<PAGE> 1
As filed with the Securities and Exchange Commission on January 8, 1998
REGISTRATION NO. 333-36763
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------
HOLLYWOOD THEATERS, INC.
HOLLYWOOD THEATER HOLDINGS, INC.
CROWN THEATRE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7832 75-2598844
DELAWARE 7832 75-2605571
MISSOURI 7832 43-1530337
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2911 TURTLE CREEK BOULEVARD, SUITE 1150
DALLAS, TEXAS 75219
(214) 528-9500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
THOMAS W. STEPHENSON, JR.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
HOLLYWOOD THEATERS, INC.
2911 TURTLE CREEK BOULEVARD, SUITE 1150
DALLAS, TEXAS 75219
(214) 528-9500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
Copy to:
MICHAEL A. SASLAW
BAKER & BOTTS, L.L.P.
2001 ROSS AVENUE
DALLAS, TEXAS 75201
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 8, 1998
PROSPECTUS
HOLLYWOOD THEATERS, INC.
HOLLYWOOD THEATER HOLDINGS, INC.
CROWN THEATRE CORPORATION
OFFER TO EXCHANGE HOLLYWOOD THEATERS, INC. 10 5/8% SENIOR
SUBORDINATED NOTES DUE AUGUST 1, 2007 FOR ANY AND ALL OF ITS
OUTSTANDING 10 5/8% SENIOR SUBORDINATED NOTES DUE AUGUST 1, 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
Hollywood Theaters, Inc., a Delaware corporation, (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 10 5/8%
Senior Subordinated Notes due August 1, 2007 (the "Exchange Notes"), which will
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding 10
5/8% Senior Subordinated Notes due August 1, 2007 (the "Old Notes"), of which
$110,000,000 principal amount is outstanding. The form and terms of the
Exchange Notes are the same as the form and terms of the Old Notes (which they
replace) except that the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting their
transfer, will not contain terms with respect to the special interest payments
described herein and will not be entitled to registration rights or other
rights under the Registration Rights Agreement (as defined herein). See "The
Exchange Offer." The Exchange Notes will evidence the same debt as the Old
Notes (which they replace) and will be issued under and be entitled to the
benefits of the Indenture (the "Indenture") dated August 7, 1997 between the
Company and U.S. Trust Company of Texas, N.A., as Trustee (the "Trustee"),
governing the Old Notes. See "The Exchange Offer" and "Description of Exchange
Notes."
Interest on the Exchange Notes will be payable on February 1 and August 1
of each year, commencing February 1, 1998. The Exchange Notes will mature on
August 1, 2007. The Exchange Notes will be redeemable, in whole or in part, at
the option of the Company at any time on or after August 1, 2002 at the
redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, on or before August 1, 2000, the Company may,
at its option and subject to certain requirements, use an amount equal to the
net cash proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 30% of the principal amount of the Exchange Notes originally
issued at a redemption price equal to 110.625% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of redemption. Upon the
occurrence of a Change of Control, the Company is required to offer to
repurchase all outstanding Exchange Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. See "Description of Exchange Notes." If a Change of Control
results in an acceleration of indebtedness that is senior to the Exchange
Notes, the Company may not have sufficient resources to repurchase the Exchange
Notes. See "Risk Factors--Repurchase of Notes upon a Change of Control."
(Cover text continued on next page)
SEE "RISK FACTORS" ON PAGE 14 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY PERSONS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is _____________, 1998
<PAGE> 3
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness
of the Company, and senior to or pari passu with all existing and future
subordinated indebtedness of the Company. At December 1, 1997, the Company's
pro forma ratio of indebtedness to total capital was 46%. The Exchange Notes,
like the Old Notes, will be fully and unconditionally guaranteed by the
Company's parent, sole subsidiary and any future Restricted Subsidiary of the
Company. The Guarantees will be subordinated obligations of the parent and
subsidiary, will be junior to all senior indebtedness of the parent and
subsidiary, including the parent's and subsidiary's guarantees of borrowings
under the Senior Bank Facility, and each of the Company, its parent, its
subsidiary and any future Restricted Subsidiary will be jointly and severally
liable on such guarantees. At December 1, 1997, the Company and its subsidiary
had approximately $110.0 million of indebtedness outstanding, none of which was
senior indebtedness, and its parent had no indebtedness outstanding. See
"Description of Exchange Notes --Subordination" and "Description of Senior Bank
Facility." The Company is a wholly owned subsidiary (and the only subsidiary)
of Hollywood Theater Holdings, Inc. The indenture pursuant to which the
Exchange Notes will be issued permits the Company and the guarantors of the
Exchange Notes to incur additional indebtedness, including senior indebtedness,
subject to certain limitations. See "Description of Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York time, on , 1998, unless
extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. The Old Notes were sold by the Company on August 7, 1997 to the
Purchasers (as defined herein) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Purchasers subsequently placed the Old Notes in the United States with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act and outside the United States with non-U.S. persons in reliance on
Regulation S under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Company under the Registration Rights Agreement entered into by the Company in
connection with the offering of the Old Notes. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer" and "-- Resale of the
Exchange Notes." Each broker-dealer (a "Participating Broker-Dealer") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Notwithstanding the foregoing, any purchaser of Old Notes who
is an "affiliate" of the Company or who intends to participate in the Exchange
Offer for the purpose of distributing the Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
There has not previously been any public market for the Old Notes or the
Exchange Notes. Although the Purchasers have informed the Company that they
intend to make a market in the Exchange Notes, they are not obligated to do so,
and any such market-making activities with respect to the Exchange Notes may be
interrupted or discontinued at any
ii
<PAGE> 4
time without notice. The Company does not intend to list the Exchange Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Risk Factors --
Exchange Offer Procedures" and "Exchange Offer -- Consequences of Failure to
Exchange."
The Exchange Notes issued in exchange for Old Notes will be issued in the
form of one or more Global Notes (as defined herein), in fully registered form
without coupons, deposited with a custodian for and registered in the name of a
nominee of The Depository Trust Company. Beneficial interests in such Global
Note representing the Exchange Notes will be shown on, and transfers thereof
will be effected through, records maintained by DTC and its direct and indirect
participants. Except as described herein, the Exchange Notes will not be
available in definitive form. The Exchange Notes will be issued only in
registered form in denominations of $1,000 and integral multiples thereof. See
"Description of Exchange Notes -- Book Entry, Delivery and Form."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1998.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer- manager is being used in connection
with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable security law.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
of the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange Offer
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices
of the commission at 75 Park Place, New York, New York 10007 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Additionally, the Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission including the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports
and other information with the Commission. In addition, the Company has agreed
that prior to the time the Company becomes subject to Section 13(a) or 15(d) of
the Exchange Act, the Company shall provide to all holders and file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to such Section 13(a) or 15(d) or any successor provision thereto if the
Company were so required, such documents to be mailed to holders and filed with
the Trustee on or prior to the respective dates by which the Company would have
been required so to file such documents if the Company were so required. After
the Company commences filing such reports, and so long as any of the Notes are
outstanding, the Company shall file with the Commission the annual reports,
quarterly reports and other documents which the Company is required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 or any successor provisions thereto. Under the Indenture,
the Company will furnish periodic reports to the Trustee, which will make them
available upon request to the holders of the Exchange Notes. To permit
compliance with Rule 144A in connection with resales of Old Notes, the Company
will furnish upon the request of a holder of an Old Note and a prospective
purchaser designated by such holder the information required to be delivered
under Rule 144A(d)(4) under the Securities Act if at the time of such request
the Company is not a reporting company under Section 13 or 15(d) of the
Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements included elsewhere in this
Prospectus. Unless the context otherwise requires, references in this
Prospectus to the "Company" include the Company and its subsidiary, Crown
Theatre Corporation ("Crown").
THE COMPANY
The Company is a leading operator of theaters in small and mid-sized
markets in the Southwestern and Midwestern regions of the United States. The
Company's strategy is to provide a superior entertainment experience to its
customers through the development and operation of theaters with stadium-style
seating, state-of-the-art digital sound systems and modern, attractive lobby
and concession areas. Management believes that this strategy has increased
movie attendance at its theaters and allowed the Company to increase the
revenues it receives from patrons both at the box office and at the concession
stand. As of December 1, 1997, the Company operated 79 theaters with a total of
449 screens, located principally in Texas, Oklahoma, Kansas and Missouri. For
the twelve months ended September 30, 1997, on a pro forma basis after giving
effect to certain acquisitions, the Company generated revenue and EBITDA of
approximately $89.4 million and $12.3 million, respectively. During the same
period, the Company generated net loss and current deficiency of earnings to
combined fixed charges and preferred dividends of $11.8 million and $15.6
million, respectively. EBITDA represents income before interest, taxes,
depreciation, amortization, and deferred rent. It is a financial measure
commonly used in the Company's industry and should not be construed as an
alternative to operating income (as determined in accordance with GAAP), an
indicator of operating performance, an alternative to cash flows from operating
activities (as determined in accordance with GAAP) or a measure of liquidity.
Additionally, EBITDA may not be calculated the same by all companies and should
not be viewed as an accurate comparative measure.
The Company actively targets small and mid-sized markets which it
believes are under-served and where the Company believes it can become the
leading movie exhibitor. Management believes that its new stadium-style
multiplex theaters can become the primary entertainment choice in such markets.
In acquiring and building theaters, the Company seeks to identify markets where
it can develop clusters of theaters, enabling it to realize operating
efficiencies. By strategically selecting its target markets and focusing on
providing a superior entertainment experience, the Company has been able to
achieve a leading position in many of the markets in which it operates.
Management believes that, as of December 1, 1997, Company theaters are the sole
exhibitors in 71% of the film licensing zones in which the Company operates.
Founded in June 1995, the Company has grown rapidly by: (i) acquiring
theaters and improving operations at these theaters; (ii) building new,
state-of-the-art stadium-style multiplexes in targeted markets and (iii) adding
stadium-style auditoriums and state-of-the-art sight and sound systems to its
existing theaters.
The Company's management has a proven record of integrating acquired
theaters and improving operations and profit margins. For example, for the two
major groups of theaters acquired by the Company in the fourth quarter of 1996,
per capita box office receipts and per capita concessions have increased by
approximately 6% and 10%, for the nine months ended September 30, 1996 compared
to the nine months ended September 30, 1997. In the Company's original first
run theaters (purchased in July 1995), the Company has increased per capita box
office receipts by 15% from September 1995 to September 1997 and per capita
concessions revenues by 33% over the same period. The Company believes that its
policy of offering incentive programs to its employees aligns their interests
with those of management in increasing revenues and improving operations.
The Company is a wholly owned subsidiary of Hollywood Theater
Holdings, Inc. ("Holdings") and enjoys strong equity sponsorship. The principal
stockholders of Holdings include The Beacon Group III -- Focus Value Fund, L.P.
("Beacon"), Stratford Capital Partners, L.P. (an affiliate of Hicks, Muse, Tate
& Furst) ("Stratford") and several entities associated with the Hoak
Communications Funds (the "Hoak Entities"). See "Principal Stockholders."
Crown, the Company's sole subsidiary, currently owns and operates 3 motion
picture theaters and has been wholly owned by either Holdings or the Company
since Crown was acquired on November 1, 1996.
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The Company is a Delaware corporation with its principal executive
offices located at 2911 Turtle Creek Boulevard, Suite 1150, Dallas, Texas 75219
and its telephone number at that location is (214) 528-9500.
BUSINESS STRATEGY
The Company's strategy is to increase its revenues and cash flow by
(i) providing a superior entertainment experience designed to attract larger
audiences to its theaters, (ii) becoming the premier movie exhibitor in
selected small to mid-sized markets through the acquisition of existing
theaters and the development of new stadium-style seating multiplex theaters
and (iii) increasing per capita box office and concession revenues. Key
elements of the Company's operating strategy include:
PROVIDING A SUPERIOR SIGHT AND SOUND PRESENTATION. The Company's
objective is to create an entertainment experience in its theaters that is
superior to its local competitors. The Company believes it can achieve this
goal through the development and operation of state-of-the-art multiplex
theaters featuring stadium-style seating, which offers moviegoers clear,
unobstructed sight lines to the movie screen as a result of the steeper incline
of the seating. The Company has developed a new design for its multiplex
stadium-style auditoriums that utilizes "black-box" auditorium design elements
(all black auditorium interiors with maximum size screens to enhance the
viewing experience). These new stadium-style theaters offer digital sound in
all of the currently available formats (Digital Theater Sound Systems, Dolby(R)
Digital Sound and SONY Dynamic Digital Sound(TM)), THX(R) sound systems,
comfortable high-back chairs with wider seating and armrests with cupholders,
modern, attractive lobby and concession areas and attentive housekeeping both
inside and outside the theaters.
TARGETING SMALL AND MID-SIZED MARKETS AND DEVELOPING CLUSTERS OF
THEATERS. The Company focuses on small and mid-sized markets which it believes
are under-served. The Company aims to develop clusters of theaters in each of
its markets by acquiring theaters and developing new stadium-style multiplex
theaters in order to become the leading movie exhibitor in such markets. The
Company believes that its ability to develop stadium-style theaters in such
markets enables it to rapidly capture a significant share of such markets.
Before determining whether to develop a new theater in a particular location,
the Company carefully evaluates such market's potential.
CAPITALIZING ON THE COMPETITIVE ADVANTAGES OF STADIUM-STYLE MULTIPLEX
THEATERS. The Company intends to focus on the development of state-of-the-art
multiplex theaters featuring "black-box" auditoriums with stadium-style seating
configurations. By year-end 1997, the Company expects that its ratio of
stadium-style auditoriums to its total screen count will be among the highest
in the industry. The Company believes that the current trend in the United
States movie exhibition industry toward the development of multiplexes
featuring stadium-style auditoriums has put competitive pressure on many
existing theaters by setting new standards for moviegoers. The Company believes
that customers have clearly indicated their preference for the more attractive
surroundings, wider variety of films, better customer services and more
comfortable seating typical of stadium-style multiplexes. These theaters also
enhance the Company's ability to increase attendance and concession sales while
taking advantage of economies of scale by enabling it to exhibit concurrently a
wide variety of films.
INCREASING CONCESSION SALES THROUGH IMPROVED PRODUCT OFFERINGS,
FACILITY DESIGN AND STAFF INCENTIVES. Concession sales are the Company's
second largest revenue source after box office revenues and consistently yield
gross margins in excess of 80%. The Company actively works to promote
concession sales. In order to increase sales and margins at its concession
stands, the Company has introduced new products, offered larger sized products,
improved presentation, created additional satellite concession stands in its
theaters and added color video monitors and video walls featuring movie
trailers at many of its concession areas. In addition, the Company bases a
portion of theater managers' compensation on the level of concessions sales at
their theaters.
PROVIDING INCENTIVES TO MANAGEMENT THROUGH PERFORMANCE-BASED,
GOAL-ORIENTED COMPENSATION PACKAGES. The Company maintains an incentive program
for its district managers and theater managers which rewards management for
incremental improvements in theater profitability. The Company believes that
its incentive program is an important source of motivation for its employees
and aligns the employees' interests with those of the Company.
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GROWING THROUGH STRATEGIC ACQUISITIONS AND ADDITIONS. The Company
intends to continue its program of acquiring and expanding theaters, primarily
through the opportunistic acquisition from regional or national chains of groups
of theaters located in the Company's target markets. Where appropriate, the
Company will also add "stadium-style" seating auditoriums and state-of-the-art
audio systems to selected existing theaters or reconfigure existing auditoriums
to the stadium-style seating format. The Company believes that such selective
acquisitions, add-ons and reconfigurations will enhance and protect the
Company's position as the sole or leading exhibitor in many of its markets and
enable the Company to become a leading exhibitor in other markets.
NEW THEATER DEVELOPMENT
The Company's construction program focuses on building stadium-style
seating multiplexes with an average of 10 to 14 screens and adding
stadium-style seating auditoriums to selected existing theaters. The Company
times its theater construction efforts to allow for theater openings that can
take advantage of peak summer and year-end holiday film seasons. In July 1996,
the Company added two auditoriums with stadium-style seating to its existing
theater in Burleson, Texas. In November 1996, the Company opened its first new
multiplex theater with all stadium-style seating and an aggregate of 10 screens
in Midland, Texas.
In May 1997, the Company completed the construction of three
additional all stadium-style seating multiplex theaters with an aggregate of 34
screens in Beaumont and Tyler, Texas and Lawrence, Kansas. These new theaters
opened during the 1997 Memorial Day holiday weekend.
In November 1997, the Company completed construction of four
stadium-style auditoriums at the Company's existing theater in Heath, Ohio.
At December 1, 1997, the Company had three new all stadium-style
theaters under construction in Oklahoma and Missouri with an aggregate of 40
screens. At December 1, 1997, the Company also had one stadium-style
auditorium under development at the Company's existing theater in Heath, Ohio.
The new auditorium and two of the three new theaters are scheduled to open for
the 1997 year-end holiday season. In addition, in early 1998, the Company is
scheduled to open one new theater and begin construction of two all
stadium-style theaters with 20 screens and seven stadium-style auditoriums at
two existing theaters. See "Business -- New Theater Development."
The actual and anticipated costs of the foregoing theater developments
are approximately $21.9 million and $23.9 million, respectively. These
developments have been funded through cash flow from operations, borrowings
under the Company's former bank facility, the proceeds of the Old Notes
Offering and capital contributions of the proceeds from the issuance of Common
Stock and Preferred Stock by Holdings. There can be no assurance, however,
that the Company will have sufficient resources to complete these anticipated
capital expenditures. See "Risk Factors --Substantial Capital Expenditures"
and "--Uncertainties Related to Future Expansion."
RECENT AND PENDING ACQUISITIONS
In May 1997, the Company acquired two theaters with an aggregate of 12
screens in Beaumont and Port Arthur, Texas from the United Artists Corporation
("United Artists") for a purchase price of $3.4 million (the "Beaumont/Port
Arthur Acquisition"). The Company expects these newly acquired theaters to
complement the Company's existing theaters in Beaumont.
In June 1997, the Company acquired two theaters with an aggregate of
14 screens in Killeen, Texas from Escape Theatres, Inc. ("Escape") for a
purchase price of $8.5 million (the "Killeen Acquisition").
In August 1997, the Company acquired from General Cinema Corp. of
Oklahoma, Inc. ("General Cinema") seven theaters with an aggregate of 50
screens located in Tulsa and Oklahoma City, Oklahoma for a purchase price of
approximately $15.8 million (the "Oklahoma Acquisition").
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In September 1997, the Company purchased a newly-built all
stadium-style seating multiplex theater with an aggregate of 16 screens in
Waco, Texas for a purchase price of $8.9 million (the "Waco Acquisition") plus
an additional $2.7 million representing the cost of furniture and fixtures.
In October 1997, the Company exchanged six theaters with an aggregate
of 31 screens it operated in Kansas and Missouri for five theaters with an
aggregate of 22 screens owned by Dickinson, Inc. ("Dickinson") in the same
states, plus cash in the amount of $1.1 million (the "Dickinson Exchange").
In October 1997, the Company acquired from Cineco Cinema Corporation
one theater with six screens located in Tomball, Texas for a purchase price of
$1.8 million.
Upon completion of the opening of the new theaters and auditoriums
that were under construction or development as of December 1, 1997 as described
above, the Company will operate 84 theaters with a total of 517 screens.
These acquisitions have been funded through cash flow from operations,
borrowings under the Company's former bank facility, the proceeds of the Old
Notes Offering and capital contributions of the proceeds from the issuance of
Common Stock and Preferred Stock by Holdings. There can be no assurance,
however, that the Company will have sufficient resources to complete these
anticipated capital expenditures. See "Risk Factors--Substantial Capital
Expenditures" and "--Uncertainties Related to Future Expansion."
PRO FORMA PRESENTATION
Unless otherwise specified, the pro forma income statement data
presented herein reflects adjustments to the historical consolidated financial
statements of Holdings to give effect to (i) the Killeen Acquisition and (ii)
the Dickinson Exchange, in each case, as if such events had occurred on October
1, 1996.
The summary pro forma balance sheet data reflects adjustments to the
historical consolidated financial statements of Holdings to give effect to the
Dickinson Exchange, as if the event had occurred on September 30, 1997.
SENIOR BANK FACILITY
Concurrently with the consummation of the Old Notes Offering, the
Company repaid all of the existing indebtedness under its former bank facility
and entered into the Senior Bank Facility. The Senior Bank Facility provides for
a revolving credit facility of $50.0 million with a five year term, however, the
total available borrowings under the Senior Bank Facility may be less based on
leverage levels of the Company. On January 7, 1998, the Company entered into an
amendment of the Senior Bank Facility, amending among other things, certain
financial covenants. Based on the Company's current financial condition, the
Company believes it has the ability to borrow up to $30 million under the Senior
Bank Facility. The Senior Bank Facility is funded by a syndicate of banks for
whom Bank of America National Trust and Savings Association ("Bank of America
NT&SA") (an affiliate of BancAmerica Securities, Inc.) has acted as agent. The
Senior Bank Facility is secured by substantially all of the assets of the
Company and is guaranteed by Holdings and Crown (and any other future material
subsidiaries of the Company), which guarantees are secured by substantially all
of their respective assets. As of December 31, 1997, no amounts were borrowed
under the Senior Bank Facility. See "Use of Proceeds," "Capitalization" and
"Description of Senior Bank Facility."
4
<PAGE> 10
THE OLD NOTES OFFERING
Old Notes . . . . . . . . . . . . . . The Old Notes were sold by the
Company on August 7, 1997 to Goldman,
Sachs & Co. and BancAmerica Securities,
Inc. (the "Purchasers") pursuant to a
Purchase Agreement (the "Purchase
Agreement") dated July 31, 1997 (the
"Old Notes Offering"). The Purchasers
subsequently resold the Old Notes in the
United States to qualified institutional
buyers in reliance on Rule 144A under
the Securities Act and outside the
United States to non-U.S. persons in
reliance on Regulation S under the
Securities Act.
Registration Rights Agreement . . . . Pursuant to the Purchase Agreement, the
Company and the Purchasers entered into
an Exchange and Registration Rights
Agreement dated August 7, 1997 (the
"Registration Rights Agreement"), which
grants the holders of the Old Notes
certain exchange and registration
rights. The Exchange Offer is intended
to satisfy such exchange rights, which
terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
Securities Offered . . . . . . . . . $110,000,000 principal amount of 10 5/8%
Senior Subordinated Notes due August 1,
2007 (the "Exchange Notes").
The Exchange Offer . . . . . . . . . $1,000 principal amount of the Exchange
Notes in exchange for each $1,000
principal amount of Old Notes. As of
the date hereof, $110,000,000 aggregate
principal amount of Old Notes are
outstanding. The Company will issue the
Exchange Notes to holders on or promptly
after the Expiration Date. See "The
Exchange Offer."
Based on an interpretation by the staff
of the Commission set forth in Exxon
Capital Holdings Corp., SEC No-Action
Letter, available April 13, 1989, and
similar no-action letters issued to
third parties, the Company believes that
Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes
may be offered for resale, resold and
otherwise transferred by any holder
thereof (other than any such holder
which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with
the registration and prospectus delivery
provisions of the Securities Act,
provided that such Exchange Notes are
acquired in the ordinary course of such
holder's business and that such holder
does not intend to participate and has
no arrangement or understanding with any
person to participate in the
distribution of such Exchange Notes.
5
<PAGE> 11
Each Participating Broker-Dealer that
receives Exchange Notes for its own
account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale
of such Exchange Notes. The Letter of
Transmittal states that by so
acknowledging and by delivering a
prospectus, a Participating
Broker-Dealer will not be deemed to
admit that it is an "underwriter" within
the meaning of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of Exchange
Notes received in exchange for Old Notes
where such Old Notes were acquired by
such Participating Broker-Dealer as a
result of market-making activities or
other trading activities (other than a
resale of an unsold allotment from the
original sale of Old Notes). The Company
has agreed that, for a period of 180
days after the Expiration Date, it will
make this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See
"Plan of Distribution."
Any holder who tenders in the Exchange
Offer with the intention to participate,
or for the purpose of participating, in
a distribution of the Exchange Notes
could not rely on the position of the
staff of the Commission enunciated in
no-action letters and, in the absence of
an exemption therefrom, must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction.
Failure to comply with such requirements
in such instance may result in such
holder incurring liability under the
Securities Act for which the holder is
not indemnified by the Company. See "The
Exchange Offer -- Resale of the Exchange
Notes."
Expiration Date . . . . . . . . . . . 5:00 p.m., New York time, on __________,
1997 unless the Exchange Offer is
extended, in which case the term
"Expiration Date" means the latest date
and time to which the Exchange Offer is
extended.
Accrued Interest on the Exchange Each Exchange Note will bear interest
Notes and the Old Notes . . . . . . . from the most recent date to which
interest has been paid or duly provided
for on the Old Note surrendered in
exchange for such Exchange Note or, if
no interest has been paid or duly
provided for on such Old Note, from
August 7, 1997. Interest on the Exchange
Notes is payable on February 1 and
August 1 of each year, commencing on
February 1, 1998.
Holders of Old Notes whose Old Notes are
accepted for exchange will not receive
accrued interest on such Old
6
<PAGE> 12
Notes for any period from and after the
last date to which interest has been
paid or duly provided for on provided
for on the Old Notes prior to the
original issue date of the Exchange
Notes or, if no such interest has been
paid or duly provided for, will not
receive any accrued interest on such Old
Notes, and will be deemed to have waived
the right to any interest on such Old
Notes accrued from and after the last
date to which interest has been paid or
duly provided for on the Old Notes or,
if no such interest has been paid or
duly provided for, from and after August
7, 1997. See "The Exchange Offer --
Interest on the Exchange Notes."
Conditions to the Exchange Offer. . . The Exchange Offer is subject to certain
customary conditions, which may be
waived by the Company. See "The Exchange
Offer -- Conditions."
Procedures for Tendering Old Notes. . Each holder of Old Notes wishing to
accept the Exchange Offer must complete,
sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile, together
with the Old Notes and any other
required documentation to U.S. Trust
Company of Texas, N.A., as exchange
agent, at the address set forth herein.
By executing the Letter of Transmittal,
each holder will represent to the
Company that, among other things, the
Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the
ordinary course of business of the
person receiving such Exchange Notes,
whether or not such person is the
holder, that neither the holder nor any
such other person has any arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the
holder nor any such other person is an
"affiliate," as defined under Rule 405
of the Securities Act. See "The Exchange
Offer -- Purpose and Effect of the
Exchange Offer" and "The Exchange Offer
-- Procedures for Tendering."
Untendered Old Notes; Consequences Following the consummation of the
of Failure to Exchange . . . . . . . Exchange Offer, holders of Old Notes
eligible to participate but who do not
tender their Old Notes will not have any
further exchange rights and such Old
Notes will continue to be subject to
certain restrictions on transfer.
Accordingly, the liquidity of the market
for such Old Notes could be adversely
affected. The Old Notes that are not
exchanged pursuant to the Exchange Offer
will remain restricted securities.
Accordingly, such Old Notes may be
resold only (i) to the Company, (ii)
pursuant to Rule 144A or Rule 144 under
the Securities Act, (iii) pursuant to
some
7
<PAGE> 13
other exemption under the Securities
Act, (iv) outside the United States to a
foreign person pursuant to the
requirements of Rule 904 under the
Securities Act, or (v) pursuant to an
effective registration statement under
the Securities Act. See "The Exchange
Offer -- Consequences of Failure to
Exchange."
Shelf Registration Statement . . . . In the event that (i) on or before the
Expiration Date, existing Commission
interpretations are changed such that
the Exchange Notes are not or would not
be, upon receipt, freely transferable
(except for the requirement that
Participating Broker-Dealers deliver a
prospectus), (ii) the Exchange Offer is
not consummated within 210 days of the
closing of the Old Notes Offering, or
(iii) the Exchange Offer is not
available to any holders of the Old
Notes (other than certain restricted
holders), the Company will use its
reasonable best efforts to cause to be
filed with the Commission, no later than
60 days after the completion of the Old
Notes Offering, a shelf registration
statement (the "Shelf Registration
Statement"). If required, the Company
will use its reasonable best efforts to
cause the Shelf Registration Statement
to be declared effective on or before
the 180th day after the Old Notes
Offering. The Company has agreed to
maintain the effectiveness of the Shelf
Registration Statement, under certain
circumstances, for a maximum of two
years following the effective date of
the Shelf Registration Statement.
Special Procedures for Any beneficial owner whose Old Notes are
Beneficial Owners . . . . . . . . . . registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee and who wishes to
tender should contact such registered
holder promptly and instruct such
registered holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender on
such owner's own behalf, such owner
must, prior to completing and executing
the Letter of Transmittal and delivering
its Old Notes, either make appropriate
arrangements to register ownership of
the Old Notes in such owner's name or
obtain a properly completed bond power
from the registered holder. The transfer
of registered ownership may take
considerable time. The Company will keep
the Exchange Offer open for not less
than 30 days in order to provide for the
transfer of registered ownership. See
"The Exchange Offer -- Procedures for
Tendering."
Guaranteed Delivery Procedures . . . Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, the Letter
8
<PAGE> 14
of Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent (or comply with the
procedures for book-entry transfer)
prior to the Expiration Date must tender
their Old Notes according to the
guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights . . . . . . . . . . Tenders may be withdrawn at any time
prior to 5:00 p.m., New York time, on
the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
Acceptance of Notes and Delivery The Company will accept for exchange,
of Exchange Notes . . . . . . . . . . subject to the conditions described
under "The Exchange Offer --
Conditions," any and all Old Notes which
are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York time,
on the Expiration Date.
The Exchange Notes issued pursuant to
the Exchange Offer will be delivered
promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the
Exchange Offer."
Use of Proceeds . . . . . . . . . . . There will be no cash proceeds to the
Company from the exchange pursuant to
the Exchange Offer. See "Use of
Proceeds."
Exchange Agent . . . . . . . . . . . U.S. Trust Company of Texas, N.A. The
Exchange Agent also serves as trustee
under the Indenture.
THE EXCHANGE NOTES
General . . . . . . . . . . . . . . . The form and terms of the Exchange Notes
are the same as the form and terms of
the Old Notes (which they replace)
except that (i) the Exchange Notes have
been registered under the Securities Act
and, therefore, will not bear legends
restricting the transfer thereof and
(ii) the holders of Exchange Notes will
not be entitled to certain rights under
the Registration Rights Agreement,
including the provisions providing for
an increase in the interest rate on the
Old Notes in certain circumstances,
which rights will terminate when the
Exchange Offer is consummated. See "The
Exchange Offer -- Purpose and Effect of
the Exchange Offer." The Exchange Notes
will evidence the same debt as the Old
Notes and will be entitled to the
benefits of the Indenture. See
"Description of Exchange Notes." The Old
Notes and the Exchange Notes are
referred to herein collectively as the
"Notes."
Securities Offered . . . . . . . . . $110,000,000 principal amount of 10 5/8%
Senior Subordinated Notes due August 1,
2007.
Maturity Date . . . . . . . . . . . . August 1, 2007
Interest Payment Dates . . . . . . . February 1 and August 1 of each year,
commencing February 1, 1998.
9
<PAGE> 15
Optional Redemption . . . . . . . . . The Exchange Notes will be redeemable,
in whole or in part, at the option of
the Company at any time on or after
August 1, 2002 at the redemption prices
set forth herein, plus accrued and
unpaid interest, if any, to the date of
redemption. In addition, on or before
August 1, 2000, the Company may, at its
option and subject to certain
requirements, use an amount equal to the
net cash proceeds from one or more
Public Equity Offerings (as defined) to
redeem up to an aggregate of 30% of the
principal amount of the Exchange Notes
originally issued at a redemption price
equal to 110.625% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of
redemption. See "Description of Exchange
Notes -- Optional Redemption.
Change of Control . . . . . . . . . . Upon the occurrence of a Change of
Control (as defined), the Company is
required to offer to repurchase all
outstanding Exchange Notes at a price
equal to 101% of the principal amount
thereof, plus accrued and unpaid
interest, if any, to the date of
repurchase. See "Description of Exchange
Notes -- Covenants -- Change of
Control."
Sinking Fund . . . . . . . . . . . . None
Ranking . . . . . . . . . . . . . . . The Exchange Notes will constitute
general unsecured indebtedness of the
Company, subordinated in right of
payment to all existing and future
senior indebtedness of the Company,
including borrowings under the Senior
Bank Facility. At December 1, 1997, the
Company had approximately $110.0 million
of indebtedness outstanding, none of
which was senior indebtedness. The
Indenture pursuant to which the Exchange
Notes will be issued permits the Company
and the guarantors of the Exchange Notes
to incur additional indebtedness,
including senior indebtedness, subject
to certain limitations. See
"Capitalization" and "Description of
Exchange Notes -- Subordination."
Guarantees . . . . . . . . . . . . . The Exchange Notes will be guaranteed by
Holdings and Crown and will be
guaranteed by any future Restricted
Subsidiary (as defined) of the Company.
The guarantees will be subordinated
obligations of Holdings and Crown and
will be junior to all senior
indebtedness of such companies,
including their guarantees of borrowings
under the Senior Bank Facility. See
"Description of Senior Bank Facility."
10
<PAGE> 16
Certain Covenants . . . . . . . . . . The Indenture contains certain covenants
which, among other things, place certain
restrictions on the ability of the
Company and its Restricted Subsidiaries
to incur additional indebtedness, pay
dividends or make distributions in
respect of the Company's capital stock
or make other restricted payments, sell
assets, create certain liens or enter
into certain transactions with
affiliates. See "Description of Exchange
Notes -- Covenants."
RISK FACTORS
For a discussion of certain factors that should be considered by
prospective purchasers in evaluating an investment in the Notes, see "Risk
Factors."
11
<PAGE> 17
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary historical consolidated financial
information for Holdings for the period from July 11, 1995 through December 31,
1995, for the fiscal year ended December 31, 1996 and for the nine month
periods ended September 30, 1996 and 1997 and pro forma financial information
for the twelve months ended September 30, 1997. The financial statements of
Holdings are identical to those of the Company, except for long-term debt
(Holdings' balance sheet includes an additional $137,000 of long-term debt at
September 30, 1997) and differences in the components of stockholders' equity.
See "Capitalization." The consolidated financial information for the two fiscal
years in the period ended December 31, 1996 and the balance sheet information
as of December 31, 1996 and 1995 were derived from the audited consolidated
financial statements of Holdings which have been audited by Arthur Andersen
LLP, independent public accountants. The fiscal years ended December 31, 1996
and 1995 are not directly comparable due to the shortened period Holdings and
the Company were in operation during 1995, the effects of theater acquisitions
and theater developments and the impact of the debt service associated with the
debt incurred in connection with theater acquisitions and development. This
information should be read in conjunction with "Selected Consolidated Financial
Information", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and pro forma financial
information, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED PRO FORMA
DECEMBER 31, SEPTEMBER 30, TWELVE MONTHS
--------------------- ---------------------- ENDED
SEPTEMBER 30,
1995(1) 1996 1996 1997 1997(2)
--------- --------- --------- --------- -------------
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues .................................... $ 6,334 $ 24,879 $ 11,405 $ 54,852 $ 89,399
Direct theater costs ........................ 5,296 20,798 9,952 44,566 73,148
General and administrative
expenses .................................. 743 1,601 1,158 3,992 4,651
Depreciation and amortization ............... 739 3,152 1,238 7,930 11,240
--------- --------- --------- --------- ---------
Operating income (loss) ..................... (444) (672) (943) (1,636) 360
Interest expense, net ....................... 463 2,121 713 4,482 12,127
--------- --------- --------- --------- ---------
Net income (loss) ........................... $ (907) $ (2,793) $ (1,656) $ (6,118) $ (11,767)
========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(3) ................................... $ 444 $ 2,954 $ 506 $ 6,713 $ 12,276
Cash flows from (used in) operating
activities ................................ 182 1,033 (367) 2,734
Cash flows used in investing activities ..... (10,669) (69,720) (10,905) (76,949)
Cash flows from financing activities ........ 10,934 71,800 11,174 79,763
Net long-term debt(4) ....................... 7,978 46,941 13,786 100,892 99,800
Deficiency of earnings to combined fixed
charges and preferred dividends(5) ........ (907) (3,215) (1,656) (8,971) (15,571)
PRO FORMA FINANCIAL DATA:
Ratio of EBITDA to net interest
expense ................................... 1.0x
Ratio of net long-term debt to
EBITDA .................................... 8.1x
OPERATING DATA (AT PERIOD
END):
Number of theaters operated ................. 11 72 19 84 83
Number of screens operated .................. 70 342 110 457 448
Average screens per theater ................. 6.4 4.8 5.8 5.4 5.4
</TABLE>
12
<PAGE> 18
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
-------------------- ---------------------------
1995 1996 HISTORICAL PRO FORMA(2)
-------- --------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 447 $ 3,559 $ 9,108 $ 10,200
Properties and equipment-- net ........................ 3,642 43,116 97,958 96,894
Total assets .......................................... 12,930 92,355 175,378 175,378
Total long-term debt, including current maturities .... 8,877 50,669 113,937 113,937
Convertible Preferred Stock ........................... -- 28,579 46,833 46,833
Stockholders' equity .................................. 1,838 6,544 4,173 4,173
</TABLE>
- ----------------
(1) For the period from inception (July 11, 1995) through December 31,
1995.
(2) The summary pro forma income statement and other financial data presented
reflects adjustments to the historical consolidated financial statements of
Holdings to give effect to (i) the Killeen Acquisition and (ii) the
Dickinson Exchange, in each case as if such events had occurred on October
1, 1996. The summary pro forma balance sheet data reflects adjustments to
the historical consolidated financial statements of Holdings to give effect
to the Dickinson Exchange as if the event had occurred on September 30,
1997. The summary pro forma financial information presented is not
necessarily indicative of either future results of operations or the
results that might have occurred had such events taken place at such dates.
(3) Represents income before interest, taxes, depreciation, amortization, and
deferred rent. EBITDA is a financial measure commonly used in the Company's
industry and should not be construed as an alternative to operating income
(as determined in accordance with GAAP), an indicator of operating
performance, an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or a measure of liquidity.
(4) Net long-term debt represents long-term debt minus cash and cash
equivalents.
(5) Earnings consist of net loss, plus fixed charges. Fixed charges consist
of interest expense, amortization of debt issuance costs and one-third of
rent expense on operating leases treated as representative of the interest
factor attributable to rent expense.
13
<PAGE> 19
RISK FACTORS
An investment in the Exchange Notes offered hereby involves a high degree
of risk. The following factors, in addition to the other information contained
in this Prospectus, should be carefully considered in evaluating an investment
in the Exchange Notes offered hereby.
SUBSTANTIAL INDEBTEDNESS
The Company is highly leveraged. At December 1, 1997, the Company had
$110.0 million of indebtedness outstanding, none of which was senior
indebtedness, and the Company's pro forma ratio of indebtedness to total capital
was 46%. Based on the Company's current financial condition, the Company
believes it has the ability to borrow up to $30 million under the Senior Bank
Facility, all of which would constitute senior indebtedness. For the year ended
December 31, 1996, and the nine months ended September 1997, the Company's
deficiency of earnings to combined fixed charges and preferred dividends was
$3.2 million and $9.0 million, respectively. The degree to which the Company is
leveraged could have important consequences to holders of Exchange Notes,
including an inability to fund future growth. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
SUBSTANTIAL DEBT REPAYMENT OBLIGATIONS
The Company's ability to make scheduled payments or to refinance its
indebtedness depends on its financial and operating performance, which, in turn,
is subject to prevailing economic conditions and to financial, business,
competitive and other factors beyond its control. Although the Company's cash
flow from operations has historically been sufficient to meet its debt service
obligations, there can be no assurance that the Company's operating results will
continue to be sufficient for payment of the Company's indebtedness, including
indebtedness under the Exchange Notes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Liquidity and Capital
Resources" and "Risk Factors-Limited Operating History; Net Losses."
SUBSTANTIAL CAPITAL EXPENDITURES
Since January 1, 1997 the Company has acquired 12 theaters with 82 screens,
opened three newly built theaters with 34 screens, and purchased a newly-built
all stadium-style seating multiplex theater with 16 screens in Waco, Texas, and
exchanged six theaters for five theaters and $1.1 million in cash. At December
1, 1997, the Company had three theaters with 40 screens under construction. In
addition, the Company has completed construction of four new screens, and has a
fifth under construction at an existing theater and is scheduled to begin
construction in early 1998 of two additional theaters with 20 screens and seven
additional screens at two existing theaters. See "Business -- New Theater
Development" and "Business -- Recent and Pending Acquisitions." The Company
estimates that capital expenditures in connection with such acquisitions and
theater development in 1997 will be approximately $91.2 million, of which
approximately $85.2 million had already been invested as of December 1, 1997.
The Company expects to fund the balance of these capital expenditures through
cash flow from operations, borrowings under the Company's bank facility, the
proceeds of the Old Notes Offering and capital contributions of the proceeds
from the issuance of Common Stock and Preferred Stock by Holdings. There can be
no assurance, however, that the Company's business will generate sufficient cash
flow from operations or that future borrowings will be available under the
Senior Bank Facility (or permitted under the terms of the Indenture or other
indebtedness) in an amount sufficient to enable the Company to make these
anticipated capital expenditures. In addition, the Company intends to continue
its expansion over the next several years. Any future theater development and
future acquisitions may require financing in addition to cash generated from
operations and future borrowings under the Senior Bank Facility. There can be no
assurance that such additional financing will be available to the Company on
acceptable terms or at all. See "--Substantial Indebtedness" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Senior Bank Facility."
14
<PAGE> 20
RESTRICTIONS IMPOSED BY THE SENIOR BANK FACILITY
The Senior Bank Facility requires the Company to maintain specified
financial ratios and to meet certain financial tests. In addition, the Senior
Bank Facility restricts among other things, the Company's ability to incur
additional indebtedness, make acquisitions or asset dispositions, create or
incur liens on its assets, make certain payments and dividends or merge or
consolidate. A failure to comply with the restrictions contained in the Senior
Bank Facility could lead to an event of default thereunder, which could result
in an acceleration of such indebtedness. There can be no assurance that the
Company will have sufficient resources or have access to sufficient resources to
pay its obligations under the Senior Bank Facility or the Exchange Notes if such
indebtedness is accelerated. See "Description of Senior Bank Facility."
UNCERTAINTIES RELATED TO FUTURE EXPANSION
The Company intends to pursue a strategy of expansion that will involve the
development of new theaters certain of which may be larger and more costly than
those developed by the Company to date. In addition, the Company's strategy of
expansion may involve acquisitions of existing theaters and theater circuits.
There is significant competition for potential site locations and existing
theater and theater circuit acquisition opportunities. As a result of such
competition, the Company may be unable to acquire attractive site locations or
existing theaters or theater circuits on terms the Company considers acceptable.
The development of new theaters involves certain risks, including the
possibility of construction cost overruns and delays, uncertainty of site
acquisition costs and availability, uncertainties as to market potential, market
deterioration after commencement of development and the emergence of market
competition from unanticipated sources. Additionally, expansion of the Company's
theater circuit, whether through theater development or acquisitions, involves
the risk that the Company might not effectively manage such growth or that the
Company's information or other systems might not be sufficient in light of such
growth. Although the Company manages its theater development projects and
acquisitions with a view towards minimizing these risks, the Company may
determine not to proceed, or not be able to proceed, with its planned theater
development projects or acquisitions and, accordingly, no assurance can be given
that any of the projected new theater developments will open or that such
developments or any acquisitions will perform in accordance with the Company's
expectations, or that any failure to manage expansion generally will not have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Competition."
DEPENDENCE UPON MOTION PICTURE PRODUCTION AND PERFORMANCE; RELATIONSHIP WITH
FILM DISTRIBUTORS
The Company's business is dependent upon a number of factors, among the
most important of which are the availability of suitable motion pictures for
exhibition in its theaters and the performance of such films in the Company's
markets. Poor performance of films or a disruption or reduction in the
production of motion pictures by the major studios and/or independent producers
could have a material adverse effect on the Company's business and its results
of operations. Since the major film distributors have historically released
those films which they anticipate will be the most successful during the summer
and year-end holiday seasons, poor performance of such films or a disruption or
reduction in the number of films released during such periods could adversely
affect the Company's results for a particular quarter. Moreover, to the extent
that certain "event" films are distributed more widely than in the past, the
Company's margins may be hurt as a result of the higher film licensing fees
payable during the early period of a film's run. In addition, the Company's
business depends to a significant degree on maintaining good relations with the
major film distributors who are responsible for allocating films to the
Company's theaters. If the Company's relationship with one or more of the major
film distributors were to deteriorate for any reason, the Company could find it
more difficult to schedule the most commercially successful films in its
theaters, thereby adversely affecting the Company's results of operations. See
"Business -- Film Licensing."
15
<PAGE> 21
COMPETITION
The motion picture exhibition industry is highly competitive. The Company
competes against a number of local, regional and national exhibitors, most of
which have been in existence significantly longer than the Company and many of
which have substantially greater financial resources than the Company.
The motion picture exhibition industry faces competition from a number of
motion picture exhibition delivery systems such as network, syndicated, cable
and satellite television, pay-per-view and home video systems. However, the full
extent to which these alternative motion picture delivery systems will compete
with traditional theatrical release may not be known for several years, and
there can be no assurance that these alternative motion picture exhibition
delivery systems will not in the future adversely affect attendance at the
Company's theaters. In addition, the entertainment industry is one which has
experienced rapid technological change. As a result, the Company may face
competition in the future from new technologies that are not yet developed.
Movie theaters also face competition from other forms of entertainment competing
for the public's leisure time and disposable income. See "Business --
Competition."
SUBORDINATION OF NOTES; PLEDGE OF COMPANY ASSETS
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness
of the Company, including indebtedness under the Senior Bank Facility. At
December 1, 1997, the Company had $110.0 million of indebtedness outstanding,
none of which was senior indebtedness. Subject to certain limitations, the
Indenture will permit the Company to incur additional indebtedness, including
senior indebtedness (including up to $75.0 million of senior indebtedness under
the Senior Bank Facility). See "Description of Exchange Notes -- Covenants". In
addition, under certain circumstances, if any non-payment default exists with
respect to indebtedness under the Senior Bank Facility, the Company may not make
any payments on the Exchange Notes for a specified period of time, unless such
default is cured or waived or such senior indebtedness has been repaid in full.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure would constitute an event of
default under the Indenture and would generally entitle the holders of the
Exchange Notes to accelerate the maturity thereof. As a result of the
subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency of the Company, the assets of the Company will be
available to pay obligations on the Exchange Notes only after all senior
indebtedness and indebtedness of the Company's existing subsidiary (or any
future subsidiary) have been paid in full, and therefore there may not be
sufficient assets remaining to pay amounts due on any or all of the Exchange
Notes then outstanding. See "Description of Exchange Notes -- Subordination". In
addition, all of the stock and substantially all of the current assets of each
of the Company, its parent and its subsidiary will be pledged, and future assets
may be pledged, to secure indebtedness under the Senior Bank Facility. See
"Description of Exchange Notes" and "Description of Senior Bank Facility."
GUARANTEES
The Company's parent and its sole subsidiary, along with any future
Restricted Subsidiaries, are the only guarantors of the Exchange Notes. The
Company's parent is a holding company whose only significant asset in the
capital stock of the Company, of which it owns 100%. The Company's sole
subsidiary is an operating company, but its assets represent less than 1.75% of
the Company's parent's assets on a consolidated basis. Accordingly, in the event
the Company defaulted on its payment of principal or interest on the Exchange
Notes, and holders of the Exchange Notes looked to the guarantors thereof for
payment of the Exchange Notes, it is unlikely that the assets of such guarantors
would be sufficient to remedy any default by the Company with respect to
repayment of the Exchange Notes.
16
<PAGE> 22
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in large part, on the efforts, abilities
and experience of its executive officers, including its President, Chief
Operating Officer and Chief Financial Officer and other key employees of the
Company. The loss of the services of one or more of such individuals could have
a material adverse effect on the Company's business. See "Management."
REPURCHASE OF THE NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined), the Company will
be required to make an offer to repurchase the Exchange Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date or repurchase. Certain events involving a Change of Control
will result in an event of default under the Senior Bank Facility and may result
in an event of default under other indebtedness of the Company that may be
incurred in the future. An event of default under the Senior Bank Facility or
other future senior indebtedness could result in an acceleration of such
indebtedness, in which case the subordination provisions of the Exchange Notes
would require payment in full of such senior indebtedness before repurchase of
the Exchange Notes. See "Description of Exchange Notes -- Subordination," "--
Covenants -- Change of Control" and "Description of Senior Bank Facility". It is
unlikely that the Company would have sufficient resources to repurchase the
Exchange Notes or pay its obligations if the indebtedness under the Senior Bank
Facility or other future senior indebtedness were accelerated upon the
occurrence of a Change of Control. The inability of the Company to repurchase
all of the tendered Exchange Notes would constitute an Event of Default under
the Indenture. These provisions may be deemed to have anti-takeover effects and
may delay, defer or prevent a merger, tender offer or other takeover attempt.
Further, the provisions of the Indenture may not afford holders of Exchange
Notes protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect holders of Exchange Notes, if such transaction does not result
in a Change of Control. No assurance can be given that the terms of any future
indebtedness will not contain cross default provisions based upon Change of
Control or other defaults under such debt instruments.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's revenues have historically been seasonal, coinciding with
the timing of releases of motion pictures by the major distributors. Generally,
the most marketable films have been released during the summer and the year-end
holiday season. By way of example, for those theaters that were operated by the
Company during the entire 12 month period ended December 31, 1996, revenues for
such theaters during the second and fourth quarter of 1996 were $3.0 million
and $3.0 million, respectively, as compared to $2.7 million and $3.6 million
for the first and third quarter of the same year.
The Company's quarterly results may also be affected by the timing of the
development or acquisition of theaters. By way of example, the Company's
revenues during the second and fourth quarter of 1996 for all the Company's
theaters operated in 1996, including those acquired or opened during the year,
were $3.8 million and $13.5 million, respectively, as compared to $2.7 million
and $4.9 million for the first and third quarter of the same year.
LIMITED OPERATING HISTORY; NET LOSSES
The Company was organized in June 1995 and, accordingly, has a limited
operating history. In addition, the Company has experienced net losses since its
inception. Net losses for the period July 11, 1995 through December 31, 1995 and
the fiscal year ended December 31, 1996 were approximately $907,000 and $2.8
million, respectively, and the net loss for the nine months ended September 30,
1997 was approximately $6.1 million. There can be no assurance that the
Company's future operations will generate operating income, net income or
sufficient cash flow to pay its obligations. See "Selected Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will constitute a new issue of securities for which
there is currently no established trading market. The Exchange Notes will not be
listed on any securities exchange and will not be approved for inclusion in any
17
<PAGE> 23
automated quotation system. If the Exchange Notes are traded after their initial
issuance, they may trade at a discount from their principal amount, depending
upon prevailing interest rates, the market for similar securities, the
performance of the Company and other factors. The Company has been advised by
the Purchasers that they intend to make a market in the Exchange Notes after the
consummation of the Exchange Offer; however, the Purchasers are not obligated to
do so, and any such market making activities may be discontinued at any time
without notice. There can be no assurance that a trading market for the Exchange
Notes will develop.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, certain statements under "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" (including, without limitation, those
related to the acquisition and development of additional theaters by the
Company) may constitute forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Prospectus, including, without limitation, in conjunction with
the forward-looking statements included in this Prospectus and under "Risk
Factors" (including, without limitation, the risk factors related to
"Substantial Capital Expenditures" and "Uncertainties Related to Future
Expansion"). All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements. Section 27A of the
Securities Act and Section 21E of the Exchange Act expressly provide that the
safe harbor provided for therein does not apply to statements made in connection
with a company's initial public offering. EXCHANGE OFFER PROCEDURES;
CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, registration rights under the Registration
Rights Agreement generally will terminate. In addition, any holder of Old Notes
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transactions. Each Participating Broker-Dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See "The Exchange Offer."
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. The Exchange Offer is intended to satisfy certain
of the Company's obligations under the Registration Rights Agreement. The Old
Notes surrendered in Exchange for the Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, the issuance of the Exchange Notes
will not result in any increase in the outstanding debt of the Company.
18
<PAGE> 24
The net proceeds to the Company from the sale of the Old Notes were
approximately $105.7 million, after deducting discounts and estimated expenses
of the Old Notes Offering. The proceeds were used by the Company to repay all of
the outstanding indebtedness under the Company's former bank facility
(approximately $64.5 million at June 30, 1997) and to finance the Waco and
Oklahoma Acquisitions ($11.6 million and $15.8 million, respectively). The
balance of the net proceeds will be used to pay a portion of construction and
other expenses relating to the Company's 1997 theater building program and for
general corporate purposes.
Borrowings under the Company's former bank facility were incurred to repay
all of the indebtedness under the Company's 1995 bank facility and to finance
(i) the acquisition of Crown Theaters, Inc., (ii) the acquisition of certain
theaters from United Artists, (iii) the acquisition of two theaters from General
Cinema Corporation of Texas, Inc., (iv) the Beaumont/Port Arthur Acquisition,
(v) the Killeen Acquisition and (vi) the construction of certain theaters
described under "Business -- New Theater Development." At December 1, 1997, the
interest rate under the Company's former bank facility was approximately 8.5%
per annum.
19
<PAGE> 25
CAPITALIZATION
The following table sets forth, as of September 30, 1997, the consolidated
capitalization of the Company. This table should be read in
conjunction with "Use of Proceeds," "Selected Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the financial statements and pro forma financial
information, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------
ACTUAL
---------------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C>
Cash and cash equivalents ....................................................................... $ 9,108
=========
Long-term debt (including current maturities):
Existing Senior Bank Facility(1) .............................................................. --
Old Notes ..................................................................................... 110,000
Other debt (1)................................................................................. 3,800
---------
Total long-term debt, including current maturities .................................... 113,800
Stockholder's equity:
Common stock, $.01 par value; 100,000 shares authorized;
9,250 shares issued and outstanding(3) 1
Additional paid-in capital(3) ................................................................. 64,594
Accumulated deficit ........................................................................... (13,589)
---------
Total stockholder's equity ............................................................ 51,006
---------
Total capitalization(2) ............................................................... $ 164,806
=========
</TABLE>
- --------------------
(1) At December 1, 1997, the Company had no borrowings outstanding under its
former bank facility and no other debt outstanding.
(2) The consolidated capitalization of Holdings as of September 30, 1997
would reflect an additional $137,000 in long-term debt. For more
information regarding Holding's capital structure, see "Description of
Capital Stock -- Holdings Capital Stock."
(3) In November and December 1997, the Company received an additional capital
contribution of $12.0 million as a result of the sale of Holdings Series D
Preferred Stock. See "Description of Capital Stock--Holdings Equity
Issuances."
20
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
information for Holdings for the period from July 11, 1995 through December 31,
1995, for the fiscal year ended December 31, 1996 and for the nine month periods
ended September 30, 1996 and 1997 and pro forma financial information for the
twelve months ended September 30, 1997. The financial statements of Holdings are
identical to those of the Company, except for long-term debt (Holdings' balance
sheet includes an additional $137,000 of long-term debt at September 30, 1997)
and differences in the components of stockholders' equity. See "Capitalization."
The consolidated financial information for the two fiscal years in the period
ended December 31, 1996 and the balance sheet information as of December 31,
1996 and 1995 were derived from the audited consolidated financial statements of
Holdings which have been audited by Arthur Andersen LLP, independent public
accountants. Other Financial Data, and Operating Data as well as Balance Sheet
Data, for the period from January 1, 1995 to July 10, 1995 and the years ended
December 31, 1994 and 1993 and have not been presented because during such
period the theaters were owned and/or operated by persons other than the Company
and management. The fiscal years ended December 31, 1996 and 1995 are not
directly comparable due to the shortened period Holdings and the Company were in
operation during 1995, the effects of theater acquisitions and theater
developments and the impact of the debt service associated with the debt
incurred in connection with theater acquisitions and development. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and pro forma financial information, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
YEARS ENDED PERIOD FROM YEARS ENDED NINE MONTHS ENDED TWELVE MONTHS
DECEMBER 31, JANUARY 1, 1995 DECEMBER 31, SEPTEMBER 30, ENDED
-------------- THROUGH ----------------- ----------------- SEPTEMBER 30,
1993 1994 JULY 10, 1995 1995(1) 1996 1996 1997 1997(2)
---- ---- -------------- ------- ---- ---- ---- -------------
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................ 11,883 12,542 6,990 $6,334 $24,879 $ 11,405 $54,852 $ 89,399
Direct theater costs................ 9,422 9,936 6,075 5,296 20,798 9,952 44,566 73,148
General and administrative
expenses.......................... 1,097 1,197 281 743 1,601 1,158 3,992 4,651
Depreciation and amortization 343 366 202 739 3,152 1,238 7,930 11,240
------ -------- -------- -------- ---------
Operating income (loss) ............ 1,021 1,043 432 (444) (672) (943) (1,636) 360
Interest expense, net............... 148 103 69 463 2,121 713 4,482 12,127
------ -------- -------- -------- ---------
Net income (loss)................... 873 940 363 $ (907) $ (2,793) $ (1,656) $(6,118) $ (11,769)
====== ======== ========= ======== =========
OTHER FINANCIAL DATA:
EBITDA(3)........................... $444 $2,954 $ 506 $ 6,713 $ 12,276
Cash flows from (used in)
operating activities.............. 182 1,033 (367) 2,734
Cash flows used in investing
activities........................ (10,669) (69,720) (10,905) (76,949)
Cash flows from financing
activities........................ 10,934 71,800 11,174 79,763
Net long-term debt(4)............... 7,978 46,941 13,786 100,892 99,800
Deficiency of earnings to combined
fixed charges and preferred
dividends(5) .................... (907) (3,215) (1,656) (8,971) (15,571)
PRO FORMA FINANCIAL DATA:
Ratio of EBITDA to net interest 1.0x
expense...........................
Ratio of net long-term debt to 8.1x
EBITDA............................
OPERATING DATA (AT PERIOD END):
Number of theaters operated......... 11 72 19 84 83
Number of screens operated.......... 70 342 110 457 448
Average screens per theater......... 6.4 4.8 5.8 5.4 5.4
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
AT DECEMBER 31, SEPTEMBER 30, 1997
------------------- ---------------------------
1995 1996 HISTORICAL PRO FORMA(2)
------- ---------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............. $ 447 $ 3,559 $ 9,108 $10,200
Properties and equipment -- net ....... 3,642 43,116 97,958 96,894
Total assets .......................... 12,930 92,355 175,378 175,378
Total long-term debt, including current
maturities .......................... 8,877 50,669 113,937 113,937
Convertible Preferred Stock ........... -- 28,579 46,833 46,833
Stockholders' equity .................. 1,838 6,544 4,173 4,173
</TABLE>
- ---------------
(1) For the period from inception (July 11, 1995) through December 31, 1995.
(2) The selected pro forma income statement and other financial data presented
reflects adjustments to the historical consolidated financial statements of
Holdings to give effect to (i) the Killeen Acquisition and (ii) the
Dickinson Exchange, in each case as if such events had occurred on October
1, 1996. The summary pro forma balance sheet data reflects adjustments to
the historical consolidated financial statements of Holdings to give effect
to the Dickinson Exchange, as if the event had occurred on September 30,
1997. The selected pro forma financial information presented is not
necessarily indicative of either future results of operations or the
results that might have occurred had such events taken place at such dates.
(3) Represents income before interest, taxes, depreciation, amortization,
and deferred rent. EBITDA is a financial measure commonly used in the
Company's industry and should not be construed as an alternative to
operating income (as determined in accordance with GAAP), an indicator
of operating performance, an alternative to cash flows from operating
activities (as determined in accordance with GAAP) or a measure of
liquidity.
(4) Net long-term debt represents long-term debt minus cash and cash
equivalents.
(5) Earnings consist of net loss, plus fixed charges. Fixed charges consist
of interest expense, amortization of debt issuance costs and one-third of
rent expense on operating leases treated as representative of the interest
factor attributable to rent expense.
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company. This discussion should be read in conjunction with
the financial statements, including the notes thereto, appearing elsewhere in
this Prospectus.
OVERVIEW
The Company's revenues are generated primarily from box office receipts and
concession sales which constituted approximately 62% and 35% of 1996 revenues,
respectively. Additional revenues are generated by electronic video games
located adjacent to the lobbies of certain of the Company's theaters and by
on-screen advertisements shown prior to each feature film. The Company's
revenues are principally affected by changes in attendance and average admission
and concession revenues per patron. Attendance is primarily affected by the
commercial appeal of the films released by distributors and, to a lesser extent,
by the comfort and quality of the theater and competition and population growth
in the geographic markets the Company serves.
The Company's principal costs of operations are film rentals, concessions
costs and theater operating expenses, such as theater lease rentals, payroll,
utilities, advertising costs and insurance.
The Company has experienced rapid revenue growth through theater
acquisitions and the development of new theaters. During fiscal year 1996, the
Company acquired 62 theaters with 270 screens, constructed one theater with 10
screens and added two screens to an existing theater. The results of operations
of the acquired and newly-built theaters are included in Holdings' Consolidated
Financial Statements from their respective dates of acquisition or opening
dates. The Company capitalizes costs associated with the opening of new theaters
and expenses such costs over a one year period.
The period from July 11, 1995 through December 31, 1995 and the fiscal year
ended December 31, 1996 are not directly comparable due to the shortened period
the Company was in operation during 1995, the effects of theater acquisitions
and theater developments and the impact of the debt service associated with the
debt incurred in connection with theater acquisitions and development.
The Company currently operates 20 discount theaters (theaters which exhibit
second run movies and charge lower admission prices) with an aggregate of 97
screens as compared to 5 theaters and 27 screens at the end of 1995. Discount
theaters represented a smaller percentage of the Company's total theaters in
1996 as compared to 1995. This reduction affected the comparability of the
Company's results of operation for such periods. Management believes that the
percentage of discount theaters in the Company's theater circuit will decline as
new multiplex theaters are opened.
Admission and concession revenues are subject to seasonal fluctuations
which affect all motion picture exhibitors. These fluctuations are the result of
the distribution practice of the major motion picture studios, which have
historically concentrated the release of the most marketable films during the
summer and year-end holiday seasons when more people have tended to go to the
movies. As a result, the Company's second and fourth fiscal quarters have been
historically stronger compared to its first and third fiscal quarters. By way of
example, for those theaters operated by the Company during the entire 12 month
period ended December 31, 1996, revenues for such theaters during the second
and fourth quarter of 1996 were $3.0 million and $3.0 million, respectively, as
compared to $2.7 million and $3.6 million for the first and third quarter of
the same year.
23
<PAGE> 29
RESULTS OF OPERATIONS
The following table sets forth a summary of operating revenues and expenses
for the year ended December 31, 1996, the period from July 11, 1995 through
December 31, 1995 and for the nine months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------- -------------------------------
1995(1) 1996 1996 1997
------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C>
REVENUES:
Admissions ....................... $ 3,912,596 $ 15,334,877 $ 6,889,177 $ 35,579,664
Concessions ...................... 2,304,860 8,709,985 4,369,969 18,894,933
Other operating revenues, net .... 116,205 834,378 145,384 377,452
------------ ------------ ------------ ------------
Total revenues ........... 6,333,661 24,879,240 11,404,530 54,852,049
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Film rental and advertising
costs ......................... 2,336,535 8,387,938 3,951,852 19,303,538
Cost of concessions and other .... 339,476 1,411,869 684,088 3,020,715
Theater operating expenses ....... 2,620,045 10,998,455 5,315,744 22,241,814
General and administrative
expenses ...................... 742,605 1,601,185 1,158,166 3,992,365
Depreciation and amortization .... 739,028 3,151,582 1,237,792 7,929,967
------------ ------------ ------------ ------------
Total operating
expenses ............... 6,777,689 25,551,029 12,347,642 56,488,399
------------ ------------ ------------ ------------
Operating Loss ..................... (444,028) (671,789) (943,112) (1,636,350)
Interest Expense, Net .............. 463,464 2,120,722 713,371 4,481,661
------------ ------------ ------------ ------------
Net income (loss) .................. $ (907,492) $ (2,792,511) $ (1,656,483) $ (6,118,011)
============ ============ ============ ============
EBITDA(2) .......................... $ 443,940 $ 2,953,843 $ 506,237 $ 6,712,809
============ ============ ============ ============
</TABLE>
- ---------------
(1) For the period from inception (July 11, 1995) through December 31, 1995.
(2) Represents income before interest, taxes, depreciation, amortization, and
deferred rent. EBITDA is a financial measure commonly used in the Company's
industry and should not be construed as an alternative to operating income
(as determined in accordance with GAAP), an indicator of operating
performance, an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or a measure of liquidity.
Additionally, EBITDA may not be calculated the same by all companies and
should not be viewed as an accurate comparative measure.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
At the end of the nine months ended September 30, 1997 and 1996, the
Company operated 84 and 19 theaters, respectively, with an aggregate of 457 and
110 screens.
TOTAL REVENUES. Total revenues were $54.9 million for the nine months ended
September 30, 1997 as compared to $11.4 million for the nine months ended
September 30, 1996. Total revenues were $22.6 million in the third quarter of
1997 as compared with $4.9 million in the third quarter of 1996. This increase
in revenues during the nine-month period and the third quarter was principally
due to the Company's net acquisition of 61 theaters (with an aggregate of 303
screens) during the fourth quarter of 1996 and the first nine months of 1997,
and the construction of four all stadium-style seating theaters (with an
aggregate of 44 screens) one of which was opened in November 1996 and three of
which were opened at the end of May 1997. Of the $43.5 million increase in
revenues during the first nine months of 1997, $36.7 million was attributable to
theaters acquired by the Company after the third quarter of 1996, and $6.8
million was attributable to new theaters constructed by the Company and theaters
previously operated by the Company.
24
<PAGE> 30
The average price of a ticket for the Company's first run and discount
theaters was $4.30 and $1.23, respectively, during the first nine months of 1997
and $4.04 and $1.23, respectively, during the first nine months of 1996. This
increase was principally due to the Company raising ticket prices and acquiring
theaters with higher average ticket prices than those previously owned. Average
concession sales per customer in the Company's theaters increased approximately
7.7% during the first nine months of 1997, reflecting both an increase in
consumption and, to a lesser extent, an increase in prices.
DIRECT THEATER COSTS. Film rental and advertising costs were $19.3 million
for the nine months ended September 30, 1997 as compared to $4.0 million for the
nine months ended September 30, 1996. Film rental and advertising costs were
$7.9 million during the third quarter of 1997 as compared to $1.6 million in the
third quarter of 1996. Cost of concessions increased from $684,000 during the
first nine months of 1996 to $3.0 million during the first nine months of 1997.
Cost of concessions also increased from $320,000 during the third quarter of
1996 to $1.3 million during the third quarter of 1997. Theater operating
expenses increased from $5.3 million during the first nine months of 1996 to
$22.2 million during the first nine months of 1997 and from $2.2 million in the
third quarter of 1996 to $8.6 million in the third quarter of 1997. Each of
these increases was principally due to the Company's acquisition of theaters
during the latter part of 1996.
Direct theater costs (consisting of film rental and advertising costs, cost
of concessions and other theater operating expenses) as a percentage of total
revenues decreased from 87.3% in the first nine months of 1996 to 81.2% in the
first nine months of 1997 as a result of the decrease in discount theaters as a
percentage of the Company's total theaters and improved operations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the nine months ended September 30, 1997 increased to $4.0 million from $1.2
million in the nine months ended September 30, 1996. General and administrative
expenses for the third quarter of 1997 increased to $1.6 million from $512,000
in the third quarter of 1996. This increase was principally due to the Company's
acquisition of theaters during the latter part of 1996.
General and administrative expenses as a percentage of total revenues
decreased to 7.3% during the first nine months of 1997 from 10.2% during the
first nine months of 1996 as a result of such expenses being spread over a
greater number of theaters in the 1997 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $7.9 million in the first nine months of 1997 from $1.2 million in
the first nine months of 1996. Depreciation and amortization expense increased
to $3.0 million in the third quarter of 1997 from $413,000 in the third quarter
of 1996. The increase was principally due to Company's acquisition of theaters
during the latter part of 1996.
INTEREST EXPENSE, NET. Interest expense, net increased to $4.5 million for
the first nine months of 1997 from $713,000 for the first nine months of 1996
and to $2.2 million in the third quarter of 1997 from $276,000 in the third
quarter of 1996. The increase was due to increased borrowing by the Company to
finance acquisitions and the construction of theaters.
NET LOSS. The Company's net loss grew to $6.1 million for the first nine
months of 1997 from $1.7 for the first nine months of 1996. Net loss for the
third quarter of 1997 increased to $2.0 million from $373,000 in the third
quarter of 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD JULY 11, 1995
THROUGH DECEMBER 31, 1995
The period from July 11, 1995 to December 31, 1995 and the fiscal year
ended December 31, 1996 are not directly comparable due to the shortened period
the Company was in operation during 1995, the effects of theater
25
<PAGE> 31
acquisitions and theater developments and the impact of the debt service
associated with the debt incurred in connection with theater acquisitions and
development. At the end of the year ended December 31, 1996 and the period July
11, 1995 through December 31, 1995, the Company operated 72 and 11 theaters,
respectively, with an aggregate of 342 and 70 screens.
TOTAL REVENUES. Total revenues were $24.9 million in 1996 as compared to
$6.3 million in the shorter 1995 period. This increase was principally due to
the Company's acquisition of 62 theaters with an aggregate of 270 screens during
1996 and, to a lesser extent, to operating improvements in the Company's
theaters. Of the $18.5 million increase in revenues, $12.6 million was
attributable to theaters acquired by the Company during 1996 and $5.9 million
was attributable to theaters acquired by the Company in 1995.
The average price of a ticket at the Company's first run and discount
theaters was $4.13 and $1.26, respectively, during 1996 and $3.89 and $1.14,
respectively, during 1995. This increase was principally due to the Company
raising ticket prices and acquiring theaters with higher average ticket prices
than those previously owned. Average concession sales per customer increased
approximately 10% during the period, reflecting both an increase in consumption
and, to a lesser extent, an increase in concession prices. The contribution from
62 new theaters acquired by the Company in 1996 is not fully reflected in the
Company's results for 1996, as 54 of these theaters were not acquired by the
Company until after October 1996.
DIRECT THEATER COSTS. Film rental and advertising costs were $8.4 million
in 1996 as compared to $2.3 million in 1995. Cost of concessions in 1996 rose to
$1.4 million from $339,476 in 1995. Theater operating expenses also rose over
the period to $11.0 million in 1996 from $2.6 million in 1995. Each of these
increases was principally due to the Company's acquisition of theaters during
1996. Direct theater costs (consisting of film rental and advertising costs,
cost of concessions and other theater operating expenses) as a percentage of
total revenues remained constant at approximately 84% over the entire period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in
1996 increased to $1.6 million from $742,605 in the shorter 1995 period. The
increase was principally due to the Company's acquisition of theaters during
1996.
General and administrative expenses as a percentage of total revenues
decreased to approximately 6% in 1996 from approximately 12% in 1995 as a result
of such expenses being spread over a greater number of theaters during 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $3.2 million in 1996 from $739,028 in the shorter 1995 period. The
increase was principally due to the Company's acquisition of theaters during
1996.
INTEREST EXPENSE, NET. Interest expense, net increased to $2.1 million in
1996 from $463,464 in the shortened 1995 period. The increase was due to
increased borrowing by the Company to finance acquisitions and the construction
of theaters.
NET LOSS. The Company's net loss grew to $2.8 million in 1996 from $907,492
in the shorter 1995 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, primarily through box office
receipts and concession sales. The Company's film rentals for a given film are
ordinarily paid to film distributors 15 to 45 days following receipt of
admissions revenues. As a result of this timing difference, as well as the lack
of significant inventory and accounts receivable, the Company has generally
operated with a negative working capital position for its ongoing theater
operations.
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<PAGE> 32
Net cash provided by (used in) operating activities was $2.7 million, $(.4)
million, $1.0 million, and $.2 million for the nine months ended September 30,
1997 and 1996, and the periods ended December 31, 1996 and 1995, respectively. A
lower operating loss and an increase in accounts payable in the nine months
ended September 30, 1997 and the year ended December 31, 1996 accounted for the
primary increase in net cash provided by operating activities compared to the
nine months ended September 30, 1996 and the period ended December 31, 1995,
respectively. Net cash used for investing activities was $76.9 million, $10.9
million, $69.7 million, and $10.7 million for the nine months ended September
30, 1997 and 1996 and the periods ended December 31, 1996 and 1995,
respectively. Investing activities are theater acquisitions and development, and
remodeling and expansion of existing theaters. Net cash provided by financing
activities was $79.8 million, $11.2 million, $71.8 million, and $10.9 million
for the nine months ended September 30, 1997 and 1996 and the periods ended
December 31, 1996 and 1995, respectively.
The Company has historically funded its capital expansion needs through
capital contributions from its parent, the Company's bank lines of credit and
funds generated from its operations. On November 1, 1996, the Company entered
into the Existing Senior Credit Facility comprised of a $25.0 million revolving
credit agreement and a $50.0 million term note borrowing agreement. The Company
used the proceeds of the Old Notes Offering to repay all of the outstanding
indebtedness under its former bank facility (approximately $64.5 million at June
30, 1997).
Concurrently with the consummation of the Old Notes Offering, the Company
entered into the Senior Bank Facility to fund working capital requirements and
capital expenditures. The Senior Bank Facility provides for a $50.0 million
revolving credit facility, however, the total amount of available borrowings
under the Senior Credit Facility may be less based on leverage levels of the
Company. Borrowings under the Senior Bank Facility are conditioned upon the
Company achieving and maintaining certain financial ratios. At September 30,
1997, the Company was not in compliance with two of the thirteen financial
covenants in the Senior Bank Facility. On January 7, 1998, the Company entered
into an amendment of the Senior Bank Facility, amending, among other things,
certain financial covenants. Currently the Company is in compliance with all
financial covenants in the Senior Bank Facility. As of December 31, 1997, no
amounts were borrowed under the Senior Bank Facility. Based on the Company's
current financial condition, the Company believes it has the ability to borrow
up to $30 million under the Senior Bank Facility. See "Description of Senior
Bank Facility."
Since its inception in 1995, the Company has received capital contributions
from Holdings totaling $74.3 million. Since Holdings has no independent
operations, these capital contributions represented the proceeds of equity
issuances by Holdings. Holdings currently has three classes of preferred stock
outstanding, the Series B Convertible Preferred Stock (the "Holdings Series B
Preferred Stock"), the Series C Convertible Preferred Stock (the "Holdings
Series C Preferred Stock") and the Series D Convertible Preferred Stock (the
"Holdings Series D Preferred Stock"). See "Description of Capital Stock --
Holdings Equity Issuances". Each such series may be redeemed, under certain
circumstances, at the holder's option, no earlier than the fourth quarter of
2003. If all of the currently outstanding shares of Holdings Series B Preferred
Stock, Holdings Series C Preferred Stock and Holdings Series D Preferred Stock
were to be redeemed, it would result in a payment of approximately $55.9 million
by Holdings to the holders of such preferred stock. In the event of an initial
public offering by Holdings of Holdings Common Stock, each share of Holdings
Series B Preferred Stock, Holdings Series C Preferred Stock and Holdings Series
D Preferred Stock would be automatically converted into a fixed number of shares
of Holdings Common Stock. See "Principal Stockholders -- Redemption of Holdings
Series B Preferred Stock, Holdings Series C Preferred Stock and Holdings Series
D Preferred Stock." In addition, at any time on or after October 31, 2001, and
provided that an offering of Holdings Common Stock has not then occurred,
Richard M. Durwood and/or the Richard M. Durwood Revocable Trust may require the
Company to repurchase not less than all of the shares of Holdings Common Stock
held by each at the fair market value at the time of repurchase (which based on
recent valuations of Holdings Common Stock would have resulted in an aggregate
payment of approximately $3.2 million).
Since January 1, 1997 the Company has acquired 12 theaters with 82 screens,
and opened three newly built theaters with 34 screens. At December 1, 1997, the
Company had three theaters with 40 screens under construction. In addition, the
Company has completed construction of four screens, and has one screen under
construction at an existing theater and is scheduled to begin construction in
early 1998 of two additional theaters with 20 screens and
27
<PAGE> 33
seven additional screens at two existing theaters. See "Business -- New Theater
Development" and "-- Recent and Pending Acquisitions." The Company estimates
that capital expenditures in connection with such acquisitions and theater
development in 1997 will be approximately $91.2 million, of which approximately
$85.2 million had already been invested as of December 1, 1997. The Company
expects to fund the balance of these capital expenditures though cash flow from
operations, borrowings under the Senior Bank Facility, the proceeds of the Old
Notes Offering and capital contributions of the proceeds from the issuance of
Common Stock and Preferred Stock by Holdings. However, the Company's business
may not generate sufficient cash flow from operations and future borrowings may
not be available under the Senior Bank Facility in an amount sufficient to
enable the Company to make these anticipated capital expenditures. In addition,
the Company intends to continue its expansion over the next several years. Any
future theater development and future acquisitions may require financing in
addition to cash generated from operations and future borrowings under the
Senior Bank Facility. There can be no assurance that such additional financing
will be available to the Company on acceptable terms or at all.
The Company is highly leveraged. At December 1, 1997, the Company had
$110.0 million of indebtedness outstanding, none of which was senior
indebtedness, and the Company's pro forma ratio of indebtedness to total
capital was 46%. At December 31, 1996, no amounts were borrowed under the
Senior Bank Facility. Based on the Company's current financial condition, the
Company believes it has the ability to borrow up to $30 million under the
Senior Bank Facility. At December 31, 1996, and the nine months ended September
1997, the Company's deficiency of earnings to combined fixed charges and
preferred dividends was $3.2 million and $9.0 million, respectively. The degree
to which the Company is leveraged could have important consequences to holders
of Exchange Notes. Such leverage could limit the Company's ability to fund
future growth. See "Risk Factors -- Substantial Indebtedness."
Based upon the Company's current level of operations and anticipated
growth, management believes that cash flow from operations, together with
available borrowings under the Senior Bank Facility, will be adequate to meet
the Company's requirements for working capital, capital expenditures, scheduled
lease payments and scheduled payments of interest on its indebtedness, including
the Exchange Notes during 1998. However, the Company's business may not
generate sufficient cash flow from operations and future borrowings may not be
available under the Senior Bank Facility in an amount sufficient to enable the
Company to service its indebtedness, including the Exchange Notes, or make
anticipated capital expenditures. Furthermore, the Company's theater
development program and future acquisitions may require financing sources in
addition to cash generated from operations and future borrowings under the
Senior Bank Facility. There can be no assurances that such additional financing
will be available to the Company on acceptable terms or at all.
28
<PAGE> 34
BUSINESS
The Company is a leading operator of theaters in small and mid-sized
markets in the Southwestern and Midwestern regions of the United States. The
Company's strategy is to provide a superior entertainment experience to its
customers through the development and operation of theaters with stadium-style
seating, state-of-the-art digital sound systems and modern, attractive lobby and
concession areas. Management believes that this strategy has increased movie
attendance at its theaters and allowed the Company to increase the revenues it
receives from patrons both at the box office and at the concession stand. As of
December 1, 1997, the Company operated 79 theaters with a total of 449 screens,
located principally in Texas, Oklahoma, Kansas and Missouri. For the year ended
December 31, 1996, the Company had an operating loss and a net loss of
approximately $670,000 and $2.8 million, respectively, as well as deficiency of
earnings to combined fixed charges and preferred dividends of $3.2 million. For
the twelve months ended September 30, 1997, on a pro forma basis after giving
effect to certain acquisitions, the Company generated revenue and EBITDA of
approximately $89.4 million and $12.3 million, respectively. During the same
period, the Company generated net loss and current deficiency of earnings to
combined fixed charges and preferred dividends of $11.8 million and $15.6
million, respectively. EBITDA represents income before interest, taxes,
depreciation, amortization, and deferred rent. It is a financial measure
commonly used in the Company's industry and should not be construed as an
alternative to operating income (as determined in accordance with GAAP), an
indicator of operating performance, an alternative to cash flows from operating
activities (as determined in accordance with GAAP) or a measure of liquidity.
Additionally, EBITDA may not be calculated the same by all companies and should
not be viewed as an accurate comparative measure.
The Company actively targets small and mid-sized markets which it believes
are under-served and where the Company believes it can become the leading movie
exhibitor. Management believes that its new stadium-style multiplex theaters can
become the primary entertainment choice in such markets. In acquiring and
building theaters, the Company seeks to identify markets where it can develop
clusters of theaters, enabling it to realize operating efficiencies. By
strategically selecting its target markets and focusing on providing a superior
entertainment experience, the Company has been able to achieve a leading
position in many of the markets in which it operates. Management believes that
in 76% of the film licensing zones in which the Company operates, its theaters
are the sole exhibitor or hold the leading market share.
Founded in June 1995, the Company has grown rapidly by: (i) acquiring
theaters and improving operations at these theaters; (ii) building new,
state-of-the-art stadium-style multiplexes in targeted markets and (iii) adding
stadium-style auditoriums and state-of-the-art sight and sound systems to its
existing theaters.
The Company's management has a proven record of integrating acquired
theaters and improving operations and profit margins. For example, for the two
major groups of theaters acquired by the Company in the fourth quarter of 1996,
per capita box office receipts and per capita concessions have increased by
approximately 6% and 10%, respectively, from the third quarter of 1996 to the
third quarter of 1997. In the Company's original first run theaters (purchased
in July 1995), the Company has increased per capita box office receipts by 15%
from September 1995 to September 1997 and per capita concessions revenues by 33%
over the same period. The Company believes that its policy of offering incentive
programs to its employees aligns their interests with those of management in
increasing revenues and improving operations.
The Company is a wholly-owned subsidiary of Holdings and enjoys strong
equity sponsorship. The principal stockholders of Holdings include Beacon,
Stratford and the Hoak Entities. See "Principal Stockholders". The Company is a
Delaware corporation with its principal executive offices located at 2911 Turtle
Creek Boulevard, Suite 1150, Dallas, Texas 75219 and its telephone number at
that location is (214) 528-9500.
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<PAGE> 35
BUSINESS STRATEGY
The Company's strategy is to increase its revenues and cash flow by (i)
providing a superior entertainment experience designed to attract larger
audiences to its theaters, (ii) becoming the premier movie exhibitor in selected
small to mid-sized markets through the acquisition of existing theaters and the
development of new stadium-style seating multiplex theaters and (iii) increasing
per capita box office and concession revenues. Key elements of the Company's
operating strategy include:
PROVIDING A SUPERIOR SIGHT AND SOUND PRESENTATION. The Company's objective
is to create an entertainment experience in its theaters that is superior to its
local competitors. The Company believes it can achieve this goal through the
development and operation of state-of-the-art multiplex theaters featuring
stadium-style seating, which offers moviegoers clear, unobstructed sight lines
to the movie screen as a result of the steeper incline of the seating. The
Company has developed a new design for its multiplex stadium-style auditoriums
that utilizes "black-box" auditorium design elements (all black auditorium
interiors with maximum size screens to enhance the viewing experience). These
new stadium-style theaters offer digital sound in all of the currently available
formats (Digital Theater Sound Systems, Dolby(R) Digital Sound and SONY Dynamic
Digital Sound(TM)) THX(R) sound systems, comfortable high-back chairs with wider
seating and armrests with cupholders, modern, attractive lobby and concession
areas and attentive housekeeping both inside and outside the theaters.
TARGETING SMALL AND MID-SIZED MARKETS AND DEVELOPING CLUSTERS OF THEATERS.
The Company focuses on small and mid-sized markets which it believes are
under-served. The Company aims to develop clusters of theaters in each of its
markets by acquiring theaters and developing new stadium-style multiplex
theaters in order to become the leading movie exhibitor in such markets. The
Company believes that its ability to develop stadium-style theaters in such
markets enables it to rapidly capture a significant share of such markets.
Before determining whether to develop a new theater in a particular location,
the Company carefully evaluates such market's potential.
CAPITALIZING ON THE COMPETITIVE ADVANTAGES OF STADIUM-STYLE MULTIPLEX
THEATERS. The Company intends to focus on the development of state-of-the-art
multiplex theaters featuring "black-box" auditoriums with stadium-style seating
configurations. By year-end 1997, the Company expects that its ratio of
stadium-style auditoriums to its total screen count will be among the highest in
the industry. The Company believes that the current trend in the United States
movie exhibition industry toward the development of multiplexes featuring
stadium-style auditoriums has put competitive pressure on many existing theaters
by setting new standards for moviegoers. The Company believes that customers
have clearly indicated their preference for the more attractive surroundings,
wider variety of films, better customer services and more comfortable seating
typical of stadium-style multiplexes. These theaters also enhance the Company's
ability to increase attendance and concession sales while taking advantage of
economies of scale by enabling it to exhibit concurrently a wide variety of
films.
INCREASING CONCESSION SALES THROUGH IMPROVED PRODUCT OFFERINGS, FACILITY
DESIGN AND STAFF INCENTIVES. Concession sales are the Company's second largest
revenue source after box office revenues and consistently yield gross margins in
excess of 80%. The Company actively works to promote concession sales. In order
to increase sales and margins at its concession stands, the Company has
introduced new products, offered larger sized products, improved presentation,
created additional satellite concession stands in its theaters and added color
video monitors and video walls featuring movie trailers at many of its
concession areas. In addition, the Company bases a portion of theater managers'
compensation on the level of concessions sales at their theaters.
PROVIDING INCENTIVES TO MANAGEMENT THROUGH PERFORMANCE-BASED, GOAL-ORIENTED
COMPENSATION PACKAGES. The Company maintains an incentive program for its
district managers and theater managers which rewards management for incremental
improvements in theater profitability. The Company believes that its incentive
program is an important source of motivation for its employees and aligns the
employees' interests with those of the Company.
30
<PAGE> 36
GROWING THROUGH STRATEGIC ACQUISITIONS AND ADDITIONS. The Company intends
to continue its program of acquiring and expanding theaters, primarily through
the opportunistic acquisition from regional or national chains of groups of
theaters located in the Company's target markets. Where appropriate, the Company
will also add stadium-style seating auditoriums and state-of-the-art audio
systems to selected existing theaters or reconfigure existing auditoriums to the
stadium-style seating format. The Company believes that such selective
acquisitions, add-ons and reconfigurations will enhance and protect the
Company's position as the sole or leading exhibitor in many of its markets and
enable the Company to become a leading exhibitor in other markets.
NEW THEATER DEVELOPMENT
The Company's construction program focuses on building stadium-style
seating multiplexes with an average of 10 to 14 screens and adding stadium-style
seating auditoriums to selected existing theaters. The Company times its theater
construction efforts to allow for theater openings that can take advantage of
peak summer and year-end holiday film seasons. In July 1996, the Company added
two auditoriums with stadium-style seating to its existing theater in Burleson,
Texas. In November 1996, the Company opened its first new multiplex theater with
all stadium-style seating and an aggregate of 10 screens in Midland, Texas.
In May 1997, the Company completed the construction of three additional all
stadium-style seating multiplex theaters with an aggregate of 34 screens in
Beaumont and Tyler, Texas and Lawrence, Kansas. These new theaters opened during
the 1997 Memorial Day holiday weekend.
In November 1997, the Company completed construction of four stadium-style
auditoriums at the Company's existing theater in Heath, Ohio.
At December 1, 1997, the Company had three new all stadium-style theaters
under construction in Oklahoma and Missouri with an aggregate of 40 screens. At
December 1, 1997, the Company also had one stadium-style auditorium under
development at the Company's existing theater in Heath, Ohio. The new auditorium
and two of the three new theaters are scheduled to open for the 1997 year-end
holiday season. In addition, in early 1998, the Company is scheduled to open one
new theater and begin construction of two all stadium-style theaters with 20
screens and seven stadium-style auditoriums at two existing theaters.
The following tables set forth the Company's completed and pending
stadium-style auditorium developments since its inception in July 1995,
including the development of new stadium-seat multiplex theaters and the
addition of stadium-style auditoriums to existing theaters.
STADIUM-STYLE THEATER DEVELOPMENT
NEW THEATERS
<TABLE>
<CAPTION>
OPENING DATE LOCATION NUMBER OF THEATERS NUMBER OF SCREENS
- ------------ -------- ------------------ ------ -- -------
<S> <C> <C> <C>
November 1996 Midland, Texas 1 theater 10 screens
May 1997 Beaumont, Texas 1 theater 12 screens
May 1997 Tyler, Texas 1 theater 10 screens
May 1997 Lawrence, Kansas 1 theater 12 screens
December 1997* Norman, Oklahoma 1 theater 14 screens
December 1997* Columbia, Missouri 1 theater 14 screens
April 1998* Tulsa, Oklahoma 1 theater 12 screens
May 1998* Killeen, Texas 1 theater 10 screens
May 1998* San Angelo, Texas 1 theater 10 screens
--------- ----------
Total 9 theaters 104 screens
Average number of screens per theater 11.6 screens
</TABLE>
- ---------------
* Projected
31
<PAGE> 37
SCREEN ADDITIONS
<TABLE>
<CAPTION>
NUMBER OF SCREENS
ADDED TO
OPENING DATE LOCATION EXISTING THEATERS TOTAL RESULTING SCREENS
- ------------ -------- ----------------- -----------------------
<S> <C> <C> <C>
July 1996 Burleson, Texas 2 screens 10 screens
December 1997* Heath, Ohio 5 screens 11 screens
May 1998* Burleson, Texas 4 screens 14 screens
May 1998* Topeka, Kansas 3 screens 17 screens
----------
Total 14 screens
</TABLE>
- ----------
* Projected
RECENT AND PENDING ACQUISITIONS
In May 1997, the Company acquired two theaters with an aggregate of 12
screens in Beaumont and Port Arthur, Texas from the United Artists Corporation
("United Artists") for a purchase price of $3.4 million (the "Beaumont/Port
Arthur Acquisition"). The Company expects these newly acquired theaters to
complement the Company's existing theaters in Beaumont.
In June 1997, the Company acquired two theaters with an aggregate of 14
screens in Killeen, Texas from Escape Theatres, Inc. ("Escape") for a purchase
price of $8.5 million (the "Killeen Acquisition").
In August 1997, the Company acquired from General Cinema Corp. of Oklahoma,
Inc. ("General Cinema") seven theaters with an aggregate of 50 screens located
in Tulsa and Oklahoma City, Oklahoma for a purchase price of approximately $15.8
million (the "Oklahoma Acquisition").
In September 1997, the Company purchased a newly-built all stadium-style
seating multiplex theater with an aggregate of 16 screens in Waco, Texas for a
purchase price of $8.9 million (the "Waco Acquisition") plus an additional $2.7
million representing the cost of furniture and fixtures.
In October 1997, the Company exchanged six theaters with an aggregate of 31
screens it operated in Kansas and Missouri for five theaters with an aggregate
of 22 screens owned by Dickinson, Inc. ("Dickinson") in the same states, plus
cash in the amount of $1.1 million (the "Dickinson Exchange").
In October 1997, the Company acquired from Cineco Cinema Corporation one
theater with six screens located in Tomball, Texas for a purchase price of $1.8
million.
Upon completion of the opening of the new theaters and auditoriums that
were under construction or development as of December 1, 1997 as described
above, the Company will operate 84 theaters with a total of 517 screens.
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<PAGE> 38
Since its inception, most of the Company's growth has come through the
acquisition of existing theaters. The following table sets forth the Company's
completed acquisitions since its inception in July 1995:
COMPLETED ACQUISITIONS SINCE INCEPTION
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
DATE OF ACQUISITION ACQUISITION THEATERS ACQUIRED SCREENS ACQUIRED LOCATION
- -------------------------- ------------------------- ------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
July 1995 Trans Texas 11 Theaters 70 Screens Texas, Oklahoma
April 1996 Cinemore 6 Theaters 33 Screens Texas
August 1996 Beaumont Cinema Ventures 2 Theaters 5 Screens Texas
November 1996 Crown Theater 33 Theaters 138 Screens Kansas, Missouri, Ohio
November 1996 United Artists 19 Theaters 86 Screens Texas, Oklahoma, Idaho
November 1996 General Cinema 2 Theaters 8 Screens Texas
May 1997 United Artists 2 Theaters 12 Screens Texas
June 1997 Escape Theatres 2 Theaters 14 Screens Texas
August 1997 General Cinema 7 Theaters 50 Screens Oklahoma
September 1997 Waco City Lights 1 Theater 16 Screens Texas
October 1997 Dickinson 5 Theaters++ 22 Screens Kansas, Missouri
October 1997 Tomball 1 Theater 6 Screens Texas
</TABLE>
- -----------
++ Theaters were acquired in exchange for six theaters operated by the
Company.
The Company has a proven record of integrating acquired theaters and
improving operations and profit margins. The following table sets forth the
percentage growth of per capita box office receipts and concessions between the
first nine months of 1996 and the first nine months of 1997 for the two major
theater groups acquired by the Company in the fourth quarter of 1996:
OPERATING IMPROVEMENTS AT RECENTLY ACQUIRED THEATERS
<TABLE>
<CAPTION>
DATE OF PERCENTAGE GROWTH PERCENTAGE GROWTH
ACQUISITION ACQUISITION OF PER CAPITA BOX OFFICE RECEIPTS OF PER CAPITA CONCESSIONS
- ---------------------- ------------------------- ---------------------------------- -----------------------------
<S> <C> <C> <C>
Crown Theater November 1996 6.5% 11.9%
United Artists November 1996 6.1% 7.0%
</TABLE>
THEATER OPERATIONS
As of December 1, 1997, the Company operated 79 theaters with an aggregate
of 449 screens in six states. The following table profiles the Company's
theaters at December 1, 1997:
PROFILE OF COMPANY THEATERS
FIRST RUN THEATERS
<TABLE>
<CAPTION>
AVERAGE SCREENS
STATE TOTAL SCREENS TOTAL THEATERS PER THEATER
- ----- -------------- --------------- --------------
<S> <C> <C> <C>
Texas................................................ 132 18 7.3
Oklahoma............................................. 99 16 6.2
Kansas............................................... 68 13 5.2
Missouri............................................. 39 10 3.9
Ohio................................................. 10 1 10.0
Idaho................................................ 4 1 4.0
--- -- ---
Total First Run................................. 352 59 6.0
</TABLE>
33
<PAGE> 39
DISCOUNT THEATERS
<TABLE>
<CAPTION>
AVERAGE SCREENS
STATE TOTAL SCREENS TOTAL THEATERS PER THEATER
- ----- -------------- -------------- ---------------
<S> <C> <C> <C>
Texas............................................... 71 14 5.1
Oklahoma............................................ 6 1 6.0
Kansas.............................................. 9 2 4.5
Missouri............................................ 5 1 5.0
Ohio................................................ 4 1 4.0
Idaho............................................... 2 1 2.0
--- --- ----
Total Discount................................. 97 20 4.9
--- --- ----
Total Circuit............................. 449 79 5.7
=== === ====
</TABLE>
The Company's first run theaters contributed approximately 76%, 94%, and
92% of the Company's revenues, EBITDA and net loss, respectively, in 1996 and
approximately 87%, 95%, and 94% of the Company's revenues, EBITDA and net loss,
respectively, in the twelve months ended September 30, 1997. EBITDA represents
income before interest, taxes, depreciation, amortization, and deferred rent. It
is a financial measure commonly used in the Company's industry and should not be
construed as an alternative to operating income (as determined in accordance
with GAAP), an indicator of operating performance, an alternative to cash flows
from operating activities (as determined in accordance with GAAP) or a measure
of liquidity. Additionally, EBITDA may not be calculated the same by all
companies and should not be viewed as an accurate comparative measure.
The Company is committed to providing customers in both its first run and
discount theaters with a premium moviegoing experience by emphasizing clean,
conveniently located and modern facilities with state-of-the-art equipment at
all of its theaters. The Company has undertaken improvements in screens and
projection systems, as well as lobby facilities and design. The Company has
added comfortable seats with armrests and cup holders in all of its first run
theaters. The Company also invests in high quality projection and stereo sound
equipment to enhance the moviegoing experience. Technical sound enhancements
adopted by the Company include Digital Theater Sound Systems, Dolby(R) Digital
Sound and SONY Dynamic Digital Sound(TM). Management estimates that a majority
of the films produced in 1997 will have digital soundtracks available as an
alternative to the standard stereo soundtrack. At June 30, 1997, more than 80%
of the Company's first run auditoriums are equipped with stereo sound, and
nearly one-quarter of all auditoriums have digital sound capabilities. The
Company plans to add digital sound capabilities to additional theaters during
1997. In addition, the Company has an attentive housekeeping program to
maintain the cleanliness of both the inside and the outside of its theaters.
The Company operates 20 discount theaters with an aggregate of 97 screens
which exhibit second run movies and charge lower admission prices (typically
$1.00-$1.50). The terminology "second run" is an industry term for the showing
of movies after the film has been shown for varying periods of time at other
theaters. These movies are the same high quality films shown at the Company's
first run theaters but due to the film's second run status the Company pays
lower film rental costs. The Company's discount theaters contributed
approximately 24%, 6% and 8% of the Company's revenues, EBITDA and net loss,
respectively, in 1996 and approximately 13%, 5% and 6% of the Company's
revenues, EBITDA and net loss, respectively, in the twelve months ended
September 30, 1997. The Company has undertaken a program to upgrade the sound,
concessions and environment of its discount theaters. Management believes the
percentage of discount theaters in the Company's theater circuit will decline as
new multiplex theaters are opened.
The Company's corporate office, which employed approximately 56 individuals
as of September 30, 1997, is responsible for theater development and site
selection, lease negotiation, theater design and construction, film licensing
and settlements, concession vendor negotiations and financial and accounting
activities. The Company's theater operations are divided into six geographic
divisions, each of which is headed by a district manager. The Company's district
managers are responsible for implementing Company operating policies and
supervising the managers of the individual theaters. Theater managers are
responsible for the day-to-day operations of the Company's theaters including
optimizing staffing, developing theater promotions, ordering concession
inventory, maintaining a clean and functioning facility and training theater
staff. The Company maintains an incentive compensation program for its district
managers, theater managers and assistant managers, which rewards managers for
incremental improvements in theater profitability.
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<PAGE> 40
In addition, employees who directly sell concessions are also rewarded for
increased concession sales through theater-based bonuses and contests sponsored
by individual theater managers.
THEATER DEVELOPMENT
The Company's strategy emphasizes the development of new multiplex theaters
with stadium-style auditoriums showing first-run feature films. The Company has
designed prototype multiplex theaters, which can be adapted to suit the size
requirements of a particular location and the availability of parking. The
Company believes the fully designed prototypes will result in significant
construction and operating cost savings. The Company's multiplex theaters are
designed to create an inviting and patron-friendly experience for the customer.
The multiplex theaters typically contain auditoriums having from 100 to 300
seats each and feature stadium-style seating for enhanced viewing, comfortable
highback seats with cupholder armrests, "black-box" auditorium interiors (all
black auditorium interiors to enhance viewing), maximum size screens and digital
stereo surround-sound. The exterior and common areas of these theaters are
designed with neon and tile, and common areas include multiple concession
stands, video game areas and private party rooms adjacent to the theater lobby.
The Company believes that stadium-style auditoriums with black-box interior and
digital sound will provide an entertainment experience which is superior to that
available at a conventional theater. More importantly, the Company believes that
construction and operation of high quality theaters provides significant
competitive advantages as theater patrons and film distributors have
demonstrated a preference for multiplex theaters and the premium moviegoing
experience they can provide.
Multiplex theaters generally increase per screen revenues and operating
margins and enhance the Company's operating efficiency. Multiplex theaters
enable the Company to offer a wide selection of films attractive to a diverse
group of patrons residing within the drawing area of a particular theater
complex. Because the percentage amount of film rental fees decreases over the
course of a run, varied auditorium seating capacities within the same theater
enable the Company to reduce average film rental costs (and thereby increase
operating margins) by exhibiting films for a longer period of time through the
shifting of films to smaller auditoriums to meet changing attendance levels. In
addition, operating efficiencies are realized through the economies of having
common box office, concession, projection, lobby and restroom facilities, which
enable the Company to spread certain costs, such as payroll, advertising and
rent, across a higher revenue base. Staggered movie starting times also minimize
staffing requirements, reduce lobby congestion and contribute to more desirable
parking and traffic flow patterns.
The Company continually evaluates existing and new markets for potential
theater locations. The Company generally seeks to develop theaters in film
licensing zones that are underserved as a result of changing demographic trends
or that are served by aging theater facilities. Some of the factors the Company
considers in determining whether to develop a theater in a particular location
are the market's population and average household income, proximity to retail
corridors, convenient roadway access and proximity to competing theaters.
CONCESSIONS
Concession sales are the Company's second largest revenue source after box
office revenues, representing approximately 35% of total revenues for 1996. The
Company has devoted considerable management effort to increasing concession
sales and margins. The Company's primary concession products are Coca Cola(R)
beverages, popcorn, hot dogs, nachos and candy.
The Company has also continued to introduce new concession products
designed to attract additional concession purchases. New offerings have recently
included bottled water, specialty coffees and frozen carbonated beverages such
as Icees(R). In addition, the Company continues to look for new selling
techniques to boost concessions sales. For instance, in an effort to increase
concession revenues per patron, the Company has increased the sizes and upgraded
the containers in which its concession products are sold. The Company now also
includes sales tax in the price of its concession products, rounding up the
price to the nearest twenty-five cents, in order to serve customers more
rapidly.
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<PAGE> 41
The Company has found that the placement, design and appearance of
concession stands are also key factors in improving sales. Accordingly, the
Company's new theaters are designed to include larger concession stands, with
each stand having multiple service stations to make it easier to serve larger
numbers of customers rapidly. The optimal placement of large concession stands
within theaters also heightens their visibility, aids in reducing the length of
concession lines and improves traffic flow around the concession stands. The
Company has redesigned the concession areas in most of its older theaters to
incorporate many of these features. In addition, the Company has installed color
video monitors in the concession areas of most of its first run theaters so that
customers may watch trailers of coming attractions while waiting in line. The
Company bases a portion of theater managers' compensation on the level of
concession sales at their theaters. In addition, employees who directly sell
concessions are also rewarded for increased concession sales through
theater-based bonuses and contests sponsored by individual theater managers.
These improvements in the Company's concession operations have led to an
increase of 7.6% in the per capita concession revenues in the Company's theaters
during the nine month period ended September 30, 1997 as compared to the same
period in 1996. For the two major groups of theaters acquired by the Company in
the fourth quarter of 1996, per capita concessions have increased approximately
10% for the same period.
In order to control the cost of concession items, the Company negotiates
prices for its concession supplies directly with concession vendors on a bulk
rate basis and distributes its concession supplies through two concession
contract distributors. The Company's largest concession vendor is The Coca Cola
Company. In April 1997, the Company signed a five-year supply contract with The
Coca Cola Company to supply soft drinks and other products to all of its
theaters.
FILM LICENSING
The Company licenses films from distributors owned by major film production
companies and from independent film distributors that typically distribute films
for smaller production companies. Film licensing is done on a film-by-film and
theater-by-theater basis. Prior to negotiating for a film license, the Company's
film buyers evaluate the prospects for upcoming films. The criteria considered
for each film include cast, director, plot, performance of similar films,
estimated film rental expense, expected Motion Picture Association of America
rating and the outlook for other upcoming films. Successful licensing depends
greatly upon the exhibitor's knowledge of trends and historical film preferences
of the residents in markets served by each theater, as well as on the
availability of commercially successful motion pictures.
For first run films, film distributors typically establish geographic zones
and offer each available film to theaters within that zone. The size of a film
zone is generally determined by the population density, demographics and box
office potential of a particular market or region, and can range from a radius
of three to five miles in major metropolitan and suburban areas to up to 15
miles in small towns. Each film, regardless of the distributor, is generally
licensed to only one theater in each zone. New film releases are licensed at the
discretion of the film distributors on an allocation or previewed bid basis. In
film zones where the Company has little or no competition, the Company selects
films from among those offered, permitting the Company to exhibit many of the
most commercially successful films in these zones. In film zones where the
Company faces competition, the Company usually licenses films on an allocation
basis. Under an allocation process, a distributor will decide on a
picture-by-picture, theater-by-theater basis which exhibitor will be offered a
movie and then that exhibitor will negotiate directly with the distributor for
the film. In recent years, distributors have generally used this allocation
process rather than a bidding process to license their films. At September 30,
1997, approximately 63% of the Company's theaters were located in film licensing
zones in which the Company was the sole exhibitor, and approximately 13% of its
theaters were located in film licensing zones in which management believes that
the Company is the leading exhibitor. For second run films, film distributors
establish availability on a market-by-market basis after the completion of
exhibition at first run theaters, and permit each theater within a market to
exhibit such films without regard to film zones.
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<PAGE> 42
The Company licenses films through its booking office located at the
Company's corporate headquarters in Dallas, Texas. All of the major motion
picture studios and distributors also maintain offices in Dallas. The Company's
film bookers have significant experience in the theater industry and have
developed long-standing relationships with the film distributors. Each film
booker is responsible for a geographic region and maintains relationships with
representatives of each of the major motion picture studios and distributors
having responsibility for their respective geographic regions. The Company
licenses films from all of the major distributors and is not dependent on any
one studio for motion picture product.
A film license typically specifies rental fees to be paid to the
distributor based on the higher of either a gross receipts formula or a theater
admissions revenue sharing formula. Under a gross receipts formula, the
distributor receives a specified percentage of box office receipts, with the
percentage generally declining over the term of the run. First run film rental
percentages usually begin at 70% of box office receipts and gradually decline to
as low as 30% over a period of four to seven weeks. Under the theater admissions
revenue sharing formula (commonly known as the "90/10" clause), the distributor
receives a specified percentage (i.e., 90%) of the excess of box office receipts
over a negotiated reimbursement for theater expenses. Second run film rental
percentages typically begin at 35% of box office receipts and decline to 30%
after the first week. Most distributors follow an industry practice of adjusting
or renegotiating the terms of a film license after the exhibition of the film
based upon the film's success.
The Company's business is dependent upon the availability of commercially
successful movies and upon its relationship with motion picture distributors.
During 1997, there were seven major distributors whose films accounted for a
substantial portion of admission revenues and top grossing films. These are Sony
Releases, Buena Vista Distribution (Disney), Universal Film Exchanges, Warner
Bros. Distribution, Twentieth Century Fox, Paramount Pictures and New Line
Cinema. There are numerous other smaller distributors and no single distributor
dominates the market. From year to year, the Company's revenues attributable to
individual distributors may vary significantly depending on the commercial
success of such distributor's films in any given year. For the nine months ended
September 30, 1997, the percentage of the Company's admission revenues
attributable to each of its significant distributors were 25%, 19%, 15%, 12%,
12%, 9% and 6%, respectively. The Company believes that its relationships with
its film distributors are good.
MARKETING
In order to attract customers, the Company relies principally upon
newspaper display advertisements (substantially paid for by film distributors)
and newspaper directory film schedules (generally paid for the by the exhibitor)
to inform patrons of film titles and show times. Newspaper directory film
display advertisements are typically displayed in a single group for all of the
Company's theaters located in the newspaper's circulation area. Radio and
television advertising spots (generally paid for by film distributors) are used
to promote certain movies and special events. The Company also exhibits previews
in its theaters of coming attractions and films presently playing on the other
screens which it operates in the same theater or market. Upon the opening of a
new theater, the Company undertakes additional one-time marketing efforts, such
as special promotions, advertising and contests.
MANAGEMENT INFORMATION SYSTEMS
The Company has made a significant commitment to its management information
systems in order to enhance its ability to control costs and efficiently manage
the Company's theaters. The Company's management information system provides
corporate management by 8:00 a.m. each day with detailed admission and
concession revenue information as well as attendance figures from the previous
day. This information allows management to make quick adjustments to movie
schedules, including prolonging runs or adding screens for movies with higher
gross revenues and substituting films when gross revenues cease to meet goals.
Real-time seating and box office information is available to box office
personnel, making it possible for theater management to avoid overselling a
particular film and providing faster and more accurate response to customer
inquiries regarding showings and available seating. The information system also
tracks concession sales and total deposits, leading to better inventory
management and control.
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<PAGE> 43
INDUSTRY OVERVIEW
The North American motion picture exhibition industry is comprised of
approximately 475 exhibitors, approximately 250 of which operate four or more
total screens. At December 31, 1996, the ten largest exhibitors operated
approximately 50% of the total screens in operation, with no one exhibitor
operating more than 10% of the total screens. From 1986 through 1996, the net
number of screens in operation in the United States increased from approximately
20,000 to approximately 28,000.
One of the most important industry trends in recent years is the
development of multiplex theaters with stadium-style seating and digital sound.
These theaters set new standards for moviegoers, who have demonstrated a
preference for the more modern facilities, wider variety of films, better
customer service and more comfortable seating typical of these newer
multiplexes.
Theatrical exhibition is the primary distribution channel for new motion
picture releases. The Company believes that the successful theatrical release of
a movie abroad and in "downstream" distribution channels, such as home video and
pay-per-view, network, syndicated and satellite television, is largely dependent
on its successful theatrical release in the United States. The Company further
believes that the emergence of new motion picture distribution channels has not
adversely affected attendance at theaters and that these distribution channels
do not provide an experience comparable to the out-of-home experience of viewing
a movie in a theater. The Company believes that the public will continue to
recognize the advantages of viewing a movie on a large screen with superior
audio and visual quality, while enjoying a variety of concessions and sharing
the experience with a large audience. In addition, when compared with other
forms of entertainment, such as many sporting events and cultural events, movies
remain one of the best entertainment values for families.
According to data released by the Motion Picture Association of America,
the U.S. box office sales of approximately $5.9 billion in 1996 was a record for
the industry. Overall attendance has remained relatively stable during the most
recent seven year period. The Company believes that the primary reason for the
variances in the year-to-year attendance is the overall audience appeal of the
films released and to a lesser extent general economic conditions. The following
table represents the results of a survey by the Motion Picture Association of
America outlining the historical trends in U.S. theater attendance, average
ticket prices and box office sales for the last seven years.
<TABLE>
<CAPTION>
U.S. BOX
AVERAGE OFFICE
ATTENDANCE TICKET SALES
YEAR (MILLIONS) PRICE (BILLIONS)
- ---------------------------------------------------------- ---------- ------- ----------
<S> <C> <C> <C>
1990...................................................... 1,189 $4.23 $5.02
1991...................................................... 1,141 4.21 4.80
1992...................................................... 1,173 4.15 4.87
1993...................................................... 1,244 4.14 5.15
1994...................................................... 1,292 4.18 5.40
1995...................................................... 1,263 4.35 5.49
1996...................................................... 1,339 4.42 5.91
</TABLE>
The Company believes that as a result of increased revenues from the
successful release of films in both movie theaters and other distribution
channels, film production companies have increased the number of films being
produced in recent years. Film producers have increased their revenues from
these distribution channels by more than 250% over the past ten years to $20.0
billion in 1996. The increased revenue potential from film distribution in
recent years can be attributed to increased demand resulting from the domestic
and international growth of the movie theater industry and the home video
industry, and the significantly increased channel capacity created by enhanced
cable and satellite-based transmission systems. Moreover, the Company believes
independent producers and distributors, such as Gramercy Pictures, New Line
Cinemas, Castle Rock Entertainment and Dreamworks SKG, the highly-publicized
partnership among Jeffrey Katzenberg, Steven Spielberg and David Geffen, should
help increase motion picture production. The Company believes that an increasing
supply of quality feature films and "event" films exhibited with advanced
38
<PAGE> 44
projection and stereo sound equipment, such as Digital Theater Sound Systems,
Dolby(R) Digital Sound and SONY Dynamic Digital Sound(TM) and THX(R) sound
systems will enhance the moviegoing experience and will increase the theater
attendance of exhibitors, such as the Company, with modern multiplex theaters
designed to exhibit such motion pictures. In addition, the Company believes that
the trend towards such films complements the Company's focus on the development
of multiplex theaters with stadium-style seating, "black box" auditoriums and
state-of-the-art projection and sound.
COMPETITION
The motion picture exhibition industry is highly competitive, particularly
in licensing films, attracting patrons and finding new theater sites. There are
approximately 475 participants in the North American motion picture exhibition
industry. Industry participants vary substantially in size, from small
independent operators of a single screen theater to large national chains of
multi-screen theaters affiliated with entertainment conglomerates. The Company
competes against local, regional and national exhibitors, most of which have
been in existence significantly longer than the Company and many of which have
substantially greater financial resources than the Company.
In film zones where the Company has little or no competition, the Company
selects films it thinks will be most commercially successful from those offered.
In film zones where the Company faces competition, the Company usually licenses
films on an allocation basis. The Company believes that the principal
competitive factors in licensing films include licensing terms, the seating
capacity, location, quality and reputation of an exhibitor's theaters, the
quality of projection and sound equipment at the theaters and the exhibitor's
ability and willingness to promote the films. See "-- Film Licensing."
Competition for patrons is dependent upon factors such as the availability of
popular films, the location of theaters, the comfort and quality of theaters and
ticket prices.
Some of the Company's competitors have also sought to increase the number
of theaters and screens in operation. Such increases may cause certain local
markets or portions thereof to have too many screens for the population, thereby
negatively affecting the earnings of all the theaters in the market. The Company
does not believe that to date overbuilding has affected the Company's business
to any material extent. At the same time, there has been a reduction in the
number of theater locations and a consolidation among exhibitors. At December
31, 1996, the ten largest motion picture exhibition companies operated
approximately 50% of the total screens in operation, with no one exhibitor
operating more than 10% of the total screens.
The motion picture exhibition industry faces competition from a number of
motion picture exhibition delivery systems such as network, syndicated, cable
and satellite television, pay-per-view and home video systems. Despite the
proliferation of these delivery systems, theater admission revenues have
increased during each of the last four years. However, the full extent to which
these alternative motion picture delivery systems will compete with traditional
theatrical release may not be known for several years, and there can be no
assurance that these alternative motion picture exhibition delivery systems will
not in the future adversely affect attendance at the Company's theaters. In
addition, the entertainment industry is one which has experienced rapid
technological change. As a result, the Company may face competition in the
future from new technologies that are not yet developed. Movie theaters also
face competition from other forms of entertainment competing for the public's
leisure time and disposable income.
REGULATION
The distribution of motion pictures is in large part regulated by federal
and state antitrust laws and has been the subject of numerous antitrust cases.
The consent decrees resulting from those cases, to which the Company was not a
party, bind certain major motion picture distributors and require the films of
such distributors to be offered and licensed to exhibitors, including the
Company, on a film-by-film and theater-by-theater basis. Consequently, the
Company cannot assure itself of a supply of motion pictures by entering into
long-term arrangements with major distributors, but must compete for its
licenses on a film-by-film and theater-by-theater basis. See " -- Film
Licensing."
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<PAGE> 45
The Company is subject to various general regulations applicable to its
operations including the Americans with Disabilities Act (the "ADA"). The
Company has evaluated the Company's existing theaters and its specifications for
new theaters and made changes to such theaters and specifications to comply with
the regulations of the ADA. The Company develops its new theaters in substantial
compliance with the ADA. The Company believes that the continuing cost of
complying with the ADA will not be material.
EMPLOYEES
As of December 1, 1997, the Company had approximately 1,750 employees, of
which approximately 90% are part time employees who are paid on an hourly basis.
None of the Company's employees are members of unions or covered by collective
bargaining agreements. The Company believes its relations with its employees are
good.
PROPERTIES
Of the 79 theaters operated by the Company at December 1, 1997, 12 theaters
(84 screens) were owned and 67 theaters (365 screens) were leased. The Company's
leases typically have remaining terms from 4 to 20 years, with options to extend
the lease for up to ten additional years. The leases typically require
escalating minimum annual rent payments during the term of the lease which are
negotiated at the signing of the lease. During the next five years approximately
40 theater leases (representing 169 screens) will expire, representing
approximately 52% of all the Company's theaters (43% of all screens). Of those
coming due within the next five years, leases at 21 theaters (representing 97
screens) will be subject to renewal options. In addition, the Company has
purchased two lots for the development of new theaters and has entered into a
ground lease for another development site.
The Company leases office space in Dallas, Texas for its corporate
headquarters.
LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings arising from
the ordinary course of its business operations. The Company does not believe
that the resolution of these proceedings will have a material adverse effect on
the Company's financial condition and results of operations.
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<PAGE> 46
MANAGEMENT
The following table sets forth certain information regarding the Company's
and Holdings' directors and executive officers, including their respective ages.
NAME AGE POSITION
---- --- --------
Thomas W. Stephenson, Jr.......... 43 President, Chief Executive
Officer and Chairman of the Board
Robert E. Painter................. 52 Chief Operating Officer and Assistant
Secretary
James R. Featherstone............. 42 Chief Financial Officer,
Vice President,
Secretary and Treasurer
John G. Farmer.................... 50 Director
Thomas L. Harrison................ 46 Director
Thomas G. Mendell................. 51 Director
Harold W. Pote.................... 51 Director
Eric R. Wilkinson................. 41 Director
Gary Golden....................... 49 Head Film Buyer
THOMAS W. STEPHENSON, JR. has served as a director and the President and
Chief Executive Officer of the Company and Holdings since June 1995. From 1987
to 1995, Mr. Stephenson was President of LSI Capital, L.L.C., an acquisition and
advisory group, which he founded in 1987. During 1986, Mr. Stephenson was
President of Inwood Capital, a real estate merchant banking firm. From 1984 to
1987, Mr. Stephenson was a partner and Chief Financial Officer of Criswell
Development Company, a real estate investment company. From 1978 to 1984, Mr.
Stephenson was employed by the investment bank of Merrill Lynch.
ROBERT E. PAINTER has served as Chief Operating Officer of the Company and
Holdings since September 1996. Prior to that time, Mr. Painter was a consultant
for the IMAX Corporation from 1995 to 1996. From 1991 to 1995, Mr. Painter was
employed by General Cinema Theatres as its Senior Vice President of Operations.
From 1989 to 1991, Mr. Painter served as Senior Operations Officer for Staff
Builders Health Care, Inc. From 1967 to 1989, Mr. Painter was employed by
General Cinema Theatres, most recently as its Senior Vice President of
Operations.
JAMES R. FEATHERSTONE has served as Chief Financial Officer of the Company
and Holdings since July 1996. From April 1996 to June 1996, Mr. Featherstone
served as a consultant to the Company. From June 1982 to July 1995, Mr.
Featherstone served as Vice President of Citicorp and later as Managing Director
of Citicorp Securities.
JOHN G. FARMER has served as a director of the Company and Holdings since
May 1996. In addition, since October 1994, Mr. Farmer has served as Managing
Director of Stratford Capital Partners, L.P. and Stratford Equity Partners, L.P.
From June 1990 to October 1994, Mr. Farmer served as Senior Vice President of GE
Capital Corporation, Corporate Finance Group.
THOMAS L. HARRISON has served as a director of the Company and Holdings
since May 1997. Since 1995, Mr. Harrison has also served as a Principal and
President of Hoak Capital Corporation. From 1989 to 1995, Mr. Harrison served as
a Principal and as Managing Director of Haas, Wheat & Harrison, Incorporated and
from 1984 to 1989, he served as a Principal and as Senior Vice President of
Hicks & Haas, Incorporated.
THOMAS G. MENDELL has been a director of the Company and Holdings since
September 1996. In addition, since April 1994, Mr. Mendell has been a Partner of
The Beacon Group, L.L.C. and serves as director of Catalina Marketing
Corporation (NYSE) and several private companies. From November 1986 to December
1993, Mr. Mendell was a Partner of Goldman Sachs & Co.
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<PAGE> 47
HAROLD W. POTE has been a director of the Company and Holdings since
September 1996. Since January 1993, Mr. Pote also has been a Partner of The
Beacon Group L.L.C. Prior to the formation of The Beacon Group, L.L.C., Mr. Pote
was Chief Executive Officer of First Fidelity Bancorporation. Mr. Pote currently
serves as a director of Norfolk Southern Corp. and previously served as director
of Smith Klein-Beecham, Inc.
ERIC R. WILKINSON has been a director of the Company and Holdings since
September 1996. In addition, since December 1995, Mr. Wilkinson has been a
Partner of The Beacon Group L.L.C. From March 1994 to December 1995, Mr.
Wilkinson served as a Principal of The Beacon Group L.L.C. From March 1989 to
March 1994, Mr. Wilkinson served as a Partner and a director of Apax Partners, a
$300.0 million private overseas equity fund.
GARY GOLDEN has been in the theater industry since 1968. He became Head
Film Buyer for the Company in October 1997. Prior to that time, he was Senior
Vice President/Head Film Buyer for Cobb Theaters from 1996-1997. From 1976-1979
he was a Film Buyer for General Cinema Theatres and then later returned to
General Cinema in 1990, where he was Regional Vice President of Film until 1995.
He was the Southern Division Manager for Lorimar Releasing from 1988-1989. Prior
to that time, he was with other film companies, including United Artists, Gulf
States Theatres, AMC, Commonwealth Theatres, Pacific Drive-Ins, Cinerama and
United Pictures.
Each director of Holdings and the Company holds office until the next
annual meeting of stockholders of the Company or until his successor is duly
elected and qualified. All officers are elected annually and serve at the
discretion of the respective Board of Directors. The number of members on each
Board of Directors is fixed by the affirmative vote of a majority of the members
at any time constituting such Board of Directors. Presently, the Board of
Directors of each of Holdings and the Company consists of six members. Directors
on each such Board are reimbursed for all expenses actually incurred for each
Board meeting which such directors attend. Each director may receive additional
compensation for his services as the respective Board of Directors may
determine. The executive officers of the Company and Holdings are elected by the
respective Board of Directors to serve at the discretion of such Board.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for fiscal year 1997
awarded to or earned by the chief executive officer of the Company and the two
other most highly compensated executive officers of the Company whose
contractual base salary and bonus exceeded $100,000 for services rendered in all
capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-------------------------------------
ALL OTHER
NAME SALARY BONUS COMPENSATION
---- --------- ----- ------------
<S> <C> <C>
Thomas W. Stephenson, Jr.............................................. $285,577 -- $16,546
Robert E. Painter..................................................... 181,731 -- 11,462
James R. Featherstone................................................. 114,231 -- 11,681
</TABLE>
- ----------
(1) The named executive officers did not receive annual compensation not
properly categorized as salary or bonus, except for certain perquisites
and other personal benefits which are not shown because the aggregate
amount of such compensation for each of the named executive officers
during the fiscal year did not exceed the lesser of $50,000 or 10% of
total salary and bonus reported for such executive officer.
(2) The Board of Directors has not determined bonus awards for fiscal year 1997.
In 1996, Mr. Stephenson, Mr. Painter and Mr. Featherstone received bonus
awards of $225,000, $60,000 and $50,000, respectively.
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<PAGE> 48
The table below sets forth information concerning grants of stock options
for shares of common stock, par value $.01 per share, of Holdings ("Holdings
Common Stock") made by the Company to each of the executive officers of the
Company named in the Summary Compensation Table during 1996.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZED VALUE AT
SECURITIES % OF EXERCISE ASSUMED ANNUAL RATES OF
UNDERLYING TOTAL OPTIONS PRICE STOCK PRICE APPRECIATION FOR
NAME OPTIONS GRANTED GRANTED IN 1996 PER SHARE EXPIRATION DATE OPTION TERM
---- --------------- --------------- --------- ---------------- ----------------------------
5% 10%
---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Stephenson, Jr... 14,603 57.1% $175 September 30, 2006 $1,607,206 $4,072,777
Robert E. Painter.......... 7,302 28.6% 175 September 30, 2006 803,658 2,036,527
James R. Featherstone...... 3,651 14.3% 175 September 30, 2006 401,829 1,018,264
</TABLE>
The table below sets forth information concerning each exercise of options
for Holdings Common Stock, during 1996 by the executive officers named in the
Summary Compensation Table, the number of exercisable and unexercisable options
for Holdings Common Stock held by them and the fiscal year-end value of such
exercisable and unexercisable options.
AGGREGATED HOLDINGS OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END (1) AT FISCAL YEAR-END(1)
ACQUIRED VALUE ---------------------------- ----------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Stephenson, Jr.. -- -- 2,921 11,682 $58,411 $233,646
Robert E. Painter......... -- -- 1,460 5,842 29,208 116,832
James R. Featherstone..... -- -- 730 2,921 14,604 58,416
</TABLE>
- ----------
(1) Assumes a current fair market value of $195 per share of Holdings Common
Stock, the price at which Holdings last issued shares of Holdings Common
Stock in May 1997.
1996 STOCK OPTION AND STOCK AWARD PLAN
Certain eligible employees and non-employee directors of the Company and
its subsidiaries may be granted stock options ("Options"), stock appreciation
rights ("SARS"), restricted stock, performance units or performance shares and
phantom stock rights (collectively, the "Incentive Awards") pursuant to the
Hollywood Theater Holdings, Inc. 1996 Stock Option and Stock Award Plan (the
"Stock Award Plan"). The aggregate number of shares of Holdings Common Stock
that may be issued, transferred or exercised pursuant to Incentive Awards under
the Stock Award Plan is 37,000 shares (subject to certain adjustments). The
Stock Award Plan is administered by a committee, the members of which are
appointed by the Board of Directors of the Company (the "Committee"). Presently,
the members of the Committee consist of John G. Farmer, Thomas L. Harrison,
Thomas G. Mendell and Thomas W. Stephenson.
The Committee has the ability to determine, among other things, which
individuals will be granted awards pursuant to the Stock Award Plan and such
Committee has the ability to determine the number of shares of Holdings Common
Stock, options, SARs, restricted stock awards, performance units or shares or
phantom stock rights that will be subject to each Incentive Award and to
determine the terms and provisions of each Incentive Award.
The Committee may grant either incentive stock options or non-qualified
stock options to eligible employees. The Committee will not grant any incentive
stock options to an eligible employee who owns or would own immediately after
the grant of such incentive stock option, directly or indirectly, stock
possessing more than 10% of the total
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<PAGE> 49
combined voting power of all classes of stock of the Company (unless at the time
of such grant, the incentive stock option price is at least 110% of fair market
value and such option is not exercisable after the expiration of five years from
the date of grant). The purchase price for non-qualified stock options will be
equal to at least the greater of (i) the par value of the Holdings Common Stock
or (ii) 50% of the fair market value of the Holdings Common Stock on the date of
grant. The purchase price for an incentive stock option will be at least equal
to fair market value of the Holdings Common Stock on the date of grant and the
term of such option will not be greater than 10 years.
The Committee may grant an eligible employee SARs that are connected to an
Option or SARs without relation to an Option. Payment upon exercise of a SAR may
be made in shares of Holdings Common Stock valued at fair market value on the
date of exercise or in cash (or a combination of both). Payment upon exercise of
a SAR may be limited by the Committee on the date of the grant.
The Committee may grant an eligible employee shares of restricted stock
pursuant to the Stock Award Plan. Shares of restricted stock may not be disposed
of until the restrictions are removed or expire. The Committee may grant an
eligible employee Performance Units or Performance Shares. Such Units and Shares
may be granted in such a manner that more than one performance period may be in
progress simultaneously. The Committee may, at any time, modify the performance
measures as it considers appropriate and equitable. Payments will be made in
cash or Holdings Common Stock (or a combination of both) following the close of
the applicable performance period.
Pursuant to the Stock Award Plan, an eligible employee may be granted a
phantom stock right, which entitles such employee, upon conversion, to receive
payment of cash or in shares of Holdings Common Stock (or both). Such payment of
shares upon conversion of a phantom stock right may be made in shares of
restricted stock.
Incentive Awards (whether or not vested) shall expire immediately and/or be
forfeited upon termination of such employee's employment with the Company or any
subsidiary employing such employee for any reason other than death, disability
or retirement. If any employee ceases to be in the employ of the Company or any
of its subsidiaries by reason of death, disability or upon retirement, any
unexercised options or SARs or outstanding phantom stock units will terminate on
the date that is 90 days following the date of death, retirement or disability
(unless it expires by its terms on an earlier date). With respect to Performance
Units or Performance Shares, in the event of death, disability or retirement,
the Performance Units or Shares will continue after the date of the applicable
event for such period of time as determined by the Committee, subject to the
terms of any applicable agreement. Performance shares and phantom stock rights
will be exercisable for cash only in such events.
If an eligible employee who has purchased restricted stock under the Stock
Award Plan terminates employment with the Company for any reason, then all
shares of restricted stock that have not previously vested will be repurchased
by the Company at the cost paid by such employee. In addition, upon an eligible
employee's termination of employment with the Company and all of its
subsidiaries for any reason (including by reason of death or disability), the
Company has the right to purchase from such employee all shares of Holdings
Common Stock hereunder on the terms and conditions set forth in the applicable
Incentive Award.
Pursuant to the Stock Award Plan, upon the dissolution or liquidation of
the Company; certain types of reorganizations, mergers or consolidations; the
sale of all or substantially all of the assets of the Company; or a "change of
control," the Committee may determine (without shareholder approval) that all or
some Incentive Awards then outstanding under the Stock Award Plan will be fully
vested and exercisable or convertible, as applicable; determine that some or all
restrictions on restricted stock lapse immediately; or determine that there will
be a substitution of new Incentive Awards by such successor employer corporation
or a parent or subsidiary company thereof. In addition, in the event of a change
of control, the Committee may take certain actions, without shareholder
approval, including without limitation acceleration of the exercise dates of any
outstanding SARS or Options or immediate vesting; acceleration of the
restriction (lapse of forfeiture provision) period of any restricted stock
award; grants of SARs to holders of outstanding Options; payment of cash to
holders of Options in exchange for the cancellation of their outstanding
Options; payment for outstanding Performance Units or Shares; acceleration of
the conversion dates of
44
<PAGE> 50
outstanding phantom stock rights; grants of new Incentive Awards; or other
adjustments or amendments to outstanding Incentive Awards.
Pursuant to the Stock Award Plan, so long as the Holdings Common Stock has
not been publicly traded for at least 90 days, any Holdings Common Stock
obtained pursuant to an Incentive Award will be subject to the Company's right
of first purchase if the holder of such shares intends to transfer them. In
addition, upon an employee's death, the Company has the right to purchase all or
some of the Holdings Common Stock that such employee obtained pursuant to an
Incentive Award at its fair market value within nine months of the employee's
death.
401(K) PLAN
The Company maintains a 401(k) Savings Plan (the "401(k) Plan") under
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
All salaried employees of the Company are eligible to participate in the 401(k)
Plan following such employee's attainment of age 21 and completion of 90 days of
employment with the Company. All hourly employees of the Company are eligible to
participate in the 401(k) Plan following such employee's attainment of age 21
and completion of one year of employment with the Company. Employees may elect
to make pre-tax contributions to the 401(k) Plan, subject to applicable
statutory maximum limits. The Company makes matching contributions (subject to
statutory limits) in an amount equal to a discretionary percentage of a
participant's contributions that does not exceed 4% of such participant's
compensation. In addition, the Company may make additional contributions in such
amounts as it may elect. Company contributions vest 20% in the third year, 40%
in the fourth year, 60% in the fifth year, 80% in the sixth year and 100% in the
seventh year of service. Contributions also will vest fully if the employee
reaches retirement age, becomes permanently disabled or dies (even if such
employee has not completed seven years of service). If employment is terminated
before such employee's contributions have fully vested, the nonvested portion of
such contributions will be forfeited.
EMPLOYMENT AGREEMENTS
Thomas W. Stephenson, the Company's Chairman of the Board, President and
Chief Executive Officer, James R. Featherstone, the Company's Vice President and
Chief Financial Officer and Robert E. Painter, the Company's Chief Operating
Officer (each an "Employee") have each entered into an employment agreement with
the Company.
Each of Messrs. Stephenson's, Featherstone's and Painter's employment
agreements with the Company will expire (unless renewed) on September 30, 1998.
Each of such employment agreements provides for a one year automatic renewal
(unless terminated for "due cause") and subsequent one year renewals by mutual
consent of the Employee and the Board of Directors. Each of the employment
agreements for Messrs. Stephenson, Featherstone and Painter provides for an
annual salary of not less than $275,000, $110,000 and $175,000, respectively,
each of which may be increased annually in the sole discretion of the Board of
Directors, and discretionary annual bonus awards based upon performance criteria
established from time to time by the Board of Directors. Each of Messrs.
Stephenson, Featherstone and Painter was also granted under the Stock Award Plan
options to purchase a number of shares equal to 6.0%, 1.5% and 3.0%,
respectively, of Holdings Common Stock (on a fully diluted basis) outstanding as
of November 1, 1996.
Pursuant to the terms of such employment agreements, if an Employee's
employment is terminated by the Company at the end of an employment term, such
Employee will be entitled to receive his full annual salary for a period of one
year from the date of termination. If the Employee's employment is terminated
for "due cause", the Employee will be entitled to receive his annual salary on a
pro rata basis to the date of termination. If the Company terminates the
Employee's employment other than for due cause or because of a disability, the
Company will be obligated to pay his full annual salary for a period of one year
from the date of termination. In the event of the Employee's death or
disability, the employment agreement will be terminated and the Employee's
estate or the Employee will be entitled to receive his annual salary through the
end of the month in which he died or became disabled and a cash payment equal
45
<PAGE> 51
to the pro rata portion (through the end of the month in which he died or became
disabled) of the annual bonus, if any, received by the Employee in respect of
the full calendar year next preceding his death or disability.
Pursuant to such employment agreements, if the Employee's employment is
terminated for due cause or by the Company's failure to renew the Employee's
employment agreement (after the first automatic renewal period), or if the
Employee voluntarily terminates his employment, for a period of one year
thereafter, the Employee will be prohibited from accepting employment or
rendering service to any person, firm or corporation that is engaged in a
business directly competitive with the business then engaged in by the Company
in the states of Texas, Oklahoma, Kansas, Missouri, Ohio, Idaho and any other
state in which the Company owns, leases or operates motion picture theaters at
the time of termination, and from directly or indirectly entering into or in any
manner taking part in or lending his name, counsel or assistance to any venture,
enterprise, business or endeavor, either as proprietor, principal, investor,
partner, director, officer, employee, consultant, advisor, agent, independent
contractor, or in any other capacity whatsoever, for any purpose that would be
competitive with the business of the Company in such states. Pursuant to Mr.
Painter's employment agreement, Mr. Painter is entitled to reimbursement for
certain costs associated with his relocation to Dallas, Texas.
INDEMNIFICATION AGREEMENT OF THOMAS W. STEPHENSON
Thomas W. Stephenson has entered into an indemnification agreement with the
Company and Holdings in connection with certain personal guarantees made by Mr.
Stephenson for obligations of the Company under certain agreements, including,
but not limited to theater leases and film rental agreements and other similar
agreements that Mr. Stephenson may be required to guarantee in the future (the
"Stephenson Guarantees"). Pursuant to such indemnification agreement, the
Company and Holdings have agreed to indemnify Mr. Stephenson against any and all
payments, liabilities, obligations, claims, losses, damages, commitments, costs,
deficiencies, expenses paid or incurred by Mr. Stephenson under any Stephenson
Guarantee and against any and all expenses (including attorneys' fees), costs,
liabilities and obligations paid or incurred in connection with or as a result
of such payments under the Stephenson Guarantees.
REGISTRATION RIGHTS AGREEMENTS
Holdings and certain of its stockholders, including Beacon, Stratford,
Richard M. Durwood, as trustee for the Richard M. Durwood Revocable Trust (the
"Durwood Trust") and the Hoak Entities, have entered into separate registration
rights agreements (the "Registration Rights Agreements"). Pursuant to the terms
of the Registration Rights Agreements, at any time after the earlier of either
the closing of an initial public offering of Holdings Common Stock or October
1999, such stockholders holding at least 10% of all of the outstanding Holdings
Common Stock (the "Demanding Stockholders") at such date, or the Durwood Trust
in certain limited circumstances, have the right to require Holdings (the
"Demand Registration Right") at Holdings' sole cost and expense, to register
under the Securities Act all or part of the Holdings Common Stock and Holdings
Preferred Stock and any shares issuable upon conversion of the Holdings
Preferred Stock, held by such Demanding Stockholders (the "Registrable
Securities"). Each Demanding Stockholder, other than the Durwood Trust, will
have three such Demand Registration Rights. The other stockholders holding
Registrable Securities are entitled to participate in such demand registrations,
subject to certain limitations. In connection with such registrations, Holdings
will agree to indemnify all holders of Registrable Securities against certain
liabilities, including liabilities under the Securities Act and applicable state
securities laws.
SHAREHOLDERS' AND VOTING AGREEMENT
Holdings entered into an Amended and Restated Shareholders' and Voting
Agreement (the "Shareholders' Agreement") with certain holders of Holdings
Common Stock (or securities convertible into, or exchangeable or exercisable for
Holdings Common Stock) which contains provisions with respect to the voting,
transfer and registration
46
<PAGE> 52
of the Holdings Common Stock (or securities convertible, exchangeable or
exercisable for Holdings Common Stock) held by the parties.
Pursuant to the Shareholders' Agreement, if at any time prior to a public
offering of the shares of Holdings Common Stock, Beacon holds (i) at least 50%
of the outstanding Holdings Common Stock or any shares of Holdings Series A
Preferred Stock, Beacon will have the right to designate three persons to serve
on the Board of Directors of Holdings, (ii) 25% or more of the outstanding
Holdings Common Stock but less than 50%, Beacon will have the right to designate
two directors to serve on the Board of Directors of Holdings and (iii) 5% or
more of the outstanding Holdings Common Stock but less than 25%, Beacon will
have the right to designate one person to serve on the Board of Directors of
Holdings. If at any time prior to a public offering of the shares of Holdings
Common Stock, Stratford holds 5% or more of the outstanding Holdings Common
Stock, Stratford will have the right to designate one person to serve on the
Board of Directors of Holdings. If at any time prior to a public offering of the
shares of Holdings Common Stock, the Hoak Entities hold 5% or more of the
outstanding Holdings Common Stock, the Hoak Entities will have the right to
designate one person to serve on the Board of Directors of Holdings. In
addition, the Chief Executive Officer of Holdings will serve as a member of the
Board of Directors of Holdings at any time prior to a public offering of the
Holdings Common Stock.
From and after a public offering of the Holdings Common Stock, so long as
Beacon holds 25% or more of the outstanding Holdings Common Stock, all of the
parties to the Shareholders' Agreement will be required to vote for at least two
persons who are designated by Beacon. If Beacon holds 5% or more (but less than
25%) of the outstanding Holdings Common Stock, all of the parties to the
Shareholders' Agreement will be required to vote for at least one person who is
designated by Beacon. Each stockholder that is a party to the Shareholders'
Agreement has granted Beacon an irrevocable proxy to vote such stockholder's
shares for the election of those directors that are designated by Beacon
pursuant to the Shareholders' Agreement. Pursuant to the Shareholders'
Agreement, the Board of Directors of Holdings will be composed of no more than
six directors. A director designated by Beacon, Stratford or the Hoak Entities
cannot be removed without the consent of Beacon, Stratford or the Hoak Entities
as applicable. Beacon, Stratford and the Hoak Entities may remove its designee
from the Board of Directors at any time with or without cause.
If, for any reason, a designee of Beacon or Stratford or the Hoak Entities
is not on the Board of Directors, and Beacon, Stratford and the Hoak Entities
each holds 5% or more of the outstanding Holdings Common Stock, each of Beacon,
Stratford and the Hoak Entities will be entitled to have one observer selected
by each of them present at all meetings of the Board of Directors of Holdings.
In addition, if a director of Holdings or an observer is a designee of Beacon,
Stratford or the Hoak Entities and such director or observer is not able to
attend the respective Board of Directors meeting, Beacon, Stratford and the Hoak
Entities have the right to designate a representative to attend and observe such
meeting on behalf of such director or observer.
The Shareholders' Agreement requires each party to give Holdings and each
other stockholder who is a party to the Shareholders' Agreement certain notices
with respect to any proposed sales or transfers of Holdings Common Stock (or
securities convertible, exchangeable or exercisable for Holdings Common Stock)
and to offer to Holdings and each of the stockholders who is a party to the
Shareholders' Agreement, the right to purchase such stock which the party
otherwise proposes to sell or transfer. In addition, if any stockholder desires
to sell a number of shares of Holdings Common Stock (or securities convertible,
exchangeable or exercisable for Holdings Common Stock) which in the aggregate
represent at least 5% of the outstanding Holdings Common Stock, then such
stockholder must give certain notices with respect to the proposed sale or sales
and each of the stockholders who is a party to the Shareholders' Agreement will
have the right to sell a proportionate amount of its Holdings Common Stock (or
securities convertible, exchangeable or exercisable for Holdings Common Stock).
If Beacon elects to transfer or exchange all of the shares of Holdings Common
Stock (or securities convertible, exchangeable or exercisable for Holdings
Common Stock) that it holds at a price of at least $200 per share, then, upon 30
days notice, each other stockholder (that is a party to the Shareholders'
Agreement) will be obligated to sell or transfer to such third party, all of his
or her shares of Holdings Common Stock (or securities convertible, exchangeable
or exercisable for Holdings Common Stock) in the same transaction.
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<PAGE> 53
Pursuant to the Shareholders' Agreement, any stockholder that is a party to
the Shareholders' Agreement and that owns more than 5% of the Holdings Common
Stock at the time Holdings proposes to issue additional shares of Holdings
Common Stock or Holdings Preferred Stock (as defined), will have preemptive
rights with respect to such shares. In addition, at any time on or after October
31, 2001, and provided that an offering of Holdings Common Stock has not then
occurred, the Richard M. Durwood Revocable Trust may require Holdings to
repurchase not less than all of the shares of Holdings Common Stock held by each
at the fair market value at the time of repurchase.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company is
responsible for determining executive officer compensation. The members of the
Compensation Committee are John G. Farmer, Thomas G. Mendell and Thomas W.
Stephenson. Mr. Stephenson serves as both a member of the Compensation Committee
and the President and Chief Executive Officer of the Company.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS
The Company is a wholly-owned subsidiary of Holdings. The following
table and the accompanying footnotes set forth, as of December 17, 1997, the
beneficial ownership of Holdings's capital stock by (i) each person who is known
to the Company to own beneficially more than 5% of outstanding (w) Holdings
Common Stock, (x) Holdings Series B Preferred Stock, (y) Holdings Series C
Preferred Stock or (z) Holdings Series D Preferred Stock, (ii) each director and
named executive officer of the Company and (z) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the persons
or entities set forth in the table below have sole investment and voting power
with respect to all shares shown as beneficially owned, subject to community
property laws, where applicable. The business address of each executive officer
is c/o Hollywood Theaters, Inc., 2911 Turtle Creek Blvd., Suite 1150, Dallas,
Texas, 75219.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS
------------------------------------------- ----------------------------------------
PREFERRED STOCK PREFERRED STOCK
COMMON --------------------------------- COMMON --------------------------------
NAME AND ADDRESS STOCK SERIES B SERIES C SERIES D STOCK(1) SERIES B SERIES C SERIES D
- ---------------- ------ -------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas W. Stephenson, Jr........ 5,226(2) 111 -- -- 4.3% * -- --
John G. Farmer(3)............... -- -- -- -- -- -- -- --
c/o Stratford Capital Partners, L.P.
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Thomas L. Harrison(4)........... -- -- -- -- -- -- -- --
c/o Hoak Capital Corporation
One Galleria Tower
13355 Noel Road, Suite 1050
Dallas, Texas 75240
Thomas G. Mendell(5)............ 868(6) 59 -- -- * * -- --
c/o The Beacon Group III-
Focus Value Fund, L.P.
399 Park Avenue, 17th Floor
New York, New York 10152
Eric R. Wilkinson(7)............ -- -- -- -- -- -- -- --
c/o The Beacon Group III-
Focus Value Fund, L.P.
399 Park Avenue, 17th Floor
New York, New York 10152
Harold W. Pote(8)............... -- -- -- -- -- -- -- --
c/o The Beacon Group III-
Focus Value Fund, L.P.
399 Park Avenue, 17th Floor
New York, New York 10152
James R. Featherstone(9)........ 730 -- -- -- * -- -- --
Robert E. Painter(10)........... 1,460 -- -- -- 1.2% -- -- --
The Beacon Group III-
Focus Value Fund, L.P........... 280,000(11) 131,349(12) 35,897 41,026 85.6% 80.4% 45.5% 67.0%
399 Park Avenue, 17th Floor
New York, New York 10152
</TABLE>
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<PAGE> 55
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Hoak Communications Partners,
L.P.(13)(14) ............................ 61,539(13) -- 35,897(14) 10,257(15) 36.8% -- 45.5% 16.7%
c/o Hoak Capital Corporation
One Galleria Tower
13355 Noel Road, Suite 1050
Dallas, Texas 75240
Stratford Capital Partners, L.P. .......... 36,357(16) 26,101 7,179 -- 23.7% 16.0% 9.1 --
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Stratford Equity Partners, L.P. ........... 10,257(17) -- -- 10,257 7.9% -- -- 16.7%
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Richard M. Durwood
Revocable Trust .......................... 16,413 -- -- -- 13.7% -- -- --
406 West 34th Street, Suite 614
Kansas City, Missouri 64111
- ----------------------
- ----------------------
All of the directors and executive ........ 8,284(18) 170 -- -- 6.6% * -- --
officers as a group
</TABLE>
- ----------
* Less than one percent (1%).
(1) The following reflects the total voting power represented by the
capital stock held by each of the indicated persons: Mr. Stephenson --
0.5%; Mr. Farmer -- 0%; Mr. Harrison--0%; Mr. Mendell -- 0.2%; Mr.
Wilkinson -- 0%; Mr. Pote -- 0%; Mr. Featherstone -- 0%; Mr. Painter --
0%; Beacon -- 66.3%; Hoak -- 14.5%; Stratford Capital Partners, L.P. --
8.6%; Stratford Equity Partners, L.P.--2.4%; Richard M. Durwood--3.9%;
and all directors and officers as a group -- 0.7%.
(2) Includes 111 shares of Holdings Common Stock that Mr. Stephenson has a
right to acquire at any time by converting the shares of Holdings
Series B Preferred Stock owned by Mr. Stephenson, and 2,921 shares of
Holdings Common Stock that Mr. Stephenson has a right to acquire at any
time by exercising outstanding employee stock options. Does not include
the 11,682 shares of Holdings Common Stock that Mr. Stephenson has the
right to acquire pursuant to outstanding employee stock options which
are not presently exercisable.
(3) Does not include 3,077 shares of Holdings Common Stock, 26,101 shares of
Holdings Series B Preferred Stock and 7,179 shares of Holdings Series C
Preferred Stock, all of which are owned of record by Stratford Capital
Partners, L.P., an affiliate of Mr. Farmer, and the number of shares of
Holdings Common Stock issuable upon conversion of such shares of Holdings
Preferred Stock owned of record by Stratford Capital Partners, L.P., as to
which Mr. Farmer disclaims beneficial ownership. Also does not include
10,257 shares of Holdings Series D Preferred Stock owned or record by
Stratford Equity Partners, L.P., an affiliate of Mr. Farmer, and the number
of shares of Holdings Common Stock issuable upon conversion of such shares,
as to which Mr. Farmer disclaims beneficial ownership.
(4) Does not include 14,096 shares of Holdings Common Stock, 32,891 shares
of Holdings Series C Preferred Stock or 9,397 shares of Holdings Series
D Preferred Stock, all of which are owned of record by Hoak
Communications Partners, L.P. ("Hoak Communications"), an affiliate of
Mr. Harrison, as to which Mr. Harrison disclaims beneficial ownership.
(5) Does not include 72,528 shares of Holdings Common Stock, 131,349 shares
of Holdings Series B Preferred Stock, 35,897 shares of Holdings Series
C Preferred Stock and 41,026 shares of Holdings Series D Preferred
Stock, all of which are owned beneficially by Beacon, an affiliate of
Mr. Mendell, as to which Mr. Mendell disclaims beneficial ownership.
50
<PAGE> 56
(6) Includes 59 shares of Holdings Common Stock that Mr. Mendell has a
right to acquire at any time by converting the shares of Holdings
Series B Preferred Stock owned by Mr. Mendell.
(7) Does not include 72,528 shares of Holdings Common Stock, 131,349 shares
of Holdings Series B Preferred Stock, 35,897 shares of Holdings Series
C Preferred Stock and 41,026 shares of Holdings Series D Preferred
Stock, all of which are owned beneficially by Beacon, an affiliate of
Mr. Wilkinson, as to which Mr. Wilkinson disclaims beneficial ownership.
(8) Does not include 72,528 shares of Holdings Common Stock, 131,349 shares
of Holdings Series B Preferred Stock, 35,897 shares of Holdings Series
C Preferred Stock and 41,026 shares of Holdings Series D Preferred
Stock, all of which are owned beneficially by Beacon, an affiliate of
Mr. Pote, as to which Mr. Pote disclaims beneficial ownership.
(9) Consists of 730 shares of Holdings Common Stock that Mr. Featherstone
has a right to acquire at any time by exercising outstanding employee
stock options. Does not include the 2,921 shares of Holdings Common
Stock that Mr. Featherstone has the right to acquire pursuant to
outstanding employee stock options which are not presently exercisable.
(10) Consists of 1,460 shares of Holdings Common Stock that Mr. Painter has a
right to acquire at any time by exercising outstanding employee stock
options. Does not include the 5,842 shares of Holdings Common Stock that
Mr. Painter has the right to acquire pursuant to outstanding employee stock
options which are not presently exercisable.
(11) Does not include 809 shares of Holdings Common Stock owned of record by
Mr. Mendell, an affiliate of Beacon, as to which Beacon disclaims
beneficial ownership. Includes 208,272 shares of Holdings Common Stock
that Beacon has a right to acquire at any time by converting the shares
of Holdings Series B Preferred Stock, Holdings Series C Preferred Stock
and Holdings Series D Preferred Stock beneficially owned by Beacon.
(12) Does not include 59 shares of Holdings Series B Preferred Stock owned of
record by Mr. Mendell, an affiliate of Beacon, as to which Beacon disclaims
beneficial ownership.
(13) Includes 1,212 and 77 shares of Holdings Common Stock owned of record by
each of the Hoak Capital Fund, L.P. and the HCP 1997 Authorized Employee
Fund, L.P., respectively. Includes 32,891, 2,827 and 179 shares of Holdings
Series C Preferred Stock owned of record by each of Hoak Communications,
the Hoak Capital Fund and the Hoak Employee Fund, respectively, all of
which are immediately convertible into shares of Holdings Common Stock.
Also includes 9,397, 772 and 88 shares of Holdings Series D Preferred Stock
owned of record by each of Hoak Communications, the Hoak Capital Fund and
the Hoak Employee Fund, respectively, all of which are immediately
convertible into shares of Holdings Common Stock.
(14) Includes 2,827 shares of Holdings Series C Preferred Stock owned of record
by Hoak Capital Fund and 179 shares of Holdings Series C Preferred Stock
owned of record by Hoak Employee Fund, all of which are immediately
convertible into shares of Holdings Common Stock.
(15) Includes 772 shares of Holdings Series D Preferred Stock owned of record by
Hoak Capital Fund and 88 shares of Holdings Series D Preferred Stock owned
of record by Hoak Employee Fund, all of which is immediately convertible
into shares of Holdings Common Stock.
(16) Includes 33,280 shares of Holdings Common Stock that Stratford Capital
Partners, L.P. has a right to acquire at any time by converting the shares
of Holdings Series B Preferred Stock and shares of Holdings Series C
Preferred Stock owned by Stratford Capital Partners, L.P.
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<PAGE> 57
(17) Consists of 10,257 shares of Holdings Common Stock that Stratford Equity
Partners, L.P. has a right to acquire at any time by converting the shares
of Holdings Series D Preferred Stock owned by Stratford Equity Partners,
L.P.
(18) Includes 111 shares and 59 shares of Holdings Common Stock that Thomas
W. Stephenson, Jr. and Thomas G. Mendell, respectively, have a right to
acquire at any time by converting shares of Holdings Series B Preferred
Stock owned by them. Also includes 2,921, 730 and 1,460 shares of Holdings
Common Stock that Mr. Stephenson, James R. Featherstone and Robert E
Painter, respectively, have a right to acquire at any time by exercising
outstanding employee stock options.
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DESCRIPTION OF CAPITAL STOCK
COMPANY CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000 shares of
common stock, par value $.01 per share (the "Company Common Stock"). Currently
there are 9,250 shares of Company Common Stock outstanding, all of which are
owned of record and beneficially by Holdings.
HOLDINGS CAPITAL STOCK
At December 1, 1997, the authorized capital stock of Holdings consists of
1,500,000 shares of Holdings Common Stock, 400,000 shares of Holdings Series B
Preferred Stock, 400,000 shares of Holdings Series C Preferred Stock and 400,000
shares of Holdings Series D Preferred Stock. Of the authorized shares, (i)
119,877 shares of Holdings Common Stock are issued and outstanding, (ii) 163,319
shares of Holdings Series B Preferred Stock are issued and outstanding, (iii)
78,973 shares of Holdings Series C Preferred Stock are issued and outstanding
and (iv) 61,540 shares of Holdings Series D Preferred Stock are issued and
outstanding. Each outstanding share of Holdings Common Stock is entitled to one
vote. Each outstanding share of Holdings Series B, Holdings Series C Preferred
Stock and Holdings Series D Preferred Stock is also entitled to one vote based
on a conversion ratio, which is subject to adjustment from time to time.
CROWN CAPITAL STOCK
The authorized capital stock of Crown consists of 30,000 shares of common
stock, par value $1.00 per share ("Crown Common Stock"). Currently there are 500
shares of Crown Common Stock outstanding, all of which are owned of record and
beneficially by the Company.
HOLDINGS EQUITY ISSUANCES
Since its inception in July 1995, the Company has received capital
contributions from its parent, Holdings, totaling approximately $74.3 million.
To fund these capital contributions, Holdings has issued both its common stock
and several series of preferred stock in a number of transactions. The following
table sets forth the principal equity issuances by Holdings:
<TABLE>
<CAPTION>
Date of Proceeds Purchasing
EQUITY ISSUANCES Issuance to Holdings Principal Stockholder(s)
---------------- -------- ----------- ------------------------
<C> <C> <C> <C>
50,000 shares of Holdings Series April 1996 $ 5,000,000 Stratford and Precept
A Preferred Stock(1) Investors, Inc. ("Precept")
128,240 shares of Holdings Series October 1996 $ 25,000,000 Beacon
B Preferred Stock and 57,143
shares of Holdings Common Stock
43,076 shares of Holdings Series April 1997 $ 12,000,000 Beacon and Stratford
C Preferred Stock and 18,462
shares of Holdings Common Stock
35,897 shares of Holdings Series May 1997 $ 10,000,000 Hoak Entities
C Preferred Stock and 15,385
shares of Holdings Common Stock
51,283 shares of Holdings Series November 1997 $ 10,000,000 Beacon and Stratford Equity
C Preferred Stock (2) Partners, L.P.
10,257 shares of Holding Shares December 1997 $ 2,000,000 Hoak Entities
D Preferred Stock
</TABLE>
- ----------
(1) Exchanged for Holdings Common Stock and Holdings Series B Preferred Stock in
October 1996.
(2) Exchanged for Holdings Series D preferred Stock in December 1997.
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<PAGE> 59
REDEMPTION OF HOLDINGS SERIES B PREFERRED STOCK, HOLDINGS SERIES C PREFERRED
STOCK AND HOLDINGS SERIES D PREFERRED STOCK
Holders of shares of Holdings Series B Preferred Stock, Holdings Series C
Preferred Stock and Holdings Series D Preferred Stock (the "Holdings Preferred
Stock") may, at their option, require Holdings to redeem any or all of such
shares under certain conditions. The Holdings Series B Preferred Stock may be
redeemed on or after October 31, 2003, if and only if an Initial Public Offering
(as defined below) has not occurred, for a redemption price of $175 per share,
plus accrued and unpaid dividends to the date of redemption. The Holdings Series
C Preferred Stock may be redeemed on or after November 1, 2003, if and only if
an Initial Public Offering has not occurred, for a redemption price of $195,
plus accrued and unpaid dividends to the date of redemption. The Holdings Series
D Preferred Stock may be redeemed on or after November 1, 2003, if and only if
an Initial Public Offering has not occurred, for a redemption price of $195 per
share, plus accrued and unpaid dividends to the date of redemption. Upon any
Initial Public Offering, each of the Holdings Series B Preferred Stock, the
Holdings Series C Preferred Stock and the Holdings Series D Preferred Stock
shall be automatically converted into a fixed number of shares of Holdings
Common Stock. As used herein, "Initial Public Offering" means an underwritten
offering by Holdings of Holdings Common Stock to the public pursuant to an
effective registration statement under the Securities Act resulting in at least
$25.0 million of net proceeds to Holdings (after deducting all underwriting
discounts and commissions and all other offering expenses) and a per share
offering price of at least $300 (subject to adjustment for stock splits,
combinations or reclassifications).
CERTAIN TRANSACTIONS
Holdings has entered into an agreement with The Beacon Group Capital
Services, L.L.C. ("Beacon Group Capital Services") pursuant to which Beacon
Group Capital Services has the right to perform certain investment banking
services for Holdings or any of its affiliates (including, without limitation,
in connection with the sale of Holdings of any of its subsidiaries), in each
case, upon customary terms. The retention of Beacon Group Capital Services is
subject to the approval of a majority of the members of the Board of Directors
of Holdings (excluding any directors who are designees of Beacon).
Precept Investors, Inc. ("Precept"), one of Holding's shareholders, has
been engaged by Holdings to construct various theaters. During 1996, Precept was
involved in the construction of one theater and the improvements to an existing
theater, and was paid approximately $4,600,000 for these services. During 1997,
Precept was involved in the construction of three theaters, and was paid
approximately $14,500,000. At December 1, 1997, approximately $2,900,000 was
owed to Precept.
DESCRIPTION OF SENIOR BANK FACILITY
The following description is a summary of the material terms and
conditions of the Senior Bank Facility. This summary does not purport to be
complete and is subject to the detailed provisions of the loan agreement and
various related documents entered into in connection with the Senior Bank
Facility.
The Senior Bank Facility provides for a revolving credit facility of $50.0
million with a five year term, however, the total amount of available borrowings
under the Senior Bank Facility may be less based on leverage levels of the
Company. Borrowings under the Senior Bank Facility are also subject to various
conditions precedent. At September 30, 1997, the Company was not in compliance
with two of the thirteen financial covenants in the Senior Bank Facility. On
January 7, 1998, the Company entered into an amendment of the Senior Bank
Facility, amending among other things, certain financial covenants. Currently,
the Company is in compliance with all financial covenants in the Senior Bank
Facility. As of December 31, 1997, no amounts were borrowed under the Senior
Bank Facility. Based on the Company's current financial condition, the Company
believes it has the ability to borrow up to $30 million under the terms of the
Senior Bank Facility. Borrowings under the Senior Bank Facility bear interest,
at the option of the Company, at either (i) the Eurodollar Rate (as defined
therein) or (ii) the Base Rate (as defined therein), as the case may be, plus
the Applicable Margin (as defined therein). The Company is required to pay
certain fees in connection with the Senior Bank Facility, including a commitment
fee of up to 0.50% per annum on the undrawn portion of the revolving credit
facility commitment.
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<PAGE> 60
The Senior Bank Facility, as amended, includes several financial
covenants. The Company's trailing twelve month minimum operating cash flow (as
defined in the Senior Bank Facility) must be at least:
(i) $13 million until March 31, 1998,
(ii) $16 million from April 1, 1998 to June 30, 1998,
(iii) $20 million from July 1, 1998 to September 30, 1998,
(iv) not measured from September 30, 1998 and thereafter.
The Company's total leverage ratio (total debt less cash balances to operating
cash flow) shall not exceed:
(i) not measured until September 30, 1998,
(ii) 5.75x from September 30, 1998 to December 31, 1998,
(iii) 5.50x from January 1, 1999 to March 31, 1999,
(iv) 5.25x from April 1, 1999 to June 30, 1999,
(v) 5.00x from July 1, 1999 to December 31, 1999,
(vi) 4.75x from January 1, 2000 to December 31, 2000,
(vii) 4.50x from January 1, 2001 to December 31, 2001 and
(viii) 4.25x from January 1, 2002 and thereafter.
In addition, the Company's "senior leverage ratio" (senior debt to operating
cash flow) shall not exceed 2.0x.
The Company's "interest coverage ratio" (operating cash flow to cash interest
expense) shall not be less than:
(i) 1.10x until March 31, 1998,
(ii) 1.25x from April 1, 1998 to September 30, 1998,
(iii) 1.50x from October 1, 1998 to December 31, 1998,
(iv) 1.75x from January 1, 1999 to March 31, 1999,
(v) 2.00x from April 1, 1999 to June 30, 1999,
(vi) 2.25x from July 1, 1999 to December 31, 1999,
(vii) 2.50x from January 1, 2000 to December 31, 2000 and
(viii) 2.75x from January 1, 2001 and thereafter.
The Senior Bank Facility limits the "fixed charge coverage ratio" (operating
cash flow to fixed charges) to not less than 1.00x until March 30, 1998 and
1.10x from March 31, 1998 and thereafter. The Senior Bank Facility also
provides that screens under construction or under operation for less than six
months must represent no more than 30% of total screens through June 30, 1998
and no more than 20% thereafter. Mergers and acquisitions are permitted
provided that (i) the merged or acquired properties are in the theatrical
business, (ii) the Company is the surviving entity in the case of a merger,
(iii) no event of default exists and (iv) acquisitions cannot exceed $40.0
million for any consecutive 12 months.
The Senior Bank Facility contains customary representations and warranties
and requires compliance by the Company and Holdings with certain other
covenants, including, among other things, covenants limiting (i) incurrence of
indebtedness, (ii) imposition of liens on assets of the Company, (iii) capital
expenditures, (iv) consolidations and mergers, (v) loans and investments,
including acquisitions of assets, (vi) payment of dividends and other
distributions, (vii) construction of new screens, (viii) land acquisition
contracts, (ix) transactions with affiliates and (x) use of proceeds to invest
in margin stock or other Ineligible Securities (as defined therein).
Events of default under the Senior Bank Facility include, among other
things, (i) non-payment of the principal amount of any loan, or amounts due
under any Specified Swap Contract (as defined therein) or any interest, fee or
any other amount payable under a Loan Document (as defined therein), (ii)
material inaccuracy of any representation or warranty given by the Company,
Holdings or any subsidiary in the Senior Bank Facility or any Loan Document,
(iii) breach by the Company, Holdings or any subsidiary of certain terms,
covenants or agreements in the Senior Bank Facility or any Loan Document, (iv)
acceleration of certain indebtedness prior to its stated maturity or the
occurrence of an event of default or early termination of certain contracts,
(v) insolvency of the Company, Holdings or any subsidiary, (v) certain
liabilities that exist or that arise with respect to a pension plan or a
multi-employer plan, (vi) certain monetary judgements involving in the
aggregate a liability of $2.0 million or more entered against the Company,
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<PAGE> 61
Holdings or any subsidiary, (vii) a "change of control," with respect to
Holdings' ownership in the Company and Beacon's and Mr. Stephenson's ownership
in Holdings, (viii) Mr. Stephenson ceasing to be the chief executive officer of
the Company, and (ix) provisions of any Collateral Document (as defined
therein) ceasing to be valid and binding or cease to create a valid security
interest in the collateral covered thereby.
Bank of America NT&SA, the agent under the Senior Bank Facility, is an
affiliate of BancAmerica Securities, Inc., who was a Purchaser in the Old Notes
Offering.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on August 7, 1997 to the
Purchasers pursuant to the Purchase Agreement. The Purchasers subsequently
resold the Old Notes in the United States to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and outside the United States to
non-U.S. persons in reliance on Regulation S under the Securities Act. As a
condition to the completion of the Old Notes Offering, the Company entered into
the Registration Rights Agreement with the Purchasers pursuant to which the
Company agreed to use its reasonable best efforts to cause to be filed with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to an offer to exchange the Old Notes for
Exchange Notes. The Exchange Notes will be substantially identical to the Old
Notes, except that the Exchange Notes will have been registered under the
Securities Act and, therefore will not contain terms with respect to transfer
restrictions (other than those that might be imposed by state securities laws),
will not contain terms with respect to the special interest payments described
herein and will not be entitled to registration rights or other rights under the
Registration Rights Agreement. In the event that (i) on or before the Expiration
Date, existing Commission interpretations are changed such that the Exchange
Notes are not or would not be, upon receipt, freely transferable (except for the
requirement that Participating Broker-Dealers deliver a prospectus), (ii) the
Exchange Offer is not consummated within 210 days of the closing of the Old
Notes Offering, or (iii) the Exchange Offer is not available to any holders of
the Old Notes (other than certain restricted holders), the Company will use its
reasonable best efforts to cause to be filed with the Commission, no later than
60 days after the completion of the Old Notes Offering, the Shelf Registration
Statement. The Company will use its best efforts to cause the Shelf Registration
Statement to be declared effective within 180 days after the closing of the Old
Notes Offering and shall maintain the effectiveness of the Shelf Registration
Statement, under certain circumstances, for a maximum of two years following the
effectiveness of the Shelf Registration Statement.
Under Exxon Capital Holdings Corp., SEC No-Action Letter, available April
13, 1989, and similar interpretations of the staff of the Commission, the
Exchange Notes would, in general, be freely transferable after the Exchange
Offer without further registration under the Securities Act. However, any
purchaser of Old Notes who is an "affiliate" of the Company or intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (i) will not be able to rely on the interpretations of the staff of the
Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer
and (iii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the Old Notes,
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each holder who wishes to exchange such Old Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
representations that (i) it is not an affiliate of the Company, (ii) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Notes and (iii) it is acquiring the Exchange Notes in its ordinary course of
business. In addition, broker-dealers receiving Exchange Notes in the Exchange
Offer will have a prospectus delivery requirement with respect to resales of
Exchange Notes. The Commission has taken the position that such broker-dealers
may fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of Old
Notes) with this Prospectus. Under the Registration Rights Agreement, the
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<PAGE> 62
Company is required to allow such broker-dealers to use this Prospectus in
connection with the resale of such Exchange Notes for a period of 180 days after
the Expiration Date.
The Registration Rights Agreement provides that (i) the Company will use
its reasonable best efforts to file with the Commission an Exchange Offer
Registration Statement within 60 days after the completion of the Old Notes
Offering, (ii) the Company will use its reasonable best efforts to cause such
Exchange Offer Registration Statement to be declared effective under the
Securities Act by the Commission no later than 180 days after the completion of
the Old Notes Offering, (iii) the Company shall use its reasonable best efforts
to commence and complete the Exchange Offer promptly after the Exchange Offer
Registration Statement has become effective and to hold open the Exchange Offer
for at least 30 days, and (iv) the Company, if it is obligated to cause the
Shelf Registration Statement to be filed with the Commission, will use its
reasonable best efforts to file the Shelf Registration Statement with the
Commission no later than 60 days after the completion of the Old Notes Offering,
and use its reasonable best efforts to cause the Shelf Registration Statement to
be declared effective by the Commission within 180 days of the closing of the
Old Notes Offering. The Company also agreed to use its reasonable best efforts
to keep such Shelf Registration Statement continuously effective for two years
after the effective date of the Shelf Registration Statement or such shorter
period that will terminate when all the securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement.
In the event that (i) the Company has not filed the Exchange Offer
Registration Statement (or, if applicable, the Shelf Registration Statement)
within 60 days following the closing of the Old Notes Offering, (ii) such
Exchange Offer Registration Statement or Shelf Registration Statement has not
been declared effective by the Commission within 180 days following the Old
Notes Offering, (iii) the Exchange Offer, has not been consummated within 30
business days after the effective date of the Exchange Offer Registration
Statement, or (iv) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but shall thereafter either be
withdrawn or shall become subject to an effective stop order (except in certain
cases) without being succeeded immediately by an additional registration
statement filed and declared effective (each such event referred to in clauses
(i) through (iv) above, a "Registration Default" and each period during which a
Registration Default has occurred and is continuing, a "Registration Default
Period"), then the per annum interest rate on the Old Notes will increase, for
the period from the occurrence of the Registration Default until such time as no
Registration Default is in effect (at which time the interest rate will be
reduced to its initial rate) by 0.5% during the first 90-day period following
the occurrence of such Registration Default, and by an additional 0.5%
thereafter (up to a maximum of 1.0%).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York time, on the
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and
terms of the Old Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
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<PAGE> 63
transfer thereof and (ii) the holders of the Exchange Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Old Notes in
certain circumstances, all of which rights generally will terminate when the
Exchange Offer is terminated. See -- "Purpose and Effect of Exchange Offer." The
Exchange Notes will evidence the same debt as the Old Notes and will be entitled
to the benefits of the Indenture.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered. As of the date of this Prospectus, $110,000,000 aggregate
principal amount of Old Notes were outstanding.
Holders of Old Notes do not have any appraisal or dissenters rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time, on _______,
1998, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange offer is extended, which in no event shall be later than
40 days after the commencement of the Exchange Offer.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York time, on the
next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, to (i) delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) to terminate
the Exchange Offer if any of the conditions set forth below under "--
Conditions" shall not have been satisfied, or (iv) to amend the terms of the
Exchange Offer in any manner by giving oral or written notice of such delay,
extension, termination or amendment to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the most recent date to which
interest has been paid or duly provided for on the Old Note surrendered in
exchange for such Exchange Note or, if no interest has been paid or duly
provided for on such Old Note, from August 7, 1997. Interest on the Exchange
Notes is payable semi-annually on each February 1 and August 1 of each year,
commencing on February 1, 1998.
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<PAGE> 64
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last date to which interest has been paid or duly provided for on the Old Notes
prior to the original issue date of the Exchange Notes or, if no such interest
has been paid or duly provided for will not receive any accrued interest on such
Old Notes, and will be deemed to have waived the right to receive any interest
on such Old Notes accrued from and after the last date to which interest has
been paid or duly provided for on the Old Notes or, if no such interest has been
paid or duly provided for, from and after August 7, 1997.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties
(for example, the letters of the commission to (i) Exxon Capital Holdings
Corporation, available May 13, 1988, (ii) Morgan Stanley & Co., Inc. available
June 5, 1991 and (iii) Shearson & Sterling, available July 2, 1993), the Company
believes that a holder or other person (other than a person that is an affiliate
of the Company within the meaning of Rule 405 under the Securities Act) who
receives Exchange Notes in exchange for Old Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company believes that Participating Broker-Dealers who acquired Old
Notes for their own accounts as a result of market-making activities or other
trading activities may fulfill their prospectus delivery requirements with
respect to the Exchange Notes received upon exchange of such Old Notes (other
than Old Notes which represent an unsold allotment from the original sale of the
Old Notes) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such Exchange Notes. Subject to certain provisions set forth in the Registration
Rights Agreement, the Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Notes for a period
ending 180 days after the Expiration Date. However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of Exchange Notes received in exchange for Old Notes pursuant to the Exchange
Offer must notify the Company, or cause the Company to be notified, on or prior
to the Expiration Date, that it is a Participating Broker-Dealer. Such notice
may be given in the space provided for that purpose in the Letter of Transmittal
or may be delivered to the Exchange Agent at one of the addresses set forth in
the Letter of Transmittal. See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of the Company may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
PROCEDURES FOR TENDERING
For a holder of Old Notes to tender Old Notes validly pursuant to the
Exchange Offer, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantee, or (in the case of
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a book-entry transfer), an Agent's Message in lieu of the Letter of Transmittal,
and any other required documents, must be received by the Exchange Agent at the
address set forth in the Letter of Transmittal prior to 5:00 p.m., New York
time, on the Expiration Date. In addition, prior to 5:00 p.m., New York time, on
the Expiration Date, either (a) certificates for tendered Old Notes must be
received by the Exchange Agent at such address or (b) such Old Notes must be
transferred pursuant to the procedures for book-entry transfer described below
(and a confirmation of such tender received by the Exchange Agent, including an
Agent's Message if the tendering holder has not delivered a Letter of
Transmittal).
The term "Agent's Message" means a message transmitted by the Depository,
received by the Exchange Agent and forming part of the confirmation of a
book-entry transfer, which states that the Depository has received an express
acknowledgment from the participant in the Depository tendering Old Notes which
are the subject of such book-entry confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against such participant. In the
case of an Agent's Message relating to guaranteed delivery, the term means a
message transmitted by the Depository and received by the Exchange Agent, which
states that the Depository has received an express acknowledgment from the
participant in the Depository tendering Old Notes that such participant has
received and agrees to be bound by the Notice of Guaranteed Delivery.
By tendering Old Notes pursuant to the procedures set forth above, each
holder will make to the Company the representations set forth above in the third
paragraph under the heading "-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
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If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
("DTC" or the "Book-Entry Transfer Facility"), for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee, or, in the case of a
book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth in the Letter of
Transmittal on or prior to the Expiration Date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Old Notes to the Exchange Agent in accordance with
DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to the
Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends, to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder, the certificate
number(s) of such Old Notes and the
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<PAGE> 67
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old
Notes (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificates representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon five New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth in the Letter of Transmittal prior to
5:00 p.m., New York time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number(s) and principal amount of such Old Notes, or,
in the case of Old Notes transferred by book-entry transfer, the name and number
of the account at the Book-Entry Transfer Facility to be credited), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such Old
Notes into the name of the person withdrawing the tender and (iv) specify the
name in which any such Old Notes are to be registered, if different from that of
the Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
" -- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept any Old Notes for exchange, and may terminate the Exchange
Offer as provided herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the sole judgment of the Company, would prohibit, restrict or otherwise
render illegal consummation of the Exchange Offer, or
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(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act provided that such Exchange Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of either of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion, although the
Company has no current intention of doing so. Any determination made by the
Company concerning an event, development or circumstance described or referred
to above will be final and binding on all parties.
EXCHANGE AGENT
United States Trust Company of Texas, N.A. has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<CAPTION>
By Registered or
By Overnight Courier: By Hand: Certified Mail:
<S> <C> <C>
U.S. Trust Company of Texas, N.A. U.S. Trust Company of Texas, N.A. U .S. Trust Company of Texas, N.A.
770 Broadway 111 Broadway P.O. Box 841
13th Floor- Corporate Trust Operations Lower Level Cooper Station
New York, New York 10003-9598 New York, New York 10006-1906 New York, New York 10276- 0841
Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust
Services
</TABLE>
By Facsimile:
(212) 420-6504
The Exchange Agent also serves as Trustee under the Indenture.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
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The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept. Holders of Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, (iii) pursuant to another
exemption from the registration requirements of the Securities Act, (iv) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (v) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
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DESCRIPTION OF EXCHANGE NOTES
The Old Notes were issued and the Exchange Notes are to be issued
under an Indenture (the "Indenture") between the Company, U.S. Trust Company of
Texas, N.A., as trustee (the "Trustee"), and Holdings and Crown as guarantors.
The statements under this caption relating to the Notes and the Indenture are
summaries and do not purport to be complete, and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein. However, the
Company believes that all of the material terms of the Notes and the Indenture
are described herein. The Indenture is by its terms subject to and governed by
the Trust Indenture Act of 1939, as amended. Unless otherwise indicated,
references under this caption to sections, "Section " or articles are
references to the Indenture. Where reference is made to particular provisions
of the Indenture or to defined terms not otherwise defined herein, such
provisions or defined terms are incorporated herein by reference. Copies of the
Indenture will be available at the corporate trust office of the Trustee. The
Old Notes and the Exchange Notes are collectively referred to herein as the
"Notes."
GENERAL
The Old Notes are, and the Exchange Notes will be, unsecured
obligations of the Company, limited to $110.0 million aggregate principal
amount and will mature on August 1, 2007.
The Old Notes are, and the Exchange Notes will be unconditionally
guaranteed by the existing Restricted Subsidiaries of the Company, and the
Company will covenant to cause any future Restricted Subsidiaries to
unconditionally guarantee the Exchange Notes, in each case, jointly and
severally on a subordinated basis (such guarantees, the "Guarantees" and such
guarantors, the "Guarantors"), provided that each such Restricted Subsidiary
will cease to be a Guarantor when it ceases to be a Restricted Subsidiary. The
ranking and effectiveness of the Guarantees are subject to certain legal
considerations and are therefore uncertain.
Exchange Notes will bear interest at the rate of 10 5/8% per annum and
will be payable semi-annually on February 1 and August 1 of each year,
commencing February 1, 1998, to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the preceding
January 15 or July 15, as the case may be. Settlement for the Exchange Notes
will be made in immediately available funds and payments by the Company in
respect of the Exchange Notes (including principal, premium, if any, and
interest) will be made in immediately available funds. Interest on the
Exchange Notes will be computed on the basis of a 360-day year comprised of
twelve 30-day months. (Sections 301, 306 and 309)
Principal of and premium, if any, and interest on the Exchange Notes
will be payable, and the Notes may be presented for registration of transfer
and exchange, at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, provided that at the
option of the Company, payment of interest on the Notes may be made by check
mailed to the address of the Person entitled thereto as it appears in the Note
Register. Until otherwise designated by the Company, such office or agency
will be the corporate trust office of the Trustee, as Paying Agent and
Registrar. (Sections 301, 304 and 1002)
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
Exchange Notes will be issued only in fully registered form, without
interest coupons, in denominations of $1,000 and integral multiples thereof.
Notes will not be issued in bearer form. Notes sold in the Exchange Offer will
be issued only against payment in immediately available funds.
GLOBAL NOTE. The Exchange Notes initially will be represented by one
or more Exchange Notes in registered, global form without interest coupons
(collectively, the "Global Note") and will be deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York. The Global Note will be held by DTC on behalf of its account holders
(each a "DTC Participant").
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EXCHANGES OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES. A beneficial
interest in a Global Note may not be exchanged for an Exchange Note in
certificated form unless (i) DTC (x) notifies the Company that it is unwilling
or unable to continue as Depositary for the Global Note or (y) has ceased to be
a clearing agency registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in either case the Company thereupon fails to
appoint a successor Depositary, (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of the Notes in
certificated form or (iii) there shall have occurred and be continuing an Event
of Default with respect to the Notes. In all cases, certificated Notes
delivered in exchange for any Global Note or beneficial interests therein will
be registered in the names, and issued in any approved denominations, requested
by or on behalf of the Depositary (in accordance with its customary
procedures). Any such exchange will be effected through the DWAC System and an
appropriate adjustment will be made in the records of the Security Registrar to
reflect a decrease in the principal amount of the relevant Global Note.
CERTAIN BOOK-ENTRY PROCEDURES. The descriptions of the operations and
procedures of DTC, Euroclear and CEDEL that follow are provided solely as a
matter of convenience. These operations and procedures are solely within the
control of the respective settlement systems and are subject to changes by them
from time to time. The Company takes no responsibility for these operations and
procedures and urges investors to contact the system or their participants
directly to discuss these matters.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised the Company that its current practice, upon the
issuance of the Global Note, is to credit, on its internal system, the
respective principal amount of the individual beneficial interests represented
by such Global Note to the accounts with DTC of the participants through which
such interests are to be held. Ownership of beneficial interests in the Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominees (with respect to interests
of participants).
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL
NOTE, DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE
OWNER AND HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES
UNDER THE INDENTURE AND THE NOTES. Except in the limited circumstances
described above under "-- Exchanges of Book-Entry Notes for Certificated
Notes," owners of beneficial interests in a Global Note will not be entitled to
have any portions of such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of Notes in definitive form
and will not be considered the owners or Holders of the Global Note (or any
Note represented thereby) under the Indenture or the Notes.
Investors may hold their interests in the Global Note directly through
DTC, if they are participants in such system, or indirectly through
organizations (including Euroclear and CEDEL) which are participants in such
system. All interest in a Global Note, including those held through Euroclear
or CEDEL, will be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or CEDEL will also be subject to the
procedures and requirements of such system.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such persons may
be limited to that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants
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and certain banks, the ability of a person having beneficial interests in a
Global Note to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests.
Payments of the principal of, premium, if any, and interest on Global
Note will be made to DTC or its nominee as the registered owner thereof.
Neither the Company, the Trustee nor any of their respective agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note representing any
Notes held by it or its nominee, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Note for such Notes as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Note held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in "street name." Such payment will be the responsibility
of such participants.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Note will trade in DTC's Settlement System and
secondary market trading activity in such interests will therefore settle in
immediately available funds, subject in all cases to the rules and procedures
of DTC and its participants. Transfers between participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in same-day
funds. Transfers between participants in Euroclear and CEDEL will be effected
in the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer and exchange provisions
applicable to the Notes described elsewhere herein, cross-market transfers
between DTC participants, on the one hand, and Euroclear or CEDEL participants,
on the other hand, will be effected by DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions
to Euroclear or CEDEL, as the case may be, by the counterparty in such system
in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may
be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depository to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and CEDEL participants may not deliver instructions directly to
the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a
Euroclear or CEDEL participant purchasing an interest in a Global Note from a
DTC participant will be credited, and any such crediting will be reported to
the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the DTC settlement date. Cash received in Euroclear or
CEDEL as a result of sales of interests in a Global Note by or through a
Euroclear or CEDEL participant to a DTC participant will be received with value
on the DTC settlement date but will be available in the relevant Euroclear or
CEDEL cash account only as of the business day for Euroclear or CEDEL following
the DTC settlement date.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Notes (including the presentation of Notes for exchange
as described below and the conversion of Notes) only at the direction of one or
more participants to whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default (as defined below)
under the Notes, the Global Note will be exchanged for Notes in certificated
form, and distributed to DTC's participants.
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Although DTC, Euroclear and CEDEL have agreed to the foregoing
procedures in order to facilitate transfers of beneficial ownership interests
in the Global Note among participants of DTC, Euroclear and CEDEL, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee
nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear and CEDEL, their participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Note.
OPTIONAL REDEMPTION
The Notes will be subject to redemption, at the option of the Company,
in whole or in part, at any time on or after August 1, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Notes to be redeemed at such Holder's address appearing in the Note
Register, in amounts of $1,000 or an integral multiple of $1,000, at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to but excluding the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date), if redeemed during the 12-month period beginning August 1 of the years
indicated:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.312%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.542%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.771%
2005 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(Sections 203, 1101, 1105 and 1107)
In addition, if on or before August 1, 2000 the Company receives net
proceeds from the sale of its Common Stock or the Common Stock of Holdings in
one or more Public Equity Offerings, the Company may, at its option, use an
amount equal to all or a portion of any such net proceeds to redeem Notes in an
aggregate principal amount of up to 30% of the original aggregate principal
amount of the Notes, provided, however, that Notes having a principal amount
equal to at least 70% of the original aggregate principal amount of the Notes
remain outstanding after such redemption. Such redemption must occur on a
Redemption Date within 90 days of such sale and upon not less than 30 nor more
than 60 days' notice mailed to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in amounts of $1,000 or an
integral multiple of $1,000, at a redemption price equal to 110.625% of the
principal amount of the Notes plus accrued interest to but excluding the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date).
If less than all the Notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the particular
Notes to be redeemed or any portion thereof that is an integral multiple of
$1,000. (Section 1104)
The Notes will not have the benefit of any sinking fund.
SUBORDINATION
The indebtedness evidenced by the Notes will, to the extent set forth
in the Indenture, be subordinate in right of payment to the prior payment in
full of all Senior Debt. Upon any payment or distribution of assets to
creditors upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company,
whether voluntary or involuntary, or any bankruptcy, insolvency, receivership
or similar proceedings of the Company, the holders of all Senior Debt will
first be entitled to receive payment in full of such Senior Debt, or provision
made for such payment, before the Holders of the Notes will be entitled to
receive any payment in respect of the principal of or premium, if any, or
interest on, or any obligation to repurchase, the Notes. In the event that
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notwithstanding the foregoing, the Trustee or the Holder of any Note receives
any payment or distribution of assets of the Company of any kind or character
(including any such payment or distribution which may be payable or deliverable
by the reason of the payment of any other indebtedness of the Company being
subordinated to the payment of the Notes), before all the Senior Debt is so
paid in full, then such payment or distribution will be required to be paid
over or delivered forthwith to the trustee in bankruptcy or other person making
payment or distribution of assets of the Company for application to the payment
of all Senior Debt remaining unpaid, to the extent necessary to pay the Senior
Debt in full.
No payments on account of principal of, premium, if any, or interest
on, or in respect of the purchase or other acquisition of, the Notes, and no
defeasance of the Notes, may be made if there shall have occurred and be
continuing a Senior Payment Default. "Senior Payment Default" means any default
in the payment of any principal of or premium, if any, or interest on
Designated Senior Debt when due, whether at the stated maturity of any such
payment or by declaration of acceleration, call for redemption or otherwise.
Upon the occurrence of a Senior Nonmonetary Default and receipt of
written notice by the Company and the Trustee of the occurrence of such Senior
Nonmonetary Default from any holder of Designated Senior Debt (or any trustee,
agent or other representative for such holder) which is the subject of such
Senior Nonmonetary Default, no payments on account of principal of, premium, if
any, or interest on, or in respect of the purchase or other acquisition of, the
Notes, and no defeasance of the Notes, may be made for a period (the "Payment
Blockage Period") commencing on the date of the receipt of such notice and
ending the earlier of (i) the date on which such Senior Nonmonetary Default
shall have been cured or waived or ceased to exist or all Designated Senior
Debt the subject of such Senior Nonmonetary Default shall have been discharged
and (ii) the 179th day after the date of the receipt of such notice. In any
event, no more than one Payment Blockage Period may be commenced during any
360-day period and there shall be a period of at least 181 days during each
360-day period when no Payment Blockage Period is in effect. In addition, no
Senior Nonmonetary Default that existed or was continuing on the date of the
commencement of a Payment Blockage Period may be made the basis of the
commencement of a subsequent Payment Blockage Period whether or not within a
period of 360 consecutive days, unless such Senior Nonmonetary Default shall
have been cured for a period of not less than 90 consecutive days. "Senior
Nonmonetary Default" means the occurrence or existence and continuance of an
event of default with respect to Senior Debt, other than a Senior Payment
Default, permitting the holders of the Designated Senior Debt (or a trustee or
other agent on behalf of the holders thereof) then to declare such Designated
Senior Debt due and payable prior to the date on which it would otherwise
become due and payable.
The failure to make any payment on the Notes by reason of the
provisions of the Indenture described under this caption "Subordination" will
not be construed as preventing the occurrence of an Event of Default with
respect to the Notes arising from any such failure to make payment. Upon
termination of any period of payment blockage the Company shall resume making
any and all required payments in respect of the Notes, including any missed
payments.
"Senior Debt" means (i) the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding) on, and
penalties and any obligation of the Company for reimbursement, indemnities and
fees relating to, the Senior Bank Facility and (ii) the principal of (and
premium, if any) and interest on Debt of the Company for money borrowed,
whether Incurred on or prior to the date of original issuance of the Notes or
thereafter, and any amendments, renewals, extensions, modifications,
refinancings and refundings of any such Debt and (iii) Permitted Interest Rate
Agreements and Permitted Currency Agreements entered into with respect to Debt
described in clauses (i) and (ii) above; provided, however, that the following
shall not constitute Senior Debt: (1) any Debt as to which the terms of the
instrument creating or evidencing the same provide that such Debt is not
superior in right of payment to the Notes, (2) any Debt which is subordinated
in right of payment in any respect to any other Debt of the Company, (3) Debt
evidenced by the Exchange Notes, (4) Debt evidenced by the Old Notes, (5) any
Debt owed to a Person when such Person is a Subsidiary of the Company, (6) any
obligation of the Company arising from Redeemable Stock of the Company, (7)
that portion of any Debt which is Incurred in violation of the Indenture
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and (8) Debt which, when Incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company.
By reason of such subordination, in the event of insolvency, creditors
of the Company who are not holders of Senior Debt or of the Notes may recover
less, ratably, than holders of Senior Debt and more, ratably, than Holders of
the Notes.
The subordination provisions described above will not be applicable to
payments in respect of the Notes from a defeasance trust established in
connection with any defeasance or covenant defeasance of the Notes as described
under "-- Defeasance." (Article 13)
COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON CONSOLIDATED DEBT
The Company may not, and may not permit any Restricted Subsidiary of
the Company to, Incur any Debt unless immediately after giving pro forma effect
to the incurrence of such Debt and the receipt and application of the proceeds
thereof, the Consolidated Cash Flow Coverage Ratio of the Company would be
greater than 2.0 to 1; provided that if the Debt which is the subject of the
determination under this provision is Acquired Debt, the Consolidated Cash Flow
Coverage Ratio of the Company shall be determined by giving effect (on a pro
forma basis, as if the transaction had occurred at the beginning of the
immediately preceding four-quarter period) to both the incurrence or assumption
of such Acquired Debt by the Company and the inclusion in the Consolidated Cash
Flow Available for Fixed Charges of the Person whose Debt would constitute
Acquired Debt.
Notwithstanding the foregoing limitation, the Company may, and may
permit any Restricted Subsidiary to, incur the following Debt:
(i) Debt under the Senior Bank Facility in an aggregate
principal amount at any one time not to exceed $75.0 million, less any
amounts by which any revolving credit facility commitments under the
Senior Bank Facility are permanently reduced pursuant to the
"Limitation on Asset Dispositions" covenant below (so long as and to
the extent that any required payments in connection therewith are
actually made);
(ii) the original issuance by the Company of the Debt
evidenced by the Notes (including any Exchange Notes);
(iii) Debt (other than Debt described in another clause of
this paragraph) outstanding on the date of original issuance of the
Notes after giving effect to the application of the proceeds of the
Notes, as described in a schedule to the Indenture;
(iv) Debt owed by the Company to any Wholly Owned Restricted
Subsidiary of the Company or Debt owed by a Subsidiary of the Company
to the Company or a Wholly Owned Restricted Subsidiary of the Company;
provided, however, that (a) any such Debt owing by the Company to a
Wholly Owned Restricted Subsidiary shall be Subordinated Debt
evidenced by an intercompany promissory note and (b) upon either (1)
the transfer or other disposition by such Wholly Owned Restricted
Subsidiary or the Company of any Debt so permitted to a Person other
than the Company or another Wholly Owned Restricted Subsidiary of the
Company or (2) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Wholly Owned Restricted
Subsidiary to a Person other than the Company or another such Wholly
Owned Restricted Subsidiary, the provisions of this
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clause (iv) shall no longer be applicable to such Debt and such Debt
shall be deemed to have been Incurred at the time of such transfer or
other disposition;
(v) Debt consisting of Permitted Interest Rate, Currency or
Commodity Price Agreements;
(vi) Debt which is exchanged for or the proceeds of which are
used to refinance or refund, or any extension or renewal of,
outstanding Debt Incurred pursuant to the preceding paragraph or
clauses (ii) or (iii) of this paragraph (each of the foregoing, a
"refinancing") in an aggregate principal amount not to exceed the
principal amount of the Debt so refinanced plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt so refinanced or the amount of any
premium reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the expenses of the Company or the
Restricted Subsidiary, as the case may be, incurred in connection with
such refinancing; provided, however, that (A) Debt the proceeds of
which are used to refinance the Notes or Debt which is pari passu with
or subordinate in right of payment to the Notes shall only be
permitted if (x) in the case of any refinancing of the Notes or Debt
which is pari passu to the Notes, the refinancing Debt is made pari
passu to the Notes or subordinated to the Notes, and (y) in the case
of any refinancing of Debt which is subordinated to the Notes, the
refinancing Debt constitutes Subordinated Debt; (B) the refinancing
Debt by its terms, or by the terms of any agreement or instrument
pursuant to which such Debt is issued, (1) does not provide for
payments of principal of such Debt at the stated maturity thereof or
by way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof (including
any redemption, defeasance, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Debt upon any event of
default thereunder), in each case prior to the stated maturity of the
Debt being refinanced and (2) does not permit redemption or other
retirement (including pursuant to an offer to purchase) of such debt
at the option of the holder thereof prior to the final stated maturity
of the Debt being refinanced), other than a redemption or other
retirement at the option of the holder of such Debt (including
pursuant to an offer to purchase) which is conditioned upon provisions
substantially similar to those described under "-- Change of Control"
and "-- Limitation on Asset Dispositions"; and (C) in the case of any
refinancing of Debt Incurred by the Company, the refinancing Debt may
be Incurred only by the Company, and in the case of any refinancing of
Debt Incurred by a Restricted Subsidiary, the refinancing Debt may be
Incurred only by such Restricted Subsidiary; provided, further, that
Debt Incurred pursuant to this clause (vi) may not be Incurred more
than 45 days prior to the application of the proceeds to repay the
Debt to be refinanced;
(vii) Acquired Debt, provided that such Debt if incurred by
the Company would be in compliance with the first paragraph of this
covenant; and
(viii) Debt not otherwise permitted to be Incurred pursuant to
clauses (i) through (vii) above, which, together with any other
outstanding Debt Incurred pursuant to this clause (viii), has an
aggregate principal amount not in excess of $5.0 million at any time
outstanding. (Section 1008)
LIMITATION ON SENIOR SUBORDINATED DEBT
The Company may not Incur any Debt which by its terms is both (i)
subordinated in right of payment to any Senior Debt and (ii) senior in right of
payment to the Notes. (Section 1009)
LIMITATION ON ISSUANCE OF GUARANTEES OF SUBORDINATED DEBT
The Company may not permit any Restricted Subsidiary, directly or
indirectly, to assume, guarantee or in any other manner become liable with
respect to any Debt of the Company that by its terms is pari passu or junior in
right of payment to the Notes. (Section 1010)
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LIMITATION ON LIENS
The Company may not, and may not permit any Subsidiary to, create,
incur, assume or suffer to exist any Lien on or with respect to any property or
assets of the Company or any such Restricted Subsidiary now owned or hereafter
acquired except for (i) Liens incurred after the date of the Indenture securing
Debt of the Company that ranks pari passu or junior in right of payment to the
Notes, if the Notes are secured equally and ratably with such Debt, (ii) Liens
outstanding on the date of the Indenture, (iii) Liens for taxes, assessments,
governmental charges or claims not yet delinquent or which are being contested
in good faith by appropriate proceedings, provided, that adequate reserves with
respect thereto are maintained on the books of the Company or its Restricted
Subsidiaries, as the case may be, in conformity with generally accepted
accounting principles, (iv) landlords' carriers', warehousemen's, mechanics',
material men's, repairmen's or the like Liens arising by contract or statute in
the ordinary course of business and with respect to amount which are not yet
delinquent or are being contested in good faith by appropriate proceedings, (v)
pledges or deposits made in the ordinary course of business (A) in connection
with leases, performance bonds and similar obligations, or (B) in connection
with workers' compensation, unemployment insurance and other social security
legislation, (vi) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar encumbrances which, in the aggregate,
do not materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the Company
or such Restricted Subsidiary, (vii) any attachment or judgment Lien that does
not constitute an Event of Default, (viii) Liens securing Acquired Debt,
provided, that such Liens attach solely to the acquired assets or the assets of
the acquired entity and do not extend to or cover any other assets of the
Company or any of its Restricted Subsidiaries, (ix) Liens to secure Senior
Debt, (x) Liens in favor of the Trustee for its own benefit and for the benefit
of the Holders, (xi) any interest or title of a lessor pursuant to a lease
constituting a Capital Lease Obligation, (xii) pledges or deposits made in
connection with acquisition agreements or letters of intent entered into in
respect of a proposed acquisition; (xiii) Liens in favor of prior holders of
leases on property acquired by the Company or of sublessors under leases on the
Company property; (xiv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory obligations,
banker's acceptances, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (xv) Liens (including extensions and renewals
thereof) upon real or personal property acquired after the date of the
Indenture; provided that (a) such Lien is created solely for the purpose of
securing Debt incurred, in accordance with the "Limitation on Consolidated
Debt" covenant, (1) to finance the cost (including the cost of improvement or
construction) of the item property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Debt previously so secured,
(b) the principal amount of the Debt secured by such Lien does not exceed 100%
of such cost and (c) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets and any improvements on such
item; (xvi) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole; (xvii) Liens arising from filing
Uniform Commercial Code financing statements regarding leases; (xviii) Liens on
property of, or on shares of stock or Debt of, any Person existing at the time
such Person becomes, or becomes a part of, any Restricted Subsidiary, provided
that such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets acquired; (xix)
Liens in favor of the Company or any Restricted Subsidiary; (xx) Liens
encumbering deposits securing Debt under Permitted Interest Rate, Currency or
Commodity Price Agreements; (xxi) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary
course of business in accordance with the past practices of the Company and its
Restricted Subsidiaries; (xxii) Liens on or sales of receivables; (xxiii) the
rights of film distributors under film licensing contracts entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
businesses on a basis customary in the movie exhibition industry; and (xxiv)
any renewal of or substitution of any Liens permitted by any of the preceding
clauses, provided that the Debt secured is not increased (other than by any
premium and accrued interest, plus customary fees, expenses and costs related
to such renewal or substitution of Liens or the incurrence of any related
refinancing of Debt) nor the Liens extended to any additional assets (other
than proceeds and accessions).
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This covenant does not authorize the incurrence of any Debt not otherwise
permitted by the "Limitation on Consolidated Debt" covenant. (Section 1011)
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) may not, directly or indirectly, declare or pay any
dividend or make any distribution (including any payment in connection with any
merger or consolidation derived from assets of the Company or any Restricted
Subsidiary) in respect of its Capital Stock or to the holders thereof,
excluding any dividends or distributions by the Company payable solely in
shares of its Capital Stock (other than Redeemable Stock) or in options,
warrants or other rights to acquire its Capital Stock (other than Redeemable
Stock), (ii) may not, and may not permit any Restricted Subsidiary to,
purchase, redeem, or otherwise acquire or retire for value (a) any Capital
Stock of the Company or any Related Person of the Company or (b) any options,
warrants or other rights to acquire shares of Capital Stock of the Company or
any Related Person of the Company or any securities convertible or exchangeable
into shares of Capital Stock of the Company or any Related Person of the
Company, (iii) may not make, or permit any Restricted Subsidiary to make, any
Investment other than a Permitted Investment, and (iv) may not, and may not
permit any Restricted Subsidiary to, redeem, repurchase, defease or otherwise
acquire or retire for value prior to any scheduled maturity, repayment or
sinking fund payment Debt of the Company which is subordinate in right of
payment to the Notes (each of clauses (i) through (iv) being a "Restricted
Payment") if: (1) an Event of Default, or an event that with the passing of
time or the giving of notice, or both, would constitute an Event of Default,
shall have occurred and is continuing or would result from such Restricted
Payment, or (2) after giving pro forma effect to such Restricted Payment as if
such Restricted Payment had been made at the beginning of the applicable
four-fiscal-quarter period, the Company could not Incur at least $1.00 of
additional Debt pursuant to the terms of the Indenture described in the first
paragraph of "Limitation on Consolidated Debt" above, or (3) upon giving effect
to such Restricted Payment, the aggregate of all Restricted Payments from the
date of issuance of the Notes exceeds the sum of: (a) 50% of cumulative
Consolidated Net Income (or, in the case Consolidated Net Income shall be
negative, less 100% of such deficit) of the Company since the date of issuance
of the Notes through the last day of the last full fiscal quarter ending
immediately preceding the date of such Restricted Payment for which quarterly
or annual financial statements are available (taken as a single accounting
period); plus (b) 100% of the aggregate net proceeds received by the Company
after the date of original issuance of the Notes, including the fair market
value of property other than cash (determined in good faith by the Board of
Directors as evidenced by a resolution of the Board of Directors filed with the
Trustee), from contributions of capital or the issuance and sale (other than to
a Restricted Subsidiary) of Capital Stock (other than Redeemable Stock) of the
Company, options, warrants or other rights to acquire Capital Stock (other than
Redeemable Stock) of the Company and Debt of the Company that has been
converted into or exchanged for Capital Stock (other than Redeemable Stock and
other than by or from a Restricted Subsidiary) of the Company after the date of
original issuance of the Notes, provided that any such net proceeds received by
the Company from an employee stock ownership plan financed by loans from the
Company or a Restricted Subsidiary of the Company shall be included only to the
extent such loans have been repaid with cash on or prior to the date of
determination; plus (c) $5.0 million. Prior to the making of any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
setting forth the computations by which the determinations required by clauses
(2) and (3) above were made and stating that no Event of Default, or event that
with the passing of time or the giving of notice, or both, would constitute an
Event of Default, has occurred and is continuing or will result from such
Restricted Payment.
Notwithstanding the foregoing, so long as no Event of Default, or
event that with the passing of time or the giving of notice, or both, would
constitute an Event of Default, shall have occurred and is continuing or would
result therefrom, (i) the Company may pay any dividend on Capital Stock of any
class within 60 days after the declaration thereof if, on the date when the
dividend was declared, the Company could have paid such dividend in accordance
with the foregoing provisions; (ii) the Company may refinance any Debt
otherwise permitted by clause (vi) of the second paragraph under "Limitation on
Consolidated Debt" above or solely in exchange for or out of the net proceeds
of the substantially concurrent sale (other than from or to a Restricted
Subsidiary or from or to an employee stock ownership plan financed by loans
from the Company or a Restricted Subsidiary of the Company) of shares of
Capital Stock (other than Redeemable Stock) of the Company, provided that the
amount of net proceeds from such exchange or sale shall
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be excluded from the calculation of the amount available for Restricted
Payments pursuant to the preceding paragraph; (iii) the Company may purchase,
redeem, acquire or retire any shares of Capital Stock of the Company solely in
exchange for or out of the net proceeds of the substantially concurrent sale
(other than from or to a Restricted Subsidiary or from or to an employee stock
ownership plan financed by loans from the Company or a Restricted Subsidiary of
the Company) of shares of Capital Stock (other than Redeemable Stock) of the
Company; and (iv) the Company or a Restricted Subsidiary may purchase or redeem
any Debt from Net Available Proceeds to the extent permitted under "Limitation
on Asset Dispositions." Any payment made pursuant to clause (i) or (iii) of
this paragraph shall be a Restricted Payment for purposes of calculating
aggregate Restricted Payments pursuant to the preceding paragraph. (Section
1012)
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of the Company (i) to pay dividends (in cash or otherwise) or make
any other distributions in respect of its Capital Stock or pay any Debt or
other obligation owed to the Company or any other Restricted Subsidiary; (ii)
to make loans or advances to the Company or any other Restricted Subsidiary; or
(iii) to transfer any of its property or assets to the Company or any other
Restricted Subsidiary. Notwithstanding the foregoing, the Company may, and may
permit any Restricted Subsidiary to, suffer to exist any such encumbrance or
restriction (a) pursuant to any agreement in effect on the date of original
issuance of the Notes as described in a schedule to the Indenture; (b) pursuant
to an agreement relating to any Debt Incurred by a Person (other than a
Restricted Subsidiary of the Company existing on the date of original issuance
of the Notes or any Restricted Subsidiary carrying on any of the businesses of
any such Restricted Subsidiary) prior to the date on which such Person became a
Restricted Subsidiary of the Company and outstanding on such date and not
Incurred in anticipation of becoming a Restricted Subsidiary, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person so acquired; (c) pursuant to an agreement
effecting a renewal, refunding or extension of Debt Incurred pursuant to an
agreement referred to in clause (a) or (b) above, provided, however, that the
provisions contained in such renewal, refunding or extension agreement relating
to such encumbrance or restriction are no more restrictive in any material
respect than the provisions contained in the agreement the subject thereof, as
determined in good faith by the Board of Directors and evidenced by a
resolution of the Board of Directors filed with the Trustee; (d) in the case of
clause (iii) above, restrictions contained in any security agreement (including
a capital lease) securing Debt of a Restricted Subsidiary otherwise permitted
under the Indenture, but only to the extent such restrictions restrict the
transfer of the property subject to such security agreement; (e) in the case of
clause (iii) above, customary nonassignment provisions entered into in the
ordinary course of business consistent with past practices in leases and other
contracts to the extent such provisions restrict the transfer or subletting of
any such lease or the assignment of rights under any such contract; (f) any
restriction with respect to a Restricted Subsidiary of the Company imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary, provided that consummation of such transaction would not
result in an Event of Default or an event that, with the passing of time or the
giving of notice or both, would constitute an Event of Default, that such
restriction terminates if such transaction is closed or abandoned and that the
closing or abandonment of such transaction occurs within one year of the date
such agreement was entered into; or (g) such encumbrance or restriction is the
result of applicable corporate law or regulation relating to the payment of
dividends or distributions. (Section 1013)
LIMITATION ON ASSET DISPOSITIONS
The Company may not, and may not permit any Restricted Subsidiary to,
make any Asset Disposition in one or more related transactions unless: (i) the
Company or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the fair market value for
the assets sold or disposed of as determined by the Board of Directors in good
faith and evidenced by a resolution of the Board of Directors filed with the
Trustee; (ii) at least 75% of the consideration for such disposition consists
of cash or readily marketable cash equivalents or Qualifying Theater Assets or
the assumption of Debt (other than Debt that is subordinated to the Notes)
relating to such
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assets and release from all liability on the Debt assumed; and (iii) all Net
Available Proceeds, less any amounts invested within 360 days of such
disposition in assets related to the business of the Company, are applied
within 360 days of such disposition (1) first, to the permanent repayment or
reduction of Senior Debt then outstanding under any agreements or instruments
which would require such application or prohibit payments pursuant to clause
(2) following, (2) second, to the extent of remaining Net Available Proceeds,
to make an Offer to Purchase outstanding Notes at 100% of their principal
amount plus accrued interest to the date of purchase and, to the extent
required by the terms thereof, any other Debt of the Company that is pari passu
with the Notes at a price no greater than 100% of the principal amount thereof
plus accrued interest to the date of purchase, (3) third, to the extent of any
remaining Net Available Proceeds following the completion of the Offer to
Purchase, to the repayment of other Debt of the Company or Debt of a Restricted
Subsidiary of the Company, to the extent permitted under the terms thereof and
(4) fourth, to the extent of any remaining Net Available Proceeds, to any other
use as determined by the Company which is not otherwise prohibited by the
Indenture. (Section 1014)
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Company may not, and may not permit any Restricted Subsidiary of
the Company to, enter into any transaction (or series of related transactions)
with an Affiliate or Related Person of the Company (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company), including any Investment,
either directly or indirectly, unless such transaction is on terms no less
favorable to the Company or such Restricted Subsidiary than those that could be
obtained in a comparable arm's-length transaction with an entity that is not an
Affiliate or Related Person. For any transaction that involves in excess of
$100,000 but less than or equal to $1,000,000, the Chief Executive Officer of
the Company shall determine that the transaction satisfies the above criteria
and shall evidence such a determination by a certificate filed with the
Trustee. For any transaction that involves in excess of $1,000,000, a majority
of the disinterested members of the Board of Directors shall determine that the
transaction satisfies the above criteria and shall evidence such a
determination by a Board Resolution filed with the Trustee. For any transaction
that involves in excess of $5,000,000, the Company shall also obtain an opinion
from a nationally recognized expert with experience in appraising the terms and
conditions of the type of transaction (or series of related transactions) for
which the opinion is required stating that such transaction (or series of
related transactions) is on terms no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person of the Company, which opinion shall be filed with the Trustee. (Section
1015)
Notwithstanding anything to the contrary contained in the Indenture,
the foregoing provisions shall not apply to (i) transactions with any employee,
officer or director of the Company or any of its Restricted Subsidiaries
pursuant to employee benefit plans or compensation arrangements or agreements
entered into in the ordinary course of business, (ii) transactions with any
Affiliate or Related Person in which such Affiliate or Related Person acquires
or purchases the capital stock of the Company or any Restricted Subsidiary at
fair market value or (iii) transactions with any Affiliate or Related Person in
which such Affiliate or Related Person receives a customary finder's fee or
other advisory fee for services rendered to the Company or any Restricted
Subsidiary.
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, the Company
will be required to make an Offer to Purchase all Outstanding Notes at a
purchase price equal to 101% of their principal amount plus accrued interest to
the date of purchase. A "Change of Control" will be deemed to have occurred at
such time as either (a) any Person (other than a Permitted Holder) or any
Persons acting together that would constitute a "group" (a "Group") for
purposes of Section 13(d) of the Securities Exchange Act of 1934, or any
successor provision thereto (other than Permitted Holders), together with any
Affiliates or Related Persons thereof, shall beneficially own (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, or any
successor provision thereto), directly or indirectly, at least 50% of the
aggregate voting power of all classes of Voting Stock of the Company (for the
purposes of this clause (a) a person shall be deemed to beneficially own the
Voting Stock of a corporation that is beneficially owned (as defined above) by
another corporation (a "parent corporation"), if such person beneficially owns
(as defined above) at least 50% of the
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aggregate voting power of all classes of Voting Stock of such parent
corporation); or (b) any Person or Group (other than Permitted Holders),
together with any Affiliates or Related Persons thereof, shall succeed in
having a sufficient number of its nominees elected to the Board of Directors of
the Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Company after such election who was
a nominee of or is an Affiliate or Related Person of such Person or Group, will
constitute a majority of the Board of Directors of the Company. (Section 1016)
Certain events involving a Change of Control will result in an event
of default under the Senior Bank Facility and may result in an event of default
under other indebtedness of the Company that may be incurred in the future. An
event of default under the Senior Bank Facility or other future senior
indebtedness could result in an acceleration of such indebtedness, in which
case the subordination provisions of the Notes would require payment in full of
such senior indebtedness before repurchase of the Notes. It is unlikely that
the Company would have sufficient resources to repurchase the Notes or pay its
obligations if the indebtedness under the Senior Bank Facility or other future
senior indebtedness were accelerated upon the occurrence of a Change of
Control. The inability of the Company to repurchase all of the tendered
Exchange Notes would constitute an Event of Default under the Indenture.
The foregoing provisions will not prevent the Company from entering
into transactions of the types described above with management or their
affiliates. In addition, such provisions may not necessarily afford the
holders of the Exchange Notes protection in the event of a highly leveraged
transaction, including a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the holders because
such transactions may not involve a shift in voting power or beneficial
ownership, or even if they do, may not involve a shift of the magnitude
required under the definition of Change of Control to trigger the provisions.
Nonetheless, such provisions may have the effect of deterring certain mergers,
tender offers, takeover attempts or similar transactions by increasing the cost
of such a transaction and may limit the Company's ability to obtain additional
equity financing in the future.
In the event that the Company makes an Offer to Purchase the Notes,
the Company intends to comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Securities Exchange Act of 1934.
PROVISION OF FINANCIAL INFORMATION
Prior to the time the Company becomes subject to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, the Company shall provide to all
Holders and file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to such Section 13(a) or 15(d) or any successor
provision thereto if the Company were so required, such documents to be mailed
to Holders and filed with the Trustee on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
file such documents if the Company were so required. After the Company
commences filing such reports, and so long as any of the Notes are outstanding,
the Company, or if the Company is not required to file, Holdings shall file
with the Commission the annual reports, quarterly reports and other documents
which the Company is required to file with the Commission pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 or any successor
provisions thereto. (Section 1017)
UNRESTRICTED SUBSIDIARIES
The Company may designate any Subsidiary of the Company to be an
"Unrestricted Subsidiary" as provided below in which event such Subsidiary and
each other Person that is then or thereafter becomes a Subsidiary of such
Subsidiary will be deemed to be an Unrestricted Subsidiary. "Unrestricted
Subsidiary" means (1) any Subsidiary designated as such by the Board of
Directors as set forth below where (a) neither the Company nor any of its other
Subsidiaries (other than another Unrestricted Subsidiary) (i) provides credit
support for, or any Guarantee of, any Debt of such Subsidiary or any Subsidiary
of such Subsidiary (including any undertaking, agreement or instrument
evidencing such Debt) or (ii) is directly or indirectly liable for any Debt of
such Subsidiary or any Subsidiary of such Subsidiary,
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and (b) no default with respect to any Debt of such Subsidiary or any
Subsidiary of such Subsidiary (including any right which the holders thereof
may have to take enforcement action against such Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of the Company and
its Subsidiaries (other than another Unrestricted Subsidiary) to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity and (2) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary to
be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of,
or owns or holds any Lien on any property of, any other Subsidiary of the
Company which is not a Subsidiary of the Subsidiary to be so designated or
otherwise an Unrestricted Subsidiary, provided that either (x) the Subsidiary
to be so designated has total assets of $1,000 or less or (y) immediately after
giving effect to such designation, the Company could incur at least $1.00 of
additional Debt pursuant to the first paragraph under "-- Limitation on
Consolidated Debt" and provided, further, that the Company could make a
Restricted Payment in an amount equal to the greater of the fair market value
and book value of such Subsidiary pursuant to "Limitation on Restricted
Payments" and such amount is thereafter treated as a Restricted Payment for the
purpose of calculating the aggregate amount available for Restricted Payments
thereunder. (Section 1018)
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into the Company and (ii) directly or
indirectly, transfer, sell, lease or otherwise dispose of all or substantially
all of its assets unless: (1) in a transaction in which the Company does not
survive or in which the Company sells, leases or otherwise disposes of all or
substantially all of its assets, the successor entity to the Company is
organized under the laws of the United States of America or any State thereof
or the District of Columbia and shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee in form satisfactory to the
Trustee, all of the Company's obligations under the Indenture; (2) immediately
before and after giving effect to such transaction and treating any Debt which
becomes an obligation of the Company or a Restricted Subsidiary as a result of
such transaction as having been Incurred by the Company or such Restricted
Subsidiary at the time of the transaction, no Event of Default or event that
with the passing of time or the giving of notice, or both, would constitute an
Event of Default shall have occurred and be continuing; (3) immediately after
giving effect to such transaction, the Consolidated Net Worth of the Company
(or other successor entity to the Company) is equal to or greater than that of
the Company immediately prior to the transaction; (4) immediately after giving
effect to such transaction and treating any Debt which becomes an obligation of
the Company or a Restricted Subsidiary as a result of such transaction as
having been Incurred by the Company or such Restricted Subsidiary at the time
of the transaction, the Company (including any successor entity to the Company)
could Incur at least $1.00 of additional Debt pursuant to the provisions of the
Indenture described in the first paragraph under "Limitation on Consolidated
Debt" above; and (5) certain other conditions are met. (Section 801)
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided. (Section 101)
"Acquired Debt" of any particular Person means Debt of any other
Person existing at the time such other Person merged with or into or became a
Subsidiary of such Particular Person or assumed by such particular Person in
connection with the acquisition of assets from any other Person, and not
Incurred by such other Person in connection with, or in contemplation of, such
other Person merging with or into such particular Person or becoming a
Subsidiary of such particular Person or such acquisition.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether
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through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Disposition" by any Person means any transfer, conveyance,
sale, lease or other disposition by such Person or any of its Restricted
Subsidiaries (including any issuance or sale by a Restricted Subsidiary of
Capital Stock of such Restricted Subsidiary, and including a consolidation or
merger or other sale of any such Restricted Subsidiary with, into or to another
Person in a transaction in which such Restricted Subsidiary ceases to be a
Restricted Subsidiary, but excluding a disposition by a Restricted Subsidiary
of such Person to such Person or a Wholly Owned Restricted Subsidiary of such
Person or by such Person to a Wholly Owned Restricted Subsidiary of such
Person) of (i) shares of Capital Stock (other than directors' qualifying
shares) or other ownership interests of a Restricted Subsidiary of such Person,
(ii) substantially all of the assets of such Person or any of its Restricted
Subsidiaries representing a division or line of business or (iii) other assets
or rights of such Person or any of its Restricted Subsidiaries outside of the
ordinary course of business, provided in each case that the aggregate
consideration for such transfer, conveyance, sale, lease or other disposition
is equal to $1.0 million or more. The term "Asset Disposition" shall not
include (i) any sale and leaseback of Qualifying Theater Assets effected at
fair market value, and (ii) any swap or exchange of Qualifying Theater Assets
of the Company or its Subsidiaries for Qualifying Theater Assets of another
Person, provided that if the fair market value of the assets exchanged by the
Company or its Subsidiary exceeds the fair market value of the assets to be
received, in each case as determined in good faith by the Board of Directors of
the Company, such excess shall be subject to the "Limitation on Asset
Dispositions" covenant.
"Capital Lease Obligation" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability
on the face of a balance sheet of such Person in accordance with generally
accepted accounting principles. The stated maturity of such obligation shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty. The principal amount of such obligation shall be
the capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general
or limited, of such Person.
"Cash Equivalents" means (i) direct obligations of the United States
of America or any agency thereof having maturities of not more than one year
from the date of acquisition, (ii) time deposits and certificates of deposit of
any domestic commercial bank or recognized standing having capital and surplus
in excess of $500 million, with maturities of not more than one year from the
date of acquisition, (iii) repurchase obligations issued by any bank described
in clause (ii) above with a term not to exceed 30 days; (iv) commercial paper
rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the
equivalent thereof by Moody's, in each case maturing within one year after the
date of acquisition and (v) shares of any money market mutual fund, or similar
fund, in each case having excess of $500 million, which invests predominantly
in investments of the types describes in clauses (i) through (iv) above.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Cash Flow Available for Fixed Charges" for any period
means the Consolidated Net Income of the Company and its Restricted
Subsidiaries for such period increased by the sum of (i) Consolidated Interest
Expense of the Company and its Restricted Subsidiaries for such period, plus
(ii) Consolidated Income Tax Expense of the Company and its Restricted
Subsidiaries for such period, plus (iii) the consolidated depreciation and
amortization expense included in the income statement of the Company and its
Restricted Subsidiaries for such period, plus (iv) all
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other non-cash items reducing Consolidated Net Income of the Company and its
Restricted Subsidiaries, less all non-cash items increasing Consolidated Net
Income of the Company and its Restricted Subsidiaries; provided, however, that
there shall be excluded therefrom the Consolidated Cash Flow Available for
Fixed Charges (if positive) of any Restricted Subsidiary of the Company
(calculated separately for such Restricted Subsidiary in the same manner as
provided above for the Company) that is subject to a restriction which prevents
the payment of dividends or the making of distributions to the Company or
another Restricted Subsidiary of the Company to the extent of such restriction.
"Consolidated Cash Flow Coverage Ratio" as of any date of
determination means the ratio of (i) Consolidated Cash Flow Available for Fixed
Charges of the Company and its Restricted Subsidiaries for the period of the
most recently completed four consecutive fiscal quarters for which quarterly or
annual financial statements are available to (ii) Consolidated Fixed Charges of
the Company and its Restricted Subsidiaries for such period; provided, however,
that Consolidated Fixed Charges shall be adjusted to give effect on a pro forma
basis to any Debt that has been Incurred by the Company or any Restricted
Subsidiary since the beginning of such period that remains outstanding and to
any Debt that is proposed to be Incurred by the Company or any Restricted
Subsidiary as if in each case such Debt had been Incurred on the first day of
such period and as if any Debt that (i) is or will no longer be outstanding as
the result of the Incurrence of any such Debt or (ii) had been repaid or
retired during such period had not been outstanding as of the first day of such
period; provided, however, that in making such computation, the Consolidated
Interest Expense of the Company and its Restricted Subsidiaries attributable to
interest on any proposed Debt bearing a floating interest rate shall be
computed on a pro forma basis as if the rate in effect on the date of
computation had been the applicable rate for the entire period; and provided
further that, in the event the Company or any of its Restricted Subsidiaries
has made Asset Dispositions or acquisitions of assets not in the ordinary
course of business (including acquisitions of other Persons by merger,
consolidation or purchase of Capital Stock) during or after such period, such
computation shall be made on a pro forma basis as if the Asset Dispositions or
acquisitions had taken place on the first day of such period.
"Consolidated Fixed Charges" for any period means the sum of (i)
Consolidated Interest Expense and (ii) the consolidated amount of interest
capitalized by the Company and its Restricted Subsidiaries during such period
calculated in accordance with generally accepted accounting principles.
"Consolidated Income Tax Expense" for any period means the
consolidated provision for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (without deduction
of interest income) of the Company and its Restricted Subsidiaries for such
period calculated on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit,
bankers' acceptances or similar facilities; (iii) fees with respect to interest
rate swap or similar agreements or foreign currency hedge, exchange or similar
agreements; (iv) Preferred Stock dividends of Restricted Subsidiaries of the
Company (other than with respect to Redeemable Stock) declared and paid or
payable to persons other than the Company or any Restricted Subsidiary; (v)
accrued Redeemable Stock dividends of the Company and its Restricted
Subsidiaries payable to persons other than the Company or any Restricted
Subsidiary, whether or not declared or paid; (vi) interest on Debt guaranteed
by the Company and its Restricted Subsidiaries; and (vii) the portion of any
rental obligation allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by of the Company or a Restricted
Subsidiary of the Company in a pooling-of-interests transaction for any period
prior to the date of such transaction, (b) the net income (or loss) of any
Person that is not a Subsidiary of the Company except to the extent of the
amount of dividends or other distributions actually paid to the Company or a
Subsidiary of the Company by such Person during such period, (c) gains or
losses on Asset Dispositions by the
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Company or its Restricted Subsidiaries, (d) all extraordinary gains and
extraordinary losses, (e) the cumulative effect of changes in accounting
principles and (f) the tax effect of any of the items described in clauses (a)
through (e) above; provided, further, that for purposes of any determination
pursuant to the provisions described under "Limitation on Restricted Payments,"
there shall further be excluded therefrom the net income (but not net loss) of
any Restricted Subsidiary of the Company that is subject to a restriction which
prevents the payment of dividends or the making of distributions to the Company
or another Restricted Subsidiary of the Company to the extent of such
restriction.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with respect to
the Company, adjustments following the date of the Indenture to the accounting
books and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person shall not be
given effect to.
"Consolidated Tangible Assets" of any Person means, as of any date,
the amount which, in accordance with GAAP, would be set forth under the caption
"Total Assets" (or any like caption) on a consolidated balance sheet of such
Person and its Restricted Subsidiaries, less all intangible assets, including,
without limitation, goodwill, organization costs, patents, trademarks,
copyrights, franchises, and research and development costs.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business which are not overdue or which are being
contested in good faith), (v) every Capital Lease Obligation of such Person,
(vi) all Receivables Sales of such Person, together with any obligation of such
Person to pay any discount, interest, fees, indemnities, penalties, recourse,
expenses or other amounts in connection therewith, (vii) all Redeemable Stock
issued by such Person, (viii) Preferred Stock of Restricted Subsidiaries of
such Person held by Persons other than such Person or one of its Wholly Owned
Restricted Subsidiaries, (ix) every obligation under Interest Rate, Currency or
Commodity Price Agreements of such Person and (x) every obligation of the type
referred to in clauses (i) through (ix) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed
or is responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise. The "amount" or "principal amount" of Debt at any time of
determination as used herein represented by (a) any Receivables Sale, shall be
the amount of the unrecovered capital or principal investment of the purchaser
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company)
thereof, excluding amounts representative of yield or interest earned on such
investment and (b) any Redeemable Stock, shall be the maximum fixed redemption
or repurchase price in respect thereof.
"Designated Senior Debt" shall mean (i) the obligations of the Company
under the Senior Bank Facility and (ii) any other Senior Debt of the Company
permitted under the Indenture the principal amount of which at original
issuance is $25.0 million or more and that has been designated by the Company
as Designated Senior Debt.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to
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pay such Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have
meanings correlative to the foregoing); provided, however, that the Guaranty by
any Person shall not include endorsements by such Person for collection or
deposit, in either case, in the ordinary course of business.
"Holdings" means Hollywood Theater Holdings, Inc. or any successor
thereto.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Debt shall
not be deemed an Incurrence of such Debt.
"Interest Rate, Currency or Commodity Price Agreement" of any Person
means any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates, currency exchange rates or commodity prices or indices
(excluding contracts for the purchase or sale of goods in the ordinary course
of business).
"Investment" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) to, or purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidence of Debt
issued by, any other Person, including any payment on a Guarantee of any
obligation of such other Person.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
"Net Available Proceeds" from any Asset Disposition by any Person
means cash or readily marketable cash equivalents received (including by way of
sale or discounting of a note, instalment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses Incurred and all federal,
state, provincial, foreign and local taxes required to be accrued as a
liability as a consequence of such Asset Disposition, (ii) all payments made by
such Person or its Restricted Subsidiaries on any Debt which is secured by such
assets in accordance with the terms of any Lien upon or with respect to such
assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments made to minority interest holders in Restricted Subsidiaries of such
Person or joint ventures as a result of such Asset Disposition and (iv)
appropriate amounts to be provided by such Person or any Restricted Subsidiary
thereof, as the case may be, as a reserve in accordance with generally accepted
accounting principles against any liabilities associated with such assets and
retained by such Person or any Restricted Subsidiary thereof, as the case may
be, after such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, in each case as
determined by the Board of Directors, in its reasonable good faith judgment
evidenced by a resolution of the Board of Directors filed with the Trustee;
provided, however, that any reduction in such reserve following the
consummation of such Asset Disposition will be treated for all purposes of the
Indenture and the Notes as a new Asset Disposition at the time of such
reduction with Net Available Proceeds equal to the amount of such reduction.
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"Senior Bank Facility" means the Reducing Revolving Credit Agreement
to be entered into between the Company and certain of its affiliates and Bank
of America NT&SA, as Agent, and the banks named therein, as it may be amended
or restated from time to time, and any renewal, extension, refinancing,
refunding or replacement thereof.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each Holder at his address
appearing in the Note Register on the date of the Offer offering to purchase up
to the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration
date (the "Expiration Date") of the Offer to Purchase which shall be, subject
to any contrary requirements of applicable law, not less than 30 days or more
than 60 days after the date of such Offer and a settlement date (the "Purchase
Date") for purchase of Notes within five Business Days after the Expiration
Date. The Company shall notify the Trustee at least 15 Business Days (or such
shorter period as is acceptable to the Trustee) prior to the mailing of the
Offer of the Company's obligation to make an Offer to Purchase, and the Offer
shall be mailed by the Company or, at the Company's request, by the Trustee in
the name and at the expense of the Company. The Offer shall contain information
concerning the business of the Company and its Restricted Subsidiaries which
the Company in good faith believes will enable such Holders to make an informed
decision with respect to the Offer to Purchase (which at a minimum will include
(i) the most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the documents required to be filed with the Trustee pursuant to
the Indenture (which requirements may be satisfied by delivery of such
documents together with the Offer), (ii) a description of material developments
in the Company's business subsequent to the date of the latest of such
financial statements referred to in clause (i) (including a description of the
events requiring the Company to make the Offer to Purchase), (iii) if
applicable, appropriate pro forma financial information concerning the Offer to
Purchase and the events requiring the Company to make the Offer to Purchase and
(iv) any other information required by applicable law to be included therein.
The Offer shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Offer to Purchase. The Offer shall also
state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Notes
offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such has
been determined pursuant to the Section hereof requiring the Offer to
Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due
and payable upon each Note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on
and after the Purchase Date;
(9) that each Holder electing to tender a Note pursuant to the
Offer to Purchase will be required to surrender such Note at the place
or places specified in the Offer prior to the close of business on the
Expiration
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Date (such Note being, if the Company or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion
of Notes tendered if the Company (or their Paying Agent) receives, not
later than the close of business on the Expiration Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder tendered, the
certificate number of the Note the Holder tendered and a statement
that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Notes and (b) if Notes in an aggregate principal amount in excess of
the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase Notes having an
aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only
Notes in denominations of $1,000 or integral multiples thereof shall
be purchased); and
(12) that in the case of any Holder whose Note is purchased only in
part, the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new
Note or Notes, of any authorized denomination as requested by such
Holder, in an aggregate principal amount equal to and in exchange for
the unpurchased portion of the Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Permitted Holder" means each of The Beacon Group III -- Focus Value
Fund, L.P., Stratford Capital Partners, L.P., Hoak Communications Fund and
members of senior management of Holdings which have been such members for at
least one year and beneficially own (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, or any successor provision thereto) shares of
Capital Stock of Holdings.
"Permitted Interest Rate, Currency or Commodity Price Agreement" of
any Person means any Interest Rate, Currency or Commodity Price Agreement
entered into with one or more financial institutions in the ordinary course of
business that is designed to protect such Person against fluctuations in
interest rates or currency exchange rates with respect to Debt Incurred and
which shall have a notional amount no greater than the payments due with
respect to the Debt being hedged thereby, or in the case of currency or
commodity protection agreements, against currency exchange rate or commodity
price fluctuations in the ordinary course of business relating to then existing
financial obligations or then existing or sold production and not for purposes
of speculation.
"Permitted Investments" means (i) an Investment in the Company or a
Restricted Subsidiary of the Company; (ii) an Investment in a Person, if such
Person or a Subsidiary of such Person will, as a result of the making of such
Investment and all other contemporaneous related transactions, become a
Restricted Subsidiary of the Company or be merged or consolidated with or into
transfer or convey all or substantially all its assets to the Company or a
Restricted Subsidiary of the Company; (iii) a Temporary Cash Investment; (iv)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses in accordance with
generally accepted accounting principles; (v) stock, obligations or securities
received in settlement of debts owing to the Company or a Restricted Subsidiary
of the Company as a result of bankruptcy or insolvency proceedings or upon the
foreclosure, perfection, enforcement or agreement in lieu of foreclosure of any
Lien in favor of the Company or a Restricted Subsidiary of the Company; (vi)
refundable construction advances made with respect to the construction of
properties of a nature or type that are used in a business or similar or
related to the business of the Company or its Restricted Subsidiaries in the
ordinary course of business; (vii) advances or extensions of credit on terms
customary in the industry in the form of accounts or other receivables
incurred, or pre-paid film rentals, and loans and advances made in settlement
of such accounts receivable, all in the ordinary course of business; (viii)
Investments in the Notes; (ix) any consolidation
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or merger of a Wholly-Owned Restricted Subsidiary of the Company to the extent
otherwise permitted under the Indenture; (x) Investments in Permitted Interest
Rate, Currency or Commodity Price Agreements and (xi) other Investments not to
exceed $3.0 million.
"Preferred Stock" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the payment
of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of the Company or (if Holdings owns all the outstanding Common
Stock of the Company) of Holdings pursuant to an effective registration
statement under the Securities Act of 1933, as amended.
"Qualifying Theater Assets" means all motion picture theaters (whether
owned in fee or leased), all other motion picture theater assets, including,
without limitation, theater furniture and fixtures, all real property acquired
for the purpose of motion picture theater development or construction, and
joint venture interests or partnership interests in Persons owning, leasing,
developing or constructing motion picture theaters or principally engaged in
the business of exhibiting motion pictures.
"Receivables" means receivables, chattel paper, instruments, documents
or intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto
or a disposition of defaulted Receivables for purpose of collection and not as
a financing arrangement.
"Redeemable Stock" of any Person means any Capital Stock of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or otherwise (including upon the
occurrence of an event) matures or is required to be redeemed (pursuant to any
sinking fund obligation or otherwise) or is convertible into or exchangeable
for Debt or is redeemable at the option of the holder thereof, in whole or in
part, at any time prior to the final Stated Maturity of the Notes; provided
that "Redeemable Stock" shall not include any Capital Stock that is payable at
maturity, or upon required redemption or redemption at the option of the holder
thereof, or that is automatically convertible or exchangeable, solely in or
into Common Stock of such Person.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the Outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the
equity interest in such Person) or (b) 5% or more of the combined voting power
of the Voting Stock of such Person.
"Restricted Subsidiary" means any Subsidiary, whether existing on or
after the date of the Indenture, unless such Subsidiary is an Unrestricted
Subsidiary.
"Subordinated Debt" means Debt of the Company as to which the payment
of principal of (and premium, if any) and interest and other payment
obligations in respect of such Debt shall be subordinate to the prior payment
in full of the Notes to at least the following extent: (i) no payments of
principal of (or premium, if any) or interest on or otherwise due in respect of
such Debt may be permitted for so long as any default in the payment of
principal (or premium, if any) or interest on the Notes exists; (ii) in the
event that any other default that with the passing of time or the giving of
notice, or both, would constitute an event of default exists with respect to
the Notes, upon notice by 25% or more in principal amount of the Notes to the
Trustee, the Trustee shall have the right to give notice to the Company and the
holders of such Debt (or trustees or agents therefor) of a payment blockage,
and thereafter no payments of principal of (or premium, if any) or interest on
or otherwise due in respect of such Debt may be made for a period of 179 days
from the date of such notice; and (iii) such Debt may not (x) provide for
payments of principal of such Debt
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at the stated maturity thereof or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement or repurchase
thereof by the Company (including any redemption, retirement or repurchase
which is contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Debt upon an event of default
thereunder), in each case prior to the final Stated Maturity of the Notes or
(y) permit redemption or other retirement (including pursuant to an offer to
purchase made by the Company) of such other Debt at the option of the holder
thereof prior to the final Stated Maturity of the Notes, other than a
redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the Company) which is
conditioned upon a change of control of the Company pursuant to provisions
substantially similar to those described under "Change of Control" (and which
shall provide that such Debt will not be repurchased pursuant to such
provisions prior to the Company's repurchase of the Notes required to be
repurchased by the Company pursuant to the provisions described under "Change
of Control").
"Subsidiary" of any Person means (i) a corporation more than 50% of
the combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Temporary Cash Investments" means any Investment in the following
kinds of instruments: (A) readily marketable obligations issued or
unconditionally guaranteed as to principal and interest by the United States of
America or by any agency or authority controlled or supervised by and acting as
an instrumentality of the United States of America if, on the date of purchase
or other acquisition of any such instrument by the Company or any Restricted
Subsidiary of the Company, the remaining term to maturity or interest rate
adjustment is not more than two years; (B) obligations (including, but not
limited to, demand or time deposits, bankers' acceptances and certificates of
deposit) issued or guaranteed by a depository institution or trust company
incorporated under the laws of the United States of America, any state thereof
or the District of Columbia, provided that (1) such instrument has a final
maturity nor more than one year from the date of purchase thereof by the
Company or any Restricted Subsidiary of the Company and (2) such depository
institution or trust company has at the time of the Company's or such
Restricted Subsidiary's Investment therein or contractual commitment providing
for such Investment, (x) capital, surplus and undivided profits (as of the date
such institution's most recently published financial statements) in excess of
$100 million and (y) the long-term unsecured debt obligations (other than such
obligations rated on the basis of the credit of a Person other than such
institution) of such institution, at the time of the Company's or such
Restricted Subsidiary's Investment therein or contractual commitment providing
for such Investment, are rated in the highest rating category of both Standard
& Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P"), and Moody's
Investors Service, Inc. ("Moody's"); (C) commercial paper issued by any
corporation, if such commercial paper has, at the time of the Company's or any
Restricted Subsidiary's Investment therein or contractual commitment providing
for such Investment credit ratings of at least A-1 by S&P and P-1 by Moody's;
(D) money market mutual or similar funds having assets in excess of $100
million; (E) readily marketable debt obligations issued by any corporation, if
at the time of the Company's or and Restricted Subsidiary's Investment therein
or contractual commitment providing for such Investment (1) the remaining term
to maturity is not more than two years and (2) such debt obligations are rated
in one of the two highest rating categories of both S&P and Moody's; (F) demand
or time deposit accounts used in the ordinary course of business with
commercial banks the balances in which are at all times fully insured as to
principal and interest by the Federal Deposit Insurance Corporation or any
successor thereto; and (G) to the extent not otherwise included herein, Cash
Equivalents. In the event that either S&P or Moody's ceases to publish ratings
of the type provided herein, a replacement rating agency shall be selected by
the Company with the consent of the Trustee, and in each case the rating of
such replacement rating agency most nearly equivalent to the corresponding S&P
or Moody's rating, as the case may be, shall be used for purposes hereof.
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"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a)
failure to pay principal of (or premium, if any, on) any Note when due; (b)
failure to pay any interest on any Note when due, continued for 30 days; (c)
default in the payment of principal and interest on Notes required to be
purchased pursuant to an Offer to Purchase as described under "Change of
Control" and "Limitation on Certain Asset Dispositions" when due and payable;
(d) failure to perform or comply with the provisions described under "Merger,
Consolidation and Certain Sales of Assets"; (e) failure to perform any other
covenant or agreement of the Company under the Indenture or the Notes continued
for 60 days after written notice to the Company by the Trustee or Holders of at
least 25% in aggregate principal amount of Outstanding Notes; (f) default under
the terms of any instrument evidencing or securing Debt for money borrowed by
the Company or any Restricted Subsidiary having an outstanding principal amount
of $2.0 million individually or in the aggregate which default results in the
acceleration of the payment of such indebtedness or constitutes the failure to
pay such indebtedness when due; (g) the rendering of a final judgment or
judgments (not subject to appeal) against the Company or any Restricted
Subsidiary in an amount in excess of $2.0 million which remains undischarged or
unstayed for a period of 60 days after the date on which the right to appeal
has expired; and (h) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any Restricted Subsidiary. (Section 501) Subject to
the provisions of the Indenture relating to the duties of the Trustee in case
an Event of Default (as defined) shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the Outstanding Notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee. (Section 512)
If an Event of Default (other than an Event of Default described in
Clause (h) above) shall occur and be continuing, either the Trustee or the
Holders of at least 25% in aggregate principal amount of the Outstanding Notes
may accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of Outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the non-payment of accelerated principal, have been
cured or waived as provided in the Indenture. If an Event of Default specified
in Clause (h) above occurs, the Outstanding Notes will ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. (Section 502) For information as to waiver of
defaults, see "Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing Event
of Default (as defined) and unless also the Holders of at least 25% in
aggregate principal amount of the Outstanding Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the Outstanding Notes a
direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. (Section 507) However, such limitations do not
apply to a suit instituted by a Holder of a Note for enforcement of payment of
the principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note. (Section 508)
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The Company will be required to furnish to the Trustee quarterly a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in such performance. (Section 1019)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect as to all outstanding
Notes (except as to (i) rights of registration of transfer and exchange and the
Company's right of optional redemption, (ii) substitution of apparently
mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders to
receive payment of principal and interest on the Notes, (iv) rights,
obligations and immunities of the Trustee under the Indenture and (v) rights of
the Holders of the Notes as beneficiaries of the Indenture with respect to any
property deposited with the Trustee payable to all or any of them), if (x) the
Company will have paid or caused to be paid the principal of and interest on
the Notes as and when the same will have become due and payable or (y) all
outstanding Notes (except lost, stolen or destroyed Notes which have been
replaced or paid) have been delivered to the Trustee for cancellation.
DEFEASANCE
The Indenture will provide that, at the option of the Company, (a) if
applicable, the Company will be discharged from any and all obligations in
respect of the Outstanding Notes or (b) if applicable, the Company may omit to
comply with certain restrictive covenants, that such omission shall not be
deemed to be an Event of Default under the Indenture and the Notes, in either
case (A) or (B) upon irrevocable deposit with the Trustee, in trust, of money
and/or U.S. government obligations which will provide money in an amount
sufficient in the opinion of a nationally recognized firm of independent
certified public accountants to pay the principal of and premium, if any, and
each installment of interest, if any, on the Outstanding Notes. With respect to
clause (B), the obligations under the Indenture other than with respect to such
covenants and the Events of Default other than the Events of Default relating
to such covenants above shall remain in full force and effect. Such trust may
only be established if, among other things (i) with respect to clause (A), the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or there has been a change in law, which in the Opinion of
Counsel provides that Holders of the Notes will not recognize gain or loss for
Federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; or, with respect to clause (B), the
Company has delivered to the Trustee an Opinion of Counsel to the effect that
the Holders of the Notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred;
(ii) no Event of Default or event that with the passing of time or the giving
of notice, or both, shall constitute an Event of Default shall have occurred or
be continuing; (iii) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that such deposit shall not cause the Trustee or the
trust so created to be subject to the Investment Company Act of 1940; and (iv)
certain other customary conditions precedent are satisfied. (Sections 1301,
1302, 1303 and 1304)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, (or the premium) or interest on, any Note, (c) change the
place or currency of payment of principal of (or premium), or interest on, any
Note, (d) impair the right to institute suit for the enforcement of any payment
on or with respect to any Note, (e) reduce the above-stated percentage of
Outstanding Notes necessary to modify or amend the Indenture, (f) reduce the
percentage of aggregate principal amount of Outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, or (h) following the mailing of any
Offer to Purchase, modify any Offer to Purchase for
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the Notes required under the "Limitation on Asset Dispositions" and the "Change
of Control" covenants contained in the Indenture in a manner materially adverse
to the Holders thereof. (Section 902)
The Holders of a majority in aggregate principal amount of the
Outstanding Notes, on behalf of all Holders of Notes, may waive compliance by
the Company with certain restrictive provisions of the Indenture. (Section
1020) Subject to certain rights of the Trustee, as provided in the Indenture,
the Holders of a majority in aggregate principal amount of the Outstanding
Notes, on behalf of all Holders of Notes, may waive any past default under the
Indenture, except a default in the payment of principal, premium or interest or
a default arising from failure to purchase any Note tendered pursuant to an
Offer to Purchase. (Section 513)
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State
of New York.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. (Section 601)
The Indenture and provisions of the Trust Indenture Act incorporated
by reference therein contain limitations on the rights of the Trustee, should
it become a creditor of the Company, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions with the Company or any Affiliate, provided, however, that if it
acquires any conflicting interest (as defined in the Indenture or in the Trust
Indenture Act), it must eliminate such conflict or resign. (Sections 608, 613)
CERTAIN U.S. FEDERAL TAX CONSEQUENCES TO U.S. HOLDERS
The following summary describes certain United States federal income
tax considerations to holders of the Exchange Notes who are subject to U.S. net
income tax with respect to the Exchange Notes ("U.S. persons") and who will
hold the Exchange Notes as capital assets. There can be no assurance that the
U.S. Internal Revenue Service (the "IRS") will take a similar view of the
purchase, ownership or disposition of the Exchange Notes. This summary is
based upon the Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions now in effect, all of which are subject to
change. It does not include any discussion of the tax laws of any state, local
or foreign governments or any estate or gift tax considerations that may be
applicable to the Exchange Notes or holders thereof; nor does it discuss all
aspects of U.S. federal income taxation that may be relevant to a particular
investor under his particular circumstances or to investors subject to special
treatment under the U.S. federal income tax laws (for example, dealers in
securities or currencies, S corporations, life insurance companies, tax-exempt
organizations, taxpayers subject to the alternative minimum tax and non-U.S.
persons) and also does not discuss Exchange Notes held as a hedge against
currency risks or as part of a straddle with other investments or as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") comprising an Exchange Note and one or more other investments, or
situations in which the functional currency of the holders is not the U.S.
dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer
should consult their tax advisors with respect to their particular
circumstances and with respect to the effects of state, local or foreign tax
laws to which they may be subject.
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EXCHANGE OF NOTES
The exchange of Old Notes for Exchange Notes should not be a taxable
event to holders for federal income tax purposes. The exchange of Old Notes
for the Exchange Notes pursuant to the Exchange Offer should not be treated as
an "exchange" for federal income tax purposes, because the Exchange Notes
should not be considered to differ materially in kind or extent from the Old
Notes. Accordingly, the Exchange Notes should have the same issue price as the
Old Notes, and a holder should have the same adjusted basis and holding period
in the Exchange Notes as it had in the Old Notes immediately before the
exchange.
INTEREST ON EXCHANGE NOTES
A holder of an Exchange Note will be required to report as ordinary
interest income for U.S. federal income tax purposes interest earned on the
Exchange Note in accordance with the holder's method of tax accounting.
DISPOSITION OF EXCHANGE NOTES
A holder's tax basis for an Exchange Note generally will be the
holder's purchase price for the Old Note. Upon the sale, exchange, redemption,
retirement or other disposition of an Exchange Note, a holder will recognize
gain or loss equal to the difference (if any) between the amount realized and
the holders' tax basis in the Exchange Note. Such gain or loss will be
long-term capital gain or loss if the Exchange Note has been held for more than
one year and otherwise will be short-term capital gain or loss (with certain
exceptions to the characterization as capital gain if the Exchange Note was
acquired at a market discount).
BACKUP WITHHOLDING
A holder of an Exchange Note may be subject to backup withholding at
the rate of 31% with respect to interest paid on the Exchange Note and proceeds
from the sale, exchange, redemption or retirement of the Exchange Note, unless
such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. A holder of an Exchange Note who does not provide
the Company with his correct taxpayer identification number may be subject to
penalties imposed by the IRS.
A holder of an Exchange Note who is not a U.S. person will generally
be exempt from backup withholding and information reporting requirements, but
may be required to comply with certification and identification procedures in
order to obtain an exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the
holder's U.S. federal income tax liability.
CERTAIN U.S. FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal tax
consequences of the ownership and disposition of Exchange Notes by a non-U.S.
holder who acquires and owns such Exchange Notes as a capital asset within the
meaning of Section 1221 of the Code. A "non-U.S. holder" is any person other
than (i) a resident (within the meaning of Section 7701(b) of the Code) or
current or former citizen of the United States, (ii) a corporation, limited
liability company, or partnership created or organized in the United States or
under the laws of the United States or of any state, or (iii) an estate or
trust whose income is includable in gross income for U.S. federal income tax
purposes regardless of its source. The discussion is based on laws and
regulations presently in force and does not take account of any possible
changes in such laws or regulations. Moreover, the discussion does not discuss
every aspect of U.S. federal taxation that may be relevant to a particular
taxpayer under special circumstances or to persons who are otherwise
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subject to a special tax treatment (including, without limitation, banks,
insurance companies, pension and other employee benefit plans, and tax exempt
organizations and entities) and it does not discuss the effect of any
applicable U.S. state and local or non-U.S. tax laws. EACH PROSPECTIVE NON-U.S.
HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE U.S.
FEDERAL TAX CONSEQUENCES OF HOLDING AND DISPOSING OF EXCHANGE NOTES, AS WELL AS
ANY TAX CONSEQUENCES APPLICABLE UNDER THE LAWS OF ANY U.S. STATE, LOCAL, OR
NON-U.S. TAXING JURISDICTION.
INTEREST
In general, interest paid to a non-U.S. holder of Exchange Notes will
be subject to U.S. federal income tax or regular withholding tax so long as (a)
the interest is not effectively connected with the conduct of a trade or
business within the United States, (b) the non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the company entitled to vote, (c) the Non-U.S. Holder is
not a controlled foreign corporation that is related to the Company actually or
constructively through stock ownership and (d) either (i) the beneficial owner
of the Exchange Note certifies to the Company or its agent, under penalties of
perjury, that it is not a U.S. Holder and provides its name and address on U.S.
Treasury Form W-8 (or a suitable substitute form) or (ii) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Exchange Note certifies under penalties of perjury
that such a Form W-8 (or suitable substitute form) has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof.
Recently proposed Internal Revenue Service Treasury regulations (the
"Proposed Regulations") would provide alternative methods for satisfying the
certification requirement described in clause (d) above. The Proposed
Regulations also would require, in the case of Exchange Notes held by a foreign
partnership, that (x) the certification described in clause (d) above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. The Proposed Regulations are proposed to be effective for
payments made after December 31, 1997. There can be no assurance that the
Proposed Regulations will be adopted or as to the provisions that they will
include if and when adopted in temporary or final form.
DISPOSITION OF EXCHANGE NOTES
Non-U.S. holders generally will not be subject to U.S. federal income
taxation on gain recognized on a disposition of Exchange Notes so long as (i)
the gain is not effectively connected with the conduct by the non-U.S. holder
of a trade or business within the United States and (ii) in the case of a
non-U.S. holder who is an individual, either such holder is not present in the
United States for 183 days or more in the taxable year of disposition or such
holder does not (a) have a "tax home" (within the meaning of section 911(d)(3)
of the Code) in the United States or (b) maintain an office or fixed place of
business in the United States to which the gain is attributable.
FEDERAL ESTATE TAXES
An Exchange Note held by an individual who, at the time of death, is
not a citizen or resident of the United States will not be includible in the
individual's gross estate for purposes of the U.S. federal estate tax as a
result of such individual's death if the individual does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and if, at the time of the
individual's death, payments with respect to such Exchange Note would not have
been effectively connected with the conduct by such individual of a trade or
business in the United States.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Generally, payments of interest, premium or principal on the Exchange
Notes to Non-U.S. Holders will not be subject to information reporting or
backup withholding (assuming the income is otherwise exempt from United States
90
<PAGE> 96
federal income tax) if the non-U.S. holder complies with the certification
requirements set forth in clause (d) under "Certain U.S. Federal Tax
Consequences To Non-U.S. Holders -- Interest" above.
Non-U.S. holders will not be subject to information reporting or
backup withholding with respect to the payment of proceeds from the disposition
of Exchange Notes effected by, to or through the foreign office of a broker;
provided, however, that if the broker is a U.S. person or a U.S.-related
person, information reporting (but not backup withholding) would apply unless
the broker has documentary evidence in its records as to the non-U.S. holder's
foreign status (and has no actual knowledge to the contrary), or the non-U.S.
holder certifies as to its non-U.S. status under penalty of perjury or
otherwise establishes an exemption. Non-U.S. holders will be subject to
information reporting and backup withholding at a rate of 31% with respect to
the payment of proceeds from the disposition of Exchange Notes effected by, to
or through the United States office of a broker, unless the non-U.S. holder
certifies as to its non-U.S. status under penalty of perjury or otherwise
establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute
a separate U.S. federal income tax. Rather, amounts withheld under the backup
withholding rules from a payment to a non-U.S. holder will be allowed as a
credit against such non-U.S. holder's U.S. federal income tax liability and any
amounts withheld in excess of such non- U.S. holder's U.S. federal income tax
liability would be refunded, provided that the required information is
furnished to the IRS.
91
<PAGE> 97
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its
own account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by Participating Broker-Dealers during the period referred to below in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating Broker-Dealers for
their own accounts as a result of market- making activities or other trading
activities (other than a resale of an unsold allotment from the original sale
of Old Notes). The Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Notes for a period
ending 180 days from the Expiration Date. However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of Exchange Notes received in exchange for Old Notes pursuant to the Exchange
Offer must notify the Company, or cause the Company to be notified, on or prior
to the Expiration Date, that it is a Participating Broker-Dealer. Such notice
may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth in the Letter of Transmittal. See "The Exchange Offer -- Resales of
Exchange Notes."
The Company will not receive any proceeds from the issuance of the
Exchange Notes offered hereby. Exchange Notes received by Participating
Broker-Dealers for their own accounts in connection with the Exchange Offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that
resells Exchange Notes that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates
in a distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period ending 180 days from the Expiration Date, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
VALIDITY OF THE EXCHANGE NOTES
The validity of the Exchange Notes will be passed upon for the Company
by Baker & Botts, L.L.P., Dallas, Texas, counsel for the Company.
EXPERTS
The audited consolidated financial statements included in this
Prospectus, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving such reports.
92
<PAGE> 98
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Hollywood Theater Holdings, Inc. and Subsidiaries
Report of Independent Public Accountants.............................................................. F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995.......................................... F-4
Consolidated Statements of Operations for the Year Ended
December 31, 1996 and for the period from inception
(July 11, 1995), through December 31, 1995......................................................... F-5
Consolidated Statements of Stockholders' Equity for the
Year Ended December 31, 1996 and for the period from
inception (July 11, 1995), through December 31, 1995............................................... F-6
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1996 and for the period from inception
(July 11, 1995), through December 31, 1995......................................................... F-7
Notes to Consolidated Financial Statements............................................................ F-8
Unaudited Condensed Consolidated Balance Sheet as of
September 30, 1997.................................................................................. F-19
Unaudited Condensed Consolidated Statements of Operations
for the Nine Months Ended September 30, 1997 and 1996.............................................. F-20
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997 and 1996.............................................. F-21
Notes to Unaudited Interim Condensed Consolidated
Financial Statements............................................................................... F-22
THEATERS ACQUIRED FROM DICKINSON, INC.
Report of Independent Public Accountants.............................................................. F-24
Statement of Assets Acquired as of May 29, 1997....................................................... F-25
Statement of Revenues and Direct Operating Expenses for
the Year Ended May 29, 1997......................................................................... F-26
Notes to Financial Statements......................................................................... F-27
Unaudited Statement of Assets Acquired as of August 31, 1997.......................................... F-29
Unaudited Interim Statements of Revenues and Direct Operating
Expenses for the Three Months Ended August 31, 1997 and 1996........................................ F-30
Notes to Unaudited Interim Financial Statements....................................................... F-31
THEATERS ACQUIRED FROM GENERAL CINEMA CORP. OF OKLAHOMA, INC.
Report of Independent Public Accountants.............................................................. F-32
Statement of Assets Acquired as of October 31, 1996................................................... F-33
Statements of Revenues and Direct Operating Expenses for
the Years Ended October 31, 1996 and 1995.......................................................... F-34
Notes to Financial Statements......................................................................... F-35
Unaudited Statement of Assets Acquired as of July 31, 1997............................................ F-37
Unaudited Interim Statements of Revenues and Direct
Operating Expenses for the Three and Nine Months Ended
July 31, 1997 and 1996............................................................................. F-38
Notes to Unaudited Interim Financial Statements....................................................... F-39
ESCAPE THEATRES, INC.
Report of Independent Public Accountants.............................................................. F-40
Balance Sheet as of September 30, 1996................................................................ F-41
Statement of Operations for the Year Ended September 30, 1996......................................... F-42
Statement of Cash Flows for the Year Ended September 30, 1996......................................... F-43
Notes to Financial Statements......................................................................... F-44
Unaudited Condensed Balance Sheet as of March 31, 1997................................................ F-47
Unaudited Condensed Statements of Operations for the Three
and Six Months Ended March 31, 1997 and 1996....................................................... F-48
Unaudited Condensed Statements of Cash Flows for the Three
and Six Months Ended March 31, 1997 and 1996....................................................... F-49
Notes to Unaudited Interim Condensed Financial Statements............................................. F-50
THEATERS ACQUIRED FROM UNITED ARTISTS THEATRE CIRCUIT, INC.
Report of Independent Public Accountants.............................................................. F-51
</TABLE>
F-1
<PAGE> 99
<TABLE>
<CAPTION>
<S> <C>
Statements of Revenues and Direct Operating Expenses for the
Nine Months Ended September 30, 1996 and the Year
Ended December 31, 1995............................................................................ F-52
Notes to Statements of Revenues and Direct Operating
Expenses........................................................................................... F-53
THEATERS ACQUIRED FROM CROWN CINEMA CORPORATION AND CROWN
THEATRE CORPORATION
Report of Independent Public Accountants.............................................................. F-55
Statements of Revenues and Direct Operating Expenses for
the Nine Months Ended September 30, 1996 and the Years
Ended December 31, 1995 and 1994................................................................... F-56
Notes to Statements of Revenues and Direct Operating Expenses......................................... F-57
TRANS TEXAS AMUSEMENTS, INC.
Unaudited Statement of Operations for
the Period from January 1, 1995, through July 10, 1995, and
for the Year Ended December 31, 1994................................................................ F-66
Unaudited Statement of Cash Flows for the Period from
January 1, 1995, through July 10, 1995, and for the Year
Ended December 31, 1994............................................................................. F-59
Notes to Unaudited Financial Statements................................................................ F-60
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Financial
Statements Headnote................................................................................ P-1
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1996.................................................... P-2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended September 30, 1997............................................ P-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1997........................................................................... P-4
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements............................................................................... P-5
FINANCIAL STATEMENT SCHEDULE
Report of Independent Public Accountants
on Financial Statement Schedule..................................................................... S-1
Schedule II - Valuation and Qualifying Accounts -
for the Year Ended December 31, 1996 and for the Period
from Inception (July 11, 1995), through December 31, 1995........................................... II-7
</TABLE>
F-2
<PAGE> 100
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hollywood Theater Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Hollywood Theater Holdings, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
1996, and for the period from inception (July 11, 1995), through December 31,
1995. These financial statements are the responsibility of Hollywood Theater
Holdings, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hollywood Theater
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the year ended December 31,
1996, and for the period from inception (July 11, 1995), through December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 29, 1997
F-3
<PAGE> 101
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................... $ 3,559,454 $ 447,343
Accounts receivable ................................................................. 366,142 49,762
Accounts receivable-- related parties ............................................... 634,300 --
Inventories ......................................................................... 446,180 --
Prepaid and other current assets .................................................... 1,267,255 119,288
Deposits ............................................................................ 1,564,046 20,679
------------ ------------
Total current assets ......................................................... 7,837,377 637,072
Property and equipment:
Buildings ........................................................................... 15,645,107 --
Furniture and equipment ............................................................. 14,045,128 2,609,741
Leasehold improvements .............................................................. 8,448,726 1,351,295
Land ................................................................................ 4,889,288 --
Land improvements ................................................................... 428,965 --
Construction in progress ............................................................ 1,100,970 --
------------ ------------
44,558,184 3,961,036
Less-- Accumulated depreciation and amortization .................................... (1,442,624) (319,249)
------------ ------------
Property and equipment, net .................................................. 43,115,560 3,641,787
Other assets:
Goodwill, net ....................................................................... 30,782,899 7,044,691
Intangible assets, net .............................................................. 10,619,457 1,606,517
------------ ------------
Total other assets ........................................................... 41,402,356 8,651,208
------------ ------------
Total assets ................................................................. $ 92,355,293 $ 12,930,067
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................................... $ 5,887,458 $ 1,602,853
Federal income taxes payable ........................................................ 17,550 400,802
Note payable ........................................................................ -- 100,000
Current maturities of long-term debt ................................................ 136,680 375,000
Current maturities of capital lease obligation ...................................... 32,432 44,329
------------ ------------
Total current liabilities .................................................... 6,074,120 2,522,984
Other liabilities:
Long-term debt, net of current maturities ........................................... 50,500,000 8,425,000
Capital lease obligation, net of current maturities ................................. -- 32,432
Deferred lease expenses ............................................................. 657,888 112,143
------------ ------------
Total liabilities ............................................................ 57,232,008 11,092,559
Commitments and contingencies (Note 11)
Convertible preferred stock, $.01 par value, 500,000 shares
authorized:
Series B Preferred Stock, $.01 par value, 163,319 shares
issued and outstanding in 1996, none in 1995 (redemption preference of $28,580,825) 1,633 --
Additional paid-in capital .......................................................... 28,577,697 --
Stockholders' equity
Series A Preferred Stock, 5,090 shares issued and
outstanding in 1995, none in 1996 ................................................. -- 51
Common stock, $.01 par value, 500,000 and 100,000 shares
authorized in 1996 and 1995, respectively; 82,489 and
22,622 shares issued and outstanding in 1996 and 1995, respectively .............. 825 226
Additional paid-in capital .......................................................... 11,160,881 2,744,723
Accumulated deficit ................................................................. (4,617,751) (907,492)
------------ ------------
Total stockholders' equity ................................................... 6,543,955 1,837,508
------------ ------------
Total liabilities and stockholders' equity ................................... $ 92,355,293 $ 12,930,067
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE> 102
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
FOR THE PERIOD FROM INCEPTION (JULY 11, 1995), THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Admissions ........................ $ 15,334,877 $ 3,912,596
Concessions ....................... 8,709,985 2,304,860
Other operating revenues .......... 834,378 116,205
------------ ------------
Total revenues ............ 24,879,240 6,333,661
------------ ------------
Operating expenses:
Film rental and advertising costs . 8,387,938 2,336,535
Cost of concessions and other ..... 1,411,869 339,476
Theater operating expenses ........ 10,998,455 2,620,045
General and administrative expenses 1,601,185 742,605
Depreciation and amortization ..... 3,151,582 739,028
------------ ------------
Total operating expenses .. 25,551,029 6,777,689
------------ ------------
Operating loss ...................... (671,789) (444,028)
Interest expense, net ............... 2,120,722 463,464
------------ ------------
Net loss ............................ $ (2,792,511) $ (907,492)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 103
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
FOR THE PERIOD FROM INCEPTION (JULY 11, 1995), THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK
------------------------ ---------------------------
ADDITIONAL
SHARES SHARES PAID-IN ACCUMULATED
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 11, 1995 . -- $ -- -- $ -- $-- $-- $--
Initial
capitalization ..... 5,090 51 22,622 226 2,544,723 -- 2,545,000
Issuance of detachable
warrants ........... -- -- -- -- 200,000 -- 200,000
Net loss ............. -- -- -- -- -- (907,492) (907,492)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31,
1995 ................. 5,090 51 22,622 226 2,744,723 (907,492) 1,837,508
Issuance of stock .... 85,000 850 77,168 772 20,500,894 -- 20,502,516
Issuance of stock in
connection with
acquisitions ......... -- -- 12,872 129 2,252,471 -- 2,252,600
Retirement of stock .. (90,090) (901) (30,173) (302) (14,137,207) -- (14,138,410)
Retirement of warrant -- -- -- -- (200,000) (140,850) (340,850)
Stock dividend ....... -- -- -- -- -- (422,355) (422,355)
Cash dividend ........ -- -- -- -- -- (354,543) (354,543)
Net loss ............. -- -- -- -- -- (2,792,511) (2,792,511)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31,
1996 ................. -- $ -- 82,489 $ 825 $ 11,160,881 $ (4,617,751) $ 6,543,955
============ ============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 104
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
FOR THE PERIOD FROM INCEPTION (JULY 11, 1995), THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (2,792,511) $ (907,492)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization ........................ 3,151,582 739,028
Deferred lease expenses .............................. 545,745 148,940
Changes in assets and liabilities
Increase in accounts receivable .................... (950,680) (49,762)
Increase in prepaids and other current assets ...... (963,192) (22,190)
Increase in inventories ............................ (316,369) --
Decrease in other assets ........................... -- 15,897
Increase in deposits ............................... (1,543,367) --
Increase in accounts payable and accrued expenses .. 4,284,605 258,051
Decrease in federal income taxes payable ........... (383,252) --
------------ ------------
Net cash provided by operating activities ....... 1,032,561 182,472
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ..................... (10,734,244) (805,177)
Payments for business acquisitions, net of cash
acquired ............................................. (58,986,124) (9,863,792)
------------ ------------
Net cash used in investing activities ........... (69,720,368) (10,668,969)
------------ ------------
Cash flows from financing activities:
Borrowings under note payable ........................... -- 100,000
Borrowings under long-term debt ......................... 58,427,734 9,000,000
Payment of financing fees ............................... (3,718,121) --
Repayments of capital lease obligation .................. (44,329) (20,563)
Repayments of note payable and long-term debt ........... (16,691,054) (690,597)
Proceeds from issuance of stock ......................... 48,659,491 2,545,000
Repurchase of stock ..................................... (14,138,410) --
Retirement of warrants .................................. (340,850) --
Dividends paid .......................................... (354,543) --
------------ ------------
Net cash provided by financing activities ....... 71,799,918 10,933,840
------------ ------------
Net increase in cash ...................................... 3,112,111 447,343
Cash and cash equivalents, beginning of period ............ 447,343 --
------------ ------------
Cash and cash equivalents, at year-end .................... $ 3,559,454 $ 447,343
============ ============
Supplemental information:
Cash paid for interest .................................. $ 2,088,838 $ 386,631
============ ============
Noncash transactions:
Issuance of detachable warrants for common stock ........ $-- $ 200,000
============ ============
Stock dividend .......................................... $ 422,355 $--
============ ============
Issuance of stock in connection with business
acquisitions ......................................... $ 2,252,600 $--
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 105
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION
Hollywood Theater Holdings, Inc. and its wholly owned subsidiary,
Hollywood Theaters, Inc., ("HTI") both Delaware corporations, were formed in
June 1995 to purchase all of the outstanding shares of Trans Texas Amusements,
Inc. ("TransTexas") and affiliates. Crown Theatre Corporation became a wholly
owned subsidiary of Hollywood Theaters, Inc. after it was acquired by Hollywood
Theater Holdings, Inc. on November 1, 1996, the effective date of the purchase.
Hollywood Theater Holdings, Inc., Hollywood Theaters, Inc., and Crown Theatre
Corporation (collectively "Holdings") owned and operated 72 motion picture
theaters at December 31, 1996. Holdings currently operates theaters in Idaho,
Kansas, Missouri, Ohio, Oklahoma, and Texas.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Hollywood
Theater Holdings, Inc., and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of operating funds held in financial
institutions and petty cash held by the theaters. The Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Deposits
Deposits consist of funds held in escrow in accordance with certain
purchase agreements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist primarily of concession products and theater supplies.
Accounts Receivable
Accounts receivable are due primarily from vendors and film companies
for reimbursable vendor promotion costs and film advertising costs. Film
advertising reimbursements are generally credited against the film rental
expense.
Vendor promotion reimbursements are included in other income.
Prepaid and Other Current Assets
Prepaid and other current assets consist of prepaid insurance and
theater start-up costs. Theater start-up costs are amortized over a one-year
period.
F-8
<PAGE> 106
Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture
and equipment, and buildings is provided using the straight-line method over an
eight-year period and thirty-year period, respectively. Leasehold improvements
are amortized using the straight-line method over the lesser of the lease period
or the estimated useful lives of the leasehold improvements.
Intangible Assets
Intangible assets include deferred finance costs and covenants
not-to-compete which are amortized using the straight-line method over a five
year period.
Goodwill
Goodwill is recorded as the excess of cost over fair value of assets
acquired and is amortized over 15 years. Accumulated amortization of goodwill
was approximately $1,213,000 and $246,000 at December 31, 1996 and 1995,
respectively.
Holdings reviews the carrying value of goodwill at least annually on a
market-by-market basis to determine if facts and circumstances exist which would
suggest the goodwill may be impaired or that the amortization period needs to be
modified. Among the factors Holdings considers in making the evaluation are
changes in Holdings' market position, reputation, profitability and geographic
penetration. If indicators are present which may indicate impairment is
probable, Holdings will prepare a projection of the undiscounted cash flows of
the specific market and determine if goodwill is recoverable based on these
undiscounted cash flows. If impairment is indicated, then an adjustment will be
made to reduce the carrying amount of the goodwill to its fair value. Similar
reviews are made of other long-lived assets. No such adjustments were required
at December 31, 1996 or 1995.
Deferred Lease Expenses
Rent expense is recognized on a straight-line basis after considering
the effect of rent escalation provisions.
Revenues
Revenues are recognized when admissions and concessions sales are
received at the theaters. Film rental costs are accrued based on the applicable
box office receipts and the terms of the film licenses.
Advertising
Advertising costs are expensed when incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior year statements
to conform them to the current year presentation.
F-9
<PAGE> 107
3. INTANGIBLE ASSETS
A summary of intangible assets at December 31, 1996 and 1995, is as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Covenants not-to-compete ................................................... $ 7,098,827 $ 1,000,000
Deferred finance and other costs ........................................... 4,674,016 774,176
------------ ------------
11,772,843 1,774,176
Less- Accumulated amortization ............................................ (1,153,386) (167,659)
------------ ------------
$ 10,619,457 $ 1,606,517
============ ============
</TABLE>
4. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Senior term note payable to a bank; interest of prime plus 1.5% (10.25% at
December 31, 1995), payable monthly; principal payable in quarterly
installments, with a final maturity on December 31, 2000; paid in
1996 ..................................................................... $ -- $ 6,500,000
Subordinated term note payable to an individual;
interest ranging from 9%-11.5% payable quarterly;
principal due June 30, 2002; paid in 1996 ................................ -- 2,500,000
Term note payable to a bank; interest of LIBOR plus
2.75% or base rate plus 1.75% (10% at December 31, 1996), payable monthly;
principal payments beginning
March, 1998; final maturity on December 31, 2001 ......................... 50,000,000 --
Revolving credit agreement, interest at LIBOR plus 2.75%
or the base rate plus 1.75% (weighted average of 10%
at December 31, 1996); due 2001 .......................................... 500,000 --
Promissory note payable to a bank; interest of prime
plus 1% (9.25% at December 31, 1996); principal and
accrued interest due on November 1, 1997 ................................. 136,680 --
------------ ------------
Total long-term debt ....................................................... 50,636,680 9,000,000
Less --
Current maturities ....................................................... (136,680) (375,000)
Discount on long-term debt ............................................... -- (200,000)
------------ ------------
Long-term debt ............................................................. $ 50,500,000 $ 8,425,000
============ ============
</TABLE>
At December 31, 1995, Holdings had a working capital line of credit
agreement with a lender that allowed borrowings of up to $100,000 with interest
at prime plus 1.5%. On November 1, 1996, Holdings entered into a $25.0 million
revolving credit agreement and a $50.0 million term note borrowing agreement
with a financial institution which replaced Holdings' prior line of credit
agreement. The proceeds from the term note and revolving credit agreement were
primarily used to retire existing debt and to fund the acquisition of certain
assets from Crown Cinema Corporation and United Artists Theatre Circuit, Inc.
The agreement stipulates that total borrowings are not to exceed 4.75 times
Holdings' "trailing" twelve-month cash flow and certain other restrictions. As
of December 31, 1996, management believes Holdings was in compliance with these
covenants. All borrowings under this agreement are secured by the assets and all
shares of the capital stock of Holdings.
Long-term debt at December 31, 1996, matures as follows:
<TABLE>
<CAPTION>
<S> <C>
1997.......................................... $ 136,680
1998.......................................... 6,000,000
1999.......................................... 11,250,000
2000.......................................... 12,750,000
2001.......................................... 20,500,000
------------
$ 50,636,680
============
</TABLE>
F-10
<PAGE> 108
5. LEASES
Holdings leases certain of its theater premises with lease terms of 4
to 20 years. Additionally, certain leases provide for contingent rentals based
on operating results and require the payment of taxes, insurance, and other
costs applicable to the property. Holdings, at its option, may renew a
substantial portion of the leases at defined or then fair rental rates for
various periods. Some leases also provide for escalating rent payments
throughout the lease term. A deferred lease expenses accrual of $657,888 and
$112,143 in 1996 and 1995, respectively has been provided to account for these
leases on a straight-line basis. Rent expense for the periods ended December 31,
1996 and 1995, totaled $2,964,755, and $965,033, respectively.
Future minimum payments under noncancelable leases with initial or
remaining terms in excess of one year at December 31, 1996, are due as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- -----------
<S> <C> <C>
1997 ........................................ $ 6,700,000 $ 32,802
1998 ........................................ 6,600,000 --
1999 ........................................ 6,400,000 --
2000 ........................................ 5,800,000 --
2001 ........................................ 5,000,000 --
Thereafter .................................. 35,600,000 --
----------- -----------
Total ............................. 66,100,000 32,802
Less-- Amount representing interest ......... -- (337)
----------- -----------
$66,100,000 $ 32,465
=========== ===========
</TABLE>
6. INCOME TAXES
As of December 31, 1996, Holdings has a net operating loss (NOL)
carryforward of approximately $2,525,363 for tax reporting purposes which begins
to expire in calendar year 2010. In October 1996, Holdings underwent an
ownership change pursuant to Internal Revenue Code Section 382. Therefore, the
NOL carryforward to future years will be limited. Due to the lack of an earnings
history, the tax benefits normally associated with this NOL carryforward and
other tax assets have been fully valued and have not been recorded in the
accompanying financial statements.
Holdings' deferred income taxes at December 31, 1996 and 1995,
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Assets --
Amortization ............................... $ 112,697 $ 42,256
Deferred lease expenses .................... 223,682 50,640
Net operating loss carryforward ............ 858,623 180,941
Depreciation ............................... 48,102 29,443
----------- -----------
Total assets ....................... 1,243,104 303,280
Less-- Valuation allowance ................. (1,243,104) (303,280)
----------- -----------
Total deferred income taxes ........ $ -- $ --
=========== ===========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires all entities to disclose the
estimated fair value of its financial instrument assets and liabilities. Cash
and cash equivalents, accounts receivable, and accounts payable and accrued
liabilities are reflected in the consolidated financial statements at fair value
because of the short-term maturity of these instruments. In addition, the fair
value of Holdings' long-term debt and capital lease obligations were determined
to approximate its carrying value since (i) a substantial amount of the December
31, 1996, long-term debt and capital lease obligations were issued at fair
market value during 1996 and (ii) long-term debt amounts are interest rate
variable in nature.
F-11
<PAGE> 109
Changes in the assumptions or estimation methodologies may have a
material effect on these estimated fair values.
8. STOCKHOLDERS' EQUITY
In April 1996, Holdings issued 50,000 shares of Series A Preferred
Stock ($.01 par value) to Precept Investors, Inc. and Stratford Capital Partners
L.P. (collectively "Precept/Stratford") for proceeds of $5.0 million.
In October 1996, The Beacon Group III Focus Value Fund, L.P. ("Beacon")
purchased 35,000 shares of Series A Preferred Stock for $3.5 million.
In November 1996, Beacon purchased approximately $21.5 million of
common stock and shares of a new class of Series B Convertible Redeemable
Preferred Stock ("Series B Preferred Stock"). The Series B Preferred Stock is
redeemable after the seventh anniversary of the issue date by the holders, as
long as a qualifying initial public offering of the common stock has not
occurred. The preferred shares are automatically converted into common stock,
upon completion of a qualifying initial public offering. The Series B Preferred
Stock is convertible, initially on a one-for-one basis, subject to adjustment to
reflect specified antidilution events, including without limitation, stock
splits, stock combinations, certain issuances of equity and certain business
combination transactions. In connection with the transaction, Holdings offered
to purchase the outstanding common stock from existing stockholders for $170 per
share. Shareholders sold 30,173 shares to Holdings for a total cost of
approximately $5.0 million. In addition, Holdings exchanged Beacon's and
Precept/Stratford's Series A Preferred Stock for the newly authorized Series B
Preferred Stock at a ratio of 1.75/1.00 shares.
The Board of Directors authorized a 9% preferred stock dividend of
Series B Preferred Stock on December 15, 1996 to the stockholders of record of
Series B Preferred Stock on December 15, 1996. The stock dividend was paid on
December 31, 1996.
In anticipation of the adoption of a stock option plan, 37,000 shares
of common stock have been reserved for issuance.
At December 31, 1995, shares of common stock were reserved for warrants
for the purchase of up to 750 shares of common stock of 10,000 shares issued
and outstanding of Hollywood Theaters, Inc. The exercise price is $0.01 per
share and the warrants expire July 11, 2002. The warrants were carried at their
estimated fair value at their issue date. The unexercised warrants were retired
for $340,850 in 1996.
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following are condensed consolidating financial statements of
Hollywood Theater Holdings, Inc. and Hollywood Theaters, Inc. (in thousands).
These statements are presented to provide financial information with respect to
Hollywood Theaters, Inc.
F-12
<PAGE> 110
<TABLE>
<CAPTION>
HOLLYWOOD HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1995 THEATER HOLDINGS INC. THEATERS, INC. ENTRIES CONSOL'D
----------------- ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash investments ................ $ -- $ 447 $ -- $ 447
Other current assets ..................... -- 190 -- 190
------------ ------------ ------------ ------------
Total current assets ..................... -- 637 -- 637
Property, plant and equipment, net ....... -- 3,642 -- 3,642
Investment in subsidiaries ............... 1,838 -- (1,838) --
Other noncurrent assets .................. -- 8,651 -- 8,651
------------ ------------ ------------ ------------
$ 1,838 $ 12,930 $ (1,838) $ 12,930
============ ============ ============ ============
Liabilities and equity:
Current liabilities ...................... $ -- $ 2,523 $ -- $ 2,523
Long-term debt ........................... -- 8,425 -- 8,425
Other noncurrent liabilities ............. -- 144 -- 144
Stockholders' equity ..................... 1,838 1,838 (1,838) 1,838
------------ ------------ ------------ ------------
$ 1,838 $ 12,930 $ (1,838) $ 12,930
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
HOLLYWOOD HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1996 THEATER HOLDINGS INC. THEATERS, INC. ENTRIES CONSOL'D
----------------- ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash investments ................ $ -- $ 3,559 $ -- $ 3,559
Other current assets ..................... -- 4,278 -- 4,278
------------ ------------ ------------ ------------
Total current assets ..................... -- 7,837 -- 7,837
Property, plant and equipment, net ....... -- 43,116 -- 43,116
Investment in subsidiaries ............... 35,260 -- (35,260) --
Other noncurrent assets .................. -- 41,402 -- 41,402
------------ ------------ ------------ ------------
$ 35,260 92,355 (35,260) $ 92,355
============ ============ ============ ============
Liabilities and equity:
Current liabilities ...................... 137 $ 5,937 -- $ 6,074
Long-term debt ........................... -- 50,500 -- 50,500
Other noncurrent liabilities ............. -- 658 -- 658
Convertible Preferred Stock .............. 28,579 -- -- 28,579
Stockholders' equity ..................... 6,544 35,260 (35,260) 6,544
------------ ------------ ------------ ------------
$ 35,260 $ 92,355 $ (35,260) $ 92,355
============ ============ ============ ============
</TABLE>
F-13
<PAGE> 111
<TABLE>
<CAPTION>
HOLLYWOOD HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1995 THEATER HOLDINGS INC. THEATERS, INC. ENTRIES CONSOL'D
----------------- ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues .................................... $ -- $ 6,334 $ -- $ 6,334
------------ ------------ ------------ ------------
Costs and expenses:
Direct theater costs ..................... -- 5,296 -- 5,296
General and administrative ............... -- 743 -- 743
Depreciation and amortization ............ -- 739 -- 739
------------ ------------ ------------ ------------
-- 6,778 -- 6,778
------------ ------------ ------------ ------------
Operating loss .............................. -- (444) -- (444)
------------ ------------ ------------ ------------
Interest expense, net of interest income .... -- 463 -- 463
------------ ------------ ------------ ------------
Equity in loss of subsidiaries .............. (907) -- 907 --
------------ ------------ ------------ ------------
Net loss .................................... $ (907) $ (907) $ 907 $ (907)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
HOLLYWOOD HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1996 THEATER HOLDINGS INC. THEATERS, INC. ENTRIES CONSOL'D
----------------- ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues .................................... $ -- $ 24,879 $ -- $ 24,879
------------ ------------ ------------ ------------
Costs and expenses:
Direct theater costs ..................... -- 20,798 -- 20,798
General and administrative ............... -- 1,601 -- 1,601
Depreciation and amortization ............ -- 3,152 -- 3,152
------------ ------------ ------------ ------------
-- 25,551 -- 25,551
------------ ------------ ------------ ------------
Operating loss .............................. -- (672) -- (672)
------------ ------------ ------------ ------------
Interest expense, net of interest income .... -- 2,121 -- 2,121
------------ ------------ ------------ ------------
Equity in loss of subsidiaries .............. (2,793) -- 2,793 --
------------ ------------ ------------ ------------
Net loss .................................... $ (2,793) $ (2,793) $ 2,793 $ (2,793)
============ ============ ============ ============
</TABLE>
F-14
<PAGE> 112
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEARS ENDED:
<TABLE>
<CAPTION>
HOLLYWOOD HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1995 THEATER HOLDINGS INC. THEATERS, INC. ENTRIES CONSOL'D
----------------- ------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities .............. $ -- $ 182 $ -- $ 182
Cash flows from investing activities:
Purchases of property and equipment ............ -- (805) -- (805)
Payments for business acquisitions, net
of cash acquired ............................. -- (9,864) -- (9,864)
Contributions to subsidiaries .................. (2,545) -- 2,545 --
------------ ------------ ------------ ------------
(2,545) (10,669) 2,545 (10,669)
Cash flows from financing activities:
Borrowings under note payable and long-term debt -- 9,100 -- 9,100
Repayments of note payable and long-term debt .. -- (691) -- (691)
Proceeds from issuance of stock ................ 2,545 2,545 (2,545) 2,545
Other .......................................... -- (20) -- (20)
------------ ------------ ------------ ------------
2,545 10,934 (2,545) 10,934
------------ ------------ ------------ ------------
Net increase in cash .............................. $ -- $ 447 $ -- $ 447
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
HOLLYWOOD HOLLYWOOD CONSOLIDATING HOLDINGS
DECEMBER 31, 1996 THEATER HOLDINGS INC. THEATERS, INC. ENTRIES CONSOL'D
----------------- ------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities .............. $ -- $ 1,032 $ -- $ 1,032
------------ ------------ ------------ ------------
Cash flows from Investing activities:
Purchases of property and equipment ............ -- (10,734) -- (10,734)
Payments for business acquisitions, net of
cash acquired ................................ -- (58,986) -- (58,986)
Contributions to subsidiaries .................. (48,659) -- 48,659 --
------------ ------------ ------------ ------------
(48,659) (69,720) 48,659 (69,720)
Cash flows from financing activities:
Borrowings under note payable and long-term debt -- 58,428 -- 58,428
Repayments of note payable and long-term debt .. -- (16,691) -- (16,691)
Proceeds from issuance of stock ................ 48,659 48,659 (48,659) 48,659
Other .......................................... -- (18,596) -- (18,596)
------------ ------------ ------------ ------------
48,659 71,800 (48,659) 71,800
------------ ------------ ------------ ------------
Net increase in cash .............................. $ -- $ 3,112 $ -- $ 3,112
============ ============ ============ ============
</TABLE>
F-15
<PAGE> 113
Notes to Condensed Consolidated Financial Statements
(a) These condensed consolidating financial statements should be read in
conjunction with the consolidated financial statements of Holdings and
notes thereto of which this note is an integral part.
(b) As of December 31, 1995, Holdings owns 100% interest in Hollywood
Theaters, Inc. These condensed consolidating financial statements
present Holdings' investment in its subsidiaries using the equity
method. Under this method, investments are recorded at cost and
adjusted for the parent company's ownership share of the subsidiary's
cumulative results of operations. In addition, investments increase in
the amount of contributions to subsidiaries and decrease in the amount
of distributions from subsidiaries.
10. RETIREMENT SAVINGS PLAN
Holdings has a 401(k) profit sharing plan for the benefit of all
eligible employees and makes contributions as determined annually by the Board
of Directors. No contributions were made in 1996 or 1995.
11. ACQUISITIONS
Effective July 11, 1995, Holdings acquired for approximately $6,600,000
in cash and $2,500,000 in debt, all of the outstanding capital stock of
TransTexas, which includes 11 theaters in Texas and Oklahoma.
Effective April 11, 1996, Holdings acquired, for $3,264,000 in cash,
six theaters in Texas from Cinemore, Inc. and related entities.
Effective August 12, 1996, Holdings acquired, for $1,798,000 in cash,
two theaters in Texas from Beaumont Cinema Ventures, L.P.
Effective November 1, 1996, Holdings acquired 33 theaters primarily in
Kansas, Missouri, and Ohio from Crown Cinema Corporation and Crown Theatre
Corporation. Holdings issued 12,872 shares of its common stock to the seller, at
a fair market value of $2,252,600, and paid cash of $41,123,000 to the seller
for these acquisitions. As specified in the Crown Cinema Corporation purchase
agreement, an adjustment will be made to the purchase price based upon the
performance of the acquired theaters between September 8, 1996, and October 31,
1996. As of December 31, 1996, the amount of this adjustment had not been
finalized. Therefore, the purchase price allocation used to ascertain the
associated value of goodwill, and other acquired assets is preliminary.
Potentially, 3,218 shares of additional common stock may be issued to the former
stakeholder of Crown Cinema Corporation upon final agreement of the purchase
price. The former stakeholder of Crown Cinema Corporation is now a stockholder
and consultant with Holdings.
Effective November 14, 1996, Holdings acquired, for $700,000 in cash,
two theaters in Texas from General Cinema Corp. of Texas.
Effective in November and December 1996, Holdings acquired, for
$11,285,000 in cash, 19 theaters in Idaho, Oklahoma, and Texas from United
Artists Theatre Circuit Inc. and related entities.
The 1996 and 1995 acquisitions have been accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired (including all identifiable intangible assets, if material)
based upon their estimated fair values at the dates of acquisition in accordance
with APB No. 16. The results of operations of the acquired theaters are included
in the consolidated financial statements from the respective dates of
acquisition. None of the acquisition agreements contain any significant earn-out
provisions with the sellers.
F-16
<PAGE> 114
The following is a summary of the net assets acquired and liabilities
assumed in connection with the foregoing acquisitions in 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Assets acquired:
Cash and cash equivalents ...................... $ 55,661 $ --
Inventories .................................... 129,844 71,370
Prepaid current assets and other ............... 442,026 106,649
----------- -----------
Total current assets ................... 627,531 178,019
Furniture and equipment ........................ 9,011,295 2,122,221
Leasehold improvements ......................... 6,123,077 594,313
Building ....................................... 10,963,717 --
Land ........................................... 2,989,902 --
Land improvements .............................. 436,254 --
Construction-in-progress ....................... 117,297 --
Covenants not-to-compete ....................... 6,098,827 1,000,000
----------- -----------
Total other assets ..................... 35,740,369 3,716,534
----------- -----------
Total assets acquired .................. 36,367,900 3,894,553
----------- -----------
Liabilities assumed:
Accounts payable ............................... -- 1,808,315
Note payable ................................... -- 690,597
----------- -----------
Total liabilities assumed .............. -- 2,498,912
----------- -----------
Net assets acquired .................... 36,367,900 1,395,641
Purchase price, including acquisition costs ...... 61,073,027 9,089,620
----------- -----------
Goodwill ......................................... $24,705,127 $ 7,693,979
=========== ===========
</TABLE>
Pro Forma Information
The following unaudited pro forma information reflects the effect on
the consolidated statements of operations assuming that significant acquisitions
were consummated as of January 1, 1996 and 1995. This information may not be
indicative of the results that would have actually been obtained if the
acquisitions had occurred on such dates. Therefore, pro forma information cannot
be considered indicative of future operations. The unaudited pro forma
information for the year ended December 31, 1996 and the period from inception
(July 11, 1995), through December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total revenues .................... $78,710,000 $37,830,000
Net income ........................ 4,323,000 3,102,000
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
Holdings, in the normal course of business, is party to various matters
of litigation. Management is of the opinion that the eventual outcome of these
matters will not have a material adverse effect on Holdings' financial position
or results of operations.
13. RELATED-PARTY TRANSACTIONS
Precept Investors, Inc. ("Precept"), one of Holdings' shareholders, has
been engaged by Holdings to construct various theaters. During 1996, Precept was
involved in the construction of one theater and the improvements to one existing
theater, and was paid approximately $4,600,000 for these services. At December
31, 1996, approximately $1,200,000 was owed to Precept and is included in
accounts payable and accrued expenses on the accompanying balance sheet.
At December 31, 1996, Holdings was owed approximately $615,000 by a
current shareholder and consultant with Holdings, who is a former stakeholder of
Crown Cinema Corporation and Crown Theatre Corporation. The
F-17
<PAGE> 115
receivable primarily represents costs paid by Holdings for services performed
prior to the acquisition of the theaters by Holdings.
14. SUBSEQUENT EVENTS
In March 1997, Holdings received a commitment for a long-term, first
mortgage loan of $3.8 million from a financial institution. The proceeds will be
used to construct a theater in Lawrence, Kansas. Holdings began construction in
January 1997, with completion in May 1997.
In March 1997, Holdings entered into a purchase contract for $8.7
million to acquire a 16-screen theater under construction in Waco, Texas (the
"Waco Acquisition"). Additionally, Holdings has committed $2.1 million for the
purchase of furniture, fixtures, and equipment for this theater. The purchase
will be accounted for using the purchase method of accounting. Construction
should be completed in August 1997. Holdings also signed a contract to buy land
in Norman, Oklahoma, for $2.9 million.
In April 1997, Holdings signed a letter of intent to buy two theaters
for $8.5 million. The purchase will be accounted for using the purchase method
of accounting. Additionally, the Board of Directors approved 200,000 shares of
$.01 par value Series C Convertible Redeemable Preferred Stock. Additionally,
Holdings sold 43,076 shares of this preferred stock and 18,462 of common stock.
Net proceeds from the sale of the 61,500 shares were approximately $12.0 million
and were used to finance the above transactions and current construction
activity.
On August 1, 1997, HTI completed a $110.0 million offering of Senior
Subordinated Notes. The Notes bear interest at 105/8% and are due 2007. The
Notes are redeemable at HTI's option and upon the occurrence of certain events
in the future. The Notes also include certain restrictive covenants relative to
the maintenance of financial ratios and the incurrence of additional
indebtedness.
During the nine months ended September 30, 1997, HTI paid approximately
$27.7 million consideration in connection with acquisitions. The acquisitions
will be accounted for under the purchase method of accounting.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the year ended December
31, 1996, and the period from inception (July 11, 1995) through December 31,
1995, are as follows:
Year Ended December 31, 1996
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues .......$ 2,716,463 $ 3,779,273 $ 4,908,796 $ 13,474,708
Operating expenses ....... 3,161,029 4,180,596 5,006,021 13,203,383
------------ ------------ ------------ ------------
Operating income (loss) .. (444,566) (401,323) (97,225) 271,325
Interest expense, net .... 219,113 218,298 275,959 1,407,352
------------ ------------ ------------ ------------
Net loss .......$ (663,679) $ (619,621) $ (373,184) $ (1,136,027)
============ ============ ============ ============
</TABLE>
Period from Inception (July 11, 1995), Through December 31, 1995
<TABLE>
<CAPTION>
THIRD FOURTH
QUARTER QUARTER
----------- -----------
<S> <C> <C>
Operating revenues ......... $ 3,219,016 $ 3,114,645
Operating expenses ......... 3,220,023 3,557,666
----------- -----------
Operating loss ............. (1,007) (443,021)
Interest expense, net ...... 226,910 236,554
----------- -----------
Net loss ................... $ (227,917) $ (679,575)
=========== ===========
</TABLE>
F-18
<PAGE> 116
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
1997
------------
(Unaudited)
<S> <C>
Current assets:
Cash and cash equivalents .............................................................. $ 9,108
Accounts receivable .................................................................... 1,206
Inventories ............................................................................ 1,151
Prepaid and other current assets ....................................................... 2,852
Deposits ............................................................................... 2,442
------------
Total current assets ........................................................... 16,759
Property and equipment:
Buildings .............................................................................. 39,781
Furniture and equipment ................................................................ 27,182
Leasehold improvements ................................................................. 14,459
Land and land improvements ............................................................. 12,386
Construction in progress ............................................................... 9,607
------------
103,415
Less-- Accumulated depreciation and amortization ....................................... (5,457)
------------
Property and equipment, net .................................................... 97,958
Other assets:
Goodwill, net .......................................................................... 45,296
Intangible assets, net ................................................................. 15,365
------------
Total other assets ............................................................. 60,661
------------
Total assets ................................................................... $ 175,378
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .................................................. $ 9,357
Current maturities of long-term debt ................................................... 3,937
------------
Total current liabilities ...................................................... 13,294
Other liabilities:
Long-term debt ......................................................................... 110,000
Deferred lease expenses ................................................................ 1,078
------------
Total other liabilities ........................................................ 111,078
------------
Total liabilities .............................................................. 124,372
Commitments and contingencies
Convertible preferred stock
Series B preferred stock, $.01 par value, 400,000 shares authorized, 163,319 shares
issued and outstanding in 1997 ...................................................... 2
Series C preferred stock, $.01 par value, 400,000 shares authorized, 78,973 shares
issued and outstanding in 1997 ...................................................... 1
Additional paid-in capital ............................................................. 46,830
Stockholders' equity
Common stock, $.01 par value, 1,000,000 shares authorized in
1997; 116,336 shares issued and outstanding ......................................... 1
Additional paid-in capital ............................................................. 17,761
Accumulated deficit .................................................................... (13,589)
------------
Total stockholders' equity ..................................................... 4,173
------------
Total liabilities and stockholders' equity ..................................... $ 175,378
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-19
<PAGE> 117
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Admissions and other operating revenue .... $ 14,772 $ 2,966 $ 35,957 $ 7,035
Concessions ............................... 7,779 1,943 18,895 4,370
------------ ------------ ------------ ------------
Total revenues .................... 22,551 4,909 54,852 11,405
------------ ------------ ------------ ------------
Operating expenses:
Film rental and advertising costs ......... 7,869 1,578 19,304 3,952
Cost of concessions and other ............. 1,266 320 3,021 684
Theater operating expenses ................ 8,558 2,183 22,241 5,316
General and administrative expenses ....... 1,631 512 3,992 1,158
Depreciation and amortization ............. 2,984 413 7,930 1,238
------------ ------------ ------------ ------------
Total operating expenses .......... 22,308 5,006 56,488 12,348
------------ ------------ ------------ ------------
Operating income (loss) ..................... 243 (97) (1,636) (943)
Interest expense, net ....................... 2,234 276 4,482 713
------------ ------------ ------------ ------------
Net loss .................................... $ (1,991) $ (373) $ (6,118) $ (1,656)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 118
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities ................. $ 2,734 $ (367)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ........................... (28,242) (5,641)
Payments for business acquisitions, net of cash acquired ...... (48,707) (5,264)
------------ ------------
Net cash used in investing activities ................. (76,949) (10,905)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of Senior Subordinated Notes ........... 110,000 --
Borrowings under line of credit ............................... 14,000
Net borrowings on notes payable ............................... 3,800 5,046
Repayment on line of credit ................................... (14,500) --
Repayment of term loan ........................................ (50,000) --
Repayments of capital lease obligations ....................... (32) (32)
Payments of financing fees .................................... (5,505) (643)
Proceeds from issuance of stock ................................ 22,000 6,803
------------ ------------
Net cash provided by financing activities ............. 79,763 11,174
------------ ------------
Net increase in cash ............................................ 5,548 (98)
Cash and cash equivalents, beginning of period .................. 3,560 447
------------ ------------
Cash and cash equivalents, end of period ........................ $ 9,108 $ 349
============ ============
Non cash transactions:
Stock dividend ................................................ 2,853 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 119
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Condensed
Consolidated Financial Statements of Hollywood Theater Holdings, Inc. and
subsidiaries ("Holdings") include all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly Holdings' financial position
as of September 30, 1997, and the results of its operations for the three and
nine months ended September 30, 1997 and 1996. Due to the seasonality of
Holdings' operations, the results of its operations for the interim periods
ended September 30, 1997 and 1996, may not be indicative of total results for
the full year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
promulgated by the Securities and Exchange Commission. The unaudited Interim
Condensed Consolidated Financial Statements should be read in conjunction with
the audited Consolidated Financial Statements of Hollywood Theater Holdings,
Inc. and subsidiaries and accompanying notes for the years ended December 31,
1996 and 1995.
2. FINANCING ARRANGEMENTS
The Company completed an offering of $110.0 million of Senior
Subordinated Notes (the "Offering") in August 1997. The notes bear interest at
10 5/8% and are due 2007. The notes are redeemable at the Company's option and
upon the occurrence of certain events in the future. The notes also include
restrictive covenants relative to the maintenance of financial ratios and the
incurrence of additional indebtedness. The Company used the net proceeds from
the Offering to repay all of the existing indebtedness under its existing
facility, to finance certain acquisitions, to fund a portion of construction and
other expenses related to the 1997 theater building program, and for general
corporate purposes.
In conjunction with the Offering, the Company repaid all of its
existing indebtedness under its former bank facility at that time and entered
into the Senior Bank Facility. The Senior Bank Facility provides for a
revolving credit facility of $50.0 million with a five year term; however, the
total available borrowings under the Senior Bank Facility may be less based on
leverage levels of the Company. At September 30, 1997 the Company was not in
compliance with two of the thirteen Senior Bank Facility financial debt
covenants; however, during January 1998, the Senior Bank Facility was amended
and the Company is currently in compliance with the Senior Bank Facility. At
September 30, and December 31, 1997, no amounts were borrowed under the Senior
Bank Facility.
3. ACQUISITIONS
In May 1997, Holdings completed the Beaumont/Port Arthur Acquisition,
pursuant to which it acquired two theaters with an aggregate of 12 screens in
Beaumont and Port Arthur, Texas from United Artists Theatre Circuit Inc. for a
purchase price of $3.4 million. Holdings expects these newly acquired theaters
to complement the Company's existing theaters in Beaumont.
In June 1997, Holdings completed the acquisition of two theaters with
an aggregate of 14 screens in Killeen, Texas from Escape Theatres, Inc. for a
purchase price of $8.5 million.
At September 30, and December 31, 1997, no amounts were borrowed under
the Senior Bank Facility.
F-22
<PAGE> 120
In August 1997, Holdings completed the acquisition of seven theaters
with an aggregate of 50 screens located in Tulsa and Oklahoma City, Oklahoma
from General Cinema Corp. of Oklahoma, Inc. for a purchase price of $15.8
million.
In September 1997, Holdings completed the purchase of a
newly-constructed 16-screen theater in Waco, Texas for a purchase price of $8.9
million (The "Waco Acquisition"). Additionally, Holdings purchased furniture,
fixtures, and equipment for this theater for an additional $2.1 million. The
purchase was accounted for using the purchase method of accounting.
Pro Forma Information
The following unaudited pro forma information gives effect to (i) the
significant acquisitions described above and (ii) the Offering, assuming such
transactions had occurred on January 1, 1996. This information may not be
indicative of the results that would have actually been obtained if the
acquisitions and the Offering had occurred on such date. Therefore, pro forma
information cannot be considered indicative of future operations. The unaudited
pro forma information for the nine months ended September 30, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Total revenues .......... $ 67,474,000 $ 58,822,000
Net loss ................ 9,505,000 7,299,000
</TABLE>
4. EQUITY ISSUANCES
In April 1997, Holdings issued 43,076 shares of Series C Preferred
Stock ($.01 par value) ("Series C") and 18,462 shares of common stock ($.01 par
value) to the Beacon Group III-Focus Value Fund, L.P. ("Beacon") and Stratford
Capital Partners, L.P. ("Stratford) for approximately $12.0 million.
In May 1997, Holdings issued 35,897 shares of Series C and 15,385
shares of common stock for approximately $10.0 million to Hoak Communications
Partners, L.P. ("Hoak").
In November 1997, Holdings issued 51,283 shares of Series C for
approximately $10.0 million to Beacon and Stratford.
In December 1997, the Board of Directors approved 400,000 shares of
$.01 par value Series D Convertible Redeemable Preferred Stock. Additionally,
Holdings sold 10,256 shares of this preferred stock for approximately $2.0
million to Hoak.
5. COMMITMENTS AND CONTINGENCIES
Holdings, in the normal course of business, is party to various matters
of litigation. Management is of the opinion that the eventual outcome of these
matters will not have a material adverse effect on Holdings' financial position
or results of operations.
6. SUBSEQUENT EVENTS
In October 1997, Holdings completed the exchange of six theaters with
an aggregate of 31 screens operated by Holdings in Kansas and Missouri for five
theaters with an aggregate of 22 screens owned by Dickinson, Inc. in the same
states and cash of approximately $1.1 million.
In October 1997, Holdings completed the acquisition of one theater with
six screens in Tomball, Texas from Cineco Cinema Corporation. for a purchase
price of approximately $1.8 million.
F-23
<PAGE> 121
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hollywood Theater Holdings, Inc.:
We have audited the accompanying statement of assets acquired of the theaters
acquired (the "Acquired Theaters") from Dickinson, Inc. as of May 29, 1997, and
the related statements of revenues and direct operating expenses for the year
then ended. These financial statements are the responsibility of Dickinson
Theatres, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The statements of assets acquired and revenues and direct operating expenses for
the Acquired Theaters were prepared for the purpose of complying with the rules
and regulations of the Securities and Exchange Commission as described in Note
1, and are not intended to be a complete presentation of assets, revenues, and
expenses.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired of the Acquired Theaters as of May
29, 1997, and the revenues and direct operating expenses for the year then
ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
September 16, 1997
F-24
<PAGE> 122
FOR THE THEATERS ACQUIRED FROM DICKINSON, INC.
STATEMENT OF ASSETS ACQUIRED
AS OF MAY 29, 1997
<TABLE>
<CAPTION>
MAY 29,
1997
--------
<S> <C>
Inventories......................................... $ 17,973
Property and equipment, net......................... 815,263
--------
Total assets acquired....................... $833,236
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-25
<PAGE> 123
FOR THE THEATERS ACQUIRED FROM DICKINSON, INC.
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED MAY 29, 1997
<TABLE>
<CAPTION>
YEAR ENDED
MAY 29, 1997
---------------
<S> <C>
Revenues:
Admissions ............................................... $ 3,505,649
Concessions .............................................. 1,466,537
Other operating revenues ................................. 20,222
---------------
Total revenues ................................... 4,992,408
Operating expenses:
Film rental and advertising costs ........................ 1,856,373
Cost of concessions and other ............................ 264,537
Theater operating expenses ............................... 1,751,886
---------------
Total operating expenses ......................... 3,872,796
---------------
Excess of revenues over direct operating expenses .......... $ 1,119,612
===============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-26
<PAGE> 124
FOR THE THEATERS ACQUIRED FROM DICKINSON, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 29, 1997
1. BASIS OF PRESENTATION:
In August 1997, Hollywood Theaters, Inc. ("Hollywood") entered into a definitive
agreement with Dickinson, Inc. ("Dickinson") pursuant to which Hollywood will
exchange six theaters it operates in Kansas and Missouri for five theaters owned
by Dickinson ("Acquired Theaters") in the same states and cash of approximately
$1.1 million.
The accompanying statements of revenues and direct operating expenses do not
include general and administrative expense, interest income or expense, a
provision for depreciation, and amortization or any provision for income taxes
because the property interests acquired represent only a portion of a business
and the costs incurred by the sellers of the properties are not necessarily
indicative of the costs to be incurred by Hollywood.
Historical financial information reflecting financial position, results of
operations and cash flows of the Acquired Theaters is not presented because
primarily all of the acquisition cost was assigned to property and equipment.
Accordingly, the historical statements of revenues and direct operating expenses
have been presented in lieu of the financial statements required under Rule 3-05
of Securities and Exchange Commission Regulation S-X.
2. SIGNIFICANT ACCOUNTING POLICIES:
Revenues
Revenues are recognized when admissions and concessions sales are received at
the theaters. Film rental costs are accrued based on the applicable box office
receipts and the terms of the film licenses. Other revenues consist primarily of
on-screen and slide advertising and electronic video game receipts.
Operating Costs and Expenses
Film rental and advertising costs include film rental and co-op and directory
advertising costs. Film advertising costs are expensed as incurred. Cost of
concessions consist solely of direct concession product costs. Other operating
expenses include joint facility costs such as employee costs, theater rental and
utilities, all of which are common to both ticket sales and concession
operations.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist primarily of concession products and theater supplies.
Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture and
equipment, and buildings is provided using the straight-line method over a
7-year period and 39-year period, respectively. Leasehold improvements are
amortized using the straight-line method over the lesser of the lease period or
the estimated useful lives of the leasehold improvements.
F-27
<PAGE> 125
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. LEASES:
The Acquired Theaters lease certain of its theater premises with lease terms of
15 to 26 years. Additionally, certain leases provide for contingent rentals
based on operating results and require the payment of taxes, insurance, and
other costs applicable to the property. The Acquired Theaters, at its option,
may renew a substantial portion of the leases at defined or then fair rental
rates for various periods. Some leases also provide for escalating rent payments
throughout the lease term. Rent expense for the period ended May 29, 1997,
totaled approximately $538,000.
Future minimum payments under noncancelable leases with initial or remaining
terms in excess of one year at May 29, 1997, are due as follows:
<TABLE>
<S> <C>
1998 $ 527,600
1999 536,500
2000 536,500
2001 519,600
2002 360,200
Thereafter 255,200
----------
Total $2,735,600
==========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
The Acquired Theaters, in the normal course of business, is party to various
matters of litigation. Management is of the opinion that the eventual outcome of
these matters will not have a material adverse effect on the Acquired Theaters'
financial position or results of operations.
5. SUBSEQUENT EVENT (UNAUDITED)
In October 1997, the Acquired Theaters were exchanged with theaters from
Hollywood, as described in Note 1.
F-28
<PAGE> 126
FOR THE THEATERS ACQUIRED FROM DICKINSON, INC.
STATEMENT OF ASSETS ACQUIRED
AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
AUGUST 31,
1997
--------
(UNAUDITED)
<S> <C>
Inventories................................................. $ 17,900
Property and equipment, net................................. 763,713
--------
Total assets acquired............................. $781,613
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-29
<PAGE> 127
FOR THE THEATERS ACQUIRED FROM DICKINSON, INC.
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE THREE MONTHS ENDED AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Admissions and other operating revenue .............. $ 1,082,728 $ 1,151,562
Concessions ......................................... 481,588 481,335
------------ ------------
Total revenues .............................. 1,564,316 1,632,897
Operating expenses:
Film rental and advertising costs ................... 649,628 668,692
Cost of concessions and other ....................... 102,888 111,194
Theater operating expenses .......................... 426,541 454,127
------------ ------------
Total operating expenses .................... 1,179,057 1,234,013
------------ ------------
Excess of revenues over direct operating expenses ..... $ 385,259 $ 398,884
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 128
FOR THE THEATERS ACQUIRED FROM DICKINSON, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
AUGUST 31, 1997
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the unaudited interim statements of assets and
revenues and direct operating expenses of the theaters acquired from Dickinson,
Inc. ("Acquired Theaters") by Hollywood Theaters, Inc. ("Hollywood") include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Acquired Theaters' financial position as of August 31, 1997,
and the results of its operations for the three months ended August 31, 1997.
Due to the seasonality of the Acquired Theaters operations, the results of its
operations for the interim period ended August 31, 1997, may not be indicative
of total results for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations promulgated by the Securities and Exchange Commission. The
unaudited interim statements of assets and revenues and direct operating
expenses should be read in conjunction with the consolidated financial
statements of the Acquired Theaters and accompanying notes for the year ended
May 29, 1997.
The accompanying statements of revenues and direct operating expenses do not
include general and administrative expense, interest income or expense, a
provision for depreciation, and amortization or any provision for income taxes
because the property interests acquired represent only a portion of a business
and the costs incurred by the sellers of the properties are not necessarily
indicative of the costs to be incurred by Hollywood.
Historical financial information reflecting financial position, results of
operations and cash flows of the Acquired Theaters is not presented because
primarily all of the acquisition cost was assigned to property and equipment.
Accordingly, the historical statements of revenues and direct operating expenses
have been presented in lieu of the financial statements required under Rule 3-05
of Securities and Exchange Commission Regulation S-X.
2. COMMITMENTS AND CONTINGENCIES:
The Acquired Theaters, in the normal course of business, is party to various
matters of litigation. Management is of the opinion that the eventual outcome of
these matters will not have a material adverse effect on the Sold Theaters'
financial position or results of operations.
3. SUBSEQUENT EVENT:
In October 1997, the Acquired Theaters were exchanged for six theaters owned by
Hollywood. Additionally, the Acquired Theaters paid $1.1 million in cash to
Hollywood.
F-31
<PAGE> 129
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hollywood Theater Holdings, Inc.:
We have audited the accompanying statement of assets acquired of the theaters
acquired (the "Acquired Theaters") from General Cinema Corp. of Oklahoma, Inc.
as of October 31, 1996, and the related statements of revenues and direct
operating expenses for the years ended October 31, 1996 and 1995. These
financial statements are the responsibility of GC Companies, Inc.'s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The statements of assets acquired and revenues and direct operating expenses
for the Acquired Theaters were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission as described in
Note 1, and are not intended to be a complete presentation of assets, revenues,
and expenses.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired of the Acquired Theaters as of
October 31, 1996, and the revenues and direct operating expenses for the years
ended October 31, 1996 and October 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 30, 1997
F-32
<PAGE> 130
FOR THE THEATERS ACQUIRED FROM GENERAL CINEMA CORP. OF OKLAHOMA, INC.
STATEMENT OF ASSETS ACQUIRED
AS OF OCTOBER 31, 1996
<TABLE>
<CAPTION>
OCTOBER 31,
1996
----------
<S> <C>
Cash and cash equivalents .............. $ 129,091
Inventories ............................ 61,322
Property and equipment, net ............ 4,782,667
----------
Total assets acquired ........ $4,973,080
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-33
<PAGE> 131
FOR THE THEATERS ACQUIRED FROM GENERAL CINEMA CORP. OF OKLAHOMA, INC.
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Admissions .......................................... $10,973,332 $10,096,860
Concessions ......................................... 4,987,201 4,464,015
Other operating revenues ............................ 214,137 167,072
----------- -----------
Total revenues .............................. 16,174,670 14,727,947
Operating expenses:
Film rental and advertising costs ................... 6,366,263 5,835,820
Cost of concessions and other ....................... 743,146 741,061
Theater operating expenses .......................... 5,719,805 5,702,602
----------- -----------
Total operating expenses .................... 12,829,214 12,279,483
----------- -----------
Excess of revenues over direct operating expenses ..... $ 3,345,456 $ 2,448,464
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 132
FOR THE THEATERS ACQUIRED FROM GENERAL CINEMA CORP. OF OKLAHOMA, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
1. BASIS OF PRESENTATION
Seven theaters (the "Acquired Theaters") owned by General Cinema Corp.
of Oklahoma, Inc. were acquired by Hollywood Theaters, Inc. ("Hollywood") in
August 1997.
The accompanying statements of revenues and direct operating expenses
do not include general and administrative expense, interest income or expense, a
provision for depreciation, and amortization or any provision for income taxes
because the property interests acquired represent only a portion of a business
and the costs incurred by the sellers of the properties are not necessarily
indicative of the costs to be incurred by Hollywood.
Historical financial information reflecting financial position, results
of operations and cash flows of the Acquired Theaters is not presented because
primarily all of the acquisition cost was assigned to property and equipment.
Accordingly, the historical statements of revenues and direct operating expenses
have been presented in lieu of the financial statements required under Rule 3-05
of Securities and Exchange Commission Regulation S-X.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenues
Revenues are recognized when admissions and concessions sales are
received at the theaters. Film rental costs are accrued based on the applicable
box office receipts and the terms of the film licenses. Other revenues consist
primarily of on-screen and slide advertising and electronic video games located
in theater lobbies.
Operating Costs and Expenses
Film rental and advertising costs include film rental and co-op and
directory advertising costs. Film advertising costs are expensed as incurred.
Cost of concession consist solely of direct concession product costs. Other
operating expenses include joint facility costs such as employee costs, theater
rental and utilities which are common to both ticket sales and concession
operations. Rental expense for operating leases which provide for escalating
minimum annual rentals during the term of the lease are accounted for on a
straight-line basis over the terms of the underlying leases and reported as a
component of theater operating expenses.
Cash and Cash Equivalents
Cash and cash equivalents consist of operating funds held in financial
institutions and petty cash held by the theaters. The Acquired Theaters consider
all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist primarily of concession products and theater supplies.
Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture
and equipment, and buildings is provided using the straight-line method over a 3
to 20-year period and 20 to 30-year period, respectively. Leasehold improvements
are amortized using the straight-line method over the lesser of the lease period
or the estimated useful lives of the leasehold improvements.
F-35
<PAGE> 133
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. LEASES
The Acquired Theaters lease certain of its theater premises with lease
terms of 20 to 30 years. Additionally, certain leases provide for contingent
rentals based on operating results and require the payment of taxes, insurance,
and other costs applicable to the property. The Acquired Theaters, at its
option, may renew a substantial portion of the leases at defined or then fair
rental rates for various periods. Some leases also provide for escalating rent
payments throughout the lease term. Rent expense for the period ending October
31, 1996 and 1995, totaled $2,056,070, and $2,453,539, respectively.
Future minimum payments under noncancelable leases with initial or
remaining terms in excess of one year at October 31, 1996, are due as follows:
<TABLE>
<CAPTION>
Operating
Leases
------------
<S> <C>
1997................................................ $ 2,416,556
1998................................................ 2,416,556
1999................................................ 2,488,322
2000................................................ 2,521,478
2001................................................ 2,521,478
Thereafter.......................................... 19,677,775
------------
Total..................................... $ 32,042,165
============
</TABLE>
F-36
<PAGE> 134
FOR THE THEATERS ACQUIRED FROM GENERAL CINEMA CORP. OF OKLAHOMA, INC.
STATEMENT OF ASSETS ACQUIRED
AS OF JULY 31, 1997
<TABLE>
<CAPTION>
JULY 31,
1997
------------
(Unaudited)
<S> <C>
Cash and cash equivalents ................... $ 118,602
Inventories ................................. 56,922
Property and equipment ...................... 9,569,075
------------
Total assets acquired ............. $ 9,744,599
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-37
<PAGE> 135
FOR THE THEATERS ACQUIRED FROM GENERAL CINEMA CORP. OF OKLAHOMA, INC.
INTERIM STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Admissions ..................................... $ 3,520,986 $ 4,383,784 $ 9,644,267 $ 8,895,960
Concessions .................................... 1,683,345 2,011,747 4,509,435 4,026,622
Other operating revenues ....................... 129,532 83,225 227,394 160,750
------------ ------------ ------------ ------------
Total revenues ......................... 5,333,863 6,478,756 14,381,096 13,083,332
------------ ------------ ------------ ------------
Operating expenses:
Film rental and advertising costs .............. 2,192,746 2,699,199 5,699,600 5,272,949
Cost of concessions and other .................. 384,031 217,365 782,224 523,130
Theater operating expenses ..................... 1,914,126 1,998,124 5,229,508 4,774,986
------------ ------------ ------------ ------------
Total operating expenses ............... 4,490,903 4,914,688 11,711,332 10,571,065
------------ ------------ ------------ ------------
Operating income ................................. $ 842,960 $ 1,564,068 $ 2,669,764 $ 2,512,267
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 136
FOR THE THEATERS ACQUIRED FROM GENERAL CINEMA CORP. OF OKLAHOMA, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 1997
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim statements of
assets acquired and revenues and direct operating expenses of the theaters
acquired from General Cinema Corp. of Oklahoma, Inc. (the "Acquired Theaters")
include all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the Acquired Theaters' assets to be acquired as of
July 31, 1997, and the revenues and direct operating expenses for the three
months ended July 31, 1997 and 1996. Due to the seasonality of the Acquired
Theaters' operations, the revenues and direct operating expenses for the interim
period ended July 31, 1997 and 1996, may not be indicative of total results for
the full year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
promulgated by the Securities and Exchange Commission. The unaudited interim
statements of assets acquired and revenues and direct operating expenses should
be read in conjunction with the financial statements of the theaters acquired
from GC Companies, Inc. and accompanying notes for the years ended October 31,
1996 and 1995.
The accompanying statements of revenues and direct operating expenses
do not include general and administrative expense, interest income or expense, a
provision for depreciation, and amortization or any provision for income taxes
because the property interests acquired represent only a portion of a business
and the costs incurred by the sellers of the properties are not necessarily
indicative of the costs to be incurred by Hollywood.
Historical financial information reflecting financial position, results
of operations and cash flows of the Acquired Theaters is not presented because
primarily all of the acquisition cost was assigned to property and equipment.
Accordingly, the historical statements of revenues and direct operating expenses
have been presented in lieu of the financial statements required under Rule 3-05
of Securities and Exchange Commission Regulation S-X.
2. SUBSEQUENT EVENT
In August 1997, the Acquired Theaters were acquired by Hollywood
Theaters, Inc. for approximately $15.8 million.
F-39
<PAGE> 137
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hollywood Theaters, Inc.:
We have audited the accompanying balance sheet of Escape Theatres, Inc.
(a Texas corporation) as of September 30, 1996, and the related statements of
operations and cash flows for the year ended September 30, 1996. These financial
statements are the responsibility of Escape Theatres, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Escape Theatres,
Inc. as of September 30, 1996, and the results of their operations and cash
flows for the year ended September 30, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 1, 1997
F-40
<PAGE> 138
ESCAPE THEATRES, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1996
ASSETS
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Current assets:
Cash and cash equivalents ............................................................ $ 402,140
Inventories and other current assets ................................................. 20,828
-----------
Total current assets ......................................................... 422,968
Property and equipment:
Building ............................................................................. 2,058,876
Furniture and equipment .............................................................. 1,219,534
Land ................................................................................. 220,000
-----------
3,498,410
Less-- Accumulated depreciation ...................................................... (702,256)
-----------
Property and equipment, net .................................................. 2,796,154
Other assets:
Goodwill, net ........................................................................ 905,440
-----------
Total other assets ........................................................... 905,440
-----------
Total assets ................................................................. $ 4,124,562
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................................ $ 155,120
Federal income taxes payable ......................................................... 16,554
Notes payable ........................................................................ 775,089
Current maturities of long-term debt ................................................. 43,332
-----------
Total current liabilities .................................................... 990,095
Other liabilities:
Long-term debt, net of current maturities ............................................ 1,073,429
-----------
Total liabilities ............................................................ 2,063,524
Stockholder's Equity
Common stock, no par value, 2,000,000 shares authorized;
105,001 shares issued and outstanding ............................................. 1,050,010
Retained earnings .................................................................... 1,011,028
-----------
Total stockholders' equity ................................................... 2,061,038
-----------
Total liabilities and stockholders' equity ................................... $ 4,124,562
===========
</TABLE>
The accompanying notes are an integral part of this
balance sheet.
F-41
<PAGE> 139
ESCAPE THEATRES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
1996
----------
Revenues:
Admissions ........................ $2,806,347
Concessions ....................... 1,245,367
Other operating revenues .......... 64,974
----------
Total revenues ............ 4,116,688
Operating expenses:
Film rental and advertising
costs ............................ 1,535,815
Cost of concessions and other ..... 318,372
Theater operating expenses ........ 1,134,509
General and administrative
expenses 83,302
Depreciation and amortization ..... 202,738
----------
Total operating expenses .. 3,274,736
----------
Operating income .................... 841,952
Interest expense, net ............... 145,745
Federal income tax provision ........ 211,554
----------
Net income .......................... $ 484,653
==========
The accompanying notes are an integral part of this
financial statement.
F-42
<PAGE> 140
ESCAPE THEATRES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
1996
---------
Cash flows from operating activities:
Net income ............................................. $ 484,653
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization ....................... 202,738
Changes in assets and liabilities--
Decrease in inventories and other current assets .... 3,395
Decrease in accounts payable and accrued expenses ... (33,091)
Decrease in federal income taxes payable ............ (100,680)
---------
Net cash used in operating activities .......... 557,015
---------
Cash flows from investing activities:
Purchases of property and equipment .................... (171,671)
---------
Net cash used in investing activities .......... (171,671)
---------
Cash flows from financing activities:
Proceeds from note payable ............................. 270,000
Repayments of long-term debt ........................... (538,332)
---------
Net cash provided by financing activities ...... (268,332)
---------
Net increase in cash ..................................... 117,012
Cash and cash equivalents, beginning of year ............. 285,128
---------
Cash and cash equivalents, end of year ................... $ 402,140
=========
The accompanying notes are an integral part of this financial statement.
F-43
<PAGE> 141
ESCAPE THEATRES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. ORGANIZATION
Escape Theatres, Inc., ("Escape") is a Texas corporation formed to own
and operate motion picture theaters in Texas. Escape was incorporated on June 5,
1990, and began operations on November 30, 1990, by acquiring the operating
assets and land of United Artists Theatre Circuit Inc. in Killeen, Texas. At
September 30, 1996, Escape operated three theaters in Killeen, Texas.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consists of operating funds held in financial
institutions and petty cash held by the theaters. Escape considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
Inventories and Other Current Assets
Inventories are stated at cost and consist primarily of concession
products and theater supplies. Other current assets consist primarily of
advanced film rental payments which are required by various film distributors
prior to the release of a highly anticipated film.
Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture,
equipment, and buildings is provided using the straight-line method over a
five-year period, ten-year period, and thirty five-year period, respectively.
Goodwill
Goodwill is recorded as the excess of cost over fair value of assets
acquired and is amortized over 40 years. Accumulated amortization of goodwill
was approximately $26,250 at September 30, 1996.
Revenues
Revenues are recognized when admissions and concessions sales are
received at the theaters.
Rent Expense
Rent expense is recognized on a straight-line basis after considering
the effect of rent escalation provisions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. LONG-TERM DEBT
Long-term debt at September 30, 1996, consisted of the following:
F-44
<PAGE> 142
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Term note payable to a bank; interest of eight and one-quarter percent (8.25%
per annum, interest and principal payable monthly, with a maturity on
September
30, 1998) ...................................................................... $1,116,761
Less--
Current maturities 43,332
----------
Long-term debt.............................................................. ..... $1,073,429
==========
</TABLE>
4. LEASES
Escape leases certain of its theater premises with lease terms of 5 to
20 years. Additionally, certain leases provide for contingent rentals based on
operating results and require the payment of taxes, insurance, and other costs
applicable to the property. Escape, at its option, may renew a substantial
portion of the leases at defined or then fair rental rates for various periods.
Some leases also provide for escalating rent payments throughout the lease term.
Rent expense for the period ending September 30, 1996, totaled $115,933.
Future minimum payments under noncancelable leases with initial or
remaining terms in excess of one year at September 30, 1996, are due as follows:
<TABLE>
Operating
Leases
---------
<S> <C>
1997.......................................................................................... $101,508
1998.......................................................................................... 89,433
1999.......................................................................................... 89,433
2000.......................................................................................... 89,433
2001.......................................................................................... 52,169
Thereafter.................................................................................... --
========
Total............................................................................... $421,976
========
</TABLE>
5. INCOME TAXES
Escape's deferred income taxes at September 30, 1996, consisted of the
following:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Capital loss carryforward ....................................................... $27,000
Other ........................................................................... 3,000
--------
Total assets .................................................................... 30,000
Less-- Valuation allowance....................................................... (30,000)
--------
Total deferred income taxes...................................................... $ --
========
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires all entities to disclose the
estimated fair value of its financial instrument assets and liabilities. Cash
and cash equivalents, accounts receivable, and accounts payable and accrued
liabilities are reflected in the consolidated financial statements at fair value
because of the short-term maturity of those instruments. In addition, the fair
value of Escape's long-term debt and capital lease obligations were determined
to approximate its carrying value since (i) a substantial amount of the
September 30, 1996, long-term debt and capital lease obligations were issued at
fair market value during 1996 and (ii) long-term debt amounts are interest rate
variable in nature.
Changes in the assumptions or estimation methodologies may have a
material effect on these estimated fair values.
7. STOCKHOLDERS' EQUITY
Escape has authorized 2,000,000 shares of no par value common stock. As
of September 30, 1996, 105,001 shares are outstanding. The principal stockholder
is John A. Treadwell, President of Escape, who holds 62,501 shares.
F-45
<PAGE> 143
8. RELATED-PARTY TRANSACTIONS
At September 30, 1996, Escape owed approximately $575,000 to the
President of Escape. The liability primarily represents cash provided by the
President to fund operations of Escape. These liabilities consist of a $100,000
note payable, a $200,000 note payable, and a $275,000 note payable due November
1996, May 1997, and upon demand, respectively.
At September 30, 1996, Escape also owed approximately $100,000 to an
Escape Stockholder. This liability primarily represents cash provided by the
Stockholder to fund operations of Escape. The note payable is due November 1996.
9. SUBSEQUENT EVENT
Effective March 31, 1997, Escape entered into a sale contract for
$10,000 for the sale of its Showplace Theater to an individual.
F-46
<PAGE> 144
ESCAPE THEATRES, INC.
CONDENSED BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS
MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents ....................................... $ 710,265
Inventories and other current assets ............................ 67,372
-----------
Total current assets .................................... 777,637
Property and equipment:
Building ........................................................ 2,058,876
Furniture and equipment ......................................... 1,219,534
Land ............................................................ 220,000
-----------
3,498,410
Less -- Accumulated depreciation ................................. (762,448)
-----------
Property and equipment, net ............................. 2,735,962
Other assets:
Goodwill, net ................................................... 892,192
-----------
Total other assets ...................................... 892,192
-----------
Total assets ............................................ $ 4,405,791
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........................... $ 276,604
Note payable .................................................... 675,089
Current maturities of long-term debt ............................ 43,332
-----------
Total current liabilities ............................... 995,025
Other liabilities:
Long-term debt, net of current maturities ....................... 1,051,763
-----------
Total liabilities ....................................... 2,046,788
Stockholder's equity
Common stock, $10 par value, 2,000,000 shares authorized;
105,001 shares issued and outstanding ........................ 1,050,010
Retained earnings ............................................... 1,308,993
-----------
Total stockholders' equity .............................. 2,359,003
-----------
Total liabilities and stockholders' equity .............. $ 4,405,791
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-47
<PAGE> 145
ESCAPE THEATRES, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ------------------------
1997 1996 1997 1996
----------------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Admissions and other operating
revenue .................................................... $ 682,213 $ 583,193 $1,325,236 $1,235,906
Concessions ................................................... 300,720 257,402 574,214 538,839
---------- ---------- ---------- ----------
Total revenues ........................................ 982,933 840,595 1,899,450 1,774,745
Operating Expenses:
Film rental and advertising costs ............................. 361,957 335,615 668,700 620,030
Cost of concessions ........................................... 64,907 58,222 111,620 107,676
Theater operating expenses .................................... 267,703 270,864 539,621 503,203
General and administrative expenses ........................... 23,949 19,025 43,898 37,758
Depreciation and amortization ................................. 36,720 45,293 73,440 90,587
---------- ---------- ---------- ----------
Total operating expenses .............................. 755,236 729,019 1,437,279 1,359,254
---------- ---------- ---------- ----------
Operating income ................................................ 227,697 111,576 462,171 415,491
Interest expense, net ........................................... 69,465 36,069 102,352 111,848
---------- ---------- ---------- ----------
Income before income taxes ...................................... 158,232 75,507 359,819 303,643
Federal income tax provision .................................... -- -- 40,000 119,000
---------- ---------- ---------- ----------
Net income ...................................................... $ 158,232 $ 75,507 $ 319,819 $ 184,643
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 146
F-48
ESCAPE THEATRES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ---------------------------
1997 1996 1997 1996
---------- ----------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by operating
activities .............................................. $ 250,762 $ 105,698 $ 429,791 $ 228,566
Cash flows from investing activities:
Purchase of property and equipment ................................ -- -- -- (171,671)
--------- --------- --------- ---------
Net cash used in investing
activities .............................................. -- -- -- (171,671)
--------- --------- --------- ---------
Cash flows from financing activities:
Borrowings under note payable ..................................... -- -- -- 220,000
Repayments of note payable ........................................ -- (26,591) (100,000) --
Repayments of long-term debt ...................................... (10,833) (14,444) (21,666) (344,166)
--------- --------- --------- ---------
Net cash used in financing
activities .............................................. (10,833) (41,035) (121,666) (124,166)
--------- --------- --------- ---------
Net increase (decrease) in cash ..................................... 239,929 64,663 308,125 (67,271)
Cash and cash equivalents, beginning of
period ............................................................ 470,336 153,194 402,140 285,128
--------- --------- --------- ---------
Cash and cash equivalents, end of
period ............................................................ $ 710,265 $ 217,857 $ 710,265 $ 217,857
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 147
ESCAPE THEATRES, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Condensed Financial
Statements of Escape Theatres, Inc. ("Escape") include all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly
Escape's financial position as of March 31, 1997, and the results of its
operations for the three and six months ended March 31, 1997 and 1996. Due to
the seasonality of Escape's operations, the results of its operations for the
interim periods ended March 31, 1997 and 1996, may not be indicative of total
results for the full year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations promulgated by the Securities and Exchange Commission. The unaudited
Interim Condensed Financial Statements should be read in conjunction with the
audited Financial Statements of Escape Theatres, Inc. and accompanying notes for
the year ended September 30, 1996.
2. COMMITMENTS AND CONTINGENCIES
Escape, in the normal course of business, is party to various matters of
litigation. Management is of the opinion that the eventual outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
3. DISPOSITIONS
Effective March 31, 1997, Escape entered into a sale contract for $10,000
for the sale of its Showplace theater to an individual.
4. SUBSEQUENT EVENT
In June 1997, Escape was acquired by Hollywood Theaters, Inc. for
approximately $8.5 million.
F-50
<PAGE> 148
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hollywood Theaters, Inc.:
We have audited the accompanying statements of revenues and direct
operating expenses of the theaters acquired (the "Acquired Theaters") from
United Artists Theatre Circuit, Inc. ("UATCI") for the nine months ended
September 30, 1996, and the year ended December 31, 1995. These financial
statements are the responsibility of UATCI's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The statements of revenues and direct operating expenses for the Acquired
Theaters were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission as described in Note 1,
and are not intended to be a complete presentation of revenues and expenses.
In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the Acquired Theaters for the nine months ended
September 30, 1996, and the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 18, 1997
F-51
<PAGE> 149
FOR THE THEATERS ACQUIRED FROM UNITED ARTISTS THEATRE CIRCUIT, INC.
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Admissions ..................................................... $ 7,763,118 $10,221,538
Concessions .................................................... 3,733,338 4,770,019
Other operating revenues ....................................... 212,800 99,880
----------- -----------
Total revenues ......................................... 11,709,256 15,091,437
----------- -----------
Direct operating expenses:
Film rental and advertising costs .............................. 4,396,998 5,714,361
Cost of concessions ............................................ 610,181 789,874
Other operating expenses ....................................... 4,919,465 6,466,978
----------- -----------
Total direct operating expenses ........................ 9,926,644 12,971,213
----------- -----------
Revenues in Excess of Direct Operating Expenses .................. $ 1,782,612 $ 2,120,224
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 150
FOR THE THEATERS ACQUIRED FROM UNITED ARTISTS THEATRE CIRCUIT, INC.
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
1. BASIS OF PRESENTATION
Effective in November and December 1996, Hollywood Theaters, Inc.
("Hollywood") closed acquisitions of 19 theaters (the "Acquired Theaters") from
United Artists Theatre Circuit, Inc. ("UATCI").
The accompanying statements of revenues and direct operating expenses do
not include general and administrative expense, interest income or expense, a
provision for depreciation, and amortization or any provision for income taxes
because the property interests acquired represent only a portion of a business
and the costs incurred by the sellers of the properties are not necessarily
indicative of the costs to be incurred by Hollywood.
Historical financial information reflecting financial position, results of
operations and cash flows of the Acquired Theaters is not presented because
primarily all of the acquisition cost was assigned to property and equipment.
Accordingly, the historical statements of revenues and direct operating expenses
have been presented in lieu of the financial statements required under Rule 3-05
of Securities and Exchange Commission Regulation S-X.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenues
Admissions and concessions revenues are recognized when such sales are
received at the theaters. Other revenues consist primarily of on-screen and
slide advertising and electronic video games located in theater lobbies.
Operating Costs and Expenses
Film rental and advertising costs include film rental and co-op and
directory advertising costs. Film advertising costs are expensed as incurred.
Cost of concessions consists solely of direct concession product costs. Other
operating expenses include joint facility costs such as employee costs, theater
rental and utilities which are common to both ticket sales and concession
operations. Rental expense for operating leases which provide for escalating
minimum annual rentals during the term of the lease are accounted for on a
straight-line basis over the terms of the underlying leases and reported as a
component of theater operating expenses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. COMMITMENTS AND CONTINGENCIES
Certain of the Acquired Theaters premises are leased with noncancelable
lease terms expiring at various dates after September 30, 1996. Additionally,
certain leases provide for contingent rentals based on operating results and
require the payment of taxes, insurance, and other costs applicable to the
property. A substantial portion of the leases may be renewed at defined or then
fair rental rates for various periods. Some leases also provide for escalating
rent payments throughout the lease term. Rent expense for the period ending
September 30, 1996 and December 31, 1995, totaled $1,612,929 and $1,803,561,
respectively.
F-53
<PAGE> 151
Future minimum payments under noncancelable leases with initial or
remaining terms in excess of one year at September 30, 1996, are due as follows:
<TABLE>
<S> <C>
1997................................................. $ 1,705,000
1998................................................. 1,592,000
1999................................................. 1,403,000
2000................................................. 1,150,000
2001................................................. 271,000
-----------
$ 6,121,000
===========
</TABLE>
F-54
<PAGE> 152
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hollywood Theaters, Inc.:
We have audited the accompanying statements of revenues and direct
operating expenses of the theaters acquired (the "Acquired Theaters") from Crown
Cinema Corporation and Crown Theatre Corporation (both Missouri corporations)
for the nine months ended September 30, 1996, and the years ended December 31,
1995 and 1994. These financial statements are the responsibility of the Acquired
Theaters' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The statements of revenues and direct operating expenses for the Acquired
Theaters were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission as described in Note 1,
and are not intended to be a complete presentation of revenues and expenses.
In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the Acquired Theaters for the nine months ended
September 30, 1996, and the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
June 3, 1997
<PAGE> 153
FOR THE THEATERS ACQUIRED FROM CROWN
CINEMA CORPORATION AND CROWN THEATRE CORPORATION
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Admissions ........................................................ $13,008,317 $16,941,418 $16,197,090
Concessions ....................................................... 6,371,109 7,928,452 7,279,178
Other operating revenues .......................................... 161,454 342,454 362,934
----------- ----------- ----------
Total revenues ............................................ 19,540,880 25,212,324 23,839,202
Direct operating expenses:
Film rental and advertising costs ................................. 7,080,995 9,478,043 9,117,416
Cost of concessions and other ..................................... 1,206,008 1,546,354 1,408,553
Theater operating expenses ........................................ 7,099,107 9,147,913 8,577,873
----------- ----------- -----------
Total direct operating expenses ........................... 15,386,110 20,172,310 19,103,842
----------- ----------- -----------
Operating income .................................................... $ 4,154,770 $ 5,040,014 $ 4,735,360
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 154
FOR THE THEATERS ACQUIRED FROM CROWN
CINEMA CORPORATION AND CROWN THEATRE CORPORATION
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
September 30, 1996 and December 31, 1995 and 1994
1. ORGANIZATION
Crown Cinema Corporation (CCC) is a Missouri corporation, and was
incorporated in August 1976. CCC owned and operated 33 motion picture theaters
in Kansas and Missouri at September 30, 1996. Crown Theatre Corporation (CTC) is
a Missouri corporation and was incorporated in December 1989. CTC owned and
operated three motion picture theaters in Missouri and Ohio at September 30,
1996. CCC and CTC ("Crown Combined") jointly rent a corporate office located in
Kansas City, Missouri.
On November 1, 1996, Hollywood Theaters, Inc. ("Hollywood") closed an
acquisition of 33 theaters (the "Acquired Theaters") from Crown Combined.
The accompanying statements of revenues and direct operating expenses
do not include general and administrative expense, interest income or expense, a
provision for depreciation, and amortization or any provision for income taxes
because the property interests acquired represent only a portion of a business
and the costs incurred by the sellers of the properties are not necessarily
indicative of the costs to be incurred by Hollywood.
Historical financial information reflecting financial position, results
of operations and cash flows of the Acquired Theaters is not presented because
primarily all of the acquisition cost was assigned to property and equipment.
Accordingly, the historical statements of revenues and direct operating expenses
have been presented in lieu of the financial statements required under Rule 3-05
of Securities and Exchange Commission Regulation S-X.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenues
Revenues are recognized when admissions and concessions sales are
received at the theaters. Film rental costs are accrued based on the applicable
box office receipts and the terms of the film licenses. Other revenues consist
primarily of on-screen and slide advertising and electronic video games located
in theater lobbies.
Operating Costs and Expenses
Film rental and advertising costs include film rental and co-op and
directory advertising costs. Film advertising costs are expensed as incurred.
Cost of concession consist solely of direct concession product costs. Other
operating expenses include joint facility costs such as employee costs, theater
rental and utilities which are common to both ticket sales and concession
operations. Rental expense for operating leases which provide for escalating
minimum annual rentals during the term of the lease are accounted for on a
straight-line basis over the terms of the underlying leases and reported as a
component of theater operating expenses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-57
<PAGE> 155
TRANS TEXAS AMUSEMENTS, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995, THROUGH JULY 10, 1995, AND
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues:
Admissions ....................................... $ 4,330 $ 7,827
Concessions ...................................... 2,578 4,538
Other operating revenues ......................... 82 177
------- -------
Total revenues ........................... 6990 12,542
------- -------
Operating expenses:
Film rental and advertising costs ................ 2452 4,301
Cost of concessions and other .................... 358 756
Theater operating expenses ....................... 3,265 4,879
General and administrative expenses .............. 281 1,197
Depreciation and amortization .................... 202 366
------- -------
Total operating expenses ................. 6,558 11,499
------- -------
Operating loss ..................................... 432 1,043
Interest expense, net .............................. 69 103
------- -------
Net income ......................................... $ 363 $ 940
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 156
TRANS TEXAS AMUSEMENTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995, THROUGH JULY 10, 1995,
AND FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net Income ........................................................................ $ 363 $ 940
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization .................................................. 202 366
Changes in assets and liabilities
Increase (decrease) in other current assets .................................. 209 (41)
Increase (decrease) in accounts payable and accrued expenses ................. (168) 112
------- -------
Net cash provided by operating activities ................................. 606 1,377
------- -------
Cash flows from investing activities:
Purchases of property and equipment ............................................... -- (645)
Sales of Property and Equipment ................................................... 1,319 --
------- -------
Net cash used in investing activities ..................................... 1,319 (645)
------- -------
Cash flows from financing activities:
Repayments of note payable and long-term debt ..................................... (2,605) (277)
Dividends paid .................................................................... -- (415)
------- -------
Net cash provided by financing activities ................................. (2,605) (692)
------- -------
Change in Cash and Cash Equivalents ................................................. (680) 40
Cash and cash equivalents, beginning of period ...................................... 680 640
------- -------
Cash and cash equivalents, at end of period ......................................... $ -- $ 680
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 157
TRANS TEXAS AMUSEMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 10, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
1. ORGANIZATION
Trans Texas Amusements, Inc. ("Trans Texas") is an S corporation formed
in the state of Texas. Trans Texas owned and operated 11 theaters in Texas as of
July 10, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of operating funds held in financial
institutions and petty cash held by the theaters. The Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Deferred Lease Expenses
Rent expense is recognized on a straight-line basis after considering
the effect of rent escalation provisions.
Revenues
Revenues are recognized when admissions and concessions sales are
received at the theaters. Film rental costs are accrued based on the applicable
box office receipts and the terms of the film licenses.
Advertising
Advertising costs are expensed when incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. LEASES
Trans Texas leases certain of its theater premises with lease terms of
5 to 20 years. Additionally, certain leases provide for contingent rentals based
on operating results and require the payment of taxes, insurance, and other
costs applicable to the property. Trans Texas, at its option, may renew a
substantial portion of the leases at defined or then fair rental rates for
various periods. Some leases also provide for escalating rent payments
throughout the lease term. Rent expense for the periods ended July 10, 1995 and
December 31, 1994, totaled $640,000, and $1,400,000, respectively.
4. SUBSEQUENT EVENT
In July 1995, these theaters were sold to Hollywood Theaters, Inc. for
approximately $6.6 million in cash and $2.5 million in debt.
F-60
<PAGE> 158
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-61
<PAGE> 159
PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1996 gives effect to (i) the 1996 acquisitions
of theaters from United Artists Theatre Circuit, Inc., Crown Cinema Corporation
and Crown Theatre Corporation, the Killeen Acquisition, the Oklahoma Acquisition
and the Dickinson Exchange, collectively the "Significant Acquisitions," and
(ii) the receipt and application of the net proceeds from the Offering of the
Old Notes as if such transactions had occurred on January 1, 1996. The Unaudited
Pro Forma Condensed Consolidated Statement of Operations for the nine months
ended September 30, 1997 gives effect to (i) the Killeen Acquisition, the
Oklahoma Acquisition and the Dickinson Exchange, and (ii) the receipt and
application of the net proceeds from the Offering of the Old Notes as if such
transactions had occurred on January 1, 1996. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of September 30, 1997 reflects the Dickinson
Exchange, as if such transaction had occurred on that date. The following Pro
Forma Financial Information should be read in conjunction with the historical
financial statements of Holdings, which are included elsewhere in this
Prospectus.
The Company usually implements significant changes to the operations of
the entities that it acquires to enhance profitability. The expected benefits
and cost reductions anticipated by the Company have not been reflected in the
following unaudited pro forma condensed consolidated financial statements.
Accordingly, these pro forma financial statements are not necessarily indicative
of the operating results that would have been achieved had the Significant
Acquisitions occurred on January 1, 1996.
The pro forma adjustments are based upon available information. The Pro
Forma Financial Information is based on the historical financial statements of
Holdings and the historical financial statements of the Significant
Acquisitions. These adjustments are directly attributable to the transactions
referenced above, and are expected to have a continuing impact on the Company's
business, results of operations, and financial position. The Dickinson Exchange
will be accounted for using the purchase method of accounting, pursuant to which
the total purchase costs of the acquisition will be allocated to the tangible
and intangible assets and liabilities acquired based upon their estimated fair
values. The final allocation of the purchase price will be determined upon the
receipt of final appraisals of the acquired assets; however, such allocation is
not expected to differ materially from the preliminary allocation.
P-1
<PAGE> 160
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
1996
HOLDINGS SIGNIFICANT ACQUISITION PRO FORMA
HISTORICAL ACQUISITIONS(A) ADJUSTMENTS OFFERING AS ADJUSTED
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Admissions and other operating revenue ......... $ 16,169 $ 36,644 $ -- $ -- $ 52,813
Concessions .................................... 8,710 16,392 -- -- 25,102
---------- ---------- ---------- ---------- ----------
Total revenues ......................... 24,879 53,036 -- -- 77,915
Operating expenses:
Film rental and advertising
costs ....................................... 8,388 20,332 -- -- 28,720
Cost of concessions and other .................. 1,412 2,865 -- -- 4,277
Theater operating expenses ..................... 10,998 19,648 -- -- 30,646
General and administrative
expenses .................................... 1,601 83 470 (B) -- 2,154
Depreciation and amortization .................. 3,152 189 4,263 -- 7,604
---------- ---------- ---------- ---------- ----------
Total operating expenses ............... 25,551 43,117 4,733 -- 73,401
---------- ---------- ---------- ---------- ----------
Operating income (loss) ................ (672) 9,919 (4,733) -- 4,514
Interest, net .................................... 2,121 146 4,830 (D) 5,021 (E) 12,118
---------- ---------- ---------- ---------- ----------
Net income (loss) ................................ $ (2,793) $ 9,773 $ (9,563) $ (5,021) $ (7,604)
========== ========== ========== ========== ==========
</TABLE>
P-2
<PAGE> 161
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
HOLDINGS SIGNIFICANT ACQUISITION PRO FORMA
HISTORICAL ACQUISITIONS(A) ADJUSTMENTS OFFERING AS ADJUSTED
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Admissions and other operating
revenue ................................ $ 35,957 $ 7,668 $ -- $ -- $ 43,625
Concessions ............................... 18,895 3,184 -- -- 22,079
---------- ---------- ---------- ---------- ----------
Total revenues ........................ 54,852 10,852 -- -- 65,704
Operating expenses:
Film rental and advertising
costs .................................. 19,304 4,276 -- -- 23,580
Cost of concessions and other ............. 3,021 514 -- -- 3,535
Theater operating expenses ................ 22,241 3,514 -- -- 25,755
General and administrative ................ 3,992 24 353 (B) -- 4,369
Depreciation and amortization ............. 7,930 37 778 (C) -- 8,745
---------- ---------- ---------- ---------- ----------
Total operating expenses .............. 56,488 8,365 1,131 -- 65,984
---------- ---------- ---------- ---------- ----------
Operating income (loss) ............... (1,636) 2,487 (1,131) -- (280)
Interest, net ............................... 4,482 39 1,136 (D) 3,431 (E) 9,088
---------- ---------- ---------- ---------- ----------
Net income (loss) ........................... $ (6,118) $ 2,448 $ (2,267) $ (3,431) $ (9,368)
========== ========== ========== ========== ==========
</TABLE>
P-3
<PAGE> 162
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1997
HISTORICAL SIGNIFICANT PRO FORMA
HOLDINGS ACQUISITIONS(F) AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 9,108 $ 1,092 $ 10,200
Accounts receivable ...................................... 1,206 -- 1,206
Inventories .............................................. 1,151 (28) 1,123
Prepaid and other current assets ......................... 2,852 -- 2,852
Deposits ................................................. 2,442 -- 2,442
------------ ------------ ------------
Total current assets .............................. 16,759 1,064 17,823
Property and equipment, net ................................ 97,958 (1,064) 96,894
Goodwill, net .............................................. 45,296 -- 45,296
Intangibles, net ........................................... 15,365 -- 15,365
------------ ------------ ------------
Total assets ...................................... $ 175,378 $ -- $ 175,378
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses ............................................... $ 9,357 $ -- $ 9,357
Other current liabilities ................................ 3,937 -- 3,937
------------ ------------ ------------
Total current liabilities ......................... 13,294 -- 13,294
Old senior notes ........................................... 110,000 -- 110,000
Deferred lease expenses .................................... 1,078 -- 1,078
------------ ------------ ------------
Total liabilities ................................. 124,372 -- 124,372
Convertible Preferred Stock ................................ 46,833 -- 46,833
Stockholders' equity:
Common stock ............................................. 1 -- 1
Additional paid-in capital ............................... 17,761 -- 17,761
Accumulated deficit ...................................... (13,589) -- (13,589)
------------ ------------ ------------
Total stockholders'
equity .......................................... 4,173 -- 4,173
------------ ------------ ------------
Total liabilities and
stockholders' equity ............................ $ 175,378 $ -- $ 175,378
============ ============ ============
</TABLE>
See accompanying notes to pro forma financial information.
P-4
<PAGE> 163
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Reflects the historical revenues and operating expenses recorded up to
the time of acquisition for the Significant Acquisitions on a combined
basis.
(B) Represents the incremental general and administrative costs related to
the Significant Acquisitions.
(C) Represents (i) incremental amortization of goodwill of $2.3 million and
$510,000 for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, based upon the Company's allocation
of purchase prices as if the Significant Acquisitions were all
completed on January 1, 1996 and (ii) depreciation of $2.2 million and
$268,000 for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, on the Significant Acquisitions for
which no depreciation was recorded in the historical revenues and
operating expenses recorded up to the time of acquisitions. Goodwill is
being amortized over a 15-year period, furniture and equipment is being
amortized over a 8-year period, and buildings are being amortized over
a 30-year period.
(D) Reflects the additional interest expense that would have been incurred
had the debt incurred to finance the Significant Acquisitions been
outstanding from the beginning of the period to the dates of
acquisition.
(E) Reflects the (i) elimination of the interest expense of $7.1 million
and $4.6 million for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, on the Company's
Existing Senior Credit Facility, (ii) the interest expense of $11.7
million and $7.8 million for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively, on the New Notes,
and (iii) the amortization of deferred debt issuance costs of $430,000
and $287,000 for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, related to the Notes.
(F) Represents the exchange of theaters from Dickinson in 1997. The
estimated fair values reflected are based on preliminary estimates and
assumptions and are subject to revision. In management's opinion, the
preliminary allocation is not expected to be materially different from
the final allocation.
P-5
<PAGE> 164
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Hollywood Theater Holdings, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Hollywood Theater Holdings,
Inc. and subsidiaries included in this registration statement and have issued
our report thereon dated April 29,1997. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index at S-1 (Schedule II) is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 29, 1997
S-1
<PAGE> 165
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SUCH SECURITIES BY ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notice to Investors...........................................(i)
Available Information........................................(iv)
Prospectus Summary..............................................1
Risk Factors...................................................14
Use of Proceeds................................................19
Capitalization.................................................20
Selected Consolidated Financial Information....................21
Management's Discussion and Analysis
of Financial Condition and Results of Operations...........23
Business.......................................................29
Management.....................................................41
Principal Stockholders.........................................49
Description of Capital Stock...................................53
Certain Transactions...........................................54
Description of Senior Bank Facility............................54
The Exchange Offer.............................................56
Description of Exchange Notes..................................65
Certain U.S. Federal Tax Consequences
to U.S. Holders............................................88
Certain U.S. Federal Tax Consequences
to Non-U.S. Holders........................................89
Plan of Distribution...........................................92
Validity of the Exchange Notes.................................92
Experts........................................................92
Index to Financial Statements.................................F-1
</TABLE>
================================================================================
================================================================================
HOLLYWOOD THEATERS, INC.
HOLLYWOOD THEATER HOLDINGS, INC.
CROWN THEATRE CORPORATION
OFFER TO EXCHANGE
HOLLYWOOD THEATERS, INC.
10 5/8% SENIOR SUBORDINATED
NOTES DUE AUGUST 1, 2007
FOR ANY AND ALL OF ITS OUTSTANDING
10 5/8% SENIOR SUBORDINATED
NOTES DUE AUGUST 1, 2007
---------------
PROSPECTUS
---------------
_________, 1998
================================================================================
<PAGE> 166
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
Section 145(c) of the DGCL provides that to the extent that a
director, officer, employee or agent of a corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 145(a) and (b), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL provides that any indemnification under
Section 145(a) and (b) (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 145(a) and (b). Such determination shall be made (1) by a majority
vote of the directors who were not parties to such action, suit or proceeding,
even though less than a quorum, or (2) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion, or
(3) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including
attorneys' fees) incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be
paid by the corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
II-1
<PAGE> 167
Section 145(f) of the DGCL provides that the indemnification and
advancement of expenses provided by, or granted pursuant to, Section 145 shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 145(g) of the DGCL provides that a corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his capacity as such, whether or not the
corporation would have the power to indemnify him against such liability under
Section 145.
RESTATED CERTIFICATE OF INCORPORATION
Article Sixth of the Amended and Restated Certificate of Incorporation
of the Company, a copy of which is filed as Exhibit 3.1 to this Registration
Statement, provides that no director of the Company shall be personally liable
to the Company or any of its stockholders for monetary damages for breach of
fiduciary duty as a director involving any act or omission of any such
director; provided, however, that such Article Sixth does not eliminate or
limit the liability of a director (1) for any breach of such director's duty of
loyalty to the Company or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the DGCL (which relates to certain unlawful
dividend payments or stock purchases or redemptions), as the same exists or may
hereafter be amended, supplemented or replaced, or (4) for a transaction from
which the director derived an improper personal benefit. If the DGCL is amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Company, in addition to the
limitation on personal liability described above, shall be limited to the
fullest extent permitted by the DGCL, as so amended. Furthermore, any repeal or
modification of Article Sixth of the Amended and Restated Certificate of
Incorporation by the stockholders of the Company shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the Company existing at the time of such repeal or modification.
BYLAWS
Article V, Section 1(a) of the Bylaws (the "Bylaws") of the Company
provides that the Company shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Article V, Section 1(b) of the Bylaws provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees)
II-2
<PAGE> 168
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Company unless and only to the extent that the Delaware Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Article V, Section 1(c) of the Bylaws provides that to the extent that
a director, officer, employee or agent of the Company has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 1(a) or (b) of Article V of the Bylaws, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Article V, Section 1(d) of the Bylaws provides that any
indemnification under Section 1(a) or (b) of Article V of the Bylaws (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Section 1(a) or (b) of Article
V of the Bylaws. Such determination shall be made (1) by a majority vote of a
quorum consisting of the directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable
and a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
Article V, Section 1(e) of the Bylaws provides that expenses
(including attorneys' fees) incurred by an officer or director in defending any
civil, criminal, administrative or investigative action, suit or proceeding may
be paid by the Company in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Company as authorized in Section V of the
Bylaws. Such expenses (including attorneys' fees) incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the board
of directors deems appropriate.
Article V, Section 2 of the Bylaws provides that the indemnification
and advancement of expenses provided by, or granted pursuant to, Article V of
the Bylaws shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
Bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article V, Section 3 of the Bylaws provides that the Company shall
have the power to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his capacity as such, whether or not the Company
would have the power to indemnify him against such liability under Article V of
the Bylaws.
INDEMNIFICATION AGREEMENT
Thomas W. Stephenson has entered into an indemnification agreement
with the Company and Holdings in connection with certain personal guarantees
made by Mr. Stephenson for obligations of the Company under certain agreements,
including, but not limited to theater leases and film rental agreements and
other similar agreements that Mr. Stephenson may be required to guarantee in
the future (the "Stephenson Guarantees"). Pursuant to such indemnification
agreement, the Company and Holdings have agreed to indemnify Mr. Stephenson
against any and all payments, liabilities, obligations, claims, losses,
damages, commitments, costs, deficiencies, expenses paid or incurred by Mr.
Stephenson under any Stephenson Guarantee and against any and all expenses
(including attorneys' fees), costs,
II-3
<PAGE> 169
liabilities and obligations paid or incurred in connection with or as a result
of such payments under the Stephenson Guarantees.
INSURANCE
The Company has obtained and intends to maintain in effect directors'
and officers' liability insurance policies providing customary coverage for its
directors and officers against losses resulting from wrongful acts committed by
them in their capacities as directors and officers of the Company.
The above discussion of Section 145 of the DGCL, the Company's
Restated Certificate of Incorporation and the Company's Bylaws is not intended
to be exhaustive and is respectively qualified in its entirety by such statute,
the Restated Certificate of Incorporation and the Bylaws.
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<PAGE> 170
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Hollywood Theaters, Inc.
*3.2 Restated Certificate of Incorporation of Hollywood Theater Holdings, Inc.
*3.3 Articles of Incorporation of Crown Theatre Corporation
3.4 By-laws of Hollywood Theaters, Inc.
*3.5 By-laws of Hollywood Theater Holdings, Inc.
*3.6 By-laws of Crown Theatre Corporation
4.1 Indenture dated as of August 7, 1997 between Hollywood Theaters, Inc., Hollywood Theater
Holdings, Inc. and Crown Theatre Corporation and U.S. Trust Company of Texas, N.A.
4.2 Exchange and Registration Rights Agreement, dated as of August 7, 1997 among Hollywood
Theaters, Inc., Hollywood Theater Holdings, Inc., Goldman, Sachs & Co., and BancAmerica
Securities Inc.
*4.3 Second Amendment to Registration Rights Agreement, dated as of December 17, 1997 by and
between Hollywood Theater Holdings, Inc. and The Beacon Group III - Focus Value Fund, L.P., as
amended.
*4.4 Second Amendment to Restated Registration Rights Agreement, dated as of December 17, 1997, by
and among Hollywood Theater Holdings, Inc., Stratford Capital Partners, L.P., Stratford Equity
Partners, L.P. and Precept Investors, Inc.
4.5 Registration Rights Agreement, dated as of November 1, 1996, by and between Hollywood Theater
Holdings, Inc. and Richard M. Durwood Revocable Trust.
*4.6 First Amendment to Registration Rights Agreement, dated as of December 17, 1997, by and among
Hollywood Theater Holdings, Inc., Hoak Communications Partners, L.P., HCP Capital Fund, L.P.
and HCP 1997 Authorized Employee Fund, L.P.
4.7 Amended and Restated Agreement with respect to Registration Rights, dated as of May 13, 1997,
by and among Hollywood Theater Holdings, Inc., Stratford Capital Partners, L.P., Precept
Investors, Inc., The Beacon Group III - Focus Value Fund, L.P., Hoak Communications Partners,
L.P., HCP Capital Fund, L.P. and HCP 1997 Authorized Employee Fund, L.P.
++5.1 Opinion and consent of Baker & Botts, L.L.P.
10.1 Purchase Agreement, dated as of July 31, 1997, by and among Hollywood Theaters, Inc.,
Hollywood Theater Holdings, Inc., Crown Theater Corporation and Goldman, Sachs & Co.
**10.2 Amended and Restated Credit Agreement, dated as of August 7, 1997, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc. and Bank of America National Trust and Savings
Associations.
*10.3 Amended and Restated Shareholders' and Voting Agreement, dated as of December 17, 1997, by
and among Hollywood Theater Holdings, Inc., The Beacon Group III - Focus Value Fund, L.P.,
Stratford Capital Partners, L.P., Stratford Equity Partners, L.P., Hoak Communications
Partners, L.P., HCP Capital Fund, L.P. and HCP 1997 Authorized Employee Fund, L.P.
10.4 Purchase and Assignment Agreement, dated as of July 25, 1997, between General Cinema Corp. of
Oklahoma, Inc. and Hollywood Theaters, Inc., as amended by Amendment No. 1 to Purchase and
Assignment Agreement, dated as of July 30, 1997, between General Cinema Corp. of Oklahoma, Inc.
and Hollywood Theaters, Inc.
10.5 Agreement of Purchase and Sale, dated as of July 22, 1996, by and among United Artists
Theatre Circuit, Inc., United Artists Properties I Corp., Resort Amusement Corporation and
Hollywood Theaters, Inc., as amended.
10.6 Asset and Stock Purchase Agreement, dated as of August 26, 1996, between Crown Cinema
Corporation, Crown Theatre Corporation, Hollywood Theaters, Inc. and Hollywood Theater
Holdings, Inc., as amended.
</TABLE>
II-5
<PAGE> 171
<TABLE>
<S> <C>
10.7 Asset Purchase Agreement, dated as of August 19, 1997, between Dickinson, Inc. and Hollywood
Theaters, Inc.
10.8 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and Thomas
W. Stephenson, Jr.
10.9 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and James
R. Featherstone.
10.10 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and Robert
E. Painter.
10.11 Hollywood Theaters, Inc. Savings and Profit Sharing Plan, as amended and restated.
10.12 Hollywood Theater Holdings, Inc. 1996 Stock Option and Stock Award Plan, dated as of December
15, 1996, as amended.
10.13 Hollywood Theaters, Inc. 401(k) Savings Plan, as amended.
10.14 Indemnification Agreement, dated as of May 15, 1996, by and between Hollywood Theaters, Inc.,
Hollywood Theater Holdings, Inc. and Thomas W. Stephenson, Jr.
++10.15 Third Amendment to Amended and Restated Credit Agreement, dated as of January 7, 1998, among
Hollywood Theater Holdings, Inc., Hollywood Theaters, Inc. and Bank of America National Trust
and Savings Associations.
*12.1 Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of Hollywood Theaters, Inc.
*23.1 Consent of Arthur Andersen LLP, independent public accountants.
23.2 Consent of Baker & Botts, L.L.P.
24.1 Powers of Attorney (previously filed).
25.1 Statement of Eligibility of Trustee on Form T-1.
*27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- --------------------------
* Filed herewith.
** The Form of Revolving Note to the Credit Agreement is being filed herewith.
++ To be filed.
II-6
<PAGE> 172
(B) FINANCIAL STATEMENT SCHEDULES.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM INCEPTION (JULY 11, 1995), THROUGH DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
CLASSIFICATION PERIOD EXPENSES END OF PERIOD
- -------------- ------------ ----------- -------------
<S> <C> <C> <C>
December 31, 1996:
Accumulated Amortization of Goodwill $ 246 $ 967 $1,213
Accumulated Amortization of Intangibles 168 986 1,154
Accumulated Amortization of Theater Start-Up Costs 6 76 82
------ ------ ------
Total $ 420 $2,029 $2,449
December 31, 1995:
Accumulated Amortization of Goodwill $ 0 $ 246 $ 246
Accumulated Amortization of Intangibles 0 168 168
Accumulated Amortization of Theater Start-Up Costs 0 6 6
------ ------ ------
Total $ 0 $ 420 $ 420
</TABLE>
All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are inapplicable and
therefore have been omitted.
II-7
<PAGE> 173
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the provision
described under Item 20 or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(4) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
(ss.230.424(b) of this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(5) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(6) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-8
<PAGE> 174
(7) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by ss.210.3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary to
ensure that all other information in the prospectus is at least as current as
the date of those financial statements.
II-9
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on January 7, 1998.
HOLLYWOOD THEATERS, INC.
By: /s/ ROBERT E. PAINTER
-----------------------------------------
Robert E. Painter
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed by the following persons on January 7,
1998 in the capacities indicated:
<TABLE>
<CAPTION>
NAME CAPACITY
---- --------
<S> <C>
* President and Chief Executive Officer, Chairman of the Board
- ----------------------------------- (principal executive officer)
Thomas W. Stephenson, Jr.
* Chief Financial Officer
- ----------------------------------- (principal financial officer and accounting officer)
James R. Featherstone
/s/ ROBERT E. PAINTER Chief Operating Officer and Assistant Secretary
- ----------------------------------- (principal administrative officer)
Robert E. Painter
* Director
- -----------------------------------
John G. Farmer
* Director
- -----------------------------------
Thomas L. Harrison
* Director
- -----------------------------------
Thomas G. Mendell
* Director
- -----------------------------------
Harold W. Pote
* Director
- -----------------------------------
Eric R. Wilkinson
</TABLE>
By: /s/ ROBERT E. PAINTER
-----------------------------
Robert E. Painter
Attorney-in-Fact
II-10
<PAGE> 176
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Hollywood Theaters, Inc.
*3.2 Restated Certificate of Incorporation of Hollywood Theater Holdings, Inc.
*3.3 Articles of Incorporation of Crown Theatre Corporation
3.4 By-laws of Hollywood Theaters, Inc.
*3.5 By-laws of Hollywood Theater Holdings, Inc.
*3.6 By-laws of Crown Theatre Corporation
4.1 Indenture dated as of August 7, 1997 between Hollywood Theaters, Inc., Hollywood Theater
Holdings, Inc. and Crown Theatre Corporation and U.S. Trust Company of Texas, N.A.
4.2 Exchange and Registration Rights Agreement, dated as of August 7, 1997 among Hollywood
Theaters, Inc., Hollywood Theater Holdings, Inc., Goldman, Sachs & Co., and BancAmerica
Securities Inc.
*4.3 Second Amendment to Registration Rights Agreement, dated as of December 17, 1997 by and
between Hollywood Theater Holdings, Inc. and The Beacon Group III - Focus Value Fund, L.P., as
amended.
*4.4 Second Amendment to Restated Registration Rights Agreement, dated as of December 17, 1997, by
and among Hollywood Theater Holdings, Inc., Stratford Capital Partners, L.P., Stratford Equity
Partners, L.P. and Precept Investors, Inc.
4.5 Registration Rights Agreement, dated as of November 1, 1996, by and between Hollywood Theater
Holdings, Inc. and Richard M. Durwood Revocable Trust.
*4.6 First Amendment to Registration Rights Agreement, dated as of December 17, 1997, by and among
Hollywood Theater Holdings, Inc., Hoak Communications Partners, L.P., HCP Capital Fund, L.P.
and HCP 1997 Authorized Employee Fund, L.P.
4.7 Amended and Restated Agreement with respect to Registration Rights, dated as of May 13, 1997,
by and among Hollywood Theater Holdings, Inc., Stratford Capital Partners, L.P., Precept
Investors, Inc., The Beacon Group III - Focus Value Fund, L.P., Hoak Communications Partners,
L.P., HCP Capital Fund, L.P. and HCP 1997 Authorized Employee Fund, L.P.
++5.1 Opinion and consent of Baker & Botts, L.L.P.
10.1 Purchase Agreement, dated as of July 31, 1997, by and among Hollywood Theaters, Inc.,
Hollywood Theater Holdings, Inc., Crown Theater Corporation and Goldman, Sachs & Co.
**10.2 Amended and Restated Credit Agreement, dated as of August 7, 1997, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc. and Bank of America National Trust and Savings
Associations.
*10.3 Amended and Restated Shareholders' and Voting Agreement, dated as of December 17, 1997, by
and among Hollywood Theater Holdings, Inc., The Beacon Group III - Focus Value Fund, L.P.,
Stratford Capital Partners, L.P., Stratford Equity Partners, L.P., Hoak Communications
Partners, L.P., HCP Capital Fund, L.P. and HCP 1997 Authorized Employee Fund, L.P.
10.4 Purchase and Assignment Agreement, dated as of July 25, 1997, between General Cinema Corp. of
Oklahoma, Inc. and Hollywood Theaters, Inc., as amended by Amendment No. 1 to Purchase and
Assignment Agreement, dated as of July 30, 1997, between General Cinema Corp. of Oklahoma, Inc.
and Hollywood Theaters, Inc.
10.5 Agreement of Purchase and Sale, dated as of July 22, 1996, by and among United Artists Theatre
Circuit, Inc., United Artists Properties I Corp., Resort Amusement Corporation and Hollywood
Theaters, Inc., as amended.
</TABLE>
<PAGE> 177
<TABLE>
<S> <C>
10.6 Asset and Stock Purchase Agreement, dated as of August 26, 1996, between Crown Cinema
Corporation, Crown Theatre Corporation, Hollywood Theaters, Inc. and Hollywood Theater
Holdings, Inc., as amended.
10.7 Asset Purchase Agreement, dated as of August 19, 1997, between Dickinson, Inc. and Hollywood
Theaters, Inc.
10.8 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and Thomas
W. Stephenson, Jr.
10.9 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and James
R. Featherstone.
10.10 Employment Agreement, dated as of October 1, 1996, between Hollywood Theaters, Inc. and Robert
E. Painter.
10.11 Hollywood Theaters, Inc. Savings and Profit Sharing Plan, as amended and restated.
10.12 Hollywood Theater Holdings, Inc. 1996 Stock Option and Stock Award Plan, dated as of December
15, 1996, as amended.
10.13 Hollywood Theaters, Inc. 401(k) Savings Plan, as amended.
10.14 Indemnification Agreement, dated as of May 15, 1996, by and between Hollywood Theaters, Inc.,
Hollywood Theater Holdings, Inc. and Thomas W. Stephenson, Jr.
++10.15 Third Amendment to Amended and Restated Credit Agreement, dated as of January 7, 1998, among
Hollywood Theater Holdings, Inc., Hollywood Theaters, Inc. and Bank of America National
Trust and Savings Associations.
*12.1 Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of Hollywood Theaters, Inc.
*23.1 Consent of Arthur Andersen LLP, independent public accountants.
23.2 Consent of Baker & Botts, L.L.P.
24.1 Powers of Attorney (previously filed).
25.1 Statement of Eligibility of Trustee on Form T-1.
*27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- ---------------------
* Filed herewith.
** The Form of Revolving Note to the Credit Agreement is being filed herewith.
++ To be filed.
<PAGE> 1
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
HOLLYWOOD THEATER HOLDINGS, INC.
Hollywood Theater Holdings, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Hollywood Theater
Holdings, Inc. (the "Corporation"). The original Certificate of Incorporation
of the Corporation was filed with the Secretary of State of the State of
Delaware on June 21, 1995.
SECOND: This Restated Certificate of Incorporation has been
duly adopted pursuant to Section 245 of the General Corporation Law of the
State of Delaware. The Corporation certifies that amendments effected by this
Restated Certificate of Incorporation have been adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
THIRD: The text of the Corporation's Restated Certificate of
Incorporation as heretofore amended or supplemented is hereby restated and
further amended to read in its entirety as follows:
ARTICLE I.
The name of the Corporation is Hollywood Theater Holdings, Inc.
ARTICLE II.
The address of the Corporation's registered office in the
State of Delaware is located at 1209 Orange Street, in the City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
-1-
<PAGE> 2
ARTICLE IV.
1. Authorized Capital. The total number of shares of
all classes of capital stock which the Corporation has authority to issue is
3,000,000 shares, consisting of (i) 1,500,000 shares of Common Stock, par value
$.01 per share (the "Common Stock") and (ii) 1,500,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Except as provided to
the contrary in the provisions establishing a class or series of stock, the
amount of the authorized stock of this Corporation or any class or classes may
be increased or decreased by the affirmative vote of the holders of a majority
of the stock in this Corporation entitled to vote.
2. Terms of the Common Stock. Subject to the powers,
preferences and rights of any Preferred Stock, including any series thereof,
having any preference or priority over, or rights superior to, the Common Stock
and except as otherwise provided by law, the holders of the Common Stock shall
have and possess all powers and voting and other rights pertaining to the stock
of this Corporation and each share of Common Stock shall be entitled to one
vote.
3. Terms of the Preferred Stock. The Board of Directors
is authorized, subject to limitations prescribed by law, to provide for the
issuance of shares of Preferred Stock in one or more series, to establish the
number of shares to be included in such series, and to fix the designations,
powers, preferences, and rights of the shares of each such series, and any
qualifications, limitations or restrictions thereof.
3.1 Series B Preferred.
3.1.1 Designation. This series of Preferred Stock shall be
designated the "Series B Convertible Preferred Stock" with a par value of $.01
per share (the "Series B Preferred").
3.1.2 Definitions. The following capitalized terms have
the meaning given them below for purposes of this Section 3.1:
"Applicable Price" means the greater of (i) $175 per share
(subject to adjustment for stock dividends, stock splits, reclassifications and
other transactions which require an adjustment pursuant to Section 3.1.8(c))
and (ii) the Current Market Price.
"Business Day" means any day that is not a Saturday, Sunday or
a day on which banking institutions in New York, New York are not required to
be open for business.
"Common Stock Equivalent" means securities convertible into,
or exchangeable or exercisable for, shares of Common Stock.
"Conversion Ratio," determined as of any date, shall equal the
number of shares of Common Stock into which one share of Series B Preferred is
convertible pursuant to Section 3.1.8. The Conversion Ratio shall initially
equal one and shall be subject to adjustment as provided in paragraph (c) of
Section 3.1.8.
-2-
<PAGE> 3
"Current Market Price" means, in respect of any share of
Common Stock on any date herein specified, (i) if the shares of Common Stock
are publicly traded, the average of the daily closing prices of the Common
Stock for the twenty consecutive trading days ending five trading days prior to
such date on the principal national securities exchange or stock market on
which such shares are traded, or (ii) if the shares of Common Stock are not
publicly traded, the Fair Market Value per share of Common Stock as of such
date.
"Excluded Securities" means (i) options issued by the
Corporation to its employees or agents pursuant to any stock option or similar
plan (and any shares of Common Stock issuable thereunder) approved by the Board
of Directors, and (ii) shares of Common Stock issuable upon conversion,
exchange or exercise of any Common Stock Equivalent outstanding as of the Issue
Date.
"Fair Market Value" of the Common Stock or any other property
means the fair market value of such Common Stock or other property as
determined (unless expressly otherwise provided herein) by mutual agreement
between the Corporation and the holders of not less than 50% of the outstanding
shares of Series B Preferred or, if the parties are unable to agree, as
determined by a nationally recognized independent investment banking firm
selected by mutual agreement between the Corporation and the holders of not
less than 50% of the outstanding shares of Series B Preferred.
"Initial Public Offering" shall mean an underwritten offering
by the Corporation of Common Stock to the public pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $25 million of net proceeds to the Corporation (after deducting all
underwriting discounts and commissions and all other offering expenses) and a
per share offering price of at least $300 (subject to adjustment for stock
splits, combinations or reclassifications).
"Issue Date" means the date on which shares of Series B
Preferred are first issued.
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or other business entity, trust, unincorporated
organization or government or any agency or political subdivisions thereof
"Series B Liquidation Value" means the greater of (i) $175,
plus all accrued but unpaid dividends on the Series B Preferred or (ii) the per
share amount that the holders of the Series B Preferred would have received
upon liquidation if all shares of Series B Preferred had been converted to
Common Stock immediately prior to such liquidation at the Conversion Ratio then
in effect plus all accrued but unpaid dividends on the Series B Preferred.
-3-
<PAGE> 4
3.1.3 Authorized Number: Rank. The authorized number of
shares constituting the Series B Preferred shall be 400,000 shares. The Series
B Preferred shall rank, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, (i) senior to all classes of Common
Stock of the Corporation, as they exist on the date hereof or as such stock may
be constituted from time to time and to each other class of capital stock or
series of preferred stock issued by the Corporation or established by the Board
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on parity with, the Series B Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution, (collectively, together with
the Common Stock, the "Series B Junior Securities"), (ii) on a parity with each
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Board to the extent the terms of such stock
expressly provide that it will rank on a parity with the Series B Preferred as
to dividend rights and rights on liquidation, winding-up and dissolution,
including, without limitation the Series C Preferred (as such term is defined
in Section 3.2.1 hereof) and Series D Preferred (as such term is defined in
Section 3.3.1 hereof) (collectively, the "Series B Parity Securities"), and
(iii) junior to each other class of capital stock or series of preferred stock
issued by the Corporation or established by the Board to the extent the terms
of such stock expressly provide that it will rank senior to the Series B
Preferred as to dividend rights and rights on liquidation, winding-up and
dissolution (collectively, the "Senior Securities").
3.1.4 Dividends.
(a) When, as and if declared by the Board out of funds legally
available therefor, the Corporation shall pay dividends to the holders
of the Series B Preferred as provided in this Section 3.1.4.
(b) Dividends shall be payable on shares of the Series B
Preferred at an annual rate of 9% per share of Series B Preferred
($15.75 per share), payable annually in arrears on December 31st of
each year (the "Dividend Payment Date"), commencing December 31, 1996.
Each dividend will be payable to holders of record as they appear on
the books of the Corporation at the close of business on a record date
(each a "Record Date") not more than 60 nor less than 15 days before
the payment date fixed by the Board. Dividends shall accrue from and
including the date of issuance of the Series B Preferred and shall be
cumulative (whether or not earned or declared). Dividends payable for
any period less than a full dividend period shall be computed on the
basis of a 360-day year consisting of twelve 30-day months. All
dividends shall be payable, at the Corporation's option, in either
additional shares of Series B Preferred (each, a "Stock-Dividend") as
provided in Section 3.1.4(c) hereof, or in cash out of funds legally
available therefor. If any Dividend Payment Date shall not be a
Business Day, payment shall be made on the next succeeding Business
Day.
(c) Stock Dividends shall be payable as follows: in the
event that any dividend shall be payable on Series B Preferred in
additional shares of Series B Preferred pursuant to Section 3.1.4(b)
hereof, each holder of shares of Series B Preferred as of the
applicable Record Date shall be entitled to receive .09 shares of
Series B Preferred per annum for each
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share of Series B Preferred held by such holder on such Record Date.
No fractional shares shall be issued as a Stock Dividend. In lieu
thereof, the number of shares issuable pursuant to each Stock Dividend
shall be rounded up to the next highest whole share number.
(d) All dividends paid hereunder shall be distributed by
first class mail to each holder as of the applicable Record Date of
Series B Preferred at the address of such holder specified in the
records of the Corporation.
(e) No full dividends may be declared or paid or funds
set apart for the payment of dividends on any Series B Parity
Securities (except dividends on Series B Parity Securities paid in
shares of Series B Junior Securities) for any period unless full
cumulative dividends to be paid hereunder prior to the date thereof
shall have been paid and, to the extent the Corporation shall have
determined to pay such dividends in cash, such cash shall have been
paid or set aside for payment, on the Series B Preferred. If
dividends are not so paid, the Series B Preferred shall share
dividends pro rata with the Series B Parity Securities according to
the amount of dividends due and payable with respect to each. No
dividends may be paid or set aside for such payment on Series B Junior
Securities (except dividends on Series B Junior Securities paid in
additional shares of Series B Junior Securities) for any period unless
cumulative dividends to be paid hereunder prior to the date thereof
have been paid on the Series B Preferred. No Series B Parity
Securities or Series B Junior Securities may be repurchased, redeemed
or otherwise retired nor may funds be set aside for payment with
respect thereto, nor shall the Corporation permit any corporation or
entity directly or indirectly controlled by the Corporation to
purchase any shares of Series B Parity Securities or Series B Junior
Securities if any shares of the Series B Preferred are outstanding.
(f) If, in any year, any cash distributions are declared
by the Board to be paid on Series B Junior Securities, then (i)
dividends on the Series B Preferred specified in Section 3.1.4(b) for
such year shall be paid in cash and not as a Stock Dividend and (ii)
an additional dividend shall be paid at the same time to the holders
of the Series B Preferred at the rate per share equal to the product
of (x) such per share dividend on the Common Stock multiplied by (y)
the number of shares of Common Stock into which each share of Series B
Preferred is then convertible.
3.1.5 Liquidation.
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series B
Preferred shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, before any
payment or distribution shall be made on any Series B Junior
Securities, an amount equal to the Series B Liquidation Value with
respect to each Outstanding share of Series B Preferred.
(b) Neither the sale, lease or exchange (for cash, shares
of stock, securities or other consideration) of all or substantially
all the property and assets of the Corporation nor
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the merger or consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other corporation
into or with the Corporation shall be deemed to be a dissolution,
liquidation or winding-up, voluntary or involuntary, for the purposes
of this Section 3.1.5.
(c) After the payment to the holders of the Series B
Preferred of the full preferential amounts provided for in this
Section 3.1.5, the holders of Series B Preferred as such shall have no
right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available
for distribution to the holders of Series B Preferred upon any
dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Section
3.1.5(a), no such distribution shall be made on account of any Series
B Parity Securities unless proportionate amounts are distributed to
the holders of Series B Preferred, ratably, in proportion to the full
amounts for which holders of Series B Preferred and all such Series B
Parity Securities are respectively entitled upon such dissolution,
liquidation or winding-up.
3.1.6 Voting Rights. The holder of each share of Series B
Preferred shall be entitled to vote on all matters (including the election of
directors) and shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which such shares of Series B
Preferred could be converted, pursuant to the provisions of Section 3.1.8
hereof, at the record date for the determination of shareholders entitled to
vote on such matters or, if no such record date is established, at the date
such vote is taken or any written consent of shareholders is solicited. Except
as otherwise expressly provided herein or as required by law, the holders of
shares of Series B Preferred, Series C Preferred, Series D Preferred and Common
Stock shall vote together as a single class on all matters and not as separate
classes.
3.1.7 Redemption. From and after the seventh anniversary
of the Issue Date, as long as an Initial Public Offering has not occurred, the
holder or holders of any of the outstanding shares of Series B Preferred may,
at their option, at any time, or from time to time, by delivery of written
notice to the Corporation, require the Corporation to redeem, out of funds
legally available therefore, any or all outstanding shares of Series B
Preferred held by such holder or holders. The redemption price payable upon
any redemption pursuant to this Section 3.1.7 shall be an amount per share
equal to $175 plus the amount of all accrued but unpaid dividends on the shares
being redeemed calculated through and including the redemption date. The date
of any redemption required to be made pursuant to this Section 3.1.7 shall be
20 calendar days after delivery of the redemption notice and on such redemption
date the Corporation shall wire transfer to each holder the redemption price
for the shares of Series B Preferred so redeemed.
3.1.8 Conversion.
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<PAGE> 7
(a) Upon the consummation of an Initial Public Offering, each
share of Series B Preferred shall automatically be converted into a
number of shares of Common Stock at the then effective Conversion
Ratio. In addition, at the option of the holder of any Series B
Preferred, such holder shall have the right, at any time and from time
to time, by written notice to the Corporation, to convert any share of
Series B Preferred owned by such holder into a number of shares of
Common Stock, at the then effective Conversion Ratio.
(b) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series B Preferred,
free from any preemptive rights, such number of its authorized but
unissued shares of Common Stock as will from time to time be necessary
to permit the conversion of all outstanding shares of Series B
Preferred into shares of Common Stock, and shall take all action
required to increase the authorized number of shares of Common Stock
if necessary to permit the conversion of all outstanding shares of
Series B Preferred.
(c) The Conversion Ratio shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or
from time to time after the Issue Date (A) pay a dividend, or make a
distribution, on the outstanding shares of Common Stock in shares of
Common Stock, (B) subdivide the outstanding shares of Common Stock,
(C) combine the outstanding shares of Common Stock into a smaller
number of shares or (D) issue by reclassification of the shares of
Common Stock any shares of capital stock of the Corporation, then, and
in each such case, the Conversion Ratio in effect immediately prior to
such event or the record date therefor, whichever is earlier, shall be
adjusted so that the holder of any shares of Series B Preferred
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the
Corporation which such holder would have owned or have been entitled
to receive after the happening of any of the events described above,
had such shares of Series B Preferred been surrendered for conversion
immediately prior to the happening of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant to this
clause (i) shall become effective (x) in the case of any such dividend
or distribution, immediately after the close of business on the record
date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, or (y) in the case
of such subdivision, reclassification or combination, at the close of
business on the day upon which such corporate action becomes
effective. No adjustment shall be made pursuant to this clause (i) in
connection with any transaction to which paragraph (g) applies.
(ii) Except with respect to Excluded Securities,
in case the Corporation shall issue shares of Common Stock or Common
Stock Equivalents after the Issue Date at a price per share (or having
a conversion, exercise or exchange price per share) less than the
Applicable Price per share of Common Stock as of the date of issuance
of such shares or of such convertible securities (the amount of such
difference being referred to as the "Spread"),
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then, and in each such case, the Conversion Ratio shall be adjusted so
that the holder of each share of Series B Preferred shall be entitled
to receive, upon the conversion thereof, the number of shares of
Common Stock determined by multiplying (A) the number of shares which
would have been received upon conversion pursuant to the Conversion
Ratio in effect on the day immediately prior to such date by (B) a
fraction, the numerator of which shall be the Current Market Price per
share of Common Stock as of the date of such issuance, and the
denominator of which shall be the Current Market Price per share of
Common Stock as of the date of such issuance less the amount of the
Spread per share of such Common Stock or Common Stock Equivalent. An
adjustment made pursuant to this clause (ii) shall be made on the next
Business Day following the date on which any such issuance is made and
shall be effective retroactively to the close of business on the date
of such issuance. Upon the expiration of any unexercised Common Stock
Equivalents for which an adjustment has been made pursuant to this
clause (ii), the adjustment (and any subsequent adjustments) shall
forthwith be reversed to effect such rate of conversion as would have
been in effect at the time of such expiration or termination had such
Common Stock Equivalents, to the extent outstanding immediately prior
to such expiration or termination, never been issued. No adjustment
shall be made pursuant to this clause (ii) in connection with any
transaction to which paragraph (g) applies.
(iii) In case the Corporation shall at any time or
from time to time after the Issue Date declare, order, pay or make a
dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or
warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spinoff), on its Common Stock,
other than dividends or distributions of shares of Common Stock which
are referred to in clause (i) of this paragraph (c), then, and in each
such case, the Conversion Ratio shall be adjusted so that the holder
of each share of Series B Preferred shall be entitled to receive, upon
the conversion thereof the number of shares of Common Stock determined
by multiplying (1) the number of shares which would have been received
upon conversion pursuant to the applicable Conversion Ratio on the day
immediately prior to the record date fixed for the determination of
stockholders entitled to receive such dividend or distribution by (2)
a fraction, the numerator of which shall be the Current Market Price
per share of Common Stock as of such date, and the denominator of
which shall be such Current Market Price per share of Common Stock
less the Fair Market Value per share of Common Stock of such dividend
or distribution. No adjustment shall be made pursuant to this clause
(iii) in connection with any transaction to which paragraph (g)
applies.
(iv) Anything in this paragraph (c) to the
contrary notwithstanding, the Corporation shall not be required to
give effect to any adjustment in the Conversion Ratio unless and until
the net effect of one or more adjustments (each of which shall be
carried forward), determined as above provided, shall have resulted in
a change of the Conversion Ratio by at least one-tenth of one share of
Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the Conversion Ratio
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<PAGE> 9
by at least one-tenth of one share of Common Stock, such change in
Conversion Ratio shall thereupon be given effect.
(v) For purposes of this paragraph (c) of this
Section 3.1.8, the aggregate consideration receivable by the
Corporation in connection with the issuance of shares of Common Stock
and/or Common Stock Equivalents shall be deemed to be equal to the sum
of the aggregate offering price (before deduction of underwriting
discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the
minimum aggregate amount, if any, payable upon conversion, exchange or
exercise of any such Common Stock Equivalents. If the consideration
received by the Corporation in connection with the sale or issuance of
shares of Common Stock (or Common Stock Equivalents) consists, in
whole or in part, of property other than cash or its equivalent, the
value of such property shall be the Fair Market Value.
(vi) For purposes of this paragraph (c) of this
Section 3.1.8, the number of shares of Common Stock at any time
outstanding shall mean the aggregate of all shares of Common Stock
then outstanding (other than any shares of Common Stock then owned or
held by or for the account of the Corporation) treating for purposes
of this calculation all Common Stock Equivalents then outstanding as
having been converted, exchanged or exercised.
(vii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution and shall thereafter, and
before such dividend or distribution is paid or delivered to
stockholders entitled thereto, legally abandon its plan to pay or
deliver such dividend or distribution, then no adjustment in the
Conversion Ratio then in effect shall be made by reason of the taking
of such record, and any such adjustment previously made as a result of
the taking of such record shall be reversed.
(d) The issuance of certificates for shares of Common
Stock upon conversion of the Series B Preferred shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the Series B Preferred which is being converted.
(e) The Corporation will at no time close its transfer
books against the transfer of any Series B Preferred, or of any shares
of Common Stock issued or issuable upon the conversion of any shares
of Series B Preferred, in any manner which interferes with the timely
conversion of such Series B Preferred, except as may otherwise be
required to comply with applicable securities laws.
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(f) If any event occurs as to which, in the opinion of
the Board of Directors (including any directors elected solely by
holders of the Series B Preferred), the provisions of this Section
3.1.8 are not strictly applicable or if strictly applicable would not
fairly protect the rights of the holders of the Series B Preferred in
accordance with the essential intent and principles of such
provisions, the Board of Directors (including any directors elected
solely by holders of the Series B Preferred) shall make an adjustment
in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights of the
holders of the Series B Preferred.
(g) If the Corporation shall be a party to any
transaction including without limitation, a merger, consolidation,
sale of all or substantially all of the Corporation's assets or a
reorganization, reclassification or recapitalization of the capital
stock of the Corporation but excluding any transaction for which
provision for adjustment is otherwise made in this Section 3.1.8,
(each of the foregoing being referred to as a "Transaction"), in each
case, as a result of which shares of Common Stock are converted into
the right to receive stock, securities or other property (including
cash or any combination thereof), each share of Series B Preferred
shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such
Series B Preferred would have been entitled upon such Transaction if
such shares of Series B Preferred had been converted into Common Stock
immediately prior to such Transaction or, if earlier, immediately
prior to any record date applicable to such Transaction; and, in any
such case, appropriate adjustment (as determined by the Board of
Directors (including any director elected solely by the holders of the
Series B Preferred)) shall be made in the application of the
provisions set forth in this Section 3.1.8 with respect to the rights
and interest thereafter of the holders of the Series B Preferred, to
the end that the provisions set forth in this Section 3.1.8 shall
thereafter be applicable, as nearly as reasonably may be practicable,
in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series B Preferred. The
Corporation shall not effect any Transaction (other than a
consolidation or merger in which the Corporation is the continuing
corporation) unless prior to or simultaneously with the consummation
thereof the Corporation, or the successor corporation or purchaser, as
the case may be, shall provide in its charter document that each share
of Series B Preferred shall be convertible into such shares of stock,
securities or property as, in accordance with the foregoing
provisions, each such holder is entitled to receive. The provisions
of this paragraph (g) shall similarly apply to successive
Transactions.
(h) The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section
3.1.8 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders
of the Series B Preferred against impairment.
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3.1.9 Notice of Certain Events. (a) In case, at any
time while any shares of Series B Preferred are outstanding:
(i) the Corporation shall declare a dividend (or
any other distribution) on its Common Stock;
(ii) the Corporation shall authorize the issuance
to the holders of its Common Stock, of Common Stock Equivalents, or
rights or warrants to subscribe for or purchase shares of its Common
Stock or of any other subscription rights or warrants;
(iii) the Corporation shall authorize any
reorganization, reclassification or recapitalization of its Common
Stock;
(iv) the Corporation shall authorize the
consolidation or merger of the Corporation into or with any other
person, the sale or transfer of all or substantially all of its
capital stock, business or assets to another person, or any other
similar business combination or transaction; or
(v) the Corporation shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the
Corporation:
then the Corporation shall promptly deliver to the transfer agent (if any) of
the Series B Preferred and to each of the holders of shares of Series B
Preferred at their last addresses as shown on the books of the Corporation, at
least 15 days before the date hereinafter specified (or the earlier of the
dates hereinafter specified, in the event that more than one date is
specified), a notice describing such event and stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights
or warrants are to be determined, or (B) the date on which any such
reclassification, reorganization, recapitalization, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for securities or
other property (including cash), if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
3.1.10 Certain Remedies. Any registered holder of Series B
Preferred may proceed to protect and enforce its rights and the rights of any
other holders of Series B Preferred with any and all remedies available at law
or in equity.
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3.1.11 Protective Provisions.
(a) So long as any shares of Series B Preferred are
outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of (i) the
holder or holders of at least 75% of the then outstanding shares of
Series B Preferred (which may include The Beacon Group III - Focus
Value Fund, L.P. ("Beacon") and Stratford Capital Partners, L.P. and
Stratford Equity Partners, L.P. (collectively, the "Stratford
Entities"), (ii) Beacon (as long as it holds at least 5% of the
outstanding Series B Preferred) and (iii) Stratford Entities (as long
as the Stratford Entities collectively hold at least 5% of the
outstanding Series B Preferred):
(i) alter or change the rights, preference or
privileges of the shares of Series B Preferred or otherwise amend the
Certificate of Incorporation, in either case, whether by merger,
consolidation or otherwise, so as to affect adversely the shares of
Series B Preferred;
(ii) increase the authorized number of shares of
Series B Preferred (other than increases solely for purposes of
satisfying any Stock Dividends);
(iii) authorize the issuance of, issue, or sell any
additional shares of Series B Preferred or Series B Parity Securities
(other than issuances solely for purposes of satisfying any Stock
Dividends); or
(iv) create or designate, or authorize the
issuance of, any new class or series of stock (A) which are Senior
Securities or Series B Parity Securities, (B) having rights similar to
any rights of the Series B Preferred under Section 3.1.6 hereof or (C)
convertible into any class or series of stock described in clause (A)
of this paragraph (iv).
3.1.12 Reports as to Adjustments. Upon any adjustment of
the Conversion Ratio then in effect and any increase or decrease in the number
of shares of Common Stock issuable upon the operation of the conversion
provisions set forth in Section 3.1.8, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series B
Preferred as shown on the books of the Corporation a copy of a certificate
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, with the original being delivered to the transfer agent (if any)
for the Series B Preferred, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated
and specifying the Conversion Ratio then in effect following such adjustment
and the increased or decreased number of shares issuable upon conversion
pursuant to Section 3.1.8, and shall set forth in reasonable detail the method
of calculation of each and a brief statement of the facts requiring such
adjustment.
3.1.13 Reacquired Shares. Any shares of Series B Preferred
converted, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled
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promptly after the acquisition thereof. None of such shares of Series B
Preferred shall be reissued by the Corporation.
3.2 Series C Preferred.
3.2.1 Designation. This series of Preferred Stock shall be
designated the "Series C Convertible Preferred Stock" with a par value of $.01
per share (the "Series C Preferred").
3.2.2 Certain Definitions.
"Applicable Price" means the greater of (i) $195 per share
(subject to adjustment for stock dividends, stock splits, reclassifications and
other transactions which require an adjustment pursuant to Section 3.2.8) and
(ii) the Current Market Price.
"Business Day" means any day that is not a Saturday, Sunday or
a day on which banking institutions in New York, New York are not required to
be open for business.
"Common Stock Equivalents" means securities convertible into,
or exchangeable or exercisable for, shares of Common Stock.
"Conversion Ratio," determined as of any date, shall equal the
number of shares of Common Stock into which one share of Series C Preferred is
convertible pursuant to Section 3.2.8. The Conversion Ratio shall initially
equal one and shall be subject to adjustment as provided in paragraph (c) of
Section 3.2.8.
"Current Market Price" means, in respect of any share of
Common Stock on any date herein specified, (i) if the shares of Common Stock
are publicly traded, the average of the daily closing prices of the Common
Stock for the twenty consecutive trading days ending five trading days prior to
such date on the principal national securities exchange or stock market on
which such shares are traded, or (ii) if the shares of Common Stock are not
publicly traded, the Fair Market Value per share of Common Stock as of such
date.
"Excluded Securities" means (i) options issued by the
Corporation to its employees or agents pursuant to any stock option or similar
plan (and any shares of Common Stock issuable thereunder) approved by the Board
of Directors, and (ii) shares of Common Stock issuable upon conversion,
exchange or exercise of any Common Stock Equivalent outstanding as of the Issue
Date.
"Fair Market Value" of the Common Stock or any other property
means the fair market value of such Common Stock or other property as
determined (unless expressly otherwise provided herein) by mutual agreement
between the Corporation and the holders of not less than 50% of the outstanding
shares of Series C Preferred or, if the parties are unable to agree, as
determined by a nationally recognized independent investment banking firm
selected by mutual agreement
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between the Corporation and the holders of not less than 50% of the outstanding
shares of Series C Preferred.
"Initial Public Offering" shall mean an underwritten offering
by the Corporation of Common Stock to the public pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $25 million of net proceeds to the Corporation (after deducting all
underwriting discounts and commissions and all other offering expenses) and a
per share offering price of at least $300 (subject to adjustment for stock
splits, combinations or reclassifications).
"Issue Date" means the date on which shares of Series C
Preferred are first issued.
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or other business entity, trust, unincorporated
organization or government or any agency or political subdivisions thereof.
"Series C Liquidation Value" means the greater of (i) $195,
plus all accrued but unpaid dividends on the Series C Preferred or (ii) the per
share amount that the holders of the Series C Preferred would have received
upon liquidation if all shares of Series C Preferred had been converted to
Common Stock immediately prior to such liquidation at the Conversion Ratio then
in effect plus all accrued but unpaid dividends on the Series C Preferred.
3.2.3 Authorized Number; Rank. The authorized number of
shares constituting the Series C Preferred shall be 400,000 shares. The Series
C Preferred shall rank, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, (i) senior to all classes of Common
Stock of the Corporation, as they exist on the date hereof or as such stock may
be constituted from time to time and to each other class of capital stock or
series of preferred stock issued by the Corporation or established by the Board
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on parity with, the Series C Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, together with
the Common Stock, the "Series C Junior Securities"), (ii) on a parity with each
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Board to the extent the terms of such stock
expressly provide that it will rank on a parity with the Series C Preferred as
to dividend rights and rights on liquidation, winding-up and dissolution,
including, without limitation, the Series B Preferred and Series D Preferred
(collectively, the "Series C Parity Securities"), and (iii) junior to each
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Board to the extent the terms of such stock
expressly provide that it will rank senior to the Series C Preferred as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively, the "Senior Securities").
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3.2.4 Dividends.
(a) When, as and if declared by the Board out of funds
legally available therefor, the Corporation shall pay dividends to the
holders of the Series C Preferred as provided in this Section 3.2.4.
(b) Dividends shall be payable on shares of the Series C
Preferred at an annual rate of 9% per share of Series C Preferred
($17.55 per share), payable annually in arrears on December 31st of
each year (the "Dividend Payment Date"), commencing December 31, 1997.
Each dividend will be payable to holders of record as they appear on
the books of the Corporation at the close of business on a record date
(each a "Record Date") not more than 60 nor less than 15 days before
the payment date fixed by the Board. Dividends shall accrue from and
including the date of issuance of the Series C Preferred and shall be
cumulative (whether or not earned or declared). Dividends payable for
any period less than a full dividend period shall be computed on the
basis of a 360-day year consisting of twelve 30-day months. All
dividends shall be payable, at the Corporation's option, in either
additional shares of Series C Preferred (each, a "Stock Dividend") as
provided in Section 3.2.4(c) hereof, or in cash out of funds legally
available therefor. If any Dividend Payment Date shall not be a
Business Day, payment shall be made on the next succeeding Business
Day.
(c) Stock Dividends shall be payable as follows: in the
event that any dividend shall be payable on Series C Preferred in
additional shares of Series C Preferred pursuant to Section 3.2.4(b)
hereof, each holder of shares of Series C Preferred as of the
applicable Record Date shall be entitled to receive .09 shares of
Series C Preferred per annum for each share of Series C Preferred held
by such holder on such Record Date. No fractional shares shall be
issued as a Stock Dividend. In lieu thereof, the number of shares
issuable pursuant to each Stock Dividend shall be rounded up to the
next highest whole share number.
(d) All dividends paid hereunder shall be distributed by
first class mail to each holder as of the applicable Record Date of
Series C Preferred at the address of such holder specified in the
records of the Corporation.
(e) No full dividends may be declared or paid or funds
set apart for the payment of dividends on any Series C Parity
Securities (except dividends on Series C Parity Securities paid in
shares of Series C Junior Securities) for any period unless full
cumulative dividends to be paid hereunder prior to the date thereof
shall have been paid and, to the extent the Corporation shall have
determined to pay such dividends in cash, such cash shall have been
paid or set aside for payment, on the Series C Preferred. If
dividends are not so paid, the Series C Preferred shall share
dividends pro rata with the Series C Parity Securities according to
the amount of dividends due and payable with respect to each. No
dividends may be paid or set aside for such payment on Series C Junior
Securities (except dividends on Series C Junior Securities paid in
additional shares of Series C Junior Securities) for any period unless
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cumulative dividends to be paid hereunder prior to the date thereof
have been paid on the Series C Preferred. No Series C Parity
Securities or Series C Junior Securities may be repurchased, redeemed
or otherwise retired nor may funds be set aside for payment with
respect thereto, nor shall the Corporation permit any corporation or
entity directly or indirectly controlled by the Corporation to
purchase any shares of Series C Parity Securities or Series C Junior
Securities, if any shares of the Series C Preferred are outstanding.
(f) If, in any year, any cash distributions are declared
by the Board to be paid on Series C Junior Securities, then (i)
dividends on the Series C Preferred specified in Section 3.2.4(b) for
such year shall be paid in cash and not as a Stock Dividend and (ii)
an additional dividend shall be paid at the same time to the holders
of the Series C Preferred at the rate per share equal to the product
of (x) such per share dividend on the Common Stock multiplied by (y)
the number of shares of Common Stock into which each share of Series C
Preferred is then convertible.
3.2.5 Liquidation.
(a) Upon the dissolution, liquidation or winding up of
the Corporation (whether voluntary or involuntary) the holders of
Series C Preferred shall be entitled to receive out of the assets of
the Corporation available for distribution to stockholders, before any
payment or distribution shall be made on any Series C Junior
Securities, an amount equal to the Series C Liquidation Value with
respect to each outstanding share of Series C Preferred.
(b) Neither the sale, lease or exchange (for cash, shares
of stock, securities or other consideration) of all or substantially
all the property and assets of the Corporation nor the merger or
consolidation of the Corporation into or with any other corporation or
the merger or consolidation of any other corporation into or with the
Corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, for the purposes of this Section
3.2.5.
(c) After the payment to the holders of the Series C
Preferred of the full preferential amounts provided for in this
Section 3.2.5, the holders of Series C Preferred as such shall have no
right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available
for distribution to the holders of Series C Preferred upon any
dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Section
3.2.5(a), no such distribution shall be made on account of any Series
C Parity Securities unless proportionate amounts are distributed to
the holders of Series C Preferred, ratably, in proportion to the full
amounts for which holders of Series C Preferred and all such Series C
Parity Securities are respectively entitled upon such dissolution,
liquidation or winding-up.
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3.2.6 Voting Rights. The holder of each share of Series C
Preferred shall be entitled to vote on all matters (including the election of
directors) and shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which such shares of Series C
Preferred could be converted, pursuant to the provisions of Section 3.2.8
hereof, at the Record Date for the determination of stockholders entitled to
vote on such matters or, if no such record date is established, at the date
such vote is taken or any written consent of stockholders is solicited. Except
as otherwise expressly provided herein or as required by law, the holders of
shares of Series B Preferred, Series C Preferred, Series D Preferred and Common
Stock shall vote together as a single class on all matters and not as separate
classes.
3.2.7 Redemption. From and after November 1, 2003, as long
as an Initial Public Offering has not occurred, the holder or holders of any of
the outstanding shares of Series C Preferred may, at their option, at any time,
or from time to time, by delivery of written notice to the Corporation, require
the Corporation to redeem, out of funds legally available therefore, any or all
outstanding shares of Series C Preferred held by such holder or holders. The
redemption price payable upon any redemption pursuant to this Section 3.2.7
shall be an amount per share equal to $195 plus the amount of all accrued but
unpaid dividends on the shares being redeemed calculated through and including
the redemption date. The date of any redemption required to be made pursuant
to this Section 3.2.7 shall be 20 calendar days after delivery of the
redemption notice and on such redemption date the Corporation shall wire
transfer to each holder the redemption price for the shares of Series C
Preferred so redeemed.
3.2.8 Conversion.
(a) Upon the consummation of an Initial Public Offering,
each share of Series C Preferred shall automatically be converted into
a number of shares of Common Stock at the then effective Conversion
Ratio. In addition, at the option of the holder of any Series C
Preferred, such holder shall have the right, at any time and from time
to time, by written notice to the Corporation, to convert any share of
Series C Preferred owned by such holder into a number of shares of
Common Stock, at the then effective Conversion Ratio.
(b) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series C Preferred,
free from any preemptive rights, such number of its authorized but
unissued shares of Common Stock as will from time to time be necessary
to permit the conversion of all outstanding shares of Series C
Preferred into shares of Common Stock, and shall take all action
required to increase the authorized number of shares of Common Stock
if necessary to permit the conversion of all outstanding shares of
Series C Preferred.
(c) The Conversion Ratio shall be subject to adjustment
from time to time as follows:
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(i) In case the Corporation shall at any time or
from time to time after the Issue Date (A) pay a dividend, or make a
distribution, on the outstanding shares of Common Stock in shares of
Common Stock, (B) subdivide the outstanding shares of Common Stock,
(C) combine the outstanding shares of Common Stock into a smaller
number of shares or (D) issue by reclassification of the shares of
Common Stock any shares of capital stock of the Corporation, then, and
in each such case, the Conversion Ratio in effect immediately prior to
such event or the Record Date therefor, whichever is earlier, shall be
adjusted so that the holder of any shares of Series C Preferred
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the
Corporation which such holder would have owned or have been entitled
to receive after the happening of any of the events described above,
had such shares of Series C Preferred been surrendered for conversion
immediately prior to the happening of such event or the Record Date
therefor, whichever is earlier. An adjustment made pursuant to this
clause (i) shall become effective (x) in the case of any such dividend
or distribution, immediately after the close of business on the Record
Date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, or (y) in the case
of such subdivision, reclassification or combination, at the close of
business on the day upon which such corporate action becomes
effective. No adjustment shall be made pursuant to this clause (i) in
connection with any transaction to which paragraph (g) applies.
(ii) Except with respect to Excluded Securities,
in case the Corporation shall issue shares of Common Stock or Common
Stock Equivalents after the Issue Date at a price per share (or having
a conversion, exercise or exchange price per share) less than the
Applicable Price per share of Common Stock as of the date of issuance
of such shares or of such convertible securities (the amount of such
difference being referred to as the "Spread"), then, and in each such
case, the Conversion Ratio shall be adjusted so that the holder of
each share of Series C Preferred shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares which would have
been received upon conversion pursuant to the Conversion Ratio in
effect on the day immediately prior to such date by (B) a fraction,
the numerator of which shall be the Current Market Price per share of
Common Stock as of the date of such issuance, and the denominator of
which shall be the Current Market Price per share of Common Stock as
of the date of such issuance less the amount of the Spread per share
of such Common Stock or Common Stock Equivalent. An adjustment made
pursuant to this clause (ii) shall be made on the next Business Day
following the date on which any such issuance is made and shall be
effective retroactively to the close of business on the date of such
issuance. Upon the expiration of any unexercised Common Stock
Equivalents for which an adjustment has been made pursuant to this
clause (ii), the adjustment (and any subsequent adjustments) shall
forthwith be reversed to effect such rate of conversion as would have
been in effect at the time of such expiration or termination had such
Common Stock Equivalents, to the extent outstanding immediately prior
to such expiration or termination, never been issued. No adjustment
shall be made pursuant to this clause (ii) in connection with any
transaction to which paragraph (g) applies.
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<PAGE> 19
(iii) In case the Corporation shall at any time or
from time to time after the Issue Date declare, order, pay or make a
dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or
warrants to subscribe for securities of the Corporation or any of its
subsidiaries by way of dividend or spinoff), on its Common Stock,
other than dividends or distributions of shares of Common Stock which
are referred to in clause (i) of this paragraph (c), then, and in each
such case, the Conversion Ratio shall be adjusted so that the holder
of each share of Series C Preferred shall be entitled to receive, upon
the conversion thereof the number of shares of Common Stock determined
by multiplying (1) the number of shares which would have been received
upon conversion pursuant to the applicable Conversion Ratio on the day
immediately prior to the Record Date fixed for the determination of
stockholders entitled to receive such dividend or distribution by (2)
a fraction, the numerator of which shall be the Current Market Price
per share of Common Stock as of such date, and the denominator of
which shall be such Current Market Price per share of Common Stock
less the Fair Market Value per share of Common Stock of such dividend
or distribution. No adjustment shall be made pursuant to this clause
(iii) in connection with any transaction to which paragraph (g)
applies.
(iv) Anything in this paragraph (c) of this
Section 3.2.8 to the contrary notwithstanding, the Corporation shall
not be required to give effect to any adjustment in the Conversion
Ratio unless and until the net effect of one or more adjustments (each
of which shall be carried forward), determined as above provided,
shall have resulted in a change of the Conversion Ratio by at least
one-tenth of one share of Common Stock, and when the cumulative net
effect of more than one adjustment so determined shall be to change
the Conversion Ratio by at least one-tenth of one share of Common
Stock, such change in Conversion Ratio shall thereupon be given
effect.
(v) For purposes of this paragraph (c) of this
Section 3.2.8, the aggregate consideration receivable by the
Corporation in connection with the issuance of shares of Common Stock
and/or Common Stock Equivalents shall be deemed to be equal to the sum
of the aggregate offering price (before deduction of underwriting
discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the
minimum aggregate amount, if any, payable upon conversion, exchange or
exercise of any such Common Stock Equivalents. If the consideration
received by the Corporation in connection with the sale or issuance of
shares of Common Stock (or Common Stock Equivalents) consists, in
whole or in part, of property other than cash or its equivalent, the
value of such property shall be the Fair Market Value.
(vi) For purposes of this paragraph (c) of this
Section 3.2.8, the number of shares of Common Stock at any time
outstanding shall mean the aggregate of all shares of Common Stock
then outstanding (other than any shares of Common Stock then owned or
held by or for the account of the Corporation) treating for purposes
of this calculation all Common Stock Equivalents then outstanding as
having been converted, exchanged or exercised.
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<PAGE> 20
(vii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution and shall thereafter, and
before such dividend or distribution is paid or delivered to
stockholders entitled thereto, legally abandon its plan to pay or
deliver such dividend or distribution, then no adjustment in the
Conversion Ratio then in effect shall be made by reason of the taking
of such record, and any such adjustment previously made as a result of
the taking of such record shall be reversed.
(d) The issuance of certificates for shares of Common
Stock upon conversion of the Series C Preferred shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the Series C Preferred which is being converted.
(e) The Corporation will at no time close its transfer
books against the transfer of any Series C Preferred, or of any shares
of Common Stock issued or issuable upon the conversion of any shares
of Series C Preferred, in any manner which interferes with the timely
conversion of such Series C Preferred, except as may otherwise be
required to comply with applicable securities laws.
(f) If any event occurs as to which, in the opinion of
the Board of Directors (including any directors elected solely by
holders of the Series C Preferred), the provisions of this Section
3.2.8 are not strictly applicable or if strictly applicable would not
fairly protect the rights of the holders of the Series C Preferred in
accordance with the essential intent and principles of such
provisions, the Board of Directors (including any directors elected
solely by holders of the Series C Preferred) shall make an adjustment
in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights of the
holders of the Series C Preferred.
(g) If the Corporation shall be a party to any
transaction including without limitation, a merger, consolidation,
sale of all or substantially all of the Corporation's assets or a
reorganization, reclassification or recapitalization of the capital
stock of the Corporation but excluding any transaction for which
provision for adjustment is otherwise made in this Section 3.2.8,
(each of the foregoing being referred to as a "Transaction"), in each
case, as a result of which shares of Common Stock are converted into
the right to receive stock, securities or other property (including
cash or any combination thereof), each share of Series C Preferred
shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such
Series C Preferred would have been entitled upon such Transaction if
such shares of Series C Preferred had been converted into Common Stock
immediately prior to such Transaction or, if earlier, immediately
prior to any Record Date applicable to such Transaction; and, in any
such case, appropriate adjustment (as
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determined by the Board of Directors (including any director elected
solely by the holders of the Series C Preferred)) shall be made in the
application of the provisions set forth in this Section 3.2.8 with
respect to the rights and interest thereafter of the holders of the
Series C Preferred, to the end that the provisions set forth in this
Section 3.2.8 shall thereafter be applicable, as nearly as reasonably
may be practicable, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series C
Preferred. The Corporation shall not effect any Transaction (other
than a consolidation or merger in which the Corporation is the
continuing corporation) unless prior to or simultaneously with the
consummation thereof the Corporation, or the successor corporation or
purchaser, as the case may be, shall provide in its charter document
that each share of Series C Preferred shall be convertible into such
shares of stock, securities or property as, in accordance with the
foregoing provisions, each such holder is entitled to receive. The
provisions of this paragraph (g) shall similarly apply to successive
Transactions.
(h) The Corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
recapitalization, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section
3.2.8 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders
of the Series C Preferred against impairment.
3.2.9 Notice of Certain Events.
(a) In case, at any time while any shares of Series C
Preferred are outstanding:
(i) the Corporation shall declare a dividend (or
any other distribution) on its Common Stock;
(ii) the Corporation shall authorize the issuance
to the holders of its Common Stock, of Common Stock Equivalents, or
rights or warrants to subscribe for or purchase shares of its Common
Stock or of any other subscription rights or warrants;
(iii) the Corporation shall authorize any
reorganization, reclassification or recapitalization of its Common
Stock;
(iv) the Corporation shall authorize the
consolidation or merger of the Corporation into or with any other
person, the sale or transfer of all or substantially all of its
capital stock, business or assets to another person, or any other
similar business combination or transaction; or
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(v) the Corporation shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the
Corporation:
then the Corporation shall promptly deliver to the transfer agent (if
any) of the Series C Preferred and to each of the holders of shares of
Series C Preferred at their last addresses as shown on the books of
the Corporation, at least 15 days before the date hereinafter
specified (or the earlier of the dates hereinafter specified, in the
event that more than one date is specified), a notice describing such
event and stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if
a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined, or (B) the date on which any
such reclassification, reorganization, recapitalization,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which
it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other
property (including cash), if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
3.2.10 Certain Remedies. Any registered holder of Series C
Preferred may proceed to protect and enforce its rights and the rights of any
other holders of Series C Preferred with any and all remedies available at law
or in equity.
3.2.11 Protective Provisions. So long as any shares of
Series C Preferred are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of (a)
the holder or holders of at least 75% of the then outstanding shares of Series
C Preferred (which may include Beacon and the Stratford Entities, (b) Beacon
(as long as it holds at least 5% of the outstanding Series C Preferred), (c)
the Stratford Entities (as long as they collectively hold at least 5% of the
outstanding Series C Preferred) and (d) each of Hoak Communications Partners,
L.P. ("HCP"), HCP Capital Fund, L.P. ("HCF") and 1997 HCP Authorized Employee
Fund, L.P. ("HEF", together with HCP, HCF, the "Hoak Entities") (as long as
the Hoak Entities collectively hold an aggregate of at least 5% of the
outstanding Series C Preferred):
(i) alter or change the rights, preference or
privileges of the shares of Series C Preferred or otherwise
amend the Restated Certificate of Incorporation, in either
case, whether by merger, consolidation or otherwise, so as to
affect adversely the shares of Series C Preferred;
(ii) increase the authorized number of shares of
Series C Preferred (other than increases solely for purposes
of satisfying any Stock Dividends);
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(iii) authorize the issuance of, issue, or sell any
additional shares of Series C Preferred or Series C Parity
Securities (other than issuances solely for purposes of
satisfying any Stock Dividends); or
(iv) create or designate, or authorize the
issuance of, any new class or series of stock (A) which are
Senior Securities or Series C Parity Securities, (B) having
rights similar to any rights of the Series C Preferred under
Section 3.2.6 hereof or (C) convertible into any class or
series of stock described in clause (A) of this paragraph
(iv).
3.2.12 Reports as to Adjustments. Upon any adjustment of
the Conversion Ratio then in effect and any increase or decrease in the number
of shares of Common Stock issuable upon the operation of the conversion
provisions set forth in Section 3.2.8, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series C
Preferred as shown on the books of the Corporation a copy of a certificate
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, with the original being delivered to the transfer agent (if any)
for the Series C Preferred, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated
and specifying the Conversion Ratio then in effect following such adjustment
and the increased or decreased number of shares issuable upon conversion
pursuant to Section 3.2.8, and shall set forth in reasonable detail the method
of calculation of each and a brief statement of the facts requiring such
adjustment.
3.2.13 Reacquired Shares. Any shares of Series C Preferred
converted, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. None of such shares of Series C Preferred shall be reissued by the
Corporation.
3.3 Series D Preferred
3.3.1 Designation. This series of Preferred Stock shall be
designated the "Series D Convertible Preferred Stock" with a par value of $.01
per share (the "Series D Preferred").
3.3.2 Certain Definitions.
"Applicable Price" means the greater of (i) $195 per share
(subject to adjustment for stock dividends, stock splits, reclassifications and
other transactions which require an adjustment pursuant to Section 3.3.8) and
(ii) the Current Market Price.
"Business Day" means any day that is not a Saturday, Sunday or
a day on which banking institutions in New York, New York are not required to
be open for business.
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"Common Stock Equivalents" means securities convertible into,
or exchangeable or exercisable for, shares of Common Stock.
"Conversion Ratio," determined as of any date, shall equal the
number of shares of Common Stock into which one share of Series D Preferred is
convertible pursuant to Section 3.3.8. The Conversion Ratio shall initially
equal one and shall be subject to adjustment as provided in paragraph (c) of
Section 3.3.8.
"Current Market Price" means, in respect of any share of
Common Stock on any date herein specified, (i) if the shares of Common Stock
are publicly traded, the average of the daily closing prices of the Common
Stock for the twenty consecutive trading days ending five trading days prior to
such date on the principal national securities exchange or stock market on
which such shares are traded, or (ii) if the shares of Common Stock are not
publicly traded, the Fair Market Value per share of Common Stock as of such
date.
"Excluded Securities" means (i) options issued by the
Corporation to its employees or agents pursuant to any stock option or similar
plan (and any shares of Common Stock issuable thereunder) approved by the Board
of Directors, and (ii) shares of Common Stock issuable upon conversion,
exchange or exercise of any Common Stock Equivalent outstanding as of the Issue
Date.
"Fair Market Value" of the Common Stock or any other property
means the fair market value of such Common Stock or other property as
determined (unless expressly otherwise provided herein) by mutual agreement
between the Corporation and the holders of not less than 50% of the outstanding
shares of Series D Preferred or, if the parties are unable to agree, as
determined by a nationally recognized independent investment banking firm
selected by mutual agreement between the Corporation and the holders of not
less than 50% of the outstanding shares of Series D Preferred.
"Initial Public Offering" shall mean an underwritten offering
by the Corporation of Common Stock to the public pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $25 million of net proceeds to the Corporation (after deducting all
underwriting discounts and commissions and all other offering expenses) and a
per share offering price of at least $300 (subject to adjustment for stock
splits, combinations or reclassifications).
"Issue Date" means the date on which shares of Series D
Preferred are first issued.
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or other business entity, trust, unincorporated
organization or government or any agency or political subdivisions thereof.
"Series D Liquidation Value" means the greater of (i) $195,
plus all accrued but unpaid dividends on the Series D Preferred or (ii) the per
share amount that the holders of the Series
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D Preferred would have received upon liquidation if all shares of Series D
Preferred had been converted to Common Stock immediately prior to such
liquidation at the Conversion Ratio then in effect plus all accrued but unpaid
dividends on the Series D Preferred.
3.3.3 Authorized Number; Rank. The authorized number of
shares constituting the Series D Preferred shall be 400,000 shares. The Series
D Preferred shall rank, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, (i) senior to all classes of Common
Stock of the Corporation, as they exist on the date hereof or as such stock may
be constituted from time to time and to each other class of capital stock or
series of preferred stock issued by the Corporation or established by the Board
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on parity with, the Series D Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, together with
the Common Stock, the "Series D Junior Securities"), (ii) on a parity with each
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Board to the extent the terms of such stock
expressly provide that it will rank on a parity with the Series D Preferred as
to dividend rights and rights on liquidation, winding-up and dissolution,
including, without limitation Series B Preferred and Series C Preferred
(collectively, the "Series D Parity Securities"), and (iii) junior to each
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Board to the extent the terms of such stock
expressly provide that it will rank senior to the Series D Preferred as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively, the "Senior Securities").
3.3.4 Dividends.
(a) When, as and if declared by the Board out of funds
legally available therefor, the Corporation shall pay dividends to the
holders of the Series D Preferred as provided in this Section 3.3.4.
(b) Dividends shall be payable on shares of the Series D
Preferred at an annual rate of 11% per share of Series D Preferred
($21.45 per share), payable annually in arrears on December 31st of
each year (the "Dividend Payment Date"), commencing December 31, 1997.
Each dividend will be payable to holders of record as they appear on
the books of the Corporation at the close of business on a record date
(each a "Record Date") not more than 60 nor less than 15 days before
the payment date fixed by the Board. Dividends shall accrue from and
including the date of issuance of the Series D Preferred and shall be
cumulative (whether or not earned or declared). Dividends payable for
any period less than a full dividend period shall be computed on the
basis of a 360-day year consisting of twelve 30-day months. All
dividends shall be payable, at the Corporation's option, in either
additional shares of Series D Preferred (each, a "Stock Dividend") as
provided in Section 3.3.4(c) hereof, or in cash out of funds legally
available therefor. If any Dividend Payment Date shall not be a
Business Day, payment shall be made on the next succeeding Business
Day.
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(c) Stock Dividends shall be payable as follows: in the
event that any dividend shall be payable on Series D Preferred in
additional shares of Series D Preferred pursuant to Section 3.3.4(b)
hereof, each holder of shares of Series D Preferred as of the
applicable Record Date shall be entitled to receive .11 shares of
Series D Preferred per annum for each share of Series D Preferred held
by such holder on such Record Date. No fractional shares shall be
issued as a Stock Dividend. In lieu thereof, the number of shares
issuable pursuant to each Stock Dividend shall be rounded up to the
next highest whole share number.
(d) All dividends paid hereunder shall be distributed by
first class mail to each holder as of the applicable Record Date of
Series D Preferred at the address of such holder specified in the
records of the Corporation.
(e) No full dividends may be declared or paid or funds
set apart for the payment of dividends on any Series D Parity
Securities (except dividends on Series D Parity Securities paid in
shares of Series D Junior Securities) for any period unless full
cumulative dividends to be paid hereunder prior to the date thereof
shall have been paid and, to the extent the Corporation shall have
determined to pay such dividends in cash, such cash shall have been
paid or set aside for payment, on the Series D Preferred. If
dividends are not so paid, the Series D Preferred shall share
dividends pro rata with the Series D Parity Securities according to
the amount of dividends due and payable with respect to each. No
dividends may be paid or set aside for such payment on Series D Junior
Securities (except dividends on Series D Junior Securities paid in
additional shares of Series D Junior Securities) for any period unless
cumulative dividends to be paid hereunder prior to the date thereof
have been paid on the Series D Preferred. No Series D Parity
Securities or Series D Junior Securities may be repurchased, redeemed
or otherwise retired nor may funds be set aside for payment with
respect thereto, nor shall the Corporation permit any corporation or
entity directly or indirectly controlled by the Corporation to
purchase any shares of Series D Parity Securities or Series D Junior
Securities, if any shares of the Series D Preferred are outstanding.
(f) If, in any year, any cash distributions are declared
by the Board to be paid on Series D Junior Securities, then (i)
dividends on the Series D Preferred specified in Section 3.3.4(b) for
such year shall be paid in cash and not as a Stock Dividend and (ii)
an additional dividend shall be paid at the same time to the holders
of the Series D Preferred at the rate per share equal to the product
of (x) such per share dividend on the Common Stock multiplied by (y)
the number of shares of Common Stock into which each share of Series D
Preferred is then convertible.
3.3.5 Liquidation.
(a) Upon the dissolution, liquidation or winding up of
the Corporation (whether voluntary or involuntary) the holders of
Series D Preferred shall be entitled to receive out of the assets of
the Corporation available for distribution to stockholders, before any
payment
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or distribution shall be made on any Series D Junior Securities, an
amount equal to the Series D Liquidation Value with respect to each
outstanding share of Series D Preferred.
(b) Neither the sale, lease or exchange (for cash, shares
of stock, securities or other consideration) of all or substantially
all the property and assets of the Corporation nor the merger or
consolidation of the Corporation into or with any other corporation or
the merger or consolidation of any other corporation into or with the
Corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, for the purposes of this Section
3.3.5.
(c) After the payment to the holders of the Series D
Preferred of the full preferential amounts provided for in this
Section 3.3.5, the holders of Series D Preferred as such shall have no
right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available
for distribution to the holders of Series D Preferred upon any
dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Section
3.3.5(a), no such distribution shall be made on account of any Series
D Parity Securities unless proportionate amounts are distributed to
the holders of Series D Preferred, ratably, in proportion to the full
amounts for which holders of Series D Preferred and all such Series D
Parity Securities are respectively entitled upon such dissolution,
liquidation or winding-up.
3.3.6 Voting Rights. The holder of each share of Series D
Preferred shall be entitled to vote on all matters (including the election of
directors) and shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which such shares of Series D
Preferred could be converted, pursuant to the provisions of Section 3.3.8
hereof, at the Record Date for the determination of stockholders entitled to
vote on such matters or, if no such record date is established, at the date
such vote is taken or any written consent of stockholders is solicited. Except
as otherwise expressly provided herein or as required by law, the holders of
shares of Series B Preferred, Series C Preferred, Series D Preferred and Common
Stock shall vote together as a single class on all matters and not as separate
classes.
3.3.7 Redemption. From and after November 1, 2003, as long
as an Initial Public Offering has not occurred, the holder or holders of any of
the outstanding shares of Series D Preferred may, at their option, at any time,
or from time to time, by delivery of written notice to the Corporation, require
the Corporation to redeem, out of funds legally available therefore, any or all
outstanding shares of Series D Preferred held by such holder or holders. The
redemption price payable upon any redemption pursuant to this Section 3.3.7
shall be an amount per share equal to $195 plus the amount of all accrued but
unpaid dividends on the shares being redeemed calculated through and including
the redemption date. The date of any redemption required to be made pursuant
to this Section 3.3.7 shall be 20 calendar days after delivery of the
redemption notice and
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on such redemption date the Corporation shall wire transfer to each holder the
redemption price for the shares of Series D Preferred so redeemed.
3.3.8 Conversion.
(a) Upon the consummation of an Initial Public Offering,
each share of Series D Preferred shall automatically be converted into
a number of shares of Common Stock at the then effective Conversion
Ratio. In addition, at the option of the holder of any Series D
Preferred, such holder shall have the right, at any time and from time
to time, by written notice to the Corporation, to convert any share of
Series D Preferred owned by such holder into a number of shares of
Common Stock, at the then effective Conversion Ratio.
(b) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series D Preferred,
free from any preemptive rights, such number of its authorized but
unissued shares of Common Stock as will from time to time be necessary
to permit the conversion of all outstanding shares of Series D
Preferred into shares of Common Stock, and shall take all action
required to increase the authorized number of shares of Common Stock
if necessary to permit the conversion of all outstanding shares of
Series D Preferred.
(c) The Conversion Ratio shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or
from time to time after the Issue Date (A) pay a dividend, or make a
distribution, on the outstanding shares of Common Stock in shares of
Common Stock, (B) subdivide the outstanding shares of Common Stock,
(C) combine the outstanding shares of Common Stock into a smaller
number of shares or (D) issue by reclassification of the shares of
Common Stock any shares of capital stock of the Corporation, then, and
in each such case, the Conversion Ratio in effect immediately prior to
such event or the Record Date therefor, whichever is earlier, shall be
adjusted so that the holder of any shares of Series D Preferred
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the
Corporation which such holder would have owned or have been entitled
to receive after the happening of any of the events described above,
had such shares of Series D Preferred been surrendered for conversion
immediately prior to the happening of such event or the Record Date
therefor, whichever is earlier. An adjustment made pursuant to this
clause (i) shall become effective (x) in the case of any such dividend
or distribution, immediately after the close of business on the Record
Date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, or (y) in the case
of such subdivision, reclassification or combination, at the close of
business on the day upon which such corporate action becomes
effective. No adjustment shall be made pursuant to this clause (i) in
connection with any transaction to which paragraph (g) applies.
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(ii) Except with respect to Excluded Securities,
in case the Corporation shall issue shares of Common Stock or Common
Stock Equivalents after the Issue Date at a price per share (or having
a conversion, exercise or exchange price per share) less than the
Applicable Price per share of Common Stock as of the date of issuance
of such shares or of such convertible securities (the amount of such
difference being referred to as the "Spread"), then, and in each such
case, the Conversion Ratio shall be adjusted so that the holder of
each share of Series D Preferred shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares which would have
been received upon conversion pursuant to the Conversion Ratio in
effect on the day immediately prior to such date by (B) a fraction,
the numerator of which shall be the Current Market Price per share of
Common Stock as of the date of such issuance, and the denominator of
which shall be the Current Market Price per share of Common Stock as
of the date of such issuance less the amount of the Spread per share
of such Common Stock or Common Stock Equivalent. An adjustment made
pursuant to this clause (ii) shall be made on the next Business Day
following the date on which any such issuance is made and shall be
effective retroactively to the close of business on the date of such
issuance. Upon the expiration of any unexercised Common Stock
Equivalents for which an adjustment has been made pursuant to this
clause (ii), the adjustment (and any subsequent adjustments) shall
forthwith be reversed to effect such rate of conversion as would have
been in effect at the time of such expiration or termination had such
Common Stock Equivalents, to the extent outstanding immediately prior
to such expiration or termination, never been issued. No adjustment
shall be made pursuant to this clause (ii) in connection with any
transaction to which paragraph (g) applies.
(iii) In case the Corporation shall at any time or
from time to time after the Issue Date declare, order, pay or make a
dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or
warrants to subscribe for securities of the Corporation or any of its
subsidiaries by way of dividend or spinoff), on its Common Stock,
other than dividends or distributions of shares of Common Stock which
are referred to in clause (i) of this paragraph (c), then, and in each
such case, the Conversion Ratio shall be adjusted so that the holder
of each share of Series D Preferred shall be entitled to receive, upon
the conversion thereof the number of shares of Common Stock determined
by multiplying (1) the number of shares which would have been received
upon conversion pursuant to the applicable Conversion Ratio on the day
immediately prior to the Record Date fixed for the determination of
stockholders entitled to receive such dividend or distribution by (2)
a fraction, the numerator of which shall be the Current Market Price
per share of Common Stock as of such date, and the denominator of
which shall be such Current Market Price per share of Common Stock
less the Fair Market Value per share of Common Stock of such dividend
or distribution. No adjustment shall be made pursuant to this clause
(iii) in connection with any transaction to which paragraph (g)
applies.
(iv) Anything in this paragraph (c) of this
Section 3.3.8 to the contrary notwithstanding, the Corporation shall
not be required to give effect to any adjustment in the
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Conversion Ratio unless and until the net effect of one or more
adjustments (each of which shall be carried forward), determined as
above provided, shall have resulted in a change of the Conversion
Ratio by at least one-tenth of one share of Common Stock, and when the
cumulative net effect of more than one adjustment so determined shall
be to change the Conversion Ratio by at least one-tenth of one share
of Common Stock, such change in Conversion Ratio shall thereupon be
given effect.
(v) For purposes of this paragraph (c) of this
Section 3.3.8, the aggregate consideration receivable by the
Corporation in connection with the issuance of shares of Common Stock
and/or Common Stock Equivalents shall be deemed to be equal to the sum
of the aggregate offering price (before deduction of underwriting
discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the
minimum aggregate amount, if any, payable upon conversion, exchange or
exercise of any such Common Stock Equivalents. If the consideration
received by the Corporation in connection with the sale or issuance of
shares of Common Stock (or Common Stock Equivalents) consists, in
whole or in part, of property other than cash or its equivalent, the
value of such property shall be the Fair Market Value.
(vi) For purposes of this paragraph (c) of this
Section 3.3.8, the number of shares of Common Stock at any time
outstanding shall mean the aggregate of all shares of Common Stock
then outstanding (other than any shares of Common Stock then owned or
held by or for the account of the Corporation) treating for purposes
of this calculation all Common Stock Equivalents then outstanding as
having been converted, exchanged or exercised.
(vii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution and shall thereafter, and
before such dividend or distribution is paid or delivered to
stockholders entitled thereto, legally abandon its plan to pay or
deliver such dividend or distribution, then no adjustment in the
Conversion Ratio then in effect shall be made by reason of the taking
of such record, and any such adjustment previously made as a result of
the taking of such record shall be reversed.
(d) The issuance of certificates for shares of Common
Stock upon conversion of the Series D Preferred shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the Series D Preferred which is being converted.
(e) The Corporation will at no time close its transfer
books against the transfer of any Series D Preferred, or of any shares
of Common Stock issued or issuable upon the conversion of any shares
of Series D Preferred, in any manner which interferes with the
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timely conversion of such Series D Preferred, except as may otherwise
be required to comply with applicable securities laws.
(f) If any event occurs as to which, in the opinion of
the Board of Directors (including any directors elected solely by
holders of the Series D Preferred), the provisions of this Section
3.3.8 are not strictly applicable or if strictly applicable would not
fairly protect the rights of the holders of the Series D Preferred in
accordance with the essential intent and principles of such
provisions, the Board of Directors (including any directors elected
solely by holders of the Series D Preferred) shall make an adjustment
in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights of the
holders of the Series D Preferred.
(g) If the Corporation shall be a party to any
transaction including without limitation, a merger, consolidation,
sale of all or substantially all of the Corporation's assets or a
reorganization, reclassification or recapitalization of the capital
stock of the Corporation but excluding any transaction for which
provision for adjustment is otherwise made in this Section 3.3.8,
(each of the foregoing being referred to as a "Transaction"), in each
case, as a result of which shares of Common Stock are converted into
the right to receive stock, securities or other property (including
cash or any combination thereof), each share of Series D Preferred
shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such
Series D Preferred would have been entitled upon such Transaction if
such shares of Series D Preferred had been converted into Common Stock
immediately prior to such Transaction or, if earlier, immediately
prior to any Record Date applicable to such Transaction; and, in any
such case, appropriate adjustment (as determined by the Board of
Directors (including any director elected solely by the holders of the
Series D Preferred)) shall be made in the application of the
provisions set forth in this Section 3.3.8 with respect to the rights
and interest thereafter of the holders of the Series D Preferred, to
the end that the provisions set forth in this Section 3.3.8 shall
thereafter be applicable, as nearly as reasonably may be practicable,
in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series D Preferred. The
Corporation shall not effect any Transaction (other than a
consolidation or merger in which the Corporation is the continuing
corporation) unless prior to or simultaneously with the consummation
thereof the Corporation, or the successor corporation or purchaser, as
the case may be, shall provide in its charter document that each share
of Series D Preferred shall be convertible into such shares of stock,
securities or property as, in accordance with the foregoing
provisions, each such holder is entitled to receive. The provisions
of this paragraph (g) shall similarly apply to successive
Transactions.
(h) The Corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
recapitalization, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder
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by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3.3.8 and in the
taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of the Series D
Preferred against impairment.
3.3.9 Notice of Certain Events.
(a) In case, at any time while any shares of Series D
Preferred are outstanding:
(i) the Corporation shall declare a dividend (or
any other distribution) on its Common Stock;
(ii) the Corporation shall authorize the issuance
to the holders of its Common Stock, of Common Stock
Equivalents, or rights or warrants to subscribe for or
purchase shares of its Common Stock or of any other
subscription rights or warrants;
(iii) the Corporation shall authorize any
reorganization, reclassification or recapitalization of its
Common Stock;
(iv) the Corporation shall authorize the
consolidation or merger of the Corporation into or with any
other person, the sale or transfer of all or substantially all
of its capital stock, business or assets to another person, or
any other similar business combination or transaction; or
(v) the Corporation shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the
Corporation:
then the Corporation shall promptly deliver to the transfer agent (if
any) of the Series D Preferred and to each of the holders of shares of
Series D Preferred at their last addresses as shown on the books of
the Corporation, at least 15 days before the date hereinafter
specified (or the earlier of the dates hereinafter specified, in the
event that more than one date is specified), a notice describing such
event and stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if
a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined, or (B) the date on which any
such reclassification, reorganization, recapitalization,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which
it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other
property (including cash), if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
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3.3.10 Certain Remedies. Any registered holder of Series D
Preferred may proceed to protect and enforce its rights and the rights of any
other holders of Series D Preferred with any and all remedies available at law
or in equity.
3.3.11 Protective Provisions. So long as any shares of
Series D Preferred are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of (a)
the holder or holders of at least 75% of the then outstanding shares of Series
D Preferred (which may include Beacon and the Stratford Entities), (b) Beacon
(as long as it holds at least 5% of the outstanding Series D Preferred), (c)
the Stratford Entities (as long as the Stratford Entities collectively hold at
least 5% of the outstanding Series D Preferred) and (d) each of the Hoak
Entities (as long as the Hoak Entities collectively hold an aggregate of at
least 5% of the outstanding Series D Preferred):
(i) alter or change the rights, preference or
privileges of the shares of Series D Preferred or otherwise amend the
Restated Certificate of Incorporation, in either case, whether by
merger, consolidation or otherwise, so as to affect adversely the
shares of Series D Preferred;
(ii) increase the authorized number of shares of
Series D Preferred (other than increases solely for purposes of
satisfying any Stock Dividends);
(iii) authorize the issuance of, issue, or sell any
additional shares of Series D Preferred or Series D Parity Securities
(other than issuances solely for purposes of satisfying any Stock
Dividends); or
(iv) create or designate, or authorize the
issuance of, any new class or series of stock (A) which are Senior
Securities or Series D Parity Securities, (B) having rights similar to
any rights of the Series D Preferred under Section 3.3.6 hereof or (C)
convertible into any class or series of stock described in clause (A)
of this paragraph (iv).
3.3.12 Reports as to Adjustments. Upon any adjustment of
the Conversion Ratio then in effect and any increase or decrease in the number
of shares of Common Stock issuable upon the operation of the conversion
provisions set forth in Section 3.3.8, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series D
Preferred as shown on the books of the Corporation a copy of a certificate
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, with the original being delivered to the transfer agent (if any)
for the Series D Preferred, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated
and specifying the Conversion Ratio then in effect following such adjustment
and the increased or decreased number of shares issuable upon conversion
pursuant to Section 3.3.8, and shall set forth in reasonable detail the method
of calculation of each and a brief statement of the facts requiring such
adjustment.
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3.3.13 Reacquired Shares. Any shares of Series D Preferred
converted, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. None of such shares of Series D Preferred shall be reissued by the
Corporation.
ARTICLE V.
The Board of Directors of the Corporation shall consist of not
more than six members. Election of directors need not be by written ballot.
ARTICLE VI.
1. Indemnification of Directors and Officers. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason of the fact
that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. For purposes of
this Article VI, any person who, pursuant to a provision in this Certificate of
Incorporation, exercises or performs any of the powers or duties conferred or
imposed upon the board of directors of the Corporation shall be entitled to all
the benefits conferred upon directors and officers of the Corporation
(including without limitation, the right to indemnification and advancement of
expenses) set forth in this Article VI.
2. Derivative Actions. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, provided that no indemnification shall
be made in respect of any claim, issue or matter as to which
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such person shall have been adjudged to be liable to the Corporation unless and
only to the extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
3. Indemnification in Certain Cases. To the extent that
a director, officer, employee or agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in Sections 1 and 2 of this Article VI, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
4. Procedure. Any indemnification under Sections 1 and
2 of this Article VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in such Sections 1 and 2. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
direct, by independent legal counsel in a written opinion, or (c) by the
stockholders.
5. Advances for Expenses. Expenses incurred in
defending a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall be ultimately
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VI.
6. Rights Not-Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of this Article VI shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
7. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article VI.
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8. Definition of Corporation. For the purposes of this
Article VI, references to "the Corporation" include all constituent
corporations absorbed in a consolidation or merger as well as the resulting or
surviving corporation so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article VI with respect to the resulting
or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity.
9. Survival of Rights. The indemnification and
advancement of expenses provided by, or granted pursuant to this Article VI
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. No subsequent amendment of this Article VI shall diminish the rights
hereunder of any director or officer with respect to any action taken or claim
made prior to such amendment.
ARTICLE VII.
No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the GCL or (iv) for any transaction from which
the director derived an improper personal benefit. For purposes of the prior
sentence, the term "damages" shall, to the extent permitted by law, include
without limitation, any judgment, fine, amount paid in settlement, penalty,
punitive damages, excise or other tax assessed with respect to an employee
benefit plan, or expense of any nature (including, without limitation, counsel
fees and disbursements). Each person who serves as a director of the
Corporation while this Article VII is in effect shall be deemed to be doing so
in reliance on the provisions of this Article VII, and neither the amendment or
repeal of this Article VII, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Article VII, shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for, arising out of, based upon, or in connection with any acts or
omissions of such director occurring prior to such amendment, repeal, or
adoption of an inconsistent provision. The provisions of this Article VI are
cumulative and shall be in addition to and independent of any and all other
limitations on or eliminations of the liabilities of directors of the
Corporation, as such, whether such limitations or eliminations arise under or
are created by any law, rule, regulation, by-law, agreement, vote of
stockholders or disinterested directors, or otherwise. If the GCL is hereafter
amended to permit further elimination or limitation of the personal liability
of directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the GCL as so amended.
Any repeal or modification of this Article VII by the stockholders of the
Corporation or otherwise shall not adversely affect any right or protection of
a director of the Corporation existing at the time of such repeal or
modification. For purposes of this Article VII, all references to a director
shall also be deemed to refer to any person or persons, if any, who, pursuant
to a provision
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<PAGE> 37
of this Restated Certificate of Incorporation, exercise or perform any of the
powers or duties otherwise conferred or imposed upon the board of directors of
the Corporation.
IN WITNESS WHEREOF, Hollywood Theater Holdings, Inc. has
caused this Restated Certificate of Incorporation to be signed and attested by
its duly authorized officers, this ___ day of December, 1997.
HOLLYWOOD THEATER HOLDINGS, INC.
/s/ James R. Featherstone
-------------------------------
James R. Featherstone
Vice President, Chief Financial Officer
ATTEST:
- ------------------------------------
-37-
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF INCORPORATION
OF
CROWN THEATRE CORPORATION
THE UNDERSIGNED, being a natural person of the age of 18
years or more, and acting as the incorporator of a corporation to be organized
pursuant to the provisions of The General and Business Corporation law of
Missouri, Chapter 351 of the Missouri Revised Statutes, does hereby adopt the
following Articles of Incorporation:
ARTICLE I
The name of the Corporation is Crown Theatre Corporation.
ARTICLE II
The address of the initial registered office of the
Corporation in the State of Missouri is 1100 Main, 2700 City Center Square,
P.O. Box 26010, Kansas City, Missouri 65196. The initial registered agent of
the Corporation at such address is LT Agent Services, Inc.
ARTICLE III
The aggregate number of shares which the Corporation shall
have authority to issue is 30,000, all having a par value of One Dollar each,
and all of which are of one class and are designated as Common Stock.
ARTICLE IV
The Corporation is formed for the following purposes:
(1) To own and operate all facets of the movie theatre
business and activities related thereto; and
(2) To engage in any lawful act or activity for which
corporations may be organized under The General and Business
Corporation Law of Missouri.
<PAGE> 2
ARTICLE V
The name and place of residence of the incorporator are as
follows:
<TABLE>
<CAPTION>
NAME RESIDENCE
---- ---------
<S> <C>
Richard M. Durwood 6100 Mission Drive
Shawnee Mission, KS 66208
</TABLE>
ARTICLE VI
The number of directors to constitute the first Board of
Directors of the Corporation is two. Thereafter, the number of directors of the
Corporation shall be fixed by, or in the manner provided in, its Bylaws. Any
changes in the number of directors shall be reported to the Secretary of State
of the State of Missouri within thirty calendar days of such change.
The persons constituting the first Board of Directors are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Richard M. Durwood 6100 Mission Drive
Shawnee Mission, KS 66208
Maureen W. Durwood 6100 Mission Drive
Shawnee Mission, KS 66208
</TABLE>
ARTICLE VII
The duration of the Corporation is to be perpetual.
ARTICLE VIII
Each share of the Corporation shall entitle the holder
thereof to a preemptive right, for a period of thirty days, to subscribe for,
purchase, or otherwise acquire any shares of the same class of the Corporation
or any equity or voting shares of any class of the Corporation which the
Corporation proposes to issue or any rights or options which the Corporation
proposes to grant for the purchase of shares of the same class of the
Corporation or of equity or voting shares of any class of the Corporation or
for the purchase of any shares, bonds, securities, exchangeable for, or which
carry any rights, to subscribe for, purchase, or otherwise acquire shares of
the same class of the Corporation, whether now or hereafter authorized or
created, whether having unissued or treasury
<PAGE> 3
status, and whether the proposed issue, reissue, transfer, or grant is for
cash, property, or any other lawful consideration; and after the expiration of
said thirty days, any and all of such shares, rights, options, bonds,
securities or obligations of the Corporation may be issued, reissued,
transferred, or granted by the Board of Directors, as the case may be, to such
persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine. As used herein, the terms "equity shares" and "voting shares"
shall mean, respectively, shares which confer unlimited dividend rights and
shares which confer unlimited voting rights in the election of one or more
directors.
ARTICLE IX
The Board of Directors may make, alter, and repeal the Bylaws
of the Corporation, except any Bylaw the control over which is vested in the
shareholders entitled to vote under the provisions of The General and Business
Corporation Law of Missouri.
ARTICLE X
The private property of the shareholders of this Corporation
shall not be subject to the payment of corporate debts, except to the extent of
any unpaid balance of subscription for shares.
ARTICLE XI
The Corporation shall have the power to indemnify officers,
directors, employees and agents to the extent permitted by its Bylaws, as
amended from time to time.
IN TESTIMONY WHEREOF, I have hereunto subscribed by name this
28th day of November, 1989.
/s/ Richard M. Durwood
-----------------------------------------
Richard M. Durwood, Incorporator
<PAGE> 4
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
I, the undersigned, a notary public, do hereby certify that on the
_____ day of ______________, 1997, personally appeared before me, Richard M.
Durwood, who being by me first duly sworn, declared that he is the person who
signed the foregoing document as incorporator, and that the statements therein
contained are true.
------------------------------------------
Notary Public
(SEAL)
My commission expires:
- --------------------------
<PAGE> 1
EXHIBIT 3.5
BY-LAWS OF
HOLLYWOOD THEATER HOLDINGS, INC.
(A Delaware Corporation)
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office in
the State of Delaware shall be in care of The Corporation Trust Company,
Corporate Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801, and said corporation shall be the registered agent of
Hollywood Theater Holdings, Inc. (the "Corporation") in charge thereof.
SECTION 2. Other Offices. The Corporation may also have
an office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors shall
from time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. Place of Meetings. All meetings of the
stockholders for the election of directors or for any other purpose shall be
held at any such place, either within or without the State of Delaware, as
shall be designated from time to time by the Board of Directors and stated in
the notice of meeting or in a duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of
stockholders shall be held at such date and time as shall be designated from
time to time by the Board of Directors and stated in the notice of meeting or
in a duly executed waiver thereof subject to the terms and conditions of the
Shareholders' Agreement (as defined below). At such annual meeting, the
stockholders shall elect, by a plurality vote, a Board of Directors and
transact such other business as may properly be brought before the meeting.
SECTION 3. Special Meetings. Special meetings of
stockholders, unless otherwise prescribed by statute, may be called at any time
by the Board of Directors or the Chairman of the Board, if one shall have been
elected, or the President and shall be called by the Secretary upon the
<PAGE> 2
request in writing of a stockholder or stockholders holding of record at least
25% of the voting power of the issued and outstanding shares of stock of the
Corporation entitled to vote at such meeting.
SECTION 4. Notice of Meetings. Except as otherwise
expressly required by statute, written notice of each annual and special
meeting of stockholders stating the date, place and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given to each stockholder of record entitled to vote
thereat not less than ten nor more than sixty days before the date of the
meeting. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice. Notice shall be given personally
or by mail and, if by mail, shall be sent in a postage prepaid envelope,
addressed to the stockholder at his address as it appears on the records of the
Corporation. Notice by mail shall be deemed given at the time when the same
shall be deposited in the United States mail, postage prepaid. Notice of any
meeting shall not be required to be given to any person who attends such
meeting, except when such person attends the meeting in person or by proxy for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.
SECTION 5. List of Stockholders. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
showing the address of and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city, town or village where the meeting is to be held, which place shall be
specified in the notice of meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 6. Quorum: Adjournments. The holders of a
majority of the voting power of the issued and outstanding stock of the
Corporation entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all
meetings of stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented by proxy at any meeting of stockholders, the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented by
proxy. At such adjourned meeting at which a quorum shall be present or
represented by proxy, any business may be transacted which might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty days, or, if after adjournment a new record date is set, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
2
<PAGE> 3
SECTION 7. Organization. At each meeting of
stockholders, the Chairman of the Board, if one shall have been elected, or, in
his absence or if one shall not have been elected, the President, shall act as
chairman of the meeting. The Secretary or, in his absence or inability to act,
the person whom the chairman of the meeting shall appoint secretary of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
SECTION 8. Order of Business. The order of business at
all meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 9. Voting. Except as otherwise provided by
statute or by the Certificate of Incorporation or by the Shareholders' And
Voting Agreement, dated as of October 3, 1996, by and among the Corporation,
The Beacon Group III - Focus Value Fund, L.P. and the other shareholders who
are parties thereto (the "Shareholders' Agreement), each stockholder of the
Corporation shall be entitled at each meeting of stockholders to one vote for
each share of capital stock of the Corporation standing in his name on the
record of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions
of Section 7 of Article V of these By-Laws as the record date
for the determination of the stockholders who shall be
entitled to notice of and to vote at such meeting; or
(b) if not such record date shall have been so
fixed, then at the close of business on the day next preceding
the day on which notice thereof shall be given, or, if notice
is waived, at the close of business on the date next preceding
the date on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, including, without limitation, by the terms and
conditions of the Shareholders' Agreement, but no proxy shall be voted after
three years from its date, unless the proxy provides for a longer period. Any
such proxy shall be delivered to the secretary of the meeting at or prior to
the time designated in the order of business for so delivering such proxies.
When a quorum is present at any meeting, the vote of the holders of a majority
of the voting power of the issued and outstanding stock of the Corporation
entitled to vote thereon, present in person or represented by proxy, shall
decide any question brought before such meeting, unless the question is one
upon which by express provision of statute or of the Certificate of
Incorporation or of these By-Laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Unless required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
SECTION 10. Inspectors. The Board of Directors may, in
advance of any meeting of stockholders, appoint one or more inspectors to act
at such meeting or any adjournment thereof. If any of the inspectors so
appointed shall fail to appear or act, the chairman of the meeting shall,
3
<PAGE> 4
or if inspectors shall not have been appointed, the chairman of the meeting
may, appoint one or more inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as an inspector
of an election of directors. Inspectors need not be stockholders.
SECTION 11. Action by Consent. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or
in connection with any corporate action, by any provision of statute or of the
Certificate of Incorporation or of these By-Laws, the meeting and vote of
stockholders may be dispensed with, and the action taken without such meeting
and vote, if stockholders representing at least that percentage of the voting
power necessary to approve the action consent thereto in a writing setting
forth the action so taken.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers
of the Corporation and do all such lawful acts and things as are not by statute
or the Certificate of Incorporation directed or required to be exercised or
done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of
Office. The number of directors constituting the Board of Directors shall be
no more than five and, shall be subject to the terms and conditions of the
Shareholders' Agreement. The number of directors may be fixed, from time to
time, by the affirmative vote of a majority of the entire Board of Directors or
by action of the stockholders of the Corporation. Any decrease in the number
of directors shall be effective at the time of the next succeeding annual
meeting of stockholders unless there shall be vacancies in the Board of
Directors, in which case such decrease may become effective at any time prior
to the next succeeding annual meeting to the extent of the number of such
vacancies. Directors need not be stockholders. Except as otherwise provided
by statute, the Shareholders' Agreement or these By-Laws, the directors (other
than members of the initial Board of Directors) shall be elected at the annual
meeting of stockholders. Except as otherwise provided for in the Shareholders'
Agreement,
4
<PAGE> 5
each director shall hold office until his successor shall have been elected and
qualified, or until his death, or until he shall have resigned, or have been
removed, as hereinafter provided in these By-Laws.
SECTION 3. Place of Meetings. Meetings of the Board of
Directors shall be held at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time determine or as shall
be specified in the notice of any such meeting.
SECTION 4. Annual Meeting. The Board of Directors shall
meet for the purpose of organization, the election of officers and the
transaction of other business, as soon as practicable after each annual meeting
of stockholders, on the same day and at the same place where such annual
meeting shall be held. Except as otherwise provided for in the Shareholders'
Agreement, notice of such meeting need not be given. In the event such annual
meeting is not so held, the annual meeting of the Board of Directors may be
held at such other time or place (within or without the State of Delaware) as
shall be specified in a notice thereof given as hereinafter provided in Section
7 of this Article III.
SECTION 5. Regular Meetings. Except as otherwise
provided for in the Shareholders' Agreement, regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise
be held on that day shall be held at the same hour on the next succeeding
business day. Notice of regular meetings of the Board of Directors need not be
given except as otherwise required by statute or these By-Laws or by the
Shareholders' Agreement.
SECTION 6. Special Meetings. Special meetings of the
Board of Directors may be called by the Chairman of the Board, any Vice
Chairman, or by two or more directors of the Corporation or by the President or
as otherwise provided for in the Shareholders' Agreement.
SECTION 7. Notice of Meetings. Notice of each special
meeting of the Board of Directors (and of each regular meeting for which notice
shall be required) shall be given by the Secretary as hereinafter provided in
this Section 7, in which notice shall be stated the time and place of the
meeting. Except as otherwise required by these By- Laws, such notice need not
state the purposes of such meeting. In addition to any requirements of the
Shareholders' Agreement, notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first class mail, at least ten days before the day on which such
meeting is to be held. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of notice or who shall attend such meeting, except when he shall attend for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. Quorum and Manner of Acting. Except as
otherwise provided for in the Shareholders' Agreement, a majority of the entire
Board of Directors shall constitute a quorum
5
<PAGE> 6
for the transaction of business at any meeting of the Board of Directors.
Except as otherwise expressly required by statute or the Certificate of
Incorporation, the Shareholders' Agreement or these By-Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and
place of any such adjourned meeting shall be given to all of the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only
as a Board and the individual directors shall have no power as such.
SECTION 9. Organization. At each meeting of the Board
of Directors, the Chairman of the Board, or, in the absence of the Chairman of
the Board or if one shall not have been elected, a Vice Chairman (in the order
of seniority if there is more than one), or in the absence of a Vice Chairman
or if none shall have been elected, the President (or, in his absence, another
director chosen by a majority of the directors present) shall act as chairman
of the meeting and preside thereat. The Secretary or, in his absence, any
person appointed by the chairman shall act as secretary of the meeting and keep
the minutes thereof.
SECTION 10. Resignations. Any director of the
Corporation may resign at any time by giving written notice of his resignation
to the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 11. Vacancies. Except as otherwise provided by
the Shareholders' Agreement, any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase
in the number of directors or any other cause, may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof. Each director so elected shall hold
office until his successor shall have been elected and qualified.
SECTION 12. Removal of Directors. Except as otherwise
provided by the Shareholders' Agreement, any director may be removed, either
with or without cause, at any time, by the holders of a majority of the voting
power of the issued and outstanding capital stock of the Corporation entitled
to vote at an election of directors.
SECTION 13. Compensation. Except as otherwise provided
by the Shareholders' Agreement, the Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity.
6
<PAGE> 7
SECTION 14. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, including an executive committee, each committee to consist
of one or more of the directors of the Corporation. Subject to the
requirements of the Shareholders' Agreement, the Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Except to the extent restricted by statute or the Certificate of Incorporation,
each such committee, to the extent provided in the resolution creating it,
shall have and may exercise all the powers and authority of the Board of
Directors and may authorize the seal of the Corporation to be affixed to all
papers which require it. Each such committee shall serve at the pleasure of
the Board of Directors and have such name as may be determined from time to
time by resolution adopted by the Board of Directors. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors.
SECTION 15. Action by Consent. Unless restricted by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, s the
case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the
Certificate of Incorporation, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment, by means of which all persons participating in the meeting can her
each other. Participation by such means shall constitute presence in person at
a meeting.
ARTICLE IV
Officers
SECTION 1. Number and Qualifications. The officers of
the Corporation shall be elected by the Board of Directors and shall include a
Chairman of the Board, one or more Vice Chairmen, the President, one or more
Vice-Presidents, the Secretary and the Treasurer. If the Board of Directors
wishes, it may also elect other officers (including one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
desirable for the business of the
7
<PAGE> 8
Corporation. Any two or more offices may be held by the same person, and no
officer except the Chairman of the Board or a Vice Chairman need be a director.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified, or until his death, or until he shall have resigned
or have been removed, as hereinafter provided in these By-Laws.
SECTION 2. Resignations. Any officer of the Corporation
may resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may
be removed, either with or without cause, at any time, by the Board of
Directors at any meeting thereof.
SECTION 4. Chairman of the Board. The Chairman of the
Board shall be a member of the Board of Directors, the chief executive officer
of the Corporation and, if present, shall preside at each meeting of the Board
of Directors or the stockholders. He shall also perform such other duties as
may from time to time be assigned to him by the Board of Directors.
SECTION 5. Vice Chairman. The Vice Chairman shall, in
the order of their election, be the next ranking officers of the Corporation
behind the Chairman of the Board. In the absence of the Chairman of the Board,
a Vice Chairman shall preside at meetings of the Board of Directors or the
stockholders. Each Vice Chairman shall also perform such other duties as may
from time to time be assigned to him by the Board of Directors.
SECTION 6. The President. The President shall be the
chief operating officer of the Corporation. He shall, in the absence of the
Chairman of the Board and all Vice Chairman preside at each meeting of the
Board of Directors or the stockholders. He shall perform all duties incident
to the Office of the President and chief operating officer and such other
duties as may from time to time be assigned to him by the Board of Directors.
SECTION 7. Vice-President. Each Vice-President shall
perform all such duties as from time to time may be assigned to him by the
Board of Directors or any senior officer. At the request of the President or
in his absence or in the event of his inability or refusal to act, the
Vice-President, or if there shall be more than one, the Vice-Presidents in the
order determined by the Board of Directors (or if there be no such
determination, then the Vice-Presidents in the order of their election), shall
perform the duties of the President, and, when so acting, shall have the powers
of and be subject to the restrictions placed upon the President in respect of
the performance of such duties.
SECTION 8. Treasurer. The Treasurer shall:
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<PAGE> 9
(a) have charge and custody of, and be
responsible for, all the funds and securities of the
Corporation;
(b) keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the
credit of the Corporation in such depositaries as may be
designated by the Board of Directors or pursuant to its
discretion;
(d) receive, and give receipts for, monies due
and payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investments of its funds, taking proper vouchers
therefor;
(f) render to the Board of Directors, whenever
the Board of Directors may require, an account of the
financial condition of the Corporation; and
(g) in general, perform all duties incident to
the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board of Directors.
SECTION 9. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the
Board of Directors, the committees of the Board of Directors
and the stockholders;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as
required by law;
(c) be custodian of the records and the seal of
the Corporation and affix and attest the seal to all
certificates for shares of the Corporation (unless the seal of
the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation
under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law
to be kept and filed are properly kept and filed; and
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<PAGE> 10
(e) in general, perform all duties incident to
the office of Secretary and such other duties as from time to
time may be assigned to him by the Board of Directors.
SECTION 10. The Assistant Treasurer. The Assistant
Treasurer, or, if there shall be more than one, the Assistant Treasurers in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence of
the Treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties as from time to time may be assigned by the Board of Directors.
SECTION 11. The Assistant Secretary. The Assistant
Secretary, or, if there be more than one, the Assistant Secretaries in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence of
the Secretary or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties as from time to time may be assigned by the Board of Directors.
SECTION 12. Officers' Bonds or Other Security. If
required by the Board of Directors, any officer of the Corporation shall, at
the Company's expense unless otherwise determined by the Board of Directors,
give a bond or other security for the faithful performance of his duties, in
such amount and with such surety as the Board of Directors may require.
SECTION 13. Compensation. The compensation of the
officers of the Corporation for their services as such officers shall be fixed
from time to time by the Board of Directors. An officer of the Corporation
shall not be prevented from receiving compensation by reason of the fact that
he is also a director of the Corporation.
SECTION 14. Execution of Contracts. Each of the Chairman
of the Board, any Vice Chairman, the President, and any Vice President, shall
have, unless otherwise determined by the Board of Directors, like authority to
execute on behalf of the Corporation contracts, documents and instruments not
requiring specific authorization by the Board of Directors.
ARTICLE V
Stock Certificates and Their Transfer
SECTION 1. Stock Certificates. Every holder of stock in
the Corporation shall be entitled to have a certificate, signed by, or in the
name of the Corporation by, the Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation. If the Corporation shall be authorized to
issue more than one class of stock
10
<PAGE> 11
or more than one series of any class, the designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restriction of
such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, provided that, except as otherwise provided in
Section 202 of the General Corporation Law of the State of Delaware, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. Facsimile Signatures. Any or all of the
signatures on a certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
SECTION 3. Lost Certificates. The Board of Directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as it may direct
sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 4. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its records; provided, however,
that the Corporation shall be entitled to recognize and enforce any lawful
restriction on transfer including, without limitation, any applicable
provisions of the Shareholders' Agreement. Whenever any transfer of stock
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of transfer if, when the certificates are presented to
the Corporation for transfer, both the transferor and the transferee request
the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board of
Directors may appoint, or authorize any officer or officers to appoint, one or
more transfer agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make
such additional rules and regulations, not inconsistent with these By-Laws or
the Shareholders' Agreement, as it may
11
<PAGE> 12
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent
to corporate action in writing without a meting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior
to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 8. Registered Stockholders. The Corporation
shall be entitled to recognize the exclusive right of a person registered on
its records as the owner of shares of stock to receive dividends and to vote as
such owner, shall be entitled to hold liable for calls and assessments a person
registered on its records as the owner of shares of stock, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares of stock on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VI
General Provisions
SECTION 1. Dividends. Subject to the provisions of
statute and the Certificate of Incorporation, dividends upon the shares of
capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting. Dividends may be paid in cash, in property or
in shares of stock of the Corporation, unless otherwise provided by statute or
the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors may, from time to time, in
its absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation or for such other purpose as the Board of Directors
may think conducive to the interests of the Corporation. The Board of
Directors may modify or abolish any such reserves in the manner in which it was
created.
SECTION 3. Seal. The seal of the Corporation shall be
in such form as shall be approved by the Board of Directors.
12
<PAGE> 13
SECTION 4. Fiscal Year. The fiscal year of the
Corporation shall be fixed, and once fixed, may thereafter be changed, by
resolution of the Board of Directors.
SECTION 5. Checks, Notes, Drafts, Etc. All checks,
notes, drafts or other orders for the payment of money of the Corporation shall
be signed, endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the Board
of Directors or by an officer or officers authorized by the Board of Directors
to make such designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The
Board of Directors may authorize any officer or officers, agent or agents, in
the name and on behalf of the Corporation to enter into or execute and deliver
any and all deeds, bonds, mortgages, contracts and other obligations or
instruments, and such authority may be general or confined to specific
instances.
SECTION 7. Voting of Stock in Other Corporations.
Unless otherwise provided by resolution of the Board of Directors, the Chairman
of the Board or the President, from time to time, may (or may appoint one or
more attorneys or agents to) cast the votes which the Corporation may be
entitled to cast as a shareholder or otherwise in any other corporation, any of
whose shares or securities may be held by the Corporation, at meetings of the
holders of the shares or other securities of such other corporation. In the
event one or more attorneys or agents are appointed, the Chairman of the Board
or the President may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent. The Chairman of the Board
or the President may, or may instruct the attorneys or agents appointed to,
execute or cause to be executed in the name and on behalf of the Corporation
and under its seal or otherwise, such written proxies, consents, waivers or
other instruments as may be necessary or proper in the circumstances.
ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new by-laws
adopted by action of the stockholders entitled to vote thereon at any annual or
special meeting of stockholders; provided that no such amendment, repeal or
adoption shall modify, amend or supersede any of the rights or obligations set
forth in the Shareholders' Agreement.
13
<PAGE> 14
AMENDMENT TO THE BY-LAWS
OF
HOLLYWOOD THEATER HOLDINGS, INC.
ADOPTED BY THE STOCKHOLDERS
ON MAY 13, 1997
ARTICLE III
BOARD OF DIRECTORS
Section 2. Number, Qualifications, Election and Term of
Office. The number of directors constituting the Board of Directors shall be
no more than six and, shall be subject to the terms and conditions of the
Shareholders' Agreement.
14
<PAGE> 1
EXHIBIT 3.6
BYLAWS
OF
CROWN THEATRE CORPORATION
(A Missouri Corporation)
Offices and Records
1. Registered Office and Registered Agent. The location of the
registered office and the name of the registered agent of the
Corporation in the State of Missouri shall be as determined from time
to time by the Board of Directors and on file in the appropriate
office of the State of Missouri pursuant to applicable provisions of
law.
2. Corporate Offices. The Corporation may have such corporate
offices, anywhere within and without the State of Missouri as the
Board of Directors from time to time may appoint, or the business of
the Corporation may require. The "principal place of business" or
"principal business" or "executive" office or offices of the
Corporation may be fixed and so designated from time to time by the
Board of Directors, but the location or residence of the Corporation
in Missouri shall be deemed for all purposes to be-in the county in
which its registered office in Missouri is maintained.
3. Records. The Corporation shall keep at its registered office,
or principal place of business in Missouri, original or duplicate
books in which shall be recorded the number of its shares subscribed,
the names of the owners of its shares, -the numbers owned of record by
them respectively, the amount of shares paid and by whom, the transfer
of said shares with the date of transfer, the amount of its assets and
liabilities, the names and places of residence of its officers, and
from time to time such other or additional records, statements, lists,
and information as may be required by law, including without
limitation the shareholders lists referred to in Section 19 of these
Bylaws.
4. Inspection of Records. A shareholder, if he is entitled and
demands to Inspect the records of the Corporation pursuant to any
statutory or other legal right, shall be privileged to inspect such
records only during the usual and customary hours of business and in
such manner as will not unduly interfere with the regular conduct of
the business of the Corporation. A shareholder may delegate his right
of inspection to an attorney or a certified public accountant on the
condition, to be enforced at the option of the Corporation, that the
shareholder and the attorney or accountant agree with the Corporation
to furnish to the Corporation, promptly as completed, or made, a true
and correct copy of each report with respect to such inspection made
by such attorney or accountant. No shareholder shall use or permit to
be used or acquiesce in the use by others of any information so
obtained, to the detriment, competitively, of the Corporation, nor
shall he furnish or permit to be furnished any information so obtained
to any competitor or prospective competitor of the Corporation. The
Corporation as a condition precedent to any shareholder's inspection
of the records of
<PAGE> 2
the Corporation may require the shareholder to indemnify the
Corporation against any loss or damage which may be suffered by it
arising out of or resulting from any unauthorized disclosure made or
permitted to be made by such shareholder of information obtained in
the course of such inspection.
Seal
5. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and the words: Corporate
Seal-Missouri. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed, or in any manner reproduced.
Shareholders' Meetings
6. Place of Meetings. All meetings of the shareholders shall be
held at the principal business office of the Corporation in Missouri,
except such meetings as the Board of Directors, to the extent
permissible by law, expressly determines shall be held elsewhere, in
which case such meetings may be held, upon notice thereof as
hereinafter provided, at such other place or places, within or without
the State of Missouri, as said Board of Directors shall have
determined, and as shall be stated in such notice; and, unless
specifically prohibited by law, any meeting may be held at any place
and time, and for any purpose, if consented to in writing by all of
the shareholders entitled to vote thereat.
7. Annual Meetings. An annual meeting of shareholders shall be
held on the third Monday in July of each year, if not a legal holiday,
and if a legal holiday, then on the next secular day following, at
11:00 a.m., at which they shall elect a Board of Directors and
transact such other business as may properly be brought before the
meeting.
8. Special Meetings. Special meetings of the shareholders may be
held for any purpose or purposes. They may be called by the Chairman
of the Board, the President, the Secretary, the Board of Directors, or
upon the written request of the holders of not less than one-fifth of
all outstanding shares entitled to vote at any such meeting.
9. Action in Lieu of Meeting. Any action required to be taken at
a meeting of the shareholders or any other action which may be taken
at a meeting of the shareholders may be taken without a meeting if
consents in writing setting forth the action so taken shall be signed
by all of the shareholders entitled to vote with respect to the
subject matter thereof.
The "call" and the "notice" of any such meeting, shall be deemed to be
synonymous.
10. Notice. Written or printed notice of each meeting of the
shareholders, whether annual or special, stating the place, day and hour
of the meeting, and, in case of a special meeting, the purpose or
purposes thereof, shall be delivered or given to each shareholder
entitled to vote thereat, not less than ten days nor more than fifty
days prior to the meeting, unless, as to a particular matter, other or
further notice is required by law, in which case such other or further
notice shall be given. In addition to such written notice, published
notice shall be given in the
<PAGE> 3
manner then required by law.
Any notice of a shareholders, meeting sent by mail shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid
addressed to the shareholder at his address as it appears on the records of the
Corporation.
11. Presiding Officials. Every meeting of the Corporation, for whatever
object, shall be convened by the Chairman of the Board, or by the
officer or person who called the meeting by notice as above provided;
provided, however, it shall be presided over by the officers specified
in Sections 39 and 40 of these Bylaws; and provided, further, the
shareholders at any meeting, by a majority vote in amount of shares
represented thereat, and notwithstanding anything to the contrary
elsewhere in these Bylaws, may select any persons of their choosing to
act as Chair-..; man and Secretary of such meeting or any session
thereof.
12. Waiver of Notice. Whenever any notice is required to be given under
the provisions of these Bylaws, or the Articles of Incorporation of the
Corporation or any law, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed the equivalent to the giving of such
notice.
To the extent provided by law, attendance at any meeting shall
constitute a waiver of notice of such meeting.
13. Business Which May Be Transacted At Annual Meetings. At each annual
meeting of the shareholders, the shareholders shall elect, by ballot, a
Board of Directors to hold office until the next succeeding annual
meeting, and they may transact such other business as may be desired,
whether or not the same was specified in the notice of the meeting,
unless the consideration of such other business without its having been
specified in the notice of the meeting as one of the purposes thereof is
prohibited by law.
14. Business Which May Be Transacted At Special Meetings. Business
transacted at all special meetings shall be confined to the purposes
stated in the notice of such meetings, unless the transaction of other
business is consented to by the holders of all of the outstanding shares
of stock of the Corporation entitled to vote thereat.
15. Quorum. Except as otherwise may be provided by law or by the Articles
of Incorporation, the holders of a majority of the voting shares issued
and outstanding, and entitled to vote thereat, present in person or by
proxy, shall be requisite for and shall constitute a quorum, at all
meetings of the shareholders, for the transaction of business. Every
decision of a majority in amount of shares of such quorum shall be valid
as a corporate act, except in those specific instances in which a larger
vote is required by law or by the Articles of Incorporation. If,
however, such quorum should not be present at any meeting, the
shareholders present and entitled to vote shall have power successively
to adjourn the meeting, without notice other than announcement at the
meeting, to a specified date not longer than ninety days after such
adjournment. At such adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the
meeting as originally noticed.
<PAGE> 4
16. Proxies. At any meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person, or by proxy
executed in writing by such shareholder or by his duly authorized
attorney-in-fact. No proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided in the proxy.
17. Voting. Each shareholder shall have one vote for each share of stock
entitled to vote under the provisions of the Articles of Incorporation
which is registered in his name on the books of the Corporation; but in
the election of directors, cumulative voting shall prevail, that is to
say, each shareholder shall have the right to cast as many votes in the
aggregate as shall equal the number of voting shares so held by him,
multiplied by the number of directors to be elected at such election,
and the shareholder may cast the whole number of such votes for one or
more candidates. Directors shall not be elected in any other manner,
unless such cumulative voting be unanimously waived by all shareholders
present, in person or by proxy, and such waiver be permitted by law.
No person shall be admitted to vote on any shares belonging or
hypothecated to the Corporation.
If the Board of Directors shall not have closed the transfer books of
the Corporation or set a record date for the determination of its shareholders
entitled to vote, as provided in Section 57 of these Bylaws, no person shall be
admitted to vote directly or by proxy except those in whose names the shares of
the Corporation shall have stood on the transfer books on a date fifty days
previous to the date of the meeting.
18. Registered Shareholders, Exceptions, Stock Ownership Presumed.
The Corporation shall be entitled to treat the holder of any share or
shares of stock of the Corporation, as recorded on the stock record or
transfer books of the Corporation, as the holder of record and as the
holder and owner in fact thereof and, accordingly, shall not be
required to recognize any equitable or other claim to or interest in
any such shares on the part of any other person, firm, partnership,
corporation or association, whether or not the Corporation shall have
express or other notice thereof, except as is otherwise expressly
required by law, and the term "shareholder" as used in these Bylaws
means one who is a holder of record of shares of the Corporation;
provided, however, that if permitted by law, the following exceptions
thereto shall apply:
(i) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as
the bylaws of such corporation prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may
determine.
(ii) Shares standing in the name of a deceased person may
be voted by his personal representative, either in person or by proxy;
and shares standing in the name of a conservator, or trustee may be
voted by such fiduciary, either in person or by proxy, but no
conservator or trustee shall be entitled, as such fiduciary, to vote
shares held by him without a transfer of such shares into his name.
<PAGE> 5
(iii) Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer thereof
into his name if authority so to do be contained in an appropriate
order of the court by which such receiver was appointed.
(iv) A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred of
record into the name of the pledgee, and thereafter the pledgee shall
be entitled to vote the shares so transferred.
19. Shareholders Lists. A complete list of the shareholders
entitled to vote at each meeting of the shareholders, arranged in
alphabetical order, with the address of, and the number of voting
shares held by each, shall be prepared by the officer of the
Corporation having charge of the stock transfer books of the
Corporation, and shall for a period of ten days prior to the meeting
be kept on file in the registered office of the Corporation in
Missouri, and shall at any time during the usual hours for business be
subject to inspection by any shareholder. A similar or duplicate list
shall also be produced and kept open for the inspection of any
shareholder during the whole time of the meeting. The original share
ledger or transfer book, or a duplicate thereof kept in the State of
Missouri, shall be prima facie evidence as to who are shareholders
entitled to examine such list, ledger or transfer book or to vote at
any meeting of shareholders.
Failure to comply with the foregoing shall not affect the validity of
any action taken at any such meeting.
20. Removal of Directors. The shareholders shall have the power
by a majority vote of the holders of shares at any meeting, expressly
called for that purpose, to remove any director from office with or
without cause. Such meeting must be held at the registered office or
principal business office of the Corporation in the State of Missouri
or in the city or county in the State of Missouri in which the
principal business office of the Corporation is located. If less than
the entire Board is to be removed, no one of the directors may be
removed if the votes cast against his removal would be sufficient to
elect him if then cumulatively voted at an election of the entire
Board of Directors.
Any director may be removed for cause by action of a majority of the
entire Board of Directors if the director to be removed shall, at the time of
removal, fail to meet any qualifications stated in the Articles of
Incorporation or these Bylaws for election as a director or shall be in breach
of any agreement between such director and the Corporation relating to such
director's services as a director or employee of the Corporation. Notice of
the proposed removal shall be given to all directors prior to action thereon.
Directors
21. Qualifications and Number. Each director shall be a natural
person of full age. A director need not be a citizen of the United
States or a resident of the State of Missouri.
<PAGE> 6
The number of directors which shall constitute the whole Board shall
be no less than one nor more than three. Within the above specified limit, the
number of directors shall be determined by resolution of the Board of Directors
or by the shareholders so electing the directors. The size of the Board shall
remain constant unless changed pursuant to this paragraph. If the number of
directors stated in the Articles of Incorporation is three or more, then any
change decreasing the number of directors to serve on the Board to less than
three may only be accomplished by amending the Articles of Incorporation to
state the desired number of directors. If the number of directors stated in
the Articles of Incorporation is less than three, then any change in the number
of directors to serve on the Board, except a change to increase the number of
directors to three or more, may only be accomplished by amending the Articles
of Incorporation to state the desired number of directors. If an amendment to
the Articles of Incorporation is not so required to change the number of
directors, any change shall be reported to the Secretary of State of Missouri
within thirty days of such change.
22. Powers of the Board. The property and business of the
Corporation shall be managed by the directors, acting as a Board. The
Board shall have and is vested with all and unlimited powers and
authorities, except as may be expressly limited by law, the Articles
of Incorporation or by these Bylaws, to do or cause to be done any and
all lawful things for and in behalf of the Corporation, to exercise or
cause to be exercised any or all of its powers, privileges and
franchises, and to seek the effectuation of its objects and purposes.
23. Meetings of the Newly-Elected Board, Notice. The members of
each newly-elected Board shall meet:
(i) at such time and place, either within or without the
State of Missouri, as shall be suggested or provided for by resolution
of the shareholders at the annual meeting, and no notice of such
meeting shall be necessary to the newly-elected directors in order
legally to constitute the meeting, provided a quorum shall be present;
(ii) if not so suggested or provided for by resolution of
the shareholders or if a quorum shall not be present, the members of
such Board may meet at such time and place as shall be consented to in
writing by a majority of the newly-elected directors; provided,
written or printed notice of such meeting shall be mailed, sent by
telegram or delivered to each of the same directors in the same manner
as provided in Section 25 of the Bylaws with respect to the giving of
notice for special meetings of the Board, except that it shall not be
necessary to state the purpose of the meeting in such notice; or
(iii) regardless of whether or not the time and place of
such meeting shall be suggested or provided for by resolution of the
shareholders at the annual meeting, the members of such Board may meet
at such time and place as shall be consented to in writing by all of
the newly-elected directors.
Each director, upon his election, shall qualify by accepting the office of
director, and his attendance at, or his written approval of the minutes of, any
meeting of the newly-elected directors shall
<PAGE> 7
constitute his acceptance of such office; or he may execute such acceptance by
a separate writing, which shall be placed in the corporate minute book.
24. Regular Meetings, Notice. Regular meetings of the Board may
held without notice at such times and places either within or without
the State of Missouri as shall from time to time be fixed by
resolution adopted by the full Board of Directors. Any business may
be transacted at a regular meeting.
25. Special Meetings, Notice. Special meetings of the Board may
be called at any time by the Chairman of the Board, the President, any
Vice President or the Secretary, or by any one or more of the
directors. The place may be within or without the State of Missouri
as designated in the notice.
Written or printed notice of each special meeting of the Board,
stating the place, day and hour of the meeting and the purpose or purposes
thereof, shall be mailed to each director at least three days before the day on
which the meeting is to be held, or shall be sent to him by telegram, or be
delivered, at least two days before the day on which the meeting is to be held.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail with postage thereon, addressed to the director at his
residence or usual place of business. If notice be given by telegraph, such
notice shall be deemed to be delivered when the same is delivered to the
telegraph company. The notice may be given by any officer having authority to
call the meeting or by any director.
"Notice" and "Call" with respect to such meeting shall be deemed to be
synonymous.
26. Waiver. Any notice provided or required to be given to the
directors may be waived in writing by any of them whether before, at
or after the time stated therein.
Attendance of a director at any meeting s hall constitute a waiver of
notice of such meeting except when he attends for the express purpose, and so
states at the opening of the meeting, of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
27. Action in Lieu of Meetings. Unless otherwise restricted by
the Articles of Incorporation or the Bylaws or by law, any action
required to be taken at a meeting of the Board of Directors or any
other action which may be taken at a meeting of the Board of Directors
may be taken without a meeting if a consent in writing setting forth
the action so taken shall be signed, severally or collectively, by all
the directors entitled to vote with respect to the subject matter
thereof. Any such consent signed by all the directors shall have the
same effect as a unanimous vote and may be stated as such in any
document describing the action taken by the Board of Directors.
28. Meeting by Telephonic Conference or Similar Communications
Equipment. Unless otherwise restricted by the Articles of
Incorporation or these Bylaws or by law, members of the Board of
Directors of the Corporation, or any committee thereof designated by
such Board, may participate in a meeting of such Board or committee by
means of telephonic conference or similar communications equipment,
whereby all persons participating in the
<PAGE> 8
meeting can hear and speak to each other, and participation in a
meeting in such manner shall constitute presence in person at such
meeting.
29. Quorum. At all meetings of the Board, a majority of the full
Board of Directors shall, unless a greater number as to any particular
matter is required by the Articles of Incorporation or these Bylaws or
by law, constitute a quorum for the transaction of business, and the
act of a majority of the directors present at any meeting at which
there is a quorum, except as may be otherwise specifically provided by
the Articles of Incorporation or these Bylaws or by law, shall be the
act of the Board of Directors.
Less than a quorum may adjourn any meeting successively until a quorum
is present, and no notice of adjournment shall be required.
30. Vacancies. If the office of any director becomes vacant by
reason of death or resignation, a majority of the survivors or
remaining directors, though less than a quorum, may fill the vacancy
until a successor shall have been duly elected at a shareholders,
meeting.
31. Executive Committee and Other Committees. The Board of
Directors may, by resolution passed by a majority of the whole Board,
designate an executive committee or other committees, any such
committees to consist of two or more directors of the Corporation.
Any such committee, to the extent provided in said resolution, shall
have and may exercise all of the authority of the Board of Directors
in the management of the Corporation.
The committees shall keep regular minutes of their proceedings and the
same shall be recorded in the minute book of the Corporation. The Secretary or
an Assistant Secretary of the Corporation may act as secretary for any
committee if the committee so requests.
32. Compensation of Directors and Committee Members. Directors
and members of all committees shall not receive any stated salary for
their services as such, but by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board or committee; provided,
nothing herein contained shall be construed to preclude any director
or committee member from serving the Corporation in any other capacity
and receiving compensation therefor.
Officers
33. Officers, Who Shall Constitute. The officers of the
Corporation may be a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary, a Treasurer, one or more Assistant
Secretaries and one or more Assistant Treasurers. The Board shall
elect or appoint a President and Secretary at its first meeting after
such annual meeting of the shareholders. The Board then, or from time
to time, may also elect or appoint one or more of the other prescribed
officers as it shall deem advisable, but need not elect or appoint any
officers other than a President and a Secretary. The Board may, if it
desires, further identify or describe any one or more of such
officers.
<PAGE> 9
Any two or more of such offices may be held by the same person.
An officer shall be deemed qualified when he enters upon the duties of
the office to which he has been elected or appointed and furnishes any bond
required by the Board, but the Board may also require of such person his
written acceptance and promise faithfully to discharge the duties of such
office.
34. Term of Office. Each officer of the Corporation shall hold
his office for the term for which he was elected, or until he resigns
or is removed by the Board, whichever first occurs.
35. Appointment of Officers and Agents, Terms of Office. The
Board from time to time may also appoint such other officers and
agents for the Corporation as it shall deem necessary or advisable.
All appointed officers and agents shall hold their respective
positions at the pleasure of the Board or for such terms as the Board
may specify, and they shall exercise such powers and perform such
duties as shall be determined from time to time by the Board, or by an
elected officer empowered by the Board to make such determination.
36. Removal. Any officer or agent elected or appointed by the
Board of Directors, and any employee, may be removed or discharged by
the Board whenever in its judgment the best interests of the
Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
37. Salaries and Compensation. Salaries and compensation of all
elected officers of the Corporation shall be fixed, increased or
decreased by the Board of Directors but this power, except as to the
salary or compensation of the Chairman of the Board and the President
may, unless prohibited by law, be delegated by the Board of Directors
to the Chairman of the Board, the President or a committee. Salaries
and compensation of all other appointed officers and agents, and
employees of the Corporation may be fixed, increased or decreased by
the Board of Directors, but until action is taken with respect thereto
by the Board of Directors, the same may be fixed, increased or
decreased by the Chairman of the Board, the President or by such other
officer or officers as may be empowered by the Board of Directors to
do so.
38. Delegation of Authority to Hire, Discharge and Otherwise
Supervise. The Board, from time to time, may delegate to the Chairman
of the Board, the President or other officer or executive employee of
the Corporation, authority to hire, discharge and fix and modify the
duties, salary or other compensation of employees of the Corporation
under their jurisdiction, and the Board may delegate to such officer
or executive employee similar authority with respect to obtaining and
retaining for the Corporation the services of attorneys, accountants
and other experts.
39. The Chairman of the Board and the President. The Chairman of
the Board shall be the chief executive officer of the Corporation, and
the President shall be the chief operating officer, unless otherwise
designated by the Board of Directors. if there is no Chairman of the
<PAGE> 10
Board, the President shall be the chief executive officer. Except as
otherwise provided for in Section 11 of these Bylaws, the Chairman of
the Board, or in his absence, the President, shall preside at all
meetings of the shareholders and directors. Both shall have general
and active management of the business of the Corporation and shall
carry into effect all directions and resolutions of the board.
Either the Chairman of the Board or the President may execute all
bonds, notes, debentures, mortgages, contracts and other documents required to
be executed under the seal of the Corporation, and may cause the seal to be
affixed thereto, and all other instruments for and in the name of the
Corporation, except that if, by law, such instruments are required to be
executed only by the President, he shall execute them.
Either the Chairman of the Board or the President, when authorized so
to do by the Board, may execute powers of attorney from, for, and in the name
of the Corporation, to such proper person or persons as they may deem fit, in
order that thereby the business of the Corporation may be furthered or action
taken as may be deemed by them necessary or advisable in furtherance of the
interests of the Corporation.
Either the Chairman of the Board or the President, except as may be
otherwise directed by the Board, shall attend meetings of shareholders of other
corporations to represent this Corporation thereat and to vote or take action
with respect to the shares of any such corporation owned by this Corporation in
such manner as they shall deem to be for the interest of the Corporation or as
may be directed by the Board.
The Chairman of the Board and, in his absence, the President, shall
unless the Board otherwise provides, be an ex-officio a member of all standing
committees. Each shall have such general executive powers and duties of
supervision and management as are usually vested in the office of the chief
executive and chief operating officers of a corporation.
Each shall have such other or further duties and authority as may be
prescribed elsewhere in these Bylaws or from time to time by the Board of
Directors, and the Board may from time to time divide the responsibilities,
duties, and authority between them to such extent as it may deem advisable.
Notwithstanding anything to the contrary hereinabove stated, the
Chairman of the Board shall not be authorized to do any act required or
permitted by Missouri law to be done by the President of the Corporation until
his designation as chief executive officer has been filed in writing with the
Secretary of State of the State of Missouri and such notice attested to by the
Secretary of the Corporation.
40. Vice Presidents. The Vice Presidents in the order of their
seniority, as determined by the Board, shall, in the absence,
disability or inability to act of the Chairman of the Board and the
President, perform the duties and exercise the powers of the Chairman
of the Board and the President, and shall perform such other duties as
the Board of Directors shall from time to time prescribe.
<PAGE> 11
41. The Secretary and Assistant Secretaries. The Secretary shall
attend all sessions of the Board, and except as otherwise provided for
in Section 11 of these Bylaws, all meetings of the shareholders, and
shall record or cause to be recorded all votes taken and the minutes
of all proceedings in a minute book of the Corporation to be kept for
that purpose. The Secretary shall perform like duties for the
executive and other standing committees when requested by the Board or
such committee to do so.
The Secretary's principal responsibility shall be to give, or cause to
be given, notice of all meetings of the shareholders and of the Board of
Directors, but this shall not lessen the authority of others to give such
notice as is authorized elsewhere in these Bylaws.
The Secretary shall see that all books, records, lists and
information, or duplicates, required to be maintained at the registered or some
office of the Corporation in Missouri, or elsewhere, are so maintained.
The Secretary shall keep in safe custody the seal of the Corporation,
and when duly authorized to do so, shall affix the same to any instrument
requiring it, and when so affixed, the Secretary shall attest the same by his
signature.
The Secretary shall perform such other duties and have such other
authority as may be prescribed elsewhere in these Bylaws or from time to time
by the Board of Directors or the President, under whose direct supervision the
Secretary shall be.
The Secretary shall have the general duties, powers and
responsibilities of a Secretary of a corporation.
The Assistant Secretaries, in the order of their seniority, in the
absence, disability or inability to act of the Secretary, shall perform the
duties and exercise the powers of the Secretary, and shall perform such other
duties as the Board may from time to time prescribe.
42. The Treasurer and Assistant Treasurers. The Treasurer shall
have responsibility for the safekeeping of the funds and securities of
the Corporation, and shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the
Corporation. He shall keep, or cause to be kept, all other books of
account and accounting records of the Corporation, and shall deposit
or cause to be deposited all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may
be designated by the Board of Directors.
The Treasurer shall disburse, or permit to be disbursed, the funds of
the Corporation as may be ordered, or authorized generally, by the Board and
shall render to the chief executive officers of the Corporation and the
directors, whenever they may require it, an account of all his transactions as
Treasurer and of those under his jurisdiction and of the financial condition of
the Corporation.
<PAGE> 12
The Treasurer shall perform such other duties and shall have such
other responsibility and authority as may be prescribed elsewhere in these
Bylaws or from time to time by. the Board of Directors.
The Treasurer shall have the general duties, powers and responsibility
of a Treasurer of a corporation, and shall be the chief financial and
accounting officer of the Corporation.
If required by the Board, he shall give the Corporation on a bond in a
sum and with one or more sureties satisfactory to the Board for the faithful
performance of the duties of his office, and for the restoration to the
Corporation, in the case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control which belong to the Corporation.
The Assistant Treasurers in the order of their seniority shall, in the
absence, disability or inability to act of the Treasurer, perform the duties
and exercise the powers of the Treasurer, and shall perform such other duties
as the Board of Directors shall from time to time prescribe.
43. Duties of Officers May Be Delegated. If any officer of the
Corporation be absent or unable to act, or for any other reason the
Board may deem sufficient, the Board may delegate, for the time being,
some or all of the functions, duties, powers and responsibilities of
any officer to any other officer, or to any other agent or employee of
the Corporation or other responsible person, provided a majority of
the whole Board concurs therein.
Indemnification of Directors, Officers and Certain Others
44. Directors. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit, . or proceeding, whether civil,
criminal, administrative or investigative, including an action by or
in the right of the Corporation, by reason of the fact that he is or
was a director of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the defense or settlement of such action,
suit or proceeding, to the full extent permitted by Mo. Rev. Stat.
Section 351.355, et. seq., as amended.
45. Officers, Employees and Agents. The Corporation may, at the
discretion of the Board of Directors, indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative, including an action by or
in the right of the Corporation, by reason of the fact that he is or
was an officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense or
settlement of such action, suit or proceeding, to the full extent
permitted by Mo. Rev. Stat. Section 351-355, et. seq., as amended
<PAGE> 13
46. Expenses.
(i) The Corporation shall pay the director, or such
person or entity as the director may designate, on a continuing and
current basis, and in any event not later than ten business days
following receipt by the Corporation of the director's request for
reimbursement, all expenses, including attorneys fees, costs,
settlements, fines and judgments incurred by or levied upon the
director in connection with any action, suit or proceeding referred to
in Sections 44 through 52.
(ii) To the extent that an officer, employee or agent of
the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 45,
or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually and
reasonably incurred by such person in connection with the action,
suit, or proceeding.
(iii) Expenses incurred. in defending a civil or criminal
action, suit, or proceeding may be paid by the Corporation in advance
of the final disposition of the action, suit, or proceeding as
authorized by the Board of Directors in the specific case, upon
receipt of an undertaking by or on behalf of the director, officer,
employee, or agent to repay such amount if it shall ultimately be
determined that such indemnitee is not entitled to be indemnified by
the Corporation for such expenses.
47. Board Authorization. Any indemnification of directors,
officers, employees or agents under Section 45, unless ordered by a
court, shall be made by the Corporation only as authorized in the
specific case upon a determination that such indemnification is proper
in the circumstances because such director, officer, employee or agent
has met the applicable standard of conduct set forth in Mo. Rev.
Stat. Sections 351-355, et. seq., as amended. Such determination
shall be made by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the action, suit, or
proceeding, or if such a quorum is not obtainable or even if
obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or by the
shareholders.
48. Notification and Defense of Claim. Promptly after receipt by
a director, officer, employee or agent of notice of the commencement
of any action, suit or Proceeding, the director, officer, employee or
agent will, if a claim in respect thereof is to be made against the
Corporation, notify the Corporation of the commencement thereof. The
failure to promptly notify the Corporation will not relieve the
Corporation from any liability that it may have to the director,
officer, employee or agent hereunder, except to the extent the
Corporation is prejudiced in its defense of such claim as a result of
such failure. Unless otherwise requested by the Board of Directors,
written notification shall not be necessary if the director, officer,
employee or agent informs a majority of the Board of Directors of the
commencement of any such action, or, independent of such notification
by the director, officer, employee or agent, a majority of the Board
of Directors has reason to believe such
<PAGE> 14
action has been initiated or threatened. With respect to any such
action, suit or proceeding as to which the director, officer, employee
or agent notified, or is deemed to have notified, the Corporation of
the commencement thereof; the following shall apply:
(i) The Corporation will be entitled to participate
therein at its own expense.
(ii) Except as otherwise provided below, to the extent
that it may wish, the Corporation, jointly with any other indemnifying
party similarly notified, will be entitled to assume the defense
thereof with counsel reasonably satisfactory to the director, officer,
employee or agent. After notice from the Corporation to the director,
officer, employee or agent of its election so to assume the defense
thereof, the Corporation will not be liable to the director, officer,
employee or agent for any legal or other expenses subsequently
incurred by the director, officer, employee or agent in connection
with the defense thereof, other than reasonable costs of
investigation, or unless: (x) the employment of separate counsel by
the director, officer, employee or agent has been authorized by the
Corporation; (y) the director, officer, employee or agent reasonably
concludes that there may be a conflict of interest between the
Corporation and the director, officer, employee or agent in the
conduct of the defense of such action and that such conflict may lead
to exposure for the director, officer, employee or agent not otherwise
indemnifiable, and the director, officer, employee or agent notifies
the Corporation of such conclusion and decision to employ separate
counsel; or (z) the Corporation fails to employ counsel to assume the
defense of such action. The Corporation shall not be entitled to
assume the defense of any action, suit or proceeding brought by or on
behalf of the Corporation or as to which the director, officer,
employee or agent reasonably makes the conclusion provided for in
subsection (y) hereinabove.
(iii) The Corporation shall not be liable to indemnify the
director, officer, employee or agent for any amount paid in settlement
of any action or claim effected without its written consent. The
Corporation shall not settle any action or claim in any manner which
would impose any penalty or limitation on the director, officer,
employee or agent without the written consent of the director,
officer, employee or agent. Neither the Corporation nor the director,
officer, employee or agent will unreasonably withhold their consent to
any proposed settlement.
49. Not Exclusive. The indemnification provided by these Sections
44 through 52 shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under the Articles
of Incorporation, as amended from time to time, or any agreement, vote
of shareholders or disinterested directors or otherwise, both as to
action in an official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of
the heirs, executors and administrators of such person.
50. Further Indemnity. The Corporation shall have the power to
give any further indemnity, in addition to the indemnity authorized or
contemplated under Sections 44 through 52 to any person who is or was
a director, officer, employee or agent or to any person who is or was
serving at the request of the Corporation as a director, officer,
<PAGE> 15
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise; provided, that no such indemnity shall
indemnify any person from or on account of such person's conduct which
was finally adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct, or if it is determined by a final
judgment or other final adjudication by a court of competent
jurisdiction considering the question of indemnification that such
indemnification is or would be in violation of applicable law. The
Corporation may enter into indemnification agreements with each
director and officer of the Corporation whom the Board of Directors
authorizes by vote of a majority of a quorum of disinterested
directors.
51. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of Sections 44 through 52.
When, and if, the Corporation obtains such insurance coverage, the
Corporation shall not be required to maintain such insurance coverage
in effect; provided, however, that the Corporation notifies the
covered person in writing within five business days of the making of
the decision to not renew or replace such insurance policy. The
maintenance of such insurance shall not diminish, relieve or replace
the Corporation's liability for indemnification under the provisions
hereof. A claim for reimbursement hereunder, shall not be denied on
the basis that such amount may or will be covered by such insurance
policy, if such payments from the insurance company will not be made
to the covered person within ten business days of the claim for
reimbursement.
52. Definitions.
(i) For the purpose of Sections 44 through 52, references
to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of
such constituent corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise
shall stand in the same position under the provisions of Sections 44
through 52, with respect to the resulting or surviving corporation as
he would if he had served the resulting or surviving corporation in
the same capacity.
(ii) For purposes of Sections 44 through 52, the following
definitions shall apply:
The term "other enterprise" shall include employee benefit plans.
The term "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan.
The term "serving at the request of the Corporation" shall include any
service as a director
<PAGE> 16
or officer of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit plan, its
participants or beneficiaries.
A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the Corporation" as referred to in Sections 44 through
52.
Shares of Stock
53. Payment for Shares of Stock. The Corporation shall not issue
shares of stock except for money paid, labor done or property actually
received; provided, however, that shares may be issued in
consideration of valid bona fide antecedent debts. No note or
obligation given by any shareholder, whether secured by deed of trust,
mortgage or otherwise, shall be considered as payment of any part of
any share of shares.
54. Certificates for Shares of Stock. The certificates for shares
of stock of the Corporation shall be numbered, shall be in such form
as may be prescribed by the Board of Directors in conformity with law,
and shall be entered in the stock books of the Corporation as they are
issued, and such entries shall show the name and address of the
person, firm, partnership, corporation or association to whom each
certificate is issued. Each certificate shall have printed, typed or
written thereon the name of the person, firm, partnership, corporation
or association to whom it is issued and the number of shares
represented thereby, and shall be signed by the President or a Vice
President, and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation and sealed with
the seal of the Corporation, which seal may be facsimile, engraved or
printed. If the Corporation has a registrar, a transfer agent or a
transfer clerk who actually signs such certificates, the signature of
any of the other officers above mentioned may be facsimile, engraved
or printed. In case any such officer who has signed or whose
facsimile signature has been placed upon any such certificate shall
have ceased to be such officer before such certificate is issued, such
certificate may nevertheless be issued by the Corporation with the
same effect as if such officer were an officer at the date of its
issue.
55. Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate for shares of stock of the Corporation,
upon due proof of the registered owner thereof or his representatives,
by affidavit of such loss or otherwise, the President and Secretary
may issue a replacement certificate in its place, upon the Corporation
being fully indemnified therefor as it may request.
56. Transfers of Shares, Transfer Agent and Registrar. Transfers
of shares of stock shall be made on the stock record or transfer books
of the Corporation only by the person named in the stock certificate,
or by his attorney lawfully constituted in writing, and upon surrender
of the certificate therefor. The stock record book and other transfer
records shall be in the possession of the Secretary or of a transfer
agent or clerk for the Corporation. The Corporation, by resolution of
the Board, may from time to time appoint a transfer agent, and, if
desired, a registrar, under such arrangements and upon such terms and
conditions as the
<PAGE> 17
Board deems advisable. Until and unless the Board appoints some other
person, firm or corporation as its transfer agent, and upon the
revocation of any such appointment thereafter until a new appointment
is similarly made, the Secretary of the Corporation shall be the
transfer agent or clerk of the Corporation, without the necessity of
any formal action of the Board, and the Secretary shall perform all of
the duties thereof.
57. Closing of Transfer Books. The Board of Directors shall have
power to close the stock transfer books of the Corporation for a
period not exceeding fifty days preceding the date of any meeting of
the shareholders, or the date for payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion
or exchange of shares shall go into effect; provided, however, that in
lieu of closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date not exceeding fifty days preceding
the date of any meeting of shareholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of shares shall go into
effect, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, the meeting or any adjournment
thereof, or entitled to receive payment of the dividends, entitled to
the allotment of rights, or entitled to exercise the rights in respect
of the change, conversion or exchange of shares. In such case, only
the shareholders who are shareholders of record on the date of closing
of the transfer books or on the record date so fixed shall be entitled
to such notice of, and to vote at, the meeting and any adjournment
thereof, or to receive payment of the dividend, or to receive the
allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the
Corporation after the date of closing of the transfer books, or the
record date fixed as aforesaid. If the Board of Directors does not
close the transfer books or set a record date for the determination of
the shareholders entitled to notice of, and to vote at, a meeting of
shareholders, only the shareholders who are shareholders of record at
the close of business on the twentieth day preceding the date of the
meeting shall be entitled to notice of, and to vote at the meeting,
and any adjournment of the meeting; except that if prior to the
meeting, written waivers of notice of the meeting are signed and
delivered to the Corporation by all of the shareholders of record at
the time the meeting is convened, only the shareholders who are
shareholders of record at the time the meeting is convened shall be
entitled to vote at the meeting and any adjournment of the meeting.
58. Fractional Share Interests or Scrip. The Corporation may
issue fractions of a share and it may issue a certificate for a
fractional share, or by action of the Board of Directors, may issue
in lieu thereof scrip or other evidence of ownership which shall
entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or other evidence of ownership aggregating a
full share. A certificate for a fractional share shall, but scrip or
other evidence of ownership shall not unless otherwise provided by
resolution of the Board of Directors, entitle the holder to all of the
rights of a shareholder, including without limitation the right to
exercise any voting right, or to receive dividends thereon, or to
participate in any distribution of the assets of the Corporation in
the event of liquidation. The Board of Directors may cause such a
scrip or evidence of ownership, other than a certificate for a
fractional share, to be issued subject to the condition that it shall
become void if not exchanged for share certificates before a specified
date, or subject to the condition
<PAGE> 18
that the shares for which such scrip or evidence of ownership is
exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of such scrip or evidence of ownership, or
subject to any other condition which the Board of Directors may deem
advisable.
General
59. Fixing of Capital, Transfers of Surplus. Except as may be
specifically otherwise provided in the Articles of Incorporation, the
Board of Directors is expressly empowered to exercise all authority
conferred upon it or the Corporation, by any law or statute, and in
conformity therewith, relative to the following:
(i) the determination of what part of the consideration
received for shares of the Corporation shall be capital;
(ii) increasing capital;
(iii) transferring surplus to capital;
(iv) the consideration to be received by the Corporation
for its shares; and
(v) all similar or related matters;
provided, that any concurrent action or consent by or of the Corporation and
its shareholders required to be taken or given pursuant to law shall be duly
taken or given in connection therewith.
60. Dividends. Ordinary dividends upon the shares of the stock of
the Corporation, subject to the provisions of the Articles of
Incorporation, and of any applicable law or statute, may be declared
by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, in property, or in shares of its stock,
and to the extent and in the manner provided by law, out of any
available earned surplus or earnings of the Corporation.
Liquidating dividends or dividends representing a distribution of
paid-in surplus or a return of capital shall be made only when and in the
manner permitted by law.
61. Creation of Reserves. Before the payment of any dividend,
there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the directors from time to time, in
their reasonable discretion, think proper as a reserve fund or funds,
to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conclusive to the interests of
the Corporation, and the directors may abolish any such reserve in the
manner in which it was created.
62. Checks. All checks or instruments for the payment of money
and all notes of the Corporation shall be sighed by such officer or
officers or such other person or persons as the
<PAGE> 19
Board of Directors may from time to time designate. If no such
designation is made, and unless and until the Board otherwise
provides, the Chairman of the Board or President and Secretary, or the
Chairman of the Board or President and Treasurer, shall have power to
sign all such instruments for, in behalf of and in the name of the
Corporation, which are executed or made in the ordinary course of the
Corporation's business.
63. Fiscal Year. The Board of Directors shall have the paramount
power to fix, and from time to time, to change, the fiscal year of the
Corporation. In the absence of action by the Board of Directors,
however, the fiscal year of the Corporation shall end each year on the
date which the Corporation treated as the close of its first fiscal
year, until such time as the fiscal year is changed by the Board of
Directors.
64. Directors' Annual Statement. The Board of Directors may
present at each annual meeting, and, when called for by vote of the
shareholders, shall present to any annual or special meeting of the
shareholders, a full and clear statement of the business and condition
of the Corporation.
65. Amendments. The Bylaws of the Corporation may from time to
time be repealed, amended or altered, or new Bylaws may be adopted, in
either of the following ways:
(i) By the vote of a majority of the shareholders
entitled to vote at any annual or special meeting thereof; or
(ii) By resolution adopted by a majority of the members of
the Board of Directors then in office; provided, however, that the
power of the directors to suspend, repeal, amend or otherwise alter
the Bylaws or any portion thereof may be denied as to any Bylaws or
portion thereof enacted by the shareholders if at the time of such
enactment the shareholders shall so expressly provide.
<PAGE> 1
Exhibit 4.3
SECOND AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
This Second Amendment, dated as of December __, 1997 (this
"Second Amendment"), by and between HOLLYWOOD THEATER HOLDINGS, INC., a
Delaware corporation (the "Company") and THE BEACON GROUP III - FOCUS VALUE
FUND, L.P., a Delaware limited partnership ("Beacon"), amends that certain
Registration Rights Agreement dated as of October 3, 1996, as amended by the
First Amendment to Registration Rights Agreement, dated as of April 25, 1997
(as amended, the "Registration Rights Agreement") by and between the Company
and Beacon. Capitalized terms used herein but not defined herein have the
meanings assigned to such terms in the Registration Rights Agreement.
WHEREAS, the Company and Beacon have entered into a Stock
Exchange Agreement, dated as of the date hereof, pursuant to which the Company
will issue to Beacon 41,026 shares of Series D Convertible Preferred Stock, par
value $.01 per share, of the Company in exchange for 41,026 shares of Series C
Convertible Preferred Stock, par value $.01 per share, of the Company;
WHEREAS, in connection with such issuance and exchange, the
Company and Beacon desire to amend the Registration Rights Agreement;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt of which is acknowledged, the
parties hereto agree as follows:
1. AMENDMENT TO SECTION 1. Section 1 of the
Registration Rights Agreement is hereby amended to include the following:
"Series B Preferred" means the Series B Convertible
Preferred Stock, $.01 par value per share of the Company,
provided, that each share of Series C Convertible Preferred
Stock, $.01 par value per share of the Company ("Series C
Preferred") and each share of Series D Convertible Preferred
Stock, $.01 par value per share of the Company ("Series D
Preferred") shall for all purposes hereunder be treated as
shares of Series B Preferred and, as such, shall be
Registrable Securities, and all references herein to Series B
Preferred shall be deemed to include Series B Preferred,
Series C Preferred and Series D Preferred.
<PAGE> 2
2. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
3. NO FURTHER AMENDMENT. Except as amended hereby,
the Registration Rights Agreement shall remain in full force and effect.
4. COUNTERPARTS. This Second Amendment may be
executed in separate counterparts, each of which shall be an original and all
of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Second
Amendment to the Registration Rights Agreement on the day and year first above
written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ Robert E. Painter
---------------------------------------
Robert E. Painter
Chief Operating Officer
THE BEACON GROUP III -
FOCUS VALUE FUND, L.P.
By: Beacon Focus Value Investors, L.L.C.
By: Focus Value GP, Inc.
By: /s/ THE BEACON GROUP III - FOCUS
VALUE FUND, L.P.
---------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.4
SECOND AMENDMENT
TO
RESTATED REGISTRATION RIGHTS AGREEMENT
This SECOND AMENDMENT TO RESTATED REGISTRATION RIGHTS
AGREEMENT ("Second Amendment"), is entered into as of December__, 1997, between
Hollywood Theater Holdings, Inc., a Delaware corporation (the "Company"),
Stratford Capital Partners, L.P., a Texas limited partnership ("SCP"),
Stratford Equity Partners, L.P., a Texas limited partnership ("SEP") and
Precept Investors, Inc., a Texas corporation ("Precept").
W I T N E S S E T H:
WHEREAS, the Company, SCP and Precept entered into the Amended
and Restated Registration Rights Agreement, dated as of October 3, 1996, as
amended by the First Amendment to Restated Registration Rights Agreement, dated
as of April 25, 1997 (as amended, the "Restated Registration Rights
Agreement"); and
WHEREAS, the Company and SEP entered into a Subscription
Agreement, dated as of November 19, 1997 (the "Subscription Agreement"),
pursuant to which the Company issued, and SEP purchased, 10,257 shares of the
Company's Series C Convertible Preferred Stock, par value $.01 per share (the
"Series C Preferred Stock"); and
WHEREAS, pursuant to the terms of the Subscription Agreement,
the Company agreed to exchange the 10,257 shares of Series C Preferred Stock
for an equal number of shares of a new series of preferred stock which would
have identical rights and privileges to the Series C Preferred Stock, except
for the dividend rate which would be 11%; and
WHEREAS, the Company and SEP have entered into a Stock
Exchange Agreement pursuant to which the Company will issue 10,257 shares of a
new series of preferred stock designated the Series D Convertible Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock") in exchange
for the 10,257 shares of Series C Preferred Stock issued to SEP pursuant to the
Subscription Agreement; and
WHEREAS, the parties hereto desire to amend the Restated
Registration Rights Agreement to include SEP as a party thereto and to include
references to the Series D Preferred Stock.
<PAGE> 2
NOW THEREFORE, in consideration of the premises, the terms and
provisions set forth herein, the mutual benefits to be gained by the
performance thereof and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used herein and not otherwise
expressly defined shall have the respective meanings assigned to them in the
Restated Registration Rights Agreement.
2. By executing this Second Amendment, SEP shall become
a signatory to the Restated Registration Rights Agreement, and as such will
have all rights and privileges provided to each of the parties thereunder. SEP
agrees to comply with all the terms and conditions of the Restated Registration
Rights Agreement.
3. The Restated Registration Rights Agreement is hereby
amended as follows:
(a) The definition of "Investors" in the recitals
of the Restated Registration Rights Agreement shall be amended to
include Stratford Equity Partners, L.P., a Texas limited partnership.
(b) Section 1 is amended by adding the following
definition:
"Series D Preferred" means the Series D Convertible
Preferred Stock of the Company, par value $.01 per
share.
(c) The definition of "Conversion Shares" is
hereby amended to read in its entirety as follows:
"Conversion Shares" means the shares of Common Stock
or other equity securities issued or issuable upon
conversion of the Series B Preferred, the Series C
Preferred and the Series D Preferred.
(d) The first sentence of the definition of
"Registrable Securities" is hereby amended to read in its entirety as
follows:
"Registrable Securities" means any (i) shares of
Series B Preferred, Series C Preferred or Series D
Preferred owned by the Investors, whether acquired on
the date hereof or hereafter acquired, (ii) shares of
Common Stock owned by the Investors, whether acquired
on the date hereof or hereafter acquired, (iii)
Conversion Shares owned by the Investors, (iv) shares
of Series B Preferred, Series C Preferred, Series D
Preferred or Common Stock acquired by any Person
after the date hereof pursuant to rights granted to
the Investors under the Purchase Agreement or the
Shareholders' Agreement, (v) Conversion Shares
acquired by any Person after the date hereof pursuant
to rights granted
<PAGE> 3
to the Investors under the Purchase Agreement or the
Shareholders' Agreement and (vi) shares of Common
Stock issued or issuable, directly or indirectly,
with respect to the Common Stock referenced in
clauses (ii), (iii), (iv) or (v) above by way of
stock dividend, stock split or combination of shares.
(e) The definition of "Requisite Percentage of
Outstanding Holders" is hereby amended to read in its entirety as
follows:
"Requisite Percentage of Outstanding Holders" means
the Holders of Registrable Securities who, assuming
conversion of all of the then outstanding Series B
Preferred, Series C Preferred and Series D Preferred
into Conversion Shares, would hold 15% or more of the
total Conversion Shares that would then be
outstanding.
(a) The definition of "Requisite Percentage of
Participating Holders" is hereby amended to read in its entirety as
follows:
"Requisite Percentage of Participating Holders" means
the Holders of Registrable Securities participating
in the registration who, assuming conversion of all
of the then outstanding Series B Preferred, Series C
Preferred and Series D Preferred into Conversion
Shares, would hold a majority of the total Conversion
Shares that would then be held by all Holders
participating in the registration.
4. The Restated Registration Rights Agreement is hereby
ratified by each of the parties hereto, and the terms and provisions of the
Restated Registration Rights Agreement as amended pursuant to Section 3 hereof
shall remain in full force and effect.
5. From and after the date hereof, each reference to
"hereof," "hereunder," "herein" and "hereby" and each reference to "this
Agreement" and each other reference of like import in the Restated Registration
Rights Agreement shall be deemed to refer to the Restated Registration Rights
Agreement as amended pursuant to Section 3 hereof.
6. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Second
Amendment to Restated Registration Rights Agreement be executed as of the date
first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ Robert E. Painter
-------------------------------------
Robert E. Painter
Chief Operating Officer
STRATFORD CAPITAL PARTNERS, L.P.
By: Stratford Capital GP Associates, L.P.,
its general partner
By: Stratford Capital Corporation, its
general partner
By: /s/ John G. Farmer
-----------------------------------
John G. Farmer
Managing Director
STRATFORD EQUITY PARTNERS, L.P.
By: Stratford Capital GP Associates,
L.P., its general partner
By: Stratford Capital Corporation, its
general partner
By: /s/ John G. Farmer
------------------------------
John G. Farmer
Managing Director
<PAGE> 5
PRECEPT INVESTORS, INC.
By: /s/ PRECEPT INVESTORS, INC.
---------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 1
Exhibit 4.6
FIRST AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
This FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT ("First
Amendment"), entered into as of December __, 1997, between Hollywood Theater
Holdings, Inc., a Delaware corporation (the "Company"), Hoak Communications
Partners, L.P., a Delaware limited partnership ("HCP"), HCP Capital Fund, L.P.,
a Delaware limited partnership ("HCF") and HCP 1997 Authorized Employee Fund,
L.P., a Delaware limited partnership ("HAE", together with HCP and HCF, the
"Hoak Entities").
W I T N E S S E T H:
WHEREAS, as of May 13, 1997, the Company and the Hoak Entities
entered into that certain Registration Rights Agreement (the "Registration
Rights Agreement");
WHEREAS, as of the date hereof, the Company and the Hoak
Entities have entered into a Subscription Agreement pursuant to which the
Company will issue, and the Hoak Entities will purchase, certain shares of a
new series of preferred stock designated the Series D Convertible Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock"); and
WHEREAS, the parties hereto desire to amend the Registration
Rights Agreement to include references to the Series D Preferred Stock;
NOW THEREFORE, in consideration of the premises, the terms and
provisions set forth herein, the mutual benefits to be gained by the
performance thereof and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used herein and not otherwise
expressly defined shall have the respective meanings assigned to them in the
Registration Rights Agreement.
2. The Registration Rights Agreement is hereby amended
as follows:
(a) Section 1 is amended by adding the following
definition:
"Series D Preferred" means the Series D Convertible
Preferred Stock of the Company, par value $.01 per
share.
<PAGE> 2
(b) The definition of "Beacon Registration Rights
Agreement" is hereby amended to read in its entirety as follows:
"Beacon Registration Rights Agreement" means that
certain Registration Rights Agreement dated October
3, 1996, by and between the Company and Beacon, as
amended by the First Amendment to Registration Rights
Agreement, dated as of April 25, 1997 and the Second
Amendment to Registration Rights Agreement, dated as
of the date hereof.
(c) The definition of "Conversion Shares" is
hereby amended to read in its entirety as follows:
"Conversion Shares" means the shares of Common Stock
or other equity securities issued or issuable upon
conversion of the Series B Preferred, the Series C
Preferred and/or the Series D Preferred.
(d) The first sentence of the definition of
"Registrable Securities" is hereby amended to read in its entirety as
follows:
"Registrable Securities" means any (i) shares of
Series B Preferred, Series C Preferred and Series D
Preferred owned by the Investors, whether acquired on
the date hereof or hereafter acquired, (ii) shares of
Common Stock owned by the Investors, whether acquired
on the date hereof or hereafter acquired, (iii)
Conversion Shares owned by the Investors, (iv) shares
of Series B Preferred, Series C Preferred, Series D
Preferred or Common Stock acquired by any Person
after the date hereof pursuant to rights granted to
the Investors under the Purchase Agreement or the
Shareholders' Agreement, (v) Conversion Shares
acquired by any Person after the date hereof pursuant
to rights granted to the Investors under the Purchase
Agreement or the Shareholders' Agreement and (vi)
shares of Common Stock issued or issuable, directly
or indirectly, with respect to the Common Stock
referenced in clauses (ii), (iii), (iv) or (v) above
by way of stock dividend, stock split or combination
of shares.
(e) The definition of "Requisite Percentage of
Outstanding Holders" is hereby amended to read in its entirety as
follows:
"Requisite Percentage of Outstanding Holders" means
the Holders of Registrable Securities who, assuming
conversion of all of the then outstanding Series B
Preferred, Series C Preferred and Series D Preferred
into
-2-
<PAGE> 3
Conversion Shares, would hold 10% or more of the
total Conversion Shares that would then be
outstanding.
(f) The definition of "Requisite Percentage of
Participating Holders" is hereby amended to read in its entirety as
follows:
"Requisite Percentage of Participating Holders" means
the Holders of Registrable Securities participating
in the registration who, assuming conversion of all
of the then outstanding Series B Preferred, Series C
Preferred and Series D Preferred into Conversion
Shares, would hold a majority of the total Conversion
Shares that would then be held by all Holders
participating in the registration.
(g) The definition of "Stratford Registration
Rights Agreement" is hereby amended to read in its entirety as
follows:
"Stratford Registration Rights Agreement" means that
certain Amended and Restated Registration Rights
Agreement dated as of October 3, 1996, by and between
the Company, Stratford Capital Partners, L.P., a
Texas limited partnership and Precept Investors,
Inc., a Texas corporation, as amended by the First
Amendment to Restated Registration Rights Agreement,
dated as of April 25, 1997 and the Second Amendment
to Restated Registration Rights Agreement, dated as
of the date hereof.
3. The Registration Rights Agreement is hereby ratified
by each of the parties hereto, and the terms and provisions of the Registration
Rights Agreement as amended pursuant to Section 2 hereof shall remain in full
force and effect.
4. From and after the date hereof, each reference to
"hereof," "hereunder," "herein" and "hereby" and each reference to "this
Agreement" and each other reference of like import in the Registration Rights
Agreement shall be deemed to refer to the Restated Registration Rights
Agreement as amended pursuant to Section 2 hereof.
5. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature page follows.]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this First
Amendment to Registration Rights Agreement be executed as of the date first
above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
------------------------------------
James R. Featherstone
Vice President and Chief Financial Officer
HOAK COMMUNICATIONS PARTNERS, L.P.
By: HCP INVESTMENT, L.P.
By: HOAK PARTNERS, L.L.C.
By: /s/ Thomas L. Harrison
----------------------------
Thomas L. Harrison
Manager
HCP CAPITAL FUND, L.P.
By: JAMES M. HOAK & CO.
By: /s/ Thomas L. Harrison
----------------------------
Thomas L. Harrison
Executive Vice President
-4-
<PAGE> 5
HCP 1997 AUTHORIZED EMPLOYEE FUND, L.P.
By: AUTHORIZED FUND MANAGEMENT, INC.
By: /s/ Robert Sussman
-----------------------------
Robert Sussman
President
-5-
<PAGE> 1
Exhibit 10.2
FORM OF REVOLVING NOTE
$_____________ New York, New York
________________, 19____
FOR VALUE RECEIVED, the undersigned, HOLLYWOOD THEATERS, INC.,
a Delaware corporation (the "Borrower"), hereby unconditionally promises to pay
to the order of _____________________ (the "Lender") at the office of Bank of
America National Trust and Savings Association, located at 355 Madison Avenue,
New York, New York 10017, in lawful money of the United States of America and
in immediately available funds, on or before the Revolving Termination Date the
principal amount of (a)_________________ DOLLARS ($_____________), or, if less,
(b) the aggregate unpaid principal amount of all Revolving Loans outstanding
hereunder on such date. The Borrower further agrees to pay interest in like
money at such office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in subsection 2.9 of the
Credit Agreement, as such term is hereinafter defined.
The holder of this Note is authorized to endorse on the
schedules annexed hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof the date, the Type or
Types and amount of the Revolving Loans evidenced hereby and the date and
amount of each payment or prepayment of principal thereof, each continuation of
all or a portion thereof as the same Type, each conversion of all or a portion
thereof to another Type and, in the case of Eurodollar Rate Loans, the length
of each Interest Period and Eurodollar Rate with respect thereto. Each such
endorsement shall constitute prima facie evidence of the accuracy of the
information endorsed, provided that the failure to make any such endorsement
(or any error therein) shall not affect the obligation of the Borrower to repay
(with applicable interest) such Revolving Loans in accordance with the terms of
the Credit Agreement.
This Note (a) is one of the Revolving Notes referred to in the
Amended and Restated Credit Agreement dated as of August 7, 1997 (as amended,
supplemented or otherwise modified from time to time, the ("Credit Agreement"),
among Hollywood Theater Holdings, Inc., the Borrower, the Lender, the other
Banks from time to time parties thereto and Bank of America National Trust and
Savings Association, as agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or
in part as provided in the Credit Agreement. This Note is secured and
guaranteed as provided in the Loan Documents. Reference is hereby made to the
Loan Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in
respect thereof.
<PAGE> 2
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall become, or may be
declared to be, immediately due and payable, all as provided in the Credit
Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or otherwise,
hereby waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT CONSIDERATION OF
ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL LAW.
HOLLYWOOD THEATERS, INC.
By:
-----------------------------------
Name:
-------------------------------
Title:
-------------------------------
2
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED
SHAREHOLDERS' AND VOTING AGREEMENT
by and among
HOLLYWOOD THEATER HOLDINGS, INC.,
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
and
THE OTHER SHAREHOLDERS
THAT ARE SIGNATORIES HERETO
Dated as of December __, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Methodology for Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1. Composition of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2. Committees; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3. Vacancies; Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4. Non-Voting Observers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5. Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6. Board and Committee Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7. Telephonic Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8. Directors' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9. Irrevocable Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.10. Contractual Management Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.11. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.12. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Restrictions on Transfers of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Rights of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6. Tag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1. Tag-Along . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2. Tag-Along Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7. Drag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1. Drag-Along . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.2. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8. Pre-emptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Pledge of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 10. Transfer to Specified Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 11. Transfer Upon Death of a Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 12. Transfer Upon Death of the Spouse of a Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13. Transfer Upon Divorce of a Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 14. Involuntary Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 15. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 17. Holdback Agreement; Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 18. Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
18.1. Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . 27
18.2. Reservation of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
18.3. Public Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 19. Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 20. Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 21. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 22. Put . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 23. Duration of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 24. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 25. Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 26. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 27. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 28. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 29. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 30. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 31. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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<TABLE>
<S> <C> <C>
Section 32. Governing Law; Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 33. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 34. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED
SHAREHOLDERS' AND VOTING AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS' AND VOTING AGREEMENT (the
"Agreement") is made as of December __, 1997 by and among HOLLYWOOD THEATER
HOLDINGS, INC., a Delaware corporation (the "Company"), THE BEACON GROUP III -
FOCUS VALUE FUND, L.P., a Delaware limited partnership ("Beacon") and each of
the shareholders of the Company executing one of the signature pages attached
hereto or otherwise subject hereto.
W I T N E S S E T H:
WHEREAS, the Company and the shareholders of the Company are party to
a Shareholders and Voting Agreement dated as of October 3, 1996, as amended
(the "Prior Shareholders' Agreement"); and
WHEREAS, the parties hereto deem it to be in their best interests to
amend and restate the Prior Shareholders' Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto hereby
agree as follows:
Section 1. Definitions. As used herein, the following terms
shall have the following meanings :
"Accepted Shares" has the meaning assigned to it in Section 8(a).
"Adjusted Base EBITDA" means, for any period, the Base EBITDA for such
period adjusted to include the Base EBITDA attributable to (a) theaters
acquired by the Company or any of its Subsidiaries during such period
(including theaters acquired as a result of the acquisition by the Company or
any of its Subsidiaries of a Subsidiary or Subsidiaries during such period),
and (b) theaters constructed by the Company during such period to the extent
certificates of occupancy have been issued and such theaters are open for
business as of the last day of such period, in each case as if such theaters
were owned and open for business throughout the entire period. For purposes of
computing Adjusted Base EBITDA, the Base EBITDA attributable to any theater
constructed (and opened) during such period for the portion of such period
prior to the opening of such theater shall be the Base EBITDA set forth in the
projections (for the first full year of the operation) of Base EBITDA for such
theater presented to the Board of Directors of the Company in connection with
its approval of the construction of such theater.
"Agreement" has the meaning set forth in the Preamble.
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<PAGE> 6
"Affiliate" means (i) with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person and (ii) with respect to any
individual, shall also mean the spouse, parent, sibling, child, step-child,
grandchild, niece or nephew of such Person, or the spouse thereof.
"All or Nothing Sale" has the meaning assigned to it in Section 5(a).
"Appraisal Procedure" shall mean the following procedure for
determining the Market Value of Common Stock: (a) upon receipt by the Company
of a Put Notice, the Company and the Put Holder which delivered such Put Notice
shall attempt to agree on a mutually acceptable Qualified Appraiser to value
the Common Stock, and if such parties agree on a Qualified Appraiser within ten
(10) days following the receipt of the Put Notice, such Qualified Appraiser
shall, on or before twenty (20) days following the date it is appointed,
determine the Market Value of the Common Stock, and such determination shall be
binding upon the Company and such Put Holder; (b) in the event the Company and
such Put Holder are unable to agree upon a mutually acceptable Qualified
Appraiser within ten (10) days following receipt of the Put Notice, on the
expiration of such ten (10) day period, the Company and such Put Holder shall
each appoint a Qualified Appraiser to value the Common Stock. Within twenty
(20) days following the date they are appointed, the Qualified Appraisers
appointed by the Company and such Put Holder shall determine the Market Value
of the Common Stock. In the event the values determined by the Company's
Qualified Appraiser and the Put Holder's Qualified Appraiser are within ten
percent (10%) of each other, the Market Value for purposes of such exercise of
the Put shall be the average of the values determined by such appraisers and
such determination shall be binding upon the Company and such Put Holder. In
the event such values differ by ten percent (10%) or more, such appraisers
shall in turn promptly appoint a third Qualified Appraiser who shall, within
twenty (20) days following the date it is appointed, determine the Market Value
of the Common Stock. The value which is neither the lowest nor the highest of
the values determined by the three Qualified Appraisers shall be the Market
Value of the Common Stock for purposes of such exercise of the Put and shall be
binding upon the Company and such Put Holder. In the event either the Company
or such Put Holder fails to timely appoint a Qualified Appraiser, such failing
party will be deemed to have waived its rights to appoint a Qualified
Appraiser, and the Qualified Appraiser appointed by the other party shall
determine the Market Value for purposes of such exercise of the Put which
determination shall be binding upon such Put Holder and the Company. The costs
of any mutually agreeable Qualified Appraiser referred to in (a) above and of
the third Qualified Appraiser referred to in (b) above shall be paid equally by
the Company and such Put Holder. Such Put Holder shall pay all costs of the
Qualified Appraiser appointed by it pursuant to (b) above and the Company shall
pay all costs of the Qualified Appraiser so appointed by it. For purposes of
the time periods in this definition, the Company shall be deemed to have
received the Put Notice on such date as the Company and the Put Holder
determine that they are unable to agree on the Market Value of a share of
Common Stock.
"Base EBITDA" means, for any period, the remainder of (a) all revenue
of the Company and its Subsidiaries during such period derived from theaters
owned, leased or operated by the Company and its Subsidiaries, including,
without limitation, ticket revenue, advertising
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<PAGE> 7
revenue and revenue from concession sales, minus (b) the direct "theater level"
cash operating expenses incurred by the Company and its Subsidiaries during
such period in connection with the ownership, leasing and operation of movie
theaters owned, leased or operated by the Company and its Subsidiaries during
such period. As used herein, "theater level" cash operating expenses shall
expressly exclude, without limitation, corporation overhead charges, executive
officer compensation, general and administrative expenses and other expenses
not directly related to the ownership, leasing or operation of individual movie
theaters.
"Beacon" has the meaning assigned to it in the Preamble.
"Beacon Designee" has the meaning assigned to it in Section 3.1.
"Beacon Directors" has the meaning assigned to it in Section 3.1.
"Beacon Non-Voting Observer" has the meaning assigned to it in Section
3.4.
"Board" has the meaning assigned to it in Section 3.1.
"Book Value" means the book value per share of Common Stock, as
determined by dividing Total Equity as of the date of the most recent quarterly
or year-end financial statements of the Company available on the Determination
Date by the total number of shares of Common Stock issued and outstanding as of
the date of the financial statements.
"Business Day" means any day other than a Saturday, Sunday or other
day on which national banks are authorized or required by law to be closed in
Dallas, Texas.
"By-laws" means the Bylaws of the Company as in effect on the date
hereof, as they may be amended from time to time hereafter.
"Certificate" means the Restated Certificate of Incorporation of the
Company as in effect on the date hereof, as it may be amended from time to time
hereafter.
"Closing" has the meaning specified in Section 16.
"Common Stock" means the Common Stock, par value $.01 per share of the
Company and any equity securities issued or issuable with respect to the Common
Stock in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"Common Stock Equivalents" means securities convertible into, or
exchangeable or exercisable for, shares of Common Stock, including, without
limitation, the Series B Preferred, the Series C Preferred and the Series D
Preferred.
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<PAGE> 8
"Company" has the meaning assigned to it in the Preamble.
"Company Acceptance Period" has the meaning assigned to it in Section
5(a).
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Credit Agreement" means that certain Amended and Restated Credit
Agreement dated as of August 7, 1997 among the Company, Bank of America
National Trust and Savings Associations, as agent and the other lenders party
thereto, as the same may hereafter be amended or otherwise modified from time
to time, and any refinancings thereof.
"Deceased Shareholder" has the meaning assigned to it in Section
11(a).
"Deceased Spouse" has the meaning assigned to it in Section 12(a).
"Determination Date" means (i) in the case of a Transfer proposed to
be effected pursuant to Section 14 hereof, the date of the first Offer Notice
given in connection with such Transfer, (ii) in the case of a Transfer upon the
death of a Shareholder or the spouse of a Shareholder, the date of death, and
(iii) in the case of a Transfer upon the divorce of a Shareholder, the date of
the entry of the divorce decree.
"Divorced Shareholder" has the meaning specified in Section 13(a).
"Divorced Spouse" has the meaning specified in Section 13(a).
"Drag-Along Initiator" has the meaning assigned to it in Section 7.1.
"Excluded Securities" means (a) options issued by the Company to
employees or consultants pursuant to any stock option or similar plan (and any
shares of Common Stock issuable thereunder) approved by the Board, and (b)
shares of Common Stock issuable upon conversion, exchange or exercise of any
Common Stock Equivalent (including, without limitation, upon conversion of the
Series B Preferred, Series C Preferred and Series D Preferred) the issuance of
which is approved by the Board.
"First Offer Percentage" means, as to each Offered Shareholder, the
quotient obtained (expressed as a percentage) by dividing (i) the number of
shares of Common Stock owned by such Offered Shareholder on the first day of
the Shareholder Acceptance Period by (ii) the aggregate number of shares of
Common Stock owned on the first day of the Shareholder Acceptance Period by all
Offered Shareholders who exercise their option to purchase Refused Stock.
"First Offer Shares" has the meaning assigned to it in Section 5(b).
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<PAGE> 9
"Formula Value" means the value per share of Common Stock determined
by the following formula: (a)(i) 5.0 x Base EBITDA for the trailing four fiscal
quarters of the Company as determined by reference to the most recently
available unaudited income statement of the Company (or the audited financial
statement in the case of quarters constituting a full fiscal year), prepared in
accordance with GAAP, for the period ended as of the last day of the quarter
ended immediately prior to the Determination Date less (ii) the sum of (A) the
aggregate principal and accrued but unpaid interest outstanding in respect of
debt for borrowed money of the Company (including (x) borrowed money under the
Credit Agreement, (y) the aggregate principal and accrued but unpaid interest
outstanding in respect of the Company's 10 5/8% Senior Subordinated Notes due
August 1, 2007 and (z) the present value (discounted at 10%) as of such date of
determination of the difference between the rents payable under Schedule 1 over
the rents payable under Schedule 2 of each of that certain Amendment to Lease
Agreement dated as of July 10, 1995 between J. C. Mitchell and Hollywood
Theaters, Inc. with respect to the Grapevine lease and that certain Amendment
to Lease Agreement dated as of July 10, 1995 between J. C. Mitchell and
Hollywood Theaters, Inc. with respect to the Burleson lease) and (B) the
aggregate liquidation value of any redeemable preferred stock of the Company
outstanding as of such date plus (iii) cash held by the Company as of such date
of determination divided by (b) the Total Shares as of such date of
determination.
"GAAP" means United States generally accepted accounting principles,
as in effect from time to time.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended.
"Hoak Director" has the meaning assigned to it in Section 3.1.
"Hoak Entities" means Hoak Communications Partners, L.P., a Delaware
limited partnership, HCP Capital Fund, L.P., a Delaware limited partnership,
and HCP 1997 Authorized Employee Fund, L.P., a Delaware limited partnership.
"IPO" means the initial underwritten offering pursuant to which the
Common Stock becomes registered under Section 12 of the Securities Exchange
Act.
"Issuance" has the meaning assigned to it in Section 8.
"Issuance Period" has the meaning assigned to it in Section 8(b).
"Issuance Stock" has the meaning assigned to it in Section 8(a).
"Issue" has the meaning assigned to it in Section 8.
"Litigation" has the meaning assigned to it in Section 32.
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<PAGE> 10
"LKCM Theater Partners" means LKCM Theater Partners, L.P.
"Major Shareholder" has the meaning assigned to it in Section 8(a).
"Market Value" means, with respect to a share of Common Stock on any
date herein specified, the fair market value of such share of Common Stock
determined as of the last day of the month most recently ended prior to such
date without giving effect to any discount for (a) a minority interest, (b) a
lack of liquidity of such Common Stock or (c) the fact that such Common Stock
is subject to this Agreement. In the event the Company and the Put Holder are
unable to agree on the Market Value, the Market Value shall be determined
pursuant to the Appraisal Procedure.
"Non-Voting Observers" has the meaning assigned to it in Section 3.4.
"Offer" has the meaning assigned to it in Section 5(a).
"Offer Notice" means a written notice of offer to sell shares of
Stock.
"Offered Shareholder" has the meaning assigned to it in Section 5(a).
"Offered Stock" means the shares of Stock offered for sale pursuant to
an Offer Notice, which shall consist of (i) in the case of a Transfer proposed
to be made pursuant to Section 14 hereof, all shares of Stock that are involved
in such Transfer, (ii) in the case of a Transfer upon the death of a
Shareholder, all shares of Stock owned or held by the Deceased Stockholder,
(iii) in the case of a Transfer upon the death of the spouse of a Shareholder,
a number of shares of Stock equal to (x) the number of shares of Stock in which
the estate of the Deceased Spouse claims an interest which have not passed to
the Surviving Shareholder free of any trust, multiplied by (y) the
proportionate interest so claimed, and (iv) in the case of a Transfer upon the
divorce of a Shareholder, the number of shares of Stock owned by the Divorced
Spouse, as determined by the divorce decree.
"Offering Price" means the proposed sale price of Stock offered for
sale pursuant to an Offer Notice given under Sections 11, 12 or 13 hereof.
"Oversubscribed Pre-emptive Shareholder" has the meaning assigned to
it in Section 8(a).
"Oversubscribed Shareholder" has the meaning assigned to it in Section
5(b).
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivisions thereof.
"Pre-emptive Acceptance Period" has the meaning assigned to it in
Section 8(a).
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<PAGE> 11
"Pre-emptive Notice" has the meaning assigned to it in Section 8(a).
"Pre-emptive Offer" has the meaning assigned to it in Section 8(a).
"Pre-emptive Percentage" means, at any time, as to each Major
Shareholder, the quotient obtained (expressed as a percentage) by dividing (i)
the number of shares of Common Stock owned by such Major Shareholder as of the
time of determination by (ii) the aggregate number of shares of Common Stock
owned by all Major Shareholders as of the time of determination.
"Public Sale" means a Transfer pursuant to a bona fide underwritten
public offering pursuant to an effective registration statement filed under the
Securities Act or pursuant to Rule 144 under the Securities Act.
"Purchase Price" has the meaning assigned in Section 15.
"Purchaser" has the meaning specified in Section 16.
"Purchasing Shareholders" means any Offered Shareholder electing to
purchase shares of Stock offered for sale pursuant to an Offer Notice.
"Qualified Appraiser" shall mean an investment banking firm or
appraisal firm (including any national accounting firm) of recognized national
or regional standing.
"Qualified IPO" means any underwritten public offering of Common Stock
(pursuant to an effective registration statement filed under the Securities
Act), (a) resulting in at least $25 million of net proceeds to the Company and
(b) reflecting a per share offering price for each share of Common Stock sold
in such offering of no less than $300 (subject to stock splits, combinations
and recapitalizations).
"Refused Stock" has the meaning assigned to it in Section 5(b).
"Registration Agreement" means the Registration Rights Agreement,
dated as of the date hereof, between the Company, Beacon and certain other
shareholders as it may be amended, modified, replaced or superseded from time
to time.
"Remaining Pre-emptive Shares" has the meaning assigned to it in
Section 8(a).
"Remaining Shares" has the meaning assigned to it in Section 5(b).
"Response Notice" means a written notice of election to purchase any
shares of Stock.
"Sale Period" has the meaning assigned to it in Section 5(c).
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<PAGE> 12
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Senior Management Shareholder" means Thomas W. Stephenson, Jr.
"Series B Preferred" means the Series B Convertible Preferred Stock,
$.01 par value per share of the Company.
"Series C Preferred" means the Series C Convertible Preferred Stock,
par value $.01 per share, of the Company.
"Series D Preferred" means the Series D Convertible Preferred Stock,
par value $.01 per share, of the Company.
"Shareholder Acceptance Period" has the meaning assigned to it in
Section 5(b).
"Shareholders" means the parties to this Agreement (other than the
Company) and any other subsequent holder of Stock who agrees to be bound by the
terms of this Agreement.
"Stated Value" means (i) $175 plus accrued and unpaid dividends in the
case of the Series B Preferred, (ii) $195 plus accrued and unpaid dividends in
the case of the Series C Preferred and (iii) $195 plus accrued and unpaid
dividends in the case of the Series D Preferred.
"Stock" means (i) any shares of Common Stock and (ii) any Common Stock
Equivalents (including, without limitation, the Series B Preferred, the Series
C Preferred and the Series D Preferred and the Common Stock issuable upon
conversion thereof), in each case, whether owned on the date hereof or acquired
hereafter.
"Stratford Director" has the meaning assigned to it in Section 3.1.
"Stratford Entities" means Stratford Capital Partners, L.P., a Texas
limited partnership and Stratford Equity Partners, L.P., a Texas limited
partnership, each a licensee under the Small Business Investment Act of 1958,
as amended, and their respective successors and assigns.
"Stratford Non-Voting Observer" has the meaning assigned to it in
Section 3.4.
"Subject Stock" has the meaning assigned to it in Section 5(a).
"Subsidiary" means with respect to any Person, (i) any corporation,
partnership or other entity of which shares of capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other similar managing body of such corporation, partnership or
other entity are at the time owned by such Person, or (ii) the management
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<PAGE> 13
of which is otherwise controlled, directly or indirectly, through one or more
intermediaries by such Person.
"Surviving Shareholder" has the meaning assigned to it in Section
12(a).
"Surviving Spouse" has the meaning assigned to it in Section 11(a).
"Tag-Along Initiator" has the meaning assigned to it in Section 6.2.
"Tag-Along Notice" has the meaning assigned to it in Section 6.2.
"Tag-Along Offeree" has the meaning assigned to it in Section 6.2.
"Tag-Along Shares" has the meaning assigned to it in Section 6.2.
"Total Equity" means the sum of the par value, capital surplus and
retained earnings attributable to the Common Stock (other than any shares of
Common Stock held in treasury of the Company), as determined in accordance with
GAAP.
"Total Shares" means the total number of shares of Common Stock issued
and outstanding, assuming the exercise or conversion of all outstanding
options, rights, warrants and convertible securities.
"Transfer" as to any Stock, means to sell, or in any other way
directly or indirectly transfer, assign, distribute, pledge, encumber or
otherwise dispose of, either voluntarily or involuntarily.
"Transferee" means a Person that acquires any shares of stock, or any
interest therein, as a result of a Transfer.
"Voting Shares" means any securities of the Company the holders of
which are generally entitled to vote for members of the Board (including,
without limitation, all outstanding shares of Common Stock, Series B Preferred,
Series C Preferred and Series D Preferred).
Section 2. Methodology for Calculations. For purposes of this
Agreement, the Transfer of a Common Stock Equivalent shall be treated as the
Transfer of the shares of Common Stock into which such Common Stock Equivalent
can be converted, exchanged or exercised. Except as otherwise provided in this
Agreement, for purposes of calculating (i) the amount of outstanding Common
Stock as of any date, (ii) the amount of Common Stock owned by a Person
hereunder, and (iii) related percentages, all shares of Series B Preferred,
Series C Preferred and Series D Preferred (but no other Common Stock
Equivalents) shall be treated as having been converted, exchanged or exercised.
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<PAGE> 14
Section 3. Corporate Governance.
3.1. Composition of the Board.
(a) Pre-Qualified IPO. Prior to a Qualified IPO, the Board of
Directors of the Company (the "Board") shall be composed of no more than six
members. Prior to a Qualified IPO, (i) so long as Beacon holds (x) 50% or more
of the outstanding Common Stock, Beacon shall have the right to designate three
persons to serve as members of the Board, (y) 25% or more of the outstanding
Common Stock but less than 50% of the outstanding Common Stock, Beacon shall
have the right to designate two persons to serve as members of the Board and
(z) 5% or more of the outstanding Common Stock but less than 25% of the
outstanding Common Stock, Beacon shall have the right to designate one person
to serve as a member of the Board (such members being referred to herein as the
"Beacon Directors"), (ii) so long as the Stratford Entities collectively hold
5% or more of the outstanding Common Stock, Stratford shall have the right to
designate one person to serve as a member of the Board (the "Stratford
Director"), (iii) so long as the Hoak Entities collectively hold 5% or more of
the outstanding Common Stock, the Hoak Entities shall have the right to
designate one person to serve as a member of the Board (the "Hoak Director")
and (iv) the chief executive officer of the Company shall serve as a member of
the Board. A majority of each of (1) the Beacon Directors and (2) the
non-Beacon Directors shall constitute a quorum for the transaction of business
at any meeting of the Board. Except as otherwise expressly required by law,
the Certificate or By-laws, the act of a majority of the directors present at
any meeting of which a quorum is present shall be the act of the Board.
(b) Post Qualified IPO. From and after a Qualified IPO, the Board
shall be composed of no more than six members. From and after a Qualified IPO,
in connection with any election for members of the Board, the Company shall, at
the request of Beacon include in the slate of directors recommended by the
Board to stockholders for election as directors (i) two representatives
designated by Beacon so long as Beacon holds 25% or more of the outstanding
Common Stock and (ii) one representative designated by Beacon so long as Beacon
holds 5% or more of the outstanding Common Stock but less then 25% of the
outstanding Common Stock (such representatives designated by Beacon being
referred to herein as the "Beacon Designees"). The Company and the
Shareholders shall each use their best efforts to cause the Beacon Designees to
be elected to, and to be maintained as members of, the Board (including, (i) in
the case of the Company, recommending to the stockholders of the Company the
election of the Beacon Designees to the Board and opposing any proposal to
remove any Beacon Designee at each meeting of the stockholders of the Company
at which the election or removal of members of the Board is on the agenda and
(ii) in the case of the Shareholders, voting all of their Voting Shares in
favor of the Beacon Designees, and voting such shares against any person
opposing any Beacon Designee), and shall take no action which would diminish
the prospects of the Beacon Designees being elected to the Board or increase
the prospects of any Beacon Designee being removed from the Board.
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<PAGE> 15
3.2. Committees; Subsidiaries.
(a) The Company will take all actions necessary to cause at least
one Beacon Director or Beacon Designee (and, prior to a Qualified IPO, at least
one Stratford Director and one Hoak Director) to be appointed to each committee
of the Board and to each of the boards of directors or other similar managing
bodies (and any committee thereof) of each of the Subsidiaries of the Company
(in each case, subject to eligibility requirements under applicable law or
stock exchange rules following a Qualified IPO).
(b) The Company shall elect as the Board of Directors of each
Subsidiary those persons who are at the time directors of the Company as
provided in Section 3.1. If any Beacon Director, Beacon Designee, Stratford
Director or Hoak Director serving on any committee of the Board or on any board
of directors or other similar managing body (and any committee thereof) of any
Subsidiary of the Company shall cease to serve as a member of the Board for any
reason or otherwise is unable to fulfill his or her duties on any such
committee, board of directors, or other similar managing body, as the case may
be, he or she shall be succeeded by another Person designated by Beacon, in the
case of a Beacon Director or Beacon Designee, and by the Stratford Entities in
the case of a Stratford Director, and by the Hoak Entities in the case of a
Hoak Director (in each case, subject to eligibility requirements under
applicable law or stock exchange rules following a Qualified IPO).
3.3. Vacancies; Removal.
(a) If any Beacon Director, Beacon Designee, Stratford Director or
Hoak Director shall cease to serve as a director of the Company for any reason,
the vacancy resulting thereby shall be filled by another person designated by
Beacon, in the case of a Beacon Director or Beacon Designee, and by the
Stratford Entities in the case of a Stratford Director, and by the Hoak
Entities in the case of a Hoak Director.
(b) None of the Beacon Directors, any Beacon Designee, any
Stratford Director nor any Hoak Director shall be removed from office without
the consent of Beacon, in the case of a Beacon Director or Beacon Designee, by
the Stratford Entities, in the case of a Stratford Director, and by the Hoak
Entities, in the case of a Hoak Director. Each Beacon Director, Beacon
Designee, Stratford Director and Hoak Director may be removed from office at
any time, with or without cause, at the request of Beacon, in the case of a
Beacon Director or Beacon Designee, by the Stratford Entities in the case of a
Stratford Director and by the Hoak Entities in the case of a Hoak Director.
3.4. Non-Voting Observers. The Company agrees that if at any
meeting for the election of directors any Beacon Director, Beacon Designee,
Stratford Director or Hoak Director is not elected to the Board, or if for any
other reason, at any time, neither a Beacon Director or Beacon Designee (in the
case of Beacon) nor a Stratford Director (in the case of the Stratford
Entities) nor a Hoak Director (in the case of the Hoak Entities) is a member of
the Board, Beacon (in the case of a Beacon Director or Beacon Designee), so
long as Beacon holds 5% or more of the outstanding Common Stock, will be
entitled to have one observer (a "Beacon Non-Voting Observer") selected by
Beacon present at all meetings of the Board, and the Stratford Entities (in the
case of a Stratford
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<PAGE> 16
Director), so long as the Stratford Entities hold 5% or more of the outstanding
Common Stock, will be entitled to have one observer (a "Stratford Non-Voting
Observer") selected by the Stratford Entities present at all meetings of the
Board, and the Hoak Entities (in the case of a Hoak Director), so long as the
Hoak Entities hold 5% or more of the outstanding Common Stock, will be entitled
to have one observer (a "Hoak Non-Voting Observer") selected by the Hoak
Entities present at all meetings of the Board (the Beacon Non-Voting Observer,
if any, the Stratford Non-Voting Observer, if any, and the Hoak Non-Voting
Observer, if any, are referred to together as the "Non-Voting Observers"),
provided that following a Qualified IPO the Company shall be entitled to
require such Non-Voting Observers to enter into confidentiality arrangements no
more burdensome to the Non-Voting Observers than any confidentiality
arrangement to which the members of the Board are subject. Such observers
shall have the same access to information concerning the business and
operations of the Company and at the same time as directors of the Company and
shall be entitled to participate in discussions and consult with, and make
proposals and furnish advice to, the Board, without voting; provided, however,
that the Board shall be under no obligation to take any action with respect to
any proposals made or advice furnished by any Non-Voting Observers, other than
to give due consideration thereto. In addition to any requirements specified
in the By-laws, the Company shall notify the Non-Voting Observers, by telecopy,
of every meeting (or action by written consent) of the Board at least two days
in advance of such meeting (or distribution of written consents), or, if such
notice under the circumstances is not practicable, as soon before the meeting
(or distribution) as is practicable, provided that nothing in this Section 3.4
shall be construed in any way to authorize or allow a party hereto not to
comply with its obligations hereunder.
3.5. Representative. In the event that, after receiving proper
notice of a meeting of the Board or a meeting of any board of directors or
similar managing body of any of the Company's Subsidiaries in accordance with
such entity's by-laws, any Beacon Director, Beacon Designee, Stratford
Director, Hoak Director or Non-Voting Observer determines that he or she is
unable to attend such meeting, Beacon (in the case of a Beacon Director, Beacon
Designee or Beacon Non-Voting Observer) and Stratford (in the case of a
Stratford Director or Stratford Non-Voting Observer) and the Hoak Entities (in
the case of a Hoak Director or Hoak Non-Voting Observer) shall have the right
to designate a representative to attend and observe such meeting on behalf of
such Beacon Director, Beacon Designee, Stratford Director, Hoak Director or
Non-Voting Observer, as the case may be, who shall be entitled to fully
participate (other than the right to vote) in such meeting as if he were a
member of the Board, or a member of the board of directors or similar managing
body of the relevant Subsidiary of the Company or a Non-Voting Observer, as the
case may be.
3.6. Board and Committee Meetings. The Company shall hold regular
meetings of its Board on at least a quarterly basis. The Company agrees, and
shall cause the By-laws to be amended to the extent necessary to provide, that
any two members of the Board (including, without limitation, the Beacon
Designees, each Beacon Director, each Stratford Director and each Hoak
Director) shall have the right, upon reasonable notice, to call meetings of the
Board and of each committee of the Board on which he or she is a member. The
Company agrees that prior to a Qualified IPO any Non-Voting Observer shall have
the right to request that the Chairman of the
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Board or the Chief Executive Officer of the Company call a meeting of the Board
and that, upon such request, the Chairman of the Board shall promptly call a
meeting of the Board to be held at such time (but not earlier than three days
from the date such request is made by the Non-Voting Observer) as shall be
requested by the Non-Voting Observer.
3.7. Telephonic Board Meetings. The Company shall take all
necessary actions, including, without limitation, causing its By-laws to be
duly amended, to allow all directors (including any Beacon Director, Beacon
Designee, Stratford Director and Hoak Director) and Non-Voting Observer to
telephonically attend (a) any meeting of the Board or (b) any meeting of any
board of directors or any similar managing body (and any committee thereof) of
any Subsidiary of the Company of which he or she is a member.
3.8. Directors' Indemnification.
(a) The Company shall obtain and cause to be maintained in effect,
with financially sound insurers, a policy of directors' and officers' liability
insurance covering each of the members of the Board (including, without
limitation, each Beacon Director, each Beacon Designee, each Stratford Director
and each Hoak Director) in an amount of at least $3,000,000 per occurrence.
(b) The Certificate, By-laws and other organizational documents of
the Company and each of its Subsidiaries shall at all times, to the fullest
extent permitted by law, provide for indemnification of, advancement of
expenses to, and limitation of the personal liability of, the members of the
Board and the members of the boards of directors or other similar managing
bodies of each of the Company's Subsidiaries and such other persons, if any,
who, pursuant to a provision of such Certificates, By-laws or other
organizational documents, exercise or perform any of the powers or duties
otherwise conferred or imposed upon members of the Board or the boards of
directors or other similar managing bodies of each of the Company's
Subsidiaries. Any Non-Voting Observer shall be entitled to indemnification
from the Company to the maximum extent permitted by law as though he or she
were a director of the Company and any of its Subsidiaries. Such provisions
may not be amended, repealed or otherwise modified in any manner adverse to any
member of the Board or any member of the boards of directors or other similar
managing bodies of any of the Company's Subsidiaries, until at least six years
following the date that Beacon is no longer entitled to designate or nominate
any Beacon Director or Beacon Designee.
(c) Each of the members of the Board (including, without
limitation, the Beacon Directors, Beacon Designees, Stratford Director and Hoak
Director) and each Non-Voting Observer is intended to be a third-party
beneficiary of the obligations of the Company pursuant to this Section 3.8, and
the obligations of the Company pursuant to this Section 3.8 shall be
enforceable by each such individual.
3.9. Irrevocable Proxy. In order to secure each Shareholder's
obligation to vote his Voting Shares in accordance with the provisions of this
Section 3 pursuant to which Beacon has rights hereunder, each Shareholder
hereby appoints Beacon as his, her or its true and lawful proxy
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<PAGE> 18
and attorney-in-fact, with full power of substitution, to vote all of his
Voting Shares of the Company for the election of each Beacon Director and each
Beacon Designee as a member of the Board and to take all such other actions as
are necessary to enforce the rights of Beacon under this Section 3. Beacon may
exercise the irrevocable proxy granted to it hereunder at any time any
Shareholder fails to comply with any provision of this Agreement granting
Beacon rights under this Section 3. The proxies and powers granted by each
Shareholder pursuant to this Section 3.9 are coupled with an interest and are
given to secure the performance of the Shareholders' obligations to Beacon
under this Section 3. Such proxies and powers will be effective until a
Qualified IPO, at which time such proxies and powers shall terminate, and shall
survive the death, incompetency and disability of each Shareholder.
3.10. Contractual Management Rights. The Company and each of the
Shareholders acknowledge that the provisions of this Agreement, including this
Section 3, are intended to provide Beacon and the Hoak Entities with
"contractual management rights" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations promulgated
thereunder.
3.11. Expenses. Subject to proper documentation being provided to
the Company, the Company shall pay the reasonable out-of-pocket expenses
incurred by each of the Beacon Directors, Beacon Designees, Stratford Director,
Hoak Director and any Non-Voting Observer in connection with performing his or
her duties, including without limitation the reasonable out-of-pocket expenses
incurred by such person attending meetings of the Board or any committee
thereof or meetings of any board of directors or other similar managing body
(and any committee thereof) of any Subsidiary of the Company.
3.12. Cooperation. Each Shareholder shall vote all of its Voting
Shares and shall take all other necessary actions within its control
(including, without limitation, attending all meetings in person or by proxy
for purposes of obtaining a quorum, executing all written consents in lieu of
meetings and voting to remove members of the Board, as applicable), and the
Company shall take all necessary and desirable actions within its control
(including, without limitation, calling special Board and shareholder meetings
and voting to remove members of the Board, as applicable), to effectuate the
provisions of this Section 3.
Section 4. Restrictions on Transfers of Stock.
(a) No Shareholder shall Transfer any Stock, whether owned on the
date hereof or acquired hereafter, without first complying with the provisions
of Section 5 hereof and then, in each case as applicable, complying with the
provisions of Section 6 hereof, provided that the foregoing shall not be deemed
to prohibit pledges of Stock effected by Shareholders prior to the date in
accordance with the terms of the Prior Shareholder Agreement as long as such
terms continue to be applicable to such transfers. Notwithstanding any other
provision hereof, no Senior Management Shareholder may Transfer any Stock if,
after giving effect to such Transfer, such Senior Management Shareholder shall
have Transferred in the aggregate an amount of Common Stock in excess of 5%
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<PAGE> 19
of the outstanding Common Stock held by such Senior Management Shareholder as
of the date hereof, except that from and after a Qualified IPO, any Senior
Management Shareholder may Transfer Stock. Each Senior Management Shareholder
shall, prior to any Transfer of Stock pursuant to this Section 4, comply with
the provisions of Sections 5 and 6 hereof, in each case as applicable.
(b) Except in connection with a Public Sale, any transferee of
Stock (including any transferee that is an Affiliate of a transferor) who is
not a Shareholder shall upon consummation of, and as a condition to, such
Transfer execute and deliver to the Company (which the Company shall then
deliver to all other Shareholders) an agreement in form and substance
satisfactory to Beacon and the Company pursuant to which it agrees to be bound
by the terms of this Agreement for the benefit of the parties hereto and such
transferee shall thereafter be deemed to be a Shareholder for all purposes of
this Agreement.
(c) Any Transfer or attempted Transfer of Stock in violation of
any provision of this Agreement shall be void, and the Company shall not record
such Transfer on its books or treat any purported transferee of such Stock as
the owner of such Stock for any purpose.
Section 5. Rights of First Offer. In addition to and not in
limitation of any other restrictions on Transfers of Stock contained in this
Agreement, any Transfers of Stock by a Shareholder shall be consummated only in
accordance with the following procedures:
(a) The transferring Shareholder shall first deliver to the
Company and each other Shareholder (the "Offered Shareholders") a written
notice (an "Offer Notice"), which shall (i) state the transferring
Shareholder's intention to Transfer Stock to one or more Persons in a bona fide
arms' length transaction, the amount and type of Stock to be Transferred (the
"Subject Stock"), the purchase price therefor (which shall be payable in cash)
and a summary of the other material terms of the proposed Transfer and (ii)
offer the Company and the Offered Shareholders the option to acquire all or a
portion of such Subject Stock upon the terms and subject to the conditions of
the proposed Transfer as set forth in the Offer Notice (the "Offer"), provided
that such Offer may provide that it must be accepted by the Company and the
Offered Shareholders (in the aggregate) on an all or nothing basis (an "All or
Nothing Sale"). The Offer shall remain open and irrevocable for the periods
set forth below (and, to the extent the Offer is accepted during such periods,
until the consummation of the sale contemplated by the Offer). The Company
shall have the right and option, for a period of 30 days after delivery of the
Offer Notice (the "Company Acceptance Period"), to accept all or any part of
the Subject Stock at the cash purchase price and on the terms stated in the
Offer Notice. Such acceptance shall be made by delivering a written notice to
the transferring Shareholder and each of the Offered Shareholders within the
Company Acceptance Period.
(b) If the Company shall fail to accept all of the Subject Stock
offered pursuant to, or shall reject in writing, the Offer (the Company being
required to notify in writing the transferring Shareholder and each of the
Offered Shareholders of its rejection or failure to accept in the event of the
same), then, upon the earlier of the expiration of the Company Acceptance
Period or the giving of such written notice of rejection or failure to accept
such offer by the Company, each
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<PAGE> 20
Offered Shareholder shall have the right and option, for a period of 30 days
thereafter (the "Shareholder Acceptance Period"), to accept all or any part of
the Subject Stock so offered and not accepted by the Company (the "Refused
Stock") at the cash purchase price and on the terms stated in the Offer Notice;
provided, however, that, if the Offer contemplated an All or Nothing Sale, the
Offered Shareholders, in the aggregate, may accept, during the Shareholder
Acceptance Period, all, but not less than all, of the Refused Stock, at the
cash purchase price and on the terms stated in the Offer Notice. Such
acceptance shall be made by delivering a written notice to the Company and the
transferring Shareholder within the Shareholder Acceptance Period specifying
the maximum number of shares such Offered Shareholder will purchase (the "First
Offer Shares"). If, upon the expiration of the Shareholder Acceptance Period,
the aggregate amount of First Offer Shares exceeds the amount of Refused Stock,
the Refused Stock shall be allocated among the Offered Shareholders as follows:
(i) first, each Offered Shareholder shall be entitled to purchase no more than
its First Offer Percentage of Refused Stock; (ii) second, if any shares of
Refused Stock have not been allocated for purchase pursuant to (i) above (the
"Remaining Shares"), each Offered Shareholder (an "Oversubscribed Shareholder")
which had offered to purchase a number of shares of Refused Stock in excess of
the amount of stock allocated for purchase to it in accordance with previous
allocations of such shares of Refused Stock, shall be entitled to purchase an
amount of Remaining Shares equal to no more than its First Offer Percentage
(treating only Oversubscribed Shareholders as Offered Shareholders for these
purposes) of the Remaining Shares; and (iii) third, the process set forth in
(ii) above shall be repeated with respect to any shares of Refused Stock not
allocated for purchase until all shares of Refused Stock are allocated for
purchase.
(c) If effective acceptance shall not be received pursuant to
Sections 5(a) and/or 5(b) above with respect to all of the Subject Stock
offered for sale pursuant to the Offer Notice, then the transferring
Shareholder may Transfer all or any portion of the Stock so offered for sale
and not so accepted (or, in the case of an All or Nothing Sale, all, but not
less than all, of the Subject Stock offered for sale pursuant to the Offer
Notice), at a cash price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms, stated in the Offer Notice
at any time within 90 days after the expiration of the Shareholder Acceptance
Period (the "Sale Period"). In the event that all of the Stock is not sold by
the transferring Shareholder during the Sale Period, the right of the
transferring Shareholder to Transfer such Stock shall expire and the
obligations of this Section 5 shall be reinstated.
(d) All Transfers of Subject Stock to the Company and/or the
Offered Shareholders pursuant to this Section 5 shall be made free and clear of
all liens and shall be consummated contemporaneously at the offices of the
Company on the later of (i) a mutually satisfactory business day within 30 days
after the expiration of the later of the Company Acceptance Period or the
Shareholder Acceptance Period, as applicable, and (ii) the fifth business day
following the expiration or termination of all waiting periods under the HSR
Act applicable to such Transfers, or at such other time and/or place as the
parties may agree. The delivery of certificates or other instruments
evidencing such Subject Stock duly endorsed for transfer shall be made on such
date against payment of the purchase price for such Subject Stock.
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(e) The requirements of this Section 5 shall not apply to (i) any
Transfer of Stock by a Shareholder to an Affiliate of such Shareholder, (ii)
any Transfer of Stock pursuant to Section 7, 9 or 10 of this Agreement or (iii)
any Transfer pursuant to a Public Sale.
Section 6. Tag-Along Rights.
6.1. Tag-Along. No Shareholder shall Transfer any Stock owned by
such Shareholder without complying with the terms and conditions set forth in
this Section 6 (after having complied with the provisions of Section 5 with the
result that no Subject Stock was purchased by the Company or any Offered
Shareholder).
6.2. Tag-Along Obligations. Any Shareholder (the "Tag-Along
Initiator") desiring to Transfer any shares of Stock in one transaction or a
series of related transactions which in the aggregate represent at least 5% of
the then outstanding Common Stock shall, after expiration of all required
notice periods under Section 5, give not less than 20 days' prior written
notice of such intended Transfer to each other Shareholder ("Tag-Along
Offeree") and to the Company. Such notice (the "Tag-Along Notice") shall set
forth the terms and conditions of such proposed Transfer, including the name of
the proposed transferee, the number of shares proposed to be transferred by the
Tag-Along Initiator (the "Tag-Along Shares"), the purchase price per share
proposed to be paid therefor and the payment terms and type of transfer to be
effectuated. Within 10 days after delivery of the Tag-Along Notice by the
Tag-Along Initiator to each Tag-Along Offeree and to the Company, each
Tag-Along Offeree shall, by written notice to the Tag-Along Initiator and the
Company, have the opportunity and right to sell to the transferee in such
proposed Transfer (upon the same terms and conditions as the Tag-Along
Initiator) up to that number of shares of such Stock owned by the Tag-Along
Offeree as shall equal the product of (x) a fraction, the numerator of which is
the number of shares of such Stock owned by the Tag-Along Offeree as of the
date of the proposed Transfer and the denominator of which is the aggregate
number of shares of such Stock owned as of the date of the Tag-Along Notice by
each Tag-Along Initiator and by all other Tag-Along Offerees, times (y) the
number of Tag-Along Shares. The amount of Tag-Along Shares to be sold by any
Tag-Along Initiator shall be reduced to the extent necessary to provide for
such sales of shares by Tag-Along Offerees. No Person may Transfer shares in
any transaction that is subject to this Section 6 unless the transferee agrees
to be bound by and complies with the terms of this Agreement.
6.3. Closing. At the closing of any proposed Transfer in respect
of which a Tag-Along Notice has been delivered, the Tag-Along Initiator
together with all Tag-Along Offerees electing to sell shares, shall deliver,
free and clear of all liens, to the proposed transferee certificates evidencing
the shares to be sold thereto duly endorsed with transfer powers and shall
receive in exchange therefore the consideration to be paid or delivered by the
proposed transferee in respect of such shares as described in the Tag-Along
Notice.
6.4. Limitations. The provisions of this Section 6 shall not apply
to (x) any Public Sale, (y) any Transfer by a Shareholder to Affiliates of such
Shareholder, or (z) any Transfers pursuant to Section 5, 7, 9 or 10 of this
Agreement.
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Section 7. Drag-Along Rights.
7.1. Drag-Along. If Beacon (the "Drag-Along Initiator") determines
to Transfer or exchange (in a business combination or otherwise) in one or a
series of bona fide arms-length transactions to an unrelated and unaffiliated
third party all of the shares of Stock held by the Drag-Along Initiator at a
price of at least $200 per share of Common Stock, then, upon 30 days written
notice from the Drag-Along Initiator to the other Shareholders, which notice
shall include reasonable details of the proposed transaction, including the
proposed time and place of closing and the consideration to be received by the
Shareholders, each other Shareholder shall be obligated to, and shall, sell,
transfer and deliver, or cause to be sold, transferred and delivered, to such
third party, all of his shares of Stock in the same transaction at the closing
thereof (and will deliver certificates for all of his shares at the closing,
free and clear of all liens, claims, or encumbrances), and each Shareholder
shall receive the same consideration per share upon such transaction as is
received by the Drag-Along Initiator.
7.2. Limitations. The provisions of this Section 7 shall not apply
to (x) any Public Sale, (y) any Transfer by a Shareholder to an Affiliate of
such Shareholder or (z) any Transfer or exchange consummated prior to the third
anniversary of the date hereof.
Section 8. Pre-emptive Rights. At any time before the
completion of a Qualified IPO, and excluding any Issuance (as defined below) in
a Qualified IPO or in connection with a merger or other business combination of
the Company approved by the Board, the Company shall not issue, sell or
exchange, or agree to issue, sell or exchange (collectively, "Issue," and any
issuance, sale or exchange resulting therefrom, an "Issuance") any shares of
Stock (other than Excluded Securities), except as authorized by the Board and
in accordance with the following procedures:
(a) The Company shall deliver to each Shareholder that at the time
owns more than 5% of the Common Stock (each, a "Major Shareholder") a written
notice (a "Pre-emptive Notice"), which shall (i) state the Company's intention
to Issue Stock to one or more Persons, the amount and type of Stock to be
Issued (the "Issuance Stock"), the purchase price therefor and a summary of the
other material terms of the proposed Issuance and (ii) offer each of the Major
Shareholders the option to acquire all or any part of the Issuance Stock (the
"Pre-emptive Offer"). The Pre-emptive Offer shall remain open and irrevocable
for the periods set forth below (and, to the extent the Pre-emptive Offer is
accepted during such periods, until the consummation of the Issuance
contemplated by the Pre-emptive Offer). Each Major Shareholder shall have the
right and option, for a period of 30 days after delivery of the Pre-emptive
Notice (the "Pre-emptive Acceptance Period"), to accept all or any part of the
Issuance Stock at the purchase price and on the terms stated in the Pre-emptive
Notice. Such acceptance shall be made by delivering a written notice to the
Company by each Major Shareholder within the Pre-emptive Acceptance Period
specifying the maximum number of shares of the Issuance Stock such Major
Shareholder will purchase (the "Accepted Shares"). If, upon the expiration of
the Pre-emptive Acceptance Period, the aggregate amount of Accepted Shares
exceeds the amount of Issuance Stock, the amount of Issuance Stock,
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<PAGE> 23
shall be allocated among the Major Shareholders as follows: (i) first, each
Major Shareholder shall be entitled to purchase no more than its Pre-emptive
Percentage of Issuance Stock; (ii) second, if any shares of Issuance Stock have
not been allocated for purchase pursuant to (i) above (the "Remaining
Pre-emptive Shares"), each Major Shareholder (an "Oversubscribed Pre-emptive
Shareholder") which had offered to purchase a number of shares of Issuance
Stock in excess of the amount of stock allocated for purchase to it in
accordance with previous allocations of such shares of Issuance Stock, shall be
entitled to purchase an amount of Remaining Pre-emptive Shares equal to no more
than its Pre-emptive Percentage (treating only Oversubscribed Pre-emptive
Shareholders as Major Shareholders for these purposes) of the Remaining
Pre-emptive Shares; and (iii) third, the process set forth in (ii) above shall
be repeated with respect to any shares of Issuance Stock not allocated for
purchase until all shares of Issuance Stock are allocated for purchase.
(b) If effective acceptance shall not be received pursuant to
Section 8(a) above with respect to all of the Issuance Stock offered for sale
pursuant to the Pre-emptive Notice, then the Company may Issue all or any
portion of such Stock so offered for sale and not so accepted, at a price not
less than the price, and on terms not more favorable to the purchaser thereof
than the terms, stated in the Pre-emptive Notice at any time within 90 days
after the expiration of the Pre-emptive Acceptance Period (the "Issuance
Period"). In the event that all of the Issuance Stock is not Issued by the
Company during the Issuance Period, the right of the Company to Issue such
unsold Issuance Stock shall expire and the obligations of this Section 8 shall
be reinstated.
(c) All Sales of Issuance Stock to the Major Shareholders subject
to any Pre-emptive Notice shall be consummated contemporaneously at the offices
of the Company on the later of (i) a mutually satisfactory business day within
30 days after the expiration of the Pre-emptive Acceptance Period or (ii) the
fifth business day following the expiration or termination of all waiting
periods under the HSR Act, applicable to such Issuance, or at such other time
and/or place as the Company and the Major Shareholders may agree. The delivery
of certificates or other instruments evidencing such Issuance Stock shall be
made by the Company on such date against payment of the purchase price for such
Issuance Stock.
Section 9. Pledge of Shares. A Shareholder shall have the right
to pledge any Stock owned or held by such Shareholder to the Company, a
commercial bank, savings and loan association or other lending or financial
institution as security for any indebtedness of such Shareholder; provided,
however, that no such pledge shall be made unless (i) the Person to which such
pledge is made shall have executed an appropriate document in which such Person
agrees that, in the event of realization upon such Stock, such Stock shall
continue to be subject to the terms and conditions of this Agreement and that
such Person will not effect any Transfer of such Stock except in compliance
with the provisions hereof, and (ii) such document shall have been promptly
delivered to, and shall have been approved by, the Company and Beacon prior to
the pledge of such Stock. Neither the Company nor Beacon shall unreasonably
withhold or delay its approval of any such document.
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Section 10. Transfer to Specified Persons. A Shareholder shall
have the right to effect a Transfer of any Stock owned or held by such
Shareholder to:
(a) any spouse, child (natural or adopted), spouse of any such
child, grandchild, sister, brother or parent of such Shareholder;
(b) any trust in which there are and continue to be during the
term of this Agreement no beneficiaries other than such Shareholder and one or
more Persons specified in clause (a) above;
(c) if such Shareholder is a corporation or partnership, any
Person who is a beneficial owner of an equity interest in such corporation or
partnership as of the date hereof, provided that such Shareholder may only
transfer to such Persons the number of shares of Stock owned or held by such
Shareholder which constitutes the same percentage of the total number of shares
of Stock held by such Shareholder as the percentage of the total equity
interests in such corporation or partnership held by such Person;
(d) in the case of LKCM Theater Partners, and notwithstanding
anything to the contrary in this Section 10, any Person who is an employee of
such partnership at the time of Transfer and who receives such Stock as
compensation for services rendered to the partnership;
(e) in the case of the Stratford Entities, and notwithstanding
anything to the contrary in this Section 10, any of the following:
(i) any Person who is a beneficial owner of an equity
interest in the Stratford Entities as of the date of the proposed
Transfer;
(ii) any Person (A) owned or Controlled by Stratford, (B)
which Controls the Stratford Entities, (C) which is under common
Control with the Stratford Entities, or (D) who is a beneficial owner
of an equity interest in the Stratford Entities, or in any Person
which Controls the Stratford Entities or which is under common Control
with the Stratford Entities; and
(iii) any other Person which is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the
Securities Act, provided, however, that the Stratford Entities may not
Transfer more than 10,000 shares of preferred stock pursuant to this
clause (iii);
(f) in the case of the Hoak Entities, and notwithstanding anything
to the contrary in this Section 10, any of the following:
(i) any Person who is a beneficial owner of an equity
interest in the Hoak Entities as of the date of the Transfer;
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(ii) any Person (A) owned or Controlled by the Hoak
Entities, (B) which Controls the Hoak Entities, (C) which is under
common Control with the Hoak Entities, or (D) who is a beneficial
owner of an equity interest in the Hoak Entities, or in any Person
which Controls the Hoak Entities; and
(iii) any other Hoak Entity.
Section 11. Transfer Upon Death of a Shareholder.
(a) In the event of the death of a Shareholder (a "Deceased
Shareholder"), the personal representative of the estate of the Deceased
Shareholder shall, within 30 days after qualification, submit an Offer Notice
to the Company and the Offered Shareholders. The Offer Notice shall be given
concurrently to the Company and the Offered Shareholders and shall state that
the personal representative offers to sell the shares of Stock in the Company
("Offered Stock"). The Offer Notice shall also specify (i) the date of death
of the Deceased Shareholder, (ii) the number of shares of Offered Stock, (iii)
the Transferee or Transferees, if such Transferee or Transferees can then be
determined with certainty, to whom the shares of Offered Stock would be
distributed by will or by the laws of descent should the Company and the
Offered Shareholders fail to purchase any such Stock (provided, however, that
if such Transferee or Transferees cannot then be determined with certainty,
there shall be provided a list of potential Transferees to whom the Offered
Stock may be so distributed), (iv) if the personal representative proposes to
effect a Transfer of the Offered Stock otherwise than by distribution to the
Transferee or Transferees named in the Offer Notice pursuant to the preceding
clause (iii), the Offering Price, the name and address of the proposed
Transferee or Transferees and the other terms of such proposed Transfer, if
any, and (v) the address of the personal representative that is to serve as its
location for notices and other communications hereunder. If the Deceased
Shareholder is survived by a spouse (a "Surviving Spouse") with a community
property or other interest in any shares of Offered Stock, the personal
representative shall also include in the Offer Notice a statement specifying
the proposed ratio in which the Purchase Price to be paid by the Company or the
Purchasing Shareholders for the shares of Offered Stock should be divided
between the estate of the Deceased Shareholder and the Surviving Spouse. A
copy of the Offer Notice shall be sent by the personal representative to the
Surviving Spouse and, unless the Surviving Spouse objects to the ratio for
division of the Purchase Price specified therein within 30 days after receipt
thereof, the Company shall be entitled to rely upon such ratio in dividing the
Purchase Price for the shares of Offered Stock between the estate of the
Deceased Shareholder and the Surviving Spouse. If the Surviving Spouse gives
timely written notice of an objection to the ratio specified in the Offer
Notice, and if the dispute has not been resolved as of the date set for the
Closing, each of the Company and the Purchasing Shareholders shall be entitled
to hold its portion of the Purchase Price in escrow until the dispute is
resolved, and in such event, each of the Company and the Purchasing
Shareholders may continue to hold the Purchase Price in escrow until (a) the
rights of the estate of the Deceased Shareholder and the Surviving Spouse shall
have been fully and finally adjudicated by a court of competent jurisdiction or
(b) the dispute shall have been resolved by agreement between the personal
representative and the Surviving Spouse, and the Company and
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the Purchasing Shareholders shall have been notified thereof in a writing
signed by the personal representative and the Surviving Spouse.
(b) Within 30 days after receipt of the Offer Notice, the Company
shall give a Response Notice to the personal representative of the Deceased
Shareholder and the Offered Shareholders stating whether it elects to purchase
the shares of Offered Stock. If the Company does not elect to purchase all of
the shares of Offered Stock, each of the Offered Shareholders shall, within 15
days after receipt of the Response Notice of the Company, give a Response
Notice to the personal representative, the Company and the other Offered
Shareholders stating whether such Offered Shareholder elects to purchase any of
the shares of Offered Stock not to be purchased by the Company. If there is
more than one Purchasing Shareholder, the Offered Stock to be purchased by such
Purchasing Shareholder shall be allocated among the Purchasing Shareholders in
such proportions as they may mutually agree, or in the absence of such
agreement, pro rata according to the relative holdings of shares of Stock of
the Purchasing Shareholders on the applicable Determination Date.
(c) If no ratio for the division of the Purchase Price between the
estate of the Deceased Shareholder and the Surviving Spouse is specified in the
Offer Notice, at the Closing each of the Company and the Purchasing
Shareholders shall pay the entire Purchase Price to the personal representative
of the Deceased Shareholder.
(d) During the time the personal representative of any Deceased
Shareholder is holding any shares of Offered Stock, he shall be subject to the
restrictions on the Transfer of Stock contained in this Agreement. If all of
the shares of Offered Stock are not purchased by the Company or the Offered
Shareholders, or any of them, the personal representative may effect a Transfer
to the Transferee or Transferees named in the Offer Notice of the balance of
the shares of Offered Stock not purchased by the Company or the Offered
Shareholders, but only in strict compliance with the terms therein stated.
Section 12. Transfer Upon Death of the Spouse of a Shareholder.
(a) If the marital relationship of a Shareholder (a "Surviving
Shareholder") is terminated by the death of his spouse (a "Deceased Spouse")
and if the Deceased Spouse had any interest in the Stock owned or held by the
Surviving Shareholder at the time of the death of the Deceased Spouse which has
not passed to the Surviving Shareholder free of any trust, then the personal
representative of the estate of the Deceased Spouse shall, within 30 days after
qualification, submit an Offer Notice to the Surviving Shareholder, the Company
and Offered Shareholders. The Offer Notice shall be given concurrently to the
Surviving Shareholder, the Company and the Offered Shareholders and shall state
that the personal representative offers to sell the shares of Offered Stock.
The Offer Notice shall also specify (i) the date of death of the Deceased
Spouse, (ii) the number of shares of Offered Stock, (iii) the Transferee or
Transferees, if such Transferee or Transferees can then be determined with
certainty, to whom the shares of Offered Stock would be distributed by will or
by the laws of descent should the Surviving Shareholder, the Company and the
Offered
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Shareholders fail to purchase such Stock (provided, however, that if such
Transferee or Transferees cannot then be determined with certainty, there shall
be provided a list of potential Transferees to whom such shares of Offered
Stock may be distributed), (iv) if the personal representative proposes to
effect a Transfer of any shares of Offered Stock otherwise than by distribution
to the Transferee or Transferees named pursuant to the preceding clause (iii),
the Offering Price, the name and address of the proposed Transferee or
Transferees and the other terms of such proposed Transfer, if any, and (v) the
address of the personal representative that is to serve as its location for
notices and other communications hereunder. Unless the Surviving Shareholder
notifies the Company and the Purchasing Shareholders that he objects to the
specification of the number of shares of Offered Stock in the Offer Notice
within 30 days after receipt thereof, the Company and the Purchasing
Shareholders shall be entitled to rely upon such specification in determining
the Purchase Price for the shares of Offered Stock to be paid to the personal
representative. If the Surviving Shareholder gives timely written notice of an
objection to such specification of the shares of Offered Stock, and if the
dispute has not been resolved as of the date set for the Closing, each of the
Company and the Purchasing Shareholders shall be entitled to hold its portion
of the Purchase Price in escrow until the dispute is resolved, and in such
event, each of the Company and the Purchasing Shareholders may continue to hold
its portion of the Purchase Price in escrow until (a) the rights of the estate
of the Deceased Spouse and the Surviving Shareholder shall have been fully and
finally adjudicated by a court of competent jurisdiction or (b) the dispute
shall have been resolved by agreement between such personal representative and
the Surviving Shareholder, and the Company and the Purchasing Shareholders
shall have been notified thereof in a writing signed by such personal
representative and the Surviving Shareholder.
(b) Within 30 days after receipt of the Offer Notice, the
Surviving Shareholder shall give a Response Notice to the personal
representative, the Company and the Offered Shareholders stating whether he
elects to purchase the shares of Offered Stock. If the Surviving Shareholder
does not elect to purchase all of the shares of Offered Stock, the Company
shall, within 15 days after receipt of the Response Notice of the Surviving
Shareholder, give a Response Notice to such personal representative and the
Offered Shareholders stating whether it elects to purchase the shares of
Offered Stock not to be purchased by the Surviving Shareholder. If the
Surviving Shareholder and the Company, or either of them, do not elect to
purchase all of the shares of Offered Stock, each of the Offered Shareholders
shall, within 15 days after the giving of the Response Notice of the Company,
give a Response Notice to such personal representative, the Company and the
other Offered Shareholders stating whether such Offered Shareholder elects to
purchase any of the shares of Offered Stock not to be purchased by the
Surviving Shareholder or the Company. If there is more than one Purchasing
Shareholder, the shares of Offered Stock to be purchased by such Purchasing
Shareholders shall be allocated among the Purchasing Shareholders in such
proportions as they may mutually agree, or in the absence of such agreement,
pro rata according to the relative holdings of shares of Stock of the
Purchasing Shareholders on the applicable Determination Date.
(c) During the time the personal representative of the Deceased
Spouse is holding any shares of Offered Stock, the personal representative
shall be subject to the restrictions on the Transfer of such Stock contained in
this Agreement. If all of the shares of Offered Stock are not
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purchased by the Surviving Shareholder, the Company and the Offered
Shareholders, or any of them, the personal representative may effect a Transfer
to the Transferee or Transferees named in the Offer Notice of the balance of
the shares of Offered Stock not purchased by the Surviving Shareholder, the
Company or the Offered Shareholders, but only in strict compliance with the
terms therein stated. If any transfer of shares of Offered Stock described in
clause (iv) of Section 12(a) hereof that is to be effected pursuant to the
immediately preceding sentence has not been completed within 30 days following
the expiration of the time provided in Section 12(b) for the election by the
Offered Shareholders to purchase the same, the personal representative shall be
required to submit another Offer Notice in order to effect a Transfer of such
Offered Stock pursuant to this Section 12.
Section 13. Transfer Upon Divorce of a Shareholder.
(a) If the marital relationship of a Shareholder ( a "Divorced
Shareholder") is terminated by divorce and if the Divorced Shareholder does not
succeed directly to the interest, if any, of his former spouse (the "Divorced
Spouse") in any Stock owned or held by the Divorced Shareholder at the time of
the divorce, then the divorce decree shall specify the Stock owned by the
Divorced Spouse and shall require compliance with this Section 13 prior to any
Transfer of such Stock, including a Transfer thereof into the name of the
Divorced Spouse. The Divorced Spouse shall, within 30 days after the divorce
becomes final, submit an Offer Notice to the Divorced Shareholder, the Company
and the Offered Shareholders. The Offer Notice shall be given concurrently to
the Divorced Shareholder, the Company and the Offered Shareholders and shall
state that the Divorced Spouse offers to sell the Offered Stock. The Offer
Notice shall also specify (i) the date the divorce became final, (ii) the
number of shares of Offered Stock, (iii) whether the Divorced Spouse proposes
to effect a Transfer of Offered Stock not purchased by the Divorced
Shareholder, the Company or the Offered Shareholders, and if so the Offering
Price, the name and address of the prospective Transferee or Transferees and
the other terms of such proposed Transfer, if any, and (iv) the address of the
Divorced Spouse that is to be its location for notices and other communications
hereunder.
(b) Within 30 days after receipt of the Offer Notice, the Divorced
Shareholder shall give a Response Notice to the Divorced Spouse, the Company
and the Offered Shareholders stating whether such Divorced Shareholder elects
to purchase the shares of Offered Stock. If the Divorced Shareholder does not
elect to purchase all of the shares of Offered Stock, the Company shall, within
15 days after receipt of the Response Notice of the Divorced Shareholder, give
a Response Notice to the Divorced Spouse and the Offered Shareholders stating
whether it elects to purchase any of the shares of Offered Stock not to be
purchased by the Divorced Shareholder. If all of the Offered Stock is not
purchased by the Divorced Shareholder and the Company, or either of them, each
of the Offered Shareholders shall, within 15 days after the giving of the
Response Notice of the Company, give a Response Notice to the Divorced Spouse,
the Company and the other Offered Shareholders as to whether such Offered
Shareholder elects to purchase any of the shares of Offered Stock not to be
purchased by the Divorced Shareholder or the Company. If there is more than
one Purchasing Shareholder, the shares of Offered Stock to be purchased by such
Purchasing Shareholders shall be allocated among the Purchasing Shareholders in
such proportions as they may
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mutually agree, or in the absence of such agreement, pro rata according to the
relative holdings of shares of Stock of the Purchasing Shareholders on the
applicable Determination Date.
(c) If all of the Offered Stock is not purchased by the Divorced
Shareholder, the Company and the Offered Shareholders, or any of them, (i) the
Divorced Spouse may, within 30 days following the expiration of the time
provided in Section 13(b) hereof for election by the Offered Shareholders to
purchase the same, effect a Transfer to the Transferee or Transferees named in
the Offer Notice of the balance of the shares of Offered Stock not purchased by
the Divorced Shareholder, the Company or the Offered Shareholders, but only in
strict compliance with the terms therein stated, and (ii) the shares of Offered
Stock that are not purchased by the Divorced Shareholder, the Company or the
Offered Shareholders or as to which the Divorced Spouse fails to complete a
Transfer pursuant to the preceding clause (i) shall be transferred into the
name of the Divorced Spouse and shall continue to be subject to the provisions
of this Agreement.
(d) If a Transfer of Stock is ever made to a Person whose spouse
is already a Shareholder, so that following such Transfer both husband and wife
will be Shareholders, then unless otherwise expressly agreed in a written
instrument executed by both husband and wife and delivered to the Company, in
the event of the divorce of such Persons, the Person who acquired Stock as of
the earliest date shall be the Divorced Shareholder and the spouse who acquired
Stock thereafter shall be the Divorced Spouse for purposes of this Section 13.
Section 14. Involuntary Transfer. Any Transfer of Stock in
connection with any bankruptcy, insolvency or similar proceedings involving a
Shareholder or a spouse of a Shareholder or pursuant to any judicial order,
legal process, execution or attachment and any other involuntary Transfer not
otherwise expressly provided for in this Agreement shall be subject to the
restrictions set forth in this Agreement.
Section 15. Purchase Price. The purchase price per share of
Stock (the "Purchase Price") to be paid by the Company, a Purchasing
Shareholder or any other Person for the purchase of Stock pursuant to an Offer
Notice shall be as follows:
(a) for purposes of Section 14 hereof, the Purchase Price shall be
the Book Value of the shares of Common Stock and the Stated Value of the shares
of Preferred Stock;
(b) for purposes of Sections 11 and 12 hereof, the Purchase Price
shall be the lesser of (i) the Formula Value of the shares of Common Stock,
(ii) the Stated Value of the shares of Preferred Stock or (iii) the Offering
Price, if any, specified in the Offer Notice; and
(c) for purposes of Section 13 hereof, the Purchase Price shall be
the lesser of (i) the Book Value of the shares of Common Stock, (ii) the Stated
Value of the shares of Preferred Stock, (iii) the Offering Price, if any,
specified in the Offer Notice or (iv) the value per share of Stock, if any,
specified in the divorce decree.
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Section 16. Closing. The closing (the "Closing") of the purchase
and sale of any shares of Offered Stock shall be held on such date and at such
time as is specified in the Response Notice given by the Person or Persons
electing to purchase the same (each, a "Purchaser"); provided, however, that
(i) the date so specified shall be not less than 45 nor more than 60 days after
the date of such Response Notice and (ii) if there is more than one Purchaser,
the Closing shall be held on the date specified in the earliest affirmative
Response Notice. The Closing shall take place at the principal office of the
Company or at such other location as may be mutually agreed upon by the
Purchasers and the Person or Persons from which the shares of Offered Stock are
to be purchased. At the Closing, each seller of Offered Stock shall deliver a
certificate or certificates representing the shares of Offered Stock to be sold
by such seller to the Purchasers, duly endorsed in blank or accompanied by
stock powers duly executed in blank or otherwise in form acceptable for
transfer on the books of the Company, and the Purchasers shall pay to each
seller of Offered Stock an amount in cash equal to the Purchase Price for such
Stock. Each seller of Offered Stock shall cooperate in good faith with the
Purchasers in connection with the Closing. In addition, at the Closing, the
personal representative of the estate of a Deceased Shareholder or of a
Deceased Spouse, if any, shall deliver to the Purchasers (i) copies of the
letters testamentary or letters of administration evidencing his appointment
and qualification, (ii) a certificate issued by the Internal Revenue Service
pursuant to Section 6325 of the Internal Revenue Code discharging the Stock to
be sold from liens imposed by the Internal Revenue Code, and (iii) an estate
tax waiver issued by the state of domicile of the Deceased Shareholder or
Deceased Spouse.
Section 17. Holdback Agreement; Adjustments.
(a) Each Shareholder agrees that, (i) to the extent requested in
writing by a managing underwriter of an IPO or any underwritten public offering
effected pursuant to a demand registration request under the Registration
Agreement, it will not Transfer any Stock or any other equity security of the
Company or any security convertible into or exchangeable or exercisable for any
equity security of the Company (other than as part of such underwritten public
offering) during the time period reasonably requested by the managing
underwriter, not to exceed 180 days, and (ii) to the extent requested in
writing by a managing underwriter of any underwritten public offering effected
by the Company for its own account within three years after an IPO, it will not
Transfer after such offering any of the Stock or any other equity security of
the Company or any security convertible into or exchangeable or exercisable for
any equity security of the Company (other than as part of such underwritten
public offering) during the time period reasonably requested by the managing
underwriter, which period shall (x) not exceed 180 days, in the event that it
participates in such public offering pursuant to "piggyback" registration
rights granted under the Registration Agreement, and (y) not exceed 90 days, in
the event that it does not so participate in such public offering.
(b) The Company agrees that it will take all reasonable steps
necessary to effect a subdivision of shares if, with respect to any demand
registration request under the Registration Agreement, in the reasonable
judgment of the managing underwriter for the offering in respect of such demand
registration, such subdivision would enhance the marketability of the
securities
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proposed to be registered thereunder. Each Shareholder agrees to vote all of
its shares of capital stock in a manner, and to take all other actions
necessary, to permit the Company to carry out the intent of the preceding
sentence including, without limitation, voting in favor of an amendment to the
Certificate in order to increase the number of authorized shares of capital
stock of the Company.
Section 18. Certain Covenants.
18.1. Financial Statements and Other Information.
(a) From the date hereof until completion of an IPO, the Company
shall deliver to each Shareholder (so long as such Shareholder holds at least
1% of the Common Stock) and to each other subsequent holder of at least 1% of
the Common Stock:
(i) within 45 days after the end of each of the first
three quarterly accounting periods in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of
the Company for such fiscal quarter, and unaudited consolidating and
consolidated balance sheets of the Company as of the end of such
fiscal quarter, setting forth in each case comparisons to the same
quarter of the preceding fiscal year, all prepared in accordance with
GAAP, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments;
(ii) within 90 days after the end of each fiscal year,
audited consolidating and consolidated statements of income and cash
flows of the Company for such fiscal year, and consolidating and
consolidated balance sheets of the Company as of the end of such
fiscal year, setting forth in each case comparisons to the preceding
fiscal year, all prepared in accordance with GAAP, consistently
applied, and accompanied by, with respect to the consolidated portions
of such statements, an opinion of a "Big Six" independent accounting
firm that is unqualified with respect to the scope of such firm's
examination and the Company's status as a going concern;
(iii) promptly (but in any event within five business days)
after the discovery or receipt of notice of any default under any
material agreement to which the Company and/or any of its Subsidiaries
is a party, which default could have a material adverse effect on the
Company or any Subsidiary, an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company
has taken and proposes to take with respect thereto;
(iv) promptly (but in any event within three business
days) after transmission thereof, copies of all financial statements,
proxy statements, reports and any other general written communications
which the Company sends to its shareholders generally; and
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(v) with reasonable promptness, such other information
and financial data concerning the Company as any Person entitled to
receive information under this Section 18.1 may reasonably request.
(b) Each of the financial statements referred to in this Section
18.1 shall be true and correct in all material respects, and shall fairly and
accurately reflect the financial condition and operating results of the Company
as of the dates and for the periods stated therein, subject in the case of the
unaudited financial statements to changes resulting from normal year-end
adjustments (none of which would, alone or in the aggregate, be materially
adverse to the financial condition, operating results, assets or operations of
the Company and its Subsidiaries taken as a whole).
18.2. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the Series B
Preferred, Series C Preferred and Series D Preferred, such number of shares of
Common Stock issuable upon the conversion of all outstanding shares of Series B
Preferred, Series C Preferred and Series D Preferred. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Company shall take all such actions as may be necessary to assure that all such
shares of Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
18.3. Public Disclosures. Unless approved by the Board, the Company
shall not, nor shall it permit any of its Subsidiaries to, disclose any
Shareholder's name or identity as an investor in the Company or any material
information related to this Agreement in any press release or other public
announcement or in any document or material filed with any governmental entity,
without the prior written consent of such Shareholder, unless such disclosure
is required by applicable law or governmental regulations or by order of a
court of competent jurisdiction, in which case prior to making such disclosure
the Company shall give written notice to such Shareholder describing in
reasonable detail the proposed content of such disclosure and shall permit such
Shareholder to review and comment upon the form and substance of such
disclosure.
Section 19. Conflicting Agreements. Each Shareholder represents
and warrants that such Shareholder has not granted and is not a party to any
proxy, voting trust or other agreement which is inconsistent with or conflicts
with any provision of this Agreement, and no holder of Stock shall grant any
proxy or become party to any voting trust or other agreement which is
inconsistent with or conflicts with any provision of this Agreement.
Section 20. Legend.
(a) Each Shareholder and the Company shall take all such action
necessary (including exchanging with the Company certificates representing
shares of Stock issued prior to the
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date hereof) to cause each certificate representing outstanding shares of Stock
to bear a legend containing the following words:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF (i) UNLESS (A)
REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES AND "BLUE
SKY" LAWS OR (B) AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY
SUCH LAWS IS AVAILABLE AND, IN SUCH CASE, AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO HOLLYWOOD THEATER
HOLDINGS, INC. (THE "COMPANY"), SHALL HAVE BEEN DELIVERED TO THE
COMPANY TO THE EFFECT THAT THE OFFER, SALE, TRANSFER, DISPOSITION,
PLEDGE, HYPOTHECATION OR EXCHANGE THEREOF IS EXEMPT FROM REGISTRATION
UNDER THE ACT AND ANY SUCH LAWS) OR (ii) UNLESS SOLD PURSUANT TO AND
IN COMPLIANCE WITH RULE 144 OF THE ACT AND APPLICABLE SECURITIES OR
"BLUE SKY" LAWS."
"IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE RESTRICTIONS ON TRANSFER AND TO THE VOTING AGREEMENTS
SET FORTH IN THE AMENDED AND RESTATED SHAREHOLDERS' AND VOTING
AGREEMENT DATED AS OF DECEMBER __, 1997 BY THE COMPANY AND THE PARTIES
THERETO, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE COMPANY."
(b) The requirement that the above securities legend be placed
upon certificates evidencing shares of Stock shall cease and terminate upon the
earliest of the following events: (i) when such shares are transferred in an
underwritten public offering, (ii) when such shares are transferred pursuant to
Rule 144 under the Securities Act or (iii) when such shares are transferred in
any other transaction if the seller delivers to the Company an opinion of its
counsel, which counsel and opinion shall be reasonably satisfactory to the
Company to the effect that such legend is no longer necessary in order to
protect the Company against a violation by it of the Securities Act upon any
sale or other disposition of such shares without registration thereunder. The
requirement that the above legend regarding this Agreement be placed upon
certificates evidencing shares of Stock shall cease and terminate upon the sale
of such shares of Stock pursuant to a Public Sale. Upon the consummation of
any event requiring the removal of a legend hereunder, the Company, upon the
surrender of certificates containing such legend, shall, at its own expense,
deliver to the holder of
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any such shares as to which the requirement for such legend shall have
terminated, one or more new certificates evidencing such shares not bearing
such legend.
Section 21. Representations and Warranties. Each party hereto
represents and warrants to the other parties hereto as follows:
(i) It has full power and authority to execute, deliver
and perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding
obligation of it, enforceable against it in accordance with its terms
except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights
generally.
(iii) The execution, delivery and performance of this
Agreement by it does not (x) violate, conflict with, or constitute a
breach of or default under its organizational documents, if any, or
any material agreement to which it is a party or by which it is bound
or (y) violate any law, regulation, order, writ, judgment, injunction
or decree applicable to it.
(iv) No consent or approval of, or filing with, any
governmental or regulatory body is required to be obtained or made by
it in connection with the transactions contemplated hereby.
(v) It is not a party to any agreement which is
inconsistent with the rights of any party hereunder or otherwise
conflicts with the provisions hereof.
Section 22. Put. At any time on or after October 31, 2001, and
provided that a Qualified IPO has not then occurred, the Richard M. Durwood
Revocable Trust (the "Durwood Trust") may, by written notice of such intent to
the Company (the "Put Notice"), require the Company to purchase all but not
less than all shares of the Common Stock then held by the Durwood Trust (the
"Put Holder") at the Put Price determined as of the date of the Put Notice.
The Put Notice shall set forth a date (which shall be not less than sixty 60
days, nor more than ninety 90 days after the date of the Put Notice and which
shall be a Business Day) (the "Put Closing Date") for the purchase and sale of
the shares of the Common Stock with respect to which such Put Holder is
exercising the Put (the "Put Shares"). On the Put Closing Date, the Put Holder
shall deliver the certificates evidencing the Put Shares by the Put Holder to
the Company duly endorsed, free and clear of all liens, claims and encumbrances
of any kind (other than any liens, claims and encumbrances arising under this
Agreement or under applicable federal and state securities laws), and the
Company shall pay to the Put Holder, in cash, an amount equal (i) the Market
Value multiplied by (ii) the number of Put Shares (the "Put Price"). The
amount payable by the Company to the Put Holder upon exercise of the Put shall
be paid by certified or cashier's check, by wire transfer or other immediately
available funds. The failure of the Put Holder to deliver the certificates
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<PAGE> 35
evidencing the Put Shares held by the Put Holder to the Company shall not limit
or impair the right of the Put Holder to receive the consideration to be paid
to the Put Holder upon exercise of the Put. However, the Company may withhold
payment of such consideration pending receipt from the Put Holder of such
certificates or of evidence that such certificates have been mutilated, lost,
stolen or destroyed and satisfactory indemnities with respect thereto. Pending
delivery of such certificate(s) (or other evidence and indemnities), the
consideration to be paid to the Put Holder shall be held in trust by the
Company for the Put Holder and shall be set aside in a separate account for the
benefit of the Put Holder, segregated from the other assets of the Company. If
the Company is unable to purchase all Put Shares on a Put Closing Date due to
state law restrictions or restrictions in the Company's Certificate or its
agreements relating to indebtedness for borrowed money, the Company shall
purchase all Put Shares which it is then permitted to purchase without
violating such restrictions (on a pro rata basis from the Put Holder then
exercising the Put), and the Company shall purchase the remaining Put Shares as
soon thereafter as possible without violating such restrictions; provided, that
in the event the purchase of such remaining securities is postponed for more
than ninety (90) days following the original Put Closing Date, the Put Holder
shall have the right to have the Put Price redetermined as of such date and may
elect to have the Put Price be the higher of the original Put Price or the Put
Price determined at such later date.
Section 23. Duration of Agreement. The rights and obligations of
a Shareholder under this Agreement shall terminate at such time as such
Shareholder no longer is the beneficial owner of any shares of Stock. This
Agreement shall terminate upon the consummation of an IPO, except that the
terms of Sections 3.1(b) to 3.12, 17, 18.2, 18.3, 25 and 32 shall survive
until, by their respective terms, they are no longer operative.
Section 24. Further Assurances. At any time or from time to time
after the date hereof, the parties agree to cooperate with each other, and at
the request of any other party, to execute and deliver any further instruments
or documents and to take all such further action as the other party may
reasonably request in order to evidence or effectuate the consummation of the
transactions contemplated hereby and to otherwise carry out the intent of the
parties hereunder.
Section 25. Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company or any Shareholder unless such
modification, amendment or waiver is approved in writing by (i) the Company,
(ii) Shareholders holding at least 75% of the Common Stock (which may include
Beacon and/or the Stratford Entities and/or the Hoak Entities), (iii) Beacon
(as long as it holds at least 5% of the outstanding Common Stock), (iv) the
Stratford Entities (as long as they collectively hold at least 5% of the
outstanding Common Stock) and (v) the Hoak Entities (as long as they
collectively hold at least 5% of the outstanding Common Stock). The failure of
any party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
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Section 26. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
Section 27. Entire Agreement. Except as otherwise expressly set
forth herein, this document and the other documents dated the date hereof
embodies the complete agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way,
including, without limitation, the Prior Shareholders' Agreement which is
amended and restated in its entirety hereby.
Section 28. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and each Shareholder
and their respective successors, assigns, heirs and personal representatives,
so long as they hold Stock. Except pursuant to a Transfer of Stock in
compliance which Section 4, no Shareholder shall have the right to assign its
rights and obligations under this Agreement, without the consent of each of the
other Shareholders. As long as its Transfer is in compliance with Section 4,
Beacon may assign its rights under Section 3.1 to designate Beacon Directors as
follows: At such time as Beacon has the right to designate three Beacon
Directors, any transferee of 33-1/3% or more of Beacon's shares shall have the
right to designate one Beacon Director. At such time as Beacon has the right
to designate one or two Beacon Directors, any transferee of 50% or more of
Beacon's shares shall have the right to designate one Beacon Director.
Section 29. Counterparts. This Agreement may be executed in
separate counterparts each of which shall be an original and all of which taken
together shall constitute one and the same agreement.
Section 30. Remedies. Each Shareholder shall be entitled to
enforce its rights under this Agreement specifically to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that each party may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
Section 31. Notices. Any notice provided for in this Agreement
shall be in writing and shall be either personally delivered, or mailed first
class mail (postage prepaid) or sent by reputable overnight courier service
(charges prepaid) to the Company at the address set forth below and to any
other recipient at the address indicated on Schedule 31 hereto and to any
subsequent
32
<PAGE> 37
holder of Stock subject to this Agreement at such address as indicated by the
Company's records, or at such address or to the attention of such other person
as the recipient party has specified by prior written notice to the sending
party. Notices will be deemed to have been given hereunder when delivered
personally, three days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service. The Company's address is:
Hollywood Theater Holdings, Inc.
2911 Turtle Creek Blvd.
Suite 1150
Dallas, Texas 75219
Telecopy: (214) 520-2323
Attention: Thomas W. Stephenson, Jr.
Section 32. Governing Law; Consent to Jurisdiction. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without giving effect to the principles of conflicts of law.
Each of the parties hereto hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the courts of the State of Delaware and
of the United States of America, in each case located in the County of New
Castle, for any action, proceeding or investigation in any court or before any
governmental authority ("Litigation") arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any Litigation relating thereto except in such courts), and further agrees that
service of any process, summons, notice or document by U.S. registered mail to
its respective address set forth in this Agreement shall be effective service
of process for any Litigation brought against it in any such court. Each of
the parties hereto hereby irrevocably and unconditionally waives any objection
to the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of Delaware or the
United States of America, in each case located in the County of New Castle, and
hereby further irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such Litigation brought in any such court
has been brought in an inconvenient forum. Each of the parties irrevocably and
unconditionally waives, to the fullest extent permitted by applicable law, any
and all rights to trial by jury in connection with any Litigation arising out
of or relating to this Agreement or the transactions contemplated hereby.
Section 33. Miscellaneous. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement. This Agreement is intended to be a voting agreement among
stockholders as permitted by Section 218(c) of the Delaware General Corporation
Law.
Section 34. Construction. Where specific language is used to
clarify by example a general statement contained herein, such specific language
shall not be deemed to modify, limit or restrict in any manner the construction
of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be
applied against any party.
33
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Shareholders' and Voting Agreement on the day and year first above
written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ Robert E. Painter
-------------------------------------------
Robert E. Painter
Chief Operating Officer
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
By: Focus Value Investors, L.L.C., its general
partner
By: Focus Value GP, Inc., its managing member
By: /s/ Eric Wilkinson
---------------------------------------
Name: Eric Wilkinson
Title: Managing Director
STRATFORD CAPITAL PARTNERS, L.P.
By: Stratford Capital GP Associates, L.P.
By: Stratford Capital Corporation
By: /s/ John G. Farmer
---------------------------------------
John G. Farmer
Managing Director
34
<PAGE> 39
STRATFORD EQUITY PARTNER, L.P.
By: Stratford Capital GP Associates, L.P.
By: Stratford Capital Corporation
By: /s/ John G. Farmer
---------------------------------------
John G. Farmer
Managing Director
HOAK COMMUNICATIONS PARTNERS, L.P.
By: HCP INVESTMENT, L.P.
By: HOAK PARTNERS, L.L.C.
By: /s/ Thomas L. Harrison
---------------------------------------
Thomas L. Harrison
Manager
HCP CAPITAL FUND, L.P.
By: JAMES M. HOAK & CO.
By: /s/ Thomas L. Harrison
---------------------------------------
Thomas L. Harrison
Executive Vice President
35
<PAGE> 40
HCP 1997 AUTHORIZED EMPLOYEE FUND, L.P.
By: AUTHORIZED FUND MANAGEMENT, INC.
By: /s/ Robert Sussman
---------------------------------------
Robert Sussman
President
36
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF COVERAGE DEFICIENCY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Year Ended Nine Months Ended Twelve Months
December 31, September 30, Ended
September 30,
1995 1996 1996 1997 1997
----------------------- ------------------------ -------------
<S> <C> <C> <C> <C> <C>
Net Income (Loss) Before Taxes, Discounted
Operations, Extraordinary Items and
Cumulative Effect of a Change in Accounting $(907) $(2,793) $(1,656) $(6,118) $(11,767)
Principle . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . 463 2,121 713 4,482 12,127
Portion of Rents Representative of the
Interest Factor . . . . . . . . . . . . . . 322 988 510 2,105 3,670
----- ------- ------- ------- --------
Income (Loss) Before Taxes as Adjusted . . . . (122) 316 (433) 469 4,030
Fixed Charges:
Interest Expense . . . . . . . . . . . . . 463 2,121 713 4,482 12,127
Interest Capitalized . . . . . . . . . . . 0 0 0 0 0
Portion of Rents Represented of the
Interest Factor . . . . . . . . . . . . 322 988 510 2,105 3,670
----- ------- ------- ------- --------
Total Fixed Charges . . . . . . . . . . . . $ 785 $ 3,109 $ 1,223 $ 6,587 15,797
----- ------- ------- ------- --------
Preferred Dividends . . . . . . . . . . . . . . -- 422 112 2,853 3,804
Combined Fixed Charges and Preferred
Dividends . . . . . . . . . . . . . . . . . 785 3,531 1,335 9,440 19,601
----- ------- ------- ------- --------
Deficiency of Earnings to Combined Fixed
Charges and Preferred Dividends . . . . . . . $(907) $(3,215) $(1,768) $(8,971) $(15,571)
===== ======= ======= ======= ========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports, and to all references to our Firm, included in or made a part of this
Form S-4.
Arthur Andersen LLP
Dallas, Texas
January 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001046282
<NAME> Hollywood Theaters, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,108
<SECURITIES> 0
<RECEIVABLES> 1,206
<ALLOWANCES> 0
<INVENTORY> 1,151
<CURRENT-ASSETS> 16,759
<PP&E> 103,415
<DEPRECIATION> (5,457)
<TOTAL-ASSETS> 175,378
<CURRENT-LIABILITIES> 13,294
<BONDS> 0
46,833
0
<COMMON> 17,762
<OTHER-SE> (13,589)
<TOTAL-LIABILITY-AND-EQUITY> 175,378
<SALES> 54,475
<TOTAL-REVENUES> 54,852
<CGS> 22,324
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,482
<INCOME-PRETAX> (6,118)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,118)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
