<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998
REGISTRATION NO. 333-56897
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LOEWS CINEPLEX
ENTERTAINMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7832 13-3386485
(STATE OR OTHER JURISDICTION OF (PRIMARY (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) STANDARD IDENTIFICATION NUMBER)
INDUSTRIAL
CLASSIFICATION
CODE NUMBER)
JOHN C. MCBRIDE, JR., ESQ.
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 REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
COPIES TO:
<TABLE>
<C> <S>
DAVID C. GOLAY, ESQ. MORTON A. PIERCE, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON DEWEY BALLANTINE LLP
ONE NEW YORK PLAZA 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10019
(212) 859-8000 (212) 259-8000
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. [_]
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. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 29, 1998
10,000,000 Shares
[LOGO] LOEWS CINEPLEX
---------------------
ENTERTAINMENT
Common Stock
($.01 par value)
--------
All of the shares of common stock, $.01 par value ("Common Stock"), of Loews
Cineplex Entertainment Corporation ("Loews Cineplex" or the "Company")
offered hereby are being sold by the Company.
In addition, the Company is concurrently offering (the "Note Offering") $200
million principal amount of Senior Subordinated Notes due 2008 (the "New
Notes") of the Company in transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). See "The
Concurrent Transactions." The shares of Common Stock offered hereby and
the New Notes offered by the Company are being offered separately. The
closing of this offering is not conditioned upon the closing of the
Note Offering.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "LCP" and on The Toronto Stock Exchange ("TSE") under the symbol
"LCX." On July 27, 1998, the last reported sales price of the Common
Stock on the NYSE was $12.25 per share and the last reported sale
price of the Common Stock on the TSE was Cdn$18.30 per share. See
"Price Range of Common Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" ON PAGE 18.
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.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
------------ ------------- ------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(2)................................... $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $775,000.
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 1,500,000
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ and Proceeds to Company will be
$ .
The shares of Common Stock are offered by the several Underwriters when, as
and if issued by the Company, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that the shares of Common Stock will be ready for delivery on or about ,
1998, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
Prospectus dated , 1998.
<PAGE>
The 900-seat premiere "house" at the Sony Lincoln
Square Theatre is often the host of New York premieres.
PHOTO
PHOTO
The Loews Cineplex prototype has stadium seating,
oversized screens and state-of-the-art digital sound systems.
Loews Cineplex has introduced expanded concession
offerings, providing more variety to its patrons.
PHOTO
PHOTO
The Sony IMAX(R) Theatre at Lincoln Square has
the largest screen in North America.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED HEREIN, INCLUDING, WITHOUT LIMITATION, UNDER
"SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "THE CONCURRENT 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 HEREINAFTER DEFINED) 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, (i) references herein to the "Company" or
"Loews Cineplex" refer to Loews Cineplex Entertainment Corporation and its
direct and indirect subsidiaries, (ii) all information herein assumes an
initial public offering price of $14.25 per share, the closing price of the
Common Stock on the NYSE on June 12, 1998, and no exercise of the Underwriters'
over-allotment option and (iii) all information herein gives effect to (A) the
automatic conversion that will occur upon consummation of this offering (the
"Equity Offering") of shares of the Company's Class A Non-Voting Common Stock
currently held by Sony Pictures Entertainment Inc. ("SPE") into an equal number
of shares of Common Stock and (B) the issuance of 1,503,219 additional shares
of Common Stock to Universal Studios, Inc. ("Universal") for no additional
consideration (the "Universal Issuance") under anti-dilution provisions in the
Company's subscription agreement with Universal (the "Subscription Agreement").
Such number of shares assumes a price to the public of the shares offered
hereby of $14.25 per share and is subject to change in accordance with the
provisions of the Subscription Agreement and is dependent on the actual
offering price of the shares offered hereby. See "Certain Relationships and
Related Transactions." 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 SPE and Cineplex Odeon
Corporation ("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.
1
<PAGE>
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.
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, Modified EBITDA and EBITDA, see "--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
2
<PAGE>
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 concession 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.
3
<PAGE>
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 (as hereinafter defined) 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).
4
<PAGE>
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 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." In connection with the Combination, the Company also agreed with
the U.S. Department of Justice (the "DOJ") and the attorneys general of New
York and Illinois to dispose of 25 additional theatres with 85 screens. See
"Business--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
5
<PAGE>
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 had 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. The Company has recently
announced the formation of a joint venture with Yelmo Films to operate existing
theatres and construct and operate new state-of-the-art multiplex theatres in
Spain. See "--Recent Developments." 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.
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.
PRINCIPAL STOCKHOLDERS
The Company's principal stockholders include SPE, a wholly owned subsidiary
of Sony Corporation of America ("SCA"), Universal and the Charles Rosner
Bronfman Discretionary Trust and certain related
6
<PAGE>
stockholders (the "Claridge Group"), which own 51.1% (49.9% of the Company's
voting Common Stock), 26.0% (26.6% of the Company's voting Common Stock) and
9.6% (9.8% of the Company's voting Common Stock) of the Company's capital
stock, respectively, before giving effect to the Equity Offering. Upon
consummation of the Equity Offering, SPE, Universal and the Claridge Group will
own 40.8%, 23.4% (23.3% of the Company's voting Common Stock) and 7.6% (7.6% of
the Company's voting Common Stock), respectively, of the Company's capital
stock and collectively own approximately 71.8% of the Company's capital stock
(and 71.7% 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.
RECENT DEVELOPMENTS
YELMO CINEPLEX DE ESPANA
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.
7
<PAGE>
THE EQUITY OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................ 10,000,000 shares
Common Stock to be outstanding
after the Equity Offering (1).. 56,786,653 shares
Use of proceeds................. The Company intends to use the net proceeds
from the Equity Offering to reduce
outstanding borrowings under the Bank Credit
Facilities (as hereinafter defined). Amounts
repaid under the Bank Credit Facilities may
be reborrowed and used by the Company for
funding its North American and International
expansion plans and for general corporate
purposes, subject in each case to
satisfaction of certain covenants and
financial ratios. See "Use of Proceeds."
Concurrent Note Offering........ The Company is concurrently offering $200
million aggregate principal amount of the
Company's % Senior Subordinated Notes due
2008 in transactions exempt from registration
under the Securities Act. The closing of the
Equity Offering is not contingent on the
closing of the Note Offering.
NYSE symbol..................... LCP
TSE symbol...................... LCX
</TABLE>
- --------
(1) Based on the number of shares outstanding as of July 17, 1998. Excludes (i)
3,404,665 shares of Common Stock that are issuable upon the exercise of
outstanding options as of July 17, 1998 (of which options for 1,620,418
shares are currently exercisable) and (ii) an aggregate of 1,784,247
additional shares of Common Stock reserved for issuance under the Company's
Stock Incentive Plan.
8
<PAGE>
THE CONCURRENT TRANSACTIONS
The Company is concurrently undertaking the following transactions, none of
which is conditioned on any of the others, which are 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 is offering hereby 10 million shares of Common Stock
pursuant to the Equity Offering.
. The Company is concurrently offering in the Note Offering $200 million
aggregate principal amount of the New Notes in transactions exempt from
registration under the Securities Act. For a description of the New
Notes, see "Description of Certain Indebtedness--The New Notes." The New
Notes will be issued pursuant to an indenture to be entered into between
the Company and Bankers Trust Company (the "New Note Indenture") and
will be general unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Debt (as defined in the
New Note Indenture) of the Company, including indebtedness under the
Bank Credit Facilities. Proceeds from the Note Offering are expected to
be used to fund the purchase of Plitt Notes (as hereinafter defined)
tendered pursuant to the Plitt Note Repurchase. See "Risk Factors--
Equity Offering Not Conditioned on Note Offering."
. The Company's wholly owned subsidiary, Plitt Theatres, Inc. ("Plitt"),
currently has outstanding $200 million aggregate principal amount of its
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. As a result of the consummation
of the Combination, a "change of control" provision was triggered under
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. Also on June 15, 1998, Plitt commenced an at-the-market tender
offer (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 will purchase the outstanding Plitt Notes for cash
at a purchase price determined by reference to a fixed spread of 55
basis points over the yield to maturity of the United States Treasury
6.25% Bond 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. In connection with the At-the-Market Offer, Plitt
also sought consents to certain proposed amendments (the "Proposed
Amendments") to the Plitt Indenture. The purpose of the Proposed
Amendments is to eliminate certain restrictive covenants contained in
the Plitt Indenture, thereby affording Plitt additional financial and
operational flexibility. The At-the-Market Offer is conditioned upon,
among other things, no event continuing that could materially impair the
benefits to the Company of the At-the-Market Offer and Consent
Solicitation at the time the At-the-Market Offer was commenced. The
Consent Solicitation terminated on July 1, 1998, with Plitt receiving
consents from holders of approximately 97% of the outstanding Plitt
Notes. The Change of Control Offer expired on July 13, 1998, with
holders of $3.0 million aggregate principal amount of the Plitt Notes
electing to receive the change of control consideration if the At-the-
Market Offer is not consummated and no holders tendering solely into the
Change of Control Offer. The At-the-Market Offer will expire on August
4, 1998, unless extended. Payment for tendered Plitt Notes is expected
to be made on August 5, 1998. Assuming that all of the Plitt Notes are
purchased by Plitt pursuant to the At-the-Market Offer and that the
yield on the Reference Security on the Rate Date is equal to such yield
on July 17, 1998 (5.37%), the total purchase price for the Plitt Notes
(the "Total Plitt Note Consideration") would be approximately $218.5
million plus accrued and unpaid interest.
9
<PAGE>
The following table sets forth the sources of funds to be used to effect the
foregoing transactions and the application of such funds, assuming the sale by
the Company of 10,000,000 shares of Common Stock in the Equity Offering at an
initial offering price of $14.25 per share, which was the closing price per
share on June 12, 1998 on the NYSE, consummation of the Note Offering and the
repurchase of 100% of the outstanding Plitt Notes pursuant to the At-the-Market
Offer. The table below assumes Total Plitt Note Consideration equal to 109.255%
of the outstanding principal amount thereof, based on the yield of the
Reference Security at July 17, 1998. The actual Total Plitt Note Consideration
and the price to the public in the Equity Offering will depend upon the market
conditions prevailing at the time such transactions are priced and are likely
to be different from the amounts reflected in the table below.
SOURCES OF FUNDS USES OF FUNDS
(IN MILLIONS)
<TABLE>
<S> <C>
Equity Offering (1)..... $143
Note Offering (1)(2).... 200
----
Total................... $343
====
</TABLE>
<TABLE>
<S> <C>
Total Plitt Note Consideration..... $219
Expenses (3)....................... 16
Paydown of the Bank Credit Facili-
ties.............................. 108
----
Total.............................. $343
====
</TABLE>
- --------
(1) Before deduction of underwriting discounts and commissions.
(2) If the Note Offering is not consummated, the Company may borrow funds under
the Bank Credit Facilities in an amount sufficient to pay the Total Plitt
Note Consideration, in which case the borrowings under the Bank Credit
Facilities would increase from current levels.
(3) Expenses have been estimated and include underwriting discounts and
commissions of approximately $10.5 million for the Equity Offering and $5.5
million for the Note Offering.
10
<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 (i) to the
Combination ("Pro Forma") and (ii) to the Combination, the Equity Offering, the
Note Offering, the Plitt Note Repurchase and the issuance of 1,503,219
additional shares of Common Stock to Universal (the "Universal Issuance") for
no additional consideration pursuant to the anti-dilution provisions of the
Subscription Agreement (the "Transactions" and such adjusted pro forma data is
referred to as "Pro Forma, As Adjusted"), 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, As Adjusted 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 hereinafter
defined) 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."
11
<PAGE>
Loews Cineplex
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
ACTUAL YEAR ENDED
YEAR ENDED FEBRUARY 28 OR 29, FEBRUARY 28, 1998 (1)(6)
---------------------------------------------------------- --------------------------
PRO FORMA, AS
1994 1995 1996 1997 1998 PRO FORMA ADJUSTED(2)(3)
---------- ---------- ---------- ---------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT 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 $ 688,195 $ 688,195
Concessions revenues... 75,355 79,287 84,358 90,643 104,009 248,671 248,671
Other revenues......... 8,800 8,656 10,153 11,204 12,568 38,956 38,956
---------- ---------- ---------- ---------- ---------- ---------- ----------
329,019 343,335 359,096 375,345 413,510 975,822 975,822
---------- ---------- ---------- ---------- ---------- ---------- ----------
Theatre operations and
other expenses
(including concession
costs)................ 259,173 268,236 277,375 282,480 307,568 771,670 771,670
General and
administrative........ 17,449 18,753 20,282 21,447 28,917 59,230 59,230
Depreciation and
amortization.......... 37,873 38,572 41,273 44,576 52,307 104,801 105,351
Loss on sale/disposals
of theatres........... 3,491 13,420 7,249 9,951 7,787 13,683 13,683
Interest expense, net.. 9,865 10,613 15,376 14,776 14,319 50,350 43,450
Income tax
expense/(benefit)..... 4,662 (1,337) 309 2,295 2,751 2,292 2,292
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ (3,494) $ (4,922) $ (2,768) $ (180) $ (139) $ (26,204) $ (19,854)
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per
common share (4):
basic................. $ (0.17) $ (0.24) $ (0.14) $ (0.01) $ (0.01) $ (0.58) $ (0.35)
diluted............... $ (0.17) $ (0.24) $ (0.14) $ (0.01) $ (0.01) $ (0.53) $ (0.33)
Weighted average shares
and equivalent
outstanding (4):
basic................. 20,472,807 20,472,807 20,472,807 20,472,807 20,472,807 45,347,632 56,850,851
diluted............... 20,472,807 20,472,807 20,472,807 20,472,807 20,924,890 49,038,046 60,541,265
BALANCE SHEET DATA (AT
PERIOD END):
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(5):
Cash flow provided by
operating
activities........... $ 55,150 $ 36,188 $ 46,326 $ 47,976 $ 64,185
</TABLE>
- --------
(1) 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) Pro forma adjustments assume the repurchase of 100% of the outstanding
Plitt Notes at a price of 109.255%. The New Notes are assumed to bear
interest at a rate of 9.0% per annum. The Equity Offering of 10 million
shares assumes a price per share of $14.25.
(3) If the Note Offering is not consummated, depreciation and amortization,
interest expense and net income (loss) would have been $104,801, $40,450,
and $(16,304), respectively. See "Unaudited Pro Forma Financial
Information."
(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 are not presented in the unaudited
pro forma data.
(6) 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.
12
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED THREE MONTHS ENDED MAY 31,
--------------------------------------------------------
1997 1998(1)(7)
----------- -------------------------------------------
PRO FORMA,
ACTUAL ACTUAL(2) PRO FORMA AS ADJUSTED(3)(6)
----------- ----------- ----------- -----------------
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING
AND PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Admissions revenues..... $ 67,370 $ 83,207 $ 148,747 $ 148,747
Concessions revenues.... 23,486 31,170 56,471 56,471
Other revenues.......... 2,360 3,437 9,107 9,107
----------- ----------- ----------- -----------
93,216 117,814 214,325 214,325
----------- ----------- ----------- -----------
Theatre operations and
other expenses
(including concession
costs)................. 71,095 89,943 175,948 175,948
General and
administrative......... 5,937 7,946 15,116 15,116
Depreciation and
amortization........... 12,597 14,681 24,314 24,452
Interest expense, net... 3,622 6,106 13,225 11,500
Income tax
expense/(benefit)...... 365 (119) 258 258
----------- ----------- ----------- -----------
Net income (loss)....... $ (400) $ (743) $ (14,536) $ (12,949)
=========== =========== =========== ===========
Earnings (loss) per
common share(4):
basic.................. $ (0.02) $ (0.03) $ (0.32) $ (0.23)
diluted................ $ (0.02) $ (0.03) $ (0.30) $ (0.21)
Weighted average shares
and equivalent
outstanding(4):
basic.................. 20,472,807 24,619,805 45,366,410 56,869,629
diluted................ 20,472,807 24,984,549 48,780,043 60,283,262
BALANCE SHEET DATA (AT
PERIOD END):
Property, equipment and
leaseholds, net........ $ 1,180,376 $ 1,180,376
Total assets............ $ 1,617,287 $ 1,622,787
Total long-term debt
(including current
maturities and capital
leases)................ $ 729,841 $ 621,851
Total liabilities....... $ 1,022,019 $ 895,519
Stockholders' equity.... $ 595,268 $ 727,268
CASH FLOW STATEMENT
DATA(5):
Cash flow provided by
operating activities.. $ 9,974 $ 27,292
</TABLE>
- --------
(1) 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) Pro forma adjustments assume the repurchase of 100% of the outstanding
Plitt Notes at a price of 109.255%. The New Notes are assumed to bear
interest at a rate of 9.0% per annum. The Equity Offering of 10 million
shares assumes a price per share of $14.25.
(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) If the Note Offering is not consummated, depreciation and amortization,
interest expense, net income (loss) and total assets would have been
$24,314, $10,750, $(12,061) and $1,617,287, respectively. See "Unaudited
Pro Forma Financial Information."
(7) 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.
13
<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, EXCEPT SHARES OUTSTANDING AND
PER SHARE DATA)
<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):
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>
14
<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 ENDED
UNAUDITED MAY 31,
ACTUAL PRO FORMA --------------------------------
YEAR ENDED FEBRUARY 28 OR 29, YEAR ENDED 1997 1998(7)
----------------------------------------------------- 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(2)........ $ 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(2).... $ 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
</TABLE>
- -------
(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
15
<PAGE>
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:
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
ACTUAL MAY 31,
YEAR ENDED UNAUDITED -------------------------
FEBRUARY 28 OR 29, PRO FORMA 1997 1998
--------------------------------------- YEAR ENDED ------- -----------------
1994 1995 1996 1997 1998 FEBRUARY 28, 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
======= ======= ======= ======= ======= ======== ======= ======= =======
</TABLE>
* 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.
16
<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
</TABLE>
- --------
(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 the 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:
<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
======= ======= ======= ======= =======
</TABLE>
--------
* 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 Total 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.
17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following risk factors
before purchasing the Common Stock 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) have not yet been performed. 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.
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
18
<PAGE>
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.
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 $622 million (representing
approximately 46.1% of total capitalization).
The degree to which Loews Cineplex is leveraged could have important
consequences to the Company and its stockholders, 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 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 contain, and the New Note
Indenture will contain, financial and other restrictive covenants that will
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. See "Description of Certain Indebtedness."
The Company's ability to make scheduled principal payments on, or to pay
interest on, or to refinance its indebtedness 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, that 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 principal on amounts due under the Bank
Credit Facilities, the New Notes and other indebtedness of the Company.
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 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, 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 or to fund its other liquidity needs.
EQUITY OFFERING NOT CONDITIONED ON NOTE OFFERING
The Equity Offering is not conditioned on the closing of the Note Offering.
Accordingly, the Equity Offering and the Plitt Note Repurchase may be
completed without the Note Offering. If the Note Offering is not consummated,
the Company may borrow additional funds under the Bank Credit Facilities to
consummate the At-the-Market Offer, which would reduce the Company's ability
to borrow for other purposes (including for acquisitions, theatre construction
and renovation and funding of the Company's North American and international
expansion plans).
19
<PAGE>
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 Equity
Offering, the Note Offering and the Bank Credit Facilities. Although the
Company believes that internally generated funds and the funds provided by the
net proceeds of the Equity Offering and borrowings under the Bank Credit
Facilities would be adequate to pay the Total Plitt Note Consideration and
fund the Company's capital and expansion plans for the foreseeable future,
even without the proceeds of the Note Offering, 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
20
<PAGE>
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, who own,
respectively, 51.1% (49.9% of the voting Common Stock), 26.0% (26.6% of the
voting Common Stock) and 9.6% (9.8% of the voting Common Stock) of the capital
stock of Loews Cineplex. The Stockholders in the aggregate own approximately
86.7% of the outstanding Loews Cineplex Stock (approximately 71.8% after
giving effect to the Equity Offering) 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."
Pursuant to the terms of the Subscription Agreement, Universal has the right
to receive additional shares of Common Stock in respect of the shares of
Common Stock it purchased pursuant to the Subscription Agreement for no
additional consideration if the Company issues additional shares of Common
Stock under certain circumstances for less than $19.0891 per share, subject to
adjustment as set forth therein. These anti-dilution rights only apply to the
first $100 million of additional issuances. If the shares offered hereby in
the Equity Offering were sold by the Company for $14.25 per share (the closing
price of the Common Stock on the NYSE on June 12, 1998), the Company would be
obligated to issue an additional 1,503,219 shares of Common Stock to Universal
for no additional consideration. After giving effect to such issuance, and to
the consummation of the Equity Offering, Universal would own 23.3% and 95.2%
of the outstanding Common Stock and the non-voting shares of Common Stock,
respectively. See "Certain Relationships and Related Transactions." Such
issuance of Common Stock to Universal for no additional consideration will be
dilutive to shareholders of the Company. See "Dilution." In addition, SPE and
Universal are entitled, under certain circumstances, to purchase additional
shares of Common Stock to maintain their relative ownership interests in the
Company upon the issuance by the Company of additional shares of capital
stock. These rights do not apply with respect to the Equity Offering. See "The
Stockholders Agreement--Equity Purchase Rights."
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."
The Company's Amended and Restated Certificate of Incorporation (the
Company's "Charter") provides, among other things, that a merger or
consolidation in which the Company is a constituent corporation, and any sale
or other disposition of all or substantially all of the assets of the Company,
generally will require the affirmative vote of the holders of at least 80% of
the outstanding Common Stock if SPE or Universal then beneficially owns a
minimum amount of the Company's equity securities (which percentage shall be
reduced to 66 2/3% if such transaction is approved by at least 14 members of
the Company's Board of Directors). As a result, so long as any stockholder or
combination of stockholders owns more than 20% of the outstanding Common
Stock, it or they may prevent efforts to obtain control of the Company and
therefore deprive the other stockholders of the Company of opportunities to
sell Common Stock at prices higher than those prevailing in the market. The
Company's Charter also contains other provisions that may have an anti-
takeover effect, including provisions relating to the ability of holders of
Loews Cineplex capital stock to call meetings of stockholders or
21
<PAGE>
to remove members of the Company's Board of Directors, to take action by
written consent or to adopt, repeal or amend the Company's By-laws or any
provisions of the Company's Charter. See "The Stockholders Agreement" and
"Description of Capital Stock."
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."
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
On July 17, 1998, the Company had outstanding 44,080,948 shares of Common
Stock and 1,286,486 shares of non-voting capital stock that are convertible
into Common Stock under certain circumstances. Of these, approximately
6,131,071 shares of Common Stock are freely transferable by persons other than
affiliates of Loews Cineplex without restriction or further registration under
the Securities Act. Upon consummation of the Equity Offering, the Stockholders
will own 40,655,582 shares of Common Stock and all of the outstanding Loews
Cineplex non-voting capital stock and will generally be eligible for sale
without registration under the U.S. Securities Act in accordance with Rule 144
promulgated thereunder and in private offerings, subject to certain
limitations and restrictions set forth in the Stockholders Agreement. In
addition, pursuant to the Stockholders Agreement, the Stockholders have
certain rights to "demand" Loews Cineplex to register their securities for
sale under the Securities Act and/or file a prospectus under Canadian
provincial securities laws and, in the event that the Company proposes to
register any Common Stock under the U.S. Securities Act and/or file a
prospectus under Canadian provincial securities laws, to include their
securities in such registrations and/or prospectus, subject to certain
limitations and exceptions. See "The Stockholders Agreement." Sales of Common
22
<PAGE>
Stock by the Stockholders, or the perception that such sales could occur,
could adversely affect prevailing market prices for Common Stock and the
ability of Loews Cineplex to raise capital by issuing its equity securities.
See "Shares Eligible for Future Sale."
Pursuant to the terms of the Stockholders Agreement, SPE and Universal have
the right, under certain circumstances, to purchase additional shares of
Common Stock to maintain their relative ownership interests in the Company
upon the issuance by the Company of additional shares of capital stock. See
"The Stockholders Agreement." In addition, pursuant to the terms of the
Subscription Agreement, Universal has the right to receive additional shares
of Common Stock in respect of the Common Stock it has purchased pursuant to
the Subscription Agreement for no additional consideration, if the Company
issues additional shares of Common Stock to any person other than Universal
and its affiliates following the closing of the Combination under certain
circumstances for less than $19.0891 per share, subject to adjustment as set
forth therein. The effect of SPE's and Universal's equity purchase rights and
of Universal's anti-dilution protection described above may be to dilute the
ownership interests of the stockholders of Loews Cineplex. See "Dilution" and
"Certain Relationships and Related Transactions."
POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the closing of the Combination on May 14, 1998, there was no public
market for the Common Stock. Average daily trading volume for the Common Stock
as reported on the NYSE for the first quarter of 1998 was 69,650 shares.
Despite the increase in the number of shares of Common Stock to be publicly
held as a result of the Equity Offering, there is no assurance a more active
trading market will develop. In addition, the market price of Common Stock
could be subject to wide fluctuations in response to variations in Loews
Cineplex's quarterly results (see "--Dependence upon Motion Picture Production
and Performance; Seasonality" above), announcements of technological
innovations or the development of new products with respect to motion picture
exhibition delivery systems by Loews Cineplex and its competitors, changes in
film licensing prices or other terms by the major motion picture studios and
distributors, general changes in the economies of the United States or Canada,
changes in earnings estimates by securities analysts, or other events or
factors. In addition, the U.S. and Canadian stock markets have experienced
extreme price and volume fluctuations that have affected the market prices of
companies that have often been unrelated to the operating performance of such
companies. These specific factors relating to Loews Cineplex and such broad
market fluctuations may materially adversely affect the market price of the
Common Stock.
RESTRICTIONS IMPOSED BY BANK CREDIT FACILITIES; VARIABLE INTEREST RATES
The Bank Credit Facilities and the Plitt Indenture (if consent to certain
Proposed Amendments is not obtained) impose, and the New Note Indenture will,
if the New Notes are issued, impose certain financial and other covenants on
Loews Cineplex, including the maintenance of certain financial tests, all as
described under the heading "Description of Certain Indebtedness." These
covenants could limit the operating flexibility of Loews Cineplex. In
addition, the Bank Credit Facilities prohibit the Company from declaring,
paying or making any dividend or distribution on the Common Stock other than
dividends or distributions payable in shares of the Company's capital stock,
and the Plitt Indenture (if the requisite consents to the Proposed Amendments
are not obtained) and the New Note Indenture restrict the declaration or
payment of dividends unless certain financial tests are satisfied. 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.
23
<PAGE>
THE CONCURRENT TRANSACTIONS
The Company is concurrently undertaking the following transactions, none of
which is conditioned on any of the others, which are 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 Equity Offering. Pursuant to the Equity Offering being made hereby, the
Company is offering 10 million shares of Common Stock.
The Note Offering. The Company is concurrently offering in the Note Offering
$200 million aggregate principal amount of the New Notes in transactions
exempt from registration under the Securities Act. The New Notes will be
issued pursuant to the New Note Indenture and will be general unsecured
obligations of the Company, ranking subordinate in right of payment to all
Senior Debt (as defined in the New Note Indenture) of the Company, including
indebtedness under the Bank Credit Facilities. Proceeds from the Note Offering
are expected to be used to fund the purchase of the Plitt Notes tendered
pursuant to the Plitt Note Repurchase. See "Risk Factors--Equity Offering Not
Conditioned on Note Offering."
The Plitt Note Repurchase. As a result of the consummation of the
Combination, a "change of control" provision was triggered under the Plitt
Indenture. Accordingly, on June 15, 1998, Plitt commenced the Change of
Control Offer to purchase 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. Also on June 15, 1998, Plitt
commenced the At-the-Market Offer for any and all outstanding Plitt Notes.
Under the terms of the At-the-Market Offer, as amended on June 26, 1998, Plitt
will purchase the outstanding Plitt Notes for cash at a purchase price
determined by reference to a fixed spread of 55 basis points over the yield to
maturity of the Reference Security on the Rate Date, plus accrued and unpaid
interest to (but excluding) the date of payment. In connection with the At-
the-Market Offer, Plitt also sought consents to the Proposed Amendments. The
purpose of the Proposed Amendments is to eliminate certain restrictive
covenants contained in the Plitt Indenture, thereby affording Plitt additional
financial and operational flexibility. The At-the-Market Offer is conditioned
upon, among other things, no event continuing that could materially impair the
benefits to the Company of the At-the-Market Offer and Consent Solicitation at
the time the At-the-Market Offer was commenced. The Consent Solicitation
terminated on July 1, 1998, with Plitt receiving consents from holders of
approximately 97% of the outstanding Plitt Notes. The Change of Control Offer
expired on July 13, 1998, with holders of $3.0 million aggregate principal
amount of the Plitt Notes electing to receive the change of control
consideration if the At-the-Market Offer is not consummated and no holders
tendering solely into the Change of Control Offer. The At-the-Market Offer
will expire on August 4, 1998, unless extended. Payment for tendered Plitt
Notes is expected to be made on August 5, 1998. Assuming that all of the Plitt
Notes are purchased by Plitt pursuant to the At-the-Market Offer and that the
yield of the Reference Security on the Rate Date is equal to such yield on
July 17, 1998 (5.37%), the Total Plitt Note Consideration would be
approximately $218.5 million plus accrued and unpaid interest.
The following table sets forth the sources of funds to be used to effect the
foregoing transactions and the application of such funds, assuming the sale by
the Company of 10,000,000 shares of Common Stock in the Equity Offering at an
initial offering price of $14.25 per share, which was the closing price per
share on June 12, 1998 on the NYSE, consummation of the Note Offering and the
repurchase of 100% of the outstanding Plitt Notes pursuant to the At-the-
Market Offer. The table below assumes Total Plitt Note Consideration equal to
109.255% of the outstanding principal amount thereof, based on the yield of
the Reference Security at July 17, 1998. The actual Total Plitt Note
Consideration and the price to the public in the Equity Offering will depend
upon the market conditions prevailing at the time such transactions are priced
and are likely to be different from the amounts reflected in the table below.
SOURCES OF FUNDS USES OF FUNDS
(IN MILLIONS)
<TABLE>
<S> <C>
Equity Offering (1)..... $143
Note Offering (1)(2).... 200
----
Total................... $343
====
</TABLE>
<TABLE>
<S> <C>
Total Plitt Note Consideration..... $219
Expenses (3)....................... 16
Paydown of the Bank Credit Facili-
ties.............................. 108
----
Total.............................. $343
====
</TABLE>
24
<PAGE>
- --------
(1) Before deduction of underwriting discounts and commissions.
(2) If the Note Offering is not consummated, the Company may borrow funds
under the Bank Credit Facilities in an amount sufficient to pay the Total
Plitt Note Consideration, in which case the borrowings under the Bank
Credit Facilities would increase from current levels.
(3) Expenses have been estimated and include underwriting discounts and
commissions of approximately $10.5 million for the Equity Offering and
$5.5 million for the Note Offering.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
10,000,000 shares of Common Stock in the Equity Offering after deducting the
underwriting discounts and estimated expenses of the Equity Offering are
estimated to be approximately $132 million ($153 million if the Underwriters'
over-allotment option is exercised in full), based on an assumed initial
public offering price of $14.25 per share, which was the closing price on the
NYSE on June 12, 1998. The Company intends to use the estimated net proceeds
to reduce the outstanding balance on the Bank Credit Facilities, which was
$490 million as of July 24, 1998. Amounts repaid under the Bank Credit
Facilities 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 satisfaction of certain covenants and financial
ratios. Previous borrowings under the Bank Credit Facilities were used (i) to
repay $153.9 million of outstanding indebtedness of Cineplex Odeon upon
consummation of the Combination, (ii) to fund payments to SPE totaling $394.8
million (comprising repayment of $299.5 million in outstanding indebtedness, a
dividend of $80.1 million and $15.2 million in consideration for transferred
assets) upon consummation of the Combination, (iii) to pay $1 million in
expenses related to the Combination, and (iv) to pay approximately $6 million
in fees related to the Bank Credit Facilities. Under the Amended and Restated
Master Agreement relating to the Combination, payments owed by the Company to
SPE are subject to specified post-closing audit procedures, which have not
been completed. The Company estimates that upon completion of the procedures
it may be required to pay approximately $15 million. Borrowings under the Bank
Credit Facilities currently bear interest at an average rate of 8.0% per annum
based on the administrative agent's base rate and/or the Eurodollar rate plus
a specified margin, as the case may be. See "Description of Certain
Indebtedness--Credit Agreement."
25
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been listed on the NYSE under the symbol
"LCP" and on the TSE under the symbol "LCX" since May 15, 1998 (the day
following the closing of the Combination). The prices set forth below reflect
the high and low sales prices of the Common Stock during the periods
indicated, as reported in the consolidated transaction reporting systems of
the NYSE and the TSE:
FISCAL YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
HIGH LOW
NYSE: --------- ---
<S> <C> <C>
First Quarter (from May 15, 1998)........................... $20 $15 3/8
Second Quarter (through July 27, 1998)...................... 15 15/16 11 15/16
<CAPTION>
HIGH LOW
TSE (CDN$): --------- ---
<S> <C> <C>
First Quarter (from May 15, 1998)........................... $29 $22 5/32
Second Quarter (through July 27, 1998)...................... 22 51/64 18
</TABLE>
On July 27, 1998, the last reported per share sale price of Common Stock as
reported by the NYSE was $12.25 per share and the last reported per share
sales price of the Common Stock as reported by the TSE was Cdn$18.30 per
share. There were approximately 1,701 holders of record of the Common Stock as
of July 15, 1998.
DIVIDEND POLICY
Since the consummation of the Combination on May 14, 1998, the Company has
not paid any dividends on its Common Stock and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future. In addition, the
Bank Credit Facilities prohibit the Company from declaring, paying or making
any dividend or distribution on the Common Stock other than dividends or
distributions payable in shares of the Company's capital stock, and the Plitt
Indenture (if the Proposed Amendments do not become operative) and the New
Notes Indenture (assuming consummation of the Note Offering) will restrict the
declaration or payment of dividends other than dividends on distributions
payable in shares of the Company's capital stock unless certain financial
tests are satisfied. Whether the Company will pay dividends in the future and
the amount thereof will be determined by the Company's Board of Directors and
will depend on its future earnings, capital requirements, financial condition
and other relevant factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources
(after the Consummation of the Combination)" and "Description of Certain
Indebtedness." It is expected that all of the earnings, if any, of the Company
will be retained to support current operations and to fund acquisitions and
development of new theatres in North America and internationally or be used to
reduce indebtedness under the Bank Credit Facilities.
26
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company as of May 31, 1998 was
approximately $280.5 million, or $6.18 per share of Common Stock. Net tangible
book value (deficit) per share represents an amount equal to the Company's
total assets (excluding intangible assets) less its total liabilities, divided
by the number of shares of Common Stock outstanding. After giving effect to
the Equity Offering at an assumed initial public offering price of $14.25 per
share (the closing price of the Common Stock on the NYSE on June 12, 1998) and
the application by the Company of the estimated net proceeds therefrom as
described under "Use of Proceeds," the pro forma net tangible book value
(deficit) of the Company at May 31, 1998 would have been approximately $412.5
million, or $7.25 per share of Common Stock. See "Unaudited Pro Forma
Financial Information" and "Use of Proceeds." This represents an immediate
increase in net tangible book value of $1.07 per share to the existing
stockholders and an immediate net tangible book value dilution of $7.00 per
share to new investors purchasing shares in the Equity Offering. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $14.25
Net tangible book value (deficit) per share at May 31,
1998(1)................................................... $ 6.18
Increase in net tangible book value per share attributable
to new investors.......................................... 1.07
------
Pro forma net tangible book value (deficit) per share after
the Equity Offering......................................... 7.25
------
Dilution per share to new investors.......................... $ 7.00
======
</TABLE>
- --------
(1) Gives effect to (i) the issuance of an additional 1,503,219 shares of
Common Stock pursuant to the anti-dilution provisions of the Subscription
Agreement if the shares offered hereby are sold at the assumed public
offering price per share of $14.25 per share and (ii) the issuance of
1,202,486 shares of Common Stock upon automatic conversion of the
Company's Class A Non-Voting Common Stock held by SPE upon consummation of
the Equity Offering. See "Certain Relationships and Related Transactions"
and "Description of Capital Stock--Common Stock."
The foregoing computations assume no exercise of stock options after July
15, 1998 or the Underwriters' over-allotment option. As of July 15, 1998,
there were outstanding stock options to purchase an aggregate of 3,404,665
shares of Common Stock at an average exercise price of approximately $13.05
per share. If all of the foregoing options had been exercised at July 15,
1998, the pro forma net tangible book value (deficit) per share of Common
Stock at such date would have been $6.66 and the pro forma net tangible book
value per share after giving effect to the Equity Offering would have been
$7.58, representing an immediate dilution to new investors of $6.67 per share
and an immediate increase in net tangible book value of $0.92 per share
attributable to the Equity Offering.
If the Underwriters' over-allotment option is exercised in full, the
increase in net tangible book value per share to existing stockholders will be
$1.24 per share and the dilution per share to new stockholders will be $6.83.
The valuations and other studies, required to determine the fair value of
the assets acquired and liabilities assumed in connection with the
Combination, have not been performed, and, accordingly, the adjustments
reflected in the unaudited pro forma financial information are preliminary and
subject to further revisions and adjustments. For purposes of the unaudited
pro forma information, 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" and has been excluded from the pro forma net tangible book
value in the table above. Every million dollars of Excess Purchase Price
allocated to tangible assets will increase net tangible book value per share
and decrease dilution per share by $0.02.
27
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated historical
capitalization of the Company as of May 31, 1998 and (ii) such capitalization
of the Company as adjusted to give effect to the Equity Offering, the Note
Offering and the Plitt Note Repurchase 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.
<TABLE>
<CAPTION>
MAY 31, 1998
-------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total Debt (including current portion)
Bank Credit Facilities............................. $ 473,000 $ 365,010
Plitt Notes (guaranteed by Loews Cineplex)......... 200,000 --
New Senior Subordinated Notes due 2008 of the
Company(2)........................................ -- 200,000
Capital lease obligations.......................... 29,468 29,468
Mortgages Payable.................................. 27,373 27,373
---------- ----------
Total debt......................................... 729,841 621,851
---------- ----------
Stockholders' equity
Common Stock, $.01 par value, 300,000,000 shares
authorized;
44,073,824 shares issued and outstanding and
56,785,629 shares
Pro Forma, As Adjusted............................ 441 568
Class A Non-Voting Common Stock, $.01 par value,
10,000,000
shares authorized; 1,202,486 shares issued and
outstanding and
nil Pro Forma, As Adjusted........................ 12 --
Class B Non-Voting Common Stock, $.01 par value,
10,000,000
shares authorized; 84,000 issued and outstanding.. 1 1
Additional paid-in capital......................... 591,613 723,498
Retained earnings.................................. 3,201 3,201
---------- ----------
Total stockholders' equity......................... 595,268 727,268
---------- ----------
Total capitalization................................. $1,325,109 $1,349,119
========== ==========
</TABLE>
- --------
(1) Gives effect to the Universal Issuance and the automatic conversion that
will occur upon consummation of the Equity Offering of shares of the
Company's Class A Non-Voting Common Stock currently held by SPE into an
equal number of shares of Common Stock. See "Certain Relationships and
Related Transactions."
(2) If the Note Offering is not consummated, the Company may borrow funds
under the Bank Credit Facilities in an amount sufficient to pay the Total
Plitt Note Consideration, in which case the borrowings under the Bank
Credit Facilities would increase from current levels.
28
<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, selected 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.
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS
YEAR ENDED FEBRUARY 28 OR 29, ENDED MAY 31,
---------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1997 1998(2)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT 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)
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per
common share(1):
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 (1):
basic.................. 20,472,807 20,472,807 20,472,807 20,472,807 20,472,807 20,472,807 24,619,805
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):
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
</TABLE>
- --------
(1) Restated in all periods presented to reflect impact of a stock dividend
declared on February 5, 1998.
(2) Includes operating results of Cineplex Odeon from May 15, 1998 through May
31, 1998.
29
<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, EXCEPT SHARES OUTSTANDING AND
PER SHARE DATA)
<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):
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>
30
<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
ACTUAL PRO FORMA THREE MONTHS ENDED
YEAR ENDED FEBRUARY 28 OR 29, YEAR ENDED MAY 31,
----------------------------------------------------- FEBRUARY 28, ----------------------------
1994 1995 1996 1997 1998 1998(1)(7) 1997 1998(7)
--------- --------- --------- --------- --------- ------------ -------- ------------------
PRO
ACTUAL ACTUAL 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(2)........ $ 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(2)............ $ 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
</TABLE>
- -------
(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
31
<PAGE>
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:
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
ACTUAL MAY 31,
YEAR ENDED -----------------------
FEBRUARY 28 OR 29, UNAUDITED 1997 1998
--------------------------------------- PRO FORMA ------- ---------------
YEAR ENDED PRO
1994 1995 1996 1997 1998 FEBRUARY 28, 1998 ACTUAL ACTUAL 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
======= ======= ======= ======= ======= ======== ======= ======= =======
</TABLE>
- --------
* 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 flow 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 flows 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.
32
<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
</TABLE>
- --------
(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
33
<PAGE>
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:
<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
======= ======= ======= ======= ========
</TABLE>
--------
* 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 Total 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.
34
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined income statement data give effect
(i) to the Combination ("Pro Forma"), (ii) to the Combination, the Equity
Offering, the Plitt Note Repurchase and the Universal Issuance ("Pro Forma, As
Adjusted--Excluding Note Offering") and (iii) to the Combination, the Equity
Offering, the Note Offering, the Plitt Note Repurchase and the Universal
Issuance (the "Transactions," and such pro forma data as adjusted for the Note
Offering is referred to as "Pro Forma, As Adjusted") 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, As Adjusted--Excluding Note Offering and Pro Forma, As
Adjusted 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 disposition of 25 theatres comprising 85 screens in New York and Chicago
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 represented
approximately 3% of total screens and generated approximately $43 million of
box office revenue and approximately $9 million of cash flow 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, AS
ADJUSTED DEBT LEVEL OF APPROXIMATELY $622 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."
35
<PAGE>
COMBINED LOEWS THEATRES AND CINEPLEX ODEON
UNAUDITED PRO FORMA INCOME STATEMENT--FISCAL YEAR ENDED FEBRUARY 28, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LOEWS CINEPLEX PRO FORMA,
THEATRES ODEON PLITT EQUITY AS ADJUSTED -
YEAR ENDED YEAR ENDED PRO FORMA TENDER OFFERING EXCLUDING
2/28/98 12/31/97 ADJUSTMENTS PRO FORMA ADJUSTMENTS(7) ADJUSTMENTS NOTE OFFERING
---------- ---------- ----------- ---------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Admissions...... $296,933 $399,171 $ (7,909)(1) $ 688,195 $ 688,195
Concessions..... 104,009 147,892 (3,230)(1) 248,671 248,671
Other (A)....... 12,568 26,714 (326)(1) 38,956 38,956
-------- -------- -------- ---------- --- ---------- ----------
413,510 573,777 (11,465) 975,822 0 0 975,822
-------- -------- -------- ---------- --- ---------- ----------
EXPENSES
Theatre
operations and
other expenses.. 291,421 462,738 (26,695)(1)(1a) 727,464 727,464
Cost of
concessions..... 16,147 28,705 (646)(1) 44,206 44,206
General and
administrative.. 28,917 20,313 10,000(1a) 59,230 59,230
Depreciation and
amortization.... 52,307 45,715 6,779 (2) 104,801 104,801
Loss on
sale/disposal of
theatres and
other........... 7,787 0 5,896 (3) 13,683 13,683
-------- -------- -------- ---------- --- ---------- ----------
396,579 557,471 (4,666) 949,384 0 0 949,384
-------- -------- -------- ---------- --- ---------- ----------
OPERATING
INCOME........... 16,931 16,306 (6,799) 26,438 0 0 26,438
OTHER EXPENSES
Interest
Expense/(Income).. 14,319 33,900 2,131 (4) 50,350 $ (9,900)(10) 40,450
Other Expenses
(Merger
Related)........ 37,505 (37,505)(5) 0
Other Expenses.. 5,896 (5,896)(3) 0
-------- -------- -------- ---------- --- ---------- ----------
INCOME/(LOSS)
BEFORE INCOME
TAXES............ 2,612 (60,995) 34,471 (23,912) 0 9,900 (14,012)
INCOME TAX
EXPENSE/(BENEFIT).. 2,751 1,072 (1,531)(6) 2,292 2,292
-------- -------- -------- ---------- --- ---------- ----------
NET LOSS......... $ (139) $(62,067) $ 36,002 $ (26,204) $ 0 $ 9,900 $ (16,304)
======== ======== ======== ========== === ========== ==========
Shares
Outstanding:
Basic........... 45,347,632(8) 11,503,219(8) 56,850,851
Fully Diluted... 49,038,046(8) 11,503,219(8) 60,541,265
Loss Per Share:
Basic........... $(0.58) $(0.29)
Fully Diluted... $(0.53) $(0.27)
<CAPTION>
DEBT PRO FORMA,
OFFERING AS
ADJUSTMENTS ADJUSTED
-------------- -------------
<S> <C> <C>
REVENUES
Admissions...... $ 688,195
Concessions..... 248,671
Other (A)....... 38,956
-------------- -------------
0 975,822
-------------- -------------
EXPENSES
Theatre
operations and
other expenses.. 727,464
Cost of
concessions..... 44,206
General and
administrative.. 59,230
Depreciation and
amortization.... $ 550(9) 105,351
Loss on
sale/disposal of
theatres and
other........... 13,683
-------------- -------------
550 949,934
-------------- -------------
OPERATING
INCOME........... (550) 25,888
OTHER EXPENSES
Interest
Expense/(Income).. 3,000 (11) 43,450
Other Expenses
(Merger
Related)........
Other Expenses..
-------------- -------------
INCOME/(LOSS)
BEFORE INCOME
TAXES............ (3,550) (17,562)
INCOME TAX
EXPENSE/(BENEFIT).. 2,292
-------------- -------------
NET LOSS......... $(3,550) $ (19,854)
============== =============
Shares
Outstanding:
Basic........... 56,850,851(8)
Fully Diluted... 60,541,265(8)
Loss Per Share:
Basic........... $(0.35)
Fully Diluted... $(0.33)
</TABLE>
- -----
(A) Includes the Company's equity earnings from U.S. Partnerships.
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
36
<PAGE>
COMBINED LOEWS THEATRES AND CINEPLEX ODEON
UNAUDITED PRO FORMA INCOME STATEMENT--FOR THE THREE MONTHS ENDED MAY 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA,
AS ADJUSTED-
LOEWS CINEPLEX PLITT EQUITY EXCLUDING
THEATRES ODEON PRO FORMA TENDER OFFERING NOTE
5/31/98 3/1/98-5/14/98 ADJUSTMENTS PRO FORMA ADJUSTMENTS(7) ADJUSTMENTS OFFERING
-------- -------------- ----------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Admissions...... $83,207 $ 66,839 $(1,299)(1) $ 148,747 $ 148,747
Concessions..... 31,170 25,861 (560)(1) 56,471 56,471
Other (A)....... 3,437 5,749 (79)(1) 9,107 9,107
------- -------- ------- ---------- ------ ---------- ----------
117,814 98,449 (1,938) 214,325 0 0 214,325
------- -------- ------- ---------- ------ ---------- ----------
EXPENSES
Theatre
operations and
other expenses.. 85,115 86,974 (5,872)(1)(1a) 166,217 166,217
Cost of
concessions..... 4,828 4,999 (96)(1) 9,731 9,731
General and
administrative.. 7,946 4,554 2,616(1a) 15,116 15,116
Depreciation and
amortization.... 14,681 8,101 1,532 (2) 24,314 24,314
------- -------- ------- ---------- ------ ---------- ----------
112,570 104,628 (1,820) 215,378 0 0 215,378
------- -------- ------- ---------- ------ ---------- ----------
OPERATING
INCOME........... 5,244 (6,179) (118) (1,053) 0 0 (1,053)
OTHER EXPENSES
Interest
Expense/(Income).. 6,106 7,674 (555)(4) 13,225 $ (2,475)(10) 10,750
Other Expenses
(Merger
Related)........ 2,009 (2,009)(5) 0
------- -------- ------- ---------- ------ ---------- ----------
INCOME/(LOSS)
BEFORE INCOME
TAXES............ (862) (15,862) 2,446 (14,278) 0 2,475 (11,803)
INCOME TAX
EXPENSE/(BENEFIT)(6).. (119) 377 -- 258 258
------- -------- ------- ---------- ------ ---------- ----------
NET LOSS......... $ (743) $(16,239) $ 2,446 $ (14,536) $ 0 $ 2,475 $ (12,061)
======= ======== ======= ========== ====== ========== ==========
Shares
Outstanding:
Basic........... 45,366,410(8) 11,503,219(8) 56,869,629
Fully Diluted... 48,780,043(8) 11,503,219(8) 60,283,262
Loss Per Share:
Basic........... $(0.32) $(0.21)
Fully Diluted... $(0.30) $(0.20)
<CAPTION>
DEBT PRO FORMA,
OFFERING AS
ADJUSTMENTS ADJUSTED
------------ -------------
<S> <C> <C>
REVENUES
Admissions...... $ 148,747
Concessions..... 56,471
Other (A)....... 9,107
------------ -------------
0 214,325
------------ -------------
EXPENSES
Theatre
operations and
other expenses.. 166,217
Cost of
concessions..... 9,731
General and
administrative.. 15,116
Depreciation and
amortization.... $ 138(9) 24,452
------------ -------------
138 215,516
------------ -------------
OPERATING
INCOME........... (138) (1,191)
OTHER EXPENSES
Interest
Expense/(Income).. 750(11) 11,500
Other Expenses
(Merger
Related)........
------------ -------------
INCOME/(LOSS)
BEFORE INCOME
TAXES............ (888) (12,691)
INCOME TAX
EXPENSE/(BENEFIT)(6).. 258
------------ -------------
NET LOSS......... $(888) $ (12,949)
============ =============
Shares
Outstanding:
Basic........... 56,869,629(8)
Fully Diluted... 60,283,262(8)
Loss Per Share:
Basic........... $(0.23)
Fully Diluted... $(0.21)
</TABLE>
- -----
(A) Includes the Company's equity earnings from U.S. Partnerships.
The accompanying notes are an integral part of these unaudited pro forma
financial statements.
37
<PAGE>
COMBINED LOEWS THEATRES AND CINEPLEX ODEON
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MAY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
AS
LOEWS ADJUSTED--
CINEPLEX PLITT EQUITY EXCLUDING DEBT PRO FORMA,
AS OF TENDER OFFERING NOTE OFFERING AS
5/31/98 ADJUSTMENTS ADJUSTMENTS OFFERING ADJUSTMENTS ADJUSTED
---------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents............ $ 37,785 $ 37,785 $ 37,785
Accounts receivable.... 15,374 15,374 15,374
Prepaid and other
current assets......... 18,773 18,773 18,773
---------- -------- --------- ---------- --------- ----------
TOTAL CURRENT ASSETS... 71,932 0 0 71,932 0 71,932
PROPERTY, EQUIPMENT AND
LEASEHOLDS, NET......... 1,180,376 1,180,376 1,180,376
OTHER ASSETS
Long-term Investments
and Advances to
Partnerships........... 28,941 28,941 28,941
Goodwill (Historical).. 83,913 83,913 83,913
Excess Purchase Price.. 224,304 224,304 224,304
Other Intangible
Assets................. 6,503 6,503 6,503
Deferred charges and
other assets........... 21,318 21,318 $ 5,500 (9) 26,818
---------- -------- --------- ---------- --------- ----------
TOTAL ASSETS............ $1,617,287 $ 0 $ 0 $1,617,287 $ 5,500 $1,622,787
========== ======== ========= ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and
accrued expenses....... $ 230,471 $(18,510)(7) $ 211,961 $ 211,961
Interest payable to
Sony affiliate......... 0 0
Other Current
liabilities............ 22,122 22,122 22,122
Current portion of
long-term debt and
other obligations...... 9,785 9,785 9,785
---------- -------- --------- ---------- --------- ----------
TOTAL CURRENT
LIABILITIES............ 262,378 (18,510) 0 243,868 0 243,868
DEFERRED INCOME TAXES... 16,174 16,174 16,174
LONG-TERM DEBT
(including capital lease
obligations)............ 520,056 218,510 (7) $(132,000)(8) 606,566 $(194,500)(9) 412,066
PLITT DEBT.............. 200,000 (200,000)(7) 0 0
9% SUBORDINATED DEBT.... 0 200,000 (9) 200,000
DEBT DUE TO SONY
AFFILIATES.............. 0 0
OTHER LIABILITIES....... 23,411 23,411 23,411
---------- -------- --------- ---------- --------- ----------
TOTAL LIABILITIES...... 1,022,019 0 (132,000) 890,019 5,500 895,519
---------- -------- --------- ---------- --------- ----------
COMMITMENTS AND
CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock........... 454 115 (8) 569 569
Additional paid-in
capital................ 591,613 131,885 (8) 723,498 723,498
Retained earnings...... 3,201 3,201 3,201
---------- -------- --------- ---------- --------- ----------
TOTAL SHAREHOLDERS'
EQUITY.................. 595,268 0 132,000 727,268 0 727,268
---------- -------- --------- ---------- --------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.... $1,617,287 $ 0 $ 0 $1,617,287 $ 5,500 $1,622,787
========== ======== ========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
financial statements
38
<PAGE>
- --------
(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:
<TABLE>
<S> <C>
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*
============
</TABLE>
* Total of approximately $200,000 was recorded by Loews Cineplex for the
period from 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 estimated premium required as part of the Plitt
Note Repurchase (assuming a Tender Price of $109.255). Since the Pro Forma
adjustments recognize refinancing of the Plitt Notes, interest expense
savings were previously considered. Further, the reclassification of $18.5
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.
39
<PAGE>
(8) Equity Offering Adjustments as follows (in thousands, except share data):
<TABLE>
<S> <C>
Issuance of 10 million shares at $14.25 per share................. $ 100
Issuance of 1,503,219 shares issued to Universal pursuant to the
Subscription Agreement (transferred from additional-paid-in-capi-
tal)............................................................. 15
Additional paid-in capital........................................ 142,385
--------
Gross proceeds from Equity Offering............................... 142,500
Expenses related to Equity Offering (estimated)................... (10,500)
--------
$132,000
========
</TABLE>
The assumed net proceeds of $132 million from the Equity Offering have been
reflected in this pro forma financial information as a reduction of Long-
Term Debt.
Note: The Equity Offering may include an over-allotment of 15% for
additional shares. Based upon the assumed share price of $14.25, if this
provision were exercised in full, the Company would receive $21 million of
additional proceeds from the Equity Offering and would issue an additional
1.5 million shares.
<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*.................. 11,503,219 11,503,219
---------- ----------
Basic Shares Outstanding After Equity Offering..... 56,850,851 56,869,629
========== ==========
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..... 56,850,851 56,869,629
Weighted Average Dilution Under Stock Option
Plans............................................. 3,690,414 3,413,633
---------- ----------
Weighted Average Diluted Shares Outstanding After
Equity Offering................................... 60,541,265 60,283,262
========== ==========
</TABLE>
* Shares issued in conjunction with Equity Offering comprised of 10
million shares at $14.25 per share sold in public offering and 1,503,219
shares issued to Universal pursuant to the Subscription Agreement.
(9) Represents the issuance of $200 million senior subordinated notes and the
estimated costs ($5.5 million) associated with the new 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:
<TABLE>
<S> <C>
Annual Interest Expense as reflected in the unaudited pro
forma combined Income Statement prior to the Equity
Offering and the Note Offering ............................ $50.4 million
Less: annual interest savings assuming paydown of long-term
debt utilizing proceeds from Equity Offering*.............. 9.9 million
-------------
Adjusted Interest Expense................................... $40.5 million
=============
</TABLE>
<TABLE>
<S> <C>
Quarterly Interest Expense as reflected in the unaudited pro
forma combined Income Statement prior to the Equity Offer-
ing and the Note Offering.................................. $13.2 million
Less: quarterly interest savings assuming paydown of long-
term debt utilizing
proceeds from Equity Offering*............................. 2.5 million
-------------
Adjusted Interest Expense................................... $10.7 million
=============
</TABLE>
*Annual impact of $132 million at 7.5% interest rate.
40
<PAGE>
(11) Debt Offering Adjustments as follows:
<TABLE>
<S> <C>
Incremental annual interest related to issuance of $200
million New Notes......................................... $ 3.0 million
==============
Total each quarter......................................... $ 0.75 million
==============
</TABLE>
Represents difference anticipated in rate on new borrowing of 9% compared
to blended rate under the Credit Facility of 7.5%.
NOTE:
. The combined pro forma financial information does not reflect the impact of
the settlement reached with the Department of Justice under which the
Company will divest itself of certain theatres in New York and Chicago.
This treatment is not deemed significant for separate pro forma
presentation.
. 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.
. If the foregoing pro forma financial data had been prepared using a public
offering price of the shares offered hereby of $12.94 per share, the
closing price of the Common Stock on June 29, 1998, the following changes
would have been reflected (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
ANNUAL
PRO FORMA,
AS ADJUSTED
EXCLUDING NOTE
OFFERING
--------------
<S> <C>
Income Statement
Interest Expense/(Income)................................... $ 41,400
Net Loss.................................................... $ 17,300
Shares Outstanding:
Basic..................................................... 57,451,165
Diluted................................................... 61,141,579
Loss Per Share:
Basic..................................................... $ (0.30)
Diluted................................................... $ (0.28)
Balance Sheet
Long-Term Debt.............................................. $ 587,000
Shareholders' Equity:
Common Stock.............................................. $ 573
Additional paid-in capital................................ $ 713,078
</TABLE>
41
<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.
42
<PAGE>
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.
43
<PAGE>
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 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
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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 screen 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 theatre 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 Equity Offering and the
Note Offering 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 and proceeds of the
Equity Offering and the Note Offering that are not used to repurchase Plitt
Notes pursuant to the Plitt Note Repurchase.
The Company's borrowings under the Bank Credit Facilities at May 31, 1998
totaled $473 million.
In June 1998, the Company entered into interest rate exchange agreements
effectively setting a fixed rate of 5.5065% per annum (plus a margin) on a
notional amount of $150 million of indebtedness.
As a result of the consummation of the Combination, Loews Cineplex is
obligated to make the Change of Control Offer. In order to satisfy this
requirement and retire the Plitt Notes, on June 15, 1998, Plitt commenced
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the At-the-Market Offer. Under the terms of the At-the-Market Offer, as
amended on June 26, 1998, Plitt will 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 Reference Security on the Rate
Date, plus accrued and unpaid interest to (but excluding) the date of payment.
The Consent Solicitation sought noteholder approval of the Proposed Amendments
in order to eliminate certain restrictive covenants contained in the Plitt
Indenture. The Consent Solicitation terminated on July 1, 1998, when a
supplemental indenture effecting the Proposed Amendments was executed, with
holders of approximately 97% of the outstanding principal amount of the Plitt
Notes consenting to the Proposed Amendments. However, the Proposed Amendments
will only become operative upon consummation of the At-the-Market Offer. The
At-the-Market Offer, which expires August 4, 1998, is subject to various
conditions, including no event continuing that could materially impair the
benefits to the Company of the At-the-Market Offer and Consent Solicitation
contemplated at the time the At-the-Market Offer was commenced. Based on the
yield of the Reference Security at July 17, 1998, if all of the Plitt Notes
are tendered and all of the holders thereof are entitled to receive consent
payments, the Total Plitt Note Consideration would be approximately $218.5
million or 109.255% of the outstanding principal amount of the Plitt Notes,
plus accrued and unpaid interest. The Company anticipates utilizing the
proceeds of the Note Offering, together with borrowings under the Bank Credit
Facilities, to pay the Total Plitt Note Consideration. To the extent that the
Note Offering has not been completed prior to the consummation of the Plitt
Note Repurchase, the Company may pay the Total Plitt Note Consideration by
drawing on its current availability under the Bank Credit Facilities. 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 Concurrent Transactions."
Concurrently with the Equity Offering, the Company is offering $200 million
aggregate principal amount of its New Senior Subordinated Notes due 2008. The
New Notes will be general unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Debt (as defined in the New Note
Indenture) of the Company, including indebtedness under the Bank Credit
Facilities. For a description of the New Notes, see "Description of Certain
Indebtedness--The New Notes." Proceeds from the Note Offering are expected to
be used, along with, to the extent required, additional borrowings under the
Bank Credit Facilities, to fund the purchase of Plitt Notes tendered pursuant
to the Plitt Note Repurchase and/or the Change of Control Offer. Consummation
of the Equity Offering is not conditioned upon consummation of the Note
Offering, and consummation of the Note Offering is not conditioned upon
consummation of the Equity Offering. See "Risk Factors--Equity Offering Not
Conditioned on Note Offering."
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.
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
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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
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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.
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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).
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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-58.
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.
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THE MOTION PICTURE EXHIBITION INDUSTRY
GENERAL
The motion picture exhibition industry in North America comprises over 400
exhibitors, approximately 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:
<TABLE>
<CAPTION>
BOX OFFICE
COMPANY REVENUES SCREENS THEATRES
------- ---------- ------- --------
(MILLIONS)
<S> <C> <C> <C>
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
</TABLE>
- --------
(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) Amounts 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.
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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."
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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.
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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. 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 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 51.1% (49.9% of the
Company's voting Common Stock), 26.0% (26.6% of the Company's voting Common
Stock) and 9.6% (9.8% of the Company's voting Common Stock) of the Company's
capital stock, respectively, before giving effect to the Equity Offering. Upon
consummation of the Equity Offering, SPE, Universal and the Claridge Group
will own 40.8%, 23.4% (23.3% of the Company's voting Common Stock) and 7.6%
(7.6% of the Company's voting Common Stock), respectively, of the Company's
capital stock and collectively own approximately 71.8% of the Company's
capital stock (and 71.7% of its voting Common Stock). SPE, Universal and the
Claridge Group are collectively referred to herein as the "Stockholders."
The Company is incorporated under the laws of the State of Delaware with its
principal offices located at 711 Fifth Avenue, 11th Floor, New York, New York
10022, and its telephone number is (212) 833-6200.
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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, 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.
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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
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(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.
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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>
FEBRUARY 28 OR 29, FIVE
------------------------------- 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 location............ 5.4 5.7 6.2 6.7 7.4
</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 25
theatres comprising 85 screens in New York City and Chicago 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% of
the Company's total screens and generated approximately $43 million of box
office revenue and approximately $9 million of cash flow in calendar year
1997. 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 that 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." In connection with the Combination, the Company also agreed with
the DOJ and the attorneys general of New York and Illinois to dispose of 25
additional theatres with 85 screens. See "--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,
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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 had 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. The
Company has recently announced the formation of a joint venture with Yelmo
Films to operate existing theatres and construct and operate new state-of-the-
art multiplex theatres in Spain. See "Summary--Recent Developments." 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.
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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>
UNITED STATES CANADA
------------- -------
STATE SCREENS LOCATIONS(1) PROVINCE SCREENS LOCATIONS(1)
- ----- ------------- ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C>
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 Total........... 802 135
=== ===
Illinois(2)......... 364 63
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 Total........... 119 15
=== ==
Ohio................ 26 4
Pennsylvania........ 7 1
Texas............... 180 20
Utah................ 65 12
Virginia............ 57 9
Washington.......... 111 18
----- ---
Total........... 1,981 313
===== ===
</TABLE>
- --------
(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 theatres scheduled to be divested as a result
of the DOJ settlement. See "--Legal Proceedings."
60
<PAGE>
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 interest 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.
One of the Company's drive-in motion picture theatres located in the State
of Illinois is currently the subject of 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.
The Company does not believe that its liabilities, if any, in connection with
this site will be material, although there can be no assurance to that effect.
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine litigation and legal
proceeding 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. The
theatres held for disposition represented approximately 3% of total screens
and generated approximately $43 million of box office revenue and
approximately $9 million of cash flow on an annual basis.
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
61
<PAGE>
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 Prospectus. 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, DC
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.
62
<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........................ 57 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
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 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.
63
<PAGE>
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 and
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.
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. and The Toronto-Dominion Bank, 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.
64
<PAGE>
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 earlier in 1995 he served as Vice President and
Controller of Universal from 1991 to 1995.
Yuki Nozoe--Since October 1996, Mr. Nozoe has been Executive Vice President
of SPE and, since February 1996, 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."
65
<PAGE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
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 Officer 1997 $683,974(1) $608,802(1) $ 655,200(1)(3) 16,183(7)
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 President, 1997 $382,061 $ 60,000 7,732(7)
Deputy General Counsel
and Assistant Secretary
</TABLE>
- --------
(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 and Messrs.
Ruisi, Loeks, Reid and Smith, respectively, and premiums paid by the
Company for term life insurance in the amounts of $758, $676 and $570 for
Ms. Lawson-Loeks and Messrs. Loeks and Reid.
66
<PAGE>
Stock Options. The table below sets forth information with respect to grants
of options to purchase Common Stock during the year ended February 28, 1998 to
the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
------------------------------------------------------ -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE/BASE EXPIRATION GRANT DATE
NAME GRANTED (1) FISCAL YEAR (2) PRICE ($/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
</TABLE>
- --------
(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.
67
<PAGE>
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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT 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
</TABLE>
- --------
(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.
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
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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 (half of which has been paid and the
other half to be paid within 90 days after the Combination), 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 for any
reason 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
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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 of 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 J. 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
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$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
provides for 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
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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 (as
defined), 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 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.
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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 their 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
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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.
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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.
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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 3-D 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.
76
<PAGE>
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 is subject to
adjustment pursuant to anti-dilution provisions contained in the Subscription
Agreement. In accordance with these provisions, Loews Cineplex will be
required to issue, subject to applicable stock exchange requirements,
additional shares of Common Stock to Universal for no additional consideration
if Loews Cineplex issues or sells 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. If the
shares offered in the Equity Offering were sold by the Company for $14.25 per
share (the closing price of the Common Stock on the NYSE on June 12, 1998),
the Company would be obligated to issue an additional 1,503,219 shares of
Common Stock to Universal for no additional consideration.
Upon the closing of the first Sale having a Subsequent Sale Price of less
than $19.0891 per share, the number of additional shares to be issued to
Universal would be equal (a) the quotient of $84.5 million divided by the
Subsequent Sale Price, minus (b) 4,426,606 shares of Common Stock. Upon the
completion of each subsequent Sale, the number of additional shares would
equal (w) the quotient of $84.5 million divided by the weighted average
Subsequent Sale Price (determined in accordance with the Subscription
Agreement) of all Sales, minus (x) the number of additional shares of Common
Stock previously issued to Universal pursuant to the adjustment provisions of
the Subscription Agreement, minus (y) the 4,426,606 Loews Cineplex Common
Shares issued to Universal on May 14, 1998 in connection with the Combination,
plus (z) any shares of Common Stock that Universal may be required to deliver
as a result of any prior anti-dilution adjustments. These adjustment
provisions only apply to the first $100 million of additional issuances. The
anti-dilution provisions terminate once the aggregate proceeds of all Sales
equal or exceed $100 million. Accordingly, it is expected that these
provisions will cease to apply following consummation of the Equity Offering.
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 University 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.
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<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 immediately prior to the Equity
Offering and as adjusted to reflect the sale of the shares of Common Stock
pursuant to the Equity Offering, the automatic conversion of the Company's
Class A Non-Voting Common Stock currently held by SPE into Common Stock and
the Universal Issuance 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE EQUITY OFFERING THE EQUITY OFFERING(1)
----------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------------------------ ------------ ------------------------ -----------
<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE
$.01 PER SHARE
5% STOCKHOLDERS:
Sony Pictures
Entertainment Inc..... 21,934,625(2)(3) 49.9% 23,137,111(2)(4) 40.8%
550 Madison Avenue
New York, New York
10022
Universal Studios, Inc.
...................... 11,691,249(2)(3) 26.6% 13,194,468(2) 23.3%
100 Universal City
Plaza
Universal City, CA
91608
The Claridge Group..... 4,324,003(2)(3)(5) 9.8% 4,324,003(2) 7.6%
c/o Claridge Inc.
1170 Peel Street, 8th
Floor
Montreal, Quebec H3B
4P2
DIRECTORS:
George Cohon........... -- * -- *
Marinus N. Henny....... -- (6) * -- *
Hon. E. Leo Kolber..... 350,309(7) * 350,309 *
Ken Lemberger.......... -- (6) * -- *
Ron Meyer.............. -- (8) * -- *
Brian C. Mulligan...... -- (8) * -- *
Yuki Nozoe............. -- (6) * -- *
Karen Randall.......... -- (8) * -- *
Stanley Steinberg...... -- (6) * -- *
Howard Stringer........ -- (6) * -- *
Robert J. Wynne........ -- (6) * -- *
Mortimer B. Zuckerman.. -- * -- *
EXECUTIVE OFFICERS:
Lawrence J. Ruisi...... 500,100(9) 1.1% 500,100 *
Allen Karp............. 500,114(10) 1.1% 500,114 *
Barrie Lawson-Loeks.... -- * -- *
Jim Loeks.............. -- * -- *
Travis Reid............ -- * -- *
Seymour Smith.......... -- * -- *
All Directors and
Executive Officers as
a Group (23 persons).. 1,359,523 3.0% 1,359,523 2.4%
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE EQUITY OFFERING THE EQUITY OFFERING(1)
-------------------------- ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------------------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
CLASS A NON-VOTING COMMON
STOCK, PAR VALUE $.01 PER
SHARE
Sony Pictures
Entertainment Inc. ..... 1,202,486(1) 100% -- *
550 Madison Avenue
New York, New York 10022
CLASS B NON-VOTING COMMON
STOCK, PAR VALUE $.01 PER
SHARE
Universal Studios, Inc... 80,000(1) 95.2% 80,000 95.2%
100 Universal City Plaza
Universal City, CA 91608
</TABLE>
- --------
* Indicates beneficial ownership or control of less than 1.0% of the
outstanding shares of Loews Cineplex Common Stock.
(1) Adjusted to reflect the Equity Offering and the automatic conversion of
the Company's Class A Non-Voting Common Stock currently held by SPE into
Common Stock and the Universal Issuance.
(2) All of such shares are subject to the terms of the Stockholders Agreement
described below.
(3) Excludes shares of Common Stock issuable upon conversion of Non-Voting
Stock (as hereinafter defined).
(4) Includes shares of Common Stock issuable upon conversion of Class A Non-
Voting Common Stock. See "Capitalization."
(5) Members of the Claridge Group and their shareholdings 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.
(6) Does not include 21,934,625 shares of Loews Cineplex Common Stock and
1,202,486 shares of Class A Non-Voting 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.
(7) 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.
(8) Does not include 11,691,246 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.
(9) This number relates solely to options exercisable within 60 days of June
29, 1998.
(10) 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 within 60 days of June
29, 1998.
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
119,923,229 of then outstanding Seagram Shares, constituting approximately
34.6% of then outstanding Seagram Shares, which amount includes the
approximately 14.9% of then outstanding
79
<PAGE>
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
33.5% 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.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Loews Cineplex's directors and executive officers, and persons who
beneficially own more than 10% of a registered class of Loews Cineplex's
equity securities, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Loews Cineplex
Common Stock and other equity securities of Loews Cineplex. To Loews
Cineplex's knowledge, based solely on review of the copies of such reports
furnished to Loews Cineplex (and written representations that no other reports
were required), all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than 10% beneficial owners have been
complied with.
80
<PAGE>
THE STOCKHOLDERS AGREEMENT
The following is a brief summary of certain provisions of the Stockholders
Agreement. A copy of the Stockholders Agreement is incorporated as an exhibit
to the Registration Statement of which this Prospectus is a part from 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, consisting initially
of six designees of SPE (the "SPE Directors"), three designees of Universal
(the "Universal Directors"), one designee of the Claridge Group (the "Claridge
Director"), two Management Directors and four Independent Directors. The
designees of SPE, Universal and the Claridge Group were designated by such
parties prior to the closing of the Combination. Two of the Independent
Directors were designated by mutual agreement of the Company, SPE, Universal
and a majority of the members of the Independent Committee prior to the
closing of the Combination. The other two Independent Directors have not yet
been designated, and the Company, SPE and Universal have each agreed to use
their best efforts to cause such additional Independent Directors to be
elected as soon as possible. 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 initial
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"):
<TABLE>
<CAPTION>
NUMBER OF
APPLICABLE PERCENTAGE DIRECTORS
--------------------- ---------
<S> <C>
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
</TABLE>
81
<PAGE>
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
82
<PAGE>
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
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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.
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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.
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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
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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
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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 respect 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.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following statements are brief summaries of certain provisions with
respect to the Bank Credit Facilities and the Plitt Notes. Copies of the
credit agreement (the "Credit Agreement") relating to the Bank Credit
Facilities and the Plitt Indenture are incorporated as exhibits to the
Registration Statement of which this Prospectus is a part from the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1998. Copies
of the Proposed Amendments to the Plitt Indenture are filed as an exhibit to
the Registration Statement of which this Prospectus is a part. 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 and
the Proposed Amendments. Capitalized terms used in this section without
definition shall have the meanings specified in the Credit Agreement, the
Plitt Indenture or the Proposed Amendments, as the context requires.
CREDIT AGREEMENT
Facilities. The Bank Credit Facilities consist of two tranches: (i) Tranche
A Revolving Credit Loans 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 and (ii) Tranche
B Revolving Credit Loans in an aggregate principal amount of up to
$250,000,000 for purposes of financing all or a portion of the purchase of the
Plitt Notes tendered pursuant to the Change of Control Offer, all on the terms
and conditions set forth in the Credit Agreement. Other than the permitted
uses thereof, the terms and conditions applicable to the Tranche A Revolving
Loans and the Tranche B Revolving Loans (collectively, the "Loans") are the
same in all material respects. The credit facilities extended to Loews
Cineplex pursuant to the Credit Agreement constitute the "Bank Credit
Facilities" for purposes of the Indenture and are senior to the Plitt Notes.
See "Risk Factors--Debt Level."
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 Tranche A Revolving Loan
Commitments and the Tranche B 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
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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 Tranche A Revolving Loan Commitments and the Tranche B Revolving Loan
Commitments may be permanently reduced without penalty, in whole or in part,
at any time; provided that the Tranche B Revolving Loan Commitments cannot be
permanently reduced prior to the earlier of (i) July 13, 1998 and (ii) the
expiration of the Change of Control Offer; and provided further 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 currently has outstanding $200,000,000 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) under
the Indenture. The Indenture contains covenants and provisions that restrict,
among other things, the ability of Loews Cineplex and its Subsidiaries to: (i)
incur indebtedness, including senior subordinated indebtedness; (ii) create,
incur or suffer to exist liens on any of its property or assets; (iii) make
certain restricted payments, including dividends; (iv) enter into guaranties;
(v) make investments or enter into joint venture arrangements; (vi) make
restricted junior payments; (vii) engage in mergers, consolidations and sales
of all or substantially all their assets; and (viii) engage in transactions
with affiliates. 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. 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.
As a result of the consummation of the Combination, Loews Cineplex is
obligated to initiate the Change of Control Offer to purchase all of the
issued and outstanding Plitt Notes at a price equal to 101% of the outstanding
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principal amount thereof plus accrued interest to the date of repurchase. In
order to satisfy this requirement and retire the Plitt Notes, on June 15,
1998, Plitt commenced the At-the-Market Offer, which is scheduled to expire on
August 4, 1998. In connection with the At-the-Market Offer, the Company
solicited consents from the holders of the Plitt Notes to, among other things,
the Proposed Amendments to the Plitt Indenture. The Consent Solicitation
terminated on July 1, 1998, with Plitt receiving consents from holders of
approximately 97% of the outstanding Plitt Notes. The Proposed Amendments will
only become operative upon consummation of the At-the-Market Offer. If the
Proposed Amendments become operative, the restrictions on Loews Cineplex and
its Subsidiaries described in the foregoing paragraph will be terminated.
Based on the yield of the Reference Security at July 17, 1998, if all such
Plitt Notes are tendered and all of the holders thereof are entitled to
receive consent payments, the Total Plitt Note Consideration would be
approximately $218.5 million or 109.255% of the outstanding principal amount
of the Plitt Notes.
The guarantee by Loews Cineplex of any Plitt Notes that remain outstanding
after completion of the Plitt Note Repurchase will rank pari passu with the
New Notes. Any such Plitt Notes remaining outstanding will also be general
obligations of Plitt and, accordingly, the claims of the holders thereof to
the assets and cash flow of Plitt will effectively rank superior to the claims
of the holders of the New Notes.
THE NEW NOTES
Concurrently with the Equity Offering, the Company is offering the New Notes
in transactions exempt from registration under the Securities Act. Proceeds
from the Note Offering are expected to be used to fund the purchase of Plitt
Notes tendered pursuant to the Plitt Note Repurchase. Consummation of the
Equity Offering is not conditioned upon consummation of the Note Offering and
consummation of the Note Offering is not conditioned upon consummation of the
Equity Offering. See "Risk Factors--Equity Offering Not Conditioned on Note
Offering."
The New Notes will be governed by the New Note Indenture. The New Notes will
be subordinated to the Bank Credit Facilities and other Senior Debt of the
Company under the New Note Indenture. The New Note Indenture is expected to
contain covenants and provisions that restrict, among other things, the
ability of Loews Cineplex and its subsidiaries to: (i) incur indebtedness
unless certain financial tests are satisfied; (ii) make certain restricted
payments, including dividends and investments; (iii) enter into guaranties;
(iv) engage in mergers, consolidations and sales of all or substantially all
their assets; and (v) engage in transactions with affiliates. The New Note
Indenture is expected to permit the Company, at its option, on or after ,
2003, to redeem all or any portion of the outstanding New Notes in exchange
for a redemption price equal to (i) %, plus accrued interest, for New Notes
redeemed prior to , 2004, (ii) %, plus accrued interest, for New Notes
redeemed on or after , 2004 but prior to , 2006, and (iii) 100%, plus
accrued interest, for New Notes redeemed on or after , 2006 but before the
stated maturity date of the New Notes.
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DESCRIPTION OF CAPITAL STOCK
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in the Company's Charter and
By-laws, copies of which are incorporated by reference as exhibits to the
Registration Statement. The following description does not purport to be
complete and is subject in all respects to applicable Delaware law and to the
provision of the Company's Charter and By-laws.
The authorized capital stock of the Company consists of 300,000,000 shares
of Common Stock, par value $.01 per share, 10,000,000 shares of class A non-
voting common stock, par value $0.01 per share ("Class A Non-Voting Common
Stock"), 10,000,000 shares of class B non-voting common stock, par value $0.01
per share ("Class B Non-Voting Common Stock" and, together with Class A Non-
Voting Common Stock, the "Non-Voting Stock"), and 10,000,000 shares of
preferred stock, par value $0.01 per share ("Preferred Stock"). Immediately
following the consummation of the Equity Offering, assuming a price to the
public of $14.25, and based on the number of shares outstanding as of July 17,
1998, there will be 56,786,653 shares of Common Stock outstanding, no shares
of Class A Non-Voting Common Stock outstanding, 84,000 shares of Class B Non-
Voting Common Stock outstanding, 3,404,665 shares of Common Stock issuable
upon exercise of outstanding options, and no shares of Preferred Stock
outstanding.
COMMON STOCK
The rights of holders of Common Stock and Non-Voting Stock (together, "Loews
Cineplex Stock") are identical except with respect to voting and conversion
rights. Subject to the provisions of the DGCL (as hereinafter defined) and the
terms of any series of Preferred Stock, the holders of Loews Cineplex Stock
are entitled to receive dividends as and when declared by the Company's Board
of Directors out of funds legally available therefor. Upon the liquidation,
dissolution or winding up of the Company, the holders of Loews Cineplex Stock
will be entitled to share ratably the net assets of the Company remaining
after payment or provision for payment of all debts and other liabilities of
the Company and subject to the rights of any holders of any outstanding
Preferred Stock. The Loews Cineplex Stock has no preemptive or similar rights
or conversion rights (except as described under the captions "The Stockholders
Agreement--Equity Purchase Rights" and "Certain Relationships and Related
Transactions," and except as described below), and are not subject to further
calls or assessments by the Company. The holders of Common Stock are entitled
to one vote per share on all matters to be voted on by the stockholders. The
holders of Non-Voting Stock are not entitled to vote such shares, except as
required by law. The holders of Common Stock do not have the right to vote
cumulatively in the election of the Company's directors. Class A Non-Voting
Common Stock shall convert into Common Stock, on a one-for-one basis (i) upon
their transfer to any party other than SPE and its affiliates, (ii) if, as a
result of an issuance of Common Stock by the Company, SPE and its affiliates
aggregate ownership would be diluted below 49.9% of the outstanding Common
Stock, in an amount that would result in SPE and its affiliates beneficially
owning not more than 49.9% of the outstanding Common Stock and (iii) at May
14, 2001. As a result of the Equity Offering, it is expected that all of the
Class A Non-Voting Common Stock will convert into voting Common Stock. Class B
Non-Voting Common Stock shall convert into Common Stock on a one-for-one
basis, upon the later of (i) a transfer to any person, other than the person
to whom such shares were issued pursuant to the Combination or an affiliate
thereof, and (ii) May 14, 2003.
PREFERRED STOCK
The Company's Charter provides that the Company's Board of Directors is
authorized, without further action by the stockholders, to issue, from time to
time, Preferred Stock in one or more series and to fix for each such series
the number of shares comprising such series and such voting powers,
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof as
shall be stated or expressed in the resolution or resolutions adopted by the
Company's Board of Directors providing for the issuance of such series and to
the fullest extent as may be permitted by the DGCL. The issuance of Loews
Cineplex Preferred Stock may adversely affect the voting rights and other
rights of the holders of Loews Cineplex Stock. As of the date of this
Prospectus, no shares of Preferred Stock are outstanding.
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CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
As of the date of this Prospectus, there were approximately 255,919,052
shares of Common Stock, 8,797,514 shares of Class A Non-Voting Common Stock,
9,916,000 shares of Class B Non-Voting Common Stock and 10,000,000 shares of
Preferred Stock available for future issuance without stockholder approval
other than as provided in the Stockholders Agreement or as required by the
rules of the NYSE or the TSE. These additional shares may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions.
Loews Cineplex currently does not have any plans to issue additional Loews
Cineplex Stock (including Preferred Stock) other than Common Stock that may be
issued pursuant to the Equity Offering and Common Stock that may be issued
upon the exercise of options that have been granted or that may be granted in
the future to Loews Cineplex's employees or upon the conversion of Non-Voting
Stock in accordance with the Company's Charter.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BY-LAWS AND DELAWARE LAW
The Company's Charter and By-laws and Delaware law contain provisions that
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise. Such provisions could have the effect of
discouraging open market purchases of the Common Stock because they may be
considered disadvantageous by a stockholder who desires to participate in a
business combination or elect a new director.
Section 203 of Delaware Law. The Company is a Delaware corporation and is
subject to Section 203 ("Section 203") of the Delaware General Corporation Law
(the "DGCL"). In general, Section 203 prevents an "interested stockholder"
(defined as a person who, together with affiliates and associates,
beneficially owns or is an affiliate or associate of the corporation and did
beneficially own within the last three years 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as
defined) with a Delaware corporation for three years following the time such
person became an interested stockholder unless (i) before such persons became
an interested stockholder, the board of directors of the corporation approved
the transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (ii) upon consummation of
the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) following the transaction in
which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
"interested stockholder." A "business combination" generally includes mergers,
stock or asset sales involving 10% or more of the market value of the
corporation's assets or stock, certain stock transactions and certain other
transactions resulting in a financial benefit to the interested stockholders
or an increase in their proportionate share of any class or series of a
corporation. The existence of Section 203 of the DGCL could have the effect of
discouraging an acquisition of the Company or stock purchases in furtherance
of an acquisition.
Limitation on Directors' Liabilities and Indemnification. The Company's
Charter provides that to the fullest extent permitted by the DGCL as it
currently exists, a director of the Company shall not be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Under the current DGCL, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of this provision of the Company's Charter is to eliminate
the rights of the Company and its stockholders
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(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv)
above. In addition, the Company's By-laws provide that the Company shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by the DGCL.
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 limitation of, and indemnification for,
liabilities is against public policy as expressed in the Securities Act and is
therefore unenforceable.
Supermajority and Other Provisions. Pursuant to Article V of the Company's
Charter and subject to the exceptions described below, at any time when SPE or
Universal has an Article III Consent Right (as defined in the Stockholders
Agreement), the consummation by the Company of a "Significant Event" will
require the affirmative vote or written consent of the holders of at least 80%
of the outstanding Common Stock in addition to any affirmative vote required
by the DGCL or by the terms of any series of Preferred Stock. Each of the
following is a "Significant Event:" (a) any merger or consolidation in which
the Company is a constituent corporation (other than a merger of the Company
into another corporation that owns at least 90% of the outstanding stock of
each class and series of the stock of the Company pursuant to Section 253 of
the DGCL) or any sale, lease, exchange, transfer or other disposition (in one
transaction or a series of transactions) of all or substantially all of the
assets of the Company and its subsidiaries taken as a whole; provided that a
merger that satisfies all of the following criteria is not a Significant Event
and is not subject to Article V of the Company's Charter: (i) the Company is
the surviving corporation; (ii) all Common Stock outstanding immediately prior
to the consummation thereof remain outstanding immediately after the
consummation thereof and the only change in the capital stock of the Company
resulting from the merger is the issuance of shares of capital stock pursuant
thereto; and (iii) no consent of the stockholders of the Company would be
required in connection therewith under the DGCL and (b) the adoption of any
plan or proposal for the liquidation, dissolution or winding-up of the
Company. Notwithstanding the foregoing, the affirmative vote or written
consent of the holders of at least 80% of the outstanding Common Stock will
not be required in connection with any particular Significant Event if such
Significant Event shall be approved by at least 14 members of the Company's
Board of Directors and, in such circumstances (i) in the case of any
Significant Event described in (a) above, such Significant Event shall require
the affirmative vote or written consent of holders of at least 66 2/3% of the
outstanding Common Stock in addition to any requirements of the DGCL or the
terms of any series of Preferred Stock then outstanding and (ii) in the case
of any Significant Event described in (b) above, such Significant Event shall
require only such affirmative vote or written consent as is required by the
DGCL or by the terms of any series of Preferred Stock then outstanding. See
"The Stockholders Agreement."
The Stockholders Agreement contains certain restrictions on Transfers by SPE
and Universal (and their respective affiliates). See "The Stockholders
Agreement."
The Company's Charter also provides that: (i) at any time when SPE and its
wholly owned subsidiaries, Universal and its wholly owned subsidiaries and the
members of the Claridge Group do not beneficially own in the aggregate more
than 50% of the outstanding Common Stock, (a) any action required or permitted
to be taken by the stockholders of Loews Cineplex may only be taken at a duly
called annual or special meeting of the stockholders of the Company and may
not be taken by written consent of stockholders and (b) directors of the
Company may be removed without "cause" (as defined in the Company's Charter)
only by the affirmative vote or written consent of the holders of at least 80%
of the outstanding Common Stock (if SPE and its wholly owned subsidiaries,
Universal and its wholly owned subsidiaries and the members of the Claridge
Group beneficially own more than 50% of the Common Stock, directors of the
Company may be removed without cause by the affirmative vote or written
consent of the holders of at least 50% of the outstanding Common Stock); (ii)
except as otherwise provided by the DGCL and subject to the rights of holders
of Preferred Stock then outstanding, special meetings of the stockholders of
the Company may be called only by the Company's Board, pursuant to a
resolution approved by at least 14 of the members thereof; (iii) at any time
when the Applicable Percentage of
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SPE or Universal equals or exceeds the Minimum Percentage (as defined below),
the affirmative vote or written consent of the holders of at least 80% of the
outstanding Loews Cineplex Shares will be required in order for the
stockholders to adopt, repeal or amend the By-laws of the Company and; (iv)
the affirmative vote of the holders of at least 80% of the outstanding Loews
Cineplex Shares will be required to adopt, repeal or amend any provision of
the Company's Charter (provided that such 80% approval requirement shall not
be applicable (a) if at any time, the Applicable Percentage of SPE or
Universal equals or exceeds the Minimum Percentage, such adoption, repeal or
amendment is approved by at least 14 members of the Company's Board and (b)
if, at any time the Applicable Percentage of SPE and Universal is less than
the Minimum Percentage, such adoption, repeal or amendment is approved by a
majority of the members of the Company's Board of Directors).
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.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services LLC at its offices in New York is the
Company's principal transfer agent and principal registrar, and Montreal Trust
Company of Canada at its offices in Toronto is the Company's branch transfer
agent and branch registrar.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Equity Offering the Company expects to have
approximately 56,786,653 shares of Common Stock outstanding (assuming that the
Underwriters do not exercise their over-allotment option). The 10,000,000
shares of Common Stock sold in the Equity Offering, and 24,810,627 shares of
Common Stock that were outstanding on July 17, 1998 or will be issued to
Universal under the anti-dilution provision of the Subscription Agreement,
will be freely tradable without restriction or further registration under the
Securities Act, unless held by an "affiliate" of the Company as that term is
defined in the Securities Act (which shares will be subject to the resale
limitations of Rule 144). All of the remaining shares will be "restricted
securities" under the Securities Act and may not be sold unless they are
registered or unless an exemption from registration, such as the exemptions
provided by Rule 144, Rule 701, or Rule 144A under the Securities Act, is
available. Upon the consummation of the Equity Offering, 23,137,111 restricted
shares of Common Stock held by SPE will be eligible for sale pursuant to Rule
144 and Rule 701, subject to the limitations described below and the lock-up
arrangements described under "Underwriting."
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction)
for at least one year, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent of the
outstanding Common Stock or the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of
such sale is filed pursuant to Rule 144. The holder may only sell such shares
through unsolicited brokers' transactions. Sales under Rule 144 are also
subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder (or stockholders whose shares are aggregated) who is
not an affiliate of the Company for at least 90 days prior to a proposed
transaction and who has beneficially owned "restricted securities" for at
least two years is entitled to sell such shares under Rule 144 without regard
to the limitations described above. Affiliates may sell shares not
constituting restricted shares in accordance with the foregoing volume
limitations and other requirements (other than the one-year holding
requirement).
Rule 701 sets forth special resale provisions relating to sales of Common
Stock issued pursuant to a written compensation plan or contract. In general,
employees of the Company who purchased their shares pursuant to such written
compensation plan or contract may be entitled to rely on the resale provisions
of Rule 701 under the Securities Act, which permits nonaffiliates to sell
their Rule 701 shares without having to comply with the current public
information, holding period, volume limitation or notice provision of Rule 144
and permits affiliates to sell their Rule 701 shares without having to comply
with Rule 144's holding period restrictions.
Rule 144A provides a nonexclusive safe harbor exemption from the
registration requirements of the Securities Act for specified resales of
restricted securities to certain institutional investors. In general, Rule
144A allows unregistered resales of restricted securities to a "qualified
institutional buyer," which generally includes an entity, acting for its own
account or for the account of other qualified institutional buyers, that in
the aggregate owns or invests at least $100 million in securities of
unaffiliated issuers. Rule 144A does not extend an exemption to the offer or
sale of securities that, when issued, were of the same class as securities
listed on a national securities exchange or quoted on NASDAQ. The shares of
Common Stock outstanding as of the date of this Prospectus would be eligible
for resale under Rule 144A because such shares, when issued, were not of the
same class as any listed or quoted securities.
The Company has an effective registration statement on Form S-8 under the
Securities Act in respect of approximately 4,520,000 shares of Common Stock
issuable under the Stock Incentive Plan. The Form S-8 includes, in some cases,
shares for which an exemption under Rule 144 or Rule 701 would also be
available, thus permitting the resale of shares issued under the stock option
plan by non-affiliates in the public market without restriction under the
Securities Act. Shares registered thereunder are eligible for sale in the
public market, subject to vesting and, in certain cases, subject to the lock-
up agreements described under "Underwriting." As of July 17, 1998, options to
purchase 3,404,665 shares of Common Stock are outstanding under the Stock
Incentive Plan.
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CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such Common Stock. A "Non-U.S. Holder" is a
beneficial owner of Common Stock that is not, 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 the United States or under
the laws of the United States or of any state (other than any partnership
treated as foreign under U.S. Treasury regulations), (iii) an estate whose
income is includable in gross income for United States federal income tax
purposes regardless of source or (iv) in general, a trust subject to the
primary supervision of a court within the United States and the control of one
or more United States persons.
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 for 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 tax as if they were U.S. citizens.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position (including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of Common Stock may be
affected by certain determinations made at the partner level) and does not
consider U.S. state and local or non-U.S. tax consequences. This discussion
also does not consider the tax consequences for any person who is a
shareholder, partner or beneficiary of a holder of the Common Stock. Further,
it does not consider Non-U.S. Holders subject to special tax treatment under
the U.S. federal tax laws (including but not limited to banks and insurance
companies, dealers in securities, U.S. expatriates and holders of securities
held as part of a "straddle," "hedge," or "conversion transaction"). The
following discussion is based on provisions of the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), the applicable Treasury regulations
promulgated thereunder, and administrative and judicial interpretations as of
the date hereof, all of which are subject to change or differing
interpretation, possibly with retroactive effect. The following summary is
included herein for general information. ACCORDINGLY, EACH PROSPECTIVE NON-
U.S. HOLDER IS URGED TO CONSULT A TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL
TAX CONSEQUENCES OF HOLDING AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, LOCAL OR OTHER
U.S. OR NON-U.S. TAXING JURISDICTION.
DIVIDENDS
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. See "Dividend Policy." In the event, however,
that the Company does pay dividends on the Common Stock, such dividends paid
to a Non-U.S. Holder of Common Stock will generally be subject to withholding
of U.S. federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty in effect between the United
States and the Non-U.S. Holder's jurisdiction of residence. Non U.S. Holders
should consult their tax advisors regarding their entitlement to benefits
under a relevant income tax treaty.
Dividends that are (i) effectively connected with a Non-U.S. Holder's
conduct of a trade or business in the United States or, (ii) if an income tax
treaty applies, attributable to a permanent establishment, or, in the case of
an individual, a "fixed base," in the United States ("U.S. trade or business
income"), are generally subject to U.S. federal income tax on a net income
basis at regular graduated rates, but are not generally subject to the 30%
withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service ("IRS") form with the payor (which form, under U.S. Treasury
regulations generally effective for payments made after December 31, 1999 (the
"Final Regulations"), in certain circumstances may require the Non-U.S. Holder
to
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provide a U.S. taxpayer identification number). Any U.S. trade or business
income received by a Non-U.S. Holder that is a corporation may also, under
certain circumstances, be subject to an additional "branch profits tax" at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed (absent actual knowledge to the
contrary) to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability
of an income tax treaty rate. Under the Final Regulations, however, a Non-U.S.
Holder of Common Stock who wishes to claim the benefit of an applicable income
tax treaty rate generally will be required to satisfy applicable certification
and other requirements. In addition, the Final Regulations contain special
rules regarding the availability of treaty benefits for payments made to (a)
foreign intermediaries, (b) U.S. or foreign wholly-owned entities that are
disregarded for U.S. federal income tax purposes and (c) partnerships and
other entities that are treated as fiscally transparent in the United States,
the applicable income tax treaty jurisdiction, or both. Prospective Non-U.S.
Holders should consult their own tax advisors as to the effect, if any, of the
Final Regulations on an investment in the Common Stock.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless: (i) the
gain is U.S. trade or business income (in which case, the branch profits tax
described above may also apply to a corporate Non-U.S. Holder); (ii) the Non-
U.S. Holder is an individual who holds the Common Stock as capital asset
within the meaning of Section 1221 of the Code, is present in the United
States for 183 or more days in the taxable year of the disposition and meets
certain other requirements; or (iii) the Company is or has been a U.S. real
property holding corporation ("USRPHC") for U.S. federal income tax purposes
at any time during the shorter of the five-year period ending on the date of
disposition and the period that the Common Stock was held by the Non-U.S.
Holder. In general, a U.S. corporation will be a USRPHC if the fair market
value of its U.S. real property interests equals or exceeds 50% of the total
fair market value of its U.S. and non-U.S. real property interests and its
assets used or held for use in a trade or business. Although the determination
of whether the Company is a USRPHC at any given time will depend on its
particular facts and circumstances, the Company believes it is likely that it
currently is a USRPHC and will remain a USRPHC for the foreseeable future.
However, even if the Company is a USRPHC, a Non-U.S. Holder which did not
beneficially own, directly or indirectly, more than 5% of the total fair
market value of the Common Stock at any time during the shorter of the five-
year period ending on the date of disposition and the period that the Common
Stock was held by the Non-U.S. Holder (a "Non-5% Holder") and which is not
otherwise subject to tax under clauses (i) or (ii) above will not be subject
to U.S. federal income tax on any gain realized on the disposition of Common
Stock if, at any time during the calendar year of the disposition, the Common
Stock was regularly traded on an established securities market within the
meaning of the applicable regulations. The Common Stock is listed on the NYSE.
Although not free from doubt, the Common Stock should be considered to be
regularly traded on the NYSE for any calendar quarter during which it is
regularly quoted by brokers or dealers which hold themselves out to buy or
sell the Common Stock at the quoted price. If the Common Stock were not
considered to be regularly traded on the NYSE at any time during the
applicable calendar year, then a Non-5% Holder would be subject to U.S.
federal income tax on any gain realized on the disposition of its Common Stock
on a net income basis as if the gain were effectively connected with the
conduct of a United States trade or business by the Non-5% Holder during the
taxable year and, in such case the person acquiring Common Stock from a Non-5%
Holder generally would be required to withhold 10% of the amount of the
proceeds of the disposition. Such withholding may be reduced or eliminated
pursuant to a withholding certificate issued by the IRS in accordance with
applicable regulations. All Non-U.S. Holders should consult their own tax
advisors regarding application of the foregoing rules to them.
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FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise. Such individual's estate may be subject to U.S. federal
estate tax on the property includable in the gross estate for U.S. federal
estate tax purposes.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Generally, the Company must report annually to the IRS and to each Non-U.S.
Holder the amount of dividends paid to such holder and any tax withheld with
respect to such dividends. The information reporting requirements apply
regardless of whether withholding is required. Copies of the information
returns reporting such dividends and withholding may also be made available to
the tax authorities in the country in which the Non U.S.-Holder is a resident
under the provisions of an applicable income tax treaty or agreement.
Under certain circumstances, the IRS requires "information reporting" and
"backup withholding" at a rate of 31% with respect to certain payments on
Common Stock. Under current law, Non-U.S. Holders of Common Stock generally
would be exempt from IRS information reporting requirements and U.S. backup
withholding with respect to dividends paid on Common Stock at an address
outside the United States. However, information reporting and backup
withholding will apply to dividends paid on the Common Stock to beneficial
owners with addresses in the United States that are not "exempt recipients"
and that fail to provide in the manner required certain identifying
information.
The payment of the proceeds of the disposition of Common Stock by a holder
to or through the U.S. office of a broker generally will be subject to
information reporting and backup withholding at a rate of 31% unless the Non-
U.S. Holder either certifies its status as a Non-U.S. Holder under penalties
of perjury or otherwise establishes an exemption. In general, the payment of
the proceeds of the disposition by a Non-U.S. Holder of Common Stock to or
through a non-U.S. office of a non-U.S. broker will not be subject to backup
withholding or information reporting. However, in the case of the payment of
proceeds from the disposition of Common Stock effected by a non-U.S. office of
a broker that is a U.S. person or a "U.S. related person," existing
regulations require information reporting (but, currently, not backup
withholding) on the payment unless the broker receives a statement from the
owner, signed under penalty of perjury, certifying its non-U.S. status or the
broker has documentary evidence in its files as to the Non-U.S. Holder's
foreign status and the broker has no actual knowledge to the contrary. For
this purpose, a "U.S. related person" is (i) a "controlled foreign
corporation" for U.S. federal income tax purposes, or (ii) a foreign person
50% or more of whose gross income from all sources for the three-year period
ending with the close of its taxable year preceding the payment (or for such
part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a U.S. trade or
business.
Under the Final Regulations, which generally are effective for payments made
after December 31, 1999, the payment of dividends, and the payment of proceeds
from the disposition of Common Stock through brokers having certain
connections with the United States, may be subject to information reporting
and backup withholding at a rate of 31% unless certain IRS certification
requirements are satisfied or an exemption is otherwise established.
Prospective Non-U.S. Holders should consult with their own tax advisors
regarding the application of the Final Regulations to their particular
circumstances.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's U.S.
federal income tax liability, if any) provided that the required information
is furnished to the IRS.
99
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated , 1998 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated, Goldman,
Sachs & Co. and Smith Barney Inc. are acting as the representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation............................
Bear, Stearns & Co. Inc...........................................
BT Alex. Brown Incorporated.......................................
Goldman, Sachs & Co...............................................
Smith Barney Inc..................................................
----------
Total........................................................... 10,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby (other
than those shares covered by the over-allotment option described below) if any
are purchased. The Underwriting Agreement provides that, in the event of a
default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up
to 1,500,000 additional shares at the public offering price, less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments,
if any, in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of additional shares of Common Stock as it was obligated to purchase pursuant
to the Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a
concession of $ per share, and the Underwriters and such dealers may allow
a discount of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Representatives.
The Company, SPE, Universal, members of the Claridge Group holding in the
aggregate 4,269,216 shares and all of the Company's directors and executive
officers have agreed that they will not offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, or, in the case of the
Company, file or cause to be filed with the Commission a registration
statement under the Securities Act relating to, any shares of Common Stock or
securities or other rights convertible into or exchangeable or exercisable for
any shares of Common Stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposal or, in the case of the Company, filing,
without the prior written consent of Credit Suisse First Boston Corporation,
for a period of 90 days after the date of this Prospectus, excepting, in the
case of the Company, grants of employee stock options pursuant to an option
plan in effect on the date of this Prospectus and issuances of Common Stock
pursuant to the exercise of options under any such plan.
100
<PAGE>
The Underwriters have reserved for sale, at the initial public offering
price, up to 500,000 shares of Common Stock for employees, directors and
certain other persons associated with the Company who have expressed an
interest in purchasing such shares of Common Stock in the Equity Offering. The
number of shares available for sale to the general public in the Equity
Offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same terms as the other shares
offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in
respect thereof.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after
the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Representatives to reclaim a selling
concession from a syndicate member when Common Stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of Common Stock to be higher
than it would otherwise be in the absence of such transactions. These
transactions may be effected on the NYSE or otherwise and, if commenced, may
be discontinued at any time.
Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, various investment banking and
commercial banking services to the Company, for which such Underwriters have
received and will receive fees and commissions. Credit Suisse First Boston
Corporation acted as financial advisor to SCA and SPE in connection with the
Combination. Goldman, Sachs & Co. is acting as dealer manager for the Plitt
Note Repurchase. Certain of the Underwriters or their affiliates may act as
financial intermediaries in connection with the offering of the New Notes.
Further, Credit Suisse First Boston has been retained by the Company to
provide advice in connection with the disposition of 25 theatres pursuant to a
settlement entered into between the Company and DOJ. In addition, Credit
Suisse First Boston, New York branch (an affiliate of Credit Suisse First
Boston Corporation), and Bankers Trust Company (an affiliate of BT Alex. Brown
Incorporated) acted as Co-Syndication Agents and are Lenders and, in the case
of Bankers Trust Company, Administrative Agent, under the Bank Credit
Facilities and will, in the aggregate, receive in excess of 10% of the net
proceeds from the Equity Offering upon repayment by the Company of outstanding
indebtedness under the Bank Credit Facilities with net proceeds of the Equity
Offering. Accordingly, the Equity Offering is being made in compliance with
the requirements of Rule 2710(c)(8) of the Conduct Rules of the National
Association of Securities Dealers, Inc. This rule provides generally that if
more than 10% of the net proceeds from the sale of the Common Stock, not
including underwriting compensation, is paid to the Underwriters of such
securities or their affiliates, the price at which the Common Stock is to be
distributed to the public may not be lower than that recommended by a
"qualified independent underwriter" meeting certain standards. Bear, Stearns &
Co. Inc. is assuming the responsibilities of acting as the qualified
independent underwriter in pricing the offering and conducting due diligence.
The price of the Common Stock, when sold to the public at the public offering
price set forth on the cover page of this Prospectus, will be no higher than
that recommended by Bear, Stearns & Co. Inc.
The Company is currently in compliance in all material respects with the
terms of the Bank Credit Facilities. The decision of the Underwriters to
distribute the Common Stock was made independent of the Company's lenders to
which they are affiliated, which lenders had no involvement in determining
whether or when to distribute the Common Stock under this offering or the
terms of the offering. The Underwriters will not receive any benefit from this
offering other than their respective portions of the underwriting discounts or
commissions as set forth on the cover page of this Prospectus.
101
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of the Common Stock are effected. Accordingly, any
resale of the Common Stock in Canada must be made in accordance with
applicable securities laws, which will vary depending on the relevant
jurisdiction, and in accordance with stock exchange rules and which may
require resales to be made in accordance with available statutory exemptions
or pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority.
The Common Stock is listed on the TSE. Under the rules of the TSE, a
purchaser of Common Stock on a private placement basis must complete and
return to the Underwriters for filing with the TSE a Private Placement
Questionnaire and Undertaking in the form included as Annex A to this
Prospectus. In the Private Placement Questionnaire and Undertaking, the
purchaser undertakes not to sell the Common Stock for a period of six months
without the prior consent of the TSE or for such longer period as may be
prescribed by applicable securities laws.
Purchasers are advised to seek legal advice prior to any resale of Common
Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Common
Stock without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as
principal and not as agent, and (iii) such purchaser has reviewed the text
above under "--Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
legislation.
102
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York. Certain legal matters relating to the Equity Offering will be
passed upon for the Underwriters by Dewey Ballantine LLP, New York, New York.
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 experts in auditing and accounting.
The consolidated financial statements of Cineplex Odeon 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, independent chartered accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act (together with all amendments, exhibits and
schedules thereto, the "Registration Statement") with respect to the Common
Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are omitted as permitted by
the rules and regulations of the Commission. For further information
pertaining to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement. Statements contained in this Prospectus
regarding the contents of any contract or other document 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.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement, may be inspected, without
charge, at the public reference facility maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and at
the Commission's regional offices located at Seven World Trade Center,
New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661-2511. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. Such materials can also be
inspected at the offices of The New York Stock Exchange, Inc., 20 Broad
Street, New York, NY 10005 or on the Commission's web site on the Internet
(http://www.sec.gov).
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 Febru-
ary 29, 1996
Report of Independent Accountants....................................... F-30
Balance Sheet........................................................... F-31
Statements of Income.................................................... F-32
Statements of Partners' Capital......................................... F-33
Statements of Cash Flows................................................ F-34
Notes to Financial Statements........................................... F-35
CINEPLEX ODEON CORPORATION
Three years ended December 31, 1997, 1996 and 1995
Independent Auditors' Report............................................ F-39
Consolidated Balance Sheet.............................................. F-40
Consolidated Income Statement........................................... F-41
Consolidated Statement of Changes in Cash Resources..................... F-42
Consolidated Statement of Changes in Shareholders' Equity............... F-43
Notes to Consolidated Financial Statements.............................. F-44
Three month periods ended March 31, 1998 and 1997 (unaudited)
Consolidated Balance Sheet.............................................. F-58
Consolidated Income Statement........................................... F-59
Consolidated Statement of Changes in Cash Resources..................... F-60
Notes to Consolidated Financial Statements.............................. F-61
</TABLE>
F-1
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1998 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
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
========== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated fi-
nancial statements.
F-2
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
MAY 31,
1998 (B) MAY 31, 1997
------------- -------------
<S> <C> <C>
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)
===== =====
</TABLE>
- --------
(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.
F-3
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
-----------------------
MAY 31, MAY 31,
1998 1997
--------- -------
<S> <C> <C> <C>
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, net of
distributions received............................ (514) 640
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
========= =======
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-4
<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.
F-5
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
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 $31million 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MAY 31, MAY 31,
1998 1997
--------- ---------
<S> <C> <C>
Revenues............................................... $ 214,325 $ 228,358
========= =========
Net loss............................................... $(14,536) $ (8,310)
========= =========
Net loss per common share.............................. $ (0.32) $ (0.18)
========= =========
</TABLE>
F-6
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
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:
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1998 1998
-------- ------------
<S> <C> <C>
Accounts payable--trade................................ $ 80,973 $36,924
Accrued expenses and other............................. 149,498 26,010
-------- -------
$230,471 $62,934
======== =======
</TABLE>
NOTE 6--LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consist of:
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1998 1998
-------- ------------
<S> <C> <C>
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
======== =======
</TABLE>
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,
F-7
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
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.
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 ADDITIONAL
VOTING NON-VOTING NON-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>
F-8
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, 1998
-----------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net loss applicable to common
stock.................................... ($743) 24,619,805 ($0.03)
Effect of dilutive securities............. -- 364,744 --
----- ---------- ------
Diluted EPS net loss...................... ($743) 24,984,549 ($0.03)
===== ========== ======
<CAPTION>
THREE MONTHS ENDED MAY 31, 1997
-----------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net loss applicable to common
stock.................................... ($400) 20,472,807 ($0.02)
Effect of dilutive securities............. -- -- --
----- ---------- ------
Diluted EPS net loss...................... ($400) 20,472,807 ($0.02)
===== ========== ======
</TABLE>
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.
F-9
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
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.
F-10
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
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.
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.
F-11
<PAGE>
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
F-12
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------
1998 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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 ex-
penses............................... 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)
========== ========== ==========
</TABLE>
(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.
F-14
<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
NON- ADDITIONAL
VOTING 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.
F-15
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................. $ (139) $ (180) $ (2,768)
Adjustments to reconcile net loss to
net cash provided by operating activ-
ities:
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 in-
vestments, net of distributions re-
ceived............................. 887 (553) (1,974)
Changes in operating assets and lia-
bilities:
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 ac-
crued 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 ACTIVI-
TIES................................... 64,185 47,976 46,326
-------- -------- --------
INVESTING ACTIVITIES
Proceeds from sale of assets.......... -- 1,043 17,707
(Advances to)/Repayments from partner-
ships................................ (9,008) 6,623 1,090
Capital contributions to partner-
ships................................ -- -- (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 af-
filiates).......................... $ 15,823 $ 16,488 $ 16,393
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<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.
F-17
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
F-18
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Depreciation and amortization are provided on the straight-line basis over
the following useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
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
</TABLE>
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
F-19
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
NUMBER OF SHARES
FEBRUARY 28, 1998
-----------------
<S> <C>
Basic loss per share....................................... 20,472,807
Weighted average dilution under stock plans................ 452,083
----------
Weighted average diluted loss per share.................... 20,924,890
==========
</TABLE>
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.
F-20
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds consists of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
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
======== ========
</TABLE>
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.
F-21
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 28, FEBRUARY 28, FEBRUARY 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:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
Accounts payable--trade............................ $36,924 $31,957
Accrued expenses and other......................... 26,010 23,728
------- -------
$62,934 $55,685
======= =======
</TABLE>
NOTE 6--LONG-TERM DEBT AND OTHER OBLIGATIONS
Long-term debt and other obligations consist of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
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
======= =======
</TABLE>
F-22
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Annual maturities of obligations under capital leases and long-term debt for
the next five fiscal years and thereafter are set forth as follows:
<TABLE>
<CAPTION>
YEAR ENDING FEBRUARY CAPITAL LEASES DEBT TOTAL
-------------------- -------------- ---- -------
<S> <C> <C> <C>
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
======= ==== =======
</TABLE>
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:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING FEBRUARY LEASES LEASES
-------------------- --------- -------
<S> <C> <C>
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
=======
</TABLE>
F-23
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
F-24
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The debt due to (from) SCA affiliates at February 28, 1998 and February 28,
1997, consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
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
======== ========
</TABLE>
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
F-25
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
Reconciliation of the provision for income taxes to the statutory federal
income tax rate follows:
<TABLE>
<CAPTION>
FEB. 28, FEB. 28, FEB. 29,
1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
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)%
====== ===== ====== ===== ===== ======
</TABLE>
F-26
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
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
======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
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
</TABLE>
F-27
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<S> <C>
Expected life (years)................................................. 5.0
Expected volatility................................................... 23.46%
Expected dividend yield............................................... --
Risk free interest rate............................................... 5.77%
</TABLE>
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:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
FEBRUARY 28,
1998
------------
<S> <C> <C>
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)
=======
</TABLE>
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.
F-28
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(FORMERLY LTM HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
F-29
<PAGE>
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
F-30
<PAGE>
LOEKS-STAR PARTNERS
BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY 26, FEBRUARY 27,
1998 1997
------------ ------------
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
LOEKS-STAR PARTNERS
STATEMENTS OF INCOME
(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>
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 ex-
penses.............................. 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
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
LOEKS-STAR PARTNERS
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
LOEKS STAR
PARTNER PARTNER TOTAL
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<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.
F-34
<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.
F-35
<PAGE>
LOEKS-STAR PARTNERS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT AS OTHERWISE NOTED)
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:
<TABLE>
<CAPTION>
FEBRUARY 26, FEBRUARY 27,
1998 1997
------------ ------------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
FEBRUARY 26, FEBRUARY 27, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
F-36
<PAGE>
LOEKS-STAR PARTNERS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT AS OTHERWISE NOTED)
Future minimum lease payments as of February 26, 1998 are as follows:
<TABLE>
<S> <C>
1999................................................................. $ 4,212
2000................................................................. 4,183
2001................................................................. 4,233
2002................................................................. 4,169
2003................................................................. 4,144
Thereafter........................................................... 47,822
-------
$68,763
=======
</TABLE>
5. NOTES PAYABLE TO PARTNER
Partnership debt payable to Star is as follows:
<TABLE>
<CAPTION>
FEBRUARY 26, FEBRUARY 27,
1998 1997
------------ ------------
<S> <C> <C>
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
======= =======
</TABLE>
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.
F-37
<PAGE>
LOEKS-STAR PARTNERS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT AS OTHERWISE NOTED)
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.
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:
<TABLE>
<CAPTION>
UNAUDITED AUDITED
----------------- -----------------
NOVEMBER 1, 1997 FISCAL YEAR
TOTAL THROUGH THROUGH ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1998 OCTOBER 31, 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
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)
====== ====== ======
</TABLE>
F-38
<PAGE>
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
F-39
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
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)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN CASH RESOURCES
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR NUMBER OF SHARES)
<TABLE>
<CAPTION>
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.
F-43
<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:
<TABLE>
<S> <C>
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
</TABLE>
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.
F-44
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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
=========== ==========
</TABLE>
4. PROPERTY, EQUIPMENT AND LEASEHOLDS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<C> <S> <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
Accumulated
(including capital leases) depreciation............ (230,490,000) (197,688,000)
------------- -------------
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).
F-45
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
5. ACCOUNTS PAYABLE AND ACCRUALS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
6. DEFERRED INCOME
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
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
F-46
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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:
<TABLE>
<S> <C>
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
============
</TABLE>
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 re-
ceivable................. $ -- $ 32,000 $ -- $ 123,000
</TABLE>
F-47
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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
F-48
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
OPTION PRICE PER SHARE 1997
---------------------- ------------
<S> <C>
$1.70 Canadian.................................................. 8,450
1.87 Canadian.................................................. 14,323,939
2.00 Canadian.................................................. 106,750
2.60 Canadian.................................................. 15,000
1.31 United States............................................. 1,000,000
----------
Options outstanding end of year................................. 15,454,139
==========
</TABLE>
Stock option transactions for the respective years were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- -----------------------
NUMBER WEIGHTED AV. NUMBER WEIGHTED AV.
OF EXERCISE OF EXERCISE
OPTIONS PRICE ($CDN) OPTIONS PRICE ($CDN)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Options outstanding begin-
ning of year.............. 14,503,239 1.87 7,835,289 3.06
Additional options grant-
ed........................ 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.
F-49
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
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
===========
</TABLE>
(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.
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.
F-50
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
13. INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current.................................. $1,072,000 $1,390,000 $1,269,000
========== ========== ==========
</TABLE>
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.
F-51
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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:
<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>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Canada........................................... $163,323,000 $142,448,000
United States.................................... 472,152,000 501,723,000
------------ ------------
$635,475,000 $644,171,000
============ ============
</TABLE>
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.
F-52
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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>
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).
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
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.
F-53
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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
=========== ============
</TABLE>
(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:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
$(27,095,000) $5,790,000 $9,345,000
============ ========== ==========
</TABLE>
(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
F-54
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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)
============ ============
</TABLE>
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
F-55
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
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)
============
</TABLE>
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
========== ========== ==========
</TABLE>
<TABLE>
<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.
F-56
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS IN U.S. DOLLARS UNLESS OTHERWISE STATED)
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 Bronfman Trusts will own approximately 9.6% of LCE's
shares; and the shareholders of the Corporation, other than SPE, Universal and
descendants of the late Samuel Bronfman and trusts established for their
benefit (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).
F-57
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
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
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-58
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
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 in-
come taxes..................................... 5,650 10,686
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN CASH RESOURCES
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
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 obliga-
tions......................................... (2,403) (9,207)
Increase in long-term debt and other obliga-
tions......................................... 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 lease-
holds......................................... (13,801) (9,567)
Long-term investments.......................... 3,402 --
Proceeds on sale of certain theatre proper-
ties.......................................... 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
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<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.
F-61
<PAGE>
CINEPLEX ODEON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
F-62
<PAGE>
ANNEX A
TORONTO STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
To be completed by each proposed private placement purchaser of listed
securities or securities which are convertible into listed securities.
QUESTIONNAIRE
1.DESCRIPTION OF TRANSACTION
(a)Name of issuer of the Securities ________________________________
-------------------------------------------------------------------------
(b)Number and Class of Securities to be Purchased __________________
-------------------------------------------------------------------------
(c)Purchase Price __________________________________________________
-------------------------------------------------------------------------
2.DETAILS OF PURCHASER
(a)Name of Purchaser _______________________________________________
(b)Address _________________________________________________________
-------------------------------------------------------------------------
(c)Name and addresses of persons having a greater than 10% beneficial
interest in the purchaser
-------------------------------------------------------------------------
3.RELATIONSHIP TO ISSUER
(a) Is the purchaser (or any person named in response to 2(c) above)
an insider of the issuer for the purposes of the Ontario
Securities Act (before giving effect to this private placement)?
If so, state the capacity in which the purchaser (or persons named
in response to 2(c)) qualifies as an insider _________________
-------------------------------------------------------------------
(b) If the answer to (a) is "no," are the purchaser and the issuer
controlled by the same person or company? If so, give details
_______________________________________________________________
-------------------------------------------------------------------
4.DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER
Give details of all trading by the purchaser, as principal, in the
securities of the issuer (other than debt securities which are not
convertible into equity securities), directly or indirectly, within the
60 days preceding the date hereof __________________________________
-------------------------------------------------------------------------
-------------------------------------------------------------------------
A-1
<PAGE>
UNDERTAKING
TO: The Toronto Stock Exchange
The undersigned has subscribed for and agreed to purchase, as principal, the
securities described in Item 1 of this Private Placement Questionnaire and
Undertaking.
The undersigned undertakes not to sell or otherwise dispose of any of the said
securities so purchased or any securities derived therefrom for a period of
six months from the date of the closing of the transaction herein or for such
period as is prescribed by applicable securities legislation, whichever is
longer, without the prior consent of The Toronto Stock Exchange and any other
regulatory body having jurisdiction.
DATED AT ________________________ _________________________________
(Name of Purchaser--please print)
this _________ day of __________ _________________________________
(Authorized Signature)
19 _________________________________
(Official Capacity--please print)
_________________________________
(please print here name of
individual whose signature appears
above, if different from name of
purchaser printed above)
A-2
<PAGE>
The 14-screen Rio Cinemas theatre is the highest
grossing theatre in the Washington, D.C. area.
PHOTO
PHOTO
The Sony Lincoln Square Theatre, with 15 screens
and an IMAX(R) theatre, attracts over 2.5 million patrons
annually.
PHOTO
Concession stands in the Loews Cineplex theatres are
designed for maximum efficiency.
PHOTO
The 20-screen Star Theatres in Southfield, Michigan
is currently the third highest grossing theatre in the U.S.
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 18
The Concurrent Transactions.............................................. 24
Use of Proceeds.......................................................... 25
Price Range of Common Stock.............................................. 26
Dividend Policy.......................................................... 26
Dilution................................................................. 27
Capitalization........................................................... 28
Selected Historical and Unaudited Pro Forma Financial Information........ 29
Unaudited Pro Forma Financial Information................................ 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 42
The Motion Picture Exhibition Industry................................... 51
Business................................................................. 54
Management............................................................... 63
Certain Relationships and Related Transactions........................... 76
Security Ownership of Certain Beneficial Owners and Management........... 78
The Stockholders Agreement............................................... 81
Description of Certain Indebtedness...................................... 89
Description of Capital Stock............................................. 92
Shares Eligible for Future Sale.......................................... 96
Certain United States Federal Tax Considerations For Non-United States
Holders................................................................. 97
Underwriting............................................................. 100
Notice to Canadian Residents............................................. 102
Legal Matters............................................................ 103
Experts.................................................................. 103
Available Information.................................................... 103
Index to Financial Statements............................................ F-1
Annex A--Toronto Stock Exchange Private Placement Questionnaire and
Undertaking............................................................. A-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO] LOEWS CINEPLEX
---------------------
ENTERTAINMENT
10,000,000 Shares
Common Stock
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table shows the expenses, other than underwriting discounts
and commissions, to be incurred in connection with the sale and distribution
of securities being registered by the Company.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 48,767.19
NASD Filing Fee................................................. 17,500.00
Blue Sky Fees and Expenses...................................... 5,000.00
Legal Fees and Expenses......................................... 210,000.00
Accounting Fees and Expenses.................................... 140,000.00
Printing Expenses............................................... 350,000.00
Miscellaneous Expenses.......................................... 3,732.81
-----------
Total......................................................... $775,000.00
===========
</TABLE>
- --------
* Except for the SEC registration fee and the NASD Filing Fee, all of the
foregoing expenses have been estimated.
ITEM 14. 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
II-1
<PAGE>
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 15. RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM
REGISTERED SECURITIES
On May 14, 1998, Loews Cineplex issued 291,086.591 shares of Common Stock to
a wholly owned subsidiary of Sony Pictures Entertainment Inc. ("SPE") in
connection with the exchange of such shares for all of the issued and
outstanding shares of S&J Theatres, Inc., which holds Loews Cineplex's 50%
interest in the Magic Johnson Theatres partnership and (ii) 2,373,217.409
shares of Common Stock to a wholly owned subsidiary of SPE in connection with
the merger of Star Theatres, Inc., which holds Loews Cineplex's 50% interest
in Loeks-Star Partners, into a wholly owned subsidiary of Loews Cineplex. Such
issuances were not registered under the Securities Act of 1933, as amended, in
reliance on the exemption provided by Section 4(2) thereof.
In connection with the Combination, the Company registered 26,632,709 shares
of Common Stock and 84,000 shares of its Class B Non-Voting Common Stock, par
value $.01 per share (the "Non-Voting Stock"), pursuant to a Registration
Statement on Form S-4 (File No. 333-46313), which was declared effective on
February 13, 1998. The offering of such securities commenced on February 13,
1998 in connection with the solicitation of shareholder approval of certain
aspects of the Combination by shareholders of Cineplex Odeon and terminated
other than in respect of shares of Common Stock issuable pursuant to certain
antidilution provisions in the Subscription Agreement and (ii) upon conversion
of the Non-Voting Stock on May 14, 1998
II-2
<PAGE>
upon consummation of the Combination. All of the registered securities were
issued either pursuant to the Combination in exchange for (i) all of the
outstanding shares of Cineplex Odeon and Plitt Theatres, Inc. or (ii) a cash
payment of $84.5 million from Universal. All of the cash proceeds, together
with funds borrowed under the Bank Credit Facilities, were used on May 14,
1998 to (a) repay indebtedness of $149.3 million under the then existing
Cineplex Odeon credit facility, (b) make payments to SPE and its affiliates
aggregating $394.8 million, (c) reimburse $300,000 and $700,000 in expenses
relating to the Combination incurred by the Claridge Group and Universal,
respectively, in each case as contemplated by such Registration Statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <C> <S>
1.1 -- Form of Underwriting Agreement among the Underwriters and
Registrant
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(1) -- 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* -- 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 -- Second Supplemental Indenture dated as of July 1, 1998, among
Plitt Theatres, Inc., Registrant and The Bank of New York, as
Trustee
4.4 -- Form of Indenture, by and among Registrant and Bankers Trust
Company, as Trustee
4.5 -- Form of Exchange and Registration Rights Agreement 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 legality 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S>
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(1) -- Form of Director Indemnification Agreement
10.8(1) -- 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 -- 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(1) -- 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(1) -- Agreement between Registrant and Travis Reid, dated October 21,
1995
10.16(1) -- Agreement between Registrant and Joseph Sparacio, dated August
20, 1994, including Term Extension Letter dated March 5, 1997
10.17(1) -- Agreement between Registrant and John J. Walker, dated June 1,
1993, including Term Extension Letter dated March 5, 1997
10.18(1) -- 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 -- Letter Agreement between Registrant and J. Edward Shugrue,
dated December 15, 1997
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of KPMG
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
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- --------
* 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.
II-4
<PAGE>
(b) Schedules
Schedule II--Valuation and Qualifying Accounts
ITEM 17. 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York, State of New York, on the 29th day of
July, 1998.
LOEWS CINEPLEX
ENTERTAINMENT CORPORATION
/s/ John C. McBride, Jr.
By: _________________________________
John C. McBride, Jr.
Senior Vice President andGeneral
Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Chief Executive July 29, 1998
____________________________________ Officer (Principal Executive
Lawrence J. Ruisi Officer) and Director
* Senior Vice President, Chief July 29, 1998
____________________________________ Financial Officer and
John J. Walker Treasurer (Principal Financial
Officer)
* Vice President, Finance and July 29, 1998
____________________________________ Controller (Principal
Joseph Sparacio Accounting Officer)
* Director July 29, 1998
____________________________________
George Cohon
* Director July 29, 1998
____________________________________
Marinus N. Henny
Director
____________________________________
Allen Karp
* Director July 29, 1998
____________________________________
Ernest Leo Kolber
* Director July 29, 1998
____________________________________
Ken Lemberger
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director July 29, 1998
____________________________________
Ron Meyer
* Director July 29, 1998
____________________________________
Brian C. Mulligan
* Director July 29, 1998
____________________________________
Yuki Nozoe
* Director July 29, 1998
____________________________________
Karen Randall
* Director July 29, 1998
____________________________________
Stanley Steinberg
* Director July 29, 1998
____________________________________
Howard Stringer
* Director July 29, 1998
____________________________________
Robert Wynne
* Director July 29, 1998
____________________________________
Mortimer Zuckerman
</TABLE>
/s/ John C. McBride, Jr.
*By: ________________________________
John C. McBride, Jr.
Attorney-in-Fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
------- -------------------- ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement among the
Underwriters and Registrant
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(1) -- 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* -- 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 -- Second Supplemental Indenture dated as of July 1,
1998, among Plitt Theatres, Inc., Registrant and
The Bank of New York, as Trustee
4.4 -- Form of Indenture, by and among Registrant and
Bankers Trust Company, as Trustee
4.5 -- Form of Exchange and Registration Rights Agreement
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
legality 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(1) -- Form of Director Indemnification Agreement
10.8(1) -- Loews Cineplex Entertainment Corporation 1997 Stock
Incentive Plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
------- -------------------- ------------
<C> <C> <S> <C>
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 -- 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(1) -- 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(1) -- Agreement between Registrant and Travis Reid,
dated October 21, 1995
10.16(1) -- Agreement between Registrant and Joseph Sparacio,
dated August 20, 1994, including Term Extension
Letter dated March 5, 1997
10.17(1) -- Agreement between Registrant and John J. Walker,
dated June 1, 1993, including Term Extension
Letter dated March 5, 1997
10.18(1) -- 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 -- Letter Agreement between Registrant and J. Edward
Shugrue, dated December 15, 1997
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of KPMG
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
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- --------
* 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.
<PAGE>
EXHIBIT 1.1
DRAFT
10,000,000 Shares
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
----------------------
, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.,
As Representatives of the Several Underwriters
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Loews Cineplex Entertainment Corporation, a
Delaware corporation ("Company"), proposes to issue and sell 10,000,000 shares
("Firm Securities") of its Common Stock, $.01 par value ("Securities"), and also
proposes to issue and sell to the Underwriters, at the option of the
Underwriters, an aggregate of not more than 1,500,000 additional shares
("Optional Securities") of its Securities as set forth below. The Firm
Securities and the Optional Securities are herein collectively called the
"Offered Securities". The Company hereby agrees with the several Underwriters
named in Schedule A hereto ("Underwriters") as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-56897) relating to the
Offered Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has been
declared effective under the Securities Act of 1933 ("Act") and is not proposed
to be amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement ("initial registration statement") has
been declared effective, either (i) an additional registration statement
("additional registration statement") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)")
under the Act and, if so filed, has become effective upon filing pursuant to
such Rule and the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such
<PAGE>
registration statement has been filed with the Commission prior to the execution
and delivery of this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the
Act or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of this
Agreement, the additional registration statement means (i) if the Company has
advised the Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement, or the
most recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c), or (ii)
if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration statement (if
any) and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is
hereinafter referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "Additional Registration Statement". The Initial
Registration Statement and the Additional Registration Statement are herein
referred to collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter referred to as
the "Prospectus". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration Statement
conformed in all material respects to the requirements of the Act and the rules
and regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) on the Effective Date of the Additional Registration Statement
(if any), each Registration Statement conformed, or will conform, in all
material respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a material
fact and did not omit, or will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration Statement
each conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all material respects
to the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the
2
<PAGE>
Effective Date of the Initial Registration Statement, the Initial Registration
Statement and the Prospectus will conform in all respects to the requirements of
the Act and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and no Additional Registration Statement has been or will be filed.
The two preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such qualification, or is subject to no material liability or
disability by reason of failure to be so qualified in any jurisdiction.
(d) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus; and each subsidiary of the Company is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires such
qualification, or is subject to no material liability or disability by reason of
failure to be so qualified in any jurisdiction; all of the issued and
outstanding capital stock of each subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable; and, except
as disclosed in the Prospectus, all of the capital stock of each subsidiary is
owned by the Company, directly or through subsidiaries, free from liens,
encumbrances and defects.
(e) The Company has an authorized capitalization as set forth in
the Prospectus and the Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding shares
of capital stock of the Company are, and, when the Offered Securities have been
delivered and paid for in accordance with this Agreement on each Closing Date
(as defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform in all material respects to the
description thereof contained in the Prospectus; and, except as disclosed in the
Prospectus, the stockholders of the Company have no preemptive or similar rights
with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with the
offering of the Offered Securities.
(g) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such securities
in the securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Act; and no person has registration rights in
connection with the offering of the Offered Securities.
(h) The Offered Securities have been approved for listing on The
New York Stock Exchange and The Toronto Stock Exchange, subject to notice of
issuance.
3
<PAGE>
(i) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or authority is
required for the issuance and sale of the Offered Securities or the performance
by the Company of its obligations under this Agreement, except such as have been
obtained under the Act and such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Offered
Securities by the Underwriters.
(j) Neither the execution and delivery by the Company of, and
the performance by the Company of its obligations under, this Agreement nor
consummation of the transactions ("Concurrent Transactions") described in the
Prospectus under the caption "The Concurrent Transactions" do or will (i)
contravene any provision of the Amended and Restated Certificate of
Incorporation or Amended and Restated By-Laws of the Company, (ii) contravene,
result in a breach of or constitute a default under any agreement or instrument
binding upon the Company or any of its subsidiaries, or (iii) violate (x) any
present statute, rule or regulation of any governmental agency or authority
applicable to the Company or any subsidiary of the Company, or (y) any judgment,
decree or order of any court or governmental agency or body applicable to the
Company or any subsidiary of the Company;
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to (i) all real properties owned by
them and (ii) all other properties and assets owned by them that are material to
the Company and its subsidiaries taken as a whole, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and except
as disclosed in the Prospectus, the Company and its subsidiaries hold any leased
real or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by them.
(m) The Company and its subsidiaries possess such certificates,
authorities or permits issued by appropriate governmental agencies or bodies as
are necessary to conduct the business now operated by them except where the
failure to possess such certificates, authorities or permits would not
individually or in the aggregate have a material adverse effect on the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries, taken as a whole ("Material Adverse Effect"), and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit.
(n) Neither the Company nor any of its subsidiaries is (A) in
violation of (i) its Certificate of Incorporation or By-laws or (ii) any law,
ordinance, administrative or governmental or regulatory rule, regulation,
requirement or standard applicable to the Company or any of its subsidiaries or
any order, decree or judgment of any governmental, regulatory or accrediting
agency or body or any court having jurisdiction over the Company or any of its
subsidiaries or (B) in default in the performance or observance of any
obligation, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound, except, in the case
of (A) (ii) and (B) above, for any such violations or defaults as would not
individually or in the aggregate have a Material Adverse Effect.
(o) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that might
have a Material Adverse Effect.
(p) The Company and its subsidiaries own, possess or have rights
to acquire on reasonable terms, adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently employed by
them, except where the failure to own, possess or acquire such intellectual
property rights would not individually or in
4
<PAGE>
the aggregate have a Material Adverse Effect, and neither the Company nor any
subsidiary has received any notice of infringement of or conflict with asserted
rights of others with respect to any intellectual property rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(q) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, "environmental
laws"), owns or operates any real property contaminated with any substance that
is subject to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any claim
relating to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to such a
claim.
(r) There are no legal or governmental proceedings pending or
threatened against or affecting the Company, any of its subsidiaries or any of
their respective properties that, if determined adversely to the Company or any
of its subsidiaries, would be reasonably likely to materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement or consummate the Concurrent Transactions or, except as disclosed in
the Prospectus, would be reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect, or which are otherwise material in the context
of the sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(s) The financial statements included in each Registration
Statement and the Prospectus present fairly the consolidated financial position
of each of the Company, Loeks-Star Partners and Cineplex Odeon Corporation
("CPX") as of the dates shown and their respective results of operations and
cash flows for the periods shown, and, except as disclosed in the Prospectus,
such financial statements have been prepared in conformity with generally
accepted accounting principles in the United States in the case of each of the
Company and Loeks-Star Partners and in conformity with generally accepted
accounting principles in Canada in the case of CPX, in each case applied on a
consistent basis, and the schedules included in each Registration Statement
present fairly the information required to be stated therein. The pro forma
financial statements and other pro forma financial information included in each
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in all respects in accordance with the Commission's
rules and guidelines with respect to pro forma financial information, have been
properly compiled on the pro forma basis described therein and the assumptions
used provide a reasonable basis for presenting the significant effects directly
attributable to the transactions or events described therein, the related pro
forma adjustments give appropriate effect to those assumptions, and the pro
forma columns therein reflect the proper application of those adjustments to the
corresponding historical financial statement amounts. There are no financial
statements (historical or pro forma) that are required to be included in any
Registration Statement or the Prospectus pursuant to the Act and the Rules and
Regulations that are not included in any Registration Statement or the
Prospectus as required.
(t) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (B) warrants, rights or
options to subscribe for or purchase from the Company any capital stock or any
such convertible or exchangeable securities or obligations or (C) obligations of
the Company to issue any capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or obligations.
(u) Each "employee benefit plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in which
employees of the Company or any
5
<PAGE>
subsidiary participate or as to which the Company or any subsidiary has any
liability (the "ERISA Plans") is in compliance in all material respects with the
applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"). Neither the Company nor any subsidiary has any liability, with
respect to the ERISA Plans or otherwise and whether or not contingent, under
Title IV of ERISA, nor does the Company expect that any such liability will be
incurred. Neither the Company nor any subsidiary has any liability, whether or
not contingent, with respect to any ERISA Plan that provides post-retirement
welfare benefits that would individually or in the aggregate have a Material
Adverse Effect. The descriptions of the Company's stock option, stock bonus and
other stock plans or arrangements, and of the options or other rights granted
and exercised thereunder, and of the employment agreements to which the Company
and/or any of its subsidiaries are a party, set forth in the Prospectus are
accurate and complete in all material respects.
(v) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient for purposes of the prevention or
detection of errors or irregularities in amounts that could be expected to be
material to the Company's consolidated financial statements and the recording of
transactions so as to permit the preparation of such consolidated financial
statements in conformity with generally accepted accounting principles.
(w) The Company and its subsidiaries carry or are entitled to
the benefits of insurance in such amounts and covering such risks as are
generally maintained by companies of established repute engaged in the same or a
similar business, and all such insurance is in full force and effect.
(x) The Company and its subsidiaries have filed on a timely
basis all federal, state, local and foreign tax returns required to be filed (or
such returns were included in the consolidated federal, state, local or foreign
tax returns of Sony Corporation of America ("SCA")), such returns are complete
and correct in all material respects, and all taxes shown by such returns (or
included in any consolidated returns of SCA) or otherwise due and payable have
been paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided. The charges, accruals and reserves
on the books of the Company and its subsidiaries in respect of any tax liability
for any year not finally determined are adequate to meet any assessments or
reassessments for additional taxes and there has been no formal or informal tax
deficiency asserted against the Company or any of its subsidiaries that would,
individually or in the aggregate, have a Material Adverse Effect.
(y) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries taken as
a whole, and, except as disclosed in or contemplated by the Prospectus, there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(z) Neither the Company nor any of its affiliates has taken, nor
will the Company take or permit any of its affiliates to take, any action which
is designed to or which has constituted or will constitute or which might have
or be expected to cause or result in stabilization or manipulation of the price
of any security of the Company in connection with the offering of the Offered
Securities.
(aa) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940.
3. Purchase, Sale and Delivery of Offered Securities. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to the Underwriters, and the Underwriters agree, severally and not jointly, to
purchase from the Company, at a purchase price of $ per share, the respective
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numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn
to the order of at the office of Dewey Ballantine LLP, 1301
Avenue of the Americas, New York, New York 10019, at 10:00 A.M., New York time,
on , 1998, or at such other time not later than seven full
business days thereafter as CSFBC and the Company determine, such time being
herein referred to as the "First Closing Date". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later than
the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Offered Securities sold
pursuant to the offering. The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the office of Credit Suisse First Boston Corporation, New York, New
York at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of , at the above office of Dewey Ballantine LLP.
The certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of Credit Suisse First Boston Corporation at a reasonable time in advance
of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission
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pursuant to and in accordance with subparagraph (1) (or, if
applicable and if consented to by CSFBC, subparagraph (4)) of Rule 424(b) not
later than the earlier of (A) the second business day following the execution
and delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is prior to
the execution and delivery of this Agreement and an additional registration
statement is necessary to register a portion of the Offered Securities under the
Act but the Effective Time thereof has not occurred as of such execution and
delivery, the Company will file the additional registration statement or, if
filed, will file a post-effective amendment thereto with the Commission pursuant
to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time,
on the date of this Agreement or, if earlier, on or prior to the time the
Prospectus is printed and distributed to any Underwriter, or will make such
filing at such later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or the
related prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement (if
its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered Securities
is required to be delivered under the Act in connection with sales by any
Underwriter or dealer, any event occurs as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date (as
defined below), the Company will make generally available to its securityholders
an earnings statement covering a period of at least 12 months beginning after
the Effective Date of the Initial Registration Statement (or, if later, the
Effective Date of the Additional Registration Statement) which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (six of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the Underwriters
all such documents.
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(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution.
(g) During the period of five years hereafter, the Company will furnish to
the Representatives and, upon request, to each of the other Underwriters, as
soon as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to the
Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may reasonably
request.
(h) The Company will pay all expenses incident to the performance of its
obligations under this Agreement and will reimburse the Underwriters for any
filing fees and other expenses (including reasonable fees and disbursements of
counsel) incurred in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions as CSFBC designates and the printing
of memoranda relating thereto, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. of the
Offered Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities and for
expenses incurred in distributing preliminary prospectuses and the Prospectus
(including any amendments and supplements thereto) to the Underwriters. The
Company agrees that it will pay all transfer and other similar taxes (including,
without limitation, all real estate and real property transfer taxes) related to
or resulting from the Combination (as defined in the Prospectus) and/or the
offering of the Offered Securities and it agrees further to indemnify and hold
harmless each Underwriter from any losses, claims, damages or liabilities, joint
or several, that may be incurred by any such Underwriter with respect to such
taxes and to reimburse each such Underwriter for any legal or other expenses
reasonably incurred by any such Underwriter in connection with investigating or
defending any such loss, claim, damage, or liability as such expenses are
incurred.
(i) For a period of 90 days after the date of the Prospectus, the Company
will not offer, sell, contract to sell, pledge or otherwise dispose of, directly
or indirectly, or file with the Commission a registration statement under the
Act relating to, any additional shares of its Securities or securities
convertible into or exchangeable or exercisable for any shares of its
Securities, or publicly disclose the intention to make any such offer, sale,
pledge, disposition or filing, without the prior written consent of CSFBC,
except grants of employee stock options pursuant to the terms of a plan in
effect on the date hereof and issuances of Common Stock pursuant to the exercise
of options under any such plan.
(j) The Company will cause each of Sony Pictures Entertainment Inc.,
Universal Studios, Inc., The Charles Rosner Bronfman Discretionary Trust, The
Charles Bronfman Trust, The Charles R. Bronfman Trust, The Phyllis Lambert
Foundation, Bojil Equities Inc., Louis Ludwick and Hon. Ernest Leo Kolber and
each of the Company's directors and executive officers to agree that they will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any Securities or securities convertible into or exercisable or
exchangeable for any Securities, or publicly disclose the intention to make any
such offer, sale, pledge or disposal, without the prior written consent of
CSFBC, for a period of 90 days after the date of the Prospectus.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
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<PAGE>
(a) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of Price Waterhouse LLP confirming that they are independent
public accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules examined by
them and included in the Registration Statements comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim financial
information as described in Statement of Auditing Standards No. 71, Interim
Financial Information, on the unaudited financial statements included in the
Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the Company, a
reading of the minutes of all meetings of the stockholders and directors
(including each committee thereof), inquiries of officials of the Company who
have responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the Registration
Statements do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to such unaudited
financial statements for them to be in conformity with generally accepted
accounting principles in the United States;
(B) at the date of the latest available balance sheet read by such
accountants, and at a subsequent specified date not more than three business
days prior to the date of this Agreement, there was any decrease in
stockholders' equity or change in the capital stock or any increase in short-
term indebtedness or long-term debt of the Company and its consolidated
subsidiaries or, at the date of the latest available balance sheet read by such
accountants, and at a subsequent specified date not more than three business
days prior to the date of this Agreement, there was any decrease in consolidated
net current assets or net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; and
(C) for the period from the closing date of the latest income statement
included in the Prospectus to the closing date of the latest available income
statement read by such accountants, and to a subsequent specified date not more
than three business days prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period of the previous year, in
consolidated net revenues, EBITDA, Total EBITDA, Attributable EBITDA or net
operating income or in the total or per share amounts of consolidated income
before extraordinary items or net income,
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur;
(iv) they have read the unaudited pro forma information included in the
Registration Statement and made inquiries of officials of the Company who have
responsibility for financial and accounting matters and have performed other
specified procedures, and nothing came to their attention that caused them to
believe that the unaudited pro forma financial data included in the Registration
Statements do not comply as to form in all material respects with the applicable
accounting
10
<PAGE>
requirements of the Act and the related published Rules and Regulations or that
the pro forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements; and
(v) they have compared specified dollar amounts (or percentages derived
from such dollar amounts) and other financial information contained in the
Registration Statements and the Prospectus (in each case to the extent that such
dollar amounts, percentages and other financial information are derived from the
general accounting records of the Company and its subsidiaries subject to the
internal controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such results.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
(b) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of KPMG confirming that they are independent public accountants
within the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules examined by
them and included in the Registration Statements comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published Rules and Regulations;
(ii) they have performed the procedures specified by the Canadian
Institute of Chartered Accountants for reviews of unaudited interim financial
statements in prospectuses (which procedures shall include those specified by
the American Institute of Certified Public Accountants Statement of Auditing
Standards No. 71);
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of CPX, a reading
of the minutes of all meetings of the shareholders and directors (including each
committee thereof) of CPX and its subsidiaries, inquiries of officials of CPX
who have responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the Registration
Statements do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to such unaudited
financial statements for them to be in conformity with generally accepted
accounting principles in Canada;
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(B) at the date of the latest available balance sheet read by such
accountants, and at the date of the Combination (May 14, 1998), there was any
decrease in stockholders' equity or change in the capital stock or any increase
in short-term indebtedness or long-term debt of CPX and its consolidated
subsidiaries or, at the date of the latest available balance sheet read by such
accountants, and at the date of the Combination, there was any decrease in
consolidated net current assets or net assets, as compared with amounts shown on
the latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest income statement
included in the Prospectus to the closing date of the latest available income
statement read by such accountants, and to the date of the Combination, there
were any decreases, as compared with the corresponding period of the previous
year, in consolidated net revenues, EBITDA, Modified EBITDA or consolidated net
income, or in the total or per share amounts of consolidated net income or
income from continuing operations before extraordinary items,
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur; and
(iv) they have compared specified dollar amounts (or percentages derived
from such dollar amounts) and other financial information contained in the
Registration Statements and the Prospectus (in each case to the extent that such
dollar amounts, percentages, numerical data and other financial information are
derived from the general accounting records of CPX and its subsidiaries subject
to the internal controls of CPX's accounting system or are derived directly from
such records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts, percentages,
numerical data and other financial information to be in agreement with such
results.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
(c) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or such later date as shall have been consented to by CSFBC. If the
Effective Time of the Additional Registration Statement (if any) is not prior to
the execution and delivery of this Agreement, such Effective Time shall have
occurred not later than 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(d) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event involving a
prospective change, in the condition (financial or other), business, properties
or results of operations of the Company or its subsidiaries which, in the
judgment of a majority in interest of the Underwriters including the
12
<PAGE>
Representatives, is material and adverse and makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and payment for
the Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or any
public announcement that any such organization has under surveillance or review
its rating of any debt securities of the Company (other than an announcement
with positive implications of a possible upgrading, and no implication of a
possible downgrading, of such rating); (iii) any suspension or limitation of
trading in securities generally on The New York Stock Exchange or The Toronto
Stock Exchange, or any setting of minimum prices for trading on such exchange,
or any suspension of trading of any securities of the Company on any exchange or
in the over-the-counter market; (iv) any banking moratorium declared by U.S.
Federal or New York authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war by
Congress or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the Underwriters
including the Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment for
the Offered Securities.
(e) The Representatives shall have received an opinion, dated
such Closing Date, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Company, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and conduct
its business as described in the Prospectus;
(ii) The Offered Securities delivered on the Closing Date and
all other outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and conform in
all material respects to the description thereof contained in the Prospectus;
and, except as disclosed in the Prospectus, the stockholders of the Company have
no preemptive or similar rights with respect to the Securities;
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act; and, to the
knowledge of such counsel, no person has registration rights in connection with
the offering of the Offered Securities;
(iv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940;
(v) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or authority of the
United States or of the State of New York or pursuant to any present provision
of the General Corporation Law of the State of Delaware ("DGCL") is required for
the issuance or sale of the Offered Securities or the performance by the Company
of its obligations under this Agreement, except such as have been obtained under
the Act and such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Offered Securities by the
Underwriters;
(vi) Neither the execution and delivery by the Company of, and
the performance by the Company of its obligations under, this Agreement nor
consummation of the Concurrent Transactions do or will (A) contravene any
provision of the Amended and Restated Certificate of
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Incorporation or Amended and Restated By-Laws of the Company, (B) contravene,
result in a breach of or constitute a default under any agreement or instrument
binding upon the Company (or any of its subsidiaries) that is listed as an
exhibit to the Registration Statement, or (C) violate (x) any present statute,
rule or regulation of any governmental agency or authority of the United States
of America or the State of New York or any present provision of the DGCL
applicable to the Company or any subsidiary of the Company, or (y) any judgment,
decree or order of any court or governmental agency or body of the United States
of America or the State of New York or of any court or governmental agency or
body of the State of Delaware pursuant to the DGCL set forth in an Officer's
Certificate attached to such opinion (which Officer's Certificate shall certify
that such judgments, decrees and orders constitute the only such judgments,
decrees and orders applicable to the Company and its subsidiaries); provided,
however, that such counsel need not express any opinion with respect to any
violation, breach or default not ascertainable from the face of any such
agreement, instrument, judgment, decree or order, or arising under or based upon
any cross-default provision insofar as such violation relates to a default under
an agreement that is not referred to in subclause (B) or arising under or based
upon any covenant of a financial or numerical nature or which requires
arithmetic computation;
(vii) The statements in the Prospectus under the captions "The
Concurrent Transactions", "The Stockholders Agreement", "Description of Certain
Indebtedness", "Description of Capital Stock" and "Certain United States Federal
Tax Considerations for Non-United States Holders" have been reviewed by such
counsel and, insofar as such statements constitute a summary of laws, contracts
or documents or proceedings, fairly summarize in all material respects the
matters referred to therein;
(viii) The Initial Registration Statement was declared effective
under the Act, the Additional Registration Statement (if any) was filed and
became effective under the Act, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in such opinion
on the date specified therein or was included in the Initial Registration
Statement or the Additional Registration Statement (as the case may be), and, to
the knowledge of such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued under the Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission;
(ix) Each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or issue
dates, appeared on their face to comply as to form in all material respects with
the requirements of the Act and the Rules and Regulations (it being understood
that such counsel need not express any opinion on the financial statements, the
notes or schedules thereto or other financial information included therein or
omitted therefrom); and
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
In addition, such counsel shall state that in the course of the
preparation by the Company of the Registration Statements and the Prospectus,
such counsel participated in conferences with certain of the officers and
representatives of, and the independent public accountants for the Company, at
which the contents of the Registration Statements and the Prospectus were
discussed. Such counsel shall further state that between the date of
effectiveness of the Registration Statement and the time of delivery of such
opinion, such counsel participated in additional conferences with certain of the
officers and representatives of, and independent public accountants for the
Company, at which the contents of the Registration Statements and the Prospectus
were discussed. Such counsel may state that, given the limitations inherent in
the independent verification of factual matters and the character of
determinations involved in the registration process, such counsel is not passing
upon or assuming any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the Prospectus,
except as set forth in paragraph (ix) above. Subject to the foregoing and on the
basis of the information gained in the performance of the services referred to
above, including
14
<PAGE>
information obtained from officers and other representatives of, and the
independent public accountants for, the Company, such counsel shall state that
no facts have come to their attention that have caused them to believe that a
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
that the Prospectus, as of its date, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Also, subject to the
foregoing, such counsel shall state that no facts have come to their attention
in the course of the proceedings described in the second sentence of this
paragraph that cause them to believe that the Prospectus, as of the date and
time of delivery of this letter, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such counsel shall
state that they express no view or belief, however, with respect to financial
statements, the notes or schedules thereto or other financial information
included in or omitted from the Registration Statements or the Prospectus.
(f) The Representatives shall have received an opinion, dated
such Closing Date, of John C. McBride, Jr., Esq., General Counsel of the
Company, to the effect that:
(i) The Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction in which the ownership or
lease of property by the Company or the conduct of the Company's business
requires such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such jurisdiction;
(ii) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus; and each
subsidiary of the Company is duly qualified to do business as foreign
corporation in good standing in each jurisdiction in which the ownership or
lease of property by any subsidiary of the Company or the conduct of any such
subsidiary's business requires such qualification, or is subject to no material
liability or disability by reason of the failure to be so qualified in any such
jurisdiction; all of the issued and outstanding capital stock of each subsidiary
of the Company has been duly authorized and validly issued and is fully paid and
nonassessable; and, except as disclosed in the Prospectus, all of the capital
stock of each subsidiary is owned by the Company, directly or through
subsidiaries, free from liens, encumbrances and defects;
(iii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or authority is
required for the issuance or sale of the Offered Securities or the performance
by the Company of its obligations under this Agreement, except such as have been
obtained under the Act and such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Offered
Securities by the Underwriters;
(iv) Neither the execution and delivery by the Company of, and
the performance by the Company of its obligations under, this Agreement nor
consummation of the Concurrent Transactions does or will (i) contravene any
provision of the Amended and Restated Certificate of Incorporation or Amended
and Restated By-Laws of the Company, (ii) contravene, result in a breach of or
constitute a default under any agreement or instrument binding upon the Company
or any of its subsidiaries, or (iii) violate (x) any present statute, rule or
regulation of any governmental agency or authority applicable to the Company or
any subsidiary of the Company, or (y) any judgment, decree or order of any court
or governmental agency or body applicable to the Company or any subsidiary of
the Company;
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each case free and
clear of all liens, encumbrances and defects
15
<PAGE>
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries (in giving the opinion in this
clause, such counsel may state that no examination of record titles for the
purpose of such opinion has made, and that such counsel is relying upon a
general review of the titles of the Company and its subsidiaries, upon opinions
of local counsel and abstracts, reports and policies of title companies rendered
or issued at or subsequent to the time of acquisition of such property by the
Company or its subsidiaries, upon opinions of counsel to the lessors of such
property and, in respect of matters of fact, upon certificates of officers of
the Company or its subsidiaries, provided that such counsel shall state that
such counsel believes that both you and such counsel are justified in relying
upon such opinions, abstracts, reports, policies and certificates);
(vi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any of its
subsidiaries which, if determined adversely to the Company or any of its
subsidiaries, (A) would be reasonably likely to materially and adversely affect
the consummation of the transactions contemplated by this Agreement or the
Concurrent Transactions or (B) except as disclosed in the Prospectus, would
individually or in the aggregate have a Material Adverse Effect or which are
otherwise material in the context of the sale of the Offered Securities;
(vii) Neither the Company nor any of its subsidiaries is (A) in
violation of (i) its Certificate of Incorporation or By-laws or (ii) any law,
ordinance, administrative or governmental or regulatory rule, regulation,
requirement or standard applicable to the Company or any of its subsidiaries or
any order, decree or judgment of any governmental, regulatory or accrediting
agency or body or any court having jurisdiction over the Company or any of its
subsidiaries or (B) in default in the performance or observance of any
obligation, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound, except, in the case
of (A) (ii) and (B) above, for any such violations or defaults as would not
individually or in the aggregate have a Material Adverse Effect; and
(viii) The statements in the Prospectus under the captions
"Business-Environmental Matters", "Business-Legal Proceedings", "Management-
Employment Agreements", "Management-1997 Stock Incentive Plan", "Certain
Relationships and Related Transactions" and "Shares Eligible for Future Sale"
have been reviewed by such counsel and, insofar as such statements constitute a
summary of laws, contracts or documents or proceedings, fairly summarize in all
material respects the matters referred to therein; and, to the knowledge of such
counsel, there are no legal or governmental proceedings required to be described
in a Registration Statement or the Prospectus which are not described as
required or any contracts or documents of a character required to be described
in a Registration Statement or the Prospectus or to be filed as exhibits in a
Registration Statement which are not described and filed as required.
Such counsel shall also state that such counsel has participated
in the preparation of the Registration Statements and the Prospectus and has no
reason to believe that a Registration Statement, as of its effective date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its issue date or as of
such Closing Date, contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the financial
statements, the notes or schedules thereto or other financial data contained in
the Registration Statements or the Prospectus.
16
<PAGE>
(g) The Representatives shall have received from Dewey
Ballantine LLP, counsel for the Underwriters, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(h) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs (1)
and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus.
(i) The Representatives shall have received a letter from each
stockholder, director and executive officer of the Company referred to in clause
(j) of Section 5 of this Agreement to the effect contemplated by such clause.
(j) The Representatives shall have received a certificate dated
the Closing Date signed by the chief financial officer of the Company
substantially in the form heretofore approved by the Representatives, with
respect to the Company's compliance with the covenants set forth in the Credit
Agreement (as defined in the Prospectus) and certain other agreements relating
to indebtedness of the Company and its subsidiaries.
(k) The Representatives shall have received letters, dated such
Closing Date, of Price Waterhouse LLP and KPMG, which meet the requirements of
subsections (a) and (b), respectively, of this Section, except that the
specified date referred to in such subsection will be a date not more than three
days prior to such Closing Date for the purposes of this subsection.
(l) The Offered Securities shall have been approved for listing
on the New York Stock Exchange and The Toronto Stock Exchange, subject to notice
of issuance.
The Company will furnish the Representatives with such conformed
copies of such opinions, certificates, letters and documents as the
Representatives reasonably request. CSFBC may in its sole discretion waive on
behalf of the Underwriters compliance with any conditions to the obligations of
the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Company will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein
17
<PAGE>
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
that, with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus, the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
Prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus correcting such untrue statement or alleged untrue statement in
or omission or alleged omission from such preliminary prospectus if the Company
had previously furnished copies thereof to such Underwriter.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company against any losses, claims, damages or liabilities
to which the Company may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of (i) the following
information in the Prospectus furnished on behalf of each Underwriter: the last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Underwriters, the legend concerning over-allotments and stabilizing on
the inside front cover page and the concession and reallowance figures appearing
in the fourth paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above or Section 9, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above or Section 9. In case any
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section or Section 9, as the
case may be, for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
18
<PAGE>
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section or Section
9 shall be in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter or the QIU (as hereinafter defined) within the meaning
of the Act; and the obligations of the Underwriters under this Section shall be
in addition to any liability which the respective Underwriters may otherwise
have and shall extend, upon the same terms and conditions, to each director of
the Company, to each officer of the Company who has signed a Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on either
the First or any Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date,
CSFBC may make arrangements satisfactory to the Company for the purchase of such
Offered Securities by other persons, including any of the Underwriters, but if
no such arrangements are made by such Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Offered Securities that such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and the aggregate number of shares of
19
<PAGE>
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC and the Company for the purchase of such Offered Securities by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except as provided in Section 10 (provided that if such default occurs
with respect to Optional Securities after the First Closing Date, this Agreement
will not terminate as to the Firm Securities or any Optional Securities
purchased prior to such termination). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
9. Qualified Independent Underwriter. The Company hereby
confirms that at its request Bear, Stearns & Co. Inc. has without compensation
acted as "qualified independent underwriter" (in such capacity, the "QIU")
within the meaning of Rule 2720 of the Conduct Rules of the National Association
of Securities Dealers, Inc. in connection with the offering of the Offered
Securities. The Company will indemnify and hold harmless the QIU against any
losses, claims, damages or liabilities, joint or several, to which the QIU may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon the QIU's acting (or alleged failing to act) as such "qualified independent
underwriter" and will reimburse the QIU for any legal or other expenses
reasonably incurred by the QIU in connection with investigating or defending any
such loss, claim, damage or action as such expenses are incurred.
10. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Offered Securities. If this Agreement is
terminated pursuant to Section 8 or if for any reason the purchase of the
Offered Securities by the Underwriters is not consummated, the Company shall
remain responsible for the expenses to be paid or reimbursed by it pursuant to
Section 5(h) and the respective obligations of the Company and the Underwriters
pursuant to Section 7 and the obligations of the Company pursuant to Section 9
shall remain in effect, and if any Offered Securities have been purchased
hereunder the representations and warranties in Section 2 and all obligations
under Section 5 shall also remain in effect. If the purchase of the Offered
Securities by the Underwriters is not consummated for any reason other than
solely because of the termination of this Agreement pursuant to Section 8 or the
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(d),
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
11. Notices. All communications hereunder will be in writing
and, if sent to the Underwriters, will be mailed, delivered or telegraphed and
confirmed to the Representatives, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Loews Cineplex
Entertainment Corporation, 711 Fifth Avenue, New York, New York 10022,
Attention: Lawrence J. Ruisi, President and Chief Executive Officer, John J.
Walker, Senior Vice President, Chief Financial Officer and Treasurer, and John
C. McBride, Jr., Senior Vice President and General Counsel; provided, however,
that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
12. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
20
<PAGE>
13. Representation of Underwriters. The Representatives will act
for the several Underwriters in connection with this financing, and any action
under this Agreement taken by the Representatives jointly or by CSFBC will be
binding upon all the Underwriters.
14. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of
the Federal and state courts in the Borough of Manhattan in The City of New York
in any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
21
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
By..................................................
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
Acting on behalf of themselves and as the Representatives of the
several Underwriters
By CREDIT SUISSE FIRST BOSTON CORPORATION
By..................................................
Name:
Title:
22
<PAGE>
SCHEDULE A
Number of
Firm Securities
to be Purchased
---------------
Credit Suisse First Boston Corporation..................
Bear, Stearns & Co. Inc.................................
BT Alex. Brown Incorporated.............................
Goldman, Sachs & Co.....................................
Smith Barney Inc........................................
---------------
Total........................ 10,000,000
===============
<PAGE>
EXHIBIT 4.3
================================================================================
SECOND SUPPLEMENTAL INDENTURE
__________
PLITT THEATRES, INC.,
as Issuer,
LOEWS CINEPLEX ENTERTAINMENT CORPORATION,
as Guarantor,
and
THE BANK OF NEW YORK,
as Trustee
Dated as of July 1, 1998
__________
Supplement to the Indenture dated as of June 23, 1994, relating to the
10 7/8% Senior Subordinated Notes due June 15, 2004, of Plitt Theatres, Inc.,
among Plitt Theatres, Inc., as Issuer, Cineplex Odeon Corporation, as Guarantor,
and The Bank of New York, as Trustee, as amended by the Supplemental Indenture
dated as of May 14, 1998 among Plitt Theatres, Inc., as Issuer, Loews Cineplex
Entertainment Corporation, as Guarantor, and The Bank of New York, as Trustee.
===============================================================================
<PAGE>
SECOND SUPPLEMENTAL INDENTURE dated as of July 1, 1998, between PLITT
THEATRES, INC., a Delaware corporation ("Plitt" or the "Company"), LOEWS
CINEPLEX ENTERTAINMENT CORPORATION, a Delaware corporation ("Loews Cineplex" or
the "Guarantor"), and THE BANK OF NEW YORK, as Trustee (the "Trustee").
WHEREAS, the Company is party to an Indenture dated as of June 23, 1994, as
amended by the Supplemental Indenture dated as of May 14, 1998 (as amended, the
"Indenture"), providing for the creation of 10 7/8% Senior Subordinated
Notes, due June 15, 2004 (the "Securities"); and
WHEREAS, there have been issued and are now outstanding under the
Indenture, Securities in the aggregate principal amount of $200,000,000; and
WHEREAS, Section 9.02 of the Indenture provides that the Indenture may be
amended, and the Company, the Guarantor and the Trustee may waive compliance
with any provision of the Indenture with the written consent of the Holders of
not less than the majority in aggregate principal amount of the outstanding
Securities;
WHEREAS, the Company and the Guarantor desire to amend certain provisions
of the Indenture, as set forth in Article 1 hereof;
WHEREAS, the Holders of at least a majority in aggregate principal amount
of the outstanding Securities have consented to the waivers and amendments
affected by this Second Supplement Indenture; and
WHEREAS, all conditions and requirements necessary to make this Second
Supplemental Indenture a valid and binding instrument in accordance with its
terms have been performed and fulfilled and the execution and delivery hereof
have been in all respects duly authorized;
NOW, THEREFORE, in consideration of the above premises, each party agrees,
for the benefit of the others and for the equal and ratable benefit of the
Holders of the Securities as follows:
ARTICLE 1
AMENDMENTS TO INDENTURE
SECTION 1.01. Waiver of and Amendments to Articles Four, Five and Six.
(a) The application of the provisions of Sections 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19,
5.01(iii), 5.01(iv), 5.01(v), 6.01(d), 6.01(e) and 6.01(h) of the Indenture are
hereby waived to the extent that such provisions might otherwise interfere with
the ability of the Company to consummate the Offer and Consent Solicitation as
set forth in the Offer to Purchase and Consent Solicitation Statement and
accompanying Letter of Transmittal and Consent dated as of June 15, 1998 and any
amendments, modifications or supplements thereto (the "Offer and Consent
Solicitation").
(b) Effective upon the date the Company accepts Securities for
purchase and payment pursuant to the Offer and Consent Solicitation (the
"Acceptance Date"), unless, prior to that time, the Company, by written notice
to the Trustee, has terminated this Second Supplemental Indenture, Section
5.01(v) is hereby amended by eliminating the following language therefrom:
"(attaching the arithmetic computations to demonstrate compliance with clauses
(iii) and (iv))."
(c) Effective upon the date the Company accepts Securities for
purchase and payment pursuant to the Offer and Consent Solicitation (the
"Acceptance Date"), unless, prior to that time, the Company, by written notice
to the Trustee, has terminated this Second Supplemental Indenture, the first
sentence of Section 6.02 is hereby amended by eliminating all references, direct
or indirect, therein to clause (h) of Section 6.01, including,
-2-
<PAGE>
without limitation, the phrase "or an Event of Default specified in clause (h)
of Section 6.01 hereof shall occur and be continuing and the Company or the
Guarantor shall fail to make an Offer to Purchase the Securities or to purchase
the Securities properly tendered into the Offer to Purchase at the times and in
the manner specified in Section 4.19 of this Indenture."
(d) Effective upon the Acceptance Date, unless, prior to that time,
the Company, by written notice to the Trustee, has terminated this Second
Supplemental Indenture, Sections 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 5.01(iii), 5.01(iv), 6.01(d),
6.01(e) and 6.01(h) of the Indenture are hereby amended by deleting all such
sections and all references thereto contained in the Indenture in their
entirety, including without limitation, all references, direct or indirect,
thereto in Section 6.01 ("Events of Default") and Section 6.02 ("Acceleration").
(d) Effective upon the Acceptance Date, unless prior to that time, the
Company or the Guarantor, by written notice to the Trustee, has terminated this
Second Supplemental Indenture, the Indenture is hereby amended by deleting those
definitions from the Indenture when references to such definitions would be
eliminated as a result of the provisions of this Section 1.01.
ARTICLE 2
TRUSTEE DISCLAIMER
SECTION 2.01. Trustee Disclaimer. The Trustee has accepted the amendment
of the Indenture effected by this Second Supplemental Indenture and agrees to
execute the trust created by the Indenture as hereby amended, but only upon the
terms and conditions set forth in the Indenture, including the terms and
provisions defining and limiting the liabilities and responsibilities of the
Trustee, and without limiting the generality of the foregoing, the Trustee shall
not be responsible in any manner whatsoever for or with respect to any of the
recitals or statements contained herein, all of which recitals or statements are
made solely by the Company and the Guarantor, or for or with respect to (a) the
validity or sufficiency of this Second Supplemental Indenture or any of the
terms or provisions hereof, (b) the proper authorization hereof by the Company
and the Guarantor by corporate action or otherwise, (c) the due execution hereof
by the Company and the Guarantor, and (d) the consequences (direct or indirect
and whether deliberate or inadvertent) of any amendment herein provided for, and
the Trustee makes no representation with respect to any such matters.
ARTICLE 3
MISCELLANEOUS PROVISIONS
SECTION 3.01. Terms Defined. For all purposes of this Second Supplemental
Indenture, except as otherwise defined herein or unless the context otherwise
requires, terms used in capitalized form in this Second Supplemental Indenture
and defined in the Indenture have the meanings specified in the Indenture.
SECTION 3.02. Indenture. Except as amended hereby, the Indenture and the
Securities are in all respects ratified and confirmed and all terms thereof
shall remain in full force and effect. This Second Supplemental Indenture is an
indenture supplemental to and in implementation of the Indenture, and said
Indenture and this Second Supplemental Indenture shall henceforth be read
together.
SECTION 3.03. Governing Law. This Second Supplemental Indenture shall be
governed by and construed in accordance with the internal laws of the State of
New York, without regard to the conflicts of laws rules thereof.
SECTION 3.04. Successors. All agreements of the Company, the Guarantor
and the Trustee in this Second Supplemental Indenture shall bind their
respective successors.
-3-
<PAGE>
SECTION 3.05. Effective Date. This Second Supplemental Indenture shall
become a legally effective and binding instrument upon the execution and
delivery hereof by all parties hereto; provided that the amendments to the
Indenture set forth in Section 1.01 of this Second Supplemental Indenture shall
become operative as specified in Section 1.01 hereof. Prior to the Acceptance
Date, the Company or the Guarantor may terminate this Second Supplemental
Indenture upon written notice to the Trustee (it being understood that the
Company and the Guarantor may, subsequent thereto, enter into a substitute
second supplemental indenture).
SECTION 3.06. Counterparts. This Second Supplemental Indenture may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed as of the day and year first above
written.
PLITT THEATRES, INC.
as issuer
/s/ John J. Walker
By:_____________________________
Title: Senior Vice President and
Chief Financial Officer
LOEWS CINEPLEX
ENTERTAINMENT CORPORATION
as Guarantor
/s/ John J. Walker
By:_____________________________
Title: Senior Vice President and
Chief Financial Officer
THE BANK OF NEW YORK
as Trustee
/s/ Marie Trimboli
By:_____________________________
Title: Assistant Treasurer
-5-
<PAGE>
EXHIBIT 4.4
S&C Draft of July 23, 1998
________________________________________________________________________________
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
As Issuer
---------
TO
BANKERS TRUST COMPANY
As Trustee
----------
________________
Indenture
Dated as of August __, 1998
________________
$200,000,000
__% Senior Subordinated Notes due ____________, 2008
________________________________________________________________________________
<PAGE>
.....................................
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of August __, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ----------
<S> <C>
(S) 310(a)(1)..................................... 609
(a)(2)..................................... 609
(a)(3)..................................... Not
Applicable
(a)(4)..................................... Not
Applicable
(b)........................................ 608
610
(S) 311(a)........................................ 613(a)
(b)........................................ 613(b)
(b)(2)..................................... 703(a)(2)
703(b)
(S) 312(a)........................................ 701
702(a)
(b)........................................ 702(b)
(c)........................................ 702(c)
(S) 313(a)........................................ 703(a)
(b)........................................ 703(b)
(c)........................................ 703(a)
703(b)
(d)........................................ 703(c)
(S) 314(a)........................................ 704
(b)........................................ Not
Applicable
(c)(1)..................................... 102
(c)(2)..................................... 102
(c)(3)..................................... Not
Applicable
(d)........................................ Not
Applicable
(e)........................................ 102
(S) 315(a)........................................ 601(a)
(b)........................................ 602
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
703(a)(6)
(c)........................................ 601(b)
(d)........................................ 601(c)
(d)(1)..................................... 601(a)(1)
(d)(2)..................................... 601(c)(2)
(d)(3)..................................... 601(c)(3)
(e)........................................ 514
Trust Indenture Indenture
Act Section Section
- ----------------- ----------
(S) 316(a)........................................ 101
(a)(1)(A).................................. 502
512
(a)(1)(B).................................. 513
(a)(2)..................................... Not
Applicable
(b)........................................ 508
(S) 317(a)(1)..................................... 503
(a)(2)..................................... 504
(b)........................................ 1003
(S) 318(a)........................................ 107
</TABLE>
-iii-
<PAGE>
______________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
-iv-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDENTURE.............................................................. 1
RECITALS OF THE COMPANY................................................ 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.............................................. 1
Acquired Debt................................................... 2
Act............................................................. 2
Affiliate....................................................... 2
Agent Member.................................................... 2
Applicable Procedures........................................... 3
Asset Disposition............................................... 3
Board of Directors.............................................. 3
Board Resolution................................................ 3
Business Day.................................................... 4
Capital Lease Obligation........................................ 4
Capital Stock................................................... 4
Cash Equivalents................................................ 4
Cedel........................................................... 4
Closing Date.................................................... 4
Commission...................................................... 5
Company......................................................... 5
Company Request................................................. 5
Consolidated Cash Flow Available for
Fixed Charges........................................... 5
Consolidated Cash Flow Coverage Ratio........................... 6
Consolidated Fixed Charges...................................... 6
Consolidated Income Tax Expense................................. 6
Consolidated Interest Expense................................... 6
Consolidated Net Income......................................... 7
Consolidated Net Worth.......................................... 8
Consolidated Tangible Assets.................................... 8
Corporate Trust Office.......................................... 8
Debt............................................................ 8
Depositary...................................................... 9
Designated Senior Debt.......................................... 9
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
DTC............................................................. 9
Euroclear....................................................... 9
Exchange and Registration Rights Agreement...................... 9
Exchange Offer.................................................. 9
Exchange Registration Statement................................. 10
Event of Default................................................ 10
Exchange Act.................................................... 10
Exchange Notes.................................................. 10
Global Note..................................................... 10
Guarantee....................................................... 10
Holder.......................................................... 10
Incur........................................................... 10
Indenture....................................................... 11
Initial Purchasers.............................................. 11
Interest Payment Date........................................... 11
Interest Rate, Currency or Commodity Price
Agreement.................................................. 11
Investment...................................................... 11
Lien............................................................ 12
Maturity........................................................ 12
Moodys.......................................................... 12
Net Available Proceeds.......................................... 12
Note Purchase Agreement......................................... 13
Notes........................................................... 13
Offer to Purchase............................................... 13
Officers' Certificate........................................... 15
Opinion of Counsel.............................................. 15
Original Notes.................................................. 15
Outstanding..................................................... 15
Paying Agent.................................................... 16
Permitted Holder................................................ 17
Permitted Interest Rate, Currency or Commodity
Price Agreement........................................... 17
Permitted Investments........................................... 17
Person.......................................................... 18
Predecessor Note................................................ 18
Preferred Stock................................................. 18
Public Equity Offering.......................................... 18
Qualifying Theater Assets....................................... 18
Receivables..................................................... 19
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Receivables Sale................................................ 19
Redeemable Stock................................................ 19
Redemption Date................................................. 19
Redemption Price................................................ 19
Registration Default............................................ 19
Registration Default Period..................................... 20
Regulation S.................................................... 20
Regulation S Certificate........................................ 20
Regulation S Global Note........................................ 20
Regulation S Legend............................................. 20
Regulation S Notes.............................................. 20
Related Person.................................................. 20
Responsible Officer............................................. 20
Restricted Period............................................... 21
Restricted Notes................................................ 21
Restricted Notes Certificate.................................... 21
Restricted Notes Legend......................................... 21
Restricted Subsidiary........................................... 21
Rule 144........................................................ 21
Rule 144A....................................................... 21
Rule 144A Notes................................................. 21
S&P............................................................. 21
Securities Act.................................................. 21
Security Register............................................... 21
Senior Bank Facility............................................ 21
Senior Debt..................................................... 22
Shelf Registration Statement.................................... 22
Special Interest Payments....................................... 22
Special Record Date............................................. 22
Stated Maturity................................................. 22
Subordinated Debt............................................... 22
Subsidiary...................................................... 23
Successor Note.................................................. 24
Temporary Cash Investments...................................... 24
Trust Indenture Act............................................. 25
Trustee......................................................... 25
U.S. Person..................................................... 25
Vice President.................................................. 26
Voting Stock.................................................... 26
Wholly Owned Restricted Subsidiary.............................. 26
</TABLE>
-vii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 102. Compliance Certificates and Opinions..................... 26
SECTION 103. Form of Documents Delivered to Trustee................... 27
SECTION 104. Acts of Holders; Record Date............................. 28
SECTION 105. Notices, Etc., to Trustee and Company.................... 29
SECTION 106. Notice to Holders; Waiver................................ 30
SECTION 107. Conflict with Trust Indenture Act........................ 30
SECTION 108. Effect of Headings and Table of
Contents.......................................... 31
SECTION 109. Successors and Assigns................................... 31
SECTION 110. Separability Clause...................................... 31
SECTION 111. Benefits of Indenture.................................... 31
SECTION 112. Governing Law............................................ 31
SECTION 113. Legal Holidays........................................... 31
ARTICLE TWO
Note Forms
SECTION 201. Forms Generally; Initial Forms of Rule
144A and Regulation S Notes....................... 32
SECTION 202. Form of Face of Note..................................... 33
SECTION 203. Form of Reverse of Note.................................. 37
SECTION 204. Form of Trustee's Certificate of Authentication.......... 42
ARTICLE THREE
The Notes
SECTION 301. Title and Terms.......................................... 43
SECTION 302. Denominations............................................ 44
SECTION 303. Execution, Authentication, Delivery and Dating.......... 44
SECTION 304. Temporary Notes.......................................... 45
SECTION 305. Global Notes............................................. 46
SECTION 306. Registration, Registration of
Transfer and Exchange Generally;
Restrictions on Transfer and
Exchange; Securities Act Legends..................... 48
</TABLE>
-viii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 307. Mutilated, Destroyed, Lost and
Stolen Notes......................................... 52
SECTION 308. Payment of Interest; Interest
Rights Preserved..................................... 53
SECTION 309. Persons Deemed Owners.................................... 54
SECTION 310. Cancellation............................................. 55
SECTION 311. Computation of Interest.................................. 55
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of
Indenture............................................ 56
SECTION 402. Application of Trust Money............................... 57
ARTICLE FIVE
Remedies
SECTION 501. Events of Default........................................ 58
SECTION 502. Acceleration of Maturity; Rescission
and Annulment........................................ 60
SECTION 503. Collection of Indebtedness and Suits..................... 62
SECTION 504. Trustee May File Proofs of Claim......................... 63
SECTION 505. Trustee May Enforce Claims............................... 63
SECTION 506. Application of Money Collected........................... 64
SECTION 507. Limitation on Suits...................................... 64
SECTION 508. Unconditional Right of Holders to
Receive Principal, Premium and Interest.............. 65
SECTION 509. Restoration of Rights and Remedies....................... 65
SECTION 510. Rights and Remedies Cumulative........................... 66
SECTION 511. Delay or Omission Not Waiver............................. 66
SECTION 512. Control by Holders....................................... 66
SECTION 513. Waiver of Past Defaults.................................. 67
SECTION 514. Undertaking for Costs.................................... 67
SECTION 515. Waiver of Stay or Extension Laws......................... 67
</TABLE>
-ix-
<PAGE>
ARTICLE SIX
The Trustee
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 601. Certain Duties and Responsibilities......... 68
SECTION 602. Notice of Defaults.......................... 68
SECTION 603. Certain Rights of Trustee................... 69
SECTION 604. Not Responsible for Recitals
or Issuance of Notes...................... 70
SECTION 605. May Hold Notes.............................. 70
SECTION 606. Money Held in Trust......................... 70
SECTION 607. Compensation and Reimbursement.............. 71
SECTION 608. Disqualification; Conflicting
Interests................................. 71
SECTION 609. Corporate Trustee Required;
Eligibility............................... 71
SECTION 610. Resignation and Removal;
Appointment of Successor.................. 72
SECTION 611. Acceptance of Appointment by
Successor................................. 73
SECTION 612. Merger, Conversion, Consolidation
or Succession to Business................. 74
SECTION 613. Preferential Collection
of Claims Against Company................. 74
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee
Names and Addresses of Holders............ 74
SECTION 702. Preservation of Information;
Communications to Holders................. 75
SECTION 703. Reports by Trustee.......................... 75
SECTION 704. Reports by Company.......................... 76
SECTION 705. Officers' Certificate with Respect
to Change in Interest Rates............... 76
</TABLE>
-x-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Mergers, Consolidations and Certain
Transfers, Leases and
Acquisition of Assets......................... 76
SECTION 802. Successor Substituted............................ 77
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures
Without Consent of Holders.................... 78
SECTION 902. Supplemental Indentures
with Consent of Holders....................... 79
SECTION 903. Execution of Supplemental
Indentures.................................... 80
SECTION 904. Effect of Supplemental Indentures................ 80
SECTION 905. Conformity with Trust Indenture Act.............. 80
SECTION 906. Reference in Notes to
Supplemental Indentures....................... 80
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and
Interest...................................... 81
SECTION 1002. Maintenance of Office or Agency.................. 81
SECTION 1003. Money for Note................................... 82
SECTION 1004. Existence........................................ 83
SECTION 1005. Maintenance of Properties........................ 84
SECTION 1006. Payment of Taxes and Other Claims................ 84
SECTION 1007. Maintenance of Insurance......................... 84
SECTION 1008. Limitation on Consolidated Debt.................. 85
SECTION 1009. Limitation on Senior Subordinated
Debt.......................................... 87
</TABLE>
-xi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1010. Limitation on Issuance of Guarantees
of Subordinated Debt................... 88
SECTION 1011. Limitation on Liens....................... 88
SECTION 1012. Limitation on Restricted Payments......... 90
SECTION 1013. Limitations on Dividend and Other
Payment Restrictions Affecting
Subsidiaries........................... 92
SECTION 1014. Limitation on Asset Disposition........... 94
SECTION 1015. Transactions with Affiliates
and Related Persons.................... 94
SECTION 1016. Change of Control......................... 95
SECTION 1017. Provision of Financial Information........ 96
SECTION 1018. Unrestricted Subsidiaries................. 96
SECTION 1019. Statement by Officers as to Default;
Compliance Certificates................ 97
SECTION 1020. Waiver of Certain Covenants............... 98
ARTICLE ELEVEN
Redemption of Notes
SECTION 1101. Right of Redemption....................... 98
SECTION 1102. Applicability of Article.................. 99
SECTION 1103. Election to Redeem; Notice to
Trustee................................ 99
SECTION 1104. Selection by Trustee of Notes to Be
Redeemed............................... 100
SECTION 1105. Notice of Redemption...................... 100
SECTION 1106. Deposit of Redemption Price............... 101
SECTION 1107. Notes Payable on Redemption Date.......... 101
ARTICLE TWELVE
Subordination of Notes
SECTION 1201. Notes Subordinate to Senior Debt.......... 102
SECTION 1202. Payment Over of Proceeds Upon
Dissolution, Etc....................... 102
SECTION 1203. No Payment When Senior Debt in
Default................................ 104
</TABLE>
-xii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1204. Payment Permitted If No Default......... 106
SECTION 1205. Subrogation to Rights of Holders
of Senior Debt....................... 106
SECTION 1206. Provisions Solely to Define
Relative Rights...................... 106
SECTION 1207. Trustee to Effectuate Subordination..... 107
SECTION 1208. No Waiver of Subordination
Provisions........................... 107
SECTION 1209. Notice to Trustee....................... 108
SECTION 1210. Reliance on Judicial Order or
Certificate of Liquidating
Agent................................ 109
SECTION 1211. Trustee Not Fiduciary for Holders
of Senior Debt....................... 109
SECTION 1212. Rights of Trustee as Holder of
Senior Debt; Preservation of
Trustee's Rights..................... 109
SECTION 1213. Article Applicable to Paying Agents..... 110
SECTION 1214. Defeasance of This Article Twelve....... 110
ARTICLE THIRTEEN
Defeasance and Covenant Defeasance
SECTION 1301. Company's Option to Effect Defeasance
or Covenant Defeasance............... 110
SECTION 1302. Defeasance and Discharge................ 110
SECTION 1303. Covenant Defeasance..................... 111
SECTION 1304. Conditions to Defeasance or
Covenant Defeasance.................. 112
SECTION 1305. Deposited Money and U.S. Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions....... 115
SECTION 1306. Reinstatement........................... 115
TESTIMONIUM................................................... 117
SIGNATURES AND SEALS.......................................... 117
ACKNOWLEDGMENTS............................................... 118
</TABLE>
-xiii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ANNEX A Form of Regulation S Certificate........ A-1
ANNEX B Form of Restricted Securities
Certificate........................... B-1
ANNEX C Form of Unrestricted Securities
Certificate........................... C-1
</TABLE>
-xiv-
<PAGE>
INDENTURE, dated as of August ___, 1998, between Loews Cineplex
Entertainment Corporation, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), having its
principal office at 711 Fifth Avenue, 11th Floor, New York, New York 10022 and
Bankers Trust Company, a New York banking corporation, as Trustee (herein called
the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its ___%
Senior Subordinated Notes due ___, 2008 (the "Notes") of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary (i) to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and (ii) to make this Indenture a
valid agreement of the Company, all in accordance with their respective terms,
have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
<PAGE>
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles (whether or not such is indicated herein), and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted as consistently applied by the Company at the date of such
computation;
(4) unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"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
-2-
<PAGE>
or into such particular Person or becoming a Subsidiary of such particular
Person or such acquisition.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"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.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Note or beneficial interest therein, the rules
and procedures of the Depositary for such Note, Euroclear and Cedel, in each
case to the extent applicable to such transaction and as in effect at the time
of such transfer or transaction.
"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
-3-
<PAGE>
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 $2.0 million or more. The term "Asset Disposition" shall not include
(i) any sale and leaseback of Qualifying Theater Assets effected at fair market
value, and (ii) any swap or exchange of Qualifying Theater Assets of the Company
or its Subsidiaries for Qualifying Theater Assets of another Person, provided
that if the fair market value of the assets exchanged by the Company or its
Subsidiary exceeds the fair market value of the assets to be received, in each
case as determined in good faith by the Board of Directors of the Company, such
excess shall be subject to Section 1014 hereof.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York or
in the city in which the Corporate Trust Office is located are authorized or
obligated by law or executive order to close.
"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
-4-
<PAGE>
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 describes in clauses (i) through (iv) above.
"Cedel" means Cedel, S.A. (or any successor securities clearing
agency).
"Closing Date" means August ____, 1998.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust
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Indenture Act, then the body performing such duties at such time.
"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.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter "Company"
shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary and delivered to the Trustee.
"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
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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
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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
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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 Section 1012 hereof,
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 this 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.
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"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which is, at the date as of which this Indenture is dated, located at Four
Albany Street, 4th Floor, New York, New York 10006, Attention: Corporate Trust
and Agency Group or at any other time at such other address as the Trustee may
designate from time to time by notice to all Holders of the Notes.
"Corporation" means a corporation, association, company, joint-stock
company, partnership or business trust.
"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
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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.
"Depositary" means, with respect to any Notes, a clearing agency that
is registered as such under the Exchange Act and is designated by the Company to
act as Depositary for such Notes (or any successor securities clearing agency so
registered).
"Designated Senior Debt" shall mean (i) the obligations of the
Company under the Senior Bank Facility and (ii) any other Senior Debt of the
Company permitted under the Indenture the principal amount of which at original
issuance is $25.0 million or more and that has been designated by the Company as
Designated Senior Debt.
"DTC" means The Depository Trust Company, a New York corporation.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Event of Default" has the meaning specified in Section 501.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, dated as of August ___, 1998, among the Company,
Goldman, Sachs & Co., as representatives of the Initial Purchasers, and the
Holders from time to time as provided therein, as such agreement may be amended
from time to time.
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"Exchange Offer" means an offer made by the Company pursuant to the
Exchange and Registration Rights Agreement under the effective registration
statement under the Securities Act to exchange securities substantially
identical to Outstanding Notes (except for the differences provided for herein)
for Outstanding Notes.
"Exchange Registration Statement" means a registration statement of
the Company under the Securities Act registering Exchange Notes for distribution
pursuant to the Exchange Offer.
"Exchange Act" refers to the Securities Exchange Act of 1934 as it may
be amended and any successor act thereto.
"Exchange Notes" means the Notes issued pursuant to the Exchange Offer
and their Successor Notes.
"Global Note" means a Note that is registered in the Security Register
in the name of a Depositary or a nominee thereof.
"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
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collection or deposit, in either case, in the ordinary course of business.
"Holder" means a Person in whose name a Note is registered in the
Note Register.
"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.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Initial Purchasers" means Goldman, Sachs & Co., BT Alex. Brown
Incorporated, Credit Suisse First Boston Corporation and Salomon Brothers Inc,
as purchasers of the Notes from the Company pursuant to the Note Purchase
Agreement.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Interest Rate, Currency or Commodity Price Agreement" of any Person
means any forward contract, futures
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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).
"Maturity", when used with respect to any Note, means the date on
which the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Moodys" means Moody's Investors Service, Inc.
"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,
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but excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses Incurred and all federal,
state, provincial, foreign and local taxes required to be accrued as a liability
as a consequence of such Asset Disposition, (ii) all payments made by such
Person or its Restricted Subsidiaries on any Debt which is secured by such
assets in accordance with the terms of any Lien upon or with respect to such
assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments made to minority interest holders in Restricted Subsidiaries of such
Person or joint ventures as a result of such Asset Disposition and (iv)
appropriate amounts to be provided by such Person or any Restricted Subsidiary
thereof, as the case may be, as a reserve in accordance with generally accepted
accounting principles against any liabilities associated with such assets and
retained by such Person or any Restricted Subsidiary thereof, as the case may
be, after such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, in each case as
determined by the Board of Directors, in its reasonable good faith judgment
evidenced by a resolution of the Board of Directors filed with the Trustee;
provided, however, that any reduction in such reserve following the consummation
of such Asset Disposition will be treated for all purposes of the Indenture and
the Notes as a new Asset Disposition at the time of such reduction with Net
Available Proceeds equal to the amount of such reduction.
"Note Purchase Agreement" means the Purchase Agreement, dated as of
August ____, 1998, between the Company and the Initial Purchasers, as such
agreement may be amended from time to time.
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"Notes" means notes designated in the first paragraph of the RECITALS
OF THE COMPANY and includes the Exchange Notes.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each Holder at his address
appearing in the Note Register on the date of the Offer offering to purchase up
to the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to this Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Notes within five Business Days after the Expiration Date. The
Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain 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 Notes
pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such has been determined pursuant to
the Section
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hereof requiring the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender a Note pursuant to the Offer
to Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of business on the Expiration
Date (such Note being, if the Company or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing);
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(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or their Paying Agent) receives, not later
than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder tendered, the certificate number of
the Note the Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the
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Secretary or an Assistant Secretary, of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
"Original Notes" means all Notes other than Exchange Notes.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes; provided that, if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and
(iii) Notes which have been transferred pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands such
Notes are valid obligations of the Company;
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provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company.
"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.
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"Permitted Investments" means (i) an Investment in the Company or a
Restricted Subsidiary of the Company; (ii) an Investment in a Person, if such
Person or a Subsidiary of such Person will, as a result of the making of such
Investment and all other contemporaneous related transactions, become a
Restricted Subsidiary of the Company or be merged or consolidated with or into
transfer or convey all or substantially all its assets to the Company or a
Restricted Subsidiary of the Company; (iii) a Temporary Cash Investment; (iv)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses in accordance with
generally accepted accounting principles; (v) stock, obligations or securities
received in settlement of debts owing to the Company or a Restricted Subsidiary
of the Company as a result of bankruptcy or insolvency proceedings or upon the
foreclosure, perfection, enforcement or agreement in lieu of foreclosure of any
Lien in favor of the Company or a Restricted Subsidiary of the Company; (vi)
refundable construction advances made with respect to the construction of
properties of a nature or type that are used in a business or similar or related
to the business of the Company or its Restricted Subsidiaries in the ordinary
course of business; (vii) advances or extensions of credit on terms customary in
the industry in the form of accounts or other receivables incurred, or pre-paid
film rentals, and loans and advances made in settlement of such accounts
receivable, all in the ordinary course of business; (viii) Investments in the
Notes; (ix) any consolidation or merger of a Wholly-Owned Restricted Subsidiary
of the Company to the extent otherwise permitted under the Indenture; (x)
Investments in Permitted Interest Rate Currency or Commodity Price Agreements;
(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
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to the date of such Investment; and (xii) other Investments not to exceed $20.0
million.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 307 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"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 theaters
(whether owned in fee or leased), all other motion picture theater assets,
including, without limitation, theater furniture and fixtures, all real property
acquired for the purpose of motion picture theater development or construction,
and joint venture interests or partnership interests in Persons owning, leasing,
developing or constructing motion picture theaters or principally engaged in the
business of exhibiting motion pictures.
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"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 purposes of collection and
not as a financing arrangement.
"Redeemable Stock" of any Person means any Capital Stock of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or otherwise (including upon the
occurrence of an event) matures or is required to be redeemed (pursuant to any
sinking fund obligation or otherwise) or is convertible into or exchangeable for
Debt or is redeemable at the option of the holder thereof, in whole or in part,
at any time prior to the final Stated Maturity of the Notes; provided that
"Redeemable Stock" shall not include any Capital Stock that is payable at
maturity, or upon required redemption or redemption at the option of the holder
thereof, or that is automatically convertible or exchangeable, solely in or into
Common Stock of such Person.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Default" means the occurrence of any of the following
events: (i) the Company has not filed the Exchange Registration Statement or
Shelf Registration Statement on or before the date on which such registration
statement is required to be filed pursuant to the Exchange and Registration
Rights Agreement, (ii) the Exchange Registration Statement or Shelf Registration
Statement has not become effective or been declared effective by the
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Commission on or before the date on which such registration statement is
required to become or be declared effective under the requirements of the
Exchange and Registration Rights Agreement or (iii) the Exchange Offer has not
been consummated within 30 Business Days after the initial effective date of the
Exchange Registration Statement relating to the Exchange Offer (if the Exchange
Offer is then required to be made under the Exchange and Registration Rights
Agreement) or (iv) any Exchange Registration Statement or Shelf Registration
Statement required to be filed pursuant the Exchange and Registration Rights
Agreement is filed and declared effective but shall thereafter either be
withdrawn by the Company or shall become subject to an effective stop order
issued pursuant to Section 8(d) of the Securities Act suspending the
effectiveness of such registration statement (except as specifically permitted
herein) without being succeeded immediately by an additional registration
statement filed and declared effective.
"Registration Default Period" means any period during which a
Registration Default has occurred and is continuing.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Certificate" means a certificate substantially in the
form set forth in Annex A.
"Regulation S Global Note" has the meaning specified in Section 201.
"Regulation S Legend" means a legend substantially in the form of the
legend required in the form of Note set forth in Section 202 to be placed upon
Regulation S Notes.
"Regulation S Notes" means all Notes required pursuant to Section
306(c) to bear a Regulation S Legend.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the
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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.
"Responsible Officer" means when used with respect to the Trustee any
officer within the Corporate Trust Office including any Vice President, Managing
Director, Assistant Vice President, Secretary, Assistant Secretary Treasurer or
Assistant Treasurer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge and familiarity with the
particular subject.
"Restricted Notes" means all Notes required pursuant to Section
306(c) to bear a Restricted Notes Legend. Such term includes the Restricted
Global Notes.
"Restricted Notes Certificate" means a certificate substantially in
for form set forth in Annex B.
"Restricted Notes Legend" means a legend substantially in the form of
the legend required in the form of Note set forth in Section 202 to be placed
upon a Restricted Note.
"Restricted Period" means the period of 40 consecutive days beginning
on the later of (i) the day on which Notes are first offered to persons other
than distributors (as defined in Regulation S) in reliance on Regulation S and
(ii) the Closing Date.
"Restricted Subsidiary" means any Subsidiary, whether existing on or
after the date of this Indenture, unless such Subsidiary is an Unrestricted
Subsidiary.
"Rule 144" means Rule 144 under the Securities Act.
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"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Notes" means the Notes purchased by the Initial Purchasers
from the Company pursuant to the Note Purchase Agreement, other than the
Regulation S Notes.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-
Hill, Inc.
"Securities Act" means the Securities Act of 1933, as it may be
amended and any successor act thereto.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 306(a).
"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.
"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 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
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of the instrument creating or evidencing the same provide that such Debt is not
superior in right of payment to the Notes, (2) any Debt which is subordinated in
right of payment in any respect to any other Debt of the Company, (3) Debt
evidenced by the 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.
"Shelf Registration Statement" means a shelf registration statement
under the Securities Act filed by the Company, if required by, and meeting the
requirements of, the Exchange and Registration Rights Agreement, registering
Original Notes for resale.
"Special Interest Payments" has the meaning specified in the form of
Notes set forth in Section 202.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by Trustee pursuant to Section 308.
"Stated Maturity", when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
"Subordinated Debt" means Debt of the Company as to which the payment
of principal of (and premium, if any) and interest and other payment obligations
in respect of such Debt shall be subordinate to the prior payment in full of the
Notes to at least the following extent: (i) no payments of principal of (or
premium, if any) or interest on or otherwise due in respect of such Debt may be
permitted for so long as any default in the payment of principal (or premium, if
any) or interest on the Notes exists; (ii) in the event that any other default
that with the passing of
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time or the giving of notice, or both, would constitute an event of default
exists with respect to the Notes, upon notice by 25% or more in principal amount
of the Notes to the Trustee, the Trustee shall have the right to give notice to
the Company and the holders of such Debt (or trustees or agents therefor) of a
payment blockage, and thereafter no payments of principal of (or premium, if
any) or interest on or otherwise due in respect of such Debt may be made for a
period of 179 days from the date of such notice; and (iii) such Debt may not (x)
provide for payments of principal of such Debt at the stated maturity thereof or
by way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof by the Company
(including any redemption, retirement or repurchase which is contingent upon
events or circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the Notes or (y) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Debt at the option of the holder thereof prior to the
final Stated Maturity of the Notes, other than a redemption or other retirement
at the option of the holder of such Debt (including pursuant to an offer to
purchase made by the Company) which is conditioned upon a change of control of
the Company pursuant to provisions substantially similar to those contained in
Section 1016 hereof (and which shall provide that such Debt will not be
repurchased pursuant to such provisions prior to the Company's repurchase of the
Notes required to be repurchased by the Company pursuant to the provisions
described under Section 1016).
"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
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at least a majority ownership and power to direct the policies, management and
affairs thereof.
"Successor Note" of any particular Note means every Note issued after,
and evidencing all or a portion of the same debt as that evidenced by, such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 307 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Security shall be deemed to evidence the same debt as
the mutilated, destroyed, lost or stolen Note.
"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 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
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highest rating category of both S&P and Moodys; (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.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 905; provided, however, that in the event the Trust Indenture Act of
1939 is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
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"U.S. Person" means (i) any individual resident in the United States,
(ii) any partnership or corporation organized or incorporated under the laws of
the United States, (iii) any estate of which an executor or administrator is a
U.S. Person (other than an estate governed by foreign law and of which at least
one executor or administrator is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets), (iv) any trust of which any
trustee is a U.S. Person (other than a trust of which at least one trustee is a
non-U.S. Person who has sole or shared investment discretion with respect to its
assets and no beneficiary of the trust (and no settlor if the Trust is
revocable) is a U.S. Person), (v) any agency or branch of a foreign entity
located in the United States, (vi) any non-discretionary or similar account
(other than an estate or trust) held by a dealer or other fiduciary for the
benefit or account of a U.S. Person, (vii) any discretionary or similar account
(other than an estate or trust) held by a dealer or other fiduciary organized,
incorporated or (if an individual) resident in the United States (other than
such an account held for the benefit or account of a non-U.S. Person), (viii)
any partnership or corporation organized or incorporated under the laws of a
foreign jurisdiction and formed by a U.S. Person principally for the purpose of
investing in securities not registered under the Securities Act (unless it is
organized or incorporated, and owned, by accredited investors within the meaning
of Rule 501(a) under the Securities Act who are not natural persons, estates or
trusts); provided, however, that the term "U.S. Person" does not include (A) a
branch or agency of a U.S. Person that is located and operating outside the
United States for valid business purposes as a locally regulated branch or
agency engaged in the banking or insurance business, (B) any employee benefit
plan established and administered in accordance with the law, customary
practices and documentation of a foreign country and (C) the international
organizations set forth in Section 902(o)(7) of Regulation S under the
Securities Act and any other similar international organizations, and their
agencies, affiliates and pension plans.
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"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"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.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant
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or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon
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a certificate or opinion of, or representations by, an officer or officers of
the Company stating that the information with respect to such factual matters
is in the possession of the Company, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Date.
----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged
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to him the execution thereof. Where such execution is by a signer acting in a
capacity other than his individual capacity, such certificate or affidavit shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Notes shall be proved by the Note Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Note.
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SECTION 105. Notices, Etc., to Trustee and Company
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust and Agency Group, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
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the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act, that is required under such Act to be part
of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be. Until such time as this Indenture shall be qualified under the Trust
Indenture Act, this Indenture, the Company and the Trustee shall be deemed for
all purposes hereof to be subject to and governed by the Trust Indenture Act to
the same extent as would be the case if this Indenture were so qualified on the
date hereof.
SECTION 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
----------------------
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All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Debt (subject to Article Twelve hereof) and the
Holders of Notes, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. GOVERNING LAW.
-------------
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, Purchase
Date or Stated Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of interest or principal (and premium, if any) need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, or Purchase Date, or at the
Stated Maturity, as the case may be, provided that no
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interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Purchase Date or Stated Maturity, as the case may be.
ARTICLE TWO
Note Forms
SECTION 201. Forms Generally; Initial Forms of Rule 144A and Regulation S
------------------------------------------------------------
Notes.
-----
The Notes and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes.
The definitive Notes shall be printed, litho graphed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Notes may be listed, all as determined by the officers executing
such Notes, as evidenced by their execution thereof.
Upon their original issuance, Rule 144A Notes shall be issued in the
form of one or more Global Notes without interest coupons registered in the name
of DTC, as Depositary, or its nominee and deposited with the Trustee, as
custodian for DTC, in New York, New York, for credit by DTC to the respective
accounts of beneficial owners of the Notes represented thereby (or such other
accounts as they may direct). Such Global Notes, together with their Successor
Notes which are Global Notes other than the
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Regulation S Global Note are collectively herein called the "Restricted Global
Note".
Upon their original issuance, Regulation S Notes shall be issued in
the form of one or more Global Notes without interest coupons registered in the
name of DTC, as Depositary, or its nominee and deposited with the Trustee, as
custodian for DTC, in New York, New York, for credit to Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the Euroclear, and Cedel to
the respective accounts of beneficial owners of the Notes represented thereby
(or such other accounts as they may direct) in accordance with the rules
thereof.
Prior to the expiration of the Restricted Period, beneficial interests
in the Regulation S Global Note may only be held through Euroclear and Cedel (as
indirect participants in DTC), unless such interests are exchanged for
corresponding interests in the Restricted Global Note in accordance with Section
306(b)(ii) hereof.
SECTION 202. Form of Face of Note.
--------------------
[IF THE NOTE IS A RESTRICTED NOTE, THEN INSERT --THE NOTES EVIDENCED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE TRANSFEROR REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF
ANOTHER QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,(3) TO AN INSTITUTIONAL
ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (5)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND
(B) IN ACCORDANCE
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<PAGE>
WITH ALL OTHER APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES OF
AMERICA AND OTHER JURISDICTIONS.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN THE ABOVE PARAGRAPH.
THIS NOTE WILL NOT BE ACCEPTED FOR REGISTRATION OF TRANSFER UNLESS THE
REGISTRAR OR TRANSFER AGENT IS SATISFIED THAT THE RESTRICTIONS ON TRANSFER SET
FORTH ABOVE HAVE BEEN COMPLIED WITH, ALL AS PROVIDED IN THE INDENTURE.]
[IF THE NOTE IS A GLOBAL NOTE, THEN INSERT -- THIS NOTE IS A GLOBAL
NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT
BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS
NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN
SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.]
[IF THE NOTE IS A GLOBAL NOTE AND THE DEPOSITORY TRUST COMPANY IS TO
BE THE DEPOSITARY THEREFOR, THEN INSERT -- UNLESS THIS NOTE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[IF THE NOTE IS A REGULATION S NOTE, THEN INSERT -- THIS NOTE HAS NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES
ACT") AND MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR
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<PAGE>
FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THIS NOTE IS REGISTERED
UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREOF IS AVAILABLE.]
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
__% SENIOR SUBORDINATED NOTES DUE __, 2008
[If Restricted Global Note - CUSIP No. __]
[If Regulation S Global Note - ISIN No. __]
No. __________ $________
Loews Cineplex Entertainment Corporation, a corporation duly
organized and existing under the laws of Delaware (herein called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ________________, or
registered assigns, the principal sum of ______________ Dollars (such amount the
"principal amount" of this Note) [IF THE NOTE IS A GLOBAL NOTE, THEN INSERT -- ,
or such other principal amount (which, when taken together with the principal
amounts of all other Outstanding Notes, shall not exceed $200,000,000 in the
aggregate at any time) as may be set forth in the records of the Trustee
hereinafter referred to in accordance with the Indenture,] on _____________,
2008 and to pay interest thereon from ______________, 1998, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semi-annually on __ and __ in each year, commencing ______________, 1999,
at the rate of __% per annum, until the principal hereof is paid or made
available for payment; provided that, if any Registration Default occurs under
the Exchange and Registration Rights Agreement, then the per annum interest rate
on this Note will increase for the period from the occurrence of the
Registration Default until such time as no Registration Default is in effect (at
which time the interest rate will be reduced to its initial rate) at a per annum
rate of 0.5% for the first 90-day period following the occurrence of such
Registration Default, and by an additional 0.5% thereafter (up to a maximum of
1.0%), and provided, further, that any amount of interest on this Note which is
-------- -------
overdue shall bear
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<PAGE>
interest (to the extent that payment thereof shall be legally enforceable) at
the rate per annum then borne by this Note from the date such amount is due to
the day it is paid or made available for payment, and such overdue interest
shall be payable on demand.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the ___ or ___ (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date [IF THE NOTE IS AN ORIGINAL NOTE, THEN
INSERT --, provided that any accrued and unpaid interest (including Special
Interest Payments) on this Note upon the issuance of an Exchange Note in
exchange for this Note shall cease to be payable to the Holder hereof and shall
be payable on the next Interest Payment Date for such Exchange Note to the
Holder thereof on the related Regular Record Date]. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on the relevant Regular Record Date and may either be paid to the Person
in whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Notes not less than 10 days prior to such Special Record Date, or be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Interest on this Note shall be computed on the basis set forth in the Indenture.
Payment of the principal of (and premium, if any) and any such
interest on this Note will be made at the office or agency of the Company in the
Borough of Manhattan, The City of New York, New York, maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose, in such coin or currency of the United
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<PAGE>
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Company
payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Note Register; provided
further that all payments of the principal (and premium, if any) and interest on
Notes, the Holders of which have given wire transfer instructions to the Company
or its agent at least 10 Business Days prior to the applicable payment date will
be required to be made by wire transfer of immediately available funds to the
accounts specified by such Holders in such instructions. Notwithstanding the
foregoing, the final payment of principal shall be payable only upon surrender
of this Note to the Paying Agent.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
[SEAL]
By___________________________________
Attest:
______________________________
SECTION 203. Form of Reverse of Note.
-----------------------
This Note is one of a duly authorized issue of Notes of the Company
designated as its __% Senior Subordinated Notes due ______________, 2008 (herein
called the "Notes"), limited in aggregate principal amount to $200,000,000,
issued and to be issued under an Indenture, dated as of ______________, 1998
(herein called the "Indenture", which term shall have the meaning assigned to it
in such instrument), among the Company, and Bankers Trust Company, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Notes and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Notes will be subject to redemption, at the option of the Company,
in whole or in part, at any time on
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<PAGE>
or after ________________, 2003 and prior to maturity, upon not less than 30 nor
more than 60 days' notice mailed to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in amounts of $1,000 or an
integral multiple of $1,000, at the following Redemption Prices (expressed as
percentages of the principal amount) plus accrued interest to but excluding the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), if redeemed during the 12-month period
beginning ___ of the years indicated:
Redemption
Year Price
---- ----------
2003 ............................................... ___%
2004 ............................................... ___%
2005 ............................................... ___%
2006 and thereafter................................. 100.000%
In addition, if on or before ________________, 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 Notes in an aggregate principal
amount of up to 33 1/3% of the original aggregate principal amount of the Notes,
provided, however, that Notes having a principal amount equal to at least 66
2/3% of the original aggregate principal amount of the Notes remain outstanding
after such redemption. Such redemption must occur on a Redemption Date within 90
days of such sale and upon not less than 30 or more than 60 days' notice mailed
to each Holder of Notes to be redeemed at such Holder's address appearing in the
Note Register, in amounts of $1,000 or an integral multiple of $1,000, at a
redemption price of ___% of the principal amount of the Notes plus accrued
interest to but excluding the Redemption Date (subject to the right of Holders
of record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date).
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<PAGE>
If less than all the Notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the particular
Notes to be redeemed or any portion thereof that is an integral multiple of
$1,000.
The Notes do not have the benefit of any sinking fund obligations.
The Indenture provides that, subject to certain conditions, if (i)
certain Net Available Proceeds are available to the Company as a result of Asset
Dispositions or (ii) a Change of Control occurs, the Company shall be required
to make an Offer to Purchase for all or a specified portion of the Notes.
In the event of redemption or purchase pursuant to an Offer to
Purchase of this Note in part only, a new Note or Notes of like tenor for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (i)
the entire indebtedness of this Note having been paid or discharged or (ii)
certain restrictive covenants and Events of Default with respect to this Note
having occurred, in each case upon compliance with certain conditions set forth
therein.
The Notes shall be subordinated in right of payment to Senior Debt of
the Company as provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the
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<PAGE>
Holders of a majority in aggregate principal amount of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding, on
behalf of the Holders of all the Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.
As provided in and subject to the provisions of the Indenture, the
Holder of this Note shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given to
the Trustee written notice of a continuing Event of Default with respect to the
Notes, the Holders of not less than 25% in aggregate principal amount of the
Notes at the time Outstanding shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default as Trustee and offered
the Trustee reasonable indemnity and the Trustee shall not have received from
the Holders of a majority in aggregate principal amount of Notes at the time
Outstanding a direction inconsistent with such request and shall have failed to
institute any such proceeding for 60 days after receipt of such notice, request
and offer of indemnity. The foregoing shall not apply to certain suits
described in the Indenture, including any suit instituted by the Holder of this
Note for the enforcement of any payment of principal hereof or any premium (if
any) or interest hereon on or after the respective due dates expressed herein
(or, in the case of redemption, on or after the Redemption Date or, in the case
of any purchase of this Note required to be made pursuant to an Offer to
Purchase, on the Purchase Date).
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or
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<PAGE>
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of (and premium, if any) and interest on this Note at the
times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Note
Register, upon surrender of this Note for registration of transfer at the office
or agency of the Company in the Borough of Manhattan, The City of New York, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 principal amount and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Notes are exchangeable for a like aggregate principal amount of Notes of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered as the owner hereof for all
purposes (subject to the provisions hereof with respect to determination of the
Person to whom interest is payable), whether or not this Note be overdue, and
neither the Company, the Trustee nor any such agent shall be affected by notice
to the contrary.
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<PAGE>
Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-month days.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased in its entirety by
the Company pursuant to Section 1014 or 1016 of the Indenture, check the box:
[_]
If you want to elect to have only a part of this Note purchased by the
Company pursuant to Section 1014 or 1016 of the Indenture, state the principal
amount of this Note you want to elect to have so purchased by the Company:
$___________
Dated:______________ Your Signature:____________________
(Sign exactly as name
appears on the other
side of this Note)
Signature Guarantee:________________________________________________________
Notice: Signature(s) must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the
Trustee, which requirements will include membership or
participation in STAMP or such other "signature guarantee
program" as may be determined by the Trustee in addition to,
or in substitution for STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
SECTION 204. Form of Trustee's Certificate of
--------------------------------
Authentication.
--------------
This is one of the Notes referred to in the within-mentioned
Indenture.
___________________
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<PAGE>
as Trustee
By___________________
Authorized Officer
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<PAGE>
ARTICLE THREE
The Notes
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $200,000,000 except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 906 or 1108
or in connection with an Offer to Purchase pursuant to Sections 1014 and 1016.
The Notes shall be known and designated as the "__% Senior
Subordinated Notes due ___, 2008" of the Company. Their Stated Maturity shall be
__________, 2008 and they shall bear interest at the rate of ___% per annum,
from __________, 1998 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable semi-
annually on ___ and ___, commencing ___, 1999, until the principal thereof is
paid or made available for payment provided, if any Registration Default occurs
under the Exchange and Registration Rights Agreement, then the per annum
interest rate on the applicable Notes will increase for the period from the
occurrence of the Registration Default Period until such time as no Registration
Default is in effect (at which time the interest rate will be reduced to its
initial rate) by a per annum rate of 0.50% for the first 90-day period following
the occurrence of such Registration Default, and by an additional 0.5%
thereafter (up to a maximum of 1.0%).
The principal of (and premium, if any) and interest on the Notes shall
be payable at the office or agency of the Company in the Borough of Manhattan,
The City of New York maintained for such purpose and at any other office or
agency maintained by the Company for such purpose; provided, however, that at
the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the Note
Register.
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<PAGE>
The Notes shall be subject to repurchase by the Company pursuant to an
Offer to Purchase as provided in Sections 1014 and 1016.
The Notes shall be redeemable as provided in Article Eleven.
The Notes shall be subordinated in right of payment to Senior Debt of
the Company as provided in Article Twelve.
The Notes shall be subject to defeasance at the option of the Company
as provided in Article Thirteen.
Unless the context otherwise requires, the Original Notes and the
Exchange Notes shall constitute one series for all purposes under the Indenture,
including with respect to any amendment, waiver, acceleration or other Act of
Holders, redemption or Offer to Purchase.
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1000 and integral multiples thereof.
SECTION 303. Execution, Authentication, Delivery
-----------------------------------
and Dating.
----------
The Notes shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents, under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that
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<PAGE>
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes or did not hold such offices at the
date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes as in this Indenture provided
and not otherwise.
At any time and from time to time after the execution and delivery of
this Indenture and after the effectiveness of a registration statement under the
Securities Act with respect thereto, the Company may deliver Exchange Notes
executed by the Company to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Exchange Notes and a
like principal amount of Original Notes for cancellation in accordance with this
Indenture, and the Trustee in accordance with the Company Order shall
authenticate and deliver such Notes. Prior to authenticating such Exchange
Notes, and accepting any additional responsibilities under this Indenture in
relation to such Notes, the Trustee shall be entitled to receive, if requested,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating in substance:
(a) that all conditions hereunder precedent to the authentication and
delivery of such Exchange Notes have been complied with and that such
Exchange Notes, when such Notes have been duly authenticated and delivered
by the Trustee (and subject to any other conditions specified in such
Opinion of Counsel), have been duly issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
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<PAGE>
applicability relating to or affecting creditors' rights and to general
equity principles; and
(b) that the issuance of the Exchange Notes in exchange for Original
Notes has been effected in compliance with the Securities Act.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.
SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes, which Notes are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as evidenced by their execution
thereof.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes, upon
surrender of the temporary Notes at any office or agency of the Company
designated pursuant to Section 1002, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes the Company shall
execute and the Trustee shall authenticate and deliver
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<PAGE>
in exchange therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. Global Notes.
------------
(a) Each Global Note authenticated under this Indenture shall be
registered in the name of the Depositary designated by the Company for such
Global Note or a nominee thereof and delivered to such Depositary or a nominee
thereof or custodian therefor, and each such Global Note shall constitute a
single Note for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Note may be exchanged in whole or in part for Notes registered, and no transfer
of a Global Note in whole or in part may be registered, in the name of any
Person other than the Depositary for such Global Note or a nominee thereof
unless (i) such Depositary (A) has notified the Company that it is unwilling or
unable to continue as Depositary for such Global Note or (B) has ceased to be a
clearing agency registered as such under the Exchange Act, and in either case
the Company fails to appoint a successor Depositary, (ii) the Company executes
and delivers to the Trustee a Company Order stating that it elects to cause the
issuance of the Notes in certificated form and that all Global Notes shall be
exchanged in whole for Securities that are not Global Notes (in which case such
exchange shall be effected by the Trustee) or (iii) there shall have occurred
and be continuing an Event of Default with respect to the Note.
(c) If any Global Note is to be exchanged for other Notes or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Trustee, as Security Registrar, for exchange or cancellation
as provided in this Article Three. If any Global Note is to be exchanged for
other Notes or cancelled in part, or if another Note is to be exchanged in whole
or in part for a
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beneficial interest in any Global Note, then either (i) such Global Note shall
be so surrendered for exchange or cancellation as provided in this Article Three
or (ii) the principal amount thereof shall be reduced or increased by an amount
equal to the portion thereof to be so exchanged or cancelled, or equal to the
principal amount of such other Note to be so exchanged for a beneficial interest
therein, as the case may be, by means of an appropriate adjustment made on the
records of the Trustee, as Security Registrar, whereupon the Trustee, in
accordance with the Applicable Procedures, shall instruct the Depositary or its
authorized representative to make a corresponding adjustment to its records.
Upon any such surrender or adjustment of a Global Note, the Trustee shall,
subject to Section 306(c) and as otherwise provided in this Article Three,
authenticate and deliver any Notes issuable in exchange for such Global Note (or
any portion thereof) to or upon the order of, and registered in such names as
may be directed by, the Depositary or its authorized representative. Upon the
request of the Trustee in connection with the occurrence of any of the events
specified in the preceding paragraph, the Company shall promptly make available
to the Trustee a reasonable supply of Notes that are not in the form of Global
Notes. The Trustee shall be entitled to rely upon any order, direction or
request of the Depositary or its authorized representative which is given or
made pursuant to this Article Three if such order, direction or request is given
or made in accordance with the Applicable Procedures.
(d) Every Note authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Note or any portion
thereof, whether pursuant to this Article Three or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Note, unless
such Note is registered in the name of a Person other than the Depositary for
such Global Note or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a Global
Note, shall be the Holder of such Global Note for all purposes under the
Indenture and the Notes, and owners of beneficial interests in a Global Note
shall hold
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<PAGE>
such interests pursuant to the Applicable Procedures. Accordingly, any such
owner's beneficial interest in a Global Note will be shown only on, and the
transfer of such interest shall be effected only through, records maintained by
the Depositary or its nominee or its Agent Members.
SECTION 306. Registration, Registration of Transfer and
------------------------------------------
Exchange Generally; Restrictions on Transfer
--------------------------------------------
and Exchange; Securities Act Legends.
------------------------------------
(a) Registration, Registration of Transfer and Exchange Generally.
-------------------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of the Trustee
a register (the register maintained in such office and in any other office or
agency of the Company designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers and exchanges of Notes. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Notes and
transfers and exchanges of Notes as herein provided. Such Security Register
shall distinguish between Original Notes and Exchange Notes.
Upon surrender for registration of transfer of any Note at an office
or agency of the Company designated pursuant to Section 1002 for such purpose
and provided that the other requirements of this Section 306 have been
satisfied, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes of any authorized denominations, of a like aggregate principal amount
and bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, and subject to the other provisions of
this Section 306, Notes may be exchanged for other Notes of any authorized
denominations, of a like aggregate principal amount and bearing such restrictive
legends as may be required by this Indenture upon surrender
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of the Notes to be exchanged at any such office or agency. Whenever any Notes
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Notes which the Holder making the exchange
is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and (except for the differences between Original Notes and Exchange Notes
provided for herein) entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed, by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Sections 303, 304, 305, 307, 906, 1014, 1016 or 1108 not involving
any transfer.
The Company shall not be required (i) to issue, register the transfer
of, or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 1104 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption, in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
(b) Certain Transfers and Exchanges. Notwith standing any other
-------------------------------
provision of this Indenture or the Notes,
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transfers and exchanges of Notes and beneficial interests in a Global Note of
the kinds specified in this Section 306(b) shall be made only in accordance with
this Section 306(b).
(i) Restricted Global Note to Regulation S Global Note. If the
--------------------------------------------------
owner of a beneficial interest in the Restricted Global Note wishes at any
time to transfer such interest to a Person who wishes to acquire the same
in the form of a beneficial interest in the Regulation S Global Note
(whether before or after the expiration of the Restricted Period), such
transfer may be effected only in accordance with the provisions of this
Clause (b)(i) subject to the Applicable Procedures. Upon receipt by the
Trustee, as Security Registrar, of (A) an order given by the Depositary or
its authorized representative directing that a beneficial interest in the
Regulation S Global Note in a specified principal amount be credited to a
specified Agent Member's account and that a beneficial interest in the
Restricted Global Note in an equal principal amount be debited from another
specified Agent Member's account and (B) a Regulation S Certificate,
satisfactory to the Trustee and duly executed by the owner of such
beneficial interest in the Restricted Global Note or his attorney duly
authorized in writing, then the Trustee, as Security Registrar shall reduce
the principal amount of the Restricted Global Note and increase the
principal amount of the Regulation S Global Note by such specified
principal amount as provided in Section 305(c).
(ii) Regulation S Global Note to Restricted Global Note. If the
--------------------------------------------------
owner of a beneficial interest in the Regulation S Global Note wishes at
any time to transfer such interest to a Person who wishes to acquire the
same in the form of a beneficial interest in the Restricted Global Note,
such transfer may be effected only in accordance with this Clause (b)(ii)
and subject to the Applicable Procedures. Upon receipt by the Trustee, as
Security Registrar, of (A) an order given by the Depositary or its
authorized representa-
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tive directing that a beneficial interest in the Restricted Global Note in
a specified principal amount be credited to a specified Agent Member's
account and that a beneficial interest in the Regulation S Global Note in
an equal principal amount be debited from another specified Agent Member's
account and (B) if before the expiration of the Restricted Period, a
Restricted Notes Certificate, satisfactory to the Trustee and duly executed
by the owner of such beneficial interest in the Regulation S Global Note or
his attorney duly authorized in writing, then the Trustee, as Security
Registrar, shall reduce the principal amount of the Regulation S Global
Note and increase the principal amount of the Restricted Global Note by
such specified principal amount as provided in Section 305(c).
(iii) Exchanges between Global Note and Non-Global Note. A
-------------------------------------------------
beneficial interest in a Global Note may be exchanged for a Note that is
not a Global Note as provided in Section 305, provided that, if such
--------
interest is a beneficial interest in the Restricted Global Note, or if such
interest is a beneficial interest in the Regulation S Global Note, then
such interest shall be exchanged for a Restricted Note (subject in each
case to Section 306(c)).
(c) Securities Act Legends. Rule 144A Notes and their respective
----------------------
Successor Notes shall bear a Restricted Notes Legend, and Regulation S Notes and
their Successor Notes shall bear a Regulation S Legend, subject to the
following:
(i) subject to the following Clauses of this Section 306(c), a
Note or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Note or any portion thereof shall bear the Securities Act
Legend borne by such Global Note while represented thereby;
(ii) subject to the following Clauses of this Section 306(c), a
new Note which is not a Global Note
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and is issued in exchange for another Note (including a Global Note) or any
portion thereof, upon transfer or otherwise, shall bear the Securities Act
Legend borne by such other Note, provided that, if such new Note is
--------
required pursuant to Section 306(b)(iii) to be issued in the form of a
Restricted Note, it shall bear a Restricted Notes Legend and, if such new
Note is so required to be issued in the form of a Regulation S Note, it
shall bear a Regulation S Legend;
(iii) Exchange Notes shall not bear a Securities Act Legend;
(iv) at any time after the Notes may be freely transferred
without registration under the Securities Act or without being subject to
transfer restrictions pursuant to the Securities Act, a new Note which does
not bear a Securities Act Legend may be issued in exchange for or in lieu
of a Note (other than a Global Note) or any portion thereof which bears
such a legend if the Trustee has received an Unrestricted Notes
Certificate, satisfactory to the Trustee and duly executed by the Holder of
such legended Note or his attorney duly authorized in writing, and after
such date and receipt of such certificate, the Trustee shall authenticate
and deliver such a new Note in exchange for or in lieu of such other Note
as provided in this Article Three;
(v) a new Note which does not bear a Securities Act Legend may
be issued in exchange for or in lieu of a Note (other than a Global Note)
or any portion thereof which bears such a legend if, in the Company's
judgment, placing such a legend upon such new Note is not necessary to
ensure compliance with the registration requirements of the Securities Act,
and the Trustee, at the written direction of the Company, shall
authenticate and deliver such a new Note as provided in this Article Three;
and
(vi) notwithstanding the foregoing provisions of this Section
306(c), a Successor Note of a Note that
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does not bear a particular form of Securities Act Legend shall not bear
such form of legend unless the Company has reasonable cause to believe that
such Successor Note is a "restricted security" within the meaning of Rule
144, in which case the Trustee, at the written direction of the Company,
shall authenticate and deliver a new Note bearing a Restricted Notes Legend
in exchange for such Successor Note as provided in this Article Three.
SECTION 307. Mutilated, Destroyed, Lost and
------------------------------
Stolen Notes.
------------
If any mutilated Note is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note of like tenor and principal amount, and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may be required by either of them to save
each of them, and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Note has been acquired by a bona
fide purchaser, the Company shall execute and upon its written request the
Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or
stolen Note, a new Note of like tenor and principal amount, and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other
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expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 308. Payment of Interest; Interest
-----------------------------
Rights Preserved.
----------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date for
the payment of such
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Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Note and the date of the proposed
payment, and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this Clause provided.
Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to each
Holder at his address as it appears in the Note Register, not less than 10
days prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose names
the Notes (or their respective Predecessor Notes) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by
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such exchange, if, after written notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such manner of payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 309. Persons Deemed Owners.
---------------------
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Note is registered as the owner of such Note for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Section 308) interest on such Note and for all other purposes whatsoever,
whether or not such Note be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
None of the Company, the Trustee or any agent of the Company or the
Trustee shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of a
Note in global form, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. Notwithstanding the foregoing,
with respect to any Note in global form, nothing herein shall prevent the
Company or the Trustee, or any agent of the Company or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by
any Depositary (or its nominee), as a Holder, with respect to such Note in
global form or impair, as between such Depositary and owners of beneficial
interests in such Note in global form, the operation of customary practices
governing the exercise of
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the rights of such Depositary (or its nominee) as Holder of such Note in global
form.
SECTION 310. Cancellation.
------------
All Notes surrendered for payment, redemption, registration of
transfer or exchange or any Offer to Purchase pursuant to Section 1014 or 1016
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly canceled by it. The Company may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes held by the Trustee shall be disposed of as
directed by a Company Order.
SECTION 311. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360 day year
of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to (i)
rights of registration of transfer and exchange and the Company's right of
optional redemption, (ii) substitution of apparently mutilated, defaced,
destroyed, lost or stolen Notes, (iii) rights of Holders to receive payment of
principal and interest on the Notes, (iv) rights, obligations and immunities of
the Trustee under the Indenture and (v) rights of the Holders of the Notes as
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beneficiaries of the Indenture with respect to any property deposited with the
Trustee payable to all or any of them), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 307 and (ii) Notes
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section
1003) have been delivered to the Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
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<PAGE>
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Notes which have
become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying
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Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee but such money need not be separated from other
funds except to the extent required by law.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Twelve or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) failure to pay the principal of (or premium, if any, on) any Note
at its Maturity; or
(2) failure to pay any interest upon any Note when it becomes due and
payable, and continuance of such default for a period of 30 days; or
(3) default, on the applicable Purchase Date, in the purchase of
Notes required to be purchased by the Company pursuant to an Offer to
Purchase as described in Section 1014 herein and Section 1016 herein when
due and payable; or
(4) failure to perform or comply with the provisions of Section 801;
or
(5) failure to perform any other covenant or agreement of the Company
in this Indenture or the Notes (other than a covenant or warranty a default
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in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a
period of 60 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the Outstanding Notes a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
or
(6) 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 $15.0 million individually or in the
aggregate which default results in the acceleration of the payment of such
indebtedness or constitutes the failure to pay such indebtedness at final
maturity after expiration of any applicable grace period; or
(7) a final judgment or judgments (not subject to appeal) for the
payment of money are entered against the Company or any Restricted
Subsidiary of the Company in an amount in excess of $15.0 million by a
court or courts of competent jurisdiction, which judgments remain
undischarged or unstayed for a period of 60 days after the date on which
the right to appeal all such judgments has expired; or
(8) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Restricted
Subsidiary of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or any such
Restricted Subsidiary a bankrupt or insolvent, or approving
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as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any such
Restricted Subsidiary under any applicable Federal or State law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any such
Restricted Subsidiary of any substantial part of the property of the
Company or any such Restricted Subsidiary, or ordering the winding up or
liquidation of the affairs of the Company or any such Subsidiary, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days; or
(9) the commencement by the Company or any Restricted Subsidiary of
the Company of a voluntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other similar law or of
any other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any such Restricted Subsidiary to the entry
of a decree or order for relief in respect of the Company or any Restricted
Subsidiary of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Restricted Subsidiary of the Company,
or the filing by the Company or any such Restricted Subsidiary of a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or State law, or the consent by the Company or any such
Restricted Subsidiary to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or any Restricted
Subsidiary of the Company of any substantial part
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of the property of the Company or any Restricted Subsidiary of the Company,
or the making by the Company or any Restricted Subsidiary of the Company of
an assignment for the benefit of creditors, or the admission by the Company
or any such Restricted Subsidiary in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
the Company or any such Restricted Subsidiary in furtherance of any such
action.
SECTION 502. Acceleration of Maturity; Rescission
------------------------------------
and Annulment.
-------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or (9)) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes may declare all of the Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal and any accrued
interest, if any, shall become immediately due and payable; 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. If an Event of Default
specified in Section 501(8) or (9) occurs, the principal and any accrued
interest on the Notes then Outstanding shall ipso facto become immediately due
and payable without any declaration or other Act on the part of the Trustee or
any Holder.
At any time after such a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in aggregate principal amount of the Outstanding
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Notes, by written notice to the Company and the Trustee, may rescind and annul
such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Notes,
(B) the principal of (and premium, if any, on) any Notes which
have become due otherwise than by such declaration of acceleration
(including any Notes required to have been purchased on the Purchase
Date pursuant to an Offer to Purchase made by the Company) and, to the
extent that payment of such interest is lawful, interest thereon at
the rate provided by the Notes,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate provided by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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SECTION 503. Collection of Indebtedness and Suits
------------------------------------
for Enforcement by Trustee.
--------------------------
The Company covenants that if
(1) default is made in the payment of any interest on any Note when
such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof or, with respect to any Note
required to have been purchased pursuant to an Offer to Purchase made by
the Company, at the Purchase Date thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Notes, the whole amount then due and payable on such Notes for
principal (and premium, if any) and interest, and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
(and premium, if any) and on any overdue interest, at the rate provided by the
Notes, if any, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
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If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of any judicial proceeding relative to the Company or any
other obligor upon the Notes, or upon the property of the Company or its
creditors, the Trustee shall be entitled and empowered, by intervention in such
proceeding or otherwise, to take any and all actions authorized under the Trust
Indenture Act in order to have claims of the Holders and the Trustee allowed in
any such proceeding. In particular, the Trustee shall be authorized to collect
and receive any moneys or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
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SECTION 505. Trustee May Enforce Claims
--------------------------
Without Possession of Notes.
---------------------------
All rights of action and claims under this Indenture or the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (or premium, if any) or interest, upon presentation of the Notes
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607; and
SECOND: To the extent provided in Article Twelve, to the holders
of Senior Debt in accordance with Article Twelve; and
THIRD: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on
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such Notes for principal (and premium, if any) and interest,
respectively.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect,
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disturb or prejudice the rights of any other Holders, or to obtain or to seek to
obtain priority or preference over any other Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and
ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to
---------------------------------
Receive Principal, Premium and
------------------------------
Interest.
--------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 306)
interest on such Note on the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on the Redemption Date or in the case of an
Offer to Purchase made by the Company and required to be accepted as to such
Note, on the Purchase Date) and to institute suit for the enforcement of any
such payment, and such rights shall not be impaired without the consent of such
Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Inden ture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
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SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 307, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
------------------
The Holders of a majority in aggregate principal amount of the
Outstanding Notes shall have the right to direct in writing 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, provided that
(1) such written direction shall not be in conflict with any rule of
law or with this Indenture, and
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(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Notes may on behalf of the Holders of all the Notes waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Note (including any Note which is required to have been
purchased pursuant to an Offer to Purchase which has been made by the
Company), or
(2) in respect of a covenant or provision hereof which under Article
Ten cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Inden ture; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in
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any suit instituted by the Company or in any suit for the enforcement of the
right to convert any Note in accordance with Article Thirteen.
SECTION 515. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
Except during the continuance of an Event of Default, the duties and
responsibilities of the Trustee shall be as expressly provided for 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.
Notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability
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is not reasonably assured to it. Whether or not therein expressly so provided,
every provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section.
SECTION 602. Notice of Defaults.
------------------
The Trustee shall give the Holders notice of any default hereunder as
and to the extent provided by the Trust Indenture Act; provided, however, that
in the case of any default of the character specified in Section 501(4), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601:
(a) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that
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a matter be proved or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, conclusively rely upon
an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents,
attorneys, custodians or nominees and the Trustee
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shall not be responsible for any misconduct or negligence on the part of
any agent, attorney, custodian or nominee appointed with due care by it
hereunder;
(h) In the event that the Trustee is also acting as Paying Agent or
Registrar hereunder, the rights and protections afforded to the Trustee
pursuant to this Article Six shall also be afforded to such Paying Agent or
Registrar; and
(i) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless either (i) a Responsible Officer shall have actual
knowledge of such Default or Event of Default or (ii) written notice of
such Default or Event of Default shall be given to the Trustee by the
Company or any Holder.
SECTION 604. Not Responsible for Recitals
----------------------------
or Issuance of Notes.
--------------------
The recitals contained herein and in the Notes except the Trustee's
certificates of authentication, shall be taken as the statements of the Company
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application
by the Company of Notes or the proceeds thereof.
SECTION 605. May Hold Notes.
--------------
The Trustee, any Paying Agent, any Note Registrar or any other agent
of the Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and, subject to Sections 608 and 613, may otherwise deal with
the Company with the same rights it would have if it were not Trustee, Paying
Agent, Note Registrar or such other agent.
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SECTION 606. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
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The obligations of the Company under this Section 607 to compensate
the Trustee and to pay or reimburse the Trustee for reasonable expenses,
disbursements and advances shall survive the discharge of this Indenture or the
earlier resignation or removal of the Trustee.
SECTION 608. Disqualification; Conflicting Interests.
---------------------------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $50,000,000 and its Corporate
Trust Office in the Borough of Manhattan, The City of New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal;
------------------------
Appointment of Successor.
------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
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(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in aggregate principal amount of the Outstanding Notes, delivered to
the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
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(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in aggregate principal amount of the Outstanding Notes
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the
Company. If no successor Trustee shall have been so appointed by the Company or
the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and
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deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of the retiring Trustee, any such successor
Trustee and the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation
---------------------------------
or Succession to Business.
-------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes.
SECTION 613. Preferential Collection
-----------------------
of Claims Against Company.
-------------------------
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Notes), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
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ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee
--------------------------
Names and Addresses of Holders.
------------------------------
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
- ---------
capacity as Note Registrar.
SECTION 702. Preservation of Information;
----------------------------
Communications to Holders.
-------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The Trustee may destroy any list furnished to it as provided in Section 701 upon
receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Notes and the
corresponding rights
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and duties of the Trustee, shall be provided by the Trust Indenture Act.
(c) Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to the names and addresses of Holders made pursuant
to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
------------------
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than June 30 in each calendar year,
commencing in June 1999.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Notes are listed, with the Commission and with the Company. The
Company will notify the Trustee in writing when the Notes are listed on any
stock exchange.
SECTION 704. Reports by Company
------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with Commission pursuant
to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee
within 30
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days after the same is so required to be filed with the Commission.
SECTION 705. Officers' Certificate with Respect to Change
--------------------------------------------
in Interest Rates.
-----------------
Within five days after the day on which any Special Interest begins
accruing, and within five days after any Special Interest ceases to accrue, the
Company shall deliver an Officers' Certificate to the Trustee stating the
interest rate thereupon in effect for the Unregistered Notes (if any are
Outstanding) and the date on which such rate became effective.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Mergers, Consolidations and Certain Sales of Assets.
---------------------------------------------------
The Company shall 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
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transaction, the Company (including any successor entity to the Company) could
Incur at least $1.00 of additional Debt pursuant to the provisions of this
Indenture described in the first paragraph under Section 1008 hereof; and (5)
the Company has delivered to the Trustee an Officer's Certificate and an Opinion
of Counsel (which Opinion of Counsel may rely, as to factual matters, on such
Officer's Certificate), each stating that such consolidation, merger,
conveyance, transfer, lease or acquisition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
complies with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with, and, with respect to such
Officer's Certificate, setting forth the manner of determination of the
Consolidated Net Worth and the ability to Incur Debt in accordance with Clause
(4) of Section 801, the Company or, if applicable, of the Successor Company as
required pursuant to the foregoing.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any transfer, conveyance, sale, lease or other
disposition of all or substantially all of the properties and assets of the
Company as an entirety in accordance with Section 801, the Successor Company
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
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Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Notes.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures
-----------------------
Without Consent of Holders.
--------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution of the Company, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Notes pursuant to the requirements of Section 1011
or otherwise; or
(4) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to
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matters or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided such action
pursuant to this Clause (5) shall not adversely affect the interests of the
Holders in any material respect.
SECTION 902. Supplemental Indentures
-----------------------
with Consent of Holders.
-----------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company, when authorized by a Board Resolution
of the Company and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby,
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable thereon, or change the
place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date or, in the case of an Offer to Purchase which has been
made, on or after the applicable Purchase Date), or
(2) reduce the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is required for any such
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supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture,
or
(3) modify any of the provisions of this Section, Section 513 or
Section 1020, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected
thereby, or
(4) modify any of the provisions of this Indenture relating to the
subordination of the Notes in a manner adverse to the Holders.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any supplemental indenture, the Trustee shall join
the Company in the execution of any supplemental indenture authorized or
permitted by this Indenture and shall make any further appropriate agreements
and stipulations as may be contained therein.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not
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be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Notes to
---------------------
Supplemental Indentures.
-----------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
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ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and
---------------------------------
Interest.
--------
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company will give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York) where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company will give prompt written
notice to the Trustee of any such
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designation or rescission and of any change in the location of any such other
office or agency.
SECTION 1003. Money for Note
--------------
Payments to be Held in Trust.
----------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of interest on any of the Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and will promptly notify the Trustee in writing of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Notes, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee in writing of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the
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Notes) in the making of any payment of principal (and premium, if any) or
interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
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SECTION 1004. Existence.
---------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors in good faith shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and that
the loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Maintenance of Properties.
-------------------------
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary of the Company to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Board of Directors in good faith,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (2) all lawful claims for labor,
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materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any of its Subsidiaries; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
SECTION 1007. Maintenance of Insurance.
------------------------
The Company shall, and shall cause its Subsidiaries to, keep at all
times all of their properties which are of an insurable nature insured against
loss or damage with insurers believed by the Company to be responsible to the
extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties in accordance with good business
practice. The Company shall, and shall cause its Subsidiaries to, use the
proceeds from any such insurance policy to repair, replace or otherwise restore
the property to which such proceeds relate.
SECTION 1008. Limitation on Consolidated Debt.
-------------------------------
The Company shall not, and shall 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.
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Notwithstanding the foregoing paragraph, 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 $1.0 billion, less any amounts by
which any revolving credit facility commitments under the Senior Bank
Facility are permanently reduced pursuant to Section 1014 (so long as and
to the extent that any required payments in connection therewith are
actually made);
(ii) 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 (ii) 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;
(iii) the original issuance by the Company of the Debt evidenced by
the Notes (including any Exchange Notes);
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(iv) Debt (other than Debt described in another clause of this
paragraph) outstanding on the date of original issuance of the Notes after
giving effect to the application of the proceeds of the Notes as described
in Schedule I to this Indenture;
(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 (iii) or (iv) 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 Notes or Debt which is
pari passu with or subordinate in right of payment to the Notes shall only
be permitted if (x) in the case of any refinancing of the Notes or Debt
which is pari passu to the Notes, the refinancing Debt is made pari passu
to the Notes or subordinated to the Notes, and (y) in the case of any
refinancing of Debt which is subordinated to the Notes, the refinancing
Debt constitutes Subordinated Debt; (B) the refinancing Debt by its terms,
or by the terms of any agreement or instrument pursuant to which such Debt
is issued, (1) does not provide for payments of principal of such Debt at
the stated maturity
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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 Sections 1014 and 1016; 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 $50.0 million at any time outstanding.
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SECTION 1009. Limitation on Senior Subordinated Debt.
--------------------------------------
The Company shall not Incur any Debt which by its terms is both (i)
subordinated in right of payment to any Senior Debt and (ii) senior in right of
payment to the Notes.
SECTION 1010. Limitation on Issuance of Guarantees of Subordinated Debt.
---------------------------------------------------------
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to assume, guarantee or in any other manner become liable with
respect to any Debt of the Company that by its terms is pari passu or junior in
right of payment to the Notes.
SECTION 1011. Limitation on Liens.
-------------------
The Company shall not, and shall 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 Notes, if the Notes are secured equally and ratably with such Debt, (ii)
Liens outstanding on the date of the Indenture, (iii) Liens for taxes,
assessments, governmental charges or claims not yet delinquent or which are
being contested in good faith by appropriate proceedings, provided, that
adequate reserves with respect thereto are maintained on the books of the
Company or its Restricted Subsidiaries, as the case may be, in conformity with
generally accepted accounting principles, (iv) landlords', carriers',
warehousemen's, mechanics', material men's, repairmen's or the like Liens
arising by contract or statute in the ordinary course of business and with
respect to 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
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with leases, performance bonds and similar obligations, or (B) in connection
with workers' compensation, unemployment insurance and other social security
legislation, (vi) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar encumbrances which, in the aggregate,
do not materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the Company or
such Restricted Subsidiary, (vii) any attachment or judgment Lien that does not
constitute an Event of Default, (viii) Liens securing Acquired Debt, provided,
that such Liens attach solely to the acquired assets or the assets of the
acquired entity and do not extend to or cover any other assets of the Company or
any of its Restricted Subsidiaries, (ix) Liens to secure Senior Debt, (x) Liens
in favor of the Trustee for its own benefit and for the benefit of the Holders,
(xi) any interest or title of a lessor pursuant to a lease constituting a
Capital Lease Obligation, (xii) pledges or deposits made in connection with
acquisition agreements or letters of intent entered into in respect of a
proposed acquisition; (xiii) Liens in favor of prior holders of leases on
property acquired by the Company or of sublessors under leases on the Company
property; (xiv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, banker's
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (xv) Liens (including extensions and renewals thereof) upon
real or personal property acquired after the date of the Indenture; provided
that (a) such Lien is created solely for the purpose of securing Debt incurred,
in accordance with Section 1008, (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%
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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 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 Section
1008.
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SECTION 1012. Limitation on Restricted Payments.
---------------------------------
The Company (i) shall 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) shall
not, and shall 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) shall not make,
or permit any Restricted Subsidiary to make, any Investment other than a
Permitted Investment, and (iv) shall not, and shall not permit any Restricted
Subsidiary to, redeem, repurchase, defease or otherwise acquire or retire for
value prior to any scheduled maturity, repayment or sinking fund payment Debt of
the Company which is subordinate in right of payment to the Notes (each of
clauses (i) through (iv) being a "Restricted Payment") if: (1) an Event of
Default, or an event that with the passing of time or the giving of notice, or
both, would constitute an Event of Default, shall have occurred and is
continuing or would result from such Restricted Payment, or (2) after giving pro
forma effect to such Restricted Payment as if such Restricted Payment had been
made at the beginning of the applicable four-fiscal-quarter period, the Company
could not Incur at least $1.00 of additional Debt pursuant to the terms of the
Indenture described in the first paragraph of Section 1008 hereof, or (3) upon
giving effect to such Restricted Payment, the aggregate of all Restricted
Payments from the date of issuance of the Notes exceeds the sum of: (a) 50% of
cumulative Consolidated Net Income (or, in the case Consolidated Net Income
shall be negative, less 100% of such
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deficit) of the Company since the date of issuance of the Notes through the last
day of the last full fiscal quarter ending immediately preceding the date of
such Restricted Payment for which quarterly or annual financial statements are
available (taken as a single accounting period); plus (b) $75.0 million;
provided, however, that the Company or a Restricted Subsidiary may make any
Restricted Payment with the aggregate net proceeds received by the Company after
the date of original issuance of the Notes, including the fair market value of
property other than cash (determined in good faith by the Board of Directors as
evidenced by a resolution of the Board of Directors filed with the Trustee),
from contributions of capital or the issuance and sale (other than to a
Restricted Subsidiary) of Capital Stock (other than Redeemable Stock) of the
Company, options, warrants or other rights to acquire Capital Stock (other than
Redeemable Stock) of the Company and Debt of the Company that has been converted
into or exchanged for Capital Stock (other than Redeemable Stock and other than
by or from a Restricted Subsidiary) of the Company after the date of original
issuance of the Notes, provided that any such net proceeds received by the
Company from an employee stock ownership plan financed by loans from the Company
or a Restricted Subsidiary of the Company shall be included only to the extent
such loans have been repaid with cash on or prior to the date of determination.
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
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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 Section 1008 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 Section 1014; and (v) the Company and its
Restricted Subsidiaries may make Investments, in an aggregate amount not to
exceed $200.0 million outstanding at any time, in entities engaging in owning,
leasing, developing or constructing motion picture theaters 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.
SECTION 1013. Limitations on Dividend and Other Payment
-----------------------------------------
Restrictions Affecting Subsidiaries.
-----------------------------------
The Company shall not, and shall 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
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Subsidiary of the Company (i) to pay dividends (in cash or otherwise) or make
any other distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to the Company or any other Restricted Subsidiary; (ii) to make
loans or advances to the Company or any other Restricted Subsidiary; or (iii) to
transfer any of its property or assets to the Company or any other Restricted
Subsidiary. Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary to, suffer to exist any such encumbrance or restriction
(a) pursuant to any agreement in effect on the date of original issuance of the
Notes; (b) pursuant to an agreement relating to any Debt Incurred by a Person
(other than a Restricted Subsidiary of the Company existing on the date of
original issuance of the Notes or any Restricted Subsidiary carrying on any of
the businesses of any such Restricted Subsidiary) prior to the date on which
such Person became a Restricted Subsidiary of the Company and outstanding on
such date and not Incurred in anticipation of becoming a Restricted Subsidiary,
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired; (c)
pursuant to an agreement effecting a renewal, refunding or extension of Debt
Incurred pursuant to an agreement referred to in clause (a) or (b) above,
provided, however, that the provisions contained in such renewal, refunding or
extension agreement relating to such encumbrance or restriction are no more
restrictive in any material respect than the provisions contained in the
agreement the subject thereof, as determined in good faith by the Board of
Directors; (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 this 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 of
rights under any such contract; (f) any restriction with respect to a Restricted
Subsidiary of the Company imposed
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pursuant to an agreement which has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary, provided that consummation of such transaction would not result in
an Event of Default or an event that, with the passing of time or the giving of
notice or both, would constitute an Event of Default, that such restriction
terminates if such transaction is closed or abandoned and that the closing or
abandonment of such transaction occurs within one year of the date such
agreement was entered into; or (g) such encumbrance or restriction is the result
of applicable corporate law or regulation relating to the payment of dividends
or distributions.
SECTION 1014. Limitation on Asset Disposition.
-------------------------------
The Company shall not, and shall 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 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 Notes
at 100% of their principal amount plus accrued interest to the date of purchase
and, to the extent required by the terms thereof, any other Debt of the Company
that is pari passu with the Notes at a price no
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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 this Indenture.
SECTION 1015. Transactions with Affiliates
----------------------------
and Related Persons.
-------------------
The Company shall not, and shall 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 $1.0 million but less than or equal to $5.0 million, 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 $5.0
million, a majority of the disinterested members of the Board of Directors shall
determine that the transaction satisfies the above criteria and shall evidence
such a determination by a Board Resolution filed with the Trustee. For any
transaction that involves in excess of $10.0 million, 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
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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.
Notwithstanding anything to the contrary contained in this 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 Notes.
SECTION 1016. Change of Control.
-----------------
Within 30 days of the occurrence of a Change of Control, the Company
will be required to make an Offer to Purchase all Outstanding Notes at a
purchase price equal to 101% of their principal amount plus accrued 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
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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.
In the event that the Company makes an Offer to Purchase the Notes,
the Company intends to comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act.
SECTION 1017. Provision of Financial Information.
----------------------------------
For so long as any of the Notes are outstanding, the Company shall
file with the Commission the annual reports, quarterly reports and other
documents which 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.
SECTION 1018. 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)
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(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 Section 1008 hereof 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 Section 1012
hereof and such amount is thereafter treated as a Restricted Payment for the
purpose of calculating the aggregate amount available for Restricted Payments
thereunder.
SECTION 1019. Statement by Officers as to Default;
-----------------------------------
Compliance Certificates.
-----------------------
(a) The Company will deliver to the Trustee, within 90 days after the
end of each fiscal quarter of the Company ending after the date hereof an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Company is in default in the
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performance and observance of any of the terms, provisions and conditions of
Section 801 or Sections 1004 to 1018, inclusive, and if the Company shall be in
default, specifying all such defaults and the nature and status thereof of which
they may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and
in any event within 10 days after the Company becomes aware or should reasonably
become aware of the occurrence of an Event of Default or an event which, with
notice or the lapse of time or both, would constitute an Event of Default, an
Officers' Certificate setting forth the details of such Event of Default or
default, and the action which the Company proposes to take with respect thereto.
(c) The Company shall deliver to the Trustee within 90 days after the
end of each fiscal year a written statement by the Company's independent public
accountants stating (A) that their audit examination has included a review of
the terms of this Indenture and the Notes as they relate to accounting matters,
and (B) whether, in connection with their audit examination, any event which,
with notice or the lapse of time or both, would constitute an Event of Default
has come to their attention and, if such a default has come to their attention,
specifying the nature and period of the existence thereof.
SECTION 1020. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 801 and Sections 1004 to 1018, if
before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Notes shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in
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respect of any such covenant or condition shall remain in full force and effect;
provided, however, with respect to an Offer to Purchase as to which an Offer has
been mailed, no such waiver may be made or shall be effective against any Holder
tendering Notes pursuant to such Offer, and the Company may not omit to comply
with the terms of such Offer as to such Holder.
ARTICLE ELEVEN
Redemption of Notes
SECTION 1101. Right of Redemption.
-------------------
The Notes may be redeemed at the option of the Company, in whole or in
part, at any time on or after ______________, 2003, and prior to maturity, at
the Redemption Prices specified in the form of Note hereinbefore set forth
together with accrued interest to, but excluding, the Redemption Date.
In addition, if on or before ______________, 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 Notes in an aggregate principal
amount of up to 33 1/3% of the original aggregate principal amount of the Notes,
provided, however, that Notes having a principal amount equal to at least 66
2/3% of the original aggregate principal amount of the Notes remain outstanding
after such redemption. Such redemption must occur on a Redemption Date within 90
days of such sale and upon not less than 30 or more than 60 days' notice mailed
to each Holder of Notes to be redeemed at such Holder's address appearing in the
Note Register, in amounts of $1,000 or an integral multiple of $1,000, at a
redemption price of ___% of the principal amount of the 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).
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If less than all the Notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the particular
Notes to be redeemed or any portion thereof that is an integral multiple of
$1,000.
The Notes will not have the benefit of any sinking fund.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company, as permitted by
any provision of this Indenture, shall be made in accordance with such provision
and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Notes, the Company shall, at least
60 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee in writing of
such Redemption Date and of the principal amount of Notes to be redeemed.
SECTION 1104. Selection by Trustee of Notes to Be
-----------------------------------
Redeemed.
--------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
by such method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions (equal to $1,000 or any
integral multiple thereof) of the principal amount of Notes of a denomination
larger than $1,000.
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The Trustee shall promptly notify the Company and each Note Registrar
in writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Notes which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at his address appearing in the
Note Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price plus accrued interest, if any,
(3) if less than all the Outstanding Notes are to be redeemed, the
identification (and, in the case of partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Note to be redeemed and that interest thereon
will cease to accrue on and after said date, and
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(5) the place or places where such Notes are to be surrendered for
payment of the Redemption Price.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Notes which
are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price plus accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Company at the Redemption Price together with accrued interest to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Notes, or one or more Predecessor Notes, registered as such at the close
of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
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If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate provided by the Note.
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or 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), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder, in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered.
ARTICLE TWELVE
Subordination of Notes
SECTION 1201. Notes Subordinate to Senior Debt.
--------------------------------
The Company covenants and agrees, and each Holder of a Note, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article Four and Article Thirteen), the payment of the principal of (and
premium, if any) and interest on each and all of the Notes are hereby expressly
made subordinate and subject in right of payment to the prior payment in full of
all Senior Debt of the Company.
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SECTION 1202. Payment Over of Proceeds Upon Dissolution,
------------------------------------------
Etc.
----
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event specified in (a), (b) or (c) above (each such event, if any, herein
sometimes referred to as a "Proceeding") the holders of Senior Debt shall be
entitled to receive or retain payment in full of all amounts due or to become
due on or in respect of all Senior Debt, or provision shall be made for such
payment in cash or cash equivalents or otherwise in a manner satisfactory to the
holders of Senior Debt, before the Holders of the Notes are entitled to receive
any payment or distribution of any kind or character, whether in cash, property
or securities, on account of principal of (or premium, if any) or interest on or
other obligations in respect of the Notes or on account of any purchase or other
acquisition of Notes by the Company or any Subsidiary of the Company (all such
payments, distributions, purchases and acquisitions herein referred to,
individually and collectively, as a "Notes Payment"), and to that end the
holders of Senior Debt shall be entitled to receive, for application to the
payment thereof, any Notes Payment which may be payable or deliverable in
respect of the Notes in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Note shall have received any Notes
Payment before all Senior Debt of the Company is paid in full or payment thereof
provided for in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of such Debt, and if such fact shall, at or prior to the time of
such Notes Payment,
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have been made known to the Trustee or, as the case may be, such Holder, then
and in such event such Notes Payment shall be paid over or delivered forthwith
to the trustee in bankruptcy or other person making payment or distribution of
assets of the Company for the 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.
For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include a payment or distribution of stock or securities
of the Company provided for by a plan of reorganization or readjustment
authorized by an order or decree of a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy law or of any other
corporation provided for by such plan of reorganization or readjustment which
stock or securities are subordinated in right of payment to all then outstanding
Senior Debt to substantially the same extent as the Notes are so subordinated as
provided in this Article. The consolidation of the Company with, or the merger
of the Company into, another Person or the liquidation or dissolution of the
Company following the conveyance or transfer of all or substantially all of
its properties and assets as an entirety to another Person upon the terms and
conditions set forth in Article Eight shall not be deemed a Proceeding for the
purposes of this Section if the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer such properties and assets as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance or transfer, comply with the
conditions set forth in Article Eight.
SECTION 1203. No Payment When Senior Debt in
------------------------------
Default.
-------
In the event that any Senior Payment Default (as defined below) shall
have occurred and be continuing, then
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no Notes Payment shall be made unless and until such Senior Payment Default
shall have been cured or waived or shall have ceased to exist or all amounts
then due and payable in respect of Senior Debt shall have been paid in full, or
provision shall have been made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Debt. "Senior
Payment Default" means any default in the payment of 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
Notes, and no defeasance of the Notes, may be made for a period (the "Payment
Blockage Period") commencing on the date of the receipt of such notice and
ending the earlier of (i) the date on which such Senior Nonmonetary Default
shall have been cured or waived or ceased to exist or all Designated Senior Debt
the subject of such Senior Nonmonetary Default shall have been discharged and
(ii) the 179th day after the date of the receipt of such notice. 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
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commenced during any 360-day period and there shall be a period of at least 181
days during each 360-day period when no Company 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 Notes by reason of the
provisions of this Article Twelve will not be construed as preventing the
occurrence of an Event of Default with respect to the Notes arising from any
such failure to make payment. Upon termination of any period of Payment
Blockage Period the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments.
In the event that, notwithstanding the foregoing, the Company shall
make any Notes Payment to the Trustee or any Holder prohibited by the foregoing
of this Section, and if such fact shall, at or prior to the time of such Notes
Payment, have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such Notes Payment shall be paid over and
delivered forthwith to the holders of the Senior Debt of the Company.
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
Notes may recover less, ratably, than holders of Senior Debt and more, ratably,
than Holders of the Notes.
The subordination provisions described in this Article will not be
applicable to payments in respect of the Notes from a defeasance trust
established in connection with any defeasance or covenant defeasance of the
Notes as described under Article Thirteen.
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The provisions of this Section shall not apply to any Notes Payment
with respect to which Section 1202 would be applicable.
SECTION 1204. Payment Permitted If No Default.
-------------------------------
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Notes shall prevent (a) the Company, at any time except during the
pendency of any Proceeding referred to in Section 1202 or under the conditions
described in Section 1203, from making Notes Payments, or (b) the application by
the Trustee of any money deposited with it hereunder to Notes Payments or the
retention of such Notes Payment by the Holders, if, at the time of such
application by the Trustee, it did not have knowledge that such Notes Payment
would have been prohibited by the provisions of this Article.
SECTION 1205. Subrogation to Rights of Holders of Senior
------------------------------------------
Debt.
----
Subject to the payment in full of all amounts due or to become due on
or in respect of Senior Debt of the Company or the provision for such payment in
cash or cash equivalents or otherwise in a manner satisfactory to the holders of
Senior Debt, the Holders of the Notes shall be subrogated to the rights of the
holders of such Debt to receive payments and distributions of cash, property and
securities applicable to such Debt until the principal of (and premium, if any)
and interest on the Notes shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior Debt of
the Company of any cash, property or securities to which the Holders of the
Notes or the Trustee would be entitled except for the provisions of this
Article, and no payments over pursuant to the provisions of this Article to the
holders of Senior Debt by Holders of the Notes or the Trustee, shall, as among
the Company, its creditors other than holders of Senior Debt and the Holders of
the Notes, be deemed to be a payment or distribution by the Company to or on
account of the Senior Debt of the Company.
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SECTION 1206. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Debt on the other hand. Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall (a) impair,
as among the Company, its creditors other than holders of Senior Debt and the
Holders of the Notes, the obligation of the Company, which is absolute and
unconditional (and which, subject to the rights under this Article of the
holders of Senior Debt, is intended to rank equally with all other general
obligations of the Company), to pay to the Holders of the Notes the principal of
(and premium, if any) and interest on the Notes as and when the same shall
become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company of the Holders of the Notes and creditors of
the Company other than the holders of Senior Debt; or (c) prevent the Trustee or
the Holder of any Note from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article of the holders of Senior Debt to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 1207. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Note by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes.
SECTION 1208. No Waiver of Subordination Provisions.
-------------------------------------
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by
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any act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Notes to the holders of Senior Debt, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt or any instrument evidencing the
same or any agreement under which Senior Debt is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (iii) release any Person liable in any manner
for the collection of Senior Debt; and (iv) exercise or refrain from exercising
any rights against the Company and any other Person.
SECTION 1209. Notice to Trustee.
-----------------
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company or
a holder of Senior Debt or from any trustee therefor; and, prior to the receipt
of any such written notice, the Trustee, subject to the provisions of
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Section 601, shall be entitled in all respects to assume that no such facts
exist.
Subject to the provisions of Section 601, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Debt (or a trustee therefor) to
establish that such notice has been given by a holder of Senior Debt (or a
trustee therefor). In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Debt to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
satisfaction of the Trustee as to the amount of Senior Debt held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article, and if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
SECTION 1210. Reliance on Judicial Order or Certificate of
--------------------------------------------
Liquidating Agent.
-----------------
Upon any payment or distribution of assets or securities of the
Company referred to in this Article, the Trustee, subject to the provisions of
Section 601, and the Holders of the Notes shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Trustee or to
the Holders of Notes, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article.
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SECTION 1211. Trustee Not Fiduciary for Holders of Senior
-------------------------------------------
Debt.
----
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and shall not be liable to any such holders if it shall
in good faith mistakenly pay over or distribute to Holders of Notes or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Debt shall be entitled by virtue of this Article or otherwise.
SECTION 1212. Rights of Trustee as Holder of Senior
-------------------------------------
Debt; Preservation of Trustee's Rights.
--------------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Debt which may at
any time be held by it, to the same extent as any other holder of Senior Debt,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1213. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1212 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
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SECTION 1214. Defeasance of This Article Twelve.
----------------------------------
The subordination of the Notes provided by this Article Twelve is
expressly made subject to the provisions for defeasance or covenant defeasance
in Article Thirteen hereof and, anything herein to the contrary notwithstanding,
upon the effectiveness of any such defeasance or covenant defeasance, the Notes
then outstanding shall thereupon cease to be subordinated pursuant to this
Article Twelve.
ARTICLE THIRTEEN
Defeasance and Covenant Defeasance
SECTION 1301. Company's Option to Effect Defeasance or
----------------------------------------
Covenant Defeasance.
-------------------
The Company may at its option by Board Resolution, at any time, in
accordance with the Exchange and Registration Rights Agreement, elect to have
either Section 1302 or Section 1303 applied to the Outstanding Notes upon
compliance with the conditions set forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
------------------------
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section, the Company shall be deemed to have been discharged
from its obligations with respect to the Outstanding Notes, and the provisions
of Article Eleven and Twelve hereof shall cease to be effective, on the date the
conditions set forth below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Outstanding Notes and to
have satisfied all its other obligations under such Notes and this Indenture
insofar as such Notes are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive
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until otherwise terminated or discharged hereunder: (A) the rights of Holders of
such Notes to receive, solely from the trust fund described in Section 1304 and
as more fully set forth in such Section, payments in respect of the principal of
(and premium, if any) and interest on such Notes when such payments are due, (B)
the Company's obligations with respect to such Notes under Sections 304, 305,
306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303.
SECTION 1303. Covenant Defeasance.
-------------------
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section, (i) the Company shall be released from its
obligations under Sections 1005 through 1018, inclusive, and Clauses (3), (4)
and (5) of Section 801, (ii) the occurrence of an event specified in Sections
501(3), 501(4) (with respect to Clauses (1), (3), (4) or (5) of Section 801),
501(5) (with respect to any of Sections 1005 through 1018, inclusive), 501(6)
and 501(7) shall not be deemed to be an Event of Default and (iii) the
provisions of Article Twelve hereof shall cease to be effective on and after the
date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"). For this purpose, such covenant defeasance means that the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section, Clause or Article,
whether directly or indirectly by reason of any reference elsewhere herein to
any such Section, Clause or Article or by reason of any reference in any such
Section, Clause or Article to any other provision herein or in any other
document, but the remainder of this Indenture and such Notes shall be unaffected
thereby.
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<PAGE>
SECTION 1304. Conditions to Defeasance or
---------------------------
Covenant Defeasance.
-------------------
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the then Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 609 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) money in
an amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee
(or other qualifying trustee) to pay and discharge, the principal of
(premium, if any), and each installment of interest on the Notes on the
Stated Maturity of such principal or installment of interest in accordance
with the terms of this Indenture and of such Notes. For this purpose,
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United
States of America the payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United
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<PAGE>
States of America, which, in either case, are not callable or redeemable at
the option of the issuer thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the Securities
Act of 1933, as amended) as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or
the specific payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there has
been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Notes will not recognize gain or loss for
Federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred.
(3) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize gain or loss for
Federal income tax
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<PAGE>
purposes as a result of such deposit and covenant defeasance and will be
subject to Federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and covenant
defeasance had not occurred.
(4) The Company shall have delivered to the Trustee an Officer's
Certificate to the effect that the Notes, if then listed on any securities
exchange, will not be delisted as a result of such deposit.
(5) Such defeasance or covenant defeasance shall not cause the Trustee
to have a conflicting interest as defined in Section 608 and for purposes
of the Trust Indenture Act with respect to any securities of the Company.
(6) At the time of such deposit: (A) no default in the payment of
all or a portion of principal of (or premium, if any) or interest on or
other obligations in respect of any Senior Debt shall have occurred and be
continuing, and no event of default with respect to any Senior Debt shall
have occurred and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable and (B) no other event of
default with respect to any Senior Debt shall have occurred and be
continuing permitting (after notice or the lapse of time, or both) the
holders of such Senior Debt (or a trustee on behalf of the holders thereof)
to declare such Senior Debt due and payable prior to the date on which it
would otherwise have become due and payable, or, in the case of either
Clause (A) or Clause (B) above, each such default or event of default shall
have been cured or waived or shall have ceased to exist.
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<PAGE>
(7) No Event of Default or event which with notice or lapse of time
or both would become an Event of Default shall have occurred and be
continuing.
(8) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is bound.
(9) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel (which Opinion of Counsel may rely,
as to factual matters, on such Officer's Certificate), each stating that
all conditions precedent provided for relating to either the defeasance
under Section 1302 or the covenant defeasance under Section 1303 (as the
case may be) have been complied with.
(10) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company as
defined in the Investment Company Act of 1940, as amended, or such trust
shall be qualified under such act or exempt from regulation thereunder.
SECTION 1305. Deposited Money and U.S. Government
-----------------------------------
Obligations to be Held in Trust;
-------------------------------
Other Miscellaneous Provisions.
------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee--collectively, for purposes of
this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as
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<PAGE>
its own Paying Agent) as the Trustee may determine, to the Holders of such
Notes, of all sums due and to become due thereon in respect of principal (and
premium, if any) and interest, but such money need not be segregated from other
funds except to the extent required by law. Money so held in trust shall not be
subject to the provisions of Article Twelve.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Out standing Notes.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in Sec
tion 1304 which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or cove nant defeasance.
SECTION 1306. Reinstatement.
-------------
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1302 or 1303 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to this Article Thirteen until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 1302 or 1303;
provided, however, that if the Company makes any payment of principal of (and
premium, if any) or interest on any Note following the reinstatement of its
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<PAGE>
obligations, the Company shall be subrogated to the rights of the Holders of
such Note to receive such payment from the money held by the Trustee or the
Paying Agent.
____________________
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
By___________________________
Name:
Title:
Attest:
__________________________
BANKERS TRUST COMPANY
By____________________________
Name:
Title:
Attest:
___________________________
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<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK)
On the _____ day of __________, 1998, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that [he -- she] is _______________________________________
of ________________________, one of the corporations described in and which
executed the foregoing instrument; that [he -- she] knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that [he -- she] signed [his -- her] name thereto by like
authority.
______________________________
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK)
On the _____ day of __________, 1998, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that [he -- she] is _____________________________________ of
___________________________, one of the corporations described in and which
executed the foregoing instrument; that [he -- she] knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so
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<PAGE>
affixed by authority of the Board of Directors of said corporation, and that
[he -- she] signed [his -- her] name thereto by like authority.
______________________________
-144-
<PAGE>
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to (S) 306(b)(i) of the Indenture)
Bankers Trust Company
Four Albany Street
4th Floor
New York, New York 10006
Re: ___% Senior Subordinated Notes
due ____________, 2008 of Loews Cineplex
Entertainment Corporation
(the "Securities")
-----------------------------
Reference is made to the Indenture, dated as of August __, 1998 (the
"Indenture"), from Loews Cineplex Entertainment Corporation (the "Company") to
Bankers Trust Company, as Trustee. Terms used herein and defined in the
Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933
(the "Securities Act") are used herein as so defined.
This certificate relates to U.S. $____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
A-1
<PAGE>
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Regulation S Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 904 or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Company or any such distributor or a person acting on
behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another
A-2
<PAGE>
designated offshore securities market and neither the Owner nor
any person acting on its behalf knows that the transaction has
been prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other renumeration in respect of the
Specified Securities, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(b)(1) have been
satisfied; and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant
------------------
to Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Company or from an affiliate of the Company, whichever is later, and
is being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since the Specified Securities were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.
A-3
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
Dated: ____________________________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:_________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
A-4
<PAGE>
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to (S) 306(b)(ii) of the Indenture)
Bankers Trust Company
Four Albany Street
4th Floor
New York, New York 10006
Re: ___% Senior Notes due ___, 2008 of
Loews Cineplex Entertainment
Corporation (the "Securities")
-------------------------------
Reference is made to the Indenture, dated as of August ___, 1998 (the
"Indenture"), from Loews Cineplex Entertainment Corporation (the "Company")and
Bankers Trust Company, as Trustee. Terms used herein and defined in the
Indenture or in Rule 144A or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to U.S. $_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
ISIN No(s), If any. ____________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is
B-1
<PAGE>
acting on behalf of all the beneficial owners of the Specified Securities and is
duly authorized by them to do so. Such beneficial owner or owners are referred
to herein collectively as the "Owner". If the Specified Securities are
represented by a Global Security, they are held through the Depositary or an
Agent Member in the name of the Undersigned, as or on behalf of the Owner. If
the Specified Securities are not represented by a Global Security, they are
registered in the name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, (i) the Owner is not a U.S.
Person (as defined in the Indenture) and (ii) such transfer is being effected in
accordance with Rule 144A or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
------------------
Rule 144:
B-2
<PAGE>
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Company or from an affiliate of the Company, whichever is later, and
is being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since the Specified Securities were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
Dated: ____________________________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:_________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
B-3
<PAGE>
ANNEX C -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to (S) 306(c))
Bankers Trust Company
Four Albany Street
4th Floor
New York, New York 10006
Re: ___% Senior Subordinated Notes due
___, 2008 of Loews Cineplex
Entertainment Corporation
(the "Securities")
----------------------------------
Reference is made to the Indenture, dated as of August ___, 1998 (the
"Indenture"), from Loews Cineplex Entertainment Corporation (the "Company"), and
Bankers Trust Company, as Trustee. Terms used herein and defined in the
Indenture or in Rule 144 under the U.S. Securities Act of 1933 (the "Securities
Act") are used herein as so defined.
This certificate relates to U.S. $_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by
C-1
<PAGE>
a Global Security, they are held through the Depositary or an Agent Member in
the name of the Undersigned, as or on behalf of the Owner. If the Specified
Securities are not represented by a Global Security, they are registered in the
name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Securities Act Legend pursuant to Section 306(c) of the
Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a holding period of at least two years (computed
in accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Securities were last acquired from the Company or from an affiliate of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
Dated: __________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:__________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title
C-2
<PAGE>
of the person signing on behalf of the Undersigned must
be stated.)
C-3
<PAGE>
EXHIBIT 4.5
DRAFT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of July __, 1998, by
and among Loews Cineplex Entertainment Corporation (the "Company") and Goldman,
Sachs & Co., Credit Suisse First Boston, BT Alex. Brown and Salomon Brothers Inc
(collectively, the "Purchasers") as the purchasers of the __% Senior
Subordinated Notes due 2008 of the Company.
1. Certain Definitions.
For purposes of this Agreement, the following terms shall have the
following respective meanings:
(a) "Closing Date" shall mean the date on which the Securities are
initially issued.
(b) "Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular purpose.
(c) "Effective Time", in the case of an Exchange Offer, shall mean the date
on which the Commission declares the Exchange Offer registration statement
effective or on which such registration statement otherwise becomes effective
and, in the case of a Shelf Registration, shall mean the date on which the
Commission declares the Shelf Registration effective or on which the Shelf
Registration otherwise becomes effective.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934.
(e) "Exchange Offer" shall have the meaning assigned thereto in Section 2.
(f) "Exchange Securities" shall have the meaning assigned thereto in
Section 2.
(g) The term "holder" shall mean the Purchasers for so long as they own any
Registrable Securities and any person who is a holder or beneficial owner of any
Registrable Securities, for so long as such person owns any Registrable
Securities.
(h) "Indenture" shall mean the Indenture, dated as of July __, 1998,
between the Company and Bankers Trust Company, as Trustee.
(i) The term "person" shall mean a corporation, limited liability company,
association, partnership, organization, business, individual, trust, government
or political subdivision thereof or governmental agency.
(j) "Registrable Securities" shall mean the Securities; provided, however,
that such Securities shall cease to be Registrable Securities when (i) in the
circumstances contemplated by Section 2(a), such Securities have been exchanged
for Exchange Securities in an Exchange Offer as contemplated in Section 2(a)
provided, however, that any such Securities that, pursuant to the last two
sentences of Section 2(a), are included in a prospectus for use in connection
with resales by broker-dealers shall be deemed to be Registrable Securities with
respect to Sections 5, 6 and 9 until resale of such
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Exchange Securities has been effected within the 180-day period referred to in
Section 2(a); (ii) in the circumstances contemplated by Section 2(b), a
registration statement registering such Securities under the Securities Act has
been declared or becomes effective, and such Securities have been sold or
otherwise transferred by the holder thereof pursuant to such effective
registration statement; (iii) such Securities are sold pursuant to Rule 144
under circumstances in which any legend borne by such Securities relating to
restrictions on transferability thereof, under the Securities Act or otherwise,
is removed by the Company or pursuant to the Indenture, or such Securities are
eligible to be sold pursuant to paragraph (k) of Rule 144; or (iv) such
Securities shall cease to be outstanding.
(k) "Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
(l) "Restricted Holder" shall mean (i) a holder that is an affiliate
of the Company within the meaning of Rule 405 under the Securities Act,
(ii) a holder who acquires Exchange Securities outside the ordinary course
of such holder's business or (iii) a holder who has arrangements or
understandings with any person to participate in the Exchange Offer for the
purpose of distributing Exchange Securities.
(m) "Rule 144", "Rule 405" and "Rule 415" shall mean, in each case,
such rule promulgated under the Securities Act.
(n) "Securities" shall mean, collectively, the __% Senior Subordinated
Notes due 2008 of the Company to be issued and sold to the Purchasers and
any securities issued in exchange therefor or in lieu thereof pursuant to
the Indenture.
(o) "Securities Act" shall mean the Securities Act of 1933.
(p) "Shelf Registration" shall have the meaning assigned thereto in
Section 2 hereof.
(q) "Trust Indenture Act" shall mean the Trust Indenture Act of 1939,
or any successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Agreement, and the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision. Unless the context otherwise requires, any
reference to a statute, rule or regulation refers to the same (including any
successor statute, rule or regulation thereto) as it may be amended from time to
time.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Company agrees to
use its best efforts to file under the Securities Act, as soon as practicable,
but no later than 90 days after the Closing Date, a registration statement
relating to an offer to exchange (the "Exchange Offer") any and all of the
Securities for a like aggregate principal amount of debt securities of the
Company which are identical in all material respects to the Securities (and
which are entitled to the benefits of a trust indenture which is identical in
all material respects to the Indenture or is the Indenture and which
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has been qualified under the Trust Indenture Act) except that they have been
registered pursuant to an effective registration statement under the Securities
Act and will not contain provisions for the additional interest contemplated by
Section 2(c) hereof or provisions restricting transfer (such new debt securities
hereinafter called "Exchange Securities"). The Company agrees to use its best
efforts to cause such registration statement to become effective under the
Securities Act as soon as practicable thereafter. The Exchange Offer will be
registered under the Securities Act on the appropriate form and will comply with
all applicable tender offer rules and regulations under the Exchange Act. The
Company further agrees to use its best efforts to commence the Exchange Offer
promptly after such registration statement has become effective, hold the
Exchange Offer open for at least 30 days and exchange the Exchange Securities
for all Registrable Securities that have been validly tendered and not withdrawn
on or prior to the expiration of the Exchange Offer. The Exchange Offer will be
deemed to have been completed only if the Exchange Securities received by
holders (other than Restricted Holders) in the Exchange Offer for Registrable
Securities are, upon receipt, transferable by each such holder without
restriction under the Securities Act and without material restrictions under the
Blue Sky or securities laws of a substantial majority of the States of the
United States of America, it being understood that broker-dealers receiving
Exchange Securities will be subject to certain prospectus delivery requirements
with respect to resale of the Exchange Securities. The Exchange Offer shall be
deemed to have been completed at such time as the Company has exchanged the
Exchange Securities for all outstanding Registrable Securities that have been
validly tendered pursuant to the Exchange Offer and not withdrawn before the
expiration of the Exchange Offer, which shall be on a date that is at least 30
days following the commencement of the Exchange Offer. The Company agrees (i) to
include in the registration statement a prospectus for use in any resales by any
holder of Securities that is a broker-dealer and (ii) to keep such registration
statement effective for a period ending on the earlier of the 180th day after
the Exchange Offer has been completed or such time as such broker-dealers no
longer own any Registrable Securities. With respect to such registration
statement, such holders shall have the benefit of the rights of indemnification
and contribution set forth in Section 6 hereof.
(b) In the event that (i) on or prior to the consummation of the
Exchange Offer existing Commission interpretations are changed such that the
Exchange Securities received by holders (other than Restricted Holders) in the
Exchange Offer for Registrable Securities are not or would not be, upon receipt,
transferable by each such holder without restriction under the Securities Act,
(ii) the Exchange Offer has not been consummated on or before the 240th day
after the Closing Date or (iii) the Exchange Offer is not available to any
holder of Registrable Securities, the Company shall, in lieu of (or, in the case
of clause (iii), in addition to) conducting the Exchange Offer contemplated by
Section 2(a), file under the Securities Act as soon as practicable a "shelf"
registration statement providing for the registration of, and the sale on a
continuous or delayed basis by the holders of, all of the Registrable
Securities, pursuant to Rule 415 under the Securities Act and/or any similar
rule that may be adopted by the Commission (the "Shelf Registration"). The
Company agrees to use its best efforts to cause the Shelf Registration to become
or be declared effective as soon as practicable after the Closing Date and to
keep such Shelf Registration continuously effective for a period ending on the
earlier of the second anniversary of the initial effective date of registration
statement relating to the Shelf Registration or such time as all of the
Registrable Securities registered on such Shelf Registration have been sold
pursuant to thereto. The Company further agrees to supplement or make amendments
to the Shelf Registration, as and when required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration or by the Securities Act or rules and regulations thereunder
for shelf registration, and the Company agrees to
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furnish to the holders of the Registrable Securities copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) In the event that (i) the Company has not filed the registration
statement relating to the Exchange Offer (or, if applicable, the Shelf
Registration) on or before the 90th day after the Closing Date, or (ii) such
registration statement (or, if applicable, the Shelf Registration) has not
become effective or been declared effective by the Commission on or before the
210th day after the Closing Date, or (iii) the Exchange Offer has not been
completed within 30 business days after the initial effective date of the
registration statement (if the Exchange Offer is then required to be made) or
(iv) any registration statement required by Section 2(a) or 2(b) is filed and
declared effective but shall thereafter cease to be effective (except as
specifically permitted herein) without being succeeded immediately by an
additional registration statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), then the per
annum interest rate of the Securities as set forth in the Securities shall
increase by 0.5% during the first 90-day period following the occurrence of the
Registration Default, and the per annum interest rate on the Securities will
increase by an additional 0.5% for each subsequent 90-day period during which
any Registration Default remains in effect up to a maximum additional interest
rate of 1%, for the period from and including the date of occurrence of the
Registration Default to but excluding such date as no Registration Default is in
effect (at which time the interest rate will be restored to its initial rate).
In the event that the interest rate of the Securities is so increased, the
Company shall promptly notify the Trustee of such increase, including any
subsequent increase, and the beginning and ending dates therefor.
3. Registration Procedures.
If the Company files a registration statement pursuant to Section 2(a)
or Section 2(b), the following provisions shall apply:
(a) At or before the Effective Time of the Exchange Offer or the Shelf
Registration, as the case may be, the Company shall qualify the Indenture
under the Trust Indenture Act of 1939.
(b) In the event that such qualification would require the appointment
of a new trustee under the Indenture, the Company shall appoint a new
trustee thereunder pursuant to the applicable provisions of the Indenture.
(c) In connection with the Company's obligations with respect to the
Shelf Registration, if applicable, the Company shall use its best efforts
to effect or cause the Shelf Registration to permit the sale of the
Registrable Securities by the holders thereof in accordance with the
intended method or methods of distribution thereof described in the Shelf
Registration. In connection therewith, the Company shall:
(i) as soon as reasonably possible, prepare and file with the
Commission a registration statement with respect to the Shelf
Registration on any form which may be utilized by the Company and
which shall permit the disposition of the Registrable Securities in
accordance with the intended method or methods thereof, as specified
in writing by the holders of the Registrable Securities, and use its
best efforts to cause such registration statement to become effective
as soon as reasonably possible thereafter;
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(ii) as soon as reasonably possible, prepare and file with the
Commission such amendments and supplements to such registration
statement and the prospectus included therein as may be necessary to
effect and maintain the effectiveness of such registration statement
for the period specified in Section 2(b) hereof and as may be required
by the applicable rules and regulations of the Commission and the
instructions applicable to the form of such registration statement,
and furnish to the holders of the Registrable Securities copies of any
such supplement or amendment prior to its being used and/or filed with
the Commission;
(iii) as soon as reasonably possible, comply with the provisions
of the Securities Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in
accordance with the intended methods of disposition by the holders
thereof set forth in such registration statement;
(iv) provide (A) the holders of the Registrable Securities to be
included in such registration statement, (B) the underwriters (which
term, for purposes of this Agreement, shall include a person deemed to
be an underwriter within the meaning of Section 2(11) of the
Securities Act) if any, thereof, (C) the sales or placement agent, if
any, therefor, (D) counsel for such underwriters or agent, and (E) not
more than one counsel for all the holders of such Registrable
Securities the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with
the Commission, and each amendment or supplement thereto;
(v) for a reasonable period prior to the filing of such
registration statement, and throughout the period specified in Section
2(b), make available at reasonable times at the Company's principal
place of business or such other reasonable place for inspection by the
parties referred to in Section 3(c)(iv) who shall certify to the
Company that they have a current intention to sell the Registrable
Securities pursuant to the Shelf Registration such financial and other
information and books and records of the Company, and cause the
officers, employees, counsel and independent certified public
accountants of the Company to respond to such inquiries, as shall be
reasonably necessary, in the reasonable judgment of the respective
counsel referred to in such Section, to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act;
provided, however, that each such party shall be required to maintain
in confidence and not to disclose to any other person any information
or records designated by the Company in writing as being confidential,
until such time as (A) such information becomes a matter of public
record (whether by virtue of its inclusion in such registration
statement or otherwise), or (B) such person shall be required, or
shall deem it advisable, so to disclose such information pursuant to
the subpoena or order of any court or other governmental agency or
body having jurisdiction over the matter (subject to the requirements
of such order, and only after such person shall have given the Company
prompt prior written notice thereof), or (C) such information is
required to be set forth in such registration statement or the
prospectus included therein or in an amendment to such registration
statement or an amendment or supplement to such prospectus in order
that such registration statement, prospectus, amendment or supplement,
as the case may be, does not contain an untrue statement of a material
fact or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
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(vi) promptly notify the selling holders of Registrable
Securities, the sales or placement agent, if any, therefor and the
managing underwriter or underwriters, if any, thereof and confirm such
advice in writing, (A) when such registration statement or the
prospectus included therein or any prospectus amendment or supplement
or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same
has become effective, (B) of any comments by the Commission, the Blue
Sky or securities commissioner or regulator of any state with respect
thereto or any request by the Commission for amendments or supplements
to such registration statement or prospectus or for additional
information, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or the
initiation or threatening of any proceedings for that purpose, (D) if
at any time the representations and warranties of the Company
contemplated by Section 3(c)(xv) or Section 5 cease to be true and
correct in all material respects, (E) of the receipt by the Company of
any notification with respect to the suspension of the qualification
of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, or (F)
at any time when a prospectus is required to be delivered under the
Securities Act, if such registration statement, prospectus, prospectus
amendment or supplement or post-effective amendment, or any document
incorporated by reference in any of the foregoing, contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(vii) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
(viii) if requested by any managing underwriter or underwriters,
any placement or sales agent or any holder of Registrable Securities,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as is required by the applicable rules and
regulations of the Commission and as such managing underwriter or
underwriters, such agent or such holder specifies should be included
therein relating to the terms of the sale of such Registrable
Securities, including, without limitation, information with respect to
the principal amount of Registrable Securities being sold by such
holder or agent or to any underwriters, the name and description of
such holder, agent or underwriter, the offering price of such
Registrable Securities and any discount, commission or other
compensation payable in respect thereof, the purchase price being paid
therefor by such underwriters and with respect to any other terms of
the offering of the Registrable Securities to be sold by such holder
or agent or to such underwriters; and make all required filings of
such prospectus supplement or post-effective amendment promptly after
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
(ix) furnish to each holder of Registrable Securities, each
placement or sales agent, if any, therefor, each underwriter, if any,
thereof and the respective counsel referred to in Section 3(c)(iv) an
executed copy of such registration statement, each such amendment and
supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein) and such number of copies
of such registration statement (excluding exhibits thereto and
documents incorporated by reference therein unless specifically so
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requested by such holder, agent or underwriter, as the case may be)
and of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents, as such holder, agent, if any, and underwriter, if any, may
reasonably request in order to facilitate the offering and disposition
of the Registrable Securities owned by such holder, offered or sold by
such agent or underwritten by such underwriter and to permit such
holder, agent and underwriter to satisfy the prospectus delivery
requirements of the Securities Act; and the Company hereby consents to
the use of such prospectus (including such preliminary and summary
prospectus) and any amendment or supplement thereto by each such
holder and by any such agent and underwriter, in each case in the form
most recently provided to such party by the Company, in connection
with the offering and sale of the Registrable Securities covered by
the prospectus (including such preliminary and summary prospectus) or
any supplement or amendment thereto;
(x) use its best efforts to (A) register or qualify the
Registrable Securities to be included in such registration statement
under such securities laws or Blue Sky laws of such jurisdictions as
any holder of such Registrable Securities and each placement or sales
agent, if any, therefor and underwriter, if any, thereof shall
reasonably request, (B) keep such registrations or qualifications in
effect and comply with such laws so as to permit the continuance of
offers, sales and dealings therein in such jurisdictions during the
period the Shelf Registration is required to remain effective under
Section 2(b) above and for so long as may be necessary to enable any
such holder, agent or underwriter to complete its distribution of
Securities pursuant to such registration statement and (C) take any
and all other actions as may be reasonably necessary or advisable to
enable each such holder, agent, if any, and underwriter, if any, to
consummate the disposition in such jurisdictions of such Registrable
Securities; provided, however, that the Company shall not be required
for any such purpose to (1) qualify as a foreign corporation in any
jurisdiction wherein it would not otherwise be required to qualify but
for the requirements of this Section 3(c)(x), (2) consent to general
service of process or taxation in any such jurisdiction or (3) make
any changes to its articles of incorporation or by-laws or any
agreement between it and its stockholders;
(xi) use its best efforts to obtain the consent or approval of
each governmental agency or authority, whether federal, state,
provincial or local, which may be required to effect the Shelf
Registration or the offering or sale in connection therewith or to
enable the selling holder or holders to offer, or to consummate the
disposition of, their Registrable Securities;
(xii) cooperate with the holders of the Registrable Securities
and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any restric
tive legends; and, in the case of an underwritten offering, enable
such Registrable Securities to be in such denominations and registered
in such names as the managing underwriters may request at least two
business days prior to any sale of the Registrable Securities;
(xiii) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the Shelf Registration;
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(xiv) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, including (without limitation)
customary provisions relating to indemnification and contribution,
and take such other actions in connection therewith as any holders of
Registrable Securities aggregating at least 25% in aggregate principal
amount of the Registrable Securities at the time outstanding shall
request in order to expedite or facilitate the disposition of such
Registrable Securities; provided, that the Company shall not be
required to enter into any such agreement more than twice with respect
to all of the Registrable Securities and may delay entering into such
agreement until the consummation of any underwritten public offering
which the Company shall have then engaged;
(xv) whether or not an agreement of the type referred to in
Section (3)(c)(xiv) hereof is entered into and whether or not any
portion of the offering contemplated by such registration statement is
an underwritten offering or is made through a placement or sales agent
or any other entity, (A) make such representations and warranties to
the holders of such Registrable Securities and the placement or sales
agent, if any, therefor and the underwriters, if any, thereof
substantially the same as those set forth in Section 1 of the Purchase
Agreement dated the date hereof and such other representations and
warranties in form, substance and scope as are customarily made in
connection with an offering of debt securities pursuant to any
appropriate agreement and/or to a registration statement filed on the
form applicable to the Shelf Registration; (B) obtain an opinion or
opinions of counsel to the Company in customary form and covering such
other matters of the type customarily covered by such an opinion, as
the managing underwriters, if any, and as any holders of at least 25%
in aggregate principal amount of the Registrable Securities at the
time outstanding may reasonably request, addressed to such holder or
holders and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof and dated the effective date of such
registration statement (and if such registration statement
contemplates an underwritten offering of a part or all of the
Registrable Securities, dated the date of the closing under the
underwriting agreement relating thereto) (it being agreed that the
matters to be covered by such opinion shall include, without
limitation, the due incorporation and good standing of the Company and
its subsidiaries; the due authorization, execution and delivery of the
relevant agreement of the type referred to in Section (3)(c)(xiv)
hereof; the due authorization, execution, authentication and issuance,
and the validity and enforceability, of the Securities; the absence of
material legal or governmental proceedings involving the Company; the
absence of a breach by the Company or any of its subsidiaries of, or a
default under, material agreements binding upon the Company or any
subsidiary of the Company; the absence of governmental approvals
required to be obtained in connection with the Shelf Registration, the
offering and sale of the Registrable Securities, this Agreement or any
agreement of the type referred to in Section (3)(c)(xiv) hereof,
except such approvals as may be required under state securities or
Blue Sky laws; the compliance as to form of such registration
statement and any documents incorporated by reference therein and of
the Indenture with the requirements of the Securities Act and the
Trust Indenture Act, respectively; and, as of the date of the opinion
and of the registration statement or most recent post-effective
amendment thereto, as the case may be, the absence from such
registration statement and the prospectus included therein, as then
amended or supple mented, and from the documents incorporated by
reference therein (in each case other than the financial statements
and other financial information contained therein) of an untrue
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statement of a material fact or the omission to state therein a
material fact necessary to make the statements therein not misleading
(in the case of such documents, in the light of the circumstances
existing at the time that such documents were filed with the
Commission under the Exchange Act)); (C) obtain a "cold comfort"
letter or letters from the independent certified public accountants of
the Company addressed to the selling holders of Registrable Securities
and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof, dated (i) the effective date of such
registration statement and (ii) the date of any prospectus supplement
to the prospectus included in such registration statement or the
effective date of any post-effective amendment to such registration
statement which includes unaudited or audited financial statements as
of a date or for a period subsequent to that of the latest such
statements included in such prospectus (and, if such registration
statement contemplates an underwritten offering pursuant to any
prospectus supplement to the prospectus included in such registration
statement or post-effective amendment to such registration statement
which includes unaudited or audited financial statements as of a date
or for a period subsequent to that of the latest such statements
included in such prospectus, dated the date of the closing under the
underwriting agreement relating thereto), such letter or letters to be
in customary form and covering such matters of the type customarily
covered by letters of such type; (D) deliver such documents and
certificates, including officers' certificates, as may be reasonably
requested by any holders of at least 25% in aggregate principal amount
of the Registrable Securities at the time outstanding and the
placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof to evidence the accuracy of the
representations and warranties made pursuant to clause (A) above or
those contained in Section 5(a) hereof and the compliance with or
satisfaction of any agreements or conditions contained in the
underwriting agreement or other agreement entered into by the Company;
and (E) undertake such obligations relating to expense reimbursement,
indemnification and contribution as are provided in Section 6 hereof;
(xvi) notify in writing each holder of Registrable Securities of
any proposal by the Company to amend or waive any provision of this
Agreement pursuant to Section 9(h) hereof and of any amendment or
waiver effected pursuant thereto, each of which notices shall contain
the text of the amendment or waiver proposed or effected, as the case
may be;
(xvii) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities or
participate as a member of an underwriting syndicate or selling group
or "assist in the distribution" (within the meaning of the Rules of
Conduct (the "Rules of Conduct") of the National Association of
Securities Dealers, Inc. ("NASD")) thereof, whether as a holder of
such Registrable Securities or as an underwriter, a placement or sales
agent or a broker or dealer in respect thereof, or otherwise,
reasonably assist such broker-dealer in complying with the
requirements of such Rules of Conduct, including, without limitation,
by (A) if such Rules of Conduct shall so require, engaging a
"qualified independent underwriter" (as defined in such Rules of
Conduct) to participate in the preparation of the registration
statement relating to such Registrable Securities, to exercise usual
standards of due diligence in respect thereto and, if any portion of
the offering contemplated by such registration statement is an
underwritten offering or is made through a placement or sales agent,
to recommend the yield of such Registrable Securities, (B)
indemnifying any such qualified independent underwriter to the extent
of the indemnification of underwriters provided in Section 6 hereof,
and (C) providing such
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information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the Rules of Conduct;
and
(xviii) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders as
soon as practicable but in any event not later than 18 months after
the effective date of such registration statement, an earning
statement of the Company and its consolidated subsidiaries complying
with Section 11(a) of the Securities Act (including, at the option of
the Company, Rule 158 thereunder).
(d) In the event that the Company would be required, pursuant to
Section 3(c)(vi)(F) above, to notify the selling holders of Registrable
Securities, the placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof, the Company shall without delay prepare and
furnish to each such holder, to each placement or sales agent, if any, and to
each underwriter, if any, a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Registrable Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing. Each holder of Registrable Securities agrees that
upon receipt of any notice from the Company pursuant to Section 3(c)(vi)(F)
hereof, such holder shall forthwith discontinue the disposition of Registrable
Securities pursuant to the registration statement applicable to such Registrable
Securities until such holder shall have received copies of such amended or
supplemented prospectus, and if so directed by the Company, such holder shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
covering such Registrable Securities at the time of receipt of such notice.
(e) The Company may require each holder of Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding such holder and such holder's intended method of
distribution of such Registrable Securities as the Company may from time to time
request in writing, but only to the extent that such information is required in
order to comply with the Securities Act. Each such holder agrees to notify the
Company as promptly as practicable of any inaccuracy or change in information
previously furnished by such holder to the Company or of the occurrence of any
event in either case as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such holder or such holder's intended method of distribution of such
Registrable Securities or omits to state any material fact regarding such holder
or such holder's intended method of distribution of such Registrable Securities
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and promptly to furnish
to the Company any additional information required to correct and update any
previously furnished information or required so that such prospectus shall not
contain, with respect to such holder or the distribution of such Registrable
Securities, an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid all expenses
incident to the Company's performance of or compliance with this Agreement,
including, without limitation, (a)
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all Commission and any NASD registration and filing fees and expenses, (b) all
fees and expenses in connection with the qualification of the Securities or
Exchange Securities for offering and sale under the State securities and Blue
Sky laws referred to in Section 3(c)(x) hereof, including reasonable fees and
disbursements of counsel for the placement or sales agent or underwriters in
connection with such qualifications, (c) all expenses relating to the
preparation, printing, distribution and reproduction of each registration
statement required to be filed hereunder, each prospectus included therein or
prepared for distribution pursuant hereto, each amendment or supplement to the
foregoing, the certificates representing the Securities and Exchange Securities
and all other documents relating hereto, (d) messenger and delivery expenses,
(e) fees and expenses of the Trustee under the Indenture and of any escrow agent
or custodian, (f) internal expenses (including, without limitation, all salaries
and expenses of the Company's officers and employees performing legal or
accounting duties), (g) fees, disbursements and expenses of counsel and
independent certified public accountants of the Company (including the expenses
of any opinions or "cold comfort" letters required by or incident to such
performance and compliance), (h) fees, disbursements and expenses of any
"qualified independent underwriter" engaged pursuant to Section 3(c)(xvii)
hereof, (i) fees, disbursements and expenses of one counsel for the holders of
Registrable Securities retained in connection with a Shelf Registration, as
selected by the holders of at least a majority in aggregate principal amount of
the Registrable Securities being registered, and fees, expenses and
disbursements of any other persons, including special experts, retained by the
Company in connection with such registration (collectively, the "Registration
Expenses"). To the extent that any Registration Expenses are incurred, assumed
or paid by any holder of Registrable Securities or any placement or sales agent
therefor or underwriter thereof, the Company shall reimburse such person for the
full amount of the Registration Expenses so incurred, assumed or paid promptly
after receipt of a request therefor. Notwithstanding the foregoing, the holders
of the Registrable Securities being registered shall pay all agency fees,
brokerage fees and commissions and underwriting discounts and commissions and
transfer taxes, if any, attributable to the sale of such Registered Securities
and the fees and disbursements of any counsel or other advisors or experts
retained by such holders (severally or jointly), and any other out-of-pocket
expenses of such holders, other than the counsel and experts specifically
referred to above.
5. Representations and Warranties.
The Company represents and warrants to, and agrees with, the
Purchasers and each of the holders from time to time of Registrable Securities
that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus) contained
therein or furnished pursuant to Section 3(c)(ix) hereof and any further
amendments or supplements to any such registration statement or prospectus,
when it becomes effective or is filed with the Commission, as the case may
be, and, in the case of an underwritten offering of Registrable Securities,
at the time of the closing under the underwriting agreement relating
thereto, will conform in all material respects to the requirements of the
Securities Act and the Trust Indenture Act and any such registration
statement and any amendment thereto will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and any
such prospectus or any amendment or supplement thereto will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the
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<PAGE>
circumstances then existing; and at all times subsequent to the Effective
Time when a prospectus would be required to be delivered under the
Securities Act, other than from (i) such time as a notice has been given to
holders of Registrable Securities pursuant to Section 3(c)(vi)(F) hereof
until (ii) such time as the Company furnishes an amended or supplemented
prospectus pursuant to Section 3(d) hereof, each such registration
statement, and each prospectus (including any summary prospectus) contained
therein or furnished pursuant to Section 3(c)(ix) hereof, as then amended
or supplemented, will conform in all material respects to the requirements
of the Securities Act and the Trust Indenture Act and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by a holder of Registrable
Securities expressly for use therein.
(b) Any documents incorporated by reference in any prospectus
referred to in Section 5(a) hereof, when they become or became effective or
are or were filed with the Commission, as the case may be, will conform or
conformed in all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and none of such documents will
contain or contained an untrue statement of a material fact or will omit or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by a holder of Registrable Securities expressly for
use therein.
(c) The compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated will
not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
subsidiary of the Company is a party or by which the Company or any
subsidiary of the Company is bound or to which any of the property or
assets of the Company or any subsidiary of the Company is subject, nor will
such action result in any violation of the provisions of the articles of
incorporation or by-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any subsidiary of the Company or any of
their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Securities Act of the Registrable Securities, qualification of the
Indenture under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
State securities or Blue Sky laws in connection with the offering and
distribution of the Registrable Securities.
(d) This Agreement has been duly authorized, executed and delivered
by the Company.
6. Indemnification.
(a) Indemnification by the Company. Upon the registration of the
Registrable Securities pursuant to Section 2 hereof, and in consideration of the
agreements of the Purchasers contained
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herein, and as an inducement to the Purchasers to purchase the Securities, the
Company shall, and it hereby agrees to, indemnify and hold harmless each of the
holders of Registrable Securities to be included in such registration, and each
person who participates as a placement or sales agent or as an underwriter in
any offering or sale of such Registrable Securities against any losses, claims,
damages or liabilities, joint or several, to which such holder, agent or
underwriter may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act, or any
preliminary, final or summary prospectus contained therein or furnished by the
Company to any such holder, agent or underwriter, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company shall reimburse such
holder, such agent and such underwriter for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable to any such person in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, or preliminary, final or summary
prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by holders of
Registrable Securities expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters.
The Company may require, as a condition to including any Registrable Securities
in any registration statement filed pursuant to Section 2 hereof and to entering
into any underwriting agreement with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from each holder of
such Registrable Securities and from each underwriter named in any such
underwriting agreement, severally and not jointly, to indemnify and hold
harmless the Company and all other holders of Registrable Securities, against
any losses, claims, damages or liabilities to which the Company or such other
holders of Registrable Securities may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any such holder, agent or underwriter, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such holder
or underwriter expressly for use therein, provided, however, that no such holder
shall be required to undertake liability to any person under this Section 6(b)
for any amounts in excess of the dollar amount of the proceeds to be received by
such holder from the sale of such holder's Registrable Securities pursuant to
such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing
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of the commencement of such action; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party, other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party (which consent shall not be
unreasonably withheld), be counsel to the indemnifying party), and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, such indemnifying party shall not be liable to such
indemnified party for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party. No
indemnifying party shall be liable for the cost of any settlement effected by an
indemnified party without the written consent of such indemnifying party, which
consent shall not be unreasonably withheld.
(d) Contribution. Each party hereto agrees that, if for any reason
the indemnification provisions contemplated by Section 6(a) or Section 6(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
Section 6(d) were determined by pro rata allocation (even if the holders or any
agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 6(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such holder from the sale of any Registrable
Securities (after deducting any fees, discounts and commis sions applicable
thereto) exceeds the amount of any
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<PAGE>
damages which such holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission, and no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The holders' and any
underwriters' obligations in this Section 6(d) to contribute shall be several in
proportion to the principal amount of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each holder, agent and underwriter and each person, if any, who controls any
holder, agent or underwriter within the meaning of the Securities Act; and the
obligations of the holders and any underwriters contemplated by this Section 6
shall be in addition to any liability which the respective holder or underwriter
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his consent,
is named in any registration statement as about to become a director of the
Company) and to each person, if any, who controls the Company within the meaning
of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall be designated
by the holders of at least a majority in aggregate principal amount of the
Registrable Securities to be included in such offering, provided that such
designated managing underwriter or underwriters is or are reasonably acceptable
to the Company.
(b) Participation by Holders. Each holder of Registrable Securities
hereby agrees with each other such holder that no such holder may participate in
any underwritten offering hereunder unless such holder (1) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
The Company covenants to the holders of Registrable Securities that to
the extent it shall be required to do so under the Exchange Act, it shall timely
file the reports required to be filed by it under the Exchange Act or the
Securities Act (including, but not limited to, the reports under Section 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144) and
the rules and regulations adopted by the Commission thereunder, and shall take
such further action as any holder of Registrable Securities who is unable to
sell Registrable Securities pursuant to an
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<PAGE>
effective registration statement may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitations of the
exemption provided by Rule 144 or any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities in connection with that holder's sale pursuant to Rule 144, the
Company shall deliver to such holder a written statement as to whether it has
complied with such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Registrable Securities or any other securities which
would be inconsistent with the terms contained in this Agreement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under this Agreement
in accordance with the terms and conditions of this Agreement, in any court of
the United States or any State thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, if delivered personally or by courier,
or three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Company, to it
at 711 5th Avenue, New York, New York 10022, Attention: President, Senior Vice
President Finance and General Counsel and if to a holder, to the address of such
holder set forth in the security register or other records of the Company, or to
such other address as any party may have furnished to the others in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
(d) Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective successors and assigns of the parties hereto. In
the event that any transferee of any holder of Registrable Securities shall
validly acquire Registrable Securities, in any manner, whether by gift, bequest,
purchase, operation of law or otherwise, such transferee shall, without any
further writing or action of any kind, be deemed a party hereto for all purposes
and such Registrable Securities shall be held subject to all of the terms of
this Agreement, and by validly taking and holding such Registrable Securities
such transferee shall be entitled to receive the benefits of and be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement.
(e) Survival. The respective indemnities, agreements,
representations, warranties and each other provision set forth in this Agreement
or made pursuant hereto shall remain in full force and effect regardless of any
investigation (or statement as to the results thereof) made by or on behalf of
any holder of Registrable Securities, any director, officer or partner of such
holder, any agent or underwriter or any director, officer or partner thereof, or
any controlling person of any of the foregoing, and shall survive delivery of
and payment for the Registrable Securities pursuant to the
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Purchase Agreement and the transfer and registration of Registrable Securities
by such holder and the consummation of an Exchange Offer.
(f) LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
(h) Entire Agreement; Amendments. This Agreement and the other
writings referred to herein (including the Indenture and the form of Securities)
or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter. This Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a written instrument
duly executed by the Company and the holders of at least 66-2/3 percent in
aggregate principal amount of the Registrable Securities at the time
outstanding. Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any amendment or waiver effected pursuant to this
Section 9(h), whether or not any notice, writing or marking indicating such
amendment or waiver appears on such Registrable Securities or is delivered to
such holder.
(i) Inspection. For so long as this Agreement shall be in effect,
this Agreement and a complete list of the names and addresses of all the holders
of Registrable Securities shall be made available upon reasonable notice to the
Company for inspection and copying on any business day by any holder of
Registrable Securities at the offices of the Company at the address thereof set
forth in Section 9(c) above and at the office of the Trustee under the
Indenture.
(j) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
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<PAGE>
Agreed to and accepted as of the date referred to above.
LOEWS CINEPLEX
ENTERTAINMENT CORPORATION
By:_____________________________
Name:
Title:
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
BT ALEX. BROWN
SALOMON BROTHERS INC
By: GOLDMAN, SACHS & CO.
____________________________
(Goldman, Sachs & Co.)
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<PAGE>
EXHIBIT 5.1
[Letterhead of Fried, Frank, Harris, Shriver & Jacobson]
212-859-8000
July 29, 1998 (FAX: 212-859-4000)
Loews Cineplex Entertainment Corporation
711 Fifth Avenue
11th Floor
New York, NY 10022
We are acting as special counsel to Loews Cineplex Entertainment
Corporation, a Delaware corporation (the "Company"), in connection with the
Registration Statement on Form S-1 (No. 333-56897), as amended (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the underwritten public offering of shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock") of the
Company, including Shares which may be offered and sold upon the exercise of
over-allotment options granted to the underwriters. The Shares are to be sold
to the public pursuant to an underwriting agreement among the Company, Credit
Suisse First Boston Corporation, Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated, Goldman, Sachs & Co. and Smith Barney Inc., as representatives of
the underwriters. Capitalized terms used herein have the meanings set forth in
the Registration Statement, unless otherwise defined herein.
With your permission, all assumptions and statements of reliance
herein have been made without any independent investigation or verification on
our part except to the extent otherwise expressly stated, and we express no
opinion with respect to the subject matter or accuracy of such assumptions or
items relied upon.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
the Company, such certificates of public officials and such other documents, and
(iii) reviewed such information from officers and representatives of the Company
and others as we have deemed necessary or appropriate for the purposes of this
opinion.
<PAGE>
Loews Cineplex
Entertainment Corporation -2- July 29, 1998
In all such examinations, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures on original or certified
copies and the conformity to original or certified documents of all copies
submitted to us as conformed or reproduction copies. As to various questions of
fact relevant to the opinions expressed herein, we have relied upon, and assume
the accuracy of, representations and warranties contained in the documents and
certificates and oral or written statements and other information of or from
public officials and officers and representatives of the Company and others and
assume compliance on the part of all parties to the documents with their
covenants and agreements contained therein. To the extent it may be relevant to
the opinions expressed herein, we have also assumed, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that, if
the Shares are issued and distributed as described in the Registration
Statement, at such time of issuance, the Shares will be validly issued, fully
paid and non-assessable.
The opinion expressed herein is limited to the General Corporation Law
of the State of Delaware, as currently in effect. The opinions expressed herein
are given as of the date hereof, and we assume no obligations to supplement this
letter if any applicable laws change after the date hereof or if we become aware
of any facts that might change the opinions expressed herein after the date
hereof or for any other reason.
<PAGE>
Loews Cineplex
Entertainment Corporation -3- July 29, 1998
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In giving such consent, we do not hereby admit that we are in the category of
such persons whose consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
Fried, Frank, Harris, Shriver & Jacobson
By /s/ David C. Golay
------------------
David C. Golay
<PAGE>
EXHIBIT 10.12
November 28, 1997
Mr. Allen Karp
President and Chief Executive Officer
Cineplex Odeon Corporation
1303 Yonge Street
Toronto, Ontario
M4T 2Y9
Dear Mr. Karp:
This Agreement is being entered into with you in contemplation of the proposed
merger (the "Merger") of the business operations of Cineplex Odeon Corporation
("Cineplex") and LTM Holdings Inc. ("LTM") which will result in Cineplex
becoming a wholly-owned subsidiary of the merged corporation (to be renamed
Loews Cineplex Entertainment Corporation) ("Loews Cineplex"). In connection
therewith, Cineplex considers the continuance of a sound and vital management to
be essential to protecting and enhancing the best interests of Cineplex, Loews
Cineplex and the shareholders of Loews Cineplex (the "Company"). Accordingly,
the Board of Directors of Cineplex (the "Board") has determined that appropriate
steps should be taken to reinforce and encourage you to continue employment with
Cineplex.
This Agreement further amends, with effect from and after completion of the
Merger, and again restates the restated agreement dated July 4, 1996 (as
subsequently amended) and which was accepted by you on July 4, 1996, governing
your employment with Cineplex. If, however, the Merger is not completed for any
reason, the aforesaid restated agreement (as subsequently amended) shall
continue in full force and effect without reference to this Agreement (except
the first sentence of paragraph 4(b)(ii) hereof). If the Merger is completed,
Loews Cineplex shall assume this Agreement and agree to cause Cineplex to employ
you as contemplated herein and agree to cause Cineplex to pay to you the amounts
contemplated herein and Cineplex hereby agrees with you to use its best efforts
to cause Loews Cineplex to assume this Agreement as aforesaid.
With the foregoing background, you and Cineplex agree as follows:
1. Employment and Services
Cineplex will continue to employ you and you will continue to perform your full-
time services as Chairman and Chief Executive Officer of Cineplex upon the terms
and conditions hereinafter set forth.
<PAGE>
It is expressly understood and agreed that it shall not be a violation of this
Agreement for you to (a) serve on corporate, civic or charitable boards or
committees approved by the Chairman of the Compensation Committee of the Board
(such approval not to be unreasonably withheld); (b) deliver lectures, fulfil
speaking engagements or teach at educational institutions; and (c) manage
personal investments; so long as such activities do not materially and adversely
affect the performance by you of your responsibilities as an executive of the
Company in accordance with this Agreement and do not reflect adversely on the
Company to a material extent. It is further understood and agreed that to the
extent that any such activities have been conducted by you prior to the
Effective Date (as hereinafter defined) and have been notified to the current
Chairman of the Compensation Committee of the Board in writing prior to the date
hereof, the continued conduct of such activities subsequent to the Effective
Date shall thereafter be deemed not to materially and adversely affect your
ability to perform your responsibilities hereunder or to reflect adversely on
the Company.
You will perform such services as required from time to time by the Board;
provided, however, that without your prior consent you shall not be required to
perform services other than those comparable in scope and dignity to those
typically performed by a Chief Executive Officer of a company which is a wholly-
owned subsidiary of a U.S. parent and which carries on a business similar in
size and scope to that to be carried on by Cineplex after the Merger. Without
limiting the generality of the foregoing, services to be performed by you shall
be deemed to be not comparable in scope and dignity as aforesaid if there shall
occur a material adverse change in your status, position or salary group or
scope of responsibility as an executive in effect as at the Effective Date
including, without limitation, (i) a material diminution of the scope of your
duties or responsibilities; (ii) the addition to Cineplex of new executive
positions with equal or greater title, status or responsibility; (iii) any
material change in your reporting responsibility as a result of which you no
longer report directly and solely to the Chief Executive Officer of Loews
Cineplex; (iv) the assignment to you of any duties or areas of responsibilities
which are materially inconsistent with such status or position(s) or
responsibilities undertaken as at the Effective Date; or (v) any removal of you
from, or any failure to reappoint or re-elect you to, the offices referred to in
the first paragraph of this Section 1 (except in connection with the termination
of your employment pursuant to Section 7); provided, however, that in the event
of any such occurrence, Cineplex shall have ten Business Days following receipt
of notice (given in accordance with Section 12) from you to cure such
occurrence. For greater certainty, it shall be a material adverse change in your
status and position if you shall cease to be a member of the Board or of the
Board of Directors of Loews Cineplex, unless such change results from your
voluntary resignation or refusal to stand for re-election or unless your
appointment to the Board or to the Board of Directors of Loews Cineplex is
contrary to applicable laws. In this Agreement, "Business Day" means a day other
than a Saturday or Sunday on which banks are open for business during normal
business hours in the City of Toronto.
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2. Results and Proceeds
As your employer, Cineplex shall own all rights in and to the results and
proceeds connected with or arising out of, directly or indirectly, your services
hereunder.
3. Term
The term of this Agreement shall commence on the date of completion of the
Merger (the "Effective Date") and, subject to Sections 7, 8 and 9A, continue
until the third (3rd) anniversary of the Effective Date (the "Expiry Date"),
unless extended pursuant to the provisions of this Section 3.
Cineplex and you agree and acknowledge that neither Cineplex nor you has any
obligation to renew this Agreement or to continue your employment after
expiration of the term hereunder, and Cineplex and you expressly acknowledge
that no promises or understandings to the contrary have been made or reached.
Subject to Subsection 8(a) and Sections 9A and 10 hereof:
(a) if you determine not to renew this Agreement upon its expiry, you shall
notify Cineplex in writing on or before the date which is one year prior to
the Expiry Date (or one year prior to the expiry of any extension of this
Agreement provided for herein) (provided that if such date is not a
Business Day, on or before the immediately preceding Business Day) (such
date one year prior to expiry without adjustment if not a Business Day
being herein called the "One Year Notice Date"); or
(b) if Cineplex determines not to renew this Agreement upon its expiry,
Cineplex shall notify you in writing after the date which is six (6) months
prior to the One Year Notice Date but on or before the One Year Notice
Date, or thereafter on any Business Day during the first six (6) months of
the last year of the term hereof (or during the first six (6) months of any
extension thereof provided for herein) (such six (6) month period being
herein called the "Six-Month Notice Period"), provided that Cineplex may,
instead of providing notice of non-renewal on or before the One Year Notice
Date, be entitled to deliver written notice to you on or before the One
Year Notice Date electing not to renew this Agreement upon its expiry and
terminating your employment hereunder effective on the One Year Notice
Date. For greater certainty, if Cineplex determines not to renew this
Agreement upon its expiry after the One Year Notice Date but during the
Six-Month Notice Period, it may not, except as permitted pursuant to
Subsection 7(a), deliver to you notice of immediate termination during that
period, but only notice of non-renewal as aforesaid.
Failing such notice by either party, the term of this Agreement shall be deemed
to have been extended by a period of one year from the date upon which it would
otherwise have expired and the "Expiry Date" shall mean the last day of such
year. Failure to give such notices from time to time shall again operate to
extend the term for further periods of one year each; provided that any
extension which would otherwise extend the term beyond your normal retirement
age (applicable to employees generally under Company policy) shall only extend
the term to your normal retirement age. The parties acknowledge that the normal
retirement age is presently 65.
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You and Cineplex hereby agree that the provisions of Section 2 of the Employers
and Employees Act (Ontario) shall not apply to this Agreement.
4. Compensation
(a) Base Salary
For your services rendered under this Agreement, Cineplex shall pay you an
annual base salary of U.S. Five Hundred and Fifty Thousand Dollars (U.S.
$550,000), or such higher salary as may be determined by the Board at a
review to be held annually or more frequently if the Board so determines
("Base Salary"). Base Salary shall be converted into Canadian dollars as
hereinafter provided and shall be paid in equal installments on Cineplex's
regular paydays during the term, subject to usual and required payroll
deductions and withholdings.
For the period January 1 to June 30 of each year, Base Salary shall be
converted into Canadian dollars at the Bank of Canada noon rate on November
15 of the prior year or, if such date is not a Business Day, on the
immediately preceding Business Day. For the period July 1 to December 31 of
each year, Base Salary shall be converted into Canadian dollars at the Bank
of Canada noon rate on May 15 of such year provided that if such date is
not a Business Day, on the immediately preceding Business Day. You and
Cineplex agree to review the manner in which Base Salary is converted into
Canadian dollars in the event of significant changes in the U.S./Canadian
exchange rate.
(b) Bonus
(i) You shall be entitled in respect of each year of the term of this
Agreement to a bonus ("Minimum Bonus"), paid in cash, of at least U.S.
One and Hundred and Fifty-five Thousand Dollars (U.S.$155,000) (pro-
rated where appropriate in respect of part years, if any). You
acknowledge that the payment of additional bonuses in any year is a
matter in the sole discretion of the Board. Cineplex confirms to you
its existing policy that the question of bonus payments will be
considered by the Board at least annually; that additional bonuses, if
any, may be in amounts equal to up to 100% of Base Salary minus
Minimum Bonus and may be paid in cash, Loews Cineplex common shares or
a combination of the two; and that the decision as to payment and
amount will take into account primarily individual performance and
corporate performance and may take into account such other secondary
factors as the Board deems appropriate. Any decision of the Board with
respect to the amount or form of an additional bonus, if any, shall be
final and binding upon you. Bonus payments shall be converted into
Canadian dollars at the Bank of Canada noon rate on either November 15
or May 15 (or if such date is not a Business Day, the immediately
preceding Business Day) depending on the period in which they are paid
as provided in Subsection 4(a).
(ii) You acknowledge receipt of a special one-time non-refundable cash
bonus of U.S. Five Hundred Thousand Dollars (U.S.$500,000) paid to you
upon the
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execution of the agreement providing for the Merger. If the Merger is
completed, Cineplex agrees to pay you an additional special one-time
cash bonus of an additional U.S. Five Hundred Thousand Dollars
(U.S.$500,000) within ninety (90) days following the Effective Date.
(c) Stock Options
(i) You acknowledge that the issuance of stock options will be a
matter in the sole discretion of the Board of Directors of Loews
Cineplex. Subject to the terms of Loews Cineplex's stock option plan,
as from time to time in effect, any decision of the Loews Cineplex
Board of Directors with respect to the quantity or terms of a stock
option grant, if any, will be final and binding on you.
(ii) Notwithstanding the foregoing, it is acknowledged that, either
prior to or contemporaneously with completion of the Merger, or
shortly following its completion, but subject to completion of the
Merger, it is intended that there will be a grant of options to
certain employees of LTM and/or Cineplex (and, depending upon the
timing thereof, in respect of shares of Cineplex or shares of Loews
Cineplex). Cineplex hereby agrees with you that, upon such grant, you
shall receive a grant of options in an amount which is the equivalent
of One Million (1,000,000) options in respect of shares of Cineplex if
such options had been granted as at the date of this Agreement, which
grant shall be priced at the same price as all other options then
being granted as aforesaid. Notwithstanding anything to the contrary
contained herein or in any stock option plan, all of the options to be
granted pursuant to this paragraph 4(c)(ii) shall be fully vested upon
their grant to you as aforesaid.
5. Place and Condition of Employment
You shall not be required, without your consent, to perform your primary duties
under this Agreement in a location other than in the Municipality of
Metropolitan Toronto, nor shall you be required to travel to a materially
greater extent than you were prior to the Effective Date. You agree that you
will make yourself available, on a reasonable basis, in New York City from time
to time as required by the Chief Executive Officer of Loews Cineplex or by the
Board of Directors of Loews Cineplex.
6. Vacation
You shall be entitled to vacations with pay during the term of this Agreement,
which shall in no event be less than four weeks per annum.
7. Termination by Cineplex
Cineplex may terminate your employment hereunder:
(a) subject as hereinafter provided, without notice for such cause as would
entitle Cineplex at law to terminate your employment without notice;
provided such termination
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<PAGE>
occurs within one month of the circumstances providing a basis for such
termination first coming to the attention of either the Chief Executive
Officer of Loews Cineplex or the Chairman of the Compensation Committee of
the Board;
(b) on not less than 90 days' notice to you in either of the following
events:
(i) you engage in activities outside the scope of your employment
which do not meet the requirements for such activities set forth in
the second paragraph of Section 1 of this Agreement; or
(ii) you engage in conduct which constitutes a material breach of the
Cineplex Code of Conduct and Confidentiality (a copy of which is
attached hereto) as amended from time to time; and
you fail to desist from such activities or conduct within ten Business Days
of being requested to do so in writing by a notice signed by the Chairman
of the Compensation Committee of the Board which describes such activity or
conduct with reasonable particularity and states the basis on which the
Board has determined that such activities or conduct is inconsistent with
this Agreement or the Cineplex Code of Conduct and Confidentiality;
provided that in the case of any such event referred to in paragraph (ii)
which has (to an extent or in a manner which cannot be remedied) materially
and adversely affected your ability to perform your responsibilities as an
executive of the Company and does reflect adversely on the Company to a
material extent, no such request to desist by the Chairman of the
Compensation Committee of the Board and ten Business Days cure period shall
be required. Notwithstanding the foregoing, Cineplex shall not be entitled
to terminate your employment hereunder pursuant to paragraph 7(b)(ii) above
if the conduct complained of is the same as, or is substantially similar
to, conduct engaged in by other executives of Cineplex which has not given
rise to complaint by Cineplex;
(c) if you have suffered a disability which makes you eligible to receive
the maximum benefit payable under Cineplex's long term disability insurance
plan; but in no case shall such right be exercised until six months from
the date of the commencement of such disability or until the date the first
payment is received under the plan, whichever is later;
(d) on not less than six months' notice to you (or immediate notice
together with payment by Cineplex to you of six months' Base Salary and
Minimum Bonus) given at any time during the term of this Agreement; or
(e) as provided in Section 3 of this Agreement.
The rights of Cineplex under this Section 7 shall not be affected by the
provisions of Section 9A of this Agreement.
8. Termination by You
In addition to your rights under Section 9A of this Agreement, you may terminate
your employment hereunder:
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(a) at any time on not less than 90 days' written notice in the event that
Cineplex gives you notice of non-renewal of this Agreement pursuant to
Section 3 hereof (as opposed to notice of non-renewal and termination of
your employment pursuant to Section 3); or
(b) at any time on not less than 60 days' written notice in the event that
Cineplex fails in any material respect to perform its obligations hereunder
or otherwise does or fails to do anything which at law would constitute
constructive dismissal; provided that, without limiting the generality of
the foregoing, Cineplex shall be deemed to have failed to perform its
obligations hereunder in a material respect in the event of:
(i) a reduction by Cineplex in your Base Salary and/or Minimum Bonus
as in effect from time to time;
(ii) failure by Cineplex to pay or cause to be paid to you any amounts
awarded and due to you by way of bonus in accordance with Subsection
4(b) of this Agreement; or
(iii) the failure by Cineplex to continue in effect any benefit plan
listed in Schedule I hereto, special benefit listed in Schedule II
hereto, or other similar employee benefit plan introduced by the Board
after the Effective Date (which subsequently introduced plan has not
been discontinued by resolution of the Board pursuant to a power to do
so provided for in the terms of the plan when first introduced)
(collectively, "Benefit Plans") in which you are participating from
time to time (unless you are otherwise provided with at least
substantially similar benefits as evidenced by the written opinion of
a nationally recognized employee benefits consulting firm, a copy of
which is provided to you), or the taking of any action, or the failure
to act, by Cineplex which would adversely affect your continued
participation in any of such Benefit Plans (or other substantially
similar benefit arrangements) on at least as favourable a basis to you
as is the case immediately prior to the Effective Date or which would
materially reduce your benefit in the future under any of such Benefit
Plans (or other substantially similar benefit arrangements);
provided that Cineplex shall have ten Business Days following receipt of
written notice from you to cure any such occurrence. Your rights under this
Section 8 shall not be affected by the provisions of Section 9A hereof.
9. Benefits
During the term of your employment hereunder:
(a) Cineplex shall reimburse you for your reasonable and necessary business
expenses in accordance with its then prevailing policy (which shall include
appropriate itemization and substantiation of expenses incurred);
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(b) You shall be entitled to participate in the Benefit Plans referred to
in paragraph 8(b)(iii) hereof (or other substantially similar benefit
arrangements referred to in paragraph 8(b)(iii)); and
(c) You shall be entitled to secretarial, transportation and other
facilities commensurate with that which you receive at present.
You further expressly agree and acknowledge that after termination of your
employment you are entitled to no additional benefits not expressly set forth in
Section 10 of this Agreement and Schedule II hereto, except as specifically
provided under the Benefit Plans (or other substantially similar benefit
arrangements referred to in paragraph 8(b)(iii) hereof) and subject in all cases
to the terms and conditions of each such plan.
9A. Optional Early Termination by You Following Completion of Merger
At any time following the Effective Date and until the first anniversary of the
Effective Date, you may voluntarily and at your sole option terminate your
employment hereunder without giving any reason, provided that your employment
has not been otherwise terminated by Cineplex pursuant to Section 7 of this
Agreement or by you pursuant to Section 8 of this Agreement. You may exercise
the foregoing option to terminate this Agreement by a Notice of Termination (as
defined in Section 12 hereof) to Cineplex received not later than the first
anniversary of the Effective Date. Such Notice of Termination shall specify an
effective date of termination which is 90 days after the Notice of Termination
is given.
10. (A) Compensation Due to You Upon Termination
(a) If your employment shall be terminated by you pursuant to Subsection
8(a) hereof, Cineplex shall pay to you in a lump sum in cash on the
Employment Termination Date (as defined in Section 12 hereof), the
aggregate of the following amounts:
(i) an amount equal to the aggregate of the Minimum Bonus plus the
Base Salary then being paid to you, which aggregate would have
otherwise been paid to you from the Employment Termination Date to the
Expiry Date; and
(ii) in the case of compensation, if any, previously deferred, all
amounts of such compensation previously deferred and not yet paid by
Cineplex.
(b) If Cineplex shall give notice of non-renewal of this Agreement pursuant
to Section 3 hereof on or before the One Year Notice Date (as opposed to
notice of non-renewal and termination of your employment pursuant to
Section 3) and you do not terminate your employment pursuant to Subsection
8(a) hereof, Cineplex shall pay to you in a lump sum in cash on the Expiry
Date, the aggregate of the following amounts:
(i) an amount equal to one times the aggregate of the Minimum Bonus
plus the Base Salary then being paid to you; and
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(ii) in the case of compensation, if any, previously deferred, all
amounts of such compensation previously deferred and not yet paid by
Cineplex.
(c) If Cineplex shall give notice of non-renewal and termination of your
employment pursuant to Section 3 hereof on or before the One Year Notice
Date (as opposed to notice of non-renewal of this Agreement pursuant to
Section 3), Cineplex shall pay to you in a lump sum in cash on the
Employment Termination Date, the aggregate of the following amounts:
(i) an amount equal to two times your Average Compensation (as
defined in Subsection 10(A)(e) hereof); and
(ii) in the case of compensation, if any, previously deferred, all
amounts of such compensation previously deferred and not yet paid by
Cineplex.
(d) If Cineplex shall give notice of non-renewal of this Agreement
pursuant to Section 3 hereof within the Six-Month Notice Period and you do
not terminate your employment pursuant to Subsection 8(a) hereof, Cineplex
shall pay to you in a lump sum in cash on the Expiry Date, the aggregate of
the following amounts:
(i) an amount equal to two times your Average Compensation, less the
aggregate of the Minimum Bonus plus the Base Salary paid to you from
the date of your receipt of such notice of non-renewal to the Expiry
Date; and
(ii) in the case of compensation, if any, previously deferred, all
amounts of such compensation previously deferred and not yet paid by
Cineplex.
(e) For the purposes of paragraphs 10(A)(c)(i) and 10(A)(d)(i) of this
Agreement, "Average Compensation" means the sum of the Base Salary and any
bonus (including, without limitation, Minimum Bonus), in both cases, paid
or payable to you for, or in respect of, the three (3) calendar years
immediately preceding the year in question, all divided by 3. For these
purposes, the year in question means:
(i) for the purposes of paragraph 10(A)(c)(i) hereof, the year in
which the One Year Notice Date occurs; or
(ii) for the purposes of paragraph 10(A)(d)(i) hereof, the year in
which the Expiry Date occurs.
In any such case, the amounts in question shall be as reported on Revenue
Canada Taxation Form T-4 and, if applicable, T-4A issued by Cineplex. For
the purposes of determining Average Compensation, any bonus which was
awarded otherwise than in cash shall be valued at the fair market value
thereof which, in the case of common shares of Cineplex and/or Loews
Cineplex, shall be deemed to be the closing price on The Toronto Stock
Exchange on the trading day immediately preceding the date on which the
bonus was paid or became payable.
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(f) If your employment shall be terminated by you pursuant to Subsection
8(b) hereof, Cineplex shall pay to you in a lump sum in cash on the
Employment Termination Date, the greater of:
(i) the aggregate of the following amounts:
(1) an amount equal to the greater of:
(x) an amount equal to the amount, if any, by which the most
recent annual bonus awarded to you exceeded the Minimum
Bonus, plus an amount equal to the aggregate of the Minimum
Bonus plus the Base Salary (prior to any reduction thereof
as provided in paragraph 8(b)(i) hereof) then being paid to
you which would have otherwise been paid to you from the
Employment Termination Date to the Expiry Date, or
(y) two times the sum of (1) the amount, if any, by which
the most recent bonus awarded to you exceeded the Minimum
Bonus, (2) the Base Salary (prior to any reduction thereof
as provided in paragraph 8(b)(i) hereof) then being paid to
you, and (3) the Minimum Bonus (prior to any reduction
thereof as provided in paragraph 8(b)(i) hereof) then being
paid to you; and
(2) in the case of compensation, if any, previously deferred,
all amounts of such compensation previously deferred and not yet
paid by Cineplex; or
(ii) the aggregate of the following amounts:
(1) an amount equal to the Aggregate Compensation which would
have otherwise been paid to you from the Employment Termination
Date to the Expiry Date;
(2) an amount equal to one times your Aggregate Compensation;
and
(3) in the case of compensation, if any, previously deferred,
all amounts of such compensation previously deferred and not yet
paid by Cineplex.
For the purposes of this Subsection 10(A)(f), "Aggregate Compensation"
means the sum of the Base Salary and any bonus (including, without
limitation, Minimum Bonus), in both cases, paid or payable to you for, or
in respect of, the three (3) calendar years immediately preceding the year
in which the notice in question is given by you, all divided by 3. In any
such case, the amounts in question shall be as reported on Revenue Canada
Taxation Form T-4 and, if applicable, T-4A issued by Cineplex. For the
purposes of determining aggregate compensation, any bonus which was awarded
otherwise than in cash shall be valued at the fair market value thereof
which, in the case of common shares of Cineplex and/or Loews Cineplex,
shall be deemed to be the closing price on The Toronto Stock
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Exchange on the trading day immediately preceding the date on which the
bonus was paid or became payable.
(g) If your employment shall be terminated by you pursuant to Section 9A
of this Agreement, Cineplex shall, at your option, pay to you in a lump sum
in cash on the Employment Termination Date:
(i) an amount calculated pursuant to Subsection 10(A)(f) of this
Agreement as if your Employment Termination Date was the Effective
Date (and notwithstanding that you are also entitled to be paid your
Base Salary and Minimum Bonus for the period between the Effective
Date and your actual Employment Termination Date); or
(ii) an amount equal to the greater of:
(1) the aggregate of:
(x) an amount equal to the aggregate of the Minimum Bonus
plus the Base Salary then being paid to you, which would
have otherwise been paid to you from the Employment
Termination Date to the Expiry Date; and
(y) in the case of compensation, if any, previously
deferred, all amounts of such compensation previously
deferred and not yet paid by Cineplex; or
(2) the aggregate of:
(x) if not theretofore paid, your Aggregate Compensation
(as hereinafter defined) for a period equal to the greater
of: (1) the period from the Effective Date to the Employment
Termination Date; and (2) six months;
(y) an amount equal to two times your Aggregate
Compensation; and
(z) in the case of compensation, if any, previously
deferred, all amounts of such compensation previously
deferred and not yet paid by Cineplex.
For the purposes of this paragraph 10(A)(g)(ii)(2), "Aggregate
Compensation" means the sum of the Base Salary and bonus (including,
without limitation, Minimum Bonus) paid or payable to you for, or in
respect, of the period of one year immediately preceding the Effective
Date, provided that if no bonus other than Minimum Bonus was paid or
payable to you for, or in respect of, such period, there shall be
added to the said Base Salary the amount of the then most recent bonus
(including, without limitation, Minimum Bonus) paid or payable to
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you for, or in respect of, a period of one year. For the purposes of
determining Aggregate Compensation, any bonus which was awarded
otherwise than in cash shall be valued at the fair market value
thereof which, in the case of common shares of Cineplex and/or Loews
Cineplex, shall be deemed to be the closing price on The Toronto Stock
Exchange on the trading day immediately preceding the date on which
the bonus was paid or became payable.
In each such case, the calculations in question shall be made as if your
Employment Termination Date was the Effective Date (and notwithstanding
that you are also entitled to be paid your Base Salary and Minimum Bonus
for the period between the Effective Date and your actual Employment
Termination Date).
(h) If your employment shall be terminated by Cineplex pursuant to
Subsection 7(d) of this Agreement, Cineplex shall pay to you in a lump sum
in cash on the Employment Termination Date, the aggregate of the following
amounts:
(i) an amount equal to the Aggregate Compensation which would have
otherwise been paid to you from the Employment Termination Date to the
Expiry Date;
(ii) an amount equal to one times your Aggregate Compensation; and
(iii) in the case of compensation, if any, previously deferred, all
amounts of such compensation previously deferred and not yet paid by
Cineplex.
For the purposes of this Paragraph 10(A)(h), "Aggregate Compensation" means
the sum of the Base Salary and any bonus (including, without limitation,
Minimum Bonus), in both cases, paid or payable to you for, or in respect
of, the three (3) calendar years immediately preceding the year in which
the Employment Termination Date occurs, all divided by 3. In any such case,
the amounts in question shall be as reported on Revenue Canada Taxation
Form T-4 and, if applicable, T-4A issued by Cineplex. For the purposes of
determining aggregate compensation, any bonus which was awarded otherwise
than in cash shall be valued at the fair market value thereof which, in the
case of common shares of Cineplex and/or Loews Cineplex, shall be deemed to
be the closing price on the Toronto Stock Exchange on the trading date
immediately preceding the date on which the bonus was paid or became
payable. Notwithstanding the foregoing, if your employment shall be
terminated by Cineplex pursuant to Subsection 7(d) of this Agreement at any
time following the Effective Date and until the first anniversary of the
Effective Date, Cineplex shall pay to you the greater of the amount to
which you would be entitled pursuant to this Subsection 10(A)(h) or
pursuant to Subsection 10(A)(g) of this Agreement.
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(B) Benefits Due to You Upon Termination
(a) Benefits
If your employment shall be terminated by you pursuant to Sections 8 or 9A
or if Cineplex shall give a notice pursuant to Subsection 7(d) or Section 3
of this Agreement:
(i) Subject as hereinafter provided, for a period of two and one-
half years following the Employment Termination Date Cineplex shall
continue benefits to you and/or your family under the Benefit Plans
(or other substantially similar arrangements referred to in paragraph
8(b)(iii) hereof) at least equal to those which would have been
provided to them if your employment had not terminated, if and as in
effect at any time during the 90 day period immediately preceding the
Employment Termination Date or, if more favourable to you, as in
effect at any time thereafter during such two and one-half year period
with respect to other key executives and their families.
(ii) Cineplex shall use its best efforts to make such arrangements
with you (at no material additional net cost to itself) as may be
necessary to permit continuation of benefits as contemplated by
paragraph 10(B)(a)(i)(1) hereof. If under the terms of any Benefit
Plan (or other substantially similar benefit arrangements referred to
in paragraph 8(b)(iii) hereof) it is not possible to continue as
aforesaid the benefit of such Benefit Plan (or other such
arrangements) following termination of your employment, Cineplex shall
provide at least substantially similar benefits (as evidenced by the
written opinion of a nationally recognized employee benefits
consulting firm, a copy of which will be provided to you) unless such
replacement benefit exceeds in its cost that of the original benefit,
in which event Cineplex shall be obliged only to provide a replacement
benefit to the extent of its cost of the original Benefit Plan (or
other such similar arrangements).
(iii) Cineplex shall provide to you a lifetime courtesy admission
pass for you and one guest.
(b) Stock Option Arrangements
Notwithstanding any other provisions relating to the acceleration of the
vesting of options in any Cineplex or Loews Cineplex stock option plan or
agreement, subject to regulatory approval, in the event you terminate your
employment pursuant to Subsection 8(b) or Section 9A or Cineplex terminates
your employment for any reason, then all stock options previously granted
to you shall immediately vest upon the Employment Termination Date.
In addition, subject to regulatory approval, you (or your personal
representative) shall remain entitled to exercise any stock options
previously granted to you and then exercisable at any time until the
expiration of the full term of the exercise period relating to each of such
vested stock options. In connection with the termination of your
employment, Cineplex shall use its best efforts to make such arrangements
with you (at no material cost to Cineplex) or to obtain necessary
regulatory clearances (at no
-13-
<PAGE>
material inconvenience to Cineplex) as may be necessary to permit the
accelerated vesting and continuation of such vested stock options as
aforesaid. Your rights under this Subsection (b) are in addition to your
rights under any stock option plans and agreements.
(C) General Provisions Re: Amounts Due to You Upon Termination
(a) No set-off
Except as provided in Schedule II hereto and except for claims for monies
actually due and payable to Cineplex by you, Cineplex's obligation to make
the payments provided for in this Section 10 and otherwise to perform its
obligations hereunder shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment,
defense or other claim (based on termination by Cineplex or otherwise),
right or action which Cineplex may have against you or others.
(b) Withholdings
All payments made to you pursuant to this Section 10 shall be subject to
any withholding of (or in respect of) tax required by law provided that
such withholding shall be at the lowest amount permitted by law.
(c) US/Canadian conversions
All cash payments pursuant to Section 10(A) shall be converted to Canadian
dollars at the Bank of Canada noon rate on either November 15 or May 15 (or
if such date is not a Business Day, the immediately preceding Business Day)
depending on the period in which they are paid as provided in Subsection
4(a) of this Agreement.
(d) Tax Planning
Provided that there is no additional cost to Cineplex, Cineplex will
cooperate with you to structure payments provided for in this Section 10 in
a manner which will be most tax effective for you.
(e) Calculations of bonuses
In any of the calculations carried out pursuant to this Section 10, the
bonus paid or payable to you with respect to 1997 shall be deemed to have
been U.S. One Hundred and Fifty-Five Thousand Dollars ($155,000) and the
special one-time bonuses referred to in paragraph 4(b)(ii) of this
Agreement shall be ignored.
10A. Non-Competition
If you terminate your employment pursuant to Section 9A of this Agreement and if
you opt to be paid the amount contemplated in paragraph 10(A)(g)(ii) of this
Agreement, then you covenant and agree that you will not, for a period of one
(1) year from the Employment Termination Date,
-14-
<PAGE>
directly or incorrectly, in any manner whatsoever, including, without
limitation, either individually or in partnership or jointly, or in conjunction
with any other person or persons, firm, association, syndicate, company or
corporation, as principal, agent, shareholder, consultant, employee or in any
other manner whatsoever, carry on or be engaged in the business of exhibiting
motion pictures within North America.
You acknowledge and agree that all restrictions contained in this Section and in
Section 10B of this Agreement are reasonable and valid and all defenses to the
strict enforcement thereof by Cineplex are hereby waived by you. If any covenant
contained in this Section or in Section 10B or any portion of either or both of
such Sections shall be held to be unreasonable for any reason, then such
covenant shall be given effect to in such reduced form as may be decided by any
court of competent jurisdiction, the intent being that such covenant shall have
effect to the maximum extent permitted by law. If, notwithstanding the
foregoing, any covenant or any portion of any such covenant should be held to be
unenforceable or be declared invalid for any reason, such unenforceability or
invalidity shall not affect the enforceability or validity of the remaining
portions of this Section or Section 10B and such enforceable or invalid covenant
or portion thereof shall be severable from the remainder of this Section or
Section 10B.
Notwithstanding the restrictions contained in this Section, nothing herein shall
restrict you from, directly or indirectly, acquiring or holding share
investments in a public company whose shares are listed on a recognized stock
exchange or on an over-the-counter market, where such share investment does not
in the aggregate exceed 5% of any class of shares of such company and where you
are only a passive investor in such company.
For purposes of clarity, it is hereby acknowledged that:
(a) if you terminate your employment pursuant to Section 9A of this
Agreement and if you opt to be paid the amount contemplated in paragraph
l0(A)(g)(i) of this Agreement, or
(b) if Cineplex terminates your employment pursuant to Section 7 of this
Agreement or you terminate your employment pursuant to Section 8 hereof,
you shall, subject to the provisions of Section 10B of this Agreement, be
entitled to, directly or indirectly, in any manner whatsoever, including,
without limitation, either individually or in partnership or jointly, or in
conjunction with any other person or persons, firm, association, syndicate,
company or corporation, as principal, agent, shareholder, consultant, employee
or in any other manner whatsoever, carry on or be engaged in the business of
exhibiting motion pictures within North America.
10B. Confidentiality
All confidential records, material and information and copies thereof, and all
trade secrets concerning the business or affairs of Cineplex obtained by you in
the course of your employment shall remain the exclusive property of Cineplex.
During your employment, you shall not reveal, divulge or make known the contents
of such confidential records or any of such confidential
-15-
<PAGE>
information or trade secrets to any person or entity other than to Cineplex,
Cineplex's qualified employees, Cineplex's professional advisors and other
persons on a "need to know" basis in connection with matters directly relating
to Cineplex, and you shall not, following the termination of your employment
hereunder for any reason, reveal, divulge or make known the contents of such
confidential records or any of such confidential information or trade secrets to
any person or entity for any purpose whatsoever or make use thereof for your own
or any other person's or entity's benefit. For the purposes hereof, confidential
records, material and information include information known or used by Cineplex
in connection with its business including, but not limited to, any design,
prototype, compilation of information, data, program, code, method, technique or
process, information relating to any product device, equipment or machine,
information about or relating to Cineplex's customers and suppliers and
Cineplex's markets and marketing plans, present and future, information about or
relating to Cineplex's potential business ventures and locations, financial
information of all kinds relating to Cineplex and its activities, all
inventions, ideas, and related material but does not include any of the
foregoing which is or becomes a matter of public knowledge.
11. Legal Costs
Cineplex agrees to pay (as incurred by you) to the full extent permitted by law,
all legal fees and expenses which you may reasonably incur as a result of any
contest by Cineplex or others relating to this Agreement in which you are
substantially successful on the merits.
12. Notices
All notices and other communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to you: Mr. Allen Karp
Cineplex Odeon Corporation
1303 Yonge Street
Toronto, Ontario
M4T 2Y9
with a copy to: Mr. Allen Karp
88B Crescent Road
Toronto, Ontario
M4W 1T5
If to Cineplex: Cineplex Odeon Corporation
1303 Yonge Street
Toronto, Ontario
M4T 2Y9
Attention: Chairman of the Compensation Committee
-16-
<PAGE>
with a copy to: Loews Cineplex Entertainment Corporation
711 Fifth Avenue
11th Floor
New York, New York
10022
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
Any termination by either party pursuant to this Agreement shall be communicated
by Notice of Termination to the other given in accordance with this Section 12.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which:
(a) states the specific provision of this Agreement relied upon;
(b) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
stated; and
(c) if the termination date is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
15 days after the giving of such notice, except as otherwise may be
provided in this Agreement) (the "Employment Termination Date").
13. No Mitigation
You shall not be obligated to seek other employment or otherwise mitigate the
amounts payable to you under any of the provisions of this Agreement, nor shall
any amounts payable to you hereunder be reduced by any compensation earned by
you as a result of employment by another employer after the Employment
Termination Date, or otherwise.
14. Successors
This Agreement shall inure to the benefit of and be binding upon Cineplex and
its successor by way of merger, amalgamation, reorganization or otherwise.
Cineplex shall not take any action or enter into any contract as a result of
which Cineplex would not be able to make the payments herein provided for in the
event of your termination of employment.
15. Severability; Entire Agreement; Amendments
This Agreement has been fully authorized by all necessary corporate action on
the part of Cineplex; constitutes a valid and legally binding obligation of
Cineplex; and sets forth the entire understanding between us. There are no
terms, conditions, representations, warranties or covenants other than those
contained herein. No terms or provision of this Agreement may be amended,
waived, released, discharged or modified in any respect except in writing,
signed by the appropriate party(s). No waiver of any
-17-
<PAGE>
breach or default shall constitute a waiver of any other breach or default
whether of the same or any other covenant or condition. A delay or failure to
assert rights or a breach of this Agreement shall not be deemed to be a waiver
of such rights either with respect to that breach or any subsequent breach. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
16. Cineplex Code of Conduct and Confidentiality
Attached hereto and made a part of this Agreement is a copy of the Cineplex Code
of Conduct and Confidentiality. You confirm that you have read, understand and
will comply with such Code of Conduct and Confidentiality, and any amendments
thereto which you receive, such amendments to be consistent with the tenor of
the current Code of Conduct and Confidentiality and not in violation of public
policy.
17. Governing Law
This agreement shall be governed by and construed in accordance with the laws of
the Province of Ontario.
Yours very truly,
CINEPLEX ODEON CORPORATION
By: /s/ Robert Rabinovitch
----------------------
ROBERT RABINOVITCH
AGREED this 28th day of November, 1997.
/s/ Allen Karp
- -------------------------
ALLEN KARP
-18-
<PAGE>
Exhibit 10.20
[Letterhead of Sony Retail Entertainment]
December 15, 1997
Private & Confidential
- ----------------------
Mr. J. Edward Shugrue
566 Amalfi Drive
Pacific Palisades, CA 90272
Dear Ted:
I am pleased to offer you a position with Loews Cineplex Entertainment
(currently LTM Holdings) as President International Operations. The purpose of
this letter is to outline the material terms of the employment offer which, if
you accept, will be memorialized in a formal contract of employment.
1. Title and Reporting Responsibilities. You will become President
------------------------------------
International Operations of Loews Cineplex Entertainment Corporation
("LCE"), the entity to be formed in connection with the combination
of Loews and Cineplex Odeon: You will report directly to the Chief
Executive Officer of LCE or if determined appropriate at a future
date the Chief Operating Officer of the Company.
2. Term. The term of the employment contract will be for four years,
----
commencing as we mutually agree with an option by LCE for year five.
LCE will notify you of its decision to exercise the fifth year
extension option not less than 90 days prior to the expiration of the
initial four year term.
3. Base Salary. The initial annual base salary will be $450,000 with
-----------
annual cost of living increases at the end of years 1, 2 and 4 but in
no case less than 3% and a $50,000 increase at the end of year three.
4. Annual Bonus. You will be eligible for an annual bonus, the target
------------
for which is $200,000, subject in each case to the attainment of
goals to be established by LCE's Board of Directors (the "Board")
each year.
5. Stock Options. Subject to the approval of the Board, you will be
-------------
granted at the date of this letter a nonqualified option, to purchase
<PAGE>
2,250,000 shares of LCE's common stock at a per share exercise price
of the greater of market value at 12/16/97 or $1.3125 (subject to
adjustment upon completion of the anticipated reverse stock split).
The options will vest at the rate of 20% per year. The vesting and
other material terms of the options will consistent with the terms of
stock options being offered generally to the other senior executives
of LCE of comparable rank in connection with the combination.
6. Signing Bonus. In addition to your base salary and annual bonus,
-------------
Loews will pay to you a $75,000 bonus following the date of your
hire, within five business days following your written request that
LCE make such payment to you, and will pay for all transportation and
related moving expenses of moving you and your family to the New York
metropolitan area.
7. Automobile. LCE will provide you with an automobile allowance of
----------
$1,200 per month.
8. Termination. If your employment is terminated by LCE for cause, you
-----------
will be entitled only to your accrued salary through the date of
termination and any accrued but unpaid bonus. If LCE terminates your
employment without cause, you will be entitled to receive your base
salary and bonus through the end of the contract term, reduced by any
compensation paid or payable to you in respect of subsequent
employment (including self-employment) for the same period. However,
there will be no obligation on your part to mitigate LCE's obligation
to you by seeking any subsequent employment.
If the foregoing terms are acceptable to you, please indicate your acceptance
by signing below where indicated. Upon receipt of your acceptance, we will have
a formal employment agreement prepared incorporating the foregoing terms and
containing such other terms as are customary for such agreements.
Sincerely yours,
/s/ Lawrence J. Ruisi
Lawrence J. Ruisi
President
Sony Retail Entertainment
Accepted: Date 1/14/98
-----------
/s/ J. Edward Shugrue
- -------------------------
J. Edward Shugrue
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY State of Incorporation
- ------------------------------------------------------- -----------------------
<S> <C>
1. LTM New York, Inc. Delaware
2. LTM Spanish Holdings Inc. Delaware
3. Loews Theatre Management Corp. Delaware
4. Star Theatres, Inc. Delaware
5. Star Theatres of Michigan, Inc. Delaware
6. Rochester Hills Star Theatres, Inc. Michigan
7. Taylor Star Theatres, Inc. Michigan
8. Loews USA Cinemas Inc. Delaware
9. S & J Theatres Inc. California
10. Hawthorne Amusement Corporation New York
11. Hinsdale Amusement Corporation. New York
12. Loews Bay Terrace Cinemas, Inc. Delaware
13. Loews Boulevard Cinemas, Inc. New York
14. Loews Broadway Cinemas, Inc. New York
15. Loews Crystal Run Cinemas, Inc. New York
16. Loews Dewitt Cinemas, Inc. New York
17. Loews East Village Cinemas, Inc. New York
18. Loews Elmwood Cinemas, Inc. New York
19. Loews Fine Arts Cinemas, Inc. New York
20. Loews Greece Cinemas, Inc. Delaware
21. Loews Levittown Cinemas, Inc. New York
22. Loews Lincoln Theatre Holding Corp. New York
23. Loews Monroe Cinema, Inc. Delaware
24. Loews Orpheum Cinemas, Inc. New York
25. Loews Palisades Center Cinemas, Inc. New York
26. Loews Paradise Cinemas, Inc. New York
27. Loews Pittsford Cinemas, Inc. Delaware
28. Loews Roosevelt Field Cinemas, Inc. New York
29. Loews South Shore Cinemas, Inc. Delaware
30. Loews Stonybrook Cinemas, Inc. Delaware
31. Loews 34th St. Showplace Cinemas, Inc. New York
32. Loews Towne Cinemas, Inc. New York
33. Loews Trylon Theatre, Inc. New York
</TABLE>
<PAGE>
<TABLE>
<S> <C>
34. Loews Westgate Cinemas, Inc. New York
35. Poli-New England Theatres, Inc. Delaware
36. Putnam Theatrical Corporation New York
37. 71st & 3rd Ave. Corp. New York
38. Tri-Son Supply Corp. New York
39. Westchester Cinemas, Inc. New York
40. Cinema 275 East, Inc. Ohio
41. Cityplace Cinemas, Inc. Texas
42. Colorado Cinemas, Inc. Colorado
43. Crestwood Cinemas, Inc. Illinois
44. District Amusement Corporation New York
45. Eton Amusement Corporation New York
46. Forty-Second Street Cinemas, Inc. New York
47. Fountain Cinemas, Inc. Texas
48. Gerard Theatre Corporation New York
49. Kips Bay Cinemas, Inc. Delaware
50. Lance Theatre Corporation New York
51. Liberty Tree Cinema Corp. Massachusetts
52. Loews Akron Cinemas, Inc. Delaware
53. Loews Arlington Cinemas, Inc. Delaware
54. Loews Arlington West Cinemas, Inc. Texas
55. Loews Astor Plaza, Inc. New York
56. Loews Baltimore Cinemas, Inc. Maryland
57. Loews Berea Cinemas, Inc. Delaware
58. Loews California Theatres, Inc. New York
59. Loews Cedar Cinemas, Inc. Delaware
60. Loews Centerpark Cinemas, Inc. Maryland
61. Loews Century Mall Cinemas, Inc. Indiana
62. Loews Cheri Cinemas, Inc. Massachusetts
63. Loews Cherry Tree Mall Cinemas, Inc. Indiana
64. Loews Chicago Cinemas, Inc. Illinois
65. Loews Chisholm Place Cinemas, Inc. Texas
66. Loews Cinemas Advertising, Inc. Illinois
67. Loews Clarksville Cinemas, Inc. Indiana
68. Loews Connecticut Cinemas, Inc. Connecticut
69. Loews Coral Spring Cinemas, Inc. Florida
70. Loews Deauville Gulf Cinemas, Inc. Texas
71. Loews Deauville Kingwood Cinemas, Inc. Texas
72. Loews Deauville North Cinemas, Inc. Texas
73. Loews Deauville Southwest Cinemas, Inc. Texas
74. Loews East Hanover Cinemas, Inc. New Jersey
75. Loews Exhibition Ride Inc. Delaware
</TABLE>
- 2 -
<PAGE>
<TABLE>
<S> <C>
76. Loews Fort Worth Cinemas, Inc. Texas
77. Loews Freehold Mall Cinemas, Inc. New Jersey
78. Loews Fresh Pond Cinemas, Inc. Massachusetts
79. Loews Front Street Cinemas, Inc. Pennsylvania
80. Loews Fuqua Park Cinemas, Inc. Texas
81. Loews Greenwich Cinemas, Inc. Connecticut
82. Loews Greenwood Cinemas, Inc. Delaware
83. Loews Harmon Cove Cinemas, Inc. New Jersey
84. Loews Houston Cinemas, Inc. Texas
85. Loews I-45 Cinemas, Inc. Texas
86. Loews Indiana Cinemas, Inc. Indiana
87. Loews Kentucky Cinemas, Inc. Kentucky
88. Loews Lafayette Cinemas, Inc. Indiana
89. Loews Lincoln Plaza Cinemas, Inc. Texas
90. Loews Louisville Cinemas, Inc. Kentucky
91. Loews Meadowland Cinemas 8, Inc. New Jersey
92. Loews Meadowland Cinemas, Inc. New Jersey
93. Loews Memorial City Cinemas, Inc. Texas
94. Loews Merrillville Cinemas, Inc. Illinois
95. Loews Montgomery Cinemas, Inc. Pennsylvania
96. Loews Mountainside Cinemas, Inc. New Jersey
97. Loews New Jersey Cinemas, Inc. New Jersey
98. Loews Newark Cinemas, Inc. New Jersey
99. Loews Norgate Cinemas, Inc. Indiana
100. Loews Norwalk Cinemas, Inc. Connecticut
101. Loews Operational Ride Theaters Inc. Delaware
102. Loews Orland Park Cinemas, Inc. Illinois
103. Loews Park Central Cinemas, Inc. Texas
104. Loews Pembroke Pines Cinemas, Inc. Florida
105. Loews Pentagon City Cinemas, Inc. Virginia
106. Loews Piper's Theatres, Inc. Illinois
107. Loews Pocono Cinemas, Inc. Pennsylvania
108. Loews Preston Park Cinemas, Inc. Texas
109. Loews Richmond Mall Cinemas, Inc. Ohio
110. Loews Ridgefield Park Cinemas, Inc. New Jersey
111. Loews Rolling Meadows Cinemas, Inc. Illinois
112. Loews Saks Cinemas, Inc. Delaware
113. Loews Showboat Cinemas, Inc. New Jersey
114. Loews Southland Cinemas, Inc. Delaware
115. Loews Theatres Clearing Corp. Delaware
116. Loews Toms River Cinemas, Inc. New Jersey
117. Loews Vestal Cinemas, Inc. Delaware
</TABLE>
- 3 -
<PAGE>
<TABLE>
<S> <C>
118. Loews Washington Cinemas, Inc. Delaware
119. Loews West Cinemas, Inc. Delaware
120. Loews West Long Branch Cinemas, Inc. New Jersey
121. Loews Westerville Cinemas, Inc. Delaware
122. Loews Westport Cinemas, Inc. Connecticut
123. Loews Williston Cinemas, Inc. Vermont
124. Loews Worldgate Cinemas, Inc. Virginia
125. Loews Yorktown Cinemas, Inc. Delaware
126. Loews-Hartz Music Makers Theatres, Inc. New Jersey
127. Andy Candy Co., Inc. New Jersey
128. Castle Theatre Corp. Delaware
129. Cinnaminson Theatre Corp. New Jersey
130. Circle Twin Cinema Corp. New Jersey
131. Freehold Cinema Center, Inc. New Jersey
132. Middlebrook Theatre Corporation New Jersey
133. Music Makers Theatres, Inc. New Jersey
134. Berkeley Cinema Corp. New Jersey
135. Brick Plaza Cinemas, Inc. New Jersey
136. Bricktown Picture Corp. New Jersey
137. College Theatre Corp. New Jersey
138. New Brunswick Cinemas, Inc. New Jersey
139. Crofton Quad Corporation Maryland
140. H&M Cinema Corporation Maryland
141. East Windsor Picture Corp. New Jersey
142. Eatontown Theatre Corp. New Jersey
143. Freehold Picture Corp. New Jersey
144. Mall Picture Corp. New Jersey
145. Paramay Picture Corp. New Jersey
146. Toms River Theatre Corp. New Jersey
147. Quad Cinema Corp. New Jersey
148. Red Bank Theatre Corporation New Jersey
149. Stroud Mall Cinemas, Inc. Pennsylvania
150. Triangle Theatre Corp. Delaware
151. Massachusetts Cinema Corp. Massachusetts
152. Minnesota Cinemas, Inc. Minnestoa
153. Nutmeg Theatre Circuit, Inc. Delaware
154. Parkchester Amusement Corporation New York
155. Parsippany Theatre Corp. New Jersey
156. Plainville Cinemas, Inc. Connecticut
157. Talent Booking Agency, Inc. New York
158. Theatre Holdings, Inc. Delaware
159. Crescent Advertising Corporation New York
</TABLE>
- 4 -
<PAGE>
<TABLE>
<S> <C>
160. Downstate Theatre Corporation New York
161. Fall River Cinema, Inc. Massachusetts
162. Loews Brookfield Cinemas, Inc. Connecticut
163. Loews Post Cinemas, Inc. Connecticut
164. Midstate Theatre Corp. New York
165. U.S.A. Cinemas, Inc. Delaware
166. Loews Bristol Cinemas, Inc. Connecticut
167. Loews Burlington Cinemas, Inc. Vermont
168. Loews Holiday Cinemas, Inc. Connecticut
169. Loews Mohawk Mall Cinemas, Inc. New York
170. Mid-States Theatres, Inc. Ohio
171. Beaver Valley Cinemas, Inc. Ohio
172. Campus Cinemas, Inc. Kentucky
173. Cine West, Inc. Ohio
174. Cinema Development Corporation Ohio
175. Cinema Investments, Inc. Ohio
176. Continent Cinemas, Inc. Ohio
177. D.H. Garfield Advertising Agency, Inc. Ohio
178. Flat Woods Theater Corporation Kentucky
179. I-75 Theatres, Inc. Kentucky
180. J-Town Cinemas, Inc. Kentucky
181. Lexington Mall Cinemas Corporation Kentucky
182. Lexington North Park Cinemas, Inc. Kentucky
183. Lexington South Park Cinemas, Inc. Kentucky
184. Mickey Amusements, Inc. Ohio
185. Midcin Inc. Kentucky
186. Midtown Cinema, Inc. Kentucky
187. Montclair Cinemas, Inc. Ohio
188. Oxmoor Cinemas, Inc. Kentucky
189. Plaza Cinemas, Inc. Ohio
190. Raceland Cinemas, Inc. Kentucky
191. Salem Mall Theatre, Inc. Ohio
192. Sycamore Theatre, Inc. Ohio
193. Times Theatres Corporation Ohio
194. Towne Center Cinemas, Inc. Ohio
195. Tri-County Cinemas, Inc. Ohio
196. Westland Cinemas, Inc. Kentucky
197. Moviehouse Cinemas, Inc. Connecticut
198. Nickelodeon Boston, Inc. Massachusetts
199. Northern New England Theatres, Inc. Massachusetts
200. Sack Theatres, Inc. Massachusetts
201. Village Cinemas, Inc. New York
</TABLE>
- 5 -
<PAGE>
<TABLE>
<S> <C>
202. Webster Chicago Cinemas, Inc. Illinois
203. White Marsh Cinemas, Inc. New Jersey
204. Woodridge Cinemas, Inc. Illinois
205. LTM Spain, S.L. Spain
206. Plitt Theatres, Inc. Delaware
207. RKO Century Warner Theatres, Inc. Delaware
208. The Walter Reade Organization, Inc. Delaware
209. Plitt Southern Theatres, Inc. Delaware
210. Cineplex Odeon Films, Inc. Delaware
211. Cineplex Odeon Films International, Inc. Delaware
212. C.O.H. Entertainment, Inc. Delaware
213. Sedgwick Music Company California
214. Cineplex Odeon Corporation Canada
215. Cineplex Odeon (Quebec) Inc. Canada
216. 158983 Canada Inc. Canada
217. Les Films Cineplex Odeon Quebec Inc. Quebec
218. 619918 Ontario Ltd. (Canada Square) Ontario
219. 796278 Ontario Limited Ontario
220. 796279 Ontario Limited Ontario
221. 1002817 Ontario Limited Ontario
222. 1002818 Ontario Limited Ontario
223. 140075 Canada Limited/Ltee. Canada
224. Cine Parc Mercier Inc. Quebec
225. The Film House Group Inc. Ontario
226. Cineplex Odeon International B.V. Netherlands
227. Cineplex Odeon (Barbados) Inc. Barbados
228. Cineplex Odeon Hungary KFT Hungary
</TABLE>
- 6 -
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF KPMG]
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
- ------------------
Toronto, Canada
July 28, 1998
<PAGE>
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-1 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 16(b) 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
July 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 9,064
<SECURITIES> 0
<RECEIVABLES> 5,479
<ALLOWANCES> 0
<INVENTORY> 1,146
<CURRENT-ASSETS> 18,209
<PP&E> 897,898
<DEPRECIATION> 288,746
<TOTAL-ASSETS> 728,551
<CURRENT-LIABILITIES> 67,514
<BONDS> 10,513
0
0
<COMMON> 205
<OTHER-SE> 324,306
<TOTAL-LIABILITY-AND-EQUITY> 728,551
<SALES> 104,009
<TOTAL-REVENUES> 413,510
<CGS> 16,147
<TOTAL-COSTS> 291,421
<OTHER-EXPENSES> 89,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,319
<INCOME-PRETAX> 2,612
<INCOME-TAX> 2,751
<INCOME-CONTINUING> (139)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
