<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, 1999
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)
NEVADA 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:
NONE
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. [X]
As of March 23, 2000, 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 $9,680,429.
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE
REGISTRANT
The names of the directors, executive officers and significant employees of
the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James J. Cotter (1) 62 Chairman of the Board of Directors, Chairman of the
Executive Committee of the Board and a Director
S. Craig Tompkins (1) 49 Vice Chairman of the Board of Directors and a
Director
Robert F. Smerling 65 President and a Director
Scott A. Braly (1)(2)(4) 46 Director
Robert M. Loeffler (2)(3)(4) 76 Director
Kenneth S. McCormick (2)(3)(4) 48 Director
James A. Wunderle 48 Executive Vice President, Chief Financial Officer and
Treasurer
Eugene Cheah 32 Financial Controller, Australia and New Zealand
Ellen M. Cotter 34 Vice President, Business Affairs
Charles S. Groshon 46 Vice President, Finance
David Lawson 41 Director of Real Estate Development, Australia and
New Zealand
Andrzej Matyczynski 47 Chief Administrative Officer
Neil Pentecost 42 Chief Operating Officer, Australia and New Zealand
- --------------------------
</TABLE>
(1) Member of the Executive Committee.
(2) Member of the Audit and Finance Committee.
(3) Member of the Compensation Committee.
(4) Member of the Conflicts Committee.
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 Chairman of the Board and a
director of Citadel since 1991 and the Chief Executive Officer of Citadel since
August 1999. Mr. Cotter is Chairman of the Board and a director of Citadel
Agricultural, Inc. ("CAI"), a wholly-owned subsidiary of Citadel's, a member of
the Management Committee of each of the three agricultural partnerships which
constitute the principal assets of CAI (the "Agricultural Partnerships") and
Chairman of the Board and a member of the Management Committee of Big 4 Farming
LLC ("Farming"), a farm management company, 80% owned by Citadel and formed to
manage the properties owned by the Agricultural Partnerships. Also, Mr. Cotter
has served since December 1997 as the Managing Director of Visalia LLC
("Visalia"), which holds a 20% interest in each of the Agricultural Partnerships
and a 20% interest in Farming. Mr. Cotter has been a director and Chief
Executive Officer of Townhouse Cinemas Corporation (motion picture exhibition)
since 1987 and has been the Executive Vice President and a director of the
Decurion Corporation (real estate and motion
1
<PAGE>
picture exhibition) and of Pacific Theaters, Inc. (motion picture exhibition), a
wholly-owned subsidiary of Decurion, since 1969. Mr. Cotter is the general
partner of a limited partnership which is, in turn, the general partner of Hecco
Ventures, a California general partnership engaged in the business of investing
in securities, and the holdings of which include shares representing
approximately 16.8% of the voting power of Craig. Mr. Cotter was a director of
Stater Bros. Holdings Inc. and its predecessors from 1987 until September 1997.
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 a
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 and currently serves as Chairman of the Audit
Committee and Chairman of the Strategic Planning Committee of that company. Mr.
Tompkins has served as a director of Fidelity Federal Bank since April 2000.
Since July 1994, Mr. Tompkins has been the Vice Chairman of Citadel, and
currently serves as that company's Secretary. From August 1994 until November
18, 1999 Mr. Tompkins served as the Principal Accounting Officer for Citadel.
Mr. Tompkins is also President and a director of CAI, a member of the Management
Committee of each of the Agricultural Partnerships and of Farming, and serves,
for administrative convenience, as an Assistant Secretary of Visalia and Big 4
Ranch, Inc. ("BRI"), a partner with CAI and Visalia 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 the
Company's various domestic and Puerto Rican exhibition subsidiaries since 1994.
Mr. Smerling served as President of Loews Theater Management Corporation from
May 1990 until November 1993. Mr. Smerling also serves as President and Chief
Executive Officer of City Cinemas Corporation ("City Cinemas"), a motion picture
exhibitor located in New York City. 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. Braly has been a director of the Company since July 1999 and is
Chairman of the Conflicts Committee. Mr. Braly has served as President and Chief
Executive Officer of Hawthorne Savings FSB for more than the past five years.
Mr. Loeffler has been a director of the Company since July 1999 and is
Chairman of the Audit Committee. Mr. Loeffler has been a director of Craig since
February 2000 and has been a director of Citadel since March of 2000. Mr.
Loeffler has been a director of PaineWebber Group, Inc. since 1978. Mr. Loeffler
is a retired attorney and was Of Counsel to the California law firm of Wyman
Bautzer Kuchel & Silbert from 1987 to March 1991. He was Chairman of the Board,
President and Chief Executive Officer of Northview Corporation from January to
December 1987 and a partner in the law firm of Jones, Day, Reavis & Pogue until
December 1986. Mr. Loeffler is also a director of Advanced Machine Vision Corp.
Mr. McCormick has been a director of the Company since July 1999. Mr.
McCormick was a Senior Executive Vice President of Metro-Goldwyn-Meyer, Inc.,
responsible for strategic development from 1998 to 1999. Prior to that Mr.
McCormick was a managing director of J.P. Morgan & Co. for more than the prior
five years.
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.
Mr. Cheah has been the Financial Controller of Reading Entertainment
Australia since August 1998. Mr. Cheah served as the Planning and Projects
Manager (Retail Strategy and Projects) for Myer Grace Bros. from 1996 to 1998,
and as Project Accounting Manager (Property Development) for Coles Myer
Properties from 1992-1995. Prior thereto, he was a Senior Accountant (Business
Services) with Price Waterhouse.
Ms. Cotter has been the Vice President, Business Affairs of the Company
since March 1998 and has served as the Acting President of Reading Australia
since August 1999. Ms. Cotter served as the Vice President - Business Affairs
of Craig from August 1996 to March 1998 and has served as the
Secretary/Treasurer of Citadel Agriculture, Inc. since December 1997. From
October 1992 through July 1996, Ms. Cotter was an attorney specializing in
corporate law with White & Case, a New York law firm. Ms. Cotter is the
daughter of James J. Cotter. Ms. Cotter is a member of
2
<PAGE>
Visalia and a limited partner in James J. Cotter, Ltd. (Mr. Cotter is the
general partner), which is a general partner of Hecco Ventures, a privately held
investment partnership.
Mr. Groshon has been a Vice President of the Company since December 1988.
Mr. Lawson has been the Director of Real Estate Development for Australia
and New Zealand since December 1998 and since May 1999 has served as a director
of the Company's principal Australian operating company, Reading Entertainment
Australia Pty Limited. Prior to joining the Company, Mr. Lawson served as the
Asset General Manager responsible for New South Wales for Westfield from 1996 to
1998, and as the General Manager (Retail Property Development) for Coles Myer
Properties from 1994 to 1995.
Mr. Matyczynski became the Chief Administrative Officer of the Company on
November 15, 1999. On that date, Mr. Matyczynski also became the Chief
Financial Officer of the Company's parent, Craig, and the Chief Financial
Officer of its affiliate, Citadel. Prior to joining the Company, Mr.
Matyczynski was the Finance Director of Beckman Coulter, Inc. Mr. Matyczynski
was associated with Beckman Coulter and its predecessors for more than twenty
years and also served as a director for certain Beckman Coulter subsidiaries.
Mr. Pentecost has been the Chief Operating Officer for Australia and New
Zealand since August 1999 and a director of Reading Entertainment Australia
since September 1999. Prior to joining the Company, Mr. Pentecost was with
Hoyts, where he served in a number of positions, most recently serving as
Operations and Services Manager (National). Mr. Pentecost joined Hoyts in 1995.
Prior thereto, Mr. Pentecost served as the Director of Retail Services
(Operations) for KFC in Australia.
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, 1999, all reporting
persons of the Company were in compliance with their applicable filing
requirements.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
I. Summary Compensation Table
The following table shows, for the years ending December 31, 1999, 1998 and
1997, 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) 1999 150,000
Chairman of the Board of 1998 150,000
Directors 1997 475,000 150,000 460,000
S. Craig Tompkins (4) 1999 180,000
Vice Chairman of the 1998 180,000
Board of Directors 1997 180,000 20,000
Robert F. Smerling (5) 1999 175,000 20,415
President and Director 1998 175,000 20,415
1997 175,000 20,415 35,000
Ellen M. Cotter 1999 150,000 4,800
Vice President, Business 1998 80,770 25,000 2,423
Affairs 1997 10,000
James A. Wunderle 1999 175,000 4,800
Executive Vice President, 1998 175,000 4,500
Chief Financial Officer 1997 170,000 5,000 17,000
and Treasurer
</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 each of
the years 1999, 1998, and 1997 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 each of the
years 1999, 1998 and 1997 of $40,000, nor a bonus of $50,000 paid in 1998
for services provided to Citadel.
(5) "Other Annual Compensation" includes premiums paid on a Company paid life
insurance policy on the life of Mr. Smerling. Mr. Smerling is permitted to
designate the beneficiary of such policy.
Directors who are not employees of the Company received an annual retainer
of $52,000. 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.
4
<PAGE>
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, 1999, the Company had options outstanding under two stock
option plans: the 1992 Non-qualified Stock Option Plan (the "1992 Plan")
(amended in 1997) and the 1997 Equity Incentive Plan (the "1997 Plan"). Each
plan was approved by shareholders in its year of adoption.
The 1992 Plan reserves 500,000 shares for grant and the 1997 Plan reserves
200,000 shares for grant. The exercise price, term and other conditions
applicable to each grant of options under the Company's two plans are generally
determined at the time of grant by the Compensation Committee of the Board of
Directors and may vary with each option grant. Generally, options granted under
both plans vest on the anniversary of the date of grant in four equal, annual
installments, 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.
No options were granted to a director or named executive officer under either
Plan in 1999.
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,
1999. No options were exercised by such persons during the fiscal year ended
December 31, 1999 and none of the options held by such persons at December 31,
1999 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 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 (the "Basic
Options"); 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 (the "Convertible Preferred Options"); and 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 (the "Asset Put Options").
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 12/31/99
----------------------
# EXERCISABLE /
NAME UNEXERCISABLE
- ------------------------ ----------------------
<S> <C> <C>
James J. Cotter /(1)/ 320,232 / 405,000
S. Craig Tompkins 10,000 / 10,000
Robert F. Smerling 15,625 / 19,375
Ellen M. Cotter 5,000 / 5,000
James A. Wunderle 8,500 / 8,500
</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.
5
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee comprised of Directors Loeffler
and McCormick. Mr. Loeffler also serves as director of CHC and Craig. Neither
Mr. Loeffler nor Mr. McCormick is or has been an executive officer or employee
of REI or any of its subsidiaries or had any relationships requiring disclosures
under any paragraph of Item 404 of Regulation S-K.
6
<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, 2000 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 Stock
---------------------------------------------
Common Stock Series A Series B
------------ -------- --------
Name and Address of Amount and Amount and Amount and Percent of
Beneficial Owner Nature of Nature of Nature of Voting
Beneficial Percent Beneficial Percent Beneficial Percent Stock (1)
Ownership of Class Ownership of Class Ownership of Class
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Craig Corporation (2) (3) 10,467,516(4) 82.09 0 0 550,000 100 77.96
550 South Hope Street
Los Angeles, CA 90071
Citadel Holding 2,241,349(5) 23.13 70,000 100 0 0 5.03
Corporation (3)
550 South Hope Street
Los Angeles, CA 90071
Lawndale Capital 394,875 5.30 0 0 0 0 2.94
Management, LLC (6)
Sansome St., Suite 3900
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Gives effect to the voting rights of 70,000 shares of Series A Preferred
Stock, all of which are owned by a subsidiary of Citadel, and 550,000
shares of Series B Preferred Stock, all of which are owned by Craig. The
holders of the Series A Stock and Series B Stock 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, except as required by law.
(2) Includes amounts held by Craig Management, Inc., a wholly-owned subsidiary
of Craig Corporation.
(3) James J. Cotter is Chairman of the Board of the Company, Craig and Citadel,
and the Chief Executive Officer of Citadel. S. Craig Tompkins is Vice
Chairman of the Board of the Company, a director and President of Craig,
and the Vice Chairman and Secretary of Citadel. James J. Cotter is also a
principal stockholder of Craig. Craig and Reading collectively own
approximately 48% of the outstanding Class A Nonvoting Common Stock of CHC
and approximately 48% of the outstanding Class B Voting Common Stock of
CHC. Messrs. Cotter and Tompkins disclaim beneficial ownership of the
Company's shares held by Craig and Citadel.
(4) Includes 5,302,000 shares of Common Stock which may be acquired through the
conversion of the Series B Preferred Stock.
(5) 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
described below. 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
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<PAGE>
exercise of the Asset Put Option. Citadel has advised the Company it does
not intend to exercise the Asset Put Option.
(6) According to filings on Schedule 13D with the SEC dated March 30, 2000,
includes 336,175 shares which are owned of record by Diamond A Partners,
L.P. ("DAP") and 58,700 shares which are owned of record by Diamond A
Investors L.P. ("DAI)" over which Lawndale Capital Management, Inc. ("LAM")
and Andrew E. Shapiro have shared voting and dispositive power. According
to filings with the SEC, LAM is the investment advisor to DAP and DAI,
which are investment limited partnerships and Mr. Shapiro is the sole
manager of LAM.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percentage of Percentage of
Name of Beneficial Owner Ownership (1) Common Stock (1) Voting Stock (2)
- ---------------------------------------------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James J. Cotter..................................... 353,732 (3)(4)(5) 4.54 2.57
Scott A. Braly...................................... 0 0 0
Robert M. Loeffler.................................. 0 0 0
Kenneth S. McCormick................................ 0 0 0
Robert F. Smerling.................................. 15,625 (6) * *
S. Craig Tompkins................................... 16,400 (4)(7) * *
Ellen Cotter........................................ 7,500 (8) * *
Andrzej Matyczynski................................. 0 (9) 0 0
James A. Wunderle................................... 12,750 (10) * *
All Directors and Officers As a Group (10 Persons).. 417,569 (11) 5.31 3.02
</TABLE>
* - Percentages of less than one percent.
All persons listed in this table have as their address: Reading
Entertainment, Inc., One Penn Square West, 30 South 15/th/ Street, Suite 1300,
Philadelphia, Pennsylvania 19102.
(1) Includes outstanding shares of Common Stock and shares issuable within 60
days of April 28, 2000, upon the exercise of outstanding stock options.
(2) Gives effect to the voting rights of 70,000 shares of Series A Stock, all
of which are owned by Citadel, and 550,000 shares of Series B Stock, all of
which are owned by Craig. The holders of the Series A Stock and Series B
Stock 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, except as
required by law.
(3) Does not include amounts held by Craig Corporation, Craig Management, Inc.,
a wholly-owned subsidiary of Craig Corporation, or Citadel.
(4) James J. Cotter is Chairman of the Board of the Company, Craig and Citadel,
and the Chief Executive Officer of Citadel. S. Craig Tompkins is Vice
Chairman of the Board of the Company, a director and President of Craig,
and the Vice Chairman and Secretary of Citadel. James J. Cotter is also a
principal stockholder of Craig. Craig and Reading collectively own
approximately 48% of the outstanding Class A Nonvoting Common Stock of CHC
and approximately 48% of the outstanding Class B Voting Common Stock of
CHC. Messrs. Cotter and Tompkins disclaim beneficial ownership of the
Company's shares held by Craig and Citadel.
(5) Includes 6,000 shares held in a profit sharing plan, and 347,732 shares
issuable within 60 days of April 28, 2000, upon the exercise of outstanding
stock options. Mr. Cotter is also the beneficial owner of 2,385,142 shares
of the Common Stock and 2,021,702 shares of the Class A Common Preference
Stock of Craig, including 594,940 shares of Craig Common Stock issuable
within 60 days of the April 28, 2000, upon exercise of outstanding stock
options previously issued to Mr. Cotter, and 617,438 shares of Craig Common
Stock and 720,838 shares of Craig Class A Common Preference Stock owned by
Hecco Ventures, a California general partnership ("Hecco"). Mr. Cotter is
the general partner of a limited partnership which is, in turn, a general
partner of Hecco and, accordingly, has shared voting and investment power
with respect to such securities.
(6) Includes 23,438 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 2000.
8
<PAGE>
(7) Includes 15,000 shares issuable within 60 days of the Record Date upon the
exercise of outstanding stock options. 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. Mr. Tompkins is also the beneficial owner of 37,000 shares of
the Common Preferred Stock of Craig, including 35,000 shares of Common
Preferred Stock issuable within 60 days of April 28, 2000, upon the
exercise of outstanding options and of 8,000 shares of Citadel Class A
Common Stock issuable within 60 days of the April 28, 2000, upon the
exercise of outstanding stock options.
(8) Includes 7,500 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 2000. Ms. Cotter is also
the beneficial owner of 1,000 shares of the Common Stock and 1,000 shares
of the Class A Common Preference Stock of Craig.
(9) Mr. Matyczynski is the beneficial owner of 15,000 shares of the Common
Stock and 15,000 shares of Citadel Class A Common Stock issuable within 60
days of April 28, 2000 upon the exercise of outstanding options.
(10) Includes 12,750 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 2000.
(11) Includes 410,169 shares which may be acquired through the exercise of stock
options exercisable within 60 days of April 28, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AND OWNERSHIP OVERLAPS:
- ---------------------------------
There are significant cross ownerships between the Company, Craig, Citadel
and BRI as follows:
Craig, a publicly traded company listed on the New York Stock Exchange,
owns Common Stock and the Series B Preferred Stock comprising approximately 78%
of the voting interest in REI and, assuming conversion of the Series B Preferred
Stock, approximately 81% of the equity interest REI.
Craig and Reading each own stock in Citadel, a public traded company listed
on the American Stock Exchange. The Company currently owns approximately 31.7%
of the voting interests in Citadel. Craig currently owns approximately 17.3% of
the voting interests of Citadel directly, and on a consolidated basis with the
Company, approximately 49%. In addition, Citadel owns 70,000 shares of the
Series A Preferred Stock of REI, a 5% voting interest and, assuming conversion
of the Series B Preferred Stock into Common Stock, approximately a 7.6 % equity
interest in the Company. Citadel also has the Asset Put Option to put its
assets to REI in exchange for Common Stock. However, that option lapses 30 days
after the filing of this Report on Form 10K, and Citadel has advised the Company
that it does not intend to exercise this option.
BRI is a publicly held company, but is not listed on any exchange. Its
sole asset is a 40% interest in the Agricultural Partnerships, formed to hold
approximately 1,580 acres of agricultural land in Kern County, California. The
remaining 60% interests are held 40% by Citadel and 20% by Visalia, a limited
liability company owned by James J. Cotter and certain members of his family.
The Company currently owns approximately 33.4% of the equity interest in BRI.
Craig currently owns approximately 16.4% of the equity interest in BRI and, on a
consolidated basis with the Company, approximately 49.8% of such equity
interest. In addition, Cecelia Packing (a company owned by Mr. Cotter,
"Cecelia") and a trust for the benefit of one of Mr. Tompkins' children own
additional shares in BRI representing, when aggregated with the shares held by
the Company and Craig, more than a majority of the outstanding shares of BRI.
Farming was formed to provide farming services to the Agricultural
Partnerships and is owned 80% by Citadel and 20% by Visalia.
The Company, as a consequence of its ownership of both Citadel common stock
and BRI common stock, owns approximately 26% of the Agricultural Partnerships.
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There are also substantial management overlaps between these companies, as
follows:
James J. Cotter, the principal stockholder of Craig, is the Chairman of the
Board of Directors of each of the Company, CC and CHC, and the Chief Executive
Officer of CHC. Mr. Cotter also serves as a managing director of each of the
Agricultural Partnerships and of Farming and is the managing member of Visalia
LLC.
S. Craig Tompkins, the Vice Chairman of the Board of Directors of the
Company is also a director and the President of CC and the Vice Chairman of the
Board and Secretary of CHC. Mr. Tompkins also serves as the President of
Citadel Agriculture Inc., a wholly-owned subsidiary of CHC, and as a managing
director of each of the Agricultural Partnerships and Farming, and serves for
administrative convenience, as the assistant secretary of BRI and Visalia.
Andrzej Matyczynski, the Chief Administrative Officer of the Company is
also the Chief Financial Officer of each of CC and CHC.
Ellen Cotter, Vice President of Business Affairs of the Company and Acting
President of Reading Australia is a member of Visalia and the daughter of James
J. Cotter.
Robert Loeffler, a member of the Board of Directors of the Company, and the
Chairman of the Audit Committee of the Company, also serves as a director and as
the Chairman of the Audit Committee of each CC and CHC.
The Company, Craig and Citadel are currently working on a plan to
centralize all administrative functions for the three companies in Los Angeles.
Upon consummation of this centralization, it is contemplated that all general
and administrative personnel will be employees of Craig, and that the costs of
such personnel will be allocated between the three companies on an appropriate
basis, taking into account the amount of time spent by such personnel on the
business and affairs of the three companies. Following a review of the time
spent by Messrs. Cotter and Tompkins and certain administrative employees of
Craig, the Board of Directors of the Company determined it appropriate to
reimburse Craig in the amount of $580,000 with respect to services performed by
these individuals and administrative employees for the benefit of the Company.
There was no similar reimbursement with respect to 1998. In both 1998 and 1999
Messrs. Cotter and Tompkins received directly from the Company $150,000 in
directors fees and $180,000 as compensation, respectively. Also in 1998 and
1999, the Company paid Citadel $410,000 and $185,000, respectively, for real
estate consulting services provided by that company.
BRI AND THE AGRICULTURAL PARTNERSHIPS
- -------------------------------------
The Agricultural Partnerships use Farming to farm their properties. Farming
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 for certain bookkeeping and
administrative services, for which it pays a fee of $6,000 per month. Cecelia
also packs fruit for the Agricultural Partnerships. The acquisition of the
properties owned by the Agricultural Partnerships 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. In December 1998, the
Partnerships suffered a freeze which destroyed the 1998-1999 crop. The
Agricultural Partnerships have no funds to repay the line of credit from Citadel
or fund the costs associated with production of a 1999-2000 crop and complete
the anticipated capital improvements other than to call upon the partners 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. Since January
1, 1999, Citadel and Visalia have provided the funding required by the
Agricultural Partnerships on an 80/20 basis, but no assurances can be given that
Citadel and Visalia will continue to provide such funding. As of December 31,
1999, Citadel and Visalia had advanced $1,227,000 and $334,000, respectively, to
the Agricultural Partnerships. The Board of Directors and executive officers of
BRI are comprised of three Craig directors, including Margaret Cotter, James
Cotter's daughter and a member of Visalia.
CITY CINEMA AND OBI TRANSACTIONS
- --------------------------------
The Angelika Film Center ("NY Angelika") is owned jointly by the Company,
National Auto Credit, Inc. ("NAC") 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 NY Angelika and
two other cinemas operated by the Company pursuant to management agreements.
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.
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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."
Consistent with its determination to reduce its operations in the United
States, the Company is currently in negotiations with Citadel and Sutton Hill
regarding the assumption of the Company's rights and obligations under the
Agreement in Principle. Based upon discussions with Citadel and with
representatives of Sutton Hill, the Company believes that Citadel will likely
assume such rights and obligations. The Company has advised Citadel that if it
completes the City Cinemas Circuit and the "Off Broadway" theaters it will give
to Citadel a right of first negotiation to acquire the remainder of the
Company's domestic cinema assets. The rights of Citadel and subject to an
option granted by the Company on April 5, 2000, to NAC to acquire the Company's
interest in the Agreement in Principal and in the remainder of the Company's
domestic cinema assets.
THE 96 REORGANIZATION AND STOCK TRANSACTIONS
- --------------------------------------------
The Stock Transactions (See Item 1. Business) involved the issuance of
Common Stock and Series B Preferred Stock to Craig 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.
MANAGEMENT AGREEMENT:
- ---------------------
The Houston Angelika, the St. Anthony and the NY Angelika are managed by
City Cinemas pursuant to management agreements. The management agreements for
the St. Anthony and the Houston Angelika provide for City Cinemas to receive a
fee equal to 2.5% of revenues. The NY Angelika management agreement provides
for the payment of a minimum fee of $125,000 plus an incentive fee equal to 50%
of annual cash flow (as defined) over prescribed levels provided, however, that
the maximum annual aggregate fee cannot exceed 5% of the NY Angelika's revenues.
LOANS TO OFFICERS:
- ------------------
In 1997 the Company loaned Robert Smerling, President, $70,000. The non-
interest bearing loan is payable upon demand.
READING ENTERTAINMENT, INC.
BY: /s/ S. Craig Tompkins
------------------------------------
S. Craig Tompkins
Vice Chairman of the Board of Directors
April 28, 2000
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