<PAGE>
FORM 10-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............... to ...............
COMMISSION FILE NUMBER 333-13413
READING ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2859312
(State of incorporation) (I.R.S. Employer Identification No.)
30 SOUTH FIFTEENTH STREET
SUITE 1300
PHILADELPHIA, PENNSYLVANIA 19102
Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: 215-569-3344
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.001 PAR VALUE PHILADELPHIA STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
Title of class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of March 28, 1998, 7,449,364 shares of Common Stock were outstanding and
the aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $27,204,733.38.
<PAGE>
PART III, ITEMS 10-13 ARE AMENDED IN THEIR ENTIRETY AS SET FORTH HEREIN.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- ---- --- --------
James J. Cotter 59 Chairman of the Board of Directors
S. Craig Tompkins 47 Vice Chairman of the Board of Directors
and Director
Robert F. Smerling 63 President and Director
Gregory R. Brundage(2)(4) 54 Director
Edward L. Kane(1)(2)(3) 60 Chairman of the Audit and Finance
Committee of the Board and a Director
John W. Sullivan(1)(3)(4) 63 Chairman of the Compensation Committee
of the Board and a Director
Albert J. Tahmoush(3)(4) 76 Chairman of the Conflicts Committee of
the Board and a Director
B. John Rochester 54 Chief Executive Officer, Australian
Cinema Operations and Reading Australia
Pty Ltd.
James A. Wunderle 46 Executive Vice President, Chief
Financial Officer and Treasurer
Ellen M. Cotter 32 Vice President, Business Affairs
John Foley 47 Vice President, Marketing
Charles S. Groshon 44 Vice President, Finance
Mark A. Novell 35 Controller
_______________________
(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 shareholders or by the Board of
Directors in the case of vacancies which occur between meetings of the
shareholders.
(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 1997 the
Audit and Finance Committee held two meetings.
-1-
<PAGE>
(3) Member of the Compensation Committee. The Compensation Committee 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 plans. The Compensation Committee held six meetings during 1997.
(4) Member of the Conflicts Committee. The Conflicts Committee was formed in
order 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. The Conflicts Committee held one meeting in 1997.
Mr. Cotter has been Chairman of the Board of Directors since December 1991,
Chairman of the Company's Executive Committee since March 1993 and a director
since September 1990. Mr. Cotter has been Chairman of the Board of Craig since
1988 and a director since 1985. Mr. Cotter has been a director of Citadel since
1991, became acting Chairman in October of 1991 and was named Chairman in 1992.
From October 1991 to June 1992, Mr. Cotter also served as the acting Chairman of
Citadel's wholly owned subsidiary, Fidelity Federal Bank, FSB ("Fidelity"), and
served as a director of Fidelity until December 1993. Mr. Cotter is the Chairman
and a director of Citadel Agricultural, Inc. ("CAI"), a wholly owned subsidiary
of Citadel; the Chairman and a member of the Management Committee of each of the
agricultural partnerships which constitute the principal assets of CAI (the
"Agricultural Partnerships"); and the Chairman and a member of the Management
Committee of Big 4 Farming LLC ("Farming"), a farm management company, 80%
owned by Citadel. From 1988 through January 1993, 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, and is the Managing Director of
Visalia LLC ("Visalia"), which holds a 20% interest in each of the Agricultural
Partnerships and a 20% interest in Big 4 Farming LLC. Mr. Cotter has been a
director and Chief Executive Officer of Townhouse Cinema 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 from 1987 until September 1997.
Mr. Cotter is also a director and Executive Vice President of Pacific Theatres,
a wholly owned subsidiary of Decurion.
Mr. Smerling has been President of Reading Entertainment since January
1997. Mr. Smerling has served as President of several subsidiaries of the
Company since November 1994. Mr. Smerling also serves as the President of
CineVista. Mr. Smerling served as president of Loews Theater Management
Corporation, a subsidiary of Sony Corporation, from May 1990 until November
1994. Mr. Smerling also serves as President and Chief Executive Officer of City
Cinemas, a motion picture exhibitor located in New York City, New York. City
Cinemas is an affiliate of James J. Cotter and has entered into an Executive
Sharing Agreement with the Company with respect to the services of Mr. Smerling.
Mr. Tompkins has been Vice Chairman since January 1997. Mr. Tompkins has
been a Director of the Company since March 1994 and was President of the Company
from March 1994 through December 1996. Mr. Tompkins is also President and
Director of Craig and has served in such positions since March 1, 1994. Prior
thereto, Mr. Tompkins was a partner in the law firm of Gibson, Dunn & Crutcher.
Mr. Tompkins has been a director of Citadel since May 1994 and a director of G&L
Realty Corp., a New York Stock Exchange listed REIT (Real Estate Investment
Trust), since December 1994. Since July 1995, Mr. Tompkins has been the Vice
Chairman of Citadel, and currently serves as that company's Secretary/Treasurer
and Principal Accounting Officer. Mr. Tompkins is also President and a Director
of CAI, a member of the Management Committee of each of the Agricultural
Partnerships and of Big 4 Farming LLC, and serves for administrative convenience
as an Assistant Secretary of Visalia, and Big 4 Ranch, Inc. (a partner with
CAI and Visalia in each of the Agricultural Partnerships).
Mr. Rochester has been Chief Executive Officer of Reading Australia 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 organization since 1987.
Mr. Wunderle has been Chief Financial Officer since January 1987 and
Executive Vice President, Treasurer, and Chief Financial Officer since December
1988. He has been Treasurer since March 1986.
-2-
<PAGE>
Ms. Cotter has been the Vice President, Business Affairs of the Company
since March 1998. Prior thereto, Ms. Cotter held the same position with Craig
from August 1996. Prior thereto, she was an attorney specializing in corporate
law with White & Case, a New York law firm. Ms. Cotter is the daughter of Mr.
James J. Cotter. Ms. Cotter is a member of Vislia, LLC and a limited partner in
James J. Cotter, Ltd. (Mr. Cotter is a general partner), which is a general
partner of Hecco Ventures I a privately held investment partnership.
Mr. Groshon has been Vice President of the Company since December 1988. He
was an internal auditor with the Company from August 1984 until December 1988,
and a staff accountant prior thereto.
Mr. Foley has been an officer of the Company since May 1998. Mr. Foley also
has been an officer of City Cinemas since January 1997. Prior to joining City
Cinemas and the Company, Mr. Foley was the President of Distribution for
Miramax, 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 for MGM/UA from 1989 through
1993.
Mr. Novell has been Controller of the Company since March 1998. Mr. Novell
served as Controller for Einstein/Noah Bagels, L.P., a franchisee for the east
coast of the United States, from November 1996 to January 1998. Prior thereto,
Mr. Novell served as Controller for Expert Software, Inc. (a consumer software
publisher/distributor) from May 1993 to October 1996. Mr. Novell is a
Certified Public Accountant.
The Company receives consulting services from the following individual; a
full-time employee of an affiliated company, Citadel:
Mr. Wesson has been the President and Chief Executive Officer of Citadel
since August 1994. Prior to his employment by Citadel in 1993, Mr. Wesson was
the Chief Executive Officer of Burton Properties Trust Inc., the U.S. real
estate subsidiary of The Burton Group PLC, from 1989. Reading owns 23.5% of the
outstanding Common Stock of Citadel, and receives real estate consulting
services from Citadel pursuant to an agreement with that company.
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, 1997, all filing
requirements applicable to its reporting persons were complied with except as
follows: [information to come]
-3-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
I. Summary Compensation Table
The following table shows, for the years ending December 31, 1997, 1996 and
1995, the cash compensation paid by the Company, as well as certain other
compensation paid or accrued for those years, to each of the 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)(2)/ 1997 $475,000 $150,000 460,000
Chairman of the Board of Directors
1996 150,000
1995 150,000
S. Craig Tompkins /(2)(3)/ 1997 $180,000 20,000
Vice Chairman of the
Board of Directors 1996 180,000
1995 180,000
Robert F. Smerling /(4)/ 1997 175,000 35,000
President and Director
1996 175,000 60,000
1995 175,000
B. John Rochester /(5)/ 1997 130,000
President and Chief Executive
Officer, Reading Australia Pty Ltd. 1996 156,620
1995 39,155
James A. Wunderle 1997 170,000 5,000 17,000
Executive Vice President,
Chief Financial Officer and Treasurer 1996 130,000 70,000
1995 130,000 52,500
</TABLE>
(1) Mr. Cotter receives a fee for his services as Chairman of the Board of
Directors of $150,000 per annum.
(2) Does not include fees of $45,000 paid to Mr. Cotter in both 1997 and 1996
or fees of $40,000 and $35,000 paid in 1997 and 1996, respectively, to Mr.
Tompkins by Citadel for services provided to Citadel.
(3) Mr. Tompkins 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 and a Director on January 24, 1997.
(5) Mr. Rochester's compensation is paid in Australian dollars, his base salary
is A$200,000. The amounts presented in the table fluctuate due to
fluctuations in the U.S. dollar / Australian dollar exchange rates at
December 31 of the respective years presented. Mr. Rochester was retained
effective November 1995. Amount set forth reflects salary for 1995.
-4-
<PAGE>
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.
Mr. Tompkins is entitled to a severance payment equal to his annual base
salary and continuation of medical and insurance benefits 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 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 are entitled to receive payment
equal to twelve, twelve and nine months, respectively, of annual base salary in
the event their individual employment with the Company is involuntarily
terminated.
II. Option Grant Table
As of December 31, 1997, the Company had options outstanding under two
Stock Option Plans, the 1992 Non-qualified Stock Option Plan (the "1992 Plan")
and the 1997 Equity Incentive Plan (the "1997 Plan"). Each plan was approved by
shareholders in the year of adoption. The 1997 Plan reserved 200,000 shares for
grant and provides for one-fourth of the options granted to be exercisable on
the first anniversary of the date of grant, and an additional one-fourth on each
subsequent anniversary, unless the Compensation Committee of the Board of
Directors (the "Committee"), in its discretion, decides otherwise.
The 1992 Plan reserved 500,000 shares for grant and provides for one-third
of options granted to be immediately exercisable, one-third exercisable on the
first anniversary of the date of grant, and the final one-third exercisable upon
the second anniversary date of the date of grant unless the Committee, in its
discretion, decides otherwise.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ---------------------------------------------------------------------------------------- ----------------------
NO. OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($) DATE 5% ($) 10% ($)
- --------------------- ---------------- ---------------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James J. Cotter 110,000 17.61% 12.80 4/18/2007 652,551 1,873,084
James J. Cotter 260,000 41.63% 12.80 4/18/2007 1,542,395 4,427,290
James J. Cotter 90,000 14.41% 12.80 4/18/2007 533,906 1,532,523
Ellen M. Cotter 10,000 1.60% 12.80 4/18/2007 59,323 170,280
Robert F. Smerling 35,000 5.60% 12.80 4/18/2007 207,630 595,981
S. Craig Tompkins 20,000 3.20% 12.80 4/18/2007 118,646 340,561
James A. Wunderle 17,000 2.72% 12.80 4/18/2007 100,849 289,477
</TABLE>
-5-
<PAGE>
Options granted under both the 1992 Plan and the 1997 Plan must have
exercise prices equal to or greater than 100% of the fair market value of the
underlying shares on the date of grant and expire ten years from the date of
grant and may contain certain other terms and conditions as determined by the
Committee. All of the options granted to executive officers other than Mr.
Cotter were from the 1997 Plan. Shareholders of the Company approved a grant of
options on September 16, 1997 to James J. Cotter, Chairman of the Board of
Directors of the Company (the "Cotter Options"). The Cotter Options are divided
into three groups: Options (the "Basic Options") to purchase up to 110,000
shares of Common Stock, which become exercisable in four equal installments
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 Options") 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 Option (See Item I - Business General - The Reorganization and
Stock Transactions). All shares granted under the Cotter Options have an
exercise price of $12.80 per share.
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,
1997. No options were exercised by such persons during the fiscal year ended
December 31, 1997 and none of the options held by such persons at December 31,
1997 had exercise prices which were below the market price of the Company's
common stock as of that date. All of such options had an exercise price of
$12.80 per share except for 265,232 held by Mr. Cotter which have an exercise
price of $14.00 per share.
<TABLE>
<CAPTION>
Fiscal Year-End Option Values
Number of Unexercised
Options at 12/31/97
-----------------------
# Exercisable /
Name Unexercisable
--------------------- -----------------------
<S> <C>
James J. Cotter (1) 320,232 / 405,000
Ellen M. Cotter 5,000 / 5,000
S. Craig Tompkins 10,000 / 10,000
Robert F. Smerling 15,625 / 15,625
James A. Wunderle 8,500 / 8,500
</TABLE>
(1) Mr. Cotter's unexercisable options include all of the Convertible
Preferred Options and all of the Asset Put Options and the unvested portion of
his Basic Options.
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.
-6-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following tables set forth certain information regarding the Common
Stock and total voting stock (including the Series A Preferred Stock and the
Series B Preferred Stock) of the Company owned on April 22, 1997 by (i) each
person or group who is known by the Company to own beneficially more than 5
percent of the Company's Common Stock, (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
---------------------------------------------------------------
Voting Cumulative Convertible Preferred Stock
---------------------------------------------------------------
Common Stock Series A Series B
---------------------------------------------------------------------------------------------
Percent
Amount and Nature Amount and Nature Amount and Nature of
Name and Address of of Percent of of Percent of of Percent of Voting
Beneficial Owner Beneficial Class Beneficial Class Beneficial Class Stock (1)
Ownership Ownership Ownership
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Craig Corporation
550 South Hope Street 5,165,156 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>
James J. Cotter................................ 298,732 (2)(4) 3.86 2.18
Gregory R. Brundage............................ 0 0 0
Ellen M. Cotter................................ 2,500 (5) * *
Edward L. Kane................................. 9,000 (6)(7) * *
B. John Rochester.............................. 0 0 0
Robert F. Smerling............................. 7,812 (8) * *
John W. Sullivan............................... 165,441 (6)(9) 2.22 1.23
Albert J. Tahmoush............................. 7,500 (6) * *
S. Craig Tompkins.............................. 6,400 (2)(10) * *
James A. Wunderle.............................. 4,250 (11) * *
All Directors and Officers As a Group.......... 507,885 (12) 6.52 3.69
(12 Persons)
</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 Preferred
Stock and 550,000 shares of Series B Preferred Stock, all of which are
owned by 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 shareholders of the Company.
(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 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.
-7-
<PAGE>
(3) Includes 298,732 shares which may be acquired through the exercise of stock
options and stock options exercisable within 60 days of April 28, 1998.
(4) Includes 2,500 share which may be acquired through the exercise of stock
options and stock options exercisable within 60 days of April 28, 1998.
(5) Includes 7,500 shares which may be acquired through the exercise of stock
options and stock options exercisable within 60 days of April 28, 1998.
(6) Includes 1,500 shares held in a retirement account.
(7) Includes 7,812 shares which may be acquired through the exercise of stock
options and stock options exercisable within 60 days of April 28, 1998.
(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 107,838 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 5,000 shares which may be acquired through the exercise of stock
options and stock options exercisable within 60 days of April 28, 1998.
Excludes 200 shares held in Mr. Tompkins' wife's retirement plan and 500
shares held in the trust of Mr. Tompkins' minor child as to which Mr.
Tompkins disclaims beneficial ownership.
(10) Includes 4,250 shares which may be acquired through the exercise of stock
options and stock options exercisable within 60 days of April 28, 1998.
(11) Includes 341,044 shares which may be acquired through the exercise of stock
options and stock options exercisable within 60 days of April 28, 1998.
-8-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, Citadel capitalized a wholly owned subsidiary, Big 4
Ranch, Inc. (BRI), with a cash contribution of $1,200,000 and then distributed
100% of the shares of Big 4 Ranch, Inc. to Citadel's common shareholders of
record as of the close of business on December 23, 1997, as a spin-off dividend.
The Company received 1,564,473 shares or 23.4% of Big 4 Ranch, Inc.
Also, in December 1997, BRI (owning 40%), Citadel (owning 40%) and Visalia
LLC (owning 20%; a limited liability company controlled by Mr. James J. Cotter,
the Chairman of the Board of the Company, Craig and Citadel, and owned by Mr.
Cotter and certain members of his family) entered into three general
partnerships, which partnerships acquired on December 31, 1997 certain
agricultural properties located in Kern County, California (purchase price
amounting to approximately $7,600,000). The acquisition was financed by a 10-
year purchase money mortgage in the amount of $4,050,000, a line of credit from
Citadel and pro rata contributions from the partners. Through the Company's
holdings in Big 4 Ranch, Inc., and Citadel, the Company owned approximately
18.8% of such partnerships at December 31, 1997.
The Partnerships have each retained Big 4 Farming LLC (owned 80% by Citadel
and 20% by Visalia) to farm their properties. Certain officers and directors of
the Company are officers, directors or management committee members of Citadel,
BRI, Farming and/or the Agricultural Partnerships. Mr. James J. Cotter is the
Chairman and a Director of each of Citadel, Craig and the Company, and is also
Chairman of the management committees of Farming and of each of the Agricultural
Partnerships. Mr. S. Craig Tompkins is the Vice Chairman and a Director of each
of Citadel and the Company, the President and a Director of Craig, the Principal
Accounting Officer of Citadel, and a member of the management committees of
Farming and of each of the Agricultural Partnerships. Mr. Edward L. Kane, a
Director of the Company, is the Chairman and President of BRI, and a member of
the management committee of each of the Agricultural Partnerships. Ms. Margaret
Cotter, a Director of Craig and the daughter of James J. Cotter, is also the
Secretary, Treasurer and Principal Accounting Officer and a Director of BRI, an
owner of Visalia and the Vice President of Ceceila. As an administrative
convenience, Mr. Tompkins also serves as an assistant secretary of BRI and
Visalia, for which he receives no compensation.
In 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.
Mr. Smerling serves as President of the Company and City Cinemas, a New
York motion picture theater exhibitor. City Cinemas is an affiliate of Mr.
Cotter, the Company's Chairman. The Company, AFC, CineVista and City Cinemas
entered into an Executive Sharing Agreement pursuant to which Mr. Smerling
provides services to both the Company and City Cinemas entities 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.
The Company acquired the Angelika on August 27, 1996. The theater is owned
jointly by the Company and Sutton Hill, a partnership affiliated with City
Cinemas, a Manhattan-based theater operator and owned in equal parts by James J.
Cotter and Mr. Michael Forman. City Cinemas (also owned indirectly in equal
parts by Messrs. Cotter and Forman) operates the theater pursuant to a
management agreement. Management fees paid to City Cinemas in 1997 and 1996
totaled approximately $370,000 and $43,000, respectively. For more detailed
information concerning the ownership and management of AFC please see Item 1 -
Description of Business - Angelika Film Centers. A company controlled by Mr.
Forman and his family beneficially own 16.4% of Craig's outstanding common stock
and 10.3% of Craig's Class A Common Preference Stock.
9
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The Company utilizes the services of certain Citadel employees, including
the President and Chief Executive Officer of CHC, for real estate advisory
services. The Company pays CHC for such services at a rate which is believed to
approximate the fair market value of such services. Amounts paid for such
services in 1997 and 1996 totaled approximately $240,000 and $169,000,
respectively.
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
READING ENTERTAINMENT, INC.
BY: /s/ James A. Wunderle
---------------------------------
James A. Wunderle
Executive Vice President
April 30, 1998
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