, the "Convertible Preferred Stock"), each of which is entitled to 9.64
votes.
A stockholder giving a proxy may revoke it before it is voted by giving
written notice of such revocation to the Secretary of the Company or by
executing and delivering a later dated proxy. Attendance at the meeting by a
stockholder who has given a proxy will not have the effect of revoking it unless
the stockholder gives such written notice of revocation to the Secretary before
the proxy is voted.
Directors of the Company will be elected by a plurality vote of the
outstanding shares of Common Stock and Convertible Preferred Stock present and
entitled to vote at the Annual Meeting. Approval of each of the other proposals
requires the affirmative vote of a majority of the votes cast on such proposal
by the holders of the Common Stock and Convertible Preferred Stock, voting
together as a single class. Management of the Company anticipates that Craig
Corporation and its wholly-owned subsidiary Craig Management, Inc. (collectively
"Craig"), which together own of record 5,165,516 shares of Common Stock and
550,000 shares of Series B Stock, will vote all of such shares in favor of the
directors named herein and in favor of the other proposals described herein,
although Craig has not given the Company notice of its intentions. If all such
shares are so voted, such directors will be elected and the proposals will be
approved.
The presence, in person or by proxy, of the holders of shares of stock
entitling them to cast a majority of the votes entitled to be cast at the Annual
Meeting will constitute a quorum. Abstentions and broker non-votes will be
counted for purposes of determining the presence of a quorum. Abstentions and
broker non-votes will not be counted either for or against the proposal when
determining whether a particular proposal has been approved.
1
<PAGE>
ELECTION OF DIRECTORS
Beneficial Ownership of Common Stock and Voting Stock
The following tables set forth certain information regarding the Common
Stock and total voting stock (including the Series A Stock and the Series B
Stock) of the Company owned on August 15, 1997 by (i) each person or group who
is known by the Company to own beneficially more than 5% of any class of the
Company's voting securities, (ii) each of the Company's directors and most
highly compensated executive officers and (iii) all directors and officers of
the Company as a group.
<TABLE>
<CAPTION>
5% Beneficial Owners
-----------------------------------------------------
Convertible Preferred Stock
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock Series A Series B
- ----------------------------------------------------------------------------------------------------------------------------------
Amount Amount Amount Percent
and Nature and Nature and Nature of
of Percent of Percent of Percent Voting
Name and Address of Beneficial of Beneficial of Beneficial of Stock
Beneficial Owner Ownership Class Ownership Class Ownership Class (1)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Craig Corporation
550 South Hope Street 5,165,516 69.34 0 0 550,000 100 77.96
Los Angeles, CA 90071
- ----------------------------------------------------------------------------------------------------------------------------------
Citadel Holding Corporation
550 South Hope Street 0 0 70,000 100 0 0 5.03
Los Angeles, CA 90071
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Security Ownership of Management
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percentage of Percentage of
Name of Beneficial Owner Ownership (3) Common Stock (3) Voting Stock (1)
- ------------------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
James J. Cotter.................................... 271,232 (2)(4) 3.52 1.98
Gregory R. Brundage................................ 0 0 0
Edward L. Kane..................................... 9,000 (5)(6) * *
B. John Rochester.................................. 0 0 0
Robert F. Smerling................................. 9,000 (7) * *
John W. Sullivan................................... 172,359 (5)(8) 2.31 1.28
Albert J. Tahmoush................................. 7,500 (5) * *
S. Craig Tompkins.................................. 18,900 (2)(9) * *
James A. Wunderle.................................. 5,000 (10) * *
All Directors and Officers As a Group (12 Persons) 492,991 (11) 6.35 3.59
</TABLE>
* Percentages of less than one percent have not been indicated.
(1) Gives effect to the voting rights of 70,000 shares of Series A Stock and
550,000 shares of Series B Stock, all of which are owned by a subsidiary
of Citadel Holding Corporation (together with its subsidiaries "Citadel"),
and Craig, respectively, both of which are entitled to cast 9.64 votes per
share, voting together with the holders of the Common Stock and the other
series of Convertible Preferred Stock, on any matters presented to
stockholders of the Company.
2
<PAGE>
(2) Craig filed a Schedule 13D dated June 19, 1989, stating that the shares
have been purchased for investment purposes. Share information is
presented as of a report filed on Form 4 with the SEC dated February 4,
1997. James J. Cotter is Chairman of the Board of the Company and Craig.
S. Craig Tompkins is Vice Chairman of the Board of the Company and a
Director and President of Craig. James J. Cotter is also a principal
shareholder of Craig. Messrs. Cotter and Tompkins disclaim beneficial
ownership of the Company's shares held by Craig.
(3) Includes outstanding shares of Common Stock and shares issuable within 60
days of August 15, 1997 upon the exercise of outstanding stock options.
Does not include shares issuable upon exercise of stock options granted
under the 1997 Equity Incentive Plan, which is subject to stockholder
approval at the Annual Meeting.
(4) Includes 6,000 shares held in a profit sharing plan. Includes 265,232
shares which may be acquired through the exercise of stock options. Does
not include shares issuable on exercise of an option to purchase, subject
to the satisfaction of certain conditions, up to 460,000 shares of Common
Stock, which option is subject to stockholder approval at the Annual
Meeting.
(5) Includes 7,500 shares which may be acquired through the exercise of stock
options.
(6) Includes 1,500 shares held in a retirement account.
(7) Includes 9,000 shares which may be acquired through the exercise of stock
options. If the 1997 Equity Incentive Plan is approved by stockholders at
the Annual Meeting, the existing stock options will be surrendered in
return for a grant of options to purchase 35,000 shares under the 1997
Equity Incentive Plan.
(8) Includes 55,520 shares owned by a family trust for which Mr. Sullivan
serves as a trustee, 32,785 shares held in a trust for the benefit of Mr.
Sullivan's daughter for which Mr. Sullivan serves as a trustee and 29,636
shares held in custodial accounts for Mr. Sullivan's son for which Mr.
Sullivan serves as custodian. Excludes 100,920 shares held in a charitable
foundation of which Mr. Sullivan serves as a director, as well as 66,100
shares held by other trusts (of which Mr. Sullivan is not a trustee) for
the benefit of Mr. Sullivan's children as to which Mr. Sullivan disclaims
beneficial ownership.
(9) Includes 17,500 shares which may be acquired through the exercise of stock
options. If the 1997 Equity Incentive Plan is approved by stockholders,
the existing options will be surrendered in return for a grant of options
to purchase 20,000 shares under the 1997 Equity Incentive Plan. Excludes
200 shares held in Mr. Tompkins' wife's retirement plan and 500 shares held
in a trust for Mr. Tompkins' minor child as to which Mr. Tompkins disclaims
beneficial ownership.
(10) Includes 5,000 shares which may be acquired through the exercise of stock
options. If the 1997 Equity Incentive Plan is approved by stockholders,
the existing options will be surrendered in return for grant of options
to purchase 17,000 shares under the 1997 Equity Incentive Plan.
(11) Includes 319,232 shares which may be acquired through the exercise of stock
options. If the 1997 Equity Incentive Plan is approved by stockholders,
options to acquire 31,500 shares will be surrendered in return for a grant
of options to purchase 72,000 shares under the 1997 Equity Incentive Plan.
Nominees for Election
Six directors are to be elected at the Annual Meeting. Each director
will serve for a term of one year and until his successor has been elected.
Unless otherwise instructed, proxy holders will vote the proxies received by
them for the election of the nominees named below, all of whom are currently
directors of the Company. If any nominee becomes unavailable for any reason, it
is intended that the proxies will be voted for a substitute nominee designated
by the Board of Directors. The Board of Directors has no reason to believe the
nominees named will be unable to
3
<PAGE>
serve if elected. Any vacancy occurring on the Board of Directors for any
reason may be filled by a majority of the directors then in office until the
next Annual Meeting of Stockholders.
The names of the nominees for director, together with certain
information regarding them, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James J. Cotter(1) 58 Chairman of the Board, Chairman of the
Executive Committee of the Board and a
Director
Gregory R. Brundage(2)(4) 53 Director
Edward L. Kane(1)(2)(3) 59 Chairman of the Audit and Finance Committee
of the Board and a Director
John W. Sullivan(1)(3)(4) 62 Chairman of the Compensation Committee of the
Board and a Director
Albert J. Tahmoush(3)(4) 75 Chairman of the Conflicts Committee of the
Board and a Director
S. Craig Tompkins 46 Vice Chairman of the Board and a Director
</TABLE>
__________________________
(1) Member of the Executive Committee. The Executive Committee is appointed
annually by the Board of Directors and exercises the authority of the Board
of Directors in the management of the business and affairs of the Company
between meetings of the Board of Directors. The Executive Committee is
also responsible for recommending to the Board of Directors nominees to be
elected to the Board of Directors by the stockholders or by the Board of
Directors in the case of vacancies which occur between meetings of the
stockholders. Prior to the establishment of the Compensation Committee in
October 1996, the Executive Committee was also responsible for recommending
to the Board of Directors remuneration for senior management and officers
of the Company, recommending compensation plans and the grant of options
under the Company's stock option plans.
(2) Member of the Audit and Finance Committee. The Audit and Finance Committee
is appointed annually by the Board of Directors to recommend the selection
of independent auditors, review the scope and results of the annual audit,
review financial results and status, review and assess the adequacy of the
Company's accounting practices, financial controls and reporting systems
and assess the financial planning functions of the Company. During 1996
the Audit and Finance Committee held one meeting.
(3) Member of the Compensation Committee. The Compensation Committee was
formed in October 1996 and is responsible for recommending to the Board of
Directors remuneration for senior management and officers of the Company,
recommending adoption of compensation plans and the granting of options
under the Company's stock option plan. The Compensation Committee held one
meeting during 1996.
(4) Member of the Conflicts Committee. The Conflicts Committee was formed in
October 1996 to evaluate and make recommendations to the Board of Directors
concerning matters in which the Board of Directors or management may have a
conflict of interest. No meetings were held in 1996.
Mr. Cotter has been Chairman of the Board of Directors since December 1991,
Chairman of the Company's Executive Committee since March 1992 and a director
since September 1990. Mr. Cotter is the principal executive officer of the
Company, serves as the Chairman of Reading Australia Pty. Limited ("Reading
Australia"), a wholly-owned subsidiary of the Company and Chairman of Angelika
Film Centers LLC ("AFC"), a limited liability company controlled by the
Company. Mr. Cotter has been Chairman of the Board of Craig since 1988, and a
director since 1985. Mr. Cotter has been a director and the Chairman of the
Board of Citadel since 1991. Mr. Cotter has been a
4
<PAGE>
director and Chief Executive Officer of Townhouse Cinemas Corporation (motion
picture exhibition) since 1987, Executive Vice President and a director of The
Decurion Corporation (motion picture exhibition) since 1969 and a director of
Stater Bros. Holdings, Inc. and its predecessors (retail grocery chain) since
1987. From 1988 through January 1992, Mr. Cotter also served as the President
and a director of Cecelia Packing Corporation (a citrus grower and packer), a
company wholly owned by Mr. Cotter. Mr. Cotter is also a director and Executive
Vice President of Pacific Theatres, Inc., a wholly-owned subsidiary of The
Decurion Corporation.
Mr. Brundage has been a director of the Company since May 1996. Mr.
Brundage has been a Managing Director of Furman Selz Incorporated since May
1996. From June 1987 through May 1996, Mr. Brundage was a Managing Director in
the Investment Banking Division of PaineWebber Inc.
Mr. Kane has been a director of the Company since 1989 and has been
Chairman of the Company's Audit and Finance Committee since October 1995. Mr.
Kane is an independent advisor to two unrelated healthcare corporations. Mr.
Kane served as Vice President of SunSurgery Corporation from February through
November 1995. From February 1993 through its acquisition by Sun Heathcare
Group, Inc. in February 1995, Mr. Kane served as Chairman, Chief Executive
Officer and a director of Altis Outpatient Services, Inc., which owned and
operated ambulatory surgical centers. Mr. Kane served as President of the
Company from December 1991 through January 1993 and was President of Craig from
January 1988 through January 1993. Mr. Kane is a director of BDI Investment
Corporation and until June 1996, served as a director of Craig.
Mr. Sullivan has been a director of the Company since January 1981. Mr.
Sullivan was Chairman of the Board of the Company from April 1986 through
December 1991. He was Chief Executive Officer of the Company from January 1981
to October 1986 and was President from January 1981 until April 1986. Mr.
Sullivan is engaged in real estate development.
Mr. Tahmoush has been a director of the Company since January 1981. From
March 1977 until his retirement in August 1985, he was Chairman, President and
Chief Executive Officer of Frank B. Hall & Co., Inc., an insurance broker. He is
also a director and Deputy Chairman of UBAF Arab American Bank.
Mr. Tompkins has served as a director of the Company since March 1993 and
has served as Vice Chairman of the Board of Directors of the Company since
January 1997. Mr. Tompkins served as President of the Company from March 1993
through January 1997. He serves as the Vice Chairman of Reading Cinemas of
Puerto Rico, Inc., a subsidiary of the Company, as Vice Chairman of Reading
Australia and Vice Chairman of AFC. Mr. Tompkins is President and a director of
Craig and has served in such position since March 1993. Prior thereto, Mr.
Tompkins was a partner in the law firm of Gibson, Dunn & Crutcher for more than
five years. Mr. Tompkins has been a director of Citadel since May 1993, became
Vice Chairman in August 1994, and Secretary, Treasurer and Principal Accounting
Officer in September 1994. Mr. Tompkins has served as a director of G&L Realty
Corp., a New York Stock Exchange listed REIT, since December 1993.
Director Compensation
Directors who are not employees of the Company receive an annual retainer
of $24,000, except for the Chairmen of the Audit and Finance Committee, the
Compensation Committee and the Conflicts Committee, each of whom receives an
annual retainer of $26,000. The Chairman of the Board receives an annual
retainer of $150,000. No separate fees are paid for meetings of the Board or
committee meetings.
In March 1996, in connection with the Company's acquisition of Citadel
common stock from Craig and a capital funding agreement between the Company and
Craig pursuant to which the Company and Craig each contributed $12.5 million to
Reading International Cinemas LLC ("Reading International") (then owned in equal
shares by the Company and Craig) and each agreed to commit to contribute an
additional $37.5 million on an as needed basis to Reading International, the
Board of Directors established an independent committee of the Board of
Directors comprised of Albert J. Tahmoush and John W. Sullivan to review and
negotiate the terms of the purchase of the Citadel common stock and the capital
funding transaction. The committee held four meetings. In addition, in May 1996
in connection with the development of a Company recapitalization plan (the
"Stock Transactions"), it was determined
5
<PAGE>
that it would be in the best interests of the Company and Craig, and their
respective stockholders, if each were represented by an independent committee
comprised entirely of independent directors. An independent committee was
appointed by the Board to study and review, negotiate, evaluate the fairness of,
and recommend to the entire Board whether terms of the Stock Transactions were
fair and in the best interest of Reading Company and its shareholders. Messrs.
Sullivan, Tahmoush and Brundage served on the independent committee which was
established to develop the Stock Transactions. This committee held 10 meetings.
Messrs. Tahmoush and Sullivan each received $23,000 in addition to payments
for their services as directors for their services on independent committees of
the Board of Directors. Mr. Brundage received $20,000 for his service on an
independent committee in addition to payment for his services as a director of
the Company.
Edward L. Kane received $20,000 during 1996 for services provided to the
Company with respect to advice on certain tax matters.
THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES.
Executive Officers
The names of the executive officers of the Company, other than the nominees
for director, together with certain information regarding them, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert F. Smerling 62 President
John Foley 46 Vice President-Marketing
Charles S. Groshon 43 Vice President
Eileen M. Mahady 31 Controller
B. John Rochester 53 Chief Executive Officer, Australian Cinema
Operations and Reading Australia
James A. Wunderle 45 Executive Vice President, Chief Financial
Officer and Treasurer
</TABLE>
Mr. Smerling was appointed President of the Company in January 1997. Mr.
Smerling was retained in November 1993 to serve as the Chief Executive Officer
of the Company's cinema operations. Mr. Smerling served as President of Loews
Theatres Management Corporation (now SONY Theatres), a subsidiary of Sony
Corporation, from May 1990 until November 1993. Mr. Smerling also serves as
President and Chief Executive Officer of City Cinemas Corporation ("City
Cinemas"). Mr. Smerling has over 35 years experience in the motion picture
exhibition industry.
Mr. Foley has served as Vice President-Marketing since April 1997 and in
this capacity provides booking and site identification services to the Company.
Prior to joining the Company, Mr. Foley was the President of Distribution for
Miramax Films, where he, among other things, developed and implemented the
distribution plan for The English Patient, the winner of nine Academy Awards and
one of the most profitable art films of all time. Prior to joining Miramax in
1994, Mr. Foley was the President of Distribution of MGM/UA form 1989 through
1993. Mr. Foley also serves as a Vice President of City Cinemas.
Mr. Groshon has been a Vice President of the Company since December 1988.
Prior thereto he served the Company in various accounting positions.
Ms. Mahady has been the Controller of the Company since April 1990. Prior
to joining the Company, she was a senior auditor with Ernst & Young.
Mr. Rochester has been the Chief Executive Officer of the Company's
Australian cinema operations since November 1995. From 1990 through 1995, Mr.
Rochester was the Managing Director of Television & Media Services Ltd.
(formerly Hoyts Entertainment Ltd.). He also served in several other executive
offices for that
6
<PAGE>
organization since 1987. Mr. Rochester has more than 21 years of experience in
the motion picture exhibition industry.
Mr. Wunderle has been Chief Financial Officer of the Company since January
1987 and Executive Vice President, Treasurer and Chief Financial Officer since
December 1988. Mr. Wunderle was the Chief Operating Officer of the Company from
February 1990 through December 1996. He has been Treasurer since March 1986.
Executive Compensation
I. Summary Compensation Table
The following table shows, for the years ending December 31, 1996, 1995 and
1994, the cash compensation paid by the Company, as well as certain other
compensation paid or accrued for those years, to each of the five most highly
compensated executive officers of the Company whose compensation exceeded
$100,000 in all capacities in which they served:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Awards
------------------------------------------------------------------------
Other Annual
Salary Bonus Compensation Options
Name and Principal Position Year ($) ($) ($) (#)
- ----------------------------------- ---- -------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C>
James J. Cotter/(1)/ 1996 $150,000/(2)/
Chairman of the Board of Directors
1995 150,000
1994 150,000
S. Craig Tompkins/(3)/ 1996 $180,000 /(2)/
President
1995 180,000
1994 180,000
Robert F. Smerling/(4)/ 1996 175,000 $60,000
President, Reading Cinemas of
Puerto Rico, Inc. 1995 175,000
1994 175,000
B. John Rochester 1996 156,620
President and Chief Executive
Officer, Reading Australia Pty Ltd. 1995 39,155 /(5)/
James A. Wunderle 1996 130,000 70,000
Executive Vice President, Chief
Operating Officer, Chief Financial 1995 130,000 52,500
Officer and Treasurer
1994 120,000 50,000
</TABLE>
(1) Mr. Cotter receives a fee for his services as Chairman of the Board of
Directors of $150,000 per annum. In August 1997, Mr. Cotter received a
$475,000 bonus.
7
<PAGE>
(2) Does not include $45,000 paid to Mr. Cotter or $30,000 paid to Mr. Tompkins
by Citadel for services provided to Citadel.
(3) Mr. Tompkins resigned as President and was appointed Vice Chairman of the
Board of Directors effective January 17, 1997.
(4) Mr. Smerling was appointed President of the Company effective
January 17, 1997.
(5) Mr. Rochester was retained effective November 1995.
II. Option Grant Table
No options were granted under the Company's 1992 Non-Qualified Stock Option
Plan during the year ended December 31, 1996 to any of the persons named in the
Summary Compensation Table above.
III. Option Exercises and Year-End Table
The following sets forth information with respect to the options held by
the persons named in the Summary Compensation Table above as of December 31,
1996. No options were exercised by such persons during the fiscal year ended
December 31, 1996 and none of the options held by such persons at December 31,
1996 had exercise prices which were below the market price of the Common Stock
as of that date. All of such options have an exercise price of $14.00 per
share, except those held by Mr. Wunderle which have an exercise price of $12.50
per share.
<TABLE>
<CAPTION>
Fiscal Year-End Option Values
Number of Unexercised
Options at 12/31/96
---------------------
# Exercisable /
Name Unexercisable
-------------------- ---------------------
<S> <C> <C>
James J. Cotter 265,232 / 0
S. Craig Tompkins 17,500 / 0
Robert F. Smerling 9,000 / 6,000
James A. Wunderle 5,000 / 0
</TABLE>
Employment Arrangements
Mr. Tompkins is entitled to a severance payment equal to his annual base
salary and continuation of medical and insurance benefits for one year in the
event that his employment is involuntarily terminated and no change in control
of the Company has occurred. Mr. Tompkins is entitled to a severance payment
equal to two years annual salary in the event that a change in control of the
Company occurs.
Mr. Rochester is employed under the terms of an employment contract with an
initial term of two years beginning January 1, 1996, with automatic renewal
terms of one year each. The agreement provides for an incentive payment to Mr.
Rochester after the fourth anniversary of the agreement, based on a multiple of
cash flow of the Company's Australian theater operations. Under the agreement,
in the event Mr. Rochester's employment is terminated by the Company without
cause, he will be entitled to receive such incentive payment plus 17 payments,
each equal to his monthly remuneration, if such termination is during the
initial term, or 11 such monthly payments if such termination is after the
initial term. Mr. Rochester is entitled to receive a lump sum distribution of
such
8
<PAGE>
amounts, as applicable, if the Company and Craig both withdraw from any material
investment or involvement in the Australian operations and he is not granted
employment under comparable terms.
Messrs. Smerling, Wunderle and Groshon and Ms. Mahady are entitled to
receive payment equal to twelve, twelve, nine and four months, respectively, of
annual base salary in the event their individual employment with the Company is
involuntarily terminated.
Compensation Committee Interlocks and Insider Participation
Mr. Sullivan, Chairman of the Compensation Committee, served as the
President and Chief Executive Officer of the Company from 1981 through 1986.
Mr. Kane, also a member of the Compensation Committee, served as President of
the Company from December 1991 through January 1993. Messrs. Sullivan, Kane and
James J. Cotter, the Company's Chairman, are members of the Executive Committee
of the Board of Directors, which committee was responsible for compensation
matters prior to the establishment of the Compensation Committee in October
1996.
Certain Transactions
In 1996 and 1997 the Company's Board of Directors voted to waive the
transfer restrictions imposed by the provisions of the Company's capital stock
to the extent necessary to permit Craig to acquire additional shares of the
Company's capital stock. The transfer provisions prohibit a party from
acquiring more than 4.75% of the Company's outstanding capital stock without the
permission of the Company's Board of Directors and are intended to assure the
continuing availability of the Company's federal tax loss carryforwards by
precluding a change in control which could limit the value of the carryforwards.
Prior to granting the waiver of the restrictions, the Board of Directors had
determined that acquisition of the shares by Craig would not affect the
continuing availability of the Company's federal tax loss carryforwards.
On October 15, 1996, the Company completed the Stock Transactions with
Craig and Citadel. In the Stock Transactions, the Company issued (i) 70,000
shares of Series A Stock to Citadel, and granted certain contractual rights to
Citadel, in return for $7 million in cash and (ii) 550,000 shares of Series B
Stock and 2,476,190 shares of Common Stock to Craig in exchange for certain
assets owned by Craig. The assets acquired by the Company from Craig consisted
of 693,350 shares of Stater Bros. Holdings, Inc., Series B Preferred Stock,
Craig's 50% membership interest in Reading International, of which an
indirectly wholly-owned subsidiary of the Company was the sole other member, and
1,329,114 shares of Citadel's 3% Cumulative Voting Convertible Preferred Stock.
The contractual rights granted to Citadel provide Citadel with the right,
exercisable at any time until 30 days after the Company files its Annual Report
on Form 10-K for the year ending December 31, 1999, to require the Company to
acquire substantially all of Citadel's assets, and assume related liabilities
for shares of Common Stock (the "Asset Put").
In 1996, the Company and Sutton Hill Associates ("Sutton Hill"), a
partnership which is owned by Mr. Cotter and another principal stockholder of
Craig, acquired, for approximately $12,429,000, the Angelika Film Center (the
"Angelika"), a multiplex theater located in New York City. The Company and
Sutton Hill formed AFC, a limited liability company, to hold their interest in
the Angelika.
The Company contributed 83.3% of the capital of AFC and Sutton Hill
contributed the remaining 16.7%. The operating agreement of AFC provides that
all depreciation and amortization (the "Special Deductions") will first be
allocated to Sutton Hill until the aggregate amount of such Special Deductions
equals Sutton Hill's initial investment. Thereafter, the Company will receive
all Special Deductions until the relative ownership interests are equal to the
initial ownership interests of the parties. Sutton Hill has agreed to
subordinate its interest in AFC to the Company's interest in order to permit the
company to pledge AFC and its assets as collateral to secure borrowings by the
Company. In addition, Sutton Hill has agreed that the Company will be entitled
to receive up to 100% of the proceeds of borrowings of AFC, up to the amount of
the Company's initial capital contributions to AFC.
9
<PAGE>
AFC is managed by City Cinemas pursuant to the terms of a management
agreement (the "Management Agreement"). The Management Agreement provides for
City Cinemas to manage the Angelika for a minimum annual fee of $125,000 plus an
incentive fee equal to 50% of cash flow (as defined in the Management Agreement)
over prespecified levels, provided however that the maximum annual fee (minimum
fee plus incentive fee) may not exceed 5% of the Angelika's annual revenues.
City Cinemas is owned by Sutton Hill.
Mr. Smerling serves as President of the Company and City Cinemas. The
Company and City Cinemas entered into an Executive Sharing Agreement pursuant to
which Mr. Smerling provides services to both the Company and City Cinemas and
the cost of such services is shared by the parties, if such costs cannot be
allocated directly to such parties. John Foley, Vice President-Marketing of the
Company, also serves as Vice President of City Cinemas.
In November 1995, the Company and Craig formed Reading International to
develop and operate multiplex cinemas in Australia. On March 29, 1996, the
Company and Craig entered into a capital funding agreement (the "Capital Funding
Agreement") pursuant to which they agreed to increase the capital committed by
the Company and Craig to Reading International from $10 million to approximately
$103 million through a combination of cash contributions and secured capital
funding undertakings. Under the terms of the Capital Funding Agreement, the
Company and Craig each agreed to immediately contribute to Reading International
an additional $12,500,000 in cash, for an aggregate $25,000,000. These amounts
were fully funded by the parties. In addition, the Company and Craig undertook
to contribute up to an additional $37,500,000 each, for an aggregate future
commitment of $75,000,000 on an as needed basis. The Capital Funding Agreement
was terminated at the closing of the Stock Transactions.
On March 29, 1996, the Company purchased from Craig 1,564,473 shares of the
common stock of Citadel for an aggregate purchase price of $3,324,505,
representing slightly less than $2.125 per share. The closing price of the
Citadel common stock on the American Stock Exchange on March 28, 1996 was $2.25
per share. The Company paid Craig for the Citadel common stock with a five-year
unsecured promissory note in the principal amount of $3,324,505 which provided
for the payment of interest at a rate equal to the London Interbank Offered Rate
plus 2.25%. The note was retired in July 1996. The Company also acquired from
Craig a one year option to acquire 1,329,114 shares of preferred stock of
Citadel held by Craig and an option to acquire, under certain circumstances, a
warrant held by Craig to acquire 666,000 shares of Citadel's common stock. The
options were canceled at the closing of the Stock Transactions.
The Company utilizes the services of certain Citadel employees, including
the President and Chief Executive Officer of Citadel, for real estate advisory
services. The Company pays Citadel for such services at a rate which is
believed to approximate the fair market value of such services which amount
currently totals $20,000 per month.
While a Managing Director of PaineWebber Incorporated, Mr. Brundage advised
Citadel in connection with its 1993 rights offering and advised Craig in
connection with its 1990 public offering of its Class A Common Preference Stock.
In 1996 and January 1997 the Company loaned Robert F. Smerling, President
of the Company, a total of $70,000 pursuant to a promissory note payable upon
demand. The note is interest free.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who own more than 10% of the
Company's Common Stock to file reports to ownership and changes in ownership
with the Securities Exchange Commission (the "SEC"). The SEC rules also require
such reporting persons to furnish the Company with a copy of all Section 16(a)
forms they file.
Based solely on a review of the copies of the forms which the Company
received and written representations from certain reporting persons, the Company
believes that, during the fiscal year ended December 31, 1996, all filing
requirements applicable to its reporting persons were complied with except as
follows: Mr. John W. Sullivan failed to report changes in the nature of his
beneficial ownership in 1994, Mr. Sullivan failed to report on Form 3 initial
10
<PAGE>
statements of beneficial ownership of securities for two trusts with which he is
affiliated and Mr. Robert F. Smerling failed to file a report on a timely basis
of one transaction regarding the disposition of shares he sold in 1996. Both
Mr. Sullivan and Mr. Smerling have since filed the appropriate reports with the
SEC.
Executive Committee of the Board of Directors
Report on Compensation
The Executive Committee of the Board of Directors served as the Company's
Compensation Committee through October 1996 when the Compensation Committee was
formed. The Compensation Committee has established compensation policies and
will be responsible for compensation matters in 1997. The Executive Committee
was responsible for recommending to the Board of Directors the compensation
policies of the Company during 1996 and prior years. The following report on
compensation was prepared by the Executive Committee and reflects the Company's
compensation policies for 1996. Members of the Committee who were also
executive officers of the Company did not participate in decisions concerning
their own compensation but participate in the formulation of policies and
specific decisions relating to other officers of the Company.
Components of Officers' Compensation:
General Statement: The Company intends to expand its operations in the
Beyond-the-Home-Entertainment business through the acquisition or development of
operating businesses. Successful implementation of this strategic plan will
result in a transition away from the Company's historical real estate business.
In order to attract and maintain superior management personnel to effect such a
transition, the Company must maintain a competitive salary and compensation
program. Since the Company's line of business is changing, the Executive
Committee views the scope of responsibilities of executive positions to be the
most relevant factor in determining competitive salary rather than comparisons
with businesses in similar historical lines of business. Other factors
considered in establishing compensation of the Company's officers include
qualitative factors relating to the Company's progress in making its transition,
personal performance and the amount which must be paid in the market in order to
attract management capable of redirecting the Company's operations.
Specific components of officers' compensation follow:
Base Salary - Base salary is established based upon a general review
by the Executive Committee of comparable compensation for positions
requiring similar skills and capabilities and reflects the performance of
the officer in fulfilling his or her duties. Base salary does not directly
reflect the financial performance of the Company.
Discretionary Bonus - The Company may award officers an annual bonus
in an amount to be determined by the Executive Committee. The Executive
Committee considers such factors as it deems appropriate in determining
such bonuses. Factors considered in the past include acquisitions,
resolution of significant litigation, effectiveness in downsizing of
Company operations, the completion of asset sales, environmental
remediation projects and furtherance of the Company's strategic plan.
Compensation of Chief Executive Officer
Mr. Cotter is the principal executive officer of the Company and has
therefore served in a capacity similar to the chief executive officer of the
Company. At the time Mr. Cotter became the Chairman of the Board of Directors
in December 1991, the Board of Directors approved a resolution which provided
that the Chairman of the Board is to receive an annual retainer of $150,000.
The amount of the retainer was based upon the Executive Committee's and the
Board of Directors' belief that a retainer of this amount was appropriate for an
executive of Mr. Cotter's
11
<PAGE>
experience and background and his anticipated role in the redirection of the
Company's operations. Payment of such retainer is not dependent upon or related
to the financial performance of the Company.
James J. Cotter, Chairman
Edward L. Kane
John W. Sullivan
12
<PAGE>
Performance Graph
The following line graph compares the cumulative total stockholder return
on Reading Company's Class A Common Stock from December 31, 1991 through October
15, 1996 and Reading Entertainment, Inc.'s Common Stock from October 16, 1996
through December 31, 1996 against the cumulative total return of the Center for
Research in Securities Prices ("CRSP") Total Return Index for the Nasdaq
National Market (U.S. Companies), the cumulative total return of the Company's
current peer group, the CRSP Total Return Index for Nasdaq, New York Stock
Exchange (NYSE), and American Stock Exchange ("AMEX") Companies in the SIC Group
Code 7830-7839 (motion picture theaters and allied businesses), and the
cumulative total return of the Company's former peer group, the CRSP Total
Return Index for Nasdaq Companies in the SIC Group Code 6500-6599 (real estate)
over the same period. The graph assumes a one hundred dollar ($100) investment
on December 31, 1991 and reinvestment of all dividends on a daily basis.
The Company has in the past measured its performance against that of the
real estate industry in the compilation of this graph; that information is
presented here for continuity to prior periods. In light of recent developments
in the direction of the Company and its entry into the "Beyond-the-Home" segment
of the entertainment industry, management believes current performance is more
appropriately compared to the new peer group and has chosen to use results from
all the major markets in order to present as comprehensive a comparison as is
available.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reading Company/Reading
Entertainment, Inc. 100.00 95.00 107.50 111.30 91.30 102.50
- --------------------------------------------------------------------------------
Nasdaq Stock Market (US 100.00 116.40 133.60 130.60 184.70 227.20
Companies)
- --------------------------------------------------------------------------------
Nasdaq SIC Codes 6500 - 6599 100.00 95.30 105.40 107.00 117.20 139.50
(Real Estate)
- --------------------------------------------------------------------------------
NYSE/AMEX/Nasdaq Stock Markets 100.00 109.70 122.00 121.40 165.50 200.60
(US Companies)
- --------------------------------------------------------------------------------
NYSE/AMEX/Nasdaq SIC Codes 100.00 175.10 207.20 206.70 259.80 296.90
7830 - 7839 (Motion Picture
Theaters)
- --------------------------------------------------------------------------------
Baseline 100.00 100.00 100.00 100.00 100.00 100.00
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
EQUITY INCENTIVE PLAN PROPOSAL
Prior to April 18, 1997, the Company had options outstanding under three
stock option plans (collectively, the "Old Plans"): the 1982 Incentive Stock
Option Plan, the 1982 Non-Qualified Option Plan, and the 1992 Non-Qualified
Stock Option Plan. Each of the Old Plans had originally been adopted by Reading
Company, and was adopted by the Company in connection with the 1996
reorganization of the Company as a holding company. The 1982 Incentive Stock
Option Plan and the 1982 Non-Qualified Option Plan have expired. Although there
are 157,268 shares remaining available for grants under the 1992 Non-Qualified
Stock Option Plan (which will remain in effect), that plan only permits grants
of non-qualified stock options ("NSOs"), and the Board determined it advisable
for the Company to have the flexibility to grant incentive stock options
("ISOs") as well.
Accordingly, on April 18, 1997, the Board adopted the 1997 Equity Incentive
Plan (the "1997 Plan"), subject to stockholder approval at the Annual Meeting,
to provide for the grant of options to purchase shares of Common Stock to
officers, key employees, and outside directors of the Company and its parent and
subsidiaries. As of August 15, 1997, there were approximately 15 officers, key
employees, and outside directors of the Company and its parent and subsidiaries
who were eligible to participate in the 1997 Plan.
The Board of Directors of the Company believes that stock options are
important to attract, and encourage the continued employment and service of,
officers, other key employees, and outside directors, by providing incentives
and enabling them to participate directly in the growth of the Company. The
Company intends that the 1997 Plan will facilitate securing, retaining, and
motivating management employees and outside directors of high caliber and
potential.
The adoption of the 1997 Plan is subject to stockholder approval at the
Annual Meeting. Shareholder approval will allow the Company to obtain a tax
deduction for the full amount allowable with respect to the exercise of NSOs
granted under the 1997 Plan and will also provide the Company with the
flexibility to grant ISOs. Stockholder approval is also required pursuant to the
rules of the Nasdaq National Market and the Philadelphia Stock Exchange. The
Board of Directors recommends that the 1997 Plan be approved.
The principal provisions of the 1997 Plan are summarized below. Such
summary does not, however, purport to be complete and is qualified in its
entirety by the terms of the 1997 Plan. A copy of the 1997 Plan is attached
hereto as Exhibit A and is incorporated herein by reference.
Administration. The 1997 Plan will be administered by the Compensation
Committee, which, subject to the terms of the 1997 Plan, has the sole authority
to determine the employees and outside directors to whom options will be granted
under the 1997 Plan; to determine the time when options will be granted; to
interpret the provisions of the 1997 Plan; and to make all other determinations
necessary or advisable for the administration of the 1997 Plan.
The Company intends that grants of options under the 1997 Plan will be
exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended,
pursuant to Rule 16b-3 promulgated thereunder, which exempts certain short-swing
gains from recapture by the Company. Accordingly, to satisfy the requirements
of Rule 16b-3, the Company anticipates that the Compensation Committee will be
comprised exclusively of two or more "non-employee directors," as defined in
Rule 16b-3, or that the Compensation Committee will take other actions as may be
necessary to satisfy the conditions of such rule.
Shares Authorized. The 1997 Plan authorizes the Committee to grant options
to purchase up to 200,000 shares of Common Stock. The 1997 Plan authorizes the
Compensation Committee to grant to holders of outstanding options, in exchange
for the surrender and cancellation of such options, new options having purchase
prices lower than provided in the surrendered options. The 1997 Plan also
authorizes the grant of options in substitution for stock options held by
employees of other corporations acquired by the Company.
Type of Options. The 1997 Plan authorizes the Compensation Committee to
grant options which qualify as ISOs under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), as well as NSOs which do not so qualify.
14
<PAGE>
Exercise Price. The exercise price per share of any option granted under
the 1997 Plan may not be less than the fair market value per share of the Common
Stock on the date the Option is granted, as determined by the Compensation
Committee in accordance with the 1997 Plan. Under the Code and the 1997 Plan,
the exercise price for an ISO granted to a person then owning more than 10% of
the voting power of all classes of the Company's stock may not be less than 110%
of the fair market value of the Common Stock on the date of grant. In addition,
under the Code and the 1997 Plan, the aggregate fair market value of the Common
Stock (determined at the time the option is granted) with respect to which ISOs
are exercisable for the first time by any individual during any calendar year
(under all option plans of the Company and its subsidiaries) may not exceed
$100,000.
Exercise Term. Unless otherwise determined by the Compensation Committee,
each option will become exercisable in four equal annual installments commencing
on the first anniversary of the date of grant. The Compensation Committee may
provide that any unexercisable portion of an option will become exercisable at
the time an optionee ceases to be an employee or director of the Company or any
subsidiary for any reason other than resignation or a discharge or removal for
cause. No option may be exercisable after ten years from its date of grant; any
ISO granted to a person owning more than 10% of the voting power of all classes
of the Company's stock must expire no later than five years from the date of
grant. The 1997 Plan provides the Compensation Committee the power to establish
any conditions to be met before options become exercisable or to permit an
acceleration of the time to exercise any options.
Payment for Shares. The 1997 Plan permits optionees to pay the purchase
price under any exercised options in cash, by delivery of shares of Common Stock
already owned by the optionee at fair market value, including shares obtained
through exercise of an Option granted hereunder, or a combination thereof, as
the Compensation Committee may determine.
Transferability. Options under the 1997 Plan will not be transferable
other than by will or by the laws of descent and distribution.
Amendment or Termination. The Compensation Committee may terminate or
amend the 1997 Plan at any time. The termination or any modification or
amendment of the 1997 Plan will not, without the consent of an optionee, affect
the optionee's rights under an outstanding option. Under the Code, to maintain
the ability to grant ISOs under the 1997 Plan, the Company would need
stockholder approval of any amendments which would increase the number of shares
subject to the 1997 Plan (other than in connection with a recapitalization,
stock split, reorganization, or similar adjustment) or change the class of
persons eligible to receive options.
Effective Date and Termination Date. The 1997 Plan became effective April
18, 1997; provided that if stockholders do not approve the 1997 Plan at the
Annual Meeting, the 1997 Plan and any options granted thereunder will terminate
and become null and void. No option may be granted under the 1997 Plan after
April 17, 2007.
Tax Considerations. Under current Federal income tax laws, the grant of an
option is not a taxable event for the optionee or the Company. Stock options
granted under the 1997 Plan will generally have the following tax consequences:
A holder of an ISO will not be taxed until the holder sells the stock received
upon the exercise of the option, provided the holder does not sell such shares
until the later of two years from the date of grant and one year from the date
of exercise. In such case the entire spread between the sale proceeds and the
ISO exercise price will be treated as capital gain. A holder of an NSO will
receive ordinary income upon exercise of the option in an amount equal to the
spread between the value of the purchased stock on the date of exercise and the
exercise price.
Grants. The following table provides certain information regarding options
granted to date under the 1997 Plan to the persons and groups indicated. Each
grant was made on the condition that the recipient surrender any options held
under the Old Plans.
15
<PAGE>
1997 Equity Incentive Plan
<TABLE>
<CAPTION>
Value of
Number of Options as of
Options Exercise Price August 15,
Name and Position Granted(1) Per Share(2) 1997(3)
<S> <C> <C> <C>
S. Craig Tompkins, Vice 20,000 $12.80 ---
Chairman
Robert Smerling, President 35,000 $12.80 ---
James A. Wunderle, 17,000 $12.80 ---
Executive Vice President,
Chief Financial Officer,
and Treasurer
John Foley, Vice 20,000 $12.80 ---
President, Marketing
Ellen Cotter, Vice 10,000 $12.80 ---
President, Business
Affairs, Angelika
Cinemas, Inc.*
Charles S. Groshon, Vice 5,000 $12.80 ---
President
Eileen M. Mahady, 5,000 $12.80 ---
Controller
All current executive 102,000 $12.80 ---
officers as a group (7
persons)
All employees as a group 112,000 $12.80 ---
</TABLE>
*Ms. Cotter is the daughter of James J. Cotter
(1) All options become exercisable in four equal installments commencing one
year from date of grant, except for options granted to Robert F. Smerling,
which become exercisable in four installments of 8,500 shares each
commencing one year from date of grant and a fifth installment of the
remaining 1,000 shares.
(2) The exercise price of all options exceeded the fair market value of a share
of Common Stock on the date of grant. On April 18, 1997, the date of grant
of all options other than those to Ellen Cotter, the closing price for the
Common Stock on the Nasdaq National Market was $11 1/2 per share. On May
28, 1997, the date of grant of options to Ms. Cotter, the closing price on
the Nasdaq National Market was $11 3/8 per share. The exercise price
approximated the fully-diluted book value of the Company on a per share
basis, assuming conversion into Common Stock of all of the outstanding
Convertible Preferred Stock and the exercise of the Asset Put.
(3) The "value" of the options is equal to (i) the closing sales price of the
Common Stock on the Nasdaq National Market on August 15, 1997, minus the
$12.80 per share exercise price, (ii) multiplied by the number of shares of
Common Stock underlying each option. Since the closing price of the Common
Stock on August 15, 1997 was $11.25 per share, less than the exercise
price, the value of the options as so determined was zero. The foregoing
calculation does not purport to represent the actual value of the options
to recipients.
Adoption of the 1997 Plan requires the affirmative vote of a majority of
the votes cast on the proposal by the holders of the Common Stock and
Convertible Preferred Stock, voting together as a single class. Management of
the Company anticipates that Craig will vote all of the shares of Common Stock
and Convertible Preferred Stock owned by it in favor of adoption of the 1997
Plan, although Craig has not given the Company notice of its intentions. If all
such shares are so voted, the 1997 Plan will be adopted. No additional votes
will be required to adopt such proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
1997 PLAN.
OPTION AGREEMENT PROPOSAL
On April 18, 1997, in addition to adopting the 1997 Plan, the Board of
Directors approved the grant to James J. Cotter, Chairman of the Board of the
Company, of a non-qualified option (the "Cotter Options") to purchase up to
460,000 shares of Common Stock.
16
<PAGE>
As described in more detail below, the Cotter Options are divided into
three components: options (the "Basic Options") to purchase up to 110,000
shares of Common Stock, which become exercisable in four equal instalments
commencing one year from the date of grant; options (the "Convertible Preferred
Options") to purchase up to 260,000 shares of Common Stock, which become
exercisable over a similar vesting schedule, but only in proportion to the
number of shares of Convertible Preferred Stock which are converted into Common
Stock; and options (the "Asset Put Option") to purchase up to 90,000 shares of
Common Stock which become exercisable over a similar vesting schedule, but only
in proportion to the number of shares of Common Stock which are issued pursuant
to the Asset Put. The Board of Directors believes that the grant of the Cotter
Options was appropriate to compensate Mr. Cotter for his services to the
Company, including in connection with the development and structuring of the
Stock Transactions, which resulted in the contribution to the Company of cash
and assets valued for financial reporting purposes at approximately $92.2
million. The Basic Options provide compensation to Mr. Cotter with respect to
the portion of such assets which were contributed immediately to common equity,
and the remaining Cotter Options will vest only when and in the proportion that
the potential contributions to common equity from the conversion of the
Convertible Preferred Stock or exercise of the Asset Put are realized. The
Board also noted that, prior to the Stock Transactions, Mr. Cotter held options
to acquire approximately 5% of the Company's outstanding shares.
The grant of the Cotter Options is subject to stockholder approval at the
Annual Meeting, as is required pursuant to the rules of the Nasdaq National
Market and the Philadelphia Stock Exchange. The Board of Directors recommends
that the Cotter Options be approved.
The principal provisions of the Cotter Options are summarized below. Such
summary does not, however, purport to be complete and is qualified in its
entirety by the terms of the Cotter Options. A copy of the Cotter Options has
been filed with the SEC as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997 and is incorporated herein by reference.
Shares Subject to Options and Vesting. As set forth above, the Cotter
Options consist of three parts:
(a) The Basic Options to purchase 110,000 shares of Common Stock. The
Basic Options will become exercisable in four equal annual installments of
27,500 shares each, commencing one year from the date of grant.
(b) The Convertible Preferred Options to purchase 260,000 shares of
Common Stock. The Convertible Preferred Options will become exercisable in
four equal annual installments of 65,000 shares each, commencing one year
from the date of grant. However, no Convertible Preferred Options will be
exercisable until shares of the Convertible Preferred Stock are converted
into Common Stock. If fewer than all 620,000 shares of Convertible
Preferred Stock are converted into Common Stock, each installment will
become exercisable in proportion to the number of shares of Convertible
Preferred Stock which have been converted. In addition, if any shares of
Convertible Preferred Stock are redeemed or repurchased by the Company, the
number of shares of Common Stock in each installment will be permanently
reduced in proportion to the number of shares redeemed or repurchased.
(c) The Asset Put Options to purchase 90,000 shares of Common Stock.
The Asset Put Options will become exercisable in four equal annual
installments of 22,500 shares each, commencing one year from the date of
grant. However, no Asset Put Options will be exercisable prior to the date
on which shares of Common Stock have been issued pursuant to the Asset Put.
If fewer than 1,700,000 shares of Common Stock are issued pursuant to the
Asset Put, the number of Option Shares for which Asset Put Options become
exercisable in each installment shall be reduced in proportion to the
number of shares actually issued, and any remaining Asset Put Options will
be canceled.
All of the Cotter Options will expire on April 18, 2007 (except that the Cotter
Options may be exercisable for up to an additional 18 months following Mr.
Cotter's death under certain conditions).
Type of Options. The Cotter Options are non-qualified stock options.
17
<PAGE>
Exercise Price. The exercise price of the Cotter Options is $12.80 per
share, which exceeded the closing price on the Nasdaq National Market at the
date of grant (April 18, 1997) of $11 1/2 per share. The exercise price
approximated the fully-diluted book value of the Company on a per share basis,
assuming conversion into Common Stock of all of the outstanding Convertible
Preferred Stock and the exercise of the Asset Put. Based on the closing sales
price of the Common Stock on August 15, 1997, of $11.25 per share, the Cotter
Options have a value (market price of the underlying Common Stock minus the
aggregate exercise price) of zero. The foregoing calculation does not purport
to represent the actual value of the Cotter Options to Mr. Cotter.
Payment for Shares. The purchase price under the Cotter Options may be
paid in cash, by delivery of shares of Common Stock valued at fair market value,
by delivery of unexercised Cotter Options (valued at the then market price of
the underlying Common Stock minus the aggregate exercise price of the
surrendered Cotter Options), or other consideration approved by the Compensation
Committee, or a combination thereof.
Transferability. The Cotter Options may be transferred only (a) by will or
the laws of descent and distribution or (b) by Mr. Cotter during his lifetime to
any immediate family member or certain entities owned or controlled by, or for
the benefit of, Mr. Cotter and his immediate family members.
Termination. The Cotter Options will terminate 30 days after the date of
the termination for cause, or 120 days after the date of the termination for any
reason, other than for cause, death, or retirement or disability ("Retirement"),
of Mr. Cotter's association with the Company.
Upon Retirement, Mr. Cotter may, for a period of three years (or such
longer period as may be determined by the Compensation Committee, but in no
event after April 18, 2007), exercise any Cotter Options which were exercisable
prior to Retirement.
Upon Mr. Cotter's death while associated with the Company or during the
exercise period following Retirement, all vesting provisions which would be
satisfied solely by the passage of time will be accelerated and deemed
satisfied. Also, if Mr. Cotter should die while associated with the Company,
his estate or successors may exercise Cotter Options (including any Cotter
Options for which the other conditions to exercise are satisfied subsequent to
Mr. Cotter's death) at any time until April 18, 2007. If he should die during
the 30 or 120 day described in the first paragraph of this section, or during
the exercise period following Retirement, his estate or successors will have the
right, until the later of the end of such period and the period ending 18 months
after the date of his death, to exercise any or all of the Options which then
are or subsequently become exercisable.
Mr. Cotter will be considered associated with the Company so long as he is
an officer, director, or employee of, or consultant to, or otherwise associated
with (other than solely as a stockholder), the Company or any subsidiary or
parent of the Company.
Registration Rights. The Cotter Options provide for certain registration
rights with respect to the underlying shares of Common Stock in favor of Mr.
Cotter and his successors.
Tax Considerations. Under current Federal income tax laws, the grant of
the Cotter Options was not a taxable event to Mr. Cotter. Mr. Cotter will
receive ordinary income upon exercise of the Cotter Options in an amount equal
to the spread between the value of the purchased stock on the date of exercise
and the exercise price.
Approval of the Cotter Options requires the affirmative vote of a majority
of the votes cast on the proposal by the holders of the Common Stock and
Convertible Preferred Stock, voting together as a single class. Management of
the Company anticipates that Craig will vote all of the shares of Common Stock
and Convertible Preferred Stock owned of record by it in favor of approval of
the Cotter Options, although Craig has not given the Company notice of its
intentions. If all such shares are so voted, the Cotter Options will be
approved. No additional votes will be required to adopt such proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
COTTER OPTIONS.
18
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's financial statements for the year ended December 31, 1996
were examined by Ernst & Young LLP, certified public accountants. The Company
has been advised by Ernst & Young LLP that none of its members has any financial
interest in the Company. Ernst & Young LLP has served as the Company's
independent public accountants since the Company's fiscal year ended December
31, 1981. Representatives of Ernst & Young LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
In addition to performing customary audit services, Ernst & Young LLP
assisted the Company with the preparation of its federal tax return. Ernst &
Young LLP charged the Company for such services at its customary billing rates.
Material non-audit services are approved by the Audit and Finance Committee
after review of the nature of and amount of expense and the potential effect on
the independence of the accountants.
ANNUAL REPORT
Copies of the Company's Annual Report for its fiscal year ended December
31, 1996 (the "Annual Report") and quarterly report for the three and six-month
periods ending June 30, 1997 are enclosed.
STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions of
the proxy rules of the SEC, wishes to submit a proposal for inclusion in the
Company's proxy statement for its 1998 Annual Meeting of Stockholders, must
deliver such proposal in writing to the Secretary of the Company at the
Company's principal executive offices at One Penn Square West, Suite 1300,
Philadelphia, Pennsylvania 19102, no later than March 22, 1998.
The Board of Directors will consider written nominations for directors from
stockholders. Nominations for the election of directors made by the
stockholders of the Company must be made by written notice delivered to the
Secretary of the Company at the Company's principal executive offices not less
than 120 days prior to the first anniversary of the immediately preceding annual
meeting of stockholders at which directors are to be elected. Such written
notice must set forth, among other things, the name, age, address, principal
occupation or employment, the number of shares of the Company's Common Stock
owned by such nominee and such other information as is required by the proxy
rules of the SEC with respect to a nominee of the Board of Directors.
Nominations not made in accordance with the foregoing procedure will not be
valid.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting,
but if any matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
judgment.
By Order of the Board of Directors,
Robert F. Smerling, President
Dated: August 20, 1997
19
<PAGE>
Exhibit A
---------
READING ENTERTAINMENT, INC.
---------------------------
1997 EQUITY INCENTIVE PLAN
--------------------------
1. Purpose. The purpose of Reading Entertainment, Inc. Equity Incentive Plan
-------
(the "Plan") is to further the growth, development and financial success
of Reading Entertainment, Inc. (the "Company") and any subsidiary by
providing additional incentives to those officers, key employees and
outside directors who are responsible for the management of the business
affairs of the Company and any subsidiary, and which will enable them to
participate directly in the growth of the capital stock of the Company.
The Company intends that the Plan will facilitate securing, retaining,
and motivating management employees and outside directors of high caliber
and potential.
2. Administration.
--------------
(a) The Compensation Committee of the Company's Board of Directors (the
"Board") shall, subject to the provisions of the Plan, have full
and final authority, in its sole discretion, to interpret the
provisions of the Plan and to decide all questions of fact arising
in its application; to determine the employees and outside
directors to whom options shall be granted under the Plan; to
determine the time when options shall be granted; and to make all
other determinations necessary or advisable for the administration
of the Plan.
(b) All decisions, determinations, and interpretations of the
Compensation Committee (the "Committee") shall be final and binding
on all optionees. All actions of the Committee shall be taken by a
majority vote of its members. The Committee may appoint a secretary
to keep minutes of its meetings and shall make rules and
regulations for their conduct as it shall deem advisable.
3. Stock Subject to the Plan. The shares that may be issued under the Plan
-------------------------
shall not exceed in the aggregate 200,000 shares of common stock, par
value $.001, of the Company (the "Common Stock"). Such shares may be
authorized and unissued shares or shares issued and subsequently
reacquired by the Company. Except as otherwise provided herein, any
shares subject to an option which for any reason expires or is terminated
unexercised as to such shares shall again be available under the Plan.
The Committee may grant to holders of outstanding options, in exchange
for the surrender and cancellation of such options, new options having
purchase prices lower than provided in the options so surrendered and
canceled, and containing such other terms and conditions as the Committee
may prescribe in accordance with the provisions of the Plan, without
regard to the price, period of exercise, or any other terms or conditions
of the option surrendered. Shares delivered under the Plan shall be fully
paid and non-assessable.
4. Eligibility to Receive Options. Persons eligible to receive stock options
------------------------------
under the Plan shall be limited to those officers, key employees and
directors of the Company and any parent or subsidiary (as defined in
Sections 424(e) and (f) of the Internal Revenue Code of 1986 (the
-1-
<PAGE>
Exhibit A
---------
"Code"), or any amendment thereto), who are in positions in which their
decisions, actions and counsel significantly impact upon the
profitability and success of the Company and any subsidiary.
5. Form of Grants. Grants may be made at any time and from time to time by
--------------
the Committee in the form of stock options to purchase shares of Common
Stock. Options granted hereunder may be options that are intended to
qualify as incentive stock options within the meaning of Section 422 of
the Code or any amendment thereto ("Incentive Stock Options") or options
that are not intended to so qualify ("Nonqualified Stock Options").
6. Option Agreements. Stock options for the purchase of Common Stock
-----------------
("Options") shall be evidenced by written agreements in such form not
inconsistent with the Plan as the Commit tee shall approve from time to
time. The options granted hereunder may be evidenced by a single
agreement or by multiple agreements, as determined by the Committee in
its sole discretion. Each option agreement shall contain in substance
the following terms and conditions:
(a) Type of Option. Each option agreement shall identify the options
--------------
represented thereby either as Incentive Stock Options or
Nonqualified Stock Options, as the case may be.
(b) Option Price. The purchase price of the Common Stock subject to
------------
an Option shall not be less than 100% of the fair market value of
such stock on the date the Option is granted, as determined by the
Committee. In no event shall the purchase price per share be less
than the par value of such share. For this purpose, fair market
value on any date shall mean the closing price of the Common Stock,
as reported in the Wall Street Journal, or if not so reported, as
otherwise reported by the National Association of Securities
Dealers Automated Quotation (NASDAQ) System or, if not so reported
by NASDAQ, the fair market value shall be as determined by the
Committee.
(c) Exercise Term. Unless the Committee in its discretion determines
-------------
otherwise, and subject, in the case of Incentive Stock Options, to
Section 6(d)(i), each option agreement shall state that the Option
is exercisable in four (4) cumulative installments with one-fourth
(1/4) of the shares covered by the Option becoming exercisable
commencing on the first anniversary of the date of grant and
another one-fourth (1/4) of such shares becoming exercisable on
each anniversary of the date of grant thereafter until the Option
becomes fully exercisable. Moreover, the Committee, in its
discretion, may have each option agreement provide that any
unexercisable portion of the Option will become exercisable at the
time an optionee ceases to be an employee of the Company or any
subsidiary for any reason other than resignation or a discharge for
cause or at the time an optionee no longer serves as a member of
the Board for any reason other than resignation or removal for
cause. Anything in the foregoing to the contrary notwithstanding,
no Option shall be exercisable after ten years from the date of
grant thereof and no Option shall be exercisable with respect to
fractional shares. Subject to the foregoing, the Committee shall
have the power, at or prior to the time Options are granted, to
determine in its discretion any conditions to be met before Options
become exercisable with respect
-2-
<PAGE>
Exhibit A
---------
to all or any part of the shares covered thereby, including the
time or times of exercise and performance standards to be met by
the optionees. The Committee shall have the power to permit an
acceleration of previously established exercise terms, subject to
the requirements set forth herein, upon such circumstances and
subject to such terms and conditions as the Committee deems
appropriate.
(d) Incentive Stock Options. In the case of an Incentive Stock Option,
-----------------------
each option agreement shall contain such other terms, conditions
and provisions as the Committee determines to be necessary or
desirable in order to qualify such Option as an Incentive Stock
Option, including without limitation, each of the following, except
that any of these provisions may be omitted or modified if it is no
longer required in order to have an Option qualify as an Incentive
Stock Option:
(i) The aggregate fair market value (determined as of
the date the Option is granted) of the Common Stock with
respect to which Incentive Stock Options are first
exercisable by any employee during any calendar year (under
all plans of the Company) shall not exceed $100,000.
(ii) No Incentive Stock Options shall be granted to any
employee if at the time the Option is granted to the
individual who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Company or its subsidiaries unless at the time such Option
is granted the Option price is at least 110% of the fair
market value of the stock subject to the Option and, by its
terms, the Option is not exercisable after the expiration
of five years from the date of grant.
(iii) No Incentive Stock Options shall be exercisable more
than three months (or one year, in the case of an employee
who dies or becomes disabled within the meaning of
Section 22(e)(3) of the Code or any amendment thereto)
after termination of employment. The Committee may,
consistent with Section 6(g), provide (at the time of grant
or thereafter) for the exercise of Options, initially
granted as Incentive Stock Options, after the period
specified in this Section 6(d)(iii), but any such Options
which are exercised after such period shall not be
considered Incentive Stock Options.
(e) Exercise and Payment for Shares. Options may be exercised in whole
-------------------------------
or in part, from time to time, by giving written notice of exercise
to the Secretary or his office, specifying the number of shares to
be purchased. The purchase price of the shares with respect to
which an Option is exercised shall be payable in full with the
notice of exercise by certified check, by delivery of shares of
Common Stock already owned by the optionee at fair market value,
including shares obtained through exercise of an Option granted
hereunder, or a combination thereof, as the Committee may determine
from time to time and subject to such terms and conditions as may
be prescribed by the Committee for such purpose.
-3-
<PAGE>
Exhibit A
---------
(f) Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as
amended, the Securities and Exchange Act of 1934 (the "Exchange
Act"), the rules and regulations promulgated thereunder and the
requirements of any stock exchange upon which the Common Stock may
then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time
of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute
such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant
provisions of law.
(g) Rights Upon Termination of Service. Unless otherwise provided by
----------------------------------
the Committee (at the time of grant of an Option, the time of
termination of employment, or otherwise), (i) in the event an
optionee resigns as an employee of the Company or any subsidiary or
as a director of the Company or is discharged by the Company or any
subsidiary for cause or is removed as a director for cause, the
Optionee shall have no further right to exercise the Option
following such resignation, discharge or removal, and (ii) in the
event that an optionee ceases to be an employee of the Company or
any subsidiary for any reason other than resignation or a discharge
for cause or in the event that an optionee no longer serves as a
member of the Board for any reason other than resignation or
removal for cause, the optionee shall have the right to exercise
the Option within a period of sixty (60) days after such
termination of employment or such termination of service on the
Board (but in no event after the expiration of the term of the
Option) to the extent that the Option was exercisable at the time
of such termination.
(h) Nontransferability. Each option agreement shall state that the
------------------
Option is not transferable other than by will or by the laws of
descent and distribution, and that during the lifetime of the
optionee the Option is exercisable only by him or his guardian or
legal representative.
(i) Substitution of Options. Options may be granted under the Plan from
-----------------------
time to time in substitution for stock options held by employees of
other corporations who are about to become and who do concurrently
with the grant of such options become employees of the Company or a
subsidiary as a result of a merger or consolidation of the
employing corporation with the Company or a subsidiary, or the
acquisition by the Company or a subsidiary of the assets of the
employing corporation or the acquisition by the Company or a
subsidiary of the stock of the employing corporation. The terms and
conditions of the substitute options so granted may vary from the
terms and conditions set forth in this Section 6 of the Plan to
such extent as the Committee at the time of grant may deem
appropriate to conform, in whole or in part, to the provisions of
the stock options in substitution for which they are granted.
-4-
<PAGE>
Exhibit A
---------
(j) Other Provisions. Each option agreement shall contain such other
----------------
provisions not inconsistent with the Plan as the Committee shall
deem advisable.
7. Date of Grant. The initial grant of Options under this Plan shall be made
-------------
on the effective date set forth in Section 23(f), below. Thereafter, the
date on which an Option shall be deemed to have been granted under this
Plan shall be the date of the Committee's authorization of the Option or
such later date as may be determined by the Committee at the time the
Option is authorized. Notice of the determination shall be given to each
individual to whom an Option is so granted within a reasonable time after
the date of such grant.
8. General Restrictions. Each Option under the Plan shall be subject to the
--------------------
requirement that if at any time the Committee shall determine that
(i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under
any state or federal law, or (ii) the consent or approval of any
government regulatory body, or (iii) an agreement by the recipient of an
Option with respect to the disposition of shares of Common Stock is
necessary or desirable as a condition of or in connection with the
granting of such Option or the issuance or purchase of shares of Common
Stock thereunder, such Option shall not be consummated in whole or in
part unless such listing, registration, qualification, consent, approval,
or agreement shall have been effected or obtained free of any conditions
not acceptable to the Committee.
9. Single or Multiple Agreements. The Options granted hereunder may be
-----------------------------
evidenced by a single agreement or by multiple agreements, as determined
by the Committee, in its sole discretion.
10. Rights of a Shareholder. The recipient of any Option under the Plan,
-----------------------
unless otherwise provided by the Plan, shall have no rights as a
shareholder with respect thereto unless and until certificates for shares
of Common Stock are issued and delivered to him.
11. Right to Terminate Service. Nothing in the Plan nor in any agreement
--------------------------
entered into pursuant to the Plan shall confer upon any optionee the
right to continue in the service of the Company or any subsidiary or
affect any right which the Company or any subsidiary may have to
terminate the employment of such optionee.
12. Withholding. Whenever the Company proposes or is required to issue or
-----------
transfer shares of Common Stock under the Plan, the Company shall have
the right to require the recipient to remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax
requirements prior to the delivery of any certificate or certificates for
such shares. Whenever under the Plan payments are to be made in cash,
such payments shall be net of an amount sufficient to satisfy any
federal, state or local withholding tax requirements. If and to the
extent authorized by the Committee, in its sole discretion, an optionee
may make an election, by means of a form of election to be prescribed by
the Committee, to have shares of Common Stock which are acquired upon
exercise of an Option withheld by the Company or to tender other shares
of Common Stock or other securities of the Company owned by the optionee
to the Company at the time of exercise of an Option to pay the amount of
tax that would otherwise be required by law to be withheld by the Company
as a result of any exercise of an Option from amounts payable to such
optionee. Any such election shall be
-5-
<PAGE>
Exhibit A
---------
irrevocable and shall be subject to the disapproval of the Committee at
any time. Any securities so withheld or tendered will be valued by the
Committee as of the date of exercise.
13. Non-Assignability. No Option under the Plan shall be assignable or
-----------------
transferable by the recipient thereof except by will or by the laws of
descent and distribution. During the life of the recipient such Option
shall be exercisable only by such person or by such person's guardian or
legal representative.
14. Non-Uniform Determinations. The Committee's determinations under the Plan
--------------------------
(including without limitation determinations of the persons to receive
grants of Options, the form, amount and timing of such grants, the terms
and provisions of such grants, and the agreements evidencing same) need
not be uniform and may be made selectively among persons who receive, or
are eligible to receive, grants of Options under the Plan whether or not
such persons are similarly situated.
15. Adjustments Upon Changes in Capitalization or Merger. The number of
----------------------------------------------------
shares of Common Stock covered by each outstanding Option and the number
of shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option,
as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease
in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have
been "effected without receipt of consideration." Such adjustment shall
be made by the Committee, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Committee shall declare that each outstanding Option shall terminate
as of a date fixed by the Committee and shall give each optionee the
right to exercise his Option as to all or any part of the optioned Common
Stock, including shares as to which the Option would not otherwise be
exercisable. In the event of the merger of the Company or any subsidiary
with or into another corporation, the affected Options shall be assumed
or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation,
provided that the successor corporation consents to such assumption or
substitution. Moreover, the Committee may determine, in the exercise of
its sole discretion and in lieu of such assumption or substitution, that
the affected optionees shall have the right to exercise their Options as
to all of the optioned Common Stock, including shares as to which the
Option would not otherwise be exercisable. If the Committee makes an
Option fully exercisable in lieu of assumption or substitution in the
event of a merger or sale of assets, the Committee shall notify the
optionee that the Option shall be fully exercisable for a period of
thirty (30)
-6-
<PAGE>
Exhibit A
---------
days from the date of such notice, and the Option will terminate upon the
expiration of such period.
16. Amendment or Termination. The Committee may terminate or amend the Plan
------------------------
at any time. The termination or any modification or amendment of the Plan
shall not, without the consent of an optionee, affect his rights under an
Option previously granted.
17. Effect on Other Plans. Participation in this Plan shall not affect any
---------------------
employee's eligibility to participate in any other benefit or incentive
plan of the Company or any subsidiary. Any Options granted pursuant to
this Plan shall not be used in determining the benefits provided under
any other plan of the Company or any subsidiary unless specifically
provided.
18. Duration of the Plan. The Plan shall remain in effect until all Options
--------------------
granted under the Plan have been satisfied by the issuance of shares, but
no Option shall be granted more than ten years after the earlier of the
date the Plan is adopted by the Company or is approved by the Company's
shareholders.
19. Forfeiture for Dishonesty. Notwithstanding anything to the contrary in
-------------------------
this Plan, if the Committee finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and
any optionee, that the optionee has been engaged in fraud, embezzlement,
theft, commission of a felony or other dishonest conduct which damaged
the Company or any subsidiary or that the optionee has disclosed trade
secrets of the Company or any subsidiary, the optionee shall forfeit all
unexercised Options and all exercised Options under which the Company has
not yet delivered the certificates. The decision of the Committee as to
the cause of an optionee's discharge and the damage done to the Company
or any subsidiary shall be final. No decision of the Committee, however,
shall affect the finality of the discharge of such optionee by the
Company or any subsidiary in any manner.
20. No Prohibition on Corporate Action. No provision of this Plan shall be
----------------------------------
construed to prevent the Company or any officer or director thereof from
taking any corporate action deemed by the Company or such officer or
director to be appropriate or in the Company's best interest, whether or
not such action could have an adverse effect on the Plan or any Options
granted hereunder, and no optionee or optionee's estate, personal
representative or beneficiary shall have any claim against the Company or
any officer or director thereof as a result of the taking of such action.
21. Use of Proceeds. The proceeds received by the Company from the exercise
---------------
of any Option issued pursuant to the Plan shall be used for general
corporate purposes.
22. Indemnification. With respect to the administration of the Plan, the
---------------
Company shall indemnify each present and future member of the Committee
and the Board against, and each member of the Committee and the Board
shall be entitled without further act on his part to indemnity from the
Company for all expenses (including the amount of judgments and the
amount of approved settlements made with a view to the curtailment of
costs of litigation, other than amounts paid to the Company itself)
reasonably incurred by him in connection with or arising out of, any
action, suit or proceeding in which he may be involved by reason
-7-
<PAGE>
Exhibit A
---------
of his being or having been a member of the Committee and the Board,
whether or not he continues to be such member of the Committee and the
Board at the time of incurring such expenses; provided, however, that
such indemnity shall not include any expenses incurred by any such member
of the Committee and the Board (i) in respect of matters as to which he
shall be finally adjudged in any such action, suit or proceeding to have
been guilty of gross negligence or willful misconduct in the performance
of his duty as such member of the Committee and the Board; or (ii) in
respect of any matter in which any settlement is effected for an amount
in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification
under the provisions set forth herein shall be available to or
enforceable by any such member of the Committee and the Board unless
within 60 days after institution of any such action, suit or proceeding,
he shall have offered the Company in writing the opportunity to handle
and defend same at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and the Board and
shall be in addition to all other rights to which such member of the
Committee and the Board may be entitled as a matter of law, contract or
otherwise.
23. Miscellaneous Provisions.
------------------------
(a) No optionee or other person shall have any right with respect to
the Plan, the Common Stock reserved for issuance under the Plan or
in any Option until written evidence of the Option shall have been
delivered to the optionee and all the terms, conditions and
provisions of the Plan and the Option applicable to such optionee
(and each person claiming under or through him) have been met.
(b) No shares of Common Stock, other securities or property of the
Company, or other forms of payment shall be issued hereunder with
respect to any Option unless counsel for the Company shall be
satisfied that such issuance will be in compliance with applicable
federal, state, local and foreign legal, securities exchange and
other applicable requirements.
(c) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Option under the
Plan, and rights to the payment of Options shall be no greater than
the rights of the Company's general creditors.
(d) By accepting any Option or other benefit under the Plan, each
optionee and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan by
the Company, the Board or the Committee or its delegates.
(e) The masculine pronoun shall include the feminine and neuter, and
the singular shall include the plural, where the context so
indicates.
(f) This Plan shall be effective as of April 18, 1997 subject to the
approval of the Company's shareholders at the first annual meeting
of shareholders next following
-8-
<PAGE>
Exhibit A
---------
such effective date. If the shareholders do not approve the Plan,
the Plan shall not be effective. No Option shall be granted
pursuant to this Plan after April 17, 2007.
TO RECORD the adoption of this Plan, the Board has caused this instrument
to be executed on this 18th day of April, 1997.
READING ENTERTAINMENT, INC.
By: /s/ James J. Cotter
------------------------------------
Chairman
-9-
<PAGE>
APPENDICE
READING ENTERTAINMENT, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
AGREEMENT, dated April 18, 1997 (the "Grant Date"), between Reading
Entertainment, Inc., a Delaware corporation (the "Company"), with an address at
One Penn Square West, Suite 1300, Philadelphia, Pennsylvania 19102, and James J.
Cotter (the "Consultant"), with an address c/o Pacific Theatres, 120 North
Robertson Boulevard, Third Floor, Los Angeles, California 90048.
WHEREAS, the Board of Directors of the Company has, on the Grant Date,
granted to the Consultant an option to purchase shares of the common stock, par
value $.001 per share, of the Company (the "Common Stock"), as hereinafter set
forth, and authorized the execution and delivery of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. The Consultant is hereby granted the options (the "Options") to
purchase from the Company, subject to the terms and conditions set forth in this
Agreement, all or any part of 460,000 shares of Common Stock (the "Option
Shares") at a purchase price of $12.80 per share. All of the Options shall be
treated as non-qualified stock options.
2. The Options shall become exercisable as follows, subject to prior
expiration or termination of the Options:
(a) Basic Options. Options to purchase 110,000 Option Shares (the
-------------
"Basic Options") shall become exercisable in four equal installments of
27,500 Option Shares each, the first such installment to become exercisable
on the first anniversary of the Grant Date and the remaining installments
to become exercisable on each subsequent anniversary thereof until all
Basic Options have become exercisable.
(b) Convertible Preferred Options. Options to purchase 260,000 Option
-----------------------------
Shares (the "Convertible Preferred Options") shall become exercisable in
four equal installments of 65,000 Option Shares each, the first such
installment to become exercisable on the first anniversary of the Grant
Date and the remaining installments to become exercisable on each
subsequent anniversary thereof until all Convertible Preferred Options have
become exercisable; provided, that (i) no Convertible Preferred Options
shall be exercisable prior to the date that shares of the Company's Series
A Voting Cumulative Convertible Preferred Stock and Series B Voting
Cumulative Convertible Preferred Stock (collectively, the "Convertible
Preferred Stock") are converted (by election of the holders thereof or
otherwise) into Common Stock, and (ii) if fewer than 620,000 shares of
Convertible Preferred Stock have at any time been converted into Common
Stock, the number of Option Shares for which Convertible Preferred Options
shall be exercisable (inclusive of any Convertible Preferred
<PAGE>
Options which have previously been exercised) in each installment shall be
reduced as of such date to equal (to the nearest whole number) one-fourth
of the total number of Option Shares subject to Convertible Preferred
Options (inclusive of those exercised) without regard to this Section
2(b)(ii) multiplied by a fraction, the numerator of which is the aggregate
number of shares of Convertible Preferred Stock which have been converted
into Common Stock as of such date and the denominator of which is 620,000,
provided further, however, (iii) that if on any date any shares of
Convertible Preferred Stock are redeemed or repurchased by the Company, the
number of Option Shares for which Convertible Preferred Options shall be
exercisable (inclusive of any Convertible Preferred Options which have
previously been exercised) in each installment shall be permanently reduced
to equal (to the nearest whole number) one-fourth of the total number of
Option Shares subject to Convertible Preferred Options (inclusive of those
exercised) without regard to this Section 2(b)(iii) or Section 2(b)(ii)
multiplied by a fraction, the numerator of which is 620,000 minus the
aggregate number of shares of Convertible Preferred Stock which have been
redeemed or repurchased to such date and the denominator of which is
620,000 and any Convertible Preferred Options which are excluded from
becoming exercisable as a result of this Section 2(b)(iii) shall be
immediately and without further action deemed canceled.
(c) Asset Put Options. Options to purchase 90,000 Option Shares (the
-----------------
"Asset Put Options") shall become exercisable in four equal installments of
22,500 Option Shares each, the first such installment to become exercisable
on the first anniversary of the Grant Date and the remaining installments
to become exercisable on each subsequent anniversary thereof until all
Asset Put Options have become exercisable; provided, that (i) no Asset Put
Options shall be exercisable prior to the date on which shares of Common
Stock have been issued to Citadel Holding Corporation, a Delaware
corporation ("Citadel"), pursuant to the Asset Put (as defined in the
Asset Put and Registration Rights Agreement, dated as of October 15, 1996
(the "Asset Put Agreement") , among the Company, Citadel, and Citadel's
subsidiary Citadel Acquisition Corp., Inc. ("CAC")), or to any successor in
interest to Citadel, and (ii) if fewer than 1,700,000 shares of Common
Stock are issued pursuant to the Asset Put, the number of Option Shares for
which Asset Put Options become exercisable in each installment shall be
reduced to equal (to the nearest whole number) one-fourth of the total
number of Option Shares subject to Asset Put Options (inclusive of those
exercised) without regard to this Section 2(c)(ii) multiplied by a
fraction, the numerator of which is the number of shares of Common Stock
issued pursuant to the Asset Put and the denominator of which is 1,700,000
(the number 1,700,000 in each being subject to adjustment in proportion to
any adjustments made pursuant to Section 8 in the number of Option Shares),
and any Asset Put Options which are excluded from becoming exercisable as a
result of this Section 2(c)(ii) shall be immediately and without further
action deemed canceled.
3. All Options shall terminate and thereafter no longer be exercisable
(subject to Section 7) on April 18, 2007 (the "Expiration Date").
2
<PAGE>
4. Option Shares purchased pursuant to this Agreement shall be paid for
in full at the time of purchase. Payment may be made in cash, shares of Common
Stock, Options, or such other consideration as may be approved by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"), or a combination thereof, provided that such consideration shall
be such that the Option Shares shall be fully paid and nonassessable, and
provided further that no shares of Common Stock or Options may be so delivered
if, as a result thereof, the Consultant or other person exercising Options would
incur liability under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). If payment is made in whole or part by tender of
(a) shares of Common Stock, such shares shall be valued at the Fair Market Value
thereof (as defined below), (b) Options, the Options tendered as payment must be
exercisable at the date of such tender, shall be deemed to have been exercised
for purposes of Section 2, and shall be valued at an amount equal to the excess
of the Fair Market Value of the Option Shares issuable on exercise of such
Options over the aggregate exercise price of such Options, or (c) consideration
other than cash, shares of Common Stock, or Options, such consideration shall
have such value as determined by the Committee (whose determination shall be
final). Upon receipt of written notice of exercise of Options in the form
attached hereto as Exhibit A together with payment and delivery of any other
required documentation, the Company shall, without stock transfer tax to the
Consultant or any other person entitled to exercise such Options, deliver to the
person exercising such Options a certificate or certificates for the Option
Shares so purchased. It shall be a condition to the performance of the
Company's obligation to issue or transfer Common Stock upon exercise of Options
that the Consultant or other person exercising such Options pay, or make
provision satisfactory to the Company for the payment of, any taxes (other than
stock transfer taxes) which the Company is obligated to collect with respect to
the issue or transfer of Common Stock upon exercise, including any Federal,
state, or local withholding taxes. The "Fair Market Value" of a share of Common
Stock on any date shall mean the closing price of the Common Stock on the
trading day prior to such date, as reported in the Wall Street Journal or, if
not so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation (Nasdaq) System or, if not so reported, as
determined by the Committee (whose determination shall be final).
5. No person shall have any rights as a stockholder with respect to any
Option Shares until the date a stock certificate is issued to such person for
such Option Shares. Except as otherwise expressly provided herein, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
6. Options may be transferred only (a) by will or the laws of descent and
distribution or (b) by the Consultant during his lifetime to any immediate
family member (as defined in Rule 16a-1(e) under the Exchange Act) of the
Consultant, any trust for the benefit of any one or more of the Consultant and
his immediate family members, or any partnership, corporation, limited liability
company, or other entity owned or controlled by any one or more of the
Consultant and his immediate family members, and are exercisable, during the
lifetime of the Consultant, only by the Consultant or the Consultant's personal
representative or guardian or a transferee permitted pursuant to this Section 6.
Subject to the foregoing, Options may be transferred whether or not exercisable
3
<PAGE>
at the time of transfer. The Consultant or his representative shall give the
Company notice of any transfer, specifying the name and address of the
transferee and the number and class of Options transferred.
7.(a) This option shall terminate 30 days (but not later than the
Expiration Date) after the date of the termination for cause, or 120 days (but
not later than the Expiration Date) after the date of the termination for any
reason, other than for cause, death, or Retirement (as hereinafter defined), of
the association of the Consultant with the Company.
(b) Upon the termination of the Consultant's association with the Company
due to Retirement, the Consultant or any transferee under Section 6 may, during
the Retirement Period (as hereinafter defined), exercise any or all of the
Options which were exercisable under this Agreement immediately prior to such
termination. "Retirement" means the termination of association due to
retirement with the consent of the Committee or as a result of the Consultant
becoming permanently disabled; and "Retirement Period" shall mean the period
from the date of Retirement to the later of (i) the date determined by the
Committee at the time of Retirement and (ii) three years from the date of
Retirement, provided that in no case shall the Retirement Period extend to a
date after the Expiration Date. The Committee shall have the sole discretion
whether or not to consent to a Retirement, which determination shall be final.
(c) Upon the termination of the Consultant's association with the Company
due to death, (i) all vesting provisions of Section 2 which would be satisfied
solely by the passage of time and the continuation of the Consultant's
association with the Company shall be accelerated and deemed satisfied and (ii)
the person or persons to whom the Consultant's rights hereunder are transferred
by will or the laws of descent and distribution, or any transferee under Section
6, may, at any time on or prior to the Expiration Date, exercise any or all of
the Options which (after giving effect to such acceleration) were exercisable as
of the date of the Consultant's death or which subsequently become exercisable
as a result of the conversion of Convertible Preferred Stock into Common Stock
or the exercise of the Asset Put Option.
(d) Upon the death of the Consultant during a period following termination
of such association in which Options are exercisable under Section 7(a) or 7(b),
(i) if such death resulted from a disability which occasioned Retirement, all
vesting provisions of Section 2 which would be satisfied solely by the passage
of time and the continuation of the Consultant's association with the Company
shall be accelerated and deemed satisfied and (ii) in any case, the person or
persons to whom the Consultant's rights hereunder are transferred by will or the
laws of descent and distribution, or any transferee under Section 6, shall have
the right, during the period ending on the later of the end of the period
provided in Section 7(a) or (b), as the case may be, for exercise of Options and
the period ending 18 months after the date of the Consultant's death, to
exercise any or all of the Options which (after giving effect to such
acceleration, if applicable) were exercisable as of the date of the Consultant's
death or which subsequently become exercisable as a result of the
4
<PAGE>
conversion of Convertible Preferred Stock into Common Stock or the exercise of
the Asset Put Option.
(e) If the Consultant is granted an approved leave of absence, the
Committee may, if it determines that to do so would be in the best interests of
the Company, provide for continuation of the Options during such leave of
absence, such continuation to be on such terms and conditions as the Committee
determines to be appropriate, provided that (except as provided in Section 7(d))
in no event shall Options be exercisable after the Expiration Date.
(f) For all purposes of this Agreement, the Consultant shall be considered
associated with the Company, and his association with the Company shall be
deemed to continue, so long as he is an officer, director, or employee of, or
consultant to, or otherwise associated with (other than solely as a
stockholder), the Company or any subsidiary or parent of the Company, and the
Options shall not be affected by any change of type of any such association as
long as the Consultant continues to be associated in any such manner with the
Company or any parent or subsidiary of the Company.
(g) Nothing in this Agreement shall confer on the Consultant any right to
continue to be associated with the Company or any parent or subsidiary of the
Company or interfere in any way with the right of the Company or any parent or
subsidiary of the Company to terminate the association with it of the Consultant
at any time.
8. The number of Option Shares (including the number subject to each
class of Options and each installment thereof), and the exercise price per
share, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made as determined by the Committee, whose determination
shall be final. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number of Option Shares or the exercise price of the
Options.
9. If the Company is merged or consolidated with another corporation, or
the property or stock of the Company is acquired by another corporation, or on
the reorganization or liquidation of the Company, the Board of Directors of the
Company, or the Board of Directors of any corporation assuming the obligations
of the Company hereunder, shall either make appropriate provisions for the
protection of the Options by the substitution on an equitable basis of
appropriate stock of the Company, or appropriate stock of the merged,
consolidated, or otherwise reorganized corporation.
5
<PAGE>
10.(a)(i) If the Company shall receive a written request (specifying that
it is being made pursuant to this Section 10(a)) from holders of Options or
Option Shares representing a majority of the Registrable Securities (as defined
below) that the Company file a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), covering the registration of at
least 50% of the Registrable Securities, the Company shall, within ten business
days of the receipt thereof, give written notice of such request to all holders
of Registrable Securities ("Eligible Holders") and shall file as soon as
practicable, and in any event within 60 days of the receipt of such request, a
registration statement under the Securities Act covering all Registrable
Securities which the Eligible Holders request to be registered within 30 days of
the mailing of such notice to all Eligible Holders. The term "Registrable
Securities" shall mean Option Shares which have not previously been sold and are
not then eligible for immediate sale (not limited by volume limitations) by the
holders thereof pursuant to an effective registration statement under the
Securities Act or pursuant to paragraph (k) of Rule 144 under the Securities
Act.
(ii) Notwithstanding the foregoing, (A) the Company shall not be obligated
to effect a registration pursuant to this Section 10(a) (I) unless Form S-3 is
then available for such registration or (II) during the period starting with the
date 60 days prior to the Company's estimated date of filing of, and ending on a
date six months following the effective date of, a registration statement
pertaining to an underwritten public offering of securities for the account of
the Company, provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective and
that the Company's estimate of the date of filing such registration statement is
made in good faith; (B) if the Company shall furnish to the Eligible Holders
initiating the registration request hereunder (the "Initiating Eligible
Holders") a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be materially
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future, then the Company's obligation to file a
registration statement shall be deferred for a period not to exceed six months;
provided, however, that the Company may furnish such a certificate to Initiating
Eligible Holders only once in any one-year time period; and (C) if the managing
underwriter of an underwritten offering to be made pursuant to this Section
10(a) advises the Initiating Eligible Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Eligible Holders shall so advise all Eligible Holders whose
Registrable Securities would otherwise be underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Eligible Holders thereof in proportion
to the amount of Registrable Securities owned by each Eligible Holder.
(iii) The Company shall be obligated to effect only one registration
pursuant to this Section 10(a).
(b)(i) If at any time the Company determines to register (including for
this purpose a registration effected by the Company for securityholders other
than the Eligible Holders) any shares of Common Stock under the Securities Act
in connection with the public offering of such securities
6
<PAGE>
solely for cash on a Form and under circumstances that would also permit the
registration of the Registrable Securities (other than Forms S-4 and S-8), the
Company shall promptly give each Eligible Holder written notice of such
determination. Upon the written request of each Eligible Holder given within 20
days after mailing of any such notice by the Company, the Company shall, subject
to the provisions of this Section 10(b), cause to be registered under the
Securities Act all of the Registrable Securities that each such Eligible Holder
has requested be registered; provided however, that the Company shall not be
required to proceed with such registration if the offering is abandoned in its
entirety and no other securities are offered for sale.
(ii) In connection with any offering involving an underwriting of shares
being issued by the Company, the Company shall not be required under this
Section 10(b) to include any of the Eligible Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as will not, in the reasonable opinion of the underwriters, jeopardize
the success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by the Eligible Holders and other
securityholders having registration rights to be included in such offering
exceeds the amount of securities to be sold other than by the Company (or the
securityholders initiating the registration) that the underwriters reasonably
believe compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters believe will not
jeopardize the success of the offering. In such event, the securities requested
to be included which are excluded shall be apportioned pro rata among the
Eligible Holders and, to the extent permitted by the contractual rights of other
selling securityholders, all other prospective selling securityholders according
to the total amount of securities requested to be included therein owned by each
such Eligible Holder and other selling securityholder or in such other
proportions as shall mutually be agreed to by such Eligible Holders and such
other selling securityholders. To the extent required by the rights of other
selling securityholders, including the rights of Citadel and CAC under the Asset
Put Agreement, the Registrable Securities shall be excluded prior to any
exclusion of securities held by such other securityholders.
(c) The Company shall not be required to include in any registration any
Registrable Securities unless the holder thereof shall have furnished to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of the Registrable Securities.
(d) All expenses other than underwriting discounts and commission incurred
in connection with any registration, filing, or qualification pursuant to this
Section 10, including, without limitation, all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of a single
counsel for and selected by the Eligible Holders and any other selling
securityholders, shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 10(a) if the registration request
7
<PAGE>
is subsequently withdrawn at the request of the Eligible Holders of a majority
of the Registrable Securities to be registered (in which case all participating
Eligible Holders shall bear such expenses in proportion to the respective
numbers of Registrable Securities they requested to be included in such
registration, or as they may otherwise agree), unless, at the time of such
withdrawal, the Eligible Holders have learned of a material adverse change in
the condition, business or prospects of the Company from that known to the
Eligible Holders at the time of their request, in which case the Eligible
Holders shall not be required to pay any such expenses and shall retain all
rights pursuant to Section 10(a).
(e) The provisions of this Section 10 may be amended or waived in any
respect with the consent of holders of Options and Option Shares representing a
majority of the Registrable Securities, and any such amendment or waiver shall
be binding on all then and future holders of Options or Option Shares.
11. The Company shall at all times reserve and keep available out of its
authorized Common Stock the full number of shares of Common Stock of the
Corporation issuable upon exercise of Options.
12. If at any time the Board of Directors shall determine, in its
discretion, that the listing, registration, or qualification of any of the
Option Shares upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the issue or purchase of
Option Shares, the Options may not be exercised in whole or in part unless such
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. Any notice of exercise of Options which would be effective except
for this Section 12 shall be deemed effective immediately upon satisfaction of
all such conditions (even if such notice could not otherwise then have been
given).
The Company shall not be obligated to sell or issue any Option Shares in
any manner in contravention of the Securities Act, the Exchange Act, or any
state securities law. The Board of Directors may, at any time, require as a
condition to the exercise of Options that the Option Shares be acquired for
investment purposes only and that the certificate therefor contain a legend
restricting transfer.
13. All notices hereunder shall be in writing, and (a) if to the Company,
shall be delivered personally to the Secretary of the Company or mailed to its
principal office, addressed to the attention of the Secretary, (b) if to the
Consultant, shall be delivered personally or via courier or mailed via certified
mail, postage prepaid, return receipt requested to the Consultant at the address
first set forth above, or (c) if to any subsequent holder of Options or Option
Shares, to the address specified for such holder in the notice provided for in
Section 6 or on the stock records of the Company. Such addresses may be changed
at any time by notice from one party to the other.
8
<PAGE>
14. All decisions or interpretations made by the Committee with regard to
any question arising hereunder shall be binding and conclusive on the Company
and the Consultant.
15. This Agreement shall bind and inure to the benefit of the parties
hereto and the successors and assigns of the Company and, to the extent provided
in Section 6, the executors, administrators, legatees, heirs, guardians, legal
representatives, successors, and assigns of the Consultant.
16. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania, without giving effect to rules
governing the conflict of laws.
17. Notwithstanding anything to the contrary herein, the effectiveness of
this Agreement and the Options granted hereby is subject to the approval of this
Agreement by the stockholders of the Company, and no Options may be exercised
unless and until such approval is obtained.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
READING ENTERTAINMENT, INC.
By: /s/ James A. Wunderle
-------------------------------------
Name: James A. Wunderle
Title: Executive Vice President
/s/ James J. Cotter
------------------------------------
James J. Cotter
9
<PAGE>
EXHIBIT A
EXERCISE NOTICE
The undersigned, pursuant to the Option Agreement, dated April 18, 1997
(the "Option Agreement;" terms used and not defined herein have the meanings as
defined in the Option Agreement), between Reading Entertainment, Inc., a
Delaware corporation (the "Company"), and James J. Cotter (the "Consultant"),
hereby elects to exercise Options to purchase ______________________ Option
Shares (comprised of _______ Option Shares underlying Basic Options, _____
Option Shares underlying Convertible Preferred Options, and _____ Option Shares
underlying Asset Put Options) and herewith makes payment in full therefor by
delivery of
(i) $_____________ in cash,
(ii) _______ shares of Common Stock having a Fair Market Value of
$________,
(iii) Options (comprised of _______ Basic Options, _____ Convertible
Preferred Options, and _____ Asset Put Options), other than those exercised
hereby, to purchase ________ Option Shares, which Options have a value as
determined in accordance with the Option Agreement of $_________; and
(iv) other property described on the attachment hereto, if any, which
property has been approved by the Committee and valued by the Committee at
$______.
1. If the sale of the Option Shares and the resale thereof has not, prior
to the date hereof, been registered pursuant to a registration statement filed
and declared effective under the Securities Act, the undersigned hereby agrees,
represents, and warrants that:
(a) I am acquiring the Option Shares for my own account (and not for
the account of others) for investment and not with a view to the
distribution or resale thereof;
(b) By virtue of my position, I have access to the same kind of
information which would be available in a registration statement filed
under the Securities Act;
(c) I am a sophisticated investor;
(d) I understand that I may not sell or otherwise dispose of such
shares in the absence of either a registration statement under the
Securities Act or an exemption from the registration provisions of the
Securities Act; and
(e) The certificates representing such shares may contain a legend to
the effect of 1(d) above.
10
<PAGE>
2. If the sale of the Option Shares and the resale thereof has been
registered under the Securities Act, the undersigned hereby represents and
warrants that I have received the applicable prospectus and all reports
incorporated therein by reference.
Very truly yours,
--------------------------------------
(type name under signature line)
Dated: ____________________
11
<PAGE>
Reading Entertainment, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
August 20, 1997
My fellow shareholders:
Last year, I advised you that we would need to restructure our Company in
order to succeed in the cinema industry. We accomplished this goal at the end
of 1996. Today, Reading Entertainment, Inc. has (1) approximately $155 million
of equity, (2) no bank debt and (3) cash and cash equivalents of over $110
million. These funds will be devoted to the development of state-of-the-art
cinemas and entertainment complexes in the United States, Australia and Puerto
Rico.
A few years ago, we entered the cinema business by acquiring a small
theater circuit in Puerto Rico with 36 screens. Since its purchase, we have
added 14 screens to this circuit. We anticipate opening an additional eight
screens by mid-1998 and will shortly complete negotiations for the development
of an additional 22 screens. As you know, in mid-96, we acquired the Angelika
Film Center, a six screen cinema and cafe in New York City, which is the
foremost venue in the country for art and specialty films. We are currently
expanding the Angelika Film Center concept to other major U.S. cities. We will
open another Angelika in Houston, Texas by the end of the year and hope to
announce a number of other future Angelika locations. Our development efforts
in Australia are almost two years old. By the end of 1997, we should have at
least 16 screens in operation and have obtained building permits for another 24
screens. I personally believe we will have a far greater number of Australian
sites to report to you by year end.
As I had mentioned to you in my 1996 Shareholder Letter, the cinema
industry is undergoing a revolution. Old theaters (theaters four or more years
old) are being replaced by state-of-the-art megaplexes. The material portion of
the revenue for the new megaplexes will in many cases come at the expense of the
older theaters. Thus, the values of older circuits are being eroded and will
continue to erode. The public has embraced and will come to expect a state-of-
the-art cinema experience.
Our Company finds itself in a unique position. We formulated our business
plan early in this revolution and we are now a company, unlike many others,
which is liquid and debt-free. Outside of a few older theaters in Puerto Rico,
our new theaters will be state-of-the-art. As far as the Angelika is concerned,
we are the only company committed to developing state-of-the-art cinemas
showcasing art and specialty films. We have created a great market niche since
most art theaters in the country are old, converted commercial theaters lagging
behind this new trend. Australia falls into a similar category. Most Australian
theaters are older, conventionally designed venues. We are securing sites that
will be developed with a twenty-first century design. Not only are we expanding
our cinema business to Australia, but we have also taken steps to establish a
real
<PAGE>
estate division to own and develop entertainment complexes featuring "Reading
Cinemas" as anchor tenants. Our Australian efforts represent an exciting aspect
of our business plan and one that has captured my time and imagination.
In order to implement our program of developing state-of-the-art cinemas
and entertainment complexes in our target markets, we have assembled a very
talented and motivated team of theater and real estate personnel in the U.S. and
Australia. One drawback to our program is that our general and administrative
expenses will be disproportionate to our short term revenues, however I
anticipate this being a temporary state.
Let us keep two things in mind. I have been in the theater and real estate
businesses for most of my career and, along side your investment, I have made a
major investment in this Company. Needless to say, I am very committed and
optimistic about our present business plan and the attendant value being built.
Sincerely,
/s/ James J. Cotter
James J. Cotter
Chairman
<PAGE>
PROXY READING ENTERTAINMENT, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 16, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints James J. Cotter, S. Craig
Tompkins and Robert F. Smerling, and each or any of them, proxies of the
undersigned, with full power of substitution, to vote all of the shares of
Reading Entertainment, Inc. (the "Company") which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held 9:00 a.m., prevailing time, at the Cinema I Theater, 1001 Third Avenue,
New York, New York for the following purposes and any adjournment thereof, as
follows:
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY
listed below TO vote for all
(except as marked nominees below. [_]
to the contrary
below). [_]
INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the following list: James J. Cotter,
Gregory R. Brundage, Edward L. Kane, John W. Sullivan, Albert J. Tahmoush, and
S. Craig Tompkins.
2. To consider and take action upon a proposal to approve the 1997 Equity
Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To consider and take action upon a proposal to approve the grant to James
J. Cotter, Chairman of the Board of the Company, of an option to purchase,
subject to satisfaction of certain conditions, up to 460,000 shares of
Common Stock of the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any adjournment
thereof.
(please see reverse side)
<PAGE>
(continued from reverse side)
THIS PROXY WILL BE VOTED AS SPECIFIED. IF A CHOICE IS NOT SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE NOMINEES FOR DIRECTOR AND FOR EACH OF THE
ABOVE PROPOSALS.
Dated: _______________________, 1997
____________________________________
(Please sign name(s) exactly as
registered)
____________________________________
(If there are co-owners, both
should sign)
____________________________________
Telephone number
THIS PROXY SHOULD BE DATED, SIGNED BY THE STOCKHOLDER EXACTLY AS HIS NAME
APPEARS ON HIS STOCK CERTIFICATE AND RETURNED PROMPTLY TO THE COMPANY, C/O
NORWEST BANK MINNESOTA, N.A., SHAREOWNER SERVICES DEPT., 161 NORTH CONCORD
EXCHANGE, SOUTH ST. PAUL, MN 55075-0738, IN THE ENCLOSED ENVELOPE. PERSONS
SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE.
