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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Numbers 333-36736, 333-36736-01 & 333-36736-02
Hollywood Theaters, Inc
Hollywood Theater Holdings, Inc.
Crown Theatre Corporation
(Exact Name of Registrants as Specified in their Charters)
Delaware 75-2598844
Delaware 75-2605571
Missouri 43-1530337
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
75219
2911 Turtle Creek Blvd., Dallas, (Zip Code)
Texas
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (214) 528-9500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
There is no established public trading market for any of the registrants'
common stock. As of March 30, 1999, there were 120,072 shares of common stock
of Hollywood Theater Holdings, Inc. outstanding; 9,250 shares of common stock
of Hollywood Theaters, Inc. outstanding, all of which are owned by Hollywood
Theater Holdings, Inc.; and 500 shares of common stock of Crown Theatre
Corporation outstanding, all of which are owned by Hollywood Theaters, Inc.
Documents Incorporated by Reference: None
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HOLLYWOOD THEATERS, INC.
HOLLYWOOD THEATER HOLDINGS, INC.
CROWN THEATRE CORPORATION
Annual Report on Form 10-K
For the fiscal year ended December 31, 1998
Table of Contents
PART I
<TABLE>
<C> <S> <C>
Item 1-- Business 3
Item 2-- Properties 16
Item 3-- Legal Proceedings 16
Item 4-- Submission of Matters to a Vote of Security Holders 17
PART II
Market for Registrants' Common Equity and Related Stockholder
Item 5-- Matters 19
Item 6-- Selected Financial Data 20
Item 7-- Management's Discussion and Analysis of Financial Condition
and Results of Operations 21
Item 7A-- Quantitative and Qualitative Disclosures About Market Risk 29
Item 8-- Financial Statements and Supplementary Data 29
Item 9-- Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 30
PART III
Item 10-- Directors and Executive Officers of the Registrants 30
Item 11-- Executive Compensation 32
Item 12-- Security Ownership of Certain Beneficial Owners and Management 39
Item 13-- Certain Relationships and Related Transactions 42
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14-- 8-K 45
</TABLE>
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HOLLYWOOD THEATERS, INC.
HOLLYWOOD THEATER HOLDINGS, INC.
CROWN THEATRE CORPORATION
PART I
Item 1. Business
Hollywood Theaters, Inc. ("Hollywood" or the "Company") operates 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. As of December 31, 1998, the Company
operated 72 theaters with a total of 484 screens, located principally in
Texas, Oklahoma, Kansas and Missouri.
Founded in June 1995, the Company has grown rapidly by: (i) acquiring
theaters; (ii) building new multiplex theaters featuring "black box"
auditoriums with stadium-style seating in targeted markets; and (iii) adding
stadium-style auditoriums and state-of-the-art sight and sound systems to its
existing theaters.
The Company is a wholly-owned subsidiary of Hollywood Theater Holdings, Inc.
("Holdings"). The principal stockholders of Holdings include The Beacon Group
III--Focus Value Fund, L.P. ("BGFVF"), Stratford Capital Partners, L.P. and
Stratford Equity Partners, L.P. (collectively, "Stratford") and several
entities associated with the Hoak Communications Funds (the "Hoak Entities").
See "Item 12. Security Ownership of Certain Beneficial Owners and Management--
Principal Stockholders." Crown Theatre Corporation ("Crown"), the Company's
sole subsidiary, currently owns and operates three motion picture theaters and
has been wholly-owned by either Holdings or the Company since Crown was
acquired on November 1, 1996. With respect to the business of Hollywood and
unless the context otherwise requires, references in this document to the
"Company" include Hollywood Theaters, Inc. and Crown Theatre Corporation.
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.
Industry Overview
Based on industry sources, the Company believes that the North American
motion picture exhibition industry is comprised of approximately 525
exhibitors, approximately 285 of which operate four or more total screens. At
December 31, 1998, the ten largest exhibitors operated approximately 53% of
the total screens in operation, with no one exhibitor operating more than
approximately 11% of the total screens. From 1986 through 1998, the net number
of screens in operation in the United States increased from approximately
20,000 to approximately 34,200.
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.
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According to data released by the Motion Picture Association of America, the
U.S. box office sales of approximately $6.9 billion in 1998 was a record for
the industry. Overall attendance has grown modestly during the most recent
eight 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 eight
years.
<TABLE>
<CAPTION>
U.S. Box
Average Office
Attendance Ticket Sales
Year (Millions) Price (Billions)
---- ---------- ------- ----------
<S> <C> <C> <C>
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
1997........................................ 1,400 4.57 6.40
1998........................................ 1,486 4.70 6.95
</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. 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,
should help increase motion picture production. The Company believes that an
increasing supply of quality feature films and "event" films exhibited with
advanced projection and stereo sound equipment, such as Digital Theater Sound
Systems, Dolby(R) Digital Sound and SONY Dynamic Digital Sound, and THX(R)
sound systems will enhance the movie going experience and will increase
theater attendance of exhibitors, such as the Company, with modern multiplex
theaters designed to exhibit such motion pictures.
Business Strategy
The Company believes that moviegoers have indicated their preferences for
the unique entertainment features, more attractive theater surroundings,
better customer services and more comfortable seating typical of stadium-style
multiplexes. Stadium-style multiplex theaters also enhance the Company's
ability to increase attendance and concession sales while taking advantage of
economies of scale by concurrently exhibiting a wider variety of films with
more show times.
The Company's strategy has been to increase its revenues, cash flow and
earnings by (i) constructing new stadium-style theaters and auditoriums in
existing target markets; (ii) targeting under-served markets for new stadium-
style theater development; (iii) providing a superior entertainment experience
designed to attract larger audiences; and (iv) increasing per capita box
office and concession revenues. However, this strategy has not resulted in the
generation of cash flow and earnings sufficient to meet the Company's
liquidity needs, due in large part to significant competition experienced by
the Company in markets in which the Company operates. During 1998, the Company
sought to refine its business strategy in response to competitive and market
conditions. During this period, the Company also explored various financing
options to carry out its business plans but, as of December 31, 1998, the
Company had no firm financing commitments to complete its theater construction
and development plans. In March 1999, the Company entered into agreements to
recapitalize the Company. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition and
Liquidity--Proposed Recapitalization Transactions."
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Theater Operations
As of December 31, 1998, the Company operated 72 theaters with an aggregate
of 484 screens in six states and an average of 6.7 screens per theater. The
following table profiles the Company's theaters at December 31, 1998:
Profile of Company Theaters
Stadium-Style Theaters
<TABLE>
<CAPTION>
Average
Total Total Screens
State Screens Theaters Per Theater
----- ------- -------- -----------
<S> <C> <C> <C>
Texas........................................... 63 5 12.6
Oklahoma........................................ 26 2 13.0
Kansas.......................................... 12 1 12.0
Missouri........................................ 28 2 14.0
--- --- ----
Total Stadium-Style........................... 129 10 12.9
First Run Theaters
<CAPTION>
Average
Total Total Screens
State Screens Theaters Per Theater
----- ------- -------- -----------
<S> <C> <C> <C>
Texas........................................... 70 10 7.0
Oklahoma........................................ 84 13 6.5
Kansas.......................................... 52 11 4.7
Missouri........................................ 27 5 5.4
Ohio............................................ 11 1 11.0
Idaho........................................... 4 1 4.0
--- --- ----
Total First Run............................... 248 41 6.0
Discount Theaters
<CAPTION>
Average
Total Total Screens
State Screens Theaters Per Theater
----- ------- -------- -----------
<S> <C> <C> <C>
Texas........................................... 72 13 5.5
Oklahoma........................................ 12 2 6.0
Kansas.......................................... 4 1 4.0
Missouri........................................ 13 3 4.3
Ohio............................................ 4 1 4.0
Idaho........................................... 2 1 2.0
--- --- ----
Total Discount................................ 107 21 5.1
</TABLE>
At December 31, 1998, the Company operated 129 stadium-style screens at ten
newly built all-stadium theaters compared to 80 stadium-style screens at seven
newly built all-stadium theaters at December 31, 1997. These stadium-style
theaters contributed approximately 16% and 29% of the Company's revenues and
theater level cash flow, respectively, in 1997 and approximately 32% and 56%
of the Company's revenues and theater level cash flow, respectively, in 1998.
At December 31, 1998 the Company operated 41 first run theaters with an
aggregate of 248 screens, including 15 stadium-style screens at two
traditional first run theaters compared to 53 first run theaters with an
aggregate of 288 screens, including six stadium-style screens at two
traditional first run theaters at December 31, 1997. The Company's first run
theaters contributed approximately 71% and 67% of the Company's revenues and
theater level cash flow, respectively, in 1997 and approximately 58% and 46%
of the Company's revenues and theater level cash flow, respectively, in 1998.
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At December 31, 1998, the Company operated 21 discount theaters with an
aggregate of 107 screens compared to 21 discount theaters with an aggregate of
101 screens at December 31, 1997 which exhibit second run movies and charge
lower admission prices (typically $1.00-$1.50) than its stadium and first run
theaters. The terminology "second run" is an industry term for the showing of
movies after a film has completed its initial run at a first run theater.
These movies are of the same high quality as those 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 13% and 4% of the Company's revenues and theater level cash
flow, respectively, in 1997 and approximately 10% and a negative 2% of the
Company's revenues and theater level cash flow respectively, in 1998.
The Company is committed to providing customers in all of its theaters with
a premium moviegoing experience by emphasizing clean, conveniently located and
modern facilities with state-of-the-art equipment. The Company has undertaken
improvements in screens and projection systems, as well as lobby facilities
and design. The Company has incorporated wider, more comfortable seats with
armrests and cup holders in its newly constructed theaters. The Company also
invests in high quality projection and stereo sound equipment to enhance the
movie going experience. Technical sound enhancements adopted by the Company
include Digital Theater Sound Systems, Dolby(R) Digital Sound and SONY Dynamic
Digital Sound. Management estimates that a majority of films in 1999 will have
digital soundtracks available as an alternative to the standard stereo
soundtrack. At December 31, 1998, 100% and approximately 97% of the Company's
stadium-style auditoriums were equipped with stereo sound and digital sound
capabilities, respectively, and approximately 82% and 29% of the Company's
first run auditoriums were equipped with stereo sound and digital sound
capabilities, respectively.
The Company's corporate office, which employed approximately 66 individuals
as of December 31, 1998, 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 five 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 and theater managers, which rewards managers for incremental
improvements in theater profitability. 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 has emphasized 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'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 movie going
experience they can provide.
6
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Multiplex theaters generally 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.
The Company's construction program focuses on building stadium-style seating
multiplexes with an average of ten to 14 screens and adding stadium-style
seating auditoriums to select existing theaters. The Company plans its theater
construction efforts to allow for theater openings that can take advantage of
peak summer and year-end holiday film seasons.
The following tables set forth the Company's completed 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>
Number of Number of
Opening Date* Location Theaters 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
May 1998 Tulsa, Oklahoma 1 theater 12 screens
November 1998 Odessa, Texas 1 theater 11 screens
December 1998 Joplin, Missouri 1 theater 14 screens
February 1999 Mobile, Alabama 1 theater 18 screens
----------- ------------
Total 10 theaters 127 screens
Average number of screens per
theater 12.7 screens
</TABLE>
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* In most instances, theaters are opened with fewer than the total number of
screens, with the remaining screens opening within the next several weeks.
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Stadium-Style Screen Additions
<TABLE>
<CAPTION>
Number of Screens
Added to Total Resulting
Opening Date* Location Existing Theaters Screens
------------- --------------- ----------------- ---------------
<S> <C> <C> <C>
July 1996 Burleson, Texas 2 screens 10 screens
November 1997 Heath, Ohio 5 screens 11 screens
July 1998 Burleson, Texas 4 screens 14 screens
May 1998 Tyler, Texas 4 screens 14 screens
----------
Total 15 screens
</TABLE>
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* In most instances, theaters are opened with fewer than the total number of
screens, with the remaining screens opening within the next several weeks.
Theater Acquisitions
Since its inception, a significant amount of the Company's growth has come
through the acquisition of existing theaters. In each of 1996 and 1997, the
Company acquired a total of 62 and 18 theaters, respectively, with an
aggregate of 270 and 120 screens, respectively. The Company did not acquire
any theaters in 1998.
Completed Acquisitions Since Inception
<TABLE>
<CAPTION>
Number of Number of
Date of Theaters Screens
Acquisition Acquisition Acquired 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 with 31 screens operated
by the Company.
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Concessions
Concession sales are the Company's second largest revenue source after box
office revenues, representing approximately 35% of total revenues for 1998.
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 continued to introduce new concession products designed to
attract additional concession purchases. New offerings have 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.
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 10.1% in the per capita concession revenues in the Company's
theaters during 1998 as compared to 1997.
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
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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. 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.
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 1998, 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
1998, the percentage of the Company's admission revenues attributable to each
of its significant distributors were 12%, 21%, 10%, 12%, 15%, 21% and 5%,
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
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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.
Competition
The motion picture exhibition industry is highly competitive, particularly
in licensing films, attracting patrons and finding new theater sites. There
are approximately 525 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.
The Company believes that competition is often intense with respect to
licensing films and attracting patrons. 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
stadium-style 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 non-stadium-style
theaters in the market. At the same time, there has been a consolidation among
exhibitors. At December 31, 1998, the ten largest motion picture exhibition
companies operated approximately 53% of the total screens in operation, with
no one exhibitor operating more than 11% 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 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 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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The Company is subject to various general regulations applicable to its
operations including the Americans with Disabilities Act of 1990, as amended
(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. The Company believes its theaters and specifications for new
theaters substantially comply with the regulations of the ADA. However, the
Company is currently party to a lawsuit challenging its compliance with the
ADA at one of its theaters and there can be no assurance that the Company will
prevail in such lawsuit. See "Item 3. Legal Proceedings."
Employees
As of December 31, 1998, the Company had approximately 1,846 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.
Risk Factors
This Annual Report on Form 10-K 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 document, including, without limitation, certain statements
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business," 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
include, but are not limited to, those disclosed immediately below and
elsewhere throughout this document. The Company undertakes no obligation to
publicly release any revisions to any forward-looking statements contained
herein to reflect events and circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.
Substantial Indebtedness. The Company is highly leveraged. At December 31,
1998, the Company had $164.8 million of indebtedness outstanding. This
includes $54.8 million of senior indebtedness outstanding under the Amended
and Restated Credit Agreement, dated as of August 7, 1997, among Holdings, the
Company, the banks and other financial institutions that are a party thereto
and Bank of America National Trust and Savings Association ("Bank of
America"), as Administrative Agent (as amended, the "Senior Bank Facility"),
and $110.0 million principal amount of outstanding 10 5/8% Senior Subordinated
Notes due August 1, 2007 (the "Notes"). At March 30, 1999, the Company had
$182.4 million of indebtedness outstanding, comprised of $110.0 million under
the Notes and $72.4 million of senior indebtedness (which includes a letter of
credit of $189,000) under the Senior Bank Facility which limits borrowings to
a total of $75.0 million. The degree to which the Company and Holdings are
leveraged could have important consequences to the Company and the holders of
the Notes, including: (i) a substantial portion of the Company's and Holdings'
cash flow from operations is dedicated to the payment of interest and (ii)
such leverage could limit the Company's and Holdings' ability to fund
operations and future growth. The Company's and Holdings' ability to make
scheduled payments or to refinance their indebtedness depends on their
financial and operating performance, which, in turn, is subject to prevailing
economic conditions and to financial, business, competitive and other factors,
some of which are beyond their control. The Company's and Holdings' operating
results are not sufficient for payment of the Company's and Holdings'
indebtedness.
Current Event of Default; Risks Related to Potential Failure to Consummate
the Proposed Recapitalization Transactions. Since the last quarter of 1997,
the Company has experienced difficulty meeting certain of the Senior Bank
Facility financial covenants. Since November 1997 and through March 30, 1999,
the Company has obtained several waivers in respect of certain financial
covenants and amended the Senior Bank Facility on 13 occasions in connection
therewith. On January 14, 1999, the Company received a waiver of certain
financial covenants until June 30, 1999. However, in connection with obtaining
such waiver, the final maturity of the Senior Bank Facility was moved up from
August 7, 2002 to June 30, 1999.
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On February 1, 1999, the Company failed to make a scheduled interest payment
on the Notes, which constituted an event of default under the Senior Bank
Facility. On February 1, 1999, the Company and the lenders under the Senior
Bank Facility (the "Lenders") entered into a Forbearance Agreement whereby the
Lenders waived such event of default until March 1, 1999. On March 4, 1999,
the Company and the Lenders entered into a second Forbearance Agreement
whereby the Lenders again waived, subject to certain conditions, such event of
default until the earlier of (i) the consummation or expiration of the Offer
(as defined below); (ii) April 30, 1999; or (iii) the termination of such
Forbearance Agreement in accordance with its terms. Although the Lenders have
entered into the Forbearance Agreement, such Lenders are still permitted to
deliver a "blockage notice" to the Trustee (as defined below), prohibiting the
payment of any principal of, premium or interest on, or in respect of the
purchase or other acquisition of, or defeasance of, the Notes.
Since the Company did not make such scheduled interest payment on the Notes
on or prior to March 3, 1999, an Event of Default occurred under the
Indenture, dated as of August 7, 1999 (the "Indenture") among the Company,
Holdings and Crown, each as guarantors, and U.S. Trust Company of Texas, N.A.,
as trustee (the "Trustee"), pursuant to which the Notes were issued. The
occurrence of such Event of Default under the Indenture allows the Trustee and
the holders of at least 25% in aggregate principal amount of Notes to declare
all the Notes to be immediately due and payable. The current Forbearance
Agreement with the Lenders provides that such agreement will terminate
immediately and automatically upon the exercise of any right or remedy under
the Indenture by any party.
On March 3, 1999, the Company announced the proposed Recapitalization
Transactions (as defined and discussed below under "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition and Liquidity--Proposed Recapitalization Transactions").
The Company intends to use the proceeds from the Recapitalization Transactions
to repay and retire the Senior Bank Facility and to fund the Offer and the
Consent Solicitation (as defined below). The availability of any future
borrowings under the Senior Bank Facility, under which a total of $2.6 million
was available as of March 30, 1999, is subject to BGFVF's agreement to fund
such borrowings pursuant to the Participation Agreement. If the Company is not
able to consummate the Recapitalization Transactions for any reason, including
the failure to consummate the Offer, and if the amounts due under the Senior
Bank Facility or the Notes are accelerated as described above, the Company
will not have sufficient resources, and may not have access to sufficient
resources, to satisfy timely its obligations under the Senior Bank Facility or
the Notes, including the repayment of all amounts outstanding thereunder. The
Company's lack of adequate liquidity and financing sources raise substantial
doubt about the Company's ability to continue as a going concern. Regardless
of whether the Senior Bank Facility or the Notes are accelerated, if the
Recapitalization Transactions are not consummated, there is a substantial
prospect that the Company and Holdings would be required to seek protection
under the U.S. Bankruptcy Code.
Restrictive Financial Covenants. The Indenture under which the Notes were
issued contains a number of significant covenants that restrict, 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. The Company's ability
to comply with such covenants and other restrictions contained in the
Indenture may be affected by events beyond the Company's control, including
prevailing economic, financial and industry conditions. An event of default
has occurred under the Indenture as a result of the Company's failure to make
a scheduled interest payment on the Notes on or prior to March 3, 1999 and
could result in an acceleration of the indebtedness outstanding under the
Notes.
In addition, the Senior Bank Facility contains significant restrictions,
including the maintenance of certain financial ratios. Since the last quarter
of 1997, the Company has experienced difficulty meeting certain of the Senior
Bank Facility financial covenants. Since November 1997 and through March 30,
1999, the Company has obtained several waivers in respect of certain financial
covenants and amended the Senior Bank Facility on 13 occasions in connection
therewith. The Company is currently operating under a waiver of certain of the
financial conditions contained in the Senior Bank Facility. The Company's
failure to make a scheduled interest payment on the Notes also constituted an
event of default under the Senior Bank Facility, as to which the Lenders
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thereunder and the Company have entered into a Forbearance Agreement. The
Company cannot represent that it will be able to comply with the covenants and
restrictions under the Indenture or the Senior Bank Facility in the future.
Furthermore, the Company cannot represent that it will have sufficient
resources or have access to sufficient resources to satisfy its obligations
under the Notes or to satisfy timely the Senior Bank Facility if such
indebtedness were to be accelerated. For additional information regarding the
Company's financing arrangements and liquidity concerns, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition and Liquidity."
Substantial Capital Expenditures. During 1998, the Company opened three
newly built stadium theaters with 37 screens. At December 31, 1998, the
Company had one stadium theater with 18 screens under construction, which
opened in February, 1999. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company's capital
expenditures in connection with stadium theater development in 1998 was
approximately $67.2 million. The Company funded these capital expenditures
through cash flow from operations and borrowings under the Senior Bank
Facility. Any future 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.
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, the performance of such films
in the Company's markets and the terms upon which the films are licensed. 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 "Item 1. Business--Film Licensing."
Significance of Price Terms. Price terms of film licenses also affect the
Company's results. Recently, more distributors have been licensing films under
firm term fee arrangements, under which the final terms are negotiated at the
time of licensing, instead of an a settlement basis, under which the terms are
adjusted subsequent to the exhibition of a motion picture. Firm term
arrangements can result in the Company retaining a lower percentage of
admissions, particularly when a film plays off more quickly than expected at
the time of the arrangement were negotiated.
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. If the Company's competitors develop or operate stadium-style
theaters in the Company's markets, the Company's results of operations could
materially and adversely be affected.
The Company believes that competition is often intense with respect to
licensing motion pictures and attracting patrons. 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. 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.
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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. The full extent
to which these alternative motion picture delivery systems will compete with
traditional theatrical releases 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 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 "Item 1. Business--Competition."
Risks Related to Goodwill. Goodwill is the excess of cost over the fair
value of the net assets of businesses acquired. During 1998, the Company
recorded a $31.2 million non-cash charge on the impairment of goodwill. The
remaining goodwill at December 31, 1998 was approximately $16.2 million, or
approximately 8.8% of the Company's total assets of $184.8 million. The
Company cannot assure that it will realize the value of such remaining
goodwill. This goodwill is being amortized on a straight-line basis over 15
years. The Company evaluates on a regular basis whether events and
circumstances have occurred that indicate all or a portion of such goodwill
may no longer be recoverable, in which case an additional charge to earnings
would become necessary.
Principal Stockholder. Holdings' principal stockholder, BGFVF, currently
beneficially owns approximately 65.3% of the shares of common stock, par value
$.01 per share, of Holdings (the "Holdings Common Stock"), on a fully-diluted
basis. As a result, BGFVF is able to vote more than a majority of shares on
matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Such ownership
concentration may have the effect of delaying or preventing a change in
control of Holdings and the Company. In addition, any additional borrowings by
the Company under the Senior Bank Facility are subject to BGFVF's agreement,
in each case, to fund such borrowings pursuant to a participation arrangement
with the Lenders. If BGFVF determines not to fund such borrowings, the Company
may be unable to obtain cash necessary to fund its operations and other
obligations. See "Item 12. Security Ownership of Certain Beneficial Owners and
Management" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition and Liquidity--
Liquidity."
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 years ended
December 31, 1996, 1997 and 1998 were approximately $0.9 million, $2.8
million, $7.9 million and $71.2 million, respectively. The Company cannot
assure that its future operations will generate operating income, net income
or sufficient cash flow to pay its obligations. See "Item 6. Selected
Financial Information" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
No Dividends. Neither Holdings, Hollywood or Crown has ever declared or paid
any cash dividends on its common stock. The payment of cash dividends in the
future will depend on the Company's earnings, financial condition, capital
needs and other factors deemed pertinent by the Company's board of directors,
including the limitations, if any, on the payment of dividends under state law
and then-existing credit agreements. It is the present policy of the Company's
board of directors to retain earnings, if any, to finance the operations of
the Company's business. In addition, the Company is currently restricted by
its Senior Bank Facility and by the Notes as to the amount of cash dividends
it can declare and pay on its common stock.
Seasonality. The Company's revenues have been seasonal, coinciding with the
timing of releases of motion pictures by the major distributors. Generally,
the most successful motion pictures have been released during the summer,
extending from Memorial Day to Labor Day, and the holiday season, extending
from
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Thanksgiving through year-end. The unexpected emergence of a hit film during
other periods can alter this traditional trend. The timing of such film
releases can have a significant effect on the Company's results of operations
and the results of one quarter are not necessarily indicative of results for
the next quarter or for the same period in the following year. The timing of
the development, acquisition or closing of theaters may also affect the
Company's quarterly results.
Geographic Concentration of Business; Changes in Economy. Approximately 63%
and 35% of the Company's theaters are located in the southwestern (Texas and
Oklahoma) and midwestern (Kansas, Missouri and Ohio) United States,
respectively. The current geographic concentration of the Company's operations
increases the potential impact on the Company's results of operations of any
regional economic downturn or catastrophic event. The Company's prospects
could be adversely affected by unfavorable general economic conditions,
including any downturns in the national, Midwest or Southwest economies, any
local economies therein, or changes in demographic mix, employment levels,
population density, weather, real estate market conditions or other factors
unique to any of these regions. Such downturns or changes could have a greater
effect on the Company than on its more geographically diverse competitors.
Environmental Regulation. On account of its ownership and operation of
theaters, the Company is subject to environmental laws and regulations,
particularly laws governing the cleanup of hazardous materials and the
management of properties. While the Company is not currently involved in any
environmental matters that could have a material adverse effect on its
financial condition or results of operations, in the future, the Company might
be required to participate in the cleanup of a property that it owns or leases
or at which it is alleged to have disposed of hazardous material. In certain
circumstances, the Company might be solely responsible for any such liability
under environmental laws and therefore, any such claims could be material.
Item 2. Properties
Of the 72 theaters operated by the Company at December 31, 1998, nine
theaters (94 screens) were owned and 63 theaters (390 screens) were leased.
The Company's leases typically have remaining terms from four 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 33 theater leases (representing 162 screens) will
expire, representing approximately 46% of all the Company's theaters (34% of
all screens). Of those coming due within the next five years, leases at 19
theaters (representing 100 screens) will be subject to renewal options. In
addition, the Company has entered into a ground lease for another development
site.
The Company leases office space in Dallas, Texas for its corporate
headquarters.
Item 3. 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.
The ADA and certain state statutes, among other things, require that places
of public accommodation, including theaters (both existing and newly
constructed), be accessible to and that assistive listening devices be
available for use by certain patrons with disabilities. With respect to access
to theaters, certain interpretations of the ADA may generally require that
certain modifications be made to existing theaters to make such theaters
accessible to certain theater patrons and employees who are disabled. The ADA
requires that theaters be constructed in such a manner that persons with
disabilities have full use of the theater and its facilities and reasonable
access to work stations. The ADA provides for private rights of action and for
reimbursement of plaintiffs' attorneys' fees and expenses under certain
circumstances.
On June 24, 1998, in an action in the United States District Court, Eastern
District of Texas, Beaumont Division, Civil Action No. 1:98-CV-1975, Todd
Freeland, for himself and those similarly situated, v. Hollywood Theaters,
Inc., a private plaintiff is alleging that the Company has violated the ADA
and Chapter 12 of the Texas
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Human Resources Code (a state statute similar to the ADA) for not providing
comparable seating for wheelchair patrons at one of the Company's multiplex
theaters located in Beaumont, Texas. The suit seeks an unspecified amount of
actual and statutory damages in an amount of $1,000 for each violation, a
declaratory judgment and an injunction requiring the Company to modify the
wheelchair seating arrangements at the theater to provide views comparable to
those afforded to the general public. The Company has filed an answer denying
allegations in the Freeland suit. Although Hollywood Theaters believes that
the wheelchair seating provided in the Beaumont theater complies with
applicable ADA standards, the proper interpretation of those standards as they
relate to theaters with stadium-style seating is the subject of several
ongoing lawsuits within the industry and remains to be clearly established.
Accordingly, the Company may be required to modify its handicapped seating
arrangements in the Beaumont facility. There can be no assurance that any such
modifications will not materially adversely affect the Company's financial
condition, liquidity or results of operations, particularly if such
modifications are required to be made at other of the Company's theaters.
Item 4. Submission of Matters to a Vote of Security Holders
On August 21, 1998, the stockholders of Holdings owning (i) an aggregate of
90,990 shares of the total 120,072 shares of Holdings Common Stock; (ii) an
aggregate of 171,622 shares of the total 177,995 shares of outstanding Series
B Convertible Preferred Stock, par value $.01 per share, of Holdings (the
"Holdings Series B Preferred Stock"); (iii) all of the 84,137 outstanding
shares of Series C Convertible Preferred Stock, par value $.01 per share, of
Holdings (the "Holdings Series C Preferred Stock"); and (iv) all of the 61,826
outstanding shares of Series D Convertible Preferred Stock, par value $.01 per
share, of Holdings (the "Holdings Series D Preferred Stock," and together with
the Holdings Series B Preferred Stock and the Holdings Series C Preferred
Stock, the "Holdings Preferred Stock") acted by written consent (the "August
Stockholders Consent") with respect to the adoption of resolutions regarding
the following: (a) the approval of the issuance of a new series of preferred
stock of Holdings; (b) the issuance of shares of such series, if ever, to
BGFVF pursuant to a Contingent Reimbursement Agreement, dated as of August 28,
1998 (the "August Contingent Reimbursement Agreement"), by and between
Holdings and BGFVF; (c) the amendment of the Amended and Restated
Shareholders' and Voting Agreement, dated as of December 17, 1997, of Holdings
(the "Holdings Shareholders' Agreement"), to reflect the inclusion of shares
of such series within the terms thereof, if ever such shares were to be
issued; and (d) the waiver of any preemptive rights that any stockholder of
Holdings executing the August Stockholders Consent may have had, if ever, with
respect to the issuance of shares of such series. Holders of an aggregate of
29,082 shares of Holdings Common Stock and 6,373 shares of Holdings Series B
Preferred Stock were not solicited to execute the August Stockholders Consent,
and therefore abstained from consenting to the matters set forth therein. None
of the resolutions adopted pursuant to the August Stockholders Consent were
acted upon due to the termination of the August Contingent Reimbursement
Agreement and the terms and provisions thereof effective as of January 27,
1999. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Condition and Liquidity--Sources of
Funds" and "Item 13. Certain Relationships and Related Transactions."
On November 9, 1998, the stockholders of Holdings owning (i) an aggregate of
90,990 shares of the total 120,072 shares outstanding of Holdings Common
Stock; (ii) an aggregate of 171,622 shares of the total 177,995 shares
outstanding of Holdings Series B Preferred Stock; (iii) all of the 84,137
outstanding shares of Holdings Series C Preferred Stock; and (iv) all of the
61,826 outstanding shares of Holdings Series D Preferred Stock acted by
written consent (the "November Stockholders Consent") with respect to the
adoption of resolutions regarding the following: (a) the approval of the
designation and issuance of a new Series E Preferred Stock, par value $.01 per
share, of Holdings (the "Holdings Series E Preferred Stock"), ranking senior
to all other outstanding series of preferred stock of Holdings; (b) the
amendment of Holdings' Restated Certificate of Incorporation to reflect the
designation of the rights and preferences of the Holdings Series E Preferred
Stock therein; (c) the issuance of shares of Holdings Series E Preferred
Stock, if ever, to BGFVF pursuant to a Contingent Reimbursement Agreement,
dated as of November 10, 1998 (the "November Contingent Reimbursement
Agreement"), by and among Holdings, Hollywood and BGFVF; (d) the amendment of
the Holdings Shareholders' Agreement to reflect the inclusion of shares of the
Holdings Preferred Stock within the
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terms thereof, if ever such shares were to be issued; and (e) the waiver of
any preemptive rights that any stockholder of Holdings executing the November
Stockholders Consent may have had, if ever, with respect to the issuance of
shares of Holdings Series E Preferred Stock. Holders of an aggregate of 29,082
shares of Holdings Common Stock and 6,373 shares of Holdings Series B
Preferred Stock were not solicited to execute the August Stockholders Consent,
and therefore abstained from consenting to the matters set forth therein. None
of the resolutions adopted pursuant to the November Stockholders Consent were
acted upon due to the termination of the November Contingent Reimbursement
Agreement and the terms and provisions thereof effective as of January 27,
1999. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Condition and Liquidity--Sources of
Funds" and "Item 13. Certain Relationships and Related Transactions."
On November 12, 1998, the Company solicited (the "November Consent
Solicitation") the consents (the "November Consents") of registered holders of
the Notes to amendments to the Indenture. The purpose of the proposed
amendments was, among other things, (i) to permit the Company to issue
additional debt in an amount not to exceed $100.0 million; (ii) to permit the
Company to incur additional debt in the future, under certain circumstances,
upon obtaining additional equity; (iii) to amend the definitions of
"Consolidated Cash Flow Coverage Ratio" and "Total Incremental Equity"; (iv)
to eliminate all of the applicable provisions of the Indenture that
subordinate the Notes in right of payment to any senior debt of the Company;
and (v) to make such other changes to certain covenants and definitions as
were consistent with the offering by the Company of a new series of senior
notes and a new equity issuance pursuant to a financing plan proposed at such
time. On November 20, 1998, the Company extended the November Consent
Solicitation, which was originally set to expire on November 20, 1998, so that
such consent solicitation would expire on November 24, 1998. On November 24,
1998, the November Consent Solicitation expired according to its terms without
the minimum amount of required November Consents being delivered in connection
therewith.
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PART II
Item 5. Market for the Registrants' Common Equity and Related Shareholder
Matters
Each of the registrants' common stock is privately held; therefore, there is
no established public trading market for any of the registrants' common stock.
See "Item 12. Security Ownership of Certain Beneficial Owners and Management."
Neither Holdings, Hollywood or Crown has ever declared or paid any cash
dividends on its common stock. The payment of cash dividends in the future
will depend on consummation of the Recapitalization Transactions, the
Company's earnings, financial condition, capital needs and other factors
deemed pertinent by the Company's board of directors, including the
limitations, if any, on the payment of dividends under state law and then-
existing credit agreements. It is the present policy of the Company's board of
directors to retain earnings, if any, to finance the operations and expansion
of the Company's business. In addition, the Company is currently restricted by
its Senior Bank Facility and by the Notes as to the amount of cash dividends
it can declare and pay on its common stock.
On April 1, 1998, Holdings issued (i) 297 shares of Holdings Common Stock to
Thomas V. Stephenson, Jr. as part of Mr. Stephenson's 1997 bonus payment at
$195.00 per share: (ii) 142 shares of Holdings Common Stock to Robert E.
Painter as part of Mr. Painter's 1997 bonus payment at $195.00 per share; and
(iii) 60 shares of Holdings Common Stock to James R. Featherstone as part of
Mr. Featherstone's 1997 bonus payment at $195.00 per share. The issuance of
such shares of Holdings Common Stock was exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
under Section 4(2) thereof as a transaction not involving a public offering.
On April 1, 1998, Holdings issued options to purchase an aggregate of 11,368
shares of Holdings Common Stock to a total of 92 employees with an exercise
price of $195.00 per share. The issuance of such options was exempt from the
registration requirements of the Securities Act under Rule 701 thereunder.
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Item 6. Selected Financial Data
SUMMARY AND SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth Holdings' summary historical consolidated
financial information for the period from inception (July 11, 1995) through
December 31, 1995 and for the fiscal years ended December 31, 1996, 1997 and
1998. The financial statements of Holdings are identical to those of the
Company, except for differences in components of stockholders' equity
(deficit). The consolidated financial information for the period from
inception (July 11, 1995) through December 31, 1995 and for the fiscal years
ended December 31, 1996, 1997 and 1998 were derived from Holdings' audited
consolidated financial statements which have been audited by Arthur Andersen
LLP, independent public accountants. The following table also sets forth
selected financial information for the period from January 1, 1995 through
July 10, 1995 and for the fiscal year ended December 31, 1994, which was
derived from the unaudited books and records of Trans Texas Amusements, Inc.
and affiliates ("Trans Texas"), the Company's predecessor. Other Financial
Data, Operating Data and Balance Sheet Data for the fiscal year ended December
31, 1994 and the period from January 1, 1995 to July 10, 1995 have not been
presented because during such periods the theaters were owned and/or operated
by persons other than the Company. The fiscal years ended December 31, 1995,
1996, 1997 and 1998 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 "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including the notes thereto,
appearing elsewhere in this document.
<TABLE>
<CAPTION>
Period from
Year Ended January 1, 1995 Years Ended December 31,
December 31, through --------------------------------------
1994(1) July 10, 1995(1) 1995(2) 1996 1997 1998
------------ ---------------- -------- -------- -------- --------
(in thousands, except ratios and operating data)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues................ $12,542 $6,990 $ 6,334 $ 24,879 $ 79,171 $101,894
Direct theater costs.... 9,936 6,075 5,296 20,798 63,076 84,691
General and
administrative
expenses............... 1,197 281 743 1,601 5,077 7,528
Depreciation and
amortization........... 366 202 739 3,152 11,479 18,309
Impairment of long-lived
assets................. -- -- -- -- -- 48,083
------- ------ -------- -------- -------- --------
Operating income
(loss)................. 1,043 432 (444) (672) (461) (56,717)
Interest expense, net... 103 69 463 2,121 7,485 14,475
------- ------ -------- -------- -------- --------
Net income (loss)....... $ 940 $ 363 $ (907) $ (2,793) $ (7,946) $(71,192)
======= ====== ======== ======== ======== ========
Other Financial Data:
EBITDA(3)............... $ 444 $ 2,954 $ 11,552 $ 10,158
Cash flows from
operating activities... 182 1,032 5,268 10,088
Cash flows used in
investing activities... (10,669) (69,720) (90,115) (66,336)
Cash flows from
financing activities... 10,934 71,800 88,667 54,582
Operating Data (at
period end):
Number of theaters
operated............... 11 72 81 72
Number of screens
operated............... 70 342 469 484
Average screens per
theater................ 6.4 4.8 5.8 6.7
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------
1995 1996 1997 1998
------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................. $ 447 $ 3,559 $ 7,379 $ 5,713
Properties and equipment--net............. 3,642 43,116 104,376 143,437
Total assets.............................. 12,930 92,355 184,020 184,824
Total long-term debt, including current
maturities............................... 8,877 50,669 110,000 164,800
Convertible redeemable preferred stock.... -- 28,579 59,614 65,219
Redeemable common stock................... -- 2,252 2,872 2,872
Stockholders' equity (deficit)............ 1,838 4,292 (689) (77,455)
</TABLE>
- --------
(1) Represents the unaudited results of operations for the fiscal year ended
December 31, 1994 and the period from January 1, 1995 through July 10,
1995 for the 11 theaters purchased from TransTexas on July 11, 1995.
(2) For the period from inception (July 11, 1995) through December 31, 1995.
(3) Represents income before interest, taxes, depreciation, amortization,
deferred rent and impairment of long-lived assets. 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 generally accepted accounting principles ("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.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's revenues are generated primarily from box office receipts and
concession sales which constituted approximately 64% and 35% of 1998 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, competition
and, to a lesser extent, by the comfort and quality of the theater and
population growth in the geographic markets the Company serves.
The Company's principal costs of operations are film rentals and advertising
costs, concessions costs and theater operating expenses, such as theater lease
rentals, payroll, utilities, insurance and property taxes.
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. There are other factors, however, which may affect the Company's
revenues during any particular quarter, including the popularity of films
released during the quarter and the availability of such popular films at the
Company's theaters. As a result, depending on these factors, the Company's
revenues in the first and second quarters may not be as strong as in the third
and fourth quarters.
21
<PAGE>
Results of Operations
The following table sets forth a summary of operating revenues and expenses
for the years ended December 31, 1996, 1997 and 1998 (in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1996 1997 1998
-------------- -------------- ---------------
$ % $ % $ %
------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Admissions............... $15,335 61.6% $50,616 63.9% $ 64,726 63.5%
Concessions.............. 8,710 35.0 26,712 33.7 35,257 34.6
Other operating
revenues................ 834 3.4 1,843 2.4 1,911 1.9
------- ----- ------- ----- -------- -----
Total revenues......... 24,879 100.0 79,171 100.0 101,894 100.0
------- ----- ------- ----- -------- -----
Operating expenses:
Film rental and
advertising costs....... 8,388 33.7 27,576 34.8 37,665 37.0
Cost of concessions...... 1,412 5.7 4,320 5.5 6,592 6.4
Theater operating
expenses................ 10,998 44.2 31,180 39.4 40,434 39.7
General and
administrative
expenses................ 1,601 6.4 5,077 6.4 7,528 7.4
Depreciation and
amortization............ 3,152 12.7 11,479 14.5 18,309 18.0
Impairment of long-lived
assets.................. -- -- -- -- 48,083 47.2
------- ----- ------- ----- -------- -----
Total operating
expenses.............. 25,551 102.7 79,632 100.6 158,611 155.7
------- ----- ------- ----- -------- -----
Operating loss............. (672) (2.7) (461) (0.6) (56,717) (55.7)
Interest expense, net...... 2,121 8.5 7,485 9.5 14,475 14.2
------- ----- ------- ----- -------- -----
Net income (loss).......... $(2,793) (11.2%) $(7,946) (10.1%) $(71,192) (69.9%)
======= ===== ======= ===== ======== =====
EBITDA(1).................. $ 2,954 11.9% $11,552 14.6% $ 10,158 10.0%
======= ===== ======= ===== ======== =====
</TABLE>
- --------
(1) Represents income before interest, taxes, depreciation, amortization,
deferred rent and impairment of long-lived assets. 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 Years Ended December 31, 1998 and December 31, 1997
At the end of 1998 and 1997, the Company operated 72 and 81 theaters,
respectively, with an aggregate of 484 and 469 screens, respectively.
Total Revenues. Total revenues increased 28.7% or $22.7 million to $101.9
million during the year ended December 31, 1998 from $79.2 million during the
year ended December 31, 1997. This increase in revenues during the year was
principally due to the Company's construction or acquisition of ten stadium-
style theaters (with an aggregate of 133 screens) during 1997 and 1998 and the
net acquisition of 11 non-stadium-style theaters (with an aggregate of 73
screens) during 1997. Of the net $22.7 million increase in revenues during
1998, $18.9 million was attributable to new stadium-style theaters constructed
or acquired by the Company and $9.6 million was attributable to non-stadium-
style theaters acquired by the Company during 1997. These revenue increases
were partially offset by a $5.8 million revenue decline caused by increased
competition in certain markets, construction delays and non-stadium-style
theaters closed during 1998. The Company generally anticipates that the trend
of increased competition will continue.
The average price of a ticket for the Company's stadium, first run and
discount theaters was $4.62, $4.38 and $1.31, respectively, for the year ended
December 31, 1998 and $4.62, $4.26 and $1.28, respectively, for the year ended
December 31, 1997. This increase was principally due to the Company raising
ticket prices and
22
<PAGE>
acquiring theaters with higher average ticket prices than those previously
owned. Average concession sales per customer in the Company's theaters
increased approximately 10.1% during 1998, reflecting both an increase in
consumption and an increase in prices.
Direct Theater Costs. Direct theater costs (consisting of film rental and
advertising costs, cost of concessions and theater operating expenses)
increased 34.3% or $21.6 million to $84.7 million during the year ended
December 31, 1998 from $63.1 million during the year ended December 31, 1997.
As a percentage of total revenues, direct theater costs were 83.1% in the
current year compared to 79.7% in the prior year.
Film rental and advertising costs increased 36.6% or $10.1 million to $37.7
million from $27.6 million in 1997 due to higher attendance and an increase in
the percentage of admissions paid to film distributors. In general, film
rental costs for popular first run films continued to increase for the
industry as a whole. In 1998, the Company's film rental costs were $34.3
million or 53% of admission revenues. In addition, the Company increased
advertising to support its new stadium theaters.
Cost of concessions increased 52.6% or $2.3 million to $6.6 million during
the year ended December 31, 1998 from $4.3 million during the year ended
December 31, 1997. This is due to higher concession revenue, an increase in
concession costs from the introduction of product combination sales, use of
more expensive containers and a non-recurring charge of approximately $0.2
million related to obsolete inventory. As a percentage of concession revenues,
cost of concessions was 18.7% in the current year compared to 16.2% in the
prior year.
Theater operating expenses increased 29.7% or $9.2 million to $40.4 million
during the year ended December 31, 1998 from $31.2 million during the year
ended December 31, 1997 primarily due to higher rent, payroll and related
costs, utilities and property taxes. As a percentage of total revenues,
theater operating expenses were 39.7% in the current year compared to 39.4% in
the prior year.
General and Administrative Expenses. General and administrative expenses
increased 48.3% or $2.4 million to $7.5 million from $5.1 million in 1997. As
a percentage of total revenues, general and administrative expenses was 7.4%
in the current year compared to 6.4% in the prior year. The current year
includes approximately $1.2 million of non-recurring charges related primarily
to the Company's 1998 recapitalization efforts and canceled construction
projects.
Depreciation and Amortization. Depreciation and amortization expense
increased 59.5% or $6.8 million to $18.3 million for the year ended December
31, 1998 from $11.5 million for the year ended December 31, 1997. The increase
was principally due to the construction of stadium-style theaters in 1997 and
1998 and theater acquisitions made during 1997.
Impairment of Long-Lived Assets. During the current year, the Company
experienced increased competition in many of its markets. As a result, the
Company recognized a non-cash impairment loss of $48.1 million on certain non-
stadium theaters. The estimated undiscounted future operating cash flows
directly related to these theaters were less than the carrying amount of its
total property and equipment and related goodwill, and as such, the loss was
measured by the amount by which the total carrying amount of the theater
exceeded its estimated fair value.
Interest Expense, net. Interest expense, net increased to $14.5 million for
the year ended December 31, 1998 from $7.5 million for the year ended December
31, 1997. The increase was due to increased borrowing by the Company to
finance the construction of stadium theaters.
Net Loss. The Company's net loss grew to $71.2 million for the year ended
December 31, 1998 from $7.9 million for the year ended December 31, 1997.
Comparison of the Years Ended December 31, 1997 and December 31, 1996
At the end of 1997 and 1996, the Company operated 81 and 72 theaters
respectively, with an aggregate of 469 and 342 screens.
23
<PAGE>
Total Revenues. Total revenues were $79.2 million for the year ended
December 31, 1997 as compared to $24.9 million for year ended December 31,
1996. This increase in revenues during the years was principally due to the
Company's acquisition of 54 theaters (with an aggregate of 232 screens) during
the fourth quarter of 1996 and the acquisition of 13 theaters (with an
aggregate of 98 screens) in 1997. In addition, the Company constructed six all
stadium-style seating theaters (with an aggregate of 64 screens), one of which
was opened in November 1996, three of which opened at the end of May 1997, and
two of which opened in November and December 1997. Of the $54.3 million
increase in revenues during 1997, $44.3 million was attributable to theaters
acquired by the Company after the third quarter 1996, and $10.0 million was
attributable to new theaters constructed by the Company and theaters
previously operated by the Company.
The average price of a ticket at the Company's stadium, first run and
discount theaters was $4.62, $4.26 and $1.28, respectively, for the year ended
December 31, 1997 and $4.56, $4.12 and $1.26, respectively, for the year ended
December 31, 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 increased
approximately 8% during 1997, reflecting both an increase in consumption and
an increase in prices.
Direct Theater Costs. Film rental and advertising costs were $27.6 million
for the year ended December 31, 1997 as compared to $8.4 million for the year
ended December 31, 1996. Cost of concessions increased to $4.3 million for the
year ended December 31, 1997 from $1.4 million for the year ended December 31,
1996. Theater operating expenses increased to $31.2 million for the year ended
December 31, 1997 from $11.0 million for the year ended December 31, 1996.
Each of these increases was principally due to the Company's acquisition and
construction of theaters during 1997 and 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 to 79.7% for the year ended December 31, 1997 from 83.6%
for the year ended December 31, 1996 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 year ended December 31, 1997 increased to $5.1 million from $1.6 million
for the year ended December 31, 1996. The increase was principally due to the
Company's acquisition and construction of theaters during 1997 and the latter
part of 1996. General and administrative expenses as a percentage of total
revenues are flat at 6.4% for the years ended December 31, 1997 and 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased to $11.5 million ended December 31, 1997 from $3.2 million for the
year ended December 31, 1996. The increase was principally due to the
Company's acquisition and construction of theaters during 1997 and the latter
part of 1996.
Interest Expense, net. Interest expense, net increased to $7.5 million for
the year ended December 31, 1997 from $2.1 million for the year ended December
31, 1996. The increase was due to increased borrowing by the Company to
finance acquisitions and the construction of theaters and an increase in the
effective interest rate on the Company's borrowings as a result of the
issuance of the Notes.
Net Loss. The Company's net loss grew to $7.9 million for the year ended
December 31, 1997 from $2.8 million for the year ended December 31, 1996.
Financial Condition and Liquidity
Liquidity
The Company's revenues are collected in cash, primarily through box office
receipts and concession sales. The Company generally pays for film rentals,
inventories and other theater services 15 to 45 days following receipt of
revenues. As a result of this timing difference, the Company has generally
operated with a minimum working capital position for its ongoing theater
operations.
24
<PAGE>
Cash provided by operating activities was $10.1 million, $5.3 million and
$1.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company generated net losses of $71.2 million, $7.9 million
and $2.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. These losses included non cash charges for depreciation and
amortization, impairment of long lived assets and deferred lease expenses of
approximately $66.9 million, $12.0 million and $3.7 million for 1998, 1997 and
1996, respectively. Net increases in current liabilities provided cash of
approximately $14.4 million, $1.2 million and $0.1 million for 1998, 1997 and
1996, respectively.
Cash used in investing activities was $66.3 million, $90.1 million and $69.7
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Investing activities consist of theater development and acquisition and
remodeling and expansion of existing theaters. Cash provided by financing
activities was $54.6 million, $88.7 million and $71.8 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company has funded its capital needs primarily through capital
contributions from Holdings, proceeds from the issuance of the Notes,
borrowings under the Senior Bank Facility and funds generated from its
operations. Since its inception in 1995, the Company has received capital
contributions from Holdings totaling $74.3 million. Since Holdings has no
operations, these capital contributions represented the proceeds of equity
issuances by Holdings.
The Company has outstanding $110.0 million principal amount of Notes. The
Notes were issued in August 1997 and are governed by the terms of the
Indenture. Holdings and Crown are guarantors of the Notes.
The Company's direct financing sources are limited currently to borrowings
under the Senior Bank Facility. The Company's outstanding indebtedness as of
December 31, 1998 was comprised of the $110.0 million principal amount
outstanding of Notes, the approximately $49.8 million of indebtedness
outstanding under the Senior Bank Facility and the approximately $5.0 million
outstanding under the Interim Facility (as defined herein). The Senior Bank
Facility consists of a revolving credit facility of up to $75.0 million. As of
March 30, 1999, the Company had approximately $72.4 million of indebtedness
outstanding (which includes a letter of credit of $189,000) under the Senior
Bank Facility. Amounts outstanding 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), plus the
Applicable Margin (as defined therein). At December 31, 1998, the applicable
interest rate was 8.63% (and was 7.93% as of March 30, 1999). Borrowings under
the Senior Bank Facility are subject to various conditions precedent,
including the maintenance of certain financial covenants. Such financial
covenants require the Company to comply with specified financial ratios and
minimum tests, including minimum interest coverage ratios and maximum leverage
ratios.
Since the last quarter of 1997, the Company has experienced difficulty
meeting certain of the Senior Bank Facility financial covenants. Since
November 1997 and through March 30, 1999, the Company has obtained several
waivers in respect of certain financial covenants and amended the Senior Bank
Facility on 13 occasions in connection therewith.
In August 1998, the Company required funds under the Senior Bank Facility at
a time when the Company did not meet certain financial conditions for
additional borrowings thereunder. To induce the Lenders to waive the financial
conditions for a limited time and to allow the Company to borrow additional
amounts under the Senior Bank Facility, Holdings' principal stockholder,
BGFVF, agreed to deliver for the benefit of the Lenders under the Senior
Credit Facility a letter of credit for $12.5 million to support the full
amount of the additional borrowings by the Company at that time. To induce
BGFVF to issue the letter of credit, Holdings agreed in the August Contingent
Reimbursement Agreement that if the Lenders ever called upon BGFVF's letter of
credit, Holdings would be required to reimburse BGFVF by issuing to BGFVF
shares of Holdings preferred stock.
In November 1998, Bank of America agreed to provide the Company with $5.0
million of short-term capital under a separate facility (the "Interim
Facility") to allow the Company to issue new equity and debt securities on or
before December 15, 1998 (which was subsequently extended through January 14,
1999). Bank of America required that all amounts borrowed under the Interim
Facility be guaranteed by BGFVF. The purpose of the
25
<PAGE>
Interim Facility was to provide short-term capital to the Company prior to the
completion of a proposed (but never completed) transaction involving the
issuance of equity and debt by the Company, the refinancing of the Senior Bank
Facility and the exchange of the Notes. The November Contingent Reimbursement
Agreement entered into in connection with the Interim Facility provided that
if BGFVF was ever required to fund any amount under the guarantee, Hollywood
would be required to reimburse BGFVF by issuing senior subordinated debt and
Holdings would be required to issue to BGFVF shares of a new series of senior
convertible preferred stock.
In January 1999, the Company required additional borrowings under the Senior
Bank Facility to continue operations, but again did not meet certain
applicable borrowing conditions. The Company was unable to borrow the
additional funds it required from its bank lenders. On January 14, 1999, with
the financial backing of BGFVF, the Company received a waiver of certain
financial covenants under the Senior Bank Facility until June 30, 1999 and the
Senior Bank Facility was amended to increase the loan commitment thereunder
from $50.0 million to $75.0 million and to permit affiliates of the Company to
participate in any loans made thereunder. In connection with obtaining such
waivers and amending the Senior Bank Facility, BGFVF entered into a
Participation Agreement (the "Participation Agreement") with the Lenders,
pursuant to which BGFVF purchased a $12.5 million junior participation in
loans previously funded under the Senior Bank Facility (and theretofore backed
by BGFVF's $12.5 million letter of credit) and agreed to fund additional
borrowings by the Company under the Senior Bank Facility, if any. All of the
institutional investors of Holdings were offered the opportunity to become a
party to the Participation Agreement, but only BGFVF elected to do so. All
future loans under the Senior Bank Facility were made contingent on BGFVF's
agreement, in each case, to fund such borrowings pursuant to the Participation
Agreement. At that time, (i) BGFVF committed, subject to certain conditions,
to fund at least $4.0 million of additional borrowings thereunder for the
Company's working capital needs; (ii) the final maturity of the Senior Bank
Facility was moved from August 7, 2002 to June 30, 1999; (iii) the Company
borrowed approximately $5.0 million under the Senior Bank Facility to repay
all principal and interest under and to terminate the Interim Facility; and
(iv) the Lenders extinguished the $12.5 million letter of credit and Interim
Facility guarantee previously supplied by BGFVF. In addition, effective as of
January 27, 1999, the August Contingent Reimbursement Agreement and the
November Contingent Reimbursement Agreement were terminated.
On February 1, 1999, the Company failed to make a scheduled interest payment
on the Notes, which constituted an event of default under the Senior Bank
Facility. On February 1, 1999, the Company and the Lenders entered into a
Forbearance Agreement whereby the Lenders waived such event of default until
March 1, 1999. On March 4, 1999, the Company and the Lenders entered into a
second Forbearance Agreement whereby the Lenders again waived, subject to
certain conditions, such event of default until the earlier of (i) the
consummation or expiration of the Offer (as defined below); (ii) April 30,
1999; or (iii) the termination of such Forbearance Agreement in accordance
with its terms. Although the Lenders have entered into the second Forbearance
Agreement, such Lenders are still permitted to deliver a "blockage notice" to
the Trustee to prohibit the payment of any principal of, premium or interest
on, or in respect of the purchase or other acquisition of, or defeasance of,
the Notes.
Since the Company did not make such scheduled interest payment on the Notes
on or prior to March 3, 1999, an Event of Default occurred under the
Indenture. The occurrence of such Event of Default under the Indenture allows
the Trustee and the holders of at least 25% in aggregate principal amount of
Notes to declare all of the Notes to be immediately due and payable. However,
the current Forbearance Agreement with the Lenders provides that such
agreement will terminate immediately and automatically upon the exercise of
any right or remedy under the Indenture by any party.
At March 30, 1999, the Company had approximately $72.4 million of
indebtedness outstanding (which includes a letter of credit of $189,000) under
the Senior Bank Facility, of which (i) approximately $37.5 million (the
"Nonparticipation Obligations") was funded by the Lenders and (ii)
approximately $34.9 million (the "Participation Obligations") was funded by
BGFVF through the Participation Agreement. Pursuant to the terms of the
Participation Agreement, amounts repaid under the Senior Bank Facility will be
applied first to pay in full all Nonparticipation Obligations, and second to
pay in full all Participation Obligations. The Company intends to use the
proceeds from the Recapitalization Transactions (as defined and discussed
below) to repay and retire the
26
<PAGE>
Senior Bank Facility and to fund the Offer and the Consent Solicitation (as
defined below). The availability of any future borrowings under the Senior
Bank Facility, under which a total of $2.6 million was available as of March
30, 1999, is subject to BGFVF's agreement to fund such borrowings pursuant to
the Participation Agreement.
The Company does not currently have adequate liquidity or available sources
of financing to meet its contractual debt obligations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
If the Company is not able to consummate the Recapitalization Transactions for
any reason, including the failure to consummate the Offer, and if the amounts
due under the Senior Bank Facility or the Notes are accelerated as described
above, the Company will not have sufficient resources, and may not have access
to sufficient resources, to satisfy timely its obligations under the Senior
Bank Facility or to satisfy the Notes, including the repayment of all amounts
outstanding thereunder. Regardless of whether the Senior Bank Facility or the
Notes are accelerated, if the Recapitalization Transactions are not
consummated, there is a substantial prospect that the Company and Holdings
would be required to seek protection under the U.S. Bankruptcy Code.
Proposed Recapitalization Transactions
On March 3, 1999, the Company announced a proposed recapitalization of the
Company sponsored by GTCR Fund VI, L.P., an investment fund managed by GTCR
Golder Rauner ("GTCR Fund VI"), that would include the following concurrent
transactions (collectively, the "Recapitalization Transactions"):
(i) the merger (the "Merger") of a wholly-owned subsidiary of Wallace
Theater Corporation II, a California corporation ("Wallace Theaters"), with
and into Holdings (which, upon completion of the Merger, would be the
"Surviving Corporation" and a wholly-owned subsidiary of Wallace Theaters);
(ii) the repayment of all currently outstanding senior indebtedness
(approximately $72.4 million (which includes a letter of credit of
$189,000) at March 30, 1999) under the Senior Bank Facility, the funding of
the consideration to be paid to holders of the Notes pursuant to the Offer
and the Consent Solicitation (as defined below), the repayment of certain
construction liabilities and other liabilities of the Company in the amount
of approximately $6.5 million and $2.3 million, respectively, and the
payment of approximately $12.0 million in fees and expenses related to the
Offer, the Consent Solicitation and the Recapitalization Transactions,
(iii) the recapitalization of Wallace Theaters (the "Wallace
Recapitalization") that will include repaying the currently outstanding
indebtedness of Wallace Theaters, purchasing the equity interests in the
entities currently comprising Wallace Theaters (except for certain retained
minority interests) and funding the completion of certain construction
projects of Wallace Theaters;
(iv) the incurrence of approximately $170.0 million of indebtedness
pursuant to a new $185.0 million senior bank facility (the "New Senior Bank
Facility") to be entered into by the Surviving Corporation and the Company,
as co-borrowers (and for which a commitment letter has been obtained from a
major money center bank); and
(v) the funding of an aggregate equity contribution of approximately
$93.6 million by Scott Wallace and GTCR Fund VI (to be accomplished, in
part, through Scott Wallace's retention of a portion of his equity in
Wallace Theaters).
The Company intends to designate all indebtedness under the New Senior Bank
Facility as Designated Senior Debt and Guarantor Designated Senior Debt, as
applicable, for purposes of the Indenture (as amended by the Supplemental
Indenture (as defined below)).
The Recapitalization Transactions are conditioned upon, among other things,
the satisfaction of (i) the valid tender (without subsequent withdrawal) of at
least 85% of the aggregate principal amount of the Notes prior to the time and
date of the expiration of the Offer and (ii) the receipt of consents to
certain amendments to the Indenture from holders representing a majority of
the outstanding Notes prior to the time and date of the expiration of the
right to receive the consent payment under the Offer (the "Consent Expiration
Time"). The consummation of the Merger is subject to a number of conditions,
including the consummation of the Wallace
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<PAGE>
Recapitalization and the closing of the financing to be obtained pursuant to
the New Senior Bank Facility, satisfaction or waiver of which conditions and
certain other conditions are outside of the Company's or Holding's control.
On March 5, 1999, as part of the Recapitalization Transactions, the Company
announced an offer to purchase for cash from registered holders of the Notes
(each, a "Holder"), on the terms and subject to the conditions set forth in an
Offer to Purchase and Consent Solicitation Statement (as the same may be
amended and supplemented from time to time, the "Offer and Consent
Solicitation Statement") mailed to such Holders and in the accompanying
Consent and Letter of Transmittal (as the same may be amended and supplemented
from time to time, the "Letter of Transmittal" and, together with the Offer
and Consent Solicitation Statement, the "Offer"), all of the Notes for total
consideration (including consideration for the delivery of a Consent (as
defined below) prior to the Consent Expiration Time) of $700 per $1,000 in
principal amount of tendered Notes. The Offer is being made in connection
with, and is conditioned upon the consummation of, the proposed
Recapitalization Transactions.
Also on March 5, 1999, the Company commenced a solicitation (the "Consent
Solicitation") of consents (the "Consents") from Holders to amend or eliminate
certain restrictive covenants and other provisions (the "Proposed Amendments")
contained in the Indenture. The purposes of the Consent Solicitation and the
Proposed Amendments are to enable the Recapitalization Transactions to be
consummated, to eliminate the Company's obligation to make an offer to
purchase the Notes following the "Change of Control" (as defined in the
Indenture) resulting from the Merger and to eliminate certain restrictions
imposed by the Indenture on the Company in order to provide the Company with
significant operational flexibility after the consummation of the
Recapitalization Transactions. Consents from Holders of a majority in
aggregate principal amount of the Notes outstanding are required to approve
the Proposed Amendments (the "Required Consents"). If the Company receives the
Required Consents prior to the Consent Expiration Time, then the Company
intends to notify the Trustee and seek the execution and delivery of a
supplemental indenture to give effect to the Proposed Amendments (the
"Supplemental Indenture") as soon as practicable following the Consent
Expiration Time, although the Proposed Amendments (other than one amendment
that provides that Consents once delivered may not thereafter be revoked,
except under certain circumstances, which amendment will become operative upon
execution of the Supplemental Indenture) will not become operative until all
conditions to the Offer have been met or waived by the Company.
Year 2000 Impact
Year 2000 issues result from the inability of certain computer programs or
equipment to accurately calculate, store or use a date subsequent to December
31, 1999. The erroneous date can be interpreted in a number of different ways;
typically the year 2000 is interpreted as the year 1900. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions
or engage in similar normal business.
The Company has recently converted its core financial software system and
has substantially completed a review of its other internal information systems
to insure they are functional in the Year 2000. As of December 31, 1998, the
Company had spent approximately $980,000 regarding Year 2000 issues. Although
the Company's review has not been finalized, the Company estimates that the
remaining remediation costs related to Year 2000 issues will be less than
$250,000. The potential impact, if any, of these less critical systems not
being Year 2000 compliant will at most require employees to manually complete
otherwise automated tasks or calculations and it should not significantly
impact the Company's ability to conduct business.
The Company is in the process of investigating the Year 2000 compliance of
its customers, suppliers and other third parties with whom is has business
relationships. Compliance by such third parties is voluntary and failures
could occur, in which case there is the possibility of a material adverse
effect on the Company. However, the nature of the Company's business and its
business relationships are not such that the Company considers the potential
Year 2000 compliance failure of a third party with whom it has a direct
business relationship likely to have a material adverse effect on the Company.
The Company also relies on non-information technology systems, such as
office telephones, facsimile machines, air conditioning, heating, elevators in
its leased offices, which may have embedded technology such
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as micro controllers. Some of these systems are outside of the Company's
control to assess or remedy. A failure of one of these items might impact the
Company's business but in management's opinion, would not create a material
disruption.
In light of its compliance efforts, the Company does not believe that the
year 2000 issue will materially adversely affect operations or results of
operations, and does not expect implementation to have a material impact on
the Company's financial statements. However, there can be no assurance that
the Company's systems will be Year 2000 compliant prior to December 31, 1999,
or that the failure of any such system will not have a material adverse effect
on the Company's business, operating results and financial condition. To the
extent the Year 2000 problem has a material adverse effect on the business,
operations or financial condition of third parties with whom the Company has
material relationships, such as vendors, suppliers and financial institutions,
the Year 2000 problem could also have a material adverse effect on the
Company's business, results of operations and financial condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's outstanding indebtedness as of December 31, 1998 was comprised
of the $110.0 million principal amount outstanding of Notes, the approximately
$49.8 million of indebtedness outstanding under the Senior Bank Facility and
the approximately $5.0 million outstanding under the Interim Facility. The
Notes bear interest at a fixed rate and the interest on the indebtedness
outstanding under the Senior Bank Facility and the Interim Facility fluctuates
with certain lending rates. All of the outstanding indebtedness under the
Senior Bank Facility (which currently includes the approximately $5.0 million
that was previously outstanding under the Interim Facility) is due in 1999.
Therefore, the Company does not believe it has a material exposure to
fluctuations in interest rates.
In addition, all of the Company's revenues and expenses are denominated in
United States dollars. Accordingly, the Company does not have a material
exposure to fluctuations in foreign currencies.
Item 8. Financial Statements and Supplementary Data
The Financial Statements of the Company required by this Item 8 are included
as part of Item 14(a)(1) hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
29
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information regarding the Company's
and Holdings' directors, executive officers and key employees as of the date
of this document, including their respective ages.
<TABLE>
<CAPTION>
Name Age Position
---- --- ----------------------------------------------------------------
<S> <C> <C>
Thomas W. Stephenson,
Jr..................... 44 President, Chief Executive Officer and Chairman of the Board
Robert E. Painter....... 53 Chief Operating Officer and Assistant Secretary
James R. Featherstone... 43 Chief Financial Officer, Vice President, Secretary and Treasurer
John G. Farmer.......... 51 Director
Thomas L. Harrison...... 48 Director
Thomas G. Mendell....... 52 Director
Harold W. Pote.......... 52 Director
Eric R. Wilkinson....... 43 Director
Gary C. Golden.......... 50 Head Film Buyer
</TABLE>
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 a director of several private
companies. From November 1986 to December 1993, Mr. Mendell was a Partner of
Goldman Sachs & Co.
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<PAGE>
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.
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<PAGE>
Item 11. Executive Compensation
The following table sets forth the compensation for fiscal years 1998, 1997
and 1996 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 $100,000 for services
rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------
Other
Salary Bonus Compensation
Name Year ($) ($) ($)
- ---- ---- ------- ------- ------------
<S> <C> <C> <C> <C>
Thomas W. Stephenson, Jr.--CEO............. 1998 313,887 -- 10,592
1997 285,577 86,815(2) 16,546
1996 182,065 225,000 -- (1)
Robert E. Painter--COO(3).................. 1998 204,848 -- 10,592
1997 181,731 55,290(2) 11,462
1996 47,580 60,000 -- (1)
James R. Featherstone--CFO(3).............. 1998 124,373 -- 10,592
1997 114,231 23,250(2) 11,681
1996 52,515 50,000 -- (1)
</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) Mr. Stephenson received $28,900 in cash and 297 shares in Holdings Common
Stock. Mr. Painter received $27,600 in cash and 142 shares in Holdings
Common Stock. Mr. Featherstone received $11,550 in cash and 60 shares in
Holdings Common Stock. The Holdings Common Stock was issued with an
assumed fair market value of $195.00 per share, which is the price at
which Holdings had last issued shares of Holdings Common Stock in May
1997.
(3) Mr. Painter and Mr. Featherstone joined the Company in September 1996 and
July 1996, respectively.
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<PAGE>
The Company did not grant any stock options in fiscal year 1998 to any of
the executive officers named in the Summary Compensation Table and such
executive officers did not exercise any stock options. The table below sets
forth information concerning the number of exercisable and unexercisable
options for shares of Holdings Common Stock held by such individuals and the
fiscal year-end value of such exercisable and unexercisable options at
December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR ANDFISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End at Fiscal Year-End ($)(1)
------------------------- -------------------------
Shares
Acquired On Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Stephenson,
Jr..................... -- -- 5,842 8,761 -- --
Robert E. Painter....... -- -- 2,920 4,382 -- --
James R. Featherstone... -- -- 1,460 2,191 -- --
</TABLE>
- --------
(1) Assumes a current market value below the $175.00 per share exercise price.
Stock Award Plan
General
Purpose. Holdings adopted the Hollywood Theater Holdings, Inc. 1996 Stock
Option and Stock Award Plan (the "Stock Award Plan") for the purposes of
strengthening the ability of the Company and its subsidiaries to attract,
motivate and retain employees of superior capability and encouraging valued
employees to have a proprietary interest in the Company. To accomplish these
purposes, the Stock Award Plan provides terms upon which certain eligible
employees of the Company 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").
Administration. The Stock Award Plan is administered by a committee (the
"Committee") consisting of two or more non-employee members of the Board of
Directors elected to the Committee by a majority of the Board of Directors.
Presently, the members of the Committee consist of John G. Farmer, Thomas L.
Harrison, and Thomas G. Mendell.
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.
Shares Subject to Stock Award Plan. An aggregate of 37,000 shares (of which
36,924 shares are subject to currently outstanding Options) of Holdings Common
Stock (subject to certain adjustments) may be issued, transferred or exercised
pursuant to Incentive Awards under the Stock Award Plan. Notwithstanding the
foregoing, the Stock Award Plan imposes certain restrictions regarding
incentive stock options ("ISOs") to comply with the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). At the
discretion of the Committee, the shares of Holdings Common Stock delivered
under the Stock Award Plan may be made available from (i) authorized but
unissued shares; (ii) treasury shares; or (iii) previously issued but
reacquired shares (or through a combination thereof).
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<PAGE>
Incentive Awards
Options. The Committee may grant either ISOs or non-qualified stock options
to eligible employees. The Committee will not grant any ISOs 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 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 ISO 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.
Stock Appreciation Rights. 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.
Restricted Stock Awards and Performance Awards. 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.
Phantom Stock Rights. 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.
Expiration of Incentive Awards and Effects of Employment Separation. Unless
the Committee otherwise provides, 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.
Adjustment Provisions. 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" (as defined in the Stock Award Plan),
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
34
<PAGE>
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 outstanding phantom stock
rights; grants of new Incentive Awards; or other adjustments or amendments to
outstanding Incentive Awards.
Transfer of 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 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 may make 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,
1999. 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 of the Company. At the time the employment agreements were entered
into, each of Messrs. Stephenson, Featherstone and Painter was also granted
under the Stock Award Plan options to purchase 14,603, 3,651 and 7,302 shares
of Holdings Common Stock, respectively.
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
35
<PAGE>
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 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.
Report on Executive Compensation
Compensation Policies Applicable to Executive Officers
The objectives of the Company's executive compensation program are to (i)
attract, motivate and retain the executives responsible for the success of the
Company; (ii) reward key executives based upon corporate and individual
performance; and (iii) provide incentives designed to maximize stockholder
value. The three primary components of the Company's executive officer
compensation program are a base salary, the potential for a performance-based
annual bonus and periodic grants of stock options.
Base Salaries. Base salaries for the Company's executive officers, as well
as changes in such salaries, are based upon a number of factors, including the
nature of the executive's position, the executive officer's contribution to
the performance of the Company, the experience of the executive and the term
of the officer's employment with the Company. Based on these factors, the base
salaries of the Company's executive officers increased by an average of
approximately 10.5% in 1998 as compared to 1997.
Annual Bonuses. Based on the Company's performance, the executive officers
received no bonuses for services rendered in 1998.
Stock Options. In order to align the long-term interests of the executive
officers with those of its stockholders, the Committee from time to time
awards stock options to the Company's executive officers. The terms of these
options, including the size of the grants, are determined by the Committee.
The Company did not grant any stock options in 1998 to any of the executive
officers.
Chief Executive Officer Compensation
In establishing the compensation of Thomas W. Stephenson, the Company's
Chief Executive Officer, the Committee utilized the same compensation criteria
applicable to executive officers in general. For 1998, Mr. Stephenson's annual
base salary was increased by approximately 10%. As with the Company's other
executive officers, Mr. Stephenson received no bonus for services rendered in
1998.
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Limitations on the Deductibility of Compensation
Section 162(m) of the Code generally disallows a corporate deduction for
compensation over $1.0 million paid to a company's chief executive officer and
any of the four other most highly compensated officers. The $1.0 million
limitation applies to all types of compensation, including restricted stock
awards and amounts realized on the exercise of stock options and stock
appreciation rights, unless the awards and the plan under which the awards are
made qualify as "performance based" under the terms of the Code and related
regulations. Under the regulations, executive compensation pursuant to the
Stock Award Plan should qualify as "performance based" compensation and
therefore be excluded from the $1.0 million limit. Other forms of compensation
provided by the Company, however, are not excluded from such limit. The
Company currently anticipates that compensation of its executive officers will
be deductible under Section 162(m) because executive officer compensation is
presently below the $1.0 million limit and because the Company intends to
continue to utilize performance based compensation in future periods.
John G. Farmer Thomas G. Mendell
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 BGFVF, 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 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, BGFVF holds (i) at least 50%
of the outstanding Holdings Common Stock or any shares of
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<PAGE>
Holdings Series A Preferred Stock, BGFVF 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%, BGFVF 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%, BGFVF 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
BGFVF 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 BGFVF. If BGFVF 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 BGFVF . Each stockholder that is a party to the Shareholders'
Agreement has granted BGFVF an irrevocable proxy to vote such stockholder's
shares for the election of those directors that are designated by BGFVF
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 BGFVF, Stratford or the Hoak Entities
cannot be removed without the consent of BGFVF, Stratford or the Hoak Entities
as applicable. BGFVF, 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 BGFVF or Stratford or the Hoak Entities is
not on the Board of Directors, and BGFVF, Stratford and the Hoak Entities each
holds 5% or more of the outstanding Holdings Common Stock, each of BGFVF,
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 BGFVF,
Stratford or the Hoak Entities and such director or observer is not able to
attend the respective Board of Directors meeting, BGFVF, 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 BGFVF 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.
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 Durwood 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.
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<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company is a wholly-owned subsidiary of Holdings. The following table
and the accompanying footnotes set forth, as of March 30, 1999, the beneficial
ownership of Holdings' capital stock by each person (i) who is known to the
Company to own beneficially more than 5% of the outstanding Holdings Common
Stock, Holdings Series B Preferred Stock, Holdings Series C Preferred Stock or
Holdings Series D Preferred Stock; (ii) each director and named executive
officer of the Company; and (iii) 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(1) Percent of Class
------------------------------------------ -----------------------------------
Preferred Stock Preferred Stock
------------------------------ --------------------------
Common Common
Name and Address Stock Series B Series C Series D Stock(2) Series B Series C Series D
---------------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas W. Stephenson,
Jr..................... 8,465(3) 132 -- -- 6.7% * -- --
John G. Farmer(4)....... -- -- -- -- -- -- -- --
c/o Stratford Capital
Partners, L.P
200 Crescent Court,
Suite 1650
Dallas, Texas 75201
Thomas L. Harrison(5)... -- -- -- -- -- -- -- --
c/o Hoak Capital
Corporation
One Galleria Tower
13355 Noel Road, Suite
1050
Dallas, Texas 75240
Thomas G. Mendell(6).... 880(7) 71 -- -- * * -- --
c/o The Beacon Group
III-
Focus Value Fund, L.P.
399 Park Avenue, 17th
Floor
New York, New York 10022
Eric R. Wilkinson(8).... -- -- -- -- -- -- -- --
c/o The Beacon Group
III-
Focus Value Fund, L.P.
399 Park Avenue, 17th
Floor
New York, New York 10022
Harold W. Pote(9)....... -- -- -- -- -- -- -- --
c/o The Beacon Group
III-
Focus Value Fund, L.P.
399 Park Avenue, 17th
Floor
New York, New York 10022
James R.
Featherstone(10)....... 1,520 -- -- -- 1.3% -- -- --
Robert E. Painter(11)... 3,063 -- -- -- 2.5% -- -- --
The Beacon Group III-
Focus Value Fund,
L.P.(12)............... 316,243(13) 156,057(14) 41,909 45,749 86.9% 80.4% 45.7% 66.7%
399 Park Avenue, 17th
Floor
New York, New York 10022
Hoak Communications
Partners, L.P.(15)..... 62,516(16) -- 37,940 10,480 37.1% -- 41.4% 15.3%
c/o Hoak Capital
Corporation
One Galleria Tower
13355 Noel Road, Suite
1050
Dallas, Texas 75240
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Number of Shares(1) Percent of Class
------------------------------------------- -----------------------------------
Preferred Stock Preferred Stock
-------------------------------- --------------------------
Common Common
Name and Address Stock Series B Series C Series D Stock(2) Series B Series C Series D
---------------- ------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HCP Capital Fund,
L.P.(17)............... 5,336(18) -- 3,262 862 4.3% -- 3.6% 1.3%
One Galleria Tower
13355 Noel Road, Suite
1050
Dallas, Texas 75240
Stratford Capital
Corporation(19) ....... 53,921(20) 31,012(21) 8,393(22) 11,439(23) 31.5% 16.0% 9.2% 16.7%
200 Crescent Court,
Suite 1650
Dallas, Texas 75201
Richard M. Durwood ..... 16,413 -- -- -- 13.7% -- -- --
Revocable Trust
406 West 34th St., Suite
614
Kansas City, Missouri
06411
All of the directors and
executive officers as a
group.................. 13,928(24) 203 -- -- 10.7% * -- --
</TABLE>
- --------
* Less than one percent (1%).
(1) The information contained in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, (i) shares of Holdings Common subject
to options or warrants held by that person that are exercisable on March
30, 1999 or become exercisable within 60 days following March 30, 1999 and
(ii) shares of Holdings Preferred Stock of any series that are convertible
into shares of Holdings Common Stock on March 30, 1999 or become
convertible within 60 days following March 30, 1999 are deemed
outstanding. However, such shares are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. All
information with respect to the beneficial ownership of any stockholder
has been furnished by such stockholder and, unless otherwise indicated,
each stockholder has sole voting and investment power with respect to the
shares listed as beneficially owned by such stockholder, subject to
community property laws where applicable.
(2) The following reflects the total voting power represented by the capital
stock of Holdings held by each of the indicated persons, assuming all such
persons (i) exercised all outstanding options and warrants to purchase
Holdings Common Stock that are presently exercisable and (ii) converted
all outstanding shares of Holdings Preferred Stock that are presently
convertible into shares of Holdings Common Stock held by all such persons:
Mr. Stephenson--1.8%; Mr. Farmer--0%; Mr. Harrison--0%; Mr. Mendell--0.2%;
Mr. Wilkinson--0%; Mr. Pote--0%; Mr. Featherstone--0.3%; Mr. Painter--
0.6%; BGFVF--66.2%; Hoak Communications Partners, L.P.--13.1%; HCP Capital
Fund, L.P.--1.1%; Stratford Capital Corporation L.P.--11.3%; Richard M.
Durwood--3.4%; and all directors and officers as a group--2.9%.
(3) Includes (i) 132 shares of Holdings Common Stock issuable at any time upon
conversion of the same number of shares of Holdings Series B Preferred
Stock owned by Mr. Stephenson and (ii) 5,842 shares of Holdings Common
Stock subject to employee stock options that are currently exercisable and
does not include the 8,761 shares of Holdings Common Stock subject to
employee stock options that are not currently exercisable.
(4) Does not include (i) 3,077 shares of Holdings Common Stock, 31,012 shares
of Holdings Series B Preferred Stock or 8,393 shares of Holdings Series C
Preferred Stock owned of record by Stratford Capital Partners, L.P.
("Stratford Capital"); (ii) 11,439 shares of Holdings Series D Preferred
Stock owned of record by Stratford Equity Partners, L.P. ("Stratford
Equity"); or (iii) the 50,844 shares of Holdings Common Stock isssuable at
any time upon conversion of all such shares of Holdings Preferred Stock.
Mr. Farmer, a director of the Company, is a managing director and an
officer of Stratford Capital Corporation, the general partner of Stratford
Capital G.P. Associates, L.P., which is the general partner of each of
Stratford Capital and Stratford Equity. Mr. Farmer disclaims beneficial
ownership of all such shares of Holdings Common Stock and Holdings
Preferred Stock, except to the extent of his pecuniary interest therein.
40
<PAGE>
(5) Does not include (i) 14,096 shares of Holdings Common Stock, 37,940 shares
of Holdings Series C Preferred Stock or 10,480 shares of Holdings Series D
Preferred Stock, owned of record by Hoak Communications Partners, L.P.
("Hoak Communications"); (ii) 1,212 shares of Holdings Common Stock, 3,262
shares of Holdings Series C Preferred Stock or 862 shares of Holdings
Series D Preferred Stock owned of record by HCP Capital Fund, L.P. (the
"HCP Capital Fund"); or (iii) the 52,544 shares of Holdings Common Stock
issuable at the time upon conversion of all such shares of Holdings
Preferred Stock. Mr. Harrison, a director of the Company, shares voting
and investment power over Hoak Partners, LLC, the general partner of HCP
Investment, LP, which is the general partner of Hoak Communications and
shares voting and investment power at James M. Hoak & Co., which is the
general partner of HCP Capital Fund. Mr. Harrison disclaims beneficial
ownership of all such shares, except to the extent of his pecuniary
interest therein.
(6) Does not include (i) 72,528 of Holdings Common Stock, 156,057 shares of
Holdings Series B Preferred Stock, 41,909 shares of Holdings Series C
Preferred Stock or 45,749 shares of Holdings Series D Preferred Stock or
(ii) the 243,715 shares of Holdings Common Stock issuable at any time upon
conversion of all such shares of Holdings Preferred Stock. All such shares
of Holdings Common Stock and Holdings Preferred Stock are owned of record
by BGFVF. Mr. Mendell, a director of the Company, shares voting and
investment power at Focus Value GP, Inc., the general partner of Beacon
Focus Value Investors, LLC, which is the general partner of BGFVF. Mr.
Mendell disclaims beneficial ownership of all such shares, except to the
extent of his pecuniary interest therein.
(7) Includes 71 shares of Holdings Common Stock issuable at any time upon
conversion of the same number of shares of Holdings Series B Preferred
Stock owned of record by Mr. Mendell.
(8) Does not include (i) 72,528 shares of Holdings Common Stock, 156,057
shares of Holdings Series B Preferred Stock, 41,909 shares of Holdings
Series C Preferred Stock or 45,749 shares of Holdings Series D Preferred
Stock, or (ii) the 243,715 shares of Holdings Common Stock issuable at any
time upon conversion of all such shares of Holdings Preferred Stock. All
such shares of Holdings Common Stock and Holdings Preferred Stock are
owned of record by BGFVF. Mr. Wilkinson, a director of the Company, shares
voting and investment power at Focus Value GP, Inc., the general partner
of Beacon Focus Value Investors, LLC, which is the general partner of
BGFVF. Mr. Wilkinson disclaims beneficial ownership of all such shares,
except to the extent of his pecuniary interest therein.
(9) Does not include (i) 72,528 shares of Holdings Commons Stock, 156,057
share of Holdings Series B Preferred Stock, 41,909 shares of Holdings
Series C Preferred Stock or 45,749 shares of Holdings Series D Preferred
Stock or (ii) the 243,715 shares of Holdings Common Stock issuable at any
time upon conversion of all such shares of Holdings Preferred Stock. All
such shares of Holdings Common Stock and Holdings Preferred Stock are
owned of record by BGFVF. Mr. Pote, a director of the Company, shares
voting and investment power at Focus Value GP, Inc., the general partner
of Beacon Focus Value Investors, LLC, which is the general partner of
BGFVF. Mr. Pote disclaims beneficial ownership of all such shares, except
to the extent of his pecuniary interest therein.
(10) Includes 1,460 shares of Holdings Common Stock subject to employee stock
options that are currently exercisable and does not include the 2,191
shares of Holdings Common Stock subject to employee stock options that
are not currently exercisable.
(11) Includes 2,921 shares of Holdings Common Stock subject to employee stock
options that are currently exercisable and does not include the 4,382
shares of Holdings Common Stock that are not currently exercisable.
(12) Focus Value GP, Inc. is the general partner of Beacon Focus Value
Investors, LLC, which is the general partner of BGFVF. Mr. Mendell, Mr.
Wilkinson and Mr. Pote, each a director of the Company, are managing
directors of Focus Value GP, Inc.
(13) Does not include (i) 809 shares of Holdings Common Stock or (ii) 71
shares of Holdings Common Stock issuable upon conversion of the same
number of shares of Holdings Series B Preferred Stock, all of which
shares are owned of record by Mr. Mendell, an affiliate of BGFVF, as to
which BGFVFdoes not have any voting or investment power. Includes 243,715
shares of Holdings Common Stock issuable at any time upon conversion of
shares of Holdings Series B Preferred Stock, Holdings Series C Preferred
Stock and Holdings Series D Preferred Stock, all of which Shares are
owned of record by BGFVF.
41
<PAGE>
(14) Does not include 71 shares of Holdings Series B Preferred Stock owned of
record by Mr. Mendell, an affiliate of BGFVF, as to which BGFVF does not
have any voting or investment power.
(15) Hoak Partners, LLC is the general partner of HCP Investment, LP, which is
the general partner of Hoak Communications. Mr. Harrison, a director of
the Company, shares voting and investment power at Hoak Partners, LLC.
(16) Includes 48,420 shares of Holdings Common Stock issuable at any time upon
conversion of 37,940 shares of Holdings C Preferred Stock and 10,257
shares of Holdings Series D Preferred Stock owned of record by Hoak
Communications.
(17) James M. Hoak & Co. is the general partner of HCP Capital Fund. Mr.
Harrison, a director of the Company, is a director and officer of James
M. Hoak & Co.
(18) Includes 4,124 shares of Holdings Common Stock issuable at any time upon
conversion of 3,262 shares of Holdings Series C Preferred Stock and 862
shares of Holdings Series D Preferred Stock owned of record by HCP
Capital Fund.
(19) Stratford Capital Corporation is the general partner of Stratford GP
Associates, LP, which is the general partner of each of Stratford Equity
and Stratford Capital. Mr. Farmer, a director of the Company, is a
managing director and an officer of Stratford Capital Corporation.
(20) Includes (i) 39,405 shares of Holdings Common Stock issuable at any time
upon conversion of 31,012 shares of Holdings Series B Preferred Stock and
the 8,393 shares of Holdings Series C Preferred Stock owned of record by
Stratford Capital and (ii) 11,345 shares of Holdings Common Stock
issuable at any time upon conversion of 11,439 shares of Holdings Series
D Preferred Stock owned of record by Stratford Equity.
(21) Includes 31,012 shares of Holdings Series B Preferred Stock owned of
record by Stratford Capital.
(22) Includes 8,393 shares of Holdings Series C Preferred Stock owned of
record by Stratford Capital.
(23) Includes 11,439 shares of Holdings Series D Preferred Stock owned of
record by Stratford Equity.
(24) Includes 132 shares and 71 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 the same number of shares of Holdings
Series B Preferred Stock owned by each of them, respectively. Also
includes 5,842, 1,460 and 2,920 shares of Holdings Commons 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.
Item 13. Certain Relationships and Related Transactions
Engagement of The Beacon Group Capital Services, LLC
Holdings has entered into an agreement with The Beacon Group Capital
Services, LLC ("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. As of December 31, 1998, Holdings has not been
required to pay any funds to Beacon Group Capital Services. More specifically,
in July 1998, the Company engaged Beacon Group Capital Services as the
Company's sole and exclusive financial advisor for the purpose of identifying
opportunities for a business combination transaction. Under the terms of the
agreement, Beacon Group Capital Services is entitled to a $1.5 million fee in
connection with its role in the Recapitalization Transactions. However, Beacon
Group Capital Services has agreed to waive any payments owing thereto by
Holdings and to terminate the agreement in connection with the
Recapitalization Transactions if such Recapitalization Transactions are
consummated outside of and prior to any bankruptcy proceeding of the Company
or Holdings.
Construction Arrangement with Precept Investors, Inc.
Precept Investors, Inc. ("Precept"), one of Holding's shareholders, has been
engaged by Holdings to construct various theaters. During 1998, Precept was
involved in the construction of two theaters and improvements to one existing
theater, and was paid approximately $11.9 million for these services. During
1997,
42
<PAGE>
Precept was involved in the construction of two theaters and improvements to
three existing theaters, and was paid approximately $14.5 million for these
services. At December 31, 1998, approximately $2.7 million was owed to Precept
and is included in accounts payable and accrued expenses in the accompanying
consolidated balance sheet. No amounts were owed to Precept as of December 31,
1997.
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. 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.
Agreements with BGFVF Relating to Financing
BGFVF is the principal stockholder of Holdings. Thomas E. Mendell, Harold W.
Pote and Eric R. Wilkinson are each partners of The Beacon Group, L.L.C., an
affiliate of BGFVF. During 1998 and the first quarter of 1999, the Company and
Holdings entered into several arrangements with BGFVF, its principal
stockholder, to induce BGFVF to take certain actions required by the Lenders
under the Senior Bank Facility. In August 1998, the Company required funds
under the Senior Bank Facility at a time when the Company did not meet certain
financial conditions for additional borrowings thereunder. To induce the
Lenders to waive the financial conditions for a limited time and to allow the
Company to borrow additional amounts under the Senior Bank Facility, BGFVF
agreed to deliver for the benefit of the Lenders a letter of credit for $12.5
million to support the full amount of the additional borrowings by the Company
at that time. To induce BGFVF to issue the letter of credit, Holdings and
BGFVF entered into the August Contingent Reimbursement Agreement pursuant to
which Holdings agreed that if the Lenders ever called upon BGFVF's letter of
credit, Holdings would be required to reimburse BGFVF by issuing to BGFVF
shares of Holdings preferred stock.
In November 1998, Bank of America agreed to provide the Company with $5.0
million of short-term capital under the Interim Facility, separate from the
Senior Bank Facility, to allow the Company to issue new equity and debt
securities on or before December 15, 1998 (which was subsequently extended
through January 14, 1999). Bank of America required that all amounts borrowed
under the Interim Facility be guaranteed by BGFVF. The purpose of the Interim
Facility was to provide short-term capital to the Company prior to the
completion of a proposed (but never completed) transaction involving the
issuance of equity and debt by the Company, the refinancing of the Senior Bank
Facility and the exchange of the Notes. To induce BGFVF to guarantee such
borrowings, the Company, Holdings and BGFVF entered into the November
Contingent Reimbursement Agreement pursuant to which, if BGFVF was ever
required to fund any amount under the guarantee, Hollywood would be required
to reimburse BGFVF by issuing to BGFVF senior subordinated debt and Holdings
would be required to issue to BGFVF shares of a new series of senior
convertible preferred stock.
In January 1999, the Company required additional borrowings under the Senior
Bank Facility to continue operations, but again did not meet certain
applicable borrowing conditions. The Company was unable to borrow the
additional funds it required from its bank lenders. On January 14, 1999, with
the financial backing of BGFVF, the Company received a waiver of certain
financial covenants under the Senior Bank Facility until June 30, 1999 and the
Senior Bank Facility was amended to increase the loan commitment thereunder
from $50.0 million to $75.0 million and to permit affiliates of the Company to
participate in any loans made thereunder. In connection with obtaining such
waivers and amending the Senior Bank Facility, BGFVF entered into a
Participation Agreement with the Lenders, pursuant to which BGFVF purchased a
$12.5 million junior participation in loans previously funded under the Senior
Bank Facility (and theretofore backed by BGFVF's $12.5 million letter of
43
<PAGE>
credit) and agreed to fund additional borrowings by the Company under the
Senior Bank Facility, if any. All of the institutional investors of Holdings
were offered the opportunity to become party to the Participation Agreement,
but only BGFVF elected to do so. All future loans under the Senior Bank
Facility were made contingent on BGFVF's agreement, in each case, to fund such
borrowings pursuant to the Participation Agreement. At that time, (i) BGFVF
committed, subject to certain conditions, to fund at least $4.0 million of
additional borrowings thereunder for the Company's working capital needs; (ii)
the final maturity of the Senior Bank Facility was moved from August 7, 2002
to June 30, 1999; (iii) the Company borrowed approximately $5.0 million under
the Senior Bank Facility to repay all principal and interest under and to
terminate the Interim Facility; and (iv) the Lenders extinguished the $12.5
million letter of credit and Interim Facility guarantee previously supplied by
BGFVF. In addition, effective as of January 27, 1999, the August Contingent
Reimbursement Agreement and the November Contingent Reimbursement Agreement
were terminated.
At March 30, 1999, the Company had approximately $72.4 million of
indebtedness outstanding (which includes a letter of credit of $189,000) under
the Senior Bank Facility, of which (i) approximately $37.5 million was funded
by the Lenders and (ii) approximately $34.9 million was funded by BGFVF
through the Participation Agreement. Pursuant to the terms of the
Participation Agreement, amounts repaid under the Senior Bank Facility will be
applied first to pay in full all Nonparticipation Obligations, and second to
pay in full all Participation Obligations. As a lender under the Participation
Agreement, BGFVF receives interest at the applicable margin under the Senior
Bank Facility with respect to amounts borrowed thereunder.
To date, BGFVF has funded its participation in the Senior Bank Facility
through a loan of $34.9 million provided by Bank of America to BGFVF (the
"Participation Loan"). BGFVF may borrow up to $37.5 million to purchase
participations in the Senior Bank Facility. In the event that all or any
portion of the Participation Loan is called or accelerated by Bank of America,
the Company is obligated to issue a senior unsecured note (the "Participation
Note") to BGFVF, as the sole institutional investor of Holdings electing to
enter into the Participation Agreement, in the principal amount of up to
$5.0 million, as permitted by the Senior Bank Facility. The actual principal
amount of the Participation Note would be determined pro rata, based on the
actual amount of borrowings called or accelerated under the Participation
Loan, and the Participation Note would rank pari passu in right of payment to
the Senior Bank Facility. If the Recapitalization Transactions are
consummated, the Company does not expect to issue the Participation Note.
44
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Item 14(a)(1) Financial Statements:
<TABLE>
<CAPTION>
Page
Included in this Report: No.
------------------------ ----
<S> <C>
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997, and 1996................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1998, 1997, and 1996........................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997, and 1996................................................. F-6
Notes to Consolidated Financial Statements............................ F-7
</TABLE>
(2) Financial Statement Schedule: Not applicable
(3) Exhibits required by Item 601 of Regulation S-K are as follows:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 3, 1999, by and
among Hollywood Theater Holdings, Inc., Hollywood Merger Co.,
Wallace Theater Corporation II, The Beacon Group III-Focus Value
Fund, L.P., Stratford Capital Partners, L.P., Stratford Equity
Partners, L.P., Hoak Communications Partners, L.P. and HCP Capital
Fund, L.P. (filed as Exhibit 10.23 hereto)
*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 among 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 Registration Rights Agreement, dated as of
December 17, 1997, by and among Hollywood Theater Holdings, Inc.,
Stratford Capital 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
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*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
*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.
*10.1 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
*10.2 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., Hoak Communications Partners, L.P., HCP Capital
Fund, L.P., and HCP 1997 Authorized Employee Fund, L.P.
*10.3 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.
*10.4 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
*10.5 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
*10.6 Asset Purchase Agreement, dated as of August 19, 1997, between
Dickinson, Inc. and Hollywood Theaters, Inc.
*10.7 Employment Agreement, dated as of October 1, 1996, between Hollywood
Theaters, Inc. and Thomas W. Stephenson, Jr.
*10.8 Employment Agreement, dated as of October 1, 1996, between Hollywood
Theaters, Inc. and James R. Featherstone
*10.9 Employment Agreement, dated as of October 1, 1996, between Hollywood
Theaters, Inc. and Robert E. Painter
*10.10 Hollywood Theaters, Inc. Savings and Profit Sharing Plan, as amended
and restated
*10.11 Hollywood Theater Holdings, Inc. 1996 Stock Option and Award Plan,
dated December 15, 1996, as amended
*10.12 Hollywood Theaters, Inc. 401(k) Savings Plan, as amended
*10.13 Indemnification Agreement, dated as of May 15, 1996, by and between
Hollywood Theaters, Inc., Hollywood Theater Holdings, Inc., and
Thomas W. Stephenson, Jr.
*10.14 Third Amendment to Amended and Restated Credit Agreement, dated
January 7, 1998, among Hollywood Theater Holdings, Inc., Hollywood
Theaters, Inc., and Bank of America National Trust and Savings
Association
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15 Fourth Amendment and Waiver to Amended and Restated Credit
Agreement, dated May 22, 1998, among Hollywood Theater Holdings,
Inc., Hollywood Theaters, Inc., and Bank of America National Trust
and Savings Association
10.16 Fifth Amendment and Waiver to Amended and Restated Credit Agreement,
dated August 14, 1998, among Hollywood Theater Holdings, Inc.,
Hollywood Theaters, Inc., and Bank of America National Trust and
Savings Association
10.17 Sixth Amendment and Waiver to Amended and Restated Credit Agreement,
dated October 1998, among Hollywood Theater Holdings, Inc.,
Hollywood Theaters, Inc. and Bank of America National Trust and
Savings Association
10.18 Seventh Amendment and Waiver to Amended and Restated Credit
Agreement, dated December 15, 1998, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc. and Bank of America
National Trust and Savings Association
10.19 Eighth Amendment and Waiver to Amended and Restated Credit
Agreement, dated December 21, 1998, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc. and Bank of America
National Trust and Savings Association
10.20 Ninth Amendment and Waiver to Amended and Restated Credit Agreement,
dated January 8, 1999, among Hollywood Theater Holdings, Inc.,
Hollywood Theaters, Inc. and Bank of America National Trust and
Savings Association
10.21 Tenth Amendment and Waiver to Amended and Restated Credit Agreement,
dated January 14, 1999, among Hollywood Theater Holdings, Inc.,
Hollywood Theaters, Inc. and Bank of America National Trust and
Savings Association
10.22 Forbearance Agreement and Eleventh Amendment to Amended and Restated
Credit Agreement, dated February 1, 1999, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc. and Bank of America
National Trust and Savings Association
10.23 Agreement and Plan of Merger, dated as of March 3, 1999, by and
among Hollywood Theater Holdings, Inc., Hollywood Merger Co.,
Wallace Theater Corporation II, The Beacon Group III--Focus Value
Fund, L.P., Stratford Capital Partners, L.P., Stratford Equity
Partners, L.P., Hoak Communications Partners, L.P. and HCP Capital
Fund, L.P.
10.24 Forbearance Agreement and Twelfth Amendment to Amended and Restated
Credit Agreement, dated March 4, 1999, among Hollywood Theater
Holdings, Inc., Hollywood Theaters, Inc. and Bank of America
National Trust and Savings Association
10.25 Thirteenth Amendment to Amended and Restated Credit Agreement, dated
March 17, 1999, among Hollywood Theater Holdings, Inc., Hollywood
Theaters, Inc. and Bank of America National Trust and Savings
Association
10.26 Engagement Letter, dated July 29, 1998, between Hollywood Theaters,
Inc. and the Beacon Group Capital Services, LLC
21.1 Subsidiaries of the Registrants
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- --------
* Incorporated by reference to Hollywood Theaters, Inc.'s Registration
Statement on Form S-4 (File No. 333-36763), dated February 4, 1998
47
<PAGE>
Item 14(b) Reports on Form 8-K
The registrants filed a Current Report on Form 8-K, dated March 3, 1999, to
report pursuant to Item 5 that the Company had agreed to a recapitalization
sponsored by GTCR Fund VI, L.P., an investment fund managed by GTCR Golder
Rauner. As part of such recapitalization, Holdings will merge with a
subsidiary of Wallace Theater Corporation II and consequently become a wholly-
owned subsidiary of Wallace Corporation II. The Current Report contained no
financial statements.
48
<PAGE>
<TABLE>
<CAPTION>
Page
Financial Statements No.
- -------------------- ----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997, and 1996.................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1998, 1997, and 1996................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997, and 1996.................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
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 subsidiary as of December
31, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company'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 subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying 1998 financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company recorded a net loss of approximately $71.2
million in 1998. In addition, the Company is currently in default on its 10
5/8% senior subordinated notes and its revolving credit facility is due in
1999. The Company does not currently have adequate liquidity or available
sources of financing to meet its contractual debt obligations. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The 1998 financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the Company
be unable to continue as a going concern.
Arthur Andersen LLP
Dallas, Texas,
March 30, 1999
F-2
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 5,713 $ 7,379
Accounts receivable...................................... 1,066 1,562
Inventories.............................................. 1,158 1,012
Prepaid and other current assets, net.................... 1,108 850
Deposits................................................. 1,049 1,593
-------- --------
Total current assets................................... 10,094 12,396
Property and equipment, net.............................. 143,437 104,376
Goodwill, net............................................ 16,232 49,215
Intangible assets, net................................... 11,421 14,289
Other.................................................... 3,640 3,744
-------- --------
Total assets........................................... $184,824 $184,020
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and other accrued expenses.............. $ 22,370 $ 5,930
Accrued interest payable................................. 4,934 4,675
Current maturities of long-term debt..................... 164,800 --
Current maturities of capital lease obligation........... 64 --
Deferred revenue......................................... 245 158
-------- --------
Total current liabilities.............................. 192,413 10,763
Other liabilities:
Long-term debt........................................... -- 110,000
Capital lease obligation, net of current maturities...... 258 --
Deferred lease expenses.................................. 1,517 1,158
Deferred revenue......................................... -- 302
-------- --------
Total liabilities...................................... 194,188 122,223
Commitments and contingencies
Convertible redeemable preferred stock:
Series B Preferred Stock, $.01 par value, 400,000 shares
authorized, 194,022 and 178,028 shares issued and
outstanding in 1998 and 1997, respectively (redemption
preference of $33,954 and $31,155 as of December 31,
1998 and 1997, respectively)............................ 2 2
Series C Preferred Stock, $.01 par value, 400,000 shares
authorized, 91,712 and 84,137 shares issued and
outstanding in 1998 and 1997, respectively (redemption
preference of $17,884 and $16,407 as of December 31,
1998 and 1997, respectively)............................ 1 1
Series D Preferred Stock, $.01 par value, 400,000 shares
authorized, 68,629 and 61,826 shares issued and
outstanding in 1998 and 1997, respectively (redemption
preference of $13,383 and $12,054 as of December 31,
1998 and 1997, respectively)............................ 1 1
Additional paid-in capital............................... 65,215 59,610
Redeemable common stock:
Common stock, 16,413 shares issued and outstanding in
1998 and 1997........................................... -- --
Additional paid-in capital............................... 2,872 2,872
Stockholders' deficit:
Common stock, $.01 par value, 1,500,000 shares
authorized, 103,659 and 103,464 shares issued and
outstanding in 1998 and 1997, respectively.............. 1 1
Additional paid-in capital............................... 15,552 15,508
Accumulated deficit...................................... (93,008) (16,198)
-------- --------
Total stockholders' deficit............................ (77,455) (689)
-------- --------
Total liabilities and stockholders' deficit............ $184,824 $184,020
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997, and 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Revenues:
Admissions....................................... $ 64,726 $50,616 $15,335
Concessions...................................... 35,257 26,712 8,710
Other operating revenues......................... 1,911 1,843 834
-------- ------- -------
Total revenues................................. 101,894 79,171 24,879
-------- ------- -------
Operating expenses:
Film rental and advertising costs................ 37,665 27,576 8,388
Cost of concessions.............................. 6,592 4,320 1,412
Theater operating expenses....................... 40,434 31,180 10,998
General and administrative expenses.............. 7,528 5,077 1,601
Depreciation and amortization.................... 18,309 11,479 3,152
Impairment of long-lived assets.................. 48,083 -- --
-------- ------- -------
Total operating expenses....................... 158,611 79,632 25,551
-------- ------- -------
Operating loss..................................... (56,717) (461) (672)
Interest expense, net.............................. 14,475 7,485 2,121
-------- ------- -------
Net loss........................................... $(71,192) $(7,946) $(2,793)
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1998, 1997, and 1996
(In Thousands, Except Share Amounts)
<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, December 31, 1995.. 5,090 $ -- 22,622 $-- $ 2,745 $ (907) $ 1,838
Issuance of stock......... 85,000 1 77,168 1 20,501 -- 20,503
Retirement of stock....... (90,090) (1) (30,173) -- (14,137) -- (14,138)
Retirement of warrant..... -- -- -- -- (200) (141) (341)
Stock dividend............ -- -- -- -- -- (422) (422)
Cash dividend............. -- -- -- -- -- (355) (355)
Net loss.................. -- -- -- -- -- (2,793) (2,793)
------------- ---------- ------- ---- -------- -------- --------
Balance, December 31, 1996.. -- -- 69,617 1 8,909 (4,618) 4,292
Issuance of stock......... -- -- 33,847 -- 6,599 -- 6,599
Stock dividend............ -- -- -- -- -- (3,634) (3,634)
Net loss.................. -- -- -- -- -- (7,946) (7,946)
------------- ---------- ------- ---- -------- -------- --------
Balance, December 31, 1997.. -- -- 103,464 1 15,508 (16,198) (689)
Issuance of stock......... -- -- 499 -- 97 -- 97
Retirement of stock....... -- -- (304) -- (53) (7) (60)
Stock dividend............ -- -- -- -- -- (5,611) (5,611)
Net loss.................. -- -- -- -- -- (71,192) (71,192)
------------- ---------- ------- ---- -------- -------- --------
Balance, December 31, 1998.. -- $ -- 103,659 $ 1 $ 15,552 $(93,008) $(77,455)
============= ========== ======= ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997, and 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(71,192) $ (7,946) $ (2,793)
Adjustments to reconcile net loss to net cash
provided by operating activities--
Depreciation and amortization................. 18,309 11,479 3,152
Impairment of long-lived assets............... 48,083 -- --
Deferred lease expenses....................... 483 500 545
Changes in assets and liabilities--
Decrease (increase) in accounts receivable... 496 (559) (951)
(Increase) decrease in prepaids and other
current assets, net......................... (836) 125 (963)
Increase in inventories...................... (346) (450) (316)
Increase in other assets..................... -- (3,744) --
Decrease (increase) in deposits.............. 519 805 (1,544)
Increase (decrease) in accounts payable and
other accrued expenses...................... 14,528 (77) 3,902
Increase in accrued interest payable......... 259 4,675 --
(Decrease) increase in deferred revenue...... (215) 460 --
-------- -------- --------
Net cash provided by operating activities... 10,088 5,268 1,032
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............ (67,167) (66,361) (10,734)
Sale/disposition of property and equipment..... 831 12,895 --
Payments for business acquisitions, net of cash
acquired...................................... -- (36,649) (58,986)
-------- -------- --------
Net cash used in investing activities....... (66,336) (90,115) (69,720)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of senior subordinated
notes......................................... -- 110,000 --
Borrowings under note payable.................. 5,000 3,800 --
Borrowings under revolving credit facility..... 49,800 14,000 58,428
Payment of financing fees...................... (474) (5,284) (3,718)
Increase (decrease) of capital lease
obligation.................................... 322 (32) (44)
Repayments of note payable and long-term debt.. -- (68,437) (16,691)
Proceeds from issuance of stock................ -- 34,620 48,659
Repurchase of common and preferred stock....... (66) -- (14,138)
Retirement of warrants......................... -- -- (341)
Dividends paid................................. -- -- (355)
-------- -------- --------
Net cash provided by financing activities... 54,582 88,667 71,800
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents..................................... (1,666) 3,820 3,112
Cash and cash equivalents, beginning of year..... 7,379 3,559 447
-------- -------- --------
Cash and cash equivalents, end of year........... $ 5,713 $ 7,379 $ 3,559
======== ======== ========
Supplemental information:
Cash paid for interest......................... $ 14,216 $ 3,051 $ 2,089
======== ======== ========
Noncash transactions:
Stock dividend................................. $ 5,611 $ 3,634 $ 422
======== ======== ========
Issuance of stock in connection with business
acquisitions.................................. $ -- $ 620 $ 2,253
======== ======== ========
Issuance of stock for compensation............. $ 97 $ -- $ --
======== ======== ========
Purchase price adjustments..................... $ 2,009 $ -- $ --
======== ======== ========
Obsolete inventory adjustments................. $ 200 $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
1. Organization and Current Operating Environment
Hollywood Theater Holdings, Inc. ("Holdings") 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. and affiliates. Crown Theatre Corporation became a wholly
owned subsidiary of HTI after it was acquired by Holdings on November 1, 1996,
the effective date of the purchase. Holdings, HTI, and Crown Theatre
Corporation (collectively the "Company") owned and operated 72 motion picture
theaters (including stadium, first run, and discount theaters) at December 31,
1998. The Company currently operates theaters in Alabama, Idaho, Kansas,
Missouri, Ohio, Oklahoma, and Texas.
The accompanying 1998 financial statements have been prepared assuming that
the Company will continue as a going concern. The Company recorded a net loss
of approximately $71.2 million in 1998. In addition, the Company is currently
in default on its 10 5/8% senior subordinated notes due 2007 (the "Senior
Subordinated Notes") and its revolving credit facility is due in 1999 (see
Note 6). The Company does not currently have adequate liquidity or available
sources of financing to meet its contractual debt obligations. These factors
raise substantial doubt about the Company's ability to continue as a going
concern.
In March 1999, Holdings entered into a recapitalization agreement (the
"Recapitalization") with an unaffiliated entity. As part of the
Recapitalization, Holdings will merge and become a wholly owned subsidiary of
an unaffiliated entity. HTI will continue as a wholly owned subsidiary of
Holdings. Also, in March 1999, in connection with the Recapitalization, and as
a condition thereto, HTI commenced an offer to purchase the $110.0 million
principal amount outstanding of its Senior Subordinated Notes and a related
solicitation of consents to proposed amendments to the indenture governing the
Senior Subordinated Notes. The offer and related consent expire on April 2,
1999, unless extended by the Company. The proposed amendments would permit the
Recapitalization and related financing transactions and provide the Company
with significant operational flexibility following the Recapitalization. In
addition to consummation of the offer and consent solicitation, the
Recapitalization is subject to a number of conditions, many of which are
beyond the control of the Company. Accordingly, there is no guarantee that the
Recapitalization and merger will be consummated. If the Company is not able to
consummate the Recapitalization for any reason, the Company may not have
sufficient resources, and may not have access to sufficient resources, to
satisfy its obligations under the revolving credit facility or the Senior
Subordinated Notes. Accordingly, there is a substantial prospect that Holdings
and HTI would be required to seek protection under the U.S. Bankruptcy Code.
The accompanying 1998 financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
2. Significant Accounting Policies
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Holdings, and
its wholly owned subsidiary. 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 at the theaters. The Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
F-7
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
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 and
advertising costs.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist primarily of concession products and theater supplies.
Prepaid and Other Current Assets
Prepaid and other current assets consist of prepaid insurance, prepaid rent
and theater start-up costs. Theater start-up costs are amortized over a one
year period.
Deposits
Deposits consist of funds held in escrow in accordance with certain purchase
agreements, utility and lease deposits, and other deposits required for
construction projects.
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.
Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amounts may not be
recoverable. When the carrying value of property and equipment exceeds the sum
of all estimated future theater cash flows, an impairment loss is recognized
based on estimated fair value (see Note 4).
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 $2.9 million and $4.0 million at December 31, 1998 and 1997,
respectively.
The Company periodically reviews the carrying value of goodwill on a
theater-by-theater 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. If impairment is indicated, an adjustment is made to
reduce the carrying amount of the goodwill to its estimated fair value (see
Note 4).
Intangible Assets
Intangible assets include deferred financing costs which are amortized over
the life of the related liability and covenants not-to-compete which are
amortized using the straight-line method over a five year period.
Other Assets
Other assets includes prepaid rent applicable to future periods for one
stadium theater.
Deferred Lease Expenses
Rent expense is recognized on a straight-line basis after considering the
effect of rent escalation provisions.
Income Taxes
Deferred tax assets and liabilities are based upon estimated future tax
effects of the differences in the tax bases of existing assets and liabilities
and the related financial statement carrying amounts, using currently enacted
tax laws and rates.
F-8
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
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.
Accounting Standards Adopted
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 requires a public business enterprise to report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. The Company analyzes the performance of and allocates
resources to each theater individually. Accordingly, under the aggregation
provisions of SFAS 131, the Company has determined that it operates one line
of business.
Reclassifications
Certain reclassifications have been made to the prior year statements to
conform them to the current year presentation.
3. Property and Equipment
Property and equipment at December 31, 1998 and 1997, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Buildings................................................ $ 47,190 $ 44,024
Furniture and equipment.................................. 32,380 33,564
Leasehold improvements................................... 41,103 19,316
Land..................................................... 11,915 10,487
Construction in progress................................. 20,246 3,172
-------- --------
152,834 110,563
Less-Accumulated depreciation and amortization........... (9,397) (6,187)
-------- --------
$143,437 $104,376
======== ========
</TABLE>
A significant portion of the Company's property and equipment transactions
during 1998 and 1997 related to additions to the Company's stadium theaters.
F-9
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
4. Impairment of Long-Lived Assets
The Company periodically reviews theater performance and competition within
its markets for indicators of impairment of individual theaters. The Company
considers a trend of current and anticipated operating cash flow results to be
its primary indicator of potential impairment. The Company deems a theater to
be impaired if a forecast of undiscounted theater operating cash flows is less
than the carrying amount of its total property and equipment and related
goodwill. If a theater is determined to be impaired, the loss is measured by
the amount which the total carrying amount of the theater exceeds its
estimated fair value.
During 1998, the Company continued to refine its business plan in response
to competitive and market conditions. During this period, the Company also
explored various financing options to carry out its business plans. During the
fourth quarter of 1998, the Company had no firm financing commitments to
complete the stadium building program of its business plan. It determined
during this time that the financial performance of certain theaters had
deteriorated, or was likely to deteriorate in the near term as a result of
competitive pressures. As a result, in the fourth quarter of 1998, the Company
recorded noncash charges for impairment of property and equipment and related
goodwill of approximately $16.9 million and approximately $31.2 million,
respectively. The impairment related to certain of its first-run and discount
theaters. No such adjustments were required in 1997 and 1996.
5. Intangible Assets
Intangible assets at December 31, 1998 and 1997, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Covenants not-to-compete................................... $ 8,307 $ 8,307
Deferred finance and other costs........................... 10,432 9,958
------- -------
18,739 18,265
Less- Accumulated amortization............................. (7,318) (3,976)
------- -------
$11,421 $14,289
======= =======
</TABLE>
6. Long-Term Debt
Long-term debt at December 31, 1998 and 1997, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revolving credit facility, interest at LIBOR plus 2.75%
or the base rate plus 1.75% (weighted average of 8.63%
at December 31, 1998) due 1999......................... $ 49,800 $ --
Bank note payable, interest at the base rate plus 0.75%
(8.5% at December 31, 1998); due January 1999.......... 5,000 --
Senior Subordinated Notes, interest at 10.625% payable
on February 1 and August 1, due 2007 (currently in
default)............................................... 110,000 110,000
-------- --------
Total long-term debt.................................... 164,800 110,000
Less current maturities................................. 164,800 --
-------- --------
Long-term debt, net..................................... $ -- $110,000
======== ========
</TABLE>
Senior Subordinated Notes
In August 1997, HTI completed an offering of $110.0 million of the Senior
Subordinated Notes. The Senior Subordinated Notes bear interest payable semi-
annually in February and August at 10 5/8% and are due in
F-10
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
2007. The Senior Subordinated Notes are redeemable at HTI's option and upon
the occurrence of certain events in the future. The Senior Subordinated Notes
also include restrictive covenants relative to the incurrence of additional
indebtedness. HTI used the net proceeds from the offering to repay all of the
then existing indebtedness under its credit 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.
Holdings and Crown Theatre Corporation are guarantors of the Senior
Subordinated Notes.
The Company did not make its required interest payment of approximately $5.8
million due on February 1, 1999, or at the end of the 30-day grace period, on
the Senior Subordinated Notes. As a result, at March 26, 1999, HTI is
currently in default on the Senior Subordinated Notes. However, at March 26,
1999, the acceleration provisions under the indenture have not been exercised
by the noteholders. The interest payment and the balance of the Senior
Subordinated Notes have been classified as current liabilities in the
consolidated balance sheets as of December 31, 1998.
Revolving Credit Facility
In conjunction with the offering described above, HTI amended its credit
facility. The revolving credit facility provided for a revolving line of
credit of $50.0 million with a five-year term. HTI had the right at any time
prior to June 30, 1999, to solicit on predetermined terms and conditions an
increase in the revolving credit facility to an amount not to exceed $75.0
million. The agreement stipulated that total borrowings are not to exceed 5.5
times of HTI's "trailing" twelve-month cash flow and certain other
restrictions.
In January 1999, HTI amended its revolving credit facility (the
"Amendment"). The terms of the Amendment provide for, among other things, an
expansion of the credit facility to $75.0 million subject to certain
conditions of borrowing, a waiver of compliance by HTI of all financial
covenants until June 30, 1999, and an acceleration of maturity of amounts
outstanding under the credit facility from August 7, 2002, to June 30, 1999.
The Amendment also provides for the inclusion of the $5.0 million bank note
payable into the expanded credit facility. At March 30, 1999, the balance of
the revolving credit facility was approximately $72.4 million (which includes
a letter of credit of $189,000 (see Note 15)). Because HTI failed to make its
interest payment on the Senior Subordinated Notes, an event of default
occurred under the revolving credit facility. Through a series of forbearance
agreements between HTI and the lenders dated February and March, 1999, the
lenders have waived the event of default until the earlier of the
Recapitalization or April 30, 1999 or termination of such forbearance
agreements in accordance with their terms. Although the lenders have entered
into the forbearance agreements, the lenders are still permitted to deliver a
"blockage notice" to the trustee of the Senior Subordinated Notes, prohibiting
the payment of any principal of or interest on, or in respect of the purchase
or other acquisition of, or defeasance of, the Senior Subordinated Notes.
A majority stockholder had issued a letter of credit and had guaranteed
certain portions of the Company's revolving credit facility at December 31,
1998 (see Note 16).
Deferred Financing Costs
At December 31, 1998, the Company has unamortized debt issuance costs
related to the Senior Subordinated Notes and revolving credit facility of
approximately $7.0 million. Such costs are being amortized over the original
terms of the related debt. The unamortized portion will be recognized as an
additional charge to earnings at the dates the Senior Subordinated Notes and
revolving credit facility are paid or otherwise settled.
7. Leases
The Company leases certain of its theater premises with lease terms of four
to 20 years. Additionally, certain leases provide for contingent rentals based
on operating results and require the payment of taxes, insurance, and
F-11
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
other costs applicable to the property. The Company, 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 expense accrual of approximately
$1.5 million and $1.2 million in 1998 and 1997, respectively, has been
provided to account for these leases on a straight-line basis. Rent expense
for the years ended December 31, 1998, 1997 and 1996, totaled approximately
$10.9 million, $9.3 million, and $3.0 million, respectively, and is included
in theater operating expenses on the accompanying consolidated statements of
operations.
Future minimum payments under noncancelable leases with initial or remaining
terms in excess of one year at December 31, 1998, are due as follows (in
thousands):
<TABLE>
<S> <C>
1999................................................................ $ 11,774
2000................................................................ 11,518
2001................................................................ 10,291
2002................................................................ 9,418
2003................................................................ 8,989
Thereafter.......................................................... 67,891
--------
$119,881
========
</TABLE>
8. Income Taxes
As of December 31, 1998, the Company has a net operating loss (NOL)
carryforward of approximately $29.0 million for tax reporting purposes, which
begins to expire in calendar year 2010. In October 1996, the Company underwent
an ownership change pursuant to Internal Revenue Code Section 382. As a
result, 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 resolved in the accompanying
consolidated financial statements. Accordingly, the Company recorded no income
tax expense or benefit for any of the years presented.
The Company's net deferred income taxes at December 31, 1998 and 1997,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Amortization.............................................. $ 969 $ 538
Deferred lease expenses................................... 551 376
Deferred revenue.......................................... 94 156
Accrued vacation and bonuses.............................. 94 154
Charitable contributions.................................. 17 --
Net operating loss carryforward........................... 9,869 3,005
Depreciation.............................................. (8) (341)
Impairment of long-lived assets........................... 16,343 --
-------- -------
Total deferred income tax assets........................ 27,929 3,888
Less--Valuation allowance................................. (27,929) (3,888)
-------- -------
Net deferred income tax assets.......................... $ -- $ --
======== =======
</TABLE>
The difference between the statutory federal income tax rate of 34% and the
effective federal income tax rate of 0% is due to unrecognized current year
benefit.
F-12
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
9. 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. Because of the
financial position of the Company at December 31, 1998, as discussed in Note
1, and the lack of trading of the Senior Subordinated Notes, the Company
cannot reasonably estimate fair market value of its debt at December 31, 1998.
However, in the tender offer and consent solicitation discussed in Note 1, the
Company has offered to pay consideration of 70% of the Senior Subordinated
Notes. At December 31, 1997, the Company's long-term debt was determined to
approximate its carrying value since it was issued at fair market value during
1997.
10. Convertible Redeemable Preferred Stock and Common Stock
In November 1996, The Beacon Group III--Focus Value Fund, L.P. ("BGFVF")
purchased approximately $19.0 million 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. The holders of Series B
Preferred Stock are entitled to dividends at an annual rate of 9%. The Board
of Directors may elect to pay dividends in shares of Series B Preferred Stock.
The liquidation preference of each share of Series B Preferred Stock is the
greater of $175 plus accrued but unpaid dividends or the per share amount the
holder would have received upon liquidation on a converted basis plus accrued
but unpaid dividends. In addition, the Company exchanged Series A Preferred
Stock held by BGFVF, Precept Investors, Inc. ("Precept"), Stratford Capital
Partners L.P., and Stratford Equity Partners, L.P. (collectively "Stratford")
for the newly authorized Series B Preferred Stock at a ratio of 1.75/1.00
shares.
In 1997 and 1996, a total of 16,413 shares were issued to Richard M. Durwood
and the Richard M. Durwood Revocable Trust ("RMD Trust") for $2.9 million in
connection with the acquisition of Crown Theater Corporation. In addition, at
any time on or after October 31, 2001, provided that an offering of the
Company's common stock has not then occurred, Richard M. Durwood, and/or the
RMD Trust may require the Company to repurchase not less than all of the
shares of the Company's Common Stock held by each at the fair market value at
the time of repurchase.
In April 1997, the Board of Directors approved 400,000 shares of $.01 par
value Series C Convertible Redeemable Preferred Stock ("Series C Preferred
Stock"). The Series C Preferred Stock is redeemable under the same conditions
and requirements as Series B Preferred Stock. The holders of Series C
Preferred Stock are entitled to dividends at an annual rate of 9%. The Board
of Directors may elect to pay dividends in shares of Series C Preferred Stock.
The liquidation preference of each share of Series C Preferred Stock is the
greater of $195 plus accrued but unpaid dividends or the per share amount the
holder would have received upon liquidation on a converted basis plus accrued
but unpaid dividends. The Company issued 43,076 shares of Series C Preferred
Stock to BGFVF and Stratford for approximately $8.4 million.
In May 1997, the Company issued 35,897 shares of Series C Preferred Stock
for approximately $7.0 million to Hoak Communications Funds (the "Hoak
Entities").
In November 1997, the Company issued 51,283 shares of Series C Preferred
Stock for approximately $10.0 million to BGFVF and Stratford Equity Partners,
L.P.
F-13
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
In December 1997, the Board of Directors approved 400,000 shares of $.01 par
value Series D Convertible Redeemable Preferred Stock ("Series D Preferred
Stock"). The Series D Preferred Stock is redeemable under the same conditions
and requirements as Series B Preferred Stock. The holders of Series D
Preferred Stock are entitled to dividends at an annual rate of 11%. The Board
of Directors may elect to pay dividends in shares of Series D Preferred Stock.
The liquidation preference of each share of Series D Preferred Stock is the
greater of $195 plus accrued but unpaid dividends or the per share amount the
holder would have received upon liquidation on a converted basis plus accrued
but unpaid dividends. Additionally, the Company sold 10,257 shares of Series D
Preferred Stock for approximately $2.0 million to the Hoak Entities and
exchanged 51,283 of Series C Preferred Stock for Series D Preferred Stock at a
ratio of 1/1.
The Board of Directors authorized a 9% preferred stock dividend of Series B
Preferred Stock on December 15, 1996, to the stockholders of record of Series
B Preferred Stock on December 15, 1996. The stock dividend was paid on
December 31, 1996. The Board of Directors also authorized a 9% preferred stock
dividend of Series B and C Preferred Stock and an 11% preferred stock divided
of Series D Preferred Stock on December 31, 1997, to the stockholders of
record of Series B and D Preferred Stock on December 18, 1997, and Series C
Preferred Stock on December 19, 1997. The stock dividend was paid on December
31, 1997. The Company also recorded a similar stock dividend at December 31,
1998.
11. Stockholders' Equity (Deficit)
In April 1996, the Company issued 50,000 shares of Series A Preferred Stock
($.01 par value) to Precept and Stratford for proceeds of $5.0 million. In
addition, in October and November 1996, BGFVF purchased 35,000 shares of
Series A Preferred Stock for $3.5 million and approximately $2.5 million of
common stock.
In connection with the issuance of Series B Preferred Stock in November
1996, the Company offered to purchase the outstanding common stock from
existing stockholders for $170 per share. Shareholders sold 30,173 shares to
the Company for a total cost of approximately $5.0 million.
In April 1997, the Company issued 18,462 shares of common stock to BGFVF and
Stratford for approximately $3.6 million.
In May 1997, the Company issued 15,385 shares of common stock to Hoak for
approximately $3.0 million.
The Company has an incentive stock plan to provide for the granting of
options to its employees at prices not less than market at the date of grant.
At December 31, 1998, the Company had allocated 37,000 shares of stock for
issuance under the plan. The plan provides that options granted are
exercisable after one year from date of grant at a rate of 20% each year
cumulatively during the 10-year term of the option. An analysis of stock
option activity for the years ended December 31, 1998, 1997, and 1996, is
presented in the table and narrative below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year...................... 25,556 $175 25,556 $175 -- $--
Granted.................... 11,368 195 -- -- 25,556 175
Exercised.................. -- -- -- -- -- --
Canceled................... -- -- -- -- -- --
------ ---- ------ ---- ------ ----
Outstanding, end of year... 36,924 $181 25,556 $175 25,556 $175
====== ==== ====== ==== ====== ====
Exercisable at end of
year...................... 10,222 $175 5,111 $175 -- $--
====== ==== ====== ==== ====== ====
</TABLE>
F-14
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
The options outstanding at December 31, 1998, have exercise prices between
$175 and $195 with a weighted average exercise price of $181 and a weighted
average remaining contractual life of 8.2 years.
The Company accounts for this plan under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized for options granted. Had compensation
cost for the plan been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss would have increased by the amounts shown in the table
below on a pro forma basis for the years ended December 31, 1998, 1997 and
1996. The fair value of the options were calculated using risk-free interest
rates of 5.88% and 6.86%, respectively, for the 1998 and 1996 grants and an
expected dividend yield of 0%, from which a minimum value was obtained.
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Net loss
As reported.................................... $(71,192) $(7,946) $(2,793)
Pro forma...................................... (71,636) (8,057) (2,793)
</TABLE>
F-15
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
12. Condensed Consolidating Financial Statements
The following are condensed consolidating financial statements of the
Company. These statements are presented to provide financial information with
respect to HTI, the issuer of the Senior Subordinated Notes and borrower under
the revolving line of credit.
At December 31, 1998, Holdings owns a 100% interest in HTI. These condensed
consolidating financial statements present Holdings' investment in its
subsidiary 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 by the amount of contributions to the subsidiary and decrease in the
amount of distributions from the subsidiary.
Condensed Consolidating Balance Sheets (In Thousands):
<TABLE>
<CAPTION>
Consolidating Company
As of December 31, 1998 Holdings HTI Entries Consolidated
----------------------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.... $ -- $ 5,713 $ -- $ 5,713
Other current assets, net ... -- 4,381 -- 4,381
-------- -------- -------- --------
Total current assets......... -- 10,094 -- 10,094
Property and equipment, net.. -- 143,437 -- 143,437
Investment in subsidiary..... (9,364) -- 9,364 --
Other noncurrent assets,
net......................... -- 31,293 -- 31,293
-------- -------- -------- --------
$ (9,364) $184,824 $ 9,364 $184,824
======== ======== ======== ========
Liabilities and stockholders'
deficit:
Current liabilities.......... $ -- $192,413 $ -- $192,413
Other noncurrent
liabilities................. -- 1,775 -- 1,775
Redeemable convertible
preferred stock............. 65,219 -- -- 65,219
Redeemable common stock...... 2,872 -- -- 2,872
Stockholders' deficit........ (77,455) (9,364) 9,364 (77,455)
-------- -------- -------- --------
$ (9,364) $184,824 $ 9,364 $184,824
======== ======== ======== ========
<CAPTION>
Consolidating Company
As of December 31, 1997 Holdings HTI Entries Consolidated
----------------------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.... $ -- $ 7,379 $ -- $ 7,379
Other current assets, net.... -- 5,017 -- 5,017
-------- -------- -------- --------
Total current assets......... -- 12,396 -- 12,396
Property and equipment, net.. -- 104,376 -- 104,376
Investment in subsidiary..... 61,797 -- (61,797) --
Other noncurrent assets,
net......................... -- 67,248 -- 67,248
-------- -------- -------- --------
$ 61,797 $184,020 $(61,797) $184,020
======== ======== ======== ========
Liabilities and stockholders'
equity (deficit):
Current liabilities.......... $ -- $ 10,763 $ -- $ 10,763
Long-term debt............... -- 110,000 -- 110,000
Other noncurrent
liabilities................. -- 1,460 -- 1,460
Redeemable convertible
preferred stock............. 59,614 -- -- 59,614
Redeemable common stock...... 2,872 -- -- 2,872
Stockholders' equity
(deficit)................... (689) 61,797 (61,797) (689)
-------- -------- -------- --------
$ 61,797 $184,020 $(61,797) $184,020
======== ======== ======== ========
</TABLE>
F-16
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
Condensed Consolidating Statements of Operations (In Thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31, Consolidating Company
1998 Holdings HTI Entries Consolidated
- ------------------------------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................... $ -- $101,894 $ -- $101,894
-------- -------- ------- --------
Operating expenses:
Direct theater costs......... -- 84,691 -- 84,691
General and administrative... -- 7,528 -- 7,528
Depreciation and
amortization................ -- 18,309 -- 18,309
Impairment of long-lived
assets...................... -- 48,083 -- 48,083
-------- -------- ------- --------
-- 158,611 -- 158,611
-------- -------- ------- --------
Operating loss................. -- (56,717) -- (56,717)
-------- -------- ------- --------
Interest expense, net.......... -- 14,475 -- 14,475
-------- -------- ------- --------
Equity in loss of subsidiary... (71,192) -- 71,192 --
-------- -------- ------- --------
Net loss....................... $(71,192) $(71,192) $71,192 $(71,192)
======== ======== ======= ========
<CAPTION>
For the Year Ended December 31, Consolidating Company
1997 Holdings HTI Entries Consolidated
- ------------------------------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................... $ -- $ 79,171 $ -- $ 79,171
-------- -------- ------- --------
Operating expenses:
Direct theater costs......... -- 63,076 -- 63,076
General and administrative... -- 5,077 -- 5,077
Depreciation and
amortization................ -- 11,479 -- 11,479
-------- -------- ------- --------
-- 79,632 -- 79,632
-------- -------- ------- --------
Operating loss................. -- (461) -- (461)
-------- -------- ------- --------
Interest expense, net.......... -- 7,485 -- 7,485
-------- -------- ------- --------
Equity in loss of subsidiary... (7,946) -- 7,946 --
-------- -------- ------- --------
Net loss....................... $ (7,946) $ (7,946) $ 7,946 $ (7,946)
======== ======== ======= ========
<CAPTION>
For the Year Ended December 31, Consolidating Company
1996 Holdings HTI Entries Consolidated
- ------------------------------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................... $ -- $ 24,879 $ -- $ 24,879
-------- -------- ------- --------
Operating 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.......... -- 2,121 -- 2,121
-------- -------- ------- --------
Equity in loss of subsidiary... (2,793) -- 2,793 --
-------- -------- ------- --------
Net loss....................... $ (2,793) $ (2,793) $ 2,793 $ (2,793)
======== ======== ======= ========
</TABLE>
F-17
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
Condensed Consolidating Statements of Cash Flows (In Thousands):
<TABLE>
<CAPTION>
For the Year Ended Consolidating Company
December 31, 1998 Holdings HTI Entries Consolidated
------------------ -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Operating....................... $ -- $ 10,306 $ -- $ 10,306
-------- -------- -------- --------
Investing:
Purchases of property and
equipment.................... -- (69,610) -- (69,610)
Sale/disposition of property
and equipment................ -- 3,056 -- 3,056
-------- -------- -------- --------
-- (66,554) -- (66,554)
-------- -------- -------- --------
Financing:
Borrowings under note payable
and long-term debt........... -- 54,800 -- 54,800
Other......................... -- (218) -- (218)
-------- -------- -------- --------
-- 54,582 -- 54,582
-------- -------- -------- --------
Net decrease in cash............ $ -- $ (1,666) $ -- $ (1,666)
======== ======== ======== ========
<CAPTION>
For the Year Ended Consolidating Company
December 31, 1997 Holdings HTI Entries Consolidated
------------------ -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Operating....................... $ -- $ 5,268 $ -- $ 5,268
-------- -------- -------- --------
Investing:
Purchases of property and
equipment.................... -- (66,361) -- (66,361)
Sale/disposition of property
and equipment................ -- 12,895 -- 12,895
Payments for business
acquisitions, net of cash
acquired..................... -- (36,649) -- (36,649)
Contributions to subsidiary... (34,620) -- 34,620 --
-------- -------- -------- --------
(34,620) (90,115) 34,620 (90,115)
-------- -------- -------- --------
Financing:
Borrowings under note payable
and long-term debt........... -- 127,800 -- 127,800
Repayments of note payable and
long-term debt............... -- (68,437) (68,437)
Proceeds from issuance of
stock........................ 34,620 34,620 (34,620) 34,620
Other......................... -- (5,316) -- (5,316)
-------- -------- -------- --------
34,620 88,667 (34,620) 88,667
-------- -------- -------- --------
Net increase in cash............ $ -- $ 3,820 $ -- $ 3,820
======== ======== ======== ========
</TABLE>
F-18
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
For the Year Ended December 31, Consolidating Company
1996 Holdings HTI Entries Consolidated
------------------------------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Operating....................... $ -- $ 1,032 $ -- $ 1,032
-------- -------- -------- --------
Investing:
Purchases of property and
equipment.................... -- (10,734) -- (10,734)
Payments for business
acquisitions, net of cash
acquired..................... -- (58,986) -- (58,986)
Contributions to subsidiary... (48,659) -- 48,659 --
-------- -------- -------- --------
(48,659) (69,720) 48,659 (69,720)
-------- -------- -------- --------
Financing:
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>
13. Retirement Savings Plan
The Company 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. The Company made no contributions in 1998, 1997 or 1996.
14. Acquisitions
1997 Acquisitions
In May 1997, the Company completed the acquisition of two theaters with an
aggregate of 12 screens in Beaumont and Port Arthur, Texas, from United
Artists Theatre Circuit Inc. for a cash purchase price of approximately $3.4
million.
In June 1997, the Company completed the acquisition of two theaters with an
aggregate of 14 screens in Killeen, Texas, from Escape Theaters, Inc. for a
cash purchase price of approximately $8.5 million.
In August 1997, the Company completed the acquisition of seven theaters with
an aggregate of 50 screens in Oklahoma City and Tulsa, Oklahoma, from General
Cinema Corp. for a cash purchase price of approximately $15.8 million.
In September 1997, the Company completed the acquisition of a newly
constructed 16-screen theater in Waco, Texas, for approximately $8.9 million.
Additionally, the Company purchased furniture, fixtures and equipment for this
theater for approximately $2.7 million.
In October 1997, the Company completed the exchange of six theaters with an
aggregate of 31 screens operated by HTI in Kansas and Missouri for five
theaters with an aggregate of 22 screens owned by Dickinson, Inc. in the same
states. The Company also received cash of approximately $1.1 million in
connection with the exchange. The Company recorded no gain or loss on the
exchange. The Company also completed the acquisition of one theater with six
screens in Tomball, Texas, from Cineco Cinema Corporation for a cash purchase
price of approximately $1.8 million.
F-19
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
1996 Acquisitions
In April 1996, the Company acquired, for approximately $3.3 million in cash,
six theaters in Texas from Cinemore, Inc. and related entities.
In August 1996, the Company acquired, for approximately $1.8 million in
cash, two theaters in Texas from Beaumont Cinema Ventures, L.P.
In November 1996, the Company acquired 33 theaters primarily in Kansas,
Missouri, and Ohio from Crown Cinema Corporation and Crown Theatre
Corporation. The Company issued 16,413 shares of its common stock to the
seller, at a fair market value of approximately $2.9 million, and paid cash of
approximately $41.1 million to the seller for these acquisitions. The former
stakeholder of Crown Cinema Corporation is now a stockholder and consultant of
the Company. The Company also acquired, for $700,000 in cash, two theaters in
Texas from General Cinema Corp. of Texas.
In November and December 1996, the Company acquired, for approximately $11.3
million in cash, 19 theaters in Idaho, Oklahoma, and Texas from United Artists
Theatre Circuit Inc. and related entities.
The 1997 and 1996 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.
The following is a summary of the net assets acquired and liabilities
assumed in connection with the foregoing acquisitions in 1997 and 1996 (in
thousands). All such acquisitions were accounted for under the purchase
method.
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Assets acquired:
Cash and cash equivalents.................................... $ 1,102 $ 56
Inventories.................................................. 115 130
Prepaid and other current assets............................. 37 442
------- -------
Total current assets....................................... 1,254 628
Buildings.................................................... 3,854 10,964
Furniture and equipment...................................... 6,123 9,011
Leasehold improvements....................................... 2,240 6,123
Land......................................................... 1,100 2,990
Land improvements............................................ -- 436
Construction-in-progress..................................... -- 117
Covenants not-to-compete..................................... 1,208 6,099
------- -------
Total other assets......................................... 14,525 35,740
------- -------
Total assets acquired...................................... 15,779 36,368
------- -------
Liabilities assumed:
Accounts payable............................................. 101 --
------- -------
Total liabilities assumed.................................. 101 --
------- -------
Net assets acquired........................................ 15,678 36,368
Purchase price, including acquisition costs.................... 33,315 61,073
------- -------
Goodwill....................................................... $17,637 $24,705
======= =======
</TABLE>
F-20
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
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, 1997 and 1996. 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 years ended December 31, 1997 and 1996, is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Total revenues....................................... $90,090 $78,710
Net loss............................................. (10,373) (4,323)
</TABLE>
15. Commitments and Contingencies
At December 31, 1998, the Company had a letter of credit outstanding of
$189,000 with a bank related to a sales and use tax bond in one of the states
in which it operates.
The Company is not party to, nor are any of the Company's theaters the
subject of, any material pending legal proceedings, other than ordinary,
routine litigation incidental to the Company's business, except for the
following:
On June 24, 1998, in an action in the United States District Court, Eastern
District of Texas, Beaumont Division, Civil Action No. 1:98-CV-1975, Todd
Freeland, for himself and those similarly situated, v. Hollywood Theaters,
Inc., a private plaintiff is alleging that HTI has violated the Americans with
Disabilities Act of 1990, as amended (the "ADA") and Chapter 12 of the Texas
Human Resources Code (a state statute similar to the ADA) for not providing
comparable seating for wheelchair patrons at one of HTI's multiplex theaters
located in Beaumont, Texas. The suit seeks an unspecified amount of actual and
statutory damages in an amount of $1,000 for each violation, a declaratory
judgment and an injunction requiring HTI to modify the wheelchair seating
arrangements at the theater to provide views comparable to those afforded to
the general public. HTI has filed an answer denying allegations in the
Freeland suit. Although HTI believes that the wheelchair seating provided in
the Beaumont theater complies with applicable ADA standards, the proper
interpretation of those standards as they relate to theaters with stadium-
style seating is the subject of several ongoing lawsuits within the industry
and remains to be clearly established. Accordingly, HTI may be required to
modify its handicapped seating arrangements in the Beaumont facility.
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.
16. Related-Party Transactions
Precept, one of the Company's shareholders, has been engaged by the Company
to construct various theaters. During 1998, Precept was involved in the
construction of two theaters and improvements to one existing theater, and was
paid approximately $11.9 million for these services. During 1997, Precept was
involved in the construction of two theaters and improvements to three
existing theaters, and was paid approximately $14.5 million for these
services. At December 31, 1998, approximately $2.7 million was owed to Precept
and is included in accounts payable and accrued expenses in the accompanying
consolidated balance sheets. No amounts were owed to Precept as of December
31, 1997.
At December 31, 1998, BGFVF had issued a letter of credit for $12.5 million
to support borrowing under the $50.0 million revolving credit facility. Under
a reimbursement agreement with Holdings, if the letter of credit was called,
Holdings was contingently liable to reimburse BGFVF by issuing $12.5 million
of preferred stock at
F-21
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
the last issue price. At December 31, 1998, BGFVF had issued a guarantee for
$5.0 million to support borrowing under the $5.0 million bank note payable.
Under a reimbursement agreement with Holdings and HTI, if the guarantee was
called, the Company was contingently liable to reimburse BGFVF by having
Holdings issue $5.0 million of preferred stock, at the last issue price, and
having HTI issue a subordinated note of $5.0 million. Effective as of
January 27, 1999, in connection with the transactions disclosed in the
following paragraph, both reimbursement agreements with BGFVF were terminated
without any actions being taken thereon.
In January 1999, the Company required additional funds under the revolving
credit facility to continue operations, but again did not meet certain
applicable borrowing conditions. The Company was unable to borrow the
additional funds required from its bank lenders. On January 14, 1999, with the
financial backing of BGFVF, the Company received a waiver of certain financial
covenants under the revolving credit facility until June 30, 1999, and the
revolving credit facility was amended to increase the loan commitment
thereunder from $50.0 million to $75.0 million and to permit affiliates of the
Company to participate in any loans made thereunder. The Company used proceeds
under the expanded revolving credit facility to refinance the $5.0 million
bank note payable. At this time, BGFVF purchased junior participations in the
revolving credit facility of $17.5 million and terminated the $12.5 million
letter of credit and the $5.0 million guarantee. The Company terminated the
reimbursement agreements with BGFVF. In addition, through March 30, 1999,
BGFVF has purchased additional junior participations of approximately $17.4
million, resulting in a total participation of approximately $34.9 million. As
a lender under the participation agreement, BGFVF receives interest at the
applicable margin under the revolving credit facility. BGFVF is entitled to
receive additional compensation in the form of a senior unsecured note of the
Company in an aggregate principal amount of up to $5.0 million, under certain
circumstances.
17. Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the years ended December 31,
1998 and 1997 is as follows (in thousands):
Year Ended December 31, 1998
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- --------
<S> <C> <C> <C> <C>
Operating revenues.................... $23,692 $23,764 $28,904 $ 25,534
Operating expenses.................... 24,091 24,939 29,703 79,878(a)
------- ------- ------- --------
Operating loss........................ (399) (1,175) (799) (54,344)
Interest expense, net................. 3,063 3,278 3,887 4,247
------- ------- ------- --------
Net loss............................ $(3,462) $(4,453) $(4,686) $(58,591)
======= ======= ======= ========
Year Ended December 31, 1997
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- --------
<S> <C> <C> <C> <C>
Operating revenues.................... $15,965 $16,591 $22,746 $ 23,869
Operating expenses.................... 16,925 17,527 22,503 22,677
------- ------- ------- --------
Operating income (loss)............... (960) (936) 243 1,192
Interest expense, net................. 995 1,302 2,235 2,953
------- ------- ------- --------
Net loss............................ $(1,955) $(2,238) $(1,992) $ (1,761)
======= ======= ======= ========
</TABLE>
- --------
(a) The fourth quarter of 1998 includes non-cash charges of approximately
$48.1 million related to impairment of long-lived assets.
F-22
<PAGE>
HOLLYWOOD THEATER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997, and 1996
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. There are other factors, however, which may affect the Company's
revenues during any particular quarter, including the popularity of films
released during the quarter and the availability of such popular films at the
Company's theaters. As a result, depending on these factors, the Company's
revenues in the first and second quarters may not be as strong as in the third
and fourth quarters.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the registrants has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Hollywood Theaters, Inc.
Hollywood Theater Holdings, Inc.
Crown Theatre Corporation
/s/ Thomas W. Stephenson, Jr.
By: _________________________________
Thomas W. Stephenson, Jr.
Chairman of the Board of
Directors, President and Chief
Executive Officer
/s/ James R. Featherstone
By: _________________________________
James R. Featherstone
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of each of the
registrants and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John G. Farmer Director March 30, 1999
______________________________________
John G. Farmer
Director
______________________________________
Thomas L. Harrison
/s/ Thomas G. Mendell Director March 30, 1999
______________________________________
Thomas G. Mendell
/s/ Harold W. Pote Director March 30, 1999
______________________________________
Harold W. Pote
/s/ Eric R. Wilkinson Director March 30, 1999
______________________________________
Eric R. Wilkinson
</TABLE>
<PAGE>
EXHIBIT 10.15
FOURTH AMENDMENT AND WAIVER
TO
AMENDED AND RESTATED
CREDIT AGREEMENT
FOURTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of May 22, 1998 (this "Fourth Amendment"), to the Amended and Restated Credit
----------------
Agreement dated as of August 7, 1997, as amended by the First Amendment and
Waiver to Amended and Restated Credit Agreement dated as of November 13, 1997,
the Second Amendment and Waiver to Amended and Restated Credit Agreement dated
as of December 13, 1997 and the Third Amendment to Amended and Restated Credit
Agreement dated as of January 7, 1998 (as so amended, the "Credit Agreement"),
----------------
among Hollywood Theater Holdings, Inc. (the "Parent"), Hollywood Theaters, Inc.
------
(the "Company"), the banks and other financial institutions parties thereto
-------
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
----
National Trust and Savings Association, as Administrative Agent for the Banks
(the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, Parent and the Company have requested that the Administrative
Agent and the Banks waive certain terms and conditions under the Credit
Agreement as more fully set forth herein; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms defined in the Credit Agreement
-------------
and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement.
2. Amendments to Credit Agreement. Section 1.1 of the Credit
------------------------------
Agreement is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:
"Equity Issuance": shall mean an issuance and sale by the Parent of a
---------------
minimum of $30,000,000 of its Capital Stock, either through private
placement or public offering.
"Fourth Amendment": that Fourth Amendment and Waiver to Amended and
----------------
Restated Credit Agreement among the Parent, the
<PAGE>
2
Company, the Administrative Agent and the Banks parties thereto.
3. Waivers. The Administrative Agent and the Banks hereby grant the
-------
following waivers on the following terms:
(a) the provisions of subsection 2.7(d) hereby are waived beginning on
the date hereof and ending at 11:59 p.m. on August 31, 1998 (the "Equity
------
Issuance Waiver Period") solely to permit the Equity Issuance to be consummated
- ----------------------
on or prior to August 31, 1998, without a corresponding mandatory prepayment of
the Loans and reduction of the Revolving Loan Commitments; and
(b) the provisions of the first sentence of subsection 4.3(f) hereby
are waived until the end of the Equity Issuance Waiver Period; provided,
--------
however, that if an Equity Issuance shall not have occurred prior to the end of
- -------
the Equity Issuance Waiver Period, the Parent shall affect a Required Equity
Contribution within thirty (30) days after the end of the Equity Issuance Waiver
Period in an amount not less than the aggregate amount of all Construction
Advances in excesss of $12,000,000 made from and after the Third Amendment
Effective Date to and including the last day of the Equity Issuance Waiver
Period, and any failure of Parent to affect such Required Equity Contribution
shall be an Event of Default.
4. Payment of Expenses. The Company agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the negotiation, preparation and distribution of
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
5. No Other Amendments; Confirmation. Except as expressly amended,
---------------------------------
modified and supplemented hereby, the provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect.
6. Affirmation of Guarantees. The Parent hereby consents to the
-------------------------
execution and delivery of this Fourth Amendment and reaffirms its obligations
under Article X of the Credit Agreement.
7. Counterparts. This Fourth Amendment may be executed in any
------------
number of separate counterparts, each of which, when so executed, shall be
deemed an original, and all of said counterparts taken together shall be deemed
to constitute but one and the same instrument.
8. GOVERNING LAW AND JURISDICTION. THIS FOURTH AMENDMENT SHALL BE
------------------------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT CONSIDERATION OF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL
LAW.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
---------------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
---------------------------------------
James R. Featherstone
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent and as a Bank
By: /s/ Carl F. Salas
---------------------------------------
Carl F. Salas
Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Vincent J. Fitzgerald
---------------------------------------
Name: Vincent J. Fitzgerald, Jr.
Title: Authorized Signatory
<PAGE>
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Gina A. Norris
---------------------------------------
Name: Gina A. Norris
Title: Vice President
<PAGE>
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
---------------------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ Stan Marciniak
---------------------------------------
Name: Stan Marciniak
Title: Vice President and Manager
Operations
<PAGE>
EXHIBIT 10.16
FIFTH AMENDMENT AND WAIVER
TO
AMENDED AND RESTATED
CREDIT AGREEMENT
FIFTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of August 14, 1998 (this "Fifth Amendment"), to the Amended and Restated
---------------
Credit Agreement dated as of August 7, 1997, as amended by the First Amendment
and Waiver to Amended and Restated Credit Agreement dated as of November 13,
1997, the Second Amendment and Waiver to Amended and Restated Credit Agreement
dated as of December 13, 1997, the Third Amendment to Amended and Restated
Credit Agreement dated as of January 7, 1998, the Fourth Amendment to the
Amended and Restated Credit Agreement dated as of May 22, 1998 (as so amended,
the "Credit Agreement"), among Hollywood Theater Holdings, Inc. (the "Parent"),
---------------- ------
Hollywood Theaters, Inc. (the "Company"), the banks and other financial
-------
institutions parties thereto (collectively, the "Banks"; individually, a
-----
"Bank"), and Bank of America National Trust and Savings Association, as
----
Administrative Agent for the Banks (the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, Parent and the Company have requested that the Administrative
Agent and the Banks waive certain terms and conditions under the Credit
Agreement as more fully set forth herein; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Capitalized terms defined in the Credit Agreement
-------------
and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement.
II. Amendments to Credit Agreement. A. Section 1.1 of the Credit
------------------------------
Agreement is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:
"Additional Equity Issuance": shall mean an issuance and sale by the
--------------------------
Parent or the Company of a minimum of an additional $50,000,000 of its
Capital Stock, either through private placement or public offering..
"Fifth Amendment": that Fifth Amendment and Waiver to Amended and
---------------
Restated Credit Agreement among the Parent, the Company, the Administrative
Agent and the Banks parties thereto.
"Monthly Test Period": as defined in the definition of "Monthly
------------------- -------
Compliance Certificate".
----------------------
<PAGE>
2
B. Section 1.1 of the Credit Agreement is hereby amended by adding
the following language at the end of the definition of "Capital Expenditures":
--------------------
"Notwithstanding the foregoing, there shall be excluded from the
annual Capital Expenditures Cap expenditures made in connection with
(i) reprogramming required to permit the proper functioning (but only
to the extent that such proper functioning would otherwise be
impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Company or used
or relied upon in the conduct of the Company's business, (ii) the
testing of all such systems and other equipment as so reprogrammed,
and (iii) the purchase and installation of related systems and
related equipment, as well as training on such reprogrammed and/or
modified computer systems and equipment. The aggregate of the
expenditures made in connection with the previous sentence shall in
no event exceed $2,000,000 over the course of the term of the Loans
(approximately $700,000 of which has been spent as of the date of the
Fifth Amendment)."
C. Section 1.1 of the Credit Agreement is hereby amended by deleting
therefrom the definition of "Monthly Compliance Certificate" in its entirety and
------------------------------
substituting the following therefor:
"Monthly Compliance Certificate": a certificate duly
--------------------------------
executed by a Responsible Officer of the Parent and the Company, which
certificate will contain such financial calculations and other
information required thereby covering the period of the calendar month
for which the Monthly Compliance Certificate is being delivered (the
"Monthly Test Period"), and shall be substantially in the form of
Exhibit A to the Third Amendment (with appropriate adjustments to
reflect that the test period to which such Monthly Compliance
Certificate is applicable is a Monthly Test Period and ends as of the
last day of a calendar month rather than a fiscal quarter and such
other changes thereto as may be agreed upon from time to time by the
Administrative Agent and the Parent and the Company), and including
therein, among other things, calculations supporting compliance with
Article VII. For purposes of determining the financial calculations
required by the Monthly Compliance Certificate, financial ratio terms
which are defined in the Credit Agreement with reference to the end of
the applicable fiscal quarter (e.g., Consolidated Fixed Charge
- -
Coverage Ratio, Consolidated Interest Coverage Ratio, etc.) shall be
redefined for such purposes only to refer to the end of the applicable
calendar month."
D. Section 2.1 of the Credit Agreement is hereby amended by adding
at the end thereof the following:
<PAGE>
3
"Notwithstanding the foregoing, the Maximum Available Revolving Loan
Commitments for the Revolving Loan Cap Period from April 1, 1998
through September 30, 1998 (the final day of the last Revolving Loan
Cap Period) shall equal the aggregate amount of all Revolving Loan
Commitments, provided, that for any Revolving Loan advances in excess
of $38,672,500, Beacon shall deliver for the benefit of the
Administrative Agent a letter of credit in form and substance
reasonably acceptable to the Administrative Agent and in an amount of
not less than the amount advanced to the Company, but in no event
shall that amount exceed $15,000,000; provided, however, if the
-------- -------
Additional Equity Issuance is consummated on or prior to October 31,
1998, the Administrative Agent is directed to release such letter of
credit and return such letter of credit to the issuing bank."
E. Section 7.1(e) of the Credit Agreement is hereby amended by
deleting Section 7.1(e) in its entirety and substituting therefore the
following:
"(e) Minimum Consolidated Operating Cash Flow.
----------------------------------------
Commencing on the Third Amendment Effective Date and ending on October 30,
1998, at the end of any calendar month during such period of time, permit
Consolidated Operating Cash Flow for prior twelve month period to be less
than the amount set forth below for the corresponding period during which
such fiscal quarter ends:
Period Minimum Consolidated
------ --------------------
Operating Cash Flow
--------------------
Third Amendment Effective Date $ 13,000,000
to March 31, 1998
April 1, 1998 to $ 16,000,000
June 30, 1998
July 1, 1998 to $17,000,000"
October 30, 1998
F. Exhibit A to the Third Amendment is hereby amended by deleting
Exhibit A in its entirety and substituting therefor Exhibit A attached hereto.
III. Waivers. The Administrative Agent and the Banks hereby grant
-------
the following waivers on the following terms:
A. the provisions of subsection 2.7(d) hereby are waived
beginning on the date hereof and ending at 11:59 p.m. on October 30, 1998 (the
Additional Equity Issuance Waiver Period") solely to permit the Additional
- -----------------------------------------
Equity Issuance to be consummated on or prior to
<PAGE>
4
October 31, 1998, without a corresponding mandatory prepayment of the Loans and
reduction of the Revolving Loan Commitments;
B. the provisions of the first sentence of subsection
4.3(f) are hereby waived until the end of the Additional Equity Issuance Waiver
Period; provided, however, that if the Additional Equity Issuance shall not have
-------- -------
occurred prior to the end of the Additional Equity Issuance Waiver Period, the
Parent shall affect a Required Equity Contribution within forty-five (45) days
after the end of the Additional Equity Issuance Waiver Period in an amount not
less than the aggregate amount of all Construction Advances in excess of
$12,000,000 made from and after the Third Amendment Effective Date to and
including the last day of the Additional Equity Issuance Waiver Period, and any
failure of Parent to affect such Required Equity Contribution shall be an Event
of Default;
C. the provisions of subsection 7.1(a), 7.1(b) and subsection
7.1(d) are hereby waived until the end of the Additional Equity Issuance Waiver
Period, after which period of the foregoing waiver shall terminate and the
provisions of subsection 7.1(a), 7.1(b) and 7.1(d) shall be reinstated with full
force and effect.
IV. Payment of Expenses. The Company agrees to pay or reimburse
-------------------
the Administrative Agent for all of its out-of-pocket costs and reasonable
expenses incurred in connection with the negotiation, preparation and
distribution of documents prepared in connection herewith and the transactions
contemplated hereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent.
V. No Other Amendments; Confirmation. Except as expressly
---------------------------------
amended, modified and supplemented hereby, the provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect.
VI. Affirmation of Guarantees. The Parent hereby consents to
-------------------------
the execution and delivery of this Fifth Amendment and reaffirms its obligations
under Article X of the Credit Agreement.
VII. Counterparts. This Fifth Amendment may be executed in any
------------
number of separate counterparts, each of which, when so executed, shall be
deemed an original, and all of said counterparts taken together shall be deemed
to constitute but one and the same instrument.
VIII. GOVERNING LAW AND JURISDICTION. THIS FIFTH AMENDMENT SHALL
------------------------------
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK, WITHOUT CONSIDERATION IF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE
FEDERAL LAW.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
----------------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
----------------------------------------
James R. Featherstone
Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Administrative Agent and as a
Bank
By: /s/ Carl F. Salas
----------------------------------------
Carl F. Salas
Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Vincent J. Fitzgerald
-----------------------------------------
Name: Vincent J. Fitzgerald, Jr.
Title: Authorized Signatory
<PAGE>
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
-----------------------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ Stan Marciniak
-----------------------------------------
Name: Stan Marciniak
Title: Vice President and Manager
Operations
<PAGE>
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Gina Norris
-----------------------------------------
Name: Gina Norris
Title: Vice President
<PAGE>
EXHIBIT A TO THIRD AMENDMENT
----------------------------
FORM OF
COMPLIANCE CERTIFICATE
TO: Bank of America National
Trust and Savings Association,
as Administrative Agent
Ladies/Gentlemen:
We refer to 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 the undersigned, HOLLYWOOD THEATER
----------------
HOLDINGS, INC., as guarantor thereunder, HOLLYWOOD THEATERS, INC., as borrower
thereunder (the "Company"), the Banks parties thereto, and BANK OF AMERICA
-------
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent. Terms defined
in the Credit Agreement are used herein as therein defined, and Section and
subsection references are to Sections and subsections in the Credit Agreement.
The undersigned hereby certifies and warrants to you and each Bank
that the following is a true and correct computation in respect of the fiscal
quarter ending _____ ______, 19___ (the "Computation Date") of the following
----------------
ratios and/or financial restrictions with respect to the Parent, the Company and
all Subsidiaries on a consolidated basis contained in Section 7 for the
Computation Date:
I. Consolidated Total Leverage Ratio (subsection 7.1(a))/*/
-----------------------------------------------------
(a) Indebtedness for borrowed money without duplica-
tion in the other items listed in (a) through (h) $_______________
_____________________
/*/ With respect to determination of Consolidated Total Leverage Ratio,
Consolidated Interest Coverage Ratio, Consolidated Fixed Charge
Coverage Ratio and Consolidated Senior Leverage Ratio, (i) the
calculation of Consolidated Cash Interest and Consolidated Fixed
Charges in respect of periods ending prior to the first anniversary of
the Effective Date and (ii) the calculation of Consolidated Operating
Cash Flow in respect of newly constructed theaters shall, in each
case, be determined as provided in the Credit Agreement.
<PAGE>
2
(b) Obligations issued, undertaken or assumed as the
deferred purchase price of property or services
(other than trade payables in the ordinary course
of business) $__________________
(c) Non-contingent reimbursement or payment
obligations with respect to Surety Instruments
without duplication in the other items listed
in (a) through (h) $__________________
(d) Obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so
evidenced incurred in connection with the
acquisition of property, assets or businesses
without duplication in the other items listed
in (a) through (h) $__________________
(e) Indebtedness created or arising under any
conditional sale or other title retention
agreement, or incurred as financing, in either
case with respect to property acquired without
duplication in the other items listed in (a)
through (h) $__________________
(f) Obligations with respect to Capital Leases
without duplication in the other items
listed in (a) through (h) $__________________
(g) Obligations as a lessee under synthetic or
leveraged leases without duplication in the
other items listed in (a) through (h) $__________________
(h) Indebtedness referred to in (a) through (g)
above secured by (or for which the holder of
such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any
Lien upon or in property owned by the Parent, the
Company or any Subsidiary (even though the Person
owning such property has not assumed or become
liable for the payment of such Indebtedness), but
only to the extent of the value of such property,
without duplication in the other items listed in
(a) through (g) $__________________
<PAGE>
3
(i) Guaranty Obligations in respect of
indebtedness or obligations of others
(other than a Hollywood Entity) of the
kinds referred to in (a) through (h)
and not included in (a) through (h) $_________________________
(j) Subtotal of (a) through (i) $_________________________
(k) Consolidated Net Income for prior
12 month period ending __________ $_________________________
(l) Total income tax expense for such
prior 12 month period without duplication
in (k) $_________________________
(m) Interest expense, amortization or writeoff
of debt discount or debt insurance costs
and commissions, discounts and other fees
and charges associated with Indebtedness
(including the Loans) for such prior 12
month period without duplication in (k) $_________________________
(n) Depreciation and amortization expense and
amortization of intangibles (including
goodwill) and organization costs for such
prior 12 month period without duplication
in (k) $_________________________
(o) Extraordinary expenses or losses for such
prior 12 month period without duplication
in (k) $_________________________
(p) Other non-cash charges (excluding inventory
writedowns) for such prior 12 month period
without duplication in (k) $_________________________
(q) Subtotal of (k) through (p) $_________________________
(r) Non-cash interest income for such prior 12
month period (to the extent included in
(k)) $_________________________
(s) Extraordinary income and gains for such
prior 12 month period (to the extent
included in (k)) $_________________________
(t) Other non-cash income for such prior 12
month period (to the extent included in
(k)) $_________________________
(u) Subtotal (r) through (t) $_________________________
<PAGE>
4
(v) (q) minus (u) $ $_________________________________
(w) Ratio of (j) to (v) $_________________________________
(x) Maximum ratio permitted under
subsection 7.1(a) $_________________________________
II. Consolidated Interest Coverage Ratio (subsection 7.1(b))/**/
----------------------------------------------------------
(a) Part I. item (v) $_________________________________
(b) Aggregate interest expense for prior
12 month period ending $_________________________________
(c) Non-cash interest expenses included
in (b) $_________________________________
(d) (b) minus (c) $_________________________________
(e) Ratio of (a) to (d) $_________________________________
(f) Minimum ratio permitted by
subsection 7.1(b) $_________________________________
III. Consolidated Fixed Charge Coverage Ratio (subsection 7.2(c))/***/
---------------------------------------------------------------
(a) Part I, item (v) $_________________________________
____________________
/**/ / With respect to determination of Consolidated Total Leverage Ratio,
Consolidated Interest Coverage Ratio, Consolidated Fixed Charge
Coverage Ratio and Consolidated Senior Leverage Ratio, the calculation
of Consolidated Cash Interest and Consolidated Fixed Charges in respect
of periods ending prior to the first anniversary of the Effective Date
and Consolidated Operating Cash Flow in respect of newly constructed
theaters shall each be determined as provided in the Credit Agreement.
/***/ / With respect to determination of Consolidated Total Leverage Ratio,
Consolidated Interest Coverage Ratio, Consolidated Fixed Charge
Coverage Ratio and Consolidated Senior Leverage Ratio, the calculation
of Consolidated Cash Interest and Consolidated Fixed Charges in
respect of periods ending prior to the first anniversary of the
Effective Date and Consolidated Operating Cash Flow in respect of
newly constructed theaters shall each be determined as provided in the
Credit Agreement.
<PAGE>
5
(b) Rental expense (including payments
under real property operating
leases) for prior 12 month period
ending ____________________ $_________________________________
(c) Part II, item (d) $_________________________________
(d) Capital Expenditures for such prior
12 month period $_________________________________
(e) Required principal repayments on
all Indebtedness for such prior 12
month period $_________________________________
(f) Permitted Restricted Payments made
pursuant to subsection 7.12(a)(iii)
for such prior 12 month period $_________________________________
(g) Subtotal (b) through (f) $_________________________________
(h) Ratio of (a) to (g) $_________________________________
(i) Minimum ratio permitted by
subsection 7.1(c) $_________________________________
IV. Consolidated Senior Leverage Ratio (subsection 7.1(d))/****/
------------------------------------------------------
(a) Part I, item (j), other than
Indebtedness in respect of the
Senior Subordinated Notes and the
Senior Subordinated Indenture $_________________________________
(b) Part I, item (v) $_________________________________
(c) Ratio of (a) to (b) $_________________________________
(d) Maximum ratio permitted under
subsection 7.1(d) $_________________________________
V. Minimum Consolidated Operating Cash Flow (subsection 7.1(e))
-----------------------------------------------------------
_______________________
/****/ / With respect to determination of Consolidated Total Leverage Ratio,
Consolidated Interest Coverage Ratio, Consolidated Fixed Charge
Coverage Ratio and Consolidated Senior Leverage Ratio, the calculation
of Consolidated Cash Interest and Consolidated Fixed Charges in
respect for periods ending prior to the first anniversary of the
Effective Date and Consolidated Operating Cash Flow in respect of
newly constructed theaters shall each be determined as provided in the
Credit Agreement.
<PAGE>
6
(a) Part I, item (v) $_________________________________
(b) Minimum amount permitted under
subsection 7.1(e) $_________________________________
VI. Liens (subsection 7.2)
----------------------
(a) Purchase money security interests
not to exceed $5,000,000 in the
aggregate (subsection 7.2(i)) $_________________________________
(b) Liens securing obligations in
respect of Capital Leases not to
exceed $5,000,000 in the aggregate
(subsection 7.1(j)) $_________________________________
(c) [Omitted] $_________________________________
VII. Dispositions (subsection 7.3)
-----------------------------
(a) Dispositions pursuant to
subsection 7.3(g) for fiscal year
to _____________ $_________________________________
VIII. Investments (subsection 7.5)
----------------------------
(a) Total Investments in the form of
cash equivalents (subsection
7.5(a)) $_________________________________
(b) Acquisitions not to exceed
Acquisition Costs of $40,000,000
in the aggregate for such prior 12
month period (subsection 7.5(c)) $_________________________________
(c) Investments pursuant to subsection
7.5(e) not to exceed Acquisition
Costs of $3,000,000 at any time
outstanding $_________________________________
IX. Indebtedness (subsection 7.6)
-----------------------------
(a) Indebtedness pursuant to
subsection 7.6(c) not to exceed an
outstanding principal amount of
$5,000,000 in the aggregate at any
time outstanding $_________________________________
(b) Indebtedness pursuant to
subsection 7.6(d) $_________________________________
(c) [Omitted] $_________________________________
<PAGE>
7
(d) Intercompany Indebtedness pursuant
to subsection 7.6(f) not to exceed
an outstanding principal amount of
$5,000,000 in the aggregate $_________________________________
(e) Indebtedness pursuant to subsection
7.6(g) not to exceed an outstanding
principal amount of $5,000,000 in
the aggregate $_________________________________
(f) [Omitted] $_________________________________
(g) Indebtedness pursuant to the Senior
Subordinated Notes and the Senior
Subordinated Indenture (subsection
7.6(i)) $_________________________________
X. Contingent Obligations (subsection 7.9)
---------------------------------------
(a) Permitted Swap Obligations
outstanding (subsection 7.9(b)) $_________________________________
(b) Contingent Obligations with respect
to Surety Obligation (other than
the Letters of Credit issued
pursuant to Section 2.17 of the
Credit Agreement) not to exceed at
any time $5,000,000 in the
aggregate (subsection 7.9(d)) $_________________________________
XI. Leases (subsection 7.11)
------------------------
(a) Aggregate amount to be paid under
Capital Leases not to exceed
$5,000,000 (subsection 7.11(b)) $_________________________________
XII. Restricted Payments (subsection 7.12)
-------------------------------------
For current fiscal year to date beginning after December 31, 1998, provided
that the Consolidated Leverage Ratio is less than 4.0 to 1 at the time of
such payments, and the following payments in any fiscal year do not exceed
25% of Excess Cash Flow for the prior fiscal year:
(a) Restricted Payments made
(subsection 7.12(a)(iv):
[described] $_________________________________
(b) Undistributed Restricted Payments
applied toward Capital Expenditures
(subsection 7.12(b)) $_________________________________
<PAGE>
8
XIII. Capital Expenditures (subsection 7.16)
--------------------------------------
(a) Capital Expenditures for fiscal
year to $_________________________________
(b) Cap Ex Shortfall from most recent
fiscal year ending prior to
Computation Date (not to exceed
$500,000) $_________________________________
(c) Expenditures made in connection
with (i) reprogramming required to
permit the prior functioning (but
only to the extent that such
proper functioning would otherwise
be impaired by the occurrence of
the year 2000) in and following
the year 2000 of computer systems
and other equipment containing
embedded microchips, in either
case owned or operated by the
Company or used or relied upon in
the conduct of the Company's
business, (ii) the testing of all
such systems and other equipment
as so reprogrammed, and (iii) the
purchase and installation of
related systems and related
equipment, as well as training on
such reprogrammed and/or modified
computer systems and equipment $_________________________________
(d) (a) minus (c) $_________________________________
(e) Maximum amount permitted $_________________________________
(f) Aggregate of all expenditures made in connection
with (c)
(g) Maximum amount of expenditures permitted to be
made in the aggregate in connection with (c) $2,000,000
XIV. Construction of New Screens (subsection 7.18)
---------------------------------------------
(a) Movie screens under construction _________________________________
(b) Movie screens in operation for 6
months or less by any Person
(excluding (a)) _________________________________
(c) Subtotal of (a) and (b) _________________________________
<PAGE>
9
(d) Total of all movie screens under
construction and in operation _________________________________
(e) (d) dividend by (c) expressed as a
percentage _________________________________
(f) Maximum percentage permitted _________________________________
The Company, on behalf of itself and each of the other Loan Parties, hereby
further certifies and warrants to you and each Bank that no Default or Event of
Default has occurred and is continuing.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly executed
and delivered by a Responsible Officer this ______________ day of ,
__________.
Responsible Officer of the Company:
By:
___________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.17
SIXTH AMENDMENT AND WAIVER
TO
AMENDED AND RESTATED CREDIT AGREEMENT
SIXTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of October , 1998 (this "Sixth Amendment"), to the Amended and
---------------
Restated Credit Agreement dated as of August 7, 1997, as amended by the First
Amendment and Waiver to Amended and Restated Credit Agreement dated as of
November 13, 1997, the Second Amendment and Waiver to Amended and Restated
Credit Agreement dated as of December 13, 1997, the Third Amendment to Amended
and Restated Credit Agreement dated as of January 7, 1998, the Fourth Amendment
to the Amended and Restated Credit Agreement dated as of May 22, 1998 and the
Fifth Amendment and Waiver to Amended and Restated Credit Agreement dated as of
August 14, 1998 (as so amended, the "Credit Agreement"), among Hollywood Theater
----------------
Holdings, Inc. (the "Parent"), Hollywood Theaters, Inc. (the "Company"), the
------ -------
banks and other financial institutions parties thereto (collectively, the
"Banks"; individually, a "Bank"), and Bank of America National Trust and Savings
----- ----
Association, as Administrative Agent for the Banks (the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, Parent and the Company have requested that the Administrative
Agent and the Banks amend and waive certain terms and conditions under the
Credit Agreement as more fully set forth herein; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms defined in the Credit Agreement
-------------
and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement.
2. Amendments to Credit Agreement. (a) Section 1.1 of the Credit
------------------------------
Agreement is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:
"Beacon Letter of Credit": that letter of credit delivered by Beacon
-----------------------
pursuant to Subsection 2(d) of the Fifth Amendment, as amended or
supplemented from time to time with the prior consent of the Administrative
Agent.
"Sixth Amendment": that Sixth Amendment and waiver to Amended and
---------------
Restated Credit Agreement among the Parent, the Company, the Administrative
Agent and the Banks parties thereto.
<PAGE>
2
(b) Section 2.1 of the Credit Agreement is hereby amended by (i)
omitting the date "October 31, 1998" in the last proviso thereof and
substituting the date "December 15, 1998" therefor and (ii) by adding at the end
thereof the following:
"Consistent with the foregoing, the Beacon Letter of Credit delivered to
Administrative Agent pursuant to the Fifth Amendment may be amended
simultaneously with the execution and delivery of the Sixth Amendment in a
manner satisfactory to Administrative Agent to provide that the
Administrative Agent may not draw on the Beacon Letter of Credit due to
failure of the Additional Equity Issuance to occur until on or after
December 15, 1998"
(c) Section 7.1(e) of the Credit Agreement is hereby amended by
deleting Section 7.1(e) in its entirety and substituting therefore the
following:
"(e) Minimum Consolidated Operating Cash Flow. Commencing on the
----------------------------------------
Third Amendment Effective Date and ending on December 15, 1998, at the end
of any calendar month during such period of time, permit Consolidated
Operating Cash Flow for prior twelve month period to be less than the
amount set forth below for the corresponding period during which such
fiscal quarter ends:
<TABLE>
<CAPTION>
Period Minimum Consolidated
- ------ --------------------
Operating Cash Flow
--------------------
<S> <C>
Third Amendment Effective Date
to March 31, 1998 $ 13,000,000
April 1, 1998 to
June 30, 1998 $ 16,000,000
July 1, 1998 to
December 15, 1998 $17,000,000"
</TABLE>
(d) Section 7.6 of the Credit Agreement is hereby amended by adding at
the end thereof the following:
"(j) Unsecured Indebtedness owing to a Person or Persons and on terms
and conditions satisfactory to each of Required Banks and the
Administrative Agent in their sole and absolute discretion in the
aggregate principal amount not to exceed $5,000,000 at any time
outstanding."
<PAGE>
3
3. Waivers. The Administrative Agent and the Banks hereby grant the
-------
following waivers on the following terms:
(a) the provisions of subsection 2.7(d) hereby are waived beginning on
the date hereof and ending at 11:59 p.m. on December 15, 1998 (the "Additional
----------
Equity Issuance Waiver Period") solely to permit the Additional Equity Issuance
- -----------------------------
to be consummated on or prior to December 15, 1998, without a corresponding
mandatory prepayment of the Loans and reduction of the Revolving Loan
Commitments;
(b) the provisions of the first sentence of subsection 4.3(f) are
hereby waived until the end of the Additional Equity Issuance Waiver Period;
provided, however, that if the Additional Equity Issuance shall not have
- -------- -------
occurred prior to the end of the Additional Equity Issuance Waiver Period, the
Parent shall affect a Required Equity Contribution within forty-five (45) days
after the end of the Additional Equity Issuance Waiver Period in an amount not
less than the aggregate amount of all Construction Advances in excess of
$12,000,000 made from and after the Third Amendment Effective Date to and
including the last day of the Additional Equity Issuance Waiver Period, and any
failure of Parent to affect such Required Equity Contribution shall be an Event
of Default;
(c) the provisions of subsection 7.1(a), 7.1(b) and subsection 7.1(d)
are hereby waived until the end of the Additional Equity Issuance Waiver Period,
after which period of the foregoing waiver shall terminate and the provisions of
subsection 7.1(a), 7.1(b) and 7.1(d) shall be reinstated with full force and
effect.
4. Payment of Expenses. The Company agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the negotiation, preparation and distribution of
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
5. No Other Amendments; Confirmation. Except as expressly amended,
---------------------------------
modified and supplemented hereby, the provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect.
6. Affirmation of Guarantees. The Parent hereby consents to the
-------------------------
execution and delivery of this Sixth Amendment and reaffirms its obligations
under Article X of the Credit Agreement.
7. Counterparts. This Sixth Amendment may be executed in any number
------------
of separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
<PAGE>
4
8. GOVERNING LAW AND JURISDICTION. THIS SIXTH AMENDMENT SHALL BE
------------------------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT CONSIDERATION IF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL
LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
-----------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
-----------------------------
James R. Featherstone
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent
and as a Bank
By: /s/ Carl F. Salas
-----------------------------
Carl F. Salas
Vice President
<PAGE>
5
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Vincent J. Fitzgerald
-----------------------------
Name: Vincent J. Fitzgerald, Jr.
Title: Authorized Signatory
<PAGE>
6
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Gina A. Norris
-----------------------------
Name: Gina A. Norris
Title: Vice President
<PAGE>
7
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
-----------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ S. Marciniak
-----------------------------
Name: S. Marciniak
Title: Vice President and Manager
Operations
<PAGE>
EXHIBIT 10.18
SEVENTH AMENDMENT AND WAIVER
TO AMENDED AND RESTATED
CREDIT AGREEMENT
SEVENTH AMENDMENT AND WAIVER, dated as of December 15, 1998 (this "Seventh
-------
Amendment"), to the Amended and Restated Credit Agreement dated as of August 7,
- ---------
1997, as amended by the First Amendment and Waiver to Amended and Restated
Credit Agreement dated as of November 13, 1997 the Second Amendment and Waiver
to Amended and Restated Credit Agreement dated as of December 13, 1997, the
Third Amendment to Amended and Restated Credit Agreement dated as of January 7,
1998, the Fourth Amendment to the Amended and Restated Credit Agreement dated as
of May 22, 1998, the Fifth Amendment and Waiver to Amended and Restated Credit
Agreement dated as of August 14, 1998 and the Sixth Amendment and Waiver to
Amended and Restated Credit Agreement dated as of October 1998 (as so amended,
the "Credit Agreement"), among Hollywood Theater Holdings, Inc. (the "Parent"),
---------------- ------
Hollywood Theaters, Inc. (the "Company"), the banks and other financial
-------
institutions parties thereto (collectively, the "Banks"; individually, a
-----
"Bank"), and Bank of America National Trust and Savings Association, as
----
Administrative Agent for the Banks (the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, Parent and the Company have requested that the Administrative
Agent and the Banks amend and waive certain terms and conditions under the
Credit Agreement as more fully set forth herein; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms defined in the Credit Agreement
-------------
and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement.
2. Amendments to Credit Agreement. (a) Section 1.1 of the Credit
------------------------------
Agreement is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:
"Seventh Amendment": the Seventh Amendment and Waiver to Amended and
-----------------
Restated Credit Agreement, dated as of December 15, 1998, among the Parent,
the Company, the Administrative Agent and the banks party thereto.
(b) Section 2.1 of the Credit Agreement is hereby amended by (i)
deleting the first reference to the date "December 15, 1998" and substituting
in lieu thereof the date "December 21, 1998", and (ii) deleting the last
sentence thereof and substituting in lieu thereof the following:
<PAGE>
2
"Consistent with the foregoing, the Beacon Letter of Credit delivered to
Administrative Agent pursuant to the Fifth Amendment may be amended
simultaneously with the execution and delivery of the Seventh Amendment in
a manner satisfactory to Administrative Agent to provide that the
Administrative Agent may not draw on the Beacon Letter of Credit due to
failure of the Additional Equity Issuance to occur until on or after
December 21, 1998".
3. Waivers. The Administrative Agent and the Banks hereby grant the
-------
following waivers on the following terms:
(a) the provisions of subsection 2.7(d) hereby are waived beginning on
the date hereof and ending at 2:00 p.m. (New York City time) on December 21,
1998 (the "Additional Equity Issuance Waiver Period") solely to permit the
----------------------------------------
Additional Equity Issuance to be consummated on or prior to December 21, 1998,
without a corresponding mandatory prepayment of the Loans and reduction of the
Revolving Loan Commitments;
(b) the provisions of the first sentence of subsection 4.3(f) are
hereby waived until the end of the Additional Equity Issuance Waiver Period;
provided, however, that if the Additional Equity Issuance shall not have
- -------- -------
occurred prior to the end of the Additional Equity Issuance Waiver Period, the
Parent shall affect a Required Equity Contribution within forty-five (45) days
after the end of the Additional Equity Issuance Waiver Period in an amount not
less than the aggregate amount of all Construction Advances in excess of $12,
000,000 made from and after the Third Amendment Effective Date to and including
the last day of the Additional Equity Issuance Waiver Period, and any failure of
Parent to affect such Required Equity Contribution shall be an Event of Default;
(c) the provisions of subsection 7.1(a), 7.1(b) and 7.1(d) are hereby
waived until the end of the Additional Equity Issuance Waiver Period, after
which period the foregoing waiver shall terminate and the provisions of
subsection 7.1(a), 7.1(b) and 7.1(d) shall be reinstated with full force and
effect.
4. Representations and Warranties. The Company hereby confirms,
------------------------------
reaffirms and restates as of the date hereof the representations and warranties
made by it in Article V of the Credit Agreement. The Company represents and
warrants that as of the date hereof no Default or Event of Default has occurred
and is continuing.
5. Continuing Effect of Credit Agreement. This Amendment shall not
-------------------------------------
constitute a waiver, amendment or modification of any other provision of the
Credit Agreement not expressly referred to herein and shall not be construed as
a waiver or consent to any further or future action on the part of the Borrower
that would require a waiver or consent of the Banks or the Administrative Agent.
Except as expressly modified hereby, the provisions of the Credit Agreement are
and shall remain in full force and effect.
<PAGE>
3
6. Payment of Expenses. The Company agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the negotiation, preparation and distribution of
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
7. Affirmation of Guarantees. The Parent hereby consents to the
-------------------------
execution and delivery of this Seventh Amendment and reaffirms its obligations
under Article X of the Credit Agreement.
8. Counterparts. This Seventh Amendment may be executed in any
------------
number of separate counterparts, each of which, when so executed, shall be
deemed an original, and all of said counterparts taken together shall be deemed
to constitute but one and the same instrument.
9. Effectiveness. This Seventh Amendment shall be effective upon
-------------
(a) receipt by the Administrative Agent of counterparts hereof, duly executed
and delivered by the Borrower, the Parent, the Administrative Agent and the
Banks and (b) receipt by the Administrative Agent of the Beacon Letter of
Credit, amended to reflect an expiration date of December 21, 1998.
10. GOVERNING LAW AND JURISDICTION. THIS SEVENTH AMENDMENT SHALL BE
------------------------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT CONSIDERATION OF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL
LAW.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
-----------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
-----------------------------------
James R. Featherstone
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent and as a Bank
By: /s/ James T. Gilland
-----------------------------------
James T. Gilland
Senior Vice President
<PAGE>
5
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Paul A. Weissenberger
-----------------------------------
Name: P. A. Weissenberger
Title: Authorized Signatory
<PAGE>
7
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
-----------------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ Richard C. Bailey
-----------------------------------
Name: Richard C. Bailey
Title: Vice President and Manager
Credit Administration
<PAGE>
EXHIBIT 10.19
EIGHTH AMENDMENT AND WAIVER
TO AMENDED AND RESTATED
CREDIT AGREEMENT
EIGHTH AMENDMENT AND WAIVER, dated as of December 21, 1998 (this "Eighth
------
Amendment"), to the Amended and Restated Credit Agreement dated as of August 7,
- ---------
1997, as amended by the First Amendment and Waiver to Amended and Restated
Credit Agreement dated as of November 13, 1997, the Second Amendment and Waiver
to Amended and Restated Credit Agreement dated as of December 13, 1997, the
Third Amendment to Amended and Restated Credit Agreement dated as of January 7,
1998, the Fourth Amendment to the Amended and Restated Credit Agreement dated as
of May 22, 1998, the Fifth Amendment and Waiver to Amended and Restated Credit
Agreement dated as of August 14, 1998, the Sixth Amendment and Waiver to Amended
and Restated Credit Agreement dated as of October 1998 and the Seventh Amendment
and Waiver to Amended and Restated Credit Agreement dated as of December 15,
1998 (as so amended, the "Credit Agreement"), among Hollywood Theater Holdings,
----------------
Inc. (the "Parent"), Hollywood Theaters, Inc. (the "Company"), the banks and
------ -------
other financial institutions parties thereto (collectively, the "Banks";
------
individually, a "Bank"), and Bank of America National Trust and Savings
----
Association, as Administrative Agent for the Banks (the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, Parent and the Company have requested that the Administrative
Agent and the Banks amend and waive certain terms and conditions under the
Credit Agreement as more fully set forth herein; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms defined in the Credit Agreement
-------------
and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement.
2. Amendments to Credit Agreement. (a) Section 1.1 of the Credit
------------------------------
Agreement is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:
"Eighth Amendment": the Eighth Amendment and Waiver to Amended and
----------------
Restated Credit Agreement, dated as of December 21, 1998, among the Parent,
the Company, the Administrative Agent and the banks party thereto.
(b) Section 2.1 of the Credit Agreement is hereby amended by (i)
deleting the first reference to the date "December 21, 1998" and substituting in
lieu thereof the date "January 8, 1999", and (ii) deleting the last sentence
thereof and substituting in lieu thereof the following:
<PAGE>
2
"Consistent with the foregoing, the Beacon Letter of Credit delivered
to Administrative Agent pursuant to the Fifth Amendment may be amended
simultaneously with the execution and delivery of the Eighth Amendment
in a manner satisfactory to Administrative Agent to provide that the
Administrative Agent may not draw on the Beacon Letter of Credit due
to failure of the Additional Equity Issuance to occur until on or
after January 8, 1999".
3. Waivers. The Administrative Agent and the Banks hereby grant the
-------
following waivers on the following terms:
(a) the provisions of subsection 2.7(d) hereby are waived beginning on
the date hereof and ending at 2:00 p.m. (New York City time) on January 8, 1999
(the "Additional Equity Issuance Waiver Period") solely to permit the Additional
----------------------------------------
Equity Issuance to be consummated on or prior to January 8, 1999, without a
corresponding mandatory prepayment of the Loans and reduction of the Revolving
Loan Commitments;
(b) the provisions of the first sentence of subsection 4.3(f) are
hereby waived until the end of the Additional Equity Issuance Waiver Period;
provided, however, that if the Additional Equity Issuance shall not have
- -------- -------
occurred prior to the end of the Additional Equity Issuance Waiver Period, the
Parent shall affect a Required Equity Contribution within forty-five (45) days
after the end of the Additional Equity Issuance Waiver Period in an amount not
less than the aggregate amount of all Construction Advances in excess of
$12,000,000 made from and after the Third Amendment Effective Date to and
including the last day of the Additional Equity Issuance Waiver Period, and any
failure of Parent to affect such Required Equity Contribution shall be an Event
of Default;
(c) the provisions of subsection 7.1(a), 7.1(b) and 7.1(d) are hereby
waived until the end of the Additional Equity Issuance Waiver Period, after
which period the foregoing waiver shall terminate and the provisions of
subsection 7.1(a), 7.1(b) and 7.1(d) shall be reinstated with full force and
effect.
4. Representations and Warranties. The Company hereby confirms,
------------------------------
reaffirms and restates as of the date hereof the representations and warranties
made by it in Article V of the Credit Agreement. The Company represents and
warrants that as of the date hereof no Default or Event of Default has occurred
and is continuing.
<PAGE>
3
5. Continuing Effect of Credit Agreement. This Amendment shall not
-------------------------------------
constitute a waiver, amendment or modification of any other provision of the
Credit Agreement not expressly referred to herein and shall not be construed as
a waiver or consent to any further or future action on the part of the Borrower
that would require a waiver or consent of the Banks or the Administrative Agent.
Except as expressly modified hereby, the provisions of the Credit Agreement are
and shall remain in full force and effect.
6. Payment of Expenses. The Company agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the negotiation, preparation and distribution of
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
7. Affirmation of Guarantees. The Parent hereby consents to the
-------------------------
execution and delivery of this Eighth Amendment and reaffirms its obligations
under Article X of the Credit Agreement.
8. Counterparts. This Eighth Amendment may be executed in any
------------
number of separate counterparts, each of which, when so executed, shall be
deemed an original, and all of said counterparts taken together shall be deemed
to constitute but one and the same instrument.
9. Effectiveness. This Eighth Amendment shall be effective upon (a)
-------------
receipt by the Administrative Agent of counterparts hereof, duly executed and
delivered by the Borrower, the Parent, the Administrative Agent and the Banks
and (b) receipt by the Administrative Agent of the Beacon Letter of Credit,
amended to reflect an expiration date of January 8, 1999.
10. GOVERNING LAW AND JURISDICTION. THIS EIGHTH AMENDMENT SHALL BE
------------------------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT CONSIDERATION OF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL
LAW.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
-----------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
-----------------------------------
James R. Featherstone
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent and as a Bank
By: /s/ James T. Gilland
-----------------------------------
James T. Gilland
Senior Vice President
<PAGE>
5
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Paul A. Weissenberger
-----------------------------------
Name: P. A. Weissenberger
Title: Authorized Signatory
<PAGE>
7
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
-----------------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ S. Marciniak
-----------------------------------
Name: S. Marciniak
Title: Vice President and Manager
Operations
<PAGE>
EXHIBIT 10.20
NINTH AMENDMENT AND WAIVER
TO AMENDED AND RESTATED
CREDIT AGREEMENT
NINTH AMENDMENT AND WAIVER, dated as of January 8, 1999 (this "Ninth
-----
Amendment"), to the Amended and Restated Credit Agreement dated as of August 7,
- ---------
1997, as amended by the First Amendment and Waiver to Amended and Restated
Credit Agreement dated as of November 13, 1997, the Second Amendment and Waiver
to Amended and Restated Credit Agreement dated as of December 13, 1997, the
Third Amendment to Amended and Restated Credit Agreement dated as of January 7,
1998, the Fourth Amendment to the Amended and Restated Credit Agreement dated as
of May 22, 1998, the Fifth Amendment and Waiver to Amended and Restated Credit
Agreement dated as of August 14, 1998, the Sixth Amendment and Waiver to Amended
and Restated Credit Agreement dated as of October 1998, the Seventh Amendment
and Waiver to Amended and Restated Credit Agreement dated as of December 15,
1998 and the Eighth Amendment and Waiver to Amended and Restated Credit
Agreement dated as of December 21, 1998 (as so amended, the "Credit Agreement"),
----------------
among Hollywood Theater Holdings, Inc. (the "Parent"), Hollywood Theaters, Inc.
------
(the "Company"), the banks and other financial institutions parties thereto
-------
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
----- ----
National Trust and Savings Association, as Administrative Agent for the Banks
(the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, Parent and the Company have requested that the Administrative
Agent and the Banks amend and waive certain terms and conditions under the
Credit Agreement as more fully set forth herein; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms defined in the Credit Agreement
-------------
and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement.
2. Amendments to Credit Agreement. (a) Section 1.1 of the Credit
------------------------------
Agreement is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:
"Ninth Amendment": the Ninth Amendment and Waiver to Amended and
---------------
Restated Credit Agreement, dated as of January 8, 1999, among the Parent,
the Company, the Administrative Agent and the banks party thereto.
<PAGE>
2
(b) Section 2.1 of the Credit Agreement is hereby amended by (i)
deleting the first reference to the date "January 8, 1999" and substituting in
lieu thereof the date "January 14, 1999", and (ii) deleting the last sentence
thereof and substituting in lieu thereof the following:
"Consistent with the foregoing, the Beacon Letter of Credit delivered
to Administrative Agent pursuant to the Fifth Amendment may be amended
simultaneously with the execution and delivery of the Ninth Amendment
in a manner satisfactory to Administrative Agent to provide that the
Administrative Agent may not draw on the Beacon Letter of Credit due
to failure of the Additional Equity Issuance to occur until on or
after January 14, 1999".
3. Waivers. The Administrative Agent and the Banks hereby grant the
-------
following waivers on the following terms:
(a) the provisions of subsection 2.7(d) hereby are waived beginning on
the date hereof and ending at 2:00 p.m. (New York City time) on January 14, 1999
(the "Additional Equity Issuance Waiver Period") solely to permit the Additional
----------------------------------------
Equity Issuance to be consummated on or prior to January 14, 1999, without a
corresponding mandatory prepayment of the Loans and reduction of the Revolving
Loan Commitments;
(b) the provisions of the first sentence of subsection 4.3(f) are
hereby waived until the end of the Additional Equity Issuance Waiver Period;
provided, however, that if the Additional Equity Issuance shall not have
- -------- -------
occurred prior to the end of the Additional Equity Issuance Waiver Period, the
Parent shall affect a Required Equity Contribution within forty-five (45) days
after the end of the Additional Equity Issuance Waiver Period in an amount not
less than the aggregate amount of all Construction Advances in excess of
$12,000,000 made from and after the Third Amendment Effective Date to and
including the last day of the Additional Equity Issuance Waiver Period, and any
failure of Parent to affect such Required Equity Contribution shall be an Event
of Default;
(c) the provisions of subsection 7.1(a), 7.1(b), 7.1(c), 7.1(d) and
7.1(e) are hereby waived until the end of the Additional Equity Issuance Waiver
Period, after which period the foregoing waiver shall terminate and the
provisions of subsection 7.1(a), 7.1(b), 7.1(c), 7.1(d) and 7.1(e) shall be
reinstated with full force and effect.
4. Representations and Warranties. The Company hereby confirms,
------------------------------
reaffirms and restates as of the date hereof the representations and warranties
made by it in Article V of the Credit Agreement. The Company represents and
warrants that as of the date hereof no Default or Event of Default has occurred
and is continuing.
5. Continuing Effect of Credit Agreement. This Amendment shall not
-------------------------------------
constitute a waiver, amendment or modification of any other provision of the
Credit Agreement not expressly referred to herein and shall not be construed as
a waiver or consent to any further or future action
<PAGE>
3
on the part of the Borrower that would require a waiver or consent of the Banks
or the Administrative Agent. Except as expressly modified hereby, the provisions
of the Credit Agreement are and shall remain in full force and effect.
6. Payment of Expenses. The Company agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the negotiation, preparation and distribution of
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
7. Affirmation of Guarantees. The Parent hereby consents to the
-------------------------
execution and delivery of this Ninth Amendment and reaffirms its obligations
under Article X of the Credit Agreement.
8. Counterparts. This Ninth Amendment may be executed in any number
------------
of separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
9. Effectiveness. This Ninth Amendment shall be effective upon (a)
-------------
receipt by the Administrative Agent of counterparts hereof, duly executed and
delivered by the Borrower, the Parent, the Administrative Agent and the Banks
and (b) receipt by the Administrative Agent of the Beacon Letter of Credit,
amended to reflect an expiration date of January 14, 1999.
10. GOVERNING LAW AND JURISDICTION. THIS NINTH AMENDMENT SHALL BE
------------------------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT CONSIDERATION OF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL
LAW.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Ninth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
-------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
-------------------------------
James R. Featherstone
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By: /s/ Janice Hammond
-------------------------------
Janice Hammond
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ F. A. Zagar
-------------------------------
F A Zagar
Vice President
<PAGE>
5
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Paul A. Weissenberger
-------------------------------
Name: Paul A. Weissenberger
Title: Autorized Signatory
<PAGE>
6
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Bradley C. Peters
-------------------------------
Name: Bradley C. Peters
Title: Vice President
<PAGE>
EXHIBIT 10.21
TENTH AMENDMENT AND WAIVER
TO AMENDED AND RESTATED
CREDIT AGREEMENT
TENTH AMENDMENT AND WAIVER, dated as of January 14, 1999 (this "Tenth
-----
Amendment"), to the Amended and Restated Credit Agreement dated as of August 7,
- ---------
1997, as amended by the First Amendment and Waiver to Amended and Restated
Credit Agreement dated as of November 13, 1997, the Second Amendment and Waiver
to Amended and Restated Credit Agreement dated as of December 13, 1997, the
Third Amendment and Waiver to Amended and Restated Credit Agreement dated as of
January 7, 1998, the Fourth Amendment and Waiver to Amended and Restated Credit
Agreement dated as of May 22, 1998, the Fifth Amendment and Waiver to Amended
and Restated Credit Agreement dated as of August 14, 1998, the Sixth Amendment
and Waiver to Amended and Restated Credit Agreement dated as of October 1998,
the Seventh Amendment and Waiver to Amended and Restated Credit Agreement dated
as of December 15, 1998, the Eighth Amendment and Waiver to Amended and Restated
Credit Agreement dated as of December 21, 1998 and the Ninth Amendment and
Waiver to Amended and Restated Credit Agreement dated as of January 8, 1999 (as
so amended, the "Credit Agreement"), among Hollywood Theater Holdings, Inc. (the
----------------
"Parent"), Hollywood Theaters, Inc. (the "Company"), the banks and other
------ -------
financial institutions parties thereto (collectively, the "Banks"; individually,
-----
a "Bank"), and Bank of America National Trust and Savings Association, as
----
Administrative Agent for the Banks (the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, Parent and the Company have requested that the Administrative
Agent and the Bank amend and waive certain terms and conditions under the Credit
Agreement as more fully set forth herein; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms defined in the Credit Agreement
-------------
and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement.
2. Amendments to Credit Agreement. (a) Section 1.1 of the Credit
------------------------------
Agreement is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:
"Additional Commitment Period": the period beginning January 14, 1999
----------------------------
and ending on the Maturity Date.
<PAGE>
"Additional Loan Commitment": a sub-definition of Commitment as to any
--------------------------
Bank, the obligation of such Bank to make Additional Loans to the Company
hereunder during the Additional Commitment Period in an aggregate principal
amount at any one time outstanding not to exceed the amount set forth such
Bank's name below as such amount may be reduced from time to time in
accordance with this Agreement:
<TABLE>
<CAPTION>
<S> <C>
Bank of America National Trust and Savings Association $25,000,000
The Bank of Nova Scotia $0
Bank One Texas, N.A. $0
The Sumitomo Bank, Limited $0
</TABLE>
"Additional Loans": a sub-definition of Revolving Loans; Revolving
----------------
Loans made during the Additional Commitment Period, each an "Additional
----------
Loan".
----
"Cash Flow Projection": a cash flow projection showing anticipated
--------------------
cash receipts and disbursements on a week-by-week basis for the Company.
"Participation Agreement": the Master Loan Participation Agreement,
-----------------------
dated as of January 14, 1999, among the Banks party thereto, the
Administrative Agent and Beacon.
"Tenth Amendment": the Tenth Amendment and Waiver to Amended and
---------------
Restated Credit Agreement, dated as of January 14, 1999, among the Parent,
the Company, the Administrative Agent and the Banks party thereto.
"Tenth Amendment Effective Date": as defined in the Tenth Amendment.
------------------------------
(b) The definition of "Maturity Date" contained in Section 1.1 of the
Credit Agreement is hereby amended by deleting the reference to the date "August
7, 2002" and substituting in lieu thereof the date "June 30, 1999".
(c) The definition of "Net Proceeds" contained in Section 1.1 of the
Credit Agreement is hereby amended by inserting the following immediately after
the phrase "excluding amounts payable to such person or any Affiliate of such
Person": "(including, without limitation, Beacon)".
(d) Section 2.1 of the Credit Agreement is hereby amended by deleting
the last sentence thereof.
(e) Section 2.1 of the Credit Agreement is hereby amended by (i)
inserting immediately before the first sentence thereof the following: "(a)",
(ii) adding at the end thereof the following sentence: "Notwithstanding the
provisions of this Section 2.1 or any other provision of this
<PAGE>
Agreement, during the Additional Commitment Period, any payment or prepayment of
principal of the Loans shall automatically constitute a permanent reduction of
the Revolving Loan Commitments (other than the Additional Loan Commitment) in
the aggregate amount so paid or prepaid.", and (iii) inserting a new subsection
2.1(b) as follows:
"(b) Subject to the terms and conditions hereof and the condition
that Beacon shall purchase junior and subordinated participating interests
in the Additional Loans on the terms and conditions set forth in the
Participation Agreement, each Lender severally agrees to make Additional
Loans to the Company from time to time during the Additional Commitment
Period in an aggregate principal amount at any one time outstanding not to
exceed the amount of such Lender's Additional Loan Commitment. During the
Additional Commitment Period, the Company may use the Additional Loan
Commitments by borrowing in accordance with the terms and conditions
hereof. The agreement of each Lender to make any Additional Loan requested
to be made by it on any date is subject to (i) no Default or Event of
Default having occurred and continuing on such date or after giving effect
to the Additional Loans requested to be made on such date assuming the
effectiveness of the waivers set forth in the Ninth Amendment, (ii) except
as set forth on Schedule II hereto, each of the representations and
warranties made pursuant to any Loan Document being true and correct in all
material respects on and as of such date and (iii) the Participation
Agreement shall be in full force and effect and no default by Beacon shall
have occurred thereunder on such date. The Company may borrow under the
Additional Loan Commitments during the Additional Commitment Period on any
Business Day; provided that the Company shall comply with the procedures
--------
set forth in Section 2.3. On the Tenth Amendment Effective Date, the
Company shall use the proceeds of Additional Loans in an amount equal to
$5,007,083.36 to pay all principal and interest outstanding under that
certain Loan Agreement, dated as of November 10, 1998 between the Company
and Bank of America National Savings and Trust Association.
(f) Section 2.7 of the Credit Agreement is hereby amended by deleting
subsection 2.7(a) in its entirety and substituting in lieu thereof the
following:
"(a) Asset Dispositions. If on any day the Parent, the Company or
------------------
any Subsidiary shall receive Net Proceeds from a Disposition (other than as
permitted under subsections (a) through (e) of Section 7.3) or an Event of
Loss, then such Net Proceeds of such Disposition or Event of Loss shall be
applied on the next Business day toward the payment of the Loans and the
permanent reduction of the Revolving Loan Commitments."
(g) Subsection 2.7(b) of the Credit Agreement is hereby amended by
deleting clauses (i) and (ii) contained in the first sentence thereof and
substituting in lieu thereof the phrase "100% of Excess Cash Flow for such
fiscal year".
(h) Subsection 2.7(d) of the Credit Agreement is hereby amended by (i)
deleting the phrase "75%" contained in the second sentence thereof and
substituting in lieu thereof the phrase "100%", and (ii) deleting the third
sentence thereof in its entirety and substituting in lieu thereof the following:
<PAGE>
"Notwithstanding the foregoing, no notice to the Administrative Agent and
no such prepayment of the Loans or reduction of the Revolving Loan
Commitments shall be required in connection with any issuance of Capital
Stock constituting a Permitted Restricted Payment or any issuance of
Capital Stock of the Parent to directors, officers and employees of any
Hollywood Entity in connection with employee compensation and incentive
arrangements (subject to applicable limits set forth in the Parent's
Organization Documents) or any issuance of Capital Stock constituting
director qualifying shares."
(i) Section 2.14 of the Credit Agreement is hereby amended by adding
at the end of said Section the following:
"Neither this Section 2.14 nor Section 11.10 shall apply to Bank of America
National Trust and Savings Association with respect to set-off and
application of monies on deposit in a cash collateral account securing
certain obligations under a credit card facility up to $80,000 as permitted
by Section 7.2(p)."
(j) Subsection 7.6(g) of the Credit Agreement is hereby amended by (i)
deleting the word "Required" in clause (iii) thereof and substituting in lieu
thereof the work "Supermajority" and (ii) deleting clause (iv) thereof in its
entirety and substituting in lieu thereof the following:
"(iv) the Hollywood Entities are in compliance with the terms of this
Agreement after giving effect to the subject Indebtedness;".
(k) Section 6.3 of the Credit Agreement is hereby amended by (i)
deleting the word "and" at the end of paragraph (d) of said Section, (ii)
deleting the period at the end of the paragraph (e) of said Section and (iii)
adding at the end of paragraph (e) of said Section the following:
"(f) no later than the first and third Wednesday of each fiscal month
following the Tenth Amendment Effective Date, a Cash Flow Projection for
the succeeding bi-weekly period in a format reasonably satisfactory to the
Administrative Agent; and
"(g) no later than the second and fourth Friday of each fiscal month
following the Tenth Amendment Effective Date, a variance report for the
preceding bi-weekly period in a format reasonably satisfactory to the
Administrative Agent."
(l) Section 7.2 of the Credit Agreement is hereby amended by (i)
deleting the word "and" at the end of paragraph (n) of said Section, (ii)
deleting the period at the end of paragraph (o) of said Section and substituting
in lieu thereof "; and", and (iii) adding at the end of paragraph (o) of said
Section the following:
"(p) Liens consisting of pledges of cash collateral in favor of Bank
of America National Trust and Savings Association to secure obligations
under a certain credit card facility up to $80,000."
<PAGE>
(m) Subsection 7.5(d) of the Credit Agreement is hereby amended by
deleting the phrase "$500,000" and substituting in lieu thereof the phrase
"$100,000".
(n) Section 7.6 of the Credit Agreement is hereby amended by deleting
subsections 7.6(b) and 7.6(c) in their entirety and substituting in lieu thereof
the following:
"(b) Indebtedness consisting of Contingent Obligations outstanding on
the date hereof or as permitted pursuant to subsections 7.9(a) and (e);
(c) purchase money Indebtedness, whether unsecured or secured by Liens
permitted by subsection 7.2(i), in an aggregate amount not to exceed
$1,000,000 at any time outstanding;"
(o) Section 7.12 of the Credit Agreement is hereby amended by (i)
deleting the phrase "upon such person's death, disability, retirement or
termination of employment" in subsection 7.12(a)(iii) and substituting in lieu
thereof the phrase "upon such person's death, disability or retirement", (ii)
deleting subsection 7.12(a)(iv) in its entirety and substituting in lieu thereof
the following: "(iv) [Intentionally Omitted]" and (iii) deleting subsection
7.12(b) in its entirety and substituting in lieu thereof the following: "(b)
[Intentionally Omitted]".
(p) Section 11.8 of the Credit Agreement is hereby amended by (i)
deleting the phrases ", and subject to clause (iv) below, the Company" and "or
the Company" in paragraph (a) of said Section, (ii) deleting clause (iv) in
paragraph (a) of said Section in its entirety and substituting in lieu thereof
the following: "(iv) [Intentionally Omitted]" and (iii) inserting after the
work "Affiliates" in the first sentence of paragraph (b) of said Section the
phrase "(except with respect to participations under the Participation
Agreement)".
(q) Exhibit A to the Credit Agreement is hereby amended by replacing
said Exhibit in its entirety with a new Exhibit in the form of Exhibit A
attached hereto.
3. Waivers. The Administrative Agent and the Banks hereby grant the
-------
following waivers on the following terms:
(a) the provisions of the first sentence of subsection 4.3(f) are
hereby waived; and
(b) the provisions of subsections 7.1(a), (b), (c), (d) and (e) are
hereby waived.
4. Agreements of the Company. (a) The Company shall comply with
-------------------------
the benchmarks set forth on Schedule I hereto.
(b) Notwithstanding the provisions of Sections 2.3 and 2.4 of the
Credit Agreement, no Interest Period shall exceed one month with respect to
Additional Loans and/or Loans to be converted into or continued as Eurodollar
Rate Loans; it being understood that Additional Loans borrowed on a day other
than an Interest Payment date shall initially be Base Rate Loans and
<PAGE>
may only be converted into Eurodollar Rate Loans on an Interest Payment Date.
With respect to Eurodollar Rate Loans, the Company shall elect Interest Periods
that commence on the last Business Day of any month.
(c) Notwithstanding the provisions of Section 2.9 of the Credit
Agreement, interest on each Loan (i) which is a Base Rate Loan shall be paid in
arrears on the last Business Day of each month and (ii) which is a Eurodollar
Rate Loan shall be paid in arrears on the last Business Day of each Interest
Period with respect to Eurodollar Rate Loans having an Interest Period of one
month.
(d) Notwithstanding the provisions of Section 7.5 of the Credit
Agreement, the Company shall not, and shall not permit any Subsidiary to, make
any additional Investments other than as permitted by subsections 7.5(a), (b)
and (d).
(e) Notwithstanding the provisions of Section 7.6 of the Credit
Agreement, the Company shall not create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness other than (i) Indebtedness permitted by subsections 7.6(a), (b),
(c), (d), (f), (g) and (i), and (ii) Indebtedness and Contingent Obligations
outstanding on the date hereof.
(f) For the purposes of the Credit Agreement, the agreements of the
Company contained in this Section 4 shall be agreements under the Credit
Agreement.
5. Consent of the Banks; Sharing Provisions. (a) The Banks hereby
----------------------------------------
consent to the release by the Administrative Agent of the Beacon Letter of
Credit contemporaneously with the execution and delivery of, and the payment on
the Initial Purchase Date (as defined in the Participation Agreement) of the
purchase price under the Participation Agreement.
(b) Anything contained in any Loan Document to the contrary
notwithstanding, when any Bank receives a payment of interest in respect of any
Additional Loan, such payment of interest shall, in lieu of being applied
against interest accrued and unpaid on such Additional Loan, be shared by each
Bank based upon such Bank's Pro Rata Share (without giving effect to the
Additional Commitment) and shall, prior to the Conversion Time (as defined in
the Participation Agreement) and shall, prior to the Conversion Time (as defined
in the Participation Agreement), be applied as follows: first, to the payment
-----
in full of interest accrued and unpaid on the Loans (other than Additional
Loans); and second, to the payment in full of principal outstanding on the Loans
------
(other than Additional Loans).
6. Representations and Warranties. Except as set forth on Schedule
------------------------------
II hereto, the Company hereby confirms, reaffirms and restates as of the date
hereof the representations and warranties made by it in Article V of the Credit
Agreement. The Company represents and warrants that as of the date hereof
(assuming the effectiveness of the waivers set forth in this Tenth Amendment) no
Default or Event of Default has occurred and is continuing.
<PAGE>
7. Continuing Effect of Credit Agreement. This Tenth Amendment
-------------------------------------
shall not constitute a waiver, amendment or modification of any other provision
of the Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the part of
the Borrower that would require a waiver or consent of the Banks or the
Administrative Agent. Except as expressly modified hereby, the provisions of
the Credit Agreement are and shall remain in full force and effect.
8. Payment of Expenses. The Company agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the negotiation, preparation and distribution of
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
9. Affirmation of Guarantees. The Parent hereby consents to the
-------------------------
execution and delivery of this Ninth Amendment and reaffirms its obligations
under Article X of the Credit Agreement.
10. Counterparts. This Tenth Amendment may be executed in any number
------------
of separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11. Amendment Fee. The Company shall pay to the Administrative Agent
-------------
in case, for the account of the Banks, an amendment fee (the "Amendment Fee") in
-------------
an amount equal to 0.50% of the aggregate outstanding principal amount of the
Loans minus the aggregate purchase price paid to the Banks on the Initial
-----
Purchase Date (as defined in the Participation Agreement) with respect to the
purchase of a junior and subordinated participating interest pursuant to the
Participation Agreement.
12. Effectiveness. This Tenth Amendment shall be effective as of the
-------------
date hereof (such date, the "Tenth Amendment Effective Date") but only upon (a)
------------------------------
receipt by the Administrative Agent of counterparts hereof, duly executed and
delivered by the Borrower, the Parent, the Administrative Agent and the Banks,
(b) receipt by the Administrative Agent of the Participation Agreement, duly
executed and delivered by the parties hereto, (c) receipt by the Administrative
Agent of an executed legal opinion of counsel to the Company substantially in
the form of Exhibit A hereto, and (d) receipt by the Administrative Agent of the
Amendment Fee.
13. GOVERNING LAW AND JURISDICTION. THIS TENTH AMENDMENT SHALL BE
------------------------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT CONSIDERATION OF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL
LAW.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Tenth
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
------------------------------
James R. Featherstone
Vice President
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By: /s/ Janice Hammond
------------------------------
Name: Janice Hammond
Title: Vice President
Agency Specialist
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ F. A. Zagar
------------------------------
Name: F. A. Zagar
Title: Vice President
<PAGE>
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Bradley C. Peters
------------------------------
Name: Bradley C. Peters
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Paul A. Weissenberger
------------------------------
Name: Paul A. Weissenberger
Title: Authorized Signatory
<PAGE>
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
------------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ Richard C. Bailey
------------------------------
Name: Richard C. Bailey
Title: Vice President and Manager
Credit Administration
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
<S> <C>
Selection of Investment Banker February 1, 1999
Send Out Confidential Information Memorandum March 1, 1999
Closing June 30, 1999
</TABLE>
<PAGE>
SCHEDULE II
1. The Company confirms, reaffirms and restates the representations
set forth in Section 5.5 of the Credit Agreement with the following exception to
such representations:
Todd Freeland, on behalf of himself and others similarly situated has
filed a suit against the Company in the United States District Court
in the Eastern District of Texas, Beaumont Division. The plaintiff
seeks declaratory and injunctive relief for himself and a class of
similarly situated persons for alleged violations by the Company of
the Americans with Disabilities Act and Chapter 121 of the Texas Human
Resources Code. The Company intends to file and answer when due.
2. The Company confirms, reaffirms and restates the representations
set forth in Section 5.6 of the Credit Agreement with the following exception to
such representations:
The Company did not pay certain construction costs and expenses as
such costs and expenses became due and payable. The aggregate amount
of such past due and unpaid construction costs and expenses is
approximately $10,000,000.
3. The Company confirms, reaffirms and restates the representations
set forth in Section 5.10 of the Credit Agreement with the following exception
to such representations:
The Company did not pay certain sales taxes when such taxes became due
and payable. The aggregate amount of such past due and unpaid sales
taxes is approximately $800,000.
4. The Company confirms, reaffirms and restates the representations
set forth in Section 5.13 of the Credit Agreement with the following exception
to such representations:
With respect to the Company's ground leases in Odessa, Texas, Early,
Texas, Killeen, Texas, Joplin, Missouri, Mobile, Alabama and
Washington, Pennsylvania, the Company does not know if there are any
liens on, or if any liens will be placed on, such properties or any
personal property of fixtures thereon in connection with the past due
and unpaid construction costs and expenses relating to such
properties.
5. The Company cannot confirm, reaffirm and restate the
representation set forth in Section 5.19 of the Credit Agreement.
<PAGE>
EXHIBIT A
From and after the date of effectiveness of this Tenth Amendment, Exhibit A
to the Credit Agreement shall read in its entirety as follows:
EXHIBIT A
---------
FORM OF NOTICE OF BORROWING
___________________
Bank of America NT&SA, as Administrative Agent
Agency Administrative Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520
Attention: Josie Flores
Re: 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., as
----------------
guarantor thereunder, HOLLYWOOD THEATERS, INC., as borrower thereunder
(the "Company"), and Banks parties thereto, and BANK OF AMERICA
-------
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent.
Ladies and Gentlemen:
The undersigned hereby gives you irrevocable notice pursuant to
subsection 2.3 of the Credit Agreement of the Borrowing specified herein (the
terms defined in the Credit Agreement being used herein as therein defined):
(1) The proposed Borrowing is in respect of the Revolving Loan
commitments.
(2) The amount of the proposed Borrowing is $______________.
(3) The Borrowing Date of the proposed Borrowing is ______________,
(which day is a Business Day).
(4) The type of Loan comprising the proposed Borrowing is ___________.
The undersigned hereby certifies that the following statements are
true and correct on and as of the date hereof, and will be true and correct on
and as of the Borrowing date, before and after giving effect to the Borrowing
requested hereby and to the application of the proceeds therefrom:
<PAGE>
1. the Borrowing and the proceeds thereof are to be used solely for
expenditures, and in the approximate amounts, set forth in the Cash Flow
Projection most recently delivered to the Administrative Agent;
2. except as set forth on Schedule II to the Tenth Amendment, the
representations and warranties of the Loan Parties contained in the Credit
Agreement and in the other Loan Documents are true and correct in all
material respects with the same effect as if made on and as of the
Borrowing Date (except to the extent such representations and warranties
expressly speak as of an earlier date, in which case they are true and
correct in all material respects as of such earlier date); and
3. assuming the effectiveness of the waivers set forth in the Tenth
Amendment, no Default or Event of Default exists or shall result from the
proposed Borrowing.
We confirm that the Administrative Agent is requested to pay the
proceeds of this drawing by wire transfer to [DETAILS OF THE APPLICABLE BANK
ACCOUNT].
HOLLYWOOD THEATERS, INC.
By:
-------------------------------
Name:
<PAGE>
EXHIBIT 10.22
FORBEARANCE AGREEMENT
AND ELEVENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
FORBEARANCE AGREEMENT AND ELEVENTH AMENDMENT, dated as of February 1,
1999, to the Amended and Restated Credit Agreement dated as of August 7, 1997,
as amended by the First Amendment and Waiver to Amended and Restated Credit
Agreement dated as of November 13, 1997, the Second Amendment and Waiver to
Amended and Restated Credit Agreement dated as of December 13, 1997, the Third
Amendment to Amended and Restated Credit Agreement dated as of January 7, 1998,
the Fourth Amendment to the Amended and Restated Credit Agreement dated as of
May 22, 1998, the Fifth Amendment and Waiver to Amended and Restated Credit
Agreement dated as of August 14, 1998, the Sixth Amendment and Waiver to Amended
and Restated Credit Agreement dated as of October 1998, the Seventh Amendment
and Waiver to Amended and Restated Credit Agreement dated as of December 15,
1998, the Eighth Amendment and Waiver to Amended and Restated Credit Agreement
dated as of December 21, 1998, the Ninth Amendment and Waiver to Amended and
Restated Credit Agreement dated as of January 8, 1999 and the Tenth Amendment
and Waiver to Amended and Restated Credit Agreement dated as of January 14, 1999
(as so amended, the "Credit Agreement"), among Hollywood Theater Holdings, Inc.
----------------
(the "Parent"), Hollywood Theaters, Inc. (the "Company"), the banks and other
------ -------
financial institutions parties thereto (collectively, the "Banks"; individually,
-----
a "Bank"), and Bank of America National Trust and Savings Association, as
----
Administrative Agent for the Banks (the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have made Loans
to the Company which remain outstanding;
WHEREAS, the Company is in default in the performance of certain of
its obligations under the Credit Agreement;
WHEREAS, the Parent and the Company have requested that the Banks, and
the Banks are willing to, forbear from taking certain action under the Credit
Agreement on the terms and conditions herein set forth; and
WHEREAS, the Parent and the Company have requested that the Banks, and
the Banks are willing to, amend certain terms and conditions under the Credit
Agreement as more fully set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Unless otherwise defined herein, capitalized
-------------
terms used herein have the meanings assigned in the Credit Agreement, and the
following terms shall have the following meanings:
"Agreement": this Forbearance Agreement and Eleventh Amendment to the
---------
Amended and Restated Credit Agreement, as the same may from time to time be
amended, supplemented or otherwise modified.
"Cross-Default": the Event of Default under Section 8.1(e) of the
-------------
Credit Agreement arising from the failure of the Company to make payment of
interest due on February 1, 1999 pursuant to the Indenture, dated as of
August 7, 1997 among Hollywood Theaters, Inc. an issuer, the guarantors
named therein and U.S. Trust Company of Texas, N.A., as trustee.
"Effective Date": the first date on which the condition precedent
--------------
specified in Article IV shall have been satisfied or the satisfaction
thereof shall have been waived in accordance with the terms hereof.
"Forbearance Period": the period beginning on the Effective Date and
------------------
ending on the earlier of (a) March 1, 1999 and (b) the Termination Date.
"Termination Date": the date of termination of this Agreement
----------------
pursuant to Article VI.
ARTICLE II
LIMITATION ON REMEDIES
2.1 Forbearance. Notwithstanding the occurrence and continuance of
-----------
the Cross-Default, the Administrative Agent and the Banks hereby agree to
forbear, during the Forbearance Period, from the exercise of any rights or
remedies under the Credit Agreement, the other Loan Documents and applicable law
in respect of the Cross-Default; it being understood that the foregoing is not
and shall not be construed as an amendment, waiver or modification of Section
8.1(e) of the Credit Agreement.
ARTICLE III
AMENDMENTS TO CREDIT AGREEMENT
3.1 Amendment to Section 1.1 of the Credit Agreement. Section 1.1 of
------------------------------------------------
the Credit Agreement is hereby amended by adding thereto the following
definition in the appropriate alphabetical order:
<PAGE>
3
"Forbearance Agreement": the Forbearance Agreement and Eleventh
---------------------
Amendment to the Amended and Restated Credit Agreement, dated as of
February 1, 1999.
3.2 Amendment to Section 2.1(b) of the Credit Agreement. Section
---------------------------------------------------
2.1(b) of the Credit Agreement is hereby amended by inserting the phrase "(other
than, for so long as the Banks agree to forbear, the Cross-Default (as defined
in the Forbearance Agreement) for which the Banks have agreed to forbear on the
terms and conditions set forth in the Forbearance Agreement)" immediately
following the phrase "Default or Event of Default" in clause (i) there of.
3.3 Amendment to Section 4.2(c) of the Credit Agreement. Section
---------------------------------------------------
4.2(c) of the Credit Agreement is hereby amended by inserting the phrase "(other
than, for so long as the Banks agree to forbear, the Cross-Default (as defined
in the Forbearance Agreement) for which the Banks have agreed to forbear on the
terms and conditions set forth in the Forbearance Agreement)" immediately
following the phrase "Default or Event of Default" therein.
ARTICLE IV
EFFECTIVE DATE
4.1 Effective Date. This Agreement shall become effective as of the
--------------
date hereof but only upon (a) receipt by the Administrative Agent of
counterparts of this Agreement, duly executed and delivered by the Company, the
Administrative Agent and the Required Banks and (b) receipt by the
Administrative Agent of the fee set forth in section 7.3(b).
ARTICLE V
INTERPRETATION
5.1 Continuing Effect of the Credit Agreement. The Company, the
-----------------------------------------
Parent, the Administrative Agent and the banks hereby acknowledge and agree that
the credit Agreement shall continue to be and shall remain unchanged and in full
force and effect in accordance with its terms, except as expressly modified
hereby.
5.2 No Limitation on Remedies after Forbearance Period. The Company
--------------------------------------------------
hereby acknowledges and agrees that, at the end of the Forbearance Period, the
provisions of Section 2.1 hereof shall become of no force and effect and the
Administrative Agent and the Banks shall be free, in accordance with the Credit
Agreement and the other Loan Documents, to declare the Loans and all other
amounts outstanding under the Credit Agreement to be due and payable and to
exercise and enforce, or to take steps to exercise and enforce, all other
rights, powers, privileges and remedies available to them under the Credit
Agreement, any other Loan Document or applicable law on account of the Cross-
Default (or any other Default or Event of Default) as if this Agreement had not
been entered into by the parties hereto.
<PAGE>
4
5.3 No Waiver; Other Defaults or Events of Default. (a) Nothing
----------------------------------------------
contained in this Agreement shall be construed or interpreted or is intended as
a waiver of any rights, powers, privileges or remedies that the Administrative
Agent or the Banks have or may have under the Credit Agreement or any other Loan
Document on account of the Cross-Default, except as expressly provided herein.
(b) Nothing contained in this Agreement shall be construed or
interpreted or is intended as a waiver of or limitation on any rights, powers,
privileges or remedies that the Administrative Agent or the banks have or may
have under the Credit Agreement or any other Loan Document on account of any
Default or Event of Default other than the Cross-Default.
ARTICLE VI
EVENTS OF TERMINATION
Upon the occurrence of any of the following events:
(a) the Company or any of its Subsidiaries shall default in the
observance or performance of any agreement contained in this Agreement;
(b) the occurrence and continuance of a Default or Event of Default
(other than the Cross-Default); or
(c) any party (including, without limitation, any holder of Senior
Subordinated Notes) shall exercise any right or remedy under the Indenture,
dated as of August 7, 1997 (the "Senior Subordinated Indenture") among
-----------------------------
Hollywood Theaters, Inc., as issuer, the guarantors named therein and U.S.
Trust Company of Texas, N.A., as trustee, or commence any action, suit,
proceeding or claim with respect to the Senior Subordinated Indenture;
then, and in any such event, the provisions of Section 2.1 hereof shall
immediately and automatically terminate and thereafter such Section shall have
no force or effect.
ARTICLE VII
MISCELLANEOUS
7.1 Amendments and Waivers. This Agreement may be amended, modified
----------------------
or supplemented and waivers of or consents to departures from the provisions
hereof or thereof may be given provided the same are in writing and signed by
the Company, the Administrative Agent and the Required Banks.
7.2 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Bank, any
right, remedy, power or privilege hereunder, under the Credit Agreement, the
other Loan Documents or under applicable law,
<PAGE>
5
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder, under the Credit Agreement, the
other Loan Documents or under applicable law preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges provided in the Credit Agreement,
the other Loan Documents and herein are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
7.3 Payment of Fees and Expenses. (a) The Company hereby agrees to
----------------------------
pay all reasonable costs, fees and expenses of the Administrative Agent,
including reasonable attorney's fees, in connection with the preparation,
execution and delivery of this Agreement.
(b) The Company further agrees to pay the Administrative Agent, for
the account of each Bank on or prior to the Effective Date, a fee in an amount
equal to $50,000, and such fee shall be due and payable on the Effective Date.
Such fee shall be in addition to any and all other fees and expenses required to
be paid from time to time by the Company to the Administrative Agent and/or the
Banks pursuant to the Credit Agreement.
7.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
7.5 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
7.6 Reservation of Rights. Notwithstanding anything contained in
---------------------
this Agreement, the Company acknowledges that the Administrative Agent and the
Banks do not waive, and expressly reserve, the right to exercise, at any time
during the Forbearance Period, any and all of their rights and remedies under
(a) the Credit Agreement, any other Loan Documents and applicable law in respect
of the Cross-Default against any Person other than the Company or any other Loan
Party, (b) any other document or instrument, including, without limitation, the
right of the Administrative Agent to give a blockage notice in accordance with
the Indenture and (c) the Credit Agreement, any other Loan Document or
applicable law in respect of any Default or Event of Default other than the
Cross-Default.
7.7 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT 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.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
---------------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
---------------------------------------
James R. Featherstone
Vice President
<PAGE>
7
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent
By: /s/ David Price
---------------------------------------
Name: David Price
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ F. A. Zagar
---------------------------------------
Name: F. A. Zagar
Title: Vice President
<PAGE>
8
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Bradley C. Peters
---------------------------------------
Name: Bradley C. Peters
Title: Vice President
<PAGE>
9
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
---------------------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ Stan Marciniak
---------------------------------------
Name: Stan Marciniak
Title: Vice President and Manager
Operations
<PAGE>
10
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Paul A. Weissenberger
---------------------------------------
Name: P. A. Weissenberger
Title: Authorized Signatory
<PAGE>
EXHIBIT 10.23
================================================================================
AGREEMENT AND PLAN OF MERGER
By and Among
HOLLYWOOD THEATER HOLDINGS INC.
HOLLYWOOD MERGER CO.
WALLACE THEATER CORPORATION II
THE BEACON GROUP III - FOCUS
VALUE FUND, L.P.
STRATFORD CAPITAL PARTNERS, L.P.
STRATFORD EQUITY PARTNERS, L.P.
HOAK COMMUNICATIONS PARTNERS, L.P.
and
HCP CAPITAL FUND, L.P.
March 3, 1999
================================================================================
<PAGE>
Table of Contents
-----------------
Page
----
ARTICLE I
THE MERGER..........................................................1
1.01 The Merger.................................................1
1.02 Conversion of Company Stock................................2
1.03 Exchange of Certificates...................................3
1.04 Stock Options..............................................3
1.05 Certificate of Incorporation...............................3
1.06 Bylaws.....................................................3
1.07 Directors and Officers.....................................4
ARTICLE II
THE CLOSING.........................................................4
2.01 The Closing................................................4
ARTICLE III
CONDITIONS TO CLOSING...............................................5
3.01 Conditions to the Purchaser's Obligations..................5
3.02 Conditions to the Company's Obligations...................11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND ITS SUBSIDIARIES.......................................13
4.01 Organization, Qualification, and Corporate Power..........13
4.02 Capitalization............................................13
4.03 Authorization; No Breach..................................13
4.04 Brokers' Fees.............................................14
4.05 Asset Sufficiency; Tangible Personal Property.............14
4.06 Financial Statements......................................14
4.07 Events Subsequent to date of Latest Balance Sheet.........15
4.08 Tax Matters...............................................17
4.09 Real Property.............................................19
4.10 Proprietary Rights........................................24
4.11 Contracts.................................................24
4.12 Powers of Attorney........................................25
4.13 Litigation................................................25
-i-
<PAGE>
4.14 Employee Benefits.........................................26
4.15 Environmental and Safety Matters..........................27
4.16 Subsidiaries; Investments.................................28
4.17 Insurance.................................................28
4.18 Year 2000.................................................28
4.19 Bank Accounts.............................................29
4.20 Absence of Certain Payments...............................29
4.21 Customers, Contractors and Suppliers......................29
4.22 Employees.................................................29
4.23 Compliance with Laws; Permits; Certain Operations.........30
4.24 Affiliated Transactions...................................30
4.25 No Acceleration of Rights or Benefits.....................31
4.26 Absence of Undisclosed Liabilities........................31
4.27 No Funded Debt............................................31
4.28 Pro Forma Balance Sheet...................................31
4.29 Disclosure................................................31
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE INSTITUTIONAL INVESTORS.....................................32
5.01 Organization and Power....................................32
5.02 Authorization and Enforceability..........................32
5.03 No Violation..............................................32
5.04 Governmental Authorities; Consents........................33
5.05 Litigation................................................33
5.06 Brokers' Fees.............................................33
5.07 Title, etc................................................33
5.08 Investment Representation.................................33
5.09 Company Transactions......................................34
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER OR NEWCO...........34
6.01 Organization and Corporate Power..........................34
6.02 Authorization and Enforceability..........................34
6.03 No Violation..............................................34
6.04 Governmental Authorities; Consents........................35
6.05 Litigation................................................35
6.06 Broker's Fee..............................................35
6.07 Investment Representation.................................35
6.08 Conduct of Business; Liabilities..........................35
-ii-
<PAGE>
ARTICLE VII
PRE-CLOSING COVENANTS OF THE COMPANY...............................36
7.01 Conduct of the Business...................................36
7.02 Access to Books and Records...............................36
7.03 Regulatory Filings........................................37
7.04 Conditions................................................37
7.05 Exclusive Dealing.........................................37
7.06 Notification;.............................................37
7.07 Good Faith Negotiation....................................38
ARTICLE VIII
COVENANTS OF THE PURCHASER.........................................38
8.01 Notification..............................................38
8.02 Regulatory Filings........................................38
8.03 Conditions................................................38
ARTICLE IX
TERMINATION........................................................39
9.01 Termination...............................................39
9.02 Effect of Termination.....................................40
ARTICLE X
REMEDIES FOR BREACHES OF THIS AGREEMENT............................41
10.01 Survival of Representations and Warranties................41
10.02 Reimbursement and Indemnification.........................41
10.03 Further Assurances........................................45
ARTICLE XI
DEFINITIONS........................................................45
11.01 Definitions...............................................45
11.02 Other Definitional Provisions.............................52
ARTICLE XII
MISCELLANEOUS......................................................52
12.01 Press Releases and Communications.........................52
12.02 Expenses..................................................52
-iii-
<PAGE>
12.03 Confidentiality...........................................53
12.04 Notices...................................................53
12.05 Assignment................................................54
12.06 Severability..............................................55
12.07 No Strict Construction....................................55
12.08 Amendment and Waiver......................................55
12.09 Complete Agreement........................................55
12.10 No Third-Party Beneficiaries..............................55
12.11 Counterparts..............................................55
12.12 Governing Law.............................................56
12.13 Consent to Amendments.....................................56
12.14 Descriptive Headings; Interpretation......................56
12.15 Limitation of Liability...................................56
12.16 Ownership of Merger Sub...................................56
12.17 Directors and Officers Liability Insurance................57
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
---------
of March 3, 1999, is made by and among Hollywood Theater Holdings, Inc., a
Delaware corporation (the "Company"),Wallace Theater Corporation II, a
-------
California corporation (the "Purchaser"), Hollywood Merger Co., a Delaware
---------
corporation and a wholly-owned subsidiary of the Purchaser (the "Merger Sub"),
----------
and the entities listed on the signature page attached hereto under the heading
"Institutional Investors" (individually, an "Institutional Investor" and
----------------------
collectively, the "Institutional Investors"). Capitalized terms used and not
-----------------------
otherwise defined herein have the meanings set forth in Article XI below.
WHEREAS, the Company operates stadium-style, first-run, and
discount movie theaters in Texas, Missouri, Kansas, Oklahoma, Alabama, Ohio and
Idaho through its wholly-owned subsidiary, Hollywood Theaters, Inc., a Delaware
corporation ("HTI") and HTI's wholly-owned subsidiary, Crown Theatre
Corporation, a Missouri corporation ("Crown," and, together with HTI, the
-----
"Subsidiaries"); and
------------
WHEREAS, the Purchaser desires to acquire substantially all of
the issued and outstanding capital stock of the Company in a reverse subsidiary
merger transaction subject to the terms and the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.01 The Merger.
----------
(a) At the Effective Time (as defined in Section 1.01(b)) and
---------------
subject to the terms and conditions of this Agreement, the Merger Sub shall
merge (the "Merger") with and into the Company in accordance with the General
------
Corporation Law of the State of Delaware ("Delaware Law"), whereupon the
------------
separate existence of the Merger Sub shall cease, and the Company shall be the
surviving corporation (the "Surviving Corporation").
---------------------
(b) At the Closing (as defined in Section 2.01(a) below), the
---------------
Company and the Merger Sub will file a Certificate of Merger with the Secretary
of State of the State of Delaware and make all other filings or recordings
required by Delaware Law in connection with the Merger. The Merger shall become
effective at such time as such Certificate of Merger is duly filed with the
<PAGE>
Secretary of State of the State of Delaware or, if agreed to by the parties
hereto, at such other time as is provided in the Certificate of Merger (the
"Effective Time").
--------------
(c) From and after the Effective Time, the Surviving
Corporation shall succeed to all the assets, rights, privileges, powers and
franchises and be subject to all of the liabilities, restrictions, disabilities
and duties of the Company and the Merger Sub, all as provided under Delaware
Law.
1.02 Conversion of Company Stock.
---------------------------
(a) Conversion of Company Stock. At the Effective Time, by
---------------------------
virtue of the Merger and without any action on the part of the holders thereof,
each share of the Company's Series B Convertible Preferred Stock, par value $.01
per share, Series C Convertible Preferred Stock, par value $.01 per share, and
Series D Convertible Preferred Stock, par value $.01 per share, (collectively,
the "Preferred Stock"), issued and outstanding immediately prior to the
---------------
Effective Time, other than Dissenting Shares (as defined in 1.02 (c) below),
shall be converted into common units ("Common Units") of Wallace Theaters,
------------
L.L.C., the parent of the Purchaser ("Newco"), having the rights and preferences
-----
set forth in Newco's limited liability company agreement in the form attached as
Exhibit A hereto (the "Operating Agreement").
-------------------
At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each share of the Company's common
stock, par value $.01 per share (the "Company Common Stock," and together with
--------------------
the Preferred Stock, the "Company Stock"), other than Dissenting Shares (as
-------------
defined in 1.02 (c) below), shall be converted into the right to receive Common
Units.
The Common Units provided for in this Section 1.02(a) shall be
---------------
comprised of 8,333,000 Common Units in the aggregate (referred to as the "Merger
------
Consideration") and shall be allocated among the Stockholders (as defined in
- -------------
1.03 below) in proportion to their respective holdings of the Company Stock as
set forth on the Schedule of Company Stock.
-------------------------
(b) Conversion of the Merger Sub Common Stock. At the
-----------------------------------------
Effective Time, each share of common stock, par value $.01 per share, of the
Merger Sub issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become one validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
(c) Dissenting Shares. Notwithstanding anything in this
-----------------
Agreement to the contrary, shares of the Company Stock outstanding immediately
prior to the Effective Time and held by a holder who has demanded and perfected
his appraisal rights in accordance with Section 262 of the Delaware Law and who
has not effectively withdrawn or lost his right to such appraisal, if such
Section 262 provides for dissenters' rights for such shares of Company Stock in
the Merger (a "Dissenting Share"), shall not be converted into the right to
receive the Merger Consideration as
2
<PAGE>
provided in Section 1.02(a) above, unless and until such holder fails to perfect
---------------
or withdraws or otherwise loses his right to appraisal and payment under
Delaware Law, but the holder thereof shall only be entitled to such rights as
are granted by Delaware Law and shall not be entitled to vote or to exercise any
other rights of a stockholder of the Company except as provided by Delaware Law.
Each holder of Dissenting Shares who becomes entitled to payment therefor
pursuant to Delaware Law shall receive such payment from the Surviving
Corporation in accordance with Delaware Law. If, after the Effective Time, any
such holder fails to perfect or withdraws or loses his right to dissent, such
holder's Dissenting Shares shall thereupon be treated as if they had been
converted as of the Effective Time into the right to receive the Merger
Consideration, if any, to which such holder is entitled, without interest or
dividends thereon.
1.03 Exchange of Certificates. The Purchaser shall act as
------------------------
payment agent (the "Payment Agent") in effecting the exchange of Common Units
-------------
for certificates which, immediately prior to the Effective Time, represented
shares of Company Stock entitled to payment pursuant to Section 1.02 above. At
------------
or as soon as practicable after the Effective Time, each holder of Company Stock
(each, a "Stockholder"), other than holders of Dissenting Shares, shall
-----------
surrender to the Payment Agent for exchange a certificate, duly endorsed in
blank or accompanied by duly executed stock powers, or, in the event that any
such holder's certificate has been lost, stolen, destroyed or mutilated, an
affidavit of ownership and indemnity in form and substance satisfactory to
Newco, representing the number of shares of Company Stock held by such holder.
At or as soon as practicable after the Effective Time, upon surrendering his or
its certificates for cancellation, each Stockholder (other than holders of
Dissenting Shares) shall be entitled to receive the number of Common Units
(including, if applicable, fractional units) to which he or it is entitled under
Section 1.02 above, subject to any applicable withholding tax requirements.
- ------------
Surrendered certificates shall forthwith be canceled. Until so surrendered and
exchanged, each such certificate shall represent solely the right to receive the
Merger Consideration (without interest thereon) into which the shares it
theretofore represented shall have been converted pursuant to Section 1.02
------------
above. As a condition to receiving Common Units, each holder of Company Stock
shall either (i) furnish to the Purchaser a certificate reasonably acceptable to
Purchaser that complies with Reg. ss.1.1445-2(b) stating that the holder is not
a foreign person within the meaning of Code ss.1445(f) or (ii) pay to the
Purchaser, in cash, the amount of any withholding Tax required under Code
ss.1445 to be withheld with respect to the receipt of the Common Units in
exchange for Company Stock.
1.04 Stock Options. The Company shall use commercially
-------------
reasonable effort to cause all outstanding options, warrants and rights to
acquire shares of Company Common Stock (each, an "Option") to be terminated, on
------
or prior to the Effective Time.
1.05 Certificate of Incorporation. The Certificate of
----------------------------
Incorporation of Merger Sub in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with applicable law.
1.06 Bylaws. The Bylaws of Merger Sub in effect at the
------
Effective Time shall be the Bylaws of the Surviving Corporation until amended in
accordance with applicable law.
3
<PAGE>
1.07 Directors and Officers. From and after the Effective
----------------------
Time, until successors are duly elected or appointed and qualified, or until
their earlier death, resignation or removal in accordance with applicable law,
(i) the directors of Merger Sub at the Effective Time shall constitute the
directors of the Surviving Corporation, and (ii) the officers of the Merger Sub
at the Effective Time shall be the officers of the Surviving Corporation.
ARTICLE II
THE CLOSING
-----------
2.01 The Closing.
-----------
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis
-------
located at 153 East 53rd Street, New York, New York at 10:00 a.m. no later than
the third business day following full satisfaction or due waiver of all of the
closing conditions set forth in Article III hereof (other than those to be
satisfied at the Closing) or at such other location or on such other date as is
mutually agreed to in writing by the Purchaser and the Company. The date and
time of the Closing are herein referred to as the "Closing Date."
------------
(b) Subject to the terms and conditions set forth in this
Agreement, the parties hereto shall consummate the following transactions (the
"Closing Transactions") on the Closing Date:
--------------------
(i) the Purchaser shall pay the Merger
Consideration to the Stockholders, other than holders of Dissenting
Shares, and such Merger Consideration will be allocated among the
Stockholders in proportion to their respective holdings of the Company
Stock as set forth in the Schedule of Company Stock;
-------------------------
(ii) the HTI and/or the Surviving Corporation shall
have consummated the Debt Transactions;
(iii) the HTI and/or the Surviving Corporation shall
use the funds from the Debt Transactions to repay, or cause to be
repaid all amounts necessary to discharge fully the then outstanding
Indebtedness and other items (including amounts owed to suppliers)
listed on the attached Indebtedness and Other Items Schedule (such
-------------------------------------
amount, in the aggregate, the "Funded Debt") by wire transfer of
-----------
immediately available funds as directed by the holders of the Funded
Debt at or prior to the Closing, and the Company shall deliver to the
Purchaser all appropriate payoff letters and shall make arrangements
reasonably satisfactory to the Purchaser for such holders to deliver
Encumbrance releases and canceled notes, as applicable, at the Closing;
4
<PAGE>
(iv) the Company shall pay, or cause to be paid all
Transaction Expenses required to be paid by the Company pursuant to
Section 12.02;
-------------
(v) each Stockholder, other than holders of
Dissenting Shares, shall deliver to the Payment Agent one or more
certificates, duly endorsed in blank or accompanied by duly executed
stock powers, representing the number of shares of Company Stock held
by such Stockholder as of the Closing; and
(vi) the Purchaser, the Company and the Institutional
Investors shall make such other deliveries as are required by and in
accordance with Article III hereof.
ARTICLE III
CONDITIONS TO CLOSING
---------------------
3.01 Conditions to the Purchaser's Obligations. The obligation
-----------------------------------------
of the Purchaser to consummate the transactions contemplated by this Agreement
is subject to the satisfaction or waiver (if permissible under applicable law)
of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Articles
IV and V hereof which are qualified as to "materiality" or "Material Adverse
Effect" shall be true and correct in all respects, and the representations and
warranties set forth in Articles IV and V hereof which are not so qualified
shall be true and correct in all material respects, at and as of the Closing
Date as though then made and as though the Closing Date was substituted for the
date of this Agreement throughout such representations and warranties, except to
the extent such representations and warranties expressly relate to an earlier
date (in which case such representations and warranties which are qualified as
to "materiality" or "Material Adverse Effect" shall be true and correct in all
respects, and such representations and warranties which are not so qualified
shall be true and correct in all material respects, on and as of such earlier
date);
(b) The Company shall have performed in all material respects
all of the covenants and agreements required to be performed by them under this
Agreement at or prior to the Closing;
(c) The Company shall have received or obtained all third
party and stockholder consents and approvals that are necessary for the
consummation of the transactions and the taking of the actions contemplated
under this Agreement or that are required as a result of the transactions
contemplated hereby in order to prevent a breach of or default under, a
termination or modification of, or acceleration of the terms of, any contract,
agreement, lease or document to which the Company or a Subsidiary is a party or
by which its assets are bound, including all of the consents which are listed on
the Restrictions Schedule or referred to in Section 3.01(k) below, in each case
--------------------- ---------------
on terms and conditions reasonably satisfactory to the Purchaser.
5
<PAGE>
(d) The applicable waiting periods, if any, under the HSR Act
shall have expired or been terminated and no objection to the transactions
contemplated hereby shall have been made by the Federal Trade Commission of the
Department of Justice, and all other material governmental filings, consents,
authorizations and approvals that are required to be made prior to the Effective
Time for the consummation of the transactions contemplated hereby (all of which
items are set forth on the Governmental Consents Schedule attached hereto) shall
------------------------------
have been made or obtained (as the case may be) on conditions, if any,
reasonably satisfactory to Purchaser;
(e) No (i) action or proceeding before any court or government
body shall be pending wherein an unfavorable judgment, decree or order would nor
(ii) any statute, rule or regulation shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which would,
prevent the performance of this Agreement or the consummation of any of the
transactions contemplated hereby, declare unlawful the transactions contemplated
by this Agreement or cause such transactions to be rescinded;
(f) Except as set forth on the Exceptions to Latest Balance
----------------------------
Sheet Schedule, since the date of the Latest Balance Sheet, the Company and its
- --------------
Subsidiaries will not have suffered any Material Adverse Effect.
(g) The HTI and/or the Surviving Corporation shall have
consummated the Debt Transactions in accordance with the commitment letters
attached hereto as Exhibit B in an amount sufficient to consummate the
---------
transactions contemplated by this Agreement and the Recapitalization Agreement
and to finance the continuing operations of the Company and its Subsidiaries in
amounts and on terms reasonably satisfactory to the Purchaser.
(h) The Purchaser shall have entered into a recapitalization
agreement with Newco (the "Recapitalization Agreement") and consummated the
--------------------------
transactions contemplated thereby in accordance with its terms.
(i) The Purchaser shall have received from Baker & Botts,
counsel for the Company, an opinion covering customary matters, which shall be
addressed to the Purchaser dated as of the Closing Date and in form and
substance reasonably satisfactory to the Purchaser.
(j) All Options shall have been duly terminated in a manner
satisfactory to the Purchaser and the Purchaser shall have received an
instrument or instruments evidencing the same.
(k) The following real estate related closing conditions shall
have been satisfied in a manner satisfactory to the Purchaser:
(i) Title Insurance. The Company shall have obtained
---------------
and delivered to Purchaser and the Lenders, to the extent required by
any of the Lenders, no later than five (5) days prior to the Closing, a
commitment for the most recent form of ALTA Owner's Title
6
<PAGE>
Insurance Policy (or with respect to Texas properties only, a TLTA
Owner's Title Insurance Policy) for each parcel of Owned Real Property
(other than Owned Real Property located outside the United States),
each parcel of the Leased Real Property underlined on the Real Estate
-----------
Schedule (collectively, the "Title Commitments"), issued by American
-------- -----------------
Title Company as agent for a title insurance company satisfactory to
Purchaser (the "Title Company"), together with a copy of all documents
-------------
referenced in the Title Commitments.
At Closing, the Company to the extent required by any
of the Lenders, shall have caused the Title Company to issue
title insurance policies (which may be in the form of a
mark-up of the Title Commitments) in accordance with the Title
Commitments, insuring HTI's fee simple title to each parcel of
Owned Real Property, or HTI's legal, valid, binding and
enforceable leasehold interest in each parcel of Leased Real
Property underlined on the Real Estate Schedule (as the case
--------------------
may be) as of the Closing Date (including all recorded
appurtenant easements insured as a separate legal parcel) with
gap coverage from the Company through the Closing Date,
subject only to the Permitted Encumbrances, in such amount as
Purchaser reasonably determines (and the Title Company agrees)
to be the value of the Real Property insured thereunder
(collectively, the "Title Policies").
--------------
Each of the Title Policies shall to the extent
required by any of the Lenders, have the creditor's rights
exception deleted (to the extent permitted in the applicable
jurisdiction), and shall include the following endorsements
(to the extent available in such jurisdiction, but regardless
of whether any additional fee is charged for such
endorsements): (a) extended coverage endorsement (insuring
over the general or standard exceptions); (b) ALTA Form 3.1
zoning endorsement (with parking); (c) survey endorsement
(insuring that the Real Property described therein is the real
property shown on the Survey delivered with respect thereto
and that such Survey is an accurate survey thereof); (d)
access endorsement (insuring that the Real Property described
therein has direct and unencumbered pedestrian and vehicular
access to a public street); (e) if the Real Property insured
therein consists of one or more adjacent parcels, a contiguity
endorsement (insuring that all of such parcels are contiguous
to one another); (f) tax parcel number endorsement (insuring
that the tax parcel number in the endorsement includes all of
the Real Property insured thereunder and no other real
property); (g) ALTA Form 9 owner's comprehensive endorsement;
(h) non-imputation endorsement, and (i) such other
endorsements as reasonably requested by any of the Lenders.
The Company shall pay all costs and expenses with respect to
the Title Commitments and Title Policies.
(ii) Surveys. The Company shall to the extent
-------
required by any of the Lenders, have obtained and delivered to
Purchaser no later than thirty (30) days prior to Closing, a new or
updated and recertified survey for each parcel of Real Property for
which a Title Policy is required, dated no earlier than the date of
this Agreement, prepared by Smith, Roberts and Associates, Inc. or
other licensed surveyor satisfactory to Purchaser, and
7
<PAGE>
conforming to 1992 ALTA/ACSM Minimum Detail Requirements for Urban Land
Title Surveys, including Table A Items Nos. 1, 2, 3, 4, 6, 7(a),
7(b)(1), 8, 9, 10 and 11, and certified to the Company, the Subsidiary,
the HTI, Purchaser, the Lenders and the Title Company, in the form
satisfactory to each of such parties (the "Surveys"). The Surveys shall
-------
not disclose any encroachment from or onto any of the Real Property or
any portion thereof or any other survey defect which has not been cured
or insured over to Purchaser's reasonable satisfaction prior to the
Closing. The Company shall pay all costs and expenses with respect to
the Surveys.
(iii) Change of Control Consents. The Company shall
--------------------------
have obtained and delivered to Purchaser a written consent with respect
to the Leases set forth on the Restrictions Schedule for change of
---------------------
control of the parent of the tenant or the guarantor under each of such
Leases, to the extent required under such Leases (the "Lease Consents")
--------------
in form and substance reasonably satisfactory to the Purchaser. The
Lease Consents shall not contain any terms or conditions which are less
favorable to Purchaser than to the Company under such Leases.
(iv) Estoppel Certificates and Mortgage Consents.
-------------------------------------------
The Company shall have obtained and delivered to Purchaser an estoppel
certificate, consent to a leasehold mortgage, collateral assignment of
lease or waiver of landlord liens from the landlord or other party
whose consent thereto is required with respect to the Leases which are
underlined on the Real Estate Schedule, dated no more than thirty (30)
days prior to the Closing Date, from each of the other parties to such
Leases and Ground Leases, in form and substance reasonably satisfactory
to the Purchaser (the "Estoppel Certificates").
---------------------
(v) United Artists and General Cinema Consents and
----------------------------------------------
Estoppel Certificates. The Company shall have obtained and delivered to
---------------------
Purchaser (i) a written consent for change of control of the parent of
the tenant under each of the security documents granted by HTI in favor
of United Artists, Resort Amusements Corporation, General Cinema or
their affiliates, to the extent required under such security documents,
and if requested by any of the Lenders, consent to a leasehold
mortgage, collateral assignment of lease or subordination of such
security documents to any of the Lenders' leasehold mortgage (the
"United Artists and General Cinema Consents") in form and substance
------------------------------------------
reasonably satisfactory to Lenders. The United Artists and General
Cinema Consents shall not contain any terms or conditions which are
less favorable to Purchaser than to the Company under such security
documents, (ii) an estoppel certificate with respect to each of such
security documents, dated no more than thirty (30) days prior to the
Closing Date, from each of United Artists, Resort Amusement
Corporation, General Cinema and its affiliates, in form and substance
satisfactory to Lenders (the "United Artists' and General Cinema's
------------------------------------
Estoppel Certificates").
---------------------
(vi) Non-Disturbance Agreements. The Company shall,
--------------------------
to the extent required by any of the Lenders, have obtained and
delivered to Purchaser a non-disturbance
8
<PAGE>
agreement with respect to each of the Leases which are underlined on
the Real Estate Schedule in form and substance satisfactory to
--------------------
Purchaser from each lender encumbering any parcel of the real property
underlying the Leased Real Property under such Leases pursuant to which
such lender covenants not to disturb Purchaser's possession of such
Leased Real Property as tenant under the Lease as long as Purchaser is
not in default thereunder, and which contains such other covenants from
such Lender as such Lender may reasonably request (the "Non-Disturbance
---------------
Agreements").
----------
(vii) Architect's Certificate. The Company shall, to
-----------------------
the extent required by any of the Lenders, have obtained an Architect's
Certificate (the "Architect's Certificate") with respect to each Construction
-----------------------
Project (hereinafter defined) dated no more that fifteen (15) days prior to the
Closing Date, executed by an architect licensed in the state in which the
Construction Project is located in form and content reasonably satisfactory to
the Lenders stating among other things that: the architect has inspected the
Construction Project and the Construction Project is in substantial compliance
with the Budgets, Schedules and Plans (hereinafter defined).
(l) No Indebtedness, etc.. Immediately prior to the Closing,
---------------------
the Company and its Subsidiaries will not have Funded Debt in excess of that
disclosed on the Funded Indebtedness Schedule attached hereto and delivered as
-------------------
of the date this Agreement. In addition, as of the Closing the total amounts due
in respect of the Company's senior bank facility, construction liabilities,
other liabilities and transaction expenses (each as set forth on the Assumed
-------
Liabilities Schedule), plus operating losses incurred between the date hereof
- --------------------
and the Closing Date, will not exceed $78,274,801; provided that an amount of
Indebtedness incurred under the Company's senior bank facility after the date
hereof attributable to the reduction in film rental payables associated with the
Company having to pay film companies on more accelerated terms than is
consistent with industry terms and consistent with its past practices will not
be included for purposes of determining the aggregate amount set forth in this
sentence. Immediately prior to the Closing, there shall be no Indebtedness or
other Funded Debt of the Company or its Subsidiaries, or any Encumbrances (other
than Permitted Encumbrances) on assets of the Company or its Subsidiaries,
except for Indebtedness permitted under the Loan Documents. In connection
therewith, as of the Closing, the Company and its Subsidiaries (A) shall have
obtained payoff letters and Encumbrance releases with respect to all
Indebtedness and other items on the Indebtedness and Other Items Schedule, in
-------------------------------------
each case reasonably satisfactory to the Purchaser, (B) shall have purchased,
and then canceled not less than 85% of the outstanding Bonds at a price per
outstanding Bond (inclusive of principal of and all interest accrued on such
Bond) of no more than 67% of the outstanding principal amount thereof (an
aggregate purchase price of no more than $73,700,000 for 100% of the Bonds),
with no additional Liability of the Company or any Subsidiary thereof in
connection with or relating to the Bonds, other than with respect to principal
and interest owing in respect of Bonds that remain outstanding (the "Bond
Tender"), (C) shall have obtained the consent of the trustee under the indenture
governing the Bonds and the requisite percentage of the holders of the Bonds to
the amendments to such indenture described in solicitation materials distributed
in connection with the Bond Tender and (D) shall not have paid more than an
amount equal to 3% of the outstanding principal amount of each Bond as the
9
<PAGE>
per Bond Consent Payment provided for in the documents relating to the Bond
Tender (an aggregate Consent Payment of no more than $3,300,000).
(m) The Company and its Subsidiaries shall have terminated all
of the affiliate arrangements (and canceled all of the intercompany payables
relating thereto), designated with an asterisk on the Affiliated Transactions
-----------------------
Schedule, without any Liability to the Company or its Subsidiaries. In addition,
- --------
the Company shall have delivered to the Purchaser by March 12, 1999 the Balance
Sheet, which Balance Sheet shall be in form and substance satisfactory to
Purchaser.
(n) The Company shall have delivered to the Purchaser each of
the following:
(i) a certificate of the Company, dated the Closing
Date, stating that the conditions (to the extent that the same are
performable by the Company or its Subsidiaries) specified in
subsections (a) through (m) hereof (other than subsections (g), (h) and
(i) thereof) have been satisfied or waived (upon receipt by the Company
of written acknowledgment by the Purchaser of any waiver by the
Purchaser), which certificate shall be given by such officer after
reasonable inquiry but without personal liability of such officer;
(ii) copies of the third party and governmental
consents and all other items required to be delivered to the Purchaser
by Section 2.01(b) or this Section 3.01;
--------------- ------------
(iii) all minute books, stock books, ledgers and
registers, corporate seals and other corporate records relating to the
organization, ownership and maintenance of the Company and its
Subsidiaries;
(iv) certified copies of the charter of the Company
and its Subsidiaries, together with a good standing certificate from
the Secretary of State of the Company's jurisdiction and each other
state in which the Company is qualified as a foreign corporation to do
business, each dated as of a recent date prior to the Closing Date;
(v) certified copies of the resolutions duly
adopted by the Company's board of directors and stockholders
authorizing the execution, delivery and performance of this Agreement,
including, without limitation, in the case of each stockholder, the
stockholder executing such consent agreeing to become a party to the
Operating Agreement and representing and warranting that such
stockholder has good and marketable title to the shares held by such
stockholder, free and clear of all Encumbrances;
(vi) certificate of the Company, dated the Closing
Date, that no more than 5% of the shares of the Company Stock, on a
fully diluted basis, are Dissenting Shares;
10
<PAGE>
(vii) resignations and releases (other than releases
of Excluded Claims) for all officers and directors of the Company and
its Subsidiaries, dated as of the Closing Date; and
(viii) other items that the Purchaser, any Lender or
the Title Company reasonably requests.
If the Purchaser elects to waive the delivery of any documents, consents or
certificates or any closing condition set forth in this Section 3.01, no claim
or right to be indemnified for failure to obtain such documents, consents or
certificates or closing condition shall be available to the Company Parties.
3.02 Conditions to the Company's Obligations. The obligations of the
---------------------------------------
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction or waiver (if permissible under applicable law) of
the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Article VI
hereof which are qualified as to "materiality" or "Material Adverse Effect"
shall be true and correct in all respects, and the representations and
warranties set forth in Article VI hereof which are not so qualified shall be
true and correct in all material respects, at and as of the Closing Date as
though then made and as though the Closing Date was substituted for the date of
this Agreement throughout such representations and warranties, except to the
extent such representations and warranties expressly relate to an earlier date
(in which case such representations and warranties which are qualified as to
"materiality" or "Material Adverse Effect" shall be true and correct in all
respects, and such representations and warranties which are not so qualified
shall be true and correct in all material respects, on and as of such earlier
date);
(b) The Purchaser and the Merger Sub shall have performed in
all material respects all the covenants and agreements required to be performed
by them under this Agreement at or prior to the Closing;
(c) The applicable waiting periods, if any, under the HSR Act
shall have expired or been terminated and no objection to the transactions
contemplated hereby shall have been made by the Federal Trade Commission of the
Department of Justice, and all other material governmental filings, consents,
authorizations and approvals that are required to be made prior to the Effective
Time for the consummation of the transactions contemplated hereby (all of which
items are set forth on the Governmental Consents Schedule attached hereto) shall
------------------------------
have been made or obtained (as the case may be) on conditions, if any,
reasonably satisfactory to the Company;
(d) No (i) action or proceeding before any court or government
body shall be pending wherein an unfavorable judgment, decree or order would nor
(ii) any statute, rule or regulation shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which would,
prevent the performance of this Agreement or the consummation of any of
11
<PAGE>
the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded;
(e) The Purchaser shall have delivered to the Company
certified copies of the resolutions duly adopted by the Purchaser's and the
Merger Sub's boards of directors and stockholders authorizing the execution,
delivery and performance of this Agreement; and
(f) The Purchaser shall have issued a warrant to The Beacon
Group III-Focus Value Fund, L.P., as representative for the Stockholders,
substantially in the form of Exhibit C.
---------
(g) The Purchaser shall have entered into a recapitalization
agreement with Newco (the "Recapitalization Agreement") and consummated the
--------------------------
transactions contemplated thereby in accordance with its terms.
(h) The Company shall have received from Kirkland & Ellis,
counsel for the Purchaser, an opinion covering customary matters, which shall be
addressed to the Company dated as of the Closing Date and in form and substance
reasonably satisfactory to the Company.
(i) The Purchaser shall have delivered to the Company each of
the following:
(i) a certificate of the Purchaser, dated the
Closing Date, stating that the conditions specified in subsections (a)
through (g) hereof have been satisfied or waived (upon receipt by the
Purchaser of written acknowledgment by the Company of any waiver by the
Company), which certificate shall be given by such officer after
reasonable inquiry but without personal liability of such officer;
(ii) copies of the third party and governmental
consents and all other items required to be delivered to the Company by
Section 2.01(b) or this Section 3.02; and
--------------- ------------
(iii) certified copies of the charter of the
Purchaser, together with a good standing certificate from the Secretary
of State of the Purchaser's jurisdiction and each other state in which
the Purchaser is qualified as a foreign corporation to do business,
each dated as of a recent date prior to the Closing Date.
If the Company elects to waive the delivery of any documents, consents or
certificates or closing condition set forth in this Section 3.02, no claim or
------------
right to be indemnified for failure to obtain such documents, consents or
certificates or closing condition shall be available to the Purchaser
Indemnified Parties.
12
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
-------------------------------------
COMPANY AND ITS SUBSIDIARIES
----------------------------
The Company and its Subsidiaries represent and warrant to the
Purchaser that the statements contained in this Article IV are correct and
complete as of the date of this Agreement:
4.01 Organization, Qualification, and Corporate Power. The
------------------------------------------------
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware. The Company is qualified and in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a Material
Adverse Effect. The Company has the requisite corporate power and authority to
carry on the business in which it is currently engaged and to own and use the
properties as currently owned and used by it. The Officers and Directors
----------------------
Schedule lists the directors and officers of the Company, and the Jurisdictions
- -------- -------------
Schedule identifies each of the jurisdictions in which the Company and its
- --------
Subsidiaries are qualified to do business.
4.02 Capitalization. The authorized and issued capital stock
--------------
of the Company is accurately described in the Schedule of Company Stock. All of
-------------------------
the shares of Company Stock described in the Schedule of Company Stock are
-------------------------
issued and outstanding and are owned of record by the Stockholders as set forth
on the Schedule of Company Stock, free and clear of any Encumbrances created by
-------------------------
the Company. All of the outstanding capital stock of the Company has been duly
authorized by all necessary corporate action on the part of the Company and is
validly issued, fully paid and non-assessable. Except as set forth on the
Schedule of Options, there are no rights, outstanding commitments,
- -------------------
subscriptions, warrants, options, conversion rights or agreements of any kind
outstanding to purchase or otherwise acquire any shares of capital stock of the
Company or securities or obligations of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of the Company or
any outstanding stock appreciation, phantom stock, profit participation or
similar rights with respect to the Company.
4.03 Authorization; No Breach.
------------------------
(a) The execution, delivery and performance of this Agreement
and all of the Transaction Documents and instruments contemplated hereby to
which the Company is a party, have been duly authorized by all necessary
corporation action of the Company. Assuming this Agreement is a valid and
binding obligation of the Purchaser, this Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms, and
all other agreements and instruments contemplated hereby to which the Company is
a party, when executed and delivered by the Company in accordance with the terms
thereof, shall each constitute a valid and binding obligation of the Company,
enforceable in accordance with their respective terms except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect acting creditors' rights generally or concerning general
principles of equity.
13
<PAGE>
(b) Except as set forth on the attached Restrictions Schedule
---------------------
or the Real Estate Schedule and assuming the consents, approvals,
--------------------
authorizations, permits, filings and notifications referred to in the
Restrictions Schedule and the Real Estate Schedule have been obtained, the
- --------------------- --------------------
execution and delivery by the Company of this Agreement and all Transaction
Documents and instruments contemplated hereby to which the Company is a party,
and the consummation of the transactions contemplated hereby and thereof by the
Company will not (i) as of the Closing Date conflict with or result in a breach
of the terms, conditions or provisions of, (ii) as of the Closing Date
constitute a default under (whether with or without the passage of time, the
giving of notice or both), (iii) result in the creation of any Encumbrance upon
the Company Stock or assets pursuant to, (iv) give any third party the right to
modify, terminate or accelerate any obligation under, (v) result in a violation
of, or (vi) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any third party or any
court or administrative or governmental body or agency pursuant to, the
Company's or any Subsidiary's Certificate of Incorporation or Bylaws (in each
case as in effect on the date hereof) or any law, statute, rule or regulation to
which any of the Company or any of its Subsidiaries is subject, or any
agreement, instrument, order, judgment or decree to which any of the Company or
any of its Subsidiaries is a party or by which any of its assets are bound.
4.04 Brokers' Fees. Other than with respect to Donaldson,
-------------
Lufkin & Jenrette (whose fees (the "DLJ Fee") shall be paid by the Company),
-------
each of the Company and its Subsidiaries does not have any Liability to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
4.05 Asset Sufficiency; Tangible Personal Property. Except as
---------------------------------------------
set forth on the attached Assets Schedule, the Company and its Subsidiaries own,
---------------
have a valid leasehold interest in, or have a valid license to use, all of the
material assets, properties and rights, whether tangible or intangible,
necessary for the conduct of its business as presently conducted, free and clear
of all Encumbrances, other than Permitted Encumbrances. All tangible personal
property with an individual net book value of $50,000 or more is in good
operating condition and repair and is adequate and suitable for the particular
purpose for which it is being used by the Company and its Subsidiaries subject
to reasonable wear and tear.
4.06 Financial Statements. Attached hereto as the Financial
-------------------- ---------
Statements Schedule are the following financial statements:
- -------------------
(a) the audited consolidated balance sheet of the Company and
its Subsidiaries as of December 31, 1997 and the related audited consolidated
statements of income and cash flows (or the equivalent) for the fiscal year then
ended; and
(b) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of December 31, 1998 (the "Latest Balance Sheet"), and
--------------------
the related consolidated statements of income and cash flows (or the equivalent)
for the fiscal year then ended.
14
<PAGE>
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is true and complete, is consistent with the books and records
of the Company and its Subsidiaries (which, in turn, are true and complete),
fairly presents the financial condition and operating results and cash flows of
each of the Company and its Subsidiaries at and as of the respective dates
thereof and has been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, subject in the case of the unaudited
financial statements to the absence of footnote disclosures (none of which
footnote disclosures would, except as otherwise disclosed on the Footnote
--------
Disclosure Schedule, alone or in the aggregate, cause a Material Adverse
- -------------------
Effect).
The Additional Acquisition Consideration Schedule attached
---------------------------------------------
hereto sets forth (a) the amount of any additional consideration (including any
earnout payments, indemnity payments or similar payments) that may be paid by
the Company or any of its Subsidiaries after the date hereof with respect to any
acquisition of assets (including by way of merger, consolidation or otherwise)
of, or Investment in, another Person made by the Company or any of its
Subsidiaries prior to the date hereof, (b) the amount of any Indebtedness
(including interest thereon) that may be owed by the Company or any of its
Subsidiaries with respect to such acquisition or Investment and the maturity
date of such Indebtedness (including after giving effect to the consummation of
the transactions contemplated hereby) and (c) the amount of consideration
(including any earnout payments, indemnity payments or similar payments) that
may be paid by the Company or any of its Subsidiaries after the date hereof
pursuant to any binding agreement (as to economic terms) relating to any
acquisition of assets (including by way of merger, consolidation or otherwise),
or Investment in, or assumption of any obligations of, another Person made by
the Company or its Subsidiaries with respect to the period after the date
hereof.
The Escrow Schedule sets forth the amounts set aside in escrow
---------------
with respect to any such acquisition of assets or Investments.
4.07 Events Subsequent to date of Latest Balance Sheet. Except
-------------------------------------------------
as set forth on the Subsequent Events Schedule, since the date of the Latest
Balance Sheet, there has not been any Material Adverse Effect. Without limiting
the generality of the foregoing, since the date of the Latest Balance Sheet,
except as set forth on the Subsequent Events Schedule, the Company and its
Subsidiaries have not engaged in any practice, taken any action, or entered into
any transaction outside the ordinary course of business and have not:
(a) borrowed any amount or incurred or become subject to any
Liabilities, except Liabilities incurred in the ordinary course of business
consistent with past practice, Liabilities under contracts entered into in the
ordinary course of business consistent with past practice and borrowing from
banks (or similar financial institutions) necessary to meet ordinary course
working capital requirements;
(b) mortgaged, pledged or subjected to any Encumbrance, any of
its assets, except Permitted Encumbrances;
15
<PAGE>
(c) sold, assigned, transferred or otherwise disposed of any
portion of its tangible assets, except for the sale of inventory in the ordinary
course of business consistent with past practice and the disposition of obsolete
or unnecessary assets which do not have a book value in excess of $50,000;
(d) sold, assigned or transferred any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets;
(e) suffered any material extraordinary losses or waived any
rights of material value;
(f) issued, sold, repurchased or transferred any of its
capital stock or other equity securities, securities convertible into its
capital stock or other equity securities or warrants, options or other rights to
acquire its capital stock or other equity securities or any bonds or debt
securities, except in the ordinary course of business consistent with past
practices;
(g) made any material capital expenditures or commitments
therefor, except in the ordinary course of business consistent with past
practices;
(h) suffered the loss of any material customer, contractor or
supplier;
(i) entered into any agreement, contract, lease, or license
(or series of related agreements, contracts, leases or licenses) involving more
than $50,000 individually to which it is a party or by which it is bound nor
modified the terms of any such existing contract or agreement;
(j) accelerated, terminated, modified or canceled any permit
or agreement, contract, lease or license involving more than $50,000
individually to which it is a party or by which it is bound;
(k) adopted, modified, amended or terminated, any bonus,
profit sharing, incentive, severance or other similar plan (including any
Employee Benefit Plan), contract, or commitment for the benefit of any of its
directors, officers or employees, or otherwise made any change in the employment
terms (including any increase in the base compensation) for any of its officers
or employees, or entered into any collective bargaining agreement or
relationship;
(l) undertaken any layoff(s) of employees that could implicate
the Worker Adjustment and Retraining Notification ("WARN") Act or any similar
state, local or foreign law or regulation;
(m) canceled, compromised, waived or released any right or
claim (or series of related rights and claims) either involving more than
$50,000 individually or in the aggregate, or outside the ordinary course of
business;
16
<PAGE>
(n) made or authorized any change in its charter or by-laws;
(o) made any material change in its accounting practices,
procedures or methods or in its cash management practices;
(p) experienced any material changes in the amount or scope of
coverage of insurance now carried by it;
(q) delayed or postponed the payment of any accounts payable
or commissions or any other Liability or agreed or negotiated with any party to
extend the payment date of any accounts payable or commissions or any other
Liability or accelerated the collection of (or discounted) any accounts or notes
receivable; made any loans or advances to, guarantees for the benefit of, or any
Investments in or acquisition of the assets of, any Person (other than advances
to the Company's or any of its Subsidiaries' employees in the ordinary course of
business consistent with past practice);
(r) made or committed to make (including pursuant to any
binding (as to economic terms) letter of intent, term sheet or similar document)
any Investment in, any acquisition of the assets of (whether by purchase or
assets, merger, consolidation or otherwise) or assumption of any obligations
(including lease obligations) of, any other Person involving consideration in
excess of $50,000;
(s) entered into any agreement or arrangement prohibiting or
restricting it from freely engaging in any business or otherwise restricting the
conduct of its business;
(t) entered into any other material transactions, except in
the ordinary course of business consistent with past custom and practice; or
(u) committed to do any of the foregoing.
4.08 Tax Matters.
-----------
(a) The Company files consolidated Tax Returns. The Company
has timely filed or caused to be timely filed all material Tax Returns that are
or were required to be filed by or with respect to it. The Tax Returns filed
accurately reflect all material Liabilities for Taxes of the Company for the
periods covered thereby.
(b) Except as set forth on the Tax Matters Schedule, all
--------------------
Liabilities of the Company for Taxes for all taxable years or periods that end
on or before the Closing Date and, with respect to any taxable year or period
beginning before and ending after the Closing Date, the portion of such taxable
year or period ending on and including the Closing Date ("Pre-Closing Period")
------------------
have been timely paid or adequately disclosed and fully provided for (i) in the
case of Taxes accrued for all taxable years or periods through the date of the
Latest Balance Sheet, on the Latest Balance Sheet,
17
<PAGE>
in accordance with GAAP and (ii) in the case of the Taxes accrued for all
taxable periods since the date of the Latest Balance Sheet, as set forth in the
books and records of the Company.
(c) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to Tax
assessment or deficiency.
(d) All material Taxes relating to the income, properties or
operation of and payments made by the Company which the Company was required by
law to withhold or collect from third parties have been duly withheld or
collected, and have been timely paid over to the proper authorities to the
extent due and payable.
(e) There are no tax sharing, allocation, indemnification or
similar agreements in effect as between the Company and any predecessor or
affiliate thereof and any other party under which the Purchaser or the Company
could be liable for Taxes or other claims of any party.
(f) No election under Section 341(f) of the Code has been made
or shall be made prior to the Closing Date to treat the Company as a consenting
corporation, as defined in Section 341 of the Code.
(g) The Company is not a party to any agreement that would
require it to make any payment that would constitute an "excess parachute
payment" for purposes of Section 280G and Section 4999 of the Code.
(h) No indebtedness of the Company consists of "corporate
acquisition indebtedness" within the meaning of Section 279 of the Code.
(i) There are no unresolved inquiries or claims made in
writing by any taxing authority concerning any of the Company's or any of its
Subsidiaries' Tax liability;
(j) None of the Company or nor any of its Subsidiaries shall
be required to (i) as a result of a change in method of accounting for a taxable
period ending on or prior to the Effective Time, include any adjustment in
taxable income for any taxable period (or portion thereof) ending after the
Effective Time, (ii) as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state, local or
foreign income Tax law) executed on or before the Effective Time, include any
material item of income in, or exclude any item of deduction from, taxable
income for any taxable period( or portion thereof) ending after the Effective
Time, (iii) as a result of any sale reported on the installment method where
such sale occurred on or prior to the Effective Time, include any item of income
in, or exclude any item of deduction from, taxable income for any taxable period
(or portion thereof) ending after the Effective Time, or (iv) as a result of any
prepaid amount received on or prior to the Effective Time, include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Effective Time.
18
<PAGE>
(k) The statute of limitations has expired and no waivers or
extensions thereof have been given in respect of Tax Returns for years ending
prior to 1992.
4.09 Real Property.
-------------
(a) The Owned Real Property (as hereinafter defined) and the
Leased Real Property (as hereinafter defined) comprise all of the real property
related to or used by the Company or by its Subsidiaries in the operation of
their respective businesses.
(b) Owned Properties. The attached Real Estate Schedule lists
---------------- --------------------
and describes in reasonable detail all real property that the Company or any of
its Subsidiaries owns in fee simple (the "Owned Real Property"). Except as
-------------------
otherwise described on the Real Estate Schedule, with respect to each such
--------------------
parcel of Owned Real Property:
(i) the applicable Company or its Subsidiary has
indefeasible fee simple title to each such parcel free and clear of any
Encumbrance, except for Permitted Encumbrances;
(ii) there are no pending or, to the applicable
Company's or Subsidiary's Knowledge, threatened condemnation,
expropriation, or other proceedings, lawsuits, or administrative
actions relating to the Owned Real Property or other matters affecting
adversely the current use, occupancy, or value of the Owned Real
Property;
(iii) the Owned Real Property does not serve any
adjoining property for any purpose inconsistent with the use of the
Owned Real Property, and the Owned Real Property is not located within
any flood plain or subject to any similar type restriction for which
any permits or licenses necessary to the use thereof have not been
obtained;
(iv) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to any
Person the right of use or occupancy of any portion of the Owned Real
Property;
(v) there are no outstanding options or rights of
first refusal to purchase any of the Owned Real Property, or any
portion thereof or interest therein;
(vi) no Person (other than the Company and its
Subsidiaries) is in possession of any of the Owned Real Property;
(vii) the current use and operation of the Owned Real
Property by the Company and its Subsidiaries does not violate any
easement, covenant, condition, restriction, or other instrument of
record or agreement affecting the Owned Real Property or any applicable
legal requirements (including zoning laws or ordinances) except for
such violations which, individually and in the aggregate, could not
reasonably be foreseen to have
19
<PAGE>
a Material Adverse Effect on the Company or its Subsidiaries, and the
Company's or Subsidiaries' use or occupancy of the Owned Real Property
or any portion thereof or the operation of their respective businesses
does not depend on a "permitted non-conforming use" or "permitted
non-conforming structure" or similar exemption from any governmental
authority;
(viii) all buildings, structures and other
improvements located on the Owned Real Property, including all material
components thereof, are in good operating condition and repair, subject
only to the provision of usual and customary maintenance provided in
the ordinary course of business with respect to buildings, structures
and improvements of like age and construction and all water, gas,
electrical, steam, compressed air, telecommunication, sanitary and
storm sewage lines and other utilities and systems serving the Owned
Real Property are sufficient to enable the continued operation of the
Owned Real Property as it is now operated by the Company and its
Subsidiaries; and
(ix) all certificates of occupancy, permits,
licenses, approvals and other authorizations required in connection
with the operations of the applicable Company and its Subsidiaries on
the Owned Real Property required to have been issued to enable the
Owned Real Property to be lawfully occupied and used for all of the
purposes for which it is currently occupied and used in connection with
the Company's and its Subsidiaries' operations have been issued and
are, as of the date, hereof, in full force and effect (and the Company
has no Knowledge of any basis upon which any of the foregoing could be
revoked or terminated after Closing).
(x) the closing of the transactions contemplated
by this Agreement will not individually or in the aggregate create a
taxable event under any state, county, or local transfer tax law or
ordinance applicable to any parcel of Real Property.
(xi) the copies of the title policies and surveys
with respect to the Owned Real Property previously delivered to
Purchaser are true and correct and are the most current in the
Company's or its Subsidiaries' possession. Such title policies are, to
the Company's Knowledge, in full force and effect and the Company has
no Knowledge of any defense that the respective title insurer may use
to deny coverage under such title policies. Such surveys, to the
Knowledge of the Company, disclose all material improvements located at
each parcel of Owned Real Property.
(c) Leased Property. The attached Real Estate Schedule lists
--------------- --------------------
and describes in reasonable detail all real property leased or subleased to the
Company or its Subsidiaries and all other real property which is used by the
Company or its Subsidiaries and not owned by the Company or such Subsidiary (the
"Leased Real Property," and together with the Owned Real Property, the "Real
-------------------- ----
Property"). The Company and its Subsidiaries have delivered to the Purchaser's
- --------
special legal counsel complete copies of the leases and subleases listed on the
Real Estate Schedule (collectively, the "Leases")and the Leased Real Property
- -------------------- ------
which is underlined on the Real Estate Schedule
--------------------
20
<PAGE>
constitutes all of the Leased Real Property for "stadium theaters" and leased
theaters which generated during calender year 1998 more than $200,000 in annual
theater level cash flow. Except as otherwise set forth on the Real Estate
-----------
Schedule, with respect to the Leased Real Property and each of the Leases:
- --------
(i) such Lease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the Company is not, and to the Company's or
the applicable Subsidiary's Knowledge, no other party to such Lease is
in breach or default, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or permit
termination, modification, or acceleration of such lease or sublease;
(iii) the Company has not, and to the Company's or
the applicable Subsidiary's Knowledge, no other party to such Lease has
repudiated any provision thereof;
(iv) to the Company's or the applicable
Subsidiary's Knowledge, there are no disputes, oral agreements, or
forbearance programs in effect as to such Lease;
(v) the transactions contemplated by this
Agreement (whether viewed individually or in the aggregate) will not
require the consent of any other Person which is party to any Lease,
other than consents required in connection with the Leases set forth on
the Restrictions Schedule;
---------------------
(vi) in the case of each Lease which is a sublease,
the representations and warranties set forth in clauses (i) through (v)
above are true and correct with respect to the underlying lease;
(vii) neither the Company nor any of its
Subsidiaries has assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered any interest in the leasehold or subleasehold
created pursuant to such Lease;
(viii) none of the Leases has been modified in any
respect, except to the extent that such modifications are in writing
and have been delivered or made available to the Purchaser;
(ix) all buildings, improvements and other
structures located upon the Leased Real Property have received all
approvals or governmental authorities, including licenses and permits,
required in connection with and material to the operation of the
Company's and its Subsidiaries' operations thereon and have been
operated and maintained in accordance with all applicable legal
requirements and the terms and conditions of the Leases and any
instrument of record or other agreement affecting the Leased Real
Property;
21
<PAGE>
(x) the current use and operation of the Leased
Real Property and the operation by the Company and its Subsidiaries
does not violate any easement, covenant, condition, restriction, or
other instrument of record or agreement affecting the Leased Real
Property or any applicable legal requirements (including, without
limitation, zoning laws or ordinances) except for such violations
which, individually and in the aggregate, could not reasonably be
foreseen to have a Material Adverse Effect on the Company or any of its
Subsidiaries, and the applicable Company's or Subsidiary's use or
occupancy of the Leased Real Property or any portion thereof or the
operation of their respective businesses does not depend on a
"permitted non-conforming use" or "permitted non-conforming structure"
or similar exemption from any governmental authority;
(xi) all buildings, structures and other
improvements located upon the Leased Real Property, including, without
limitation, all components thereof, are in good operating condition
subject to the provision of usual and customary maintenance in the
ordinary course of business with respect to buildings, structures and
improvements of like age and construction and all water, gas,
electrical, steam, compressed air, telecommunication, sanitary and
storm sewage and other utility lines and systems serving the Leased
Real Property and required for the Company's or the applicable
Subsidiary's use thereof are in good operation condition and are
sufficient to enable the continued operation of the Leased Real
Property by the Company or the applicable Subsidiary in the manner
currently being used in connection with the operations of the Company
and its Subsidiaries; and
(xii) all certificates of occupancy, permits,
licenses, approvals and other authorizations required in connection
with the operations of the applicable Company and its Subsidiaries on
the Leased Real Property required to have been issued to enable the
Leased Real Property to be lawfully occupied and used for all of the
purposes for which it is currently occupied and used in connection with
the applicable Company's and its Subsidiaries' operations have been
lawfully issued and are, as of the date, hereof, in full force and
effect.
(d) Real Property Under Contract. The attached Real Property
---------------------------- -------------
Under Contract Schedule lists and describes in reasonable detail all real
- -----------------------
property the Company or its Subsidiaries intend to sell, purchase, lease,
sublease, assign, develop or manage, whether in whole or in part, directly or
indirectly within the next 6 months. The Company and its Subsidiaries have
delivered to Purchaser, complete copies of all documentation related to the
aforementioned transactions, including, but not limited to, executed versions or
the latest drafts of all purchase and sale agreements, management agreements,
development agreements, joint venture or equity investment agreements, option
agreements, leases, subleases, term sheets and letters of intent. The Company
and its Subsidiaries have also delivered a brief summary outlining the material
terms of any oral negotiations with respect to the aforementioned transactions,
the status and timing of the closing of such transactions and, in the case of
theaters under construction, a detailed estimate as to the costs to complete
such construction and a detailed itemized list as to amounts owing by the
Company and its Subsidiaries in connection with such construction.
22
<PAGE>
(e) Construction. The attached Real Estate Schedule lists each
------------
parcel of Real Property (collectively, the "Construction Real Property") which
--------------------------
is or is reasonably anticipated to be under construction as of the date hereof
or any time prior to the Closing Date or as to which there are unpaid amounts
owing to Contractors (as defined below) with respect to such parcel's
construction (collectively, the "Construction Projects") and describes in detail
---------------------
the status and stage of completion of each Construction Project along with a
copy of an original construction budget, construction schedule and the plans and
specifications (collectively, the "Budgets, Schedules and Plans") for each
----------------------------
Construction Project and a list of any construction or completion bonds posted
on behalf of the Company and its Subsidiaries. The Company has delivered to the
Purchaser's legal counsel for each Construction Project, correct and complete
copies of all construction contracts or agreements related thereto
(collectively, the "Construction Contracts") and a general contractor's sworn
----------------------
statement dated no more than thirty (30) days prior to the date hereof from each
general contractor, (collectively, the "Contractors") setting forth a
-----------
description of the construction completed as of the date of the sworn statement,
the names and addresses of each subcontractor and materialmen that performed any
of the construction or supplied any materials for the Construction Project, the
amount due the Contractor, each subcontractor and materialmen for the
construction completed or materials supplied as of the date of the sworn
statement, the amount previously paid to the Contractor, each subcontractor and
materialmen as of the date of the sworn statement for the construction completed
or material supplied for the Construction Project, and the balance of the cost
of the remaining construction and materials to complete the Construction
Project. With respect to the Construction Projects and each Construction
Contract, except as set forth on the Real Estate Schedule:
--------------------
(i) such Construction Contract is legal, valid,
binding, enforceable, and in full force and effect and will remain as
such upon completion of the transactions contemplated by this
Agreement;
(ii) the Company is not, and to the Knowledge of
the Company and the Subsidiaries, no other party to such Construction
Contract is in breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default or permit
termination, modification, or acceleration of such Construction
Contract;
(iii) the Company has not, and to the Knowledge of
the Company and the Subsidiaries, no other party to such Construction
Contract has repudiated any provision thereof;
(iv) to the Knowledge of the Company and the
Subsidiaries there are no disputes or oral agreements in effect as to
such Construction Contract;
(v) the transactions contemplated by this
Agreement, whether individually or in the aggregate, will not require
the consent of any other Person which is a party to such Construction
Contract or the Company will obtain such consent;
23
<PAGE>
(vi) each Construction Project is progressing is in
substantial compliance with their respective Budgets, Schedules and
Plans; and
(vii) all amounts due and owing the Contractors have
been paid prior to delinquency and none of the Contractors have filed
any liens against any parcel of Real Property and the Company and the
Subsidiaries do not have any disputes with such Contractors.
(f) The attached Real Estate Schedule sets forth a list, and a
status thereof, of all certificates of occupancy, permits, licenses, approvals
and other authorizations required to (i) complete each Construction Project in
accordance with the Budgets, Schedules and Plans and (ii) operate each parcel of
Construction Real Property as a movie theater upon completion of the
Construction Project The attached Real Estate Schedule sets forth a list of any
conditions, concessions, restrictions, obligations or agreements made by the
Company or the Subsidiaries in connection with any aforementioned certificates,
permits, licenses, approvals and authorizations.
4.10 Proprietary Rights. Except as set forth on the Proprietary Rights
------------------ ------------------
Schedule, each of the Company and its Subsidiaries possesses or has adequate
- --------
rights to use all patents, patent disclosures, patent applications, trademarks,
service marks, trademark and service mark registrations and applications
therefor, and all good will associated therewith, copyrights, copyright
registrations and applications, mask works, trade names, corporate names, trade
dress, technology, inventions, computer software, data and documentation
(including electronic media), specifications, product drawings, training
materials (including films, brochures and printed materials), catalogs and other
advertising and promotional materials, trade secrets, know-how, confidential
information, financial business and marketing plans, customer and supplier
lists, and all other intellectual property and proprietary information or rights
necessary for the operation of the business of the Company and its Subsidiaries
as presently conducted (collectively, the "Proprietary Rights"). Except as set
------------------
forth in the Proprietary Rights Schedule, neither the Company nor any of its
---------------------------
Subsidiaries has received any notice of any infringement or misappropriation by,
or conflict with, any third party with respect to any of the Proprietary Rights.
Except as set forth in the Proprietary Rights Schedule, to the Knowledge of the
---------------------------
Company, the Company has not infringed, misappropriated or otherwise conflicted
with any proprietary rights of any Person, nor is the Company aware of any
claims of or actual infringement, misappropriation or conflict which to the
Knowledge of the Company, will occur as a result of the continued operation of
the business of the Company as currently conducted.
4.11 Contracts. Except as set forth in the Contracts Schedule, each of
--------- ------------------
the Company and its Subsidiaries is not a party to any (i) bonus, pension,
profit sharing, retirement or other form of deferred compensation plan; (ii)
stock purchase, stock option or similar plan; (iii) contract for the employment
of any officer, individual employee or other person on a full-time or consulting
basis providing for annual compensation in excess of $60,000; (iv) consulting or
management agreement providing for annual compensation in excess of $60,000; (v)
lease or agreement not set forth on the Real Estate Schedule under which it is
lessee of, or holds or operates any personal property owned
24
<PAGE>
by any other party, for which the annual rental exceeds $60,000; (vi) lease or
agreement under which it is lessor of or permits any third party to hold or
operate any property, real or personal, for which the annual rental exceeds
$60,000; (vii) contract or group of related contracts with the same party (A)
under which the Company or any of its Subsidiaries may have a Liability under
such contract in excess of $60,000, (B) which may not be terminated by either
party on no more than 30 days notice without any premium or penalty or other
Liability, or (C) which requires a fee, penalty or other amount in excess of
$60,000 to be paid upon a default, failure to perform or termination; (viii)
agreement which restricts in any manner the Company's or any Subsidiary's right
to compete with any Person, purchase products or services from any Person, or
its ability to hire or employ any Person; (ix) agreement providing for
indemnification; or (x) any other agreement, contract or arrangement under which
the Company has incurred or is reasonably expected to have material obligations.
The Company has provided or made available to the Purchaser or its financial,
legal or accounting representatives a correct and complete copy of each contract
or other agreement listed in the Contracts Schedule (as amended to date). All of
------------------
the contracts and agreements set forth or required to be set forth on any
Schedule hereto are valid, binding and enforceable in accordance with their
respective terms (assuming due execution and delivery by the counterparty),
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect affecting creditors' rights generally or
concerning general principles of equity. Except as set forth on the Contracts
---------
Exception Schedule: each of the Company and its Subsidiaries has performed all
- ------------------
obligations required to be performed by it under such contract and agreement and
is not in default under or in breach of nor in receipt of any claim of default
or breach under any such contract and agreement; no event has occurred which
with the passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance by the Company or any Subsidiary
thereof under any such contract or agreement; and, to the Knowledge of the
Company, none of the Company nor any Subsidiary thereof is party to any contract
or agreement requiring such entity to purchase goods or services or lease
property above or below (as the case may be) prevailing market rates and prices
or to sell goods or services below the cost of such goods and services to such
entity.
4.12 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company or any Subsidiary.
4.13 Litigation. Except as set forth on the attached Litigation
---------- ----------
Schedule, there are no actions, suits, proceedings (including any arbitration
- --------
proceedings), orders, investigations or claims pending or, to the Company and
its Subsidiaries' Knowledge, threatened against or affecting any of the Company
or any of its Subsidiaries (or to the Company and its Subsidiaries' Knowledge,
pending or threatened against or affecting any of the officers, directors or
employees of any of the Company or any of its Subsidiaries with respect to its
business or proposed business activities), or pending or threatened by the
Company or any of its Subsidiaries against any Person, at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or
instrumentality (including any actions, suits, proceedings or investigations
with respect to the transactions contemplated by this Agreement); neither the
Company nor any of its Subsidiaries is subject to any arbitration proceedings
under collective bargaining agreements or otherwise or any governmental
investigations or inquiries; and, to the Company's Knowledge, there is no basis
for
25
<PAGE>
any of the foregoing. Except as set forth on the Exceptions to Litigation
------------------------
Schedule, the Company and its Subsidiaries are fully insured with respect to
- --------
each of the matters set forth on the attached Litigation Schedule. Neither the
-------------------
Company nor any of its Subsidiaries is subject to any judgment, order or decree
of, or settlement enforceable by, any court or other governmental agency, and
neither the Company nor any of its Subsidiaries has received any opinion or
memorandum or advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any material liabilities.
4.14 Employee Benefits. The Employee Benefits Schedule lists each
----------------- --------------------------
Employee Benefit Plan that the Company and its Subsidiaries maintain or to which
they contribute or have any Liability with respect thereto. Except as set forth
on the Employee Benefits Schedule under the heading "Other Plans", none of the
--------------------------
Company or any of its Subsidiaries maintains, contributes to or has any actual
or potential liability with respect to any active or terminated, funded or
unfunded (x) Multiemployer Plan, (y) defined benefit plan (as defined in Section
3(35) of ERISA) or (z) plan or arrangement to provide severance, deferred
compensation, bonuses, medical, health, life insurance or other welfare-type
benefits for current or future retired or terminated employees or independent
contractors (except for limited continued health benefit coverage required to be
provided under Section 4980B of the Code or similar state law), where such plan
described in (x), (y) or (z) was or is maintained or contributed to by the
Company or an ERISA Affiliate. Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
respects with its terms and with the applicable requirements of all applicable
statutes, including but not limited to ERISA and the Code and all regulations
and interpretations thereunder. All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan. Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan that is intended to be qualified has received a determination
letter from the Internal Revenue Service to the effect that it meets the
requirements of Code Section 401(a). The Company has delivered to the Purchaser
correct and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each such
Employee Benefit Plan with respect to which such documents are required. Neither
the Company nor any of its employees or directors, nor any fiduciary, has
engaged in any transaction, including the execution and delivery of this
Agreement and other agreements, instruments and documents for which execution
and delivery by the Company is contemplated herein, in violation of Section
406(a) or (b) of ERISA or which is a "prohibited transaction" (as defined in
Section 4975(c)(1) of the Code) for which no exemption exists under Section
408(b) of ERISA or Section 4975(d) of the Code or for which no administrative
exemption has been granted under Section 408(a) of ERISA.
4.15 Environmental and Safety Matters. Except as set forth in the
--------------------------------
Environmental Schedule:
- ----------------------
The Company and its Subsidiaries have complied with and are in
compliance in all material respects with all Environmental and Safety
Requirements applicable to the Company, its
26
<PAGE>
Subsidiaries and their properties or facilities. During the last three years,
neither the Company nor its Subsidiaries has received any oral or written
notice, report or information regarding any actual or alleged violation of
Environmental and Safety Requirements or any Liabilities relating to it or its
facilities arising under Environmental and Safety Requirements.
(a) Neither this Agreement nor the consummation of the
transactions contemplated hereby will result in any obligations for site
investigation or cleanup, or notification to or consent of any government
agencies or third parties under any Environmental and Safety Requirements
(including any so called "transaction-triggered" or "responsible property
transfer" laws and regulations).
(b) None of the following exists at any property or facility
owned, occupied or operated by any of the Company or any of its Subsidiaries:
(i) underground storage tanks;
(ii) asbestos-containing material in any form or
condition;
(iii) materials or equipment containing
polychlorinated biphenyls; or
(iv) landfills or surface waste or waste water
impoundments or other disposal areas.
(c) Neither the Company nor any of its Subsidiaries has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled or released any hazardous or toxic substance, material or
waste or owned, occupied or operated any facility or property (and no such
property or facility is contaminated by any such substance) in a manner that has
given or would reasonably be expected to give rise to any material Liabilities
of the Company or its Subsidiaries (including any Liability for response costs,
corrective action costs, personal injury, natural resource damages, property
damage or attorneys fees or any investigative, corrective or remedial
obligations) pursuant to CERCLA or any other Environmental and Safety
Requirements.
(d) Neither the Company nor its Subsidiaries has assumed,
undertaken, or become subject to any Liability (including any corrective,
investigatory or remedial obligation) of any other Person relating to any
Environmental and Safety Requirements.
(e) No Environmental Encumbrance has attached to any property
owned, leased or operated by the Company or its Subsidiaries.
(f) The Company and its Subsidiaries have furnished to
Purchaser all material environmental, and all material occupational health and
safety, audits, reports and other documents relating to the Company or its
Subsidiaries, and any of their properties or facilities (including properties or
facilities that they intend to acquire and properties or facilities that they
have sold or
27
<PAGE>
vacated), that are or were in the possession, custody, or control of the Company
or its Subsidiaries.
4.16 Subsidiaries; Investments. Except as set forth on the attached
-------------------------
Investments and Subsidiaries Schedule, neither the Company nor its Subsidiaries
- -------------------------------------
own or hold the right to acquire any capital stock, partnership interest, joint
venture interest or other equity ownership interest in any other Person. Each
Subsidiary identified on the Investments and Subsidiaries Schedule is validly
-------------------------------------
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite power and authority to own its properties and
to carry on its businesses as now conducted and is qualified to do business in
every jurisdiction when such qualification is required, except when the lack of
such qualification would not have a Material Adverse Effect in which its
ownership of property or the conduct of businesses as now conducted requires it
to qualify. The issued and outstanding equity securities of each Subsidiary is
as set forth on the Investments and Subsidiaries Schedule. Except as set forth
-------------------------------------
on the Investments and Subsidiaries Schedule, all of the issued and outstanding
-------------------------------------
equity securities of each Subsidiary have been duly authorized, are validly
issued, fully paid, and nonassessable, and are not subject to, nor were they
issued in violation of, any preemptive rights or rights of first refusal, and
are (or as of the Closing will be) owned of record and beneficially by the
Company or another Subsidiary free and clear of all Encumbrances. There are no
outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights or other agreements or commitments to
which any Subsidiary is a party or which are binding upon any Subsidiary
providing for the issuance, disposition or acquisition of any of its equity
securities. There are no outstanding or authorized equity appreciation, phantom
equity or similar rights with respect to any Subsidiary. There are no voting
trusts, proxies or any other agreements or understandings with respect to the
voting of the equity securities of any Subsidiary. No Subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its equity securities. Except as set forth on the Investments and
---------------
Subsidiaries Schedule, the Company does not have any obligation to make any
- ---------------------
additional Investments in any Person.
4.17 Insurance. The Insurance Schedule lists each material insurance
--------- ------------------
policy maintained by the Company. All of such insurance policies are in full
force and effect. The Company has not received any notice of cancellation or
non-renewal with respect to any such policies, all premiums due thereon have
been paid and the Company has complied with the provisions of such policies.
4.18 Year 2000. The Company has conducted and is continuing to conduct
---------
a reasonable investigation with respect to the software and computer equipment
(collectively, the "Computer Systems") used by the Company in the conduct of its
----------------
business. The Company met with Ernst & Young, as representative of the
Purchaser, in which meeting the Company: (i) identified those Computer Systems
or Computer Systems components used by the Company that are Year 2000 Compliant
(as defined below); (ii) described the steps the Company is taking to render all
of its material Computer Systems Year 2000 Compliant and (iii) described the
inquiries the Company has made and is making to its material suppliers, vendors
and manufacturers to establish whether or not their Computer Systems are Year
2000 Compliant. The Company reasonably believes, and has informed Ernst & Young,
that the steps it is currently taking will be sufficient to render the Company's
material Computer Systems , other than the Company's "Point of Sale" systems and
any
28
<PAGE>
systems components related thereto, materially Year 2000 Compliant by December
31, 1999. For purposes of this Agreement, "Year 2000 Compliant" means, with
-------------------
respect to a System, that such System will not malfunction, will not cease to
function, will not generate incorrect data, and will not produce incorrect
results when processing, providing or receiving (i) date-related data into and
between the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
4.19 Bank Accounts. The Bank Accounts Schedule sets forth all of the
------------- ----------------------
bank accounts of the Company.
4.20 Absence of Certain Payments. No director, officer, agent, employee
---------------------------
or other Person acting on behalf of the Company or any Subsidiary has, directly
or indirectly, used any corporate funds for contributions, payments, gifts,
entertainment or other purposes relating to any political activity or
solicitation of business which was prohibited by law, or on behalf of the
Company or any Subsidiary thereof, made any direct or indirect unlawful payment
to any governmental official or employee or established or maintained any
unlawful or unreported funds. Neither the Company, any Subsidiary thereof, nor
any current director, officer, agent, employee or other Person acting on behalf
of the Company or any Subsidiary thereof, has accepted or received any unlawful
contribution, payment, gift, entertainment or expenditure in connection with his
employment by the Company.
4.21 Customers, Contractors and Suppliers. The Company and its
------------------------------------
Subsidiaries have not received written notice that any material customer,
contractor or supplier intends to cease, or materially reduce, doing business
with the Company or its Subsidiaries or to terminate any agreement with the
Company or its Subsidiaries.
4.22 Employees. Except as set forth in the Employees Schedule, with
--------- ------------------
respect to the Company and any Subsidiary: (i) there is no collective bargaining
agreement or relationship with any labor organization; (ii) to the Knowledge of
the Company and any Subsidiary, no executive or key employee has any present
intention to terminate their employment; (iii) no labor organization or group of
employees has filed any representation petition or made any written or oral
demand for recognition; (iv) no union organizing efforts are underway or
threatened, and no other question concerning representation exists; (v) no labor
strike, work stoppage, slowdown, or other material labor dispute has occurred,
and none is underway or, to the Knowledge of the Company and any Subsidiary,
threatened; (vi) there is no workman's compensation liability, experience or
matter that could have a Material Adverse Effect; (vii) there is no
employment-related charge, complaint, grievance, investigation, inquiry or
obligation of any kind, pending or threatened in any forum, relating to an
alleged violation or breach by the Company or any Subsidiary (or its or their
officers or directors) of any law, regulation or contract relating to the
employment of labor; and, (viii) to the Company's Knowledge, no employee or
agent of the Company or any Subsidiary has committed any act or omission giving
rise to any material liability for any violation identified in subsection (vii)
above.
29
<PAGE>
4.23 Compliance with Laws; Permits; Certain Operations. Except as set
-------------------------------------------------
forth on the attached Compliance Schedule:
-------------------
(a) The Company and its Subsidiaries have complied and are in
compliance with all applicable laws, ordinances, codes, rules, requirements and
regulations of foreign, federal, state and local governments and all agencies
thereof relating to the operation of their respective businesses, the Real
Properties, and the maintenance and operation of their respective properties and
assets, including with respect to the operation of its theaters in compliance
with the American with Disabilities Act (the "ADA"). No notices have been
received by and no claims have been filed against the Company or any of its
Subsidiaries alleging a violation of any such laws, ordinances, codes, rules,
requirements or regulations. Neither the Company nor any of its Subsidiaries has
at any time made any bribes, kickback payments or other similar payments of cash
or other consideration.
(b) The description of wheelchair seating in the Company's and
Subsidiaries' stadium-style theaters is described in the ADA Seating Schedule.
--------------------
(c) Each of the Company and its Subsidiaries holds and is in
compliance with all material permits, licenses, bonds, approvals, certificates,
registrations, accreditations and other authorizations of all foreign, federal,
state and local governmental agencies required for the conduct of its business
and the ownership of its properties and assets, and the attached Permits
-------
Schedule sets forth a list of all of such material permits, licenses, bonds,
- --------
approvals, certificates, registrations, accreditations and other authorizations.
No notices have been received by the Company or its Subsidiaries alleging the
failure to hold any of the foregoing. Assuming the consents, approvals,
authorizations, permits, filings and notifications referred to in the
Restrictions Schedule and the Real Estate Schedule are duly and timely obtained
- --------------------- --------------------
or made, all of such permits, licenses, bonds, approvals, accreditations,
certificates, registrations and authorizations will be available for use by the
Surviving Corporation immediately after the Closing and the Company has no
Knowledge of any basis upon which any of the foregoing could be revoked or
terminated after the Closing.
4.24 Affiliated Transactions. Except as set forth on the attached
-----------------------
Affiliated Transactions Schedule, to the Company's Knowledge, no officer,
- --------------------------------
director, member, employee, stockholder, or Affiliate of the Company or any
Subsidiary, or any individual related by blood, marriage or adoption to any such
individual or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or any Subsidiary, has any interest in any property
used by the Company or its Subsidiaries, has received any funds from the Company
or any Subsidiary since the date of the Latest Balance Sheet or is owed any
funds from the Company or its Subsidiaries. The attached Affiliated Transactions
-----------------------
Schedule describes all services provided to or for the benefit of the Company or
- --------
any Subsidiary and the costs and expenses charged to the Company or any
Subsidiary in respect thereof.
4.25 No Acceleration of Rights or Benefits. Except as set forth in the
-------------------------------------
Rights and Benefits Schedule (i) neither the Company nor its Subsidiaries has
- -------------------
made, nor is any such entity obligated to make, any payment to any Person in
connection with the transactions contemplated by this
30
<PAGE>
Agreement or the other agreements contemplated by this Agreement (except as
expressly contemplated hereby) and (ii) no rights or benefits of any Person have
been (or will be) accelerated or increased as a result of the consummation of
the transactions contemplated by this Agreement or the other agreements
contemplated by this Agreement
4.26 Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
Undisclosed Liability Schedule, neither the Company nor its Subsidiaries has or
- ------------------------------
will have any Liability arising out of, related to or caused by any
Circumstances existing on or prior to the Closing Date, except for (i)
Liabilities reflected on the face of the Latest Balance Sheet or disclosed in
the footnotes thereto and (ii) Liabilities of the type reflected on the face of
the Latest Balance Sheet which have arisen since the date of the Latest Balance
Sheet in the ordinary course of business (none of which relates to breach of
contract or agreement, breach of warranty, tort, infringement, violation of or
liability under any legal requirements, or any action, suit or proceeding and
none of which is material individually or in the aggregate).
4.27 No Funded Debt. The Funded Debt Schedule attached hereto describes
-------------- --------------------
the outstanding Funded Debt of the Company and its Subsidiaries as of the date
of this Agreement and sets forth the principal amounts, scheduled amortizations,
and interest accruals necessary to calculate such Funded Debt (assuming no
prepayments) as of the Closing. Except as set forth on the Funded Debt Schedule,
--------------------
there shall be no fees, expenses, prepayment penalties or other charges due as
of the Closing, and all obligations with respect to Funded Debt of the Company
and each Subsidiary thereof shall have been satisfied in full as of the Closing.
4.28 Balance Sheet. The unaudited consolidated balance sheet of the
-------------
Company and its Subsidiaries (the " Balance Sheet")as of January 31, 1999 to be
-------------
delivered by the Company to the Purchaser on or prior to March 12, 1999 , will
present fairly the consolidated financial condition of the Company and its
Subsidiaries as of such date after eliminating therefrom principal and accrued
interest on the Bonds, and will have been prepared in consultation with and
reliance upon the Company's independent accounting firm. Such Balance Sheet will
not differ in any material respect from the financial information as of such
date previously delivered by the Company to the Purchaser.
4.29 Disclosure. Neither this Agreement, any of the Exhibits or
----------
Schedules attached hereto nor any of the written statements, documents,
certificates or other items prepared and supplied to the Purchaser by or on
behalf of the Company with respect to the transactions contemplated hereby, when
taken together as a whole, contain any untrue statement of a material fact or
omit a material fact necessary to make each statement contained herein or
therein, in light of the circumstances in which they were made, not misleading.
There is no fact about the Company and its Subsidiaries which the Company and
its Subsidiaries have not disclosed to the Purchaser or Purchaser
Representatives or Scott Wallace and his affiliates orally or in writing
(whether specifically prepared for the Purchaser or its financial, legal or
accounting representatives or in a document provided or made available to the
Purchaser or its representatives in connection herewith) and of which any of its
stockholders, officers, directors or executive employees is aware which has had
or would reasonably be expected to have a Material Adverse Effect.
31
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE INSTITUTIONAL INVESTORS
------------------------------
Each of the Institutional Investors, severally, represents and
warrants to the Purchaser that the statements contained in this Article V are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Article V).
5.01 Organization and Power. Such Person is an entity duly organized,
----------------------
validly existing and in good standing under the laws of its state of formation,
with full power and authority to enter into this Agreement and perform its
obligations hereunder.
5.02 Authorization and Enforceability. Such Person has the requisite
--------------------------------
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and performance of this Agreement
by such Person and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all requisite action, and no other
proceedings are necessary to authorize the execution, delivery or performance of
this Agreement. Each of this Agreement and the other agreements contemplated
hereby to which such Person is a party constitutes a valid and binding
obligation of such Person, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditors' rights generally.
5.03 No Violation. Neither the execution and the delivery of this
------------
Agreement, the agreements contemplated hereby, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate any statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which such
Person is subject or any provision of the constituent documents of such Person
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which such Person is a party or by
which it is bound or to which its assets are subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or security interest would not have a
Material Adverse Effect on such Person or on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Such Person does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a Material Adverse Effect on such Person or
on the ability of the Parties to consummate the transactions contemplated by
this Agreement.
32
<PAGE>
5.04 Governmental Authorities; Consents. Except for the applicable
----------------------------------
requirements of the HSR Act, such Person is not required to submit any notice,
report or other filing with any governmental authority in connection with the
execution, delivery or performance by it of this Agreement or the consummation
of the transactions contemplated hereby. No consent, approval or authorization
of, or declaration to or filing with any governmental or regulatory authority or
any other party or Person is required to be obtained by such Person in
connection with its execution, delivery and performance of this Agreement, the
other agreements contemplated hereby or the consummation of the transactions
contemplated hereby or thereby.
5.05 Litigation. There are no actions, suits or proceedings pending or,
----------
to such Person's knowledge, threatened against or affecting such Person at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would adversely affect such Person's or the Company's
performance under this Agreement, the other agreements contemplated hereby or
the consummation of the transactions contemplated hereby or thereby.
5.06 Brokers' Fees. Other than with respect to the "DLJ Fee" which
------------- -------
shall be paid by the Company), such Person does not have any Liability to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
5.07 Title, etc. Such Person is the record and beneficial owner of, and
----------
has good and marketable title to, each of the shares of Company Stock named
opposite such Person's name on the Capitalization Schedule attached hereto, free
-----------------------
and clear of all Encumbrances. At the Closing, such Person shall transfer to the
Company good and marketable title to such shares of Company Stock, free and
clear of all Encumbrances, in exchange for Common Units. Other than dividends
payable on the outstanding Preferred Stock in shares of Preferred Stock, such
Person does not have any rights, outstanding commitments, subscriptions,
warrants, options, conversion rights or agreements of any kind outstanding to
purchase or otherwise acquire any shares of capital stock of the Company or any
subsidiary or securities or obligations of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of the Company or
any Subsidiary or any outstanding stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company or any Subsidiary.
5.08 Investment Representation. Each of the Institutional Investors is
-------------------------
acquiring the Common Units for its own account with the present intention of
holding such securities for investment purposes and not with a view to or for
sale in connection with any public distribution of such securities in violation
of any federal or state securities laws. Each of the Institutional Investors
qualifies as an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act.
5.09 Company Transactions. Such Person is not a party to or bound by
--------------------
any agreement with respect to a Company Transaction other than this Agreement,
and such Person has terminated all discussions with third parties (other than
the Purchaser) regarding a Company Transaction.
33
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER OR NEWCO
--------------------------------------------------------
The Purchaser represents and warrants to the Stockholders and
the Company that the statements contained in this Article VI are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article VI).
6.01 Organization and Corporate Power. The Purchaser is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
State of California, with full corporate power and authority to enter into this
Agreement and perform its obligations hereunder. The Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to enter into this
Agreement and perform its obligations hereunder. The Purchaser is qualified and
in good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the Purchaser. The Purchaser has the requisite corporate power
and authority to carry on the business in which it is currently engaged and to
own and use the properties as currently owned and used by it.
6.02 Authorization and Enforceability. The Purchaser and the Merger Sub
--------------------------------
have the requisite power and authority to execute and deliver this Agreement and
to perform their respective obligations hereunder. The execution, delivery and
performance of this Agreement by the Purchaser and the Merger Sub and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action, and no other corporate proceedings
on the part of either of them are necessary to authorize the execution, delivery
or performance of this Agreement. Assuming that this Agreement is a valid and
binding obligation of the Company, this Agreement constitutes a valid and
binding obligation of each of the Purchaser and the Merger Sub, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally.
6.03 No Violation. Neither the execution, the delivery of this
------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Purchaser or Merger Sub is subject or any provision of the
charter or bylaws of the Purchaser or Merger Sub or (ii) conflict with, result
in a breach of, constitute a default under (whether with or without the passage
of time, the giving of notice or both), result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Purchaser or Merger Sub is a party or by which either
is bound or to which the assets of Purchaser or Merger Sub is subject. Except
for the applicable requirements of the HSR Act and
34
<PAGE>
filing of the certificate of merger, the execution and delivery of this
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby does not and will not require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing with, any
third party or any court or administrative or governmental body or agency
pursuant to, the Purchaser's organizational documents or any order, judgment or
decree or any law, statute, rule or regulation to which any of the Purchaser or
any of its Affiliates is subject, or any agreement or instrument to which any of
the Purchaser or its Affiliates is a party or by which any of its or their
assets are bound.
6.04 Governmental Authorities; Consents. Except for the applicable
----------------------------------
requirements of the HSR Act and filing the certificate of merger, neither the
Purchaser nor the Merger Sub is required to submit any notice, report or other
filing with any governmental authority in connection with the execution,
delivery or performance by it of this Agreement or the consummation of the
transactions contemplated hereby. Except as set forth in the immediately
preceding sentence, no consent, approval or authorization of, or declaration to
or filing with any governmental or regulatory authority or any other party or
Person is required to be obtained by the Purchaser or the Merger Sub in
connection with its execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
6.05 Litigation. There are no actions, suits or proceedings (including
----------
arbitration proceeding, orders, investigations or claims) pending or, to the
Purchaser's, Merger Sub's or Newco's knowledge, threatened against or affecting
the Purchaser, the Merger Sub or Newco at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which in any manner
draws into question the validity of or otherwise affects this Agreement or any
of the other agreements related hereto, the ability of the Purchaser or the
Merger Sub to perform its obligations hereunder or thereunder or the
consummation of the transactions contemplated hereby and thereby.
6.06 Broker's Fees. Other than with respect to Chase Securities, Inc.
-------------
(whose fees shall be paid by the Surviving Corporation), neither the Purchaser
nor any of its Affiliates has any Liability to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
6.07 Investment Representation. The Purchaser is acquiring the Company
-------------------------
Stock for its own account with the present intention of holding such securities
for investment purposes and not with a view to or for sale in connection with
any public distribution of such securities in violation of any federal or state
securities laws. The Purchaser qualifies as an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act.
6.08 Conduct of Business; Liabilities. Prior to the date hereof, Newco
--------------------------------
has not conducted any business, incurred any expenses, obligations or
Liabilities, other than those in furtherance, or as contemplated by, this
Agreement and the Recapitalization Agreement and the transactions contemplated
hereby or thereby.
35
<PAGE>
ARTICLE VII
PRE-CLOSING COVENANTS OF THE COMPANY
------------------------------------
7.01 Conduct of the Business.
-----------------------
(a) From the date hereof until the Closing Date, the Company
shall use its reasonable efforts to carry on its business according to its
ordinary and usual course of business and in substantially the same manner as
heretofore conducted, including, but not limited to, maintaining working capital
in accordance with past practice and the proportion of the Company's payables
which are past due at not more than the proportion of the Company's payables
which are past due as of the date hereof (except as expressly contemplated or
permitted by this Agreement including, without limitation, the use by the
Company and HTI of all available cash to repay any Funded Debt prior to the
Closing, or to the extent that the Purchaser shall otherwise consent in
writing).
(b) Except as set forth on the Subsequent Events Schedule,
--------------------------
from the date hereof until the Closing Date, except as otherwise provided for by
this Agreement or consented to in writing by the Purchaser, the Company shall
not (i) issue, sell or deliver any shares of its capital stock or issue or sell
any securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe for, any shares of its capital stock; (ii)
effect any recapitalization, reclassification, stock dividend, stock split or
like change in its capitalization; (iii) amend its certificate of incorporation
(or other charter documents) or bylaws; (iv) make any redemption or purchase of
any shares of its capital stock or equity interests or pay any dividends on any
shares of capital stock or otherwise make any payments to stockholders or
affiliates thereof (including any management fees); (v) knowingly and
intentionally take or omit to take any action that would require disclosure
under Section 7.06 below or that would otherwise result in a breach of any of
------------
the representations, warranties or covenants made by the Company in this
Agreement as if each such representation and warranty were remade on each date
following the date hereof , except to the extent that such disclosure is timely
made to the Purchaser; or (vi) grant any increase in the base compensation or
other payment to any director, officer or employee, whether now or hereafter
payable, other than increases in compensation to non-management employees in the
ordinary course consistent with the Company's past practices. The Institutional
Investors shall use reasonable efforts to cause the Company to refrain from
taking any of the foregoing actions.
7.02 Access to Books and Records. From the date hereof until the
---------------------------
Closing Date, the Company shall provide the Purchaser and its Lenders and their
authorized financial, legal and accounting representatives (the "Purchaser's
-----------
Representatives") with full access at all reasonable times and upon reasonable
- ---------------
notice to the offices, properties, personnel, books and records of the Company
in order for the Purchaser to have the opportunity to make such investigation as
it shall reasonably desire to make of the affairs of the Company.
36
<PAGE>
7.03 Regulatory Filings. The Company shall make or cause to be made
------------------
all filings and submissions under the HSR Act and any other material laws or
regulations applicable to the Company as may be required of the Company for the
consummation of the transactions contemplated hereby. The Company shall
coordinate and cooperate with the Purchaser in exchanging such information and
assistance as the Purchaser may reasonably request in connection with all of the
foregoing. The Purchaser shall pay all fees, costs and expenses incurred in
connection with all filings under the HSR Act, but upon Closing shall be
reimbursed therefor by the Company.
7.04 Conditions. The Company shall use all reasonable efforts to
----------
cause the conditions set forth in Section 3.01 to be satisfied without any
------------
waiver thereof and to consummate the transactions contemplated herein as soon as
reasonably possible after the satisfaction of the conditions set forth in
Article III; provided that, notwithstanding the foregoing, prior to the
--------
submission thereof, the Company shall provide copies to Purchaser for its prompt
review and approval (which approval shall not be unreasonably withheld) of all
documentation necessary to obtain all such consents required to be obtained
under Section 3.01 or to effectuate the Bond Tender (including all documentation
------------
to be delivered to any holder of the Bonds).
7.05 Exclusive Dealing. During the period from the date of this
-----------------
Agreement through the Closing or the earlier termination of this Agreement
pursuant to Section 9.01, neither the Company nor the Institutional Investors,
------------
shall directly or indirectly, solicit, initiate, encourage any proposal or offer
from any Person (other than the Purchaser in connection with the transactions
contemplated hereby) or enter into any agreement or accept any offer relating to
or consummate any (a) non-bankruptcy reorganization, liquidation, dissolution or
recapitalization of the Company or any of its Subsidiaries (but including a
prepackaged bankruptcy proceeding which results in a change of control of the
Company, other than with respect to the Purchaser, Merger Sub, Newco or their
Affiliates), (b) merger or consolidation involving the Company or any of its
Subsidiaries, (c) purchase or sale of any material amount of assets or equity
securities (or any rights to acquire, or securities convertible into or
exchangeable for, any such equity securities) of the Company or any of its
Subsidiaries, or (d) similar transaction or business combination involving a
Company or any of its Subsidiaries or their respective businesses or assets
(each of the foregoing transactions described in clauses (a) through (d), a
"Company Transaction"). Each of the Company and the Institutional Investors
agree to notify the Purchasers immediately if any Person makes any proposal,
offer, inquiry or contact with respect to a Company Transaction. To the extent
that the Company's counsel has advised the Company's board of directors that
such board of directors' fiduciary duties require that it respond to or
negotiate an unsolicited offer regarding a Company Transaction, the Company's
board of directors shall be entitled to so respond and negotiate.
7.06 Notification; Schedules. From the date hereof until the
------------------------
Closing Date, the Company and the Institutional Investors shall disclose to the
Purchaser in writing that a representation or warranty contained in Articles IV
or V is untrue promptly upon discovery thereof, but such disclosures shall not
shall amend or supplement the appropriate schedules attached hereto delivered to
the Purchaser for any purpose, except any disclosures made relating to events
that occur after the execution of this Agreement (a "Subsequent Event
----------------
Disclosure"), which disclosures shall supplement
- ----------
37
<PAGE>
the appropriate disclosure schedules attached hereto delivered to the Purchaser
if, but only if, the Purchaser elects to waive the requirements of Section
-------
9.01(j), in which event, no claim or right to be indemnified for breach of a
- -------
representation or warranty with respect thereto shall be available to the
Company Parties. Without limiting the generality of the foregoing, on each of
(i) one day prior to the date of commencement of the Bond Tender (if such date
is more than 5 days after the date hereof) and (ii) one day prior to the Closing
Date, the Company shall provide to the Purchaser an updated Pro Forma Balance
Sheet which shall present fairly the consolidated financial condition of the
Company and its Subsidiaries as of each such date and will have been prepared in
consultation with and reliance upon the Company's independent accounting firm.
On or prior to the earlier of March 31, 1999 and one day prior to the Effective
Time, the Company shall deliver to the Purchaser the audited consolidated
balance sheet of the Company and its Subsidiaries as of December 31, 1998 and
the related audited consolidated statements of income and cash flow (or the
equivalent) for the fiscal year then ended, each prepared in accordance with the
standards set forth in the last paragraph of Section 4.06. Such audited
------------
financial statements shall be identical, on a line-by-line basis to the
financial statements described in Section 4.06(b).
---------------
7.07 Good Faith Negotiation. To the extent requested by the
----------------------
Purchaser, the Company and the Purchaser will negotiate in good faith to agree
upon the purchase of certain of the theaters of HTI directly by the Purchaser or
its designee.
ARTICLE VIII
COVENANTS OF THE PURCHASER
--------------------------
8.01 Notification. From the date hereof until the Closing, the
------------
Purchaser shall promptly disclose to the Company in writing that a
representation and warranty contained in Article VI is untrue promptly upon
discovery thereof, which disclosures shall only amend or supplement the
appropriate schedules attached hereto delivered to by the Purchaser to the
extent provided in Section 7.06 above.
------------
8.02 Regulatory Filings. The Purchaser shall make or cause to be
------------------
made all filings and submissions under the HSR Act and any other laws or
regulations applicable to the Purchaser as may be required of the Purchaser for
the consummation of the transactions contemplated hereby, and the Purchaser
shall be responsible for all filing fees under the HSR Act. The Purchaser shall
coordinate and cooperate with the Company in exchanging such information and
assistance as the Company may reasonably request in connection with all of the
foregoing.
8.03 Conditions. The Purchaser shall use all reasonable efforts to
----------
cause the conditions set forth in Section 3.02 to be satisfied without any
------------
waiver thereof and to consummate the transactions contemplated herein as soon as
reasonably possible after the satisfaction of the conditions set forth in
Article III.
38
<PAGE>
ARTICLE IX
TERMINATION
-----------
9.01 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by the mutual written consent of the Purchaser and the
Company;
(b) by the Purchaser, if there has been a material violation
or breach by the Company of any covenant, representation or warranty contained
in this Agreement which has prevented, or in the reasonable judgment of the
Purchaser, is reasonably likely to prevent the satisfaction of any condition to
the obligations of the Purchaser at the Closing and such violation or breach has
not been waived by the Purchaser or cured by the Company within ten business
days after written notice thereof has been given to the Company by the
Purchaser;
(c) by the Company, if there has been a material violation or
breach by the Purchaser or the Merger Sub of any covenant, representation or
warranty contained in this Agreement which has prevented, or in the reasonable
judgment of the Company, is reasonably likely to prevent the satisfaction of any
condition to the obligations of the Company at the Closing and such violation or
breach has not been waived by the Company or cured by the Purchaser within ten
business days after written notice thereof by the Company;
(d) by the Purchaser if the transactions contemplated hereby
have not been consummated on or prior to the date which is 30 days after the
date on which the Bond Tender is terminated, but in any event not later than 120
days after the date hereof; provided that the Purchaser shall not be entitled to
terminate this Agreement pursuant to this Section 9.01(d) if the Purchaser's
---------------
breach of this Agreement has prevented the consummation of the transactions
contemplated hereby;
(e) by the Company if the transactions contemplated hereby
have not been consummated on or prior to the date which is 30 days after the
date on which the Bond Tender is terminated (provided that if such termination
has occurred within 20 business days after commencement of the Bond Tender, such
termination shall have been with the consent of the Purchaser), but in any event
not later than 120 days after the date hereof; provided that the Company shall
not be entitled to terminate this Agreement pursuant to this Section 9.01(e) if
---------------
the Company's breach of this Agreement has prevented the consummation of the
transactions contemplated hereby;
(f) by either party if there is entered any government decree,
order or judgment that prohibits or enjoins the transactions contemplated
hereby;
(g) by Purchaser, if the Company's Board of Directors shall
withdraw, modify or change its recommendation or approval in respect of this
Agreement or the Merger in a manner adverse to Purchaser;
39
<PAGE>
(h) by Purchaser, if any Person or group (as defined in
Section 13(d)(3) of the Exchange Act), other than Purchaser or the Company
- ----------------
pursuant to the Bond Tender shall have become the beneficial owner of more than
20% of the outstanding Bonds or shall have made an offer to acquire more than
20% of the Bonds;
(i) by the Company, to allow the Company to enter into an
agreement in respect of a Company Transaction which the Company's Board of
Directors has determined in the exercise of its fiduciary duties is more
favorable to the holders of the Bonds than the transactions contemplated hereby;
(j) by the Purchaser, if a Subsequent Event Disclosure
Schedule has been delivered, which together with any other Subsequent Event
Disclosures previously delivered, describes a matter which may result in the
loss of revenues, or an increase in Liabilities from that previously described
prior to the date hereof in an aggregate amount greater than $250,000 (excluding
items set forth on the Assumed Liabilities Schedule as delivered to the
----------------------------
Purchaser on the date of execution of this Agreement, ignoring for this purpose
any update of such Schedule and all fees and expenses of professionals incurred
in connection with the transactions contemplated by this Agreement; or
(k) by the Company, to allow the Company to commence or comply
with any voluntary or involuntary bankruptcy proceeding concerning the
reorganization, liquidation, dissolution or recapitalization of the Company,
other than a prepackaged bankruptcy proceeding which results in a change of
control of the Company, other than with respect to the Purchaser, Merger Sub,
Newco or their Affiliates.
9.02 Effect of Termination.
---------------------
(a) If this Agreement is terminated pursuant to Section 9.01
hereof, this Agreement shall terminate with no liability on the part of any
party hereto, except that the agreements contained in this Section 9.02 hereof
shall survive the termination hereof, and except that no such termination shall
relieve any party from liability for its wilful or knowing breach of this
Agreement prior to the time of such termination.
(b) In the event that (i) this Agreement shall have been
terminated pursuant to subsections (g), (h) or (i) of Section 9.01 hereof and
(ii) within 180 days after the termination of this Agreement, the Company
consummates or agrees to consummate a Company Transaction with any Person other
than the Purchaser, Merger Sub, Newco or their respective Affiliates, then, the
Company shall promptly, but in no event later than two business days after the
first to occur of the date of such termination or such consummation or such
agreement to consummate, pay to Purchaser a termination fee of $6,500,000 plus
an amount equal to Purchaser's out-of-pocket expenses incurred in connection
with the transactions contemplated by this Agreement, including, but not limited
to financing fees, and legal, accounting, investment banking, consulting and
other agents' fees and expenses, which termination fee and expense amount shall
be payable in same day funds.
40
<PAGE>
ARTICLE X
REMEDIES FOR BREACHES OF THIS AGREEMENT
---------------------------------------
10.01 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties in this Agreement attached hereto or in any
certificate delivered by any party to another party in connection with this
Agreement shall survive the Closing and continue in full force and effect for 12
months, provided that (i) the representations and warranties contained in
Sections 4.08 (Tax Matters) and 4.15 (Environmental and Safety Matters) shall
- -----------------------------------------------------------------------
survive the Closing and continue in full force and effect for 24 months, and
(ii) the Institutional Investors' obligation to provide indemnity in respect of
Assumed Liabilities shall survive the Closing and continue in full force and
effect for 18 months except in any such case with respect to claims which are
pending as of any such termination date. The representations and warranties in
this Agreement and the Schedules and Exhibits attached hereto or in any writing
delivered by any party to another party in connection with this Agreement shall
in no event be affected by any investigation, inquiry or examination made for or
on behalf of any party, or the knowledge of any party's officers, directors,
members, employees or agents or the acceptance by any party of any certificate
or opinion hereunder.
10.02 Reimbursement and Indemnification.
---------------------------------
(a) Several Indemnification by the Institutional Investors.
------------------------------------------------------
The Institutional Investors shall, severally in proportion to the number of
Common Units received hereunder, and not jointly and severally, indemnify each
of the Purchaser and its Affiliates (including, after the Closing, the Surviving
Corporation), and its and their shareholders (other than the Institutional
Investors), partners, officers, directors, employees, agents, representatives,
successors and permitted assigns (collectively, the "Company Parties") and shall
---------------
save and hold each of them harmless against and pay on behalf of or reimburse
such Company Party for any loss, Liability, demand, claim, action, cause of
action, cost, damage, deficiency, Tax, penalty, fine or expense, whether or not
arising out of third party claims (including interest, penalties, reasonable
attorneys' fees and expenses and all amounts paid in investigation, defense or
settlement of any of the foregoing, and taking into account the time cost of
money actually expended by the Indemnitee (as defined below) using the prime
rate as published by the Wall Street Journal as the discount rate)
(collectively, "Losses"), which any such Company Party may suffer, sustain or
------
become subject to, as a result of, in connection with, relating or incidental to
or by virtue of: (i) any breach of any representation or warranty of the Company
under this Agreement, or in any of the certificates furnished by the Company
pursuant to this Agreement; (ii) any nonfulfillment or breach of any covenant,
agreement or other provision by the Company under this Agreement; or (iii) any
Assumed Liabilities; provided, however, that, with respect to any claim for
--------
indemnification under clause (i) of this Section 10.02, other than with respect
-------------
to breaches of representations and warranties contained in Sections 4.08 (Tax
------------------
Matters) and 4.15 (Environmental and Safety Matters) the Institutional Investors
- ----------------------------------------------------
shall not have any obligation to indemnify any Company Party from and against
any Losses unless and until the Company Parties collectively shall have suffered
Losses by reason of all such breaches in excess of $500,000 and then only to the
extent such Losses exceed $500,000, and provided further that claims for
----------------
indemnification
41
<PAGE>
with respect to breaches of representations and warranties contained in Section
-------
4.15 (Environmental and Safety Matters) may be made without giving effect to any
- ---------------------------------------
disclosures set forth on the Environmental Schedule (i.e., as if there had been
----------------------
no disclosures on such schedule); and provided further that the Company Parties
----------------
may only make a claim for indemnification against Assumed Liabilities to the
extent that the aggregate amount of Liabilities of the Company and its
Subsidiaries arising out of, related to or caused by any Circumstances existing
on or prior to the Closing Date, or any other state of facts existing on or
prior to the Closing Date exceeds the aggregate amount of Liabilities set forth
on the Assumed Liabilities Schedule (it being understood that as a result of
----------------------------
such aggregation of Liabilities and the resulting inability to determine whether
an increase in any particular Liability set forth on the Assumed Liabilities
Schedule will ultimately result in an indemnification obligation of the
Institutional Investors, notwithstanding the provisions of Section 10.02(e) the
----------------
Purchaser will only be required to turn over defense of any individual Liability
which may be the subject of a claim for indemnification against Assumed
Liabilities arising out of a third-party claim if and to the extent that the
Institutional Investors agree to pay such claim at the time of their assumption
of the defense thereof, subject only to the right of the Institutional Investors
to be reimbursed for such payment to the extent that it is later determined that
the aggregate amount of Assumed Liabilities is less than the amount of such
payment plus all other interim payments made by the Institutional Investors in
respect of Assumed Liabilities. In the event that the aggregate amount of
Assumed Liabilities is less than the amount of all interim payments made by the
Institutional Investors in respect of Assumed Liabilities, the Company will
provide notice of such overpayment, along with a detailed explanation thereof,
to the Institutional Investors promptly after termination of the survival period
for indemnification against Assumed Liabilities.
(b) Several Indemnification by the Institutional Investors.
------------------------------------------------------
Each Institutional Investor severally, and not jointly, shall indemnify the
Company Parties and hold them harmless against any Losses which the Company
Parties may suffer, sustain or become subject to, as a result of: (a) any breach
of any representation or warranty of such Institutional Investor in Section 5 of
this Agreement or in any of the certificates furnished by such Person pursuant
to this Agreement; or (b) any nonfulfillment or breach of any covenant,
agreement or other provision by such Institutional Investor under this
Agreement.
(c) Indemnification by the Purchaser. The Purchaser shall,
--------------------------------
with respect to the representations, warranties, covenants and agreements made
by the Purchaser indemnify the Institutional Investors and their Affiliates
after the Closing and their respective shareholders, officers, directors,
employees, agents, representatives, successors and permitted assigns after the
Closing (collectively, the "Purchaser Indemnified Parties") and hold them
-----------------------------
harmless against any Losses which the Purchaser Indemnified Parties may suffer,
sustain or become subject to, as a result of, in connection with, relating or
incidental to or by virtue of: (a) any breach of any representation or warranty
of the Purchaser under this Agreement or in any of the certificates furnished by
the Purchaser pursuant to this Agreement; or (b) any nonfulfillment or breach of
any covenant, agreement or other provision by such Purchaser under this
Agreement.
(d) Manner of Payment. Except as set forth in the following
-----------------
sentence, any indemnification of the Company Parties or the Purchaser
Indemnified Parties pursuant to this
42
<PAGE>
Section 10.02 shall be effected by wire transfer of immediately available funds
- -------------
from one or more of the Institutional Investors or the Purchaser, as the case
may be, to an account designated by any Company Party or Purchaser Indemnified
Party, as the case may be, within 15 days after the final determination thereof;
provided however, that if such matter relates to any matter for which Indemnitor
has agreed it is responsible for, costs and expenses incurred by an Indemnitee
in accordance with the terms hereof shall be promptly paid to such Indemnitee on
an as incurred basis. Notwithstanding anything contained herein, except with
respect to any Institutional Investor that has elected (i) to assume the defense
of such matter pursuant to Section 10.02(e), in which case, the limitations set
----------------
forth in this sentence shall not be available to the Institutional Investor that
elected to assume such defense or (ii) to pay an indemnification claim in cash,
any indemnification pursuant to Section 10.02(a) shall solely be effected by a
----------------
cancellation of Common Units held by Institutional Investors, on a pro rata
basis, valued at $1.00 per Common Unit (such price per unit being the price per
unit that GTCR Fund VI, L.P. paid for Common Units (assuming a conversion of
preferred units into Common Units) pursuant to the pursuant to the Purchase
Agreement to be entered into at the Closing, between GTCR Fund VI, L.P. and
Newco and the Institutional Investors shall have no liability under Section
-------
10.02(a) if all Common Units of the Institutional Investors have been canceled
- --------
pursuant to the terms hereof).
(e) Defense of Third Party Claims. Any Person making a claim
-----------------------------
for indemnification under this Section 10.02 (an "Indemnitee") shall notify the
------------- ----------
indemnifying party (an "Indemnitor") of the claim in writing promptly after
----------
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided that the
-------------
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder. Any Indemnitor shall be entitled to participate in the
defense of such action, lawsuit, proceeding, investigation or other claim giving
rise to an Indemnitee's claim for indemnification at such Indemnitor's expense,
and at its option (subject to the limitations set forth below) shall be entitled
to assume the defense thereof by appointing a reputable counsel reasonably
acceptable to the Indemnitee to be the lead counsel in connection with such
defense; provided that, prior to the Indemnitor assuming control of such defense
-------------
it shall first verify to the Indemnitee in writing that such Indemnitor shall be
fully responsible (with no reservation of any rights) for all Losses relating to
such claim for indemnification and that it shall provide full indemnification
(whether or not otherwise required hereunder) to the Indemnitee with respect to
such action, lawsuit, proceeding, investigation or other claim giving rise to
such claim for indemnification hereunder; and provided further, that:
----------------
(i) the Indemnitee shall be entitled to participate
in the defense of such claim and to employ counsel of its choice for such
purpose; provided that the fees and expenses of such separate counsel shall be
-------------
borne by the Indemnitee (other than any fees and expenses of such separate
counsel that are incurred prior to the date the Indemnitor effectively assumes
control of such defense which, notwithstanding the foregoing, shall be borne by
the Indemnitor);
(ii) the Indemnitor shall not be entitled to assume
control of such defense and shall pay the out-of-pocket costs and expenses
incurred by the Indemnitee (including counsel retained by the Indemnitee) on an
as and when incurred basis if (A) the claim for indemnification
43
<PAGE>
relates to or arises in connection with any criminal proceeding, action,
indictment, allegation or investigation; (B) the Indemnitee reasonably believes
an adverse determination with respect to the action, lawsuit, investigation,
proceeding or other claim giving rise to such claim for indemnification would be
detrimental to or injure the Indemnitee's reputation or future business
prospects (including matters relating to independent contractor issues); (C) the
claim seeks an injunction or equitable relief against the Indemnitee; (D) the
Indemnitee has been advised in writing by counsel that a reasonable likelihood
exists of a conflict of interest between the Indemnitor and the Indemnitee; or
(E) upon petition by the Indemnitee, the appropriate court rules that the
Indemnitor failed or is failing to vigorously prosecute or defend such claim;
and
(iii) If the Indemnitor shall control the defense of
any such claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim or ceasing to defend
such claim, and if the Indemnitee shall control the defense of any such claim,
the Indemnitee shall obtain the prior written consent of the Indemnitor (not to
be unreasonably withheld) before entering into any settlement of a claim or
ceasing to defend such claim, if as a result of such action by the Indemnitee,
the Indemnitee claims or expects to claim indemnification from the Indemnitor.
(f) Certain Waivers and Consents. Each of the Institutional
----------------------------
Investors hereby agrees that it shall not, and cause each of its related persons
to agree not to, make any claim for indemnification against the Company or any
Subsidiary thereof by reason of the fact that the Institutional Investors or its
related person is or was a shareholder or agent of the Company or its
Subsidiaries (but specifically excluding claims for indemnification against the
Company or a Subsidiary arising out of third-party claims asserted against any
Person by reason of serving on the Company's or a Subsidiary's Board of
Directors (the "Excluded Claims")) or is or was serving at the request of the
---------------
Company or its Subsidiaries as a partner, trustee, director, officer, employee
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, Liability
or otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by any of the Company Parties against the Institutional Investors
pursuant to this Agreement, and the Institutional Investors hereby acknowledges
and agrees and shall cause each of its related persons to acknowledge and agree
that such related person shall have no claims or right to contribution or
indemnity from the Surviving Corporation or any Subsidiary or Affiliate with
respect to any amounts paid by the Institutional Investors pursuant to this
Section 10.02 other than claims relating to Excluded Claims. From and after the
- -------------
Effective Time, each of the Institutional Investors, on behalf of itself and its
affiliates and related persons, hereby irrevocably waives, releases and
discharges forever the Surviving Corporation and its Subsidiaries from any and
all Liabilities to, and agreements with, the Company, the Surviving Corporation,
and its Subsidiaries of any kind or nature whatsoever, whether in its capacity
as an Institutional Investor, a stockholder or otherwise (and including any
accrued but unpaid management fees) other than claims relating to Excluded
Claims. From and after the Effective Time, the Company, the Surviving
Corporation and its Subsidiaries, each on behalf of itself and its affiliates
and related persons, hereby irrevocably waives, releases and discharges forever
(i) the Institutional Investors and their affiliates and related persons from
any and all Liabilities to, and agreements with, the Company, the Surviving
Corporation, and its Subsidiaries of any kind or nature whatsoever, whether in
its capacity as an
44
<PAGE>
Institutional Investor, a stockholder or otherwise, other than claims for
indemnification pursuant to Article 10 and (ii) the Company's directors from any
and all Liabilities to the Company, the Surviving Corporation, and its
Subsidiaries relating to such directors' authorization of the Company's
execution, delivery and performance of the Loan Documents and the transactions
contemplated thereby. In addition, the Company shall hold harmless and indemnify
such directors from and against any Losses which they may suffer as a result of
such directors' authorization of the Company's execution, delivery and
performance of the Loan Documents and the transactions contemplated thereby.
10.03 Further Assurances. From time to time, as and when requested
------------------
by any party hereto and at such party's expense unless such party is otherwise
entitled to indemnification therefor, any other party shall execute and deliver,
or cause to be executed and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further or other actions as such
other party may reasonably deem necessary or desirable to evidence and
effectuate the transactions contemplated by this Agreement.
ARTICLE XI
DEFINITIONS
-----------
11.01 Definitions. For purposes hereof, the following terms, when
-----------
used herein with initial capital letters, shall have the respective meanings set
forth herein:
"ADA" has the meaning set forth in Section 4.23.
--- ------------
"Affiliates" of any particular Person means any other Person
----------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Agreement" has the meaning set forth in the Preface.
---------
"Architect's Certificate" has the meaning set forth in Section
----------------------- -------
3.01(k)(vii).
- ------------
"Assumed Liability" means any Liability of the Company or its
-----------------
Subsidiaries, arising out of, related to or caused by any Circumstances existing
on or prior to the Closing Date, or any other state of facts existing on or
prior to the Closing Date, except for (i) any such Liability set forth on the
Assumed Liabilities Schedule, (ii) as to any Liability set forth on the Assumed
- ---------------------------- -------
Liability Schedule with a corresponding dollar amount, any Liability which is
- ------------------
greater than the amount set forth in respect of such Liability on the Assumed
-------
Liabilities Schedule or (iii) Liabilities incurred as part of normal working
- --------------------
capital, it being understood that Liabilities of the type described on the
Assumed Liabilities Schedule will not constitute normal working capital
- ----------------------------
Liabilities.
45
<PAGE>
"Balance Sheet" has the meaning set forth in Section 4.28.
------------- ------------
"Bond Tender" has the meaning set forth in Section 3.01(l).
----------- ---------------
"Bonds" means the Company's 10 5/8% Senior Subordinated Notes
-----
due August 1, 2007 issued pursuant to an Indenture, dated as of August 7, 1997,
among the Company, the Guarantors named therein and U.S. Trust Company of Texas,
N.A., as Trustee.
"Circumstances" means any fact, situation, circumstance,
-------------
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act or transaction.
"Closing" has the meaning set forth in Section 2.01(a).
------- ---------------
"Closing Date" has the meaning set forth in Section 2.01(a).
------------ ---------------
"Closing Transactions" has the meaning set forth in Section
-------------------- -------
2.01(b).
- -------
"Code" means the Internal Revenue Code of 1986, as amended,
----
and the rules and regulations promulgated thereunder.
"Common Units" has the meaning set forth in Section 1.02(a).
------------ ---------------
"Company" has the meaning set forth in the Preface.
-------
"Company Common Stock" has the meaning set forth in Section
-------------------- -------
1.02 (a).
- --------
"Company Parties" has the meaning set forth in Section
--------------- -------
10.02(a).
- --------
"Company Stock" has the meaning set forth in Section 1.02(a).
------------- ---------------
"Company Transaction" has the meaning set forth in Section
------------------- -------
7.05.
- ----
"Computer Systems" has the meaning set forth in Section 4.18.
---------------- ------------
"Confidential Information" means all information of a
------------------------
confidential or proprietary nature (whether or not specifically labeled or
identified as "confidential"), in any form or medium, that relates to the
business, products, services or research or development of any of the Company or
its Subsidiaries or their respective suppliers, distributors, customers,
independent contractors or other business relations. Confidential Information
includes, but is not limited to, the following: internal business information
(including information relating to strategic and staffing plans and practices,
business, training, marketing, promotional and sales plans and practices, cost,
rate and pricing structures, accounting and business methods and potential
acquisition candidates); identities of, individual requirements of, specific
contractual arrangements with, and information about, the Company's suppliers,
distributors, customers, independent contractors or other business relations and
46
<PAGE>
their confidential information; trade secrets, know-how, compilations of data
and analyses, techniques, systems, formulae, research, records, reports,
manuals, documentation, models, data and data bases relating thereto;
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) and other Proprietary Rights.
"Construction Contracts" has the meaning set forth in Section
---------------------- -------
4.09(e).
- -------
"Construction Projects" has the meaning set forth in Section
--------------------- -------
4.09(e).
- -------
"Construction Real Property" has the meaning set forth in
--------------------------
Section 4.09(e).
- ---------------
"Contractors" has the meaning set forth in Section 4.09(e).
----------- ---------------
"Crown" has the meaning set forth in the Preface.
-----
"Debt Transactions" means the financing to be provided to the
-----------------
HTI and/or the Surviving Corporation at the Closing pursuant to the Loan
Documents.
"Delaware Law" has the meaning set forth in Section 1.01 (a).
------------ ----------------
"DLJ Fee" has the meaning set forth in Section 5.06.
------- ------------
"Dissenting Share" has the meaning set forth in Section 1.02
---------------- ------------
(c).
- ---
"Effective Time" has the meaning set forth in Section 1.01
-------------- ------------
(b).
- ---
"Employee Benefit Plan" means any (a) nonqualified deferred
---------------------
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in
-----------------------------
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
-----------------------------
ERISA Section 3(1).
"Encumbrance" means any lien, encumbrance, charge,
-----------
restriction, mortgage, pledge, or security interest, and with respect to any
Company Stock, any right of first refusal, preemptive right or offer or put
right.
"Environmental and Safety Requirements" shall mean all
-------------------------------------
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common
47
<PAGE>
law, in each case concerning public health and safety, worker health and safety
and pollution or protection of the environment (including all those relating to
the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control or cleanup of any hazardous or otherwise
regulated materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise, radiation or radon),
each as amended or supplemented through the Closing Date.
"Environmental Encumbrance" means any Encumbrance, whether
-------------------------
recorded or unrecorded, in favor of any governmental entity, relating to any
liability of the Company or its Subsidiaries arising under any Environmental and
Safety Requirements.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended.
"ERISA Affiliate" means each entity which together with the
---------------
Company is treated as a single employer for purposes of Code Section 414 and
regulations issued thereunder.
"Estoppel Certificates" has the meaning set forth in Section
--------------------- -------
3.01(k)(iv).
- -----------
"Excluded Claim" has the meaning set forth in Section
-------------- -------
10.02(f).
- --------
"Financial Statements" have the meaning set forth in Section
-------------------- -------
4.06.
- ----
"Funded Debt" has the meaning set forth in Section
----------- -------
2.01(b)(iii).
- ------------
"GAAP" means United States generally accepted accounting
----
principles consistently applied.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
-------
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"HTI" has the meaning set forth in the Preface.
---
"Indebtedness" means at a particular time, with respect to any
------------
Person, without duplication, (i) indebtedness of such Person for borrowed money
or issued in substitution for or exchange of indebtedness for borrowed money,
(ii) indebtedness of such Person evidenced by any note, bond, debenture or other
debt security, (iii) indebtedness of such Person for the deferred purchase price
of property or services with respect to which such Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more 30 days past due), (iv) contingent reimbursement obligations of
such Person with respect to letters of credit, (v) indebtedness guaranteed in
any manner by such Person (including guarantees in the form of an agreement to
repurchase or reimburse), (vi) obligations under capitalized leases with respect
to which such Person is liable as obligor or guarantor, (vii) any indebtedness
secured by an Encumbrance on such Person's assets and
48
<PAGE>
(viii) any unsatisfied obligation for "withdrawal liability," as such term is
defined under ERISA, to a Multiemployer Plan.
"Indemnitee" has the meaning set forth in Section 10.02(e).
---------- ----------------
"Indemnitor" has the meaning set forth in Section 10.02(e).
---------- ----------------
"Institutional Investors" has the meaning set forth in the
-----------------------
Preface.
"Investment" as applied to any Person means (i) any direct or
----------
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, capital stock, securities or ownership interests (including
partnership interests and joint venture interests) of any other Person and (ii)
any capital contribution by such Person to any other Person.
"Knowledge," with respect to the Company or any of its
----------
Subsidiaries with respect to any matter, means the actual awareness or knowledge
of such matter of the following individuals: Thomas W. Stephenson, Jr., James R.
Featherstone and Robert E. Painter, the Company's directors and officers and
Thomas Mendell and Eric Wilkinson.
"Latest Balance Sheet" has the meaning set forth in Section
-------------------- -------
4.06.
- ----
"Leases" has the meaning set forth in Section 4.09(c).
------
"Lease Consents" has the meaning as set forth in Section
-------------- -------
3.01(k)(ii).
- -----------
"Leased Real Property" has the meaning set forth in Section
-------------------- -------
4.09(c).
- -------
"Liability" means any liability, debt, obligation, deficiency,
---------
Tax, penalty, fine, claim, cause of action or other loss, cost or expense of any
kind or nature whatsoever, whether asserted or unasserted, absolute or
contingent, known or unknown, accrued or unaccrued, liquidated or unliquidated,
and whether due or to become due and regardless of when asserted.
"Loan Documents" means the credit agreement, to be dated as of
--------------
the Closing Date, among the HTI, as Borrower, the Purchaser, the lenders listed
therein (the "Lenders"), and all other agreements and instruments referenced
-------
therein or contemplated thereby, as the same may be amended or modified from
time to time in accordance with their respective terms.
"Losses" has the meaning set forth in Section 10.02(a).
------ ----------------
"Material Adverse Effect" means a material and adverse effect
-----------------------
upon the business, operations, assets, liabilities, financial condition of the
Company or any of its Subsidiaries, taken as a whole, except for general
economic changes and changes that may affect the industries of the Company or
any Subsidiaries generally.
49
<PAGE>
"Merger" has the meaning set forth in Section 1.01(a).
------ ---------------
"Merger Consideration" has the meaning set forth in Section
-------------------- -------
1.02(a).
- -------
"Merger Sub" has the meaning set forth in the Preface.
----------
"Multiemployer Plan" means any employee benefit plan that is a
------------------
"multiemployer plan" within the meaning of Section 3(37) of ERISA and to which
the Company has an obligation to contribute.
"Newco" has the meaning set forth in Section 1.02(a).
----- ---------------
"Non-Disturbance Agreements" has the meaning set forth in
--------------------------
Section 3.01(k)(vi).
- -------------------
"Operating Agreement" means the limited liability company
-------------------
agreement of Newco.
"Option" has the meaning set forth in Section 1.04.
------ ------------
"Owned Real Property" has the meaning set forth in Section
------------------- -------
4.09(b).
- -------
"Payment Agent" has the meaning set forth in Section 1.03.
------------- ------------
"Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Permitted Encumbrances" shall mean (i) statutory liens for
----------------------
current Taxes or other governmental charges not yet due and payable or the
amount or validity of which is being contested in good faith by appropriate
proceedings by the Company or any of its Subsidiaries and for which appropriate
reserves have been established in accordance with GAAP; (ii) mechanics',
carriers', workers', repairers' and similar statutory liens arising or incurred
in the ordinary course of business for amounts which are not delinquent and
which are being contested in good faith by appropriate proceedings of the
Company or any Subsidiary and which are not, individually or in the aggregate,
material; (iii) zoning, entitlement, building and other land use regulations
imposed by governmental agencies having jurisdiction over the Owned Real
Property which are not violated by the current use and operation of the Owned
Real Property; (iv) instruments evidencing or securing Liabilities reflected on
the Latest Balance Sheet; and (v) covenants, conditions, restrictions, easements
and other similar matters of record affecting title to the Owned Real Property
or the Leased Real Property which do not materially impair the occupancy or use
of the Owned Real Property or the Leased Real Property for the purposes for
which it is currently used in connection with the Company's or any of its
Subsidiaries' business.
"Pre-Closing Period" has the meaning set forth in Section
------------------ -------
4.08.
- ----
50
<PAGE>
"Preferred Stock" has the meaning set forth in Section
--------------- -------
1.02(a).
- -------
"Proprietary Rights" has the meaning set forth in Section
------------------ -------
4.10.
- ----
"Purchaser" has the meaning set forth in the Preface.
---------
"Purchaser Indemnified Party" has the meaning set forth in
---------------------------
Section 10.02(c).
- ----------------
"Purchaser's Representatives" has the meaning set forth in
---------------------------
Section 7.02.
- ------------
"Recapitalization Agreement" has the meaning set forth in
--------------------------
Section 3.01(h).
- ---------------
"Real Property" has the meaning set forth in Section 4.09(c).
------------- ---------------
"Stockholders" has the meaning set forth in Section 1.03.
------------ ------------
"Subsequent Event Disclosure" has the meaning set forth in
---------------------------
Section 7.06.
- ------------
"Subsidiaries" has the meaning set forth in the Preface.
------------
"Surviving Corporation" has the meaning set forth in Section
--------------------- -------
1.01(a).
- -------
"Surveys" has the meaning set forth in Section 3.01(k)(ii).
------- -------------------
"Tax" or "Taxes" means all taxes, assessments, charges,
--- -----
duties, fees, levies, imposts or other governmental charges, including, without
limitation, all United States federal, state, provincial, local, foreign and
other income, franchise, profits, capital gains, capital stock, transfer, sales,
use, value added, occupation, property, excise, severance, windfall profits,
stamp, license, payroll, withholding and other taxes, assessments, charges,
duties, fees, levies, imposts or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a Tax Return), and all estimated taxes, deficiency
assessments, additions to tax, penalties, and interest and shall include any
Liability for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other entity.
"Tax Returns" means any return, report, information return or
-----------
other document (including schedules or any related or supporting information)
filed or required to be filed with any governmental entity or other authority in
connection with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"Title Commitments" has the meaning set forth in Section
----------------- -------
3.01(k)(i).
- ----------
"Title Company" has the meaning set forth in Section
------------- -------
3.01(k)(i).
- ----------
51
<PAGE>
"Title Policies" has the meaning set forth in Section
-------------- -------
3.01(k)(i).
- ----------
"Transaction Documents" means this Agreement, agreements
---------------------
providing for the termination of outstanding options to purchase Company Stock
and termination of affiliate contracts (other than existing employment
agreements) and any other agreements contemplated hereby to which the Company or
any Subsidiary is a party, other than the Loan Documents
"Transaction Expenses" has the meaning set forth in Section
-------------------- -------
12.02.
- -----
"United Artists and General Cinema Consents" has the meaning
------------------------------------------
set forth in Section 3.01(k)(v).
------------------
"United Artists' and General Cinema's Estoppel Certificates"
----------------------------------------------------------
has the meaning set forth in Section 3.01(k)(v).
------------------
"Year 2000 Compliant" has the meaning set forth in Section
------------------- -------
4.18.
- ----
11.02 Other Definitional Provisions.
-----------------------------
(a) Accounting Terms. Accounting terms which are not otherwise
----------------
defined in this Agreement have the meanings given to them under GAAP. To the
extent that the definition of accounting term that is defined in this Agreement
is inconsistent with the meaning of such term under GAAP, the definition set
forth in this Agreement will control.
(b) "Hereof," etc. The terms "hereof," "herein" and
-------------
"hereunder" and terms of similar import are references to this Agreement as a
whole and not to any particular provision of this Agreement. Section, clause,
Schedule and Exhibit references contained in this Agreement are references to
Sections, clauses, Schedules and Exhibits in or to this Agreement, unless
otherwise specified.
(c) Successor Laws. Any reference to any particular Code
--------------
section or any other law or regulation will be interpreted to include any
revision of or successor to that section regardless of how it is numbered or
classified.
ARTICLE XII
MISCELLANEOUS
-------------
12.01 Press Releases and Communications. No party shall issue any
---------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Purchaser and the Company; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law (in
52
<PAGE>
which case the disclosing party will use its reasonable best efforts to advise
the other parties hereto prior to making such disclosure).
12.02 Expenses. Except as otherwise provided herein, each party
--------
shall pay all of its own fees, costs and expenses (including, without
limitation, fees, costs and expenses of legal counsel, investment bankers,
brokers or other representatives and consultants and appraisal fees, costs and
expenses) incurred in connection with the negotiation of this Agreement and the
other agreements contemplated hereby, the performance of its obligations
hereunder and thereunder, and the consummation of the transactions contemplated
hereby and thereby (collectively, the "Transaction Expenses"). Notwithstanding
--------------------
the foregoing, all of the Transaction Expenses incurred by the Institutional
Investors, the Purchaser and their Affiliates will be paid by the Surviving
Corporation, if the Closing occurs.
12.03 Confidentiality. If the transactions contemplated hereby are
---------------
consummated, each of the Institutional Investors agree not to disclose or use at
any time (and shall cause each of their respective Affiliates not to use or
disclose) any Confidential Information (whether or not such information is or
was developed by each of the Institutional Investors ), except to the extent
that such disclosure or use is directly related to and required by the
performance of each of the Institutional Investors' duties to the Company. Each
of the Institutional Investors further agrees to take all appropriate steps (and
to cause their respective Affiliates to take all appropriate steps) to safeguard
such Confidential Information and to protect it against disclosure, misuse,
espionage, loss and theft. In the event any of the Institutional Investors or
any of their Affiliates is required by law to disclose any Confidential
Information, such Institutional Investor shall promptly notify the Company in
writing, which notification shall include the nature of the legal requirement
and the extent of the required disclosure, and shall cooperate with the Company
to preserve the confidentiality of such information consistent with applicable
law. Whether or not the transactions contemplated hereby are consummated, the
Company and the Institutional Investors shall return to the Purchaser and keep
confidential all information and materials regarding the Purchaser (except to
the extent (i) disclosure of such information is required by law, or (ii) the
information becomes publicly known except through the actions or inactions of
the Company or the Institutional Investors).
12.04 Notices. All notices, demands and other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when (a) delivered by hand
(with written confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is sent on the same day by
registered mail, return receipt requested, or (c) received by the addressee, if
sent by Federal Express or similar nationally recognized overnight courier
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
53
<PAGE>
Notices to the Purchaser:
------------------------
Wallace Theater Corporation II
c/o GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, IL 60603
Attention: Donald Edwards and
William Kessinger
Facsimile: (312) 382-2201
with a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Kevin R. Evanich and
Jeffrey Seifman
Facsimile: (312) 861-2200
Notices to the Institutional Investors
--------------------------------------
The Beacon Group
399 Park Avenue, 17th Floor
New York, New York 10152
Attention: Thomas G. Mendell
Facsimile: (212) 339-9109
Notices to Company:
------------------
Hollywood Theater Holdings, Inc.
2911 Turtle Creek Boulevard
Suite 1150
Dallas, Texas 75219
Attention: Thomas W. Stephenson, Jr.
Facsimile: (214) 528-5835
with a copy to (prior to the Effective Time):
--------------------------------------------
Baker & Botts
2001 Ross Avenue
Dallas, Texas 75201-2980
Attention: Jack L. Kinzie
Facsimile: (214) 953-6503
54
<PAGE>
12.05 Assignment.
----------
(i) This Agreement and all of the covenants and
agreements contained herein and rights, interests or obligations hereunder, by
or on behalf of any of the parties hereto, shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not, except that neither this Agreement nor any of the covenants
and agreements herein or rights, interests or obligations hereunder may be
assigned or delegated by the Institutional Investors, or assigned or delegated
by the Company prior to the Closing, without the prior written consent of the
Purchasers.
(ii) The Purchaser and, following the Closing,
each of the Surviving Corporation and its Subsidiaries may assign this Agreement
and its rights and obligations hereunder to lenders as collateral security and
in connection with any merger or consolidation involving the Surviving
Corporation or any of its Subsidiaries or in connection with any direct or
indirect sale of securities or assets of the Surviving Corporation or any of its
Subsidiaries or any other disposition in whole or in part of the Surviving
Corporation or any of its Subsidiaries.
12.06 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 prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
12.07 No Strict Construction. 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
Person.
12.08 Amendment and Waiver. Any provision of this Agreement or the
--------------------
schedules or exhibits hereto may be amended or waived only in writing signed by
the Purchaser, the Company and the Representative. No waiver of any provision
hereunder or any breach or default thereof shall extend to or affect in any way
any other provision or prior or subsequent breach or default.
12.09 Complete Agreement. This Agreement and the documents referred
------------------
to herein contain the complete agreement between the parties hereto and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way. The representations and warranties made by the Company in
this Agreement, and the Schedules that accompany this Agreement, supersede,
replace and nullify in every respect the data set forth in any other document,
material or statement, whether written or oral, previously made available to the
Purchaser.
12.10 No Third-Party Beneficiaries. This Agreement is for the sole
----------------------------
benefit of the parties and their permitted successors and assigns and nothing
herein expressed or implied shall give or be construed to give any Person, other
than the parties and such permitted successors and assigns, any legal or
equitable rights hereunder.
55
<PAGE>
12.11 Counterparts. This Agreement may be executed in multiple
------------
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
12.12 Governing Law. All matters relating to the interpretation,
-------------
construction, validity and enforcement of this Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Delaware
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of laws of any jurisdiction other than the State of Delaware.
12.13 Consent to Amendments. This Agreement may be amended, or any
---------------------
provision of this Agreement may be waived; provided that any such amendment or
-------- ----
waiver shall be binding upon the Company (or following the Effective Time, the
Surviving Corporation) only if set forth in a writing executed by the Company
(or the Surviving Corporation, as the case may be) and referring specifically to
the provision alleged to have been amended or waived, any such amendment or
waiver shall be binding upon any of the Institutional Investors only if set
forth in a writing executed by such Institutional Investor and referring
specifically to the provision alleged to have been amended or waived, and any
such amendment or waiver shall be binding upon the Purchaser only if set forth
in a writing executed by the Purchaser and referring specifically to the
provision alleged to have been amended or waived. No course of dealing between
or among the parties shall be deemed effective to modify, amend or discharge any
part of this Agreement or any rights or obligations of any party under or by
reason of this Agreement.
12.14 Descriptive Headings; Interpretation. The headings and
------------------------------------
captions used in this Agreement and the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall mean "including without limitation." The parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
12.15 Limitation of Liability. In no event shall any direct or
-----------------------
indirect member, stockholder, officer, director, partner or other representative
of any Institutional Investor be personally liable for any obligation hereunder
of any Institutional Investor. In no event shall recourse with respect to the
obligations hereunder of any institutional Investor be had to the assets or
business of any person other than such Institutional Investor.
12.16 Ownership of Merger Sub. Notwithstanding anything contained in
-----------------------
this agreement to the contrary, at Purchaser's election, Newco may acquire a
portion of the common stock of Merger Sub prior to the Merger in exchange for
the Common Units to be issued pursuant to Section 1.02.
56
<PAGE>
If Purchaser so elects, Newco will, immediately after the Merger, exchange any
common stock of the Surviving Corporation Newco receives in the Merger (in
respect of Merger Sub stock) for common stock of the Purchaser.
12.17 Directors and Officers Liability Insurance. From and after the
------------------------------------------
Effective Time until the third anniversary date of the Effective Time, the
Surviving Corporation shall maintain in full force and effect the Company's
directors and officers liability insurance as to incurrences prior to the
Effective Time, even if claims are made after the Effective Time, on terms
substantially identical to those in place at the Effective Time; provided that
the Surviving Corporation shall only be obligated to maintain an amount of such
insurance which could then be purchased through the payment of premiums which
are not in excess of 150% of the premiums for such insurance in effect as of the
date hereof.
* * *
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger on the day and year first above written.
Company: HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ Thomas W. Stephenson, Jr.
----------------------------------
Its: President
----------------------------------
Purchaser: WALLACE THEATER CORPORATION II
By: /s/ Scott C. Wallace
----------------------------------
Its: President
----------------------------------
Merger Sub: HOLLYWOOD MERGER CO.
By: /s/ Scott C. Wallace
----------------------------------
Its: President
----------------------------------
Institutional Investors: 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/ Thomas G. Mendell
----------------------------------
Its: Managing Director
----------------------------------
<PAGE>
STRATFORD CAPITAL PARTNERS, L.P.
By: Stratford Capital GP Associates, L.P.
By: Stratford Capital Corporation
By: /s/ John G. Farmer, Jr.
-------------------------------------------
Its:
-------------------------------------------
STRATFORD EQUITY PARTNERS, L.P.
By: Stratford Capital GP Associates, L.P.
By: Stratford Capital Corporation
By: /s/ John G. Farmer, Jr.
-------------------------------------------
Its:
-------------------------------------------
HOAK COMMUNICATIONS PARTNERS, L.P.
By: HCP INVESTMENT, L.P.
By: HOAK PARTNERS, L.L.C.
By: /s/ Thomas L. Harrison
-------------------------------------------
Its: Principal
-------------------------------------------
HCP CAPITAL FUND, L.P.
By: JAMES M. HOAK & co.
By: /s/ Thomas L. Harrison
-------------------------------------------
Its: Executive Vice President
-------------------------------------------
<PAGE>
EXHIBIT 10.24
FORBEARANCE AGREEMENT
AND TWELFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
FORBEARANCE AGREEMENT AND TWELFTH AMENDMENT, dated as of March 4,
1999, to the Amended and Restated Credit Agreement dated as of August 7, 1997,
as amended by the First Amendment and Waiver to Amended and Restated Credit
Agreement dated as of November 13, 1997, the Second Amendment and Waiver to
Amended and Restated Credit Agreement dated as of December 13, 1997, the Third
Amendment to Amended and Restated Credit Agreement dated as of January 7, 1998,
the Fourth Amendment to the Amended and Restated Credit Agreement dated as of
May 22, 1998, the Fifth Amendment and Waiver to Amended and restated Credit
Agreement dated as of August 14, 1998, the Sixth Amendment and Waiver to Amended
and Restated Credit Agreement dated as of October 1998, the Seventh Amendment
and Waiver to Amended and Restated Credit Agreement dated as of December 15,
1998, the Eight Amendment and Waiver to Amended and Restated Credit Agreement
dated as of December 21, 1998, the Ninth Amendment and Waiver to Amended and
Restated Credit Agreement dated as of January 8, 1999, the Tenth Amendment and
Waiver to Amended and Restated Credit Agreement dated as of January 14, 1999 and
the Forbearance Agreement and Eleventh Amendment to Amended and Restated Credit
Agreement dated as of February 1, 1999 (as so amended, the "Credit Agreement"),
----------------
among Hollywood Theater Holdings, Inc. (the "Parent"), Hollywood Theaters, Inc.
------
(the "Company"), the banks and other financial institutions parties thereto
-------
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
----- ----
National Trust and Savings Association, as Administrative Agent for the Banks
(the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Banks have made Loans
to the Company which remain outstanding;
WHEREAS, the Company is in default in the performance of certain of
its obligations under the Credit Agreement;
WHEREAS, the Parent and the Company have requested that the Banks, and
the Banks are willing to, forbear from taking certain action under the Credit
Agreement on the terms and conditions herein set forth; and
WHEREAS, the Parent and the Company have requested that the Banks, and
the Banks are willing to, amend certain terms and conditions under the Credit
Agreement as more fully set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Unless otherwise defined herein, capitalized
-------------
terms used herein have the meanings assigned in the Credit Agreement, and the
following terms shall have the following meanings:
"Agreement": this Forbearance Agreement and Twelfth Amendment to the
---------
Amended and Restated Credit Agreement, as the same may from time to time be
amended, supplemented or otherwise modified.
"Cross-Default": the Event of Default under Section 8.1(e) of the
-------------
Credit Agreement arising from the failure of the Company to make payment of
interest due on February 1, 1999 pursuant to the Indenture, dated as of
August 7, 1997 among Hollywood Theaters, Inc. an issuer, the guarantors
named therein and U.S. Trust Company of Texas, N.A., as trustee.
"Effective Date": the first date on which the condition precedent
--------------
specified in Article IV shall have been satisfied or the satisfaction
thereof shall have been waived in accordance with the terms hereof.
"Forbearance Period": the period beginning on the Effective Date and
------------------
ending on the earlier of (a) March 1, 1999 and (b) the Termination Date.
"Termination Date": the date of termination of this Agreement
----------------
pursuant to Article VI.
ARTICLE II
LIMITATION ON REMEDIES
2.1 Forbearance. Notwithstanding the occurrence and continuance of
-----------
the Cross-Default, the Administrative Agent and the Banks hereby agree to
forbear, during the Forbearance Period, from the exercise of any rights or
remedies under the Credit Agreement, the other Loan Documents and applicable law
in respect of the Cross-Default; it being understood that the foregoing is not
and shall not be construed as an amendment, waiver or modification of Section
8.1(e) of the Credit Agreement.
<PAGE>
ARTICLE III
AMENDMENTS TO CREDIT AGREEMENT
3.1 Amendment to Section 1.1 of the Credit Agreement. Section 1.1 of
------------------------------------------------
the Credit Agreement is hereby amended by adding thereto the following
definition in the appropriate alphabetical order:
"Forbearance Agreement": the Forbearance Agreement and Twelfth
---------------------
Amendment to the Amended and Restated Credit Agreement, dated as of March
4, 1999.
3.2 Consent to Sales of Pad Sites. The banks hereby consent to the
-----------------------------
sale by the Company of certain "pad sites" located adjacent to the Company's
theaters located in Norman, Oklahoma, Lawrence, Kansas and Columbia, Missouri;
provided that the Net Proceeds of any such sales shall be deposited in a cash
- --------
collateral account in the name of the Company at Bank of America National Trust
and Savings Association. Net Proceeds so deposited shall be withdrawn by the
Company and disbursed only upon (a) there being no availability under the
Revolving Loan Commitments and (b) receipt by the Administrative Agent of a
notice signed by a Responsible Officer stating the amount of the Net Proceeds
actually needed by the Company for working capital purposes and the intended use
of such funds.
ARTICLE IV
EFFECTIVE DATE
4.1 Effective Date. This Agreement shall become effective as of the
--------------
date hereof but only upon (a) receipt by the Administrative Agent of
counterparts of this Agreement, duly executed and delivered by the Company, the
Administrative Agent and the Required Banks and (b) receipt by the
Administrative Agent of the fee set forth in section 7.3(b).
ARTICLE V
INTERPRETATION
5.1 Continuing Effect of the Credit Agreement. The Company, the
-----------------------------------------
Parent, the Administrative Agent and the banks hereby acknowledge and agree that
the credit Agreement shall continue to be and shall remain unchanged and in full
force and effect in accordance with its terms, except as expressly modified
hereby.
5.2 No Limitation on Remedies after Forbearance Period. The Company
--------------------------------------------------
hereby acknowledges and agrees that, at the end of the Forbearance Period, the
provisions of Section 2.1 hereof shall become of no force and effect and the
Administrative Agent and the Banks shall be free, in accordance with the Credit
Agreement and the other Loan Documents, to declare the Loans and all other
amounts outstanding under the Credit Agreement to be due and payable and to
exercise and enforce, or to take steps to exercise and enforce, all other
rights, powers, privileges and remedies available to them under the Credit
Agreement, any other Loan Document or applicable law on
<PAGE>
account of the Cross-Default (or any other Default or Event of Default) as if
this Agreement had not been entered into by the parties hereto.
5.3 No Waiver; Other Defaults or Events of Default. (a) Nothing
----------------------------------------------
contained in this Agreement shall be construed or interpreted or is intended as
a waiver of any rights, powers, privileges or remedies that the Administrative
Agent or the Banks have or may have under the Credit Agreement or any other Loan
Document on account of the Cross-Default, except as expressly provided herein.
(b) Nothing contained in this Agreement shall be construed or
interpreted or is intended as a waiver of or limitation on any rights, powers,
privileges or remedies that the Administrative Agent or the banks have or may
have under the Credit Agreement or any other Loan Document on account of any
Default or Event of Default other than the Cross-Default.
ARTICLE VI
EVENTS OF TERMINATION
Upon the occurrence of any of the following events:
(a) the Company or any of its Subsidiaries shall default in the
observance or performance of any agreement contained in this Agreement;
(b) the occurrence and continuance of a Default or Event of Default
(other than the Cross-Default); or
(c) any party (including, without limitation, any holder of Senior
Subordinated Notes) shall exercise any right or remedy under the Indenture,
dated as of August 7, 1997 (the "Senior Subordinated Indenture") among
-----------------------------
Hollywood Theaters, Inc., as issuer, the guarantors named therein and U.S.
Trust Company of Texas, N.A., as trustee, or commence any action, suit,
proceeding or claim with respect to the Senior Subordinated Indenture;
then, and in any such event, the provisions of Section 2.1 hereof shall
immediately and automatically terminate and thereafter such Section shall have
no force or effect.
ARTICLE VII
MISCELLANEOUS
7.1 Amendments and Waivers. This Agreement may be amended, modified
----------------------
or supplemented and waivers of or consents to departures from the provisions
hereof or thereof may be given provided the same are in writing and signed by
the Company, the Administrative Agent and the Required Banks.
7.2 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Bank, any
right, remedy, power or
<PAGE>
privilege hereunder, under the Credit Agreement, the other Loan Documents or
under applicable law, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder, under the
Credit Agreement, the other Loan Documents or under applicable law preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges provided in the
Credit Agreement, the other Loan Documents and herein are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
7.3 Payment of Fees and Expenses. (a) The Company hereby agrees to
----------------------------
pay all reasonable costs, fees and expenses of the Administrative Agent,
including reasonable attorney's fees, in connection with the preparation,
execution and delivery of this Agreement.
(b) The Company further agrees to pay the Administrative Agent, for
the account of each Bank on or prior to the Effective Date, a fee in an amount
equal to $50,000, and such fee shall be due and payable on the Effective Date.
Such fee shall be in addition to any and all other fees and expenses required to
be paid from time to time by the Company to the Administrative Agent and/or the
Banks pursuant to the Credit Agreement.
7.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
7.5 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
7.6 Reservation of Rights. Notwithstanding anything contained in
---------------------
this Agreement, the Company acknowledges that the Administrative Agent and the
Banks do not waive, and expressly reserve, the right to exercise, at any time
during the Forbearance Period, any and all of their rights and remedies under
(a) the Credit Agreement, any other Loan Documents and applicable law in respect
of the Cross-Default against any Person other than the Company or any other Loan
Party, (b) any other document or instrument, including, without limitation, the
right of the Administrative Agent to give a blockage notice in accordance with
the Indenture and (c) the Credit Agreement, any other Loan Document or
applicable law in respect of any Default or Event of Default other than the
Cross-Default.
7.7 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT 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.
7.8 Representations and Covenants. (a) The Company hereby
-----------------------------
represents and warrants that, prior to the Effective Date, to the extent the
Company received written notification from a landlord of an event of default
under any lease to which the Company or any Subsidiary is a
<PAGE>
lessee, which event of default resulted from the filing of a mechanic's lien
against the relevant leasehold property, the Company paid in full, in cash such
mechanic's lien within the time period provided for in such written
notification.
(b) The Company hereby covenants that, from and after the Effective
Date, to the extent the Company receives written notification from a landlord of
an event of default under any lease to which the company or any Subsidiary is a
lessee, which event of default shall have resulted from the filing of a
mechanic's lien against the relevant leasehold property, the Company shall pay
in full, in cash such mechanic's lien within the time period provided for in
such written notification.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
-------------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
-------------------------------
James R. Featherstone
Vice President
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By: /s/ David Price
-------------------------------
Name: David Price
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ F. A. Zagar
-------------------------------
Name: F. A. Zagar
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Paul A. Weissenberger
-------------------------------
Name: P. A. Weissenberger
Title: Authorized Signatory
<PAGE>
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Bradley C. Peters
-------------------------------
Name: Bradley C. Peters
Title: Vice President
<PAGE>
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ H. W. Redding
-------------------------------
Name: H. W. Redding
Title: Vice President and Manager
By: /s/ Stan Marciniak
-------------------------------
Name: Stan Marciniak
Title: Vice President and Manager
Operations
<PAGE>
EXHIBIT 10.25
THIRTEENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIRTEENTH AMENDMENT, dated as of March 17, 1999 (this "Amendment"),
---------
to the Amended and Restated Credit Agreement dated as of August 7, 1997, as
amended by the First Amendment and Waiver to Amended and Restated Credit
Agreement dated as of November 13, 1997, the Second Amendment and Waiver to
Amended and Restated Credit Agreement dated as of December 13, 1997, the Third
Amendment to Amended and Restated Credit Agreement dated as of January 7, 1998,
the Fourth Amendment to the Amended and Restated Credit Agreement dated as of
May 22, 1998, the Fifth Amendment and Waiver to Amended and Restated Credit
Agreement dated as of August 14, 1998, the Sixth Amendment and Waiver to Amended
and Restated Credit Agreement dated as of October 1998, the Seventh Amendment
and Waiver to Amended and Restated Credit Agreement dated as of December 15,
1998, the Eighth Amendment and Waiver to Amended and Restated Credit Agreement
dated as of December 21, 1998, the Ninth Amendment and Waiver to Amended and
Restated Credit Agreement dated as of January 8, 1999, the Tenth Amendment and
Waiver to Amended and Restated Credit Agreement dated as of January 14, 1999,
the Forbearance Agreement and Eleventh Amendment to Amended and Restated Credit
Agreement dated as of February 1, 1999 and the Forbearance Agreement and Twelfth
Amendment to Amended and Restated Credit Agreement dated as of March 4, 1999 (as
so amended, the "Credit Agreement"), among Hollywood Theater Holdings, Inc. (the
----------------
"Parent"), Hollywood Theaters, Inc. (the "Company"), the banks and other
------ -------
financial institutions parties thereto (collectively, the "Banks"; individually,
-----
a "Bank"), and Bank of America National Trust and Savings Association, as
----
Administrative Agent for the Banks (the "Administrative Agent").
--------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Banks have made Loans
to the Company which remain outstanding;
WHEREAS, the Parent and the Company have requested that the Banks,
and the Banks are willing to, amend certain terms and conditions under the
Credit Agreement as more fully set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms defined in the Credit Agreement and
-------------
not otherwise defined herein shall have the meanings given to them in the Credit
Agreement.
<PAGE>
2. Amendments to Credit Agreement.
------------------------------
(a) Section 1.1 of the Credit Agreement is hereby amended by deleting
the defined terms "Revolving Loan Commitment Reduction Date" and "Revolving
Loan Commitment Reduction Amount".
(b) Section 2.5 of the Credit Agreement is hereby amended by (a)
deleting the reference to "(a)" in said Section and (b) deleting paragraphs
(b), (c) and (d) of said Section in their entirety.
(c) Subsection 2.7(g) of the Credit Agreement is hereby amended by
deleting the reference to "2.5(a)" in said Subsection and inserting in lieu
thereof a reference to "2.5".
(d) Subsection 2.8(a) of the Credit Agreement is hereby amended by
deleting the second sentence in said Subsection.
3. Representations and Warranties. Except as set forth on Schedule I
------------------------------
hereto, the Company hereby confirms, reaffirms and restates as of the date
hereof the representations and warranties made by it in Article V of the Credit
Agreement. The Company represents and warrants that as of the date hereof
(assuming the effectiveness of the waivers set forth in this Amendment) no
Default or Event of Default has occurred and is continuing.
4. Continuing Effect of Credit Agreement. This Amendment shall not
-------------------------------------
constitute a waiver, amendment or modification of any other provision of the
Credit Agreement not expressly referred to herein and shall not be construed as
a waiver or consent to any further or future action on the part of the Borrower
that would require a waiver or consent of the Banks or the Administrative Agent.
Except as expressly modified hereby, the provisions of the Credit Agreement are
and shall remain in full force and effect.
5. Payment of Expenses. The Company agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the negotiation, preparation and distribution of
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
6. Affirmation of Guarantees. The Parent hereby consents to the execution
-------------------------
and delivery of this Thirteenth Amendment and reaffirms its obligations under
Article X of the Credit Agreement.
7. Counterparts. This Amendment may be executed in any number of separate
------------
counterparts, each of which, when so executed, shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument.
-2-
<PAGE>
8. Effectiveness. This Amendment shall be effective upon receipt by the
-------------
Administrative Agent of counterparts hereof, duly executed and delivered by the
Borrower, the Parent, the Administrative Agent and the Banks.
9. GOVERNING LAW AND JURISDICTION. THIS AMENDMENT SHALL BE GOVERNED BY,
------------------------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT
CONSIDERATION OF ITS CONFLICT OF LAWS PRINCIPLES, AND APPLICABLE FEDERAL LAW.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
HOLLYWOOD THEATER HOLDINGS, INC.
By: /s/ James R. Featherstone
--------------------------
James R. Featherstone
Vice President
HOLLYWOOD THEATERS, INC.
By: /s/ James R. Featherstone
-------------------------
James R. Featherstone
Vice President
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By:/s/ David Price
---------------
Name: David Price
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/ F.A. Zagar
--------------
Name: F.A. Zagar
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ Paul A. Weissenberger
-------------------------
Name: P.A. Weissenberger
Title: Authorized Signatory
<PAGE>
BANK ONE TEXAS, N.A., as a Bank
By: /s/ Bradley C. Peters
---------------------
Name: Bradley C. Peters
Title: Vice President
<PAGE>
THE SUMITOMO BANK, LIMITED, as a Bank
By: /s/ MC Baker
------------
Name: MC Baker
Title: Senior Vice President
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT 10.26
[Letterhead of The Beacon Group Financial Services, LLC]
CONFIDENTIAL
- ------------
July 29, 1998
Thomas W. Stephenson, Jr.
President, Chief Executive Officer
Hollywood Theaters, Inc.
2911 Turtle Creek Boulevard
Suite 1150
Dallas, Texas 75219
Dear Tom:
This will confirm the understanding and agreement between The Beacon Group
Capital Services, LLC ("Beacon") and Hollywood Theaters, Inc. (the "Company") as
follows:
1. The Company engages Beacon as the Company's sole and exclusive
financial advisor for the purpose of (a) identifying opportunities for a
business combination transaction, as defined in paragraph 4(a), (a
"Transaction") involving the Company and (b) advising the Company
concerning opportunities for a Transaction, whether or not identified by
Beacon.
2. During the term of its engagement hereunder, Beacon shall:
(i) Identify parties that may be interested in a Transaction, coordinate
visits by and meetings with those parties, provide the Company with
financial, strategic and structuring advice and assistance in
connection with a Transaction, including valuation and other financial
analyses, and participate on the Company's behalf in negotiations
concerning a Transaction to the extent requested by the Company;
(ii) Undertake an investigation and analysis which would serve as a
basis for Beacon's rendering an opinion to the Company's Board of
Directors concerning the fairness from a financial point of view of
the Consideration, as defined in
<PAGE>
Hollywood Theaters, Inc.
4/9/98
Page 2
paragraph 4(b), to be received by the Company in connection with a
Transaction, the nature and scope of the investigation and analysis
and the scope, form and substance of the opinion to be solely in
Beacon's discretion, and if requested by the Company deliver the
opinion to the Company's Board of Directors orally or in writing;
(iii) Assist in the preparation of a descriptive memorandum concerning the
Company which shall be made available to and used in discussions
with prospective parties to a Transaction to the extent approved by
the Company;
(iv) Develop, update and review with the Company on an ongoing basis a
list of parties which might be interested in a Transaction and
contact only those parties on that list which have been approved by
the Company;
3. As compensation for Beacon's services hereunder, the Company shall pay
Beacon:
(a) A non-refundable retainer of $ Zero ; and
-------
(b) Additional compensation in an amount equal to 1.0 % of the
-----
Consideration, as defined in paragraph 4(b), in a Transaction if a
Transaction occurs or a definitive agreement concerning a
Transaction is reached during the term of Beacon's engagement
hereunder or within 24 months after the effective date of the
termination of the engagement.
The compensation provided for in subparagraph (a) shall be paid
concurrently with the execution and delivery of this Agreement. The
compensation provided for in subparagraph (b) shall be paid at the closing
or comparable completion of a Transaction, provided that any part thereof
attributable to Consideration which is held in escrow or is contingent on
the occurrence of future events, such as realization of sales or earnings
levels, shall be paid upon release from escrow or elimination of the
contingency, as the case may be.
4. For purposes of this Agreement:
(a) "Business combination transaction" means any transaction or series
or combination of transactions whereby, directly or indirectly, (i)
all or a material portion of, or a material interest in, the assets,
revenues or income of the Company or any of its subsidiaries or
affiliates, (ii) more than 50 % of the outstanding capital stock of
----
the Company or any of its subsidiaries or affiliates or (iii)
control of the Company or any of its subsidiaries or affiliates is
acquired, licensed or leased, with or without a purchase option, by
another party or parties
<PAGE>
Hollywood Theaters, Inc.
4/9/98
Page 3
or is transferred to another party or parties in any manner, including
by way of asset or stock purchase, sale or exchange, merger,
consolidation, reorganization, recapitalization, liquidation, joint
venture or partnership, minority investment, tender or exchange offer,
open market or negotiated purchase or any similar transaction or any
combination of the foregoing.
(b) "Consideration" means the sum of (i) the cash paid to the Company, its
subsidiaries or affiliates or their security holders, (ii) the market
value of marketable securities, whether equity, debt or convertible,
issued or issuable to the Company, its subsidiaries or affiliates or
their security holders, (iii) the fair market value of nonmarketable
securities, whether equity, debt or convertible, and debt instruments
or obligations issued or issuable to the Company, its subsidiaries or
affiliates or their security holders, (iv) the fair market value of
other property delivered or deliverable to the Company, its
subsidiaries or affiliates or their security holders, (v) the
aggregate amount of indebtedness, including capitalized leases,
pension liabilities and guarantees, assumed or to be assumed by the
other party or parties to a Transaction or its subsidiaries or
affiliates, (vi) the fair value of special or extraordinary
compensation arrangements or commitments, (vii) if a Transaction
involves a sale of all or substantially all of the assets of the
Company or a subsidiary or affiliate thereof, the net book value of
current assets, including cash, cash equivalents, inventories and
receivables of the selling entity which are not sold in a Transaction,
(viii) amounts paid into escrow and payments which are contingent on
the occurrence of future events, such as realization of sales or
earnings levels, (ix) the aggregate amount of dividends or other
distributions paid after the date hereof by whichever of the Company
or its subsidiaries or affiliates is involved in a Transaction, except
regular cash dividends in a per share amount not exceeding the amount
most recently paid prior to the date hereof and (x) any other amount
or property paid or delivered or to be paid or delivered or
liabilities assumed or to be assumed by the other party or parties to
a Transaction or its subsidiaries or affiliates. If any part of the
Consideration consists of marketable securities, for purposes of
determining the amount of the Consideration the value of those
securities shall be determined by using the average of the last sale
prices for those securities on the 15 trading days ending 5 days prior
to the closing of a Transaction. If those securities do not have a
public trading market, the value of those securities shall be their
fair market value on the day prior to the completion closing of a
Transaction.
5. Whether or not a Transaction is completed, the Company shall periodically
reimburse Beacon for its out-of-pocket expenses incurred in connection with
performing its services hereunder, including expenses for travel, the
reasonable fees, expenses and disbursements of its legal counsel, the fees,
expenses and disbursements of consultants or advisors
<PAGE>
Hollywood Theaters, Inc.
4/9/98
Page 4
engaged by it with the Company's prior approval and sales, use or similar
taxes arising in connection with any matter referred to in this Agreement.
The provisions of this paragraph 5 shall not in any way limit or restrict
the Company's obligations under paragraph 10.
6. The Company shall (a) furnish to Beacon all information which Beacon
reasonably requests in connection with the performance of its services
hereunder concerning the business, operations and financial condition of
the Company (the "Information"), (b) make the officers, directors,
employees, independent accountants and legal counsel of the Company and its
subsidiaries and affiliates available to Beacon and, to the extent that the
Company or its subsidiaries or affiliates have access to the officers,
directors, employees, independent accountants and legal counsel of any
other contemplated party or parties to a Transaction or its subsidiaries or
affiliates, provide equivalent access to Beacon and (c) furnish to Beacon
the names of all parties with which the Company has had discussions or
contacts prior to the date hereof concerning a Transaction, promptly inform
Beacon of any inquiry it may receive concerning a Transaction and not
initiate any discussions or negotiations with any party or its
representatives or agents concerning a Transaction without first consulting
Beacon. Beacon (x) shall use and rely primarily upon the Information and
on information available from public sources in performing its services
hereunder without independently verifying the same, (y) does not assume
responsibility for the accuracy or completeness of the Information and such
other information and (z) shall not make an appraisal of any assets. The
Company represents that the Information is accurate and complete in all
material respects at the time it is furnished to Beacon and shall promptly
notify Beacon if it learns of any material inaccuracy or misstatement in,
or material omission from, the Information in the form furnished to Beacon.
7. Beacon shall keep the existence of this Agreement and all of the
Information that is not publicly available confidential, shall not disclose
or provide any of the Information to a third party without the Company's
prior consent and shall not use any of the Information for any purpose
other than performing its services hereunder, provided that the Information
may be disclosed (a) to the extent required by law, rule or regulation or
judicial or administrative process or proceeding and (b) to employees,
partners, agents, principals, officers, directors and legal, accounting and
other advisors of Beacon and its affiliates who have a need-to-know in
connection with Beacon's performing its services hereunder and who have
been advised by Beacon of Beacon's confidentiality obligations under this
Agreement. The provisions of this paragraph 7 shall terminate two years
after the date this Agreement terminates.
8. All written and oral advice provided by Beacon in connection with Beacon's
engagement hereunder is exclusively for the information of the Company and
may not, in whole or in
<PAGE>
Hollywood Theaters, Inc.
4/9/98
Page 5
part, be disclosed publicly or to any third party or circulated, quoted or
referred to without Beacon's prior written consent.
9. The provisions concerning reimbursement, indemnification, hold harmless,
contribution and other matters which are set forth in Annex A are
incorporated in their entirety in this Agreement by reference.
10. The term of Beacon's engagement hereunder shall extend from the date hereof
until terminated. Beacon's engagement hereunder may be terminated by
either Beacon or the Company at any time by giving the other at least 10
days prior written notice to that effect. Notwithstanding the termination
of this Agreement, including pursuant to the preceding sentence, the
provisions of paragraphs 3 through 11 shall survive the termination.
11. This Agreement may not be amended or modified except in writing.
12. This Agreement shall be binding on the Company and Beacon and their
successors, assigns and legal representatives.
13. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to conflict of law provisions
thereof.
Please confirm your agreement to the foregoing by signing and returning the
accompanying copy of this Agreement, whereupon this Agreement shall become
binding on Beacon and the Company.
<PAGE>
Hollywood Theaters, Inc.
4/9/98
Page 6
Very truly yours,
THE BEACON GROUP CAPITAL SERVICES, LLC
By: /s/ Thomas W. Stephenson, Jr.
--------------------------------
Thomas W. Stephenson, Jr.
Agreed as of the date first written above:
Hollywood Theaters, Inc.
By: /s/ Richard Herbst
-------------------
Richard Herbst
<PAGE>
ANNEX A
-------
If Beacon becomes involved in any action, proceeding or investigation by or
against any person or entity, including security holders of the Company, in
connection with or as a result of Beacon's engagement under this Agreement or
any matter referred to herein, the Company shall periodically reimburse Beacon
for its legal and other expenses, including the cost of investigation and
preparation, in that regard, provided that if it is finally determined by a
court of competent jurisdiction that the involvement of Beacon resulted from its
gross negligence or willful misconduct in performing its services hereunder,
Beacon shall refund the amounts so reimbursed by the Company. The Company shall
indemnify and hold Beacon harmless against all losses, claims, damages or
liabilities incurred in connection with or as a result of Beacon's engagement
under this Agreement or any matter referred to herein, except to the extent that
a loss, claim, damage or liability is finally determined by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
Beacon in performing its services hereunder. If for any reason the foregoing
reimbursement, indemnification and hold harmless obligations are to any extent
unavailable to Beacon, the Company shall contribute to any amount paid or
payable by Beacon as a result of a loss, claim, damage or liability in the
proportion that is appropriate to reflect the relative economic interests of the
Company and its stockholders on the one hand and Beacon on the other hand with
respect to the subject matter of this Agreement, the relative fault of the
Company and Beacon with respect to the loss, claim, damage or liability and
other equitable considerations, provided that in no event shall the amount paid
or payable by Beacon exceed the amount of the compensation actually received by
Beacon under this Agreement. The foregoing reimbursement, indemnification, hold
harmless and contribution obligations of the Company shall be in addition to any
other obligation or liability which the Company may have, shall extend on the
same terms and conditions to subsidiaries and affiliates of Beacon and the
partners, principals, officers, directors, agents, employees and controlling
persons of Beacon and its subsidiaries and affiliates and shall be binding on
and inure to the benefit of the successors, assigns, heirs and personal
representatives of the Company, Beacon, its subsidiaries and affiliates and all
of such other persons.
None of Beacon, its subsidiaries and affiliates or their partners, principals,
officers, directors, agents, employees or controlling persons shall have any
liability to the Company, its subsidiaries and affiliates or any person or
entity asserting a claim on behalf of or in the right of the Company or its
subsidiaries and affiliates in connection with or as a result of Beacon's
engagement under this Agreement or any matter referred to herein, except to the
extent that a loss, claim, damage, liability or expense incurred by the Company
is finally determined by a court of competent jurisdiction to have resulted from
the gross negligence or willful misconduct of the entity or person in performing
services hereunder. Any suit or proceeding relating to this Agreement or
Beacon's engagement hereunder shall be tried exclusively in the United States
District Court for the Southern District of New York or, if that court does not
have subject matter jurisdiction over the suit or proceeding, in any state court
located in the City of New York, County of New York. The Company shall submit
to the jurisdiction of and to venue in those courts. The Company, for itself
and for anyone claiming through it or in its name and on behalf of its security
holders or other owners, irrevocably waives any right it may have to a trial by
jury with respect to any claim relating to this Agreement or Beacon's engagement
hereunder. Without the prior written consent of Beacon, the Company shall not
settle, compromise or consent to the entry of judgment in any pending or
threatened claim, action or proceeding relating to this Agreement or Beacon's
engagement hereunder, whether or not Beacon is an actual or potential party to
the claim, action
<PAGE>
Hollywood Theaters, Inc.
4/9/98
Page 8
or proceeding, unless the settlement, compromise or judgment (a) includes an
unconditional release of each entity and person entitled to reimbursement,
indemnification, hold harmless and contribution hereunder from all liability
arising out of the claim, action or proceeding and (b) does not include a
statement as to, or an admission of, fault, culpability or failure to act by or
on behalf of any entity or person entitled to reimbursement, indemnification,
hold harmless and contribution hereunder.
The provisions of paragraph 10 of this Agreement and this Annex A shall survive
termination and completion of Beacon's engagement under this Agreement.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGITRANTS
Crown Theatre Corporation is a wholly-owned subsidiary of Hollywood Theaters,
Inc. Hollywood Theaters, Inc. is a wholly-owned subsidiary of Hollywood Theater
Holdings, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001046282
<NAME> HOLLYWOOD THEATERS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,713
<SECURITIES> 0
<RECEIVABLES> 1,066
<ALLOWANCES> 0
<INVENTORY> 1,158
<CURRENT-ASSETS> 10,094
<PP&E> 152,834
<DEPRECIATION> (9,397)
<TOTAL-ASSETS> 184,824
<CURRENT-LIABILITIES> 192,413
<BONDS> 0
2,872
65,219
<COMMON> 15,553
<OTHER-SE> (93,008)
<TOTAL-LIABILITY-AND-EQUITY> 184,824
<SALES> 101,894
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<CGS> 44,257
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<OTHER-EXPENSES> 114,354
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,475
<INCOME-PRETAX> (71,192)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,192)
<EPS-PRIMARY> 0
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