<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, 1998
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 April 13, 1999, 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 $16,392,164.
<PAGE>
Part I, Item 4 and Part III, Items 10 - 13 are amended in their entirety as set
forth herein.
Part I
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's 1998 Annual Meeting of Shareholders held on December
15, 1998, shareholders elected six directors. The results of the vote were as
follows:
For Withheld
--- --------
Gregory R. Brundage 11,933,110 7,260
James J. Cotter 11,932,914 7,456
Edward L. Kane 11,933,170 7,200
Robert F. Smerling 11,932,854 7,516
John W. Sullivan 11,933,170 7,200
S. Craig Tompkins 11,933,064 7,306
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James J. Cotter(1) 61 Chairman of the Board of Directors, Chairman of the Executive Committee of the Board
and a Director
S. Craig Tompkins 48 Vice Chairman of the Board of Directors and a Director
Robert F. Smerling 64 President and a Director
Gregory R. Brundage (2)(4) 55 Chairman of the Audit and Finance Committee of the Board and a Director
Edward L. Kane (1)(2)(3)(4) 61 Chairman of the Conflicts Committee of the Board and a Director
John W. Sullivan (1)(2)(3)(4) 64 Chairman of the Compensation Committee of the Board and a Director
James A. Wunderle 47 Executive Vice President, Chief Financial Officer and Treasurer
</TABLE>
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(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. The Executive Committee held no meetings in 1998.
(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 1998 the
Audit and Finance Committee held one meeting.
(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 one meeting during 1998.
(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 seven meetings in 1998.
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 and the Chairman
of the Board of Citadel since 1991. Mr. Cotter is the Chairman and a director of
Citadel Agricultural, Inc., a wholly-owned subsidiary
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<PAGE>
of Citadel ("CAI"); 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, a farm management company 80% owned
by Citadel and formed to manage the Agricultural Partnerships. Mr. Cotter has
been a 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 from 1987 until
September 1997. Mr. Cotter is the Managing Director of Visalia LLC, which holds
a 20% interest in each of the Agricultural Partnerships and a 20% interest in
Big 4 Farming, LLC. Mr. Cotter is a director and Executive Vice President of
Pacific Theatres, a wholly-owned subsidiary of Decurion. Mr. Cotter also has a
50% ownership in Sutton Hill Associates, a partnership affiliated with City
Cinemas Corporation, a motion picture exhibitor located in New York City ("City
Cinemas"). Mr. Cotter is the General Partner of a family limited partnerships
which is a general partner in Hecco Ventures, a California General Partnership.
Hecco Ventures is a significant stockholder in Craig. (See Item 13, "Certain
Relationships and Transactions," contained elsewhere herein.)
Mr. Tompkins has been Vice Chairman since January 1997. Mr. Tompkins has
been a Director of the Company since March 1993 and was President of the Company
from March 1993 through December 1996. Mr. Tompkins is also President and
Director of Craig and has served in such positions since March 1, 1993. 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 1993 and a director of G&L
Realty Corp., a New York Stock Exchange listed REIT (Real Estate Investment
Trust), since December 1993 and currently serves as the Chairman of that
company's Audit and Strategic Planning Committees. Since July 1994, 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 LLC and BRI (a
partner with CAI and Visalia LLC in each of the Agricultural Partnerships).
Mr. Smerling has been a director since September 1997 and President of the
Company since January 1997. Mr. Smerling has served as President of Reading
Cinemas, Inc. 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. 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. 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, Chairman of the
Company's Conflicts Committee since September 1998 and served as Chairman of the
Company's Audit and Finance Committee from October 1995 until September 1998.
Mr. Kane is a law school instructor. Mr. Kane served as Vice President of
SunSurgery Corporation from February through November 1995. From February 1993
through its acquisition by Sun Healthcare 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. Kane was the Chairman and President of BRI, which holds
40% interest in each of the Agricultural Partnerships, from December 29, 1997 to
October 19, 1998.
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. 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.
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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 of 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, 1998, all filing
requirements applicable to its reporting persons were met.
ITEM 11. EXECUTIVE COMPENSATION
I. Summary Compensation Table
The following table shows, for the years ending December 31, 1998, 1997 and
1996, 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
$100,000 in all capacities in which they served:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION (1) AWARDS
--------------------------------------------------- ----------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION (2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
----------------------------- ------- --------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
James J. Cotter /(3)/ 1998 150,000
Chairman of the Board of 1997 475,000 150,000 460,000
Directors 1996 150,000
S. Craig Tompkins /(4)/ 1998 180,000
Vice Chairman of the Board 1997 180,000 20,000
of Directors 1996 180,000
Robert F. Smerling 1998 175,000
President and Director 1997 175,000 35,000
1997 175,000 60,000
B. John Rochester /(5)/ 1998 122,660
President and Chief Executive 1997 130,000
Officer, Reading Entertainment 1996 156,620
Australia Pty Ltd.
James A. Wunderle 1998 175,000 4,500
Executive Vice President, Chief 1997 170,000 5,000 17,000
Financial Officer and Treasurer 1996 130,000 70,000
</TABLE>
(1) While the executive officers enjoy certain perquisites, such perquisites do
not exceed the lesser of $50,000 or 10% of such officer's salary and bonus,
unless otherwise so noted.
(2) Other compensation represents contributions under the Company's Employee
Retirement Savings Plan.
(3) Mr. Cotter receives a fee for his services as Chairman of the Board of
Directors of $150,000 per annum. The figures presented do not include
amounts paid by Citadel for director's fees of $45,000 annually for the
years 1998, 1997, and 1996 nor a bonus of $200,000 in 1998 for services
provided to Citadel.
(4) Does not include amounts paid by Citadel for director's fees in both 1998
and 1997 of $40,000, respectively, and $35,000 in 1996, nor a bonus of
$50,000 paid in 1998 for services provided to Citadel.
(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 has resigned
as the President and Chief Executive Officer of Reading Entertainment
Australia.
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<PAGE>
Directors who are not employees of the Company received an annual
retainer of $24,000, except for the Chairmen of the Audit and Finance and
Conflicts Committees and the Chairman of the Compensation Committee, each of
whom received 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. Mr. Rochester has resigned as the
President and Chief Executive Officer of Reading Entertainment Australia.
Messrs. Smerling and Wunderle are entitled to receive payment equal
to twelve months of annual base salary in the event their individual employment
with the Company is involuntarily terminated.
II. OPTION GRANT TABLE
As of December 31, 1998, 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
stockholders 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.
No options were granted under either Plan in 1998.
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<PAGE>
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,
1998. No options were exercised by such persons during the fiscal year ended
December 31, 1998 and none of the options held by such persons at December 31,
1998 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 vested, exercisable options held by Mr.
Cotter which have an exercise price of $14.00 per share.
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 an asset put
option which permits Citadel to require the Company to acquire substantially all
of Citadel's assets in return for Common Stock. All shares granted under the
Cotter Options have an exercise price of $12.80 per share.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
NUMBER OF
UNEXERCISED OPTIONS
AT 12/31/98
-----------------------
# EXERCISABLE /
NAME UNEXERCISABLE
------------------------- -----------------------
<S> <C> <C>
James J. Cotter /(1)/ 293,232 / 432,500
S. Craig Tompkins 5,000 / 15,000
Robert F. Smerling 7,812 / 27,188
James A. Wunderle 4,250 / 12,750
</TABLE>
(1) Mr. Cotter's unexercisable options include all of the Convertible
Preferred Options, Asset Put Options and the unvested portion of the
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. Cotter and Tompkins
each have a 1.6% beneficial interest and the Company has a 26% beneficial
interest in BRI. Mr. Kane served as Chairman and President of BRI from December
29, 1997 through October 17, 1998.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 Preferred Stock and
the Series B Preferred Stock) of the Company owned on April 28, 1999 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.
5% BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Voting Cumulative Convertible Preferred
Common Stock Series A Series B
- ----------------------------------------------------------------------------------------------------------------
Amount and Amount and Amount and Percent
Nature of Nature of Nature of of
Name and Address of Beneficial Percent Beneficial Percent Beneficial Percent Voting
Beneficial Owner Ownership of Class Ownership of Class Ownership of Class Stock (1)
================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Craig Corporation
550 South Hope Street 9,655,312 (3) 80.87 0 0 550,000 100 77.96
Los Angeles, CA 90071 (2)
- ----------------------------------------------------------------------------------------------------------------
Citadel Holding Corporation
550 South Hope Street 2,241,349 (4) 23.13 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 Common Stock Voting Stock (1)
- ---------------------------------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
James J. Cotter..................................... 326,232 (2)(5) 4.20 2.37
Gregory R. Brundage................................. 3,750 (6) * *
Edward L. Kane...................................... 10,875 (7)(8) * *
Robert F. Smerling.................................. 15,625 (9) * *
John W. Sullivan.................................... 134,531 (7)(10) 1.80 1.00
S. Craig Tompkins................................... 11,400 (2)(11) * *
James A. Wunderle................................... 8,500 (12) * *
All Directors and Officers As a Group (7 Persons)... 510,913 (13) 6.52 3.70
</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 stockholders 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 based on 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 stockholder of
Craig. Messrs. Cotter and Tompkins disclaim beneficial ownership of the
Company's shares held by Craig.
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<PAGE>
(3) Includes 4,489,796 shares of Common Stock which may be acquired through
the conversion of the Series B Preferred Stock.
(4) Includes 608,696 shares of Common Stock which may be acquired through the
conversion of the Series A Preferred Stock and 1,632,653 shares of Common
Stock which may be acquired through the exercise of the Asset Put Option.
In accordance with the provisions of the Asset Put Option, Citadel may
require the Company to purchase up to $30 million of Citadel assets and
pay for such purchase through the issuance of Common Stock, the first $20
million of which is to be determined by valuing the Common Stock at
$12.25 per share and the balance, if any, through the issuance of Common
Stock valued at fair market value at the time of the exercise of the
Asset Put Option. The amount set forth above includes only shares of
Common Stock which will be issued to Citadel if the Company were required
to purchase $20 million of Citadel assets pursuant to the exercise of the
Asset Put Option.
(5) Includes 320,232 shares which may be acquired through the exercise of
stock options exercisable within 60 days of April 28, 1999.
(6) Includes 3,750 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 1999.
(7) Includes 9,375 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 1999.
(8) Includes 1,500 shares held in a retirement account.
(9) Includes 15,625 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 1999.
(10) Includes 55,520 shares owned by a family trust 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.
(11) Includes 10,000 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 1999. 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.
(12) Includes 8,500 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 1999.
(13) Includes 376,857 shares which may be acquired through the exercise of
stock options exercisable within 60 days of April 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Craig a publicly traded company listed on the New York Stock Exchange
owns Common Stock and Convertible Preferred Stock comprising 78% of the voting
securities of REI. The Chairman of the Company's Board of Directors, James J.
Cotter, serves in the same position for Craig. S. Craig Tompkins, Vice Chairman
and a director of the Company also serves as President and a director of Craig.
Mr. Cotter owns capital stock of Craig representing 30.9% of the voting
securities and is a general partner with Michael R. Forman in an investment
partnership which owns capital stock comprising 16.7% of Craig's voting
securities.
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<PAGE>
Craig and the Company own 16.4% and 31.7%, respectively, of Citadel
(See Note 5 to the Consolidated Financial Statements included elsewhere herein).
Messrs. Cotter and Tompkins each serve as directors. Mr. Cotter serves as
Chairman and Mr. Tompkins serves as Vice Chairman, Secretary and Chief
Accounting Officer of Citadel. 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. During 1998, the amount paid to Citadel for such services totaled
$410,000.
The Company directly owns 33.4% of Big 4 Ranch, Inc. ("BRI") and Craig
owns 16% of BRI. On December 31, 1997, BRI (owning 40%), Citadel (owning 40%)
and Visalia, LLC (a limited liability company controlled by James J. Cotter, the
Chairman of the Board of REI, Craig, and Citadel, and owned by Mr. Cotter and
certain members of his family) entered into three general partnerships (the
"Partnerships"). On December 31, 1997 the Partnerships acquired an agricultural
property (purchase price amounting to approximately $7.6 million) which property
is improved with citrus trees. The Partnerships currently use Big 4 Farming LLC
(Farming) to farm their properties. Farming is owned 80% by Citadel and 20% by
Visalia, and it receives in consideration of its services reimbursement of its
costs plus 5% of the net revenues of the farming operations after picking,
packing and hauling. Farming, in turn, contracts with Cecelia Packing
("Cecelia"), a company wholly owned by Mr. Cotter, for certain bookkeeping and
administrative services, for which it pays a fee of $6,000 per month. Cecelia
also packs fruit for the Partnerships. The acquisition was financed by a ten
year purchase money mortgage in the amount of $4.05 million, a line of credit
from Citadel and pro-rata contributions from the partners. Through its holdings
in BRI and Citadel, the Company owned approximately 26% of such Partnerships at
December 31, 1997. In December 1998, the Partnerships suffered a freeze which
destroyed the 1998-1999 crop. The Partnerships have no funds to make capital
contributions to repay a $1,850,000 line of credit from Citadel or fund the
estimated $2,640,000 required to fund costs associated with production of a
1999-2000 crop and complete the proposed 1999 planting other than to call upon
the partner for funding. BRI has no funds or resources with which to provide
such funding, other than to call upon its separate line of credit from Citadel.
To date, Citadel has continued to provide the funding required by the
Partnerships, but no assurances can be given that Citadel will continue to
provide the funding. The Board of Directors and executive officers of BRI are
comprised of three Craig directors, including Margaret Cotter, James Cotters =
daughter and a member of Visalia, LLC. The Company and Craig own approximately
49% of BRI. In addition, Cecelia and a trust for the benefit of one of Mr.
Tompkins children individually own shares of BRI which, when combined with the
shares owned by Craig and the Company, result in a voting interest in excess of
50%.
The Angelika Film Center ("AFC") is owned jointly by the Company and
Sutton Hill, a partnership affiliated with City Cinemas, a Manhattan-based
cinema operator owned in equal parts by James J. Cotter and Michael Forman. City
Cinemas manages the AFC and two other cinemas operated by the Company pursuant
to management agreements. Management fees paid to City Cinemas pursuant to the
management agreements totaled $488,000 in 1998 and $370,000 in 1997. Robert F.
Smerling, President of the Company, and Neil Sefferman, Vice President, Film of
the Company, also serve in the same positions with City Cinemas.
In December 1998, the Company and Sutton Hill entered into an
Agreement in Principle to lease and operate four cinemas and manage three other
cinemas all of which are located in Manhattan and which together constitute the
City Cinemas circuit. In addition the Agreement in Principle provides for the
acquisition by the Company of three live "Off Broadway" theaters also located in
Manhattan. The Conflicts Committee of the Board of Directors (the "Conflicts
Committee"), comprised entirely of directors independent of Messrs. Cotter and
Forman, reviewed and negotiated the transaction. Consummation of the transaction
is contingent upon, among other things, receipt of fairness opinions relating to
the transactions and approval of REI's shareholders of the issuance of Common
Stock for the acquisition of the "Off Broadway Theaters."
It is anticipated that the Manhattan "Off Broadway" theaters, as well
as another live theater owned by the Company will be booked and managed by Union
Square Management, Inc., a live theater management company specializing in the
booking and management of "Off Broadway" style live theaters. Margaret Cotter,
daughter of Mr. James J. Cotter, is a Senior Vice President with Union Square
Management, Inc. In December 1998 the Company guaranteed a $100,000 bank loan to
Alan Schuster, the principal shareholder of Union Square Management, Inc.
The Stock Transactions (see Note 9 to the Consolidated Financial
Statements contained elsewhere herein) involved the issuance of Common Stock and
Series B Preferred Stock to Craig (which as a result of the Stock
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Transactions and certain open market purchases holds securities representing
approximately 78% of the Company's voting securities), in return for certain
assets owned by Craig. The Company is a subsidiary of Craig. At the time that
the negotiations which led to the Stock Transactions were initiated, Craig owned
51% of the Company's voting securities and the Chairman and President of the
Company (both of whom are also directors of Craig and the Company) served in the
same positions at Craig. The Company's Board of Directors therefore established
an Independent Committee of the Board of Directors comprised of directors with
no affiliation with Craig or Citadel (other than the Company's ownership in
Citadel) to negotiate the terms of the proposed transaction with Craig and
Citadel, to review the fairness of any consideration to be received or paid by
the Company and the other terms of any such transaction and to make a
recommendation to the Board of Directors concerning such transaction.
The Company has employed Ellen Cotter as Vice President, Business
Affairs since April 1998. Prior thereto Ms. Cotter was an employee of Craig
since August 1996. Ms. Cotter is the daughter of Mr. James J. Cotter, Chairman
of the Board of Directors. In 1998 Ms. Cotter received compensation for her
services to the Company in the amounts of $80,770 in salary, $25,000 in bonus,
$11,148 in other annual compensation composed primarily of perquisites customary
to an officer-level employee, and other compensation of $2,423 in the form of
contributions to the Company's Employee Retirement Savings Plan. In 1997 Ms.
Cotter was granted options for 10,000 shares of the Company's stock.
In 1996 and 1997 the Company loaned Robert Smerling, President, a
total of $70,000. The non-interest bearing loan is payable upon demand.
READING ENTERTAINMENT, INC.
BY: /s/ James A. Wunderle
------------------------
James A. Wunderle
Executive Vice President
April 28, 1999
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