As filed with the Securities and Exchange Commission on October 13, 1998
REGISTRATION NO. 333-64883
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LOEWS CINEPLEX ENTERTAINMENT
CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 7832 13-3386485
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Identification No.)
incorporation or Code Number)
organization)
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
711 FIFTH AVENUE
11TH FLOOR
NEW YORK, NEW YORK 10022
(212) 833-6200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JOHN C. MCBRIDE, JR., ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
711 FIFTH AVENUE
11TH FLOOR
NEW YORK, NEW YORK 10022
(212) 833-6200
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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COPY TO:
DAVID C. GOLAY, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004-1980
(212) 859-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon
as practicable after the effective date of this Registration Statement.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
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If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
[RED HERRING]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 13, 1998
PROSPECTUS
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
OFFERS TO EXCHANGE ITS
8 7/8% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
OLD NOTES (AS DEFINED HEREIN)
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 12, 1998, UNLESS EXTENDED.
AS DESCRIBED HEREIN, WITHDRAWAL RIGHTS WITH RESPECT TO THE EXCHANGE OFFER
ARE EXPECTED TO EXPIRE AT THE EXPIRATION OF THE EXCHANGE OFFER
- -------------------------------------------------------------------------------
Loews Cineplex Entertainment Corporation, a Delaware corporation
("Loews Cineplex" or the "Company"), hereby offers (the "Exchange Offer"),
upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange up to $300,000,000 aggregate principal amount of
its 8 7/8% Senior Subordinated Notes Due 2008 (the "New Notes"), which will
be registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which this Prospectus is a
part, for a like principal amount of its issued and outstanding 8 7/8%
Senior Subordinated Notes Due 2008 (the "Old Notes" and, together with the
New Notes, the "Notes"). The Exchange Offer is being made pursuant to the
terms of the Exchange and Registration Rights Agreement, dated August 5,
1998 (the "Exchange and Registration Rights Agreement"), entered into
between the Company and Goldman, Sachs & Co., BT Alex. Brown Incorporated,
Credit Suisse First Boston Corporation and Salomon Brothers Inc (the
"Initial Purchasers") pursuant to the terms of the Purchase Agreement (the
"Purchase Agreement"), dated August 5, 1998, between the Company and the
Initial Purchasers. See "The Exchange Offer--Purpose and Effect of the
Exchange Offer".
(cover continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION
OF CERTAIN FACTORS WHICH INVESTORS SHOULD
CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER AND AN INVESTMENT IN THE
NEW NOTES OFFERED HEREBY
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is October 13, 1998.
<PAGE>
Interest on the New Notes will be payable on February 1 and August 1
of each year, commencing February 1, 1999. The New Notes will mature on
August 1, 2008. The New Notes will be redeemable, in whole or in part, at
the option of the Company at any time on or after August 1, 2003 at the
redemption prices set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, on or before August 1, 2001
the Company may, at its option and subject to certain requirements, use an
amount equal to the net cash proceeds from one or more Public Equity
Offerings (as defined herein) to redeem up to an aggregate of 33 1/3% of
the principal amount of the New Notes originally issued at a redemption
price equal to 108.875% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption. Upon the occurrence of
a Change of Control (as defined herein), the Company is required to offer
to repurchase all outstanding New Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. See "Description of New Notes".
The New Notes will be general unsecured indebtedness of the Company
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company, and senior to or pari passu with all
existing and future subordinated indebtedness of the Company. At May 31,
1998 on a pro forma basis after giving effect to the Transactions (as
defined herein), the Company would have had $654 million of indebtedness
outstanding, of which $350 million would have been Senior Debt.
The New Notes will be obligations of the Company entitled to the
benefits of the Indenture (as defined herein). The form and terms of the
New Notes will be identical in all material respects to the form and terms
of the Old Notes except that (i) the New Notes will have been registered
under the Securities Act, (ii) holders of the New Notes will not be
entitled to certain rights of holders of Old Notes under the Exchange and
Registration Rights Agreement, which agreement will terminate upon
consummation of the Exchange Offer and (iii) the New Notes will not be
entitled to the contingent increase in interest rate provided pursuant to
the Indenture and the Old Notes. Any Old Notes not tendered and accepted in
the Exchange Offer will remain outstanding and will be entitled to all the
rights and preferences and will be subject to the limitations applicable
thereto under the Indenture. Following consummation of the Exchange Offer,
the holders of Old Notes will continue to be subject to the existing
restrictions upon transfer thereof, and the Company will have no further
obligation to such holders to provide for the registration under the
Securities Act of the Old Notes held by them. Following completion of the
Exchange Offer, none of the Notes will be entitled to the contingent
increase in interest rate provided pursuant to the Indenture and the Old
Notes. See "The Exchange Offer".
The Company will accept for exchange any and all validly tendered Old
Notes on or prior to 5:00 p.m., New York City time, on November 12, 1998,
unless extended by the Company (the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date, unless previously accepted for payment by the
Company. The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain conditions which may be waived by the Company.
Old Notes may be tendered only in denominations of $1,000 principal amount
and integral multiples thereof. New Notes to be issued in exchange for
validly tendered Old Notes will be delivered through the facilities of The
Depository Trust Company ("DTC") by the Exchange Agent (as defined herein).
The Company has agreed to pay the expenses of the Exchange Offer. See "The
Exchange Offer".
Any waiver, extension or termination of the Exchange Offer will be
publicly announced by the Company through a release to PR Newswire and as
otherwise required by applicable law or regulations.
The Company is making the Exchange Offer in reliance on the position
of the staff of the Division of Corporation Finance of the Securities and
Exchange Commission (the "Commission") as set forth in no-action letters
issued to third parties in other transactions. However, the Company has not
sought its own no-action letter and there can be no assurance that the
staff of the Division of Corporation Finance of the Commission would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. Based on those interpretations by the staff of the Division
of Corporation Finance of the Commission, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise transferred by any holder
thereof (other than broker-dealers, as set forth below, and any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and that such
holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate, in the
distribution (within the meaning of the Securities Act) of such New Notes.
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the
New Notes may not rely upon such interpretations by the staff of the
Division of Corporation Finance of the Commission as set forth in these
no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction, and any
such secondary resale transaction must be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act.
Each broker-dealer (other than an affiliate of the Company) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes as the result of market-making
activities or other trading activities and will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. The Company has agreed to make this Prospectus available to
any broker-dealer for use in connection with any such resale for a period
of 180 days after the Expiration Date or, earlier, if all New Notes have
been disposed of by such broker-dealers. See "Plan of Distribution" and
"The Exchange Offer".
The New Notes will be represented by a Global Certificate (as defined
herein) registered in the name of a nominee of DTC, as Depositary.
Beneficial interest in the Global Certificates will be shown on, and
transfers will be effected only through, records maintained by the
Depositary and its participants. See "Description of the New
Notes--Book-Entry; Delivery and Form".
The New Notes will constitute a new issue of securities with no
established trading market. Accordingly, there can be no assurance that an
active trading market for any issue of the New Notes will develop. See
"Risk Factors -- Absence of Public Market for the New Notes; Volatility".
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. It is not expected that an active trading market for the Old
Notes will develop while they are subject to restrictions on transfer. See
"Risk Factors -- Consequences of the Exchange Offer on Non-Tendering
Holders of the Old Notes".
This Prospectus, together with the accompanying Letter of Transmittal,
is being sent to all registered holders of Old Notes as of October 7, 1998.
As of such date, there was one registered holder of the Old Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses it incurs in the Exchange Offer. No
dealer-manager is being used in connection with the Exchange Offer. See
"Use of Proceeds" and "Plan of Distribution".
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS OF OLD NOTES FOR EXCHANGE FROM, HOLDERS THEREOF IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement
(together with any amendments thereto, the "Registration Statement") on
Form S-4 under the Securities Act, with respect to the New Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information included in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein or therein and filed as an exhibit to the
Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as
an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the New Notes, reference is hereby made to the
Registration Statement and the exhibits and schedules thereto.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by the Company with the Commission pursuant to the informational
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Midwest Regional Office, Citicorp
Center, Suite 1400, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661-2511; and Northeast Regional Office, Suite 1300, 13th Floor, 7 World
Trade Center, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission also maintains a Web site (http://www.sec.gov) that
makes available reports, proxy statements and other information regarding
the Company. Such material can also be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, and
The Toronto Stock Exchange, 2 First Canadian Place, Toronto, Ontario M5X
1J2, on which exchanges the shares of the Company's Common Stock, $.01 par
value per share (the "Shares") are listed. Copies of the aforementioned
materials may also be inspected at the office of the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
Under the Indenture relating to the New Notes, and without regard to
whether the Company is subject to the informational requirements of the
Exchange Act, the Company has agreed to file with the Commission and to
distribute to the Trustee (as defined herein) and the holders of the New
Notes annual reports of the Company containing audited consolidated
financial statements, as well as quarterly reports containing unaudited
consolidated financial statements for each of the first three quarters of
each fiscal year.
Potential investors may obtain a copy of the agreements summarized
herein without charge by request directed to the Secretary of the Company
at 711 Fifth Avenue, 11th Floor, New York, New York 10022, telephone (212)
833-6200.
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained herein, including, without limitation,
under "Prospectus Summary", "Risk Factors", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "The
Transactions" and "Business", and including, without limitation, statements
concerning (i) business strategy (including, without limitation, the
Company's plans to improve operating efficiencies and reduce costs), (ii)
expansion plans and (iii) capital expenditures, contain certain
forward-looking statements. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Risk
Factors". The words "intend", "believe", "expect", "anticipate" and similar
expressions identify forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
In addition to other factors and matters discussed elsewhere herein,
management believes that the following additional factors could cause
actual results to differ materially from those discussed in forward-looking
statements: (i) the effect of economic conditions on a national, regional
or international basis; (ii) the ability of Loews Cineplex to integrate the
operations of Cineplex Odeon Corporation ("Cineplex Odeon"), the
compatibility of the operating systems of the combined companies, and the
degree to which existing administrative functions and costs are
complementary or redundant; (iii) competitive pressures in the motion
picture exhibition industry; (iv) the financial resources of, and films
available to, the Company's competitors; (v) changes in laws and
regulations, including changes in accounting standards; (vi) the
determination of the number, job classification and location of employee
positions to be eliminated as a result of the combination of Loews Theatres
(as defined herein) and Cineplex Odeon; and (vii) opportunities that may be
presented to, and pursued by, the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the related notes, appearing elsewhere in this
Prospectus. Prospective investors are urged to read this Prospectus in its
entirety. Unless otherwise indicated, industry data contained herein is
derived from publicly available industry trade journals, government reports
and other publicly available sources, which the Company has not
independently verified but which the Company believes to be reliable, and
where such sources were not available, from Company estimates, which the
Company believes to be reasonable, but which cannot be independently
verified. As used in this Prospectus, "$" refers to U.S. dollars and "Cdn$"
refers to Canadian dollars. Unless otherwise stated or where the context
otherwise requires, references herein to the "Company" or "Loews Cineplex"
refer to Loews Cineplex Entertainment Corporation and its direct and
indirect subsidiaries. References herein to "fiscal" years refer to the
Company's fiscal years ended February 28 or 29, as the case may be.
Information given with respect to "North America" includes the United
States and Canada and excludes Mexico.
THE COMPANY
Loews Cineplex is the world's largest publicly traded theatre
exhibition company in terms of revenues and operating cash flow. On May 14,
1998, the Company completed the business combination (the "Combination") of
the Loews Theatres exhibition business ("Loews Theatres") of Sony Pictures
Entertainment Inc. ("SPE") and Cineplex Odeon, another major motion picture
exhibitor with operations in the United States and Canada. On a pro forma
basis for the fiscal year ended February 28, 1998, the Company had
approximately $1.0 billion in revenues. Approximately 71% of such revenues
was related to box office receipts and approximately 29% was generated by
concession sales and other revenues. The Company's pro forma share of total
industry box office receipts in North America in 1997 was approximately
10.2%.
As of May 31, 1998, Loews Cineplex owned and operated or had interests
in 2,794 screens at 450 locations, of which 2,783 screens were located in
22 U.S. states, the District of Columbia and 6 Canadian provinces. The
Company's North American exhibition screens represent approximately 8.8% of
all exhibition screens in North America. The Company's North American
theatres are concentrated in densely populated urban and suburban areas,
with a strong presence in metropolitan New York, Boston, Chicago,
Baltimore, Dallas, Houston, Detroit, Los Angeles, Seattle, Washington,
D.C., Toronto, Montreal and Vancouver. Approximately 83% of the Company's
U.S. theatres are located in 11 of the 15 largest areas of dominant
influence as defined by the A.C. Nielsen Company/EDI ("ADIs") in the United
States, and approximately 83% of the Company's Canadian theatres are
located in the top 10 ADIs in Canada. Since June 10, 1998, the Company has
also owned a 50% interest in 108 screens in 13 locations in Spain through a
joint venture with Yelmo Films S.A. ("Yelmo Films"), a leading local
Spanish exhibitor. The Company has also established an initial presence in
both Hungary and Turkey.
The Company holds a 50% partnership interest in each of Loeks-Star
Theatres and Magic Johnson Theatres (collectively, the "U.S.
Partnerships"). As of May 31, 1998, the U.S. Partnerships held interests in
and operated 12 locations with a total of 149 screens. Loeks-Star Theatres'
circuit is located in the metropolitan Detroit, Michigan area. Magic
Johnson Theatres' circuit is located in densely populated urban areas with
predominantly minority populations. Unless otherwise noted, the screen and
location figures presented herein for the Company include the screens and
locations of the Company's U.S. Partnerships.
Loews Cineplex was the first commercial motion picture exhibitor in
North America, and perhaps the world, with operations beginning in 1904,
when Marcus Loew set up a "nickelodeon" in a rented room above a penny
arcade store in Cincinnati, Ohio. Loews Cineplex's theatre circuit has
grown over the years through both internal development and acquisitions.
Today, Loews Cineplex operates theatres under the Loews, Sony and Cineplex
Odeon theatres names, and the Company's partnerships and joint ventures
operate theatres under the Star, Magic Johnson and Yelmo Cineplex names.
PRINCIPAL STOCKHOLDERS
The Company's principal stockholders include SPE, a wholly owned
subsidiary of Sony Corporation of America ("SCA"), Universal Studios, Inc.
("Universal") and the Charles Rosner Bronfman Discretionary Trust and
certain related stockholders (the "Claridge Group"), which own 39.5% (39.5%
of the Company's voting Common Stock), 25.6% (25.5% of the Company's voting
Common Stock) and 7.4% (7.4% of the Company's voting Common Stock) of the
Company's capital stock, respectively, and collectively own approximately
72.5% of the Company's capital stock (and 72.4% of its voting Common
Stock). SPE, Universal and the Claridge Group are collectively referred to
herein as the "Stockholders".
PRINCIPAL EXECUTIVE OFFICES
The address of Loews Cineplex's principal executive offices is 711
Fifth Avenue, 11th Floor, New York, New York 10022 and its telephone number
is (212) 833-6200.
CERTAIN RECENT TRANSACTIONS
On August 5, 1998, the Company concurrently consummated the following
transactions, which were designed to increase stockholders' equity, reduce
the Company's debt and interest expense, improve the public float for the
Common Stock, increase the Company's access to capital markets and improve
the Company's operating and financial flexibility:
* The Company offered $300 million aggregate principal amount of
the Old Notes (the "Old Notes Offering").
* The Company sold to the public, in a registered offering, 10
million shares of Common Stock at a public offering price of
$11.00 per share (the "Equity Offering" and, together with the
Old Notes Offering, the "Concurrent Offerings").
* The Company used approximately $215.7 million of the net proceeds
of the Concurrent Offerings to pay the applicable consideration
under an at-the-market tender offer (the "At-the-Market Offer")
by the Company's wholly owned subsidiary, Plitt Theatres, Inc.
("Plitt"), for any and all of Plitt's outstanding 10 7/8% Senior
Subordinated Notes due 2004 (the "Plitt Notes"), which the
Company unconditionally guaranteed on a senior subordinated basis
in connection with closing the Combination. The At-the-Market
Offer expired on August 4, 1998, with holders of approximately
97% of the outstanding Plitt Notes tendering into the
At-the-Market Offer. Payment for tendered Plitt Notes was made on
August 5, 1998.
The remaining amount of the net proceeds of the Concurrent Offering
was used to reduce the outstanding balance on the Bank Credit Facilities
(as defined herein). These amounts may be reborrowed and are available to
the Company for the funding of its North American and international
expansion plans and for general corporate purposes, subject to the
satisfaction of certain covenants and financial ratios.
In addition to the above mentioned transactions, upon the consummation
of the Equity Offering, the Company's Class A Non-Voting Common Stock then
held by SPE automatically converted (the "Automatic Conversion") into an
equal number of shares of Common Stock and 3,255,212 additional shares of
Common Stock was issued to Universal for no consideration (the "Universal
Issuance") under anti-dilution provisions of the Company's subscription
agreement with Universal (the Universal Issuance, the Automatic Conversion,
the Old Notes Offering, the Equity Offering and the Plitt Note Repurchase
(as defined herein) collectively referred to as the "Transactions").
Under the terms of an agreement with the U.S. Department of Justice
("DOJ"), which was entered into in connection with its approval of the
Combination, the Company agreed to divest 25 theatres, representing 85
screens in the New York and Chicago areas. The sale of these theatres is
subject to approval by the DOJ. On August 27, 1998, the Company announced
that it had reached an agreement to sell 31 theatres in the New York City,
Chicago and suburban New York areas for $92 million to Cablevision Systems
Corp.("Cablevision"), one of the nation's leading telecommunications and
entertainment companies, subject to certain conditions, including DOJ
approval and the receipt of certain consents. The Company is in discussions
with Cablevision regarding the steps to be taken to obtain these approvals
and consents, and an announcement is expected to be made shortly. These 31
theatres include an additional seven theatres, representing 21 screens, in
the suburban New York area, which will be sold, subject to certain
conditions, in a separate transaction unrelated to the agreement with the
DOJ. The theatres being sold represent approximately 3.6% of the Company's
total screens and 6.8% of total box office receipts on an annual basis.
Proceeds from the sale are expected to be used to reduce borrowings under
the Bank Credit Facilities and for general corporate purposes. Subject to
DOJ approval, the Company expects to close these transactions in the third
quarter ending November 30, 1998.
RECENT DEVELOPMENTS
On October 8, 1998, the Company reported financial results for the
second quarter ended August 31, 1998. Results for the periods ended August
31, 1998 include the results of Cineplex Odeon as of the merger date, May
14, 1998, whereas results for the periods ended August 31, 1997 exclude the
results of Cineplex Odeon, since Cineplex Odeon was not then owned by Loews
Cineplex.
Revenue for the three months ended August 31, 1998 was $297.5 million,
compared to revenue of $119.6 million in the prior year. Earnings before
interest, taxes, depreciation and amortization, and loss on theatre
dispositions ("Modified EBITDA") for the quarter ended August 31, 1998 was
$60.3 million compared to $27.0 million in the prior year. For the six
months ended August 31, 1998, revenue was $415.3 million, compared to
$212.9 million in the prior year. Modified EBITDA for the six months ended
August 31, 1998 was $80.2 million, compared to $43.1 million in the prior
year. Net income for the three months ended August 31, 1998 was $8.3
million, or $0.17 per share compared to net income of $3.6 million or $0.18
per share for the prior year. Net income for the six months ended August
31, 1998 was $7.5 million or $0.20 per share compared to $3.2 million or
$0.16 per share in the prior year.
On a fully combined basis, including the results of Cineplex Odeon for
the three months ended August 31, 1998 and on a pro forma basis for the
three months ended August 31, 1997, and including 100% of the operating
results of partnerships in which the Company has a 50% ownership interest,
revenue for the three months ended August 31, 1998 increased by 10% to
$326.7 million, compared to pro forma revenue of $298.2 million in the
prior year. Total EBITDA (as defined herein), before losses on theatre
dispositions, for the second quarter ended August 31, 1998 increased 28% to
$64.7 million, from pro forma Total EBITDA of $50.7 million in the prior
year. Attributable EBITDA (as defined herein), which excludes EBITDA from
the Company's partnerships attributable to third parties, increased by 26%
to $61.6 million from $49.0 million in the prior year.
LOEWS CINEPLEX SUMMARY OF OPERATING RESULTS
EQUITY BASIS
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------------ -----------------------
1998(1) 1997 1998(1) 1997
----------- ----------- ----------- ----------
(in thousands, except shares outstanding and
earnings per share data)
Revenues............... $ 297,459 $ 119,644 $ 415,273 $ 212,860
Operating Expenses..... 237,206 92,684 335,095 169,716
------------ ------------ ------------- ----------
Modified EBITDA(2)..... $ 60,253 $ 26,960 $ 80,178 $ 43,144
============ ============ ============= ==========
Net Income............. $ 8,274 $ 3,626 $ 7,531 $ 3,226
============ ============ ============= ==========
Attributable EBITDA(3). $ 61,583 $ 27,369 $ 82,374 $ 44,185
============ ============ ============= ==========
Weighted Average Shares
and equivalent
outstanding(4)....... 49,196,205 20,472,807 37,046,497 20,472,807
Earnings per share..... $ 0.17 $ 0.18 $ 0.20 $ 0.16
- ----------------------
(1) Includes operating results of Cineplex Odeon which became a
wholly-owned subsidiary on May 14, 1998.
(2) Modified EBITDA consists of earnings before interest, income taxes,
loss on asset disposition, depreciation and amortization including
equity earnings from investments in the U.S. Partnerships. EBITDA
should not be construed as an alternative to operating income (as
determined in accordance with U.S. GAAP).
(3) THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------------ -----------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
(in thousands)
Modified EBITDA,
including equity
earnings............... $ 60,253 $ 26,960 $ 80,178 $ 43,144
-------- --------- --------- ---------
Less: Equity
earnings/other
included in Modified
EBITDA................. 1,772 1,249 2,324 1,642
-------- --------- --------- ---------
Add: EBITDA from
U.S. Partnerships...... 6,204 3,316 9,040 5,366
-------- --------- --------- ---------
Total EBITDA............ 64,685 29,027 86,894 46,868
Less: Partners'
share of Total EBITDA.. 3,102 1,658 4,520 2,683
-------- --------- --------- ---------
Attributable EBITDA..... $ 61,583 $ 27,369 $ 82,374 $ 44,185
======== ========= ========= =========
(4) The per share information for the periods ended August 31, 1997 has
been restated to reflect a stock dividend declared on February 5,
1998.
LOEWS CINEPLEX SUMMARY OF OPERATING RESULTS
SECOND QUARTER ENDED AUGUST 31, 1998 v. 1997
FULLY COMBINED BASIS
Three Months Ended August 31,
-------------------------------
Pro Forma(1)
---------------
1998 1997
------------- ---------------
(in thousands except locations,
screens and per patron data)
Revenues.................. $ 326,665 $ 298,199
Operating Expenses........ 261,980 247,503
--------- ---------
Total EBITDA(2)........... $ 64,685 $ 50,696
========= =========
Net Income................ $ 8,274 $ 108
========= =========
Attributable EBITDA(3).... $ 61,583 $ 49,038
========= =========
OPERATING STATISTICS:
Revenues per location(4).. $ 713.24 $ 656.83
Revenues per screen(4).... $ 113.19 $ 114.82
Total EBITDA per location(4) $ 141.23 $ 111.67
Total EBITDA per screen(4) $ 22.41 $ 19.52
Attendance per location(4) 97.08 91.47
Attendance per screen(4).. 15.41 15.99
Average ticket price...... $ 5.13 $ 5.07
Concession revenue per
patron.................. $ 2.04 $ 1.90
Concession margin......... 84.11% 82.39%
Operating margin.......... 19.80% 17.00%
Profit per patron......... $ 1.45 $ 1.22
- ----------------------
(1) Includes operating results of Cineplex Odeon on a pro forma basis.
(2) Total EBITDA consists of EBITDA plus loss on sale/disposals of
theatres and 100% of the operating results of the U.S. Partnerships.
Total EBITDA should not be construed as an alternative to operating
income (as determined in accordance with U.S. GAAP), as a measure of
the Company's operating performance, or as an alternative to cash
flows from operating activities (as determined in accordance with U.S.
GAAP), as a measure of the Company's liquidity. Total EBITDA measures
the amount of cash that a company has available for investment or
other uses and is used by the Company as a measure of its performance.
The Company believes that Total EBITDA is an important measure, in
addition to cash flow from operations and EBITDA, in viewing its
overall liquidity and borrowing capacity.
(3) Attributable EBITDA consists of Total EBITDA less Partners' Share of
Total EBITDA.
(4) All per screen, location and patron rations are calculated upon the
weighted average number of screens and location in operation during
the period and include 100% of the results of the significant
partnerships in which the Company has a 50% interest.
THE OFFERING
On August 5, 1998, the Company consummated the offering of $300
million aggregate principal amount of 8 7/8% Senior Subordinated Notes due
2008 exempt from registration under the Securities Act (the "Offering").
The net proceeds of the Offering were used to fund the Plitt Note
Repurchase, repay loans under the Company's Bank Credit Facilities, pay
fees and expenses related to the Transactions and for general corporate
purposes. See "Prospectus Summary--The Transactions" and "Use of Proceeds".
The Old Notes..... The Old Notes were sold by the Company on August 5,
1998 to the Initial Purchasers pursuant to the Purchase
Agreement. The Initial Purchasers subsequently resold
the Old Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act ("Rule
144A") and to non-U.S. persons outside the United
States in reliance on Regulation S under the Securities
Act.
Exchange and
Registration
Rights
Agreement......... Pursuant to the Purchase Agreement, the Company and the
Initial Purchasers entered into the Exchange and
Registration Rights Agreement, which granted the
holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is being made
pursuant to the Exchange and Registration Rights
Agreement and is intended to satisfy such rights which,
except under limited circumstances, terminate upon
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities
Offered........... $300,000,000 aggregate principal amount of the
Company's 8 7/8% Senior Subordinated Notes due 2008.
The Exchange
Offer............. Pursuant to the Exchange Offer, $1,000 principal amount
of New Notes will be issued in exchange for each $1,000
principal amount of Old Notes that are validly tendered
and not withdrawn. On the date of this Prospectus,
$300,000,000 aggregate principal amount of Old Notes
were outstanding. See "The Exchange Offer".
The Exchange Offer is not being made to, nor will the
Company accept surrenders of Old Notes for exchange
from, holders thereof in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be
in compliance with the securities or blue sky laws of
such jurisdiction.
Holders of Old Notes whose Old Notes are not tendered
and accepted in the Exchange Offer will continue to
hold such Old Notes and will be entitled to all the
rights and preferences thereof and will be subject to
the limitations applicable thereto under the Indenture,
dated as of August 5, 1998 (the "Indenture") between
the Company and Bankers Trust Company, as Trustee,
governing the Old Notes and the New Notes. Following
consummation of the Exchange Offer, the holders of Old
Notes will continue to be subject to the existing
restrictions upon transfer thereof, and the Company
will have no further obligation to such holders to
provide for the registration under the Securities Act
of the Old Notes held by them. Following the completion
of the Exchange Offer, none of the Old Notes will be
entitled to the contingent increase in interest rate
provided pursuant to the Indenture and the Old Notes.
Resales........... Based on interpretations by the staff of the Division
of Corporate Finance the Commission set forth in
no-action letters issued to third parties, the Company
believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any holder
thereof (other than broker-dealers, as set forth below,
and any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's
business and that such holder is not participating,
does not intend to participate, and has no arrangement
or understanding with any person to participate, in the
distribution (within the meaning of the Securities Act)
of such New Notes. Any holder who tenders in the
Exchange Offer with the intention to participate, or
for the purpose of participating, in a distribution of
the New Notes may not rely upon such interpretations by
the staff of the Division of Corporate Finance of the
Commission as set forth in these no-action letters and,
in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection with
any secondary resale transaction, and any such
secondary resale transaction must be covered by an
effective registration statement containing the selling
securityholder information required by Item 507 of
Regulation S-K under the Securities Act. Holders of Old
Notes wishing to accept the Exchange Offer must
represent to the Company in the Letter of Transmittal
that such conditions have been met. Failure to comply
with such requirements in such instance may result in
such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the
Company. Each broker-dealer (other than an affiliate of
the Company) that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge
that it acquired the Old Notes as a result of
market-making activities or other trading activities
and that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended
or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities.
The Company has agreed to make this Prospectus
available to any broker-dealer for use in connection
with any such resale for a period of 180 days after the
Expiration Date or, earlier, if all New Notes have been
disposed of by such broker-dealers. Any broker-dealer
who is an affiliate of the Company may not participate
in the Exchange Offer and may not rely on the no-action
letters referred to above and must comply with the
registration and prospectus delivery requirements of
the Securities Act in connection with a secondary
resale transaction. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer" and "Plan of
Distribution".
Expiration Date... The Exchange Offer will expire at 5:00 p.m., New York
City time, on November 12, 1998, unless extended, in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended. Any extension, if made, will be publicly
announced through a release to PR Newswire and as
otherwise required by applicable law or regulations.
Conditions to the
Exchange
Offer............ The Exchange Offer is subject to certain conditions,
which may be waived by the Company. See "The Exchange
Offer--Conditions of the Exchange Offer". The Exchange
Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange.
The Company reserves the right, in its discretion, (i)
to delay accepting any Old Notes, to extend the
Exchange Offer or to terminate the Exchange Offer if
any of the conditions set forth below under "The
Exchange Offer--Conditions of the Exchange Offer" shall
not have been satisfied in the good faith determination
of the Company, by giving oral or written notice of
such delay, extension or termination to the Exchange
Agent and (ii) to amend the terms of the Exchange Offer
in any manner. See "The Exchange Offer--Terms of the
Exchange Offer--Expiration Date; Extensions;
Amendments".
Procedures for
Tendering Old
Notes............. Each beneficial owner owning interests in Old Notes (a
"Beneficial Owner") through a DTC Participant (as
defined herein) must instruct such DTC Participant to
cause Old Notes to be tendered in accordance with the
procedures set forth in this Prospectus and in the
applicable Letter of Transmittal (as defined herein).
See "The Exchange Offer--Procedures for Tendering--Old
Notes held through DTC".
Each participant (a "DTC Participant") in the DTC
holding Old Notes through DTC must (i) electronically
transmit its acceptance to DTC through the DTC
Automated Tender Offer Program ("ATOP"), for which the
transaction will be eligible, and DTC will then verify
the acceptance, execute a book-entry delivery to the
Exchange Agent's account at DTC and send an Agent's
Message (as defined herein) to the Exchange Agent for
its acceptance, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus and in
the Letter of Transmittal. By tendering through ATOP,
DTC Participants will expressly acknowledge receipt of
the accompanying Letter of Transmittal and agree to be
bound by its terms and the Company will be able to
enforce such agreement against such DTC Participants.
See "The Exchange Offer--Procedures for Tendering--Old
Notes Held through DTC" and "--Guaranteed Delivery
Procedures--Old Notes held through DTC".
Each holder of Old Notes must (i) complete and sign a
Letter of Transmittal, and mail or deliver such Letter
of Transmittal, and all other documents required by the
Letter of Transmittal, together with certificates(s)
representing all tendered Old Notes, to the Exchange
Agent at its address set forth in this Prospectus and
in the Letter of Transmittal, or (ii) comply with the
guaranteed delivery procedures set forth in this
Prospectus. See "The Exchange Offer--Procedures for
Tendering", "--Exchange Agent" and "--Guaranteed
Delivery Procedures--Old Notes Held by Holders".
By tendering, each holder of Old Notes will represent
to the Company that, among other things, (i) it is not
an affiliate of the Company, (ii) it is not a
broker-dealer tendering Old Notes acquired directly
from the Company for its own account, (iii) the New
Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of such
holder and (iv) it has no arrangements or
understandings with any person to participate in the
Exchange Offer for the purpose of distributing the New
Notes. See "The Exchange Offer--Purpose and Effect of
the Exchange Offer".
Special
Procedures for
Beneficial
Owners............ Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Old Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on his or her
own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering his
or her Old Notes (or, in the case of a book-entry
transfer, causing to be delivered an Agent's Message),
either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer--Procedures
for Tendering Old Notes".
Guaranteed
Delivery
Procedures........ DTC Participants holding Old Notes through DTC who wish
to cause their Old Notes to be tendered, but who cannot
transmit their acceptances through ATOP prior to the
Expiration Date, may effect a tender in accordance with
the procedures set forth in this Prospectus and in the
Letter of Transmittal. See "The Exchange
Offer--Guaranteed Delivery Procedures". Holders who
wish to tender their Old Notes but (i) whose Old Notes
are not immediately available and will not be available
for tendering prior to the Expiration Date, or (ii) who
cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date, may effect
a tender in accordance with the procedures set forth in
this Prospectus. See "The Exchange Offer--Guaranteed
Delivery Procedures".
Acceptance of Old
Notes and
Delivery of
New Notes......... Subject to certain conditions (as described more fully
in "The Exchange Offer--Conditions of the Exchange
Offer"), the Company will accept for exchange any and
all Old Notes which are properly tendered in the
Exchange Offer and not withdrawn, prior to 5:00 p.m.,
New York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be
delivered as promptly as practicable following the
Expiration Date.
Withdrawal
Rights............ Except as otherwise provided herein, tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer--Withdrawal
of Tenders of Old Notes".
Taxation.......... An exchange of Old Notes for New Notes will not be
taxable to holders. See "Certain Federal Income Tax
Consequences of the Exchange Offer".
Use of Proceeds... The Company will not receive any proceeds from the New
Notes offered hereby. See "Use of Proceeds".
Exchange Agent.... Bankers Trust Company is the Exchange Agent. The
address, telephone number and facsimile number of the
Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent".
SUMMARY OF TERMS OF THE NEW NOTES
General........... The form and terms of the New Notes are the same as the
form and terms of the Old Notes (which they replace)
except that (i) the New Notes have been registered
under the Securities Act and, therefore, will not
contain terms or bear legends with respect to transfer
restrictions, (ii) the New Notes do not include
provisions providing for an increase in the interest
rate in certain circumstances relating to the timing of
the Exchange Offer and (iii) holders of New Notes will
not be entitled to certain rights under the Exchange
and Registration Rights Agreement, which rights will
terminate when the Exchange Offer is consummated. The
New Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indenture.
See "Description of New Notes".
Securities
Offered........... $300,000,000 aggregate principal amount of the
Company's 8 7/8% Senior Subordinated Notes due 2008.
Maturity Date..... August 1, 2008.
Interest
Payment Dates..... February 1 and August 1 of each year, commencing
February 1, 1999.
Optional
Redemption........ The Notes will be redeemable, in whole or in part, at
the option of the Company at any time on or after
August 1, 2003 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to
but excluding the date of redemption. In addition, on
or before August 1, 2001, the Company may, at its
option and subject to certain requirements, use an
amount equal to the net cash proceeds from one or more
Public Equity Offerings to redeem up to an aggregate of
33 1/3% of the original aggregate principal amount of
the Notes issued at a redemption price equal to
108.875% of the principal amount thereof, plus accrued
and unpaid interest, if any, to but excluding the date
of redemption. See "Description of Notes--Optional
Redemption".
Change of
Control........... Upon the occurrence of a Change of Control, the Company
is required to offer to repurchase all outstanding
Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. See "Description of New
Notes--Covenants--Change of Control".
Certain
Covenants......... The Indenture contains certain covenants which, among
other things, restrict the ability of the Company and
its Restricted Subsidiaries (as defined herein) to
incur additional indebtedness, pay dividends or make
distributions in respect of the Company's capital stock
or make other restricted payments, sell assets, create
certain liens or enter into certain transactions with
affiliates. See "Description of New Notes--Covenants".
Sinking Fund...... None.
Ranking........... The New Notes will constitute general unsecured
indebtedness of the Company, subordinated in right of
payment to all existing and future senior indebtedness
of the Company, including borrowings under the Bank
Credit Facilities. At May 31, 1998 on a pro forma basis
after giving effect to the Transactions, the Company
would have had $654 million of indebtedness
outstanding, of which $350 million would have been
Senior Debt. The Indenture pursuant to which the New
Notes will be issued permits the Company to incur
additional indebtedness, including Senior Debt, subject
to certain limitations. See "Capitalization" and
"Description of New Notes--Subordination". See
"Description of the New Notes--Subordination".
Market............ The New Notes will constitute a new issue of securities
with no established trading market. Accordingly, no
assurance can be given that an active public or other
market will develop for the New Notes or as to the
liquidity of or the trading market for the New Notes.
It is not expected that an active trading market for
the Old Notes will develop while they are subject to
restrictions on transfer. See "Risk Factors--Absence of
Public Market for the New Notes; Volatility" and
"--Consequences of the Exchange Offer on Non-Tendering
Holders of the Old Notes".
RISK FACTORS
Prospective investors should consider all of the information contained
in this Prospectus before making an investment in the New Notes. In
particular, prospective investors should carefully consider the factors set
forth under "Risk Factors".
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
LOEWS CINEPLEX
The following table sets forth summary historical financial data,
based on continuing operations, for the Company for the five fiscal years
ended February 28, 1998 and has been derived from the Company's annual
consolidated financial statements. The following summary financial data for
the three-month periods ended May 31, 1998 and May 31, 1997 is unaudited,
but, in the opinion of management, includes all adjustments necessary for a
fair presentation of the financial position and results of operations for
such periods. The results of operations for the three months ended May 31,
1998 are not necessarily indicative of the results to be attained for the
entire year. The summary historical financial data should be read in
conjunction with the separate consolidated financial statements and notes
thereto of Loews Cineplex and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", which are included
elsewhere in this Prospectus. THE FISCAL YEAR HISTORICAL DATA AND THE
UNAUDITED FINANCIAL DATA FOR THE THREE MONTHS ENDED MAY 31, 1997 DO NOT
GIVE EFFECT TO THE COMBINATION OR INCLUDE HISTORICAL INFORMATION FOR
CINEPLEX ODEON. However, related historical financial data for Cineplex
Odeon are presented following such data. The unaudited financial data as
of, and for the three months ended, May 31, 1998, reflects the Combination
and includes the results of Cineplex Odeon from May 15, 1998 through May
31, 1998.
The unaudited pro forma combined income statement data give effect to
the Combination and to the Transactions ("Pro Forma"), in each case as if
the relevant Transactions had occurred on March 1, 1997, by combining the
results of operations of the Company for the year ended February 28, 1998,
with the results of operations of Cineplex Odeon for the year ended
December 31, 1997, and, with respect to the three months ended May 31, 1998
by combining the results of operations of the Company and Cineplex Odeon
for the three months ended May 31, 1998. The unaudited pro forma combined
balance sheet data present the Pro Forma financial position of the Company
and Cineplex Odeon at May 31, 1998, assuming that the relevant Transactions
had been consummated as of that date. The Combination has been accounted
for under the purchase method of accounting.
The unaudited summary pro forma financial information is not
necessarily indicative of the Company's combined financial position or
results of operations that actually would have occurred if the Transactions
had been consummated on the dates indicated. In addition, they are not
intended to be a projection of results of operations that may be attained
by the Company in the future. This unaudited summary pro forma financial
information should be read in conjunction with detailed unaudited pro forma
financial information and the historical financial statements and notes
thereto of the Company and Cineplex Odeon included elsewhere in this
Prospectus.
Loews Cineplex has arranged to obtain an independent appraisal of
significant assets, liabilities and business operations of Cineplex Odeon.
Upon completion of the determination of fair value, the Excess Purchase
Price (as defined herein) will be allocated to specific assets and
liabilities of Cineplex Odeon. It is anticipated that there will be
reductions in the carrying value associated with certain assets, and
alternatively the fair value of certain other assets may exceed carrying
value. Accordingly, the final valuation could result in materially
different amounts and allocations of Excess Purchase Price from the amounts
and allocations presented in the following unaudited pro forma financial
data, primarily between goodwill and property, equipment and leaseholds,
resulting in corresponding changes in depreciation and amortization
amounts. For every one million dollars of Excess Purchase Price allocated
to fixed assets, depreciation and amortization will increase $25,000
annually (assuming an average 20 year service life for fixed assets and
straight line depreciation). Based on preliminary estimates of fair value
related to certain assets, additional "Excess Purchase Price" of between
$100 million and $150 million could result at the conclusion of the
valuation. See "Risk Factors", "Unaudited Pro Forma Financial Information"
and "Cautionary Statement Concerning Forward-Looking Statements".
<PAGE>
<TABLE>
<CAPTION>
LOEWS CINEPLEX
UNAUDITED
PRO FORMA
ACTUAL YEAR ENDED
YEAR ENDED FEBRUARY 28 OR 29, FEBRUARY 28,
-------------------------------------------------------------
1994 1995 1996 1997 1998 1998 (1)(4)
---------- ------------ ----------- ---------- ---------- -------------
(IN THOUSANDS, EXCEPT RATIOS, SHARES OUTSTANDING AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Admissions revenues. $244,864 $255,392 $264,585 $273,498 $296,933 $688,195
Concessions revenues 75,355 79,287 84,358 90,643 104,009 248,671
Other revenues...... 8,800 8,656 10,153 11,204 12,568 38,956
------- ------ ------- ------ ------- -------
329,019 343,335 359,096 375,345 413,510 975,822
------- ------- ------- ------- ------- -------
Theatre operations
and other expenses
(including
concession costs). 259,173 268,236 277,375 282,480 307,568 771,670
General and
administrative.... 17,449 18,753 20,282 21,447 28,917 59,230
Depreciation and
amortization...... 37,873 38,572 41,273 44,576 52,307 105,601
Loss on
sale/disposals of
theatres.......... 3,491 13,420 7,249 9,951 7,787 13,683
Interest expense, net 9,865 10,613 15,376 14,776 14,319 47,153
Income tax
expense/(benefit). 4,662 (1,337) 309 2,295 2,751 2,292
------- -------- -------- -------- -------- ---------
Net income (loss)... $ (3,494) $ (4,922) $ (2,768) $ (180) $ (139) $ (23,807)
======== ======== ======== ======== ======== =========
Ratio of earnings to
fixed charges..... 1.11 N/A(5) N/A(5) 1.14 1.18 N/A(5)
Earnings (loss) per
common share (2):
basic............. $(0.17) $(0.24) $(0.14) $(0.01) $(0.01) $(0.41)
diluted........... $(0.17) $(0.24) $(0.14) $(0.01) $(0.01) $(0.41)
Weighted average
shares
and equivalent
outstanding (2):
basic............. 20,472,807 20,472,807 20,472,807 20,472,807 20,472,807 58,602,844
diluted........... 20,472,807 20,472,807 20,472,807 20,472,807 20,924,890 62,293,258
BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash
equivalents....... $ 4,698 $ 4,759 $ 2,390 $ 2,160 $ 9,064
Property, equipment
and leaseholds, net $566,043 $605,982 $602,435 $613,692 $609,152
Total assets........ $675,667 $723,108 $715,810 $721,372 $728,551
Total long-term debt
(including current
maturities and
capital leases)... $263,791 $313,098 $298,680 $306,342 $307,616
Total liabilities... $343,147 $395,510 $390,980 $396,722 $404,040
Stockholders' equity $332,520 $327,598 $324,830 $324,650 $324,511
CASH FLOW STATEMENT
DATA (3):
Cash flow provided
by operating
activities........ $55,150 $36,188 $46,326 $47,976 $64,185
<FN>
- ---------------------------------
(1) The final amount of the excess of the purchase price over the
historical net book value of the net assets of Cineplex Odeon and the
allocation of such excess has not yet been determined.
(2) Restated in all periods presented to reflect impact of a stock
dividend declared on February 5, 1998.
(3) Due to the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the unaudited pro
forma adjustments, cash flow from operations are not presented in the
unaudited pro forma data.
(4) The unaudited pro forma data are not necessarily indicative of the
combined results of operations of the Company that would have occurred
nor are they necessarily indicative of future operating results of the
Company.
(5) Earnings would not have covered the fixed charges by $6,259, $2,459
and $21,515 for the years ended February 28, 1995 and February 28,
1996 and on a pro forma basis for the year ended February 28, 1998,
respectively.
</FN>
</TABLE>
<PAGE>
UNAUDITED
THREE MONTHS ENDED MAY 31,
---------------------------------------
1997 1998(1)(3)
------------ --------------------------
ACTUAL ACTUAL(2) PRO FORMA
------------ ------------- ------------
(IN THOUSANDS, EXCEPT SHARES
OUTSTANDING AND PER SHARE DATA)
INCOME STATEMENT DATA:
Admissions revenues................... $ 67,370 $ 83,207 $148,747
Concessions revenues.................. 23,486 31,170 56,471
Other revenues........................ 2,360 3,437 9,107
------------ ------------- ------------
93,216 117,814 214,325
------------ ------------- ------------
Theatre operations and other expenses
(including concession costs)........ 71,095 89,943 175,948
General and administrative............. 5,937 7,946 15,116
Depreciation and amortization.......... 12,597 14,681 24,514
Interest expense, net.................. 3,622 6,106 12,426
Income tax expense/(benefit)........... 365 (119) 258
----------- ------------- ------------
Net income (loss)...................... $ (400) $ (743) $(13,937)
=========== ============= ============
Ratio of earnings to fixed charges..... N/A (6) N/A(6) N/A(6)
Earnings (loss) per common share (4):
basic................................ $ (0.02) $ (0.03) $ (0.24)
diluted.............................. $ (0.02) $ (0.03) $ (0.24)
Weighted average shares and equivalent
outstanding (4):
basic................................ 20,472,807 24,619,805 58,621,622
diluted.............................. 20,472,807 24,984,549 62,035,255
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.............. $ 37,785 $ 37,785
Property, equipment and leaseholds, net $1,180,376 $1,180,376
Total assets........................... $1,617,287 $1,625,287
Total long-term debt (including
current maturities and capital
leases).............................. $729,841 $653,778
Total liabilities...................... $1,022,019 $927,394
Stockholders' equity................... $595,268 $697,893
CASH FLOW STATEMENT DATA (5):
Cash flow provided by operating
activities.......................... $ 9,974 $ 27,292
- ------------------
(1) The final amount of the excess of the purchase price over the
historical net book value of the net assets of Cineplex Odeon and the
allocation of such excess has not yet been determined.
(2) Includes operating results of Cineplex Odeon from May 15, 1998 through
May 31, 1998.
(3) The unaudited quarterly pro forma data is not necessarily indicative
of the combined results of operations of the Company that would have
occurred nor is it necessarily indicative of future operating results
of the Company. Further, due to seasonality in the exhibition
industry, the Company's first fiscal quarter of 1998 is not
necessarily representative of future operating results for the
remainder of the year.
(4) Restated in all periods presented to reflect impact of a stock
dividend declared on February 5, 1998.
(5) Due to the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the unaudited pro
forma adjustments, cash flow from operations is not presented in the
unaudited pro forma data.
(6) Earnings did not cover fixed charges by $35 and by $862 for the three
months ended May 31, 1997 and 1998, respectively, and by $13,679 on a
pro forma basis for the three months ended May 31, 1998.
<PAGE>
CINEPLEX ODEON
The following table sets forth summary historical financial data,
based on continuing operations, for Cineplex Odeon for the five fiscal
years ended December 31, 1997 and has been derived from Cineplex Odeon's
annual consolidated financial statements and notes related thereto. The
summary historical financial data should be read in conjunction with the
separate consolidated financial statements and notes thereto of Cineplex
Odeon and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cineplex Odeon", which are included elsewhere in
this Prospectus. Cineplex Odeon's historical financial statements are
prepared in accordance with generally accepted accounting principles
("GAAP") in Canada, which, except as described in footnote 17 to Cineplex
Odeon's historical financial statements, conform in all material respects
with accounting principles generally accepted in the United States.
<TABLE>
<CAPTION>
ACTUAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Admissions revenues.............. $388,944 $384,558 $365,220 $358,973 $399,171
Concessions revenues............. 138,387 133,850 126,319 126,636 147,892
Other revenues................... 18,899 22,704 21,611 24,083 26,714
------------- ------------- ------------ ------------- -------------
546,230 541,112 513,150 509,692 573,777
------------- ------------- ------------ ------------- -------------
Theatre operations and other
expenses (including
concession costs).............. 459,759 459,258 440,747 440,685 491,443
General and administrative....... 15,494 16,229 17,575 18,192 20,313
Depreciation and amortization.... 41,577 40,859 42,621 43,648 45,715
Other expenses (income).......... (1,267) 2,900 2,862 1,377 43,401
Interest expense, net............ 28,033 33,641 40,983 35,482 33,900
Income taxes..................... 1,665 2,398 1,269 1,390 1,072
------------- ------------- ------------ ------------- -------------
Net income (loss)................ $ 969 $(14,173) $(32,907) $(31,082) $(62,067)
============= ============= ============ ============= =============
Earnings (loss) per common share:
basic.......................... $0.01 $(0.13) $(0.29) $(0.19) $(0.35)
diluted........................ $0.01 $(0.13) $(0.29) $(0.19) $(0.35)
Weighted average shares
outstanding and equivalent
outstanding:
basic.......................... 106,730,000 110,175,000 114,764,000 163,473,000 176,795,000
diluted........................ 115,181,000 118,245,000 122,616,000 176,107,000 191,304,000
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents........ $ 1,268 $ 1,551 $ 1,604 $ 2,718 $ 3,505
Property, equipment and
leaseholds, net................ $619,309 $614,741 $583,442 $579,841 $567,431
Total assets..................... $697,105 $688,693 $649,643 $644,171 $635,475
Long-term debt (including current
maturities and
capital leases)................ $394,571 $396,665 $399,454 $341,301 $367,240
Total liabilities................ $496,718 $492,518 $483,651 $425,591 $484,293
Shareholders' equity............. $200,387 $196,175 $165,992 $218,580 $151,182
CASH FLOW STATEMENT DATA:
Cash flow provided by operating
activities....................... $38,674 $31,435 $ 3,522 $12,416 $30,780
</TABLE>
<PAGE>
HISTORICAL AND UNAUDITED PRO FORMA
COMBINED KEY OPERATING STATISTICS
LOEWS CINEPLEX
The table below sets forth key operating statistics for Loews Cineplex
on an actual basis and on a pro forma combined basis giving effect to the
Combination. In order to arrive at a more meaningful presentation of
financial operating data related to the productivity and performance of
Loews Cineplex, and, except as otherwise noted, all amounts below include
100% of the operating results of the U.S. Partnerships, although Loews
Cineplex has only a 50% interest in each of the U.S. Partnerships. This
information does not include any potential benefit that may be realized
from anticipated operating efficiencies and cost savings as a result of the
Combination. Management views these statistics as key financial measures
and believes that certain investors find them useful in analyzing companies
in the motion picture exhibition industry. No measure is more meaningful
than another, and management uses these measures collectively to assess
Loews Cineplex's operating performance.
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED THREE MONTHS
PRO FORMA ENDED MAY 31,
ACTUAL YEAR ENDED ----------------------------------
YEAR ENDED FEBRUARY 28 OR 29, FEBRUARY 1997 1998(7)
-------------------------------------------------- 28, -------- ---------------------
1994 1995 1996 1997 1998 1998(1)(7) ACTUAL ACTUAL PRO FORMA(1)
---- ---- ---- ---- ---- ---------- -------- ------- ------------
(IN THOUSANDS, EXCEPT SCREEN, LOCATION, PER PATRON AND MARGIN DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Screens operated at
period end........... 981 1,030 950 959 1,035 2,704 986 2,794 2,728
Locations operated at
period end........... 182 180 154 143 139 439 142 450 437
Screens per location... 5.4 5.7 6.2 6.7 7.4 6.2 6.9 6.2 6.2
Attendance............. 52,113 52,656 53,544 53,133 58,387 143,266 12,855 16,686 31,052
Total revenues......... $ 360,828 $ 377,171 $ 400,412 $ 421,613 $ 480,437 $1,042,749 $105,553 $ 134,739 $231,251
Revenues per screen(2). $ 367.82 $ 366.19 $ 421.49 $ 439.64 $ 464.19 $ 385.63 $ 107.60 $ 100.40 $ 84.77
Revenues per location(2) $1,982.57 $2,095.39 $2,600.08 $2,948.34 $3,456.38 $ 2,375.28 $ 733.01 $ 701.77 $ 529.18
EBITDA(3).............. $ 48,906 $ 42,926 $ 54,190 $ 61,467 $ 69,238 $ 131,239 $ 16,184 $ 19,925 $ 23,261
Total EBITDA(4)........ $ 57,982 $ 62,540 $ 68,177 $ 78,273 $ 86,643 $ 154,540 $ 17,841 $ 22,210 $ 25,546
Partners' share of
Total EBITDA......... $ 3,677 $ 4,287 $ 4,800 $ 4,853 $ 6,339 $ 6,339 $ 1,025 $ 1,419 $ 1,419
Attributable EBITDA(4). $ 54,305 $ 58,253 $ 63,377 $ 73,420 $ 80,304 $ 148,201 $ 16,816 $ 20,791 $ 24,127
Total EBITDA per
screen(2)............ $ 59.10 $ 60.72 $ 71.77 $ 81.62 $ 83.71 $ 57.15 $ 18.19 $ 16.55 $ 9.36
Total EBITDA per
location(2).......... $ 318.58 $ 347.44 $ 442.71 $ 547.36 $ 623.33 $ 352.03 $ 123.90 $ 115.68 $ 58.46
Total EBITDA per
patron(2)............ $ 1.11 $ 1.19 $ 1.27 $ 1.47 $ 1.48 $ 1.08 $ 1.39 $ 1.33 $ 0.82
Concessions revenue per
patron............... $ 1.63 $ 1.70 $ 1.82 $ 1.98 $ 2.14 $ 1.88 $ 2.12 $ 2.20 $ 2.00
Concessions margin..... 80.8% 80.9% 80.9% 82.8% 84.5% 82.4% 84.2% 84.6% 83.0%
Admissions revenue per
patron............... $ 5.16 $ 5.34 $ 5.52 $ 5.79 $ 5.91 $ 5.14 $ 5.93 $ 5.69 $ 5.16
CASH FLOW STATEMENT
DATA(5)(6):
Net cash provided by
operating
activities......... $ 55,150 $ 36,188 $ 46,326 $ 47,976 $ 64,185 $ 9,974 $ 27,292
Net cash used in
investing activities. $ (32,098) $ (82,486) $ (34,690) $ (53,254) $ (51,439) $ (8,960) $ (18,590)
Net cash
(used)/provided by
financing
activities......... $(23,022) $ 46,359 $ (14,005) $ 5,048 $ (5,842) $ 10,449 $ 20,019
<FN>
- ------------------------
(1) The information presented is derived from unaudited pro forma
information which is presented elsewhere in this Prospectus. See
"Unaudited Pro Forma Financial Information".
(2) All per screen, location and patron ratios are calculated based upon
screens and locations as of period end and include the U.S.
Partnerships except for the actual three months ended May 31, 1998 and
1997, which are calculated using a weighted average number of screens
and locations. This is due to the inclusion of the operations of
Cineplex Odeon for the last 17 days of the period ended May 31, 1998.
Use of the weighted average number of screens and locations for the
remaining historical data would not result in substantially different
data from the information presented.
(3) EBITDA consists of earnings before interest, income taxes,
depreciation and amortization including equity earnings from
investments in the U.S. Partnerships. EBITDA should not be construed
as an alternative to operating income (as determined in accordance
with U.S. GAAP), as a measure of the Company's operating performance,
or as an alternative to cash flows from operating activities (as
determined in accordance with U.S. GAAP), as a measure of the
Company's liquidity. EBITDA measures the amount of cash that a company
has available for investment or other uses and is used by the Company
as a measure of its performance. The Company believes that EBITDA is
an important measure, in addition to cash flow from operations,
Attributable EBITDA and Total EBITDA, in viewing its overall liquidity
and borrowing capacity.
(4) Total EBITDA consists of EBITDA plus loss on sale/disposals of
theatres and 100% of the operating results of the U.S. Partnerships.
Total EBITDA should not be construed as an alternative to operating
income (as determined in accordance with U.S. GAAP), as a measure of
the Company's operating performance, or as an alternative to cash
flows from operating activities (as determined in accordance with U.S.
GAAP), as a measure of the Company's liquidity. Total EBITDA measures
the amount of cash that a company has available for investment or
other uses and is used by the Company as a measure of its performance.
The Company believes that Total EBITDA is an important measure, in
addition to cash flow from operations, Attributable EBITDA and EBITDA,
in viewing its overall liquidity and borrowing capacity. Attributable
EBITDA equals Total EBITDA less partners' share of Total EBITDA. A
reconciliation of EBITDA to Total EBITDA and Attributable EBITDA
follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED MAY 31,
ACTUAL UNAUDITED -----------------------------------
YEAR ENDED FEBRUARY 28 OR 29, PRO FORMA 1997 1998
------------------------------------------------------ YEAR ENDED ----------- ---------------------
FEBRUARY 28,
1994 1995 1996 1997 1998 1998 ACTUAL ACTUAL PRO FORMA
-------- ---------- ---------- ----------- ----------- ------------ ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.............. $ 48,906 $ 42,926 $ 54,190 $ 61,467 $ 69,238 $ 131,239 $ 16,184 $ 19,925 $ 23,261
Add: Loss on
sale/disposals of
theatres*......... 3,491 13,420 7,249 9,951 7,787 13,683 -- -- --
-------- --------- -------- --------- --------- ---------- --------- -------- ----------
Modified EBITDA,
including equity
earnings.......... 52,397 56,346 61,439 71,418 77,025 144,922 16,184 19,925 23,261
Less: Equity
earnings/other,
included in EBITDA 1,769 2,380 2,862 2,851 3,060 3,060 393 553 553
Add: EBITDA from
U.S. Partnerships. 7,354 8,574 9,600 9,706 12,678 12,678 2,050 2,838 2,838
-------- --------- -------- --------- --------- ---------- --------- -------- ----------
Total EBITDA........ 57,982 62,540 68,177 78,273 86,643 154,540 17,841 22,210 25,546
Less: Partners'
share of Total
EBITDA............ 3,677 4,287 4,800 4,853 6,339 6,339 1,025 1,419 1,419
-------- --------- -------- --------- --------- ---------- --------- -------- ----------
Attributable EBITDA. $ 54,305 $ 58,253 $ 63,377 $ 73,420 $80,304 $ 148,201 $ 16,816 $ 20,791 $ 24,127
======== ========= ======== ========= ========= ========== ========= ======== ==========
<FN>
- ------------------------------
* Primarily represents (i) the noncash write off of the net book value
of the theatres disposed of and (ii) provisions for net disposal costs
(where applicable) related to the disposition of such theatres.
(5) Cash flow statement data includes cash flows from long term
investments in the U.S. Partnerships to the extent of the Company's
equity interest.
(6) Due to the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the unaudited pro
forma adjustments, cash flow from operating, investing and financing
activities are not presented in the unaudited pro forma data.
(7) The unaudited pro forma data is not necessarily indicative of the
combined results of operations of the Company that would have occurred
nor is it necessarily indicative of future operating results of the
Company. Further, due to seasonality in the exhibition industry, the
Company's first fiscal quarter of 1998 is not necessarily
representative of future operating results for the remainder of the
year.
</FN>
</TABLE>
<PAGE>
CINEPLEX ODEON
The table below sets forth key operating statistics, based on
continuing operations, for Cineplex Odeon as of, and for, each of the
periods indicated. Management views these statistics as key financial
measures and believes that certain investors find them useful in analyzing
companies in the motion picture exhibition industry. No measure is more
meaningful than another, and management uses these measures collectively to
assess Cineplex Odeon's operating performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
----------- ---------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT SCREEN, LOCATION, PER
PATRON AND MARGIN DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Screens operated at period end... 1,622 1,638 1,512 1,549 1,729
Locations operated at period end. 363 360 325 316 315
Screens per location............. 4.5 4.6 4.7 4.9 5.5
Attendance....................... 88,225 86,082 81,203 78,356 87,321
Total revenues................... $ 546,230 $ 541,112 $ 513,150 $ 509,692 $ 573,777
Revenues per screen(1)........... $ 336.76 $ 330.35 $ 339.38 $ 329.05 $ 331.85
Revenues per location(1)......... $1,504.77 $1,503.09 $1,578.92 $1,612.95 $1,812.51
EBITDA(2)........................ $ 72,244 $ 62,725 $ 51,966 $ 49,438 $ 18,620
Modified EBITDA(3)............... $ 70,977 $ 65,625 $ 54,828 $ 50,815 $ 62,021
Modified EBITDA per screen(1).... $ 43.76 $ 40.06 $ 36.26 $ 32.81 $ 35.87
Modified EBITDA per location(1).. $ 195.53 $ 182.29 $ 168.70 $ 160.81 $ 196.89
Modified EBITDA per patron(1).... $ 0.80 $ 0.76 $ 0.68 $ 0.65 $ 0.71
Concessions revenue per patron(4) $ 1.57 $ 1.55 $ 1.56 $ 1.62 $ 1.69
Concessions margin............... 85.9% 83.8% 82.6% 82.3% 80.6%
Admissions revenue per patron(4). $ 4.41 $ 4.47 $ 4.50 $ 4.58 $ 4.57
CASH FLOW STATEMENT DATA:
Cash provided by (used for)
operating activities........... $ 38,674 $ 31,435 $ 3,522 $ 12,416 $ 30,780
Cash used for investment
activities..................... $ (7,264) $ (41,049) $ (7,714) $ (35,961) $ (58,697)
Cash provided by (used for)
financing activities........... $ (30,445) $ 9,897 $ 4,245 $ 24,659 $ 28,704
<FN>
- --------------------------------------------------
(1) All per screen, location and patron ratios are calculated as of period
end and include screens and locations in which Cineplex Odeon has a
partnership interest. Revenues, EBITDA and Modified EBITDA, however,
reflect only Cineplex Odeon's proportionate share of the revenues,
EBITDA and Modified EBITDA of such partnerships, equal to the
respective percentage ownership interests of Cineplex Odeon in such
partnerships.
(2) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. EBITDA should not be construed as an alternative to
operating income (as determined in accordance with Canadian GAAP), as
a measure of Cineplex Odeon's operating performance, or as an
alternative to cash flow from operating activities (as determined in
accordance with Canadian GAAP), as a measure of Cineplex Odeon's
liquidity. EBITDA measures the amount of cash that a company has
available for investment or other uses and was used by Cineplex Odeon
as a measure of its performance. Cineplex Odeon believes that EBITDA
is an important measure, in addition to cash flow from operations and
Modified EBITDA, in viewing its overall liquidity and borrowing
capacity. EBITDA measures the amount of cash that a company has
available for investment or other uses and is used by Cineplex Odeon
as a measure of its performance.
(3) Modified EBITDA is EBITDA after eliminating the impact of other
expenses (income). Modified EBITDA should not be construed as an
alternative to operating income (as determined in accordance with
Canadian GAAP), as a measure of Cineplex Odeon's operating
performance, or as an alternative to cash flow from operating
activities (as determined in accordance with Canadian GAAP), as a
measure of Cineplex Odeon's liquidity. Modified EBITDA measures the
amount of cash that a company has available for investment or other
uses and was used by Cineplex Odeon as a measure of its performance.
Cineplex Odeon believes that Modified EBITDA is an important measure,
in addition to cash flow from operations and EBITDA, in viewing its
overall liquidity and borrowing capacity. A reconciliation of EBITDA
to Modified EBITDA follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
----------- ---------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA ....................... $ 72,244 $ 62,725 $ 51,966 $ 49,438 $ 18,620
Other expenses (income)....... (1,267) 2,900 2,862 1,377 43,401*
----------- ---------- ----------- ----------- ------------
Modified EBITDA**............. $ 70,977 $ 65,625 $ 54,828 $ 50,815 $ 62,021
=========== ========== =========== =========== ============
<FN>
------------------------------
* Includes $37.5 million representing unusual and nonrecurring loss on
Cineplex Odeon theatres to be closed as part of the contractual
obligations related to the Combination. This charge was recorded in
the fourth quarter of 1997.
** In the case of Cineplex Odeon, Modified EBITDA is substantially
comparable to Attributable EBITDA.
(4) Admissions and concessions revenue per patron is affected by the fact
that, during the periods reflected, a significant portion of Cineplex
Odeon's revenues was generated in Canadian dollars and for purposes of
financial reporting has been converted to U.S. dollars.
</FN>
</TABLE>
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following risk factors
before exchanging for the New Notes offered hereby. This Prospectus
contains forward looking statements. These statements are subject to a
number of risks and uncertainties, certain of which are beyond the
Company's control. See "Cautionary Statement Concerning Forward-Looking
Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
HISTORICAL NET LOSSES
Each of the Company and Cineplex Odeon reported net losses during the
three fiscal years ended December 31, 1997, in the case of Cineplex Odeon,
and February 28, 1998, in the case of the Company, although each company
had positive cash flow from operations during such periods. Historically,
the respective companies used such cash flow to fund, among other things,
investments in theatre facilities and to service outstanding debt. Among
the principal assumptions made by Loews Cineplex in analyzing the
Combination were that (i) the cash flow of Loews Cineplex would increase
compared to the separate results of Cineplex Odeon and Loews Theatres due
to certain cost savings and revenue enhancements anticipated to result from
the Combination, (ii) the Company would achieve such cost savings and
revenue enhancements through, among other things, the reduction of certain
overhead expenses of the two companies and (iii) the Company would benefit
from the complementary skills and expertise of the respective managements
of Loews Theatres and Cineplex Odeon. There can be no assurance, however,
as to the amount of cash flow that will be generated by the Company and
available to fund expansion projects and service debt of the Company or
that the other assumed benefits of the Combination will be realized. In
addition, there can be no assurance that the Company will not continue to
have net losses. Moreover, under U.S. GAAP, the accounting for the
Combination follows the purchase method of accounting. The valuations and
other studies required to determine the allocation of Excess Purchase Price
to the net assets acquired (e.g., fixed assets, goodwill and other
intangibles) are in process and have not yet been completed. Accordingly,
the final valuation could result in a materially different amount of Excess
Purchase Price and a materially different allocation of the purchase price
among the purchased assets from the amounts and allocations presented in
the pro forma financial statements included elsewhere herein. The final
valuation, and the allocations and amortization of goodwill resulting
therefrom, could materially affect reported results. See "Unaudited Pro
Forma Financial Information".
RISKS OF INTEGRATION
The Combination involves the integration of two theatre circuits that
previously operated independently. No assurance can be given that Loews
Cineplex will be able to integrate the respective operations of the Loews
Theatres and Cineplex Odeon theatre circuits without encountering
difficulties or experiencing the loss of key personnel or that the benefits
expected from such integration will be realized. The integration of two
theatre circuits across geographically dispersed operations can create the
risk of interruption of, or loss of momentum in, the activities of Loews
Cineplex's operations, which could have an adverse effect on Loews
Cineplex's business and financial condition. Furthermore, there can be no
certainty that the Combination will not adversely affect the relationships
with key suppliers of either Cineplex Odeon or Loews Theatres, which also
could have an adverse effect on Loews Cineplex's business and financial
condition.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
Loews Cineplex is highly leveraged. At May 31, 1998, the Company's
total long-term debt (including capital leases and the current portion of
long-term debt) was approximately $730 million (representing approximately
55.1% of total capitalization) and, on a pro forma basis after giving
effect to the Transactions, would have been approximately $654 million
(representing approximately 48.4% of total capitalization).
The degree to which Loews Cineplex is leveraged could have important
consequences to holders of the New Notes, including: (i) that a substantial
portion of the cash flow from operations of Loews Cineplex and its
subsidiaries will be required to be dedicated to Loews Cineplex's interest
and principal obligations with respect to its indebtedness (including
Senior Debt) and may not be available to Loews Cineplex and its
subsidiaries for operations, working capital, capital expenditures,
expansion, acquisitions, general corporate or other purposes; (ii) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, expansion, acquisitions, general corporate
or other purposes may be impaired; (iii) the Company may be more highly
leveraged than certain other motion picture exhibitors, which may place it
at a competitive disadvantage; (iv) the Company's flexibility in planning
for, or reacting to, changes in its business and industry may be limited;
and (v) the Company's degree of leverage may make it more vulnerable in the
event of a downturn in its business or industry or the economy in general.
In addition, the Bank Credit Facilities and the Indenture contain financial
and other restrictive covenants that limit the ability of the Company to,
among other things, borrow additional funds, incur liens on its assets and
pay dividends on its capital stock. Failure by the Company to comply with
such covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company. In addition,
the degree to which the Company is leveraged could prevent it from
repurchasing all of the New Notes tendered to it upon the occurrence of a
Change of Control. See "Description of New Notes--Covenants--Change of
Control" and "Description of Certain Indebtedness".
The Company's ability to make scheduled principal payments on, or to
pay interest on, or to refinance its indebtedness (including the New Notes)
depends on its future performance which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Based upon the Company's current level of
operations and anticipated growth, the management of the Company believes,
based on current circumstances, the Company's available cash flow, together
with available borrowing capacity under the Bank Credit Facilities and
other sources of liquidity, will be adequate to meet the Company's
anticipated future requirements for working capital, letters of credit,
capital expenditures and scheduled payments of interest and, under certain
circumstances, principal on amounts due under the Bank Credit Facilities,
other Senior Debt and interest on the New Notes. However, there can be no
assurance that the Company's businesses will generate sufficient cash flow
from operations or that future financing will be available in an amount
sufficient to enable the Company to service its indebtedness, including the
New Notes, or to make necessary capital expenditures, or that any
refinancing would be available, or available on commercially reasonable
terms. Further, depending on the timing, amount and structure of any future
acquisitions and the availability of funds for acquisitions under the Bank
Credit Facilities, the Company may need to raise additional capital to fund
the acquisitions of additional businesses. In the event that Loews Cineplex
and its subsidiaries are unable to meet their obligations with respect to
existing indebtedness (including Senior Debt), they may be required to
refinance or restructure all or a portion of such indebtedness, sell
material assets or operations, reduce or delay capital expenditures or seek
to raise additional debt or equity capital. There can be no assurance that
Loews Cineplex and its subsidiaries would be able to effect any such
refinancing or restructuring or sell assets or obtain any such additional
capital on satisfactory terms, or that any of the proceeds therefrom would
be sufficient to enable the Company to service its indebtedness, including
the New Notes, or to fund its other liquidity needs.
FRAUDULENT CONVEYANCE
The incurrence by the Company of indebtedness under the Notes to fund
the Plitt Note Repurchase could be subject to review under relevant federal
and state fraudulent transfer or conveyance laws in a bankruptcy case
involving, or a lawsuit commenced by or on behalf of unpaid creditors of,
the Company. If a court were to find under such laws that (i) at the time
the Notes were issued the Company had incurred the indebtedness under the
Notes with the intent of hindering, delaying or defrauding creditors, or
(ii) the Company received less than reasonably equivalent value or fair
consideration for the Notes and (x) was insolvent or rendered insolvent by
reason of such transaction, (y) was engaged in a business or transaction
for which the assets remaining with the Company constituted unreasonably
small capital or (z) intended to incur, or believed that it would incur,
debts that it would be unable to pay when due, such court could, among
other things, subordinate the Notes to present or future indebtedness of
the Company, void the issuance of some or all of the indebtedness under the
Notes, direct any amounts paid under the Notes to be repaid to the Company
or applied to a fund for the benefit of the Company's creditors or take
other action that would be detrimental to the holders of the Notes.
The Company believes that the indebtedness represented by the Old
Notes was incurred for proper purposes and in good faith, that the Company
is receiving reasonably equivalent value or fair consideration for
incurring such indebtedness, that the Company was, is and will be solvent
under the foregoing standards and that it had, has and will have sufficient
capital for carrying on its business and was, is, and will be able to pay
its debts as they mature. There can be no assurance, however, that a court
would reach the same conclusions. See "--Substantial Leverage and Ability
to Service Debt".
EFFECTIVE RANKING; SUBORDINATION OF THE NEW NOTES; ASSET ENCUMBRANCES
The New Notes will be subordinated in right of payment to all current
and future Senior Debt of the Company and effectively subordinated to all
liabilities of its subsidiaries. Upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
the Company or its property, the holders of Senior Debt will be entitled to
be paid in full before any payment may be made with respect to the New
Notes. In addition, the subordination provisions of the Indenture provide
that payments with respect to the New Notes will be blocked in the event of
a payment default on Senior Debt and may be blocked for up to 179 of each
360 days in the event of certain non-payment defaults on Senior Debt. In
the event of a bankruptcy, liquidation or reorganization of the Company,
holders of the New Notes will participate ratably with all holders of
subordinated indebtedness of the Company that is deemed to be of the same
class or ranking as the New Notes, and potentially with all other general
creditors of the Company, based upon the respective amounts owed to each
holder or creditor, in the remaining assets of the Company. In any of the
foregoing events, there can be no assurance that there would be sufficient
assets to pay amounts due on the New Notes. As a result, holders of New
Notes may receive less than the full amounts owing in respect of the New
Notes and less, ratably, than the holders of Senior Debt and other general
creditors of the Company. At May 31, 1998 on a pro forma basis after giving
effect to the Transactions, the Company would have had $654 million of
indebtedness outstanding, of which $350 million would have been Senior
Debt.
In addition, the Bank Credit Facilities are secured by a first
priority lien against Loews Cineplex's personal property, including,
without limitation, all of the shares of stock of its direct domestic
subsidiaries and 65% of the capital stock of its direct foreign
subsidiaries, and are guaranteed by each of its domestic subsidiaries,
which guarantees are secured by a first priority lien against such
guarantors' personal property, including, without limitation, all of the
shares of stock of each of their direct domestic subsidiaries and 65% of
the capital stock of each of their direct foreign subsidiaries. Under
certain circumstances, certain other indebtedness or obligations of Loews
Cineplex and its subsidiaries may be secured by liens on some or all of
their assets. If the lenders under the Bank Credit Facilities or the
holders of any other secured indebtedness were to foreclose on the
collateral securing such indebtedness owing to them, it is possible that
after satisfaction of all such other secured indebtedness in full, the
value of the assets of Loews Cineplex not pledged to any other creditor
would be insufficient to satisfy fully the claims of the holders of the New
Notes and that the Company's financial condition and the value of the New
Notes would be materially and adversely affected. See "Description of
Certain Indebtedness".
RESTRICTIONS IMPOSED BY BANK CREDIT FACILITIES; VARIABLE INTEREST RATES
The Bank Credit Facilities impose, and the Indenture imposes, a number
of significant financial and other covenants on Loews Cineplex, including
the maintenance of certain financial tests, all as described under the
headings "Description of Certain Indebtedness" and "Description of New
Notes". These covenants limit the operating flexibility of Loews Cineplex
and Plitt and may adversely affect the Company's ability to finance its
future operations or capital needs. In addition, the ability of the Company
to comply with the financial covenants included in the financing
arrangements may be affected by events beyond the Company's control. A
failure to make any required payment under the financing arrangements or to
comply with any of the financial or operating covenants included in the
financing arrangements would generally result in an event of default
thereunder, permitting the lenders to accelerate the maturity of the
indebtedness under certain agreements, including without limitation, the
Bank Credit Facilities and to foreclose upon the collateral securing such
indebtedness. Under any such circumstances, there can be no assurance that
Loews Cineplex would have sufficient assets to satisfy all of such
obligations.
Interest rates payable by Loews Cineplex under the Bank Credit
Facilities are variable based on changes in certain market interest rates
and the maintenance of certain financial performance ratios. If such
interest rates were to rise substantially, the increased interest payments
payable by the Company could have an adverse effect on its financial
condition.
HOLDING COMPANY STRUCTURE
The New Notes are obligations exclusively of the Company. Since most
of the Company's operations are currently conducted through, and all of its
theatres are owned or leased by, subsidiaries, the Company's cash flow and
its ability to service its debt, including the New Notes, is dependent upon
the earnings of its subsidiaries and the distribution of those earnings to
the Company or upon loans or other payments of funds by those subsidiaries
to the Company.
As a result of the holding company structure of the Company, holders
of the New Notes will be structurally junior to all creditors of the
Company's subsidiaries, except to the extent that the Company is itself
recognized as a creditor of such subsidiary, in which case the claims of
the Company would still be subordinate to any security in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held
by the Company. In the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company's
subsidiaries, the Company will not receive funds available to pay to
holders of the New Notes in respect of the New Notes until after the
payment in full of the claims of the creditors of the subsidiaries.
POTENTIAL INABILITY TO REPURCHASE NEW NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be
required to offer to repurchase the New Notes at 101% of the principal
amount of the New Notes, together with accrued and unpaid interest, if any,
to the date of purchase. The events that constitute a Change of Control
under the Indenture may also be events of default under the Bank Credit
Facilities or other Senior Debt of the Company. Such events may permit the
holders under such debt instruments to accelerate the payment of such
Senior Debt and, if such Senior Debt is not paid, to proceed against their
collateral, if any, or to commence litigation that could ultimately result
in a sale of substantially all of the assets of the Company. If the Company
is unable to repay all of such Senior Debt, the Company will be unable to
offer to repurchase the New Notes, which would constitute an Event of
Default under the Indenture. There can be no assurance that the Company
will have sufficient funds available at the time of any Change of Control
to make the payments (including repurchases of the New Notes) as described
above or that the Company would be able to refinance its outstanding
indebtedness in order to permit it to repurchase the New Notes or, if such
refinancing were to occur, that such financing would be on terms favorable
to the Company. See "Description of New Notes--Covenants--Change of
Control".
DEPENDENCE UPON MOTION PICTURE PRODUCTION AND PERFORMANCE; SEASONALITY
The ability of the Company to operate successfully depends upon a
number of factors, the most important of which is the availability of
suitable motion pictures for exhibition in its theatres and the commercial
success of such motion pictures in its markets. Accordingly, the ultimate
success of the Company's operations depends on, among other things, the
quality, quantity, availability and acceptance by movie-goers of the films
available for commercial exhibition. Any disruption in the production or
distribution of motion pictures and/or poor performance of motion pictures
could have a material adverse effect on the Company's business and
financial condition. In addition, theatre admission and concession revenues
are subject to seasonal fluctuations that affect all motion picture
exhibitors. These fluctuations result principally from the distribution
practices of the major motion picture studios which have historically
concentrated on the release of a disproportionately large number of motion
pictures during the summer and holiday seasons. This practice has in the
past resulted, and may in the future be expected to result, in variations
in the Company's results from period to period during a fiscal year.
COMPETITION
The entertainment business generally, and the theatrical motion
picture exhibition business in particular, are highly competitive. The
Company's operations are subject to varying degrees of competition with
other theatre circuits with respect to, among other things, licensing
films, attracting patrons, obtaining new theatre sites and acquiring
theatre circuits. In addition, the Company's theatres face competition from
alternative motion picture exhibition delivery systems, including video
cassette, laser disk and digital video disk sales and rentals, satellite
television, pay-per-view, pay television, other basic cable television
services, broadcast network and syndicated television, the world wide web
and the Internet and other media. There can be no assurance that these
alternative media and other forms of home entertainment that may become
available in the future will not materially adversely affect the business
or financial condition of the Company. The Company will also face
competition from other forms of entertainment which compete for the
public's leisure time and disposable income.
UNCERTAINTIES RELATING TO FUTURE EXPANSION PLANS
Historically, both Loews Theatres and Cineplex Odeon greatly expanded
their operations through existing theatre acquisitions and developing new
theatres. The Company intends to continue to pursue a strategy of expansion
involving the development of new theatres, including in foreign markets,
and acquisitions of existing theatres and theatre circuits. Acquisitions
generally would be made to enter into a new area or to expand the Company's
presence in an existing area. There is significant competition for
potential site locations and existing theatre and theatre circuit
acquisition and expansion opportunities. There can be no assurance that the
Company will be able to develop and/or acquire suitable theatres in the
future or that its expansion strategy will result in improvements to its
business, financial condition or profitability. Furthermore, the Company's
expansion program may require funds in addition to internally generated
funds and funds provided by the Bank Credit Facilities. Although the
Company believes that internally generated funds and borrowings under the
Bank Credit Facilities will be adequate to fund the Company's capital and
expansion plans for the foreseeable future, there can be no assurances that
the Company will not have additional financing requirements in the future
or sources of such funds will be available to the Company on acceptable
terms.
Development of new movie theatres from concept through construction to
opening is a form of commercial real estate development and is subject to
many of the same risks as commercial real estate development. Loews
Cineplex selectively screens potential development properties to locate new
theatres in areas where attendance levels are expected to be sufficient to
provide the Company with a reasonable return on its investment.
Unanticipated costs may be incurred throughout the development process due
to changes in design and/or increases in building material and construction
labor costs. In most areas in which the Company is likely to develop new
theatre facilities or expand existing facilities, the development and
construction of theatres are subject to state and local planning, zoning
and construction regulations, and the Company may have to obtain approvals
and/or permits from planning and zoning boards and construction officials.
In addition, local residents may oppose the building of a new theatre due
to their perception of its impact on the community. If design or
construction costs increase beyond anticipated levels, or necessary local
approvals or permits are delayed, denied or challenged, the Company might
be unable to pursue or complete certain development projects or the
development costs may be significantly increased.
RISK OF FOREIGN OPERATIONS
Foreign operations are generally subject to various risks that are not
present, or not present to the same extent, in domestic operations,
including without limitation restrictions on repatriation of funds,
unexpected changes in tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, changes in foreign government
regulations, inflation, fluctuations in interest rates and currency
exchange rates, price, wage and exchange controls, labor disputes, reduced
protection for intellectual property rights in some countries, licensing
requirements, seasonal reductions in business activity, potentially adverse
tax consequences and civil disturbances and uncertain political and
economic environments as well as risks of war and other risks that may
limit or disrupt motion picture exhibition and markets, restrict the
movement of funds or result in the deprivation of contract rights or the
taking of property by nationalization or appropriation without fair
compensation. There can be no assurance that one or more of such factors
will not have a material adverse effect on the Company's anticipated future
operations in foreign markets and, consequently, on the Company's business
and results of operations. Loews Cineplex's management has only limited
experience in conducting the motion picture exhibition business in
international markets and, accordingly, there can be no assurance that the
Company's future operations in foreign markets will be successful.
CONTROL BY SIGNIFICANT STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS;
POTENTIAL CONFLICTS OF INTEREST
The Company is controlled by SPE, Universal and the Claridge Group,
which own, respectively, 39.5% (39.5% of the voting Common Stock), 25.6%
(25.5% of the voting Common Stock) and 7.4% (7.4% of the voting Common
Stock) of the capital stock of Loews Cineplex. The Stockholders in the
aggregate own approximately 72.5% of the outstanding Loews Cineplex Common
Stock and have agreed to vote their respective Common Stock in connection
with the election of Loews Cineplex directors and certain other matters in
accordance with the terms of the Stockholders Agreement (as defined
herein). As a result, the Stockholders will have the effective ability to
control the management and operations of the Company. All of the directors
of Loews Cineplex have been, and will continue to be, designated by SPE,
Universal or the Claridge Group, other than (i) Independent Directors (as
hereinafter defined) and (ii) the directors who are the two most senior
executives of the Company (the "Management Directors"). Pursuant to the
terms of the Amended and Restated Stockholders Agreement dated as of
September 30, 1997 by and among the Company, SPE, Universal and the
Claridge Group (the "Stockholders Agreement"), certain actions by the
Company will require the prior consent of SPE and Universal including,
without limitation, mergers and other business combinations involving the
Company and third parties. See "The Stockholders Agreement".
SPE and certain of its affiliates, and Universal and certain of its
affiliates, currently produce and distribute motion pictures and license
them to, among others, Loews Cineplex. While the management of Loews
Cineplex anticipates that it will conduct business with SPE and Universal
on terms no less favorable to Loews Cineplex than if such relationships
were at arm's length, SPE and Universal are major stockholders of the
Company, and the interests of SPE and its affiliates and Universal and its
affiliates may conflict from time to time with the interest of the Company.
An affiliate of Universal operates a theatre circuit that competes with the
Company's international operations. In addition, businesses conducted by
SPE or Universal, or by their affiliates, may compete with the business of
the Company in the future.
In addition, certain executives or affiliates of the Company have
interests that may be in conflict with the interests of the Company's
stockholders. See "Certain Relationships and Related Transactions".
GOVERNMENTAL REGULATION
In the United States, the distribution of motion pictures is in large
part regulated by federal and state antitrust laws and has been the subject
of numerous antitrust cases. The most significant of these cases is U.S. v.
Paramount Pictures Inc., et al., which was affirmed by the U.S. Supreme
Court in 1950. The consent decrees resulting from the Paramount case bind
certain major film distributors and require the films of such distributors
to be offered and licensed to exhibitors on a film-by-film and
theatre-by-theatre basis. Consequently, Loews Cineplex will not be able to
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 theatre-by-theatre basis. See "Business--Legal
Proceedings".
The Americans with Disabilities Act (the "ADA") and certain state
statutes and local ordinances, among other things, require that places of
public accommodation, including theatres (both existing and newly
constructed), be accessible to, and that assistive listening devices be
available for use by, patrons with disabilities. The ADA may require that
certain modifications be made to existing theatres in order to make such
theatres accessible to certain theatre patrons and employees who are
disabled. The ADA requires that theatres be constructed to permit persons
with disabilities full use of a theatre and its facilities and reasonable
access to work stations. Loews Cineplex has established a program to review
and evaluate its U.S. theatres and to make changes that may be required by
law. Although Loews Cineplex believes that the cost of complying with the
ADA will not have a material adverse effect on its financial condition, the
Company is unable to predict the extent to which the ADA or any future laws
or regulations regarding the needs of the disabled will impact the Company.
See "Business--Legal Proceedings".
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES; VOLATILITY
The New Notes will constitute a new issue of securities with no
established trading market. Accordingly, no assurance can be given that an
active public or other market will develop for the New Notes or as to the
liquidity of or the trading market for the New Notes. It is not expected
that an active trading market for the Old Notes will develop while they are
subject to restrictions on transfer. If a trading market does not develop
or is not maintained, holders of the New Notes may experience difficulty in
reselling the New Notes or may be unable to sell them at all. If a market
for the New Notes develops, any such market may cease to continue at any
time. In addition, if a market for the New Notes develops, the market
prices of the New Notes may be volatile. Factors such as fluctuations in
the Company's earnings and cash flow, the difference between the Company's
actual results and results expected by investors and analysts and economic
developments could cause the market prices of the New Notes to fluctuate
substantially.
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, the Company will not
be required to register any Old Notes not tendered and accepted in the
Exchange Offer. In such event, holders of Old Notes seeking liquidity in
their investment would have to rely on exemptions to the registration
requirements under the securities laws, including the Securities Act, since
the Old Notes will continue to be subject to certain restrictions on
transfer. Following the Exchange Offer, none of the Notes will be entitled
to the contingent increase in interest rate provided for (in the event of a
failure to consummate the Exchange Offer in accordance with the terms of
the Exchange and Registration Rights Agreement) pursuant to the Indenture
and the Old Notes.
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated historical
capitalization of the Company as of May 31, 1998 and (ii) the Pro Forma
capitalization of the Company as adjusted to give effect to the
Transactions as if they had been consummated as of that date. The
information contained in this table should be read in conjunction with the
historical and unaudited pro forma financial information of the Company,
together with the related notes thereto, included elsewhere herein.
MAY 31, 1998
-----------------------
ACTUAL PRO FORMA
--------- ------------
(DOLLARS IN THOUSANDS)
Total Debt (including current portion)
Bank Credit Facilities............................. $ 473,000 $ 293,382
Plitt Notes (guaranteed by Loews Cineplex)......... 200,000 6,000
8 7/8% Senior Subordinated Notes due August 1,
2008 of the Company............................... -- 297,555
Capital lease obligations.......................... 29,468 29,468
Mortgages Payable.................................. 27,373 27,373
----------- ----------
Total debt......................................... 729,841 653,778
----------- ----------
Stockholders' equity
Common Stock, $.01 par value, 300,000,000 shares
authorized; 44,079,924 shares issued and
outstanding
Actual and 58,537,622 shares Pro Forma............ 441 585
Class A Non-Voting Common Stock, $.01 par value,
10,000,000 shares authorized; 1,202,486 shares
issued and outstanding Actual and nil Pro Forma... 12 --
Class B Non-Voting Common Stock, $.01 par value,
10,000,000 shares authorized; 84,000 issued and
outstanding Actual and Pro Forma.................. 1 1
Additional paid-in capital......................... 591,613 694,106
Retained earnings.................................. 3,201 3,201
----------- ----------
Total stockholders' equity......................... 595,268 697,893
----------- ----------
Total capitalization................................. $1,325,109 $1,351,671
=========== ==========
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on August 5, 1998 to the
Initial Purchasers in reliance on Section 4(2) of the Securities Act. The
Initial Purchasers offered and sold the Old Notes within the United States
only to "qualified institutional buyers" (as defined in Rule 144A) in
compliance with Rule 144A and outside the United States in compliance with
Regulation S under the Securities Act.
In connection with the sale of the Old Notes, the Company and the
Initial Purchasers entered into the Exchange and Registration Rights
Agreement, which requires the Company (i) to cause the Old Notes to be
registered under the Securities Act or (ii) to file with the Commission a
registration statement under the Securities Act with respect to an issue of
New Notes of the Company identical in all material respects to the Old
Notes and use its best efforts to cause such registration statement to
become effective under the Securities Act and, upon the effectiveness of
that registration statement, to offer to the holders of the Old Notes the
opportunity to exchange their Old Notes for a like principal amount of New
Notes, which will be issued without restrictive legends and which may be
reoffered and resold by the holder without restrictions or limitations
under the Securities Act. A copy of the Exchange and Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Exchange Offer is being made pursuant
to the Exchange and Registration Rights Agreement to satisfy the Company's
obligations thereunder with regard to the Old Notes. The term "holder" with
respect to the Exchange Offer means any person in whose name Old Notes are
registered on the Trustee's books or any other person who has obtained a
properly completed bond power from the registered holder, or any person
whose Old Notes are held of record by DTC who desires to deliver such Old
Notes, by book-entry transfer at DTC.
The Company is making the Exchange Offer in reliance on the position
of the staff of the Division of Corporation Finance of the Commission set
forth in "no-action" letters issued to third parties in other transactions.
However, the Company has not sought its own "no-action" letter and there
can be no assurance that the staff of the Division of Corporation Finance
of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Based on those
interpretations by the staff of the Division of Corporation Finance of the
Commission, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale,
resold and otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and that such
holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate, in the
distribution (within the meaning of the Securities Act) of such New Notes.
Any holder who participates in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the
New Notes may not rely upon the position of the staff of the Division of
Corporation Finance of the Commission as set forth in those no-action
letters and, in the absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction, and any such secondary
resale transaction must be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K under the Securities Act. Holders of Old Notes wishing to
accept the Exchange Offer must represent to the Company in the Letter of
Transmittal that such conditions have been met. Failure to comply with such
requirements in such instance may result in such holder incurring
liabilities under the Securities Act for which the holder is not
indemnified by the Company.
Each broker-dealer (other than an affiliate of the Company) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes as a result of market-making
activities or other trading activities and will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed to make this Prospectus
available to any broker-dealer for use in connection with any such resale
for a period of 180 days after the Expiration Date or, earlier, if all New
Notes have been disposed of by such broker-dealers. See "Plan of
Distribution". Any broker-dealer who is an affiliate of the Company may not
participate in the Exchange Offer and may not rely on the no-action letters
referred to above and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
The Exchange Offer is not being made to, nor will the Company accept
surrender of Old Notes for exchange from, holders thereof in any
jurisdiction in which the Exchange Offer or the acceptance thereof would
not be in compliance with the securities or "blue sky" laws of such
jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will
represent to the Company that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such New Notes, whether or not
such person is the holder, (ii) neither the holder of Old Notes nor any
such other person is participating, intends to participate or has an
arrangement or understanding with any person to participate, in the
distribution of such New Notes, (iii) if the holder is not a broker-dealer,
or is a broker-dealer but will not receive New Notes for its own account in
exchange for Old Notes, neither the holder nor any such other person is
engaged in or intends to participate in the distribution of such New Notes
and (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act or, if
such holder is an "affiliate", that such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to
the extent applicable. If the tendering holder tenders Old Notes with the
intention of participating, or for the purpose of participating, in the
distribution of the New Notes, it acknowledges that it may not rely upon
certain interpretations by the staff of the Commission described in the
Exchange Offer, and that, in the absence of an exemption therefrom, it must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction, and any
such secondary resale transaction must be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act. If the
tendering holder is a broker-dealer (whether or not it is also an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) that will receive New Notes for its own account in exchange
for Old Notes, it will acknowledge that it acquired such Old Notes as the
result of market making activities or other trading activities and it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. See "Plan of Distribution".
Following the completion of the Exchange Offer, none of the Notes will
be entitled to the contingent increase in interest rate provided pursuant
to the Indenture and the Old Notes. Following the consummation of the
Exchange Offer, holders of Notes will not have any further registration
rights, and the Old Notes will continue to be subject to certain
restrictions on transfer. See "--Consequences of Failure to Exchange".
Accordingly, the liquidity of the market for the Old Notes could be
adversely affected. See "Risk Factors--Consequences of the Exchange Offer
on Non-Tendering Holders of the Old Notes".
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
GENERAL. Upon the terms and subject to the conditions set forth in
this Prospectus and in the Letter of Transmittal, the Company will accept
any and all Old Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. New Notes will be issued
in exchange for an equal principal amount of outstanding Old Notes accepted
in the Exchange Offer. Old Notes may be tendered only in multiples of
$1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New
Notes will be registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, (ii) holders of the New
Notes will not be entitled to certain rights of holders of Old Notes under
the Exchange and Registration Rights Agreement, which agreement will
terminate upon consummation of the Exchange Offer and (iii) the New Notes
will not be entitled to the contingent increase in interest rate provided
pursuant to the Indenture and the Old Notes. The New Notes will evidence
the same debt as the Old Notes and will be entitled to the benefits of the
Indenture. The New Notes will be treated as a single class under the
Indenture with any Old Notes that remain outstanding. The Exchange Offer is
not conditioned upon any minimum aggregate principal amount of Old Notes
being tendered for exchange.
As of the date of this Prospectus, $300,000,000 aggregate principal
amount of Old Notes was outstanding and there is one registered holder
thereof. In connection with the issuance of the Old Notes, the Company
arranged for the Old Notes to be eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages (PORTAL) Market,
the National Association of Securities Dealers' screen-based, automated
market trading of securities eligible for resale under Rule 144A and to be
issued and transferable in book-entry form through the facilities of DTC.
The New Notes will also be issuable and transferable in book-entry form
through DTC.
This Prospectus, together with the Letter of Transmittal, is being
sent to such registered holders.
The Company intends to conduct the Exchange Offer in accordance with
the provisions of the Exchange and Registration Rights Agreement and the
applicable requirements of the Exchange Act, and the rules and regulations
of the Commission thereunder. Old Notes that are not tendered for exchange
in the Exchange Offer will remain outstanding and interest thereon will
continue to accrue, but such Old Notes will not be entitled to any rights
or benefits under the Exchange and Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Old
Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "--Exchange Agent". The Exchange Agent will act
as agent for the tendering holders for the purposes of receiving the New
Notes from the Company and delivering New Notes to such holders. If any
tendered Old Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Notes pursuant to the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "--Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS. The term "Expiration Date"
shall mean 5:00 p.m., New York City time, on November 12, 1998, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended. Although the Company has no current intention
to extend the Exchange Offer, the Company reserves the right to extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release to the PR Newswire. During any extension of the Exchange
Offer, all Old Notes previously tendered pursuant to the Exchange Offer and
not withdrawn will remain subject to the Exchange Offer. The date of the
exchange of the New Notes for Old Notes will be the first business day
following the Expiration Date.
The Company reserves the right, in its discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions
of the Exchange Offer" shall not have been satisfied in the good faith
determination of the Company, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent and (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in any manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to
the registered holders, and the Company will extend the Exchange Offer for
a period of time, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
Without limiting the manner in which the Company may choose to make
public announcements of any delay in acceptance, extension, termination or
amendment of the Exchange Offer, the Company shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to the PR Newswire.
INTEREST ON THE NEW NOTES. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each New Note will bear interest from the most recent date to
which interest has been paid on the Old Notes or New Notes, or, if no
interest has been paid on the Old Notes or New Notes, from August 5, 1998.
The New Notes will bear interest at a rate of 8 7/8% per annum.
Interest on the New Notes will be payable semi-annually, in arrears, on
each Interest Payment Date following the consummation of the Exchange
Offer. Untendered Old Notes that are not exchanged for New Notes pursuant
to the Exchange Offer will bear interest at a rate of 8 7/8% per annum
after the Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES. The tender to the Company of Old
Notes by a holder thereof pursuant to one of the procedures set forth below
will constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein
and in the Letter of Transmittal. The tender of Old Notes will constitute
an agreement to deliver good and marketable title to all tendered Old Notes
prior to the Expiration Date free and clear of all liens, charges, claims,
encumbrances, interests and restrictions of any kind. Holders must follow
the procedures set forth in this Prospectus in order to properly and
effectively tender Old Notes.
EXCEPT AS PROVIDED IN "--GUARANTEED DELIVERY PROCEDURES", UNLESS THE
OLD NOTES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH THE EXCHANGE
AGENT PRIOR TO THE EXPIRATION DATE (ACCOMPANIED BY A PROPERLY COMPLETED AND
DULY EXECUTED LETTER OF TRANSMITTAL), THE COMPANY MAY, AT ITS OPTION,
REJECT SUCH TENDER. ISSUANCE OF EXCHANGE NOTES WILL BE MADE ONLY AGAINST
DEPOSIT OF TENDERED OLD NOTES AND DELIVERY OF ALL OTHER REQUIRED DOCUMENTS.
NOTWITHSTANDING THE FOREGOING, DTC PARTICIPANTS TENDERING THROUGH ATOP WILL
BE DEEMED TO HAVE MADE VALID DELIVERY WHERE THE EXCHANGE AGENT RECEIVES AN
AGENT'S MESSAGE (DEFINED BELOW) PRIOR TO THE EXPIRATION DATE.
Old Notes Held Through DTC:
Each Beneficial Owner holding Old Notes through a DTC Participant must
instruct such DTC Participant to cause its Old Notes to be tendered in
accordance with the procedures set forth in this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants,
each DTC Participant holding Old Notes through DTC must (i) electronically
transmit its acceptance to DTC through ATOP, for which the transaction will
be eligible, and DTC will then verify the acceptance, execute a book-entry
delivery to the Exchange Agent's account at DTC and send an Agent's Message
to the Exchange Agent for its acceptance, or (ii) comply with the
guaranteed delivery procedures set forth below and in the Note of
Guaranteed Delivery. By tendering through ATOP, DTC Participants will
expressly acknowledge receipt of the accompanying Letter of Transmittal and
agree to be bound by its terms and the Company will be able to enforce such
agreement against such DTC Participants. See "--Guaranteed Delivery
Procedures".
The Exchange Agent will (promptly after the date of this Prospectus)
establish accounts at DTC for purposes of the Exchange Offer with respect
to Old Notes held through DTC, and any financial institution that is a DTC
Participant may make book-entry delivery of interests in Old Notes in the
Exchange Agent's account through ATOP. However, although delivery of
interests in the Old Notes may be effected through book-entry transfer into
the Exchange Agent's account through ATOP, an Agent's Message in connection
with such book-entry transfer, and any other required documents, must be
transmitted to and received by the Exchange Agent at its address set forth
under "--Exchange Agent", or the guaranteed delivery procedures set forth
below must be complied with, in each case, prior to the Expiration Date.
Delivery of documents to DTC does not constitute delivery to the Exchange
Agent. The confirmation of a book-entry transfer into the Exchange Agent's
account at DTC as described above is referred to herein as a "Book-Entry
Confirmation".
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment
from each DTC Participant tendering through ATOP that such DTC Participants
have received a Letter of Transmittal and agree to be bound by the terms of
the Letter of Transmittal and that the Company may enforce such agreement
against such DTC Participants.
Cede & Co., as the holder of the global certificates representing the
Old Notes (a "Global Security"), will tender a portion of each Global
Security equal to the aggregate principal amount due at the stated maturity
or number of shares for which instructions to tender are given by DTC
Participants.
If a beneficial owner of Old Notes wishes to tender on his or her own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering his or her Old Notes (or, in the case of a
book-entry transfer, causing to be delivered an Agent's Message), either
make appropriate arrangements to register ownership of the Old Notes in
such owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the
Expiration Date.
Old Notes Held by Holders:
Each holder must (i) complete and sign a Letter of Transmittal and
mail or deliver such Letter of Transmittal, and all other documents
required by the Letter of Transmittal, together with certificate(s)
representing all tendered Old Notes, to the Exchange Agent at its address
set forth under "--Exchange Agent", or (ii) comply with the guaranteed
delivery procedures set forth below and in the Notice of Guaranteed
Delivery. See "--Guaranteed Delivery Procedures".
All signatures on a Letter of Transmittal must be guaranteed by any
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor" institution within the meaning of Rule 17Ad-15 under the
Exchange Act (each an "Eligible Institution"); provided, however, that
signatures on a Letter of Transmittal need not be guaranteed if such Old
Notes are tendered for the account of an Eligible Institution including (as
such terms are defined in Rule 17Ad-15): (i) a bank; (ii) a broker, dealer,
municipal securities dealer, municipal securities broker, government
securities dealer or government securities broker; (iii) a credit union;
(iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings institution that is a participant in a
Securities Transfer Association recognized program.
If a Letter of Transmittal or any Old Note is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or other person acting in a fiduciary or representative
capacity, such person must so indicate when signing, and proper evidence
satisfactory to the Company of the authority of such person so to act must
be submitted.
Holders should indicate in the applicable box in the Letter of
Transmittal the name and address to which substitute certificates
evidencing Old Notes for amounts not tendered are to be issued or sent, if
different from the name and address of the person signing the Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no instructions are given, such Old Notes not tendered, as
the case may be, will be returned to the person signing the Letter of
Transmittal.
By tendering, each holder and each DTC Participant will make to the
Company the representations set forth in the sixth paragraph under the
heading "--Purpose and Effect of the Exchange Offer".
No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a Letter of Transmittal or
transmitting an acceptance through ATOP, as the case may be, each tendering
holder waives any rights to receive any notice of the acceptance for
purchase of its Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be resolved by the
Company, whose determination will be final and binding. The Company
reserves the absolute right to reject any or all tenders that are not in
proper form or the acceptance of which may, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the absolute right to
waive any condition to the Exchange Offer and any irregularities or
conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding.
Unless waived, any irregularities in connection with tenders must be cured
within such time as the Company shall determine. The Company and the
Exchange Agent shall not be under any duty to give notification of defects
in such tenders and shall not incur liabilities for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to which the
irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering holder, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration
Date.
The method of delivery of Old Notes and Letters of Transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptances through ATOP, is at the election
and risk of the persons tendering and delivering acceptances or Letters of
Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be deemed made only when actually received by
the Exchange Agent. If delivery is by mail, it is suggested that the holder
use properly insured, registered mail with return receipt requested, and
that the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Exchange Agent prior to the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Old Notes Held Through DTC:
DTC Participants holding Old Notes through DTC who wish to cause their
Old Notes to be tendered, but who cannot transmit their acceptance through
ATOP prior to the Expiration Date, may cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible
Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration
Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
mail, hand delivery, facsimile transmission or overnight courier)
substantially in the form provided by the Company herewith; and
(c) Book-Entry Confirmation and an Agent's Message in connection
therewith (as described above) are received by the Exchange Agent
within three New York Stock Exchange ("NYSE") trading days after the
date of the execution of the Notice of Guaranteed Delivery.
Old Notes Held by Holders:
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, (ii) who cannot deliver their Old Notes, the
Letter of Transmittal or any other required documents to the Exchange
Agent, or (iii) who cannot complete the procedures for book-entry transfer,
prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration
Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name
and address of the holder, the certificate number(s) of such Old Notes
and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three NYSE
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the
Old Notes (or a confirmation of book-entry transfer of such Old Notes
into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal
(or facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation or
book-entry transfer of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and all other documents
required by the Letter of Transmittal are received by the Exchange
Agent within three NYSE trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL. The Letter of
Transmittal contains, among other things, the following terms and
conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Old Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Old Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it
has full power and authority to tender, exchange, assign and transfer the
Old Notes and to acquire New Notes issuable upon the exchange of such
tendered Old Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title to the tendered Old Notes,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim. The Transferor also warrants that it will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes or to transfer
ownership of such Old Notes on the account books maintained by DTC. All
authority conferred by the Transferor will survive the death, bankruptcy or
incapacity of the Transferor and every obligation of the Transferor shall
be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of such Transferor.
By executing a Letter of Transmittal, each holder will make to the
Company the representations set forth above under the heading "--Purpose
and Effect of the Exchange Offer".
WITHDRAWAL OF TENDERS OF OLD NOTES. Except as otherwise provided
herein, tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Old Notes Held through DTC:
DTC Participants holding Old Notes who have transmitted their
acceptances through ATOP may, prior to 5:00 p.m., New York City time, on
the Expiration Date, withdraw the instruction given thereby by delivering
to the Exchange Agent, at its address set forth under "--Exchange Agent", a
written, telegraphic or facsimile notice of withdrawal of such instruction.
Such notice of withdrawal must contain the name and number of the DTC
Participant, the principal amount due at the stated maturity date of the
Old Notes to which such withdrawal related and the signature of the DTC
Participant. Withdrawal of such an instruction will be effective upon
receipt of such written notice of withdrawal by the Exchange Agent.
Old Notes Held by Holders:
Holders may withdraw a tender of Old Notes in the Exchange Offer, by a
telegram, telex, letter or facsimile transmission notice of withdrawal
received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) contain a statement
that such holder is withdrawing its election to have such Old Notes
exchanged, (iv) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the
Old Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender and (v) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes
which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering Old
Notes" at any time prior to the Expiration Date.
All signatures on a notice of withdrawal must be guaranteed by an
Eligible Institution; provided, however, that signatures on the notice of
withdrawal need not be guaranteed if the Old Notes being withdrawn are held
for the account of an Eligible Institution.
A withdrawal of an instruction or a withdrawal of a tender must be
executed by a DTC Participant or a holder, as the case may be, in the same
manner as the person's name appears on its transmission through ATOP or
Letter of Transmittal, as the case may be, to which such withdrawal
relates. If a notice of withdrawal is signed by a trustee, partner,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or other person acting in a fiduciary or representative
capacity, such person must so indicate when signing and must submit with
the revocation appropriate evidence of authority to execute the notice of
withdrawal. A DTC Participant or a holder may withdraw an instruction of a
tender, as the case may be, only if such withdrawal complies with the
provisions of this Prospectus.
A withdrawal of a tender of Old Notes by a DTC Participant or a
holder, as the case may be, may be rescinded only be a new transmission of
an acceptance through ATOP or execution and delivery of a new Letter of
Transmittal, as the case may be, in accordance with the procedures
described herein.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other terms of the Exchange Offer, or any
extension of the Exchange Offer, the Company shall not be required to
accept for exchange, or exchange New Notes for, any Old Notes, and may
terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or
any action shall have been taken by any court or governmental
authority which, in the reasonable judgment of the Company would
prohibit, restrict or otherwise render illegal consummation of the
Exchange Offer; or
(b) any change, or any development involving a prospective
change, in the business or financial affairs of the Company or any of
its subsidiaries has occurred which, in the reasonable judgment of the
Company, might materially impair the ability of the Company to proceed
with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company; or
(c) any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act
of 1939, as amended. The Company will use its reasonable best efforts
to prevent the issuance of any such order and, if any such order is
issued, to obtain the withdrawal of any such order at the earliest
possible moment; or
(d) there shall occur a change in the current interpretations by
the staff of the Commission which, in the Company's reasonable
judgment, might materially impair the Company's ability to proceed
with the Exchange Offer; or
(e) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to the
Exchange Offer which, in the Company's sole judgment, might materially
impair the ability of the Company to proceed with the Exchange Offer;
or
(f) any governmental approval has not been obtained, which
approval the Company shall, in its sole discretion, deem necessary for
the consummation of the Exchange Offer as contemplated hereby.
If the Company makes a good faith determination that any of the above
conditions are not satisfied, the Company may, in its discretion, (i) delay
accepting any Old Notes, refuse to accept any Old Notes and return all
tendered Old Notes to the tendering holders, or extend the Exchange Offer
and retain all Old Notes tendered prior to the Expiration Date, subject,
however, to the right of holders to withdraw such Old Notes (see "--Terms
of the Exchange Offer--Withdrawal of Tenders of Old Notes"), in each case
by giving oral or written notice of such delay, refusal or termination to
the Exchange Agent, or (ii) waive such unsatisfied conditions with respect
to the Exchange Offer and accept all validly tendered Old Notes which have
not been withdrawn. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by means of
a prospectus supplement that will be distributed to the registered holders,
and the Company will extend the Exchange Offer for a period of time,
depending upon the significance of the waiver and the manner of disclosure
to the registered holders, if the Exchange Offer would otherwise expire
during such period.
<PAGE>
EXCHANGE AGENT AND INFORMATION AGENT
The Bankers Trust Company has been appointed as Exchange Agent for the
Exchange Offer. D.F. King & Co., Inc. has been appointed as Information
Agent for the Exchange Offer. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for the Notice of Guaranteed Delivery should be
directed to the Information Agent addressed as follows:
D.F. King & Co., Inc.
77 Water Street
20th Floor
New York, New York 10005
(212) 269-5550 (Call Collect)
(800) 848-3094 (Toll Free)
For information with respect to the Exchange Agent, contact
the Exchange Agent at:
BY HAND: BY OVERNIGHT DELIVERY: BY MAIL:
Bankers Trust Company BT Services Tennessee, BT Services Tennessee,
Receipt and Delivery Inc. Inc.
Windows Reorganization Unit Reorganization Unit
123 Washington Street 648 Grassmer Park Road P.O. Box 292737
1st Floor Nashville, Tennessee Nashville, Tennessee
New York, New York 10006 37211 37229-2737
FACSIMILE TRANSMISSION:
(for eligible institutions only)
(615) 835-3572
Confirm Receipt of Facsimile by Telephone
(615) 835-3701
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional
solicitation may be made by telecopy, telephone or in person by officers
and regular employees of the Company and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders.
The Company has not retained any dealer-manager or other soliciting
agent in connection with the Exchange Offer and will not make any payments
to brokers, dealers or others soliciting acceptance of the Exchange Offer.
The Company, however, will pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of
this Prospectus, the Letter of Transmittal and related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders
for exchange.
The expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and transfer agent and registrar, accounting and legal fees
and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Old Notes pursuant to the Exchange Offer. If, however, New
Notes, or Old Notes for principal amounts not tendered or accepted for
exchange, are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Old Notes tendered or if a
transfer tax is imposed for any reason other than the exchange of the Old
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will
be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain restricted securities within the meaning of Rule
144 under the Securities Act. Accordingly, such Old Notes may be resold
only (i) to the Company or any subsidiary thereof, (ii) inside the United
States to a qualified institutional buyer in compliance with Rule 144A,
(iii) inside the United States to an institutional accredited investor
that, prior to such transfer, furnishes to the Trustee a signed letter
containing certain representations and agreements relating to the
restrictions on transfer of the Old Notes (the form of which letter can be
obtained from the Trustee) and, if such transfer is in respect of an
aggregate principal amount of Old Notes in the time of transfer of less
than $100,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, (iv) outside the United
States in compliance with Rule 904 under the Securities Act, (v) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act (if available) or (vi) pursuant to an effective registration
statement under the Securities Act. The liquidity of the Old Notes could be
adversely affected by the Exchange Offer. Following the consummation of the
Exchange Offer, holders of the Old Notes will have no further registration
rights under the Registration Rights Agreement and will not be entitled to
the contingent increase in the interest rate provided for in the Indenture
and the Old Notes.
ACCOUNTING TREATMENT
The New Notes would be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer and the
unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder, and administrative and judicial interpretations
thereof, all as in effect as of the date of this Prospectus and all of
which are subject to change or differing interpretation, possibly with
retroactive effect. Certain holders (including, without limitation,
financial institutions, insurance companies, tax-exempt entities, dealers
in securities or currencies, and traders in securities that elect
mark-to-market accounting treatment) may be subject to special rules not
discussed below. Holders of Old Notes should consult their own tax advisors
regarding the particular U.S. federal, state and local and foreign income
and other tax consequences of exchanging the Old Notes for New Notes in the
Exchange Offer.
The exchange of Old Notes for New Notes in the Exchange Offer will not
be a taxable exchange for federal income tax purposes and, accordingly, for
such purposes a holder will not recognize any taxable gain or loss as a
result of such exchange and will have the same tax basis and holding period
in the New Notes as it had in the Old Notes immediately before the
exchange. See also "Certain Federal Tax Consequences of an Investment in
the New Notes".
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL DATA
LOEWS CINEPLEX
The following table sets forth selected historical financial data,
based on continuing operations, for the Company for the five fiscal years
ended February 28, 1998 and has been derived from the Company's annual
consolidated financial statements. The following selected financial data
for the three-month periods ended May 31, 1998 and May 31, 1997 is
unaudited, but, in the opinion of management, includes all adjustments
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the three months
ended May 31, 1998 are not necessarily indicative of the results to be
attained for the entire year. The selected historical financial data should
be read in conjunction with the separate consolidated financial statements
and notes thereto of Loews Cineplex and "Management's Discussion and
Analysis of Financial Condition and Results of Operations", which are
included elsewhere in this Prospectus. THE FISCAL YEAR HISTORICAL DATA AND
THE UNAUDITED FINANCIAL DATA FOR THE THREE MONTHS ENDED MAY 31, 1997 DO NOT
GIVE EFFECT TO THE COMBINATION OR INCLUDE HISTORICAL INFORMATION FOR
CINEPLEX ODEON. However, related historical financial data for Cineplex
Odeon are presented following such data. The unaudited financial data as
of, and for the three months ended, May 31, 1998, reflects the Combination
and includes the results of Cineplex Odeon from May 15, 1998 through May
31, 1998.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED
ACTUAL THREE MONTHS
YEAR ENDED FEBRUARY 28 OR 29, ENDED MAY 31,
------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1997 1998(1)
--------- ---------- ---------- ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT RATIOS, SHARES OUTSTANDING AND PER
SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Admissions revenues.. $244,864 $255,392 $264,585 $273,498 $ 296,933 $67,370 $ 83,207
Concessions revenues. 75,355 79,287 84,358 90,643 104,009 23,486 31,170
Other revenues....... 8,800 8,656 10,153 11,204 12,568 2,360 3,437
--------- ---------- ---------- ----------- ----------- ----------- ------------
329,019 343,335 359,096 375,345 413,510 93,216 117,814
--------- ---------- ---------- ----------- ----------- ----------- ------------
Theatre operations
and other expenses
(including
concession costs).. 259,173 268,236 277,375 282,480 307,568 71,095 89,943
General and
administrative..... 17,449 18,753 20,282 21,447 28,917 5,937 7,946
Depreciation and
amortization....... 37,873 38,572 41,273 44,576 52,307 12,597 14,681
Loss on
sale/disposals of
theatres........... 3,491 13,420 7,249 9,951 7,787 -- --
Interest expense, net 9,865 10,613 15,376 14,776 14,319 3,622 6,106
Income tax
expense/(benefit).. 4,662 (1,337) 309 2,295 2,751 365 (119)
--------- ---------- ---------- ----------- ----------- ----------- ------------
Net income (loss).... $ (3,494) $ (4,922) $ (2,768) $ (180) $ (139) $ (400) $ (743)
========= ========== ========== =========== =========== ============ ============
Ratio of earnings to
fixed charges...... 1.11 N/A(3) N/A(3) 1.14 1.18 N/A(3) N/A(3)
Earnings (loss) per
common share (2):
basic.............. $ (0.17) $ (0.24) $ (0.14) $ (0.01) $ (0.01) $ (0.02) $ (0.03)
diluted............ $ (0.17) $ (0.24) $ (0.14) $ (0.01) $ (0.01) $ (0.02) $ (0.03)
Weighted average
shares
and equivalent
outstanding (2):
basic.............. 20,472,807 20,472,807 20,472,807 20,472,807 20,472,807 20,472,807 24,619,807
diluted............ 20,472,807 20,472,807 20,472,807 20,472,807 20,924,890 20,472,807 24,984,549
BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash
equivalents........ $ 4,698 $ 4,759 $ 2,390 $ 2,160 $ 9,064 $ 37,785
Property, equipment
and leaseholds, net $ 566,043 $ 605,982 $602,435 $613,692 $609,152 $1,180,376
Total assets......... $ 675,667 $ 723,108 $715,810 $721,372 $728,551 $1,617,287
Total long-term debt
(including current
maturities and
capital leases).... $ 263,791 $ 313,098 $298,680 $306,342 $307,616 $ 729,841
Total liabilities.... $ 343,147 $ 395,510 $390,980 $396,722 $404,040 $1,022,019
Stockholders' equity. $ 332,520 $ 327,598 $324,830 $324,650 $324,511 $ 595,268
CASH FLOW STATEMENT
DATA:
Cash flow provided
by operating
activities ....... $ 55,150 $ 36,188 $ 46,326 $ 47,976 $ 64,185 $ 9,974 $ 27,292
<FN>
- ----------------------------------
(1) Includes operating results of Cineplex Odeon from May 15, 1998 through
May 31, 1998.
(2) Restated in all periods presented to reflect impact of a stock
dividend declared on February 5, 1998.
(3) Earnings did not cover fixed charges by $6,259, $2,459, $35 and $862
for the years ended February 28, 1995 and February 28, 1996 and for
the three months ended May 31, 1997 and 1998, respectively.
</FN>
</TABLE>
<PAGE>
CINEPLEX ODEON
The following table sets forth selected historical financial data,
based on continuing operations, for Cineplex Odeon for the five fiscal
years ended December 31, 1997 and has been derived from Cineplex Odeon's
annual consolidated financial statements and notes related thereto. The
selected historical financial data should be read in conjunction with the
separate consolidated financial statements and notes thereto of Cineplex
Odeon and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cineplex Odeon", which are included elsewhere in
this Prospectus. Cineplex Odeon's historical financial statements are
prepared in accordance with GAAP in Canada, which, except as described in
footnote 17 to Cineplex Odeon's historical financial statements, conform in
all material respects with accounting principles generally accepted in the
United States.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ----------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Admissions revenues............ $ 388,944 $ 384,558 $ 365,220 $ 358,973 $ 399,171
Concessions revenues........... 138,387 133,850 126,319 126,636 147,892
Other revenues................. 18,899 22,704 21,611 24,083 26,714
------------ ----------- ------------ ----------- ------------
546,230 541,112 513,150 509,692 573,777
------------ ----------- ------------ ----------- ------------
Theatre operations and other
expenses (including
concession costs)............ 459,759 459,258 440,747 440,685 491,443
General and administrative..... 15,494 16,229 17,575 18,192 20,313
Depreciation and amortization.. 41,577 40,859 42,621 43,648 45,715
Other expenses (income)........ (1,267) 2,900 2,862 1,377 43,401
Interest expense, net.......... 28,033 33,641 40,983 35,482 33,900
Income taxes................... 1,665 2,398 1,269 1,390 1,072
------------ ------------ ------------ ----------- ------------
Net income (loss).............. $ 969 $ (14,173) $ (32,907) $ (31,082) $ (62,067)
============ ============ ============ =========== ============
Earnings (loss) per common
share:
basic........................ $ 0.01 $ (0.13) $ (0.29) $ (0.19) $ (0.35)
diluted...................... $ 0.01 $ (0.13) $ (0.29) $ (0.19) $ (0.35)
Weighted average shares
outstanding and equivalent
outstanding:
basic........................ 106,730,000 110,175,000 114,764,000 163,473,000 176,795,000
diluted...................... 115,181,000 118,245,000 122,616,000 176,107,000 191,304,000
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents...... $ 1,268 $ 1,551 $ 1,604 $ 2,718 $ 3,505
Property, equipment and
leaseholds, net.............. $ 619,309 $ 614,741 $ 583,442 $ 579,841 $ 567,431
Total assets................... $ 697,105 $ 688,693 $ 649,643 $ 644,171 $ 635,475
Long-term debt (including
current maturities and
capital leases).............. $ 394,571 $ 396,665 $ 399,454 $ 341,301 $ 367,240
Total liabilities.............. $ 496,718 $ 492,518 $ 483,651 $ 425,591 $ 484,293
Shareholders' equity........... $ 200,387 $ 196,175 $ 165,992 $ 218,580 $ 151,182
CASH FLOW STATEMENT DATA:
Cash flow provided by $ 38,674 $ 31,435 $ 3,522 $ 12,416 $ 30,780
operating activities........
</TABLE>
<PAGE>
HISTORICAL AND UNAUDITED PRO FORMA COMBINED KEY OPERATING STATISTICS
LOEWS CINEPLEX
The table below sets forth key operating statistics for Loews Cineplex
on an actual basis and on a pro forma combined basis giving effect to the
Combination. In order to arrive at a more meaningful presentation of
financial operating data related to the productivity and performance of
Loews Cineplex, and, except as otherwise noted, all amounts below include
100% of the operating results of the U.S. Partnerships, although Loews
Cineplex has only a 50% interest in each of the U.S. Partnerships. This
information does not include any potential benefit that may be realized
from anticipated operating efficiencies and cost savings as a result of the
Combination. Management views these statistics as key financial measures
and believes that certain investors find them useful in analyzing companies
in the motion picture exhibition industry. No measure is more meaningful
than another, and management uses these measures collectively to assess
Loews Cineplex's operating performance.
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS
ACTUAL ENDED MAY 31,
YEAR ENDED UNAUDITED --------------------------------------
FEBRUARY 28 OR 29, PRO FORMA 1997 1998(7)
------------------------------------------------------ YEAR ENDED ----------- ----------------------
FEBRUARY 28,
1994 1995 1996 1997 1998 1998(1)(7) ACTUAL ACTUAL PRO FORMA(1)
-------- ---------- ---------- ----------- ----------- ------------ ----------- --------- ------------
(IN THOUSANDS, EXCEPT SCREEN, LOCATION, PER PATRON AND MARGIN DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Screens operated at
period end.......... 981 1,030 950 959 1,035 2,704 986 2,794 2,728
Locations operated at
period end.......... 182 180 154 143 139 439 142 450 437
Screens per location.. 5.4 5.7 6.2 6.7 7.4 6.2 6.9 6.2 6.2
Attendance............ 52,113 52,656 53,544 53,133 58,387 143,266 12,855 16,686 31,052
Total revenues........ $ 360,828 $ 377,171 $ 400,412 $ 421,613 $ 480,437 $ 1,042,749 $ 105,553 $ 134,739 $ 231,251
Revenues per screen(2) $ 367.82 $ 366.19 $ 421.49 $ 439.64 $ 464.19 $ 385.63 $ 107.60 $ 100.40 $ 84.77
Revenues per location(2)$1,982.57 $ 2,095.39 $ 2,600.08 $ 2,948.34 $ 3,456.38 $ 2,375.28 $ 733.01 $ 701.77 $ 529.18
EBITDA(3)............. $ 48,906 $ 42,926 $ 54,190 $ 61,467 $ 69,238 $ 131,239 $ 16,184 $ 19,925 $ 23,261
Total EBITDA(4)....... $ 57,982 $ 62,540 $ 68,177 $ 78,273 $ 86,643 $ 154,540 $ 17,841 $ 22,210 $ 25,546
Partners' share of
Total EBITDA........ $ 3,677 $ 4,287 $ 4,800 $ 4,853 $ 6,339 $ 6,339 $ 1,025 $ 1,419 $ 1,419
Attributable EBITDA(4) $ 54,305 $ 58,253 $ 63,377 $ 73,420 $ 80,304 $ 148,201 $ 16,816 $ 20,791 $ 24,127
Total EBITDA per
screen(2)........... $ 59.10 $ 60.72 $ 71.77 $ 81.62 $ 83.71 $ 57.15 $ 18.19 $ 16.55 $ 9.36
Total EBITDA per
location(2)......... $ 318.58 $ 347.44 $ 442.71 $ 547.36 $ 623.33 $ 352.03 $ 123.90 $ 115.68 $ 58.46
Total EBITDA per
patron(2)........... $ 1.11 $ 1.19 $ 1.27 $ 1.47 $ 1.48 $ 1.08 $ 1.39 $ 1.33 $ 0.82
Concessions revenue per
patron.............. $ 1.63 $ 1.70 $ 1.82 $ 1.98 $ 2.14 $ 1.88 $ 2.12 $ 2.20 $ 2.00
Concessions margin.... 80.8% 80.9% 80.9% 82.8% 84.5% 82.4% 84.2% 84.6% 83.0%
Admissions revenue per
patron.............. $ 5.16 $ 5.34 $ 5.52 $ 5.79 $ 5.91 $ 5.14 $ 5.93 $ 5.69 $ 5.16
CASH FLOW STATEMENT
DATA(5)(6):
Net cash provided by
operating
activities.......... $ 55,150 $ 36,188 $ 46,326 $ 47,976 $ 64,185 $ 9,974 $ 27,292
Net cash used in
investing activities $ (32,098) $ (82,486)$ (34,690)$ (53,254)$ (51,439) $ (8,960) $ (18,590)
Net cash
(used)/provided by
financing
activities.......... $ (23,022) $ 46,359 $ (14,005)$ 5,048 $ (5,842) $ 10,449 $ 20,019
<FN>
- ------------------------
(1) The information presented is derived from unaudited pro forma
information which is presented elsewhere in this Prospectus. See
"Unaudited Pro Forma Financial Information".
(2) All per screen, location and patron ratios are calculated based upon
screens and locations as of period end and include the U.S.
Partnerships except for the actual three months ended May 31, 1998 and
1997, which are calculated using a weighted average number of screens
and locations. This is due to the inclusion of the operations of
Cineplex Odeon for the last 17 days of the period ended May 31, 1998.
Use of the weighted average number of screens and locations for the
remaining historical data would not result in substantially different
data from the information presented.
(3) EBITDA consists of earnings before interest, income taxes,
depreciation and amortization including equity earnings from
investments in the U.S. Partnerships. EBITDA should not be construed
as an alternative to operating income (as determined in accordance
with U.S. GAAP), as a measure of the Company's operating performance,
or as an alternative to cash flows from operating activities (as
determined in accordance with U.S. GAAP), as a measure of the
Company's liquidity. EBITDA measures the amount of cash that a company
has available for investment or other uses and is used by the Company
as a measure of its performance. The Company believes that EBITDA is
an important measure, in addition to cash flow from operations,
Attributable EBITDA and Total EBITDA, in viewing its overall liquidity
and borrowing capacity.
(4) Total EBITDA consists of EBITDA plus loss on sale/disposals of
theatres and 100% of the operating results of the U.S. Partnerships.
Total EBITDA should not be construed as an alternative to operating
income (as determined in accordance with U.S. GAAP), as a measure of
the Company's operating performance, or as an alternative to cash
flows from operating activities (as determined in accordance with U.S.
GAAP), as a measure of the Company's liquidity. Total EBITDA measures
the amount of cash that a company has available for investment or
other uses and is used by the Company as a measure of its performance.
The Company believes that Total EBITDA is an important measure, in
addition to cash flow from operations, Attributable EBITDA and EBITDA,
in viewing its overall liquidity and borrowing capacity. Attributable
EBITDA equals Total EBITDA less partners' share of Total EBITDA. A
reconciliation of EBITDA to Total EBITDA and Attributable EBITDA
follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS
ACTUAL ENDED MAY 31,
YEAR ENDED UNAUDITED --------------------------------------
FEBRUARY 28 OR 29, PRO FORMA 1997 1998
------------------------------------------------------ YEAR ENDED ----------- ----------------------
FEBRUARY 28,
1994 1995 1996 1997 1998 1998 ACTUAL ACTUAL PRO FORMA(1)
-------- ---------- ---------- ----------- ----------- ------------ ----------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.............. $48,906 $42,926 $54,190 $61,467 $69,238 $131,239 $16,184 $19,925 $23,261
Add: Loss on
sale/disposals of
theatres*........ 3,491 13,420 7,249 9,951 7,787 13,683 -- -- --
-------- --------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
Modified EBITDA,
including equity
earnings.......... 52,397 56,346 61,439 71,418 77,025 144,922 16,184 19,925 23,261
Less: Equity
earnings/other,
included in
EBITDA........... 1,769 2,380 2,862 2,851 3,060 3,060 393 553 553
Add: EBITDA from
U.S.
Partnerships..... 7,354 8,574 9,600 9,706 12,678 12,678 2,050 2,838 2,838
-------- --------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
Total EBITDA........ 57,982 62,540 68,177 78,273 86,643 154,540 17,841 22,210 25,546
Less: Partners'
share of
Total EBITDA..... 3,677 4,287 4,800 4,853 6,339 6,339 1,025 1,419 1,419
---------------------------------------------------------------------------------------------------------
Attributable EBITDA. $54,305 $58,253 $63,377 $73,420 $80,304 $148,201 $16,816 $20,791 $24,127
======== ========= ========= =========== ========== ============ =========== ========== ==========
<FN>
- ------------------------
* Primarily represents (i) the noncash writeoff of the net book value of
the theatres disposed of and (ii) provisions for net disposal costs
(where applicable) related to the disposition of such theatres.
(5) Cash flow statement data includes cash flows from long term
investments in the U.S. Partnerships to the extent of the Company's
equity interest.
(6) Due to the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the unaudited pro
forma adjustments, cash flow from operating, investing and financing
activities are not presented in the unaudited pro forma data.
(7) The unaudited pro forma data is not necessarily indicative of the
combined results of operations of the Company that would have occurred
nor is it necessarily indicative of future operating results of the
Company. Further, due to seasonality in the exhibition industry, the
Company's first fiscal quarter of 1998 is not necessarily
representative of future operating results for the remainder of the
year.
</FN>
</TABLE>
<PAGE>
CINEPLEX ODEON
The table below sets forth key operating statistics, based on
continuing operations, for Cineplex Odeon as of, and for, each of the
periods indicated. Management views these statistics as key financial
measures and believes that certain investors find them useful in analyzing
companies in the motion picture exhibition industry. No measure is more
meaningful than another, and management uses these measures collectively to
assess Cineplex Odeon's operating performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
--------- ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT SCREEN, LOCATION, PER PATRON AND MARGIN DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Screens operated at period end .. 1,622 1,638 1,512 1,549 1,729
Locations operated at period end. 363 360 325 316 315
Screens per location ............ 4.5 4.6 4.7 4.9 5.5
Attendance ...................... 88,225 86,082 81,203 78,356 87,321
Total revenues .................. $ 546,230 $ 541,112 $ 513,150 $ 509,692 $ 573,777
Revenues per screen(1) .......... $ 336.76 $ 330.35 $ 339.38 $ 329.05 $ 331.85
Revenues per location(1) ........ $ 1,504.77 $ 1,503.09 $ 1,578.92 $ 1,612.95 $ 1,812.51
EBITDA(2) ....................... $ 72,244 $ 62,725 $ 51,966 $ 49,438 $ 18,620
Modified EBITDA(3) .............. $ 70,977 $ 65,625 $ 54,828 $ 50,815 $ 62,021
Modified EBITDA per screen(1) ... $ 43.76 $ 40.06 $ 36.26 $ 32.81 $ 35.87
Modified EBITDA per location(1) . $ 195.53 $ 182.29 $ 168.70 $ 160.81 $ 196.89
Modified EBITDA per patron(1) ... $ 0.80 $ 0.76 $ 0.68 $ 0.65 $ 0.71
Concessions revenue per patron(4) $ 1.57 $ 1.55 $ 1.56 $ 1.62 $ 1.69
Concessions margin .............. 85.9% 83.8% 82.6% 82.3% 80.6%
Admissions revenue per patron(4) $ 4.41 $ 4.47 $ 4.50 $ 4.58 $ 4.57
CASH FLOW STATEMENT DATA:
Cash provided by (used for)
operating activities........... $ 38,674 $ 31,435 $ 3,522 $ 12,416 $ 30,780
Cash used for investment
activities..................... $ (7,264) $ (41,049) $ (7,714) $ (35,961) $ (58,697)
Cash provided by (used for)
financing activities........... $ (30,445) $ 9,897 $ 4,245 $ 24,659 $ 28,704
- ---------------------------------
<FN>
(1) All per screen, location and patron ratios are calculated as of period
end and include screens and locations in which Cineplex Odeon has a
partnership interest. Revenues, EBITDA and Modified EBITDA, however,
reflect only Cineplex Odeon's proportionate share of the revenues,
EBITDA and Modified EBITDA of such partnerships, equal to the
respective percentage ownership interests of Cineplex Odeon in such
partnerships.
(2) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. EBITDA should not be construed as an alternative to
operating income (as determined in accordance with Canadian GAAP), as
a measure of Cineplex Odeon's operating performance, or as an
alternative to cash flow from operating activities (as determined in
accordance with Canadian GAAP), as a measure of Cineplex Odeon's
liquidity. EBITDA measures the amount of cash that a company has
available for investment or other uses and was used by Cineplex Odeon
as a measure of its performance. Cineplex Odeon believes that EBITDA
is an important measure, in addition to cash flow from operations and
Modified EBITDA, in viewing its overall liquidity and borrowing
capacity. EBITDA measures the amount of cash that a company has
available for investment or other uses and is used by Cineplex Odeon
as a measure of its performance.
(3) Modified EBITDA is EBITDA after eliminating the impact of other
expenses (income). Modified EBITDA should not be construed as an
alternative to operating income (as determined in accordance with
Canadian GAAP), as a measure of Cineplex Odeon's operating
performance, or as an alternative to cash flow from operating
activities (as determined in accordance with Canadian GAAP), as a
measure of Cineplex Odeon's liquidity. Modified EBITDA measures the
amount of cash that a company has available for investment or other
uses and was used by Cineplex Odeon as a measure of its performance.
Cineplex Odeon believes that Modified EBITDA is an important measure,
in addition to cash flow from operations and EBITDA, in viewing its
overall liquidity and borrowing capacity. A reconciliation of EBITDA
to Modified EBITDA follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
--------- ------------ ------------ ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
EBITDA ................ $72,244 $ 62,725 $ 51,966 $ 49,438 $18,620
Other expenses (income) (1,267) 2,900 2,862 1,377 43,401*
------- ---------- --------- -------- -------
Modified EBITDA** ..... $70,977 $ 65,625 $ 54,828 $ 50,815 $62,021
======= ========== ========= ======== =======
- ---------------------------------
<FN>
* Includes $37.5 million representing unusual and nonrecurring loss on
Cineplex Odeon theatres to be closed as part of the contractual
obligations related to the Combination. This charge was recorded in
the fourth quarter of 1997.
** In the case of Cineplex Odeon, Modified EBITDA is substantially
comparable to Attributable EBITDA.
(4) Admissions and concessions revenue per patron is affected by the fact
that, during the periods reflected, a significant portion of Cineplex
Odeon's revenues was generated in Canadian dollars and for purposes of
financial reporting has been converted to U.S. dollars.
</FN>
</TABLE>
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined income statement data give
effect to the Combination and to the Transactions ("Pro Forma"), in each
case as if the relevant Transactions had occurred on March 1, 1997, by
combining the results of operations of the Company for the year ended
February 28, 1998, with the results of operations of Cineplex Odeon for the
year ended December 31, 1997, and, with respect to the three months ended
May 31, 1998 by combining the results of operations of the Company and
Cineplex Odeon for the three months ended May 31, 1998. The unaudited pro
forma combined balance sheet data present the Pro Forma financial position
of the Company and Cineplex Odeon at May 31, 1998, assuming that the
relevant Transactions had been consummated as of that date.
Under U.S. GAAP, the accounting for the Combination follows the
purchase method of accounting, where the net assets of the acquired company
are "purchased" by the acquiring company. Accordingly, the cost to acquire
Cineplex Odeon will be allocated to the assets acquired and liabilities
assumed of Cineplex Odeon based on their respective fair values, with the
excess to be allocated to goodwill. The valuations and other studies,
required to determine the fair value of the assets acquired and liabilities
assumed, have not been performed, and, accordingly, the adjustments
reflected in the unaudited pro forma combined financial information are
preliminary and subject to further revisions and adjustments. For purposes
of this presentation, the carrying value of the Cineplex Odeon net assets
acquired was assumed to approximate fair value. Therefore, the excess of
purchase price over the historical net book value of the net assets of
Cineplex Odeon has been classified on the pro forma balance sheet as Excess
Purchase Price.
Loews Cineplex has arranged to obtain an independent appraisal of
significant assets, liabilities and business operations of Cineplex Odeon.
Upon completion of the determination of fair value, the Excess Purchase
Price will be allocated to specific assets and liabilities of Cineplex
Odeon. It is anticipated that there will be reductions in the carrying
value associated with certain assets, and alternatively the fair value of
certain other assets may exceed carrying value. Accordingly, the final
valuation could result in materially different amounts and allocations of
Excess Purchase Price from the amounts and allocations presented in the
following unaudited pro forma financial data, primarily between goodwill
and property, equipment and leaseholds, resulting in corresponding changes
in depreciation and amortization amounts. For every one million dollars of
Excess Purchase Price allocated to fixed assets, depreciation and
amortization will increase $25,000 annually (assuming an average 20 year
service life for fixed assets and straight line depreciation). Based on
preliminary estimates of fair value related to certain assets, additional
Excess Purchase Price of between $100 million and $150 million could result
at the conclusion of the valuation.
The unaudited pro forma financial information is not necessarily
indicative of the Company's combined financial position or results of
operations that actually would have occurred had the Transactions been
consummated at the beginning of the periods presented and should not be
construed as being representative of future operations. In addition, no
effect has been given to the pending disposition of 31 theatres comprising
105 screens in New York City, Chicago and suburban New York for $92 million
to Cablevision, including 25 theatres that the Company is obligated to sell
under an agreement reached with the DOJ and the attorneys general of New
York and Illinois in connection with the approval of the Combination.
Proceeds from the sale are expected to be used to reduce borrowings under
the Bank Credit Facilities and for general corporate purposes. The theatres
held for disposition represented approximately 3.6% of total screens and
generated approximately 6.8% of total box office revenue on an annual
basis. THE UNAUDITED PRO FORMA ADJUSTMENTS ALSO DO NOT INCLUDE ANY
POTENTIAL BENEFIT TO BE REALIZED FROM ANTICIPATED OPERATING EFFICIENCIES
AND COST SAVINGS AS A RESULT OF THE COMBINATION. IN ADDITION, THE PRO FORMA
DEBT LEVEL OF APPROXIMATELY $654 MILLION INCLUDES APPROXIMATELY $29.3
MILLION OF CAPITAL SPENDING ON THEATRE PROJECTS IN VARIOUS STAGES OF
DEVELOPMENT AS OF THE RESPECTIVE BALANCE SHEET DATES. THE UNAUDITED PRO
FORMA ADJUSTMENTS DO NOT INCLUDE THE FUTURE REVENUE STREAMS ASSOCIATED WITH
THESE THEATRE LOCATIONS.
This unaudited pro forma financial information should be read in
conjunction with the historical financial statements and notes thereto of
the Company and Cineplex Odeon included elsewhere in this Prospectus. See
"Risk Factors" and "Cautionary Statement Concerning Forward-Looking
Statements".
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOEWS THEATRES AND CINEPLEX ODEON
UNAUDITED PRO FORMA INCOME STATEMENT--FISCAL YEAR ENDED FEBRUARY 28, 1998
(IN THOUSANDS EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
LOEWS CINEPLEX
THEATRES ODEON
YEAR ENDED YEAR ENDED PRO FORMA
2/28/98 12/31/97 ADJUSTMENTS PRO FORMA
----------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Admissions....................... $ 296,933 $ 399,171 $ (7,909)(1) $ 688,195
Concessions...................... 104,009 147,892 (3,230)(1) 248,671
Other (A)........................ 12,568 26,714 (326)(1) 38,956
---------- ----------- -------------- -------------
413,510 573,777 (11,465) 975,822
---------- ----------- -------------- -------------
EXPENSES
Theatre operations and other
expenses........................ 291,421 462,738 (26,695)(1)(1a) 727,464
Cost of concessions.............. 16,147 28,705 (646)(1) 44,206
General and administrative....... 28,917 20,313 10,000(1a) 59,230
Depreciation and amortization.... 52,307 45,715 6,779(2) 105,601
800(9)
Loss on sale/disposal of theatres
and other....................... 7,787 5,896(3) 13,683
---------- ----------- -------------- -------------
396,579 557,471 (3,866) 950,184
---------- ----------- -------------- -------------
OPERATING INCOME................... 16,931 16,306 (7,599) 25,638
OTHER EXPENSES
Interest Expense/(Income)........ 14,319 33,900 2,131(4) 47,153
(7,697)(10)
4,500(11)
Other Expenses (Merger Related).. 37,505 (37,505)(5)
Other Expenses................... 5,896 (5,896)(3)
---------- ------------ -------------- -------------
INCOME/(LOSS) BEFORE INCOME TAXES.. 2,612 (60,995) 36,868 (21,515)
INCOME TAX EXPENSE/(BENEFIT)....... 2,751 1,072 (1,531)(6) 2,292
---------- ------------ -------------- -------------
NET LOSS........................... $ (139) $ (62,067) $ 38,399 $ (23,807)
=========== ============ ============== =============
Shares Outstanding:
Basic........................................................................ 58,602,844(8)
Fully Diluted................................................................ 62,293,258(8)
Loss Per Share:
Basic........................................................................ $ (0.41)
Fully Diluted................................................................ $ (0.41)
<FN>
- --------------------------
(A) Includes the Company's equity earnings from U.S. Partnerships.
</FN>
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOEWS THEATRES AND CINEPLEX ODEON
UNAUDITED PRO FORMA INCOME STATEMENT--FOR THE THREE MONTHS ENDED MAY 31, 1998
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING AND PER SHARE DATA)
LOEWS CINEPLEX
THEATRES ODEON
THREE MONTHS ENDED PERIOD ENDED PRO FORMA
5/31/98 5/15/98 ADJUSTMENTS PRO FORMA
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Admissions......................... $ 83,207 $ 66,839 $(1,299)(1) $ 148,747
Concessions........................ 31,170 25,861 (560)(1) 56,471
Other (A).......................... 3,437 5,749 (79)(1) 9,107
---------- ----------- -------- ---------
117,814 98,449 (1,938) 214,325
---------- ----------- -------- ---------
EXPENSES
Theatre operations and other
expenses......................... 85,115 86,974 (5,872)(1)(1a) 166,217
Cost of concessions................ 4,828 4,999 (96)(1) 9,731
General and administrative......... 7,946 4,554 2,616(1a) 15,116
Depreciation and amortization...... 14,681 8,101 1,532(2) 24,514
200(9)
---------- ----------- -------- ---------
112,570 104,628 (1,620) 215,578
---------- ----------- -------- ---------
OPERATING INCOME................... 5,244 (6,179) (318) (1,253)
OTHER EXPENSES
Interest Expense/(Income).......... 6,106 7,674 (555)(4) 12,426
(1,924)(10)
1,125(11)
Other Expenses (Merger Related).... 2,009 (2,009)(5)
---------- ----------- -------- ---------
INCOME/(LOSS) BEFORE INCOME TAXES.. (862) (15,862) 3,045 (13,679)
INCOME TAX EXPENSE/(BENEFIT)....... (119) 377 258
---------- ----------- -------- ---------
NET LOSS........................... $ (743) $ (16,239) $ 3,045 $(13,937)
========== =========== ======== =========
Shares Outstanding:
Basic............................................................. 58,621,622(8)
Fully Diluted..................................................... 62,035,255(8)
Loss Per Share:
Basic............................................................. $(0.24)
Fully Diluted..................................................... $(0.24)
<FN>
- --------------------------------------------------
(A) Includes the Company's equity earnings from U.S. Partnerships.
</FN>
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma financial statements.
<PAGE>
COMBINED LOEWS THEATRES AND CINEPLEX ODEON
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MAY 31, 1998
(IN THOUSANDS)
LOEWS
CINEPLEX AS PRO FORMA
OF 5/31/98 ADJUSTMENTS PRO FORMA
------------ ---------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............. $ 37,785 $ 37,785
Accounts receivable.................... 15,374 15,374
Prepaid and other current assets....... 18,773 18,773
---------- -------- ----------
TOTAL CURRENT ASSETS.................. 71,932 71,932
PROPERTY, EQUIPMENT AND LEASEHOLDS, net.. 1,180,376 1,180,376
OTHER ASSETS
Long-term Investments and Advances to 28,941 28,941
Partnerships..........................
Goodwill (Historical).................. 83,913 83,913
Excess Purchase Price.................. 224,304 224,304
Other Intangible Assets................ 6,503 6,503
Deferred charges and other assets...... 21,318 $8,000(9) 29,318
---------- -------- ----------
TOTAL ASSETS....................... $1,617,287 $8,000 $1,625,287
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses.. $ 230,471 $(18,562)(7)$ 211,909
Interest payable to Sony affiliate..... 0
Other Current liabilities.............. 22,122 22,122
Current portion of long-term debt and
other obligations..................... 9,785 9,785
--------- ------- ----------
TOTAL CURRENT LIABILITIES 262,378 (18,562) 243,816
DEFERRED INCOME TAXES.................... 16,174 16,174
LONG-TERM DEBT (including capital lease
obligations)........................... 520,056 212,562(7) 340,438
(102,625)(8)
(289,555)(9)
PLITT DEBT............................... 200,000 (194,000)(7) 6,000
8 7/8% SUBORDINATED DEBT................. 297,555(9) 297,555
OTHER LIABILITIES........................ 23,411 23,411
---------- -------- ----------
TOTAL LIABILITIES 1,022,019 (94,625) 927,394
---------- -------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock........................... 454 132(8) 586
Additional paid-in capital............. 591,613 102,493(8) 694,106
Retained earnings...................... 3,201 3,201
---------- -------- ----------
TOTAL SHAREHOLDERS' EQUITY............... 595,268 102,625 697,893
---------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,617,287 $8,000 $1,625,287
========== ======== ==========
The accompanying notes are an integral part of these unaudited pro
forma financial statements.
- ------------------------------
(1) Elimination of the operating results for certain Cineplex Odeon
theatres to be closed as a result of the Combination.
(1a) Reclassification of Cineplex Odeon district office expenses from
theatre operations and other expenses to general and administrative
expenses of $10 million ($2.6 million for the three months ended May
31, 1998) to conform with Loews Theatres' presentation.
(2) Additional amortization expense for the excess of purchase price over
historical book value of Cineplex Odeon's net assets acquired and
transaction related costs. "Excess Purchase Price" (currently
estimated at $224 million at May 31, 1998) consists of (i) the excess
of fair value over the historical book value of net assets for
Cineplex Odeon calculated at May 14, 1998, (ii) transaction related
costs and (iii) the establishment of certain liabilities as a result
of the Combination. The excess of fair value over the historical book
value of net assets for Cineplex Odeon was determined based upon the
sales price per Cineplex Odeon Common Share outstanding and the
estimated net book value of Cineplex Odeon at the closing date of the
Combination. The Excess Purchase Price of approximately $224 million
has been amortized based upon a useful life of 40 years. For each
five-year reduction in the useful life assigned to Excess Purchase
Price there would be an increase of $800,000 to amortization expense
on an annual basis. Amortization has also been adjusted to reflect the
impact of theatre dispositions and deferred financing costs as
follows:
Amortization of Excess Purchase Price
over 40 years.......................................... $ 5.5 million
Plus: Amortization of deferred Financing Charges
($6.6 million) over 5 years............................. 1.3 million
--------------
Total Fiscal Year Ended February 28, 1998.................$ 6.8 million
==============
Total Quarter Ended May 31, 1998..........................$ 1.7 million*
==============
- -----------------------------------
* Total of approximately $200,000 was recorded by Loews Cineplex
for the period May 15, 1998 through May 31, 1998.
The final determination of Excess Purchase Price will be based upon
the completion of a formal valuation of the Cineplex Odeon net assets
as of the closing date of the Combination. Based upon preliminary
estimates of fair value related to certain assets, additional Excess
Purchase Price of between $100 million and $150 million could result
at the conclusion of the valuation.
(3) Reclassification of certain costs relating to loss on theatre
dispositions/impairments and other restructuring charges to conform to
U.S. GAAP financial statement presentation.
(4) Adjustment necessary to reflect interest expense based upon the pro
forma long-term debt balance of approximately $686 million at February
28, 1998 and the actual long-term debt balance (including current
portion) of $730 million at May 31, 1998 at an average annual interest
rate of 7.5%. Amounts reflected are net of capitalized interest on
projects under development. Each 125 percentage point change in the
interest rate charged on long-term borrowings would result in a change
in interest expense of approximately $900,000 based on the actual debt
level of $730 million.
(5) Elimination of impact of unusual and nonrecurring loss on Cineplex
Odeon theatres and other activity pursuant to contractual obligations
related to the Combination. These theatres are not related to theatres
to be disposed of in connection with the DOJ settlement.
(6) Income taxes have been calculated at applicable statutory rates,
adjusted for nondeductible items and state and local minimum taxes.
(7) Represents payment of the premium required as part of the Plitt Note
Repurchase. Further, the reclassification of $18.6 million from
accounts payable to Long-Term Debt reflects the funding of the premium
for the Plitt Note Repurchase through Long-Term Debt rather than
working capital as previously considered.
(8) Equity Offering Adjustments as follows (in thousands, except share
data):
Issuance of 10 million shares at $11.00 per share.......... $ 100
Issuance of 3,255,212 shares issued to Universal
pursuant to the Subscription Agreement (transferred
from additional-paid-in-capital)......................... 32
Additional paid-in capital................................. 109,868
------------
Gross proceeds from Equity Offering........................ 110,000
Expenses related to Equity Offering (estimated)............ (7,375)
------------
$ 102,625
============
The estimated net proceeds of $102.6 million from the Equity Offering
have been reflected in this pro forma financial information as a
reduction of Long-Term Debt.
<TABLE>
<CAPTION>
RECONCILIATION OF BASIC
TO DILUTED EPS
------------------------------
FEB. 28, 1998 MAY 31, 1998
--------------- -------------
<S> <C> <C>
Basic Shares Outstanding Before Equity Offering..... 45,347,632 45,366,410
Shares Issued in Equity Offering*................... 13,255,212 13,255,212
------------ ---------------
Basic Shares Outstanding After Equity Offering...... 58,602,844 58,621,622
============ ===============
Basic Shares Outstanding Before Equity Offering .... 45,347,632 45,366,410
Weighted Average Dilution Under Stock Option Plans.. 3,690,414 3,413,633
------------ ---------------
Weighted Average Diluted Shares Outstanding
Before Equity Offering.............................. 49,038,046 48,780,043
============ ===============
Basic Shares Outstanding After Equity Offering...... 58,602,844 58,621,622
Weighted Average Dilution Under Stock Option Plans 3,690,414 3,413,633
------------ ---------------
Weighted Average Diluted Shares Outstanding After
Equity Offering.................................... 62,293,258 62,035,255
============ ===============
- ---------------------------------------
<FN>
* Shares issued in conjunction with the Equity Offering comprised
of 10 million shares at $11.00 per share sold in public offering
and 3,255,212 shares issued to Universal pursuant to the
Subscription Agreement.
(9) Represents the issuance of $300 million 8 7/8% senior subordinated
notes (net of original issue discount) and the estimated costs ($8.0
million) associated with such debt offering. These costs will be
amortized over the life of the debt (assuming 10 years).
(10) Interest Expense Adjustment Related to the Equity Offering:
Annual interest savings assuming paydown of long-term
debt utilizing proceeds from Equity Offering*.......... $ 7.7 million
===============
Quarterly interest savings assuming paydown of long-term
debt utilizing proceeds from Equity Offering........... $ 1.9 million
===============
- --------------------
* Annual impact of $102.6 million at 7.5% interest rate.
(11) Interest Expense Adjustment Related to the Debt Offering:
Annual incremental interest related to issuance of $300
million 8 7/8% Senior Subordinated Notes*............... $ 4.5 million
===============
Total each quarter...................................... $1.125 million
===============
* Represents difference anticipated in rate on new borrowing of
8 7/8% compared to blended rate under the Bank Credit Facilities
of 7.5% (plus amortization of original issue discount).
</FN>
</TABLE>
NOTE:
The combined pro forma financial information does not reflect the
impact of the pending disposition of 31 theatres comprising 105
screens to Cablevision for $92 million representing 3.6% of the
Company's total screens and 6.8% of total box office receipts on an
annual basis. This transaction is not deemed significant for separate
pro forma presentation.
In addition, the pro forma financial data do not include any potential
payments owed by the Company to SPE as a result of the Combination.
The final payment to SPE is subject to specific post-closing audit
procedures, which have not yet been completed. The Company estimates
that upon completion of the procedures it may be required to pay a
range of approximately $10 million to $15 million.
The unaudited pro forma data is not necessarily indicative of the
combined results of operations of the Company that would have occurred
nor is it necessarily indicative of future operating results of the
Company. Further, due to seasonality in the exhibition industry, the
Company's first fiscal quarter of 1998 is not necessarily
representative of future operating results for the remainder of the
year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LOEWS CINEPLEX
GENERAL
The following discussion of the Company's financial condition and
operating results should be read in conjunction with the selected
historical financial data and the audited consolidated financial statements
of the Company for the fiscal years ended February 28, 1998, February 28,
1997 and February 29, 1996 and with selected historical financial data and
the unaudited consolidated financial statements of the Company for the
three month periods ended May 31, 1998 and 1997. The information presented
below includes the results of Cineplex Odeon, which became a wholly owned
subsidiary of the Company on May 14, 1998, for the 17 day period ended May
31, 1998 and does not include any of its results prior to that time.
This discussion incorporates operating results of partnerships in
which the Company has interests to the extent of its equity share as
required by the equity method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO THREE MONTHS ENDED MAY 31,
1997. Operating Revenues of approximately $117.8 million for the three
months ended May 31, 1998 were $24.6 million, or 26.4%, higher than the
comparable period of the prior year. Operating revenues are generated
primarily from admission revenues and concession sales. Admission revenues
for the three months ended May 31, 1998 of approximately $83.2 million were
$15.8 million, or 23.4%, higher, and concession revenues of approximately
$31.2 million were $7.7 million, or 32.8%, higher, in comparison to the
three months ended May 31, 1997. The increases in revenue for the quarter
were primarily due to the inclusion of 17 days of operating results for
Cineplex Odeon of $26.5 million.
Operating Costs of approximately $89.9 million for the three months
ended May 31, 1998 were approximately $18.8 million, or 26.4%, higher than
the three months ended May 31, 1997, due primarily to the inclusion of 17
days of operating results for the Cineplex Odeon theatres of $21.1 million.
General and Administrative Costs of approximately $7.9 million for the
three months ended May 31, 1998 were $2.0 million higher than the three
months ended May 31, 1997 due primarily to the inclusion of 17 days of
operating results for Cineplex Odeon and start up costs associated with the
Company's international operations.
Depreciation and Amortization Costs of approximately $14.7 million for
the three months ended May 31, 1998 were $2.1 million higher than for the
three months ended May 31, 1997 due to the inclusion of 17 days of
operating results for the Cineplex Odeon theatres.
Interest Expense of approximately $6.1 million for the three months
ended May 31, 1998 was $2.5 million higher than for the three months ended
May 31, 1997 due primarily to the inclusion of 17 days of results for
Cineplex Odeon and the impact of additional borrowings under the Company's
Bank Credit Facilities.
Modified EBITDA for the three months ended May 31, 1998 of $19.9
million increased $3.7 million in comparison to the three months ended May
31, 1997 primarily due to the inclusion of 17 days of results for Cineplex
Odeon. Modified EBITDA (earnings before interest, taxes, depreciation and
amortization, and gains/losses on asset disposal or sales) is a measure of
financial performance that management uses in measuring the Company's
financial performance. Modified EBITDA measures the amount of cash that a
company has available for investment or other uses and is used by the
Company as a measure of performance. Modified EBITDA is primarily a
management tool and only one measure of financial performance to be
considered by the investment community. Modified EBITDA is not an
alternative to measuring operating results or cash flow under U.S. GAAP.
FISCAL YEAR ENDED FEBRUARY 28, 1998 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 28, 1997. Operating Revenues of approximately $413.5 million for
the fiscal year ended February 28, 1998 were $38.2 million, or 10.2%,
higher than the comparable period of the prior year. Operating revenues are
generated primarily from admission revenues and concession sales. Admission
revenues for the fiscal year ended February 28, 1998 of approximately
$296.9 million were $23.4 million, or 8.6%, higher and concession revenues
of approximately $104.0 million were $13.4 million, or 14.8%, higher in
comparison to the fiscal year ended February 28, 1997. Other income for the
year ended February 28, 1998 of approximately $12.6 million was $1.4
million higher than the same period in fiscal 1997. These increases in
revenues were due primarily to the effect of additional revenue from new
theatre openings/expansion of existing theatres of $33.8 million, higher
admissions and concession revenue per patron resulting in an increase of
$6.4 million and $5.2 million, respectively, partially offset by other
reductions in operating revenues, including the effect of theatre
dispositions, which reduced operating revenues by approximately $7.2
million.
Operating Costs of approximately $307.6 million for the year ended
February 28, 1998 were $25.1 million, or 8.9%, higher than the fiscal year
ended February 28, 1997 due primarily to increased costs of $22.7 million
related to the aforementioned increase in operating revenues and higher
occupancy costs attributable to new theatre openings of $5.4 million offset
by lower costs, including the effect of theatre dispositions, of $3.0
million.
General and Administrative Costs of approximately $28.9 million for
the year ended February 28, 1998 were $7.5 million higher than the fiscal
year ended February 28, 1997 due primarily to higher salaries and fringe
benefits as a result of normal merit increases and higher staffing levels
required as a result of increased business activity, certain contractual
buyouts and other costs related to the Combination and the start-up of the
Company's international operations.
Depreciation and Amortization Costs of approximately $52.3 million for
the year ended February 28, 1998 were $7.7 million higher than for the
fiscal year ended February 28, 1997 due primarily to the effect of new
theatre openings, provisions for asset impairment under SFAS No. 121 and
incremental depreciation on refurbishment and information systems
expenditures.
Loss on Sale/Disposal of Theatres of approximately $7.8 million for
the year ended February 28, 1998 was $2.2 million lower than for the fiscal
year ended February 28, 1997 due primarily to the timing, nature and
characteristics of theatre dispositions. During fiscal 1998, Loews Cineplex
disposed of 10 theatres comprising 28 screens.
Interest Expense of approximately $14.3 million for the year ended
February 28, 1998 was $500,000 lower than for the fiscal year ended
February 28, 1997 due primarily to the impact of lower interest rates
partially offset by the impact of new borrowings.
Modified EBITDA for the year ended February 28, 1998 of $77.0 million
increased $5.6 million in comparison to the year ended February 28, 1997
primarily due to the increase in admission and concession revenues per
patron and the impact of newly opened theatres which were previously
discussed.
FISCAL YEAR ENDED FEBRUARY 28, 1997 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 29, 1996. Operating Revenues of approximately $375.3 million for
the fiscal year ended February 28, 1997 were $16.2 million, or 5%, higher
than the comparable period of the prior year. Operating revenues are
generated primarily from admission revenues and concession sales. Admission
revenues for the fiscal year ended February 28, 1997 of approximately
$273.5 million were $8.9 million, or 3%, higher and concession revenues of
approximately $90.6 million were $6.3 million, or 7%, higher in comparison
to the fiscal year ended February 29, 1996. These increases in both
admissions and concessions revenues were due primarily to the effect of
additional revenue from new theatre openings/expansion of existing theatres
of approximately $19.2 million, higher admissions and concessions revenue
per patron resulting in an increase of $11.2 million and $6.5 million,
respectively, partially offset by other reductions in operating revenues,
including the effect of theatre dispositions, which reduced operating
revenues by approximately $20.7 million.
Operating Costs of approximately $282.5 million for the year ended
February 28, 1997 were $5.1 million, or 2%, higher than the fiscal year
ended February 29, 1996 due primarily to costs of $16 million directly
related to the aforementioned increase in operating revenues and higher
occupancy costs attributable to new theatre openings of $2.8 million offset
by lower costs, including the effect of theatre dispositions, of $13.7
million.
General and Administrative Costs of approximately $21.4 million for
the year ended February 28, 1997 were $1.2 million higher than the fiscal
year ended February 29, 1996 due primarily to higher salaries and fringe
benefits as a result of normal merit increases.
Depreciation and Amortization Costs of approximately $44.6 million for
the year ended February 28, 1997 were $3.3 million higher than for the
fiscal year ended February 29, 1996 due primarily to the effect of new
theatre openings.
Loss on Sale/Disposal of Theatres of approximately $10.0 million for
the year ended February 28, 1997 was $2.7 million higher than for the
fiscal year ended February 29, 1996 due primarily to the timing, nature and
characteristics of theatre dispositions. During fiscal 1997, Loews Cineplex
disposed of an aggregate 15 theatres comprising 57 screens.
Interest Expense of approximately $14.8 million for the year ended
February 28, 1997 was $600,000 lower than for the fiscal year ended
February 29, 1996 due primarily to the impact of lower interest rates
partially offset by the impact of new borrowings.
Modified EBITDA for the year ended February 28, 1997 of $71.4 million
increased $10.0 million in comparison to the year ended February 29, 1996,
due primarily to the increase in admission and concession revenues per
patron and the impact of newly opened theatres which were previously
discussed.
LIQUIDITY AND CAPITAL RESOURCES (PRIOR TO CONSUMMATION OF THE COMBINATION)
Cash flow from operations for the three months ended May 31, 1998 was
approximately $27.3 million, which was approximately $17.3 million higher
than for the three months ended May 31, 1997. Cash flow from operations for
the year ended February 28, 1998 was approximately $64.2 million, which was
approximately $16.2 million higher than for the year ended February 28,
1997. Loews Cineplex derives substantially all of its revenues from cash
collected at the box office and through concession sales. Generally, this
provides Loews Cineplex with a working capital operating float since cash
revenues are generally collected in advance of the payment of related
expenses. Prior to the closing of the Combination, Loews Theatres
determined the amount of cash required to fund operational needs and all
cash in excess of the daily operational needs was "swept" by Sony Capital
Corporation, an affiliate, and applied to Loews Theatres' intercompany
payable account with its affiliates. Since Loews Theatres does not carry
any significant amounts of inventory or accounts receivable and any excess
cash historically was "swept" by an affiliate of Loews Theatres' corporate
parent, it has historically operated with negative working capital.
However, there are times during the year when, based on seasonal changes in
the pattern of cash collections and the timing of cost and expense
payments, additional working capital may be required. During such times,
Loews Theatres had an arrangement whereby SCA and/or its affiliates would
make additional funds available to Loews Theatres through a short-term
credit facility at interest rates, commensurate with market, established at
the time of the loan. Historically, Loews Theatres funded its capital
requirements for its new theatre acquisition, construction and
reconfiguration programs with internally generated funds and borrowings
under its intercorporate credit facility with SCA (the "Sony Facility").
On February 5, 1998, in connection with the Combination, the Company
declared and paid a stock dividend of 19,269,348.25 shares of Common Stock
and 1,202,486 shares of Class A Non-Voting Common Stock to the Company's
sole stockholder of record at the time. In connection with the stock
dividend, $205,000 was transferred from retained earnings to additional
paid-in capital and Common Stock.
On May 14, 1998 and in connection with the Combination, the Company
repaid all amounts outstanding under the Sony Facility. At February 28,
1998, Loews Theatres' outstanding balance under the Sony Facility was
approximately $296.3 million and net borrowings for the year then ended
were approximately $1.8 million. At February 28, 1997, Loews Theatres'
outstanding balance against the Sony Facility was approximately $294.6
million and net borrowings during the fiscal year ended February 28, 1997
were approximately $8.2 million.
For periods prior to the closing of the Combination, Loews Cineplex is
included in the consolidated federal income tax returns of SCA. For
financial reporting purposes, Loews Cineplex reports its federal income tax
expense and related liability as if it filed a separate income tax return.
The resultant liability (or benefit) is treated as an intercompany payable
(or receivable).
Loews Cineplex has made significant investments in its theatres over
the last five years (including new builds, reconfigurations of existing
theatres and closing unprofitable or uncompetitive theatres). For the
five-year period ending February 28, 1998, Loews Cineplex has added 338
screens (including 52 screen expansions at existing locations) at 25
locations.
The Company has experienced, and expects to continue to realize,
improved operating results as a result of investments in theatres over the
last five years (including new builds, reconfigurations of existing
theatres and closing unprofitable or uncompetitive theatres). At May 31,
1998, the Company had capital spending commitments for the future
development and construction of 41 theatre properties comprising 608
screens aggregating approximately $290.0 million.
Additionally, the Company is committed, under the terms of the joint
venture agreement dated June 10, 1998 with Yelmo Films to provide funding
for the future development and construction of threatre properties
aggregating approximately $50 million.
LIQUIDITY AND CAPITAL RESOURCES (AFTER CONSUMMATION OF THE COMBINATION)
Subsequent to consummation of the Combination, the Company has
performed all cash management functions on a "stand-alone" basis.
In connection with the Combination, Loews Cineplex entered into the
$1.0 billion Bank Credit Facilities. The Bank Credit Facilities, together
with funds in the amount of $84.5 million paid by Universal under the
Subscription Agreement, replaced Cineplex Odeon's existing credit facility
and the Sony Facility, funded cash paid to SPE and/or its affiliates in
connection with the Combination and, together with the net proceeds of the
Concurrent Offerings will provide ongoing financing to Loews Cineplex to
fund further expansion in North America and internationally. The Company
initially borrowed $500 million under the Bank Credit Facilities at the
time the Combination was consummated. The Bank Credit Facilities are
comprised of a $750 million senior secured revolving credit facility,
secured by substantially all of the assets of Loews Cineplex and its U.S.
subsidiaries, and a $250 million uncommitted facility. The Bank Credit
Facilities bear interest at a rate of either the current prime rate as
offered by Bankers Trust Company and Adjusted Eurodollar (as defined in the
credit agreement governing the Bank Credit Facilities) rate plus an
applicable margin based on the Leverage Ratio (as defined in the credit
agreement governing the Bank Credit Facilities). The Bank Credit Facilities
include various financial covenants, including a leverage test and interest
coverage test, as well as customary restrictive covenants, including: (i)
limitations on indebtedness, (ii) limitations on dividends and other
payment restrictions, (iii) limitations on asset sales, (iv) limitations on
transactions with affiliates, (v) limitations on the issuance and sale of
capital stock of subsidiaries, (vi) limitations on lines of business, (vii)
limitations on merger, consolidation or sale of assets and (viii) certain
reporting requirements. Future cash needs in excess of amounts provided by
operations will be funded by the Bank Credit Facilities.
The Company's borrowings under the Bank Credit Facilities at May 31,
1998 totaled $473 million.
Recent Developments
Two of the Company's leased drive-in motion picture theatres in the
State of Illinois are located on properties on which certain third parties
disposed of substantial quantities of auto shredder residue and other
debris. Such materials may contain hazardous substances. With respect to
one of these sites, located in Cicero, Illinois, the Company has been named
as one of two defendants in a lawsuit commenced in August 1998 by the
Illinois Attorney General's Office at the request of the Illinois
Environmental Protection Agency. The action was brought pursuant to the
Illinois Environmental Protection Act and alleges, among other things, that
the Company caused or allowed the disposal of certain wastes bearing
hazardous substances on the theatre property. The action seeks civil
penalties and various forms of equitable relief, including the removal of
all wastes allegedly present at the property, soil and groundwater testing
and remediation, if necessary. The Company's range of liability with
respect to this action cannot be precisely estimated at this time due to
several unknown factors, including the scope of contamination at the
theatre property, the allocation of such liability, if any, to other
responsible parties, and the ability of such parties to satisfy their share
of such liability. The Company has accrued an amount that it believes
represents the minimum amount of the Company's potential liability relating
to the action. The Company will continue to evaluate future information and
developments with respect to conditions at the theatre property and will
periodically reassess any liability and adjust its accrual accordingly.
Based on the foregoing, there can be no assurance that the Company's
liability in connection with this action will not be material.
In August 1998, the Company entered into interest rate exchange
agreements effectively setting a fixed rate of 5.78% per annum (plus a
margin) on a notional amount of $250 million of indebtedness. Each Swap has
a quarterly reset date for settlements. The Company will account for these
Swaps as interest rate hedges.
As a result of the consummation of the Combination, Loews Cineplex was
obligated to offer to purchase the outstanding Plitt Notes for a price
equal to 101% of the outstanding principal amount plus accrued and unpaid
interest. In order to satisfy this requirement and retire the Plitt Notes,
on June 15, 1998, Plitt commenced the At-the-Market Offer, which terminated
on August 4, 1998. Pursuant to the At-the-Market Offer, Plitt purchased 97%
of the outstanding Plitt Notes for $216 million or 109.261% of the
outstanding principal amount of the Plitt Notes, plus accrued and unpaid
interest, leaving approximately $6 million of the Plitt Notes outstanding.
In connection with closing the Combination, the Company guaranteed the
Plitt Notes on a senior subordinated basis, and Cineplex Odeon was released
from its guarantee of the Plitt Notes. See "The Transactions".
On August 5, 1998, the Company simultaneously completed a public
offering of 10 million shares of its common stock at a price of $11 a share
and the issuance of $300 million of 8 7/8% Senior Subordinated Notes due
2008 through a private placement. The Company used $215.7 million of the
proceeds from these offerings to acquire the Plitt Notes and the remaining
amount to reduce Bank Credit Facilities and pay fees and expenses
associated with these offerings.
Under the terms of an agreement with the DOJ, which was entered into
in connection with its approval of the Combination, the Company agreed to
divest 25 theatres, representing 85 screens in the New York and Chicago
areas. The sale of these theatres is subject to approval by the DOJ. On
August 27, 1998, the Company announced that it had reached an agreement to
sell 31 theatres in the New York City, Chicago and suburban New York areas
for $92 million to Cablevision, one of the nation's leading
telecommunications and entertainment companies, subject to certain
conditions, including DOJ approval and the receipt of certain consents. The
Company is in discussions with Cablevision regarding the steps to be taken
to obtain these approvals and consents, and an announcement is expected to
be made shortly. These 31 theatres include an additional seven theatres,
representing 21 screens, in the suburban New York area, which will be sold,
subject to certain conditions, in a separate transaction unrelated to the
agreement with the DOJ. The theatres being sold represent approximately
3.6% of the Company's total screens and 6.8% of total box office receipts
on an annual basis. Proceeds from the sale are expected to be used to
reduce borrowings under the Bank Credit Facilities and for general
corporate purposes. Subject to DOJ approval, the Company expects to close
these transactions in the third quarter ending November 30, 1998.
The Company is offering to exchange hereby $300 million aggregate
principal amount of New Notes. The New Notes will be general unsecured
obligations of the Company, ranking subordinate in right of payment to all
Senior Debt of the Company, including indebtedness under the Bank Credit
Facilities. For a description of the New Notes, see "Description of New
Notes".
EFFECT OF INFLATION
Inflation has not had a material effect on Loews Cineplex's
operations.
YEAR 2000 ISSUE
The Year 2000 issue affects virtually all companies and organizations.
Loews Cineplex has implemented programs designed to ensure that all
software used in connection with providing services to its customers and
its internal operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data
abnormality. Loews Cineplex does not anticipate incurring significant
additional costs to address the Year 2000 issue, although the effectiveness
of Loews Cineplex's present efforts to address the Year 2000 issue cannot
be assured. In addition, it is currently unknown whether vendors and other
third parties with whom Loews Cineplex conducts business will successfully
address the Year 2000 issue with respect to their own computer software. If
Loews Cineplex's present efforts to address the Year 2000 issue are not
successful, or if vendors and other third parties with which Loews Cineplex
conducts business do not successfully address the Year 2000 issue, Loews
Cineplex's business and financial condition could be adversely affected.
NEW ACCOUNTING PRONOUNCEMENTS
Loews Cineplex has determined that three new pronouncements that have
been issued but are not yet effective are applicable to Loews Cineplex, and
may have an impact on its financial statements:
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosure about Segments of an Enterprise and Related Information", which
is effective for Loews Cineplex's fiscal year ending February 28, 1999,
requires Loews Cineplex to disclose financial information about business
segments, including certain information about products and services,
activities in different geographic areas and other information.
SFAS No. 132, "Employer's Disclosure about Pensions and Other
Post-Retirement Benefits", is effective for the Company's fiscal year
ending February 28, 1999. SFAS No. 132 standardizes the disclosure
requirements for pension and other post-retirement plans; the standard does
not change the measurement or recognition of such plans.
Additionally, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activity", is effective for all the Company's fiscal quarters of
all fiscal years beginning February 28, 2000. This statement standardizes
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts by requiring that the Company
recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value.
Loews Cineplex expects to adopt these standards when required and does
not believe they will have a material impact on its financial statements.
CINEPLEX ODEON
INTRODUCTION
Management's discussion and analysis of results of operations and
financial condition focuses on liquidity, capital resources and the results
of Cineplex Odeon's operations. This section should be read in conjunction
with the consolidated financial statements, the notes thereto and other
information presented elsewhere herein.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1997 AND 1996
Cineplex Odeon recorded a net loss for the year ended December 31,
1997 of $62,067,000 compared to a net loss for the year ended December 31,
1996 of $31,082,000 and a net loss for the year ended December 31, 1995 of
$32,907,000. Included in the 1997 net loss are other expenses of
$43,401,000 (1996--$1,377,000 and 1995--$2,862,000). Other expenses in 1997
includes a charge of $46,239,000 representing the costs associated with
terminating certain leases and disposing of certain properties and the
write-off of the net book value attributable to the related properties.
Industry admission revenue and attendance increased in 1997 by 7.7%
and 3.9%, respectively, compared to 1996 figures.
Cineplex Odeon reported its results in United States dollars. In order
to eliminate the impact of exchange rate fluctuations on the yearly
comparison of both admission and concession revenue, the results for the
Canadian operations discussed below are stated in Canadian dollars. In 1996
Cineplex Odeon sold five theatres located in Texas. The impact of this sale
is not considered significant to Cineplex Odeon's United States results.
Cineplex Odeon's United States theatre circuit box office revenue
increased for both the year and the quarter ended December 31, 1997 by 3.3%
and 10.0%, respectively, when compared to the corresponding period in the
prior year. This increase in box office revenue for the year ended December
31, 1997 was the result of an increase in attendance of 1.7% and an
increase in box office revenue per patron of 1.6%. The increase in box
office revenue in the fourth quarter of 1997 was the result of an
attendance increase of 8.2% and an increase in box office revenue per
patron of 1.8%. The increase in attendance in the fourth quarter reflects a
strong slate of pictures released in that period, including Titanic, and
the impact of new theatres opened by Cineplex Odeon in the United States.
Cineplex Odeon's Canadian theatres reported an increase in box office
revenue of 28.4% in 1997 compared to 1996 (when measured in Canadian
dollars). This increase was the result of an increase in attendance of
24.1% and an increase in box office revenue per patron of 4.3%. In the
fourth quarter of 1997 Cineplex Odeon's Canadian theatres reported an
increase in box office revenue of 43.5% compared to the fourth quarter of
1996 (when measured in Canadian dollars). This increase was the result of
an increase in attendance of 39.5% and an increase in box office revenue
per patron of 4.0%. The increase in attendance experienced by Cineplex
Odeon's Canadian theatre circuit in both the quarter and year ended
December 31, 1997 compared to 1996 was a result of Cineplex Odeon's
relationships with certain film distributors who enjoyed comparatively more
successful film product in 1997 compared to 1996 and the impact of new
theatres opened by Cineplex Odeon in Canada.
Cineplex Odeon's United States concession revenue increased by 8.8% in
1997 compared to 1996. This increase was the result of an increase in
attendance of 1.7% and an increase in concession revenue per patron of
7.1%. In the fourth quarter of 1997, Cineplex Odeon's United States
concession revenue increased by 16.9% when compared to the fourth quarter
of 1996. For the fourth quarter the increase was the result of an increase
in attendance of 8.2% and an 8.7% increase in concession revenue per
patron.
Cineplex Odeon's Canadian concession revenue increased in 1997 by
31.5% (when measured in Canadian dollars) compared to 1996, reflecting an
increase in concession revenue per patron of 7.4% and an increase in
attendance of 24.1%. For the fourth quarter of 1997, Cineplex Odeon's
Canadian concession revenue increased by 49.4% comprising an increase in
attendance of 39.5% and an increase in concession revenue per patron of
9.9%.
The increase in concession revenue per patron in both the United
States and Canada for the year reflects the impact of Cineplex Odeon's
focus in this area and the augmented design of concession stands in
Cineplex Odeon's newer theatres.
GROSS MARGIN AND OTHER COSTS. The gross margin from theatre operations
(being revenue from theatre operations less film cost, cost of concessions,
advertising, theatre payroll, occupancy, and supplies and services), when
expressed as a percentage of theatre operating revenue, increased in 1997
to 16.2% compared to 15.4% in 1996. For the fourth quarter of 1997 compared
to the fourth quarter of 1996 the gross margin from theatre operations,
when expressed as a percentage of theatre operating revenue, increased to
17.7% from 14.0%. The increase in gross margin for both the year and the
fourth quarter was primarily the result of the increase in revenue.
Interest on long-term debt decreased by 4.5% in 1997 compared to the
prior year. The decrease in interest on long-term debt was primarily a
result of the decision to denominate certain of Cineplex Odeon's long-term
debt in Canadian dollars during 1997 which, for the period was subject to a
lower interest rate.
In 1997 other expenses were $43,401,000 compared to $1,377,000 in 1996
and $2,862,000 in 1995. The primary component of this charge is an expense
of $46,239,000 relating to the costs associated with terminating certain
theatre leases and disposing of certain other theatre properties and the
corresponding write-off of the net book value associated with the
properties. It is anticipated that the disposal of these properties will be
substantially complete by the end of 1998 and will result in an annual
operating cash flow improvement of $7,000,000.
During 1997 the value of the Canadian dollar weakened relative to the
United States dollar. While currency movements affect the reporting of
revenues and expenses of Cineplex Odeon's Canadian operations, the
financial impact is limited as the costs of operating the Canadian theatres
are supported by the revenues of such theatres.
RESULTS OF OPERATIONS--1996 AND 1995
Industry admission revenue and attendance increased in 1996 by 7.6%
and 6.0%, respectively, compared to 1995 figures.
Cineplex Odeon's United States results were impacted by the sale of 28
theatres, located in Florida and Georgia, to Carmike Cinemas, Inc. in the
second quarter of 1995. In 1996 Cineplex Odeon sold five theatres located
in Texas, the impact of which is not considered significant to Cineplex
Odeon's United States results.
Cineplex Odeon's United States theatre circuit box office revenue
decreased for both the year and the quarter ended December 31, 1996 by 4.0%
and 8.6%, respectively, when compared to the corresponding period in the
prior year. Adjusting for the impact of the sale of the Florida and Georgia
theatres, Cineplex Odeon's United States theatre circuit box office revenue
decreased by 1.9% for the year ended December 31, 1996 compared to the year
ended December 31, 1995. This decrease in box office revenue for the year
ended December 31, 1996 was the result of a decrease in attendance of 4.3%
offset by an increase in box office revenue per patron of 2.4%. The
decrease in attendance in 1996 compared to 1995 is a direct result of
increasing competition from other film exhibitors who have been
aggressively building new theatres. The decrease in box office revenue in
the fourth quarter of 1996 was the result of an attendance decrease of
10.3% offset by an increase in box office revenue per patron of 1.7%. The
decrease in attendance in the fourth quarter reflects the fact that the
film product in the fourth quarter of 1996 was not as strong as the prior
year and the aforementioned increasing competition.
Cineplex Odeon's Canadian theatres reported an increase in box office
revenue of 2.8% in 1996 compared to 1995 (when measured in Canadian
dollars). This increase was the result of an increase in attendance of 3.5%
offset by a decrease in box office revenue per patron of 0.7%. In the
fourth quarter of 1996 Cineplex Odeon's Canadian theatres reported an
increase in box office revenue of 5.0% compared to the fourth quarter of
1995 (when measured in Canadian dollars). This increase was the result of
an increase in attendance of 4.1% and an increase in box office revenue per
patron of 0.9%. The increase in attendance experienced by Cineplex Odeon's
Canadian theatre circuit in 1996 compared to 1995 was a result of Cineplex
Odeon's relationships with certain film distributors who enjoyed
comparatively more successful film product in 1996 compared to 1995.
Cineplex Odeon's United States concession revenue decreased by 3.0% in
1996 compared to 1995. In the fourth quarter of 1996, Cineplex Odeon's
United States concession revenue decreased by 5.1% when compared to the
fourth quarter of 1995. Adjusting for the impact of the sale of the Florida
and Georgia theatres, Cineplex Odeon's United States concession revenue for
the year ended December 31, 1996 was equivalent to that of the year ended
December 31, 1995. This was achieved due to an increase in concession
revenue per patron of 4.3% which offset the decrease in attendance. For the
fourth quarter the decrease was the result of a decrease in attendance of
10.3% offset by a 5.2% increase in concession revenue per patron.
Cineplex Odeon's Canadian concession revenue increased in 1996 by 6.0%
(when measured in Canadian dollars) compared to 1995, reflecting an
increase in concession revenue per patron of 2.5% and an increase in
attendance of 3.5%. For the fourth quarter of 1996, Cineplex Odeon's
Canadian concession revenue increased by 3.7% comprising an increase in
attendance of 4.1% and a decrease in concession revenue per patron of 0.4%.
The increase in concession revenue per patron for the year reflects the
impact of Cineplex Odeon's focus in this area and the augmented design of
concession stands in Cineplex Odeon's newer theatres.
GROSS MARGIN AND OTHER COSTS. The gross margin from theatre operations
(being revenue from theatre operations less film cost, cost of concessions,
advertising, theatre payroll, occupancy, and supplies and services), when
expressed as a percentage of theatre operating revenue, decreased in 1996
to 15.4% compared to 15.7% in 1995. The slight decline in gross margin for
the year was primarily the result of a general increase in certain direct
costs associated with theatre operations.
The gross margin from theatre operations, when expressed as a
percentage of theatre operating revenue, decreased in the fourth quarter of
1996 compared to the fourth quarter of 1995 to 14.0% from 16.4%. The
decline in gross margin for the fourth quarter of 1996 was due to (1) a
general increase in certain direct costs associated with theatre
operations; and (2) the fixed component of theatre operating costs
(primarily occupancy costs).
Interest on long-term debt decreased by 13.4% in 1996 compared to the
prior year. The decrease in interest on long-term debt was primarily
attributable to the initial application of equity proceeds from the public
offering in the first quarter of 1996 against Cineplex Odeon's long-term
debt.
During 1996 the value of the Canadian dollar strengthened relative to
the United States dollar. While currency movements affect the reporting of
revenues and expenses of Cineplex Odeon's Canadian operations, the
financial impact is limited as the costs of operating the Canadian theatres
are supported by the revenues of such theatres.
RESULTS OF OPERATIONS--SINCE DECEMBER 31, 1997
Unaudited financial statements for Cineplex Odeon for the three months
ended March 31, 1998 and March 31, 1997 are included herein commencing at
page F-59. On a stand-alone basis for the three months ended May 31, 1998,
Cineplex Odeon's revenues and EBITDA were lower than for the corresponding
period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM CONTINUING OPERATIONS. Cash flow from operations in
1997 amounted to a net inflow of $30,780,000 compared to a net inflow of
$12,416,000 in 1996. The increase in cash flow from operations is a
function of the increase in revenue experienced in 1997 (See "--Results of
Operations"). Excluding the impact of the net change in non-cash working
capital, Cineplex Odeon's cash flow from operations for the year ended
December 31, 1997 amounted to a net inflow of $1,622,000 compared to a net
inflow of $10,468,000 for the year ended December 31, 1996. This decline is
attributable to the cash costs associated with the aforementioned
disposition of certain properties which amounted to $21,648,000.
LONG-TERM DEBT. Long-term debt increased from $326,058,000 at December
31, 1996 to $333,523,000 at December 31, 1997. This increase is the result
of the capital expenditures associated with Cineplex Odeon's expansion
program. In connection with the Combination, Cineplex Odeon repaid $153.9
million of outstanding debt under its credit facility with funds provided
by Loews Cineplex from borrowings under the Bank Credit Facilities, and the
Cineplex Odeon facility was terminated.
At December 31, 1997 Cineplex Odeon had two interest rate swap
agreements outstanding. The aggregate notional principal associated with
the two swap agreements is $35,000,000 and such agreements require Cineplex
Odeon to pay a fixed interest rate and receive a floating rate. The
weighted average fixed interest rates associated with the swap agreements
are 5.73%. These agreements were terminated in connection with the
Combination. Of Cineplex Odeon's long-term debt at December 31, 1997,
approximately 79% was subject to fixed rates of interest.
FUTURE COMMITMENTS. In 1997 Cineplex Odeon opened seven new theatres
and refurbished two theatres in the United States adding a total of 87 new
screens. In Canada in 1997 Cineplex Odeon opened ten new theatres and
refurbished four theatres adding a total of 127 new screens. The total cost
associated with the construction of these theatres was approximately
$50,000,000.
CANADIAN ISSUER
Cineplex Odeon is an Ontario corporation which conducts approximately
one-third of its operations in Canada. Cineplex Odeon is subject to certain
Canadian economic, fiscal, monetary and political policies and factors.
Reference is made to Note 17 of the Notes to the Consolidated
Financial Statements of Cineplex Odeon for a reconciliation of Cineplex
Odeon's financial statements to United States generally accepted accounting
principles.
INFLATION
For the three years ended December 31, 1997, inflation did not have a
pronounced effect on Cineplex Odeon's results of operations.
<PAGE>
THE MOTION PICTURE EXHIBITION INDUSTRY
GENERAL
The motion picture exhibition industry in North America comprises over
400 exhibitors, 250 of which operate four or more screens. Based on the
listing of exhibitors in the National Association of Theatre Operators
("NATO") 1997-98 Encyclopedia of Exhibition, as of May 1, 1997, the ten
largest exhibitors (in terms of number of screens in the United States)
operated approximately 51% of the total screens, with no one exhibitor
operating more than 10% of the total of 29,731 screens.
The following table presents the ten largest exhibition companies in
North America by box office revenue, screens and theatres according to the
most recent publicly available information:
BOX
OFFICE
COMPANY REVENUES SCREENS THEATRES(3)
- -------------------- ------------- ---------- ------------
(MILLIONS)
Loews Cineplex..................... $688.2(1) 2,781(2) 450(2)
AMC Entertainment.................. 530.7 2,475 231
United Artists Theatres............ 465.6 2,154 332
Regal Cinemas(3)................... 344.0 2,306 256
Carmike Cinemas.................... 322.6 2,720 520
GC Companies....................... 298.3 1,222 182
Cinemark Cinemas................... 288.1 2,310 233
Act III Theatres(3)................ 166.4 673 122
Hoyts Cinemas Corp................. N/A 817 114
National Amusements................ N/A 1,141 125
- ---------------------------------
(1) Includes Loeks-Star Theatres and Magic Johnson Theatres. Amounts for
Loews Cineplex represent the sum of data reported for Loews Theatres
as of February 28, 1998 and Cineplex Odeon as of December 31, 1997.
This data is not intended to represent total screens, locations or box
office revenue of the Company on a pro forma basis at any time.
(2) Amount for Loews Cineplex include screens and theatres of Loeks-Star
Theatres and Magic Johnson Theatres.
(3) Data for Regal Cinemas is prior to its merger with Act III Theatres.
Act III Theatres screen and theatre information is as of December 31,
1996.
In 1997, U.S. motion picture attendance was approximately 1.4 billion,
the highest attendance level recorded by NATO during the past 38 years, and
in the same year, box office revenues exceeded $6.4 billion, an 8% increase
over 1996. The average ticket price for 1997 was $4.59, an increase of 4%
over 1996.
Exhibitors' chief sources of revenue are derived from box office sales
of theatre tickets and sale of concession products at theatres. Box office
revenues are directly related to attendance which is driven by the quality
of the movie-going experience including the comfort, cleanliness and
convenience of the location of theatres, the content and quality of film
product distributed by major motion picture and independent film studios,
the ticket price, the quality of projection and sound presentation and the
level of customer service. Concessions (generally food and beverage items)
are sold at stands located within theatres. Concession revenues are largely
dependent on attendance levels and the effectiveness of theatre staffing,
training and the type and quality of products offered.
Exhibitors' primary operating costs include film costs for licensing
rights paid to motion picture distributors, the cost of concession
products, labor, theatre rents, real estate taxes and advertising. In
recent years, film costs to the exhibition industry have increased. There
are a variety of reasons for this, including a trend toward shorter film
exhibition runs. In addition, exhibitors must spend significant amounts of
capital on investments in developing and constructing theatre facilities.
RELATIONSHIP BETWEEN MOTION PICTURE PRODUCTION AND DISTRIBUTION
AND MOTION PICTURE EXHIBITION
There is an integral relationship between the motion picture
exhibition and the motion picture production and distribution industries.
Motion picture theatres are the primary initial distribution channel for
new motion picture releases, and theatrical success of a motion picture is
often the most important factor in establishing its value in the cable
television, pay-per-view, videocassette and other ancillary markets. At the
same time, the ultimate success of an exhibitor's box office is dependent
on, among other things, the quality, quantity, availability and acceptance
by movie-going patrons of the motion picture product produced by the motion
picture production companies and licensed for exhibition to the motion
picture exhibitors by distribution companies.
The motion picture production and distribution industry in North
America is led by a few major movie studios and their distribution
operations. The major studios and distributors are Columbia and TriStar
(which are both owned by Sony), Universal (approximately 84% of which is
owned by Seagram), The Walt Disney Corporation, Warner Bros. (which is
owned by Time-Warner Inc.), Paramount Pictures (which is owned by Viacom
Inc.), Twentieth Century-Fox (which is owned by NewsCorp.) and
Metro-Goldwyn-Mayer Inc. These studios account for approximately 90% of the
motion picture product exhibited in the United States, based on box office
receipts.
FILM LICENSING
In order to secure adequate product, theatrical exhibitors, such as
the Company, must engage in continuous negotiations with film distributors
for licensing rights of first run feature motion pictures. Such
negotiations are conducted on a film-by-film and theatre-by-theatre basis
and consider, among other things, the projected success of the movie, the
movie's subject content and appeal to segments of the population and the
exhibitor's presence in metropolitan areas, theatre locations and size.
Film exhibition licenses typically specify rental fees based upon a gross
receipts formula or a theatre 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. Under a theatre admissions revenue-sharing formula, the
distributor receives a specified percentage of the excess of box office
receipts over a negotiated house expense.
If there are multiple exhibitors in a film zone, a distributor may
require the exhibitors in a zone to bid for a film or may allocate its
films among the exhibitors in the zone. When films are licensed under the
allocation process, a distributor will choose which exhibitor is offered a
movie and then that exhibitor will negotiate film rental terms directly
with the distributor for the film. Over the past several years,
distributors have generally used the allocation rather than the bidding
process to license their films. The Company does not currently bid for film
licenses in any of the markets in which it operates.
SEASONALITY
The release of motion pictures is often seasonal, with the release of
a disproportionate number of major motion pictures taking place during the
summer and holiday seasons. This industry-wide practice is expected to
continue and may cause significant swings in attendance levels, theatre
staffing levels and reported results for the Company from quarter to
quarter. However, recently there has been an industry trend towards movie
releases in the "off" season to attempt to mitigate the effect described
above and annual attendance levels and admissions revenues have tended to
increase moderately in the recent past.
GOVERNMENT REGULATION
In the United States, the distribution of motion pictures is in large
part regulated by federal and state antitrust laws and has been the subject
of numerous antitrust cases. The most significant of these cases is U.S. v.
Paramount Pictures Inc., et al., which was affirmed by the U.S. Supreme
Court in 1950. The consent decrees resulting from the Paramount case bind
certain major film distributors and require the films of such distributors
to be offered and licensed to exhibitors on a film-by-film and
theatre-by-theatre basis. Consequently, Loews Cineplex will not be able to
assure itself of a supply of motion pictures by entering into long-term
arrangements with major distributors, but must compete and negotiate for
its licenses on a film-by-film and theatre-by-theatre basis. See
"Business--Legal Proceedings".
The ADA and certain state statutes and local ordinances, among other
things, require that places of public accommodation, including theatres
(both existing and newly constructed), be accessible to, and that assistive
listening devices be available for use by, patrons with disabilities. The
ADA may require that certain modifications be made to existing theatres in
order to make such theatres accessible to certain theatre patrons and
employees who are disabled. The ADA requires that theatres be constructed
to permit persons with disabilities full use of theatre and its facilities
and reasonable access to work stations. Loews Cineplex has established a
program to review and evaluate its U.S. theatres and to make changes that
may be required by law. See "Business--Legal Proceedings" for information
concerning claims alleging that certain theatres in the Cineplex Odeon
circuit are not in compliance with the ADA.
Motion picture theatres are also subject to certain U.S. and Canadian
federal, state, provincial and local laws governing such matters as
construction, renovation and operation of its theatres, employee wages and
working conditions, health and sanitation regulations. Loews Cineplex
believes all of its theatres are in material compliance with such
requirements.
<PAGE>
BUSINESS
Loews Cineplex is the world's largest publicly traded theatre
exhibition company in terms of revenues and operating cash flow. On May 14,
1998, the Company completed the business combination of the Loews Theatres
exhibition business of SPE and Cineplex Odeon, another major motion picture
exhibitor with operations in the United States and Canada. On a pro forma
basis for the fiscal year ended February 28, 1998, the Company had
approximately $1.0 billion in revenues and $148.2 million in Attributable
EBITDA. Approximately 71% of such revenues was related to box office
receipts and approximately 29% was generated by concession sales and other
revenues. The Company's pro forma share of total industry box office
receipts in North America in 1997 was approximately 10.2%. See "Selected
Historical and Unaudited Pro Forma Financial Information--Historical and
Unaudited Pro Forma Combined Key Operating Statistics" for a reconciliation
of EBITDA and Attributable EBITDA.
As of May 31, 1998, Loews Cineplex owned and operated or had interests
in 2,794 screens at 450 locations, of which 2,783 screens were located in
22 U.S. states, the District of Columbia and 6 Canadian provinces. The
Company's North American exhibition screens represent approximately 8.8% of
all exhibition screens in North America. The Company's North American
theatres are concentrated in densely populated urban and suburban areas,
with a strong presence in metropolitan New York, Boston, Chicago,
Baltimore, Dallas, Houston, Detroit, Los Angeles, Seattle, Washington,
D.C., Toronto, Montreal and Vancouver. Approximately 83% of the Company's
U.S. theatres are located in 11 of the 15 largest ADIs in the United
States, and approximately 83% of the Company's Canadian theatres are
located in the top 10 ADIs in Canada. Since June 10, 1998, the Company has
also owned a 50% interest in 108 screens in 13 locations in Spain through a
joint venture with Yelmo Films, a leading local Spanish exhibitor. The
Company has also established an initial presence in both Hungary and
Turkey.
The Company holds a 50% partnership interest in each of the U.S.
Partnerships. As of May 31, 1998, the U.S. Partnerships held interests in
and operated 12 locations with a total of 149 screens. Loeks-Star Theatres'
circuit is located in the metropolitan Detroit, Michigan area. Magic
Johnson Theatres' circuit is located in densely populated urban areas with
predominantly minority populations. Unless otherwise noted, the screen and
location figures presented herein for the Company include the screens and
locations of the Company's U.S. Partnerships.
Loews Cineplex was the first commercial motion picture exhibitor in
North America, and perhaps the world, with operations beginning in 1904,
when Marcus Loew set up a "nickelodeon" in a rented room above a penny
arcade store in Cincinnati, Ohio. Loews Cineplex's theatre circuit has
grown over the years through both internal development and acquisitions.
Today, Loews Cineplex operates theatres under the Loews, Sony and Cineplex
Odeon theatres names, and the Company's partnerships and joint ventures
operate theatres under the Star, Magic Johnson and Yelmo Cineplex names.
The Company's principal stockholders include SPE, a wholly owned
subsidiary of SCA, Universal and the Claridge Group, which own 39.5%, 25.6%
(25.5% of the Company's voting Common Stock) and 7.4% (7.4% of the
Company's voting Common Stock), respectively, of the Company's capital
stock and collectively own approximately 72.5% of the Company's capital
stock (and 72.4% of its voting Common Stock). SPE, Universal and the
Claridge Group are collectively referred to herein as the "Stockholders".
The Company was incorporated under the laws of the State of Delaware
in 1986. Its principal offices are located at 711 Fifth Avenue, 11th Floor,
New York, New York 10022, and its telephone number is (212) 833-6200.
<PAGE>
KEY BUSINESS STRATEGIES
The Company's goals are:
* to be the leading theatrical exhibitor in densely populated
metropolitan centers in North America;
* to expand into selected international markets through joint
ventures, new theatre construction and acquisitions; and
* to maintain its reputation as a preferred exhibitor for
distributors and theatre-going patrons.
The Company has developed a number of successful operating and expansion
strategies designed to achieve these goals and place it at the forefront of
the industry.
OPERATING STRATEGY
The Company intends to achieve the same high levels of operating
performance and cash flow growth historically achieved by Loews Theatres by
applying its proven operating strategy to the recently acquired Cineplex
Odeon theatres and to the Company's new ventures. During the last five
fiscal years, the Company's Loews Theatres circuit consistently achieved
strong operating results, with Total EBITDA per location growing at a
compound annual growth rate of 18.3% from fiscal 1994 to fiscal 1998 and
its Total EBITDA margin improving from 16.1% to 18.0% during the same
period . The Company has achieved these results by actively managing and
improving the Loews Theatres portfolio, providing a high level of customer
service, actively controlling operating costs, closely monitoring
operations on a daily basis, and increasing efficiency through the
integration of highly flexible state-of-the-art information systems into
the Company's theatre operations. In contrast, Cineplex Odeon experienced
virtually no growth in Modified EBITDA (which, in the case of Cineplex
Odeon, is substantially comparable to Loews Theatres' Total EBITDA) per
theatre from 1993 through 1997, and its Modified EBITDA margin declined
from 13.0% in 1993 to 10.8% in 1997. The Company believes that this lack of
growth and margin decline was attributable primarily to capital constraints
and Cineplex Odeon management's need to focus on certain long-term
strategies. For the definitions of Total EBITDA, Attributable EBITDA,
Modified EBITDA and EBITDA, see "Selected Historical and Unaudited Pro
Forma Financial Information--Historical and Unaudited Pro Forma Combined
Key Operating Statistics".
The Company's management believes that there are significant
opportunities to improve the performance of the combined circuit by
adopting Loews Theatres' policies and practices throughout the combined
circuit. Key elements of the Company's operating strategy include:
PURSUE COST SAVINGS AND OPERATING EFFICIENCIES
The Company believes that it will be able to significantly improve its
revenues, operating cash flow and gross margins by improving operating
efficiencies and reducing costs following the combination of the Loews
Theatres and Cineplex Odeon theatre circuits. The Company believes it can
achieve these efficiency improvements and cost reductions by (i) applying
Loews Theatres' proven operating practices and revenue enhancement programs
throughout the Company's combined chain of theatres and (ii) eliminating
redundant overhead and taking advantage of economies of scale. Since the
consummation of the Combination, the Company has already begun to reduce
overhead costs through headcount reductions, negotiated the extension of
significant volume discounts on bulk concession items to the Cineplex Odeon
circuit and implemented other efficiencies. The Company estimates that
initial steps taken to date will result in annual cost savings and
operating efficiencies of approximately $10 million. The Company
anticipates that, over the next several years, these cost savings and
operating efficiencies will increase to approximately $25 million annually.
APPLY PROVEN OPERATING PRACTICES. Over the past five fiscal years,
Loews Theatres increased concessions revenue per patron by 31.3% from $1.63
to $2.14. This increase was attributable to expanded concession offerings
designed to provide more variety to patrons, increased prices, the
implementation of employee training and incentive programs which encourage
"upselling" and improve customer service, and more efficient design of
concession stands in the Company's new theatres. Loews Theatres' concession
margins have increased from 80.8% to 84.5% during the same period. This
improvement was due to the Company's ability to obtain favorable terms with
its vendors, benefit from volume discounts and offer a varied product mix
while maintaining attractive margins. In contrast, Cineplex Odeon increased
its concession revenue per patron by only 7.6% from $1.57 to $1.69 and its
concession margins decreased from 85.9% to 80.6% from 1994 to 1997. The
Company expects that Loews Theatres' proven operating practices will
improve Cineplex Odeon's overall concession productivity and margins.
Loews Theatres' theatre operating expenses (including concession
costs) as a percentage of revenues decreased from 78.8% to 74.4% between
fiscal 1994 and fiscal 1998. Loews Theatres has been successful in reducing
these expenses by minimizing rent through favorable real estate practices
and implementing more efficient facilities layouts in the Company's newer
theatres, as well as by cross-training its staff and adjusting staffing
levels based on "real time" information from its theatres in order to
increase staffing efficiency. Between 1993 and 1997, Cineplex Odeon's
theatre operating expenses (including concession costs) as a percentage of
revenues increased from 84.2% to 85.7%. The Company believes that by
applying Loews Theatres' proven operating practices Cineplex Odeon's cost
structure will improve as the two circuits are integrated.
REALIZE ECONOMIES OF SCALE. The Company believes that it can improve
operating margins by realizing cost savings through the elimination of
overhead redundancies and by spreading the remaining overhead costs over a
larger theatre circuit. The Company also anticipates that it will realize
additional benefits created by economies of scale such as volume purchase
discounts, application of more favorable terms with selected vendors and
service suppliers and certain revenue generating contracts on a circuitwide
basis. Additional efficiencies are expected to be realized through more
efficient film programming and scheduling, enabling the Company to exhibit
motion pictures for the maximum play time by matching optimal auditoria
size with rapidly changing audience demands.
FOCUS ON CUSTOMER SERVICE
The Company's goal is to be the industry leader in, and to provide an
unprecedented level of, customer service and convenience, positioning Loews
Cineplex as the "theatre of choice" for movie-going patrons. Loews Theatres
has developed a proven customer service program focused on increasing
patronage and generating customer loyalty by improving the overall
movie-going experience. This program includes optimizing the scheduling of
showtimes to lessen congestion at its theatres, offering more frequent
showtimes of popular films for the convenience of its patrons, guaranteeing
"next-in-line" service to improve ticket and concession sales, and scripted
greetings to promote a friendly atmosphere. The Company also provides
intensive employee training to improve service and sales techniques and
increase concession sales. By serving customers more quickly, the Company
believes that it can increase its concession revenues per patron. To
encourage increased patronage, the Company has established new concession
programs, providing a wider selection of concession items and enhanced
promotions and merchandising activities. The Company has also established a
series of box office admission discount programs, including bargain
matinees, as incentives for patronage by select groups of customers,
including senior citizens and children.
MAINTAIN STATE-OF-THE-ART INFORMATION SYSTEMS
In the last three years, Loews Theatres has streamlined its
point-of-sales system and invested in state-of-the-art computer technology
at its theatre box offices and concession stands, enabling it to increase
productivity and manage operating costs more efficiently. Touch screen
selling stations at its box offices and concession stands provide quicker
service, resulting in higher customer turnover and productivity
improvements. This system has shortened transaction processing times and
provides "real time" information to the home office regarding attendance
levels, box office receipts, concession sales and employee productivity at
each location, as well as better inventory management and control.
Immediate access to attendance levels and concession sales at each theatre
allows management to make daily adjustments to staffing levels and
inventories in order to maximize staffing efficiencies and concession
productivity. This is especially important during critical operating
periods such as weekends and holidays. The Company has also made
significant investments in technology to streamline and enhance features
within its major reporting systems. Over the past three years, the Company
has spent approximately $13.0 million on information systems technology.
The Company has begun to integrate the Cineplex Odeon theatres into the
Company's systems in order to achieve similar benefits in its revenues and
operating costs.
EXPAND ANCILLARY REVENUES
The Company is continually identifying ancillary revenue opportunities
in addition to box office and concession revenues. The Company believes
that it can be an attractive medium for advertising and joint marketing and
promotion efforts because it can provide access to mass audiences
throughout North America (approximately 145 million patrons in fiscal 1998
on a pro forma basis) with highly attractive demographics. The Company
maintains screen advertising programs circuitwide with local and national
advertisers. The Company is currently advertising Calvin Klein Jeans'
products on its serving containers for popcorn and beverages and is
exploring additional advertising and marketing programs with other world
class consumer product companies. The Company has also generated additional
revenue through the leasing of its theatres for motion picture premieres
and screenings, corporate events and private parties. Certain of the
Company's theatres, such as the Sony Lincoln Square Theatre in New York
City, have earned reputations as the "preferred" theatres for these events
given their locations in key urban markets as well as their upscale
settings.
MOTIVATE KEY EMPLOYEES
The Company adopted the Stock Incentive Plan in connection with the
Combination which is designed to link compensation of management with
stockholder return. The Company expects to expand this program by granting
additional options to key employees. The Company provides additional
incentives to its theatre staff employees through the payment of
commissions for concession productivity over certain target levels, and
through the offer of benefits such as college tuition assistance programs
designed to reduce employee turnover and increase operating efficiencies.
EXPANSION STRATEGY AND PORTFOLIO MANAGEMENT
A key component of Loews Cineplex's business strategy is to pursue a
significant expansion and upgrade of its portfolio of movie theatre
properties. The Company plans to spend an aggregate of approximately $1.0
billion in capital expenditures during the next five years to (i) develop
or acquire additional theatres in the North American and international
markets, (ii) expand the number of screens at certain existing theatres,
(iii) significantly upgrade and modernize existing theatres where
appropriate and (iv) dispose of obsolete, unprofitable and non-strategic
theatres. During the past four fiscal years, Loews Theatres has achieved an
average return on investment from new theatre construction of greater than
20% per annum (calculated on the basis of EBITDA to net investment).
UPGRADE AND EXPAND IN NORTH AMERICA
In the past four years, Loews Theatres has implemented a major theatre
reconfiguration and expansion program. This program has increased screens
per location from 5.4 at the end of fiscal year 1994 to 7.4 at the end of
fiscal year 1998. In conjunction with this expansion program, the Company
has adopted a prototype design for new theatre construction which typically
has between 12 and 24 screens depending on the location, with oversized
screens, stadium seating, rocking chair seats, state-of-the-art digital
sound systems and spacious lobbies. The prototype also provides operating
efficiency in the design, location and size of concession stands and
incorporates state-of-the-art point-of-sale technology. The Company
believes larger multiscreen theatres are more efficient to operate and
provide for greater operating margins and better asset utilization. The
greater number of screens per theatre provides effective leverage of fixed
costs and staffing levels over a larger revenue base. Multiscreen
facilities also enable Loews Cineplex to present a variety of films with
more frequent showtimes to the movie-going public, in order to maximize
attendance levels.
During the five fiscal years ended February 28, 1998, Loews Theatres
constructed and placed into service 25 new multiplex and megaplex theatres
with a total of 286 screens. During the same period, Loews Theatres also
added 52 new screens at existing theatres. The quality of the Company's
theatres and their major metropolitan locations position the Company's
theatres among the top grossing theatres in the United States. The Company
currently operates the three highest grossing theatres in the United States
for the 1998 year-to-date according to A.C. Nielsen Company/EDI: (i) the
13-screen flagship Sony Theatres Lincoln Square in New York City (home of
the first commercial 3-D IMAX(R) theatre in the United States); (ii) the
18-screen Universal City at Citywalk, a retail and entertainment complex in
Universal City, California; and (iii) the 20-screen Star Theatres in
Southfield, Michigan.
The following table indicates the number of theatre locations, screens
and changes to the Loews Theatres circuit configuration as a result of its
theatre reconfiguration program (including screens and locations relating
to Loeks-Star Theatres and Magic Johnson Theatres but excluding screens and
locations relating to Cineplex Odeon's theatres and Yelmo Cineplex de
Espana's theatres) during the fiscal years ending in 1994 through 1998:
<TABLE>
<CAPTION>
FIVE
FEBRUARY 28 OR 29, YEAR
----------------------------------------------------------
1994 1995 1996 1997 1998 TOTAL
-------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SCREENS
Beginning of year......... 944 981 1,030 950 959 944
New construction 60 54 36 44 92 286
Expansions ............. -- 15 3 22 12 52
Dispositions ........... (23) (20) (119) (57) (28) (247)
-------- ---------- ---------- ---------- --------- ---------
Year end ................. 981 1,030 950 959 1,035 1,035
======== ========== ========== ========== ========= =========
LOCATIONS
Beginning of year......... 188 182 180 154 143 188
New construction 7 5 3 4 6 25
Dispositions ........... (13) (7) (29) (15) (10) (74)
-------- ---------- ---------- ---------- --------- ---------
Year end ................. 182 180 154 143 139 139
======== ========== ========== ========== ========= =========
Average screens per 5.4 5.7 6.2 6.7 7.4
location................
</TABLE>
With the addition of the Cineplex Odeon theatre circuit as a result of
the Combination, at May 31, 1998, the Company operated theatres at 450
locations with 2,794 screens or an average of 6.2 screens per location.
These include 31 theatres comprising 105 screens in New York City, Chicago
and suburban New York that the Company has agreed to sell to Cablevision
for $92 million, including 25 theatres comprising 85 screens that the
Company is obligated to sell under an agreement reached with the DOJ and
the attorneys general of New York and Illinois in connection with the
approval of the Combination. The theatres held for disposition represent
approximately 3.6% of the Company's total screens and generated
approximately 6.8% of total box office revenue on an annual basis. The
Company also expects to close or dispose of certain overlapping theatre
locations and underperforming theatres, including older obsolete theatres.
In the aggregate, these theatres contribute only marginally to cash flow
from operations or are operating at a loss. The Company has preliminarily
targeted a significant number of these theatres for closing.
The Company believes that a significant opportunity exists to improve
the Company's competitive position in many of its existing markets as well
as to selectively enter new markets in North America that are currently
underserved. The Company's goal in this expansion effort is to develop a
more modern portfolio of multiplex and megaplex theatre properties which
offer customers an exceptional movie-going experience. The Company
currently is targeting to open approximately 12 to 15 new theatre locations
annually, and to add new screens at certain existing locations. The Company
has enacted a program to upgrade existing theatres with stadium seating,
where appropriate. The Company also expects to close or dispose of certain
overlapping theatre locations and underperforming theatres, including older
obsolete theatres that contribute only marginally to cash flow from
operations or that are operating at a loss. The Company has preliminarily
targeted approximately 550 screens for disposition or closing over the next
five years. While in the aggregate the screens to be disposed of currently
generate significant revenues, the Company believes that the disposition or
closure of these screens will not negatively impact the Company's operating
cash flow on an ongoing basis. Closure costs related to most of these
theatre closings have been provided for as part of the "Excess Purchase
Price" in connection with the purchase accounting adjustments resulting
from the Combination. See "Unaudited Pro Forma Financial Information" and
"Properties".
EXPAND INTERNATIONALLY
According to the Baskerville Communications Corporation, the
international (i.e., non-North American) share of total worldwide box
office receipts rose from 43% in 1983 to 62% in 1996 and since 1983
international box office receipts have increased at approximately a 9%
compounded annual growth rate. The Company believes that the international
market offers significant growth opportunities to motion picture
exhibitors, particularly through the replication of the multiplexing
process underway today in the domestic arena. Much of the world is
underscreened and underserved by poor quality theatres. According to Screen
Digest, there were approximately 9,000 people per screen in the United
States in 1996, compared to an average of approximately 20,000 people per
screen in Western Europe and approximately 79,000 people per screen in
Latin America. In the United States, the average person visits a theatre
approximately five times per year, compared to 1.9 times per year in
Western Europe and only 0.6 times per year in Latin America. Marginal
increases in attendance rates and increased average ticket prices have a
dramatic impact in expanding box office receipts.
In June 1998, the Company formed its Loews Cineplex International
division to develop, construct and operate theatres outside of North
America. The Company is currently considering expansion opportunities in
selected areas throughout the world that the Company believes are
underscreened and underserved by existing operators and is currently
pursuing several opportunities in Western Europe and developed countries in
other regions. The Company has targeted selected markets in Western Europe
for its international expansion based on the favorable economy, ease of
doing business and availability of attractive partners. The Company intends
to identify local partners in targeted international markets with whom
management can pursue joint venture opportunities that capitalize on the
Company's development and operating expertise and access to capital, and
that take advantage of the local partners' established presence and
significant local expertise.
On June 10, 1998, Loews Cineplex and Yelmo Films formed Yelmo Cineplex
de Espana, a 50/50 joint venture, to develop, construct and operate movie
theatres throughout Spain. Yelmo Films, Spain's second largest film
exhibition company and leading builder of state-of-the-art multiplex
theatres, currently owns and operates 108 screens (25 of which were opened
in 1997) at 13 theatre locations in high-density population areas in
Madrid, Catalunya and Galicia. Under the terms of the agreement, Loews
Cineplex and Yelmo Films formed a 50/50 joint venture into which Yelmo
Films contributed its existing theatre assets and Loews Cineplex will
contribute cash equal to the agreed value of these assets net of debt on an
"as-needed" basis, primarily to fund the construction of new multiplexes.
The newly formed company expects to add approximately 15 new theatre
locations and approximately 175 screens to its existing assets in the next
several years. There are currently eight theatre locations, representing 70
screens, which are in various stages of development. The Spanish film
exhibition market has experienced strong growth recently with a 34%
increase in box office receipts since 1993.
The Company also operates a six-screen theatre in Hungary and a
five-screen theatre in Turkey. The Company is currently evaluating several
other specific international expansion opportunities in Western Europe,
Eastern Europe, Latin America and Asia.
PURSUE ACQUISITIONS AND JOINT VENTURES
The Company is continually seeking opportunities to acquire theatre
circuits with locations that complement the Company's existing locations
and that provide the opportunity to improve operating margins through
significant cost savings realized through economies of scale. Acquisitions
can also provide the critical mass needed to expand into new markets. The
Company targets acquisitions that can be consummated at an attractive
valuation and where there is a significant strategic fit with the Company's
existing theatre circuit.
The Company also explores joint ventures with partners that offer
complementary expertise, enabling Loews Cineplex to increase its success in
entering certain niche markets or markets where it currently does not have
a presence. The Company's partnership interest in the Loeks-Star Theatre
circuit provides the opportunity to capitalize on the local reputation and
consumer recognition of a high quality circuit, while offering the
resources and expertise of a national exhibitor. The Magic Johnson Theatres
partnership leverages the brand name recognition of one of the most
well-known and respected athletes in the world and provided Loews Theatres
with a unique vehicle through which to make the first successful entry into
underserved, minority markets. The Company's joint venture with Yelmo Films
in Spain is another example of the Company's strategy of combining its
financial resources and operating expertise with a partner's knowledge of a
local market in order to expand into a new market with the optimal
combination of key elements to facilitate a successful entry.
Although the Company regularly evaluates acquisition opportunities,
the Company has not entered into any commitment with respect to any future
material acquisition.
OPEN THEATRES IN LOCATION-BASED ENTERTAINMENT CENTERS
As consumers seek more sophisticated entertainment offerings, the
Company and its competitors have begun to construct new theatres in
location-based entertainment centers. In addition to theatres, these
centers typically have specialty retail stores, themed restaurants and
video arcades, all of which have high entertainment content. The Company
currently operates the 18-screen Universal City theatre multiplex at
Citywalk, and will operate a 15-screen theatre and a Sony IMAX(R) theatre
at Metreon, Sony's 350,000 square foot entertainment center in San
Francisco scheduled to open in mid-1999. The Company will continue to
explore these opportunities with Sony and Universal as well as other
developers of location-based entertainment centers.
THEATRE OPERATIONS
Nearly all of the Company's screens are located in multiscreen
theatres. The Company's average screens per theatre is 6.2 as of May 31,
1998, and the Company intends to increase this ratio through the
construction of larger multiplex or megaplex theatres as well as expansion
of certain existing theatres and closing of smaller obsolete theatres.
Multiplex theatres enable the Company to present a variety of films
appealing to several segments of the movie-going public while serving
patrons from common support facilities, box office, concession areas,
restrooms and lobby. This strategy enhances attendance, utilization of
theatre capacity and operating efficiencies thereby enhancing revenues and
profitability. Staggered scheduling of starting times minimizes staffing
requirements for crowd control, box office and concession services while
reducing congestion at the box office and in the concession areas.
The Company relies upon advertising and movie schedules printed in
newspapers to inform its patrons of film selections and show times. The
Company also exhibits in its theatres previews of coming attractions and
films presently playing on the Company's other screens in the same market
area.
PROPERTIES
At May 31, 1998, the Company, including Loeks-Star Theatres and Magic
Johnson Theatres, operated or had interests in 2,794 screens in 450
theatres, of which 46 theatres were owned by the Company, 398 theatres were
leased and 6 theatres were subject to management arrangements. The
Company's leases are generally entered into on a long-term basis with terms
(including options to renew) generally ranging from 20 to 40 years. Theatre
leases generally provide for the payment of a fixed annual rent and, in
some cases, a percentage of box office receipts or total theatre revenue.
The table below sets forth the locations of the Company's screens at May
31, 1998 (except in the case of Spain which is as of June 10, 1998).
<TABLE>
<CAPTION>
<S> <C> <C> <S> <C> <C>
UNITED STATES CANADA
- ---------------------------------------------------- -----------------------------------------------------
STATE SCREENS LOCATIONS(1) PROVINCE SCREENS LOCATIONS(FN1)
- ---------------- -------- ------------- ------------------------ ----------- --------------
Arizona................... 33 4 Alberta.................. 116 19
California................ 69 10 British Columbia......... 53 11
Connecticut............... 32 8 Manitoba................. 9 3
District of Columbia...... 38 12 Ontario.................. 373 62
Florida................... 7 1 Quebec................... 224 36
Georgia................... 12 1 Saskatchewan............. 27 4
Idaho..................... 21 5 ------------ -------------
Illinois (2).............. 364 63 Total................ 802 135
Indiana................... 54 6 ============ =============
Kentucky.................. 9 2
Maryland.................. 169 27 INTERNATIONAL
Massachusetts............. 82 12 ----------------------------------------------------
Michigan.................. 113 9 COUNTRY SCREENS LOCATIONS(1)
Minnesota................. 25 5 Spain.................... 108 13
New Hampshire............. 12 2 Hungary.................. 6 1
New Jersey................ 196 23 Turkey................... 5 1
New York(2)............... 299 59 ------------ ------------
Ohio...................... 26 4 Total................ 119 15
Pennsylvania.............. 7 1 ============ =============
Texas..................... 180 20
Utah...................... 65 12
Virginia.................. 57 9
Washington................ 111 18
---------- --------------
Total................... 1,981 313
========== ==============
<FN>
- ------------------------------
(1) Includes theatres owned, leased or managed by the Company, as well as
partnerships in which the Company has interests.
(2) The above properties include 31 theatres comprising 105 screens the
Company has agreed to sell to Cablevision for $92 million, including
25 theatres required to be divested as a result of the DOJ settlement.
See "--Legal Proceedings".
</FN>
</TABLE>
Pursuant to the agreements governing the Loeks-Star Theatres
partnership, the Company is responsible for film booking arrangements and
the facilities are managed by Loeks Michigan Theatres, Inc. under an
operating agreement. Those agreements also include certain provisions
governing the transfer of partnership interests between the partners and to
unaffiliated third parties.
COMPETITION
The North American motion picture exhibition industry is generally
fragmented, with ten large companies owning or operating a majority of
screens. In most of its respective markets, the Company is in direct
competition for film exhibition licensing rights and theatre locations with
both large and small exhibition companies. See "Risk Factors--Competition"
and "The Motion Picture Exhibition Industry".
ENVIRONMENTAL MATTERS
The Company owns, manages and/or operates theatres and other
properties that are subject to certain U.S. and Canadian federal, state and
local laws and regulations relating to environmental protection and human
health and safety, including those governing the investigation and
remediation of contamination resulting from past or present releases of
hazardous substances. Certain of these laws and regulations may impose
joint and several liability on certain statutory classes of persons for the
costs of investigation or remediation of such contamination, regardless of
fault or the legality of the original disposal. These persons include the
present or former owner or operator of a contaminated property, and
companies that generated, disposed of or arranged for the disposal of
hazardous substances found at the property.
Two of the Company's leased drive-in motion picture theatres in the
State of Illinois are located on properties on which certain third parties
disposed of substantial quantities of auto shredder residue and other
debris. One of these theatres is currently the subject of a claim filed by
the Attorney General of the State of Illinois and an investigation by the
Illinois Environmental Protection Agency in connection with the past
disposal of auto shredder residue and other debris which appear to contain
hazardous materials. See "--Legal Proceedings".
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine litigation and
legal proceedings in the ordinary course of its business, such as personal
injury claims, employment matters and contractual disputes. Except for
those instances noted below, the Company does not have any litigation or
proceedings that management believes will have a material adverse effect,
either individually or in the aggregate, upon the Company.
DOJ PROCEEDINGS
On April 16, 1998, a Complaint was filed in the Southern District of
New York by the United States of America, the State of New York, by and
through its Attorney General, Dennis C. Vacco, and the State of Illinois,
by and through its Attorney General, Jim Ryan vs. SCA, LTM Holdings, Inc.
d/b/a/ Loews Theatres, Cineplex Odeon and Seagram Co. Ltd., alleging
federal antitrust violations in New York and Illinois stemming from the
Combination. That same day the parties entered into, and the Southern
District of New York so ordered, a Stipulation & Order setting forth a
proposed Final Judgment resolving the matter. Under the terms of the
agreement, which is subject to court approval following the public comment
period, the Company is required to divest itself of certain theatres in New
York and Chicago. On August 27, 1998, the Company announced that it had
reached an agreement to sell 31 theatres in the New York City, Chicago and
suburban New York areas for $92 million to Cablevision, one of the nation's
leading telecommunications and entertainment companies, subject to certain
conditions, including DOJ approval and the receipt of certain consents. The
Company is in discussions with Cablevision regarding the steps to be taken
to obtain these approvals and consents, and an announcement is expected to
be made shortly. These theatres represented approximately 3.6% of total
screens and generated approximately 6.8% of total box office revenue on an
annual basis.
ENVIRONMENTAL PROCEEDINGS
The Company owns, manages and/or operates theatres and other
properties that are subject to certain U.S. and Canadian federal, state and
local laws and regulations relating to environmental protection and human
health and safety, including those governing the investigation and
remediation of contamination resulting from past or present releases of
hazardous substances. Certain of these laws and regulations may impose
joint and several liability on certain statutory classes of persons for the
costs of investigation or remediation of such contamination, regardless of
fault or the legality of the original disposal. These persons include the
present or former owner or operator of a contaminated property, and
companies that generated, disposed of or arranged for the disposal of
hazardous substances found at the property.
Two of the Company's leased drive-in motion picture theatres in the
State of Illinois are located on properties on which certain third parties
disposed of substantial quantities of auto shredder residue and other
debris. Such materials may contain hazardous substances. With respect to
one of these sites, located in Cicero, Illinois, the Company has been named
as one of two defendants in a lawsuit commenced in August 1998 by the
Illinois Attorney General's Office at the request of the Illinois
Environmental Protection Agency. The action was brought pursuant to the
Illinois Environmental Protection Act and alleges, among other things, that
the Company caused or allowed the disposal of certain wastes bearing
hazardous substances on the theatre property. The action seeks civil
penalties and various forms of equitable relief, including the removal of
all wastes allegedly present at the property, soil and groundwater testing
and remediation, if necessary. The Company's range of liability with
respect to this action cannot be precisely estimated at this time due to
several unknown factors, including the scope of contamination at the
theatre property, the allocation of such liability, if any, to other
responsible parties, and the ability of such parties to satisfy their share
of such liability. The Company has accrued an amount that it believes
represents the minimum amount of the Company's potential liability relating
to the action. The Company will continue to evaluate future information and
developments with respect to conditions at the theatre property and will
periodically reassess any liability and adjust its accrual accordingly.
Based on the foregoing, there can be no assurance that the Company's
liability in connection with this action will not be material.
SIX WEST RETAIL ACQUISITION, INC.
On July 24, 1997, Six West Retail Acquisition, Inc., a real estate
development company ("SWRA"), initiated a lawsuit against the Company and
certain of its affiliates in the U.S. District Court for the Southern
District of New York, seeking injunctive relief and unspecified monetary
damages and alleging, among other things, the Company has violated federal
antitrust laws by engaging in block booking agreements and monopolizing the
motion picture exhibition market in New York City. SWRA owns or leases the
Paris and New York Twin theatres in Manhattan. The Paris Theatre was
managed by an operating subsidiary of the Company under an oral management
agreement that has been terminated. The New York Twin Theatre is managed by
an operating subsidiary of the Company under a written management
agreement. SWRA is also alleging that the Company violated its contractual
and fiduciary responsibilities in managing the two theatres. On December 3,
1997, an amended complaint was filed asserting similar claims with respect
to the Festival Theatre which was operated by a subsidiary of the Company
until it was closed in 1994. All of the defendants moved to dismiss the
amended complaint by motion dated January 8, 1998. No decision on the
motion to dismiss has been rendered by the court as of the date of this
Offering Circular. The parties have commenced document production and
discovery proceedings. The Company believes that SWRA's claims are without
merit, and the Company intends to oppose SWRA's claims vigorously.
ADA LITIGATION
On or about December 17, 1997, the Disability Rights Council of
Greater Washington and others commenced a lawsuit in the U.S. District
Court for the District of Columbia against Cineplex Odeon and Plitt. The
complaint alleges that certain Cineplex Odeon theatres in the Washington,
D.C. metropolitan area (including Maryland and Virginia) deny persons with
physical disabilities full and equal enjoyment of such theatres as a result
of architectural and structural barriers. The complaint alleges that, as a
consequence, Cineplex Odeon and Plitt are discriminating against such
persons in violation of the ADA and, where applicable, the District of
Columbia Human Rights Act. The plaintiffs are seeking a judgment with
injunctive relief ordering Cineplex Odeon and Plitt to cease violating, and
to bring their facilities into compliance with, such statutes. The
plaintiffs are also seeking compensatory and punitive or exemplary damages
in an unknown amount, as well as costs and attorneys' fees. The Company
intends to defend this claim vigorously.
The DOJ, in coordination with the New York City Commission on Human
Rights, is currently investigating Cineplex Odeon theatres in New York City
for compliance with the ADA and the New York City Human Rights Law,
including the 13 theatres in Manhattan that the Company intends to sell in
order to comply with the agreement with the DOJ and the Attorney General of
New York. On May 8, 1998, the DOJ informed Cineplex Odeon that it intended
to accelerate the schedule of site visits in light of the impending sale of
these theatres. In addition, the DOJ has alleged that its investigation to
date has identified numerous violations of the ADA. The Company has and
will continue to vigorously oppose the allegations and claims of the DOJ
with respect to the compliance of these theatres under the ADA.
Nevertheless, the pending investigation and related allegations may
adversely affect the price received by the Company in connection with the
sale of these theatres.
EMPLOYEES
As of May 15, 1998, the Company employed approximately 12,442
employees, including 2,772 full-time and 9,670 part-time employees. The
Company's employment levels are generally directly related to seasonal
changes in business activity. The Company is a party to collective
bargaining agreements with 33 unions, of which approximately 1,220
employees are members. The Company believes that its employee relations are
generally good.
Certain of the Company's labor contracts with the I.A.T.S.E. for
projectionists in Chicago expired in February of 1998. On April 27, 1998
the projectionists were locked-out by the Company, but the theatres
continue to operate despite the lockout. The Company believes that it is
premature to assess the outcome of these negotiations at this time.
I.A.T.S.E. Local 523 has been locked out of a Company theatre in
Quebec City since April 16, 1997, as a result of a dispute over the hours
to be worked by, and wages for, projectionists, but the theatre continues
to operate despite the lockout.
The Company is currently in negotiations with a union in Seattle,
Washington, where there is a possibility of a labor dispute. However,
management is confident that the Company's theatres will continue to
operate there in the event of a strike or lockout.
Additionally, the Company is in negotiations with two unions in the
greater New York area. It is premature to assess the outcome of such
negotiations. However, the Company does not expect any disruption in
operations during such negotiations.
The Company is not currently in discussions with union members in Utah
and Idaho. The current contract has expired, and the local has been
decertified in Utah. Negotiations are likely to begin in the next several
months in Idaho and will resume in Utah if the local is recertified.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are the current directors and executive officers
of the Company. Certain information relating to the directors and executive
officers, which has been furnished to the Company by the individuals named,
is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- ---- -----------------------------------------------------
<S> <C> <C>
Lawrence J. Ruisi................. 50 President, Chief Executive Officer and Director
Allen Karp........................ 58 Chairman, Chief Executive Officer of Cineplex
Odeon Canada and Director
Travis Reid....................... 43 President, Loews Cineplex United States
J. Edward Shugrue................. 48 President, Loews Cineplex International
John J. Walker.................... 45 Senior Vice President, Chief Financial Officer
and Treasurer
John C. McBride, Jr. ............. 42 Senior Vice President and General Counsel
Seymour Smith..................... 78 Senior Vice President and Deputy General Counsel
Mindy Tucker...................... 38 Corporate Vice President of Strategic Planning
and Secretary
Joseph Sparacio................... 38 Vice President, Finance and Controller
George A. Cohon................... 61 Director
Nora Ephron....................... 57 Director
Marinus N. Henny.................. 47 Director
Ernest Leo Kolber................. 69 Director
Kenneth Lemberger................. 51 Director
Ron Meyer......................... 53 Director
Brian C. Mulligan................. 38 Director
Yuki Nozoe........................ 47 Director
Karen Randall..................... 45 Director
Stanley Steinberg................. 64 Director
Howard Stringer................... 55 Director
Robert J. Wynne................... 55 Director
Mortimer B. Zuckerman............. 60 Director
</TABLE>
Lawrence J. Ruisi--Since May 1998, Mr. Ruisi has served as President
and Chief Executive Officer of Loews Cineplex and a director of Loews
Cineplex. From September 1994 until May 1998, Mr. Ruisi was President of
Sony Retail Entertainment ("SRE"), and from 1990 through May 1998, Mr.
Ruisi served as Executive Vice President of SPE. In such capacities, Mr.
Ruisi was responsible for oversight of SPE's theatrical exhibition group,
including the Loews Theatres, Star Theatres of Michigan and Magic Johnson
Theatres circuits.
Allen Karp--Mr. Karp has been Chairman and Chief Executive Officer of
Cineplex Odeon Canada and a director of Loews Cineplex since May 1998. From
December 1989 until May 1998, Mr. Karp served as President and Chief
Executive Officer of Cineplex Odeon.
Travis Reid--Since May 1998, Mr. Reid has served as President, U.S.
Operations of Loews Cineplex. From October 1996 to May 1998, Mr. Reid had
served as President of Loews Theatres and, for the preceding year, served
as Executive Vice President-Film Buying of Loews Theatres. As Executive
Vice President of Loews Theatres, Mr. Reid was involved in all aspects of
the circuit's strategic planning, corporate development and expansion. For
the three years prior to 1995, Mr. Reid served as Senior Vice President of
Film. Prior to joining Loews Theatres in 1991, Mr. Reid served as Vice
President of Film for General Cinema's Midwestern, Southwestern and Western
regions.
J. Edward Shugrue--Since June 1998, Mr. Shugrue has served as
President, Loews Cineplex International. From 1996 until 1998, Mr. Shugrue
served as a senior corporate executive of SPE's Corporate Development
Group, where he was responsible for identifying and developing growth
opportunities for SPE in international markets. From 1987 to 1996, Mr.
Shugrue served as president of Columbia TriStar Film Distributors
International, the international theatrical arm of SPE.
John J. Walker--Since 1998, Mr. Walker has served as Senior Vice
President, Chief Financial Officer and Treasurer of Loews Cineplex. From
1990 until 1998, Mr. Walker served as Executive Vice President and Chief
Financial Officer of Loews Theatres. From 1988 to 1990, Mr. Walker has
served as Vice President-Controller of Loews Theatres. Mr. Walker is
responsible for overseeing all aspects of financial reporting, budgeting,
internal auditing, management information systems, treasury and risk
management and insurance. Mr. Walker is a certified public accountant and
is a member of the American Institute of Certified Public Accountants and
the New York State Society of Certified Public Accountants.
John C. McBride, Jr.--Since January 1998, Mr. McBride has been
employed by Loews Theatres and since May 1998, Mr. McBride has served as
Senior Vice President and General Counsel of Loews Cineplex. From 1996 to
1998, Mr. McBride served as Senior Vice President, Legal Affairs of SPE.
From 1992 to 1996, Mr. McBride served as Vice President, Legal Affairs of
SPE. From 1990 to 1992, Mr. McBride served as Assistant General Counsel of
SPE.
Seymour Smith--Effective May 1998, Mr. Smith became Senior Vice
President and Deputy General Counsel of the Company. From 1993 to May 1998,
Mr. Smith served as Executive Vice President and General Counsel of Loews
Theatres. Until 1997, Mr. Smith served as a director of Loews Theatres.
Mindy Tucker--Since May 1998, Ms. Tucker has served as Corporate Vice
President of Strategic Planning and Secretary of Loews Cineplex. From 1996
to 1998, Ms. Tucker served as Senior Vice President of Development and
Planning for SRE. From 1994 to 1996, Ms. Tucker served as Vice President of
Business Development for SRE. From 1992 to 1994, Ms. Tucker served as Vice
President of Corporate Strategy and Planning of SPE.
Joseph Sparacio--Since May 1998, Mr. Sparacio has served as Vice
President, Finance and Controller of Loews Cineplex. From 1990 to May 1998,
Mr. Sparacio served as Vice President of Finance and Controller of Loews
Theatres. Prior to joining Loews Theatres, Mr. Sparacio spent eight years
with the New York City office of the independent accounting firm of Ernst &
Young where he was a Senior Manager of Audit. Mr. Sparacio is a certified
public accountant and is a member of the American Institute of Certified
Public Accountants and the New York State Society of Certified Public
Accountants.
George A. Cohon--Since 1992, Mr. Cohon has served as Senior Chairman
of the Executive Committee of McDonald's Restaurants of Canada Limited and
Senior Chairman of McDonald's in Russia. Mr. Cohon also serves as a
director of The Royal Bank of Canada and Astral Communications Inc.
Additionally, Mr. Cohon is an officer of the Order of Canada.
Nora Ephron--Ms. Ephron is an author, screenwriter and director of
motion pictures. Ms. Ephron's directing credits include "This is My Life",
"Sleepless in Seattle", "Mixed Nuts" and "Michael". Her screen-writing
credits include "Sleepless in Seattle", "When Harry Met Sally. . .",
"Silkwood", "Heartburn", "Cookie", "My Blue Heaven", "This is My Life",
"Mixed Nuts" and "Michael". Ms. Ephron has also written a number of books
including "Heartburn", "Crazy Salad" and "Scribble, Scribble". Ms. Ephron
was formerly a journalist, beginning as a newspaper reporter for the New
York Post and then as a magazine writer for, among others, Esquire, the New
York Times Magazine and New York Magazine.
Marinus N. Henny--Since April 1997, Mr. Henny has been Executive Vice
President and Chief Financial Officer of SCA. From December 1993 to April
1997, Mr. Henny was Executive Vice President of SCA.
The Honorable Ernest Leo Kolber--Senator Kolber was appointed Chairman
of the Board of Cineplex Odeon in December 1989. He has been a Member of
the Senate of Canada since December 1983. From October 1987 to September
1993, Senator Kolber was Chairman of Claridge Inc. Senator Kolber is a
director of The Seagram Company Ltd. Senator Kolber has been a director of
Loews Cineplex since May 1998.
Kenneth Lemberger--Since January 1997, Mr. Lemberger has been
President of Columbia TriStar Motion Picture Group. From 1994 to January
1997, Mr. Lemberger was Corporate Executive Vice President of SPE.
Ron Meyer--Mr. Meyer has been President and Chief Operating Officer of
Universal since August 1, 1995. Prior to August 1995, Mr. Meyer served as
President of Creative Artists Agency, Inc., a talent agency that he
co-founded in 1975.
Brian C. Mulligan--Mr. Mulligan has been Senior Vice President,
Corporate Development and Strategic Planning, of Universal since January
1997. From late 1995 to January 1997, Mr. Mulligan served as Vice President
of Corporate Development of Universal and he served as Vice President and
Controller of Universal from 1991 to early 1995.
Yuki Nozoe--Since October 1996, Mr. Nozoe has been Executive Vice
President of SPE. From February 1996 to October 1996, Mr. Nozoe was
Executive Vice President of SCA. From 1993 to February 1996, Mr. Nozoe was
Senior Vice President of Marketing for Sony Electronics, Inc.
Karen Randall--Since February 1996, Ms. Randall has been Senior Vice
President and General Counsel of Universal. From 1991 to February 1996, Ms.
Randall was Managing Partner of the Los Angeles office of Katten Muchin &
Zavis.
Stanley "Mickey" Steinberg--Since May 1998, Mr. Steinberg has been a
consultant to Sony Development. From August 1994 to May 1998, Mr. Steinberg
served as Chairman of SRE and, in that capacity, has had overall
responsibility for developing and operating retail concepts, food venues
and large retail entertainment centers in the United States and abroad, as
well as Loews Cineplex locations, Sony Plaza and Sony Wonder interactive
museum. Prior to joining SRE, Mr. Steinberg was Executive Vice President
and Chief Operating Officer of Walt Disney Imagineering since 1989.
Howard Stringer--Since May 1998, Mr. Stringer has served as Chairman
of SPE. Mr. Stringer has served as President of SCA and as a member of the
Boards of Directors of SCA, SPE, Sony Electronics, Inc. and Sony Music
Entertainment, Inc. since May, 1997. From February 1995 to April 1997, Mr.
Stringer was Chairman and CEO of TELE-TV, a company formed by Bell
Atlantic, Nynex and Pacific Telesis. Prior to that time, Mr. Stringer was
President of the CBS Broadcast Group since 1988.
Robert J. Wynne--Since May 1998, Mr. Wynne has served as Co-President
and Chief Operating Officer of SPE. From November 1997 to May 1998, Mr.
Wynne has been Co-President and Chief of Corporate Operations of SPE, and,
since January 1997, Senior Executive Vice President. He joined SPE in
November 1995 as Corporate Executive Vice President. Prior to that, Mr.
Wynne was a founding partner of the law firm Hill, Wynne, Troop and
Meisinger, where he served as primary outside counsel to SPE on major
corporate, financing and strategic transactions since the late 1970's.
Mortimer B. Zuckerman--For more than the past five years, Mr.
Zuckerman has served as Chairman of Boston Properties, Inc. Mr. Zuckerman
is also Chairman and Editor-in-Chief of U.S. News and World Report,
Chairman of The Atlantic Monthly, Chairman and Co-Publisher of the New York
Daily News, Chairman of Fast Company and Chairman of Applied Graphics
Technologies.
Subject to the provisions of the Stockholders Agreement described
elsewhere in this Prospectus, all directors hold office until the annual
meeting of stockholders following their election or until their successors
are duly elected and qualified. Officers are appointed by the Board of
Directors and serve at the discretion thereof, subject to certain
provisions of the Stockholders Agreement concerning the appointment of
executive officers. See "The Stockholders Agreement".
EXECUTIVE COMPENSATION
The table set forth below contains information concerning compensation
for services in all capacities to Loews Cineplex of those persons who (i)
served as the chief executive officer of Loews Cineplex and (ii) were the
other four most highly compensated executive officers of Loews Cineplex
(determined as of the end of the last fiscal year and hereafter referred to
as the "Named Executive Officers") for the two fiscal years ended February
28, 1998 and February 28, 1997, respectively.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
--------------------------------------------------- COMPENSATION ON
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------- ------- ------------- ---------------- --------------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence J. Ruisi. 1998 $ 728,875(1) $ 500,000(1) $ 1,796,933(1)(2) 900,000 $ 56,313(6)
Chief Executive 1997 $ 683,974(1) $ 608,802(1) $ 655,200(1)(3) 16,183(7)
Officer
Barrie
Lawson-Loeks(4). 1998 $ 534,070 $ 250,000 $ 69,360(5) $761,158(6)
Co-Chairman 1997 $ 522,492 $ 275,000 $ 50,000(5) 16,914(7)
Jim Loeks(4)...... 1998 $ 534,070 $ 250,000 $ 62,160(5) $761,076(6)
Co-Chairman 1997 $ 522,492 $ 275,000 $ 50,000(5) 16,430(7)
Travis E. Reid.... 1998 $ 393,026 $ 225,000 250,000 $ 12,116(6)
President 1997 $ 363,903 $ 175,000 10,320(7)
Seymour Smith .... 1998 $ 382,040 $ 60,000 50,000 $ 9,834(6)
Senior Vice 1997 $ 382,061 $ 60,000 7,732(7)
President,
Deputy General
Counsel and
Assistant
Secretary
- ----------------------------------
<FN>
(1) Represents amounts paid to Mr. Ruisi as President of SRE. In this
capacity, Mr. Ruisi had other responsibilities in addition to the
oversight and direction of the Sony theatrical exhibition group.
(2) Represents amounts paid to Mr. Ruisi in connection with the
termination of his employment agreement with SRE in satisfaction of
certain outstanding incentive award obligations under the agreement.
(3) Represents amounts paid to Mr. Ruisi by SRE pursuant to its long-term
incentive plan.
(4) Ceased to be employees of the Company effective April 1, 1998 upon
termination of their existing employment agreements.
(5) Includes (i) for fiscal 1998, $50,000 for each of Ms. Lawson-Loeks and
Mr. Loeks attributable to forgiveness by an affiliate of SPE of a
portion of relocation indebtedness owed to such affiliate of SPE
incurred in 1992, and $19,360 and $12,160 paid to Ms. Lawson-Loeks and
Mr. Loeks, respectively, as car allowances and (ii) for fiscal 1997,
$50,000 for each of Ms. Lawson-Loeks and Mr. Loeks attributable to
forgiveness by an affiliate of SPE of a portion of relocation
indebtedness owed to such affiliate of SPE incurred in 1992.
(6) Represents $10,400, $56,313, $10,400, $11,546 and $9,834 contributed
by the Company to the Company's savings plan for Ms. Lawson-Loeks and
Messrs. Ruisi, Loeks, Reid and Smith, respectively; premiums paid by
the Company for term-life insurance in the amounts of $758, $676 and
$570 for Ms. Lawson-Loeks and Messrs. Loeks and Reid, respectively;
and $750,000 paid to each of Ms. Lawson-Loeks and Mr. Loeks as
separation payments.
(7) Represents $16,183, $16,183, $15,754, $9,750 and $7,732 contributed by
the Company to the Company's savings plan for Ms. Lawson-Loeks,
Messrs. Ruisi, Loeks, Reid and Smith, respectively, premiums paid by
the Company for term life insurance in the amounts of $731, $676 and
$570 for Ms. Lawson-Loeks and Messrs. Loeks and Reid.
</FN>
</TABLE>
STOCK OPTIONS
The table below sets forth information with respect to grants of
options to purchase Common Stock during the year ended February 28, 1998 to
the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS GRANT DATE VALUE
------------------------------------------------------------- -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE/BASE EXPIRATION GRANT DATE
NAME GRANTED (1) FISCAL YEAR(2) PRICE ($/SHARE) DATE PRESENT VALUE(3)
- ------------------- ---------- -------------- --------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
Lawrence J. Ruisi.. 900,000 42.0% $ 13.125 12/16/07 $ 3,924,000
Barrie -- -- -- -- --
Lawson-Loeks(4)....
Jim Loeks(4)....... -- -- -- -- --
Travis Reid........ 250,000 11.7% $ 13.125 12/16/07 $ 1,090,000
Seymour Smith...... 50,000 2.3% $ 13.125 12/16/07 $ 218,000
- -----------------
<FN>
(1) All options, other than those held by Mr. Ruisi, become exercisable
with respect to twenty percent of the aggregate number of shares of
Common Stock covered by such options on each of the first, second,
third, fourth and fifth anniversaries of the closing of the
Combination, but in any event will be fully vested and exercisable as
of the fifth anniversary of the date of grant. With respect to the
options held by Mr. Ruisi, options to purchase 500,000 shares of
Common Stock became exercisable upon grant and the remaining options
will become exercisable in respect of 100,000 shares covered thereby
on the first through fourth anniversaries of the closing of the
Combination. Upon a change of control of the Company, all options
outstanding on the date of such change of control will become
immediately and fully exercisable.
(2) Percentages shown are based on a total of 2,145,000 options granted to
employees of the Company during the fiscal year ended February 28,
1998.
(3) These estimates of value were developed solely for the purposes of
comparative disclosure in accordance with the rules and regulations of
the Commission and are not intended to predict future prices of the
Company's common stock. The values assigned to each reported option on
this table are computed using the Black-Scholes option pricing model.
The calculations assume a risk-free rate of return of 5.77%, which
represents the ten-year yield of United States Treasury Notes on the
date of grant and an expected volatility of 23.46%; however, there can
be no assurance as to the actual volatility of the Company's common
stock in the future. The calculations also assume no dividend payout
and a five year expected life.
(4) Ceased to be employees of the Company effective April 1, 1998 upon
termination of their existing employment agreements.
</FN>
</TABLE>
AGGREGATED EXERCISES AND YEAR-END HOLDINGS
The following table sets forth as of February 28, 1998, for each of
the Named Executive Officers (i) the total number of options for Common
Stock (exercisable and unexercisable) held and (ii) the value of such
options that were in-the-money at February 28, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FEBRUARY 28, 1998(#)(1) AT FEBRUARY 28, 1998($)(3)
EXERCISE REALIZED --------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence J. Ruisi...... -- -- 500,000 400,000 1,562,500 1,250,000
Barrie Lawson-Loeks(2). -- -- -- -- -- --
Jim Loeks(2)........... -- -- -- -- -- --
Travis Reid............ -- -- -- 250,000 -- 781,200
Seymour Smith.......... -- -- -- 50,000 -- 156,250
- -----------------------------
<FN>
(1) The number of securities underlying the options give effect to the
Combination.
(2) Ceased to be employees of the Company effective April 1, 1998 upon
termination of their existing employment agreements.
(3) Based on the difference between (i) ten times the per share closing
price of the Common Stock of Cineplex Odeon as reported on the NYSE
Composite Tape on February 28, 1998 and (ii) the exercise price of the
options on such date.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
Loews Cineplex and Mr. Ruisi entered into an employment agreement (the
"Agreement") that became effective as of the consummation of the
Combination and provides for an employment term of five years (the
"Employment Period"). During the Employment Period Mr. Ruisi will serve as
President and Chief Executive Officer of Loews Cineplex and be a member of
Loews Cineplex's Board of Directors and of its principal Canadian
subsidiary's Board of Directors and of any Executive or similar committee.
During the Employment Period Mr. Ruisi will be paid a base salary of
$750,000 each year and will be eligible to participate in all
then-operative employee benefit plans of Loews Cineplex which are
applicable generally to Loews Cineplex's senior executives. In addition,
Mr. Ruisi will be eligible to receive an annual bonus (the "Annual Bonus")
which shall be targeted at $500,000 plus a specified cost of living
adjustment and in any event will be not less than $250,000 plus the
specified cost of living adjustment (the "Minimum Annual Bonus"). In
addition to the initial grant of options to purchase 900,000 shares of
Loews Cineplex common stock pursuant to the Loews Cineplex stock option
plan at an exercise price of $13.125 (the "Initial Options"), Mr. Ruisi
will be granted not less than an additional 100,000 options on each day
immediately preceding the second, third and fourth anniversaries of the
date of the consummation of the Combination (the "Additional Options").
If Mr. Ruisi's employment terminates upon the expiration of his
agreement, or sooner by reason of death or disability, for "cause" (as
defined in Mr. Ruisi's agreement) by Loews Cineplex or by Mr. Ruisi other
than by reason of Loews Cineplex's material breach of the Agreement, Loews
Cineplex is obligated to pay him all accrued but unpaid salary and benefits
and a pro rata portion of the Minimum Annual Bonus for the year of
termination. If Loews Cineplex terminates Mr. Ruisi's employment without
cause prior to the expiration of the Agreement, which it will be deemed to
do if it materially reduces Mr. Ruisi's duties or responsibilities or
otherwise materially breaches the Agreement, it is obligated to provide, in
addition to the amounts described in the preceding sentence, his base
salary, employee benefits (excluding car allowance or leasing benefits) and
the Minimum Annual Bonus that would have been payable during the balance of
the Employment Period (or with respect to certain benefits which are not
quantifiable such as health benefits, to continue such benefits for the
balance of the Employment Period), and Mr. Ruisi would have no obligation
to mitigate the amount payable by the Company by seeking subsequent
employment or otherwise. In addition, in the event of such a termination,
the Initial Options and Additional Options awarded prior to the date of
such termination shall vest immediately and continue to be exercisable in
accordance with Loews Cineplex stock option plan for a period of not longer
than twelve months from the date of such termination. Except in the event
Mr. Ruisi's employment is terminated by Loews Cineplex for cause, for a
period of three months following termination, Mr. Ruisi will be entitled,
without cost, to the exclusive use of an office, as well as access to
secretarial, receptionist and telephone services.
Effective as of the consummation of the Combination, Allen Karp became
a director of the Company and Chairman and Chief Executive Officer of
Cineplex Odeon Canada. Allen Karp entered into an employment agreement with
Cineplex Odeon dated July 4, 1996, which was amended on November 28, 1997
in anticipation of the Combination and which was assumed by the Company as
part of the Combination. The agreement, as amended, provides for (i) an
annual employment term ending on the third anniversary of the Combination,
(ii) a minimum annual base salary of $550,000, (iii) certain employee
benefits, (iv) a guaranteed minimum annual bonus of $155,000 (the "Minimum
Bonus"), (v) a special one-time cash bonus of $1,000,000 and (vi) an option
to purchase 100,000 shares of the Company's common stock. Mr. Karp's
employment agreement provides that Cineplex Odeon may provide written
notice of non-renewal at any time during the first six months of the last
year of the agreement. If Cineplex Odeon provides such notice, Mr. Karp is
entitled to a termination payment upon the expiration of the agreement in
an amount equal to two times the average of the sum of his annual base
salary plus Minimum Bonus paid and any annual bonus paid or payable in
excess of his Minimum Bonus in respect of the three preceding calendar
years minus the base salary and Minimum Bonus paid to him from the date of
such notice to the expiration of the agreement, together with any
compensation previously deferred and not yet paid.
Mr. Karp's employment agreement also provides that Cineplex Odeon may
provide written notice of non-renewal on a date which is on or before one
year prior to the expiration of the agreement. In such event, Cineplex
Odeon may also elect to terminate Mr. Karp's employment as of the date
which is one year prior to the expiration of the agreement. If Cineplex
Odeon gives such notice of non-renewal but does not terminate Mr. Karp's
employment effective one year prior to the expiry of his agreement, he is
entitled to a termination payment upon the expiration of the agreement in
an amount equal to his then annual base salary plus the Minimum Bonus,
together with any compensation previously deferred and not yet paid by
Cineplex Odeon. If Cineplex Odeon provides such notice and elects to
terminate his employment as of the date which is one year prior to the
expiration of the agreement, Mr. Karp is entitled to a termination payment
in an amount equal to two times the average of the sum of his annual base
salary plus Minimum Bonus paid and any annual bonus paid or payable in
excess of his Minimum Bonus in respect of the three preceding calendar
years, together with any compensation previously deferred and not yet paid.
In addition, if Cineplex Odeon provides written notice of non-renewal,
then, in certain circumstances, Mr. Karp may opt to terminate his
employment on 90 days' notice, in which case he will be entitled to a
termination payment equal to the base salary plus Minimum Bonus which would
have been paid to him from the date of termination of his employment to the
expiry of his agreement, together with any compensation previously deferred
and not yet paid.
If Mr. Karp's employment agreement is terminated as a result of a
material breach by Cineplex Odeon, he is entitled to a payment equal to the
greater of (i) his most recent annual bonus to the extent it exceeds his
Minimum Bonus and his Minimum Bonus plus the base salary then being paid
which would have otherwise been paid from the date of termination of
employment to the expiration date of the agreement, and (ii) two times the
sum of the annual base salary and Minimum Bonus then being paid plus his
most recent annual bonus paid to the extent it exceeds his Minimum Bonus.
In addition, Mr. Karp will be entitled to any compensation previously
deferred and not yet paid by Cineplex Odeon. If, however, the Aggregate
Compensation (as hereinafter defined) which would have been paid to him
from the date of termination of employment to the expiration date of the
agreement plus an amount equal to one times the Aggregate Compensation is
greater than the aforesaid amount, then that is the termination payment to
which he is entitled.
Mr. Karp has the right to terminate his employment at any time until
the first anniversary of the Combination in which event he will be entitled
to a termination payment equal to the greater of (i) the amount described
in the preceding paragraph, or (ii) an amount equal to the greater of (A)
the Minimum Bonus and base salary that would have otherwise been paid from
the date of termination of employment to the expiration date of the
agreement, plus any previously deferred but unpaid amounts, or (B) an
amount equal to two times the sum of his base salary and Minimum Bonus and
the most recent annual bonus paid to the extent it exceeds his Minimum
Bonus in the one year period prior to the Combination (the "Pre-Combination
Compensation"), plus, to the extent not theretofore paid, the
Pre-Combination Compensation for a period of six months or, if greater, the
period from the consummation of the Combination to the date of termination
of employment, plus any previously deferred but unpaid amounts. For the
purpose of making all of the calculations described in this paragraph, Mr.
Karp's employment will be deemed to have terminated effective as of the
consummation of the Combination. In addition, the bonus paid to Mr. Karp in
the one year period prior to the Combination is deemed to equal his Minimum
Bonus. The approximate amount that would be payable to Mr. Karp if he
terminated his employment prior to the first anniversary of the Combination
is $2.8 million, plus any previously deferred but unpaid amounts.
In addition, Cineplex Odeon may terminate Mr. Karp's employment on not
less than six months' notice or payment of six months' base salary plus
Minimum Bonus in lieu of notice at any time during the term of the
agreement. If Cineplex Odeon provides such notice, Mr. Karp is entitled to
a termination payment in an amount equal to the average of his annual base
salary plus Minimum Bonus and any bonus paid or payable to the extent it
exceeds his Minimum Bonus in respect of the three preceding calendar years
(the "Aggregate Compensation") which would have otherwise been paid to him
from the date of termination of his employment to the expiration date of
the agreement plus an amount equal to one times the Aggregate Compensation,
as well as any compensation previously deferred and not yet paid by
Cineplex Odeon. If, however, Cineplex Odeon terminates Mr. Karp's
employment on not less than six months' notice within the year following
the Combination, the termination payment he would be entitled to would not
be less than the payment described in the preceding paragraph.
Subject to any required regulatory approvals, if Cineplex Odeon
terminates the employment of Mr. Karp for any reason, or if Mr. Karp
terminates his employment due to a material breach by Cineplex Odeon or
within one year following the Combination, all stock options previously
granted to him and not then vested shall immediately vest and he shall
remain entitled to exercise any vested and unexercised stock options
previously granted to him at any time until the expiration of the full term
of the exercise period of each such options.
Travis Reid entered into an amendment to his employment contract with
Loews Cineplex, effective May 1, 1998, which has a term of three years with
a two year option of the Company to renew. Mr. Reid's employment agreement
provides for an annual base salary, which is currently $400,000, and an
annual bonus in an amount determined by Loews Cineplex. Mr. Reid is
guaranteed a minimum aggregate bonus of $400,000 over the four year term of
his employment agreement. Mr. Reid was also granted a non-qualified stock
option with respect to 250,000 shares of Common Stock.
J. Edward Shugrue entered into an employment agreement with Loews
Cineplex dated December 15, 1997, to serve as President-International
Operations for a term of four years and an option by Loews Cineplex to
extend the term for an additional year. The terms of Mr. Shugrue's
agreement provide for an annual base salary of $450,000, with annual cost
of living increases at the end of years one, two and four and a $50,000
increase at the end of year three. The agreement also provides for a
signing bonus of $75,000, an annual bonus with a target of $200,000 which
is subject each year to the attainment of goals to be established by the
Board of Directors of Loews Cineplex, reimbursement of relocation and
related transportation expenses and an automobile allowance of $1,200 per
month. Pursuant to the agreement, Mr. Shugrue was granted a non-qualified
stock option with respect to 225,000 shares of Common Stock. If Mr.
Shugrue's employment is terminated by Loews Cineplex for cause, he will be
entitled to accrued salary through the date of termination and any accrued
but unpaid bonus. If Loews Cineplex terminates Mr. Shugrue's employment
without cause, he will be entitled to his base salary and bonus through the
end of the contract term, reduced by any compensation paid or payable to
Mr. Shugrue in respect of subsequent employment for the same period.
John Walker and Loews Cineplex have agreed to enter into an amendment
to his employment agreement with Loews Cineplex, effective on May 1, 1998,
which has a term of three years with an option of the Company to renew for
an additional two years. Mr. Walker's employment agreement provides for an
annual base salary of $275,000, which will be adjusted each year to reflect
the increase (if any) in the cost of living during the previous year, an
annual bonus targeted at $125,000 and a $50,000 increase in the event the
Company exercises its renewal option. Receipt of the annual bonus is
subject to the attainment of performance goals established each year by the
Board of Directors of Loews Cineplex. Mr. Walker was also granted a
non-qualified stock option with respect to 150,000 shares of Common Stock.
John C. McBride, Jr. began his employment with Loews Cineplex on
January 19, 1998 under terms of employment set forth in a letter agreement
between Loews Cineplex and Mr. McBride dated November 17, 1997 (the
"McBride Agreement"). The McBride Agreement provides for a term of
employment expiring January 18, 2003. Pursuant to the McBride Agreement,
Mr. McBride shall receive an annual base salary of $325,000, which will be
adjusted each year to reflect the increase (if any) in the cost of living
during the previous year, and an annual bonus targeted at between $75,000
and $125,000. Receipt of the annual bonus is subject to the attainment of
performance goals established each year by the Board of Directors of Loews
Cineplex. Pursuant to the McBride Agreement, Mr. McBride received a signing
bonus of $25,000 and is entitled to reimbursement of relocation expenses.
If Loews Cineplex terminates Mr. McBride without cause prior to January 18,
2003, it is obligated to pay his base salary and his target bonus through
such date, reduced by any compensation paid or payable to Mr. McBride in
respect of subsequent employment (including self-employment) for the same
period. Pursuant to the McBride Agreement, Mr. McBride was granted a
non-qualified stock option with respect to 150,000 shares of Common Stock.
Seymour Smith entered into an employment agreement with Loews Cineplex
on May 1, 1990, which has been subsequently amended and expired on April
30, 1998. Mr. Smith's employment agreement provided for an annual base
salary (currently $362,098), which was adjusted each year to reflect the
increase (if any) in the cost of living during the previous year, and an
annual bonus in an amount determined by Loews Cineplex. Mr. Smith was also
granted a non-qualified stock option with respect to 50,000 shares of
Common Stock.
Mindy Tucker entered into an employment agreement with the Company on
December 15, 1997 to serve as Corporate Vice President for Strategic
Planning and Secretary for a term of three years, with an option by the
Company for an additional two years. Ms. Tucker's employment agreement
provides for an annual base salary of $200,000, with annual cost of living
increases and a $25,000 increase in the event the Company exercises its
option. Her employment agreement also provides for an annual bonus that
will range from $50,000 to $100,000, subject in each case to the attainment
of goals to be established each year by the Board of Directors of the
Company. In addition, Ms. Tucker was granted a non-qualified stock option
with respect to 75,000 shares of Common Stock. If Ms. Tucker's employment
is terminated by the Company for cause, she will be entitled to accrued
salary through the date of termination and any accrued but unpaid bonus. If
the Company terminates her employment without cause, she will be entitled
to receive her base salary and bonus through the balance of the contract
term, reduced by any compensation paid or payable in respect of subsequent
employment (including self-employment) for the same period.
Joseph Sparacio and Loews Cineplex have agreed to enter into an
amendment to his employment agreement with Loews Cineplex, effective May 1,
1998, which has a term of three years with a two year option by the Company
to renew. Mr. Sparacio's employment agreement provides for an annual base
salary of $200,000, with annual cost of living increases and a $25,000
increase in the event that the Company exercises the option. Mr. Sparacio's
agreement also provides for an annual bonus targeted at $75,000, subject in
each case to the attainment of goals to be established each year by the
Board of Directors of the Company. Mr. Sparacio was also granted a
non-qualified stock option with respect to 75,000 shares of Common Stock.
During the terms of their employment agreements, Messrs. Reid, Smith,
Walker and Sparacio are also entitled to participate in all employee
benefit plans of SPE or its affiliates that are applicable generally to
Loews Cineplex's executives of comparable rank and to receive either a car
allowance in the case of Mr. Reid or reimbursement for a leased car for
each of Messrs. Smith, Walker and Sparacio. Pursuant to their respective
employment agreements, if the employment of Messrs. Reid, Smith, Walker or
Sparacio terminates upon the expiration of the agreements (each, an
"Expiration Date"), or sooner by reason of death or disability, for cause
by Loews Cineplex or by Messrs. Reid, Smith, Sparacio or Walker, Loews
Cineplex is obligated to pay all accrued but unpaid salary, car allowance,
vacation and expenses and other benefits as provided under applicable
employee benefit plans.
If Loews Cineplex terminates the employment of Messrs. Reid, Smith,
Walker or Sparacio without cause prior to the applicable Expiration Date,
it is obligated to pay such employee's base salary and to continue
providing all employee benefits (excluding any car allowance or leasing
program) until such employee's Expiration Date. However, if any of Messrs.
Reid, Smith, Sparacio or Walker obtains other employment, any amounts
payable under his employment agreement shall be offset by compensation
received with respect to such other employment prior to the applicable
Expiration Date.
1997 STOCK INCENTIVE PLAN
On December 16, 1997, the Company's Board of Directors unanimously
adopted, and the stockholders of the Company approved, the LTM Holdings,
Inc. 1997 Stock Incentive Plan (the "Stock Incentive Plan"). The Company's
Board of Directors believes that, in order to attract, retain and reward
valuable personnel, it is important for Loews Cineplex to adopt a flexible,
long-term incentive plan. The principal provisions of the Stock Incentive
Plan are summarized below. This summary, however, does not purport to be
complete and is qualified in its entirety by reference to the provisions of
the Stock Incentive Plan, a copy of which was filed on February 13, 1998 as
an exhibit to the LTM Holdings, Inc.'s Registration Statement on Form S-4
(No. 333-46313). Terms not defined herein shall have the meanings set forth
in the Stock Incentive Plan.
The purpose of the Stock Incentive Plan is to strengthen Loews
Cineplex by providing an incentive to its employees, officers, directors,
consultants and advisors through the granting or awarding of incentive and
nonqualified stock options, stock appreciation and dividend equivalent
rights, restricted stock, performance units, and performance shares to
employees (including individuals who have received a formal, written offer
of employment), officers, directors, consultants and advisors of Loews
Cineplex or an affiliate (collectively or individually, "Awards"), thereby
encouraging them to devote their abilities and energies to the success of
Loews Cineplex.
The Stock Incentive Plan is to be administered by a committee
consisting of at least two directors of Loews Cineplex (the "Plan
Committee"), and it may be administered by the entire Board of Directors.
If the Plan Committee consists of less than the entire Board of Directors,
each member will be a "nonemployee director" within the meaning of Rule
16b-3 promulgated under the Exchange Act. To the extent necessary for any
Award to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), each member of
the Plan Committee will be an "outside director" within the meaning of
Section 162(m) of the Code.
Each Award under the Stock Incentive Plan will be evidenced by an
agreement that sets forth the terms of the grant. Under the Stock Incentive
Plan, the Plan Committee has the authority to, among other things: (i)
select the individuals to whom Awards will be granted, (ii) determine the
type, size and the terms and conditions of Awards and (iii) establish the
terms for treatment of Awards upon a termination of employment.
Under the Stock Incentive Plan, 4,520,000 shares of authorized and
unissued Common Stock (less the number of shares of Common Stock subject to
options held by Cineplex Odeon employees that were to be converted into
options to acquire Loews Cineplex Common Stock pursuant to the plan of
arrangement governing the Combination) will be available for the grant of
Awards to Eligible Individuals, provided that the maximum number of shares
with respect to which Awards may be granted to any individual during any
calendar year is 900,000. In the event of any Change in Capitalization,
however, the Plan Committee may adjust the maximum number and class of
shares with respect to which Awards may be granted, the number and class of
shares which are subject to outstanding Awards and the purchase price
thereof. Of the total number of shares allotted under the Stock Incentive
Plan, not more than one-third of the number of allotted shares may be used
for grants of restricted stock. The maximum dollar amount that an
individual may receive during the term of the Plan in respect of
cash-denominated performance units may not exceed $2 million.
STOCK OPTIONS
The Plan Committee will determine whether any option is a nonqualified
or incentive stock option at the time of grant. The per share exercise
price of an option granted under the Stock Incentive Plan will be
determined by the Plan Committee at the time of grant and set forth in the
option agreement, provided that the purchase price per share under each
incentive stock option must not be less than 100% of the fair market value
of Common Stock subject to the option at the date of grant (110% in the
case of an incentive stock option granted to a Ten Percent Stockholder),
and each option will be exercisable at such dates and in such installments
as determined by the Plan Committee. All outstanding options will become
fully exercisable upon a Change in Control. In addition, the Plan Committee
reserves the authority to accelerate the exercisability of any option at
any time. Each option terminates at the time determined by the Plan
Committee provided that the term of each option may not exceed ten years
(five years in the case of any incentive stock option granted to a Ten
Percent Stockholder). The Plan Committee may accept the surrender of
outstanding options and may grant new options in substitution for them.
Options are not transferable except by will or the laws of descent and
distribution or pursuant to a domestic relations order. Notwithstanding the
foregoing, the Plan Committee may set forth in the option agreement, at the
time of grant or at any time thereafter, that the option may be transferred
to members of the optionee's immediate family, to trusts solely for the
benefit of such immediate family members and to partnerships in which such
family members and/or trusts are the only partners. Options may be
exercised during the optionee's lifetime only by the grantee or his
guardian or legal representative. In the discretion of the Plan Committee,
the purchase price for shares may be paid (i) in cash, (ii) by transferring
shares of Common Stock to Loews Cineplex (provided such shares have been
held by the optionee for at least six (6) months prior to the exercise of
the option) or (iii) by a combination of the foregoing. In addition,
options may be exercised through a registered broker-dealer pursuant to
such cashless exercise procedures which are, from time to time, deemed
acceptable by the Plan Committee.
The Plan Committee will determine, at the time the option is granted
or thereafter, and will set forth in the option agreement, the terms and
conditions applicable to such option upon a termination or change in the
status of the employment or service of the optionee by Loews Cineplex, a
subsidiary or a division (including a termination or change by reason of
the sale of a subsidiary or a division).
STOCK APPRECIATION RIGHTS ("SARS")
The Stock Incentive Plan permits the granting of SARs either in
connection with the grant of an option or as a freestanding right. A SAR
permits a grantee to receive upon exercise of the SAR, cash and/or shares,
at the discretion of the Plan Committee, in an amount equal in value to the
excess, if any, of the then per share fair market value over the per share
fair market value on the date the SAR was granted (or option exercise price
in the case of a SAR granted in connection with an option). When a SAR is
granted, however, the Plan Committee may establish a limit on the maximum
amount a grantee may receive on exercise. The Plan Committee will decide at
the time the SAR is granted the date or dates at which it will become
vested and exercisable; however, in the event of a Change in Control, all
SARs become immediately and fully exercisable. The Plan Committee may
accept the surrender of outstanding SARs and may grant new Awards in
substitution for them.
DIVIDEND EQUIVALENT RIGHTS ("DERS")
DERs may be granted in tandem with any Award under the Stock Incentive
Plan and may be payable currently or deferred until the lapsing of the
restrictions on the DERs or until the vesting, exercise, payment,
settlement or other lapse of restrictions on the related Award. DERs may be
settled in cash or Common Stock or a combination thereof, in a single or
multiple installments.
RESTRICTED STOCK
The Plan Committee will determine the terms of each restricted stock
Award at the time of grant, including the price, if any, to be paid by the
grantee for the restricted stock, the restrictions placed on the shares,
and the time or times when the restrictions will lapse. In addition, at the
time of grant, the Plan Committee, in its discretion, may decide: (i)
whether any deferred dividends will be held for the account of the grantee
or deferred until the restrictions thereon lapse, (ii) whether any deferred
dividends will be reinvested in additional Common Stock or held in cash,
(iii) whether interest will be accrued on any dividends not reinvested in
additional shares of restricted stock and (iv) whether any stock dividends
paid will be subject to the restrictions applicable to the restricted stock
Award. Unless otherwise provided at the time of grant, the restrictions on
the restricted stock will lapse upon a Change in Control. Shares of
restricted stock are non-transferable until such time as all restrictions
upon such shares lapse. The Plan Committee may accept the surrender of
outstanding shares of restricted stock and may grant new Awards in
substitution for them.
PERFORMANCE UNITS AND PERFORMANCE SHARES
Performance units and performance shares will be awarded as the Plan
Committee may determine, and the vesting of performance units and
performance shares will be based upon the Company's attainment within an
established period of specified performance objectives to be determined by
the Plan Committee among the following: earnings per share, share price,
pre-tax profits, net earnings, return on equity or assets (including return
on specified assets), revenues, EBITDA, market share or market penetration,
free cash flow or any combination of the foregoing. In the event of a
Change in Control, all or a portion of the performance units will vest and
the restrictions on all or a portion of the performance shares will lapse,
in either case, as determined by the Plan Committee at the time of grant
and as set forth in the agreement evidencing the Award of performance
shares or performance units. The Plan Committee may accept the surrender of
outstanding performance Awards and may grant new Awards in substitution for
them.
AMENDMENTS AND TERMINATION
The Stock Incentive Plan will terminate on the day preceding the tenth
anniversary of the date of its adoption by the Board. The Board may at any
time and from time to time amend or terminate the Stock Incentive Plan;
provided, however, that, to the extent necessary under applicable law, no
such change will be effective without the requisite approval of Loews
Cineplex's stockholders. In addition, no such change may alter or adversely
impair any rights or obligations under any Awards previously granted,
except with the written consent of the grantee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly held corporation for compensation paid in excess
of $1 million in any taxable year to the chief executive officer or any of
the four other most highly compensated executive officers who are employed
by the corporation on the last day of the taxable year, but does allow a
deduction for "performance-based compensation". The Company has structured
and intends to implement and administer the Stock Incentive Plan (except
with respect to any stock options granted with an exercise price less than
the fair market value of the underlying shares on the date of grant) so
that compensation resulting from stock options, SARs and performance awards
can qualify as "performance-based compensation". The Plan Committee,
however, has the discretion to grant such Awards with terms that will
result in the Awards not constituting performance-based compensation. Loews
Cineplex will seek, at its 1999 annual meeting of stockholders, stockholder
approval of the Stock Incentive Plan and the material terms of the
performance goals applicable to performance units under the Stock Incentive
Plan to allow such options and SARs granted and other such compensation
paid after such meeting to qualify as performance based compensation.
Under certain circumstances, the accelerated vesting or exercise of
options or stock appreciation rights, or the accelerated lapse of
restrictions with respect to other Awards, in connection with a Change of
Control might be deemed an "excess parachute payment" for purposes of the
golden parachute tax provisions of Section 280G of the Code. To the extent
it is so considered, the grantee may be subject to a 20% excise tax, and
Loews Cineplex may be denied a federal income tax deduction.
AWARDS GRANTED UNDER THE STOCK INCENTIVE PLAN
On December 16, 1997, the Plan Committee granted nonqualified stock
options under the Stock Incentive Plan in respect of 900,000, 250,000,
225,000, 150,000, 150,000, 75,000, 75,000 and 50,000 shares of Common Stock
to Lawrence J. Ruisi, Travis Reid, J. Edward Shugrue, John C. McBride, Jr.,
John J. Walker, Joseph Sparacio, Mindy Tucker and Seymour Smith,
respectively. Each option was granted at an exercise price of $13.125 per
share, the fair market value for such shares on the date of grant. The
terms and conditions of each grant were set forth in a form option
agreement (the "Option Agreement"), which is identical for each of the
individuals listed above (other than as described below with respect to
certain options granted to Mr. Ruisi). The Option Agreement incorporates by
reference the terms and conditions of the Stock Incentive Plan.
Under the Option Agreement (other than options granted to Mr. Ruisi to
purchase 900,000 shares of Common Stock, 500,000 of which were vested upon
grant and the remainder of which will become exercisable in respect of
100,000 shares covered thereby on the first through fourth anniversaries of
the Combination) each option becomes vested and exercisable with respect to
twenty percent of the aggregate number of Loews Cineplex Common Shares
covered by such option on each of the first, second, third, fourth and
fifth anniversaries of the closing of the Combination, but in any event
will be fully vested and exercisable as of the fifth anniversary of the
date of grant. Under the Option Agreement, if an optionee's employment is
terminated by Loews Cineplex without Cause, or as a result of the
optionee's death or Disability, the option becomes immediately and fully
vested and is exercisable at any time within one year after the date of
such termination of employment. If an optionee's employment is terminated
as a result of his Retirement, the option shall, to the extent vested on
the date of Retirement, remain exercisable for three years thereafter. If
the optionee's employment is terminated for any other reason (including the
optionee ceasing to be employed by a subsidiary or division of Loews
Cineplex as a result of the sale of such subsidiary or division), the
option shall, to the extent vested on the date of such termination, remain
exercisable for ninety days thereafter, except for options held by Mr.
Ruisi, which shall remain exercisable for a period of one year following
any such termination. In the event that an optionee's employment is
terminated following a Change in Control, the option shall remain
exercisable for one year following such termination. In no event, however,
is the option exercisable beyond its stated term of ten years.
COMPENSATION OF DIRECTORS
The Company currently pays each independent director an annual stipend
of $30,000 plus $1,000 for each meeting of the Board or Committees of the
Board attended by the director. The Company may in the future adopt a stock
compensation program for directors.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SPE and Universal are major film studios and distributors. Loews
Cineplex has exhibited films distributed by SPE and Universal in the past
and expects to continue to do so in the future. Payments are made based on
negotiated and/or contracted rates established on terms that management
believes are equivalent to an arm's-length basis. At February 28, 1998 and
February 28, 1997, respectively, Loews Cineplex owed SPE and its affiliates
approximately $2.5 million and approximately $6.4 million under film
licensing agreements. Loews Cineplex has recognized approximately $30.4
million in film rental expenses relating to the exhibition of films
distributed by SPE for the year ended February 28, 1998. For its fiscal
year ended December 31, 1997, Cineplex Odeon paid an aggregate of $27.5
million in film licensing fees to Universal or subsidiaries thereof in the
ordinary course of business. A Canadian division of Cineplex Odeon has
provided certain video distribution services to Universal for which
Universal paid Cineplex Odeon approximately $1.0 million during its fiscal
year ended December 31, 1997.
Loews Cineplex and SCA (or its affiliates) have entered into (a) a
trademark agreement governing the ongoing and future use of the "Sony"
trademark in connection with the operation of certain Loews Cineplex
theatres (the "Trademark Agreement"), (b) a tax sharing and indemnity
agreement regarding certain tax, ERISA and other matters (the "Tax Sharing
and Indemnity Agreement") and (c) a transition services agreement (the
"Transition Services Agreement"). Pursuant to the Trademark Agreement, SCA
has granted the Company the right to use the trademark "Sony" and all
goodwill associated therewith (i) in respect of the Sony Lincoln Square
Theatre, until May 14, 2003 (ii) in respect of the Yerba Buena facility (as
defined below), for a period expiring five years from the latest to occur
of (a) May 14, 2003 and (b) the date which is five years from the date on
which theatre operations begin at the Yerba Buena facility; and (iii) in
respect of certain other theatres operated by the Company, until November
14, 1998. Pursuant to the Tax Sharing and Indemnity Agreement: (i) SCA will
be responsible for and will indemnify the Company and its U.S. subsidiaries
against certain consolidated, combined and unitary federal, state, local
and foreign income, franchise and capital taxes for all taxable years
ending on or prior to the closing date of the Combination, except for such
taxes incurred after the closing date of the Combination by the Company and
its U.S. subsidiaries arising by reason of an audit or court proceeding;
(ii) procedures are set forth for (a) the preparation and filing of certain
consolidated combined and unitary federal and state income, franchise and
capital tax returns with respect to taxable years ending on or prior to the
closing date of the Combination and (b) the conduct and settlement of
certain tax audits and proceedings with respect to such taxable years; and
(iii) the Company has agreed to indemnify and hold harmless SCA and SPE,
and their respective successors and assigns, with respect to certain
liabilities that may arise in connection with certain other agreements.
Pursuant to the Transition Services Agreement, SCA and SPE will provide
Loews Cineplex with certain administrative services currently performed by
SPE or its affiliates on behalf of Loews Cineplex to the extent such
services are required by Loews Cineplex to conduct its operations in the
ordinary course of business following the Combination. Such services will
be provided at such prices and rates, and subject to termination, as may be
agreed upon by SPE and Loews Cineplex but pursuant to terms no less
favorable to Loews Cineplex than would be obtainable from unaffiliated
third parties.
An affiliate of SCA is developing an entertainment/retail complex in
San Francisco, California ("Yerba Buena"). Loews Cineplex has entered into
a lease on terms that management believes are equivalent to arm's-length
terms with SCA's affiliate with respect to the operation of a 3D IMAX(R)
theatre and a state-of-the-art 15-screen multiplex theatre to be located at
Yerba Buena.
Jim Loeks and Barrie Lawson-Loeks, who were co-chairmen of Loews
Cineplex until April 1998, are also 50% partners in Loeks-Star Theatres
through their ownership interest in Loeks Michigan Theatres, Inc.
In connection with Cineplex Odeon's sale of its remaining 51% interest
in the Film House Partnership to The Rank Organization PLC ("Rank") in
March 1990, Cineplex Odeon agreed to provide, without cost, on-screen
advertisements of Universal Studios, Florida and Universal Studios,
California until March 2000. Universal Studios, Florida, a motion picture
and television theme amusement park, is a joint venture between Universal
and Rank. Universal Studios, California, a motion picture and television
theme amusement park, is owned by Universal.
Cineplex Odeon has, since 1984, participated in a joint venture with a
group of investors which developed a theatre complex at the southwest
corner of Yonge and Eglinton Streets in Toronto. The investor group, in
which Senator Kolber, a director of Loews Cineplex, and/or associates of
Senator Kolber, have a minority interest, contributed Cdn$3.3 million of
the total financing required to complete the project and is entitled to
repayment thereof, together with interest thereon, and to ongoing
participation in the revenue derived from the project.
In September 1990, Cineplex Odeon sold its interest in the Universal
City Cinema to Universal. Cineplex Odeon has been retained to manage the
theatre on a long-term basis for a fee based on 3% of gross revenue plus 3%
of net cash flow from the multiplex. In addition, Universal has the right
to "put" such theatre to the Company on the terms described below.
The number of shares of Common Stock issued to Universal pursuant to
the Subscription Agreement at the closing of the Combination was subject to
adjustment pursuant to anti-dilution provisions contained in the
Subscription Agreement. In accordance with these provisions, Loews Cineplex
was required to issue, subject to applicable stock exchange requirements,
additional shares of Common Stock to Universal for no additional
consideration if Loews Cineplex issued or sold any Common Stock (other than
in connection with the Combination, employee stock options or the
conversion of Loews Cineplex non-voting capital stock) in certain types of
transactions to any person other than Universal or any of its affiliates (a
"Sale"), including issuances upon conversion, exchange or exercise of
voting share equivalents, whether in one or a series of transactions, for
consideration (the "Subsequent Sale Price") of less than $19.0891 per
share, subject to adjustment. Upon the closing of the first Sale having a
Subsequent Sale Price of less than $19.0891 per share, the number of
additional shares issuable to Universal was equal to (a) the quotient of
$84.5 million divided by the Subsequent Sale Price, minus (b) 4,426,606
shares of Common Stock. Accordingly, upon consummation of the Equity
Offering, the Company issued an additional 3,255,212 shares of Common Stock
to Universal for no additional consideration. These adjustment provisions,
which only applied to the first $100 million of additional issuances,
terminated once the aggregate proceeds of all Sales equaled or exceeded
$100 million. Accordingly, these provisions terminated upon consummation of
the Equity Offering and the Universal Issuance.
From and after the later of (i) the second anniversary of the closing
date of the Combination and (ii) the fifteenth day of the month following
the first month end as of which the outstanding debt of Loews Cineplex is
less than 4.75 times the consolidated EBITDA of Loews Cineplex for the
12-month period then ended (the "Start Date"), Universal will have the
right (the "Put Right") to cause Loews Cineplex to lease the Universal City
Cinema motion picture theatre facility located at the Universal City,
California retail and entertainment complex (the "Universal City Cinema")
pursuant to a 20-year lease (the "Lease"). If Universal exercises the Put
Right, on the date the Lease is signed (the "Lease Signing Date") Loews
Cineplex will pay to Universal cash consideration for entering into the
Lease and the conveyance of the related personal property equal to (i) ten
times the cash flow of the Universal City Cinema for the 12-month period
ended on the last day of the month preceding Universal's giving notice (the
"Put Notice") of its exercise of the put minus (ii) (if applicable) the
cost of eliminating any deficiencies from the operating requirements and
standards set forth in the Lease specifically listed on a certificate
executed by an officer of Universal, which cost shall be estimated by an
engineering firm or other expert selected by Universal and reasonably
acceptable to Loews Cineplex. The Put Right terminates on the third
anniversary of the Start Date if the Put Notice has not been delivered
prior to such date. Loews Cineplex must provide to Universal not less than
five days' prior written notice of the Start Date, and, if it fails to
provide such notice, the Start Date is tolled until the fifth day following
delivery of such notice.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's voting securities by (a) each person
who is known to the Company to be the beneficial owner of more than five
percent of the Company's voting securities, (b) each director of the
Company, (c) each of the Named Executive Officers and (d) all directors and
executive officers of the Company as a group. Except as otherwise
indicated, the persons or entities listed below have sole voting and
investment power with respect to all shares of the Company's voting
securities owned by them, except to the extent such power may be shared
with a spouse.
SHARES BENEFICIALLY
OWNED
-------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ ------ -------
COMMON STOCK, PAR VALUE $.01 PER SHARE 5%
STOCKHOLDERS:
Sony Pictures Entertainment Inc. 23,137,111(1) 39.5%
550 Madison Avenue
New York, New York 10022
Universal Studios, Inc. 14,946,461(1) 25.5%
100 Universal City Plaza
Universal City, CA 91608
The Claridge Group 4,324,003(1)(2) 7.4%
c/o Claridge Inc.
1170 Peel Street, 8th Floor
Montreal, Quebec H3B 4P2
DIRECTORS:
George Cohon 900 *
Nora Ephron -- *
Marinus N. Henny 5,000(3) *
Hon. E. Leo Kolber 350,309 *
Kenneth Lemberger (3) *
Ron Meyer (5) *
Brian C. Mulligan (5) *
Yuki Nozoe (3) *
Karen Randall (5) *
Stanley Steinberg 1,000(3) *
Howard Stringer (3) *
Robert J. Wynne (3) *
Mortimer B. Zuckerman 1,000 *
EXECUTIVE OFFICERS:
Lawrence J. Ruisi 510,100(6) *
Allen Karp 500,114(7) *
Barrie Lawson-Loeks -- *
Jim Loeks -- *
Travis Reid -- *
Seymour Smith -- *
All Directors and Executive Officers as a Group 1,376,223 2.4%
(23 persons)
CLASS B NON-VOTING COMMON STOCK, PAR VALUE $.01
PER SHARE
Universal Studios, Inc. 80,000 95.2%
100 Universal City Plaza
Universal City, CA 91608
- -----------------------------------------
* Indicates beneficial ownership or control of less than 1.0% of the
outstanding shares of Loews Cineplex Common Stock.
(1) All of such shares are subject to the terms of the Stockholders
Agreement described below.
(2) Members of the Claridge Group and their holdings of voting securities
are as follows: (i) The Charles Rosner Bronfman Discretionary
Trust--1,918,907 shares; (ii) The Charles Bronfman Trust--1,000,000
shares; (iii) The Charles R. Bronfman Trust--1,000,000 shares; (iv)
The Phyllis Lambert Foundation--31,410 shares; (v) Bojil Equities
Inc.--350,309 shares with respect to which Senator Kolber exercises
voting control, but disclaims any pecuniary interests; and (vi) Louis
Ludwick--23,377 shares. Charles Rosner Bronfman may be deemed to share
beneficial ownership of the shares held by the three trusts listed
above. The number of shares does not include 9,926 shares and 7,500
shares owned by the wives of Mr. Bronfman and Senator Kolber,
respectively, as to which beneficial ownership has been disclaimed.
(3) Does not include 23,137,111 shares of Loews Cineplex Common Stock
owned by SPE. Messrs. Henny, Lemberger, Nozoe, Steinberg, Stringer and
Wynne, officers of SPE or its affiliates, disclaim beneficial
ownership of all Loews Cineplex shares owned by SPE.
(4) Includes 350,309 shares of Loews Cineplex Common Stock over which
Senator Kolber has voting control but which are owned directly by
Bojil Equities Inc. and as to which Senator Kolber disclaims
beneficial ownership. Excludes 7,500 shares of Loews Cineplex Common
Stock beneficially owned by Senator Kolber's wife, as to which he
disclaims beneficial ownership.
(5) Does not include 14,946,461 shares of Common Stock and 80,000 shares
of Class B Non-Voting Common Stock owned by Universal. Messrs. Meyer
and Mulligan and Ms. Randall, officers of Universal or its affiliates,
disclaim beneficial ownership of all Loews Cineplex shares owned by
Universal.
(6) This number includes 500,000 options exercisable.
(7) Includes 1,714 shares of Loews Cineplex Common Stock which are
beneficially owned by the Allen and Sharon Karp Trust, as to which Mr.
Karp disclaims beneficial ownership, and 498,400 shares of Loews
Cineplex Common Stock which relate to options exercisable.
Universal (in which The Seagram Company Ltd. ("Seagram") owns an
approximately 84% indirect interest) beneficially owns the Loews Cineplex
shares set forth on the table above (the "Seagram Shares"). Based on the
most recent publicly available information related to Seagram: (i)
descendants of the late Samuel Bronfman and trusts established for their
benefit (the "Bronfman Trusts") beneficially owned, directly or indirectly,
an aggregate of 119,923,154 of then outstanding Seagram Shares,
constituting approximately 34.5% of then outstanding Seagram Shares, which
amount includes the approximately 14.8% of then outstanding Seagram Shares
owned by trusts established for the benefit of Charles R. Bronfman, and his
descendants, including, without limitation, the Charles Rosner Bronfman
Discretionary Trust and (ii) pursuant to two voting trust agreements,
Charles R. Bronfman served as the voting trustee for approximately 33.3% of
the outstanding Seagram Shares and a voting trustee for approximately 0.7%
of then outstanding Seagram Shares, which shares are beneficially owned by
the Bronfman Trusts and certain other entities.
<PAGE>
THE STOCKHOLDERS AGREEMENT
The following is a brief summary of certain provisions of the
Stockholders Agreement. A copy of the Stockholders Agreement has been filed
as an exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1998. The following description does not purport to
be complete and is subject in all respects to the detailed provisions of
the Stockholders Agreement. Capitalized terms used in this section without
definition elsewhere in this Prospectus shall have the meanings specified
in the Stockholders Agreement, as the context requires.
The Stockholders Agreement provides for certain board, voting,
consent, standstill, purchase, transfer and other rights and obligations
for the parties thereto.
THE BOARD OF DIRECTORS
Pursuant to the Stockholders Agreement, the Company's Board of
Directors is to comprise 16 members, to consist of six designees of SPE
(the "SPE Directors"), four designees of Universal (the "Universal
Directors"), one designee of the Claridge Group (the "Claridge Director"),
two Management Directors and three Independent Directors. Pursuant to the
Stockholders Agreement, the Management Directors will be the two most
senior executive officers of Loews Cineplex; provided that Allen Karp shall
be one of the Management Directors as long as he is an executive officer of
the Company or an affiliate. The current Management Directors are Lawrence
J. Ruisi, who is the President and Chief Executive Officer of Loews
Cineplex, and Allen Karp, who is Chairman and Chief Executive Officer of
Cineplex Odeon. For purposes of this Prospectus, an "Independent Director"
is any director who (a) is free from any relationship that, in the opinion
of the nominating committee of the Company's Board of Directors, would
interfere with the exercise of independent judgment as a director, (b) is
not an affiliate of Loews Cineplex, SPE, Universal or the Claridge Group or
a current or former officer of the Company or any of its subsidiaries or a
current or former officer or director of SPE or Universal or any of their
respective subsidiaries, (c) does not, in addition to such individual's
role as a member of the Company's Board of Directors, also act on a regular
basis as an individual or representative of an organization serving as a
professional advisor, legal counsel or consultant to management of the
Company or SPE, Universal or the Claridge Group or any of their respective
subsidiaries and (d) does not represent, and is not a member of the
immediate family of, a person who does not satisfy the requirements of
foregoing clauses (a), (b) or (c) ("Independent Directors").
The Stockholders Agreement provides that SPE, Universal and the
Claridge Group, subject to the exceptions and limitations described below,
are entitled to designate for nomination for election to the Company's
Board of Directors, the number of directors of Loews Cineplex that
generally corresponds to such Stockholder's "Applicable Percentage" set
forth on the following chart (the "Directors Chart"):
NUMBER OF
APPLICABLE PERCENTAGE DIRECTORS
----------------------------------------------- -----------
Greater than 6.25% and less than 9.375%........ 1
Greater than 9.375% and less than 15.625%...... 2
Greater than 15.625% and less than 21.875%..... 3
Greater than 21.875% and less than 28.125%..... 4
Greater than 28.125% and less than 34.375%..... 5
Greater than 34.375% and less than 40.625%..... 6
Greater than 40.625% and less than 46.875%..... 7
Greater than 46.875% and less than 53.125%..... 8
Greater than 53.125% and less than 59.375%..... 9
Greater than 59.375% and less than 65.625%..... 10
Greater than 65.625% and less than 71.875%..... 11
Greater than 71.875% and less than 78.125%..... 12
Greater than 78.125% and less than 84.375%..... 13
84.375% and greater............................ 14
provided, however, that
(i) (x) until May 14, 2003, the Claridge Group shall be entitled
to designate one Loews Cineplex director if its Applicable Percentage
exceeds 3.5%, and, thereafter, if its Applicable Percentage exceeds
5%, and (y) the Claridge Group's entitlement to designate two or more
Loews Cineplex directors shall be determined in accordance with the
Stockholders Agreement on the same basis as the entitlement of the
other Stockholders;
(ii) if, pursuant to the Directors Chart, the Stockholders would
in the aggregate be entitled to designate more than 14 Loews Cineplex
directors, each reference to a percentage in the Directors Chart under
the "Applicable Percentage" column will be increased by the least
number of percentage points that would result in the Stockholders in
the aggregate being entitled to designate 14 Loews Cineplex directors
(after giving effect to the provisions of clause (i)(x) above); and
(iii) prior to the four-year anniversary of the Closing, no
Stockholder will be entitled to designate more than eight Loews
Cineplex directors; provided, however, that if any Stockholder would
be entitled to designate more than eight Loews Cineplex directors
pursuant to the Directors Chart based on such Stockholder's Adjusted
Applicable Percentage (rather than such Stockholder's Applicable
Percentage), (x) such Stockholder will be entitled to designate the
number of Loews Cineplex directors set forth in the Directors Chart
based on such Stockholder's Applicable Percentage and (y) the
limitation contained in this clause (iii) regarding a Stockholder's
entitlement to designate Loews Cineplex directors will thereupon
terminate.
Each of SPE and Universal have agreed with the other and each member
of the Claridge Group has agreed with each of SPE and Universal that,
notwithstanding the foregoing:
(i) no Stockholder shall be entitled to designate more than six
Loews Cineplex directors; provided, however, that if any Stockholder
would be entitled to designate more than eight Loews Cineplex
directors pursuant to the Directors Chart based on such Stockholder's
Adjusted Applicable Percentage (rather than such Stockholder's
Applicable Percentage), such Stockholder shall be entitled to
designate such greater number of Loews Cineplex directors and the
limitation contained in this clause (i) regarding a Stockholder's
entitlement to designate Loews Cineplex directors will thereupon
terminate; provided, further, that, if at any time commencing on the
three-year anniversary of the Closing, any Stockholder's Applicable
Percentage exceeds 45%, the limitation contained in this clause (i)
regarding a Stockholder's entitlement to designate Loews Cineplex
directors will be increased from six Loews Cineplex directors to seven
Loews Cineplex directors;
(ii) at any time that SPE's Applicable Percentage equals or
exceeds 40.625%, but the number of SPE Directors is limited to six by
the immediately preceding clause (i) of this paragraph, Universal has
agreed with SPE that one of the individuals designated by Universal to
serve as a Loews Cineplex director shall be an Independent Director so
long as Universal's Applicable Percentage equals or exceeds 21.875%;
and
(iii) at any time that Universal's Applicable Percentage equals
or exceeds 40.625%, but the number of Universal Directors is limited
to six by clause (i) of this paragraph, SPE has agreed with Universal
that one of the individuals designated by SPE to serve as a Loews
Cineplex director shall be an Independent Director so long as SPE's
Applicable Percentage exceeds 21.875%.
If the Stockholders collectively have the right to designate at least
13 of the members of the Company's Board of Directors pursuant to the
provisions described above, SPE and Universal have agreed that at least one
of the individuals designated by each such Stockholder to serve as a Loews
Cineplex director shall be an Independent Director; provided that if one of
such Stockholders shall be entitled to designate only one Director, such
Stockholder shall not be required to designate an Independent Director and
the other such Stockholder shall be required to designate two Independent
Directors.
The parties to the Stockholders Agreement have agreed that, except for
the designees of the Stockholders and for the Management Directors,
individuals to be nominated for election as Loews Cineplex directors shall
all be Independent Directors (unless the Independent Directors shall
otherwise agree), and there shall be at least two Independent Directors and
two Management Directors nominated in each such election. Each Stockholder
has agreed to vote (and to cause its affiliates to vote) any Voting Shares
beneficially owned by it to cause the designees of SPE, Universal and the
Claridge Group and each of the Independent Directors and Management
Directors designated by the Nominating Committee (as described below) to be
elected to the Company's Board of Directors, and Loews Cineplex has agreed
to use its best efforts to cause the election of each such designee,
including nominating such individuals to be elected as members of the
Company's Board of Directors, as provided in the Stockholders Agreement.
In connection with each election of members of the Company's Board of
Directors, the Management Directors and the Independent Directors will be
designated by a nominating committee of the Company's Board of Directors
(the "Nominating Committee"), which will be established to determine
whether prospective nominees as Management Directors and Independent
Directors meet the criteria for such positions. The Nominating Committee
will be comprised of four directors, consisting of (x) two Independent
Directors designated by a majority of the Independent Directors and (y) one
SPE Director and one Universal Director; provided that if at any time there
shall cease to be at least one SPE Director or Universal Director, then the
Nominating Committee will include two SPE Directors or two Universal
Directors, as the case may be, to the extent that SPE or Universal, as
applicable, then has two designees serving as Loews Cineplex directors.
The Stockholders Agreement provides that all other committees of the
Company's Board of Directors will include, subject to any applicable stock
exchange or Exchange Act requirements, a number of SPE Directors and
Universal Directors equivalent to the proportion of such directors then
serving on the whole Company's Board of Directors multiplied by the total
number of members comprising such committee. The Stockholders Agreement
contains other provisions relating to committees of the Company's Board of
Directors and various provisions relating to the procedures, including
meetings and agendas, and the powers of the Company's Board of Directors.
Each Stockholder has agreed that it will not without the prior written
consent of each of SPE and Universal (i) seek the election or removal of
any Loews Cineplex director, except in accordance with the terms of the
Stockholders Agreement; (ii) deposit any shares of Common Stock in a voting
trust or subject any shares of Common Stock to any arrangement with respect
to the voting of such shares (other than a voting trust or arrangement
solely among members of the Claridge Group); (iii) subject to certain
exceptions, engage in any "solicitation" (within the meaning of Rule 14a-11
under the Exchange Act) of proxies or consents or become a "participant" in
any "election contest" (within the meaning of Rule 14a-11 under the
Exchange Act) with respect to Loews Cineplex; or (iv) form a Group with
respect to any shares of Common Stock, other than a Group consisting
exclusively of Stockholders, any of their affiliates or permitted
transferees.
CONSENT RIGHTS
The Stockholders Agreement provides SPE and Universal with specified
consent rights in respect of specified actions by Loews Cineplex and its
Subsidiaries, so long as their respective Applicable Percentages equal or
exceed the Minimum Percentage. These events include: (a) voluntary
bankruptcy filings by Loews Cineplex or any "significant subsidiary"; (b)
acquisitions and dispositions meeting specified tests of materiality; (c)
entering into or engaging in any business other than the exhibition of
films with certain limited exceptions; (d) any transaction or series of
related transactions with SPE or Universal or any of their respective
affiliates involving more than $1,000,000 per calendar year (excluding
arm's-length transactions in the ordinary course of business, including
film booking arrangements); (e) changing the number of directors comprising
the entire Company's Board of Directors; (f) with certain exceptions,
issuing or selling any Voting Shares or Voting Share Equivalents exceeding
specified thresholds; (g) paying cash dividends on, or making any other
cash distributions on or redeeming or otherwise acquiring for cash, any
shares of capital stock of Loews Cineplex, or any warrants, options, rights
or securities convertible into, exchangeable or exercisable for, capital
stock of Loews Cineplex exceeding specified thresholds; (h) incurring any
debt in excess of specified amounts with certain specified exceptions; (i)
hiring, or renewing the employment contract (including option renewals) of,
either of the two most senior executive officers of Loews Cineplex; (j)
entering into any arrangement (other than the Stockholders Agreement or
pursuant thereto) with any holder of Voting Shares in such holder's
capacity as a holder of Voting Shares which subjects actions taken by Loews
Cineplex or any Subsidiary to the prior approval of any Person; (k)
entering into certain discriminatory shareholder arrangements including any
stockholders rights plan; and (l) amending the Company's By-Laws by action
of the Company's Board of Directors.
Under the Stockholders Agreement, SPE and Universal are entitled to
certain additional consent rights if Loews Cineplex fails to meet certain
budgeted financial targets and their respective Applicable Percentages then
equal or exceed the Minimum Percentage. These rights include the right to
approve a new five-year strategic business plan for Loews Cineplex and the
following actions by Loews Cineplex or any Subsidiary thereof: (a) making
capital expenditures exceeding specified thresholds; (b) incurring any debt
in excess of specified amounts with certain specified exceptions; (c)
incurring liens to secure unsecured debt; and (d) with certain exceptions,
issuing or selling any capital stock of Loews Cineplex.
If Loews Cineplex and either SPE or Universal, as the case may be,
disagree in good faith as to whether the consent rights of such Stockholder
described above are triggered in connection with an action proposed to be
taken by Loews Cineplex, the parties have agreed to submit such a dispute
to arbitration by an independent arbitrator. Pending resolution of such
dispute (which generally must be resolved within ten business days of the
submission of the dispute), Loews Cineplex may not take the action which is
the subject of the dispute and its operations may be interrupted or delayed
during such time period as a result.
In addition to the foregoing consent rights, in connection with any
vote or action by written consent of the Company's Board of Directors
related to any (a) merger, (b) voluntary liquidation, dissolution or
winding up of Loews Cineplex (a "Dissolution"), (c) amendment or
restatement of the Company's Charter or (d) amendment or repeal of any
provision of, or addition of any provision to, the Company's By-laws (a
"By-law Amendment"), each Stockholder has agreed to use its best efforts to
cause the Loews Cineplex directors designated by such Stockholder to vote
against such action at the request of SPE or Universal if its Applicable
Percentage exceeds the Minimum Percentage. The Stockholders have also
agreed to vote (and not to consent to) the Voting Shares beneficially owned
by them against any of the foregoing items in connection with any vote or
action by written consent of the stockholders of Loews Cineplex related
thereto at the request of SPE or Universal if its Applicable Percentage
exceeds the Minimum Percentage.
So long as the Applicable Percentage of SPE or Universal equals or
exceeds the Minimum Percentage, (i) the Company's Charter provides that
effecting a Merger or Dissolution or adopting an amendment or restatement
of the Company's Charter or adopting a By-law Amendment by action of the
stockholders of Loews Cineplex shall require the affirmative vote or
written consent of the holders of at least 80% of the outstanding shares of
Common Stock; provided that in the case of any of the foregoing matters
(other than adopting a By-law Amendment by action of the stockholders) such
80% stockholder approval requirement shall not be applicable if 14 members
of the Company's Board of Directors shall have approved such matter;
provided, further, that in the case of any Merger that is approved by 14
members of the Company's Board of Directors, such Merger shall require the
affirmative vote or written consent of the holders of at least 66 2/3% of
the outstanding shares of Common Stock and (ii) no Stockholder shall vote
in favor of, consent in writing to, or take any other action to effect an
amendment or repeal of such provisions of the Company's Charter.
APPROVAL OF CERTAIN COMBINATIONS BY DISINTERESTED DIRECTORS
The Stockholders Agreement provides that so long as the Applicable
Percentage of SPE or Universal equals or exceeds the Minimum Percentage,
neither SPE nor any of its affiliates, nor Universal nor any of its
affiliates, as the case may be, shall enter into any contract with Loews
Cineplex or any Subsidiary thereof, nor shall Loews Cineplex otherwise
engage in or become obligated to engage in any transaction or series of
related transactions with SPE and/or its affiliates, or Universal and/or
its affiliates, as the case may be, in any case involving more than
$1,000,000 per calendar year, unless such contract or transaction shall
have been approved by a majority of the disinterested directors following
disclosure of the material facts of the contract or transaction to the
disinterested directors. The approval requirement does not apply to
contracts or transactions in the ordinary course of Loews Cineplex's
business, including film booking arrangements.
RESTRICTIONS ON TRANSFERS OF LOEWS CINEPLEX STOCK BY THE STOCKHOLDERS
The Stockholders Agreement includes the following restrictions on
transfers by SPE and Universal:
RESTRICTIONS ON TRANSFER BY SPE AND UNIVERSAL THROUGH NOVEMBER 14,
1998. Without the consent of a majority of the Independent Directors, each
of SPE and Universal has agreed not to transfer in privately negotiated
transactions more than 20% of its initial equity interest in the Company
prior to November 14, 1998. This restriction does not apply to transfers
(i) to a permitted transferee, (ii) to another Stockholder or its permitted
transferees, (iii) pursuant to a merger or consolidation in which Loews
Cineplex is a constituent corporation or (iv) pursuant to a bona fide third
party tender offer or exchange offer which was not induced directly or
indirectly by such Stockholder or any of its affiliates.
TAG-ALONG RIGHTS FOR ALL LOEWS CINEPLEX STOCKHOLDERS INCLUDING PUBLIC
STOCKHOLDERS. Neither SPE nor Universal nor any of their respective
affiliates may transfer, individually or collectively, an aggregate of more
than 50% of the outstanding Loews Cineplex Stock in one or a series of
related transactions to a third party transferee (or to one or more third
party transferees constituting a Group) unless each stockholder of Loews
Cineplex has the right to participate in such transfer on the same basis as
the proposed transferor(s), subject to the prior right of first refusal of
SPE and Universal described below to purchase the shares so being
transferred if such party is not the transferring stockholder.
TAG-ALONG RIGHTS OF UNIVERSAL AND THE CLARIDGE GROUP. Neither SPE nor
any of its affiliates may transfer an aggregate of more than 50% of SPE's
Initial Interest to any Person (including any Group), other than an SPE
permitted transferee, in one or a series of related transactions, unless
Universal and the Claridge Group each has the right to participate in such
transfer on the same basis as SPE and its affiliates.
RIGHT OF FIRST REFUSAL OF SPE AND UNIVERSAL. The following transfers
of Voting Shares by SPE or Universal or their respective affiliates (the
proposed transferor, the "Transferring Party") will be subject to the right
of first refusal in favor of the other: (a) any transfer in one or a series
of related privately negotiated transactions or a public offering if (i) 5%
or more of the then outstanding Voting Shares are subject to the transfer,
(ii) any transferee, or any Group of which a transferee is a member, would,
following such transfer, beneficially own 5% or more of the outstanding
Voting Shares (except, in the case of any public offering, the limitation
set forth in this clause (ii) shall not be applicable if the Transferring
Party has taken all reasonable steps to assure that such limitation shall
have been satisfied) or (iii) in the case of any transfer by SPE or any of
its affiliates, SPE's Applicable Percentage exceeds 25%; (b) any transfer
pursuant to a bona fide third party tender offer or exchange offer; (c) any
transfer to Loews Cineplex or to a subsidiary of Loews Cineplex pursuant to
a self-tender offer or otherwise; and (d) any transfer in a Market Sale. No
right of first refusal applies to any transfer between SPE or Universal and
any of their respective permitted transferees.
STANDSTILL AGREEMENTS
Each of SPE and Universal and each member of the Claridge Group has
agreed with Loews Cineplex and with each of SPE and Universal not to, and
to cause its affiliates not to, acquire, directly or indirectly, the
beneficial ownership of any additional Voting Shares, except for: (a)
acquisitions of up to an aggregate of 5% of the outstanding Voting Shares
during any twelve-month period, subject to certain price restrictions and
(b) acquisitions in privately negotiated transactions from five or fewer
Persons pursuant to offers not made generally to holders of Voting Shares
and pursuant to which the value of any consideration paid for any Voting
Shares, including brokerage fees or commissions, does not exceed 115% of
the "Market Price" (as determined in accordance with the regulations under
the Securities Act (Ontario)). The exceptions described in clauses (a) and
(b) above are not available to a Stockholder whose Applicable Percentage
would equal or exceed 25% after the acquisition if, as a result of such
acquisition, the Public Stockholders would beneficially own less than 20%
of the outstanding Voting Shares.
There are additional exceptions for acquisitions, (i) from a
Stockholder, (ii) pursuant to the exercise of equity purchase rights (see
"--Equity Purchase Rights" below), (iii) on terms and conditions approved
by the Independent Directors, (iv) pursuant to a tender or exchange offer
made in accordance with applicable law, (v) to restore a Stockholder's
percentage interest following a dilutive issuance of Voting Shares or (vi)
acquisitions of Shares of Common Stock upon the conversion of Non-Voting
Stock.
The Stockholders have agreed that, in the case of any acquisition
permitted pursuant to the foregoing provisions that would constitute a
"Rule 13e-3 transaction" (as defined in Rule 13e-3 under the Exchange Act),
prior to the consummation of any such transaction (x) a nationally
recognized investment bank shall have delivered an opinion to the Company's
Board of Directors that such transaction is fair from a financial point of
view to the stockholders of Loews Cineplex, other than the applicable
Stockholder, (y) a majority of the Independent Directors shall have
approved the transaction and (z) if the public stockholders of Loews
Cineplex beneficially own more than 20% of the Voting Shares and if
approval of stockholders of Loews Cineplex is required by the DGCL or the
Company's Charter, a majority of the shares of Common Stock held by such
public stockholders shall have been voted in favor of the transaction.
The restrictions described in the preceding three paragraphs terminate
on the earlier of (x) May 14, 2004 and (y) any time after May 14, 2002 upon
the Claridge Group ceasing to have the right to designate a Loews Cineplex
director pursuant to the Stockholders Agreement, or upon the occurrence of:
(i) a bona fide tender or exchange offer to acquire more than 20%
of the Voting Shares having been made by any Person (except that such
restrictions shall not terminate as to any Stockholder if such tender
or exchange offer is made by such Stockholder or any of its affiliates
or by any Person acting in concert with such Stockholder or any of its
affiliates or is induced by such Stockholder or any of its
affiliates); provided that if such offer is withdrawn or expires
without being consummated, such restrictions shall be reinstated (but
no such reinstatement shall prohibit any Stockholder from thereafter
purchasing Voting Shares pursuant to a contract entered into prior to
the withdrawal or expiration of such tender offer or exchange offer or
pursuant to a tender offer or exchange offer commenced by a
Stockholder prior to such time);
(ii) the Applicable Percentage of SPE, Universal or the Claridge
Group equaling or exceeding 80%; provided that, in the case of
Universal, such percentage shall be 33 1/3% at any time Universal and
its affiliates beneficially own more Voting Shares than any other
holder of shares of Common Stock;
(iii) with respect to any Stockholder, such Stockholder's
Applicable Percentage being less than 15% (provided that such
restrictions shall be reinstated if such Stockholder's Applicable
Percentage equals or exceeds 15% within one year thereafter);
(iv) any person (other than a Stockholder or a permitted
transferee) beneficially owning more than 20% of the Voting Shares,
excluding from the Voting Shares beneficially owned by such person and
Voting Shares acquired from a Stockholder, a permitted transferee or
Loews Cineplex; or
(v) the public stockholders beneficially owning more than 66 2/3%
of the Voting Shares.
Each of SPE and Universal has agreed with the other and each member of
the Claridge Group has agreed with each of SPE and Universal that neither
such Stockholder nor any of its affiliates will acquire, directly or
indirectly, the beneficial ownership of any Voting Shares if immediately
prior to such acquisition such Stockholder's Applicable Percentage exceeds
50%, excluding Voting Shares acquired from another Stockholder or its
permitted transferees, or if, as a result of such acquisition, (i) such
Stockholder and its affiliates would beneficially own an aggregate of more
than 50% of the Voting Shares, excluding Voting Shares acquired from
another Stockholder or its permitted transferees, or (ii) the Public
Stockholders would beneficially own less than 20% of the outstanding Voting
Shares. The restrictions described in clause (ii) does not apply to a
Stockholder and its affiliates, if, upon consummation of such acquisition,
such Stockholder's Applicable Percentage would be less than 25%. This
restriction does not prohibit the acquisition of shares of Common Stock
upon the conversion of Non-Voting Stock.
The restrictions described in the preceding paragraph will terminate
if: (a) the Applicable Percentage of either SPE or Universal is less than
10% (provided that such restrictions shall be reinstated if such
Stockholder's Applicable Percentage equals or exceeds 10% within one year
thereafter); (b) a bona fide tender or exchange offer to acquire more than
15% of the outstanding Voting Shares is made by any person (except that
such restrictions shall not terminate as to any Stockholder if such tender
or exchange offer is made by such Stockholder or any of its affiliates or
by any person acting in concert with such Stockholder or any of its
affiliates or is induced by such Stockholder or any of its affiliates);
provided that if such offer is withdrawn or expires without being
consummated, such restrictions shall be reinstated (but no such
reinstatement shall prohibit any Stockholder from thereafter purchasing
Voting Shares pursuant to a contract entered into prior to the withdrawal
or expiration of such tender offer or exchange offer or pursuant to a
tender offer or exchange offer commenced by a Stockholder prior to such
time); or (c) any person (other than a Stockholder or a permitted
transferee) beneficially owns more than 15% of the Voting Shares, excluding
Voting Shares acquired from a Stockholder or a permitted transferee, but
only if the sum of the Applicable Percentages of SPE and Universal is less
than 45%.
REGISTRATION RIGHTS
The Stockholders Agreement grants to the Stockholders certain demand
and piggyback registration rights with respect to the registration under
the Securities Act of shares of Common Stock (including any shares of
Common Stock issuable upon conversion of Non-Voting Stock) owned by them.
At any time after May 14, 1999, the Stockholders will be able to make
demands for registration ("Demand Registration") under the Securities Act
of shares of Common Stock owned by them, subject to certain limitations. In
no event shall the Company be required to effect, in the case of each of
SPE and Universal, more than four Demand Registrations, in the case of the
Claridge Group, more than one Demand Registration, and in the aggregate,
nine Demand Registrations. In addition, at any time following the
completion of the sale for cash by the Company in one or more underwritten
public offerings of Common Stock for an aggregate offering price of $200
million (before deducting underwriting discounts and commissions), the
Stockholders will have piggyback rights to include shares of Common Stock
owned by them in any registration statement filed by the Company with
respect to its Common Stock, subject to certain exceptions.
EQUITY PURCHASE RIGHTS
The Stockholders Agreement provides that if Loews Cineplex proposes to
issue or sell any Voting Shares pursuant to a transaction in respect of
which SPE or Universal shall have the right to consent under the
Stockholders Agreement, each such Stockholder will have the right,
exercisable in whole or in part and subject to the applicable rules of any
stock exchange on which shares of Common Stock shall then be listed, to
acquire from Loews Cineplex a portion of the Voting Shares proposed to be
issued or sold to Persons other than such Stockholder and its affiliates
(the "Issuance Shares") up to an amount equal to the number of Issuance
Shares multiplied by such Stockholder's then Applicable Percentage, prior
to giving effect to the consummation of the proposed issuance or sale and
any acquisition by a Stockholder pursuant to the exercise of such rights.
ASSIGNMENTS OF RIGHTS AND OBLIGATIONS TO TRANSFEREES
Permitted transferees of a Stockholder will be subject to the terms
and conditions of the Stockholders Agreement as if such permitted
transferees were SPE (in the case SPE or a permitted transferee of SPE is
the transferor), Universal (in the case Universal or a permitted transferee
of Universal is the transferor) or a member of the Claridge Group (in the
case a member of the Claridge Group or a permitted transferee thereof is
the transferor). Third party transferees of a Stockholder will be subject
to certain terms and conditions in the Stockholders Agreement. In certain
circumstances, third party transferees will have the right to designate
directors and may also be entitled to registration rights. Third party
transferees will not receive the tag-along rights, rights of first refusal
or equity purchase rights described above. In addition, the rights of SPE
and Universal to consent to certain significant corporate events described
under "--Consent Rights" above may not be assigned to third parties.
CERTAIN REMEDIES
In the event that SPE or Universal has a good faith belief that Loews
Cineplex or any other Stockholder is likely to breach, or has breached, in
any material respect, certain of its obligations under the Stockholders
Agreement (including those described under "--The Board of Directors"
(other than the penultimate paragraph thereof), "--Consent Rights" and
"--Standstill Agreements" above) such Stockholder may deliver notice of
such belief to Loews Cineplex and/or such other Stockholder, as the case
may be. Upon receipt of such notice and until the dispute is resolved (by a
court of competent jurisdiction, an independent arbitrator or otherwise),
neither Loews Cineplex nor any other Stockholder may take any action that
would facilitate such a breach and shall take reasonable actions to prevent
such breach, if it has not yet occurred, or to minimize any adverse
consequences to the aggrieved Stockholder of any such breach. The
operations of Loews Cineplex may be interrupted or delayed pending such
resolution. In addition, in the event that SPE or Loews Cineplex breaches
in any material respect any of their obligations to Universal under the
Stockholders Agreement, SPE and Loews Cineplex shall, at the request of
Universal, use their best efforts to amend the Company's Charter to
authorize a new class of common stock to be issued by Loews Cineplex to
Universal and its permitted transferees in exchange for the Common Stock
held by them. Such new class would be identical in all respects to the
Common Stock, except that such class would entitle the holders thereof to
proportionate representation on the Company's Board of Directors on the
same basis that Universal is entitled to representation thereon pursuant to
the Stockholders Agreement, and that the rights described under "--Consent
Rights" above would be incorporated in such class, and SPE and Universal
will cease to have any consent rights under the Stockholders Agreement.
Such new class of common stock, if issued, would be convertible into shares
of Common Stock on a one-for-one basis at any time at the discretion of the
holder.
TERMINATION
Except as otherwise described in the Stockholders Agreement, the
rights and obligations of a Stockholder and its permitted transferees under
the Stockholders Agreement shall terminate upon such Stockholder's
Applicable Percentage equaling less than 6.25% (or, in the case of the
Claridge Group, 3.5% until May 14, 2003 and 5% thereafter), subject to an
exception in circumstances where a Stockholder's Applicable Percentage is
reduced as a result of the issuance of additional Voting Shares by Loews
Cineplex.
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following statements are brief summaries of certain provisions
with respect to the Bank Credit Facilities and the Plitt Notes. The credit
agreement (the "Credit Agreement") relating to the Bank Credit Facilities
and the indenture under which the Plitt Notes were issued (the "Original
Plitt Indenture") are filed as exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998. The amendments to
the Original Plitt Indenture (as amended, the "Plitt Indenture") effected
in connection with the consummation of the At-the-Market Offer are filed as
exhibits to the Registration Statement (File No. 333-56897) in respect of
the Equity Offering. The following description does not purport to be
complete and is subject in all respects to the detailed provisions of the
Credit Agreement and the Plitt Indenture. Capitalized terms used in this
section without definition shall have the meanings specified in the Credit
Agreement or the Plitt Indenture, as the context requires.
CREDIT AGREEMENT
FACILITIES
The Bank Credit Facilities consists of a committed revolving credit
facility in an aggregate principal amount of up to $750,000,000 for
purposes of financing the Combination, future acquisitions, capital
expenditures, permitted investments, working capital and other general
corporate purposes and for the issuance of letters of credit. The credit
facilities extended to Loews Cineplex pursuant to the Credit Agreement
(including the uncommitted portion) constitute the "Bank Credit Facilities"
for purposes of the Indenture and are senior to the Plitt Notes. See "Risk
Factors--Effective Ranking; Subordination of the Notes; Asset Encumbrances"
and "--Restrictions Imposed by Bank Credit Facilities; Variable Interest
Rates".
INTEREST RATES
The Bank Credit Facilities provide for two pricing options: (i) Loans
on which interest is payable quarterly at a Base Rate equal to the higher
of (x) the rate of interest per annum publicly announced from time to time
by the Bankers Trust Company at its prime commercial lending rate in effect
at its principal office in New York City, or (y) the rate which is 1/2 of
1% in excess of the Federal Funds Effective Rate; and (ii) Loans on which
interest accrues for one, two, three, six or if, generally available, nine
or twelve month interest periods (but is payable not less frequently than
every three months) at a rate of interest per annum equal to (x) the
Adjusted Eurodollar Rate, plus (z) an Applicable Margin initially equal to
1.75% per annum and subject to adjustment downward based on improvements in
the Leverage Ratio and Senior Debt Rating of Loews Cineplex.
COMMITMENT FEES
Commitment Fees initially equal to 0.25% per annum (the "Commitment
Fee Percentage") will be payable quarterly in arrears with respect to the
average daily unused portion of the revolving loan commitments. The
Commitment Fee Percentage is subject to adjustment downward based on
improvements in the Leverage Ratio and the Senior Debt Rating of Loews
Cineplex.
FACILITY FEES
Certain other facility fees may be payable to the Administrative
Agent, the Co-Syndication Agents and the Lenders and from time to time, in
the amounts and at the times, separately agreed upon between Loews Cineplex
and the Administrative Agent, Co-Syndication Agents and the Lenders.
SECURITY
The obligations of Loews Cineplex under the Credit Agreement and the
other Loan Documents are secured by a first priority Lien on substantially
all of the personal property of Loews Cineplex, including without
limitation, a pledge of 100% of the equity interests of Loews Cineplex in
each of its Domestic Subsidiaries and 100% of the equity interests of Loews
Cineplex in each of its Foreign Subsidiaries, up to a maximum of 65% of the
total equity interests of each such Foreign Subsidiary.
GUARANTY
The obligations of Loews Cineplex under the Credit Agreement and the
other Loan Documents are jointly and severally guaranteed by each Domestic
Subsidiary of Loews Cineplex, including Plitt, and each guarantor,
including Plitt and each of Plitt's subsidiaries, has secured its
obligations under the guaranty by a first priority Lien on substantially
all of its personal property, including without limitation, a pledge of
100% of the equity interests of such Domestic Subsidiary in each of its
Domestic Subsidiaries and 100% of the equity interests of such Domestic
Subsidiary in each of its Foreign Subsidiaries, up to a maximum of 65% of
the total equity interests of each such Foreign Subsidiary.
NEGATIVE COVENANTS
The Credit Agreement contains covenants and provisions that restrict,
among other things, the ability of Loews Cineplex and its Subsidiaries to:
(i) incur Indebtedness; (ii) create, incur or suffer to exist Liens on any
of its property or assets; (iii) enter into guaranties or become liable
with respect to other Contingent Obligations; (iv) make Investments or
enter into joint venture arrangements; (v) make restricted junior payments
(including dividends); (vi) engage in mergers, consolidations and sales of
all or substantially all their assets; (vii) enter into agreements
restricting dividends and advances by their Subsidiaries; and (viii) engage
in transactions with Affiliates.
FINANCIAL COVENANTS
The Credit Agreement requires Loews Cineplex and its Subsidiaries on a
consolidated basis to satisfy certain financial performance criteria.
Specifically, Loews Cineplex will not (i) permit at the end of any Fiscal
Quarter (x) the ratio of Wholly-Owned Total Debt to Annualized Pro Forma
Wholly Owned EBITDA, or (y) the ratio of Consolidated Debt to Annualized
Pro Forma EBITDA, to exceed the maximum amounts set forth in the Credit
Agreement for such Fiscal Quarters or (ii) permit at the end of the fiscal
periods specified in the Credit Agreement, the ratio of (z) Annualized Pro
Forma Wholly Owned EBITDA to (y) the sum of (A) Wholly-Owned Total Debt
Interest Expense for such period plus (B) Wholly-Owned Rent Expense for
such period to be less than the minimum amounts set forth in the Credit
Agreement for such fiscal period.
PREPAYMENTS
The Credit Agreement provides that the Loans may be prepaid and the
revolving loan commitments may be permanently reduced without penalty, in
whole or in part, at any time; provided that Eurodollar Rate Loans may be
prepaid only on the expiration of the applicable Interest Period unless
certain breakage costs are reimbursed to the Lenders. In addition, the
Loans are subject to mandatory prepayment and, under certain circumstances,
reduction in the commitments out of (i) certain Net Asset Sales Proceeds,
(ii) Net Insurance/Condemnation Proceeds, (iii) Net Debt Securities
Proceeds and (iv) commencing with the fiscal year beginning March 1, 1999,
50% of the Excess Cash Flow of Loews Cineplex and its Subsidiaries. The
Loans are also subject to mandatory prepayment, without a corresponding
reduction in the commitments, to the extent that Available Cash on any date
exceeds $20,000,000.
THE PLITT NOTES
Plitt has outstanding approximately $6 million in aggregate principal
amount of the Plitt Notes. The Plitt Notes are guaranteed unconditionally
by Loews Cineplex (which guaranty is subordinated to the Bank Credit
Facilities and ranks pari passu with the Notes) under the Indenture. Plitt
may, at its option, on or after June 15, 1999, redeem all or any portion of
the outstanding Plitt Notes in exchange for a redemption price equal to (i)
105.438%, plus accrued interest, for Plitt Notes redeemed prior to June 15,
2000, (ii) 102.719%, plus accrued interest, for Plitt Notes redeemed on or
after June 15, 2000 but prior to June 15, 2001 and (iii) 100%, plus accrued
interest, for Plitt Notes redeemed on or after June 15, 2001 but before the
stated maturity date of the Plitt Notes.
The Plitt Notes are general obligations of Plitt and, accordingly, the
claims of the holders thereof to the assets and cash flow of Plitt
effectively rank superior to the claims of the holders of the Notes. See
"Risk Factors--Holding Company Structure".
<PAGE>
DESCRIPTION OF NEW NOTES
The New Notes are to be issued under an Indenture, dated as of August
5, 1998 (the "Indenture"), between the Company and The Bank of New York, a
New York banking corporation, as trustee (the "Trustee") and are
substantially identical to the Old Notes, which were issued under the
Indenture.
The Indenture is, by its terms, subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements under this
caption relating to the New Notes and the Indenture are summaries and do
not purport to be complete, and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture, including the
definitions of certain terms therein. Wherever defined terms or particular
sections of the Indenture are referred to, such defined terms and sections
are incorporated herein by reference. Copies of the Indenture are available
at the corporate trust office of the Trustee. All references in this
section to the "Company" refer solely to Loews Cineplex Entertainment
Corporation, the issuer of the New Notes, and not to its subsidiaries.
GENERAL
The New Notes will be unsecured obligations of the Company, will be
limited to $300 million aggregate principal amount and will mature on
August 1, 2008.
The New Notes will bear interest at the rate per annum shown on the
front cover of this Prospectus from August 5, 1998 or from the most recent
Interest Payment Date to which interest has been paid or provided for,
payable semi-annually on February 1 and August 1 of each year, commencing
February 1, 1999, to the Person in whose name the Note (or any predecessor
Note) is registered at the close of business on the preceding January 15 or
July 15, as the case may be. Settlement for the New Notes will be made in
immediately available funds and payments by the Company in respect of the
New Notes (including principal, premium, if any, and interest) will be made
in immediately available funds. Interest on the New Notes will be computed
on the basis of a 360-day year comprised of twelve 30-day months. (ss.ss.
202, 301, 308 and 311)
Principal of and premium, if any, and interest on the New Notes will
be payable, and the New Notes may be presented for registration of transfer
and exchange, at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, provided that,
at the option of the Company, payment of interest on the New Notes may be
made by check mailed to the address of the Person entitled thereto as it
appears in the Note Register. Until otherwise designated by the Company,
such office or agency will be the corporate trust office of the Trustee, as
Paying Agent and Registrar. (ss.ss. 301, 306 and 1002)
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form, without coupons in denominations of $1,000 and integral
multiples thereof. New Notes will not be issued in bearer form. Except as
described below, the New Notes will be deposited upon issuance with the
Trustee as Custodian for DTC in global form (the "Global Certificate").
DTC has advised the Company that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York banking law, (iii) a
member of the Federal Reserve System, (iv) a "clearing corporation" within
the meaning of the Uniform Commercial Code, as amended, and (v) a "Clearing
Agency" registered pursuant to Section 17A of the Exchange Act. DTC was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to
the accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. Participants include securities
brokers and dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by DTC (i)
upon deposit of the Global Certificate representing New Notes, DTC will
credit the account of Participants tendering Old Notes in exchange for New
Notes with an interest in the Global Certificate and (ii) ownership of
beneficial interests therein will be effected only through records
maintained by DTC (with respect to interests of Participants), Participants
and Indirect Participants. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they
own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer the New Notes or to pledge the New
Notes as collateral to persons in such states will be limited to such
extent.
So long as DTC or its nominee is the registered owner of a Global
Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the New Notes represented by the Global
Certificate for all purposes under the Indenture and the New Notes. Except
as provided below, owners of beneficial interests in a Global Certificate
will not be entitled to have New Notes represented by such Global
Certificate registered in their names, will not receive or be entitled to
receive physical delivery of Certificated New Notes, and will not be
considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction
or approval to the Trustee thereunder. As a result, the ability of a person
having a beneficial interest in New Notes represented by a Global
Certificate to pledge or transfer such interest to persons or entities that
do not participate in DTC's system or otherwise to take action with respect
to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Accordingly, each holder of New Notes owning a beneficial interest in
a Global Certificate must rely on the procedures of DTC and, if such holder
of New Notes is not a Participant or an Indirect Participant, on the
procedures of the Participant through which such holder of New Notes owns
its interest, to exercise any rights of a holder of Notes under the
Indenture. The Company understands that under existing industry practice,
in the event the Company requests any action of a holder of New Notes or a
holder of New Notes that is an owner of a beneficial interest in a Global
Certificate desires to take any action that DTC, as the holder of such
Global Certificate, is entitled to take, DTC would authorize the
Participant to take such action or would otherwise act upon the instruction
of such holder of New Notes. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to
or payments made on account of the New Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such New Notes or
for any other matter relating to the actions or procedures of DTC.
Payments with respect to the principal of, premium, if any, and
interest on, any New Notes represented by a Global Certificate registered
in the name of DTC or its nominee on the applicable record date will be
payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Certificate representing
such New Notes under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names the New Notes,
including the Global Certificate, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of interests in the Global Certificate (including
principal, premium, if any, and interest), or to immediately credit the
accounts of the relevant Participants with such payment, in an amount
proportionate to their respective holdings in principal amount of the
Global Certificate as shown on the records of DTC. The Company expects that
payments by the Participant and the Indirect Participant to the beneficial
owners of interests in the Global Certificate will be governed by standing
instructions and customary practice and will be the responsibility of the
Participant or the Indirect Participant and DTC.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from the sources the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no
longer willing or able to act as a depository or DTC ceases to be
registered as a clearing agency under the Exchange Act and the Company is
unable to locate a qualified successor within 90 days, (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the
issuance of New Notes in definitive form under the Indenture or (iii) upon
the occurrence of certain other events, then, upon surrender by DTC of its
Global Certificate, then Certificated New Notes will be issued to each
person that DTC identifies as the beneficial owner of the New Notes
represented by the Global Certificate. In addition, subject to certain
conditions, any person having a beneficial interest in a Global Certificate
may, upon request to the Trustee, exchange such beneficial interest for
Certificated New Notes. Upon any such issuance, the Trustee is required to
register such Certificated New Notes in the name of such person or persons
(or the nominee of any thereof), and cause the same to be delivered
thereto.
OPTIONAL REDEMPTION
The New Notes will be subject to redemption, at the option of the
Company, in whole or in part, at any time on or after August 1, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' notice
mailed to each Holder of New Notes to be redeemed at such Holder's address
appearing in the Note Register, in amounts of $1,000 or an integral
multiple of $1,000, at the following Redemption Prices (expressed as
percentages of the principal amount) plus accrued and unpaid interest, if
any, to but excluding the Redemption Date (subject to the right of Holders
of record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the 12-month period beginning August 1 of the years
indicated:
REDEMPTION
YEAR PRICE
------------------------ -----------------
2003..................... 104.437%
2004..................... 102.958%
2005..................... 101.479%
2006 and thereafter...... 100.000%
(ss.ss. 203, 1101, 1105 and 1107)
In addition, if on or before August 1, 2001 the Company receives net
proceeds from the sale of its Common Stock in one or more Public Equity
Offerings, the Company may, at its option, use an amount equal to all or a
portion of any such net proceeds to redeem New Notes in an aggregate
principal amount of up to 33 1/3% of the original aggregate principal
amount of the New Notes, provided, however, that New Notes having a
principal amount equal to at least 66 2/3% of the original aggregate
principal amount of the New Notes remain outstanding after such redemption.
Such redemption must occur on a Redemption Date within 90 days of such sale
and upon not less than 30 or more than 60 days' notice mailed to each
Holder of New Notes to be redeemed at such Holder's address appearing in
the Note Register, in amounts of $1,000 or an integral multiple of $1,000,
at a redemption price of 108.875% of the principal amount of the New Notes
plus accrued and unpaid interest, if any, to but excluding the Redemption
Date (subject to the right of Holders of record on the relevant Regular
Record Date to receive interest due on an Interest Payment Date that is on
or prior to the Redemption Date).
If less than all the New Notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the
particular New Notes to be redeemed or any portion thereof that is an
integral multiple of $1,000. (ss. 1101)
The New Notes will not have the benefit of any sinking fund.
SUBORDINATION
The indebtedness evidenced by the New Notes will, to the extent set
forth in the Indenture, be subordinate in right of payment to the prior
payment in full of all Senior Debt. Upon any payment or distribution of
assets to creditors upon any liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors or marshaling of
assets of the Company, whether voluntary or involuntary, or any bankruptcy,
insolvency, receivership or similar proceedings of the Company, the holders
of all Senior Debt will first be entitled to receive payment in full of
such Senior Debt, or provision made for such payment, in cash or Cash
Equivalents or otherwise in a manner satisfactory to the holders of such
Senior Debt, before the Holders of the New Notes will be entitled to
receive any payment in respect of the principal of or premium, if any, or
interest on, or any obligation to repurchase, the New Notes. In the event
that notwithstanding the foregoing, the Trustee or the Holder of any New
Note receives any payment or distribution of assets of the Company of any
kind or character (including any such payment or distribution which may be
payable or deliverable by the reason of the payment of any other
indebtedness of the Company being subordinated to the payment of the New
Notes), before all the Senior Debt is so paid in full, then such payment or
distribution will be required to be paid over or delivered forthwith to the
trustee in bankruptcy or other person making payment or distribution of
assets of the Company for application to the payment of all Senior Debt
remaining unpaid, to the extent necessary to pay the Senior Debt in full in
cash or Cash Equivalents or otherwise in a manner satisfactory to the
holders of such Senior Debt.
No payments on account of principal of, premium, if any, or interest
on, or in respect of the purchase or other acquisition of, the New Notes,
and no defeasance of the New Notes, may be made if there shall have
occurred and be continuing a Senior Payment Default. "Senior Payment
Default" means any default in the payment of any principal of or premium,
if any, or interest on Designated Senior Debt when due, whether at the due
date of any such payment or by declaration of acceleration, call for
redemption or otherwise.
Upon the occurrence of a Senior Nonmonetary Default and receipt of
written notice by the Company and the Trustee of the occurrence of such
Senior Nonmonetary Default from any holder of Designated Senior Debt (or
any trustee, agent or other representative for such holder) which is the
subject of such Senior Nonmonetary Default, no payments on account of
principal of, premium, if any, or interest on, or in respect of the
purchase or other acquisition of, the New Notes, and no defeasance of the
New Notes, may be made for a period (the "Payment Blockage Period")
commencing on the date of the receipt of such notice and ending on the
earlier of (i) the date on which such Senior Nonmonetary Default shall have
been cured or waived or ceased to exist or all Designated Senior Debt the
subject of such Senior Nonmonetary Default shall have been discharged and
(ii) the 179th day after the date of the receipt of such notice. No Senior
Nonmonetary Default that existed or was continuing on the date of the
commencement of a Payment Blockage Period may be made the basis of the
commencement of a subsequent Payment Blockage Period whether or not within
a period of 360 consecutive days, unless such Senior Nonmonetary Default
shall have been cured for a period of not less than 90 consecutive days;
provided, however, any breach of any financial covenant for a period
commencing after the expiration of a Payment Blockage Period that would
give rise to a new event of default, even though such breach is a breach of
a provision under which a prior event of default previously existed, shall
constitute a new event of default for this purpose. In any event,
notwithstanding the foregoing, no more than one Payment Blockage Period may
be commenced during any 360-day period and there shall be a period of at
least 181 days during each 360-day period when no Payment Blockage Period
is in effect. "Senior Nonmonetary Default" means the occurrence or
existence and continuance of an event of default with respect to Senior
Debt, other than a Senior Payment Default, permitting the holders of the
Designated Senior Debt (or a trustee or other agent on behalf of the
holders thereof) then to declare such Designated Senior Debt due and
payable prior to the date on which it would otherwise become due and
payable.
The failure to make any payment on the New Notes by reason of the
provisions of the Indenture described under this caption "--Subordination"
will not be construed as preventing the occurrence of an Event of Default
with respect to the New Notes arising from any such failure to make
payment. Upon termination of any Payment Blockage Period the Company shall
resume making any and all required payments in respect of the New Notes,
including any missed payments.
"Senior Debt" means (i) the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company
whether or not such claim for post-petition interest is allowed in such
proceeding) on, and penalties and any obligation of the Company for
reimbursement, indemnities and fees relating to, the Senior Bank Facility,
(ii) the principal of (and premium, if any) and interest on Debt of the
Company for money borrowed, whether Incurred on or prior to the date of
original issuance of the New Notes or thereafter, and any amendments,
renewals, extensions, modifications, refinancings and refundings of any
such Debt and (iii) Permitted Interest Rate Agreements and Permitted
Currency Agreements entered into with respect to Debt described in clauses
(i) and (ii) above; provided, however, that the following shall not
constitute Senior Debt: (1) any Debt as to which the terms of the
instrument creating or evidencing the same provide that such Debt is not
superior in right of payment to the New Notes, (2) any Debt which is
subordinated in right of payment in any respect to any other Debt of the
Company, (3) Debt evidenced by the New Notes, (4) any Debt owed to a Person
when such Person is a Subsidiary of the Company, (5) any obligation of the
Company arising from Redeemable Stock of the Company, (6) that portion of
any Debt which is Incurred in violation of the Indenture and (7) Debt
which, when Incurred and without respect to any election under Section
1111(b) of Title 11, United States Code, is without recourse to the
Company. (Article Twelve)
The New Notes will rank pari passu with any Old Notes that remain
outstanding following the Termination Date and with the guarantee by the
Company of the Plitt Notes.
By reason of such subordination, in the event of insolvency by the
Company, creditors of the Company who are not holders of Senior Debt or of
the New Notes may recover less, ratably, than holders of Senior Debt and
more, ratably, than Holders of the New Notes.
The subordination provisions described above will not be applicable to
payments in respect of the New Notes from a defeasance trust established in
connection with any defeasance or covenant defeasance of the New Notes as
described under "--Defeasance".
COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON CONSOLIDATED DEBT
The Company may not, and may not permit any Restricted Subsidiary of
the Company to, Incur any Debt unless immediately after giving pro forma
effect to the Incurrence of such Debt and the receipt and application of
the proceeds thereof, the Consolidated Cash Flow Coverage Ratio of the
Company would be greater than 2.0 to 1; provided that if the Debt which is
the subject of the determination under this provision is Acquired Debt, the
Consolidated Cash Flow Coverage Ratio of the Company shall be determined by
giving effect (on a pro forma basis, as if the transaction had occurred at
the beginning of the immediately preceding four-quarter period) to both the
Incurrence or assumption of such Acquired Debt by the Company and the
inclusion in the Consolidated Cash Flow Available for Fixed Charges of the
Person whose Debt would constitute Acquired Debt.
Notwithstanding the foregoing limitation, the Company may, and may
permit any Restricted Subsidiary to, incur the following Debt:
(i) Debt under the Senior Bank Facility in an aggregate principal
amount at any one time not to exceed $1 billion, less any amounts by
which any revolving credit facility commitments under the Senior Bank
Facility are permanently reduced pursuant to the "Limitation on Asset
Dispositions" covenant below (so long as and to the extent that any
required payments in connection therewith are actually made);
(ii) the original issuance by the Company of the Debt evidenced
by the Old Notes and the New Notes;
(iii) Debt (other than Debt described in another clause of this
paragraph) outstanding on the date of original issuance of the Old
Notes after giving effect to the application of the proceeds of the
Old Notes, as described in a schedule to the Indenture;
(iv) Debt owed by the Company to any Wholly Owned Restricted
Subsidiary of the Company or Debt owed by a Subsidiary of the Company
to the Company or a Wholly Owned Restricted Subsidiary of the Company;
provided, however, that (a) any such Debt owing by the Company to a
Wholly Owned Restricted Subsidiary shall be Subordinated Debt
evidenced by an intercompany promissory note and (b) upon either (1)
the transfer or other disposition by such Wholly Owned Restricted
Subsidiary or the Company of any Debt so permitted to a Person other
than the Company or another Wholly Owned Restricted Subsidiary of the
Company or (2) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Wholly Owned Restricted
Subsidiary to a Person other than the Company or another such Wholly
Owned Restricted Subsidiary, the provisions of this clause (iv) shall
no longer be applicable to such Debt and such Debt shall be deemed to
have been Incurred at the time of such transfer or other disposition;
(v) Debt consisting of Permitted Interest Rate, Currency or
Commodity Price Agreements;
(vi) Debt which is exchanged for or the proceeds of which are
used to refinance or refund, or any extension or renewal of,
outstanding Debt Incurred pursuant to the preceding paragraph or
clauses (ii) or (iii) of this paragraph (each of the foregoing, a
"refinancing") in an aggregate principal amount not to exceed the
principal amount of the Debt so refinanced plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt so refinanced or the amount of any
premium (including consent payments) reasonably determined by the
Company as necessary to accomplish such refinancing by means of a
tender offer or privately negotiated repurchase, plus the expenses of
the Company or the Restricted Subsidiary, as the case may be, incurred
in connection with such refinancing; provided, however, that (A) Debt
the proceeds of which are used to refinance the New Notes or Debt
which is pari passu with or subordinate in right of payment to the New
Notes shall only be permitted if (x) in the case of any refinancing of
the New Notes or Debt which is pari passu to the New Notes, the
refinancing Debt is made pari passu to the New Notes or subordinated
to the New Notes, and (y) in the case of any refinancing of Debt which
is subordinated to the New Notes, the refinancing Debt constitutes
Subordinated Debt; (B) the refinancing Debt by its terms, or by the
terms of any agreement or instrument pursuant to which such Debt is
issued, (1) does not provide for payments of principal of such Debt at
the stated maturity thereof or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof (including any redemption, defeasance,
retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon any event of default thereunder), in
each case prior to the stated maturity of the Debt being refinanced
and (2) does not permit redemption or other retirement (including
pursuant to an offer to purchase) of such debt at the option of the
holder thereof prior to the final stated maturity of the Debt being
refinanced), other than a redemption or other retirement at the option
of the holder of such Debt (including pursuant to an offer to
purchase) which is conditioned upon provisions substantially similar
to those described under "--Change of Control" and "--Limitation on
Asset Dispositions"; and (C) in the case of any refinancing of Debt
Incurred by the Company, the refinancing Debt may be Incurred only by
the Company, and in the case of any refinancing of Debt Incurred by a
Restricted Subsidiary, the refinancing Debt may be Incurred only by
such Restricted Subsidiary; provided, further, that Debt Incurred
pursuant to this clause (vi) may not be Incurred more than 45 days
prior to the application of the proceeds to repay the Debt to be
refinanced;
(vii) Acquired Debt, provided that such Debt if incurred by the
Company would be in compliance with the first paragraph of this
covenant; and
(viii) Debt not otherwise permitted to be Incurred pursuant to
clauses (i) through (vii) above, which, together with any other
outstanding Debt Incurred pursuant to this clause (viii), has an
aggregate principal amount not in excess of $50 million at any time
outstanding. (ss. 1008)
LIMITATION ON SENIOR SUBORDINATED DEBT
The Company may not Incur any Debt which by its terms is both (i)
subordinated in right of payment to any Senior Debt and (ii) senior in
right of payment to the New Notes. (ss. 1009)
LIMITATION ON ISSUANCE OF GUARANTEES OF SUBORDINATED DEBT
The Company may not permit any Restricted Subsidiary, directly or
indirectly, to assume, guarantee or in any other manner become liable with
respect to any Debt of the Company that by its terms is pari passu or
junior in right of payment to the New Notes. (ss. 1010)
LIMITATION ON LIENS
The Company may not, and may not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on or with respect to any
property or assets of the Company or any such Restricted Subsidiary now
owned or hereafter acquired except for (i) Liens incurred after the date of
the Indenture securing Debt of the Company that ranks pari passu or junior
in right of payment to the New Notes, if the New Notes are secured equally
and ratably with such Debt; (ii) Liens outstanding on the date of the
Indenture; (iii) Liens for taxes, assessments, governmental charges or
claims not yet delinquent or which are being contested in good faith by
appropriate proceedings, provided, that adequate reserves with respect
thereto are maintained on the books of the Company or its Restricted
Subsidiaries, as the case may be, in conformity with generally accepted
accounting principles; (iv) landlords', carriers', warehousemen's,
mechanics', material men's, repairmen's or the like Liens arising by
contract or statute in the ordinary course of business and with respect to
amounts which are not yet delinquent or are being contested in good faith
by appropriate proceedings; (v) pledges or deposits made in the ordinary
course of business (A) in connection with leases, performance bonds and
similar obligations, or (B) in connection with workers' compensation,
unemployment insurance and other social security legislation; (vi)
easements, rights-of-way, restrictions, minor defects or irregularities in
title and other similar encumbrances which, in the aggregate, do not
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Company or such Restricted Subsidiary; (vii) any attachment or judgment
Lien that does not constitute an Event of Default; (viii) Liens securing
Acquired Debt, provided, that such Liens attach solely to the acquired
assets or the assets of the acquired entity and do not extend to or cover
any other assets of the Company or any of its Restricted Subsidiaries; (ix)
Liens to secure Senior Debt; (x) Liens in favor of the Trustee for its own
benefit and for the benefit of the Holders; (xi) any interest or title of a
lessor pursuant to a lease constituting a Capital Lease Obligation; (xii)
pledges or deposits made in connection with acquisition agreements or
letters of intent entered into in respect of a proposed acquisition; (xiii)
Liens in favor of prior holders of leases on property acquired by the
Company or of sublessors under leases on the Company property; (xiv) Liens
incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, banker's acceptances, surety
and appeal bonds, government contracts, performance and return-of-money
bonds and other obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed
money); (xv) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the date of the Indenture; provided that
(a) any such Lien is created solely for the purpose of securing Debt
incurred, in accordance with the "Limitation on Consolidated Debt"
covenant, (1) to finance the cost (including the cost of improvement or
construction) of the item, property or assets subject thereto and such Lien
is created prior to, at the time of or within six months after the later of
the acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Debt previously so
secured, (b) the principal amount of the Debt secured by such Lien does not
exceed 100% of such cost and (c) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item; (xvi) leases or subleases granted to others that
do not materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole; (xvii) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xviii) Liens on property of, or on shares of stock or Debt of, any
Person existing at the time such Person becomes, or becomes a part of, any
Restricted Subsidiary, provided that such Liens do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other
than the property or assets acquired; (xix) Liens in favor of the Company
or any Restricted Subsidiary; (xx) Liens encumbering deposits securing Debt
under Permitted Interest Rate, Currency or Commodity Price Agreements;
(xxi) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of the Company and its Restricted
Subsidiaries; (xxii) Liens on or sales of receivables; (xxiii) the rights
of film distributors under film licensing contracts entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business on a basis customary in the movie exhibition industry; (xxiv)
Liens arising from licenses of patents, trademarks and other intellectual
property rights granted in the ordinary course of business and not
interfering in any material respect with the ordinary conduct of the
business of the Company and its Subsidiaries; and (xxv) any renewal of or
substitution of any Liens permitted by any of the preceding clauses,
provided that the Debt secured is not increased (other than by any premium
and accrued interest, plus customary fees, consent payments, expenses and
costs related to such renewal or substitution of Liens or the incurrence of
any related refinancing of Debt) and the Liens are not extended to any
additional assets (other than proceeds and accessions). This covenant does
not authorize the incurrence of any Debt not otherwise permitted by the
"Limitation on Consolidated Debt" covenant. (ss. 1011)
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) may not, directly or indirectly, declare or pay any
dividend or make any distribution (including any payment in connection with
any merger or consolidation derived from assets of the Company or any
Restricted Subsidiary) in respect of its Capital Stock or to the holders
thereof, excluding any dividends or distributions by the Company payable
solely in shares of its Capital Stock (other than Redeemable Stock) or in
options, warrants or other rights to acquire its Capital Stock (other than
Redeemable Stock), (ii) may not, and may not permit any Restricted
Subsidiary to, purchase, redeem, or otherwise acquire or retire for value
(a) any Capital Stock of the Company or any Related Person of the Company
or (b) any options, warrants or other rights to acquire shares of Capital
Stock of the Company or any Related Person of the Company or any securities
convertible or exchangeable into shares of Capital Stock of the Company or
any Related Person of the Company, (iii) may not make, or permit any
Restricted Subsidiary to make, any Investment other than a Permitted
Investment, and (iv) may not, and may not permit any Restricted Subsidiary
to, redeem, repurchase, defease or otherwise acquire or retire for value
prior to any scheduled maturity, repayment or sinking fund payment Debt of
the Company which is subordinate in right of payment to the New Notes (each
of clauses (i) through (iv) being a "Restricted Payment") if: (1) an Event
of Default, or an event that with the passing of time or the giving of
notice, or both, would constitute an Event of Default, shall have occurred
and is continuing or would result from such Restricted Payment, or (2)
after giving pro forma effect to such Restricted Payment as if such
Restricted Payment had been made at the beginning of the applicable
four-fiscal-quarter period, the Company could not Incur at least $1.00 of
additional Debt pursuant to the terms of the Indenture described in the
first paragraph of "Limitation on Consolidated Debt" above, or (3) upon
giving effect to such Restricted Payment, the aggregate of all Restricted
Payments from the date of issuance of the New Notes exceeds the sum of: (a)
50% of cumulative Consolidated Net Income (or, in the case Consolidated Net
Income shall be negative, less 100% of such deficit) of the Company since
the date of issuance of the Old Notes through the last day of the last full
fiscal quarter ending immediately preceding the date of such Restricted
Payment for which quarterly or annual financial statements are available
(taken as a single accounting period); plus (b) $75 million; provided,
however, that the Company or a Restricted Subsidiary may make any
Restricted Payment with the aggregate net proceeds received by the Company
on or after the date of original issuance of the Old Notes (including any
aggregate net proceeds received by the Company from the Equity Offering),
including the fair market value of property other than cash (determined in
good faith by the Board of Directors as evidenced by a resolution of the
Board of Directors filed with the Trustee), from contributions of capital
or the issuance and sale (other than to a Restricted Subsidiary) of Capital
Stock (other than Redeemable Stock) of the Company, options, warrants or
other rights to acquire Capital Stock (other than Redeemable Stock) of the
Company and Debt of the Company that has been converted into or exchanged
for Capital Stock (other than Redeemable Stock and other than by or from a
Restricted Subsidiary) of the Company after the date of original issuance
of the Old Notes, provided that any such net proceeds received by the
Company from an employee stock ownership plan financed by loans from the
Company or a Restricted Subsidiary of the Company shall be included only to
the extent such loans have been repaid with cash on or prior to the date of
determination. Not less than semiannually, the Company shall deliver to the
Trustee an Officers' Certificate setting forth any Restricted Payments made
since the last period for which such certificate has been delivered, and
the computations by which the determinations required by clauses (2) and
(3) above were made and stating that no Event of Default, or event that
with the passing of time or the giving of notice, or both, would constitute
an Event of Default, has occurred and is continuing or will result from
such Restricted Payment.
Notwithstanding the foregoing, so long as no Event of Default, or
event that with the passing of time or the giving of notice, or both, would
constitute an Event of Default, shall have occurred and is continuing or
would result therefrom, (i) the Company may pay any dividend on Capital
Stock of any class within 60 days after the declaration thereof if, on the
date when the dividend was declared, the Company could have paid such
dividend in accordance with the foregoing provisions; (ii) the Company may
refinance any Debt otherwise permitted by clause (vi) of the second
paragraph under "Limitation on Consolidated Debt" above or solely in
exchange for or out of the net proceeds of the substantially concurrent
sale (other than from or to a Restricted Subsidiary or from or to an
employee stock ownership plan financed by loans from the Company or a
Restricted Subsidiary of the Company) of shares of Capital Stock (other
than Redeemable Stock) of the Company, provided that the amount of net
proceeds from such exchange or sale shall be excluded from the calculation
of the amount available for Restricted Payments pursuant to the preceding
paragraph; (iii) the Company may purchase, redeem, acquire or retire any
shares of Capital Stock of the Company solely in exchange for or out of the
net proceeds of the substantially concurrent sale (other than from or to a
Restricted Subsidiary or from or to an employee stock ownership plan
financed by loans from the Company or a Restricted Subsidiary of the
Company) of shares of Capital Stock (other than Redeemable Stock) of the
Company; (iv) the Company or a Restricted Subsidiary may purchase or redeem
any Debt from Net Available Proceeds to the extent permitted under
"Limitation on Asset Dispositions"; and (v) the Company and its Restricted
Subsidiaries may make Investments, in an aggregate amount not to exceed
$200 million outstanding at any time, in entities engaged in owning,
leasing, developing or constructing motion picture theatres or principally
engaged in the business of exhibiting motion pictures. Any payment made
pursuant to clause (i), (iii) or (v) of this paragraph shall be a
Restricted Payment for purposes of calculating aggregate Restricted
Payments pursuant to the preceding paragraph. (ss. 1012)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company (i) to pay dividends (in cash or
otherwise) or make any other distributions in respect of its Capital Stock
or pay any Debt or other obligation owed to the Company or any other
Restricted Subsidiary; (ii) to make loans or advances to the Company or any
other Restricted Subsidiary; or (iii) to transfer any of its property or
assets to the Company or any other Restricted Subsidiary. Notwithstanding
the foregoing, the Company may, and may permit any Restricted Subsidiary
to, suffer to exist any such encumbrance or restriction (a) pursuant to any
agreement in effect on the date of original issuance of the Old Notes as
described in a schedule to the Indenture; (b) pursuant to an agreement
relating to any Debt Incurred by a Person (other than a Restricted
Subsidiary of the Company existing on the date of original issuance of the
Old Notes or any Restricted Subsidiary carrying on any of the businesses of
any such Restricted Subsidiary) prior to the date on which such Person
became a Restricted Subsidiary of the Company and outstanding on such date
and not Incurred in anticipation of becoming a Restricted Subsidiary, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired; (c)
pursuant to an agreement effecting a renewal, refunding or extension of
Debt Incurred pursuant to an agreement referred to in clause (a) or (b)
above, provided, however, that the provisions contained in such renewal,
refunding or extension agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than the
provisions contained in the agreement the subject thereof, as determined in
good faith by the Board of Directors; (d) in the case of clause (iii)
above, restrictions contained in any security agreement (including a
capital lease) securing Debt of a Restricted Subsidiary otherwise permitted
under the Indenture, but only to the extent such restrictions restrict the
transfer of the property subject to such security agreement; (e) in the
case of clause (iii) above, customary nonassignment provisions entered into
in the ordinary course of business consistent with past practices in leases
and other contracts to the extent such provisions restrict the transfer or
subletting or licensing of any such lease or the assignment or licensing of
rights under any such contract; (f) any restriction with respect to a
Restricted Subsidiary of the Company imposed pursuant to an agreement which
has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Restricted Subsidiary, provided
that consummation of such transaction would not result in an Event of
Default or an event that, with the passing of time or the giving of notice
or both, would constitute an Event of Default, that such restriction
terminates if such transaction is closed or abandoned and that the closing
or abandonment of such transaction occurs within one year of the date such
agreement was entered into; or (g) such encumbrance or restriction is the
result of applicable corporate law or regulation relating to the payment of
dividends or distributions. (ss. 1013)
LIMITATION ON ASSET DISPOSITIONS
The Company may not, and may not permit any Restricted Subsidiary to,
make any Asset Disposition in one or more related transactions unless: (i)
the Company or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the fair market value
for the assets sold or disposed of as determined by the Board of Directors
in good faith; (ii) at least 75% of the consideration for such disposition
consists of cash or readily marketable cash equivalents or Qualifying
Theater Assets or the assumption of Debt (other than Debt that is
subordinated to the New Notes) relating to such assets and release from all
liability on the Debt assumed; and (iii) all Net Available Proceeds, less
any amounts invested or committed to be invested within 360 days of such
disposition in assets related to the business of the Company, are applied
within 360 days of such disposition (1) first, to the permanent repayment
or reduction of Senior Debt then outstanding under any agreements or
instruments which would require such application or prohibit payments
pursuant to clause (2) following, (2) second, to the extent of remaining
Net Available Proceeds, to make an Offer to Purchase outstanding New Notes
at 100% of their principal amount plus accrued interest to the date of
purchase and, to the extent required by the terms thereof, any other Debt
of the Company that is pari passu with the New Notes at a price no greater
than 100% of the principal amount thereof plus accrued interest to the date
of purchase, (3) third, to the extent of any remaining Net Available
Proceeds following the completion of the Offer to Purchase, to the
repayment of other Debt of the Company or Debt of a Restricted Subsidiary
of the Company, to the extent permitted under the terms thereof and (4)
fourth, to the extent of any remaining Net Available Proceeds, to any other
use as determined by the Company which is not otherwise prohibited by the
Indenture. (ss. 1014)
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Company may not, and may not permit any Restricted Subsidiary of
the Company to, enter into any transaction (or series of related
transactions) with an Affiliate or Related Person of the Company (other
than the Company or a Wholly Owned Restricted Subsidiary of the Company),
including any Investment, either directly or indirectly, unless such
transaction is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with an entity that is not an Affiliate or Related Person. For
any transaction that involves in excess of $1,000,000 but less than or
equal to $5,000,000, the Chief Executive Officer of the Company shall
determine that the transaction satisfies the above criteria and shall
evidence such a determination by a certificate filed with the Trustee. For
any transaction that involves in excess of $5,000,000, a majority of the
disinterested members of the Board of Directors of the Company shall
determine that the transaction satisfies the above criteria and shall
evidence such a determination by a Board Resolution filed with the Trustee.
For any transaction that involves in excess of $10,000,000, the Company
shall also obtain an opinion from a nationally recognized expert with
experience in appraising the terms and conditions of the type of
transaction (or series of related transactions) for which the opinion is
required stating that such transaction (or series of related transactions)
is on terms no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained in a comparable arm's-length transaction
with an entity that is not an Affiliate or Related Person of the Company,
which opinion shall be filed with the Trustee. (ss. 1015)
Notwithstanding anything to the contrary contained in the Indenture,
the foregoing provisions shall not apply to (i) transactions with any
employee, officer or director of the Company or any of its Restricted
Subsidiaries pursuant to employee benefit plans or compensation
arrangements or agreements entered into in the ordinary course of business,
(ii) transactions with any Affiliate or Related Person in which such
Affiliate or Related Person acquires or purchases the capital stock of the
Company or any Restricted Subsidiary at fair market value, (iii) commercial
transactions, including without limitation film rentals, in the ordinary
course of business with Affiliates of the Company on terms that are
customary in the motion picture exhibition industry or consistent with past
practice, or (iv) the performance of any agreement as in effect on the date
of original issuance of the Old Notes.
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, the Company
will be required to make an Offer to Purchase all Outstanding New Notes at
a purchase price equal to 101% of their principal amount plus accrued and
unpaid interest, if any, to the date of purchase. A "Change of Control"
will be deemed to have occurred at such time as either (a) any Person
(other than a Permitted Holder) or any Persons acting together that would
constitute a "group" (a "Group") for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto (other than Permitted
Holders), together with any Affiliates or Related Persons thereof, shall
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act,
or any successor provision thereto), directly or indirectly, at least 50%
of the aggregate voting power of all classes of Voting Stock of the Company
(for the purposes of this clause (a) a person shall be deemed to
beneficially own the Voting Stock of a corporation that is beneficially
owned (as defined above) by another corporation (a "parent corporation"),
if such person beneficially owns (as defined above) at least 50% of the
aggregate voting power of all classes of Voting Stock of such parent
corporation); or (b) any Person or Group (other than Permitted Holders),
together with any Affiliates or Related Persons thereof, shall succeed in
having a sufficient number of its nominees elected to the Board of
Directors of the Company such that such nominees, when added to any
existing director remaining on the Board of Directors of the Company after
such election who was a nominee of or is an Affiliate or Related Person of
such Person or Group, will constitute a majority of the Board of Directors
of the Company. (ss. 1016)
A Change of Control may also constitute an event of default under the
Senior Bank Facility in which case the lenders thereunder shall have the
right to declare all or any portion of the amounts outstanding under the
Senior Bank Facility immediately due and payable. If that occurs and the
Company defaults in the payment of such amounts, a Senior Payment Default
will have occurred and the Company will be prohibited from commencing the
Offer to Purchase. See "--Subordination".
In the event that the Company makes an Offer to Purchase the New
Notes, the Company intends to comply with any applicable securities laws
and regulations, including any applicable requirements of Section 14(e) of,
and Rule 14e-1 under, the Exchange Act.
PROVISION OF FINANCIAL INFORMATION
For so long as any of the New Notes are outstanding, the Company shall
file with the Commission the annual reports, quarterly reports and other
documents which a reporting company is required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act or any successor
provisions thereto. (ss. 1017)
UNRESTRICTED SUBSIDIARIES
The Company may designate any Subsidiary of the Company to be an
"Unrestricted Subsidiary" as provided below in which event such Subsidiary
and each other Person that is then or thereafter becomes a Subsidiary of
such Subsidiary will be deemed to be an Unrestricted Subsidiary.
"Unrestricted Subsidiary" means (1) any Subsidiary designated as such by
the Board of Directors as set forth below where (a) neither the Company nor
any of its other Subsidiaries (other than another Unrestricted Subsidiary)
(i) provides credit support for, or any Guarantee of, any Debt of such
Subsidiary or any Subsidiary of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Debt) or (ii) is directly or
indirectly liable for any Debt of such Subsidiary or any Subsidiary of such
Subsidiary, and (b) no default with respect to any Debt of such Subsidiary
or any Subsidiary of such Subsidiary (including any right which the holders
thereof may have to take enforcement action against such Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other Debt of
the Company and its Subsidiaries (other than another Unrestricted
Subsidiary) to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity
and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Subsidiary to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an
Unrestricted Subsidiary, provided that either (x) the Subsidiary to be so
designated has total assets of $1,000 or less or (y) immediately after
giving effect to such designation, the Company could Incur at least $1.00
of additional Debt pursuant to the first paragraph under "--Limitation on
Consolidated Debt" and provided, further, that the Company could make a
Restricted Payment in an amount equal to the greater of the fair market
value and book value of such Subsidiary pursuant to "Limitation on
Restricted Payments" and such amount is thereafter treated as a Restricted
Payment for the purpose of calculating the aggregate amount available for
Restricted Payments thereunder. (ss. 1018)
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or permit
any other Person to consolidate with or merge into the Company and (ii)
directly or indirectly, transfer, sell, lease or otherwise dispose of all
or substantially all of its assets unless: (1) in a transaction in which
the Company does not survive or in which the Company sells, leases or
otherwise disposes of all or substantially all of its assets, the successor
entity to the Company is organized under the laws of the United States of
America or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture executed and delivered to the
Trustee in form satisfactory to the Trustee, all of the Company's
obligations under the Indenture; (2) immediately before and after giving
effect to such transaction and treating any Debt which becomes an
obligation of the Company or a Restricted Subsidiary as a result of such
transaction as having been Incurred by the Company or such Restricted
Subsidiary at the time of the transaction, no Event of Default or event
that with the passing of time or the giving of notice, or both, would
constitute an Event of Default shall have occurred and be continuing; (3)
immediately after giving effect to such transaction, the Consolidated Net
Worth of the Company (or other successor entity to the Company) is equal to
or greater than that of the Company immediately prior to the transaction;
(4) immediately after giving effect to such transaction and treating any
Debt which becomes an obligation of the Company or a Restricted Subsidiary
as a result of such transaction as having been Incurred by the Company or
such Restricted Subsidiary at the time of the transaction, the Company
(including any successor entity to the Company) could Incur at least $1.00
of additional Debt pursuant to the provisions of the Indenture described in
the first paragraph under "Limitation on Consolidated Debt" above; and (5)
certain other conditions are met. (ss. 801)
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition
of all such terms, as well as any other terms used herein for which no
definition is provided. (ss. 101)
"Acquired Debt" of any particular Person means Debt of any other
Person existing at the time such other Person merged with or into or became
a Subsidiary of such particular Person or assumed by such particular Person
in connection with the acquisition of assets from any other Person, and not
Incurred by such other Person in connection with, or in contemplation of,
such other Person merging with or into such particular Person or becoming a
Subsidiary of such particular Person or such acquisition.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control"
when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Disposition" by any Person means any transfer, conveyance,
sale, lease or other disposition by such Person or any of its Restricted
Subsidiaries (including any issuance or sale by a Restricted Subsidiary of
Capital Stock of such Restricted Subsidiary, and including a consolidation
or merger or other sale of any such Restricted Subsidiary with, into or to
another Person in a transaction in which such Restricted Subsidiary ceases
to be a Restricted Subsidiary, but excluding a disposition by a Restricted
Subsidiary of such Person to such Person or a Wholly Owned Restricted
Subsidiary of such Person or by such Person to a Wholly Owned Restricted
Subsidiary of such Person) of (i) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Restricted
Subsidiary of such Person, (ii) substantially all of the assets of such
Person or any of its Restricted Subsidiaries representing a division or
line of business or (iii) other assets or rights of such Person or any of
its Restricted Subsidiaries outside of the ordinary course of business,
provided in each case that the aggregate consideration for such transfer,
conveyance, sale, lease or other disposition is equal to $2 million or
more. The term "Asset Disposition" shall not include (i) any sale and
leaseback of Qualifying Theater Assets effected at fair market value, and
(ii) any swap or exchange of Qualifying Theater Assets of the Company or
its Subsidiaries for Qualifying Theater Assets of another Person, provided
that if the fair market value of the assets exchanged by the Company or its
Subsidiary exceeds the fair market value of the assets to be received, in
each case as determined in good faith by the Board of Directors of the
Company, such excess shall be subject to the "Limitation on Asset
Dispositions" covenant.
"Capital Lease Obligation" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property of such Person which
is required to be classified and accounted for as a capital lease or a
liability on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles. The stated maturity of such
obligation shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. The principal
amount of such obligation shall be the capitalized amount thereof that
would appear on the face of a balance sheet of such Person in accordance
with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock
or other equity participations, including partnership interests, whether
general or limited, of such Person.
"Cash Equivalents" means (i) direct obligations of the United States
of America or any agency thereof having maturities of not more than one
year from the date of acquisition, (ii) time deposits and certificates of
deposit of any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million, with maturities of not more
than one year from the date of acquisition, (iii) repurchase obligations
issued by any bank described in clause (ii) above with a term not to exceed
30 days, (iv) commercial paper rated at least A-1 or the equivalent thereof
by S&P or at least P-1 or the equivalent thereof by Moody's, in each case
maturing within one year after the date of acquisition and (v) shares of
any money market mutual fund, or similar fund, in each case having excess
of $500 million, which invests predominantly in investments of the types
described in clauses (i) through (iv) above.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated Cash Flow Available for Fixed Charges" for any period
means the Consolidated Net Income of the Company and its Restricted
Subsidiaries for such period increased by the sum of (i) Consolidated
Interest Expense of the Company and its Restricted Subsidiaries for such
period, plus (ii) Consolidated Income Tax Expense of the Company and its
Restricted Subsidiaries for such period, plus (iii) the consolidated
depreciation and amortization expense included in the income statement of
the Company and its Restricted Subsidiaries for such period, plus (iv) all
other non-cash items reducing Consolidated Net Income of the Company and
its Restricted Subsidiaries, less all non-cash items increasing
Consolidated Net Income of the Company and its Restricted Subsidiaries;
provided, however, that there shall be excluded therefrom the Consolidated
Cash Flow Available for Fixed Charges (if positive) of any Restricted
Subsidiary of the Company (calculated separately for such Restricted
Subsidiary in the same manner as provided above for the Company) that is
subject to a restriction which prevents the payment of dividends or the
making of distributions to the Company or another Restricted Subsidiary of
the Company to the extent of such restriction.
"Consolidated Cash Flow Coverage Ratio" as of any date of
determination means the ratio of (i) Consolidated Cash Flow Available for
Fixed Charges of the Company and its Restricted Subsidiaries for the period
of the most recently completed four consecutive fiscal quarters for which
quarterly or annual financial statements are available to (ii) Consolidated
Fixed Charges of the Company and its Restricted Subsidiaries for such
period; provided, however, that Consolidated Fixed Charges shall be
adjusted to give effect on a pro forma basis to any Debt that has been
Incurred by the Company or any Restricted Subsidiary since the beginning of
such period that remains outstanding and to any Debt that is proposed to be
Incurred by the Company or any Restricted Subsidiary as if in each case
such Debt had been Incurred on the first day of such period and as if any
Debt that (i) is or will no longer be outstanding as the result of the
Incurrence of any such Debt or (ii) had been repaid or retired during such
period had not been outstanding as of the first day of such period;
provided, however, that in making such computation, the Consolidated
Interest Expense of the Company and its Restricted Subsidiaries
attributable to interest on any proposed Debt bearing a floating interest
rate shall be computed on a pro forma basis as if the rate in effect on the
date of computation had been the applicable rate for the entire period; and
provided further that, in the event the Company or any of its Restricted
Subsidiaries has made Asset Dispositions or acquisitions of assets not in
the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during or after such
period, such computation shall be made on a pro forma basis as if the Asset
Dispositions or acquisitions had taken place on the first day of such
period.
"Consolidated Fixed Charges" for any period means the sum of (i)
Consolidated Interest Expense and (ii) the consolidated amount of interest
capitalized by the Company and its Restricted Subsidiaries during such
period calculated in accordance with generally accepted accounting
principles.
"Consolidated Income Tax Expense" for any period means the
consolidated provision for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in
accordance with generally accepted accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (without
deduction of interest income) of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in
accordance with generally accepted accounting principles, including without
limitation or duplication (or, to the extent not so included, with the
addition of), (i) the amortization of Debt discounts; (ii) any commissions,
fees or other payments (except reimbursement payments) with respect to
letters of credit, bankers' acceptances or similar facilities; (iii) fees
with respect to interest rate swap or similar agreements or foreign
currency hedge, exchange or similar agreements; (iv) Preferred Stock
dividends of Restricted Subsidiaries of the Company (other than with
respect to Redeemable Stock) declared and paid or payable to Persons other
than the Company or any Restricted Subsidiary; (v) accrued Redeemable Stock
dividends of the Company and its Restricted Subsidiaries payable to Persons
other than the Company or any Restricted Subsidiary, whether or not
declared or paid; (vi) interest on Debt guaranteed by the Company and its
Restricted Subsidiaries; and (vii) the portion of any rental obligation
allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with generally
accepted accounting principles; provided that there shall be excluded
therefrom (a) the net income (or loss) of any Person acquired by the
Company or a Restricted Subsidiary of the Company in a pooling-of-interests
transaction for any period prior to the date of such transaction, (b) the
net income (or loss) of any Person that is not a Subsidiary of the Company
except to the extent of the amount of dividends or other distributions
actually paid to the Company or a Subsidiary of the Company by such Person
during such period, (c) gains or losses on Asset Dispositions by the
Company or its Restricted Subsidiaries, (d) all extraordinary gains and
extraordinary losses, (e) the cumulative effect of changes in accounting
principles, (f) non-recurring and other one-time non-operating expenses and
(g) the tax effect of any of the items described in clauses (a) through (f)
above; provided, further, that for purposes of any determination pursuant
to the provisions described under "Limitation on Restricted Payments",
there shall further be excluded therefrom the net income (but not net loss)
of any Restricted Subsidiary of the Company that is subject to a
restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary of the
Company to the extent of such restriction.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with
respect to the Company, adjustments following the date of the Indenture to
the accounting books and records of the Company in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto) or otherwise resulting from the acquisition of control of the
Company by another Person shall not be given effect to.
"Consolidated Tangible Assets" of any Person means, as of any date,
the amount which, in accordance with GAAP, would be set forth under the
caption "Total Assets" (or any like caption) on a consolidated balance
sheet of such Person and its Restricted Subsidiaries, less all intangible
assets, including, without limitation, goodwill, organization costs,
patents, trademarks, copyrights, franchises, and research and development
costs.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including obligations
Incurred in connection with the acquisition of property, assets or
businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) every obligation of such Person
issued or assumed as the deferred purchase price of property or services
(including securities repurchase agreements but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business
which are not overdue or which are being contested in good faith), (v)
every Capital Lease Obligation of such Person, (vi) all Receivables Sales
of such Person, together with any obligation of such Person to pay any
discount, interest, fees, indemnities, penalties, recourse, expenses or
other amounts in connection therewith, (vii) all Redeemable Stock issued by
such Person, (viii) Preferred Stock of Restricted Subsidiaries of such
Person held by Persons other than such Person or one of its Wholly Owned
Restricted Subsidiaries, (ix) every obligation under Interest Rate,
Currency or Commodity Price Agreements of such Person and (x) every
obligation of the type referred to in clauses (i) through (ix) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has Guaranteed or is responsible or liable, directly or
indirectly, as obligor, Guarantor or otherwise. The "amount" or "principal
amount" of Debt at any time of determination as used herein represented by
(a) any Receivables Sale, shall be the amount of the unrecovered capital or
principal investment of the purchaser (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company) thereof, excluding amounts
representative of yield or interest earned on such investment, (b) any
Redeemable Stock, shall be the maximum fixed redemption or repurchase price
in respect thereof and (c) any Permitted Interest Rate, Currency or
Commodity Price Agreements shall be zero.
"Designated Senior Debt" shall mean (i) the obligations of the Company
under the Senior Bank Facility and (ii) any other Senior Debt of the
Company permitted under the Indenture the principal amount of which at
original issuance is $25 million or more and that has been designated by
the Company as Designated Senior Debt.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation,
any obligation of such Person, (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or to purchase (or to
advance or supply funds for the purchase of) any security for the payment
of such Debt, (ii) to purchase property, securities or services for the
purpose of assuring the holder of such Debt of the payment of such Debt, or
(iii) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing); provided,
however, that the Guarantee by any Person shall not include endorsements by
such Person for collection or deposit, in either case, in the ordinary
course of business.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Debt or
other obligation or the recording, as required pursuant to generally
accepted accounting principles or otherwise, of any such Debt or other
obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to
the foregoing); provided, however, that a change in generally accepted
accounting principles that results in an obligation of such Person that
exists at such time becoming Debt shall not be deemed an Incurrence of such
Debt.
"Interest Rate, Currency or Commodity Price Agreement" of any Person
means any forward contract, futures contract, swap, option or other
financial agreement or arrangement (including, without limitation, caps,
floors, collars and similar agreements) relating to, or the value of which
is dependent upon, interest rates, currency exchange rates or commodity
prices or indices (excluding contracts for the purchase or sale of goods in
the ordinary course of business).
"Investment" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of transfers
of cash or other property to others or payments for property or services
for the account or use of others, or otherwise) to, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities
or evidence of Debt issued by, any other Person, including any payment on a
Guarantee of any obligation of such other Person.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any
easement not materially impairing usefulness or marketability),
encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with
respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially
the same economic effect as any of the foregoing).
"Net Available Proceeds" from any Asset Disposition by any Person
means cash or readily marketable cash equivalents received (including by
way of sale or discounting of a note, installment receivable or other
receivable, but excluding any other consideration received in the form of
assumption by the acquiree of Debt or other obligations relating to such
properties or assets) therefrom by such Person, net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Restricted
Subsidiaries on any Debt which is secured by such assets in accordance with
the terms of any Lien upon or with respect to such assets or which must by
the terms of such Lien, or in order to obtain a necessary consent to such
Asset Disposition or by applicable law, be repaid out of the proceeds from
such Asset Disposition, (iii) all distributions and other payments made to
minority interest holders in Restricted Subsidiaries of such Person or
joint ventures as a result of such Asset Disposition and (iv) appropriate
amounts to be provided by such Person or any Restricted Subsidiary thereof,
as the case may be, as a reserve in accordance with generally accepted
accounting principles against any liabilities associated with such assets
and retained by such Person or any Restricted Subsidiary thereof, as the
case may be, after such Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each
case as determined by the Board of Directors, in its reasonable good faith
judgment evidenced by a resolution of the Board of Directors filed with the
Trustee; provided, however, that any reduction in such reserve following
the consummation of such Asset Disposition will be treated for all purposes
of the Indenture and the New Notes as a new Asset Disposition at the time
of such reduction with Net Available Proceeds equal to the amount of such
reduction.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each Holder at his address
appearing in the Note Register on the date of the Offer offering to
purchase up to the principal amount of New Notes specified in such Offer at
the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be, subject to any contrary requirements of applicable law, not
less than 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for purchase of New Notes within five
Business Days after the Expiration Date. The Company shall notify the
Trustee at least 15 Business Days (or such shorter period as is acceptable
to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by
the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain a description of the
events requiring the Company to make the Offer to Purchase and any other
information required by applicable law to be included therein. The Offer
shall contain all instructions and materials necessary to enable such
Holders to tender New Notes pursuant to the Offer to Purchase. The Offer
shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding New Notes
offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such
amount has been determined pursuant to the Indenture provision
requiring the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of New Notes accepted for payment (as
specified pursuant to the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the New
Notes registered in the name of such Holder and that any portion of a
Note tendered must be tendered in an integral multiple of $1,000
principal amount;
(6) the place or places where New Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any New Note not tendered or tendered but
not purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due
and payable upon each New Note being accepted for payment pursuant to
the Offer to Purchase and that interest thereon shall cease to accrue
on and after the Purchase Date;
(9) that each Holder electing to tender a New Note pursuant to
the Offer to Purchase will be required to surrender such New Note at
the place or places specified in the Offer prior to the close of
business on the Expiration Date (such New Note being, if the Company
or the Trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion
of New Notes tendered if the Company (or its Paying Agent) receives,
not later than the close of business on the Expiration Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the New Note the Holder
tendered, the certificate number of the New Note the Holder tendered
and a statement that such Holder is withdrawing all or a portion of
his tender;
(11) that (a) if New Notes in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall
purchase all such New Notes and (b) if New Notes in an aggregate
principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall
purchase New Notes having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only New Notes in denominations of $1,000
or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose New Note is purchased
only in part, the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such New Note without
service charge, a new New Note or New Notes, of any authorized
denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the New
Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance
with the Offer for such Offer to Purchase.
"Permitted Holder" means each of Sony Pictures Entertainment Inc. and
Universal Studios, Inc. and their respective Affiliates.
"Permitted Interest Rate, Currency or Commodity Price Agreement" of
any Person means any Interest Rate, Currency or Commodity Price Agreement
entered into with one or more financial institutions in the ordinary course
of business that is designed to protect such Person against fluctuations in
interest rates or currency exchange rates with respect to Debt Incurred and
which shall have a notional amount no greater than the payments due with
respect to the Debt being hedged thereby, or in the case of currency or
commodity protection agreements, against currency exchange rate or
commodity price fluctuations in the ordinary course of business relating to
then existing financial obligations or then existing or sold production and
not for purposes of speculation.
"Permitted Investments" means (i) an Investment in the Company or a
Restricted Subsidiary of the Company; (ii) an Investment in a Person, if
such Person or a Subsidiary of such Person will, as a result of the making
of such Investment and all other contemporaneous related transactions,
become a Restricted Subsidiary of the Company or be merged or consolidated
with or into or transfer or convey all or substantially all its assets to
the Company or a Restricted Subsidiary of the Company; (iii) a Temporary
Cash Investment; (iv) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses in accordance with generally accepted accounting principles; (v)
stock, obligations or securities received in settlement of debts owing to
the Company or a Restricted Subsidiary of the Company as a result of
bankruptcy or insolvency proceedings or upon the foreclosure, perfection,
enforcement or agreement in lieu of foreclosure of any Lien in favor of the
Company or a Restricted Subsidiary of the Company; (vi) refundable
construction advances made with respect to the construction of properties
of a nature or type that are used in a business of or similar or related to
the business of the Company or its Restricted Subsidiaries in the ordinary
course of business; (vii) advances or extensions of credit on terms
customary in the industry in the form of accounts or other receivables
incurred, or pre-paid film rentals, and loans and advances made in
settlement of such accounts receivable, all in the ordinary course of
business; (viii) Investments in the Old Notes and the New Notes; (ix) any
consolidation or merger of a Restricted Subsidiary of the Company to the
extent otherwise permitted under the Indenture; (x) Investments in
Permitted Interest Rate Currency or Commodity Price Agreements; (xi) entry
into and Investments in joint ventures, partnerships and other Persons
engaged or proposing to engage in the indoor motion picture exhibition
business, provided that the amount of such Investment, valued at the time
made, together with all Investments previously made pursuant to this clause
(xi), valued at the respective times made, shall not exceed 10% of the
Consolidated Tangible Assets of the Company as of the last day of the full
fiscal quarter ending immediately prior to the date of such Investment; and
(xii) other Investments not to exceed $20 million.
"Preferred Stock" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the
payment of dividends or as to the distribution of assets upon any voluntary
or involuntary liquidation, dissolution or winding up of such Person, to
shares of Capital Stock of any other class of such Person.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Qualifying Theater Assets" means all motion picture theatres (whether
owned in fee or leased), all other motion picture theatre assets,
including, without limitation, theatre furniture and fixtures, all real
property acquired for the purpose of motion picture theatre development or
construction, and joint venture interests or partnership interests in
Persons owning, leasing, developing or constructing motion picture theatres
or principally engaged in the business of exhibiting motion pictures.
"Receivables" means receivables, chattel paper, instruments, documents
or intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in
connection with a disposition of the business operations of such Person
relating thereto or a disposition of defaulted Receivables for purpose of
collection and not as a financing arrangement.
"Redeemable Stock" of any Person means any Capital Stock of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or otherwise (including upon
the occurrence of an event) matures or is required to be redeemed (pursuant
to any sinking fund obligation or otherwise) or is convertible into or
exchangeable for Debt or is redeemable at the option of the holder thereof,
in whole or in part, at any time prior to the final Stated Maturity of the
New Notes; provided that "Redeemable Stock" shall not include any Capital
Stock that is payable at maturity, or upon required redemption or
redemption at the option of the holder thereof, or that is automatically
convertible or exchangeable, solely in or into Common Stock of such Person.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the Outstanding Common Stock of such
Person (or, in the case of a Person that is not a corporation, 5% or more
of the equity interest in such Person) or (b) 5% or more of the combined
voting power of the Voting Stock of such Person.
"Restricted Subsidiary" means any Subsidiary, whether existing on or
after the date of the Indenture, unless such Subsidiary is an Unrestricted
Subsidiary.
"Senior Bank Facility" means the Credit Agreement, dated as of May 14,
1998, among the Company, as borrower, the lenders listed therein, as
lenders, Bankers Trust Company, as administrative agent and co-syndication
agent and Bank of America NT&SA, The Bank of New York and Credit Suisse
First Boston, as co-syndication agents, as it may be amended or restated
from time to time, and any renewal, extension, refinancing, refunding or
replacement thereof.
"Subordinated Debt" means Debt of the Company as to which the payment
of principal of (and premium, if any) and interest and other payment
obligations in respect of such Debt shall be subordinate to the prior
payment in full of the New Notes to at least the following extent: (i) no
payments of principal of (or premium, if any) or interest on or otherwise
due in respect of such Debt may be permitted for so long as any default in
the payment of principal (or premium, if any) or interest on the New Notes
exists; (ii) in the event that any other default that with the passing of
time or the giving of notice, or both, would constitute an event of default
exists with respect to the New Notes, upon notice by 25% or more in
principal amount of the New Notes to the Trustee, the Trustee shall have
the right to give notice to the Company and the holders of such Debt (or
trustees or agents therefor) of a payment blockage, and thereafter no
payments of principal of (or premium, if any) or interest on or otherwise
due in respect of such Debt may be made for a period of 179 days from the
date of such notice; and (iii) such Debt may not (x) provide for payments
of principal of such Debt at the stated maturity thereof or by way of a
sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each
case prior to the final Stated Maturity of the New Notes or (y) permit
redemption or other retirement (including pursuant to an offer to purchase
made by the Company) of such other Debt at the option of the holder thereof
prior to the final Stated Maturity of the New Notes, other than a
redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the Company) which is
conditioned upon a change of control of the Company pursuant to provisions
substantially similar to those described under "Change of Control" (and
which shall provide that such Debt will not be repurchased pursuant to such
provisions prior to the Company's repurchase of the New Notes required to
be repurchased by the Company pursuant to the provisions described under
"Change of Control").
"Subsidiary" of any Person means (i) a corporation more than 50% of
the combined voting power of the outstanding Voting Stock of which is
owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and
one or more other Subsidiaries thereof, directly or indirectly, has at
least a majority ownership and power to direct the policies, management and
affairs thereof.
"Temporary Cash Investments" means any Investment in the following
kinds of instruments: (A) readily marketable obligations issued or
unconditionally guaranteed as to principal and interest by the United
States of America or by any agency or authority controlled or supervised by
and acting as an instrumentality of the United States of America if, on the
date of purchase or other acquisition of any such instrument by the Company
or any Restricted Subsidiary of the Company, the remaining term to maturity
or interest rate adjustment is not more than two years; (B) obligations
(including, but not limited to, demand or time deposits, bankers'
acceptances and certificates of deposit) issued or guaranteed by a
depository institution or trust company incorporated under the laws of the
United States of America, any state thereof or the District of Columbia,
provided that (1) such instrument has a final maturity not more than one
year from the date of purchase thereof by the Company or any Restricted
Subsidiary of the Company and (2) such depository institution or trust
company has at the time of the Company's or such Restricted Subsidiary's
Investment therein or contractual commitment providing for such Investment,
(x) capital, surplus and undivided profits (as of the date of such
institution's most recently published financial statements) in excess of
$100 million and (y) the long-term unsecured debt obligations (other than
such obligations rated on the basis of the credit of a Person other than
such institution) of such institution, at the time of the Company's or such
Restricted Subsidiary's Investment therein or contractual commitment
providing for such Investment, are rated in the highest rating category of
both Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.
("S&P"), and Moody's Investors Service, Inc. ("Moody's"); (C) commercial
paper issued by any corporation, if such commercial paper has, at the time
of the Company's or any Restricted Subsidiary's Investment therein or
contractual commitment providing for such Investment credit ratings of at
least A-1 by S&P and P-1 by Moody's; (D) money market mutual or similar
funds having assets in excess of $100 million; (E) readily marketable debt
obligations issued by any corporation, if at the time of the Company's or
Restricted Subsidiary's Investment therein or contractual commitment
providing for such Investment (1) the remaining term to maturity is not
more than two years and (2) such debt obligations are rated in one of the
two highest rating categories of both S&P and Moody's; (F) demand or time
deposit accounts used in the ordinary course of business with commercial
banks the balances in which are at all times fully insured as to principal
and interest by the Federal Deposit Insurance Corporation or any successor
thereto; and (G) to the extent not otherwise included herein, Cash
Equivalents. In the event that either S&P or Moody's ceases to publish
ratings of the type provided herein, a replacement rating agency shall be
selected by the Company with the consent of the Trustee, and in each case
the rating of such replacement rating agency most nearly equivalent to the
corresponding S&P or Moody's rating, as the case may be, shall be used for
purposes hereof.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only
so long as no senior class of securities has such voting power by reason of
any contingency.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more
Wholly Owned Restricted Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a)
failure to pay principal of (or premium, if any, on) any New Note when due;
(b) failure to pay any interest on any New Note when due, continued for 30
days; (c) default in the payment of principal and interest on New Notes
required to be purchased pursuant to an Offer to Purchase as described
under "Change of Control" and "Limitation on Certain Asset Dispositions"
when due and payable; (d) failure to perform or comply with the provisions
described under "Merger, Consolidation and Certain Sales of Assets"; (e)
failure to perform any other covenant or agreement of the Company under the
Indenture or the New Notes continued for 60 days after written notice to
the Company by the Trustee or Holders of at least 25% in aggregate
principal amount of Outstanding New Notes; (f) default under the terms of
any instrument evidencing or securing Debt for money borrowed by the
Company or any Restricted Subsidiary having an outstanding principal amount
of $15 million individually or in the aggregate which default results in
the acceleration of the payment of such indebtedness or constitutes the
failure to pay such indebtedness at final maturity after expiration of any
applicable grace period; (g) the rendering of a final judgment or judgments
(not subject to appeal) against the Company or any Restricted Subsidiary in
an amount in excess of $15 million which remains undischarged or unstayed
for a period of 60 days after the date on which the right to appeal has
expired; and (h) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any Restricted Subsidiary. (ss. 501) Subject to
the provisions of the Indenture relating to the duties of the Trustee in
case an Event of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (ss. 603)
Subject to such provisions for the indemnification of the Trustee, the
Holders of a majority in aggregate principal amount of the Outstanding New
Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. (ss. 512)
If an Event of Default (other than an Event of Default described in
Clause (h) above) shall occur and be continuing, either the Trustee or the
Holders of at least 25% in aggregate principal amount of the Outstanding
New Notes may accelerate the maturity of all New Notes; provided, however,
that so long as any Senior Debt under the Senior Bank Facility is
outstanding, any such acceleration shall not be effective until the earlier
of (a) five Business Days after notice of such acceleration is delivered to
the Administrative Agent for the Senior Bank Facility and (b) the
acceleration of any Senior Debt under the Senior Bank Facility; provided,
further, that after such acceleration, but before a judgment or decree
based on acceleration, the Holders of a majority in aggregate principal
amount of Outstanding New Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the
non-payment of accelerated principal, have been cured or waived as provided
in the Indenture. Notwithstanding the foregoing, if an Event of Default
specified in Clause (h) above occurs, the Outstanding New Notes will ipso
facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder. (ss. 502) For information as
to waiver of defaults, see "Modification and Waiver".
No Holder of any New Note will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default (as defined) and unless also the
Holders of at least 25% in aggregate principal amount of the Outstanding
New Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding New Notes a direction inconsistent with
such request and shall have failed to institute such proceeding within 60
days. (ss. 507) However, such limitations do not apply to a suit instituted
by a Holder of a New Note for enforcement of payment of the principal of
and premium, if any, or interest on such New Note on or after the
respective due dates expressed in such New Note. (ss. 508)
The Company will be required to furnish to the Trustee quarterly a
statement as to the performance by the Company of certain of its
obligations under the Indenture and as to any default in such performance.
(ss. 1019)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect as to all outstanding
New Notes (except as to (i) rights of registration of transfer and exchange
and the Company's right of optional redemption, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen New Notes, (iii)
rights of Holders to receive payment of principal and interest on the New
Notes, (iv) rights, obligations and immunities of the Trustee under the
Indenture and (v) rights of the Holders of the New Notes as beneficiaries
of the Indenture with respect to any property deposited with the Trustee
payable to all or any of them), if (x) the Company will have paid or caused
to be paid the principal of and interest on the Notes as and when the same
will have become due and payable or (y) all outstanding New Notes (except
lost, stolen or destroyed New Notes which have been replaced or paid) have
been delivered to the Trustee for cancellation.
DEFEASANCE
The Indenture provides that, at the option of the Company, (A) if
applicable, the Company will be discharged from any and all obligations in
respect of the Outstanding New Notes or (B) if applicable, the Company may
omit to comply with certain restrictive covenants, that such omission shall
not be deemed to be an Event of Default under the Indenture and the New
Notes, in either case (A) or (B) upon irrevocable deposit with the Trustee,
in trust, of money and/or U.S. Government Obligations which will provide
money in an amount sufficient in the opinion of a nationally recognized
firm of independent certified public accountants to pay the principal of
and premium, if any, and each installment of interest, if any, on the
outstanding New Notes. With respect to clause (B), the obligations under
the Indenture other than with respect to such covenants and the Events of
Default other than the Events of Default relating to such covenants above
shall remain in full force and effect. Such trust may only be established
if, among other things (i) with respect to clause (A), the Company has
received from, or there has been published by, the Internal Revenue Service
a ruling or there has been a change in law, which in the opinion of counsel
provides that Holders of the New Notes will not recognize gain or loss for
Federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred; or, with respect to
clause (B), the Company has delivered to the Trustee an Opinion of Counsel
to the effect that the Holders of the New Notes will not recognize gain or
loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred; (ii) no Event of Default or
event that with the passing of time or the giving of notice, or both, shall
constitute an Event of Default shall have occurred or be continuing; (iii)
the Company has delivered to the Trustee an Opinion of Counsel to the
effect that such deposit shall not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940; and (iv)
certain other customary conditions precedent are satisfied. (Article 13)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Outstanding New Notes; provided, however,
that no such modification or amendment may, without the consent of the
Holder of each Outstanding New Note affected thereby, (a) change the stated
maturity of the principal of, or any installment of interest on, any New
Note, (b) reduce the principal amount of, or the premium or interest on,
any New Note, (c) change the place or currency of payment of principal of,
or premium or interest on, any New Note, (d) impair the right to institute
suit for the enforcement of any payment on or with respect to any New Note,
(e) reduce the above-stated percentage of Outstanding New Notes necessary
to modify or amend the Indenture, (f) reduce the percentage of aggregate
principal amount of Outstanding New Notes necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of
certain defaults, or (g) modify any provisions of the Indenture relating to
the modification and amendment of the Indenture or the waiver of past
defaults or covenants, except as otherwise specified. (ss. 902)
The Holders of a majority in aggregate principal amount of the
Outstanding New Notes, on behalf of all Holders of New Notes, may waive
compliance by the Company with certain restrictive provisions of the
Indenture. (ss. 1020) Subject to certain rights of the Trustee, as provided
in the Indenture, the Holders of a majority in aggregate principal amount
of the Outstanding New Notes, on behalf of all Holders of New Notes, may
waive any past default under the Indenture, except a default in the payment
of principal, premium or interest or a default arising from failure to
purchase any Note tendered pursuant to an Offer to Purchase. (ss. 513)
GOVERNING LAW
The Indenture and the New Notes are governed by the laws of the State
of New York.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically
set forth in the Indenture. During the existence of an Event of Default,
the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of
such person's own affairs. (ss. 601)
The Indenture and provisions of the Trust Indenture Act incorporated
by reference therein contain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect
of any such claim as security or otherwise. The Trustee is permitted to
engage in other transactions with the Company or any Affiliate, provided,
however, that if it acquires any conflicting interest (as defined in the
Indenture or in the Trust Indenture Act), it must eliminate such conflict
or resign. (ss.ss. 608, 613)
<PAGE>
CERTAIN FEDERAL TAX
CONSEQUENCES OF AN INVESTMENT IN THE NEW NOTES
The following is a summary of certain U.S. federal income tax
consequences (and, in the case of Non-U.S. Holders (as defined below),
certain U.S. federal estate tax consequences) of the acquisition, ownership
and disposition of New Notes by investors that acquire New Notes in the
Exchange Offer. This summary does not discuss all of the aspects of U.S.
federal income and estate taxation which may be relevant to certain
investors in light of their particular investment or other circumstances.
In addition, this summary does not discuss any U.S. state or local income
or foreign income or other tax consequences. This summary is based upon the
provisions of the Code, Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect as of
the date of this Prospectus and all of which are subject to change or
differing interpretation, possibly with retroactive effect. The discussion
below deals only with New Notes held as capital assets (generally, property
held for investment) and does not address holders of New Notes that may be
subject to special rules (including, without limitation, certain U.S.
expatriates, financial institutions, insurance companies, tax-exempt
entities, dealers in securities or currencies, traders in securities that
elect mark-to-market accounting treatment, and persons who hold New Notes
as part of a straddle, hedge, conversion or other integrated transaction).
Prospective investors should consult their own tax advisors regarding the
particular U.S. federal, state and local and foreign income and other tax
consequences of acquiring, owning and disposing of the New Notes that may
be applicable to them.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
For purposes of the following discussion, a "U.S. Holder" means a
beneficial owner of a New Note that is, for U.S. federal income tax
purposes, (i) a citizen or individual resident of the United States, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the
income of which is subject to U.S. federal income taxation regardless of
its source or (iv) a trust if, in general, the trust is subject to the
supervision of a court within the United States and the control of one or
more United States persons as described in section 7701(a)(30) of the Code.
TAXATION OF STATED INTEREST. In general, stated interest paid on a New
Note will be taxable to a U.S. Holder as ordinary income at the time it is
received or accrued in accordance with the U.S. Holder's regular method of
accounting for federal income tax purposes.
MARKET DISCOUNT AND BOND PREMIUM. If a U.S. Holder purchases a New
Note (or purchased the Old Note for which the New Note was exchanged, as
the case may be) at a price that is less than its principal amount, the
excess of the principal amount over the U.S. Holder's purchase price will
be treated as "market discount." However, such market discount will be
considered to be zero if it is less than 1/4 of 1% of the principal amount
multiplied by the number of complete years to maturity from the date the
U.S. Holder purchased such New Note (or Old Note). Under the market
discount rules of the Code, a U.S. Holder generally will be required to
treat any principal payment on, or any gain realized on the sale, exchange,
retirement or other disposition of, a New Note as ordinary income
(generally treated as interest income) to the extent of the market discount
which accrued but was not previously included in income. In addition, the
U.S. Holder may be required to defer, until the maturity of the New Note or
its earlier disposition in a taxable transaction, the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued
to purchase or carry such New Note (or the Old Note for which the New Note
was exchanged, as the case may be). In general, market discount will be
considered to accrue ratably during the period from the date of acquisition
of the New Note (or Old Note for which the New Note was exchanged, as the
case may be) to the maturity date of the New Note, unless the U.S. Holder
makes an irrevocable election (on an instrument-by-instrument basis) to
accrue market discount under a constant yield method. A U.S. Holder may
elect to include market discount in income currently as it accrues (under
either a ratable or constant yield method), in which case the rules
described above regarding the treatment as ordinary income of gain upon the
disposition of the New Note and upon the receipt of certain payments and
the deferral of interest deductions will not apply. The election to include
market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first day of the first
taxable year to which the election applies, and may not be revoked without
the consent of the Internal Revenue Service.
If a U.S. Holder purchases a New Note (or purchased the Old Note for
which the New Note was exchanged, as the case may be) for an amount in
excess of the amount payable at maturity of the New Note, such holder will
be considered to have purchased the New Note (or Old Note) with "bond
premium" equal to the excess of the U.S. Holder's purchase price over the
amount payable at maturity (or on an earlier call date if it results in a
smaller amortizable bond premium). A U.S. Holder may elect to amortize such
premium using a constant yield method over the remaining term of the New
Note (or until an earlier call date if it resulted in a smaller amortizable
bond premium). The amortized amount of such premium for a taxable year
generally will be treated first as a reduction of interest on such New Note
included in such taxable year to the extent thereof, then as a deduction
allowed in that taxable year to the extent of the U.S. Holder's prior
interest inclusions on such New Note, and finally as a carryforward
allowable against the U.S. Holder's future interest inclusions on such New
Note. Such election, once made, is irrevocable without the consent of the
Internal Revenue Service and applies to all taxable bonds held during the
taxable year for which the election is made or subsequently acquired.
DISPOSITIONS. Upon the sale, exchange or retirement of a New Note, a
U.S. Holder generally will recognize taxable gain or loss in an amount
equal to the difference, if any, between the amount realized on such sale,
exchange or retirement and such holder's adjusted tax basis in the New
Note. A U.S. Holder's adjusted tax basis in a New Note will generally equal
the cost of such New Note (or, in the case of a New Note acquired in
exchange for an Old Note in the Exchange Offer, the tax basis of such Old
Note, as discussed above under "Certain Federal Income Tax Consequences of
the Exchange Offer"), increased by the amount of any market discount
previously included in the U.S. Holder's gross income, and reduced by the
amount of any amortizable bond premium applied to reduce, or allowed as a
deduction against, interest with respect to such New Note. Gain or loss
recognized by a U.S. Holder on the sale, exchange or retirement of a New
Note generally will be capital gain or loss (except with respect to amounts
received upon a disposition attributable to accrued but unpaid interest or
accrued market discount not previously included in income, which in either
case will be taxable as ordinary income). Such capital gain or loss will be
long-term capital gain or loss if the New Note has been held for more than
one year at the time of the disposition (taking into account for this
purpose, in the case of a New Note received in exchange for an Old Note in
the Exchange Offer, the period of time that the Old Note was held).
BACKUP WITHHOLDING. In general, "backup withholding" at a rate of 31%
may apply to payments of principal and interest made on a New Note, and to
the proceeds of a sale or exchange of a New Note before maturity, that are
made to a non-corporate U.S. Holder if such holder fails to provide a
correct taxpayer identification number or otherwise comply with applicable
requirements of the backup withholding rules. The backup withholding tax is
not an additional tax and may be credited against a U.S. Holder's U.S.
federal income tax liability, provided that correct information is provided
to the Internal Revenue Service.
CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS
For purposes of the following discussion, a "Non-U.S. Holder" is a
beneficial owner of a New Note that is not, for U.S. federal income tax
purposes, a U.S. Holder (as defined above). An individual may, subject to
certain exceptions, be deemed to be a resident alien (as opposed to a
non-resident alien) by virtue of being present in the United States on at
least 31 days in the calendar year and for an aggregate of at least 183
days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.
Under present U.S. federal income and estate tax law and subject to
the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest on a New
Note by the Company or any agent of the Company to any Non-U.S. Holder
will not be subject to withholding of U.S. federal income tax,
provided that in the case of interest (1) the Non-U.S. Holder does not
directly or indirectly, actually or constructively, own 10 percent or
more of the total combined voting power of all classes of stock of the
Company entitled to vote, (2) the Non-U.S. Holder is not (x) a
controlled foreign corporation that is related to the Company through
sufficient stock ownership, or (y) a bank receiving interest described
in Section 881(c)(3)(A) of the Code, and (3) either (A) the beneficial
owner of the New Note certifies to the Company or its agent, under
penalties of perjury, that it is not a "United States person" (as
defined in the Code) and provides its name and address, or (B) a
securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and holds the New Note on
behalf of the beneficial owner certifies to the Company or its agent
under penalties of perjury that such statement has been received from
the beneficial owner by it or by the financial institution between it
and the beneficial owner and furnishes the payor with a copy thereof;
(ii) a Non-U.S. Holder will not be subject to U.S. federal income
tax on any gain or income realized on the sale, exchange, redemption,
retirement at maturity or other disposition of a New Note (provided
that, in the case of proceeds representing accrued interest, the
conditions described in paragraph (i) above are met) unless (1) such
Non-U.S. Holder is an individual who is present in the United States
for 183 days or more during the taxable year and certain other
conditions are met, or (2) such gain is effectively connected with the
conduct of a U.S. trade or business by such Non-U.S. Holder, or if an
income tax treaty applies, is generally attributable to a U.S.
"permanent establishment" maintained by such Non-U.S. Holder; and
(iii) a New Note held by an individual who at the time of death
is not a citizen or resident of the United States will not be subject
to U.S. federal estate tax as a result of such individual's death if,
at the time of such death, (1) the individual did not directly or
indirectly, actually or constructively, own 10 percent or more of the
total combined voting power of all classes of stock of the Company
entitled to vote, and (2) the income on the New Note would not have
been effectively connected with the conduct of a trade or business by
the individual in the United States.
If a Non-U.S. Holder is engaged in a trade or business in the United
States and interest on the New Note is effectively connected with the
conduct of such trade or business (or, if an income tax treaty applies, and
the Non-U.S. Holder maintains a U.S. "permanent establishment" to which the
interest is generally attributable), the Non-U.S. Holder, although exempt
from the withholding tax discussed in the preceding paragraph (i) (provided
that such holder furnishes a properly executed United States Internal
Revenue Service ("IRS") Form 4224 or successor form on or before any
payment date to claim such exemption), may be subject to U.S. federal
income tax on such interest on a net basis in the same manner as if it were
a U.S. Holder.
In addition, a foreign corporation that is a holder of a New Note may
be subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments, unless it qualifies for a lower rate under an applicable
income tax treaty. For this purpose, interest on a New Note or gain
recognized on the disposition of a New Note will be included in earnings
and profits if such interest or gain is effectively connected with the
conduct by the foreign corporation of a trade or business in the United
States.
Recently finalized Treasury Regulations generally effective for
payments made after December 31, 1999 (the "Final Regulations") will
provide alternative methods for satisfying the certification requirement
described in paragraph (i)(3) above and will require a Non-U.S. Holder
which provides an IRS Form 4224 or successor form (as discussed above), and
may also require a Non-U.S. Holder claiming the benefit of an income tax
treaty, to also provide its U.S. taxpayer identification number. The Final
Regulations generally also will require, in the case of a New Note held by
a foreign partnership, that (x) the certification described in paragraph
(i)(3) above be provided by the partners and (y) the partnership provide
certain information, including a U.S. taxpayer identification number. A
look-through rule will apply in the case of tiered partnerships.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent
thereof (in its capacity as such) to a Non-U.S. Holder of a New Note if
such holder has provided the required certification that it is not a United
States person as set forth in paragraph (i) above, provided that neither
the Company nor its agent has actual knowledge that the holder is a United
States person. The Company or its agent may, however, report payments of
interest on the New Notes. Payments of the proceeds from a disposition by a
Non-U.S. Holder of a New Note made to or through a foreign office of a
broker will not be subject to information reporting or backup withholding,
except that information reporting may apply to such payments if the broker
is (i) a United States person, (ii) a controlled foreign corporation for
U.S. federal income tax purposes, (iii) a foreign person 50% or more of
whose gross income is effectively connected with a U.S. trade or business
for a specified three-year period, or (iv) with respect to payments made
after December 31, 1999, a foreign partnership, if at any time during its
tax year, one or more of its partners are U.S. persons (as defined in
Treasury regulations) who in the aggregate hold more than 50% of the income
or capital interest in the partnership or if, at any time during its tax
year, such foreign partnership is engaged in a U.S. trade or business.
Payments of the proceeds from a disposition by a Non-U.S. Holder of a New
Note made to or through the U.S. office of a broker is subject to
information reporting and backup withholding unless the holder or
beneficial owner certifies as to its taxpayer identification number or
otherwise establishes an exemption from information reporting and backup
withholding.
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder would be allowed as a refund or a credit against such
holder's U.S. federal income tax liability, provided the required
information is furnished to the IRS.
<PAGE>
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in
the Exchange Offer in connection with a distribution of the New Notes, (ii)
such broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with
the registration and prospectus delivery requirements of the Securities Act
in connection with any secondary resale transactions. A broker-dealer may,
however, receive New Notes for its own account pursuant to the Exchange
Offer in exchange for Old Notes when such Old Notes were acquired as a
result of market-making activities or other trading activities. Each such
broker-dealer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer
(other than an "affiliate" of the Company) in connection with resales of
such New Notes. The Company has agreed to make this Prospectus, as amended
or supplemented, available to any such broker-dealer for use in connection
with any such resale for a period of 180 days after the Expiration Date or,
earlier, if all New Notes have been disposed of by such broker-dealers.
The Company will not receive any proceeds from any sale of New Notes
by broker-dealers. New Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market in negotiated
transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes
that were received by it for its own account pursuant to the Exchange Offer
may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any such resale of the New Notes and any commissions
or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer
that requests such documents in a Letter of Transmittal for a period of 180
days after the Expiration Date or, earlier, if all New Notes have been
disposed of by such broker-dealers. The Company has agreed to pay all
expenses incident to the Exchange Offer other than commissions or
concessions of any brokers and dealers and transfer taxes and will
indemnify the holders of the Old Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities
Act.
The New Notes will constitute a new issue of securities with no
established trading market and, accordingly, no assurance can be given that
an active public or other market will develop for the New Notes or as to
the liquidity of or the trading market for the New Notes. If a trading
market does not develop or is not maintained, holders of the New Notes may
experience difficulty in reselling the New Notes or may be unable to sell
them at all. If a market for the New Notes develops, any such market may
cease to continue at any time. In addition, if a market for the New Notes
develops, the market prices of the New Notes may be volatile. Factors such
as fluctuations in the Company's earnings and cash flow, the difference
between the Company's actual results and results expected by investors and
analysts could cause the market prices of the New Notes to fluctuate
substantially.
<PAGE>
VALIDITY OF THE NEW NOTES
The validity of the New Notes will be passed upon for the Company by
Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York, counsel for the Company.
EXPERTS
The consolidated financial statements of Loews Cineplex and
subsidiaries as of February 28, 1998 and 1997 and for each of the three
fiscal years in the period ended February 28, 1998 and the financial
statements of Loeks-Star Partners at February 26, 1998 and February 27,
1997 and for each of the three fiscal years in the period ended February
26, 1998, included in this Prospectus have been so included in reliance on
the reports of PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Cineplex Odeon Corporation as
of December 31, 1997 and December 31, 1996 and for each of the years in the
three year period ended December 31, 1997 have been included in this
Prospectus in reliance upon the report of KPMG LLP, independent chartered
accountants, appearing elsewhere herein, and upon the authority of the said
firm as experts in accounting and auditing.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
Three Months ended May 31, 1998 and May 31, 1997
Unaudited Condensed Consolidated Balance Sheets ........................F-2
Unaudited Condensed Consolidated Statements of Operations...............F-3
Unaudited Condensed Consolidated Statements of Cash Flows...............F-4
Notes to Unaudited Condensed Consolidated Financial Statements .........F-5
Three years ended February 28, 1998, February 28, 1997
and February 29, 1996
Report of Independent Accountants......................................F-12
Consolidated Balance Sheet.............................................F-13
Consolidated Statement of Operations...................................F-14
Consolidated Statement of Changes in Stockholder's Equity..............F-15
Consolidated Statement of Cash Flows...................................F-16
Notes to Consolidated Financial Statements.............................F-17
LOEKS-STAR PARTNERS
Three year periods ending February 26, 1998, February 27, 1997
and February 29, 1996
Report of Independent Accountants......................................F-28
Balance Sheet..........................................................F-29
Statements of Income...................................................F-30
Statements of Partners' Capital........................................F-31
Statements of Cash Flows...............................................F-32
Notes to Financial Statements..........................................F-33
CINEPLEX ODEON CORPORATION
Three years ended December 31, 1997, 1996 and 1995
Independent Auditors' Report...........................................F-37
Consolidated Balance Sheet.............................................F-38
Consolidated Income Statement..........................................F-39
Consolidated Statement of Changes in Cash Resources....................F-40
Consolidated Statement of Changes in Shareholders' Equity..............F-41
Notes to the Consolidated Financial Statements.........................F-42
Three month periods ended March 31, 1998 and 1997 (unaudited)
Consolidated Balance Sheet.............................................F-54
Consolidated Income Statement..........................................F-55
Consolidated Statement of Changes in Cash Resources....................F-56
Notes to the Consolidated Financial Statements.........................F-57
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
FEBRUARY 28,
MAY 31, 1998 1998
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................... $ 37,785 $ 9,064
Accounts receivable........................... 15,374 5,479
Inventories................................... 4,659 1,146
Prepaid expenses and other current assets..... 14,114 2,520
----------- -----------
TOTAL CURRENT ASSETS....................... 71,932 18,209
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET......... 1,180,376 609,152
EXCESS PURCHASE PRICE........................... 224,304 --
OTHER ASSETS
Long-term investments and advances to
partnerships................................. 28,941 31,763
Goodwill, net................................. 83,913 53,143
Other intangible assets, net.................. 6,503 6,005
Deferred charges and other assets............. 21,318 10,279
----------- -----------
TOTAL ASSETS............................... $ 1,617,287 $ 728,551
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses......... $ 230,471 $ 62,934
Due to Sony affiliates........................ -- 3,810
Deferred revenue.............................. 22,122 --
Current maturities of long-term debt and
other obligations............................ 9,785 770
----------- -----------
TOTAL CURRENT LIABILITIES.................. 262,378 67,514
DEFERRED INCOME TAXES........................... 16,174 18,299
LONG-TERM DEBT AND OTHER OBLIGATIONS............ 720,056 10,513
DEBT DUE TO SONY AFFILIATES..................... -- 292,523
PENSION AND OTHER POSTRETIREMENT OBLIGATIONS.... 9,668 3,791
OTHER LIABILITIES............................... 13,743 11,400
----------- -----------
TOTAL LIABILITIES.......................... 1,022,019 404,040
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13).........
STOCKHOLDERS' EQUITY............................
Common stock ($.01 par value, 300,000,000
shares authorized; 44,079,924 shares issued
and outstanding at May 31, 1998 and
19,270,321 shares issued and outstanding at
February 28, 1998)........................... 441 193
Common stock-Class A non-voting ($.01 par
value, 10,000,000 authorized; 1,202,486
shares issued and outstanding at May 31,
1998 and February 28, 1998).................. 12 12
Common stock-Class B non-voting ($.01 par
value, 10,000,000 shares authorized; 84,000
shares issued and outstanding at May 31,
1998 and nil issued and outstanding at
February 28, 1998)........................... 1 --
Additional paid-in capital.................... 591,613 299,277
Retained earnings............................. 3,201 25,029
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................. 595,268 324,511
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $ 1,617,287 $ 728,551
=========== ===========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
FOR THE THREE MONTHS ENDED
---------------------------
MAY 31,
1998 (B) MAY 31, 1997
------------ ------------
REVENUES
Admissions..................................... $ 83,207 $ 67,370
Concessions.................................... 31,170 23,486
Other.......................................... 3,437 2,360
---------- ----------
117,814 93,216
---------- ----------
EXPENSES
Theatre operations and other expenses.......... 85,115 67,400
Cost of concessions.......................... 4,828 3,695
General and administrative..................... 7,946 5,937
Depreciation and amortization.................. 14,681 12,597
---------- ----------
112,570 89,629
---------- ----------
INCOME FROM OPERATIONS........................... 5,244 3,587
INTEREST EXPENSE................................. 6,106 3,622
---------- ----------
LOSS BEFORE INCOME TAXES......................... (862) (35)
INCOME TAX (BENEFIT)/ EXPENSE.................... (119) 365
---------- ----------
NET LOSS......................................... $ (743) $ (400)
========== ==========
Weighted Average Shares Outstanding--basic (A).. 24,619,805 20,472,807
Weighted Average Shares Outstanding--diluted (A) 24,984,549 20,472,807
Loss per Share--basic........................... $ (.03) $ (.02)
========== ==========
Loss per Share--diluted......................... $ (.03) $ (.02)
========== ==========
- --------------------------------------------------
(A) The quarter ended May 31, 1997 has been restated to reflect a stock
dividend declared on February 5, 1998.
(B) Includes the operating results of Cineplex Odeon Corporation from May
15, 1998 through May 31, 1998.
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
FOR THE THREE
MONTHS ENDED
---------------------------
MAY 31, MAY 31,
1998 1997
------------- -------------
OPERATING ACTIVITIES
Net loss..................................... $ (743) $ (400)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............... 14,681 12,597
Equity earnings from long-term investments, (514) 640
net of distributions received.............
Changes in operating assets and liabilities:
Decrease in deferred taxes.................. (2,125) (953)
(Increase)/decrease in accounts receivable.. 291 491
Increase/(decrease) in accounts payable and
accrued expenses.......................... 12,030 (1,652)
Increase/(decrease) in other operating
assets and liabilities, net............... 3,672 (749)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... 27,292 9,974
------------- -------------
INVESTING ACTIVITIES
Repayments/(borrowings) from partnerships.... 5,994 (3,556)
Investments in partnerships.................. (2,658) --
Capital expenditures......................... (16,117) (5,404)
Merger related costs......................... (5,809) --
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES.......... (18,590) (8,960)
------------- -------------
FINANCING ACTIVITIES
(Repayment)/borrowing of debt due to Sony
affiliates.................................. (299,487) 10,535
Proceeds from bank credit facility........... 500,000 --
Repayment of long-term debt.................. (179,294) (86)
Proceeds on exercise of stock options........ 351 --
Deferred financing fees from bank credit
facility.................................... (5,943) --
Dividend paid to Sony affiliate on
Combination................................. (80,108) --
Proceeds from issuance of common stock to
Universal on Combination.................... 84,500 --
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 20,019 10,449
------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS.......... 28,721 11,463
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 9,064 2,160
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 37,785 $ 13,623
============= ============
Supplemental Cash Flow Information:
Income taxes paid, net of refunds
received................................. $ 600 $ 917
Interest paid (including $6,942 and ============= ============
$6,609 paid to Sony affiliates).......... $ 9,121 $ 6,861
============= ============
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 1--THE COMPANY AND BASIS OF PRESENTATION
Loews Cineplex Entertainment Corporation ("LCP" or the "Company",
formerly LTM Holdings, Inc.), is a major motion picture theatre exhibition
company with operations in North America and Europe. The Company conducts
business under the Loews Theatres, Sony Theatres, Cineplex Odeon Theatres,
Star Theatres, Magic Johnson Theatres and Yelmo Cineplex Theatres marquees.
As of May 31, 1998, LCP owns, or has interests in, and operates 2,794
screens at 450 theatres in 22 states and the District of Columbia, 6
Canadian provinces, Hungary and Turkey. The Company's principal markets
include New York, Boston, Chicago, Baltimore, Dallas, Houston, Detroit, Los
Angeles, Seattle, Washington D.C., Toronto, Montreal and Vancouver. The
Company holds a 50% partnership interest in each of the Loeks-Star Theatres
("LST") and Magic Johnson Theatres ("MJT") partnerships. LST and MJT hold
interests in and operate 12 locations, comprising a total of 149 screens.
Screens and locations for the partnerships are included in the Company
amounts referred to above. Since June 10, 1998, the Company also has a 50%
interest in 108 screens in 13 theatre locations in Spain through a joint
venture with Yelmo Films S.A., called Yelmo Cineplex de Espana.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information; therefore, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included. The business combination with Cineplex Odeon has been accounted
for under the purchase method of accounting, and, therefore, the unaudited
consolidated financial statements include the operating results of Cineplex
Odeon Corporation from the date of combination (May 15, 1998) to May 31,
1998. Operating results for the three months ended May 31, 1998 are not
necessarily indicative of the results that may be expected for the year
ending February 28, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended February 28, 1998.
NOTE 2--BUSINESS COMBINATION
On May 14, 1998, pursuant to the Amended and Restated Master Agreement
(the "Master Agreement") dated September 30, 1997, LTM Holdings, Inc. and
Cineplex Odeon Corporation ("Cineplex" or "Cineplex Odeon"), another motion
picture exhibitor with operations in the U.S. and Canada, combined (the
"Combination"). As called for in the Master Agreement, on the date of the
Combination, the outstanding common shares of Cineplex Odeon were exchanged
for LCP shares on a ten for one basis.
At the closing of the Combination, the Company issued 7,264,642 shares
of Common Stock and 80,000 shares of Class B Non-Voting Common Stock to
Universal Studios, Inc. ("Universal"), 4,324,003 shares of Common Stock and
4,000 shares of Class B Non-Voting Common Stock to the Charles Rosner
Bronfman Family Trust and certain related shareholders (the "Claridge
Group") and 6,111,269 shares of common stock to the other shareholders of
record of Cineplex Odeon Corporation, for an aggregate value of
approximately $266.8 million, in exchange for the outstanding shares of
Cineplex Odeon Corporation and its wholly-owned subsidiary, Plitt Theatres,
Inc. In addition, the Company issued 4,426,607 shares of common stock to
Universal for consideration of $84.5 million as required under a
subscription agreement and 2,664,304 shares of common stock in connection
with the transfer by Sony Pictures Entertainment Inc. ("SPE") of its
interest in Star Theatres of Michigan, Inc. ("Star") and S&J Theatres, Inc.
("S&J") to the Company.
As a result of the Combination, SPE, Universal, the Claridge Group and
others own 51.1% (49.9% voting common stock), 26.0% (26.6% voting common
stock), 9.6% and 13.3%, respectively, of LCP common stock.
The Combination has been accounted for under the purchase method of
accounting and, accordingly, the cost to acquire Cineplex Odeon will be
allocated to the assets acquired and liabilities assumed of Cineplex Odeon
based on their respective fair values, with the excess to be allocated to
goodwill. The Company has arranged for an independent valuation and other
studies required to determine the fair value of the assets acquired and
liabilities assumed. These valuations and studies have not been completed
and, accordingly, the balances reflected in the unaudited consolidated
statement of financial position as of May 31, 1998 are preliminary and
subject to further revision and adjustments. For purposes of these
unaudited financial statements, the carrying value of the Cineplex Odeon
net assets acquired was assumed to approximate fair value. Therefore, the
$224.3 million of excess purchase price over the historical net book value
of the net assets of Cineplex Odeon (excluding $31 million of historical
goodwill) has been classified on the unaudited balance sheet as Excess
Purchase Price and the related amortization expense reflected in the
unaudited consolidated statement of operations and the following unaudited
pro forma results of operations for the three months ended May 31, 1998 has
been recorded on a straight line basis over a forty year period.
Upon completion of the determination of fair value, the Excess
Purchase Price will be allocated to specific assets and liabilities of
Cineplex Odeon. It is anticipated that there will be reductions in the
carrying value associated with certain assets, and alternatively the fair
value of certain other assets and liabilities may exceed carrying value.
Accordingly, the final valuation could result in materially different
amounts and allocations of Excess Purchase Price from the amounts and
allocations reflected in the following unaudited pro forma results of
operations and the unaudited consolidated financial statements, primarily
between goodwill, property, equipment and leaseholds and certain
liabilities resulting in corresponding changes in depreciation and
amortization amounts. For every one million dollars of Excess Purchase
Price allocated to fixed assets, depreciation and amortization will
increase $25 annually (assuming an average 20 year service life for fixed
assets and straight line depreciation). Based on preliminary estimates of
fair value related to certain assets and liabilities, additional Excess
Purchase Price of between $100 million and $150 million could result at the
conclusion of the valuation. The Company currently anticipates that the
necessary valuations and related allocations will be completed by the end
of fiscal 1999.
The unaudited condensed pro forma results of operations presented
below assumes that the Combination occurred at the beginning of each period
presented. The unaudited pro forma information is not necessarily
indicative of the combined results of operations of LCP and Cineplex Odeon
that would have occurred if the transaction had occurred on the dates
previously indicated nor are they necessarily indicative of future
operating results of the combined company.
THREE MONTHS ENDED
---------------------------
MAY 31, 1998 MAY 31, 1997
------------- -------------
Revenues....................................... $ 214,325 $ 228,358
============= =============
Net loss....................................... $ (14,536) $ (8,310)
============= =============
Net loss per common share...................... $ (0.32) $ (0.18)
============= =============
NOTE 3--ACCOUNTS RECEIVABLE
As of May 31, 1998, accounts receivable consisted of trade receivables
of $12,248 and other receivables of $3,126. As of February 28, 1998,
accounts receivable consisted of trade receivables of $1,885 and other
receivables of $3,594.
NOTE 4--PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds totaled $1,180,376 and $609,152 as
of May 31, 1998 and February 28, 1998, respectively. The increase
experienced during the period is primarily due to the inclusion of the net
book value of the property, equipment and leaseholds of Cineplex Odeon
Corporation in conjunction with the Combination. As more fully described in
Note 2, for purposes of these unaudited consolidated financial statements,
the historical carrying value of Cineplex Odeon property, equipment and
leaseholds was assumed to approximate fair value and is subject to further
revision and adjustment.
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
MAY 31, FEBRUARY 28,
1998 1998
------------ ------------
Accounts payable--trade........................... $ 80,973 $ 36,924
Accrued expenses and other....................... 149,498 $ 26,010
------------ ------------
$ 230,471 $ 62,934
============ ============
NOTE 6--LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consist of:
MAY 31, FEBRUARY 28,
1998 1998
------------ ------------
Mortgages payable-Non-recourse, payable from
1998 through 2008. Interest rates from
5.61% to 11.5%............................. $ 27,373 $ 250
Capitalized lease obligations payable in
various amounts through 2017. Interest
rates range from 8% to 16%................. 29,468 11,033
Bankers Trust revolving credit facility of
up to $750,000, with interest at Base Rate
(as defined) (8.5% at May 31, 1998) due
2003....................................... 473,000 --
Plitt Theatres, Inc. Senior Subordinated
Notes with interest at 10.875% due 2004.... 200,000 --
------------ ------------
729,841 11,283
Less: Current maturities..................... 9,785 770
------------ ------------
$ 720,056 $ 10,513
============ ============
On May 14, 1998, in connection with the Combination, the Company
entered into a $1 billion senior credit facility with Bankers Trust
Company, as administrative agent. The new credit facility has been used to
repay all intercompany amounts due to Sony Corporation of America and
affiliates and has replaced Cineplex Odeon's existing credit facility. This
credit facility is comprised of a $750 million senior secured revolving
credit facility, secured by substantially all of the assets of LCP and its
subsidiaries, and a $250 million uncommitted facility. The credit facility
bears interest, at a rate of either the current prime rate as offered by
Bankers Trust Company or an Adjusted Eurodollar rate plus an applicable
margin based on the Company's Leverage Ratio (as defined). The senior
credit facility includes various financial covenants, including a leverage
test and interest coverage test, as well as customary restrictive
covenants, including: (i) limitations on indebtedness, (ii) limitations on
dividends and other payment restrictions, (iii) limitations on asset sales,
(iv) limitations on transactions with affiliates, (v) limitations on the
issuance and sale of capital stock of subsidiaries, (vi) limitations on
lines of business, (vii) limitations on merger, consolidation or sale of
assets and (viii) certain reporting requirements. The Company's initial
borrowing under the new credit facility to fund the aforementioned
transactions at the time of closing was $500 million.
The Company's revolving credit facility and Plitt Theatres, Inc. note
indenture contain certain covenants including those related to the
maintenance of maximum leverage ratios and a minimum debt service coverage
ratio, as defined by the agreements.
At February 28, 1998, the Company had debt due to a Sony Corporation
of America affiliate totaling $296,333 carrying an interest rate of 5.9%.
Concurrently with the closing of the Combination the Company repaid this
debt on May 14, 1998.
<PAGE>
NOTE 7--STOCKHOLDERS' EQUITY
The following table reconciles the Company's stockholders' equity for
the period from February 28, 1998 to May 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B
NON- NON- ADDITIONAL
VOTING VOTING VOTING PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
----------- -------- -------- ------- -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
February
28, 1998.... 19,270,321 $ 193 1,202,486 $ 12 -- $ -- $ 299,277 $ 25,029
Net loss
through
May 14, 1998 -- -- -- -- -- -- -- (3,944)
Exchange of
existing
Cineplex
Odeon
shares in
conjunction
with the
Combination. 17,699,914 177 -- -- 84,000 1 266,579 --
Issuance of
shares to
Universal
under a
subscription
agreement... 4,426,607 44 -- -- -- -- 84,456 --
Issuance of
shares to
Sony
affiliates
for Star
Theatres
and S&J
Theatres.... 2,664,304 27 -- -- -- -- (27) --
Stock Options
Exercise.... 18,778 -- -- -- -- -- 351 --
Dividend to
Sony
affiliate... -- -- -- -- -- -- (59,023) (21,085)
---------- ------ ---------- ------ ------ ----- ---------- -------
44,079,924 441 1,202,486 12 84,000 1 591,613 --
Results from
May 14, to
May 31, 1998 -- -- -- -- -- -- -- 3,201
---------- ------ ---------- ------ ------ ----- ---------- ------
Balance at
May 31, 1998 44,079,924 $ 441 1,202,486 $ 12 84,000 $ 1 $ 591,613 $3,201
========== ====== ========== ====== ====== ===== ========== ======
</TABLE>
NOTE 8--LEASES
The Company conducts a significant part of its operations in leased
premises. Leases generally provide for minimum rentals plus percentage
rentals based upon sales volume and also require the tenant to pay a
portion of real estate taxes and other property operating expenses. Lease
terms generally range from 20 to 40 years and contain various renewal
options, generally in intervals of 5 to 10 years.
Future minimum rental commitments at May 31, 1998 and February 28,
1998, related to operating and capital leases, having an initial or
remaining noncancelable lease term of one or more years, aggregated
$1,838,309 and $521,469, respectively. The increase in future minimum lease
commitments experienced during the period was primarily due to the
inclusion of the Cineplex Odeon commitments assumed as a result of the
consummation of the Combination.
NOTE 9--EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated, to conform with the requirements of SFAS No. 128. A
reconciliation of the number of shares used in the computations for basic
and diluted net loss per share is as follows:
THREE MONTHS ENDED MAY 31, 1998
-------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ----------- ------------
Basic EPS net loss applicable to common $ (743) 24,619,805 $ (0.03)
stock....................................
Effect of dilutive securities............ -- 364,744 --
---------- ----------- ------------
Diluted EPS net loss..................... $ (743) 24,984,549 $ (0.03)
========== =========== ============
THREE MONTHS ENDED MAY 31, 1997
-------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ----------- ------------
Basic EPS net loss applicable to common $ (400) 20,472,807 $ (0.02)
stock..................................
Effect of dilutive securities............ -- -- --
---------- ----------- ------------
Diluted EPS net loss..................... $ (400) 20,472,807 $ (0.02)
========== =========== ============
NOTE 10--STOCK OPTIONS
Pursuant to the Combination, the Company has converted the outstanding
Cineplex Odeon stock options as of May 14, 1998 into the Company's stock
options. As a result, the Company has a total of 3,413,633 stock options at
a weighted average exercise price of $13.05 outstanding at May 31, 1998. Of
the total options outstanding as of that date a total of 1,526,360 are
currently exercisable.
NOTE 11--NEW ACCOUNTING PRONOUNCEMENT
The following new pronouncement has been issued but is not yet
effective:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity," is effective for all the Company's fiscal quarters for all
fiscal years beginning February 28, 2000. This statement standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, by requiring that the Company
recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value.
The Company expects to adopt the above standard when required and does
not believe that it will have a significant impact on its financial
position or operating results.
NOTE 12--SUBSEQUENT EVENTS
Plitt Tender Offer
As a result of the Combination, Plitt Theatres, Inc. ("Plitt"),
Cineplex Odeon's U.S. theatre group became a wholly owned subsidiary of the
Company. Plitt has outstanding $200 million aggregate principal amount of
its 10 7/8% Senior Subordinated Notes due 2004 (the "Plitt Notes").
Additionally, a "change of control" was triggered under provisions of the
indenture under which the Plitt Notes were issued (the "Plitt Indenture").
Accordingly, on June 15, 1998, Plitt commenced an offer to purchase (the
"Change of Control Offer") any and all of the Plitt Notes for cash in an
amount equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to (but excluding) the date of purchase.
On June 15, 1998, Plitt commenced an at-the-market tender offer and
consent solicitation (the "At-the-Market Offer" and, together with the
Change of Control Offer, the "Plitt Note Repurchase") for any and all
outstanding Plitt Notes. Under the terms of the At-the-Market Offer, as
amended on June 26, 1998, Plitt has offered to purchase the outstanding
Plitt Notes for cash at a purchase price to be determined by reference to a
fixed spread of 55 basis points over the yield to maturity of the United
States Treasury 6.25% Bonds due May 31, 1999 (the "Reference Security") on
the second business day preceding the expiration date of the At-the-Market
Offer (the "Rate Date"), plus accrued and unpaid interest to (but
excluding) the date of payment. The consent solicitation sought noteholder
approval to amend the indenture in order to eliminate substantially all of
the restrictive covenants contained in the indenture. The consent
solicitation expired on July 1, 1998, when a supplemental indenture
effecting the proposed amendments was executed. On July 2, 1998, the
Company announced that the holders of more than 95% of the outstanding
principal amount of the Plitt Notes consented, in connection with the
at-the-market offer, to the above mentioned amendments. However, the
proposed amendments will only become operative upon consummation of the
At-the-Market Offer. The At-the-Market Offer, which expires on August 4,
1998, is subject to various conditions, including no event continuing that
could materially impair the benefits to the Company of the offer and
consent solicitation contemplated at the time that the offer was commenced.
Equity Offering
On June 15, 1998, the Company filed a Registration Statement on Form
S-1 under the Securities Act of 1933 offering to sell 10 million shares of
Common Stock, plus up to an additional 1.5 million shares under an
over-allotment option to be granted to the underwriters.
If the offering is consummated, the Company may be obligated to issue
additional shares of Common Stock to Universal for no additional
consideration pursuant to anti-dilution provisions in the Company's
subscription agreement with Universal.
Debt Offering
On June 17, 1998, the Company commenced an offering of $200 million
aggregate principal amount of Senior Subordinated Notes due 2008 to
qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933.
Subsequent Events - August
As a result of the consummation of the Combination, Loews Cineplex was
obligated to offer to purchase the outstanding Plitt Notes for a price
equal to 101% of the outstanding principal amount plus accrued and unpaid
interest. In order to satisfy this requirement and retire the Plitt Notes,
on June 15, 1998, Plitt commenced the At-the-Market Offer, which terminated
on August 4, 1998. Pursuant to the At-the-Market Offer, Plitt purchased 97%
of the outstanding Plitt Notes for $216 million or 109.261% of the
outstanding principal amount of the Plitt Notes, plus accrued and unpaid
interest, leaving approximately $6 million of the Plitt Notes outstanding.
In connection with closing the Combination, the Company guaranteed the
Plitt Notes on a senior subordinated basis, and Cineplex Odeon was released
from its guarantee of the Plitt Notes.
On August 5, 1998, the Company simultaneously completed a public
offering of 10 million shares of its common stock at a price of $11 a share
and the issuance of $300 million of 8 7/8% Senior Subordinated Notes due
2008 through a private placement. The Company used $215.7 million of the
proceeds from these offerings to acquire the Plitt Notes and the remaining
amount to reduce Bank Credit Facilities and pay fees and expenses
associated with these offerings.
Under the terms of an agreement with the DOJ, which was entered into
in connection with its approval of the Combination, the Company agreed to
divest 25 theatres, representing 85 screens in the New York and Chicago
areas. The sale of these theatres is subject to approval by the DOJ. On
August 27, 1998, the Company announced that it had reached an agreement to
sell 31 theatres in the New York City, Chicago and suburban New York areas
for $92 million to Cablevision, one of the nation's leading
telecommunications and entertainment companies, subject to certain
conditions, including DOJ approval and the receipt of certain consents. The
Company is in discussions with Cablevision regarding the steps to be taken
to obtain these approvals and consents, and an announcement is expected to
be made shortly. These 31 theatres include an additional seven theatres,
representing 21 screens, in the suburban New York area, which will be sold,
subject to certain conditions, in a separate transaction unrelated to the
agreement with the DOJ. The theatres being sold represent approximately
3.6% of the Company's total screens and 6.8% of total box office receipts
on an annual basis. Proceeds from the sale are expected to be used to
reduce borrowings under the Bank Credit Facilities and for general
corporate purposes. Subject to DOJ approval, the Company expects to close
these transactions in the third quarter ending November 30, 1998.
Two of the Company's leased drive-in motion picture theatres in the
State of Illinois are located on properties on which certain third parties
disposed of substantial quantities of auto shredder residue and other
debris. Such materials may contain hazardous substances. With respect to
one of these sites, located in Cicero, Illinois, the Company has been named
as one of two defendants in a lawsuit commenced in August 1998 by the
Illinois Attorney General's Office at the request of the Illinois
Environmental Protection Agency. The action was brought pursuant to the
Illinois Environmental Protection Act and alleges, among other things, that
the Company caused or allowed the disposal of certain wastes bearing
hazardous substances on the theatre property. The action seeks civil
penalties and various forms of equitable relief, including the removal of
all wastes allegedly present at the property, soil and groundwater testing
and remediation, if necessary. The Company's range of liability with
respect to this action cannot be precisely estimated at this time due to
several unknown factors, including the scope of contamination at the
theatre property, the allocation of such liability, if any, to other
responsible parties, and the ability of such parties to satisfy their share
of such liability. The Company has accrued an amount that it believes
represents the minimum amount of the Company's potential liability relating
to the action. The Company will continue to evaluate future information and
developments with respect to conditions at the theatre property and will
periodically reassess any liability and adjust its accrual accordingly.
Based on the foregoing, there can be no assurance that the Company's
liability in connection with this action will not be material.
NOTE 13--COMMITMENTS AND CONTINGENCIES
The Company has entered into commitments for the future development
and construction of theatre properties aggregating approximately $290.0
million (including letters of credit in the amount of $23.1 million). The
Company has also guaranteed an additional $45.4 million related to
obligations under lease agreements entered into by MJT. The Company is of
the opinion that MJT will be able to perform under its respective
obligations and that no payment will be required and no losses will be
incurred under these guarantees.
Additionally, the Company is committed, under the terms of the joint
venture agreement dated June 10, 1998 with Yelmo Films S.A., to provide
funding for the future development and construction of theatre properties
aggregating up to approximately $50 million. This acquisition will be
accounted for under the purchase method of accounting and the operating
results of the joint venture will be included from the date of acquisition.
The Company is a defendant in various lawsuits arising in the ordinary
course of business and is involved in certain environmental matters. It is
the opinion of management that any liability to the Company which may arise
as a result of these matters will not have a material adverse effect on its
financial condition.
<PAGE>
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596 7000
Facsimile 212 596 8910
PRICE WATERHOUSE LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Loews Cineplex
Entertainment Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Loews Cineplex Entertainment Corporation and its
subsidiaries at February 28, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended February 28, 1998, in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
New York, New York
May 21, 1998
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
FEBRUARY 28,
---------------------------
1998 1997
------------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................... $ 9,064 $ 2,160
Accounts receivable............................ 5,479 4,437
Inventories.................................... 1,146 1,455
Prepaid expenses and other current assets...... 2,520 2,235
------------- ----------
TOTAL CURRENT ASSETS........................ 18,209 10,287
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET.......... 609,152 613,692
OTHER ASSETS
Long-term investments and advances to
partnerships.................................. 31,763 23,642
Goodwill (less accumulated amortization of
$17,989 in 1998 and $16,200 in 1997).......... 53,143 54,932
Other intangible assets (less accumulated
amortization of $3,165 in 1998 and
$3,088 in 1997)............................... 6,005 6,340
Deferred charges and other assets.............. 10,279 12,479
------------- ----------
TOTAL ASSETS................................ $ 728,551 $ 721,372
============= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses.......... $ 62,934 $ 55,685
Due to SCA affiliates.......................... 3,810 1,323
Current maturities of long-term debt and other
obligations................................... 770 508
------------- ----------
TOTAL CURRENT LIABILITIES................... 67,514 57,516
DEFERRED INCOME TAXES............................ 18,299 22,111
LONG-TERM DEBT AND OTHER OBLIGATIONS............. 10,513 11,284
DEBT DUE TO SCA AFFILIATES....................... 292,523 293,227
ACCRUED POST RETIREMENT BENEFITS................. 3,791 3,483
OTHER LIABILITIES................................ 11,400 9,101
------------- ----------
TOTAL LIABILITIES........................... 404,040 396,722
------------- ----------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDER'S EQUITY
Common stock ($.01 par value, 25,000,000
shares authorized; 19,270,321 shares issued
and outstanding in 1998 and $200 par value
1,000 shares authorized; 972.75 issued and
outstanding in 1997).......................... 193 195
Common stock--Class A non-voting ($.01 par
value, 10,000,000 shares authorized,
1,202,486 shares issued and outstanding in
1998; no shares authorized in 1997)........... 12 --
Additional paid-in capital..................... 299,277 299,082
Retained earnings.............................. 25,029 25,373
------------- ----------
TOTAL STOCKHOLDER'S EQUITY.................. 324,511 324,650
------------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.. $ 728,551 $ 721,372
============= ==========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
FOR THE YEARS ENDED
-------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 28, 29,
1998 1997 1996
------------ ---------- -----------
REVENUES
Admissions............................. $ 296,933 $ 273,498 $ 264,585
Concessions............................ 104,009 90,643 84,358
Other.................................. 12,568 11,204 10,153
------------ ---------- -----------
413,510 375,345 359,096
------------ ---------- -----------
EXPENSES
Theatre operations and other expenses.. 291,421 266,846 261,286
Cost of concessions.................. 16,147 15,634 16,089
General and administrative............. 28,917 21,447 20,282
Depreciation and amortization.......... 52,307 44,576 41,273
Loss on sale/disposals of theatres..... 7,787 9,951 7,249
------------ ---------- -----------
396,579 358,454 346,179
------------ ---------- -----------
INCOME FROM OPERATIONS................... 16,931 16,891 12,917
INTEREST EXPENSE......................... 14,319 14,776 15,376
------------ ---------- -----------
INCOME/(LOSS) BEFORE INCOME TAXES........ 2,612 2,115 (2,459)
INCOME TAX EXPENSE....................... 2,751 2,295 309
------------ ---------- -----------
NET LOSS................................. $ (139) $ (180) $ (2,768)
============ ========== ===========
Weighted Average Shares
Outstanding--basic (A)................. 20,472,807 20,472,807 20,472,807
============ ========== ===========
Weighted Average Shares
Outstanding--diluted (A)............... 20,924,890 20,472,807 20,472,807
============ ========== ===========
Loss per Share--basic................... $ (.01) $ (.01) $ (.14)
============ ========== ===========
Loss Per Share--diluted................. $ (.01) $ (.01) $ (.14)
============ ========== ===========
- ---------------------------------------
(A) Fiscal years ended February 28, 1997 and February 29, 1996 have been
restated to reflect a stock dividend declared on February 5, 1998.
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------------------------------
CLASS A ADDITIONAL
VOTING NON-VOTING PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------------ ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, MARCH 1, 1995... 972.75 $ 195 -- $ -- $ 299,082 $ 28,321
YEAR ENDED FEBRUARY 29,
1996:
Net loss................ -- -- -- -- -- (2,768)
------------ ---------- --------- --------- --------- ----------
BALANCES, FEBRUARY 29, 1996 972.75 195 -- -- 299,082 25,553
YEAR ENDED FEBRUARY 28,
1997:
Net loss................ -- -- -- -- -- (180)
------------ ---------- --------- --------- --------- ----------
BALANCES, FEBRUARY 28, 1997 972.75 195 -- -- 299,082 25,373
YEAR ENDED FEBRUARY 28,
1998:
Stock dividend.......... 19,269,348.25 (2) 1,202,486 12 195 (205)
Net loss................ -- -- -- -- -- (139)
-------------- ---------- --------- --------- --------- ----------
BALANCES, FEBRUARY 28, 1998 19,270,321 $ 193 1,202,486 $ 12 $ 299,277 $ 25,029
============== ========== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
FOR THE YEARS ENDED
-----------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 28, 29,
1998 1997 1996
------------ ----------- ----------
OPERATING ACTIVITIES
Net loss.............................. $ (139) $ (180) $ (2,768)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization...... 52,307 44,576 41,273
Loss on sale/disposals of theatres. 7,787 9,951 7,249
Equity earnings from long-term
investments, net of
distributions received............ 887 (553) (1,974)
Changes in operating assets and
liabilities:
Increase/(Decrease) in due to SCA
affiliates........................ 2,487 (1,154) (1,840)
Decrease in deferred income taxes.. (3,812) (2,806) (1,998)
Increase in accounts receivable.... (1,042) (846) (1,992)
Increase in accounts payable and
accrued expenses.................. 7,249 977 11,850
Increase in other operating assets
and liabilities, net.............. (1,539) (1,989) (3,474)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 64,185 47,976 46,326
----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of assets.......... -- 1,043 17,707
(Advances to)/Repayments from
partnerships......................... (9,008) 6,623 1,090
Capital contributions to partnerships. -- -- (1,500)
Capital expenditures.................. (42,431) (60,920) (51,987)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES... (51,439) (53,254) (34,690)
----------- ----------- -----------
FINANCING ACTIVITIES
(Repayment)/Borrowing of debt due to
SCA affiliate........................ (5,333) 5,575 (13,421)
Repayments of long-term debt.......... (509) (527) (584)
----------- ----------- -----------
NET CASH (USED)/PROVIDED BY FINANCING
ACTIVITIES............................ (5,842) 5,048 (14,005)
----------- ----------- -----------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 6,904 (230) (2,369)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................... 2,160 2,390 4,759
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,064 $ 2,160 $ 2,390
=========== =========== ===========
Supplemental Cash Flow Information:
Income taxes paid, net of refunds
received.......................... $ 1,934 $ 1,414 $ 385
Interest paid (including $14,638, =========== =========== ===========
$15,394 and $15,194 paid to SCA
affiliates)...................... $ 15,823 $ 16,488 $ 16,393
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Loews Cineplex Entertainment Corporation ("LCP", "Loews Cineplex" or
the "Company"), formerly LTM Holdings, Inc., is one of the major motion
picture exhibitors in the United States and conducts business under the
Loews, Sony, Star, and Magic Johnson Theatres marquees. At February 28,
1998, LCP was an indirect wholly owned subsidiary of Sony Pictures
Entertainment Inc. ("SPE"), which itself is an indirect wholly owned
subsidiary of Sony Corporation of America ("SCA"). LCP owns, or has
interests in, and operates 1,035 screens at 139 theatres in 16 states as of
February 28, 1998. The Company's principal markets include New York,
Boston, Chicago, Dallas, Houston, Baltimore and Detroit.
Business Combination
On May 14, 1998, pursuant to the Amended and Restated Master Agreement
(the "Master Agreement") dated September 30, 1997, LTM Holdings, Inc. and
Cineplex Odeon Corporation ("Cineplex" or "Cineplex Odeon"), another major
motion picture exhibitor with operations in the U.S. and Canada, combined
(the "Combination"). As called for in the Master Agreement, the outstanding
common shares of Cineplex Odeon were exchanged for LCP shares on a ten for
one basis. Universal Studios, Inc., a major shareholder of Cineplex Odeon,
contributed cash of $84.5 million to the Company in exchange for additional
shares of stock in the Company. SPE and its affiliates have received a cash
payment of approximately $395 million (subject to certain final closing
adjustments) representing (i) a cash payment to satisfy all intercompany
indebtedness to affiliates of SCA as of the closing date, (ii) a cash
payment equal to the fair value of certain transferred assets, and (iii)
the payment of a dividend of approximately $80 million to a subsidiary of
SPE. The combination will be accounted for by LCP under the purchase method
of accounting and any excess of purchase price over the fair value of the
net assets of Cineplex Odeon will be recorded as goodwill.
At the closing of the Combination, the Company issued 11,691,249
shares of Common Stock and 80,000 shares of Class B Non-Voting Common Stock
to Universal Studios, Inc., 4,324,003 shares of Common Stock and 4,000
shares of Class B Non-Voting Common Stock to the Claridge Group and
6,013,456 shares of common stock to the other shareholders of record of
Cineplex Odeon Corporation in exchange for the outstanding shares of
Cineplex Odeon Corporation and its wholly-owned subsidiary, Plitt Theatres,
Inc. on that day. In addition, the Company issued 2,664,304 shares of
common stock in connection with the transfer of SPE's interest in Star
Theatres of Michigan, Inc. ("Star") and S&J Theatres, Inc. ("S&J") to the
Company.
As a result of the Combination, SPE, Universal Studios, Inc., the
Claridge Group and others own 51.1% (49.9% voting common stock), 26.0%
(26.6% voting common stock), 9.6% and 13.3%, respectively, of LCP common
stock.
Credit Facility
On May 14, 1998, LCP entered into a $1 billion senior credit facility
with Bankers Trust Company, as administrative agent. This new credit
facility replaces all existing credit facilities and/or credit arrangements
of Cineplex Odeon and LTM (see Note 6 for additional information).
At the closing, the Company guaranteed on a senior subordinated basis
$200 million outstanding principal amount of the 10 7/8% Senior
Subordinated Notes due 2004 of Plitt Theatres, Inc.
Department of Justice Settlement
On April 16, 1998, Loews Theatres and Cineplex Odeon reached an
agreement with the Department of Justice allowing the Combination to
proceed. This agreement has also been approved by the Attorneys General of
New York and Illinois, who had opposed the proposed merger under the
antitrust laws. Under the terms of the agreement, which is subject to court
approval following a public comment period, LCP will divest itself of
certain theatres in New York and Illinois.
Basis of Presentation and Consolidation: The consolidated financial
statements include the accounts of Loews Cineplex Entertainment Corporation
and its wholly-owned subsidiaries. As part of the Combination with Cineplex
Odeon, SPE and its affiliates have transferred their interests in S&J,
which owns a 50% interest in the Magic Johnson Theatre Partnership ("MJT"),
and Star, which indirectly owns a 50% interest in the Loeks-Star Theatre
Partnership ("LST"), and certain other exhibition assets to subsidiaries of
LCP. As these transfers were among parties under common control, LCP has
included the assets, liabilities and results of operations of S&J and Star
in these financial statements for all periods included herein on an as if
pooled basis. Majority owned companies are consolidated and 50% or less
owned investments in which the Company has significant influence are
accounted for under the equity method of accounting. Significant
intercompany accounts and transactions have been eliminated.
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.
Revenues and Expenses: Substantially all revenues are recognized when
admission and concession sales are received at the theatres. Other revenues
include the Company's equity earnings from long-term investments. Film
rental costs are accrued based on a percentage of box office receipts under
the terms of the film license arrangements.
Cash and Cash Equivalents: The Company considers all operating funds
held in financial institutions, cash held by the theatres and all highly
liquid investments with original maturities of three months or less when
purchased to be cash equivalents.
Fair Value of Financial Instruments: Cash, accounts receivable,
accounts payable, accrued liabilities and notes payable are reflected in
the financial statements at carrying value which approximates fair value.
Long-term debt principally consists of obligations which carry floating
interest rates that approximate current market rates.
Inventories: Inventories of concession products are stated at the
lower of cost (determined on the first-in, first-out method) or market.
Long-term Investments and Advances to Partnerships: Investments in
partnerships are recorded under the equity method of accounting whereby the
cost of the investment is adjusted to reflect the Company's proportionate
share of the partnerships' operating results. Advances to partners
represent advances to respective partnerships, in which LCP has interests,
for working capital and other capital requirements.
Deferred Charges and Other Assets: Deferred charges consist
principally of prepaid costs associated with recently opened theatres which
are generally amortized over three years, construction advances subject to
repayment and certain merger related costs.
Property, Equipment and Leaseholds: Property, equipment and leaseholds
are stated at historical cost less accumulated depreciation and
amortization. The Company has acquired the rights to use certain theatre
facilities under previously existing operating leases from other motion
picture exhibitors. Purchase values assigned to these theatre lease rights
acquired are capitalized and amortized over future periods.
<PAGE>
Depreciation and amortization are provided on the straight-line basis
over the following useful lives:
YEARS
-----
Buildings.............. 30-40
Equipment.............. 5-10
Leasehold Improvements. Life of lease but not in excess of useful lives
or 40 years
Theatre Lease Rights... Life of lease but not in excess of useful lives
or 40 years
Interest costs during the period of development and construction of
new theatre properties are capitalized as part of the historical cost of
the asset. Interest capitalized was $741, $586 and $139, respectively,
during the fiscal years ended February 28, 1998, February 28, 1997 and
February 29, 1996.
Goodwill and other intangible assets: Goodwill, which represents the
excess of the purchase price over the fair values of net assets acquired,
is amortized using the straight-line method over 40 years. Other intangible
assets are amortized over their estimated useful lives which range from 5
to 40 years. Management continuously assesses the recoverability of the net
unamortized goodwill and other intangibles by determining whether the
amortization of these balances over the remaining life can be recovered
through projected future undiscounted income from operations.
Long-Lived Assets: Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" requires the recoverability of the
carrying value of long-lived assets to be evaluated when changes occur in
historical operating results, future projections and economic and
competitive factors, among others. The Company continuously assesses the
recoverability of its long-lived assets in accordance with SFAS No. 121, by
determining whether the carrying value of these balances over the remaining
life can be recovered through projected future cash flows. Based upon these
measures, management has determined that the carrying value of its
long-lived assets is recoverable and fairly stated.
Stock Based Compensation: As permitted under SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company elected to account for its stock
based compensation plans under the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. The Company has complied with the disclosure
requirements of SFAS No. 123 (see Note 12 to these Consolidated Financial
Statements).
Earnings Per Share: In 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share." SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform with the requirements of SFAS No. 128. A reconciliation
of the number of shares used in the computations for basic and diluted net
loss per share is as follows:
NUMBER OF SHARES
FEBRUARY 28, 1998
-----------------
Basic loss per shares.......................... 20,472,807
Weighted average dilution under stock plans.... 452,083
----------------
Weighted average diluted loss per share........ 20,924,890
================
Net loss used in the computation of basic and diluted net loss per
share is not affected by the assumed issuance of stock under the Company's
stock plans and is therefore the same for both calculations.
Seasonality: The Company's business is seasonal with a substantial
portion of its revenues being derived during the summer months and holiday
season.
Income Taxes: For periods prior to the closing of the Combination, the
Company filed a consolidated tax return with SCA for federal income tax
purposes and combined tax returns with SCA in certain state and local
jurisdictions. However, for financial reporting purposes the Company
calculates federal, state and local income taxes as if it filed its tax
returns on a stand-alone basis. Any federal, state or local income tax
liability, resulting from the consolidated or combined filings with SCA, is
recorded as a payable to a SCA affiliate. Any state or local income tax
liability resulting from a separately filed tax return by the Company is
recorded as state or local income taxes payable. The Company accounts for
income taxes in accordance with SFAS No. 109 "Accounting for Income Taxes,"
following the liability method whereby deferred income tax assets and
liabilities are established annually based on the temporary differences
between the financial statement and tax recorded basis of assets and
liabilities, including assets and liabilities acquired in business
combinations, at currently enacted tax rates.
New Accounting Pronouncements: The following new pronouncements have
been issued but are not yet effective:
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for the Company's fiscal year ending February
28, 1999. The standard requires the Company to disclose financial
information about business segments including certain information about
products and services, activities in different geographic areas and other
information.
SFAS No. 132, "Employer's Disclosure about Pensions and Other
Post-Retirement Benefits," is effective for the Company's fiscal year
ending February 28, 1999. SFAS No. 132 standardizes the disclosure
requirements for pension and other post-retirement plans; the standard does
not change the measurement or recognition of such plans.
The Company expects to adopt the above standards when required and
does not believe they will have a significant impact.
NOTE 2--ACCOUNTS RECEIVABLE
As of February 28, 1998, accounts receivable consisted of trade
receivables of $1,885 and other receivables of $3,594. As of February 28,
1997, accounts receivable consisted of trade receivables of $2,455 and
other receivables of $1,982.
NOTE 3--PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds consists of:
FEBRUARY FEBRUARY
28, 28,
1998 1997
----------- ----------
Land................................................. $ 42,173 $ 42,173
Buildings............................................ 227,782 218,420
Equipment............................................ 149,468 132,236
Leasehold Improvements............................... 101,440 100,954
Theatre Lease Rights................................. 346,176 351,747
Construction in Progress............................. 30,859 18,758
----------- ----------
TOTAL PROPERTY, EQUIPMENT AND LEASEHOLDS......... 897,898 864,288
Less: Accumulated Depreciation and Amortization...... 288,746 250,596
----------- ----------
$ 609,152 $ 613,692
=========== ==========
The cost of property and equipment under capital leases amounted to
$12,971 and $13,330 with accumulated depreciation of $4,584 and $4,191 as
of February 28, 1998 and February 28, 1997, respectively. Depreciation
expense of property and equipment under capital leases is included in
depreciation and amortization expense.
During fiscal 1998, the Company continued to review the assets and
related intangibles of its motion picture theatres for impairment in
accordance with the provisions of SFAS No. 121. As a result of this
process, the Company has recognized a provision for asset impairment of
$4,409 which is included in depreciation and amortization in the
Consolidated Statement of Operations.
NOTE 4--LONG-TERM INVESTMENTS AND ADVANCES TO PARTNERSHIPS
As discussed in Note 1, effective May 14, 1998, SPE has contributed
its interests in S&J and Star, whose principal assets are investments in
LST and MJT. The historical carrying values for investments in S&J and Star
totaled $22,100 and $18,100 at February 28, 1998 and February 28, 1997,
respectively.
The Company's long-term investments consist of a 50% interest in LST
which operated 9 theatres with 108 screens and a 50% interest in MJT which
operated 3 theatres with 36 screens at February 28, 1998. The Company
accounts for these investments following the equity method of accounting.
The Company's carrying value of its investment in LST was
approximately $11,102 and $11,100 as of February 28, 1998 and February 28,
1997, respectively. The Company's carrying value in its investment in MJT
was approximately $370 and $1,300 at February 28, 1998 and February 28,
1997, respectively.
The Company's equity share of earnings in LST and MJT for the fiscal
years ended February 28, 1998, February 28, 1997 and February 29, 1996 was
approximately $2,905, $2,900 and $2,800, respectively.
As of February 28, 1998 and February 28, 1997, the Company had a
receivable from LST of $10,955 and $5,421, respectively. This receivable
was in the form of both notes and working fund advances. As of February 28,
1998 and February 28, 1997, the Company had a receivable from MJT of $9,336
and $5,862, respectively.
The following table presents condensed financial information for the
LST and MJT partnerships on a combined basis:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY FEBRUARY FEBRUARY
28, 28, 29,
1998 1997 1996
------------- ---------- ----------
<S> <C> <C> <C>
Admissions Revenue........................ $ 48,036 $ 34,248 $ 30,980
Concession and Other Revenues............. 22,461 15,378 13,514
------------- ---------- ----------
Total Revenues............................ 70,497 49,626 44,494
Theatre Operating Costs (including
cost of concessions).................... 55,769 38,281 33,467
General and Administrative Costs.......... 2,051 1,516 1,429
------------- ---------- ----------
12,677 9,829 9,598
Depreciation and Amortization............. 5,459 3,157 2,870
------------- ---------- ----------
Income from Operations.................... $ 7,218 $ 6,672 $ 6,728
============= ========== ==========
Net Income................................ $ 5,810 $ 5,786 $ 5,639
============= ========== ==========
Current Assets............................ $ 2,949 $ 2,109
============= ==========
Noncurrent Assets......................... $ 50,697 $ 42,946
============= ==========
Current Liabilities....................... $ 16,963 $ 10,708
============= ==========
Noncurrent Liabilities.................... $ 14,112 $ 9,629
============= ==========
</TABLE>
On April 27, 1998, LST refinanced the debt then outstanding with the
Company. The new facility is a line of credit with a third-party financial
institution which matures on April 30, 2003. The proceeds of this line of
credit were used to repay the outstanding affiliate debt due to the
Company.
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
FEBRUARY FEBRUARY
28, 28,
1998 1997
------------ ----------
Accounts payable--trade.......................... $ 36,924 $ 31,957
Accrued expenses and other....................... 26,010 23,728
------------ ----------
$ 62,934 $ 55,685
============ ==========
NOTE 6--LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consist of:
FEBRUARY FEBRUARY
28, 28,
1998 1997
---------- -----------
Mortgages payable--Non-recourse, payable
through 1999. Interest rates from
8.5% to 9%.................................. $ 250 $ 254
Capitalized lease obligations related to
theatre leases, payable in various amounts
through 2011. Interest rates range from 8%
to 16%...................................... 11,033 11,538
---------- -----------
11,283 11,792
Less: Current Maturities...................... 770 508
---------- -----------
$ 10,513 $ 11,284
========== ===========
Annual maturities of obligations under capital leases and long-term
debt for the next five fiscal years and thereafter are set forth as
follows:
YEAR ENDING FEBRUARY CAPITAL LEASES DEBT TOTAL
-------------------- -------------- ---------- ------------
1999............................ $ 520 $ 250 $ 770
2000............................ 568 -- 568
2001............................ 620 -- 620
2002............................ 675 -- 675
2003............................ 701 -- 701
Thereafter...................... 7,949 -- 7,949
-------------- ---------- -------------
$ 11,033 $ 250 $ 11,283
============== ========== =============
On May 14, 1998, in connection with the Combination, the Company
entered into a $1 billion senior credit facility with Bankers Trust
Company, as administrative agent. The new credit facility has been used to
repay all intercompany amounts due to SCA and affiliates and has replaced
Cineplex Odeon's existing credit facility. This credit facility is
comprised of a $750 million senior secured revolving credit facility,
secured by substantially all of the assets of LCP and its U.S.
subsidiaries, and a $250 million uncommitted facility. The credit facility
bears interest, at a rate of either the current prime rate as offered by
Bankers Trust Company or an Adjusted Eurodollar rate plus an applicable
margin based on the Company's Leverage Ratio (as defined). The senior
credit facility includes various financial covenants, including a leverage
test and interest coverage test, as well as customary restrictive
covenants, including: (i) limitations on indebtedness, (ii) limitations on
dividends and other payment restrictions, (iii) limitations on asset sales,
(iv) limitations on transactions with affiliates, (v) limitations on the
issuance and sale of capital stock of subsidiaries, (vi) limitations on
lines of business, (vii) limitations on merger, consolidation or sale of
assets and (viii) certain reporting requirements. The Company's initial
borrowing under the new credit facility to fund the aforementioned
transactions at the time of closing was $500 million.
NOTE 7--LEASES
The Company conducts a significant part of its operations in leased
premises. Leases generally provide for minimum rentals plus percentage
rentals based upon sales volume and also require the tenant to pay a
portion of real estate taxes and other property operating expenses. Lease
terms generally range from 20 to 40 years and contain various renewal
options, generally in intervals of 5 to 10 years.
Future minimum rental commitments at February 28, 1998 under the above
mentioned operating and capital leases, having an initial or remaining
noncancelable lease term of one or more years are set forth as follows:
OPERATING CAPITAL
YEAR ENDING FEBRUARY LEASES LEASES
-------------------- ----------- ----------
1999............................................ $ 35,860 $ 1,416
2000............................................ 35,419 1,415
2001............................................ 34,719 1,416
2002............................................ 34,168 1,415
2003............................................ 33,164 1,368
Thereafter...................................... 337,106 10,892
---------- ----------
Total Minimum Rentals........................... $ 510,436 17,922
Less Amount Representing Interest............... ========== 6,889
----------
Present Value of Net Minimum Rentals............ $ 11,033
==========
Minimum rental expense aggregated $31,368, $30,200 and $29,900 for the
years ended February 28, 1998, February 28, 1997 and February 29, 1996,
respectively, related to operating leases. Percentage rental expense for
those same periods aggregated $3,449, $2,918 and $2,571, respectively.
NOTE 8--EMPLOYEE AND POST-RETIREMENT BENEFIT PLANS
The Company accrues amounts ranging from 20% to 23% of gross salaries
for fringe benefits (i.e. Medical, Dental, FICA and Savings Plan
Contributions), which approximates actual costs incurred and SPE billings
on behalf of the Company.
Profit Sharing and Savings Plan: The Company has a defined
contribution Profit Sharing and Savings Plan ("Savings Plan") for
substantially all eligible salaried employees under which the Company
contributes by matching 50% of the employee contribution up to a maximum of
6% of the statutory limit of eligible compensation. A participant may elect
to contribute up to an additional 10% of eligible compensation (subject to
the statutory limit), however this amount is not eligible for matching
contributions by the Company. The Savings Plan also provides for special
profit sharing contributions, the annual amount of which is determined at
the discretion of the Company. The expense recorded by the Company related
to contributions to the Savings Plan aggregated $1,670, $1,204 and $1,037
for the years ended February 28, 1998, February 28, 1997 and February 29,
1996, respectively.
Employee Health and Welfare and Other Post-retirement Benefits:
Employee health and welfare benefits and post-retirement benefits are
administered and provided for by SPE. Costs related to post-retirement
benefits are allocated to the Company based on actuarially determined
amounts. The Company has accrued post-retirement benefits of $3,791 and
$3,483 at February 28, 1998 and February 28, 1997, respectively, and
recognized an annual cost of $339, $262 and $137 for the years ended
February 28, 1998, February 28, 1997 and February 29, 1996, respectively.
Other Plans: Various employees are covered by union sponsored pension
plans. The contributions are determined in accordance with provisions of
negotiated labor contracts. Under these agreements, pension expense
aggregated $1,204, $1,471 and $1,429 for the years ended February 28, 1998,
February 28, 1997 and February 29, 1996, respectively.
NOTE 9--RELATED PARTY TRANSACTIONS
The Company has exhibited films distributed by SPE in the past, and
expects to continue to do so in the future. Payments are based on
negotiated and/or contracted rates established on terms that management
believes are equivalent to an arm's-length basis. At February 28, 1998 and
February 28, 1997, the Company owed SPE and affiliates $2,521 and $6,352,
respectively, under film licensing agreements. The Company has recognized
film rental expenses relating to the exhibition of films distributed by SPE
in the amount of $30,399, $16,189 and $16,668 for the years ended February
28, 1998, February 28, 1997 and February 29, 1996, respectively.
<PAGE>
The debt due to (from) SCA affiliates at February 28, 1998 and
February 28, 1997, consists of the following:
FEBRUARY FEBRUARY
28, 28,
1998 1997
------------ ----------
Short Term:
Due from affiliates............................. $ -- $(2,683)(C)
Accrued interest payable........................ 3,810(A) 4,006(A)
------------ ----------
TOTAL SHORT-TERM............................. 3,810 1,323
------------ ----------
Long Term:
Promissory Notes due to affiliates.............. 182,170(A) 184,420(A)
Debt due to SCA affiliate....................... 66,135(B) 69,218(B)
------------ ----------
248,305 253,638
Payable due to SCA Affiliate in lieu of income
taxes (Note 10)................................. 44,218 39,589
------------ ----------
TOTAL LONG-TERM.............................. 292,523 293,227
------------ ----------
TOTAL........................................ $296,333 $294,550
============ ==========
Interest expense incurred on the "Debt due to SCA Affiliates" was
$14,638, $14,934 and $15,218 for the years ended February 28, 1998,
February 28, 1997 and February 29, 1996, respectively.
(A) Represents promissory notes payable to an affiliate of SCA.
The notes bear interest at an intercorporate rate determined by SCA
which is in effect thirty days prior to the commencement date of each
quarter (the "SCA Intercorporate Rate"). Interest is payable on
November 1 and May 1, of each fiscal year. Interest rates were 5.9%,
6.1% and 6.2% as of February 28, 1998, February 28, 1997 and February
29, 1996, respectively. The notes mature in the form of a balloon
payment due October 31, 1998 and are subordinate to all other existing
and future liabilities of the Company. As described in Note 6 the
Company has negotiated a new credit facility which has replaced the
SCA credit facilities. The new credit facility is a long-term facility
and since its proceeds have, in part, been used to pay off the
existing intercompany debt, all intercompany debt is being reported by
the Company as long-term.
(B) Prior to the closing of the Combination, the Company
periodically transferred excess cash to a SCA affiliate for cash
management purposes and in turn receives cash advances from the SCA
affiliate to fund the Company's short-term working capital
requirements. The balance "Debt due to SCA Affiliate" represents the
amount of cash provided by a SCA affiliate to fund the Company's
working capital needs and capital expenditure requirements in excess
of cash repatriated. This working fund bore interest at the SCA
Intercorporate Rate. As described in Note 6, the Company has
negotiated a new credit facility which has replaced the SCA credit
facilities. The new credit facility is a long-term facility and since
its proceeds have, in part, been used to pay off the existing
intercompany debt, all intercompany debt is being reported by the
Company as long-term.
(C) Represents the amount due from a SCA affiliate for equipment
purchases.
In addition to the above related party transactions, SCA affiliates
provide certain services relating to the following activities: Insurance
and risk management services including excess liability, workman's
compensation and officers and directors coverage among others, benefits
administration and payroll processing, and tax processing services. LCP
provides certain services to SCA affiliates relating to the following
activities: Finance, Administrative and MIS support. The net amount charged
to the Company for these services amounted to $570, $1,207 and $1,325 for
the years ended February 28, 1998, February 28, 1997 and February 29, 1996,
respectively. For the years ended February 28, 1998, February 28, 1997 and
February 29, 1996, the Company was also charged by a SCA affiliate for
certain administrative related services in the amounts of $1,835, $1,667,
and $1,716, respectively. The Company believes the costs of the above
mentioned services are commensurate with that which would be charged by
third parties for similar services.
NOTE 10--INCOME TAXES
For periods prior to the closing of the Combination, the Company filed
a consolidated tax return with SCA for federal income tax purposes and
combined tax returns with SCA in certain state and local jurisdictions.
However, for financial reporting purposes, the Company calculates federal,
state and local income taxes as if it filed its returns on a stand-alone
basis. Any federal, state or local income tax liability resulting from the
consolidated or combined filing with SCA is included in the balance sheet
under the caption "Debt due to SCA affiliate" (see Note 9). Any state or
local income tax liability resulting from a separately filed tax return by
the Company is recorded as state and local income taxes payable.
The provision for income taxes consists of the following:
FEBRUARY FEBRUARY FEBRUARY
28, 28, 29,
1998 1997 1996
---------- ---------- ----------
Current tax expense
U.S. Federal........................ $ 4,013 $ 3,269 $ 1,263
State and Local..................... 2,551 1,832 1,044
---------- ---------- ----------
Total Current.................... 6,564 5,101 2,307
Deferred tax expense/(benefit)
U.S. Federal........................ (2,744) (2,019) (1,438)
State and Local..................... (1,069) (787) (560)
---------- ---------- -----------
Total tax provision.............. $ 2,751 $ 2,295 $ 309
========== ========== ===========
Reconciliation of the provision for income taxes to the statutory
federal income tax rate follows:
FEB. FEB. FEB.
28, 28, 29,
1998 % 1997 % 1996 %
--------- ----- ------- ----- ------ ----
Provision/(benefit) on
pre-tax income/(loss) at
statutory federal income
tax rate.................... $ 914 35.0% $ 741 35.0% $(861) 35.0%
Provision for state and local
taxes (net of federal
income tax benefit)......... 963 36.9 679 32.1 315 (12.8)
Other non-deductible expenses
(primarily amortization of
goodwill and other
intangible assets).......... 874 33.5 875 41.4 855 (34.8)
------- ----- ------- ----- ------ ------
$2,751 105.4% $2,295 108.5% $ 309 (12.6)%
======= ===== ======= ===== ====== ======
Net deferred tax assets and liabilities are comprised of the following:
FEBRUARY FEBRUARY
28, 28,
1998 1997
------------- ----------
Net deferred tax assets
Loss on sale/disposals of theatres.............. $ 6,683 $ 3,540
Accrued post retirement benefits................ 1,623 1,491
Other........................................... 189 1,242
------------- ----------
Total Net Deferred Tax Assets................ 8,495 6,273
------------- ----------
Net deferred tax liabilities......................
Depreciation--Property, equipment and leaseholds. 23,733 24,974
Amortization--Other intangible assets............ 3,061 3,410
------------- ----------
Total Net Deferred Tax Liabilities........... 26,794 28,384
------------- ----------
Net Deferred Tax Liability................... $ 18,299 $ 22,111
============= ==========
NOTE 11--LOSS ON SALE/DISPOSALS OF THEATRES
Aggregate losses on sale/disposals of theatres were $7,787, $9,951 and
$7,249 during the fiscal years ended February 28, 1998, February 28, 1997
and February 29, 1996, respectively, and were recorded primarily in
connection with management's decision to dispose of several theatres during
those fiscal years.
NOTE 12--STOCK OPTION PLAN
The Company has adopted the 1997 Stock Incentive Plan (the "Plan")
providing for the granting of options to employees, officers, directors,
consultants and advisors of the Company or an affiliate. The Plan is
administered by a committee of the Board of Directors (the "Committee").
The Plan provides for the grants or awards of incentive and non-qualified
stock options, stock appreciation and dividend equivalent rights,
restricted stock, performance units and performance shares. During December
1997, the Company granted non-qualified stock options to certain key
employees. Except in the case of 500,000 options granted, which vest
immediately, the options granted generally vest and become exercisable
ratably over a five year period commencing on the first anniversary of the
closing date of the Combination, but in any event, will be fully vested and
exercisable as of the fifth anniversary of the date of grant. The options
generally expire ten years after grant.
The following table summarizes information about stock options
outstanding at February 28, 1998:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- ----------
Shares under option:
Outstanding at beginning of year.................. -- $ --
Granted......................................... 2,170,000 13.125
Exercised....................................... -- --
Forfeited....................................... -- --
Outstanding at end of year........................ 2,170,000 $13.125
Options exercisable at year-end................... 500,000 $13.125
Weighted average fair value of options granted
during 1998..................................... $4.36
The fair value of each stock option granted during fiscal 1998 is
estimated on the date of grant utilizing the Black-Scholes options pricing
model based on the following assumptions:
Expected life (years).......................... 5.0
Expected volatility............................ 23.46%
Expected dividend yield........................ --
Risk free interest rate........................ 5.77%
The Company applies APB No. 25 and related interpretations in
accounting for the Plan. Accordingly, as the exercise price at the date of
grant equaled the estimated fair value of a common share, no compensation
cost has been recognized in connection with the issuance of options under
the Plan. Had compensation cost for the Plan been determined based upon the
fair value at the date of grant, consistent with the methodology under SFAS
No. 123, the Company's net loss and loss per share for the year ended
February 28, 1998 would have been increased to the pro forma amounts
indicated below:
FOR THE
YEAR ENDED
FEBRUARY
28,
1998
----------
Net loss.......................................... As reported $ (139)
==========
Pro forma $ (1,555)
==========
Loss per share--basic.............................. As reported $ (0.01)
==========
Pro forma $ (0.08)
==========
Loss per share--diluted............................ As reported $ (0.01)
==========
Pro forma $ (0.07)
==========
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts. The Company anticipates granting
additional awards in future years.
NOTE 13--COMMITMENTS AND CONTINGENCIES
The Company has entered into commitments for the future development
and construction of theatre properties aggregating approximately $177,777
(including letters of credit in the amount of $17,242). The Company has
also guaranteed an additional $45,860 related to obligations under lease
agreements entered into by MJT. The Company is of the opinion that MJT will
be able to perform under its respective obligations and that no payment
will be required and no losses will be incurred under these guarantees.
The Company is a defendant in various lawsuits arising in the ordinary
course of business and is involved in certain environmental matters. It is
the opinion of management that any liability to the Company which may arise
as a result of these matters will not have a material adverse effect on its
financial condition.
Additionally, as a result of the consummation of the Combination the
Company is obligated to offer to purchase all of the outstanding 10 7/8%
Senior Subordinated Notes due June 15, 2004 of Plitt Theatres, Inc. ("Plitt
Notes") at a price equal to 101% of the outstanding principal amount
thereof plus accrued interest. If all such notes are tendered, the amount
required to be paid could be approximately $202 million. The Company
anticipates utilizing a portion of the Credit Facility should any
bondholders accept the tender offer. In connection with the Combination,
the Company guaranteed the obligations of Plitt Theatres under the Plitt
Notes on a senior subordinated basis, and Cineplex Odeon was released from
its guarantee of such notes.
NOTE 14--STOCKHOLDER'S EQUITY
On December 16, 1997, the Company's Board of Directors passed a
resolution increasing the number of common shares authorized from 1,000
shares to 2,000 shares. Subsequently, on February 5, 1998, the Company's
Board of Directors passed an additional resolution further increasing the
number of common shares authorized from 2,000 to 25,000,000, as well as
authorizing the issuance of up to 10,000,000 shares of Class A Non-Voting
$.01 par value Common Stock.
Additionally, on February 5, 1998, the Board of Directors declared,
and the Company paid, a stock dividend of 19,269,348.25 shares of common
stock and 1,202,486 shares of Class A Non-Voting Common Stock. As a result
of the stock dividend, approximately $205,000 was transferred from retained
earnings to additional paid-in-capital and common stock.
On May 7, 1998, the Company's Board of Directors passed a resolution
increasing the number of common shares authorized from 25,000,000 to
300,000,000. Additionally, the resolution included the authorization to
issue up to 10,000,000 shares of Class B Non-Voting $.01 par value Common
Stock and 10,000,000 shares of $.01 par value preferred stock. This action
was taken in conjunction with the anticipated closing of the Combination on
May 14, 1998.
<PAGE>
67 West Michigan Avenue, Suite 600
Telephone 616-965-1351
P.O. Box 1637
Battle Creek, MI 49016
PRICE WATERHOUSE LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Loeks-Star Partners
In our opinion, the accompanying balance sheet and the related
statements of income, of partners' capital and of cash flows present
fairly, in all material respects, the financial position of Loeks-Star
Partners at February 26, 1998 and February 27, 1997 and the results of its
operations and its cash flows for the fifty-two weeks ended February 26,
1998, the fifty-two weeks ended February 27, 1997 and the fifty-three weeks
ended February 29, 1996, respectively, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Battle Creek, Michigan
April 15, 1998
<PAGE>
LOEKS-STAR PARTNERS
BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
FEBRUARY FEBRUARY
26, 27,
1998 1997
------------ ----------
ASSETS
Current assets:
Cash............................................. $ 730 $ 156
Accounts receivable.............................. 596 206
Inventories...................................... 164 109
Prepaid expenses and other....................... 1,042 715
------------ ----------
TOTAL CURRENT ASSETS.......................... 2,532 1,186
Property and equipment, net........................ 27,393 23,767
Investment in Star Southfield Center, L.L.C........ 6,485 5,450
Goodwill, less accumulated amortization ($1,690 in
1998 and $1,509 in 1997) ........................ 4,461 4,642
------------ ----------
TOTAL ASSETS................................ $ 40,871 $ 35,045
============ ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Notes payable to partner--current portion........ $ 1,000 $ 2,000
Accounts payable................................. 2,704 2,413
Accrued film rental.............................. 6,143 3,885
Other............................................ 1,582 809
------------ ----------
TOTAL CURRENT LIABILITIES..................... 11,429 9,107
Deferred state taxes............................... 610 580
Notes payable to partner........................... 7,000 3,200
Partners' capital.................................. 21,832 22,158
------------ ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL....... $ 40,871 $ 35,045
============ ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
LOEKS-STAR PARTNERS
STATEMENTS OF INCOME
(IN THOUSANDS OF U.S. DOLLARS)
FIFTY-TWO FIFTY-TWO FIFTY-THREE
WEEKS WEEKS WEEKS
ENDED ENDED ENDED
FEBRUARY FEBRUARY FEBRUARY
26, 27, 29,
1998 1997 1996
----------- ---------- ----------
REVENUES:
Box office receipts.................... $ 39,005 $ 27,992 $ 27,344
Concessions............................ 18,327 12,887 12,208
Other.................................. 902 611 509
----------- ---------- ----------
TOTAL REVENUES...................... 58,234 41,490 40,061
----------- ---------- ----------
EXPENSES:
Operating expenses..................... 44,170 30,460 28,958
General and administrative............. 2,253 1,678 1,397
Depreciation and amortization.......... 2,490 2,371 2,323
Amortization of pre-opening expenses... 1,237 -- --
----------- ---------- ----------
TOTAL EXPENSES...................... 50,150 34,509 32,678
----------- ---------- ----------
OPERATING INCOME......................... 8,084 6,981 7,383
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income........................ 74 63 342
Interest expense....................... (640) (644) (1,460)
----------- ---------- ----------
(566) (581) (1,118)
----------- ---------- ----------
Income before equity in net loss of Star
Southfield Center, L.L.C............... 7,518 6,400 6,265
Equity in net loss of Star Southfield
Center, L.L.C.......................... (265) -- --
----------- ---------- ----------
NET INCOME.......................... $ 7,253 $ 6,400 $ 6,265
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
LOEKS-STAR PARTNERS
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS OF U.S. DOLLARS)
LOEKS STAR
PARTNER PARTNER TOTAL
----------- ---------- ---------
Partners' capital--February 23, 1995...... $7,934.1 $7,934.1 $15,868.2
Net income allocated...................... 3,132.3 3,132.3 6,264.6
Distributions to partners................. (888.5) (888.5) (1,777.0)
----------- ---------- ---------
Partners' capital--February 29, 1996...... 10,177.9 10,177.9 20,355.8
Net income allocated...................... 3,199.9 3,199.9 6,399.8
Distributions to partners................. (2,298.8) (2,298.8) (4,597.6)
----------- ---------- ---------
Partners' capital--February 27, 1997...... 11,079.0 11,079.0 22,158.0
Net income allocated...................... 3,626.4 3,626.4 7,252.8
Distributions to partners................. (3,789.4) (3,789.4) (7,578.8)
----------- ---------- ---------
PARTNERS' CAPITAL--FEBRUARY 26, 1998...... $10,916.0 $10,916.0 $21,832.0
=========== ========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
LOEKS-STAR PARTNERS
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-THREE
WEEKS ENDED WEEKS ENDED WEEKS ENDED
FEBRUARY 26, FEBRUARY 27, FEBRUARY 29,
1998 1997 1996
---------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .............................................................. $ 7,253 $ 6,400 $ 6,265
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation ......................................................... 2,309 2,190 2,142
Amortization ......................................................... 181 181 181
Equity in net loss of Star
Southfield Center, L.L.C............................................. 265 -- --
Deferred state taxes ................................................. 30 -- (45)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable......................................................... (390) 15 166
(Increase) decrease in
inventories ....................................................... (55) 3 (7)
(Increase) decrease in prepaid
expenses and other................................................. (327) (99) 89
Increase (decrease) in accounts
payable............................................................ 291 541 (168)
Increase in accrued film rental ..................................... 2,258 783 251
Increase (decrease) in other
current liabilities................................................ 774 (332) (22)
------ -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ........................................... 12,589 9,682 8,852
------ -------- --------
INVESTING ACTIVITIES:
Acquisition of property and equipment ................................... (5,936) (873) (382)
Construction advances--Star
Southfield Center, L.L.C................................................ -- (55) (1,086)
Cash contribution to Star Southfield
Center, L.L.C........................................................... (1,300) (4,309) --
------ -------- --------
NET CASH USED IN INVESTING
ACTIVITIES...................................................... (7,236) (5,237) (1,468)
------ -------- --------
FINANCING ACTIVITIES:
Net borrowings under the revolving
credit line............................................................. 1,000 -- --
Principal payments on note payable
to partner.............................................................. (2,000) (17,663) (1,971)
Proceeds from borrowings on note
payable to partner...................................................... 3,800 6,500 --
Distributions to partners ............................................... (7,579) (4,598) (1,777)
------ -------- --------
NET CASH USED IN FINANCING
ACTIVITIES...................................................... (4,779) (15,761) (3,748)
------ -------- --------
NET INCREASE (DECREASE) IN CASH ........................................... 574 (11,316) 3,636
CASH AT BEGINNING OF YEAR ................................................. 156 11,472 7,836
------ -------- --------
CASH AT END OF YEAR ....................................................... $ 730 $ 156 $ 11,472
====== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ................................................................ $ 511 $ 1,001 $ 1,412
State and local taxes ................................................... $ 291 $ 300 $ 373
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LOEKS-STAR PARTNERS
NOTES TO FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT AS OTHERWISE NOTED)
1. ORGANIZATION
Loeks-Star Partners (the Partnership) consists of two partners, Loeks
Michigan Theatres, Inc. (Loeks) and Star Theatres of Michigan, Inc. (Star),
a wholly-owned subsidiary of Sony Pictures Entertainment, Inc. (Sony). The
Partnership is engaged in the business of motion picture exhibition in the
State of Michigan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
disclosures 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.
Revenues and Expenses
Substantially all revenues are recognized when box office receipts and
concession sales are received at the theatres. Film rentals are accrued
based on percentage of box office receipts under the terms of the film
licensee arrangements.
Property and Equipment
Land, buildings and equipment are stated at cost and include
expenditures for major renewals and betterments. Maintenance and repairs
that do not improve or extend the lives of the respective assets are
expensed as incurred.
Depreciation is computed using the straight-line method and is
recognized over the estimated useful lives of the related assets which
range from 10 to 31.5 years. Interest costs related to the period of
development and construction of new theatre properties are capitalized as
part of the historical cost of the asset.
Income Taxes
No federal income taxes are provided in the Partnership financial
statements as the Partnership results of operations are included in the
federal income tax returns of the individual partners. The Partnership
conducts operations in the State of Michigan, which imposes a tax based, in
part, on factors other than income, and requires the Partnership entity
rather than the individual partners to pay the tax. This tax is included in
general and administrative expenses.
The future tax consequences of current Michigan capital acquisitions
are recognized as deferred state taxes in the year of acquisition.
Goodwill
Goodwill represents the excess of the Loeks credited capital
contribution over the net book value of assets contributed upon Partnership
formation. Goodwill is being amortized over approximately thirty-five years
on a straight-line basis.
Retirement Plan
The Partnership has a 401(k) plan for full-time employees with over
one year of service. The Partnership, at its discretion, may elect to match
employee contributions up to 5% of each employee's gross wages. In 1998,
1997 and 1996, the Partnership expense for matching contributions
approximated $91, $73 and $56, respectively.
Theatre Pre-opening Expenses
Expenses associated with new theatre openings are expensed as
incurred. Pre-opening expenses incurred during 1998 aggregated $1,237. No
pre-opening expenses were incurred in 1997 or 1996.
Reclassifications
Certain amounts in the 1997 financial statements and related notes
have been reclassified to conform with the 1998 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
FEBRUARY FEBRUARY
26, 27,
1998 1997
----------- ----------
Land.............................................. $ 849 $ 249
Land and leasehold improvements................... 23,424 20,538
Structures........................................ 2,120 2,118
Sound and projection equipment.................... 4,401 3,851
Furniture and fixtures............................ 7,381 6,766
Concession equipment.............................. 1,624 1,592
Other equipment................................... 2,714 2,712
Construction-in-progress.......................... 1,479 231
----------- ----------
43,992 38,057
Less--allowance for depreciation.................. (16,599) (14,290)
----------- ----------
$ 27,393 $ 23,767
=========== ==========
4. LEASES AND COMMITMENTS
The Partnership leases the land and/or buildings for eight of its nine
theatres. These leases are classified as operating leases and certain
leases require contingent lease payments, primarily based on a percentage
of box office receipts in excess of stated minimum amounts. The leases also
contain provisions (a series of renewal options) for each theatre which can
extend lease terms up to forty years beyond the initial lease term at the
option of the Partnership.
Total rent expense included in operating expenses is comprised of the
following:
FEBRUARY FEBRUARY FEBRUARY
26, 27, 29,
1998 1997 1996
---------- --------- --------
Minimum lease payments................ $3,650 $1,513 $1,512
Contingent lease payments............. 432 295 267
Rentals under cancelable leases....... 28 30 20
---------- --------- --------
$4,110 $1,838 $1,799
========== ========= ========
Future minimum lease payments as of February 26, 1998 are as follows:
1999.......................................................... $4,212
2000.......................................................... 4,183
2001.......................................................... 4,233
2002.......................................................... 4,169
2003.......................................................... 4,144
Thereafter.................................................... 47,822
------------
$68,763
============
5. NOTES PAYABLE TO PARTNER
Partnership debt payable to Star is as follows:
FEBRUARY FEBRUARY
26, 27,
1998 1997
--------- ----------
Revolving credit line with interest payable
semi-annually, plus interest at a rate of 7.31%
at February 26, 1998, due April 1, 2000......... $ 1,000 $ --
Term loan, payable in semi-annual installments of
$1,000 plus interest at a rate of 7.31% at
February 26, 1998, due April 1, 2001............ 7,000 5,200
--------- ----------
8,000 5,200
Less: current portion............................. (1,000) (2,000)
--------- ----------
$ 7,000 $ 3,200
========= ==========
On April 27, 1998, the Partnership refinanced the debt then
outstanding under the Partnership credit facility in place at February 26,
1998. Classification of the debt outstanding at February 26, 1998 is based
on the terms of the new credit facility except for the $1,000 payment made
on April 1, 1998 under the old credit facility. The new credit facility is
a $50,000 line of credit which matures on April 30, 2003. Interest on
borrowings under the line of credit bear interest at a fixed or variable
LIBOR based rate at the borrower's option, as defined by the credit
agreement, and is payable monthly. In addition, a commitment fee equal to
1/4% of the daily average unused portion of the line of credit is payable
quarterly. The credit agreement also includes certain financial covenants
which the Partnership must comply with during the term of the agreement.
6. RELATED PARTY TRANSACTIONS
Each partner is reimbursed for expenses incurred for services
provided. Loeks was reimbursed $1,200, $911 and $903 in 1998, 1997 and 1996
respectively, for management services. Star was paid $60 in 1998, 1997 and
1996 for film-buying services.
Star, in its capacity as film buying agent, has retained Sony Theatres
Management Corp., an affiliate, as its agent to negotiate film rental
terms. The Partnership recognized film rental expense of $20,552, $14,640
and $13,756 in 1998, 1997 and 1996 respectively.
The Partnership also purchased $601, $110 and $394 of equipment at
Loeks' cost from Loeks in 1998, 1997 and 1996 respectively.
7. INVESTMENT IN STAR SOUTHFIELD CENTER, L.L.C.
In 1996, the Partnership entered into a joint venture with Millennium
Partners LCC (Millennium Entertainment Partners L.P. prior to May 28, 1997)
to form Star Southfield Center, L.L.C. for the purpose of constructing and
leasing a twenty screen motion picture theatre and retail complex. The
total investment at February 27, 1997 consisted of $1,141 of construction
advances and $4,309 of cash contributions. An additional cash contribution
of $1,300 was made during 1998. The complex opened for operations in June
1997.
The investment is carried at cost and adjusted to reflect the
Partnership's equity in earnings or losses and distributions of the joint
venture.
<PAGE>
The Partnership holds a 50% voting interest in the joint venture and
operating results are allocated as defined in the operating agreement.
Condensed balance sheets of Star Southfield Center, L.L.C. which has a
fiscal year ending October 31 are as follows:
<TABLE>
<CAPTION>
UNAUDITED AUDITED
------------ -----------------------
FEBRUARY 28, OCTOBER 31, OCTOBER 31,
1998 1997 1996
----------- --------- -----------
<S> <C> <C> <C>
Current assets .................. $ 565 $ 987 $ 590
Properties, net ................. 40,144 40,247 16,121
Other ........................... 265 278 315
---------- -------- -------
Total assets ................. $ 40,974 $ 41,512 $17,026
========= ========= =======
Current liabilities ............. $ 3,532 $ 4,505 $ 3,944
Notes payable-long-term ......... 24,471 23,848 2,182
Partners' capital ............... 12,971 13,159 10,900
Total liabilities and members' --------- -------- -------
equity ..................... $ 40,974 $ 41,512 $17,026
========= ========= =======
</TABLE>
The Partnership's equity in the net loss of Star Southfield Center
L.L.C. through February 28, 1998 is $265. The operating results of Star
Southfield Center L.L.C. through February 28, 1998 are as follows:
AUDITED
------------
UNAUDITED NOVEMBER 1,
------------ 1997 FISCAL YER
TOTAL THROUGH THROUGH ENDED
FEBRUARY 28, FEBRUARY 28, OCTOBER 31,
1998 1998 1997
------------ ------------ ------------
Total revenues.................... $ 3,044 $ 1,601 $ 1,443
------------ ------------ ------------
Expenses:
Operating expenses.............. 902 477 425
Depreciation and amortization... 1,501 693 808
------------ ------------ ------------
Total expenses.................. 2,403 1,170 1,233
------------ ------------ ------------
Operating income.................. 641 431 210
Interest expense, net............. 1,170 619 551
------------ ------------ ------------
Net loss........................ $ (529) $ (188) $ (341)
============ ============ ============
<PAGE>
KPMG Suite 3300
Chartered Accountants Commerce Court West Telephone (416) 777-8500
PO Box 31 Telefax (416) 777-8818
Stn Commerce Court http://www.kpmg.ca
Toronto Ontario M5L 1B2
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Cineplex Odeon Corporation
We have audited the consolidated balance sheets of Cineplex Odeon
Corporation as at December 31, 1997 and December 31, 1996 and the
consolidated statements of income and changes in shareholders' equity and
cash resources for each of the years in the three year period ended
December 31, 1997. These financial statements are the responsibility of the
Corporation'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 an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Corporation
as at December 31, 1997 and December 31, 1996 and the results of its
operations and the changes in its shareholders' equity and cash resources
for each of the years in the three year period ended December 31, 1997 in
accordance with generally accepted accounting principles.
KPMG
Chartered Accountants
Toronto, Canada
February 13, 1998
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
DECEMBER DECEMBER
31, 31,
1997 1996
------------ ----------
ASSETS
CURRENT ASSETS
Cash............................................. $ 3,505 $ 2,718
Accounts receivable (note 3)..................... 13,222 9,552
Other............................................ 9,315 8,852
------------ ----------
26,042 21,122
PROPERTY, EQUIPMENT AND LEASEHOLDS (note 4)........ 567,431 579,841
OTHER ASSETS
Long-term investments and receivables............ 2,206 2,535
Goodwill (less accumulated amortization of
$12,382; 1996-$11,281).......................... 31,687 32,816
Deferred charges (less accumulated amortization
of $5,194; 1996-$3,671)......................... 8,109 7,857
------------ ----------
42,002 43,208
------------ ----------
TOTAL ASSETS....................................... $ 635,475 $ 644,171
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accruals (note 5)........... $ 91,849 $ 59,474
Deferred income (note 6)......................... 20,364 17,150
Current portion of long-term debt and other
obligations..................................... 27,446 6,926
------------ ----------
139,659 83,550
LONG-TERM DEBT (note 7)............................ 333,523 326,058
CAPITALIZED LEASE OBLIGATIONS (note 11)............ 6,271 8,317
DEFERRED INCOME (note 6)........................... 3,965 6,594
PENSION OBLIGATION (note 9)........................ 875 1,072
SHAREHOLDERS' EQUITY
Capital stock (note 10).......................... 555,400 555,374
Translation adjustment........................... 939 4,016
Retained earnings (deficit)...................... (405,157) (340,810)
------------ ----------
151,182 218,580
COMMITMENTS AND CONTINGENCIES (note 11) ------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $ 635,475 $ 644,171
============ ==========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
31, 1997 31, 1996 31, 1995
----------- ---------- -----------
REVENUE
Admissions............................. $ 399,171 $ 358,973 $ 365,220
Concessions............................ 147,892 126,636 126,319
Other.................................. 26,714 24,083 21,611
------ ------ ------
573,777 509,692 513,150
EXPENSES
Theatre operations and other expenses.. 462,738 418,328 418,731
Cost of concessions.................... 28,705 22,357 22,016
General and administrative............. 20,313 18,192 17,575
Depreciation and amortization.......... 45,715 43,648 42,621
------ ------ ------
557,471 502,525 500,943
------- ------- -------
Income before the undernoted (note 17)... 16,306 7,167 12,207
Other expenses (note 12)................. (43,401) (1,377) (2,862)
-------- ------- -------
Income/(loss) before interest on long-
term debt and income taxes (note 17).... (27,095) 5,790 9,345
Interest on long-term debt............... 33,900 35,482 40,983
------ ------ ------
Loss before income taxes................. (60,995) (29,692) (31,638)
Income taxes (note 13)................... 1,072 1,390 1,269
----- ----- -----
NET LOSS................................. $ (62,067) $ (31,082) $ (32,907)
=========== =========== ===========
BASIC
Weighted average shares outstanding......176,795,000 163,473,000 114,764,000
Loss per share............................ $ (0.35) $ (0.19) $ (0.29)
FULLY DILUTED
Weighted average shares outstanding......191,304,000 176,107,000 122,616,000
Loss per share............................ $ (0.35) $ (0.19) $ (0.29)
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN CASH RESOURCES
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
31, 1997 31, 1996 31, 1995
-------------- ----------- ----------
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss................................ $ (62,067) $ (31,082) $ (32,907)
Depreciation and amortization........... 45,715 43,648 42,621
Write down of property, equipment and
leaseholds............................. 24,591 -- --
Other non-cash items.................... (6,617) (2,098) 1,258
------------- ----------- ---------
1,622 10,468 10,972
Net change in non-cash working capital.. 29,158 1,948 (7,450)
------------- ----------- ---------
30,780 12,416 3,522
------------- ----------- ---------
FINANCING ACTIVITIES
Decrease in long-term debt and other
obligations............................ (5,275) (58,411) (9,289)
Increase in long-term debt and other
obligations............................ 31,017 -- 14,085
Issue of share capital, net of issue
costs.................................. 26 82,895 64
Other................................... 2,936 175 (615)
------------- ----------- ---------
28,704 24,659 4,245
------------- ----------- ---------
INVESTMENT ACTIVITIES
Additions to property, equipment and
leaseholds............................. (66,203) (36,989) (30,749)
Long-term investments................... 4,270 -- (109)
Proceeds on sale of certain theatre
properties............................. 3,563 1,974 23,674
Proposed merger costs................... (2,280) -- --
Other................................... 1,953 (946) (530)
------------- ----------- ----------
(58,697) (35,961) (7,714)
------------- ----------- ----------
NET INCREASE DURING YEAR.................. 787 1,114 53
CASH AT BEGINNING OF YEAR................. 2,718 1,604 1,551
------------- ----------- ----------
CASH AT END OF YEAR....................... $ 3,505 2,718 $ 1,604
============= =========== ==========
CASH FLOW FROM OPERATING ACTIVITIES PER
SHARE
Basic................................... $ 0.17 $ 0.08 $ 0.03
Fully Diluted........................... $ 0.16 $ 0.07 $ 0.03
CHANGE IN NON-CASH WORKING CAPITAL
Current assets
Accounts receivable..................... $ (3,938) $ 1,117 $ 629
Other................................... (214) (1,024) 1,383
Current liabilities
Accounts payable and accruals........... 29,660 (998) (9,509)
Deferred income......................... 3,276 2,157 508
Income taxes payable.................... 374 696 (461)
------------- ----------- ---------
$ 29,158 $ 1,948 $ (7,450)
============= =========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest on long-term debt paid......... $ 33,900 $ 35,482 $ 40,983
============= =========== ==========
Income taxes paid....................... $ 1,072 $ 1,390 $ 1,269
============= =========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR NUMBER OF SHARES)
SUBORDINATING
RESTRICTED
COMMON STOCK VOTING SHARES RETAINED TOTAL
----------------------- --------------------- EARNINGS TRANSLATION SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT (DEFICIT) ADJUSTMENT EQUITY
----------- ---------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31,
1994.......... 65,541,677 $213,890 49,204,245 $258,525 $ (276,821) $ 581 $196,175
Exercise of
options...... 38,950 64 64
Net loss...... (32,907) (32,907)
Translation
adjustment... 2,660 2,660
BALANCE AT ----------- ---------- ---------- -------- ---------- ----------- ------------
DECEMBER 31,
1995.......... 65,580,627 213,954 49,204,245 258,525 (309,728) 3,241 165,992
Exercise of
options...... 276,118 375 375
Net loss...... (31,082) (31,082)
Translation
adjustment... 775 775
Issue of
shares....... 37,477,412 49,187 24,242,181 33,333 82,520
----------- ---------- ---------- -------- ---------- ----------- -----------
BALANCE AT
DECEMBER 31,
1996.......... 103,334,157 263,516 73,446,426 291,858 (340,810) 4,016 218,580
Exercise of
options...... 18,750 26 26
Net loss...... (62,067) (62,067)
Proposed
merger costs
(note 20).... (2,280) (2,280)
Translation
adjustment... (3,077) (3,077)
------------ ---------- ---------- --------- ---------- ----------- ---------
BALANCE AT
DECEMBER 31,
1997.......... 103,352,907 $263,542 73,446,426 $291,858 $(405,157) $ 939 $151,182
============ ========== ========== ========= ========== =========== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
1. GENERAL
The Corporation is incorporated under the Ontario Business
Corporations Act.
The financial results of the Corporation's operations are presented in
United States dollars, as approximately two-thirds of the Corporation's
activities emanate from the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada, which, except as
described in note 17, conform in all material respects with accounting
principles generally accepted in the United States. A summary of
significant accounting policies is set out below.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Corporation and its subsidiaries. Intercompany
accounts and transactions have been eliminated. The Corporation accounts
for its interests in joint ventures through the proportionate consolidation
method.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out basis) and net realizable value.
Property, Equipment and Leaseholds: Property, equipment and leaseholds
are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are calculated using the following methods
and annual rates:
Buildings.......................... Straight-line over 40 years
Projection equipment............... Straight-line over 20 years
Other equipment.................... Straight-line over 15 years
Leaseholds......................... Straight-line over periods from 15 to
40 years
Construction in progress is depreciated from the date the asset is
ready for productive use.
Goodwill: Goodwill represents the excess of the purchase price of
certain businesses over the fair value of the net identifiable assets
acquired and is being amortized, on a straight-line basis, over 40 years.
The Corporation regularly reviews the recoverability of goodwill by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected future undiscounted
income from operations before interest on long-term debt and effects of
goodwill amortization.
Deferred Income: Advance payments received under a strategic marketing
relationship with a major supplier, advance sales of admissions, the sale
of gift certificates and income from certain promotional programs are
included as deferred income, and are recognized as income when services are
rendered.
Deferred Charges: Deferred charges, consisting primarily of costs
associated with debt refinancing, are amortized over the term of the
related debt.
Foreign Currency Translation: Assets and liabilities denominated in a
currency other than U.S. dollars are translated to U.S. dollars at exchange
rates in effect at the balance sheet date. The resulting gains or losses
are accumulated in a separate component of shareholders' equity under the
caption "Translation adjustment". Revenue and expense items are translated
at average exchange rates prevailing during the year.
Admissions Revenue: Admissions revenue from the exhibition of motion
pictures is recognized on the dates of exhibition.
Earnings Per Share: Basic earnings per share are calculated using the
weighted daily average number of Common Shares and Subordinate Restricted
Voting Shares outstanding. Fully diluted earnings per share are calculated
assuming the exercise of stock options at the beginning of the year, or for
those stock options issued during the year, at the date of the grant to the
extent the impact is dilutive.
Interest Rate Hedging Activities: The Corporation uses interest rate
swaps to manage interest rate risk. These financial instruments are not
held for trading purposes and any payments or receipts under such contracts
are recognized as adjustments to interest expense.
Measurement Uncertainty: 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 period. Actual results could
differ from those estimates.
3. ACCOUNTS RECEIVABLE
DECEMBER DECEMBER
31, 1997 31, 1996
------------ ----------
Trade............................................. $10,246,000 $8,446,000
Current portion of long-term receivables.......... 162,000 150,000
Other............................................. 3,021,000 1,098,000
Employee loans.................................... 210,000 323,000
Allowance for doubtful accounts................... (417,000) (465,000)
------------ ----------
$13,222,000 $9,552,000
============ ==========
4. PROPERTY, EQUIPMENT AND LEASEHOLDS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C> <C>
Land.............................................. $62,436,000 $63,116,000
-------------- -------------
Buildings Cost.................... 123,023,000 126,217,000
Accumulated depreciation (25,700,000) (19,919,000)
-------------- -------------
97,323,000 106,298,000
-------------- -------------
Equipment Cost.................... 141,499,000 136,521,000
Accumulated depreciation (76,384,000) (70,851,000)
-------------- -------------
65,115,000 65,670,000
-------------- -------------
Leaseholds Cost.................... 566,754,000 537,153,000
(including capital Accumulated depreciation (230,490,000) (197,688,000)
leases) -------------- -------------
336,264,000 339,465,000
-------------- -------------
Construction in progress.......................... 6,293,000 5,292,000
-------------- -------------
$567,431,000 $579,841,000
============== =============
</TABLE>
The net book value of assets held under capital leases at December 31,
1997 was $18,734,000 (1996-$20,508,000), net of accumulated amortization of
$9,053,000 (1996-$7,700,000).
5. ACCOUNTS PAYABLE AND ACCRUALS
DECEMBER DECEMBER
31, 1997 31, 1996
---------- -----------
Trade......................................... $49,851,000 $40,332,000
Accrued liabilities........................... 20,554,000 9,809,000
Sales and other taxes......................... 9,817,000 8,517,000
Other......................................... 11,627,000 816,000
----------- -----------
$91,849,000 $59,474,000
=========== ===========
6. DEFERRED INCOME
DECEMBER DECEMBER
31, 1997 31, 1996
------------ -----------
Strategic marketing relationship.............. $5,665,000 $8,296,000
Advance admission sales....................... 11,452,000 9,678,000
Gift certificates............................. 5,522,000 5,001,000
Promotional programs.......................... 1,401,000 491,000
Other......................................... 289,000 278,000
------------ ----------
24,329,000 23,744,000
Less: Current portion......................... 20,364,000 17,150,000
------------ ----------
$3,965,000 $6,594,000
------------ ----------
7. LONG-TERM DEBT
DECEMBER DECEMBER
31, 1997 31, 1996
---------- ------------
Senior subordinated notes maturing
June 15, 2004, bearing interest
at 10.875%.................................. $200,000,000 $200,000,000
Bank credit facilities of $158,530,000
maturing December 31, 1999.................. 110,957,000 79,940,000
Various notes and mortgages (interest
rates from 5.61% to 11.50%)................. 47,071,000 49,877,000
----------- -------------
358,028,000 329,817,000
Less: Current portion......................... 24,505,000 3,759,000
------------ -------------
$333,523,000 $326,058,000
============ =============
The bank credit facilities bear interest at variable rates based upon
an applicable margin over LIBOR or the bank's reference rate. The
applicable margin for LIBOR borrowings will vary from a maximum of 2.25% to
a minimum of 1.25% based upon the Corporation meeting certain financial
ratios. During 1997, the Corporation reached an agreement with the bank
syndicate participating in the bank credit facilities to (1) defer a
commitment reduction scheduled for December 31, 1997 in the amount of
$10,000,000; and (2) provide the Corporation with an additional commitment
of $20,600,000. Based on the above information, commitment reductions under
the bank credit facility are $40,000,000 in 1998 with the balance due in
1999. The bank credit facilities are secured by certain assets of the
Corporation and its subsidiaries.
The bank credit facilities contain restrictive covenants which require
the Corporation to maintain certain financial ratios. Given the uncertainty
with respect to the admission and concession revenue that the Corporation
will generate, the Corporation may not meet certain financial covenants as
early as the first quarter end during the next fiscal year. The Corporation
believes that the bank syndicate participating in the bank credit
facilities would waive the particular financial covenants if the
Corporation is not in compliance at a measurement date during the next
twelve month period.
Principal repayments on long-term debt during each of the next five
years approximate the following:
1998............................................. $24,505,000
1999............................................. 119,047,000
2000............................................. 2,083,000
2001............................................. 1,169,000
2002............................................. 4,034,000
Thereafter....................................... 207,190,000
------------------
$358,028,000
==================
8. FINANCIAL INSTRUMENTS
(i) Swap Agreements--The Corporation has entered into interest rate
swap agreements to manage its interest rate exposure. At December 31, 1997
the Corporation had outstanding two interest rate swap agreements with a
commercial bank. The details of the swaps are as follows:
(a) Notional principal--$15,000,000. The Corporation pays 5.74%
per annum, payable on a quarterly basis and receives three month LIBOR
rate. This swap expires November 30, 1998.
(b) Notional principal--$20,000,000. The Corporation pays 5.72%
per annum, payable on a quarterly basis and receives three month LIBOR
rate. This swap expires November 30, 1998.
The Corporation is exposed to credit loss in the event of
non-performance by the other party to the interest rate swap agreements.
However, the Corporation does not anticipate non-performance by the
counterparty.
(ii) Currency Options--The Corporation has entered into three currency
option agreements to manage its exposure to movements in the Canadian
dollar relative to the United States dollar. These agreements are for a
total notional principal of $6,000,000 Canadian, $44,000,000 Canadian and
$50,000,000 Canadian and expire on January 14, 1998, January 28, 1998 and
March 30, 1998 respectively. The Corporation is exposed to credit loss in
the event of non-performance by the other party to the currency option.
However, the Corporation does not anticipate non-performance by the
counterparty.
(iii) Fair Value of Financial Instruments--The carrying value of cash,
accounts receivable, accounts payable and accruals and the current portion
of long-term debt and other obligations approximates fair value due to the
short term maturities of these instruments. Financial instruments with a
carrying value different from their fair value include:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets
Long-term investments and
receivables
--Practicable to
estimate fair value. $ 631,000 $ 7,135,000 $ 935,000 $ 7,873,000
--Not practicable..... $1,575,000 $ -- $1,600,000 $ --
Financial liabilities
Long-term debt.......... $333,523,000 $347,523,000 $326,058,000 $326,558,000
Swap agreements net
receivable............. $ -- $ 32,000 $ -- $ 123,000
</TABLE>
The fair value of long-term investments and receivables is based on
quoted market prices (where applicable) or by discounting future cash
flows, including interest payments, using rates currently available for
similar investments and receivables. The fair value of long-term debt is
based on quoted market prices (where applicable) or by discounting future
cash flows, including interest payments, using rates currently available
for debt of similar terms and maturity. The fair value of interest rate
swap agreements are the estimated amounts that the Corporation would
receive upon termination of the agreements.
9. PENSION OBLIGATION
The Corporation has a defined benefit pension plan covering full-time
employees in the United States. The benefits under this plan are based upon
years of service and the employees' compensation for certain periods during
the last years of employment. This plan is non-contributory and the
Corporation's funding policy is to make the minimum annual contribution
required by the applicable regulations. At December 31, 1997, approximately
52% of the assets of this plan were held in bonds, 36% in treasury bills,
11% in equities, and 1% in cash. The most recent actuarial estimate for the
plan covering these employees as at December 31, 1997 indicates pension
fund assets of $6,679,000 (1996--$6,557,000) and accrued pension benefits
of $12,779,000 (1996--$12,185,000).
The Corporation has a pension plan covering full time employees in
Canada. Prior to January 1, 1993 this plan was a defined benefit plan and
effective on that date it was converted to a defined contribution plan. At
the date of the conversion benefits under the defined benefit plan were
frozen. The most recent actuarial estimate for the plan covering Canadian
employees indicates a surplus of pension fund assets over accrued benefits
of approximately $2,101,000.
At December 31, 1997, the Corporation's pension obligation is
$1,846,000, of which $875,000 is the long-term portion ($2,145,000 at
December 31, 1996 of which $1,072,000 was the long-term portion).
10. CAPITAL STOCK
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
Authorized:
Unlimited number of Common Shares, no par value......................
Unlimited number of First Preference Shares
issuable in series, no par value....................................
Unlimited number of Subordinate Restricted
Voting Shares, no par value.........................................
Issued:
103,352,907 Common Shares (December 31,
1996--103,334,157).................................................. $ 263,542,000 $263,516,000
73,446,426 Subordinate Restricted Voting Shares
(December 31, 1996--73,446,426)...................................... $ 291,858,000 $291,858,000
--------------- ------------
$ 555,400,000 $555,374,000
=============== ============
</TABLE>
(i) On March 20, 1996 the Corporation filed a supplemented short form
prospectus in Canada and the United States pursuant to the
multi-jurisdictional disclosure system with respect to an offering of
25,000,000 Common Shares to the public at a price of $1.375 per share, for
an aggregate consideration of $34,375,000. In addition, in accordance with
the provisions of the Amended and Restated Subscription Agreement,
Universal Studios, Inc. (Universal) (formerly MCA INC.) and the Charles
Rosner Bronfman Trust (the Trust) agreed to subscribe for 24,242,181
Subordinate Restricted Voting (SRV) Shares and 12,121,454 Common Shares
respectively, at the same price as the offering to the public, for
aggregate consideration of $50,000,000. The public offering and the
subscriptions by Universal and the Trust were completed on March 28, 1996.
On April 16, 1996, the Corporation issued 355,958 Common Shares at a price
of $1.375 per share as part of the over-allotment option provided to the
underwriters pursuant to the public offering. The net proceeds from the
issuance of the Common and SRV Shares were used to reduce indebtedness
owing under the Corporation's revolving bank credit facilities.
(ii) The SRV Shares are held by Universal. Under the terms of the
shares, Universal is entitled to exercise no more than one-third less one
vote of the voting rights applicable to all issued voting shares.
(iii) In 1996 the Amended and Restated Stock Option Plan (the Option
Plan) was approved. The Option Plan provides for the granting of rights to
purchase Common Shares under both incentive and non-incentive stock option
agreements. The options granted under the Option Plan are for 10 year terms
and vest over various periods to a maximum of 5 years. The maximum number
of options which can be granted under the Option Plan is 17,646,716.
The following options to purchase Common Shares expire between October
15, 2001 and December 18, 2007:
DECEMBER 31,
OPTION PRICE PER SHARE 1997
---------------------- ------------
$1.70 Canadian............................................ 8,450
1.87 Canadian............................................ 14,323,939
2.00 Canadian............................................ 106,750
2.60 Canadian............................................ 15,000
1.31 United States....................................... 1,000,000
---------
Options outstanding end of year 15,454,139
==========
Stock option transactions for the respective years were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- ---------------------
NUMBER WEIGHTED AV. NUMBER WEIGHTED AV.
OF EXERCISE OF EXERCISE
OPTIONS PRICE($CDN) OPTIONS PRICE ($CDN)
---------- ----------- ------- ------------
<S> <C> <C> <C> <C>
Options outstanding beginning
of year.................................. 14,503,239 1.87 7,835,289 3.06
Additional options granted ................ 1,121,750 1.79 8,019,020 1.87
Less options exercised .................... 18,750 1.87 276,118 1.87
Less options terminated,
canceled or expired................... 152,100 1.87 1,074,952 2.74
---------- ----- ---------- ----
Options outstanding end of year............ 15,454,139 1.86 14,503,239 1.87
========== ===== ========== ====
</TABLE>
At December 31, 1997 there were 10,385,334 options exercisable and
1,621,666 options available for grant.
(iv) Under the Corporation's current financing arrangements, the
Corporation is prohibited from paying any Common Share or Subordinate
Restricted Voting Share dividends unless it is in compliance with specified
financial ratios. The Corporation is not currently in compliance with such
financial ratios. Any such payment of dividends is further subject to
annual limitations.
11. COMMITMENTS AND CONTINGENCIES
(i) Certain theatre properties and theatre equipment are subject to
lease agreements. Certain of the property leases require the Corporation to
pay additional rent and to pay all business and realty taxes and a
proportion of the landlord's operating costs in respect of the leased
premises. Future minimum payments, by year and in the aggregate, under
theatre operating leases and theatre and equipment capital leases, as at
December 31, 1997, are as follows:
CAPITAL LEASES OPERATING
LEASES
-------------- ----------
1998 .................................. $ 2,613,000 $ 86,846,000
1999 .................................. 2,441,000 85,702,000
2000 .................................. 2,316,000 83,682,000
2001 .................................. 1,085,000 81,360,000
2002 .................................. 520,000 78,118,000
Thereafter ............................ 1,521,000 755,759,000
--------- ------------
Total minimum lease payments .......... 10,496,000 $1,171,467,000
===============
Less: Imputed interest at rates between
7.5% and 8.5%........................ 2,255,000
Current portion ....................... 1,970,000
----------
$ 6,271,000
==========
(ii) The Corporation and its subsidiaries are currently subject to
audit by taxation authorities in several jurisdictions. The taxation
authorities have proposed to reassess taxes in respect of certain
transactions and income and expense items. The Corporation and its
subsidiaries are vigorously contesting the adjustments proposed by the
taxation authorities. Although such matters cannot be predicted with
certainty, management does not consider the Corporation's exposure to such
proposed reassessments to be material to these financial statements.
(iii) The Corporation and its subsidiaries are also involved in
certain litigation arising out of the ordinary course and conduct of its
business. The outcome of this litigation is not currently determinable.
Although such matters cannot be predicted with certainty, management does
not consider the Corporation's exposure to such litigation to be material
to these financial statements.
<PAGE>
12. OTHER INCOME (EXPENSES)
Other income(expenses) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ---------------
<S> <C> <C> <C>
Net loss on sale or write down of
theatre related assets.................... $(46,239,000) $ (14,000) $ (3,014,000)
Net gain on sale or realization of
non-theatre related assets................ 3,787,000 -- 1,175,000)
Other .................................... (949,000) (1,363,000) (1,023,000)
------------- ------------ ---------------
$(43,401,000) $(1,377,000) $ (2,862,000)
============ ============ ===============
</TABLE>
During the year ended December 31, 1997 the Corporation conducted a
review of its operating assets and identified a select number of theatres
for disposal. Accordingly, the Corporation took a charge of $46,239,000
representing the costs associated with terminating certain leases and
disposing of certain properties and the write-off of the net book value
attributable to the related properties. It is anticipated that the disposal
plan will be substantially completed by the end of fiscal 1998. An amount
of $10,307,000, representing remaining lease termination payments, is
included in accounts payable as at December 31, 1997.
13. INCOME TAXES
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
-------------- ------------- -------------
Current.................... $1,072,000 $1,390,000 $1,269,000
============== ============= =============
The Corporation's income tax provision based upon income (loss) from
continuing operations before income taxes is made up as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Statutory income tax rate .................. 44.0% 44.0% 44.0%
Provision based on statutory income
tax rate................................. $(27,173,000) $(13,064,000) $(13,921,000)
Increase (decrease) in income tax
provision resulting from:
Tax exempt portion of capital
gains .................................. (359,000) (6,000) (48,000)
Permanent differences other than
capital gains........................... 519,000 62,000 766,000
Non-recognition of tax benefit of
current year's losses for tax
purposes:
Canada ................................... -- -- 1,290,000
United States ............................ 35,130,000 14,050,000 11,913,000
Recognition of tax benefit of prior
years' losses for tax purposes:
Canada ................................... (8,117,000) (1,042,000) --
United States ............................ -- -- --
----------- ------------ ------------
Large Corporations Tax and state
taxes.................................. 1,072,000 1,390,000 1,269,000
----------- ------------ ------------
Income tax provision ..................... $ 1,072,000 $ 1,390,000 $ 1,269,000
=========== ============ ============
</TABLE>
For taxation purposes there are net operating loss carryforwards of
approximately $272,000,000 available to offset future taxable income. These
losses expire between the years 1998 and 2012. A portion of the United
States net operating loss carryforwards, in the amount of $41,000,000, are
subject to annual limitations under Section 382 of the Internal Revenue
Code of 1986, as amended.
<PAGE>
14. SEGMENTED INFORMATION
Substantially all of the Corporation's operations are in the
exhibition business, including the exhibition and distribution of motion
picture films. The geographic distribution of revenue, income(loss) before
income taxes, income taxes, income (loss) and assets are shown below:
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenue
Canada ......................... $206,547,000 $159,068,000 $150,026,000
United States .................. 367,230,000 350,624,000 363,124,000
------------ ------------ ------------
$573,777,000 $509,692,000 $513,150,000
============ ============ ============
Income (loss) before income taxes
Canada ......................... $19,236,000 $2,394,000 $ (2,788,000)
United States .................. (80,231,000) (32,086,000) (28,850,000)
------------ ------------ ------------
$(60,995,000) $(29,692,000) $(31,638,000)
============ ============ ============
Income taxes
Canada .......................... $ 323,000 $ 235,000 $ 126,000
United States ................... 749,000 1,155,000 1,143,000
------------ ------------ ------------
$ 1,072,000 $ 1,390,000 $ 1,269,000
============ ============ ============
Income (loss)
Canada .......................... $ 18,913,000 $2,159,000 $ (2,914,000)
United States ................... (80,980,000) (33,241,000) (29,993,000)
------------ ------------ ------------
$(62,067,000) $(31,082,000) $(32,907,000)
============ ============ ============
</TABLE>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- --------------------
Assets
Canada................ $163,323,000 $142,448,000
United States......... 472,152,000 501,723,000
----------------- -----------------
$635,475,000 $644,171,000
================= =================
Film exhibition operations outside of Canada and the United States are
currently limited to one theatre (six screens) in Budapest, Hungary. This
location is not material to the Corporation's financial position or results
of operations and is included with Canada for segmented disclosure
purposes.
15. SUMMARY FINANCIAL INFORMATION OF PLITT THEATRES, INC. (PLITT)
The following is summarized consolidated financial information of
Plitt:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Revenue ........................ $367,230,000 $350,624,000 $363,124,000
============ ============ ============
Income (loss) from continuing
operations before general and
administrative expenses,
depreciation and amortization,
interest on long-term debt and
income taxes.................. $ (1,813,000) $ 45,847,000 $ 46,148,000
------------ ------------ ------------
Net loss ....................... $(80,980,000) $(33,241,000) $(29,993,000)
============ ============ ============
</TABLE>
<PAGE>
The results for the year ended December 31, 1997 include $1,313,000 of
costs charged to Plitt by the Corporation (1996-$1,799,000; 1995-$Nil).
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Current assets.................. $ 14,382,000 $ 17,105,000
Noncurrent assets............... $457,770,000 $484,618,000
Current liabilities............. $130,838,000 $ 55,078,000
Noncurrent liabilities.......... $256,008,000 $265,386,000
Current liabilities at December 31, 1997 include a net payable to the
Corporation and other corporations within the consolidated group in the
amount of $32,477,000 (1996--$9,551,000). Noncurrent liabilities at
December 31, 1997 and December 31, 1996 include $10,000,000 that is owed to
the Corporation.
16. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in these financial
statements include film distribution and exhibition agreements which the
Corporation enters into with Universal. These agreements are conducted in
accordance with normal business terms and conditions. Pursuant to these
agreements, the Corporation, in the year ended December 31, 1997, paid
approximately $27,459,000 in film licensing fees to Universal
(1996--$20,631,000, 1995--$31,198,000) and received from Universal
approximately $1,010,000 (1996--$666,000, 1995--$576,000) relating to
distribution services.
17. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
(i) The Corporation has adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109), for its financial statements presented under United States accounting
principles. Under FAS 109 the Corporation's method of accounting for income
taxes changes from the deferred method, as recorded under Canadian
accounting principles, to an asset and liability approach. Under the asset
and liability method of FAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
The income tax provision for the year ended December 31, 1997
calculated in accordance with United States accounting principles was the
same as that reported under Canadian accounting principles after reflecting
a net decrease in the valuation allowance of $58,600,000 (1996--net
increase of $19,400,000, 1995--net increase of $22,700,000).
The application of the above noted United States accounting principles
on the balance sheet of the Corporation as at December 31, 1997 resulted in
no net difference in deferred taxes from that reported under Canadian
accounting principles. Net deferred tax assets and liabilities are
comprised of the following:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Deferred Tax Assets
Non capital losses............. $22,378,000 $98,039,000
Depreciation................... 27,225,000 25,922,000
Loss on disposals.............. 13,729,000 --
Other.......................... 13,768,000 15,039,000
----------- -----------
77,100,000 139,000,000
Less: Valuation allowance...... (44,400,000) (103,000,000)
----------- ------------
$32,700,000 $36,000,000
=========== ============
Deferred Tax Liabilities
Depreciation.................... $32,134,000 $34,755,000
Other.......................... 566,000 1,245,000
----------- -----------
$32,700,000 $36,000,000
=========== ============
(ii) Under GAAP in the United States and the financial reporting
requirements of the Securities and Exchange Commission, all operating
income and expenses, such as those listed in note 12 to the consolidated
financial statements, are required to be included in any subtotal
purporting to represent income (loss) from operations. Therefore, under
U.S. GAAP, income (loss) from operations as cross-referenced from the
income statement to this note would be as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31, 1995
----------------- ---------------- -----------------
$ (27,095,000) $ 5,790,000 $ 9,345,000
================= ================ =================
(iii) The Corporation applies APB Opinion No. 25 in accounting for its
stock options under United States GAAP. Beginning in 1996, United States
GAAP encourages, but does not require, the recording of compensation cost
for stock options at fair value. The new United States accounting
pronouncement, SFAS No. 123, does however, require the disclosure of pro
forma net income and earnings per share information as if the Corporation
had accounted for its stock options issued in 1997, 1996 and 1995 under the
fair value method. Accordingly, the fair value of these options has been
estimated at the date of grant or re-issue using the Black-Scholes option
pricing model with the following assumptions for 1997 and 1996: weighted
average risk free interest rate of 5.83% and 5.96%; dividend yield of 0%;
volatility factor of the expected market price of the Corporation's Common
Shares of 0.42 and 0.60; and a weighted average expected life of the
options of 2.0 and 2.9 years. The weighted-average grant-date fair value of
the options issued in 1997 was Canadian $0.48 and in 1996 was Canadian
$0.80. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period which
ranges from upon issuance or re-issue to four years. Retroactive
application of the fair value method to prior years is not permitted,
therefore the full effect of the fair value method will not be reflected in
the pro forma disclosures until it has been applied to all non-vested
options. Assuming the Corporation has accounted for its stock options
issued under the fair value method, United States GAAP pro forma net loss
and net loss per share for the years ended December 31, 1997 and 1996 would
have been $63,559,000 ($0.36 per share) and $35,059,000 ($0.21 per share)
respectively. Compensation cost for the year ended December 31, 1995 has
not been estimated as the number of options issued in the year was
insignificant.
(iv) Under GAAP in the United States and the financial reporting
requirements of the Securities and Exchange Commission, presentation of
Cash Flow from Operating Activities per Share is not permitted on the face
of the Statement of Changes in Cash Resources.
(v) In accordance with FAS 87 the following disclosures are made:
DEFINED BENEFIT PENSION PLAN
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Periodic Pension Cost
Service cost ................... $ 315,000 $ 332,000 $ 318,000
Interest cost .................. 899,000 896,000 926,000
Return on assets ............... (554,000) (537,000) (460,000)
Other .......................... 214,000 529,000 263,000
----------- ----------- -----------
$ 874,000 $ 1,220,000 $ 1,047,000
=========== =========== ===========
Key assumptions
Discount rate .................. 7.75% 7.50% 8.00%
Expected long term
return on assets ............. 8.50% 8.50% 8.50%
Compensation increase rate ..... 6.00% 6.00% 6.00%
</TABLE>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- ------------
Reconciliation of Funded Status
Projected benefit obligation ....... $(12,779,000) $(12,185,000)
Plan assets at fair value .......... 6,679,000 6,557,000
Unrecognized net loss .............. 3,384,000 2,515,000
Prior service costs not yet
recognized ....................... 108,000 129,000
Unrecognized net transition
obligation ....................... 824,000 989,000
Other .............................. (62,000) (150,000)
----------- -----------
$(1,846,000) $(2,145,000)
=========== ===========
DEFINED CONTRIBUTION PENSION PLAN
No cost is recognized in any of the three years ended December 31,
1997 with respect to this plan.
(vi) Under GAAP in the United States and the financial reporting
requirements of the Securities and Exchange Commission, costs related to
the proposed merger in the amount of $2,280,000, which have been charged to
retained earnings under Canadian GAAP, would be charged to expense under
U.S. GAAP. Accordingly, the following tabular reconciliation is provided
for net loss in accordance with U.S. GAAP:
YEAR ENDED
DECEMBER 31,
1997
-------------
Net loss as reported on the consolidated
income statement............................... $(62,067,000)
Proposed merger costs............................ 2,280,000
------------
Net loss in accordance with U.S. GAAP ........... $(64,347,000)
============
In accordance with U.S. GAAP the basic and fully diluted loss per
share is $0.36. Shareholders' equity is unaffected.
18. JOINT VENTURES
The Corporation's prorata share of the joint venture operations
through which it carries out part of its activities is summarized below.
The Balance Sheet amounts below reflect the elimination of accounts between
these joint ventures and the Corporation.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Revenue.................................. $8,367,000 $4,727,000 $3,624,000
Expenses................................. 4,881,000 3,519,000 2,588,000
---------- ---------- ----------
Net income............................... $3,486,000 $1,208,000 $1,036,000
========== ========== ==========
Cash flow from operations................ $3,969,000 $1,589,000 $1,251,000
========== ========== ==========
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets............................ $2,281,000 $966,000
Noncurrent assets......................... $12,833,000 $10,953,000
Current liabilities....................... $2,305,000 $1,629,000
Noncurrent liabilities.................... $2,381,000 $2,167,000
=========== ===========
</TABLE>
19. RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform with
the financial statement presentation adopted in the current year.
20. PROPOSED MERGER
On September 30, 1997, the Corporation announced that it has entered
into an agreement with Sony Pictures Entertainment Inc. (SPE) and LTM
Holdings, Inc. (LTM) which provides for the combination of the businesses
of the Corporation and LTM. LTM is a private Delaware Corporation
wholly-owned by SPE. The transaction will involve combining the Corporation
with the Loews Theatres Exhibition Group, which consists of Sony/Loews
Theatres and its joint ventures with Star Theatres and Magic Johnson
Theatres. It is proposed that the combined company will be named Loews
Cineplex Entertainment Corporation (LCE). It is anticipated that LCE will
have over 2,700 screens in approximately 450 locations in North America.
Pursuant to a series of related transactions to be effected pursuant
to a Plan of Arrangement under the Business Corporations Act (Ontario), the
Corporation's shares will be exchanged for shares of LCE with the result
that the Corporation will become a wholly-owned subsidiary of LCE. Upon
closing of the transaction, SPE will own approximately 51.1% of LCE's
shares (representing 49.9% of LCE's voting shares); Universal will own
approximately 26.0% of LCE's shares (subsequent to a cash subscription of
approximately $84.5 million); the Charles Rosner Bronfman Family Trust and
certain related parties (the "Bronfman Trusts") will own approximately 9.6%
of LCE's shares; and the shareholders of the Corporation, other than SPE,
Universal and the Bronfman Trusts, will own approximately 13.3% of LCE's
shares. It is intended that the LCE shares will be listed on the New York
Stock Exchange and the Toronto Stock Exchange.
The merger is subject to approval by the shareholders of the
Corporation and regulatory approval in both Canada and the United States.
The special meeting of shareholders is scheduled for March 26, 1998. It is
anticipated that closing of this transaction will take place in the second
quarter of 1998.
During the year ended December 31, 1997 the Corporation incurred
legal, investment banking and other costs directly attributable to the
proposed merger. Such costs are considered to be a capital transaction
under Canadian GAAP and accordingly have been charged to retained earnings
(note 17).
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash..................................... $ 2,794 $ 3,505
Accounts receivable...................... 11,404 13,222
Other.................................... 9,573 9,315
------------ -----------
23,771 26,042
PROPERTY, EQUIPMENT AND LEASEHOLDS......... 562,220 567,431
OTHER ASSETS
Long-term investments and receivables.... 5,291 2,206
Goodwill................................. 31,414 31,687
Deferred Charges......................... 7,951 8,109
------------ -----------
44,656 42,002
------------ -----------
TOTAL ASSETS............................... $ 630,647 $ 635,475
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accruals............ $ 89,289 $ 91,849
Deferred income.......................... 19,301 20,364
Current portion of long-term debt and
other obligations...................... 29,418 27,446
------------ -----------
138,008 139,659
LONG-TERM DEBT............................. 336,601 333,523
CAPITALIZED LEASE OBLIGATIONS.............. 5,676 6,271
DEFERRED INCOME............................ 3,369 3,965
PENSION OBLIGATION......................... 601 875
SHAREHOLDERS' EQUITY
Capital stock............................ 555,714 555,400
Translation adjustment................... 625 939
Retained earnings (deficit).............. (409,947) (405,157)
------------ -----------
146,392 151,182
COMMITMENTS AND CONTINGENCIES (note 2)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. $ 630,647 $ 635,475
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
3 MONTHS 3 MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
------------ -----------
(UNAUDITED)
REVENUE
Admissions........................................ $ 101,731 $ 106,392
Concessions....................................... 38,718 38,347
Other............................................. 6,262 5,807
-------------- ----------
146,711 150,546
-------------- ----------
EXPENSES
Theatre operations and other expenses............. 120,870 116,485
Cost of concessions............................... 7,422 7,114
General and administrative ....................... 5,163 5,167
Depreciation and amortization..................... 10,936 11,021
-------------- ----------
144,391 139,787
-------------- ----------
Income before the undernoted........................ 2,320 10,759
Other income (expenses)............................. 3,330 (73)
-------------- ----------
Income before interest on long-term debt and 5,650 10,686
income taxes......................................
Interest on long-term debt.......................... 9,198 8,273
-------------- ----------
Income/(loss) before income taxes................... (3,548) 2,413
Income taxes........................................ 283 306
-------------- ----------
NET INCOME/(LOSS)................................... $ (3,831) $ 2,107
============== ==========
BASIC
Weighted average shares outstanding............... 176,878,000 176,784,000
Income/(loss) per share........................... ($0.02) $0.01
FULLY DILUTED
Weighted average shares outstanding............... 192,236,000 191,291,000
Income/(loss) per share........................... ($0.02) $0.01
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN CASH RESOURCES
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
3 MONTHS 3 MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
-------------- ------------
(UNAUDITED)
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net (loss)/income................................ $ (3,831) $ 2,107
Depreciation and amortization.................... 10,936 11,021
Other non-cash items............................. (4,050) (717)
-------------- ------------
3,055 12,411
Net change in non-cash working capital........... (2,025) 3,792
-------------- ------------
1,030 16,203
-------------- ------------
FINANCING ACTIVITIES
Decrease in long-term debt and other obligations. (2,403) (9,207)
Increase in long-term debt and other obligations. 6,584 214
Issue of share capital, net of issue costs....... 314 11
Other............................................ (1,496) (340)
-------------- ------------
2,999 (9,322)
-------------- ------------
INVESTMENT ACTIVITIES
Additions to property, equipment and leaseholds.. (13,801) (9,567)
Long-term investments............................ 3,402 --
Proceeds on sale of certain theatre properties... 2,169 2,626
Proposed merger costs............................ (959) --
Other............................................ 4,449 (164)
-------------- ------------
(4,740) (7,105)
-------------- ------------
NET DECREASE DURING PERIOD......................... (711) (224)
CASH AT BEGINNING OF PERIOD........................ 3,505 2,718
CASH AT END OF PERIOD.............................. $ 2,794 $ 2,494
============== ============
CASH FLOW FROM OPERATING ACTIVITIES PER SHARE
Basic............................................ $ 0.01 $ 0.09
Fully Diluted.................................... $ 0.01 $ 0.08
SUPPLEMENTAL CASH FLOW INFORMATION
Interest on long-term debt paid.................. $ 9,198 $ 8,273
============== ============
Income taxes paid................................ $ 283 $ 306
============== ============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(IN U.S. DOLLARS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements in this document are prepared in
accordance with accounting principles generally accepted in Canada. For the
three months ended March 31, 1998, the application of accounting principles
generally accepted in the United States did not have a material effect on
the measurement of the Corporation's net loss and shareholders' equity. For
information on differences between Canadian and United States generally
accepted accounting principles, reference is made to the Corporation's
consolidated financial statements for the year ended December 31, 1997.
The consolidated financial statements in this document are based in
part on estimates, and include all adjustments consisting of normal
recurring accruals that management believes are necessary for a fair
presentation of the Corporation's financial position as at March 31, 1998,
and the results of its operations for the three months then ended.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
The consolidated financial statements and related notes have been
prepared in accordance with generally accepted accounting principles
applicable to interim periods; consequently they do not include all
generally accepted accounting disclosures required for annual consolidated
financial statements. For more complete information these consolidated
financial statements should be read in conjunction with the Corporation's
consolidated financial statements for the year ended December 31, 1997.
2. COMMITMENTS AND CONTINGENCIES
(i) The Corporation and its subsidiaries are currently subject to
audit by taxation authorities in several jurisdictions. The taxation
authorities have proposed to reassess taxes in respect of certain
transactions and income and expense items. The Corporation and its
subsidiaries are vigorously contesting the adjustments proposed by the
taxation authorities. Although such matters cannot be predicted with
certainty, management does not consider the Corporation's exposure to such
litigation to be material to these financial statements.
(ii) The Corporation and its subsidiaries are also involved in certain
litigation arising out of the ordinary course and conduct of its business.
The outcome of this litigation is not currently determinable. Although such
matters cannot be predicted with certainty, management does not consider
the Corporation's exposure to such litigation to be material to these
financial statements.
(iii) The Corporation has not completed its test for compliance with
the financial covenants contained in its bank credit facilities as of March
31, 1998. Given the uncertainty with respect to the admission and
concession revenues that the Corporation will generate, there is a
possibility that the Corporation may not meet certain financial covenants
in current and future periods. The Corporation believes that the banking
syndicate participating in the bank credit facilities would waive the
particular financial covenants if the Corporation is not in compliance at a
measurement date during the next twelve month period.
3. PROPOSED COMBINATION
On September 30, 1997, the Corporation announced that it has entered
into an agreement with Sony Pictures Entertainment Inc. (SPE) and LTM
Holdings, Inc. (LTM) which provides for the combination of the businesses
of the Corporation and LTM. LTM is a private Delaware corporation wholly
owned by SPE. The transaction will involve combining the Corporation with
the Loews Theatres Exhibition Group, which consists of Sony/Loews Theatres
and its joint ventures with Loeks-Star Theatres and Magic Johnson Theatres.
It is proposed that the combined company will be named Loews Cineplex
Entertainment Corporation (LCE). LCE will have approximately 2,600 screens
in approximately 450 locations in North America.
Pursuant to a series of related transactions to be effected pursuant
to a Plan of Arrangement under the Business Corporations Act (Ontario), the
Corporation's shares will be exchanged for shares of LCE with the result
that the Corporation will become a wholly owned subsidiary of LCE. Upon
closing of the transaction, SPE will own approximately 51.1% of LCE's
shares (representing 49.9% of LCE's voting shares); Universal Studios, Inc.
(Universal) will own approximately 26% of LCE's shares (subsequent to a
cash subscription of approximately $84.5 million); the Charles Rosner
Bronfman Family Trust and certain related parties (the "Bronfman Trusts")
will own approximately 9.6% of LCE's shares; and the shareholders of the
Corporation, other than SPE, Universal and the Bronfman Trusts, will own
approximately 13.3% of LCE's shares. It is intended that LCE's voting
shares will be listed on The New York Stock Exchange and The Toronto Stock
Exchange. On March 26, 1998, the shareholders of the Corporation voted to
approve the combination.
4. RECLASSIFICATION
Certain of the prior period's balances have been reclassified to
conform with the presentation adopted in the current period.
<PAGE>
====================================== =====================================
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR
AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES
IN ANY CIRCUMSTANCES IN WHICH SUCH $300,000,000
OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR LOEWS CINEPLEX
THAT THE INFORMATION HEREIN IS ENTERTAINMENT CORPORATION
CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
TABLE OF CONTENTS
8 7/8% Senior Subordinated Notes due
2008
PAGE
----
Available Information..............4
Cautionary Statement Concerning
Forward-Looking Statements.......5
Prospectus Summary.................6
Risk Factors......................22
Capitalization....................28
The Exchange Offer................29
Certain Federal Income
Tax Consequences of the
Exchange Offer...................38
Selected Historical
and Unaudited Pro Forma
Financial Information............39
Unaudited Pro Forma Financial
Information......................44
Management's
Discussion and Analysis of
Financial Condition and Results
of Operations....................50
The Motion Picture
Exhibition Industry..............59
Business..........................62
Management........................72
Certain Relationships
and Related Transactions.........84
Security Ownership
of Certain Beneficial Owners
and Management...................86
The Stockholders
Agreement........................88
Description of Certain -------------------------------------
Indebtedness.....................96
Description of New Notes..........98 PROSPECTUS
Certain Federal Tax
Consequences of an Investment -------------------------------------
in the New Notes................119
Plan of Distribution.............123
Validity of the New Notes........124
Experts..........................124
Index to Financial Statements....F-1
====================================== =====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement in connection with
specified actions, suits, proceedings whether civil, criminal,
administrative, or investigative (other than action by or in the right of
the corporation -- a "derivative action"), if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such action, and
the statute requires court approval before there can be any indemnification
where the person seeking indemnification has been found liable to the
corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement, or otherwise.
Article VIII of the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") requires Loews Cineplex to
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of Loews Cineplex) by reason of the fact that he
or she is or was a director or officer of Loews Cineplex, or, while a
director or officer of Loews Cineplex, is or was serving at the request of
Loews Cineplex as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the
best interests of Loews Cineplex, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability
for (i) any breach of the director's duty of loyalty to the corporation or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) any
transaction from which the director derived an improper personal benefit.
Article IX of the Restated Certificate provides that to the fullest
extent that the DGCL, as it now exists or may hereafter be amended, permits
the limitation or elimination of the liability of directors, a director of
Loews Cineplex shall not be liable to Loews Cineplex or its stockholders
for monetary damages for breach of fiduciary duty as a director. Any
amendment to or repeal of, or adoption of any provision of the Restated
Certificate inconsistent with, such Article IX shall not adversely affect
any right or protection of a director of Loews Cineplex for or with respect
to any acts or omissions of such director occurring prior to such amendment
or repeal.
Loews Cineplex has entered into indemnification agreements with its
directors and officers substantially in the form attached to this
registration statement as Exhibit 10.7. These agreements provide, in
general, that Loews Cineplex will indemnify such directors and officers
for, and hold them harmless from and against, any and all amounts paid in
settlement or incurred by, or assessed against, such directors and officers
arising out of or in connection with the service of such directors and
officers as a director or officer of Loews Cineplex or its Affiliates (as
defined therein) to the fullest extent permitted by Delaware law. Each
indemnification agreement terminates upon the later of (a) 10 years after
the director or officer ceases to be an officer or director of Loews
Cineplex (or any other entity at the request of Loews Cineplex) and (b) one
year after the final termination of all pending or threatened proceedings
for which such director or officer is or may be entitled to indemnification
under such agreement.
Loews Cineplex maintains directors' and officers' liability insurance
which provides for payment, on behalf of the directors and officers of
Loews Cineplex and its subsidiaries, of certain losses of such persons
(other than matters uninsurable under law) arising from claims, including
claims arising under the Securities Act, for acts or omissions by such
persons while acting as directors or officers of Loews Cineplex and/or its
subsidiaries, as the case may be.
Insofar as limitations of, or indemnification for, liabilities arising
under the Securities Act may be permitted for directors and executive
officers pursuant to the foregoing provisions, the Company understands
that, in the opinion of the Commission, such limitations of, and
indemnification for, liabilities is against public policy as expressed in
the Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2.1(1) -- Amended and Restated Master Agreement among Sony
Pictures Entertainment Inc., Registrant and Cineplex
Odeon Corporation dated as of September 30, 1997
2.2(4) -- Amending Agreement dated May 14, 1998
2.3(l) -- Subscription Agreement by and between Registrant and
Universal Studios, Inc. dated as of September 30, 1997
2.4(1) -- Plan of Arrangement
3.1(4) -- Amended and Restated Certificate of Incorporation of
Registrant
3.2(5) -- Amended and Restated By-laws of Registrant
4.1(2) -- Indenture dated as of June 23, 1994, by and among Plitt
Theatres, Inc., Cineplex Odeon Corporation and The Bank
of New York, as Trustee
4.2(4) -- Supplemental Indenture dated as of May 14, 1998, among
Plitt Theatres, Inc., Registrant and The Bank of New
York, as Trustee
4.3(5) -- Second Supplemental Indenture dated as of July 1, 1998,
among Plitt Theatres, Inc., Registrant and The Bank of
New York, as Trustee
4.4* -- Indenture dated as of August 5, 1998, by and among
Registrant and Bankers Trust Company, as Trustee
4.5* -- Form of New Note (included in Exhibit 4.4 above)
4.6* -- Exchange and Registration Rights Agreement dated as of
August 5, 1998 by and among Registrant and the initial
purchasers of the New Notes
5.1* -- Opinion of Fried, Frank, Harris, Shriver & Jacobson,
counsel to the Company, as to the validity of the
securities being registered
10.1(1) -- Amended and Restated Stockholders Agreement among
Registrant, Sony Pictures Entertainment Inc., Universal
Studios, Inc., Charles Rosner Bronfman Family Trust and
Other Parties thereto dated as of September 30, 1997
10.2(4) -- Tax Sharing and Indemnity Agreement dated as of May 14,
1998 by and among Registrant and Sony Corporation of
America
10.3(4) -- Sony Trademark Agreement dated May 14, 1998 by and
among Registrant and Sony Corporation of America
10.4(4) -- Transition Services Agreement dated May 14, 1998 among
Registrant, Sony Corporation of America and Sony
Pictures Entertainment Inc.
10.5(4) -- Sony Entertainment Center Lease made as of May 9, 1997
between SRE San Francisco Retail Inc. and Loews
California Theatres Inc. (portions of such exhibit were
previously filed separately with the Commission under
an application for confidential treatment pursuant to
Rule 83 of the Commission Rules on Organization,
Conduct and Ethics, and Information and Regulation (17
CFR (S) 200.83))
10.6(4) -- Sony YBG Entertainment Center Tenant Work Agreement
10.7(l) -- Form of Director Indemnification Agreement
10.8(l) -- Loews Cineplex Entertainment Corporation 1997 Stock
Incentive Plan
10.9(4) -- Credit Agreement dated as of May 14, 1998 among
Registrant, as Borrower, the lenders listed therein, as
Lenders, Bankers Trust Company, as Administrative Agent
and Co-Syndication Agent and Bank of America NT&SA, The
Bank of New York and Credit Suisse First Boston, as
Co-Syndication Agents
10.10(4) -- Employment Agreement between Registrant and Lawrence J.
Ruisi, dated May 14, 1998
10.11(3) -- Employment Agreement between Cineplex Odeon Corporation
and Allen Karp, dated July 4, 1996
10.12(5) -- Amended and Restated Employment Agreement between
Cineplex Odeon Corporation and Allen Karp, dated
November 28, 1997
10.13(4)-- Assumption dated May 14, 1998 of Allen Karp Employment
Agreement by Registrant
10.14(l) -- Agreement between Registrant and Seymour H. Smith,
dated May 1, 1990, including Letter Amendments dated
November 14, 1991, March 9, 1993, May 10, 1995, April
11, 1996 and June 6, 1997
10.15(l) -- Agreement between Registrant and Travis Reid, dated
October 21, 1995
10.16(l) -- Agreement between Registrant and Joseph Sparacio, dated
August 20, 1994, including Term Extension Letter dated
March 5, 1997
10.17(l) -- Agreement between Registrant and John J. Walker, dated
June 1, 1993, including Term Extension Letter dated
March 5, 1997
10.18(l) -- Letter Agreement between Registrant and John C.
McBride, Jr., dated November 17, 1997
10.19(4) -- Letter Agreement between Registrant and Mindy Tucker,
dated December 15, 1997
10.20(5) -- Letter Agreement between Registrant and J. Edward
Shugrue, dated December 15, 1997
10.21* -- Purchase Agreement, dated as of July 31, 1998, by and
among Loews Cineplex Entertainment Corporation and
Goldman, Sachs & Co., BT Alex Brown Incorporated,
Credit Suisse First Boston Corporation and Salomon
Brothers Inc
10.22* -- Amendment to the Purchase Agreement, dated as of August
4, 1998, by and among Loews Cineplex Entertainment
Corporation and Goldman, Sachs & Co., BT Alex Brown
Incorporated, Credit Suisse First Boston Corporation
and Salomon Brothers Inc
12.1* -- Computation of Ratio of Earnings to Fixed Charges
21.1(5) -- Subsidiaries of the Registrant
23.1 -- Consent of KPMG LLP
23.2 -- Consent of PricewaterhouseCoopers LLP
23.3* -- Consent of Fried, Frank, Harris, Shriver & Jacobson
(included as part of Exhibit 5.1)
24.1* -- Powers of Attorney
25.1* -- Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 (T-1) of Bankers Trust
Company (bound separately)
27.1(5) -- Financial Data Schedule (for SEC use only)
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
- ----------------------
* Previously filed.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-4 filed on February 13, 1998, Commission file number 333-46313.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 of Cineplex Odeon Corporation, Commission
file number 1-9454.
(3) Incorporated by reference to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 of Cineplex Odeon Corporation,
Commission file number 1-9454.
(4) Incorporated by reference to the Annual Report on Form 10-K for the
fiscal year ended February 28, 1998 of Registrant, as amended,
Commission file number 1-14099.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on June 15, 1998, as amended, Commission file number
333-56897.
(b) Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in
the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the questions whether such
indemnification by them is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue;
(2) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective;
and
(3) for purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
filed shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(4) prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933, as amended, and is used in
connection with an offering of securities subject to Rule 415, will be
filed as part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(6) it shall file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of
the Trust Indenture Act ("Act") in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the
Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment No. 1 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of
New York, on the 13th day of October, 1998.
LOEWS CINEPLEX
ENTERTAINMENT CORPORATION
By: /s/ Lawrence J. Ruisi
-----------------------------------
Lawrence J. Ruisi
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
* President and Chief October 13, 1998
- -------------------------- Executive Officer
Lawrence J. Ruisi (Principal Executive
Officer) and Director
* Senior Vice President, October 13, 1998
- -------------------------- Chief Financial Officer
John J. Walker and Treasurer
(Principal Financial
Officer)
* Vice President, Finance October 13, 1998
- -------------------------- and Controller (Principal
Joseph Sparacio Accounting Officer)
* Director October 13, 1998
- -------------------------
George A. Cohon
- ------------------------- Director
Nora Ephron
* Director October 13, 1998
- -------------------------
Marinus N. Henny
Director
- -------------------------
Allen Karp
Director
- -------------------------
Ernest Leo Kolber
* Director October 13, 1998
- -------------------------
Kenneth Lemberger
<PAGE>
* Director October 13, 1998
- -------------------------
Ron Meyer
Director
- -------------------------
Brian C. Mulligan
* Director October 13, 1998
- -------------------------
Yuki Nozoe
* Director October 13, 1998
- -------------------------
Karen Randall
* Director October 13, 1998
- -------------------------
Stanley Steinberg
* Director October 13, 1998
- -------------------------
Howard Stringer
Director
- -------------------------
Robert J. Wynne
* Director October 13, 1998
- -------------------------
Mortimer Zuckerman
* By: /s/ John C. McBride, Jr.
--------------------------
John C. McBride, Jr.
Attorney-in-Fact
<PAGE>
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
- ---------- -------------------- ------------
2.1(1) -- Amended and Restated Master Agreement among Sony
Pictures Entertainment Inc., Registrant and Cineplex
Odeon Corporation dated as of September 30, 1997
2.2(4) -- Amending Agreement dated May 14, 1998
2.3(l) -- Subscription Agreement by and between Registrant and
Universal Studios, Inc. dated as of September 30, 1997
2.4(l) -- Plan of Arrangement
3.1(4) -- Amended and Restated Certificate of Incorporation of
Registrant
3.2(5) -- Amended and Restated By-laws of Registrant
4.1(2) -- Indenture dated as of June 23, 1994, by and among Plitt
Theatres, Inc., Cineplex Odeon Corporation and The Bank
of New York, as Trustee
4.2(4) -- Supplemental Indenture dated as of May 14, 1998, among
Plitt Theatres, Inc., Registrant and The Bank of New
York, as Trustee
4.3(5) -- Second Supplemental Indenture dated as of July 1, 1998,
among Plitt Theatres, Inc., Registrant and The Bank of
New York, as Trustee
4.4* -- Indenture dated as of August 5, 1998, by and among
Registrant and Bankers Trust Company, as Trustee
4.5* -- Form of New Note (included in Exhibit 4.4 above)
4.6* -- Exchange and Registration Rights Agreement dated as of
August 5, 1998 by and among Registrant and the initial
purchasers of the New Notes
5.1* -- Opinion of Fried, Frank, Harris, Shriver & Jacobson,
counsel to the Company, as to the validity of the
securities being registered
10.1(1) -- Amended and Restated Stockholders Agreement among
Registrant, Sony Pictures Entertainment Inc., Universal
Studios, Inc., Charles Rosner Bronfman Family Trust and
Other Parties thereto dated as of September 30, 1997
10.2(4) -- Tax Sharing and Indemnity Agreement dated as of May 14,
1998 by and among Registrant and Sony Corporation of
America
10.3(4) -- Sony Trademark Agreement dated May 14, 1998 by and
among Registrant and Sony Corporation of America
10.4(4) -- Transition Services Agreement dated May 14, 1998 among
Registrant, Sony Corporation of America and Sony
Pictures Entertainment Inc.
10.5(4) -- Sony Entertainment Center Lease made as of May 9, 1997
between SRE San Francisco Retail Inc. and Loews
California Theatres Inc. (portions of such exhibit were
previously filed separately with the Commission under
an application for confidential treatment pursuant to
Rule 83 of the Commission Rules on Organization,
Conduct and Ethics, and Information and Regulation (17
CFR (S) 200.83))
10.6(4) -- Sony YBG Entertainment Center Tenant Work Agreement
10.7(l) -- Form of Director Indemnification Agreement
10.8(l) -- Loews Cineplex Entertainment Corporation 1997 Stock
Incentive Plan
10.9(4) -- Credit Agreement dated as of May 14, 1998 among
Registrant, as Borrower, the lenders listed therein, as
Lenders, Bankers Trust Company, as Administrative Agent
and Co-Syndication Agent and Bank of America NT&SA, The
Bank of New York and Credit Suisse First Boston, as
Co-Syndication Agents
10.10(4) -- Employment Agreement between Registrant and Lawrence J.
Ruisi, dated May 14, 1998
10.11(3) -- Employment Agreement between Cineplex Odeon Corporation
and Allen Karp, dated July 4, 1996
10.12(5) -- Amended and Restated Employment Agreement between
Cineplex Odeon Corporation and Allen Karp, dated
November 28, 1997
10.13(4) -- Assumption dated May 14, 1998 of Allen Karp Employment
Agreement by Registrant
10.14(l) -- Agreement between Registrant and Seymour H. Smith,
dated May 1, 1990, including Letter Amendments dated
November 14, 1991, March 9, 1993, May 10, 1995, April
11, 1996 and June 6, 1997
10.15(l) -- Agreement between Registrant and Travis Reid, dated
October 21, 1995
10.16(l) -- Agreement between Registrant and Joseph Sparacio, dated
August 20, 1994, including Term Extension Letter dated
March 5, 1997
10.17(l) -- Agreement between Registrant and John J. Walker, dated
June 1, 1993, including Term Extension Letter dated
March 5, 1997
10.18(l) -- Letter Agreement between Registrant and John C.
McBride, Jr., dated November 17, 1997
10.19(4) -- Letter Agreement between Registrant and Mindy Tucker,
dated December 15, 1997
10.20(5) -- Letter Agreement between Registrant and J. Edward
Shugrue, dated December 15, 1997
10.21* -- Purchase Agreement, dated as of July 31, 1998, by and
among Loews Cineplex Entertainment Corporation and
Goldman, Sachs & Co., BT Alex Brown Incorporated,
Credit Suisse First Boston Corporation and Salomon
Brothers Inc
10.22* -- Amendment to the Purchase Agreement, dated as of August
4, 1998, by and among Loews Cineplex Entertainment
Corporation and Goldman, Sachs & Co., BT Alex Brown
Incorporated, Credit Suisse First Boston Corporation
and Salomon Brothers Inc
12.1* -- Computation of Ratio of Earnings to Fixed Charges
21.1(5) -- Subsidiaries of the Registrant
23.1 -- Consent of KPMG LLP
23.2 -- Consent of PricewaterhouseCoopers LLP
23.3* -- Consent of Fried, Frank, Harris, Shriver & Jacobson
(included as part of Exhibit 5.1)
24.1* -- Powers of Attorney
25.1* -- Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 (T-1) of Bankers Trust
Company (bound separately)
27.1(5) -- Financial Data Schedule (for SEC use only)
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
- -----------------------
* Previously filed.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-4 filed on February 13, 1998, Commission file number 333-46313.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 of Cineplex Odeon Corporation, Commission
file number 1-9454.
(3) Incorporated by reference to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 of Cineplex Odeon Corporation,
Commission file number 1-9454.
(4) Incorporated by reference to the Annual Report on Form 10-K for the
fiscal year ended February 28, 1998 of Registrant, as amended,
Commission file number 1-14099.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on June 15, 1998, as amended, Commission file number
333-56897.
Exhibit 23.1
[LETTERHEAD OF KPMG LLP]
The Board of Directors
Cineplex Odeon Corporation
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
- ---------------------
Toronto, Canada
October 13, 1998
Exhibit 23.2
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
registration statement on Form S-4 of our report dated May 21, 1998 on the
financial statements of Loews Cineplex Entertainment Corporation and our
report dated April 15, 1998 on the financial statements of Loeks-Star
Partners, which appear in such Prospectus. We also consent to the
application of our report on the financial statements of Loews Cineplex
Entertainment Corporation to the Financial Statement Schedules for the three
years ended February 28, 1998 listed under Item 21 of this registration
statement when such schedules are read in conjunction with such report. The
audits referred to in our report on the financial statements of Loews
Cineplex Entertainment Corporation also included these schedules. We also
consent to the reference to us under the headings "Experts" in such
Prospectus.
/s/ PricewaterhouseCoopers LLP
New York, New York
October 13, 1998
