<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-6123
CRAIG CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-1620188
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 South Hope Street, Suite 1825 90071
Los Angeles CA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 239-0555
Securities Registered pursuant to Section 12(b) of the Act:
NAMES OF EXCHANGES ON
TITLE OF EACH CLASS WHICH EACH CLASS REGISTERED
------------------- ---------------------------
Common stock, $0.25 par value, Class A New York Stock Exchange
Common preference stock, $.01 par value and Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [_] No [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $60,620,000 as of April 15, 1997.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of April 15, 1997, there
were 3,762,912 shares of Common Stock, $0.25 par value per share, and 1,622,000
shares of Class A Common Preference Stock, $0.01 par value per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1996 Proxy Statement, which will be filed with the
Securities and Exchange Commission in connection with the Company's Annual
Meeting of Stockholders, are incorporated by reference in PART III hereof.
<PAGE>
CRAIG CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
INDEX
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PART I. PAGE
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 21
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 26
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") 28
Item 8. Financial Statements and Supplementary Data 49
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure 49
PART III.
Item 10. Directors and Executive Officers of the Registrant 50
Item 11. Executive Compensation 50
Item 12. Security Ownership of Certain Beneficial Owners
and Management 50
Item 13. Certain Relationships and Related Transactions 50
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K 51
Signatures
</TABLE>
-i-
<PAGE>
PART I
------
ITEM 1. BUSINESS
GENERAL
- -------
Introduction: Craig Corporation (Craig, collectively with its wholly
------------
owned subsidiaries, the "Company", and collectively with its consolidated
subsidiaries the "Consolidated Company") is in the business of identifying,
acquiring, owning and strategically managing controlling interests in other
operating companies. The Company is not in the business of investing,
reinvesting or trading in securities.
Historically, the Company's principal assets have been a 50% common
stock interest in Stater Bros. Holdings, Inc., the holding company for a
Southern California retail grocery store chain with approximately 110 stores
("SBH" and collectively with its consolidated subsidiaries, "Stater"); a
controlling interest in Reading Entertainment, Inc., a cinema exhibition and
real estate company headquartered in Philadelphia, Pennsylvania ("REI" and
collectively with its consolidated subsidiaries, "Reading"); and a controlling
interest in Citadel Holding Corporation, a company engaged, since a
restructuring in August 1994, primarily in the holding and management of its
commercial real estate assets and the providing of real estate consulting
services to Reading ("CHC" and collectively with its consolidated subsidiaries,
"Citadel"). Subsequent to the exchange transaction with Citadel and Reading,
described below, consummated on October 15, 1996 (the "Stock Transactions"), the
Company's principal holdings at the end of 1996 consisted of (i) common and
preferred stock representing approximately 77.4% of the voting power of REI,
(ii) warrants to acquire newly issued shares representing approximately 11% of
the outstanding common shares of CHC (which warrants have since been exercised
in full), (iii) cash and cash equivalents, and (iv) a 50% membership interest in
a developmental chain restaurant operation, Hope Street Hospitality LLC ("HSH").
The Company currently reports for financial purposes on a consolidated
basis with Reading. However, the Company does not consolidate with Reading for
tax purposes, does not have common financing with Reading, does not guarantee
the obligations of Reading and has separate offices and, with two exceptions,
separate officers and directors from Reading. These common officers and
directors are separately compensated by the Company and Reading.
Stater: The Company first acquired an equity interest in Stater in
------
1986. By 1989, this interest represented 50% of the outstanding voting equity
of that company; the remaining 50% being owned by La Cadena Investments, a
general partnership consisting of the key executive officers of Stater ("La
Cadena"). In 1994, the Company, Stater and La Cadena consummated a series of
separate transactions as a result of which the Company, among other things,
received from Stater pre-tax cash proceeds of approximately $42 million and a
return of 311,404 shares of its Common Stock, La Cadena obtained voting control
over SBH, and Stater, among other things, acquired the rights to convert the
Company's common stock interest in SBH into a preferred stock interest and an
option to purchase the Company's entire equity interest in
-1-
<PAGE>
that company at a formula price. In March 1996, Stater exercised its right to
exchange 693,650 shares of Stater Series B 10.5% Voting Preferred Stock, stated
value $100 per share (the "Stater Preferred Stock"), for the Company's common
stock interest in Stater. This reduced the Company's voting interest in Stater
from 48% to 20% of the total voting power of SBH. Stater has the right to
purchase the Stater Preferred Stock at any time through 2006 at stated value
plus accumulated dividends. At September 29, 1996 (its fiscal year end), Stater
operated 110 grocery stores and reported gross sales of $1.705 billion, income
from operations of $47 million and net income of $16 million.
The Company's Chairman, James J. Cotter, is a director of SBH and the
Company currently provides consulting services to Stater pursuant to a
consulting agreement (the "Stater Consulting Agreement"), under which it
receives a fee of $1.5 million per year. The Stater Consulting Agreement runs
through March 1999, however, Stater has the right to terminate the agreement if
it repurchases the Stater Preferred Stock.
Although Stater is privately held, Stater is publicly reporting in
that it files periodic reports with respect to its debt securities with the
Securities and Exchange Commission (the "SEC").
Citadel: In 1986, the Company acquired options to purchase 4.5% of
-------
the outstanding common stock of CHC, a publicly traded company whose shares are
listed for trading on the American Stock Exchange. The Company exercised those
options in 1987, and by the close of that year owned approximately 9% of the
outstanding common stock of CHC. Prior to August 1994, CHC was the holding
company for Fidelity Federal Bank, FSB ("Fidelity"). In August 1994, as a result
of the weakened financial position of Fidelity caused, in part, by declines in
the Southern California real estate market and the Northridge earthquake,
Fidelity consummated a recapitalization transaction in which CHC received
certain real estate assets and litigation claims from Fidelity and CHC's
interest was diluted, as a consequence of the issuance by Fidelity of new equity
securities, from 100% to approximately 16%. Following that recapitalization, the
Company during 1994 increased its voting interest in CHC from approximately 9%
to approximately 25%, represented by 667,012 shares of CHC Common Stock and
1,329,114 shares of CHC 3% Cumulative Voting Convertible Preferred Stock (the
"CHC Preferred Stock" and collectively with certain successor securities
described in greater detail below, the "Citadel Preferred Stock"), and
thereafter to approximately 48% at December 31, 1995 represented by 1,564,673
shares of CHC Common Stock and the Citadel Preferred Stock. In April 1995, the
Company acquired two year warrants to purchase, at $3.00 per share, 666,000
shares of CHC Common Stock (representing approximately 11% of the then
outstanding CHC Common Stock). The Company transferred its CHC Common Stock and
CHC Preferred Stock to Reading in 1996, and exercised its warrants in April
1997. Citadel redeemed the Citadel Preferred Stock in the fourth quarter of
1996. Accordingly, as of April 1997, the Consolidated Company holds 2,230,472
shares of CHC Common Stock representing approximately 33.4% of the voting power
of that company, and no Citadel Preferred Stock.
At December 31, 1996, Citadel's assets had a book value for purposes
of Citadel's consolidated financial statements on CHC's consolidated balance
sheet of $30.3 million, consisting principally of two office buildings (located
in Glendale, California and Phoenix, Arizona), 70,000 shares of REI Series A
Convertible Preferred Stock and cash and cash equivalents. At that same date,
Citadel had long term liabilities (consisting of mortgage debt on
-2-
<PAGE>
its two office properties) of $10.3 million. Citadel also holds a put option to
put to Reading, through approximately April 2000, subject to certain
limitations, all of its assets other than the Series A Convertible Preferred
Stock, in exchange for REI common stock (the "Asset Put Option"). Generally, the
Asset Put Option provides for a conversion price of $11.75 per share, if
exercised prior to October 31, 1997, and $12.25 if exercised thereafter.
The Company's Chairman is the Chairman of CHC, and the Company's
President is the Vice Chairman, Secretary, Treasurer and Principal Accounting
Officer of CHC. The Company's Chairman and President constitute two of CHC's
four directors. Citadel shares office space with the Company and receives
certain administrative support services under a cost sharing arrangement between
the two companies. The two overlapping officers are separately compensated by
Citadel for their services as directors of that company.
Reading: The Company has been acquiring stock in REI, a publicly
-------
traded company whose shares are quoted on the NASDAQ National Market and traded
on the Philadelphia Stock Exchange, and in its predecessor, Reading Company,
since 1989. By the end of the second quarter of 1996, this interest had grown to
approximately 52.5% of the outstanding voting securities of that company. In
November 1995, the Company and Reading formed Reading International Cinemas LLC
("Reading International" and collectively with its direct and indirect
subsidiaries, "Reading Australia"), owned in equal portions by the Company and
Reading, to pursue the development of cinemas in Australia. During the first
quarter of 1996, Reading acquired from the Company its common stock interest in
CHC and during the fourth quarter of 1996, the Company, Reading and Citadel
consummated the Stock Transactions in which the Company contributed its Stater
Preferred Stock, Citadel Preferred Stock and its 50% membership interest in
Reading International to Reading in exchange for common stock and preferred
stock of REI. Citadel contributed cash in the amount of $7 million in exchange
for a separate class of REI preferred stock and certain contractual rights
including the Asset Put Option. As a consequence of the Stock Transactions and
certain other open market acquisitions by the Company made after the Stock
Transactions, the Company now holds 5,165,516 shares of REI Common Stock and
550,000 shares of REI Series B Preferred Stock, which in the aggregate represent
approximately 78% of the outstanding voting power of REI. Citadel currently
owns, as a result of the Stock Transactions, 70,000 shares of REI Series A
Preferred Stock representing approximately 5% of the outstanding voting power of
REI, and the Asset Put Option.
While engaged in certain other activities, such as the sale of its
residual interests in certain real estate previously used by it in its days as
an operating railroad and certain equipment leasing matters, Reading is
principally engaged in the development, ownership and management of cinemas and
of cinema-based entertainment centers. Reading's current cinema related
activities include (1) the ownership, operation and further expansion of a chain
of multiplex cinemas located in Puerto Rico and operated under the "Cine Vista"
name, (2) the ownership of an 83.3% interest in the Angelika Film Center, an art
and specialty multiplex cinema and cafe complex located in the Soho area of New
York City, and the expansion of that concept to other strategic US urban
centers, and (3) the ownership, operation and development of a chain of
multiplex cinemas and cinemas-based entertainment centers in Australia.
-3-
<PAGE>
Reading acquired the Stater Preferred Stock and the Citadel Preferred
Stock to provide it with assets with which to build its cinema exhibition and
associated real estate development business and not to engage in the retail
grocery business or to engage in the business of buying, selling, trading,
holding or otherwise investing or reinvesting in securities.
The Company's Chairman and President are, respectively, the Chairman
and Vice Chairman of the Board of Directors of Reading, and comprise two of the
six directors of that company. These common directors are separately
compensated by Reading for their services to that company.
HSH: In January 1996, the Company formed a joint venture in the form
---
of a limited liability company (1) to acquire the rights for the Western United
States to produce a woodfired Montreal style bagel, (2) to build a store to test
the concept in the United States, and (3) if that concept proved successful,
potentially to develop a chain of such stores. The founders of this joint
venture and the holders of the remaining 50% membership interest in HSH are two
individuals whose principal business is their employment as managing directors
of an international investment banking firm. Through December 31, 1996, the
Company had contributed approximately $780,000 to HSH, which having opened its
store in July 1996, is currently operating at a deficit. No assurances can be
given that this store will operate successfully or that, even if it does, the
Company will elect to participate in the development of additional stores.
Other: The Company continues to consider and review opportunities to
-----
acquire controlling interests in operating companies.
THE STOCK TRANSACTIONS
- ----------------------
In October 1996, two transactions were approved by shareholders of
REI, including a reorganization of Reading Company under a Delaware corporation,
(the "Reorganization") and the Stock Transactions. Both transactions were
completed on October 15, 1996. The Reorganization was effected pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") among Reading Company,
REI, which was a newly formed, wholly-owned subsidiary of Reading Company, and
Reading Merger Co. ("Merger Co.") which was a newly formed, wholly-owned
subsidiary of REI. In the Reorganization, Reading Company merged with Merger Co.
and each outstanding share of Reading Company's Common Stock and Class A Common
Stock was converted into the right to receive one share of REI's Common Stock.
As a result of the Reorganization, Reading Company became a wholly-owned
subsidiary of REI and the shareholders of Reading Company became shareholders of
REI.
The Stock Transactions were carried out pursuant to an Exchange
Agreement, dated September 4, 1996 (the "Exchange Agreement"), between Craig,
REI, Citadel, and Reading Company. In the Stock Transactions, REI issued (i)
70,000 shares of Series A Voting Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock") to Citadel, and granted certain contractual rights
to Citadel in return for $7 million in cash and (ii) 550,000 shares of Series B
Voting Cumulative Convertible Preferred Stock (the "Series B Preferred Stock")
-4-
<PAGE>
and 2,476,190 shares of Common Stock to Craig in exchange for certain assets
owned by Craig. The assets acquired by REI from Craig consisted of the 693,650
shares of Stater Preferred Stock, Craig's 50% membership interest in Reading
International, of which an indirect wholly owned subsidiary of REI was the sole
other member, and 1,329,114 shares of Citadel's Preferred Stock.
The contractual rights granted to Citadel in the Stock Transactions
are set forth in an Asset Put and Registration Rights Agreement pursuant to
which Citadel has the right (the "Asset Put Option"), exercisable at any time
after October 15, 1996 and until 30 days after REI files its Annual Report on
Form 10-K for the year ending December 31, 1999, to require REI to acquire
substantially all of Citadel's assets, and assume related liabilities (such as
mortgages), for shares of REI Common Stock. In exchange for up to $20 million in
aggregate appraised value of Citadel assets on exercise of the Asset Put Option,
REI is obligated to deliver to Citadel a number of shares of REI Common Stock
determined by dividing the value of the Citadel assets by $11.75 if the notice
of exercise is received by October 31, 1997 and $12.25 if notice is received
thereafter. If the appraised value of the Citadel assets is in excess of $20
million, REI is obligated to pay for the excess by issuing Common Stock at the
then fair market value. REI is not obligated to acquire more than $30 million of
assets.
The Series A and Series B Preferred Stock of REI (collectively, the
"Convertible Preferred Stock") have stated values of $7 million and $55 million,
respectively. Holders of each series of the Convertible Preferred Stock are
entitled to cast 9.64 votes per share, voting together with the holders of the
Common Stock and the other series of Convertible Preferred Stock, on any matters
presented to shareholders of REI. Each share of Series A Preferred Stock is
convertible into shares of Common Stock at a conversion price of $11.50, and
each share of Series B Preferred Stock is convertible into shares of Common
Stock at a conversion price of $12.25, each subject to adjustment on certain
events, at any time after April 15, 1998. The shares of Series A Preferred
Stock may also be converted after a change in control. REI has the right to
require conversion of the Series A Preferred Stock if the average market price
of the Common Stock over a 180-calendar day period exceeds $15.525. REI granted
certain registration rights to Citadel with respect to the shares of Common
Stock issuable on conversion of the Series A Preferred Stock and the Asset Put
Option.
Citadel has the right during the 90 day period beginning October 15,
2001, or in the event of a change of control of REI, to require REI to
repurchase the Series A Preferred Stock at its stated value plus accrued and
unpaid dividends plus, in the case of a change of control, a premium. In
addition, if REI fails to pay dividends on the Series A Preferred Stock for four
quarters, Citadel may (after April 15, 1998) require REI to repurchase the
Series A Preferred Stock. Also, REI has certain rights to redeem the Convertible
Preferred Stock at its option. Due to the redemption provisions, the Series A
Preferred Stock has not been included as a component of Shareholders' Equity in
the Consolidated Balance Sheet and is separately categorized as "Redeemable
Preferred Stock of Reading."
-5-
<PAGE>
REI and Citadel also agreed that, immediately following REI's receipt
of the CHC Preferred Stock from Craig, Reading would deliver the CHC Preferred
Stock to Citadel in exchange for an equal number of shares of a new series of
Citadel preferred stock (the "Citadel Series B Preferred Stock"). The CHC
Preferred Stock and the Citadel Series B Preferred Stock were substantially
identical, except that the Citadel Series B Preferred Stock reduced the accrual
rate on the redemption premium from 9% per annum to 3% per annum subsequent to
the closing of the Stock Transactions and also provided that the Citadel Series
B Preferred Stock could not be presented for conversion to Citadel common stock
for a period of one year beginning 15 days after Citadel filed its 1996 Annual
Report on Form 10-K with the SEC.
On December 18, 1996, REI elected to convert the Citadel Series B
Preferred Stock into Citadel common stock whereupon Citadel exercised its right
to redeem the Citadel Series B Preferred Stock. REI received gross proceeds of
approximately $6.2 million on such redemptions.
DESCRIPTION OF BUSINESS
- -----------------------
General: The Company's business is the identification, acquisition,
-------
ownership and strategic management of controlling interests in other operating
companies. The Company's business objective is to serve as a holding company
and management resource to a diversified group of such operating companies. The
Company is not in the business of investing, reinvesting or trading in
securities. Over the past ten years, while the Company has reviewed a number of
opportunities, the Company's efforts have focused primarily on three such
companies: Stater (retail grocery), Reading (cinema exhibition and real estate
development) and Citadel (initially, a savings and loan holding company and now
principally a real estate company). In addition, the Company has recently
allocated capital to the development of HSH. The Company continues to review
opportunities to move into new businesses, through the acquisition of control
positions in other enterprises.
Employees: The Company's executives consist of Mr. S. Craig Tompkins
---------
(formerly a partner with Gibson, Dunn & Crutcher, and currently a director and
the President of the Company, the Vice Chairman of REI, the Vice Chairman,
Secretary, Treasurer and Principal Accounting Officer of CHC and a Managing
Director of HSH), Ms. Robin Skophammer (formerly a partner with KPMG Peat
Marwick, and a director of SBH and currently the Chief Financial Officer of the
Company) and Ms. Ellen Cotter (formerly with White & Case and currently the Vice
President - Business Affairs of the Company). Mr. James J. Cotter, the
Company's Chairman, is the Chairman of REI, the Chairman of CHC and a director
of SBH, and provides services to the Company pursuant to a consulting
arrangement. Mr. Cotter owns, assuming exercise of his outstanding options,
26.8% of the Company's then issued equity securities and, together with other
securities which Mr. Cotter has beneficial voting ownership, represents
approximately 50.2% of the voting securities of the Company. In addition, the
Company has three administrative employees. The Company considers its relations
with its employees to be good.
Properties: Although the ownership of real estate is an important
----------
element of the business of Reading and Citadel, the Company does not directly
-6-
<PAGE>
own any real estate other than a condominium property in a high rise residential
building located in Hollywood, California. The Company has a lease expiring in
2001 for approximately 5,000 square foot of office space in a Downtown Los
Angeles high rise, which it uses as its principal executive offices and shares
with Citadel and is the guarantor of the lease of approximately 3,500 square
feet of space utilized by HSH for its store. The HSH lease provides for basic
and percentage rent and has a term ending in 2006, but is terminable at the
option of HSH in 1999 for a cancelable fee of $45,000. The Company does not
guarantee any of the leasehold or other obligations of any of its other
affiliates.
Reading Entertainment, Inc.: Set forth below is a more detailed
---------------------------
discussion of the businesses conducted by Craig's majority owned subsidiary,
Reading.
At December 31, 1996, the Company held 5,087,016 shares of REI Common
Stock and 550,000 shares of REI Series B Preferred Stock, which together
represent approximately 77.4% of the voting power of REI. The Series B
Preferred Stock is junior to the 70,000 shares of REI Series A Preferred Stock
(aggregate stated value $7 million) held by Citadel, has a stated value and
liquidation preference of $100 per share, has a cumulative dividend of 6.5% and
is entitled to cast 9.64 votes per share, voting together with the holder of the
REI Common Stock and the Series A Preferred Stock on any matter presented to the
shareholders of REI, as well as customary class voting rights. Each share of
the Company's Series B Preferred Stock is convertible into shares of REI Common
Stock at a conversion price of $12.25 each, subject to adjustment on certain
events, at any time after April 15, 1998. For financial statement purposes, REI
is consolidated as a majority owned subsidiary of the Company and, accordingly,
the Company's investment in REI is eliminated in the December 31, 1996
consolidated financial statements.
READING BUSINESS
READING GENERAL
REI was formed in order to effect a reorganization of Reading Company
under a Delaware holding company. Initially organized in 1833, Reading's
predecessors have been doing business in the United States for almost 165 years.
Prior to the creation of the Consolidated Rail Corporation
("Conrail"), Reading was principally in the transportation business, owning and
operating the Reading Railroad. Following the transfer of substantially all of
its rolling stock and active rail lines to Conrail in 1976, Reading pursued a
number of endeavors including the development of One Reading Center (a 600,000
square foot office complex located in Philadelphia) and initiated the activities
which led to the development of the Pennsylvania Convention Center on land
originally utilized by Reading for railroad operating purposes. Since 1976,
Reading has reduced its railroad real estate holdings from approximately 700
parcels and rights-of-way to 28.
-7-
<PAGE>
In 1993, following the sale of its last major railroad asset -- the
Reading Terminal Headhouse -- and a thorough review of the opportunities
available to it, Reading determined to refocus its essentially real estate based
activities on the "Beyond-the-Home" or real estate based segment of the
entertainment industry. Since that date, Reading
. in 1994, acquired and has since expanded a chain of multiplex
cinemas located in Puerto Rico ("Cine Vista"),
. in 1996, acquired the Angelika Film Center, an art and specialty
multiplex cinema and cafe facility located in the Soho district of New York
City, and began the rollout of that concept into other cities, beginning with
the development of a 29,000 square foot multiplex art cinema and cafe as a part
of the Bayou Place development in Houston, Texas, and
. in 1996, constructed and opened its first multiplex cinema in
Australia, as the first step in Reading's plan to become one of the principal
cinema circuits and an established developer of entertainment center complexes
featuring multiplex cinema facilities in that country.
In recognition of the significant amounts of capital required to
compete in the cinema exhibition business, and in furtherance of its plan to
focus on and the development of cinemas and cinema based entertainment centers,
on October 15, 1996 the Reorganization and Stock Transactions were consummated.
Most of Reading's theater development projects are in the early stage
of development. At December 31, 1996, a significant portion of Reading's assets
is represented by cash (totaling approximately $48.7 million at December 31,
1996), land held for development ($7.3 million at December 31, 1996), and equity
securities in two other companies. These securities consist of 693,650 shares
of the Stater Preferred Stock and 1,564,473 shares of the CHC common stock,
representing approximately 26% of the voting power, of CHC. Reading intends to
use these assets to continue to build its Beyond-the-Home entertainment
business, and not to engage in the retail grocery business or in the business of
acquiring, selling, holding, trading or investing in securities.
In addition to its principal activities in the Beyond-the-Home
entertainment business, Reading continues to be engaged in the business of
winding up its historic railroad related activities, including the sale or other
exploitation of its residual real estate interests, and in certain financial
activities such as equipment leasing through its affiliate, FA, Inc.
Shares of the common stock, par value $.001 per share (the "Common
Stock"), of REI are quoted on the NASDAQ National Market ("NNM") and trade on
the Philadelphia Stock Exchange under the symbols RDGE and RDG, respectively.
READING DESCRIPTION OF BUSINESS
-8-
<PAGE>
Reading is primarily engaged in the development of cinema based
entertainment centers and in the multiplex cinema exhibition business in Puerto
Rico under the Cine Vista marquee, in Australia under the Reading Cinemas
marquee, and with respect to the exhibition of art and specialty film in the
United States under the Angelika marquee. While exceptions may be made with
respect to certain well-situated cinemas with proven or projected draw as art
and specialty houses, it is Reading's intention to develop or acquire
exclusively multiplex venues. With respect to new construction, it is Reading's
intention to focus primarily upon a stadium seating format, and to feature wall-
to-wall screens and state-of-the-art projection and sound.
Cine Vista
- ----------
Acquired effective July 1, 1994, for a cash purchase price of $22.7
million (inclusive of acquisition expenses in the amount of $323,000), Cine
Vista operated motion picture exhibition facilities in six leased locations in
Puerto Rico at the time of its acquisition. Since that date, Cine Vista has
added eight screens in a new complex at Plaza Palma Real in Humacao, and on
March 26, 1997, six screens in a new complex in the Mayaguez Shopping Center in
Mayaguez. In addition, an eight screen complex is under development to replace
the current six-screen facility at the Mayaguez Mall, also in Mayaguez. This
expanded facility is scheduled to open in mid 1998. Reading is currently
negotiating with respect to the construction of approximately 22 additional
screens at two locations in Puerto Rico and the expansion of one of its existing
facilities. However, no assurances can be given that such negotiations will
result in operating facilities.
All of Cine Vista's theaters are modern multi-screen facilities.
Listed below are Cine Vista's current locations and theater sites under
development.
<TABLE>
<CAPTION>
NUMBER
------
OF
--
EXISTING THEATERS LOCATION SCREENS
- ----------------- -------- -------
<S> <C> <C>
Plaza de las Americas Mall San Juan 10
El Senorial Shopping Center San Juan 4
Cinema Centro Bayamon * 6
Plaza del Norte Shopping Center Hatillo 6
Mayaguez Mall*** Hormigueros ** 6
Cayey Shopping Center Cayey 4
Plaza Palma Real Humacao 8
Mayaguez Shopping Center (1) Mayaguez 6
UNDER DEVELOPMENT
- -----------------
Mayaguez Mall*** Hormigueros ** 8
</TABLE>
(1) Opened March 26, 1997
* San Juan metropolitan area
** Mayaguez metropolitan area
*** Four of the six screens at the Mayaguez Mall will be closed in mid-1997 in
order to permit the construction of a new eight screen
-9-
<PAGE>
theater at this location. Upon completion of the new facility in mid 1998,
the two existing screens will be closed.
Puerto Rico is a self-governing Commonwealth of the United States with
a population of approximately 3.8 million people. Puerto Rico exercises control
over internal affairs similar to states of the U.S.; however, the relationship
with the United States Federal Government is different than that of a state.
Residents of Puerto Rico are citizens of the United States, but do not vote in
national elections and, with certain exceptions, do not pay federal income
taxes. Income taxes are paid instead under a system established by the
Commonwealth. In recent years, there have been two major views concerning the
future relationship with the United States Government; one favoring statehood
and the other favoring continuation of commonwealth status. In 1993, Puerto
Rico voters were asked in a plebiscite to express their preference for statehood
(48.4%), commonwealth status (46.2%) or independence (4.4%). The United States
mainland is Puerto Rico's largest trading partner.
During the last four years, Puerto Rico has undergone significant
retail shopping center development. During this period, the number of multiplex
theaters has increased substantially. Reading's principal competitor, Caribbean
Cinemas, a privately-owned company, has opened three complexes representing
approximately 33 screens in the San Juan metropolitan area since the beginning
of 1996. All of these complexes were under development at the time Reading
purchased its interest in Cine Vista. These new screens have adversely affected
Reading's current operations, reducing in the near term Reading's market share
from approximately 42% to approximately 24% percent. Reading believes that,
while Cine Vista has an opportunity to expand its operations through the
development of new multiplex theaters and improvement of its existing
operations, the Puerto Rico market will be substantially built out by the year
2000. It is unlikely that Reading will develop more than an additional thirty
to thirty-five screens in Puerto Rico over the next three years (excluding the
eight screens under development at the Mayaguez Mall).
Cine Vista derives approximately 70% of its revenues from box office
receipts. Ticket prices vary by location, and provide for reduced rates for
senior citizens and children. Box office receipts are reported net of a 10%
excise tax imposed by Puerto Rico. Show times and features are placed in
advertisements in local newspapers with the costs of such advertisements paid by
Cine Vista. Film distributors may supplementally advertise certain feature
films with the costs generally paid by distributors.
Concession sales account for approximately 25% of total revenues.
Concession products primarily include popcorn, candy and soda. Cine Vista has
implemented training programs and incentive programs and experiments with
product mix changes in order to increase the amount and frequency of concession
purchases by theater patrons.
Screen advertising revenues contribute approximately 4% of total
revenues. Cine Vista has agreements with a major soft-drink bottler and an
independent advertising production company to show advertisements on theater
screens prior to feature film showings. Other sources of revenue include
-10-
<PAGE>
revenues from theater rentals for meetings, conferences, special film
exhibitions and vending machine receipts or rentals.
Licensing/Pricing: Films are licensed under agreements with major
------------------
film distributors and several local distributors specializing in films of
special interest to residents of Puerto Rico. Puerto Rico regulations generally
require that film exhibitors be provided with an opportunity to view films prior
to submitting bids, that film distributors provide advance notice of films which
will be provided to the market, and are generally designed to preclude
anticompetitive practices. Films are licensed on a film-by-film, theater-by-
theater basis. Generally, film payment terms provide for payment to film
distributors under a percentage of gross box office receipts formula or an
adjusted gross receipts formula. Under the gross receipts formula, the film
distributor receives a specified percentage of the gross box office receipts.
Ordinarily, the percentage will decline from a range of 60-70% in the first
playweek to a low of 30% after 4-5 weeks. Under an adjusted gross receipts
formula, the film distributor receives a specified percentage (usually 90%) of
the box office receipts over the "House Allowance," a negotiated allowance for
theater expenses.
Cine Vista licenses film from substantially all of the major United
States studios and is not dependent upon any one film distributor for all of its
products. However, in the event Reading was unable to license film from a major
studio, such lack of supply could have a material effect upon Cine Vista's
business. Cine Vista believes that the popularity of the Puerto Rico exhibition
market and Puerto Rico rules governing film licensing make such a situation
unlikely. In 1996, films licensed from Cine Vista's four largest film suppliers
accounted for approximately 65% of Cine Vista's box office revenues.
Competition: Reading believes there are approximately 32 first-run
------------
movie theaters in daily operation with approximately 179 screens in Puerto Rico.
Based upon number of screens, box office revenues and number of theaters, Cine
Vista is the second largest exhibitor in Puerto Rico. The three largest
exhibitors are believed to account for over 99% of the box office revenues
recorded in 1996 by theaters in daily operation. Competition among the theater
exhibitors exists not only for theater patrons within certain geographic areas,
but also for the licensing of films and the development of new theater sites.
The number of sites suitable for multiplex cinemas is limited. Competitors of
Cine Vista are expected to continue to open theaters competitive with Cine
Vista's. Since the beginning of 1996, Reading's principal competitor's opened
three complexes in the San Juan metropolitan area adding 33 screens, all of
which are competitive with Reading's theaters, and which have attracted business
that would otherwise have gone to theaters owned by Cine Vista. This competitor
has at least one additional competitive theater under development, which is
expected to add 12 screens to the San Juan market.
Seasonality: Most major films are released to coincide with the
------------
summer months, when schools are closed or the winter holiday seasons.
Accordingly, Cine Vista has historically recorded greater revenues and earnings
during the second half of the calendar year.
-11-
<PAGE>
Employees: Cine Vista has approximately 175 employees in Puerto
----------
Rico, approximately 15 of whom are employed under the terms of a collective
bargaining agreement. The collective bargaining agreement expires in May 1997.
Reading believes its relations with its employees in Puerto Rico to be good.
Angelika Film Centers
- ---------------------
On August 27, 1996, Reading and Sutton Hill Associates ("Sutton
Hill"), a New York cinema exhibitor, acquired, for approximately $12,570,000
(inclusive of $529,000 in acquisition costs), the Angelika Film Center (the
"Angelika"), a multiplex theater located in the Soho district of New York City
and which Reading believes to be the premier specialty theater in the United
States. Reading and Sutton Hill have formed a limited liability company,
Angelika Film Centers LLC ("AFC"), to hold their interest in the Angelika.
Reading contributed 83.3% of the capital of AFC and Sutton Hill
contributed the remaining 16.7%. The operating agreement of AFC provides that
all depreciation and amortization (the "Special Deductions") will first be
allocated to Sutton Hill until the aggregate amount of such Special Deductions
equals Sutton Hill's initial investment. Thereafter, Reading will receive all
Special Deductions until the relative ownership interests are equal to the
initial ownership interests of the parties. Sutton Hill has agreed to
subordinate its interest in AFC to Reading's interest in order to permit Reading
to pledge AFC and its assets as collateral to secure borrowings by Reading. In
addition, Sutton Hill has agreed that Reading will be entitled to receive up to
100% of the proceeds of borrowings by AFC, up to the amount of Reading's initial
capital contribution of AFC.
AFC is managed by City Cinemas Corporation ("City Cinemas"), a cinema
management company owned by Sutton Hill, pursuant to the terms of a management
agreement (the "Management Agreement"). The Management Agreement provides for
City Cinemas to manage the Angelika for a minimum annual fee of $125,000 plus an
incentive fee equal to 50% of annual cash flow (as defined in the Management
Agreement) over prespecified levels, provided, however, that the maximum annual
fee (minimum fee plus incentive fee) may not exceed 5% of the Angelika's annual
revenues.
The Angelika reported 1996 revenue of $7.4 million. AFC has reached
agreement with its landlord to extend the remaining term of the Angelika lease
from approximately 12.5 years to approximately 29.5 years, and the landlord has
submitted such amended lease to its lender for its consent.
Reading is currently working to develop additional Angelika Film
Centers in major urban areas located throughout the United States. It is not
currently anticipated that City Cinemas would participate in centers located
outside of New York City. In accordance with Reading's business plan, on
February 27, 1997, Reading entered into an agreement for the construction and
lease of a 1,450-seat, eight-screen, 29,000 square foot art and specialty cinema
and cafe facility to be located in the Bayou Place entertainment center in
Houston, Texas. Bayou Place is being developed by The Cordish Company pursuant
to a ground lease and development agreement with the City of Houston. The
complex sits over a 3,000-car parking garage and is located in the middle of the
City's
-12-
<PAGE>
theater district. The lease is subject to approval by the City, the
execution and delivery by the City of a suitable agreement of attornment and
non-disturbance and the granting by the City of certain parking rights.
Assuming the prompt approval of the lease and the prompt execution and delivery
of such an agreement and grant of parking rights, it is anticipated that the
Houston Angelika could be opened in time for the 1997 year-end Holiday season.
Reading is currently in negotiation with owners and developers with respect to a
number of additional potential locations. No assurances can be given, however,
that any of the negotiations will result in operational theaters.
Reading believes that the exhibition of first run art and specialty
films is a niche business, in some ways distinct from the business of exhibiting
bigger budget wide release films. At the present time, the only national chain
specializing in art and specialty film is Landmark Cinemas, a subsidiary of
Metromedia Company which operates over 140 screens in over 50 locations,
principally in California and Washington. Many larger cities have smaller
chains which operate one to five locations. While major chains specializing in
conventional wide release film product also may exhibit art and specialty
product from time to time, these chains have typically limited themselves to the
exhibition of such crossover art films as Four Weddings and a Funeral, The
English Patient, Pulp Fiction, The Piano and Shine. This may change as more
megaplex complexes with 16 or more screens are constructed, particularly if the
number of films released by the distributors of conventional wide release film
product decreases or if art and specialty film develops in popularity to the
point where it enjoys a wider release than is currently typically the case with
such films. Current levels of film production continue to provide megaplex
exhibitors with sufficient film product to make such exhibitors inconsistent
sources of screens for the distributors of art and specialty film. Art cinemas
complexes, which typically do not exhibit conventional wide release films, are
accordingly currently a more consistent source of screens to the distributors of
art and specialty film.
Licensing/Pricing: Art and specialty films are available from many
-----------------
sources ranging from the divisions of the larger film distributors specializing
in the distribution of specialty films to individuals that have acquired
domestic rights to one film. Generally, film payment terms are based upon an
adjusted gross receipts formula where the film distributors receive a specified
percentage (usually 90%) of the box office receipts over the "House Allowance,"
a negotiated allowance for theater expenses.
Competition: In most markets, art and specialty film is currently
-----------
exhibited at older independently owned one and two screen theater complexes.
Few such independent exhibitors operate cinemas in more than one metropolitan
area. Reading believes that there is currently a window of opportunity to
construct, in a number of under-serviced urban markets, a nationwide chain of
state-of-the-art multiplex cinemas specializing in art and specialty film.
Reading further believes that the distributors of such films may favor
distribution of art and specialty film to such a specialized chain as opposed to
distribution to conventional megaplex operators, since megaplex operators will
typically prefer to exhibit mainstream bigger budget film rather than art
product and, accordingly, may not be as consistent and as dependable a source of
screens as exhibitors who show only art and specialty film product. Reading
-13-
<PAGE>
also believes that patrons of art and specialty film may prefer a cinema
experience that is different from that offered by a megaplex complex and that
the familiarity and goodwill associated with the Angelika name and the strength
of Reading's balance sheet may give Reading a competitive advantage over other
independent exhibitors of art and specialty films. However, the cinema industry
is currently in a state of significant change, as illustrated by the significant
number of multiplex and megaplex theaters which have been constructed or
announced in recent periods, and no assurances can be given that Reading's plans
can be successfully implemented.
Seasonality: The exhibition of art and specialty film, while still
------------
somewhat seasonal in nature, is less so than the film exhibition business
generally. Art and specialty films tend to be released more evenly over the
course of the year and, if successful, to enjoy a longer run than wide release
films. The popularity of art and specialty film has increased significantly in
recent years, grossing domestically approximately $98,000,000, $112,000,000,
$244,000,000, $372,000,000, $355,000,000 in 1991 through 1995, respectively, and
over $500,000,000 in 1996 (based upon management estimates).
Employees: AFC has approximately 30 employees, three of whom are
---------
employed under the terms of a collective bargaining agreement. The collective
bargaining agreement expires in October 1998. AFC believes its relations with
its employees to be good.
Reading Australia
- -----------------
Reading commenced activities in Australia in mid-1995, and currently
conducts business in Australia through Reading Australia. Reading Australia has
retained several key executives resident in Australia, acquired or signed
agreements to acquire several parcels of real estate for development as
entertainment centers with multiplex cinemas and complementary uses and, on
December 26, 1996, opened its first multiplex cinema in Australia.
Reading Australia's initial business plan has been to focus on two
types of locations. The first type of locations are large freehold sites or
long-term leasehold properties located in metropolitan areas and which Reading
believes can be developed as entertainment centers ("Entertainment Centers")
providing patrons with not only a state-of-the-art multiplex cinema facility
(typically featuring a complex with 12 or more screens), but also with
convenient on-site parking and access to complementary amenities such as
restaurants. Entertainment Center projects are currently being developed by
wholly-owned subsidiaries of Reading Australia.
The second type of locations are smaller sites ("Country Cinemas"),
located in smaller metropolitan areas which cannot, in the view of Reading,
currently support larger multiplex complexes. It is expected that the Country
-14-
<PAGE>
Cinemas will be developed by Australia Country Cinemas Pty. Limited ("ACC"), a
company which will be owned 75% by a subsidiary of Reading Australia and 25% by
a company owned by an Australian national, resident in Australia and from a
family long experienced in the cinema exhibition and supply business. These
Country Cinemas are a secondary focus for Reading, the principal focus being
upon the development and operation of Entertainment Centers, and it is uncertain
as to how many Country Cinemas locations will be developed.
The initial cinema opened by Reading Australia was a Country Cinema
consisting of six screens and 1,364 seats located on a long-term leasehold
property in Townsville, Queensland. In March 1997, Reading broke ground on
another Country Cinema, a six-plex virtually identical to the Townsville
theater, located on a long-term leasehold in Mandurah, Western Australia.
In addition, Reading Australia has signed contracts to acquire the
following properties for development as Entertainment Centers:
<TABLE>
<CAPTION>
ESTIMATED
DEVELOPMENT
LAND APPROXIMATE SIZE IN
SIZE IN APPROXIMATE CINEMA SQUARE
SQUARE PURCHASE SIZE IN FOOTAGE OF
SITE FOOTAGE PRICE SQUARE FEET IMPROVEMENTS
---- ------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Auburn, New South Wales 522,720 $8,500,000 60,000 210,000
Frankston, Victoria/1/ 227,750 N/A 64,000 94,000
Moonee Ponds, Victoria 129,949 $5,400,000 54,000 103,000
Newmarket, Queensland 172,160 $4,800,000 49,000 161,000
</TABLE>
/1/ Under the applicable development agreement, Reading Australia is required to
make certain infrastructure improvements which are estimated to cost
approximately $6,000,000.
Reading has also signed a lease on a site mentioned below and is about
to sign a lease on the second site mentioned below. In both cases, Reading's
interest would be limited to that of the owner/operator of a multiplex cinema as
follows:
<TABLE>
<CAPTION>
CINEMA SIZE IN NUMBER
SITE SQUARE FEET OF SCREENS
---- -------------- ----------
<S> <C> <C>
Liverpool, New South Wales 68,000 18 screens
Penrith, New South Wales 70,000 12 screens
</TABLE>
Reading has accumulated, as the consequence of three separate
acquisitions, a 50 acre site in Burwood, Victoria. This site was originally
acquired for development of a mega-plex cinema. However, such use is currently
being reevaluated as a consequence of an adverse land use determination, which
negated certain permits which were in place at the time the land was acquired.
Reading, generally speaking, has encountered substantial opposition to
its attempt to develop freestanding cinemas in entertainment complexes in
Australia. Currently, most cinemas in Australia are located within the central
-15-
<PAGE>
business district (the "CBD") of the community which they serve. In the case of
multiplex developments, such complexes are typically found on second or third
floor locations in large privately-owned shopping centers. This course of
development has historically been a function of Australian land use planning
which is more protective of CBDs and of private shopping center development than
is typically the case in the United States and has, in the view of Reading,
resulted in facilities that are typically less convenient to the public and less
modern than the current generation of U.S. multiplexes and in higher ticket
prices than are typically found in the United States.
In the view of Reading, the principal competitive restraint on the
development of its business in Australia is the availability of sites. The
Company's principal competitors and certain major commercial landlords are
currently attempting to use this historical course of land use development to
prevent the construction of freestanding cinemas in entertainment complexes,
particularly where those complexes are located outside of an established CBD or
shopping center development. At the present time, competitors or shopping
centers' landlords are contesting the suitability, from a land use point of
view, of several of the above referenced locations. In the case of Reading's
50-acre site at Burwood in Victoria, the relevant Minister (Minister for
Planning and Local Government) preempted local zoning authorities to prohibit
Reading's intended development of a 25-screen cinema complex, which would have
competed with complexes owned by the principal theater operators in Australia
and located in shopping centers owned by some of the principal landlords in
Australia.
The inability to develop free standing cinemas as part of
Entertainment Centers would be adverse to Reading, since the principal
exhibitors in Australia have close historic relations with that country's
principal shopping center owners.
In light of the opposition encountered to date, no assurances can be
given that Reading will be able to accomplish its business objectives in
Australia. Furthermore, even if those objectives are eventually achieved, the
realization of these objectives will likely require a longer period of time and
a greater level of developmental costs than originally anticipated by Reading.
While Reading remains committed to its plans with respect to Australia, no
assurances can be given that Reading will be able to obtain the governmental
approvals needed to develop its Entertainment Center sites and Reading does not
anticipate that it will have any of its metropolitan locations open before the
fourth quarter of 1998. Each of the agreements signed by Reading to acquire or
lease land is, in effect, subject to the receipt of all permits required for the
construction of a multiplex cinema.
As each of Frankston, Moonee Ponds and Newmarket are located in either
CBD or an entertainment zone, Reading anticipates that it will receive the
permits needed to proceed with such locations. Reading's transferor at Auburn
has been granted development consent for the construction of a 2,000 seat, eight
screen complex although building approval is required before construction can
commence. However, a competitor has challenged the legality of such permit and
filed suit to overturn the permit. Reading intends to vigorously defend this
attempt by such competitor to delay or block this project. Reading
-16-
<PAGE>
Properties Pty. Limited, a subsidiary of RAPL, has been joined as a party in the
relevant legal proceeding. As to Liverpool, the determination of the City
Council to deny a permit has been appealed to the Land and Environment Court.
Penrith is also located in an entertainment zone, and applications for necessary
permits have been filed.
As to the Burwood Property (a parcel of undeveloped land acquired by
Reading in 1995 for $7.3 million), Reading is currently reviewing its options as
to possible alternative uses of the site. At the present time, Reading believes
it unlikely, absent a change in governmental attitude in Victoria as to the
development of cinemas outside of established shopping centers, that the
property can be developed for cinema or other entertainment-oriented purposes.
However, Reading believes that the parcel has significant value for alternative
uses.
In addition to the locations referenced above, Reading has been in
negotiations for some period of time with AMP Investments Limited ("AMP")
concerning a ground lease and the construction of a twelve screen cinema on a
60,000 square foot pad at AMP's Mount Gravatt shopping center in Queensland.
Based upon the advice of counsel, Reading is of the view that an enforceable
lease currently exists between Reading and AMP with respect to that site.
However, AMP is currently taking the position that no such lease exists and has
stated an unwillingness to proceed. Without waiving its position that an
enforceable lease does presently exist, Reading is presently continuing
discussions with AMP, in an effort to overcome AMP's current unwillingness to
proceed. If these discussions do not resolve the issue, Reading intends to
litigate the matter.
Australia is a self-governing and fully independent member of the
Commonwealth of Nations. The constitution resembles that of the United States
in that it creates a federal form of government, under which the powers of the
central government are specified and all residual powers are left to the states.
The country is organized into five mainland states (New South Wales, Queensland,
South Australia, Victoria and Western Australia), one island state (Tasmania)
and two territories (Australian Capital Territory and the Northern Territory).
The ceremonial supreme executive is the British monarch, represented
by the governor-general and in each of the six states by a governor. These
officials are appointed by the British monarch, but appointments are nearly
always recommended by the Australian governments. True executive power rests
with the prime minister, the leader of the majority party in the House of
Representatives. The legislature is bicameral, with a Senate and a House of
Representatives, and the ministers are appointed by the prime minister from the
membership of the House and the Senate. The organization of the state
government is similar to that of the central government. Each state has an
appointed governor, an elected premier and a legislature.
Although Australia is the sixth largest country in the world in land
mass, it only has a population of approximately 19.2 million people. This
population is concentrated in a few coastal urban areas, with approximately 4
million in the greater Sydney area, 3.4 million in the greater Melbourne area,
-17-
<PAGE>
1.7 million in the Brisbane area, 1.1 million in Adelaide and 1.4 million in
Perth. Australia is one of the richest countries in the world in terms of
natural resources per capita and one of the most economically developed
countries in the world, although vast areas of the interior, known as "the
Outback," remain all but uninhabited. The principal language is English, and
the largest part of the population traces its origin to Britain and Europe,
although an increasing portion of the population has immigrated from the Far
East. Australian taste in film has historically been similar to that of
American audiences.
Internal trade is dominated by the two most populous states, New South
Wales (mainly Sydney) and Victoria (mainly Melbourne). Together these two
states account for a majority of all wholesale trade and approximately 75% of
all retail sales. At the present time, Australia's principal trading partners
are the United States and Japan.
Australia does not restrict the flow of currency into the country from
the U.S, or out of Australia to the United States. Also, subject to certain
review procedures, U.S. companies are typically permitted to operate businesses
and to own real estate.
Licensing/Pricing: Films are licensed under agreements with major
-----------------
film distributors and several local distributors who distribute specialized
films. Film exhibitors are provided with an opportunity to view films prior to
negotiating with the film distributor the commercial terms applicable to its
release. Films are licensed on a film-by-film, theater-by-theater basis.
Reading Australia licenses films from all film distributors as appropriate to
each location.
Generally, film payment terms provide for payment to film distributors
under a gross box office receipts formula or an adjusted gross receipts formula.
Under the gross receipts formula, the film distributor receives a specified
percentage of the gross box office receipts. Ordinarily, the percentage will
decline from a range of 50%-60% in the first play week to a low of 25% after 4-5
weeks. Under an adjusted gross receipts formula, the film distributor receives
a specified percentage, usually 80% or 90%, of the box office receipts over the
"House Allowance," a negotiated allowance for theater expenses. Normally, the
higher of the above two calculations is the amount paid to the distributor.
Competition: The film exhibition business in Australia is
-----------
concentrated and, to a certain extent, vertically integrated. The principal
exhibitors in Australia include Village Roadshow Limited ("Village") with
approximately 136 screens, Greater Union and affiliates with approximately 278
screens and Hoyts Cinemas ("Hoyts") with approximately 166 screens.
Independents as a group operates approximately 560 screens.
Greater Union is the owner of Birch Carroll & Coyle and a part owner
of Village. The Company understands that certain of the new multiplex cinema
projects announced by Village are being jointly developed by Greater Union,
Village, and Warner Bros. Hoyts has announced plans to add approximately 140
new multiplex screens.
-18-
<PAGE>
These companies have substantial capital resources. Village had a
publicly reported consolidated net worth of approximately $650 million at June
30, 1996. The Greater Union organization does not separately publish financial
reports, but its parent, Amalgamented Holdings, had a publicly reported
consolidated net worth of approximately $210 million at June 30, 1996. Hoyts
Cinemas recently completed a public offering, increasing its net worth to
approximately $170 million.
The industry is somewhat vertically integrated in that Village also
serves as a distributor of film in Australia for Warner Bros. and
Disney/Touchstone/Buena Vista. Films produced or distributed by the majority of
the local international independent producers are also distributed by Roadshow
Film Distributors. Roadshow Film Distributors is owned equally by Village and
Greater Union. The practical impact of this vertical integration is mitigated to
some extent, however, by the Australian legal requirement that all films be made
reasonably available to all exhibitors.
Seasonality: Major films are generally released to coincide with the
-----------
school holiday trading periods, particularly the summer holidays. Accordingly,
Reading Australia would expect to record greater revenues and earnings during
the first half of the calendar year.
Employees: Reading Australia has seven executive and administrative
---------
employees and approximately 30 theater employees.
The principal executive officers of Reading are as follows:
Mr. Smerling has been President of Reading Entertainment since January
1997 and has served as President of Reading Cinemas, Inc. since November 1994.
Mr. Smerling also serves as the President of Cine Vista and the Chief Executive
Officer of Reading Australia. Mr. Smerling served as president of Loews Theater
Management Corporation, a subsidiary of Sony Corporation, from May 1990 until
November 1994. Mr. Smerling also serves as President and Chief Executive
Officer of City Cinemas, a motion picture exhibitor located in New York City,
New York. City Cinemas is an affiliate of James J. Cotter and has entered into
an Executive Sharing Agreement with Reading with respect to the services of Mr.
Smerling.
Mr. Rochester has been Chief Executive Officer of Reading Australia
since November 1995. From 1990 through 1995, Mr. Rochester was the Managing
Director of Television & Media Services Ltd. (formerly Hoyts Entertainment
Ltd.). He also served in several other executive offices for that organization
since 1987.
Mr. Wunderle has been Chief Financial Officer since January 1987 and
Executive Vice President, Treasurer, and Chief Financial Officer since December
1988. He has been Treasurer since March 1986.
In addition, Reading has contractual arrangements with certain other
individuals and/or certain affiliated companies which make available to Reading
consulting services from the following individuals:
-19-
<PAGE>
John Foley: Mr. Foley has been a full time employee of City Cinemas
since January 1997, and in this capacity provides booking and site
identification advice to Reading. Prior to joining City Cinemas, Mr. Foley was
the President of Distribution for Miramax, where he, among other things,
developed and implemented the distribution plan for The English Patient, the
winner of nine Academy Awards and one of the most profitable art films of all
time. Prior to joining Miramax in 1994, Mr. Foley was the President of
Distribution for MGM/UA from 1989 through 1993.
Steve Wesson: Mr. Wesson has been the President and Chief Executive
Officer of CHC since August 1994. Prior to his employment by Citadel in 1993,
Mr. Wesson was the Chief Executive Officer of Burton Properties Trust Inc., the
U.S. real estate subsidiary of The Burton Group PLC, from 1989. Reading
receives real estate consulting services from Citadel pursuant to an agreement.
Hope Street Hospitality, LLC.
- -----------------------------
At December 31, 1996, the Company held a 50% membership interest in HSH,
the remaining 50% interest being held by two individuals, whose principal
business is their employment as Managing Directors with an international
investment banking firm. HSH was formed in early 1996 in order to (i) acquire
the rights for the Western United States (and an option to acquire such rights
for the remainder of the United States) to make use of certain trade secret
information related to the baking in a woodfired oven of a handmade bagel in
the type and style popular in Montreal, Canada; (ii) build a prototype store,
and (iii) if the store proves successful, to possibly develop a chain of such
stores.
HSH opened its store in July 1996 on a long term leasehold property located
in the Century City Area of Los Angeles, and through December 31, 1996 the HSH
members had invested approximately $1.5 million in this project. HSH has
encountered substantial competition from other developers of bagel oriented
stores, some of which have substantially greater capital and/or restaurant
experience than does HSH. Furthermore, HSH has had difficulty producing a hand-
rolled and woodbaked product which can be priced competitively with bagel
producers who rely upon central commissaries, frozen doughs, machine produced
bagels, and conventional convection ovens and who, accordingly, are able to
operate with smaller facilities and less expensive labor than does HSH. At the
present time, the store is not operating on a profitable basis, and HSH is
currently reviewing ways in which the concept can be modified to achieve
profitability. No assurances can be given that such efforts will be successfully
achieved.
The store is operated in a 3,500 square foot facility, under a 10-year
building lease, providing for base rent plus a percentage of gross sales. The
lease is terminable after three years at the option of HSH, upon payment of a
terminable fee of $145,000. At current sales levels, rent is approximately
$8,545 per month, plus cost of insurance, utilities and property taxes. This
lease has been guaranteed by the Company. HSH has approximately 30 employees, 5
of which are salaried, and none of which are unionized.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
- -----------------------------------------------------------
The following table indicates the relative amounts of revenues from
operations and identifiable assets of the Consolidated Company by geographic
area during the year ended December 31, 1996, the three months ended December
31, 1995 and the two years ended September 30, 1995 and 1994. The Consolidated
Company has no export revenues.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS YEARS ENDED SEPTEMBER
DECEMBER ENDED 30,
31, DECEMBER 31,
1996 1995 1995 1994
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Puerto Rico $ 15,523 $ -- $ -- $ --
Mainland United States (1) 3,256 -- -- --
Australia (2) -- -- -- --
Corporate 9,086 2,288 6,182 11,593
Income (loss) from operations: (3)
Puerto Rico $ 385 $ -- $ -- $ --
Mainland United States 956 -- -- --
Australia (2,816) (492) -- --
Corporate and Other (4) 12,485 2,084 5,108 2,040
Identifiable assets: (5)
Puerto Rico $ 26,529 $ -- $ -- $ --
Mainland United States 15,824 -- -- --
Australia 12,948 -- -- --
Corporate and other 110,667 90,790 84,669 80,027
Consolidated Assets (6) $165,968 90,790 $84,669 $80,027
</TABLE>
1. The Angelika revenues represent only the period from August 27, 1996
through December 31, 1996.
2. Reading Australia recorded no revenues other than interest and dividend
income, which income is included in Corporate and other.
-20-
<PAGE>
3. Reflects earnings before gain from conversion of common stock interest in
Stater, interest expense, taxes and intercompany interest and management
fees and minority interest.
4. Corporate and other income includes corporate General and Administrative
expense, Other Income, and Interest Income/Expense and excludes
intercompany interest and management fees.
5. Reading Australia has cash, cash equivalents, and the Stater Preferred
Stock, which assets had an aggregate book value of $82.210 million and have
been included in the value of Corporate and other Assets.
6. Consolidated assets for all periods prior to 1996 do not include the
identifiable assets or income (loss) from operations of REI on a
consolidated basis.
ITEM 2. PROPERTIES
CRAIG PROPERTIES
Although the ownership of real estate is an important element of the
business of Reading and Citadel, the Company does not directly own any real
estate other than a condominium property in a high rise residential building
located in Hollywood, California which the Company uses as executive offices and
which is available to the directors of the Company while they are in Los
Angeles. The Company has a lease expiring in 2001 for approximately 5,000
square foot of office space in a Downtown Los Angeles high rise, which it uses
as its principal executive offices and shares with Citadel and is the guarantor
of approximately 3,500 square feet of leased space utilized by HSH for its
prototype store. The HSH lease provides for basic and percentage rent, has a
term ending in 2006, but is terminable at the option of HSH in 1999 for a
cancelable fee of $45,000. The Company does not guarantee any of the leasehold
or other obligations of any of its affiliates.
READING PROPERTIES
REI Executive and Administrative Offices
- ----------------------------------------
REI leases approximately 6,600 square feet of office space in center
city Philadelphia. A subsidiary of Reading shares office space in New York City
with City Cinemas. This space approximates 2,600 square feet, and the cost is
apportioned between City Cinemas and REI.
Center City Philadelphia Properties
- -----------------------------------
Reading's properties in center city Philadelphia, all of which are
owned in fee, consist of several parcels of land aggregating approximately .67
acres located near or adjacent to the site of the Convention Center which are
currently leased to a parking lot operator; the Viaduct north of Vine Street to
-21-
<PAGE>
Fairmount Avenue and adjacent parcels, comprising approximately 6.75 acres; and
properties owned by partnerships in which Reading has interests.
Partnership Properties
- ----------------------
S.R. Developers: A subsidiary of Reading is a general partner in S.R.
Developers, a partnership which owns one property in center city Philadelphia.
Parametric Garage Associates: A subsidiary of Reading is a general
partner in Parametric Garage Associates, a partnership which owns the 750-car
Gallery II Parking Garage (the "Garage"). The Garage is adjacent to the
Pennsylvania Convention Center Complex. Reading has primary responsibility for
the leasing and management of 19,000 gross rentable square feet of retail space
on the ground level of the Garage pursuant to a management agreement and
provides certain other management services to the partnership.
Other Domestic Non-Entertainment Real Estate
- --------------------------------------------
When Reading's railroad assets were conveyed to Conrail, Reading
retained fee ownership of approximately 700 parcels and rights-of-way located
throughout Pennsylvania, Delaware, and New Jersey. Approximately 23 parcels and
rights-of-way located outside of center city Philadelphia are still owned by
Reading. The parcels consist primarily of vacant land and buildings, some of
which are leased.
Entertainment Properties
- ------------------------
Reading currently leases approximately 227,728 square feet of
completed theater space in the United States, Puerto Rico and Australia, as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
RANGE OF AVERAGE
AGGREGATE TERMS REMAINING TERM
SQUARE (INCLUDING (INCLUDING
FOOTAGE RENEWALS) RENEWALS)
-------- ----------- --------------
<S> <C> <C> <C>
United States 23,050 12.5 12.5(1)
Puerto Rico 181,728 16-40 years 30
Australia 16,000 30 30
</TABLE>
(1) Agreement has been reached with the landlord to extend the remaining term of
the Angelika lease to approximately 29.5 years, and the landlord has
submitted such amended lease to its lender for consent.
In addition, Reading has signed leases with respect to additional to-
be-built theater space of 29,000 square feet in the U.S., 36,000 square feet in
Puerto Rico, and 174,600 square feet in Australia (calculated exclusive of the
Mount Gravatt lease). These leases have average terms (including renewals) of
36 years and average base rents of $464,000.
-22-
<PAGE>
Reading currently has contracted to purchase 1,052,571 square feet of
land comprised of four sites for the construction of cinemas and entertainment
complexes in Australia.
For more detailed information about Reading's entertainment
properties, please see the discussion under Item 1. Business, Reading
Description of Business, above.
Cine Vista Properties
- ---------------------
All of Cine Vista's real properties are leased. The eight theaters
are leased pursuant to long-term leases with remaining terms and renewal options
ranging from 16 to 40 years. Cine Vista has executed an additional lease for an
expansion of an existing theater, which lease term commences with occupancy,
expected in mid-1998. The landlord of one of Cine Vista's theaters has the
right to terminate the lease relating to space presently housing two screens,
subject to six months' notice. All of Cine Vista's theater leases provide for
the payment of minimum fixed rental payments and, in certain cases, may require
additional payments based upon a percentage of theater revenues. Cine Vista
also leases approximately 6,100 square feet of warehouse space and 2,200 square
feet of office space.
Angelika Film Centers Properties
- --------------------------------
The Angelika Film Center is located in a leased facility of
approximately 23,000 square feet in the Soho district of New York City.
Reading Australia Properties
- ----------------------------
Reading Australia maintains leased offices in Melbourne and Sydney,
Australia pursuant to short term leases. The total leased space is
approximately 2,300 square feet. In December 1995, Reading Australia acquired a
50 acre site in a suburban area outside of Melbourne. Reading Australia had
intended to build a theater on this site but the Minister for Planning and Local
Government has intervened to negate certain permits which were in place at the
time the land was acquired. Reading Australia believes that the site has value
as an assemblage for other uses, even if it is unable to develop the site as a
theater.
Reading Australia opened its first theater in December 1996 in leased
facilities in Townsville, Queensland under the Country Cinema concept and has
broken ground on a second facility now under construction in Mandurah, West
Australia.
Reading Australia is aggressively pursuing other locations in and
about Sydney and Melbourne and elsewhere in Australia upon which it may develop
theater operations. It has made several refundable deposits related to lease
and purchase proposals.
-23-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
CRAIG LEGAL PROCEEDING
The Company has been named in certain litigation resulting from the
Stock Transactions in October 1996. That litigation is described separately
below under the heading "Stock Transaction Litigation."
READING LEGAL PROCEEDINGS
Reading Company has been advised by the Environmental Protection
Agency ("EPA") that it is a potentially responsible party ("PRP") under
environmental laws including Federal Superfund legislation ("Superfund") for a
site located in Douglassville, Pennsylvania. The EPA issued an Administrative
Order under Superfund against 34 PRPs requiring, among other things, that the
named parties be required to incinerate materials at the site pursuant to a 1989
Record of Decision ("ROD"). The ROD estimated that the incineration would cost
approximately $53 million. Thirty-six PRPs were also named in a civil action
brought by the United States Government which seeks to recover alleged costs
incurred at the site by the United States of approximately $22 million. Reading
Company was named in a third-party action instituted by the majority of the 36
PRPs sued by the United States. The actions instituted against Reading and
approximately 300 PRPs seek to have the parties contribute to reimbursement for
past costs and any costs associated with further remediation at the site.
In 1995, the federal district court judge who presided over Reading
Company's bankruptcy reorganization ruled that all liability asserted against
Reading Company relating to the site was discharged pursuant to the consummation
order issued in conjunction with Reading Company's bankruptcy on December 31,
1980. The judge's decision has been appealed and the appeal was heard in July
1996. The appellate court has not yet rendered its opinion.
Pursuant to a settlement of litigation, the City of Philadelphia,
Conrail, and the Southeastern Pennsylvania Transportation Agency have agreed to
pay an amount ranging from 52% to 55% of future costs Reading Company may incur
in cleaning environmental contamination on one of its other properties, the
Viaduct, which Reading Company believes may be contaminated by PCBs. Reading
Company has advised the EPA of the potential contamination. Reading Company has
not determined the scope and extent of any such PCB contamination. However,
Reading Company has been advised by counsel that, given the lack of regulatory
attention to the Viaduct in the fourteen years which have elapsed since the EPA
was notified of the likelihood of contamination, it is unlikely that Reading
Company will be required to decontaminate the Viaduct or incur costs related
thereto.
STOCK TRANSACTION LITIGATION
In September 1996, the holder of 50 shares of REI Common Stock
commenced a purported class action on behalf of Reading's minority shareholders
owning Reading Company Class A Common Stock in the Philadelphia County Court of
Common Pleas relating to the Reorganization and Stock Transactions. The
complaint in
-24-
<PAGE>
the action (the "Complaint") named Reading, Craig, two former
directors of Reading and all of the current directors of Reading (other than
Gregory R. Brundage) as defendants. The Complaint alleged, among other things,
that the Independent Committee set up to review the transactions and the current
and former directors of Reading breached their fiduciary duty to the minority
shareholders in the review and negotiation of the Reorganization and Stock
Transactions and that none of the directors of Reading were independent and that
they all were controlled by James J. Cotter, Craig or those controlled by them.
The Complaint also alleged, in part, that the defendants failed to disclose the
full future earnings potential of Reading and that Craig would benefit unjustly
by having its credit rating upgraded and its balance sheet bolstered and that
the value of the minority shareholders' interest in Reading was diluted by the
transactions. The Complaint sought injunctive relief to prevent the
consummation of the Stock Transactions and recision of the Stock Transactions if
they were consummated and divestiture by the defendants of the assets or shares
of Reading that they obtained as a result of the Stock Transactions, and
unspecified damages and other relief.
In October, all of the defendants filed preliminary objections to the
Complaint and thereafter, by agreement of the parties and Order of the Court,
Reading was dismissed as a defendant without prejudice. Plaintiff dismissed
with prejudice his request for preliminary and permanent injunctive relief to
prevent the consummation of the Stock Transactions and his request to rescind
and set aside the Stock Transactions.
In November, plaintiffs filed an amended complaint against all of
Reading's present directors, its two former directors and Craig. The amended
complaint does not name either Reading or Reading Company as a defendant. The
amended complaint essentially restates all of the allegations contained in the
Complaint and contends that the named defendant directors and Craig breached
their fiduciary duties to the alleged class. The amended complaint seeks
unspecified damages on behalf of the alleged class and attorneys' and experts'
fees.
Management believes that the allegations contained in the amended
Complaint are without merit and intends to vigorously defend the directors in
the matter. Reading has Directors and Officers liability insurance and believes
that the claim is covered by such insurance.
Reading is not a party to any other pending legal proceedings or
environmental action which management believes could have a material adverse
effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDINGS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
-25-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock and the Class A Common Preference Stock of the
Company are traded on the New York and Pacific Stock Exchanges. Set forth below
are quarterly high and low closing prices on the NYSE for the following periods:
<TABLE>
<CAPTION>
Class A Common
Preference Stock Common Stock
High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Quarter Ended:
December 31, 1996 14 1/4 13 1/2 14 3/4 13 3/4
September 30, 1996 14 3/8 11 1/4 16 12 1/8
June 30, 1996 11 1/2 10 1/4 12 3/4 10 3/8
March 31, 1996 11 1/2 9 12 9 3/4
Three Months Ended
December 31, 1995 9 1/8 8 1/2 9 7/8 9
Year Ended September 30, 1995
Quarter Ended:
September 30, 1995 9 1/2 8 1/2 10 3/8 9 3/8
June 30, 1995 9 1/2 8 1/2 10 3/8 9 3/4
March 31, 1995 9 1/2 8 1/2 10 1/4 8 3/4
December 31, 1994 10 7/8 8 3/4 11 1/4 8 1/4
</TABLE>
The approximate number of holders of record of the Company's Common
Stock and Class A Common Preference Stock as of April 14, 1997 was 820 and 11,
respectively. No cash dividends were declared or paid on the Company's Common
Stock or Class A Common Preference Stock during the fiscal year ended December
31, 1996, the three months ended December 31, 1995 and the year ended September
30, 1995. It is the current intention of the Board of Directors not to declare
cash dividends, due to the Company's intention to use its excess cash in
connection with the operation of the Company.
-26-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical consolidated
financial information for the Company. This table is based on, and should be
read in conjunction with, the Consolidated Financial Statements included
elsewhere herein and the related notes thereto.
(in thousands, except per share information)
<TABLE>
<CAPTION>
THREE
YEAR MONTHS YEAR ENDED SEPTEMBER 30,
ENDED ENDED
DEC. 31, DEC. 31,
1996 1995 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $27,865 $ 2,288 $ 6,182 $ 11,593 $ 2,337 $ 4,944
Income (loss before
extraordinary items 42,647 850 3,458 1,030 (5,915) (7,954)
Extraordinary items - - - (2,408) 0 (735)
- -------------------------------------------------------------------------------------------------
Net income (loss) applicable
to common shareholders $42,647 $ 850 $ 3,458 ($1,378) ($5,915) ($8,689)
=================================================================================================
Per share information:
Income (loss) before
extraordinary items $ 7.55 $ 0.14 $ 0.58 $ 0.16 $ (0.93) $ (1.26)
Extraordinary items - - - (.38) - (0.12)
- -------------------------------------------------------------------------------------------------
Net income (loss) applicable
to common shareholders $ 7.55 $ 0.14 $ 0.58 ($0.22) $ (0.93) $ (1.38)
=================================================================================================
- -------------------------------------------------------------------------------------------------
<CAPTION>
AS OF
DEC. 31, AS OF YEAR ENDED SEPTEMBER 30,
-------- ------------------------------
- -----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $165,968 $84,669 $ 80,027 $ 84,181 $ 71,282
Long term debt 1,016 0 0 13,400 3,100
Redeemable preferred stock $ 7,000 0 0 0 0
Shareholders' equity $ 99,825 $63,891 $ 61,085 $ 65,268 $ 67,647
=====================================================================================================
</TABLE>
Fiscal 1996 assets and revenues are not comparable to previous periods due to
the Company's additional purchases of REI stock (See, "Stock Transactions"),
which resulted in REI being included in the Consolidated Financial Statements in
Fiscal 1996 on a consolidated basis as compared to the equity method of
accounting in previous periods.
Fiscal 1996 includes a gain of approximately $58.979 million from the conversion
of the Company's common stock holdings in Stater to Preferred Stock (see
footnote 5 to Consolidated Financial Statements included herein).
-27-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
- -------
The Company is in the business of identifying, acquiring, owning and
strategically managing controlling interests in other operating companies.
Prior to March 1996, the Company accounted for its interests in
Stater, Reading and Citadel on the equity method. During 1996, certain
transactions were effected which resulted in the transfer of the Company's
entire interest in Stater and substantially all of its interest in Citadel to
Reading and the consolidation, for accounting purposes, of Craig and Reading.
Specifically, (a) in the first quarter of 1996, Stater exercised its right to
convert the Company's 50% equity interest in Stater into 693,650 shares of
Stater Preferred Stock, stated value $100 per share, and the Company sold its
Citadel Common Stock to Reading, (b) in the second quarter of 1996, the Company
increased its ownership in Reading to greater than 50%, and (c) in the fourth
quarter of 1996, the Company contributed substantially all of its assets,
including its Stater Preferred Stock, Citadel Preferred Stock and its interest
in Reading International to Reading, in exchange for REI Common Stock and REI
Series B Preferred Stock. At December 31, 1996, the Company owned REI Common
Stock and REI Series B Preferred Stock representing approximately 77.4% of the
voting power of that company, and warrants to purchase 666,000 shares of Citadel
Common Stock at $3.00 per share, which warrants were subsequently exercised by
the Company. On this same date, Reading held, in addition to its historic and
internally developed assets, 693,650 shares of Stater Preferred Stock, and
1,564,473 shares of Citadel Common Stock.
As used in this Item 7, the term the "Consolidated Company" is used to
describe, for accounting purposes, the Company reporting on a consolidated basis
its ownership interest in Reading for the year ended December 31, 1996. The
Company is not consolidated with Reading for federal income tax purposes, does
not have common financing with Reading, does not guarantee the obligations of
Reading and the Company maintains separate offices and, with the exception of
Messrs. Cotter and Tompkins, separate officers and directors from Reading.
Messrs. Cotter and Tompkins are separately compensated by the Company and
Reading.
REI has elected to focus its theater development and related real
estate development activities in three principal areas: (i) the management and
development of motion picture theaters in Australia; (ii) the domestic
management and development and acquisition of specialty motion pictures theaters
which feature foreign and limited release art films similar to the Angelika; and
(iii) the management and development of motion picture theaters in Puerto Rico.
To provide REI with equity to execute its theater acquisition and development
plans, the Company, Reading and Citadel completed the Reorganization and Stock
Transactions described below.
-28-
<PAGE>
THE REORGANIZATION AND STOCK TRANSACTIONS
The Reorganization of REI was effected in order to consolidate
Reading's operations under a holding company incorporated under the laws of the
State of Delaware. The Consolidated Company believes that such a structure will
facilitate the financing of REI, without subjecting such capital to the
contingent liabilities of the Reading Company's historical railroad businesses,
and permit REI to avail itself of a more established body of corporate law than
that of Pennsylvania (the state in which Reading Company is incorporated).
Pursuant to the Stock Transactions, REI received $7,000,000 of cash
from Citadel. In return REI issued to Citadel, $7,000,000 in stated value
(70,000 shares) of REI's Series A Preferred Stock and granted Citadel certain
contractual rights including the Asset Put Option. The Asset Put Option grants
Citadel the right to require the Company to acquire substantially all of
Citadel's assets and assume related liabilities in return for the issuance of
Common Stock at any time through a date 30 days after the Company files its 1999
Annual Report on Form 10-K. The number of shares to be issued will be determined
by dividing the appraised value of the Citadel assets or $20 million, whichever
amount is lower, by $11.75 if Citadel exercises the Asset Put Option by October
31, 1997 and $12.25 thereafter. If the appraised value of the Citadel assets is
in excess of $20 million, REI will issue Common Stock at fair market value for
such excess up to a total of $30 million in Citadel assets. In addition, REI
agreed to exchange the Citadel Preferred Stock, which was acquired from Craig in
the Stock Transactions, for Citadel's Series B Preferred Stock containing terms
modified in certain respects from the terms of the Citadel Preferred Stock. REI
received from Craig the Stater Preferred Stock with a stated value of $69.365
million the Citadel Preferred Stock with a stated value of $5.250 million and
Craig's 50% interest in Reading International. In return, REI issued to Craig,
2,476,190 shares of Common Stock and 550,000 shares ($55,000,000 stated value)
of Series B Voting Cumulative Preferred Stock (the "Series B Preferred Stock").
Certain Financial Reporting and Tax Considerations
- --------------------------------------------------
The Reorganization and Stock Transactions have been accounted for as a
purchase. The book value of the assets transferred by Craig to REI were as
follows:
<TABLE>
<S> <C> <C>
Citadel Preferred Stock (1) 5,250,000 *
Stater Bros. Preferred Stock 67,978,000 *
50% Ownership interest in Reading
International 13,194,000
----------
Gross Book Value of Assets Received $86,422,000
===========
</TABLE>
* Plus accrued and unpaid dividends
(1) The Citadel Preferred Stock was redeemed by Citadel in December
1996.
The Stock Transactions are intended to qualify as an exchange under
Section 351(a) (a "351 Exchange") of the Internal Revenue Code of 1986, as
amended (the "Code"). In a 351 Exchange, the party acquiring the assets (in the
Stock Transactions, REI) retains the contributing parties' tax basis in the
-29-
<PAGE>
acquired assets, with no taxable gain recognized as a result of the exchange.
The parties contributing assets (in the Stock Transactions, Craig and Citadel)
obtain a basis in the assets received in the exchange equal to the basis in the
assets which are contributed in the exchange (the Series A and Series B
Preferred Stock). With the exception of the Stater Preferred Stock, the book
value of the assets received in the Stock Transactions approximated the tax
basis in the assets received. Craig's adjusted tax basis (for federal tax
purposes) in the Stater Preferred Stock was approximately $5 million.
The estimated federal tax liabilities associated with the assets
transferred in the Stock Transactions was approximately $22.042 million,
primarily relating to the Stater Preferred Stock. At the time of the closing of
the Stock Transactions, REI had a gross deferred federal tax asset of $55.968
million and a tax asset valuation allowance (the "TAVA") in the same amount.
Upon receipt of the Stater Preferred Stock, it was determined that it was more-
likely-than-not that a portion of the deferred tax asset which had previously
been fully reserved, would be realized and REI reduced the TAVA by $20.782
million which amount reflects the amount of federal tax loss carryforwards
("NOLs") which were expected to be utilized net of $1.260 million in alternative
minimum tax ("AMT").
The acquisition of the Reading securities by Craig has been accounted
for as a purchase and accordingly, the purchase price was allocated to assets
and liabilities based on their estimated fair values, after consideration of the
recognition by REI of previously reserved deferred tax assets as of the date of
the Stock Transactions. The aggregate purchase price of the fiscal 1996
purchases of REI stock by the Company amounted to approximately $66.4 million,
of which approximately $64.4 million represented the carrying value of the
assets contributed in the exchange, net of the federal tax liabilities amounting
to approximately $22 million. Accordingly, the purchase, for financial statement
purposes, resulted in negative goodwill in the amount of approximately $22
million, which goodwill was allocated to reduce the carrying value of previously
reported intangible assets related to Craig's Reading stock purchases and to
reduce the fair value of the beneficial leases and leasehold improvements
purchased.
Management believes that the federal deferred tax liability
transferred to REI was offset by REI's NOL carryforwards (See Note 11 to the
Consolidated Financial Statements contained elsewhere herein). However, the
amount of NOLs carried on the books of REI has not been audited by the Internal
Revenue Service (the "IRS"), and there can be no assurance that the IRS would
agree with the Company as to the amount of NOL available to offset such gains.
Use of the NOLs is subject to certain limitations, including those resulting
from certain changes in the ownership of the Company. While the transfer
restrictions which are applicable to Reading's equity securities are intended to
minimize the risk of such ownership changes, ownership changes unknown to the
Company may have occurred despite or in violation of such restrictions. In
addition, the Code and related case law limit the ability to use NOLs to offset
certain "built-in" gains on contributed property. Although the Consolidated
Company does not believe that such limitations on the use of its NOLs would
apply to the disposition of the Stater Preferred Stock, there can be no
assurance that the IRS would not take a different position. Also, if the IRS
-30-
<PAGE>
were to determine that the principal purpose of the Stock Transactions was to
make use of the NOLs and the Consolidated Company could not show otherwise, such
use may not be available. In such case, the financial position of the
Consolidated Company could be materially adversely affected.
REI issued Common Stock and the Convertible Preferred Stock in
exchange for the assets received in the Stock Transactions. The Series A
Preferred Stock issued to Citadel has not been included as a component of
Shareholders' Equity since it includes provisions which permit a majority of the
holders to request redemption at stated value plus accrued and unpaid dividends
for a 60 day period beginning October 15, 2001 and also provides for redemption
at the option of the majority of the holders, if REI fails to pay four quarterly
dividends or in event of a change in control.
In addition to issuing to Citadel the Series A Preferred Stock, REI
also granted the Asset Put Option, which under certain circumstances permits
Citadel to exchange substantially all of its assets for Common Stock. For
financial statement purposes no value was allocated to the Asset Put Option due
in part to the subjective nature of the assumptions utilized in option pricing
models and the fact that stock option valuation models are intended to value
options and the Asset Put Option is not transferable.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Consolidated Company had cash and cash
equivalents totaling approximately $52.2 million which includes approximately
$48.7 million held by Reading. At December 31, 1996, Craig had cash and cash
equivalents of approximately $3.5 million. REI is majority owned by the Company
and, accordingly, is included in the consolidated financial statements of the
Company as of December 31, 1996 (see Notes 1 and 2 to consolidated financial
statements). However, Craig and REI are separate public companies and each
entity's capital resources and liquidity is legally independent of the other and
any intercompany loans or receivables would require approval of each separate
company's Board of Directors.
The Stock Transactions transferred the title of the above described
assets from Craig to REI, resulting in Craig's assets being principally
comprised of REI Common and Preferred stock. Accordingly, the future liquidity
of Craig will be principally dependent on Reading's ability to pay dividends in
accordance with the terms of the Reading Preferred Stock issued in the Stock
Transaction, amounting to approximately $3.575 million annually. In addition to
such dividends, Craig receives from Stater quarterly consulting payments
amounting to $1.5 million annually. Stater has the right to terminate the
consulting agreement prior to its expiration in March 1999, if Stater were to
repurchase the Stater Preferred Stock. While no assurances can be given, REI has
been advised that Stater is considering exercising its rights to repurchase the
Stater Preferred Stock.
Reading Australia's business plan provides for the development of
Country Cinemas and Entertainment Centers (See Item I, Business). The Country
Cinemas are smaller and more likely to be located in leased premises while the
Entertainment Centers are generally free-standing sites, many of which will
include related retail developments which may be developed or sold as the
theaters are developed. It is intended that the Entertainment
-31-
<PAGE>
Centers be constructed on land owned by Reading Australia and, accordingly, such
centers are capital intensive at this stage of development. Reading Australia
has signed three purchase agreements and a development agreement to acquire
sites which will require the payment of approximately $19.3 million. If all of
these projects are developed, Reading Australia estimates the total development
cost of these four entertainment centers will aggregate in excess of $100
million, over the next two to three years.
To provide Reading Australia with funding needed to complete its
theater and entertainment center development plans without requiring REI to
guarantee the indebtedness of Reading Australia and as a means of minimizing
exposure to fluctuations in the value of the Australian dollar and
demonstrating the commitment to the Australian market, Reading contributed its
Stater Preferred Stock to Reading Australia. It is anticipated that Reading
Australia will pledge the Stater Preferred Stock as collateral for Australian
dollar borrowings and Reading Australia has had preliminary discussions in
furtherance thereof. In addition, while no assurance can be given, REI has been
advised that Stater is considering exercising its right to repurchase the Stater
Preferred Stock and that such repurchase may occur as early as prior to the end
of Stater's fiscal year, September 30, 1997. If such repurchase were to occur,
the repurchase would be at stated value, $69.365 million. However, there can be
no assurance that such repurchase can or will be effected. REI's contribution of
the Stater Preferred Stock to Reading Australia resulted in a taxable gain to
Reading (for federal tax purposes) of approximately $62.977 million and an AMT
liability of $1.260 million.
Cine Vista opened a new six-plex on March 26, 1997 and will close four
of six screens at another location in April 1997 in order to initiate
construction of a new eight-plex at the same location, which construction is
anticipated to be completed in mid-1998. Reading anticipates that it will invest
approximately $8.4 million in 1997 and 1998 in furtherance of these two
projects. Cine Vista is also negotiating provisions of an agreement to expand
one facility and to open new theaters at two new sites which, collectively could
result in the addition of up to 30 new screens. The timing of the additions is
not predictable nor is the Company assured of concluding these proposed
developments. The capital cost of these new additions is estimated to total
approximately $15 million. Cine Vista may use funds available under its Line of
Credit (See Note 15 to the Consolidated Financial Statements contained elsewhere
herein) to fund its theater development activities.
In 1997, Reading announced the signing of a lease for the first new
theater based upon the Angelika concept to be located in Houston, Texas.
Reading is actively seeking sites to develop Angelika type theaters throughout
the United States and will consider acquiring leasehold or ownership interests
in conjunction with such developments. The cash cost of such developments can
range from approximately $1.5 million for a turnkey leased facility to over $7
million for an owned site.
If the Consolidated Company is successful in its efforts to develop
all of the projects which it is presently considering, its capital requirements
over the next three years will exceed its existing cash balances, the value of
the Stater Preferred Stock (or the proceeds thereof) and existing borrowing
-32-
<PAGE>
arrangements. However, the Company believes that additional funding could be
realized through, among other things, bank borrowings, sale and lease back
transactions and the issuance/sale of additional equity either of Craig, REI,
Reading Australia or at the project level.
Prior to Reading's 1981 quasi-reorganization, Reading had extensive
railroad and related operations. Such operations may have contributed to
environmental contamination of properties now owned by Reading, previously sold
by Reading, or to which Reading, prior to its reorganization, sent waste. The
ultimate extent of liabilities, if any, with respect to such matters, as well as
the timing of cash disbursements, if any, cannot be determined. However,
management is of the opinion, based on the information currently known, that
while the ultimate liability resulting from such matters could have a material
effect upon the results of operations in a given year, they will not have a
material adverse effect upon the Company's financial position or liquidity.
The following summarizes the major sources and uses of cash funds for
the year ended December 31, 1996, the three months ended December 31, 1995 and
for the years ended September 30, 1995 and 1994:
Fiscal 1996:
- ------------
"Unrestricted cash and cash equivalents increased $33.527 million in
1996 from $18.645 million at December 31, 1995 to $52.172 million at December
31, 1996 due primarily to the effects of the accounting for the purchase of REI
as described in "Stock Transactions" above. Such purchase resulted in the
Company consolidating the assets and liabilities of Reading in the financial
statements, which had the effect of increasing cash and cash equivalents by
approximately $41.412 million, net of the Company's cash outlays for such
purchases amounting to approximately $1.107 million.
Principal sources of liquid funds in 1996 were (i) dividends on the
Stater Preferred Stock and consulting fees from Stater amounting to
approximately $5.978 million and $1.5 million respectively, (ii) interest income
amounting to $2.97 million, (iii) $3.622 million in "Other income," (iv) $7
million in proceeds from the Stock Transactions, and (v) $6.191 million from the
redemption of the Citadel Series B Preferred Stock. Additionally, principal
sources of liquid funds included a net increase of $7.504 million in "Accounts
payable and accrued expenses."
In addition to operating expenses, other uses of liquid funds in 1996
included the repurchase of the Company's Common Stock amounting to approximately
$7.585 million, the purchase of the Angelika for $9.217 million (total purchase
price of $12.570 million net of a credit of $1.285 million for a judgment
secured by a portion of the stock of the seller of the Angelika (the "Angelika
Judgment") and the minority member contribution of $2.068 million), purchases,
primarily by Reading Australia, of $11.204 million in property and equipment and
a net increase in current assets of approximately $2.457 million.
-33-
<PAGE>
Three Months Ended December 31, 1995
- ------------------------------------
Cash and cash equivalents decreased approximately $2.414 million
during the three months ended December 31, 1995 primarily as a result of (i)
additional acquisitions of CHC Common stock and Reading Common stock amounting
to $1.281 million and $.645 million respectively, (ii) repurchases of the
Company's common stock amounting to approximately $.709 million, and (iii) the
liabilities and purchase by Reading Australia of services and land financed
in part by a contractual land obligation.
Fiscal 1995
- -----------
Cash and cash equivalents decreased $146,000 from $21.205 million at
September 30, 1994 to $21.059 million at September 30, 1995. Principal sources
of funds during Fiscal 1995 included service income from SBH of $1.5 million and
interest and dividend income of approximately $1.63 million. During Fiscal
1995, the Company agreed to acquire in satisfaction of $5.25 million of a $1.2
million loan made to Citadel, 1,329,114 shares of newly issued CHC Preferred
Stock. In fiscal 1995 the Company received interest earnings and dividend income
from Citadel amounting to $.192 million as a result of its ownership of CHC
Preferred Stock and loans made to Citadel. In addition, the Company received
$.950 million from Citadel in repayment of all outstanding loans.
In addition to operating expenses, principal uses of funds during
Fiscal 1995 were $320,000 for the acquisition of Reading Class A Common Stock
and $1.011 million for the acquisition of Citadel common stock.
During Fiscal 1995, the Board of Directors provided authorization to
the management of the Company to spend up to $3 million to purchase from time to
time shares of the Company's Common and/or Class A Common Preference Stock. In
connection with this authorization the Company repurchased 90,000 shares of the
Company's Common Stock for approximately $.823 million.
Fiscal 1994
- -----------
Cash and cash equivalents increased by approximately $20.5 million
from September 30, 1993 to September 30, 1994. During March 1994, the Company
received approximately $42 million from Stater in connection with a series of
transactions between the Company and Stater in which Stater obtained $165
million in new debt, the proceeds of which were primarily used to retire
outstanding indebtedness together with a prepayment premium, to pay a dividend
to the holders of SBH Common Stock, and to acquire an option from Craig to
purchase Craig's interest in Stater (the "Stater Transaction"). The proceeds
received are reflected in the statement of cash flows for Fiscal 1994 as $5.4
million ($5 million reported as service income and $.4 million of outstanding
dividend and interest income) in net income provided by operating activities,
$1.8 million as investing activities from the redemption of long-term investment
in Stater, and financing activities of $34.65 million (reported as $20 million
and $14.65 million as a dividend from equity affiliate and the sale of option to
affiliate, respectively).
Net cash provided by (used in) financing activities amounted to $21.2
million in Fiscal 1994. Concurrently, with the receipt of proceeds from SBH in
Fiscal 1994, the Company repaid its outstanding debt obligation to its lenders
of $14 million. In addition, during Fiscal 1994 the Company loaned Citadel $6.2
million.
-34-
<PAGE>
RESULTS OF OPERATIONS FOR THE 1996 FISCAL YEAR
In 1996, the Company changed its fiscal year end from September 30 to
December 31, and accordingly, the Consolidated Financial Statements report the
result of operations, cash flows and the statement of stockholders' equity for
the year ended December 31, 1996, the three months ended December 31, 1995 and
the two years ended September 30, 1995 and 1994.
Due to the change in fiscal year end coupled with the changes in the
Company's accounting for its ownership interest in Reading and Stater, the
presentation of the Consolidated Company's financial position, results of
operations and cash flow for the year ended December 31, 1996 ("Fiscal 1996")
are not comparative to the presentation of its financial position, results of
operations and cash flows for previous periods.
For Fiscal 1996, the Consolidated Company's net earnings approximated
$42.647 million or $7.55 per share and earnings before income taxes amounted to
approximately $68.45 million. Fiscal 1996 net earnings include (1) a gain on
the conversion of the Company's common stock interest in Stater to preferred
stock amounting to approximately $58.978 million, (2) approximately $2.396
million representing the Company's share of earnings from its equity affiliate,
Citadel, inclusive of dividends and the effects of a $.941 redemption premium
paid by Citadel to the Consolidated Company pursuant to the terms of Citadel
Preferred Stock redeemed in December 1996, (3) other income amounting to
approximately $3.622 million, net of expenses, in settlement of certain Reading
claims, and (4) a provision for income taxes amounting to approximately $25.8
million.
Gain from conversion of common stock interest in Stater
- -------------------------------------------------------
Prior to March 8, 1996, the Company held a 50% common stock interest
in Stater. In March 1994, the Company received, among other things, a $14.65
million option payment from SBH which provided Stater with the option to acquire
all, but not less than all, of the Company's interest in Stater. The option had
an initial term of two years (March 8, 1996), but could be extended for ten
additional years if Stater converted the Company's common stock interest in SBH
to preferred stock prior to March 8, 1996.
Effective March 8, 1996, SBH exercised its right to convert all the
Company's common stock in SBH into 693,650 shares of Stater Preferred Stock.
The Stater Preferred Stock has a liquidation preference and redemption value of
$69.365 million and a cumulative dividend preference beginning at 10.5%,
increasing to 12% after 78 months, and further increasing every twelve months
thereafter by an additional 1%, to a terminal cumulative dividend rate of 15%.
Included in Fiscal 1996 as "Dividend income from Stater" is approximately $5.978
million earned from the date of issuance of the Stater Preferred Stock in March
8, 1996. The Stater Preferred Stock, entitles Reading Australia to (1) elect one
director of Stater, (2) vote 20% of the total number of votes, and (3) elect a
majority of the Board of Directors of Stater if, without the consent of Reading
Australia, two or more quarterly preferred stock dividends remain
-35-
<PAGE>
unpaid. Pursuant to the option terms, Stater has a transferable right to
purchase the SBH Preferred Stock at any time prior to March 2006. If not
purchased by Stater prior to March 2006, the holder has the right to have the
Stater Preferred Stock redeemed at any time following March 8, 2009.
Upon the conversion by SBH in March 1996 of the Company's common stock
interest to redeemable preferred stock, the Company discontinued the use of the
equity method of accounting for its investment in Stater. Prior to the
preferred stock conversion, the carrying value of the Company's 50% common stock
interest, net of the $14.65 million option proceeds received in 1994 and
reflected on the Balance Sheet at September 30, 1995 as "Option to sell
investment in affiliate", amounted to approximately $9 million. As of September
30, 1996, the Company has recorded approximately $58.978 million of the
difference between $67.978 million (98% of the stated value of the Stater
Preferred Stock) and the Company's net carrying value of its previous common
stock investment ($9 million) at the time of the conversion as "Gain from
conversion of common stock interest in Stater". There is no public market for
the Stater Preferred Stock, although the terms provide for certain registration
rights relating to such shares. The Stater Preferred Stock is included in the
accompanying Consolidated Balance Sheet as "Investment in Stater" and valued at
$67.978 million (98% of stated value) which amount is consistent with a
valuation of the Stater Preferred Stock prepared by an independent investment
banker (exclusive of the tax liabilities described in Note 2 of consolidated
financial statements). The ultimate value of the Stater Preferred Stock is based
upon various market factors including, but not limited to, Stater's operating
performance, Stater's existing senior debt covenants, interest rates, the Stater
Preferred Stock provisions, and the likelihood of repurchase by Stater. The
Consolidated Company expects to account for the deferred gain of approximately
$1.387 million (difference between the stated Value and the Company's carrying
value) if realized upon the repurchase or other sale of the Stater Preferred
Stock.
Theater Revenue and Theater Costs
- ---------------------------------
Fiscal 1996 includes the results of Reading on a consolidated basis
rather than the equity method of accounting and, accordingly, the Statements
of Operations do not reflect theater revenue and theater costs for periods prior
to Fiscal 1996. See Note 2 to the Consolidated Financial Statements for a
comparison of Reading's operating results for the periods prior to January 1,
1996.
The following summarizes Theater Revenues and Theater Costs (exclusive
of depreciation and amortization) of Reading for the financial reporting periods
included herein:
<TABLE>
<CAPTION>
Theater Theater
Revenues Costs
-------- -------
(000's)
<S> <C> <C>
Year ended December 31, 1996 $18,236 14,452
Three months ended December 31, 1995 3,205 2,642
Year ended September 30, 1995 14,878 11,451
Year ended September 30, 1994 4,908 3,433
</TABLE>
-36-
<PAGE>
Theater Revenue is comprised of Admissions, Concessions and
Advertising and other revenues and amounted to approximately $18.236 million for
the year ended December 31, 1996 inclusive of minority interest and are derived
principally from the Cine Vista Cinemas in Puerto Rico and the Angelika in New
York City since its acquisition on August 28, 1996.
Cine Vista's Theater Revenues increased approximately 4% in
Fiscal 1996 as compared to the corresponding twelve month period in 1995 as a
result of the addition of a new eight screen theater which commenced operations
in late 1995. Cine Vista's Theater Revenues on a same theater basis decreased
approximately $.686 million (4.6%) between Fiscal 1996 and the comparable 1995
period, primarily as a result of the opening by a competitor of three new
multiplex theaters in the San Juan metropolitan market.
Theater Revenues in 1996 included $2.713 million in revenue (inclusive
of minority interest) from the Angelika for the period beginning August 28, 1996
(the date that the Company's interest in the Angelika was acquired) through the
end of 1996. Revenues from admissions at the Angelika increased approximately
32% from the admission revenues recorded by the predecessor owner of the
Angelika in the same period of the prior year. Reading Australia opened its
first theater in Australia, a six-plex located in Townsville, Queensland, at the
end of December. Revenues from the new theater were not material in 1996 and
have not been included in the consolidated financial results of the Consolidated
Company in 1996.
In 1997, the Consolidated Company will receive the benefit of a full
year of Angelika Theater Revenues (which when considered with the amounts
reported prior to the acquisition totaled $7,549,000 in 1996) and the results of
Reading Australia theater in Townsville, Australia. Cine Vista opened a new six-
plex in March 1997 and in mid-1997 will close four of six screens at another
location to initiate construction of a new 8-plex at the location which
construction is anticipated to be completed in mid-1998. Accordingly, Cine Vista
anticipates a net increase of two screens in 1997 and the addition of six more
screens in mid-1998. However, the increased competition in the San Juan
metropolitan market is expected to decrease theater revenues in 1997, relative
to 1996 levels, if overall box office revenues on the island remain equal to the
prior year.
In Fiscal 1996, Theater expenses reflect the direct theater costs of
Cine Vista and the Angelika's operations. These costs inclusive of minority
interest increased in Fiscal 1996 as compared to the previous period due
primarily to increased costs associated with higher revenues, the operating
expenses associated with the addition of a new Cine Vista eight-screen theater
in late 1995 and the inclusion of $2.3 million of theater costs associated with
the Angelika's operations subsequent to acquisition in August 1997. During the
fourth quarter of 1996, the minimum wage for Puerto Rico was increased by
approximately 15%. Since most of Cine Vista's theater employees are paid
minimum wage, the increase will have a negative effect on its operating results
in future periods.
-37-
<PAGE>
Real Estate Revenue
- -------------------
Real Estate revenues include rental income and the net proceed of
sales of Reading's real estate. Real estate revenues totaled $543,000 in 1996
including $289,000 from rentals on certain leased equipment (See Note 6 to the
Consolidated Financial Statements included elsewhere herein). In addition to its
entertainment properties and administrative offices, Reading has 28 parcels and
rights-of-way remaining, many of which are of limited marketability. Future real
estate revenues may increase as larger properties are sold. However, management
believes that most of the properties held for sale will be liquidated within the
next three years.
Service Income
- --------------
Effective March 8, 1994, Craig entered into a consulting agreement
with Stater pursuant to which Craig has agreed, among other things, to render
consulting services for a five year period, for an annual fee of $1.5 million,
payable quarterly. Included in service income for Fiscal 1996 is $1.5 million,
earned and paid pursuant to this agreement. Stater has the right to terminate
the consulting agreement if it were to repurchase the Stater Preferred Stock.
Equity in earnings of affiliates
- --------------------------------
As described above, in the first half of 1996, the Company's common
stock interests in SBH was exchanged for preferred stock and the Company
increased its ownership in REI to greater than 50%. As a result of increasing
its ownership in REI to greater than 50%, the Company now reports its ownership
in Reading on a consolidated basis as compared to the prior periods presentation
under the equity method of accounting which reflects the Company's investment in
REI on the Balance Sheet as "Investment in Reading" and in the Consolidated
Statements of Operations as "Equity earnings of affiliates." Upon receipt by the
Company of the Stater Preferred Stock in exchange for its common stock interest,
the Company discontinued the use of the equity method of accounting for its
investment in Stater. Equity in earnings of affiliates for Fiscal 1996 only
reflects the Company's share of net earnings of Stater amounting to $1.608
million for the period between January 1 and March 7, 1996, the period which the
Company held its common stock interest.
Earnings from investment in Citadel
- -----------------------------------
At December 31, 1995, the Company's holdings in CHC included a 26.1%
common stock interest and 1,329,114 shares of CHC Preferred Stock, stated value
$3.95 per share,(or $5.25 million in the aggregate) which represented
approximately 18.1% of the voting power of CHC. In addition, the Company held a
warrant to purchase 666,000 shares of CHC at $3.00 per share.
The CHC Preferred Stock was transferred to REI in the Stock
Transaction and the CHC Preferred Stock was exchanged by REI for 1,329,114
shares of the CHC Series B Preferred Stock. The terms of the Citadel Series
B Preferred Stock were substantially identical to the CHC Preferred Stock except
that (i) the Redemption Accrual Percentage decreased to 3% after October 15,
1996 and (ii) except for a change of control of CHC, the Citadel Series B
Preferred Stock was not convertible into CHC Common Stock
-38-
<PAGE>
for one year commencing on approximately April 15, 1997. In December 1996,
Reading elected to exercise its rights to convert the Citadel Series B Preferred
Stock into CHC Common Stock, whereupon, Citadel exercised its right to
redeem the Citadel Series B Preferred Stock. The Consolidated Company received
the Stated Value of $5.25 million, all accrued and unpaid dividends and a
redemption premium of $.941 million, which premium, net of the amount
attributable to the Consolidated Company's common stock interest, is included in
"Earnings (losses) from investment in Citadel" in the Consolidated Statement of
Operations for the year ended December 31, 1996. Also included in "Earnings
(losses) from investment in Citadel" is the Consolidated Company's share of
Citadel's net earnings amounting to $1.526 million and dividends amounting to
$154,000 earned on the Citadel Preferred Stock prior to its redemption in
December 1996.
Citadel reported net income of approximately $6.426 million in Fiscal
1996 (the Consolidated Company's share after consideration of preferred
dividends amounting to approximately $1.526 million). Citadel's net earnings for
Fiscal 1996 include approximately $1.493 million from the sale of a property and
non-recurring income amounting to $4 million resulting from the recognition of
previously deferred proceeds from the bulk sale of loans and properties by
Citadel's previously owned subsidiary.
General and administrative expenses
- -----------------------------------
General and administrative expenses of the Consolidated Company
(exclusive of the expenses associated with the Australia theater development
described below) amounted to $6.131 million in Fiscal 1996. Fiscal 1996 periods
include the consolidated accounts of Reading whose contribution to the
Consolidated Company's general and administrative expenses totaled $4.339
million.
"General and administrative" expenses by operating entity follows:
<TABLE>
<CAPTION>
1996
------
(000's)
<S> <C>
Reading:
Cine Vista $1,050
Angelika 202
General 3,087
Craig: 1,792
------
Total $6,131
======
</TABLE>
In addition to the increase in general and administrative expenses
caused by consolidating Reading, the Company incurred development and operating
losses with respect to its 50% membership in HSH amounting to approximately
$.780 million in Fiscal 1996.
Expenses from Australian Theater Developments
- ---------------------------------------------
Expenses in Fiscal 1996 include general, administrative and
development expenses incurred with respect to the foreign operations of Reading
Australia amounting to approximately $2.816 million. Reading Australia
is actively seeking properties to develop state-of-the-art multiplex cinema
facilities in Australia and has acquired a property and has made deposits and
entered into agreements for several other real property purchases or leases.
Fiscal 1996 expenses include
-39-
<PAGE>
non-capitalized expenditures associated with the development of various theater
sites, some of which were ultimately abandoned as well as a full year of
salary expense associated with the employees located in Australia. Reading
Australia's first theater opened at the end of 1996, however related operations
have not been included in the Consolidated Statement of Operations for Fiscal
1996 as they are not material. Reading Australia anticipates continuing losses
during the next several years until theaters are developed and operations
increased. To date, Reading Australia has encountered opposition to its attempts
to develop freestanding cinemas in entertainment complexes in Australia. No
assurances can be given that Reading Australia will successfully develop such
cinemas, nor that if developed, such operations will be successful.
Interest income
- ---------------
Interest income in Fiscal 1996 amounted to $2.970 million, inclusive
of approximately $2.753 earned by Reading. Interest income is expected to
decrease due to lower investable funds due, in part to, the purchase of Angelika
and funding of the development of Reading Australia.
Other Income
- ------------
"Other income" totaled $3.622 million in Fiscal 1996, and is primarily
comprised of litigation settlements and awards. The principal components of
"Other income" in 1996 included a $2.360 million settlement of Reading's claim
against Conrail, the City of Philadelphia, the Southeastern Pennsylvania
Transportation Authority and several other parties for reimbursement of costs
incurred by the Company associated with cleanup of PCB contamination in certain
properties formerly owned by Reading and $1.119 million received net of expenses
in settlement of a claim against a third party for failure to pay certain fees.
Minority Interest
- -----------------
Minority interest amounted to approximately $1.538 million in Fiscal
1996 and includes the minority interests share of the Company's consolidated net
earnings of REI amounting to $1.471 million and $67,000 of the minority
interests share of the Angelika income.
Income Taxes
- ------------
Income Taxes provided in Fiscal 1996 amounted to approximately $25.803
million and principally related to deferred tax liabilities associated with the
gain recognized on the conversion of the Company's Stater Common Stock to Stater
Preferred Stock. As a result of the Stock Transactions in October 1996, the
Stater Preferred Stock was transferred to Reading. The Stock Transactions are
intended to qualify as an Exchange under Section 351 (a) of the Internal Revenue
Code of 1986. Upon receipt of the Stater Preferred Stock, Reading determined
that it was more-likely-than-not that a portion of a tax asset valuation
allowance related to Reading deferred federal tax assets would be realized.
The Company accounted for its Fiscal 1996 Reading Stock purchases and
the Stock Transactions as a purchase. The fair value of the assets and
liabilities received were considered after realization by Reading of the
previously reserved tax assets. Accordingly, the Company reduced its deferred
tax
-40-
<PAGE>
liabilities in the amount of approximately $22 million with a corresponding
decrease to the allocated fair value of Reading assets purchased (See Note 11 to
the Consolidated Financial Statements contained elsewhere herein).
Three Months Ended December 31, 1995 ("1995 Quarter")as compared to the Three
- -----------------------------------------------------------------------------
Months Ended December 31, 1994 ("1994 Quarter")
- -----------------------------------------------
The Company's net earnings for the 1995 Quarter were $.850 million or
$0.14 per share, as compared with net earnings of $.421 million or $0.07 per
share for the 1994 Quarter. The increase in the 1995 Quarter as compared to the
1994 Quarter is principally attributable to improved operating results reported
by the Company's 50% owned affiliate, Stater (the Company's share amounting to
$1.881 million for the 1995 Quarter as compared to $.859 million for the 1994
Quarter), and a reduction in professional fees and employee costs. Such
improvements were offset, in part, by operating losses after minority interest,
of $367,000 from the Company's investment in Reading Australia.
Equity in earnings of affiliates
- --------------------------------
Equity in earnings of affiliates reflects the Company's share of net
earnings or losses of Stater and Reading. The following table sets forth the
contribution by affiliate of the equity in earnings or losses of affiliates:
Equity in Earnings of Affiliates - Contribution by Affiliates
-----------------------------------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1995 1994
------ ------
<S> <C> <C>
SBH $1,881 $ 859
Reading 32 (136)
------ -------
$1,913 $ 723
------ -------
</TABLE>
Stater
- ------
Stater's net income for the 1995 Quarter amounted to $3.6 million as
compared to $1.6 million for the 1994 Quarter.
Stater sales amounted to $408.7 million for the 1995 Quarter, an
increase of 4.6% when compared to $390.6 million for the 1994 Quarter. Sales
from like stores increased 5.2% for the 1995 Quarter. Stater operated 110 stores
at December 24, 1995 and 111 stores at December 25, 1994. Stater's gross
profits for the 1995 Quarter increased to $92.3 million or $22.57% of sales
compared to $86.7 million or 22.19% of sales in the 1994 Quarter. The increase
in gross profits was due to increased efficiencies in Stater's warehousing and
transportation departments and the introduction of higher gross margin
categories, such as prepackaged gourmet vegetables and fresh cut flowers.
-41-
<PAGE>
Selling, general and administrative expenses amounted to $77.8 million
or 19.04% of sales for the 1995 Quarter as compared to $75.9 million or 19.43%
of sales for the 1994 Quarter. The increase in the 1995 Quarter is due
primarily to costs incurred to operate at a higher level of sales. This was
offset, in part, by a reduction in salaries, wages and related benefits as a
result of a new Retail Clerks collective bargaining agreement. During the 1995
Quarter, SBH entered into a new four year collective bargaining agreement with
the Retail Clerks Union. The new agreement included a one-time bonus expense
paid to all full and part time union members and a suspension of employer
contributions to a union benefits trust. Additionally, during the 1995
Quarter, SBH received an additional credit for employer contributions to a union
benefits as a result of the early termination of the prior collective bargaining
agreement. As a result of the new collective bargaining agreement, salaries,
wages and benefit expense was reduced by $1.3 million.
Reading
- -------
Reading's operating results for the 1995 Quarter amounted to a net
loss of approximately $37,000 as compared to a net loss of $289,000 for the 1994
Quarter. Included in the 1995 loss is Reading's share of its 50% equity
operating losses from Reading Australia amounting to $246,000. The Company's 49%
share of such equity losses, amounting to approximately $121,000, has been
eliminated from the amount reported as equity earnings of affiliates in
connection with reporting the Company's interest in Reading Australia as a
consolidated subsidiary. Accordingly, the Company has included in equity
earnings of affiliates the Company's share of operating results of Reading,
adjusted for the operating results of Reading Australia, resulting in reported
earnings of $32,000 with respect to Reading for the 1995 Quarter as compared to
a loss of $136,000 for the 1994 Quarter.
The improvement in Reading's operating results for the 1995 Quarter as
compared to the 1994 Quarter is due, in part, to an increase in interest income
earned on its investable cash balances offset by the equity losses of its
affiliate Reading Australia. Operating results from Reading's theater operations
in Puerto Rico, Cine Vista, and general and administrative expenses were
comparable between the 1995 and 1994 Quarters.
Interest income
- ---------------
Interest income decreased in the 1995 Quarter to $280,000 as compared
to $408,000 in the 1994 Quarter. In the 1994 Quarter interest income was earned
on the Company's working capital reserves maintained in institutional money
market mutual funds as well as, for a portion of the 1994 quarter, a $6.2
million loan to Citadel accruing interest at prime plus 3% (the "Citadel loan").
Included in the 1994 Quarter is $142,000 of interest income earned pursuant to
the Citadel loan. In November 1994, the Company agreed to acquire preferred
stock in satisfaction of payment of $5.25 million of the Citadel loan and in May
1995 the balance of $950,000 was paid in full. Accordingly, the 1995 Quarter as
compared to the 1994 Quarter, reflects the elimination of interest income earned
on the Citadel loan.
-42-
<PAGE>
Expenses
- --------
Operating, general and administrative expenses of the Company
increased $306,000 from $720,000 in the 1994 Quarter to $1,036,000 in the 1995
Quarter. The 1995 Quarter includes approximately $492,000 of general
administrative and development expenses incurred with respect to the foreign
operations of Reading Australia. The overall increase in general and
administrative expenses resulting from the costs associated with the operations
of Reading Australia was offset by reductions in wages, and legal and
professional fees in the 1995 Quarter as compared to the 1994 Quarter. The 1994
Quarter included bonus awards of $115,000. No bonus awards were paid or granted
in the 1995 Quarter.
Year Ended September 30, 1995 ("Fiscal 1995") Versus Year Ended September 30,
- -----------------------------------------------------------------------------
1994 ("Fiscal 1994")
- --------------------
The Company's net earnings for the year ended September 30, 1995 was
$3.458 million or $0.58 per share, as compared with a net loss of $1.378 million
or $0.22 per share for the year ended September 30, 1994. The net loss for
Fiscal 1994 includes an extraordinary charge amounting to $2.408 million or
$0.38 per share representing the Company's equity ownership share of refinancing
costs included in Stater's operating results, after an income tax benefit of
$1.610 million.
The Company's operating results have varied significantly during the
period reflecting the Company's share of the operating results of its
affiliates, Stater, Reading and Citadel included in the consolidated financial
statements on the equity method of accounting. Comparisons between the fiscal
years is difficult due to (i) the Stater Transaction, (ii) the 1994 acquisition
by Reading of Cine Vista, its Puerto Rico based cinema chain, (iii) the increase
by the Company of its voting interest in Citadel, to the position where it was
required to report such interest on the equity method of accounting during
fiscal 1995.
The increase in the Fiscal 1995 net earnings as compared to Fiscal
1994 losses is principally a result of the Fiscal 1994 inclusion of a $8.792
million writedown of the Company's investment in Citadel. The impact of the
Fiscal 1994 writedown of Citadel was reduced, in part, by $5 million of revenue
reported with respect to proceeds received from SBH pursuant to the Stater
Consulting Agreement executed in March 1994, and a gain of $1.3 million on the
sale of property. In addition, Fiscal 1995 includes a $.935 million increase in
reported interest and dividend income from $.695 million in Fiscal 1994 as
compared to $1.630 million in Fiscal 1995. This increase was due to higher
investable operating cash balances received as part of the Stater restructuring
in March 1994.
Service income
- --------------
In accordance with the Stater Consulting Agreement, Stater paid the
Company $5
-43-
<PAGE>
million in March 1994 and committed to remit $1.5 million a year, payable
quarterly, through the five year term of the agreement. Included in service
income for the 1995 and 1994 fiscal years is $1.5 million and $5.849 million,
respectively.
Equity in earnings of affiliates
- --------------------------------
Equity in earnings of affiliates reflects the Company's share of net
earnings and losses of Stater and Reading before extraordinary items and after
preferred dividends. The following table sets forth the contribution by
affiliate of the equity in earnings of affiliates.
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1994
-------- --------
000's
<S> <C> <C>
SBH - reported as equity
earnings of affiliate $3,693 $ 6,422
Reading - reported as equity
earnings of affiliate 989 (678)
------ -------
Equity earnings 4,682 5,744
SBH - reported by Company
as extraordinary item -- (4,018)
------ -------
Contribution by affiliates $4,682 $ 1,726
====== =======
</TABLE>
Stater
- ------
On March 8, 1994, the Company and Stater consummated a series of
restructuring in which Stater obtained $165 million in new debt, the proceeds of
which were primarily used to retire outstanding indebtedness together with a
prepayment premium, to pay a dividend to the holders of SBH Common Stock, and to
acquire an option from the Company to purchase the SBH Common Stock held by the
Company. The significant increase in debt taken on by Stater in the Stater
Transaction resulted in Stater interest expense increasing in the 1995 Fiscal
Year as compared to the 1994 Fiscal Year. SBH reported net income of $6.7
million for Fiscal 1995 as compared to $1.1 million for Fiscal 1994.
Stater sales amounted to $1.580 billion in Fiscal 1995 as compared to
$1.540 billion in Fiscal 1994. Stater operated 110 supermarkets at September
24, 1995 as compared to 111 supermarkets at September 25, 1994. Like store
sales increased 1.2% in Fiscal 1995 compared to a decrease of 0.7% in Fiscal
1994. The increase in like store sales in Fiscal 1995 compared to decreases in
Fiscal 1994 is due to a variety of factors including decreases in competitor
openings, slight improvements in the Southern California economy and favorable
customer response to Stater's introduction of prepackaged gourmet vegetables and
fresh cut flowers.
Stater's gross profits increased to $352.5 million or 22.31% of sales
in Fiscal 1995 compared to $339.9 million or 22.08% of sales in Fiscal 1994. The
-44-
<PAGE>
increase in gross profits in Fiscal 1995 was due to continued increased
efficiencies in Stater's warehousing and transportation departments, the
introduction of higher gross margin products such as prepackaged gourmet
vegetables and fresh cut flowers and a decrease in the number of competitive new
store openings.
Operating expenses include selling, general and administrative,
deprecia tion and amortization and consulting fee expenses. Selling, general
and administrative expenses were $308.3 million or 19.52% of sales as compared
to $297.5 million or 19.32% for Fiscal 1994. Selling, general and
administrative expenses in 1995 include reductions in expense categories such as
worker's compensation and general liability self insurance expenses of $2.8
million, which was offset by increases in direct labor, store supplies and
advertising expenses. Additional expenses were incurred in 1995 to operate the
new stores opened in June and August of 1994. Selling, general and
administrative expenses for Fiscal 1994 included certain non-recurring expenses
including a $4 million charge for the 311,404 shares of common stock paid to the
Company as part of the Restructuring and a one-time payment of $3.4 million to
members of the Retail Clerks collective bargaining unit. Such non-recurring
expenses were offset, in part by a non-recurring reduction in employer
contributions to a collective bargaining unit health and welfare benefit trust
of $13.6 million.
Interest expense amounted to $20.1 million in Fiscal 1995 as compared
to $15.5 million for Fiscal 1994. The increase in Fiscal 1995 is due to the
issuance of additional debt in March 1994 as part of the Stater restructuring
transaction.
Stater's income before the cumulative effect of a change in accounting
for income taxes and extraordinary loss amounted to $6.7 million in Fiscal 1995
as compared to $8.8 million in Fiscal 1994. In connection with the March 8, 1994
Restructuring, Stater entered into a series of transactions that included the
sale of $165 million of 11% Senior Notes due 2001, the early retirement of the
outstanding 9.8% Senior Notes due 2001 and certain bank financings. The early
retirement of debt resulted in an after tax extraordinary charge to earnings,
net of income tax benefit, of $8 million. Accordingly, the Company reported its
50% share of Stater's debt retirement costs amounting to $4.018 million, after
an income tax benefit of $1.610 million, as an extraordinary item.
Stater's net income for Fiscal 1995 amounted to $6.7 million compared
to $1.1 million in Fiscal 1994. Such Fiscal 1994 results include a credit of
approximately $.4 million resulting from Stater's adoption of the Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes".
Reading
- -------
On August 17, 1994, Reading acquired Theater Acquisitions of Puerto
Rico, Inc. ("Cine Vista") for an aggregate purchase price of approximately $22.7
million, inclusive of acquisition costs of $.3 million. For accounting
purposes, the acquisition was effective July 1, 1994. Cine Vista operates
motion picture exhibition theaters in seven leased locations with a total of 44
screens in the Commonwealth of Puerto Rico. Accordingly, the operating results
-45-
<PAGE>
of Cine Vista are only included in the operating results of Reading for six
months of Fiscal 1994 as compared to twelve months in Fiscal 1995.
For the twelve month period ended September 30, 1995, Reading reported
net income of approximately $2.097 million (the Company's share amounting to
approximately $.989 million), as compared to a net loss of $1.437 million (the
Company's share amounting to $.678 million) for the twelve month period ended
September 30, 1994. The net income for the twelve month period ended September
30, 1995 includes $1.89 million from the settlement of various litigation
claims. The net loss from the twelve months 1994 includes (i) a provision for
environmental matters of $1.306 million and (ii) a development expense charge of
approximately $.795 million related to Reading's investment in Oz Resorts and
Entertainment, Inc.
Revenues for the twelve months ended September 30, 1995 amounted to
$19.533 million as compared to $8.193 million for the twelve month period ending
September 30, 1994. As discussed above, Reading's significant increase in
revenues during 1995 reflects the inclusion of the operating results of Cine
Vista for twelve months as compared to six months during the 1994 twelve months,
as well as, the inclusion of the litigation settlements amounting to $1.89
million in the 1995 twelve months.
Reading's general and administrative expenses amounted to
approximately $4.454 million for the twelve months ended September 30, 1995 as
compared to $3.423 million for the twelve months ended September 30, 1994. This
was due to the addition of (i) approximately $.973 million associated with Cine
Vista's general and administrative expenses and (ii) the inclusion of certain
expenses related to diligence performed with respect to acquisition
opportunities, as well as, theater development activities in Australia. The
1994 general and administrative costs include a development expense charge of
approximately $.795 million related to Reading's investment in Oz Resorts and
Entertainment Inc. and a $1.306 million provision for environmental matters.
Citadel
- -------
At September 30, 1994, the Company reported its common stock
investment in CHC at $2.625 or share or $1,556 million. During fiscal 1995, the
Company increased its common stock ownership in CHC from 592,712 shares (9%) at
September 30, 1994 to 993,112 shares (16.5%) at September 30, 1995, through the
purchase of 400,400 shares of CHC stock for approximately $1.013 million. In
addition, in November 1994 the Company acquired, in satisfaction of $5.25
million of a $6.2 million outstanding indebtedness of Citadel to the Company,
1,329,114 shares of CHC 3% Cumulative Voting Convertible Preferred Stock. The
preferred shares together with the common shares owned by the Company
represented approximately 31.6% of the voting power of CHC at September 30,
1995.
Based on the increase in voting ownership in November 1994 through the
acquisition of the CHC Preferred Stock, the investment in CHC met the criteria
for using the equity method of accounting. As a result of the Company's previous
writedowns of the CHC common stock investment below the underlying book value no
retroactive adjustment to the results of operations was required.
-46-
<PAGE>
CHC reported a net loss for the three months ended December 31, 1994
of $8.898 million, including a writedown of its remaining investment in Fidelity
of $7.081 million and net earnings of $1.282 million for its nine months ended
September 30, 1994. The Company has included its share of such losses amounting
to a loss of $.474 million for the twelve months ended September 30, 1995,
offset by $140,000 of dividend income received pursuant to the terms of the
CHC Preferred Stock, as Earnings (losses) and Writedown of investment in
Citadel.
Included in CHC's earnings for the nine month period ended September
30, 1995 is approximately $1.541 million from the sale of two properties. In
addition, during this period CHC sold substantially all of its investment in
Fidelity, which resulted in the CHC receiving net cash proceeds of $11.938
million and the return of 666,000 shares of CHC common stock. The net proceeds,
when combined with the amount ascribed to the common stock received,
approximated the carrying value of such Fidelity stock held at the date of sale.
Interest income and expense
- ---------------------------
Interest income increased in the Fiscal 1995 to $1.63 million compared
to $.340 million in Fiscal 1994. The increase was due to higher investable
operating cash balances following the completion of the Stater Transaction in
March 1994. As a result of the Stater Transaction, the Company received
approximately $42 million from Stater which was used in part to repay all
outstanding debt of the Company amounting to $14 million thereby eliminating
interest costs in Fiscal 1995. Included in interest income in Fiscal 1995 and
Fiscal 1994 is $301,000 and $140,000, respectively, earned pursuant to a credit
agreement between the Company, as lender, and Citadel, as borrower, which was
paid in full in May 1995. The initial loan to Citadel made in August 1994
amounted to $6.2 million. In November 1994, the Company agreed to acquire $5.25
million of 3% Cumulative Voting Convertible Preferred Stock in CHC in partial
satisfaction of $5.25 million of the $6.2 million loan to Citadel.
Expenses
- --------
Operating, general and administrative expenses decreased slightly to
$2.064 million in Fiscal 1995 from $2.404 million in Fiscal 1994. Included in
operating, general and administrative expenses in Fiscal 1994 is a $500,000
bonus awarded by the Board of Directors to the Chairman of the Board, based
largely upon Chairman's contribution to the success of the Stater Transaction,
offset in part by a reduction in goodwill amortization of $200,000 and the
receipt of insurance proceeds amounting to $144,000. Fiscal 1995 wages
increased approximately $200,000 due to the hiring of an additional employee in
the last six months of 1994 and bonus awards of $125,000.
Income taxes
- ------------
The provision for income taxes from continuing operations amounted to
$1,650,000 in Fiscal 1995 as compared to $1,010,000 in Fiscal 1994.
-47-
<PAGE>
EFFECTS ON INFLATION
The Company does not believe that inflation has a material effect upon
its existing operations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments" in 1996. SFAS 107 requires the disclosure of the fair
value of certain financial instruments for which it is practicable to estimate
that value and requires the disclosure of significant assumptions used in such
estimates.
The Company also adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in 1996.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain intangible assets and costs in excess of net assets related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" in 1996. SFAS No. 123 establishes a fair value method of
accounting for stock-based employee compensation plans. As permitted by SFAS
No. 123, the Company has elected to continue to account for stock based
compensation according to the provisions of APB No. 25, "Accounting for Stock
Issued to Employees."
FORWARD-LOOKING STATEMENTS
From time to time, the Consolidated Company or its representatives
have made or may make forward-looking statements, orally or in writing,
including those contained herein. Such forward-looking statements may be
included in, without limitation, reports to stockholders, press releases, oral
statements made with the approval of an authorized executive officer of the
Company and filings with the Securities and Exchange Commission. The words or
phrases "anticipates," "expects," "will continue," "estimates," "projects," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements
are subject to certain risks, trends, and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases and permits for new multiplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and other risks associated with the Company's investment
activities and other factors described herein.
-48-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
pages F-1 through F-37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-49-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
the Company's proxy statement with respect to its 1997 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Company's proxy statement with respect to its 1997 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the Company's proxy statement with respect to its 1997 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the Company's proxy statement with respect to its 1997 Annual Meeting of
Shareholders.
-50-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements:
PAGE
----
Consolidated Balance Sheets
Years Ended December 31, 1996 and September 30, 1995... F-1
Consolidated Statements of Operations
Year Ended December 31, 1996, Three
Months Ended December 31, 1995 and
the Years Ended September 30, 1995 and 1994... F-2
Consolidated Statements of Shareholders' Equity
Year Ended December 31, 1996, Three
Months Ended December 31, 1995 and
the Years Ended September 30, 1995 and 1994... F-3
Consolidated Statements of Cash Flows
Year Ended December 31, 1996, Three
Months Ended December 31, 1995 and
the Years Ended September 30, 1995 and 1994... F-4
Notes to Consolidated Financial Statements.............. F-6
Report of Independent Auditors.......................... F-37
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes therein.
(a)(2) Exhibits. See Item 14(c) for Index of Exhibits.
(b) Registrant filed Reports on Form 8-K with the Securities and Exchange
Commission on September 23, 1996 and October 30, 1996.
(c) Exhibits (Items denoted by * represent management or compensatory
contract)
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's
Registration Statement on Form S-1; No. 33-34297,
dated May 15, 1990).
-51-
<PAGE>
3.2 Bylaws of the Company, as amended to date (i)
incorporated by reference to the Company's
Registration Statement on Form S-1; No. 33-34297,
dated May 15, 1990; (2) incorporated by reference to
the Company's Form 10-Q Report for the Quarter ended
December 31, 1992; (iii) amended on November 10, 1994
and incorporated by reference to the Company's Form
10-K Report for the year ended September 30, 1994.
10.1 Stock Agreement dated as of May 10, 1989 among Craig
Corporation, Stater Bros. Holdings Inc., La Cadena
Investments and James J. Cotter (incorporated by
reference to the Company's Form 8-K Report, dated
May 25, 1989).
10.2 Agreement of Stockholders of Stater Bros. Holdings
Inc. dated May 10, 1989 among Craig Corporation, La
Cadena Investments, Stater Bros. Holdings Inc. and
Stater Bros. Inc. (incorporated by reference to the
Company's Form 8-K Report dated May 25, 1989.
10.4* Amendment to 1984 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on
Form S-1; No. 33-34297, dated May 15, 1990).
10.5 Consulting Agreement between Craig Management, Inc.,
Craig Corporation and Stater Bros. Holdings Inc.
dated as of February 1, 1992 (incorporated by
reference to the Company's Form 10-K Report for the
year ended September 30, 1992).
10.6* Stock Option Agreement dated as of June 8, 1992
between James J. Cotter and Craig Corporation
(incorporated by reference to the Company's Form 10-
K Report for the year ended September 30, 1992 ).
10.7* Employment Agreement dated as of October 7, 1991
between Robin W. Skophammer and Craig Corporation
(incorporated by reference to the Company's Form 10-
K Report for the year ended September 30, 1991 ).
10.8 Reclassification Agreement dated September 3, 1993
between Stater Bros. Holdings Inc., the Company and
La Cadena Investments (incorporated by reference to
the Company's Form 10-K Report for the year ended
September 30, 1993).
-52-
<PAGE>
10.9 Amendment to Agreement of Stockholders dated
September 3, 1993 between Stater Bros. Holdings
Inc., the Company and La Cadena Investments
(incorporated by reference to the Company's Form 10-
K Report for the year ended September 30, 1993).
10.10 Option Agreement dated September 3, 1993 between
Stater Bros. Holdings Inc. and the Company
(incorporated by reference to the Company's Form 10-
K Report for the year ended September 30, 1993).
10.11 Consulting Agreement dated September 3, 1993 between
Stater Bros. Holdings Inc. and the Company
(incorporated by reference to the Company's Form 10-
K Report for the year ended September 30, 1993).
10.12 Second Amended and Restated Stock Agreement of
Stockholders dated January 12, 1994 between Stater
Bros. Holdings Inc., the Company, La Cadena
Investments and James J. Cotter (incorporated by
reference to the Company's Form 10-K/A Amendment No.
1 for the year ended September 30, 1993).
10.13 Amendment to Option Agreement dated January 12, 1994
between Stater Bros. Holdings Inc. and the Company
(incorporated by reference to the Company's Form 10-
K/A Amendment No. 1 for the year ended September 30,
1993).
10.14 Credit Agreement among Citadel Realty, Inc. Citadel
Holding Corporation and Craig Corporation
(incorporated by reference to the Company's Form 10-
Q Report for the quarter ended June 30, 1994).
10.19 Limited Liability Company Agreement of Reading
International Cinemas LLC dated November 9, 1995
(incorporated by reference to the Company's Report
on Form 10-K for the year ended September 30, 1995).
10.20 Certificate of Formation of Reading International
Cinemas LLC (incorporated by reference to the
Company's Report on Form 10-K for the year ended
September 30, 1995).
10.21* Amendment to Consulting Agreement between James J.
Cotter and Craig Corporation (incorporated by
reference to the Company's Report on Form 10-K for
the year ended September 30, 1995).
10.22* Stock Option Agreement between James J. Cotter and
Craig Corporation (incorporated by reference to the
Company's Report on Form 10-K for the year ended
September 30, 1995).
-53-
<PAGE>
10.23 Conversion Deferral, Warrant and Reimbursement
Agreement dated April 11, 1995 between Citadel
Holding Corporation and Craig Corporation
(incorporated by reference to the Company's Report
on Form 10-Q for the quarter ended March 31, 1995).
10.24 Settlement Agreement dated April 3, 1995 between
Craig Corporation, Dillon Investors L.P., Roderick
H. Dillon, Jr. (incorporated by reference to the
Company's Report on Form 10-K for the year ended
September 30, 1995).
10.25 Capital Funding Agreement between Reading
International Cinemas LLC, Craig Corporation,
Reading Investment Company, Inc., and Craig
Management, Inc. dated March 29, 1996 (incorporated
by reference to the Company's Report on Form 10-Q
for the quarter ended March 31, 1996).
10.26 Stock Purchase and Sale Agreement dated March 29,
1996 between Craig Corporation and Reading Holdings,
Inc. (incorporated by reference to the Company's
Report on Form 10-Q for the quarter ended March 31,
1996).
10.27 Stock Exchange Agreement dated May 17, 1996 between
Craig Corporation and James J. Cotter (incorporated
by reference to the Company's Report on Form 10-Q
for the quarter ended June 30, 1996).
10.28 Letter of Intent dated August 12,1996 by and between
Craig Corporation, Reading Company, Citadel Holding
Corporation, Reading Entertainment, Inc., Craig
Management, Inc. and Citadel Acquisition Corp., Inc.
(incorporated by reference to the Company's Report
on Form 10-Q for the quarter ended June 30, 1996).
10.29 Credit Agreement by and between Reading Cinemas of
Puerto Rico, Inc. and Citibank, N.A., as
administrative agent for the Lenders thereunder
dated as of December 20, 1995. (Incorporated by
reference to Exhibit 10.11 of Reading Company's
Annual Report on Form 10-K for the year ended
December 31, 1995.)
10.30 The First Amendment dated February 7, 1996 to the
Credit Agreement by and between Reading Cinemas of
Puerto Rico, Inc., and Citibank, N.A. as
administrative agent for the Lenders thereunder
dated as of December 20, 1995. (Incorporated by
reference to Exhibit 10.12 to Reading Company's
Annual Report on Form 10-K for the year ended
December 31, 1995.)
10.31 Amended and Restated Capital Funding Agreement by
and between Craig Corporation, Craig Management,
Inc.,
-54-
<PAGE>
Reading Investment Company and Reading
International Cinemas LLC. (Incorporated by
reference to Reading Company's Annual Report on Form
10-K for the year ended December 31, 1995).
10.32* Service Deed between Australia Cinema Management Pty
Limited and John Rochester dated May 7, 1996.
(Incorporated by reference to Exhibit 10.20 to
Reading Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1996.
10.33 Exchange Agreement among Reading Company, Reading
Entertainment, Inc., Craig Corporation, Craig
Management, Inc., Citadel Holding Corporation and
Citadel Acquisition Corp., Inc.
10.34 Asset Put and Registration Rights Agreement dated
October 15, 1996 by and among Reading Entertainment,
Inc., Citadel Holding Corporation, and Citadel
Acquisition Corp., Inc.
10.35 Certificate of Designation of the Series B 3%
Cumulative Voting Convertible Preferred Stock of
Citadel Holding Corporation
10.36 The Sale Agreement dated as of July 1, 1996, by and
among Reading Investment Company, Inc., as
Purchaser, AFCI, as Seller, and Houston Cinema,
Inc., with all Exhibits and Schedules omitted.
10.37 Amendment to the Sale Agreement made and entered
into as of July 27, 1996 by and among Reading
Investment Company, Inc., AFCI and Houston Cinema,
Inc.
10.38 $2,000,000.00 Non-Negotiable Secured Promissory Note
dated as of August 27, 1996 (the "Holdback Note") by
AFC, as Maker, to AFCI, as Payee.
10.39 Pledge Agreement dated August 27, 1996 by and among
AFCI, as Secured Party, and AFC, as Debtor,
concerning the cash security for the Holdback Note.
10.40 The Agreement of Lease between Cable Building
Associates and Houston Cinema, Inc. dated March 4,
1988
-55-
<PAGE>
together with Amendment of Lease dated December
26, 1989.
10.41 Limited Liability Company Agreement between Angelika
Cinemas, Inc. and Sutton Hill Associates dated
August 27, 1996.
10.42 Management Agreement dated as of August 27, 1996
between Angelika Film Centers, LLC and City Cinemas
Corporation.
10.43 Purchase Agreement between Equipment Leasing
Associates 1995-VI Limited Partnership and FA, Inc.
effective December 20, 1996.
10.44 Master Lease Agreement between FA, Inc. and
Equipment Leasing Associates 1995-VI Limited
Partnership dated December 20, 1996.
10.45 Nonrecourse Promissory Note between FA, Inc. and
Equipment Leasing Associate 1995-VI Limited
Partnership effective December 20, 1996.
10.46 Lease Rental Purchase Agreement between FA, Inc. and
Ralion Financial Services, Inc. dated December 31,
1996.
10.47 Stock Purchase Agreement dated as of April 11, 1997
by and between Craig Corporation and Citadel Holding
Corporation.
10.48 Secured Promissory Note dated as of April 11, 1997
issued by Craig Corporation to Citadel Holding
Corporation in the principal amount of $1,998,000.
10.49 Certificate of Designations, Preferences and Rights
of Series A Voting Cumulative Convertible Preferred
Stock and Series B Voting Cumulative Convertible
Preferred Stock of Reading Entertainment, Inc.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule, Article 5.
-56-
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1995
------------ -------------
ASSETS (IN THOUSANDS OF DOLLARS)
- --------------------------------------- ---------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 52,172 $ 21,059
Receivables, net 3,117 --
Restricted cash 3,683 --
Receivable from affiliates 244 247
Inventories 151 --
Prepayments and other current assets 856 76
-------- --------
Total current assets 60,223 21,382
Investment in Stater 67,978 20,160
Equity investment in Citadel 4,625 7,286
Equity investment in Reading -- 32,725
Net investment in leased equipment 2,125 --
Property and equipment, net 16,376 915
Other assets 2,519 --
Restricted cash 517 --
Excess of cost over net assets acquired 11,605 2,201
-------- --------
Total assets $165,968 $ 84,669
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 5,143 $ 362
Film rental payable 1,102 --
Accrued property costs 1,240 --
Accrued taxes 3,580 24
Note payable 1,500 --
Other accrued expenses and liabilities 1,871 306
-------- --------
Total current liabilities 14,436 692
Capitalized lease, less current portion 516 --
Note payable 500 --
Other long-term liabilities 1,972 56
Option to sell investment in affiliate -- 14,650
Deferred tax liabilities 8,208 5,380
Minority interests in equity of subsidiaries 33,511 --
Redeemable Preferred stock of Reading 7,000 --
SHAREHOLDERS' EQUITY
Preferred stock, par value $.25, 1,000,000
shares authorized, none issued -- --
Class A common preference stock, par value
$.01, 10,000,000 shares authorized,
1,645,000 issued and outstanding 16 16
Class B common stock, par value $.01,
20,000,000 shares authorized, none issued -- --
Common Stock, par value $.25, 7,500,000
shares authorized, 5,444,065 shares issued 1,361 1,361
Additional paid-in capital 30,828 30,793
Foreign currency translation adjustment 114 --
Retained earnings 87,260 43,858
Cost of treasury shares, 1,704,153 and
1,154,095 (19,754) (12,137)
-------- --------
Total shareholders' equity 99,825 63,891
-------- --------
Total liabilities and shareholders' equity $165,968 $ 84,669
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE
YEAR MONTHS YEARS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1995 1994
------------------------ -------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Theater admissions $ 12,986 -- -- --
Theater concessions 4,486 -- -- --
Theater advertising and other 764 -- -- --
Real estate 543 -- -- --
Equity in earnings of affiliates 1,608 1,913 4,682 5,744
Dividend income from Stater 5,978 -- -- --
Service income from Stater 1,500 375 1,500 5,849
-------- ------- ------- -------
27,865 2,288 6,182 11,593
-------- ------- ------- -------
Expenses:
Theater costs 13,631 -- -- --
Theater concession costs 821 -- -- --
Depreciation and amortization 1,664 41 166 366
Loss from joint venture 780 -- -- --
Expenses from Australian
theater developments 2,816 492 -- --
General and administrative
expenses 6,131 503 2,064 2,038
-------- ------- ------- -------
25,843 1,036 2,230 2,404
-------- ------- ------- -------
Earnings before minority interest,
other income (losses), taxes and
extraordinary item 2,022 1,252 3,952 9,189
Earnings (losses) and Write-down of
investment in Citadel 2,396 60 (334) (8,792)
Other income 3,622 -- -- 1,303
Interest income 2,970 280 1,490 340
Gain from conversion of common stock
interest in Stater 58,978 -- -- --
-------- ------- ------- -------
Earnings before taxes, extraordinary
item and minority interest 69,988 1,592 5,108 2,040
Minority interest (1,538) 125 -- --
-------- ------- ------- -------
Earnings before taxes and
extraordinary item 68,450 1,717 5,108 2,040
Provision for taxes (principally
deferred) (25,803) (867) (1,650) (1,010)
-------- ------- ------- -------
Earnings before extraordinary item 42,647 850 3,458 1,030
Extraordinary item:
Debt refinancing - equity in earnings of
affiliate, net of income tax benefit of
$1,610 -- -- -- (2,408)
-------- ------- ------- -------
Net earnings (loss) $ 42,647 $ 850 $ 3,458 $(1,378)
======== ======= ======= =======
Earnings (loss) per common and common
equivalent share:
Continuing operations $ 7.55 $ 0.14 $ 0.58 $ 0.16
Extraordinary items -- -- -- (0.38)
-------- ------- ------- -------
Net earnings (loss) $ 7.55 $ 0.14 $ .58 $ (0.22)
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996, THREE MONTHS ENDED DECEMBER 31, 1995
AND YEARS ENDED SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK CLASS A COMMON STOCK
OUTSTANDING
---------------------- -------------------------
PAID-IN VALUA- TREASURY
PAR PAR CAPTL. TION RETAINED STOCK AT
SHARES VALUE SHARES VALUE RESRV. EARNINGS COST
------ ------ ------ ----- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
SEPT. 30, 1993 5,444 1,361 1,645 16 29,769 --- 41,778 (7,656)
TREASURY STOCK 1,024 (3,658)
NET (LOSS) (1,378)
INVESTMENT
VALUATION RESERVE (171)
----- ------ ----- --- ------- ----- ------- --------
BALANCES AT
SEPT. 30, 1994 5,444 1,361 1,645 16 30,793 (171) 40,400 (11,314)
STOCK REPURCHASES (823)
NET EARNINGS 3,458
INVESTMENT VALUATION
RESERVE 171
----- ------ ----- --- ------- ----- ------- --------
BALANCES AT
SEPT. 30, 1995 5,444 1,361 1,645 16 30,793 --- 43,858 (12,137)
STOCK REPURCHASES (709)
FOREIGN CURRENCY
TRANSACTION (10)
NET EARNINGS 850
----- ------ ----- --- ------- ----- ------- --------
BALANCES AT
DEC. 31, 1995 5,444 1,361 1,645 16 30,793 (10) 44,708 (12,846)
STOCK REPURCHASES (7,585)
ISSUANCE OF TREASURY
STOCK 35 677
FOREIGN CURRENCY
TRANSACTION 124
DIVIDENDS PAID ON
READING REDEEMABLE
PREFERRED STOCK (95)
NET EARNINGS 42,647
----- ------ ----- --- ------- ----- ------- --------
BALANCES AT
DEC. 31, 1996 5,444 $1,361 1,645 $16 $30,828 $ 114 $87,260 $(19,754)
===== ====== ===== === ======= ===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS YEARS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------------------
1996 1995 1995 1994
----------- ------------- ------------ ----------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 42,647 $ 850 $ 3,458 $(1,378)
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in)
operating activities:
Gain on conversion of common stock
investment in Stater (58,978) -- -- --
Writedown of Citadel investment -- -- -- 8,792
Depreciation and amortization 1,664 41 166 390
Deferred rent 245 -- -- --
Undistributed earnings of affiliates (3,134) (1,933) (4,208) (1,726)
Preferred stock redemption premium (941) -- -- --
Increase (decrease) in deferred taxes 24,003 867 1,595 (2,575)
Minority interest 1,537 -- -- --
Changes in operating assets and
liabilities:
(Increase) decrease in current assets (2,457) 3 -- --
(Increase) decrease in other assets -- (445) (176) 231
Increase (decrease) in payables 6,735 -- 289 (58)
Increase (decrease) in film rental 769 -- -- --
(Decrease) in other liabilities (134) 356 -- --
Other, net (312) -- -- --
-------- ------- ------- -------
Net cash provided by (used in)
operating activities 11,644 (261) 1,124 3,676
INVESTING ACTIVITIES
Purchase of Angelika (12,570) -- -- --
Reimbursement proceeds from
Angelika judgment 1,293 -- -- --
Purchase of property, plant and
equipment (11,204) (4,232) (18) --
Proceeds from redemption of Citadel
preferred 6,191 -- -- --
Redemption of investment in affiliate -- -- -- 1,800
Loan to Citadel -- -- -- (6,200)
Acquisition of stock of equity
affiliates -- (1,926) (1,331) --
Cash acquired as a result of
consolidation of Reading, net of
acquisition costs 41,412 -- -- --
Proceeds from Citadel loan pay-off -- -- 950 --
Increase in restricted cash (1,478) -- -- --
Other investments (75) (100) -- --
-------- ------- ------- -------
Net cash provided (used in)
investing activities 23,569 (6,258) (399) (4,400)
</TABLE>
F-4
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE
YEAR MONTHS YEARS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------------
1996 1995 1995 1994
----------- ------------ -------- ---------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of Reading
redeemable preferred stock to
Citadel 7,000 -- -- --
Proceeds from minority partner for
purchase of Angelika 2,068 -- -- --
Distributions to minority partner (38) -- -- --
Payment of Reading preferred dividends (95) -- -- --
Payment of debt financing costs (256) -- -- --
Proceeds from issuance of long term
debt -- -- -- 600
Debt incurred for land purchase -- 3,144 -- --
Borrowings from affiliates -- 1,690 -- --
Treasury stock repurchases (7,585) (709) (823) --
Payment of debt and liabilities (2,914) -- (48) (14,048)
Dividend received from Stater -- -- -- 20,000
Proceeds from sale of option to Stater -- -- -- 14,650
------- ------ ------- --------
Net cash provided (used in) financing
activities (1,820) 4,125 (871) 21,202
EFFECT OF FOREIGN EXCHANGE RATE CHANGES 134 (20) -- --
------- ------ ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 33,527 (2,414) (146) 20,478
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD 18,645 21,059 21,205 727
------- ------ ------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $52,172 $18,645 $21,059 $ 21,205
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Craig Corporation and its wholly owned subsidiaries ("Craig") and
its majority owned subsidiaries (collectively, the "Consolidated Company"). Such
majority owned subsidiaries include the accounts of Reading Entertainment, Inc.
("REI" and together with its consolidated subsidiaries, "Reading"). Through its
majority owned subsidiaries, REI has operated motion picture exhibition theaters
in leased locations in the Commonwealth of Puerto Rico under the name Cine Vista
since 1994. In August 1996, Reading acquired an 83.3% interest in the Angelika
Film Center (the "Angelika"), a multiplex theater located in New York City (See
Note 3). In November 1995, the Consolidated Company formed Reading International
Cinemas LLC ("Reading International" and together with its direct and indirect
subsidiaries, "Reading Australia"). Reading is also a participant in two real
estate joint ventures and holds certain property for sale located primarily in
Philadelphia, Pennsylvania and has acquired certain leased equipment as an
investment.
All significant intercompany transactions and accounts have been eliminated
in consolidation. Minority interest in equity of subsidiary reflects the
minority stockholders' proportionate share of Reading and the Consolidated
Company's other joint ventures. Investments in which the Consolidated Company
holds a 20 to 50 percent ownership interest are accounted for using the equity
method.
In September 1996, Craig changed its fiscal year end date from a September
30 year end to December 31, and accordingly, the consolidated financial
statements report the results of operations, cash flows and the statement of
stockholders' equity for the year ended December 31, 1996, the three months
ended December 31, 1995 and the two years ended September 30, 1995 and 1994.
As described in Note 2, during the year ended December 31, 1996, Craig
increased its voting ownership in REI to approximately 77.4%. As a result of
increasing its ownership in REI to greater than 50%, the Consolidated Company
reports its ownership interest in REI as of December 31, 1996, on a consolidated
basis, as compared to the equity method for the three months ended December 31,
1995 and the two years ended September 30, 1995 and 1994. In accordance with the
provisions of Accounting Research Bulletin 51, "Consolidated Financial
Statements", Craig's purchase of REI has been reflected in the Consolidated
Statements of Operations and Cash Flows as though it had been acquired at the
beginning of Craig's new fiscal year, or January 1, 1996.
INCOME TAXES: Craig and Reading file separate consolidated federal and
state tax returns. Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
F-6
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
CASH EQUIVALENTS: The Consolidated Company considers all highly liquid
investments with original maturities of three months or less at the time of
acquisition to be cash equivalents. Cash equivalents are stated at cost plus
accrued interest, which approximates fair market value, and consist principally
of federal agency securities and short-term money market instruments.
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.
INVENTORIES: Inventories are comprised of confection goods used in Cine
Vista's, the Angelika's and Reading Australia's operations and are stated at the
lower of cost (first-in, first-out method) or net realizable value.
PROPERTY AND EQUIPMENT: Property and equipment is carried at cost.
Depreciation of buildings, capitalized premises lease, leasehold improvements
and equipment is recorded on a straight-line basis over the estimated useful
lives of the assets or, if the assets are leased, the remaining lease term
(inclusive of options, if likely to be exercised), whichever is shorter. The
estimated useful lives are generally as follows:
Building and Improvements 40 years
Equipment 7-15 years
Furniture and Fixtures 7 years
Leasehold Improvements 20 years
CONSTRUCTION IN PROGRESS AND PROPERTY DEVELOPMENT COSTS: Construction-in-
progress and property development costs are comprised of all direct costs
associated with the development of potential theater locations (whether for
purchase or lease). Amounts are carried at cost unless management decides that
a particular theater location will not be pursued to completion. If such a
judgment is made, previously capitalized costs which are no longer of value to
the Consolidated Company are expensed.
PROPERTY HELD FOR SALE: Property held for sale is carried at the lower of
cost, including related holding costs, or estimated net realizable value and is
classified as a noncurrent asset due to the inherent difficulty in estimating
the timing of future sales.
COST IN EXCESS OF NET ASSETS ACQUIRED: Cost in excess of net assets
acquired at December 31, 1996 resulted from the acquisition of the Angelika by
Reading in August 1996. The amount of the purchase price of the Angelika assets
in excess of the appraised value of the assets acquired is being amortized on a
straight line basis over a period of 20 years. The fair value of
F-7
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
the assets was determined by an independent appraiser. The carrying value of
intangible assets is reviewed if the facts and circumstances suggest that such
value may have been impacted.
TRANSLATION OF NON-U.S. CURRENCY AMOUNTS: The financial statements and
transactions of Reading Australia's (See Note 3) operations are maintained in
their functional currency (Australian dollars) and translated into U.S. Dollars
in accordance with SFAS No. 52 "Foreign Currency Translation." Assets and
liabilities are translated at exchange rates in effect at the balance sheet date
and shareholders' equity is translated at historical exchange rates. Revenues
and expenses are translated at the average exchange rate for the period.
Translation adjustments are reported as a separate component of shareholders'
equity.
INCOME (LOSS) PER COMMON SHARE: Income (loss) per common share is
calculated by dividing net earnings (loss) available to common shareholders by
the weighted average shares outstanding during the period and the dilutive
effect, if any, of common stock equivalents that are outstanding. The weighted
average number of shares outstanding for the year ended December 31, 1996, the
three months ended December 31, 1995, and the years ended September 30, 1995 and
1994 were 5,635,406, 5,916,220, 5,969,585 and 6,310,424, respectively. Net
earnings per share for fiscal 1996 was calculated based on net earnings
available to common stock shareholders, which includes a reduction for dividends
declared on the redeemable preferred stock of rei amounting to $95,000 (see note
8).
RECLASSIFICATION: Certain amounts in previously issued financial
statements have been reclassified to conform with the current presentation.
ACCOUNTING MATTERS: The consolidated company adopted SFAS No. 123
"Accounting for stock-based compensation." In 1996. SFAS No. 123 establishes a
fair value method of accounting for stock-based employee compensation plans. As
permitted by SFAS No. 123, The Consolidated Company has elected to account for
stock-based compensation according to the provision of APB 25, "Accounting for
Stock Issued to Employees."
The Consolidated Company also adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in
1996. SFAS No. 121 establishes accounting standards for the impairment of long-
lived assets, certain intangible assets and costs in excess of net assets
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of.
The Consolidated Company adopted SFAS No. 107 "Disclosures about Fair Value
of Financial Instruments" in 1996. SFAS 107 requires the disclosure of the fair
value of certain financial instruments for which it practicable to estimate that
value and requires the disclosure of significant assumption used in such
estimates.
F-8
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
NOTE 2 -- ACQUISITION OF READING COMPANY ("READING")
Since September 30, 1995, Craig has increased its voting ownership in
Reading from 47.6% to approximately 77.4% at December 31, 1996 through (1) the
acquisition of shares on the open market at a cost of approximately $1.752
million, (2) the issuance of 66,042 shares of Craig Common Stock and (3) the
consummation of a transaction between Craig, Reading, Citadel Holding
Corporation ("CHC and collectively with its consolidated subsidiaries, Citadel")
and certain of their affiliates (the "Stock Transactions") whereby Craig
exchanged principally all of its assets for common and preferred stock of REI.
Immediately prior to the Stock Transactions, there was a reorganization of
Reading (the "Reorganization") pursuant to a proposed Agreement and Plan of
Merger (the "Merger Agreement") among Reading Company, REI, which was a newly
formed, wholly-owned subsidiary of Reading Company, and Reading Merger Co.
("Merger Co.") which was a newly formed, wholly-owned subsidiary of REI. In the
Reorganization, Reading Company merged with Merger Co. and each outstanding
share of Reading Company's Common Stock and Class A Common Stock was converted
into the right to receive one share of REI's Common Stock (the "Common Stock").
As a result of the Reorganization, Reading Company became a wholly-owned
subsidiary of REI and the shareholders of Reading Company became shareholders of
REI.
In the Stock Transactions Craig and its wholly owned subsidiary, Craig
Management, Inc. ("CMI"), and Citadel contributed assets in exchange for REI
convertible preferred and common stock and certain contractual rights. The Stock
Transactions were carried out pursuant to an Exchange Agreement, dated September
4, 1996 (the "Exchange Agreement"). In the Stock Transactions, REI issued (i)
70,000 shares of Series A Voting Cumulative Convertible Preferred Stock, (the
"REI Series A Preferred Stock"), to Citadel (See Note 8), and granted certain
contractual rights to Citadel, in return for $7 million in cash and (ii) 550,000
shares of Series B 6.5% Voting Cumulative Convertible Preferred Stock with a
stated value of $55 million, (the "REI Series B Preferred Stock"), and 2,476,190
shares of Common Stock to Craig in exchange for certain assets owned by Craig
(the "Craig Assets"). The REI Series B Preferred Stock bears a cumulative
dividend of 6.5%, payable quarterly and is convertible anytime after 18 months
from issuance into REI common shares at a conversion price of $12.25 per share.
The Craig Assets consisted of the 693,650 shares of Stater Bros. Holdings,
Inc.'s ("Stater") Series B Preferred Stock (the "Stater Preferred Stock"),
Craig's 50% membership interest in Reading International, of which an indirect
wholly owned subsidiary of REI was the sole other member, and 1,329,114 shares
of Citadel's 3% Cumulative Voting Convertible Preferred Stock, stated value
$3.95 per share (the "CHC Preferred Stock"). Upon consummation of the
transaction on October 15, 1996, Craig and Citadel held approximately 77.4% and
5%, respectively, of the voting power of REI. Subsequent to December 31, 1996,
Craig increased its holdings in REI to approximately 78% of the outstanding
voting securities through the purchase of an additional 78,500 shares at a
purchase price of approximately $.819 million.
F-9
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
The contractual rights granted to Citadel in the Stock Transactions are set
forth in an Asset Put and Registration Rights Agreement pursuant to which
Citadel has the right (the "Asset Put Option"), exercisable at any time after
October 15, 1996 and until 30 days after REI files its Annual Report on Form 10-
K for the year ending December 31, 1999, to require REI to acquire substantially
all of Citadel's assets, and assume related liabilities (such as mortgages), for
shares of REI Common Stock. In exchange for up to $20 million in aggregate
appraised value of Citadel assets on exercise of the Asset Put Option, REI is
obliged to deliver to Citadel a number of shares of REI Common Stock determined
by dividing the appraised value of the Citadel assets by $11.75 if the notice of
exercise is received by October 31, 1997 and $12.25 if notice is received
thereafter. If the value of the Citadel assets is in excess of $20 million, REI
is obliged to pay for the excess by issuing common stock at the then fair market
value up to a maximum of $30 million of assets. For financial reporting
purposes, no value was allocated to the Asset Put Option, due to the belief that
the value, if any, is immaterial and that the methods of valuing options include
numerous subjective assumptions and are not intended to value non-transferrable
options such as the Asset Put Option. Also, in conjunction with the Stock
Transactions, REI agreed to reimburse Citadel for its out of pocket costs with
respect to the transaction, up to a maximum of $280,000.
The Stock Transactions are intended to qualify as an exchange under Section
351(a) (a "351 Exchange") of the Internal Revenue Code of 1986, as amended (the
"Code"). In a 351 Exchange, the party acquiring the assets retains the
contributing parties' tax basis in the acquired assets, with no taxable gain
recognized as a result of the exchange. The parties contributing assets obtain
a tax basis in the assets received in the exchange equal to the basis in the
assets which are contributed in the exchange. With the exception of the Stater
Preferred Stock, the book value of the assets received in the Stock Transactions
approximated the tax basis in the assets received. Craig's adjusted tax basis
(for federal tax purposes) in the Stater Preferred Stock was approximately $5
million and, accordingly, the estimated tax liabilities associated with the
assets exchanged in the Stock Transactions were $22,042,000 of deferred federal
income taxes provided by Craig relating to the Stater Preferred Stock. At the
time of the closing of the Stock Transactions, REI had a gross deferred federal
tax asset of $55,968,000 and a valuation allowance in the same amount.
Concurrent with the receipt of the Stater Preferred Stock, REI determined that
it was more-likely-than-not that a portion of the deferred tax asset which had
previously been fully reserved, would be realized and REI reduced the valuation
allowance by $20,782,000 which amounts reflects the value of the federal tax
loss carryforwards which were expected to be utilized by REI, net of $1,260,000
in federal alternative minimum tax ("AMT").
The acquisition of the REI securities by Craig has been accounted for
as a purchase and accordingly, the purchase price was allocated
to assets and liabilities based on their estimated fair values, after
consideration of the recognition by REI of previously reserved deferred tax
assets as of the date of the Stock Transactions. The aggregate purchase price
F-10
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
of the fiscal 1996 purchases of REI stock amounted to approximately $66.4
million, of which approximately $64.4 million represented the carrying value of
the assets contributed in the exchange, net of federal tax liabilities amounting
to approximately $22 million. Accordingly, the purchase, for financial
statement purposes, resulted in negative goodwill in the amount of approximately
$22 million, which goodwill was allocated to reduce the carrying value of
previously reported intangible assets related to Craig's REI stock purchases
and the beneficial leases and leasehold improvements purchased.
The pro forma consolidated operating results set forth below gives effect
to Craig's fiscal 1996 acquisition of Reading, the August 1996 purchase of
Angelika by Reading described in Note 3, the issuance of the REI redeemable
preferred stock to Citadel in the Stock Transactions and the amortization of the
negative goodwill allocated to the assets purchased, as if they had occurred on
October 1, 1994.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------------------
YEAR THREE MONTHS YEAR
ENDED ENDED ENDED
DEC. 31, 1996 DEC. 31, 1995 SEPT. 30, 1995
<S> <C> <C> <C>
Revenues $32,364 $7,305 $27,438
Net earnings $43,438 $1,059 $ 4,295
Net earnings available to common
shareholders $42,983 $ 946 $ 3,840
Per Share net earnings available to
common shareholders $ 7.63 $ .16 $ .64
</TABLE>
The pro forma consolidating results are based upon certain assumptions and
estimates and do not necessarily represent results which would have occurred if
the acquisition of Reading and Angelika had taken place on the basis assumed,
nor are they indicative of the future results of the combined operations.
Prior to the January 1, 1996, Craig accounted for its ownership of Reading
on the equity method of accounting. Craig's 47.6% interest in Reading at
September 30, 1995 is included on the Consolidated Balance Sheet as Investment
in Reading amounting to approximately $32.725 million. Included in equity
earnings of affiliates for the three months ended December 31, 1995 and for each
of the two years ended September 30, 1995 and 1994 is Craig's share of Reading's
net earnings amounting to a net equity loss of approximately $18,000, net equity
earnings of $989,000 and a net equity loss of $678,000, respectively.
F-11
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
Summarized financial information of Reading for the periods which Craig
included Reading in its consolidated financial statements using the equity
method of accounting is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
CONDENSED BALANCE SHEET 1995
--------------
<S> <C>
Current assets $50,263
Property and equipment 7,118
Intangible assets 15,770
Other assets 2,111
Current liabilities 3,596
Other long-term liabilities 2,907
Shareholders' equity 68,759
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME THREE MONTHS ENDED YEARS ENDED
- ---------------------------------------- DECEMBER 31, SEPTEMBER 30,
1995 1995 1994
------------------ --------- ---------
<S> <C> <C> <C>
Revenue:
Theatre 3,205 14,878 4,908
Interest and dividend 648 2,194 2,367
Other 442 2,461 918
------ ------- -------
4,295 19,533 8,193
Theater costs 2,642 11,451 3,433
Depreciation and amortization 348 1,339 339
General and administrative 1,048 4,457 3,769
Equity losses from Reading International 246 -- --
Provision for environmental -- -- 1,306
Development expense -- -- 795
------ ------- -------
Earnings (Loss) before income taxes and
accounting change 11 2,286 (1,449)
Income taxes (benefit) 48 189 (12)
------ ------- -------
Net earnings (loss) $ (37) $ 2,097 $(1,437)
====== ======= =======
</TABLE>
Included in the accompanying Consolidated Statements of Operations as
"Minority interest" and the Consolidated Balance Sheets as "Minority interests
in equity of subsidiaries" for the year ended December 31, 1996 is that portion
of Reading's financial statement results of operations and equity that is not
owned by the Consolidated Company amounting to approximately $1.471 million and
$31.416 million, respectively.
F-12
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
NOTE 3 -- THEATER ACQUISITION AND DEVELOPMENT ACTIVITIES
On August 27, 1996, Reading and Sutton Hill Associates ("Sutton Hill"),
acquired from Angelika Film Centers, Inc. ("AFCI") the assets comprising the
Angelika, a multiplex theater located in New York City. The purchase price of
the Angelika was approximately $12,570,000 (subject to certain adjustments),
inclusive of acquisition costs of approximately $529,000. Reading and Sutton
Hill formed a limited liability company, Angelika Film Centers LLC ("AFC"), to
hold their interest in the Angelika. AFC acquired the Angelika assets with a
combination of available cash, a fully collateralized promissory note issued to
AFCI in the amount of $2,000,000 and credit in full satisfaction of a judgment
encumbering certain of the stock of AFCI, with interest on such judgment at a
rate of 9% per annum. Reading had acquired the judgment from a bank for
$1,285,000 in November 1995. The short-term portion ($1,500,000, bearing
interest based on the 13 week T-bill rate) and the long-term portion ($500,000,
bearing interest at 9%) of the promissory note and an escrow established in
relation to this future obligation have been classified as "Note payable" and
"Restricted cash," respectively, in the Consolidated Balance Sheet as of
December 31, 1996.
Reading contributed 83.3% of the capital of AFC and Sutton Hill contributed
the remaining 16.7%. The operating agreement of AFC provides that all
depreciation and amortization (the "Special Deductions") will first be allocated
to Sutton Hill until the aggregate amount of such Special Deductions equals
Sutton Hill's initial investment. Thereafter, Reading will receive all Special
Deductions until the relative ownership interests are equal to the initial
ownership interests of the parties. Sutton Hill has agreed to subordinate its
interest in AFC to the Reading's interest in order to permit Reading to pledge
AFC and its assets as collateral to secure borrowing by the Company. In
addition, Sutton Hill has agreed that the Company will be entitled to receive up
to 100% of the proceeds of borrowing by AFC, up to the amount of the Company's
initial capital contribution to AFC.
AFC is managed by City Cinemas, a New York motion picture exhibitor and an
affiliate of Sutton Hill, pursuant to the terms of a management agreement (the
"Management Agreement"). The Management Agreement provides for City Cinemas to
manage the Angelika for a minimum annual fee of $125,000 plus an incentive fee
equal to 50% of annual cash flow (as defined in the Management Agreement) over
prespecified levels, provided however, that the maximum annual fee (minimum fee
plus incentive fee) may not exceed 5% of the Angelika's annual revenues.
Reading's 83.3% interest in the Angelika was accounted for using the
purchase method and the Angelika's operating results since the acquisition on
August 27, 1996 have been consolidated with the operating results of Reading.
Sutton Hill's initial capital investment and share of the Angelika's net
earnings amounting to approximately $2.1 million for the period subsequent to
the acquisition of Angelika have been recorded as "Minority interest" in the
accompanying Consolidated Balance Sheet as of December 31, 1996.
F-13
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
Reading International Cinemas LLC
---------------------------------
In November 1995, the Consolidated Company formed Reading International to
develop and operate multiplex cinemas in Australia under the operating name
Reading Cinemas. Since formation, Reading Australia has acquired one potential
theater development site, signed two purchase agreements, a development
agreement and entered into four leases of properties to be developed as
theaters. Reading Australia's first theater commenced operations in late 1996.
Reading International was equally owned by Craig and Reading prior to conclusion
of the Stock Transactions on October 15, 1996 (See Note 2).
During the three months ended December 31, 1995, Craig consolidated the
financial results of Reading International reflecting Craig's 74.5% (Craig's 50%
direct interest, together with its ownership interest in Reading at December 31,
1995 resulted in a 74.5% interest for financial statement purposes) financial
interest. Reading's minority shareholders interest in such losses for the three
months ended December 31, 1995 amounted to approximately $125,000.
NOTE 4 -- INVESTMENT IN CITADEL
Citadel, whose stock is traded on the American Stock Exchange, has been
engaged primarily in the business of owning and managing commercial and
residential properties since August 1994. As described in Note 2, in October
1996, Citadel invested $7 million to acquire 70,000 shares of REI Redeemable
Cumulative Voting Convertible Stock (Note 8), which represents 5% of the
outstanding voting securities of REI and an Asset Put Option. Until August
1994, CHC was engaged principally in the business of serving as the holding
company for Fidelity Federal Bank.
As of December 31, 1996 and September 30, 1995, the Consolidated Company's
investment in Citadel is as follows:
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30,
1996 1995
--------- ---------
<S> <C> <C>
Common Stock $4,625 $2,036
3% Cumulative Convertible Preferred Stock -- 5,250
------ ------
$4,625 $7,286
====== ======
</TABLE>
Until November 1994, Craig held approximately a 9%
interest in Citadel, which for accounting purposes was reported at cost as
adjusted for market declines considered to be other than temporary. After
Citadel ceased its role as a thrift holding company, Craig increased its
voting interest in Citadel to 31.6% through the purchase of common stock and
F-14
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
convertible preferred stock during the twelve months ended September 30, 1995.
As a result of the increase in fiscal 1995, Craigs investment in Citadel met the
criteria for using the equity method of accounting, which the Company adopted in
fiscal 1995. Included in the Statement of Operations as "Earnings (losses) from
investment" in Citadel is the Consolidated Company's common equity ownership
portion of Citadel's operating results, the preferred dividends and the
redemption premium earned with respect to the Consolidated Company's preferred
stock interest described below, amounting to $2,396,000, $60,000, and a loss of
$334,000 for the year ended December 31, 1996, the three months ended December
31, 1995 and the year ended September 30, 1995, respectively.
Prior writedowns of the Consolidated Company's investment in Citadel,
considered to be other than temporary, amounted to $8.792 million for the year
ended September 30, 1994. Retained earnings represented by undistributed
earnings of the Consolidated Company's investment in Citadel amounted to
approximately $2.122 million at December 31, 1996.
The Consolidated Company increased its common stock ownership in Citadel
from 993,112 shares (16.5%) at September 30, 1995 to 1,564,473 shares (26%) at
December 31, 1996 through the purchase of an additional 571,361 shares at a cost
of approximately $1,281,000. In addition, at December 31, 1996 Craig held a
warrant, exercisable at $3.00 per share, to purchase an additional 666,000
shares of Citadel Common Stock (the "Warrant"). The Warrant was exercised in
April 1997, resulting in an increase of the Consolidated Company's ownership of
Citadel to 33.4% of the then issued outstanding voting securities of Citadel.
Based upon the closing price of Citadel's common stock of $2.75 at December 31,
1996, the aggregate market value of the Consolidated Company's common stock
interest in Citadel was approximately $4.3 million. Management believes that the
December 31, 1996 carrying value approximates market value.
At September 30, 1995, Craig owned 1,329,114 shares of Citadel 3%
Cumulative Voting Convertible Preferred Stock (the "CHC Preferred Stock")
with a Stated Value of $5.25 million. The CHC Preferred Stock was issued to
Craig in November 1994 in satisfaction of $5.25 million of outstanding
indebtedness of Citadel to Craig. The CHC Preferred Stock was issued
pursuant to a Stock Purchase Agreement which provided, among other things, that
(i) the preferred shares carry a liquidation preference equal to their stated
value and bear a cumulative (noncompounded) annual dividend equal to 3% of the
stated value, (ii) were convertible under certain circumstances into shares of
common stock of Citadel, (iii) were redeemable at the option of Citadel at any
time after November 1997 and (iv) were redeemable (subject to Delaware
limitations upon distributions to shareholders) at the option of the Company in
the event of a change of a control of Citadel. Subject to certain limitations,
the CHC Preferred Stock was convertible into common stock of Citadel at a
conversion price per share equal to the market price of Citadel common stock, as
defined, calculated as the per share stated value of $3.95 divided by the
average CHC closing price per share for each of the 60 days preceding the
conversion. If the market price, as defined, was below $3.00 per share Citadel
had the right to redeem the CHC Preferred Stock if tendered
F-15
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
for conversion calculated as the sum of (1) $3.95 per share, (2) any unpaid
dividends, and (3) a premium at the redemption date equal to an accrual on the
Stated Value at 9% per annum during the period November 1994 to November 1998
and thereafter reducing at a rate of 1% per year (the "Redemption Accrual
Percentage").
As described in Note 2, the CHC Preferred Stock was transferred to REI
in the Stock Transaction and the CHC Preferred Stock was exchanged by REI
for 1,329,114 shares of Series B Cumulative Voting Convertible Preferred Stock
(the "Citadel Series B Preferred Stock"). The terms of the Citadel Series B
Preferred Stock were substantially identical to the terms of the CHC
Preferred Stock except that (i) the Redemption Accrual Percentage decreased to
3% after October 15, 1996 and (ii) except for a change of control of Citadel,
the Citadel Series B Preferred Stock was not convertible into Citadel Common
Stock for one year commencing on approximately April 15, 1997. In December
1996, Reading elected to exercise its rights to convert the Citadel Series B
Preferred Stock into CHC Common Stock, whereupon, Citadel exercised its
right to redeem the Citadel Series B Preferred Stock. The Consolidated Company
received the stated value of $5.25 million, all accrued and unpaid dividends and
a redemption premium of $941,000, which premium, net of the amount attributable
to the Consolidated Company's common stock interest, is included in "Earnings
(losses) from investment in Citadel" in the Consolidated Statement of Operations
for the year ended December 31, 1996. Dividends earned for the year ended
December 31, 1996, the three months ended December 31, 1995 and the year ended
September 30, 1995 were approximately $154,000, $40,000 and $140,000,
respectively.
Citadel's fiscal year end is December 31. Summarized financial information
of Citadel as of December 31, 1996 and September 30, 1995 and for the years
ended December 31, 1996 and December 31, 1995 follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS: DECEMBER 31, 1996 SEPTEMBER 30, 1995
- ------------------------- ----------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 6,356 $15,913
Rental properties 14,433 21,832
Investment in Reading 7,000 --
Other assets 2,503 1,976
Accrued and other liabilities 2,265 5,913
Mortgage liabilities 10,303 16,204
Stockholder's equity 17,724 17,604
</TABLE>
F-16
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
CONDENSED STATEMENTS OF OPERATIONS: DECEMBER 31, 1996 DECEMBER 31, 1995
- ----------------------------------- ------------------ ------------------
<S> <C> <C>
Rental income $ 4,932 $ 5,402
Interest and dividend income 939 710
Real estate operating expenses (2,481) (2,660)
Depreciation (395) (420)
Interest expense (1,317) (1,327)
General and administrative expenses (745) (1,807)
Gain (loss) from Investment in Fidelity 4,000 (41)
Gain on sale of rental property 1,493 1,541
Net earnings 6,426 1,398
</TABLE>
Citadel's net earnings for the year ended December 31, 1996 are inclusive
of non-recurring income of $4 million from the recognition for financial
statement purposes of previously deferred proceeds from the bulk sale of loans
and real estate by a previously owned subsidiary of Citadel and approximately
$95,000 of dividends paid by Reading to Citadel pursuant to the redeemable
preferred stock issued to Citadel in the exchange.
NOTE 5 - INVESTMENT IN STATER BROS. HOLDINGS, INC. (STATER)
The Consolidated Company's investment in Stater at December 31, 1996 and
1995 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1996 1995
----------- ------------
<S> <C> <C>
Common Stock --- $20,160
Preferred Stock $67,978 ---
</TABLE>
Prior to March 8, 1996, Craig held a 50% common stock interest in Stater
which for accounting purposes was accounted for in accordance with the equity
method of accounting. The remaining 50% interest in Stater was owned by La
Cadena Investments ("La Cadena"), a general partnership consisting of key
executives of Stater. Stater is a supermarket chain in Southern California,
operating 110 supermarkets in the Inland Empire Region of Southern California.
During March 1994, Craig consummated several separate agreements with
Stater and La Cadena with respect to a series of transactions under the terms of
which Craig received from Stater cash proceeds approximating $42 million,
including a dividend distribution of $20 million, an option payment of $14.65
million, $5 million in connection with a Consulting Agreement, and $2.2 million
for the redemption of existing preferred stock plus outstanding dividends. The
$14.65 million received in connection with the option to sell Craig's investment
in Stater is included in the balance sheet as
F-17
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
a deferred credit under the caption "Option to sell investment in affiliate" at
September 30, 1995. The option payment to Craig of $14.65 million pertains to an
option granted by Craig to Stater, which in turn provided Stater the means by
which Stater could acquire, in the future, any economic interest Craig held in
Stater at a stated exercise price. The option had a term of twelve years to the
extent that Stater converted Craig's common stock interest in Stater to
preferred stock prior to March 8, 1996.
Effective March 8, 1996, Stater exercised its right to convert all Craig's
common stock in Stater into 693,650 shares of Stater Series B Preferred Stock,
stated value $100 per share (the "Stater Preferred Stock"). The Stater Preferred
Stock has a liquidation preference and redemption value of $69.365 million and a
cumulative dividend preference beginning at 10.5%, increasing to 12% after 78
months, and further increasing every twelve months thereafter by an additional
1%, to a maximum dividend rate of 15%. Included in the Consolidated Statement of
Operations as "Dividend income from Stater" for the twelve months ended December
31, 1996, is approximately $5,978,000 earned from the date of issuance of the
Stater Preferred Stock on March 8, 1996. Dividends are paid quarterly in
arrears. The payment of dividends by Stater to the Consolidated Company is
restricted subject to various financial covenants in the Stater credit
agreements. The Stater Preferred Stock entitles the Consolidated Company to (1)
elect one director of Stater, (2) vote 20% of the total number of votes, and (3)
elect a majority of the Board of Directors of Stater if, without the approval of
the Consolidated Company, two or more quarterly preferred stock dividends remain
unpaid. Under the terms of the Option Agreement described above, Stater has
transferable rights to repurchase the Stater Preferred Stock at any time prior
to March 2006 at redemption value plus accumulated dividends. If not repurchased
by Stater prior to March 2006, the holder of the Stater Preferred Stock has the
right to have the Stater Preferred Stock redeemed at any time following March 8,
2009, at redemption value plus accumulated dividends.
Upon the conversion by Stater in March 1996 of Craig's common stock
interest to redeemable preferred stock, the Consolidated Company discontinued
the use of the equity method of accounting for its investment in Stater. Prior
to the preferred stock conversion, the carrying value of the Craig's 50% common
stock interest, net of the $14.65 option proceeds received in 1994 amounted to
approximately $9 million. During the twelve months ended December 31, 1996,
Craig recorded approximately $58.978 million of the difference between $67.978
million (98% of the stated value of the Stater Preferred Stock) and Craig's
net carrying value of its previous common stock investment amounting to $9
million as "Gain from conversion of common stock interest in Stater". There is
no public market for the Stater Preferred Stock, although the Consolidated
Company does have certain registration rights relating to such shares. The
Stater Preferred Stock has been recorded in the accompanying Consolidated
Balance Sheet as "Investment in Stater" and valued at $67,978,000 (98% of stated
value) which amount is consistent with a valuation of the Stater Preferred Stock
prepared by an independent investment banker (exclusive of the tax liabilities
described in Note 2). The ultimate value of the Stater Preferred Stock is based
upon various market factors including, but not limited
F-18
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
to, Stater's operating performance, Stater's existing senior debt covenants,
interest rates, the Stater Preferred Stock provisions, and the likelihood of
redemption by Stater. The Consolidated Company expects to account for the
deferred gain of approximately $1.387 million (difference between the Stated
Value and the Company's carrying value) if realized upon the redemption or sale
of the Stater Preferred Stock.
Pursuant to the Stock Transactions described in Note 2, Craig transferred
legal ownership of its Stater Preferred Stock to Reading.
Effective March 8, 1994, Craig entered into a consulting agreement with
Stater pursuant to which Craig, among other things, agreed to render consulting
services for a five year period. In consideration for such agreement, Stater
paid Craig $5 million in March 1994, and agreed to pay $1.5 million annually,
payable quarterly, through the term of the agreement. Included in the
accompanying Consolidated Statements of Operations as "Service income" for the
year ended December 31, 1996, the three months ended December 31, 1995 and each
of the two years ended September 30, 1995 is approximately $1.5 million,
$375,000, $1.5 million and $5.849 million, respectively, earned pursuant to this
agreement. Stater has the right to terminate its obligations under the
Consulting Agreement, in the event it exercises its option to purchase the
Stater Preferred Stock.
Prior to the conversion of Craig's Stater common stock to Stater Preferred
Stock, in March 1996, Craig included in equity of affiliates, Craig's
share of Stater's operating results. Accordingly, included in equity earnings
of affiliates for the year ended December 31, 1996, the three months ended
December 31, 1995 and for each of the two years ended September 30, 1995 is
Craig's share of Stater's net earnings amounting to approximately $1.608
million, $1.881 million, $3.693 million and $6.422 million, respectively.
Stater files the required periodic reports with the Securities and Exchange
Commission (SEC). Stater's fiscal year ends on the last Sunday in September.
Summarized financial information of Stater is as follows:
<TABLE>
<CAPTION>
SEPT. 29, SEPT. 24,
CONDENSED BALANCE SHEETS 1996 1995
- ------------------------------------- ---------- --------------
<S> <C> <C>
Current assets 191,514 158,647
Property, plant and equipment, net
114,215 118,627
Other assets 32,565 36,808
Current Liabilities 128,041 113,633
Long term debt 171,917 173,099
Other Liabilities 12,858 13,772
Preferred Stock 69,365 --
Shareholders' common equity
(43,887) 13,578
</TABLE>
F-19
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
CONDENSED STATEMENTS OF ENDED ENDED ENDED
INCOME SEPT. 29, 1996 SEPT. 24, 1995 SEPT. 25, 1994
- ------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
Sales $ 1,705,332 $ 1,579,895 $ 1,539,717
Cost of goods sold 1,315,726 1,227,355 1,199,794
----------- ----------- -----------
Gross profit 389,606 352,540 339,923
General and administrative expenses (328,242) (308,332) (297,474)
Depreciation and amortization (12,583) (11,756) (11,656)
Consulting Costs (1,525) (1,500) (830)
----------- ----------- -----------
Income from operations 47,256 30,952 29,963
Interest expense, net (20,258) (20,076) (15,501)
Other income 133 69 183
----------- ----------- -----------
Income before provision for taxes and
extraordinary item 27,131 10,945 14,645
Income taxes (11,120) (4,218) (5,856)
----------- ----------- -----------
Income before extraordinary item and
accounting change 16,011 6,727 8,789
Change in accounting for income taxes -- -- 372
Extraordinary loss -- -- (8,036)
----------- ----------- -----------
Net income 16,011 6,727 1,125
Less Preferred Dividends (4,111) -- --
----------- ----------- -----------
Net Income Available to Common $ 11,900 $ 6,727 $ 1,125
----------- ----------- -----------
</TABLE>
In connection with the March 1994 transaction, Stater completed a debt
financing of $165 million. The net proceeds from the financing were used to
consummate the March 1994 transactions described above and replace outstanding
debt of $96.7 million. In connection with the early redemption of outstanding
debt, Stater recorded an extraordinary charge of approximately $8.036 million,
net of tax benefits amounting to $5.9 million, for costs related to the
redemption premium paid to holders of the previous outstanding debt securities.
Accordingly, Craig has reported its then 50% share of Stater's debt retirement
costs amounting to $4.018 million, before income tax benefits of $1.610 million,
as an extraordinary item.
F-20
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
NOTE 6 -- NET INVESTMENT IN LEASED EQUIPMENT
During 1996, a wholly-owned subsidiary of REI purchased computer controlled
manufacturing equipment for $40,934,000 which equipment was leased to
manufacturing companies (the "User Leases"). Concurrent with the purchase of the
equipment, the Company leased the equipment back to the seller, subject to the
User Leases, for a period of five years (the "Wrap Lease"). Reading's investment
in the equipment was funded through a cash payment of $1,944,000 and the
issuance of a non-recourse promissory note (the "Promissory Note") in the amount
of $38,990,000. Payments due under the Wrap Lease were subsequently sold to a
third party in return for a $32,000 payment and assumption by the purchaser of
all obligations under the Promissory Note. Reading has retained all rights and
interest in the equipment subject to the User Leases and the Wrap Lease.
Therefore, Reading has rights to the residual value of the equipment upon
conclusion of the Wrap Lease (which term exceeds the term of the User Leases).
The residual interest has been reflected at its net cost, $2,125,000, in the
Consolidated Balance Sheet at December 31, 1996 as "Net investment in leased
equipment."
NOTE 7 -- PROPERTY, PLANT AND EQUIPMENT
The Consolidated Company's property, plant and equipment at December 31,
1996 and September 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1995
--------------------------------
<S> <C> <C>
Land $ 7,332 $ --
Buildings and improvements 1,718 969
Capitalized lease premises 538 --
Equipment 6,450 305
Construction in progress and property
development costs 2,562 --
------- ------
Property, plant and equipment 18,599 1,274
Less: Accumulated depreciation (2,224) (359)
------- ------
Property, plant and equipment, net $16,376 $ 915
======= ======
</TABLE>
NOTE 8 -- REDEEMABLE PREFERRED STOCK OF READING
The 70,000 shares of REI Series A Preferred Stock has a stated value of
$100 per share or $7 million and holders of the REI Series A Preferred Stock are
entitled to receive cumulative dividends at the rate of $6.50 per share. Citadel
has the right during the 90 day period beginning October 15, 2001, or in the
event of a change of control of REI, to require REI to repurchase the Series A
Preferred Stock at, its stated value plus accrued and unpaid dividends or, in
the case of a change in control, a premium. In addition, the holders of the
Series A Preferred Stock may require REI to repurchase the shares at the stated
value plus accrued and unpaid dividends in
F-21
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
the event that REI fails to pay dividends on the Series A Preferred Stock in any
four quarterly periods (after April 15, 1998). In the event of a change in
control of REI, the holders of a majority of the Series A Preferred Stock may
require redemption at a premium. Due to the redemption provisions, the Series A
Preferred Stock has not been included as a component of Shareholders' Equity in
the Consolidated Balance Sheet and will be separately categorized as "Redeemable
Preferred Stock of subsidiary", until such time that the redemption provision is
exercised.
Each share of Series A Preferred Stock is convertible into shares of REI
Common Stock at a conversion price of $11.50 per share at any time after April
15, 1998. The shares of Series A Preferred Stock are convertible prior to April
15, 1998 in the event that a change in control of REI occurs. REI also has the
right to require conversion of the Series A Preferred Stock in the event that
the average market price of the REI Common Stock over a 180 day period exceeds
135% of the conversion price of the Series A Preferred Stock. REI may, at its
option, redeem the Series A Preferred Stock at any time after October 15, 2001,
in whole or in part, at a redemption price equal to a percentage of the stated
value (initially 108%, declining 2% per annum until the percentage equals 100%)
plus accrued and unpaid dividends to the date of redemption. Dividends paid
during the year ended December 31, 1996 amounted to approximately $95,000.
NOTE 9 -- STOCK OPTIONS
Craig has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, if the exercise price
of Craig's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
A stock option plan adopted in 1984, as amended, provided for the granting
of options to purchase a maximum of 200,000 shares of common stock at exercise
prices not less than the market price at the date of grant. Under the terms of
the plan which expired in 1995, options could be granted to officers, directors
and other key employees who owned 10% or less of the voting power and value of
all classes of Craig's stock. Options under this plan expired, unless extended,
after five years and may be exercisable in installments, generally beginning one
year after the date of grant. Options outstanding and exercisable under this
plan at December 31, 1996, September 30, 1995 and 1994 amounted to 25,000 shares
at exercise prices ranging from $12.75 to $13.875 per share.
In addition to the options outstanding and exercisable under the stock
option plan, the Board of Directors approved the grant of a ten year option to
acquire 300,000 shares of Craig's common stock at an exercise price of $11.75
F-22
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
per share in June 1995 to the Chairman of the Board. Such grant was made in
consideration of, among other things, the Chairman's agreement to extend his
consulting agreement with Craig through September 30, 1997 with no increase in
compensation and the cancellation of a previously issued vested option to
purchase 175,000 shares of Craig's Class A Common Preference Stock at an
exercise price of $10.50 per share. In March 1993, the Board of Directors
granted the President of Craig an option to acquire 17,500 shares of Craig's
Class A Common Preference Stock, subject to a four year vesting schedule (25% of
such options vesting at the end of each anniversary of such employment) at an
exercise price of $10.50 per share. At December 31, 1996, the 300,000 Common
shares and 13,125 Class A Common Preference shares granted by the Board are
exercisable.
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to fiscal years beginning after December 14, 1994 under the fair
value method of that Statement. No options have been granted since such date
and therefore no pro forma information has been included.
NOTE 10 -- COMMON AND CLASS A COMMON PREFERENCE STOCK
The rights of the holders of Class A Common Preference stock and the Common
stock differ with respect to dividend, voting and liquidation rights. Holders
of Class A Common Preference stock are entitled to receive such dividends as may
be declared thereon exclusively and, in addition, such dividends as may be paid
on the common stock in equal amounts as if a single class of securities; they
will be entitled to one vote per share, while holders of the common stock are
entitled to 30 votes per share; and, in the event of a liquidation, they will be
entitled to receive a liquidation preference of $5.00 per share.
Craig purchased 539,100 shares of its common stock at a purchase price of
approximately $7.585 million during the twelve months ended December 31, 1996;
54,000 shares of its Common stock and 23,000 shares of its Class A Common
Preference stock at a purchase price of approximately $.709 million during the
three months ended December 31, 1995; and 90,000 shares of its Common stock at a
purchase price of approximately $.823 million during the year ended September
30, 1995.
On May 17, 1996, Craig agreed to purchase 67,000 shares of Reading Common
stock from the Chairman of the Board, James J. Cotter, in exchange for 66,042
shares of its Common stock. Under the terms of the agreement, Mr. Cotter
granted to Craig, for a two year period, the right of first refusal to acquire
the 66,042 shares of its Common Stock at a price of $9.00 per share in the event
that Mr. Cotter determines to sell, assign or convey any interest in such
shares. Issuance of these shares has been recorded based on the closing price
of Reading Company Common stock on May 17, 1996, or $10.625 per share, as an
increase to shareholders equity amounting to approximately $.712 million.
F-23
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
Pursuant to an agreement entered into between Craig and Stater with respect
to the March 1994 transactions described in Note 5, Craig received 311,404
shares of Craig Common Stock owned by Stater. The Company recorded the 311,404
Common Shares received as a net reduction to shareholders' equity in the amount
of $2.634 million.
NOTE 11 -- INCOME TAXES
Craig and Reading file separate consolidated federal and state income tax
returns. The future utilization of net operating loss carryforwards and capital
loss carryforwards described below, therefore, cannot be used to offset each
separate companies' tax liabilities. Significant components of the provisions
for income taxes attributable to operations are as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1996 1995 1995 1994
- ----------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings (loss) consists of
the following:
United States $ 73,180 $ 1,717 $ 5,108 $ 2,040
Foreign (4,730) -- --
-------- -------- -------- --------
Total $ 68,450 $ 1,717 $ 5,108 $ 2,040
======== ======== ======== ========
</TABLE>
The reconciliation of income taxes at United States statutory rates to income
taxes as reported are as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1996 1995 1995 1994
- ----------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Tax (benefit) at U.S.
statutory rates $ 23,958 $ 584 $ 1,737 $ 695
Foreign withholding tax 446 -- -- --
Dividend exclusion of
preferred dividends (1,811) (10) (35) --
Unrecognized tax benefits,
net of AMT (886) -- (365) --
Other (42) 165 -- 315
State taxes, net of federal
benefit 4,138 128 313 0
-------- -------- -------- --------
Total income expense $ 25,803 $ 867 $ 1,650 $ 1,010
======== ======== ======== ========
</TABLE>
F-24
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
As discussed in Note 2, the Stock Transactions are intended to qualify as
an exchange under Section 351(a) (a "351 Exchange") of the Internal Revenue Code
of 1986, as amended (the "Code"). In a 351 Exchange, the party acquiring the
assets retains the contributing parties' tax basis in the acquired assets, with
no taxable gain recognized as a result of the exchange. The parties
contributing assets obtain a tax basis in the assets received in the exchange
equal to the basis in the assets which are contributed in the exchange. With
the exception of the Stater Preferred Stock, the book value of the assets
transferred to Reading from Craig in the Stock Transactions approximated the tax
basis in the assets received. Craig's adjusted tax basis (for federal tax
purposes) in the Stater Preferred Stock was approximately $5 million and,
accordingly, upon Reading's contribution of the Stater Preferred Stock in fiscal
1996 to Reading Australia, a taxable gain (for federal tax purposes) occurred at
Reading.
The estimated tax liabilities associated with the assets received in the
Stock Transactions were $22,042,000 in deferred federal income taxes primarily
relating to the Stater Preferred Stock. At the time of the closing of the Stock
Transactions, Reading had a gross deferred federal tax asset of $55,968,000 and
a valuation allowance in the same amount. Upon receipt of the Stater Preferred
Stock, it was determined that it was more-likely-than-not that a portion of the
deferred tax asset which had previously been fully reserved by Reading, would be
realized and Reading reduced the valuation allowance by $20,782,000 which
amounts reflects the value of the Company's federal tax loss carryforwards which
were expected to be utilized by Reading, net of $1,260,000 in federal
alternative minimum tax ("AMT"). For financial statement purposes, the exchange
was treated as a purchase, and accordingly, the assets and liabilities were
valued at the date of the exchange based on their estimated fair value after
consideration of the recognition by Reading of the previously reserved net
operating loss carryforward, net of the AMT. Accordingly, for financial
statement purposes, the purchase of REI by Craig resulted in a decrease to
previously recognized deferred federal income taxes related to the Stater
Preferred Stock and a corresponding decrease to the cost basis of REI assets
included in the Consolidated Balance Sheet amounting to approximately $22.0
million of such federal deferred tax.
F-25
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
Carryforwards and temporary differences which give rise to deferred tax
liabilities and asset at December 31, 1996 and September 30, 1995 are as
follows:
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30,
DEFERRED TAX LIABILITIES: 1996 1995
--------- -----------
<S> <C> <C>
Tax basis difference of
investments in affiliates $ 18,658 $ 13,742
-------- --------
DEFERRED TAX ASSETS:
Craig:
Capital loss carryforward $ 7,804 $ --
Unrealized capital loss
from writedown of equity
affiliate -- 7,680
Federal benefit of state 2,368 450
taxes
Other 278 232
Reading:
Net operating loss $ 15,310 $ --
carryforwards
Alternative minimum taxes 2,928 --
Wrap lease rental sale 13,171 --
Other 1,134 --
-------- --------
Gross deferred asset 42,993 --
Valuation allowance (32,543) --
-------- --------
Net deferred tax asset 10,450 8,362
-------- --------
Net deferred tax liabilities $ 8,208 $ 5,380
======== ========
</TABLE>
Based on an analysis of the likelihood of realizing Reading's deferred tax
assets (taking into consideration applicable statutory carryforward periods),
the Consolidated Company concluded that under SFAS No. 109, a valuation
allowance for approximately $32.543 million was necessary at December 31, 1996.
Reading's federal tax net operating loss carryforwards amounting to $39.625
million expire as follows:
<TABLE>
<CAPTION>
Year Amount
------------- ----------
<S> <C>
1997......... $ 13
1998......... 2,096
2000......... 26,915
2002......... 7,382
2003......... 589
2007......... 1,443
2008......... 1,155
2009......... 32
----------
$39,625
==========
</TABLE>
F-26
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
In addition to the federal net operating loss carryforwards, Reading has
alternative minimum tax credits of $2.928 million which can be carried forward
indefinitely. Also, the Company has foreign net operating loss carryforwards of
$4.375 million which expire between 2000 and 2001 unless utilized prior thereto.
In 1996, Reading had $14.178 million of federal net operating loss carryforwards
that expired unused. Craig has capital loss carryforwards of approximately
$18.2 million which expires in 2001.
Reading is required to pay AMT for 1996. AMT is calculated separately from
the regular federal income tax and is based on a flat rate applied to a broader
tax base. Amounts payable thereunder cannot be totally eliminated through the
application of net operating loss carryforwards. The Consolidated Company
recorded AMT expense of $.935 million in fiscal year 1996.
The Consolidated Company paid income taxes of $139,000, $0, $0 and $2.05
million for the year ended December 31, 1996, the three months ended December
31, 1995 and for the years ended September 30, 1995 and 1994, respectively.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Certain Shareholder Litigation -- Craig and REI
In September 1996, the holder of 50 shares of REI's Common Stock commenced
a purported class action on behalf of Reading Company's minority shareholders
owning Reading Company Class A Common Stock in the Philadelphia County Court of
Common Pleas relating to the October REI Reorganization and Exchange Transaction
(See Note 2). The complaint in the action (the "Complaint") named REI, Craig,
two directors of Craig (former directors of Reading) and all of the current
directors of REI (other than Gregory R. Brundage) as defendants. The Complaint
alleged, among other things, that the REI Independent Committee set up to review
the transactions and the current and former directors of REI breached their
fiduciary duty to the minority shareholders of REI in the review and negotiation
of the Reorganization and Stock Transactions and that none of the directors of
REI were independent and that they all were controlled by James J. Cotter (the
Chairman of the Board of Craig and REI), Craig or those controlled by them. The
Complaint also alleged, in part, that the defendants failed to disclose the full
future earnings potential of REI and that Craig would benefit unjustly by having
its credit rating upgraded and its balance sheet bolstered and that the value of
the minority shareholders' interest in REI was diluted by the transactions. The
Complaint sought injunctive relief to prevent the consummation of the REI Stock
Transactions and recision of the Stock Transactions if they were consummated and
divestiture by the defendants of the assets or shares of the Company that they
obtained as a result of the Stock Transactions, and unspecified damages and
other relief.
In October, all of the defendants filed preliminary objections to the
Complaint and thereafter, by agreement of the parties and Order of the Court,
REI was dismissed as a defendant without prejudice. Plaintiff dismissed with
F-27
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
prejudice his request for preliminary and permanent injunctive relief to prevent
the consummation of the Stock Transactions and his request to rescind and set
aside the Stock Transactions if and when consummated.
In November, plaintiffs filed an amended compliant against all of REI's
present directors, its two former directors and Craig. The amended compliant
does not name REI as a defendant. The amended compliant essentially restates
all of the allegations contained in the Compliant and contends that the named
defendant directors and Craig breached their fiduciary duties to the alleged
class. The amended complaint seeks unspecified damages on behalf of the alleged
class and attorneys' and experts' fees.
Management of both Craig and REI believe that the allegations contained in
the complaint are without merit and intends to vigorously defend themselves in
the matter. REI has Directors and Officers liability insurance and believes
that the claim is covered by such insurance.
Craig is not a party to any other pending legal proceedings or
environmental action which management believes could have a material adverse
effect on its financial position.
REI -Environmental
- ------------------
Reading Company has been advised by the Environmental Protection Agency
("EPA") that it is a potentially responsible party ("PRP") under environmental
laws including Federal Superfund legislation ("Superfund") for a site located in
Douglassville, Pennsylvania. The EPA issued an Administrative Order under
Superfund against 34 PRPs requiring, among other things, that the named parties
be required to incinerate materials at the site pursuant to a 1989 Record of
Decision ("ROD"). The ROD estimated that the incineration would cost
approximately $53 million. Thirty-six PRPs were also named in a civil action
brought by the United States Government which seeks to recover alleged costs
incurred at the site by the United States of approximately $22 million. Reading
Company has been named in a third-party action instituted by the majority of the
36 PRPs sued by the United States. The actions instituted against Reading and
approximately 300 PRPs seek to have the parties contribute to reimbursement for
past costs and any costs associated with further remediation at the site.
In 1995, the federal district court judge who presided over Reading
Company's bankruptcy reorganization ruled that all liability asserted against
Reading Company relating to the site was discharged pursuant to the consummation
order issued in conjunction with the bankruptcy on December 31, 1980. The
judge's decision has been appealed and the appeal was heard in July 1996. The
appellate court has not yet rendered a decision on this matter.
Based upon counsel's evaluation of possible outcomes on this matter, it is
believed that the range of possible outcomes of this matter is from $0, if the
appeal is upheld, to $3,000,000 if the appeal is not upheld. Reading
F-28
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
accrued a $1,200,000 provision for this matter in 1994, all of which continues
to be available to reduce the effect of an adverse ruling.
Pursuant to a settlement of litigation, the City of Philadelphia, Conrail,
and the Southeastern Pennsylvania Transportation Authority have agreed to pay an
amount ranging from 52% to 55% of future costs that Reading may incur in
cleaning environmental contamination on one of its other properties, the
Viaduct, which Reading believes may be contaminated by polychlorinated biphenyls
("PCBs"). Reading Company has advised the EPA of the potential contamination.
Reading Company has not determined the scope and extent of any such PCB
contamination. However, Reading has been advised by counsel that, given the lack
of regulatory attention to the Viaduct in the fourteen years which have elapsed
since EPA was notified of the likelihood of contamination, it is unlikely that
the Reading will be required to decontaminate the Viaduct or incur costs related
thereto.
NOTE 13 -- LEASE AGREEMENTS AND PURCHASE COMMITMENTS
The Consolidated Company's rental expense for the twelve months ended
December 31, 1996, the three months ended December 31, 1995 and the years ended
September 30, 1995 and 1994 was $2.974 million (inclusive of $220,000 of
contingent rental expense), $23,000, $69,000 and $100,000, respectively;
subrental income paid by Citadel to Craig for the rental of office space
amounted to $2,000 monthly since July 15, 1995. The increase during the year
ended December 31, 1996 reflects the result of Craig's consolidation of REI's
operations in the consolidated financial statements of the Company as of January
1, 1996. The following summarizes separately the lease and purchase commitments
of Craig and REI.
Craig
- -----
Craig leases certain office space under a lease expiring in October 2001.
Pursuant to the lease, the Company has the right to terminate the lease between
February and July 1998 for a cancellation fee of $45,000. The lease agreements
require that Craig pay for its share of building operating costs and taxes,
which together with the base rent is estimated at $67,000 annually.
During the year ended December 31, 1996, Craig entered into a 50/50
corporate joint venture in a newly formed company, Hope Street Hospitality LLC,
established to develop the concept for a chain retail store/restaurant
specializing in woodfire baked goods. As of December 31, 1996, Craig has
contributed and committed $780,000 to this development project. To date, the
joint venture has had significant operating losses and, accordingly, the Company
has reported in the Statements of Operations for the year ended December 31,
1996, a loss from this joint venture of $.780 million representing the operating
losses and cost writedowns incurred as a result of the development nature of
this venture. In addition, Craig has signed as a corporate guarantor, the
facility lease obtained by Hope Street Hospitality LLC. The lease commenced on
March 1, 1996, the terms of which included a prepayment of approximately
$150,000 and annual minimum payments of
F-29
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
approximately $103,000, to be paid monthly for ten years. The lease provides the
lessor with a one time option to cancel the lease at the end of the third year
for approximately $45,000.
Craig has a consulting contract with the Chairman of the Board for a term
expiring on September 30, 1997 providing for annual payments of $350,000.
Reading Lease and Purchase Commitments
- --------------------------------------
Cine Vista, the Angelika and Reading Australia determine annual base rent
expense by amortizing total minimum lease obligations on a straight-line basis
over the lease terms. Cine Vista and the Angelika conduct their operations in
leased premises. In addition, Reading Australia's first theater is located in a
leased facility. The theater leases have remaining terms inclusive of options
of 12 to 36 years. Certain Cine Vista theater leases and the Reading Australia
theater lease provide for contingent rentals based upon a specified percentage
of theater revenues with a guaranteed minimum. Substantially all of the leases
require the payment of property taxes, insurance and other costs applicable to
the property. The Company also leases office space, warehouse space and
equipment under noncancelable operating leases. With the exception of one
capital lease, all leases are accounted for as operating leases.
Future minimum lease payments by year and in the aggregate, under
noncancellable operating leases and the Cine Vista capital lease consist of the
following at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
----- ------
<S> <C> <C>
1997 $ 95 $ 2,327
1998 95 2,371
1999 95 2,350
2000 95 2,314
2001 95 2,339
Thereafter 1,164 36,206
------ -------
Total net minimum lease payments 1,639 $47,907
=======
Less amount representing interest 1,118
------
Present value of net minimum lease
payments under capital lease $ 521
======
</TABLE>
At December 31, 1996, Reading had three lease agreements for theater
facilities (exclusive of the currently contested Mount Gravett lease) with a
total of 20 screens which were then under construction or for which construction
was anticipated to commence in 1997. The aggregate anticipated contribution for
construction costs for such facilities was approximately $7.2 million at
December 31, 1996. The aggregate annual rentals for such leases is
approximately $.55 million, which rental commence upon the opening the
F-30
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
theaters. One such theater, a six-plex in Mayaguez (a Cine Vista theater)
commenced operations on March 26, 1997.
Reading Australia has entered into purchase agreements and lease agreements
which are either subject to satisfaction of certain contingencies, which
contingencies were not satisfied as of April 1997. In conjunction with the
lease and purchase agreements, Reading has escrowed or made deposits totaling
$1.616 million, which amount has been classified as "Restricted cash" on the
Company's Consolidated Balance Sheet.
NOTE 14 -- RELATED PARTY TRANSACTIONS
Reading acquired the Angelika on August 27, 1996 (See Note 3). The theater
is owned jointly by the Company and Sutton Hill, a partnership affiliated with
City Cinemas, a Manhattan-based theater operator and owned in equal parts by Mr.
James J. Cotter, the Company's Chairman, and Mr. Michael Forman. City Cinemas
(also owned indirectly in equal parts by Messrs. Cotter and Forman) operates the
theater pursuant to the Management Agreement. Mr. Cotter is the Chairman of the
Board of REI and Craig and the principal shareholder of Craig. A company
controlled by Mr. Forman and his family beneficially own 12.4% of Craig's Common
Stock. Robert F. Smerling, President of REI, also serves as President of City
Cinema.
The Stock Transactions (See Note 2) involved the issuance of REI Common
Stock and REI Series B Preferred Stock to Craig (which as a result of the Stock
Transactions and certain open market purchases holds securities as of April 1997
representing approximately 78% of REI's voting securities), in return for
certain assets owned by Craig. REI is a majority owned subsidiary of Craig and
as a result of its stock purchases and the Stock Transaction became a
consolidated subsidiary included in the Consolidated Company's Consolidated
Financial Statements as of January 1, 1996. At the time that the negotiations
which lead to the Stock Transactions were initiated, Craig owned approximately
51% of REI's voting securities, the Chairman and President served in the same
positions of both Craig and Reading. Therefore, both REI's and Craig's Board of
Directors established separate Independent Committees of the Board of Directors
comprised of directors with no affiliations between Craig, Reading or Citadel
(other than Craig's interest in Reading Company and Reading and Craig's
respective interest in Citadel) to negotiate the terms of the proposed
transaction, to review the fairness of any consideration to be received or paid
by the each company and the other terms of any such transaction and made
separate recommendations to each Board Of Directors concerning such transaction.
As described in Note 10, Craig purchased 67,000 shares of Reading Common
Stock from the Chairman of the Board, James J. Cotter in exchange for 66,042
shares of Craig Common Stock.
During the year ended December 31, 1996, Reading utilized the services of
certain Citadel employees, including the President and Chief Executive Officer
of Citadel, for real estate advisory services. Reading paid Citadel $169,000
F-31
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
for such services, a rate which is believed to approximate the fair market
value of such services. In addition Craig provided certain administrative
services to Citadel which it was paid $72,000 for the year ended December 31,
1996 and $18,000 for the three months ended December 31, 1995.
A Company owned by an officer of Reading Australia is a corporate partner
of Reading Australia in certain theaters to be developed by Reading Australia.
Pursuant to the agreement between that Company and Reading Australia, such
officer will purchase a 25% interest in the theater which was opened by Reading
Australia in December 1996. Amounts to be paid by the joint venture partner for
the 25% interest will be funded by loans from Reading Australia.
NOTE 15 -- LONG-TERM DEBT
In December 1995, Cine Vista entered into a $15 million, eight year
revolving credit agreement (the "Credit Agreement") with a bank. Under terms of
the Credit Agreement, Cine Vista may borrow up to $15 million to repay Cine
Vista acquisition loans, which loans are payable to a wholly-owned subsidiary of
Reading (the "Subsidiary Loans"), and fund certain new theater development
expenditures (the "Development Expenditures"). During the initial 30 months of
the eight-year term, Cine Vista may borrow and repay amounts outstanding under
the Credit Agreement. Amounts outstanding at the end of the 30 month period are
payable in increasing quarterly installments over the balance of the loan term.
At December 31, 1996, no amounts were outstanding under this agreement.
As security for the loan, Cine Vista has pledged substantially all of its
assets. In addition, the stock of Cine Vista's parent company has been pledged
as security for the loan. In conjunction with the loan, Reading has also agreed
to subordinate to the lender its right to payment of the Subsidiary Loans as
well as certain other fees payable by Cine Vista to the Company under certain
circumstances. In addition, Reading has agreed to contribute funds to Cine
Vista in the event that estimated unpaid Development Expenditures exceed the
amount of funds available to Cine Vista under the Credit Agreement.
The provisions of the Credit Agreement require Cine Vista to maintain a
minimal level of net worth and other financial ratios, restrict the payment of
dividends, and limit additional borrowing and capital expenditures. Borrowings
under the Credit Agreement accrue interest at LIBOR (the London Interbank
Offered Rate) plus 2.25%, or the base rate plus 2 of 1%, at Cine Vista's
election. Cine Vista failed to maintain compliance with certain of the
financial covenants contained in the Credit Agreement during 1996. Reading is
currently working with the lender to revise certain of the financial covenants
to ensure the continuing availability of the Line of Credit. The lender has
waived compliance with the covenants for the periods involved. In accordance
with the provisions of the Credit Agreement, Cine Vista is required to pay a
commitment fee on the unused commitment equal to 2 of 1%.
F-32
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
NOTE 16 -- OTHER INCOME
"Other income" totaled $3.622 million, $0, $0 and $1.303 million for the
year ended December 31, 1996, the three months ended December 31, 1995 and for
each of the two years ended September 30, 1995 and 1994, respectively. The
principal components of "Other income" in 1996 included a $2.360 million
settlement of Reading's claim against Conrail, the City of Philadelphia, the
Southeastern Pennsylvania Transportation Authority and several other parties for
reimbursement of costs incurred by Reading associated with cleanup of PCB
contamination in certain properties formerly owned by Reading and $1.119 million
received, net of expenses, in settlement of a claim against a third party for
failure to pay certain fees.
Prior to a lease expiration in June 1994, Craig leased office and warehouse
space in New Jersey, which lease included a purchase option of said property.
During 1994, Craig exercised the purchase option and sold the property to a
third party. Included in other income for the year ended September 30, 1994 is
a gain of approximately $1.303 million resulting from such sale.
NOTE 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the year ended December 31, 1996, the
three months ended December 31, 1995 and for each of the two years ended
September 30, 1995 and 1994 is summarized below:
<TABLE>
<CAPTION>
NET NET EARNINGS
REVENUES EARNINGS PER SHARE
---------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarter ended March 31, 1996 $ 6,068 $31,293 $ 5.40
Quarter ended June 30, 1996 6,228 7,274 1.25
Quarter ended September 30, 1996 7,245 1,853 0.33
Quarter ended December 31, 1996 8,324 2,227 0.40
------- -------
$27,865 $42,647
======= =======
THREE MONTHS ENDED DECEMBER 31, 1995 $ 2,288 $ 850 $ 0.14
- ------------------------------------ ======= =======
YEAR ENDED SEPTEMBER 30, 1995
- -----------------------------
Quarter ended December 31, 1994 $ 1,098 $ 421 $ 0.07
Quarter ended March 31, 1995 1,221 447 0.07
Quarter ended June 30, 1995 1,728 990 0.17
Quarter ended September 30, 1995 2,135 1,600 0.27
------- -------
$ 6,182 $ 3,458
======= =======
</TABLE>
F-33
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
Fiscal 1996 revenues are not comparable to previous periods due to Craig's
additional purchases of REI stock which resulted in REI being included in the
Consolidated Financial Statements on a consolidated basis as compared to the
equity method of accounting in previous periods. In addition, upon the
conversion by Stater in March 1996 of Craig's common stock interest to
redeemable preferred stock, Craig discontinued the use of the equity method of
accounting of its investment in Stater.
Net revenues reflect certain reclassifications from previously issued
financial statements to conform with the current presentation.
The first, second, and fourth quarters of fiscal 1996 include the gain from
the conversion of Craig's common stock holdings in Stater to preferred stock
amounting to $49.961 million, $8.325 million and $.693 million, respectively.
Dividend income from the Stater Preferred Stock in each of the four quarters of
Fiscal 1996 beginning March 31, amounted to $.478 million, $1.816 million,
$1.836 million and $1.848 million, respectively
The second quarter of 1996 includes approximately $1.433 million of equity
earnings from the Citadel Common Stock investment. These equity earnings
included the Consolidated Company's 26.1% share of a nonrecurring gain on sale
of real estate of $1.473 million and nonrecurring income of $4.0 million from
the recognition for financial statement purpose of previously deferred proceeds
from the bulk sale of loans by a previously owned subsidiary of Citadel (See
Note 4). The third quarter includes $1.119 million received net of expenses in
full settlement of a claim relating to a prior year purchase offer. Fourth
quarter revenues include $2.360 million recorded as income related to a
settlement of a claim for property clean-up amounts previously expensed by
Reading. The fourth quarter also includes the effects of the $.941 million
preferred stock redemption premium by Citadel (See Note 4). Reading Australia's
fourth quarter loss totaled $1.468 million.
NOTE 18 -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
As described in Note 1, the accompanying consolidated financial statements,
include the accounts of Craig and its majority owned subsidiaries. The following
information reflects only the accounts of Craig and its wholly owned
subsidiaries. As described in Note 2, on October 15, 1996, Craig and REI
consummated the Stock Transactions which resulted in Craig exchanging
substantially all of its assets for REI preferred and common stock. Craig and
Reading are separate public companies and each entity's capital resources and
liquidity is legally independent of the other and any intercompany loans or
receivables would require approval of each separate company's Board of
Directors. Accordingly, the future working capital of Craig will be primarily
dependent on (i) Reading's ability to pay dividends in accordance with the terms
of the Series B Preferred Stock (Note 2), and (ii) the service income from
Stater amounting to approximately $1.5 million annually. The Consulting
Agreement with Stater expires in March 1999, however, Stater has the right to
F-34
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
terminate the Consulting Agreement upon its redemption, in full, of the Stater
Preferred Stock. The following information should be read in conjunction with
the other notes to the consolidated financial statements.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET: DEC. 31, 1996 SEPT. 30 1995
------------- -------------
<S> <C> <C>
Assets:
- -------
Cash $ 3,492 $ 21,059
Other current assets 146 323
-------- --------
Total current assets 3,638 $ 21,382
Investment in Citadel -- 7,286
Investment in Stater -- 20,160
Investment in Common Stock
of Reading 69,425 32,725
Investment in Preferred Stock
of Reading 55,000 --
Property and equipment, net 943 915
Other assets 252 --
Excess of cost over net
assets acquired 1,196 2,201
-------- --------
Total assets $130,454 $ 84,669
======== ========
Liabilities and stockholders equity:
- ------------------------------------
Accounts payable and accrued $ 803 $ 748
expenses
Option to sell investment in -- 14,650
Stater
Deferred tax liabilities 30,250 5,380
Stockholders' equity 99,401 63,891
-------- --------
Total liabilities and
stockholders' equity $130,454 $ 84,669
======== ========
</TABLE>
The Consolidated Statements of Operations and Cash Flows for Craig for the
three months ended December 31, 1995 and for each of the two years ended
September 30, 1995 and 1994 were the same as those included in the accompanying
Consolidated Statement of Operations and Cash Flows and, thus, they are not
repeated below.
F-35
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
CONDENSED STATEMENT OF OPERATIONS: DEC. 31, 1996
-----------------
<S> <C>
Revenues:
- ---------
Equity in earnings of Stater $ 1,608
Equity in earnings of Reading 1,992
Dividend income from Reading 748
Dividend income from affiliates 4,534
Service income from Stater 1,500
Interest income 415
--------
$ 10,797
--------
Expenses:
- ---------
General and administrative 2,024
Loss from Australian theatre
developments 388
Loss from joint venture 780
--------
$ 3,192
--------
Earnings before other income and
income taxes $ 7,605
Gain from conversion of common stock
interest in Stater 58,978
--------
Earnings before income taxes 66,583
Income taxes 24,342
--------
$ 42,241
========
CONDENSED STATEMENT OF CASH FLOWS:
Operating Activities:
- ---------------------
Net earnings $ 42,241
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Gain on conversion of Stater common stock (58,978)
Undistributed earnings of equity affiliates (3,600)
Increase in deferred taxes 24,003
Other 844
--------
Net cash provided by operating activities 4,510
Investing Activities:
- ---------------------
Acquisition of Reading Stock (1,107)
Sale of Citadel common stock to Reading 3,394
Purchase of equipment (129)
--------
Net cash provided by investing activities 2,158
Financing Activities:
- ---------------------
Investment in Reading Australia (13,928)
Payment of Stock Transaction Costs (213)
Treasury Stock Repurchases (7,584)
--------
Net cash (used in) financing activities (21,725)
--------
Decrease in cash and cash equivalents (15,057)
Cash and cash equivalents at January 1, 1996 18,549
--------
Cash and cash equivalents at December 31, 1996 $ 3,492
========
</TABLE>
F-36
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Craig Corporation
We have audited the accompanying consolidated balance sheets of Craig
Corporation and subsidiaries as of December 31,1996 and September 30, 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended December 31, 1996, the three months ended December
31, 1995 and for each of the two years ended September 30, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Craig
Corporation and subsidiaries at December 31, 1996 and September 30, 1995, and
the consolidated results of their operations and their cash flows for the year
ended December 31, 1996, the three months ended December 31, 1995 and the two
years ended September 30, 1995 and 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
April 14, 1997
F-37
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CRAIG CORPORATION
By: /s/ S. Craig Tompkins By: /s/ Robin W. Skophammer
---------------------- -----------------------
S. CRAIG TOMPKINS ROBIN W. SKOPHAMMER
President Chief Financial Officer
April 22, 1997 Treasurer and Secretary
April 22, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capabilities and on the dates indicated.
By: /s/ James J. Cotter By: /s/ William D. Gould
--------------------- ---------------------
JAMES J. COTTER WILLIAM D. GOULD
Director Director
April 22, 1997 April 22, 1997
By: /s/ Gerard P. Laheney By: /s/ Ralph B. Perry III
----------------------- -----------------------
GERARD P. LAHENEY RALPH B. PERRY III
Director Director
April 22, 1997 April 22, 1997
By: /s/ S. Craig Tompkins
----------------------
S. CRAIG TOMPKINS
Director
April 22, 1997
<PAGE>
EXHIBIT 10.33
EXCHANGE AGREEMENT
DATED AS OF SEPTEMBER 4, 1996
BY AND AMONG
READING ENTERTAINMENT, INC.
READING COMPANY
CRAIG CORPORATION
CRAIG MANAGEMENT, INC.
CITADEL HOLDING CORPORATION
AND
CITADEL ACQUISITION CORP., INC.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. DEFINITIONS........................................................... 1
2. EXCHANGE.............................................................. 4
2.1 Assets to be Exchanged by Craig................................. 4
2.2 Assets to be Exchanged by CMI................................... 4
2.3 Assets to be Transferred by CAC................................. 4
2.4 Assets to be Exchanged by Reading Entertainment and Citadel..... 4
2.5 Instruments of Conveyance and Transfer.......................... 4
2.6 Closing......................................................... 4
2.7 Dividends....................................................... 4
3. REPRESENTATIONS AND WARRANTIES OF READING AND
READING ENTERTAINMENT................................................. 5
3.1 Organization and Authorization.................................. 5
3.2 Non-Contravention............................................... 5
3.3 Capital Stock................................................... 5
3.4 SEC Reports..................................................... 7
3.5 No Adverse Changes.............................................. 7
3.6 Approvals....................................................... 8
3.7 Litigation...................................................... 8
3.8 Regulatory Compliance........................................... 8
3.9 Brokers......................................................... 8
3.10 Accuracy of Information Furnished............................... 8
3.11 Investment Representation....................................... 8
3.12 Title to Assets................................................. 9
3.13 Further Investment Representation............................... 9
4. REPRESENTATIONS AND WARRANTIES OF CRAIG AND CMI....................... 10
4.1 Organization and Authorization.................................. 10
4.2 Non-Contravention............................................... 10
4.3 Approvals....................................................... 11
4.4 Interest in Reading International............................... 11
4.5 Title to Assets................................................. 11
4.6 Accuracy of Information Furnished............................... 11
4.7 Securities Law Compliance....................................... 11
4.8 Brokers......................................................... 12
4.9 Stater Financial Condition...................................... 12
4.10 Investment Representation....................................... 12
4.11 CMI............................................................. 12
5. REPRESENTATIONS AND WARRANTIES OF CITADEL AND CAC..................... 13
5.1 Organization and Authorization.................................. 13
5.2 Non-Contravention............................................... 13
5.3 Approvals....................................................... 13
5.4 Accuracy of Information Furnished............................... 13
5.5 Securities Law Compliance....................................... 14
<PAGE>
5.6 Brokers......................................................... 14
5.7 Investment Representation....................................... 14
5.8 Independent Continuing Directors................................ 15
5.9 Capital Stock................................................... 15
6. SHAREHOLDER APPROVAL; PROXY AND REGISTRATION FILINGS.................. 15
6.1 Shareholder Approval............................................ 15
6.2 Proxy Statement and Registration Statement...................... 15
7. COVENANTS............................................................. 16
7.1 Covenants of Craig, CMI, Citadel and CAC........................ 16
7.2 Covenants of Reading and Reading Entertainment.................. 17
7.3 Access.......................................................... 18
7.4 Citadel Contributions........................................... 18
8. CONDITIONS............................................................ 18
8.1 Conditions Precedent to the Obligations of All Parties.......... 18
8.2 Additional Conditions Precedent to the Obligations of Reading
and Reading Entertainment....................................... 19
8.3 Additional Conditions Precedent to the Obligations of Craig
and CMI......................................................... 20
8.4 Additional Conditions Precedent to the Obligations of CAC and
Citadel......................................................... 21
9. TERMINATION........................................................... 23
9.1 Termination..................................................... 23
9.2 Written Notice.................................................. 23
9.3 Effect of Termination........................................... 23
10. GENERAL PROVISIONS.................................................... 23
10.1 Survival of Representations and Warranties...................... 23
10.2 Notices......................................................... 23
10.3 Amendment and Waiver............................................ 24
10.4 Counterparts.................................................... 25
10.5 Assignability................................................... 25
10.6 Entire Agreement................................................ 25
10.7 Applicable Law.................................................. 25
10.8 Headings........................................................ 25
10.9 Costs and Expenses.............................................. 25
Exhibit 1 - Certificate of Designations, Preferences, and Rights of Series
A Voting Cumulative Convertible Preferred Stock and Series B
Voting Cumulative Convertible Preferred Stock of Reading
Entertainment, Inc.
ii
<PAGE>
Exhibit 5.9 - Certificate of Designation of the Series B 3% Cumulative
Voting Convertible Preferred Stock of Citadel Holding
Corporation.
Exhibit 8.4(e) - Asset Put and Registration Rights Agreement
iii
<PAGE>
EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement") is made and entered into as of
this 4th day of September, 1996 by and among Reading Entertainment, Inc., a
Delaware corporation ("Reading Entertainment"), Reading Company, a Pennsylvania
corporation ("Reading"), Craig Corporation, a Delaware corporation ("Craig"),
Craig Management, Inc., a California corporation ("CMI"), Citadel Holding
Corporation, a Delaware corporation ("Citadel"), and Citadel Acquisition Corp.,
Inc., a Delaware corporation ("CAC"), with reference to the following:
A. Reading and Reading Entertainment desire that Reading
Entertainment exchange its securities for assets, including cash, as described
herein, for the purpose of enhancing its capitalization to further the
development and expansion of its Beyond-the-Home Entertainment business.
B. Craig currently participates with Reading in its Beyond-the-Home
Entertainment business and Craig desires to broaden its participation in
Reading's Beyond-the-Home Entertainment business by acquiring a further equity
interest in Reading Entertainment.
C. Citadel, which as a result of a recapitalization of its principal
asset in 1994, has assets currently consisting of cash and certain illiquid
assets, desires to deploy a portion of its available liquid assets in Reading's
Beyond-the-Home Entertainment business by acquiring an equity interest in
Reading Entertainment.
D. The parties hereto intend that the transaction qualify for
nonrecognition treatment as an exchange pursuant to Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code").
E. Prior to the exchange transaction described herein Reading
Entertainment intends to form a wholly owned subsidiary ("Entertainment
Subsidiary"), and Entertainment Subsidiary shall be merged into Reading in a
transaction qualifying as a reorganization under Section 368(a)(1)(A) of the
Code, with each holder of Reading Class A Common Stock and Reading Common Stock
receiving shares of Reading Entertainment Common Stock (the "Reorganization").
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements set forth herein the parties hereto
agree as follows:
1. DEFINITIONS
For purposes of this Agreement the following terms shall have the
meanings set forth:
"Asset Put" shall have the meaning set forth in the Option Agreement.
"CAC" shall have the meaning set forth in the preface to this Agreement.
CAC is a wholly owned subsidiary of Citadel.
"Certificate of Designations" shall have the meaning set forth in
Section 3.3(a) of this Agreement.
1.
<PAGE>
"Citadel" shall have the meaning set forth in the preface to this
Agreement.
"Citadel Certificate of Designation" shall have the meaning set forth in
Section 5.9 of this Agreement.
"Citadel Common Stock" shall mean the Common Stock of Citadel.
"Citadel Preferred Stock" shall mean the 3% Cumulative Voting Convertible
Preferred Stock of Citadel, stated value $3.95 per share.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.6 of this Agreement.
"CMI" shall have the meaning set forth in the preface to this Agreement.
CMI is a wholly owned subsidiary of Craig.
"Code" shall have the meaning set forth in the preface to this Agreement.
"Craig" shall have the meaning set forth in the preface to this
Agreement.
"Entertainment Subsidiary" shall have the meaning set forth in the
preface to this Agreement.
"Exchange" refers to and means the exchange of assets for Reading
Entertainment Preferred Stock described in Sections 2.1, 2.2 and 2.3 to this
Agreement.
"LLC Agreement" shall have the meaning set forth in Section 4.4 to this
Agreement.
"Option Agreement" shall have the meaning set forth in Section 8.4(e) to
this Agreement.
"Original Citadel Certificate of Designation" shall mean the Certificate
of Designation of the Citadel Preferred Stock.
"Prospectus" shall have the meaning set forth in Section 6.2(c) of this
Agreement.
"Proxy Statement" shall have the meaning set forth in Section 6.2(a) of
this Agreement.
"Reading" shall have the meaning set forth in the preface to this
Agreement.
"Reading Class A Common Stock" shall mean the Class A Common Stock of
Reading.
"Reading Common Stock" shall mean the Common Stock of Reading.
"Reading Entertainment" shall have the meaning set forth in the preface
to this Agreement.
"Reading Entertainment Common Stock" shall mean the $0.001 par value
Common Stock of Reading Entertainment.
2.
<PAGE>
"Reading Entertainment Preferred Stock" shall mean the Reading
Entertainment Series A Preferred Stock and the Reading Entertainment Series B
Preferred Stock, collectively.
"Reading Entertainment Series A Preferred Stock" shall mean the Series A
Voting Cumulative Convertible Preferred Stock of Reading Entertainment, $100
stated value per share, having the rights, preferences and privileges set forth
in Exhibit 1 to this Agreement.
"Reading Entertainment Series B Preferred Stock" shall mean the Series B
Voting Cumulative Convertible Preferred Stock of Reading Entertainment, $100
stated value per share, having the rights, preferences and privileges set forth
in Exhibit 1 to this Agreement.
"Reading Holdings" shall mean Reading Holdings, Inc., a Delaware
corporation. Reading Holdings is a wholly owned subsidiary of Reading.
"Reading International" shall mean Reading International Cinemas LLC, a
Delaware limited liability company. Reading International is owned equally by
Craig and Reading Investment.
"Reading Investment" shall mean Reading Investment Company, Inc., a
Delaware corporation. Reading Investment is an indirect wholly owned subsidiary
of Reading.
"Reading SEC Reports" shall have the meaning set forth in Section 3.4 of
this Agreement.
"Reading's Stock Option Plans" shall mean the 1982 Incentive Stock Option
Plan, the 1982 Non-qualified Option Plan and the 1992 Non-qualified Stock Option
Plan.
"Reading Shareholders" shall have the meaning set forth in Section 6.1 of
this Agreement.
"Registration Statement" shall have the meaning set forth in
Section 6.2(c) of this Agreement.
"Reorganization" shall have the meaning set forth in the preface to this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"SEC" shall mean the Securities and Exchange Commission.
"Series B Citadel Preferred Stock" shall mean the Series B 3% Cumulative
Voting Convertible Preferred Stock of Citadel, stated value $3.95 per share.
"Stater" shall mean Stater Bros. Holdings Inc., a Delaware corporation.
"Stater Preferred Stock" shall mean the Series B Preferred Stock of
Stater.
3.
<PAGE>
2. EXCHANGE
2.1 Assets to be Exchanged by Craig. Subject to the terms and
-------------------------------
conditions of this Agreement, at the Closing, Craig shall deliver to Reading
Entertainment all of Craig's right, title and interest in and to (i) its
ownership interest in Reading International and (ii) its 1,329,114 shares of
Citadel Preferred Stock, in exchange for 125,098 shares of Reading Entertainment
Series B Preferred Stock and 563,210 shares of Reading Entertainment Common
Stock.
2.2 Assets to be Exchanged by CMI. Subject to the terms and conditions
-----------------------------
of this Agreement, at the Closing, CMI shall deliver to Reading Entertainment
all of CMI's right, title and interest in and to 693,650 shares of Stater
Preferred Stock in exchange for 424,902 shares of Reading Entertainment Series B
Preferred Stock and 1,912,980 shares of Reading Entertainment Common Stock.
2.3 Assets to be Transferred by CAC. Subject to the terms and
-------------------------------
conditions of this Agreement, at the Closing, CAC shall purchase from Reading
Entertainment 70,000 shares of Reading Entertainment Series A Preferred Stock,
for an aggregate cash purchase price of $7.0 million, by wire transfer of
immediately available funds.
2.4 Assets to be Exchanged by Reading Entertainment and Citadel.
-----------------------------------------------------------
Subject to the terms and conditions of this Agreement, at the Closing, Reading
Entertainment shall deliver to Citadel all of Reading Entertainment's right,
title and interest in and to the 1,329,114 shares of Citadel Preferred Stock
which Craig shall have delivered to Reading Entertainment pursuant to
Section 2.1 above, in exchange for 1,329,114 shares of Series B Citadel
Preferred Stock. Upon such exchange, the 1,329,114 shares of Citadel Preferred
Stock shall be cancelled by Citadel.
2.5 Instruments of Conveyance and Transfer. The conveyance, transfer
--------------------------------------
and delivery to Reading Entertainment of the assets being exchanged by Craig and
CMI as herein provided, shall be effected by such stock powers, assignments,
bills of sale, checks and other instruments of transfer and conveyance as shall
be in form reasonably acceptable to Reading Entertainment.
2.6 Closing. Subject to the conditions set forth in Article 8, unless
-------
this Agreement shall have been terminated as provided in Article 9, the
consummation of the transactions described in Sections 2.1, 2.2, 2.3 and 2.4
above (the "Closing") shall take place at the offices of Duane, Morris &
Heckscher, 1201 Market Street, Suite 1500, Wilmington, Delaware 19801-0195, on
the day of the meeting of shareholders of Reading described in Article 6 of this
Agreement, or as soon thereafter as is practicable (the "Closing Date").
2.7 Dividends. At the Closing, Reading Entertainment shall pay to
---------
Craig, by certified or cashiers check, any and all accrued but unpaid dividends
with respect to the Citadel Preferred Stock and shall pay to CMI, by certified
or cashiers check, any and all accrued but unpaid dividends with respect to the
Stater Preferred Stock (in each case, excluding dividends which have been
declared and are payable to holders of record on a date prior to the Closing
Date).
4.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF READING AND READING ENTERTAINMENT
Reading and Reading Entertainment hereby jointly and severally represent
and warrant to Craig, CMI, Citadel and CAC as follows:
3.1 Organization and Authorization. Reading and Reading Entertainment
------------------------------
are corporations duly organized, validly existing and in good standing under the
laws of the States of Pennsylvania and Delaware, respectively, and each has full
corporate power and all necessary authorizations to own all of its properties
and assets and to carry on its business as it is now being conducted. Reading
and Reading Entertainment are each duly qualified to do business and are in good
standing in each jurisdiction in which the nature of its or their business or
character of its or their properties requires such qualification and where the
failure to be so qualified would materially and adversely affect either
corporation or its or their business, properties or rights. Reading and Reading
Entertainment have delivered to Craig and Citadel complete and correct copies of
their Articles of Incorporation and Certificate of Incorporation, respectively,
and their By-Laws, as amended and in effect on the date of this Agreement.
Reading and Reading Entertainment each have all requisite corporate power to
execute, deliver and perform their obligations under this Agreement. The
execution, delivery and performance of this Agreement by Reading and Reading
Entertainment, and the consummation by each of them of the transactions
contemplated hereby, have been duly authorized by the Boards of Directors of
Reading and Reading Entertainment, subject only to obtaining shareholder
approval of the Reading Shareholders. This Agreement has been duly executed and
delivered by Reading and Reading Entertainment and constitutes a valid and
binding agreement of Reading and Reading Entertainment, enforceable in
accordance with its terms except to the extent the enforcement thereof may be
limited by bankruptcy, insolvency, rehabilitation, moratorium and similar laws
now or hereafter in effect relating to creditor's rights generally or by general
equitable principles.
3.2 Non-Contravention. The execution and delivery of this Agreement do
-----------------
not and the consummation of the transactions contemplated hereby will not
(a) violate the Articles of Incorporation or By-laws of Reading or the
Certificate of Incorporation or By-Laws of Reading Entertainment, (b) violate
any material provision of or result in the breach or the acceleration of or
entitle any party to accelerate (whether after the giving of notice or the lapse
of time or both) any material obligation under any material mortgage, lease,
agreement, judgment or decree, to which either Reading or Reading Entertainment
is a party or by which either is bound, (c) result in the creation or imposition
of any lien, charge, pledge, security interest or other encumbrance on any
property of Reading or Reading Entertainment, or (d) to the knowledge of either
Reading or Reading Entertainment, violate or conflict with any law, ordinance or
rule to which either is subject.
3.3 Capital Stock.
-------------
(a) The authorized and outstanding capital stock of Reading is
as set forth in the Reading SEC Reports (subject only to changes in the
outstanding Reading Class A Common Stock which may occur through the Closing
solely from the exercise of options granted pursuant to Reading's Stock Option
Plans or the exchange of shares of Reading Common Stock for shares of Reading
Class A Common Stock) and the outstanding capital stock of Reading Entertainment
will at the Closing consist solely of Reading Entertainment
5.
<PAGE>
Common Stock, of which not more than 4,973,175 shares will be issued and
outstanding (plus any shares which may be issued and outstanding as a result of
the exercise of options granted pursuant to Reading's Stock Option Plans and the
shares of Reading Entertainment Common Stock and Reading Entertainment Preferred
Stock to be issued hereunder). All of such issued and outstanding shares of
capital stock are validly issued and outstanding, fully paid and nonassessable.
The shares of Reading Entertainment Preferred Stock and Reading Entertainment
Common Stock to be issued pursuant to this Agreement have been duly authorized,
and, when issued and paid for pursuant to the terms hereof, will be validly
issued, fully paid and non-assessable and will be entitled to all the rights,
preferences and privileges set forth in the Certificate of Designations,
Preferences and Rights of Series A Voting Cumulative Convertible Preferred Stock
and Series B Voting Cumulative Convertible Preferred Stock of Reading
Entertainment, Inc. (the "Certificate of Designations"), attached as Exhibit 1
hereto. The shares of Reading Entertainment Common Stock issuable upon
conversion of the Reading Entertainment Preferred Stock have been duly
authorized and reserved for issuance upon such conversion and, when issued and
delivered on such conversion in accordance with the terms of the Certificate of
Designations, will be validly issued, fully paid and non-assessable. The
certificates representing the shares of Reading Entertainment Preferred Stock
and Reading Entertainment Common Stock to be issued pursuant to this Agreement
will be in due and proper form. All corporate action required to be taken for
the authorization and issuance of the Reading Entertainment Preferred Stock and
the Reading Entertainment Common Stock to be issued pursuant to this Agreement
has been duly and validly taken. At or prior to the Closing, the Certificate of
Designations will have been filed with the Secretary of State of the State of
Delaware.
(b) Except as described herein and in the Reading SEC Reports,
there are no outstanding subscriptions, options, conversion rights, warrants or
other agreements or commitments of any nature whatsoever obligating either
Reading or Reading Entertainment to issue, deliver or sell, or cause to be
issued, delivered or sold, any additional shares of capital stock of either
Reading or Reading Entertainment or obligating either Reading or Reading
Entertainment to grant, extend or enter into any such agreement or commitment.
The shareholders of Reading and Reading Entertainment do not have any preemptive
rights or other rights to subscribe for additional shares of Reading or Reading
Entertainment, and no preemptive or similar rights will arise as a result of the
transactions contemplated by this Agreement. Except as set forth in the Reading
SEC Reports, there are no voting trusts, voting agreements, irrevocable proxies
or other agreements to which either Reading or Reading Entertainment is a party,
or of which either Reading or Reading Entertainment has knowledge, in effect
relating to the voting or transfer of any shares of Reading or Reading
Entertainment capital stock.
(c) Upon acquisition of the Reading Entertainment Series A
Preferred Stock pursuant to Section 2.3 of this Agreement, CAC will not be
prohibited or otherwise limited in any manner, including without limitation
under Delaware General Corporation Law Section 160(a), from voting in all
respects its shares of Reading Entertainment Series A Preferred Stock in
accordance with the Certificate of Incorporation of Reading Entertainment,
except that no such representation or warranty is given with respect to such
shares of Reading Entertainment Series A Preferred Stock, if any, as are
required by generally accepted accounting principles to be reflected on the
financial statements of Reading Entertainment as a reciprocal stockholding.
6.
<PAGE>
3.4 SEC Reports. All reports required to be filed by Reading with the
-----------
SEC since December 1, 1995 (the "Reading SEC Reports") are in compliance in all
material respects with the respective report forms and were complete and correct
in all material respects as of the date on which the information was furnished.
As of the date each Reading SEC Report was filed with the SEC, such Reading SEC
Report did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading. The financial statements of Reading contained in the Reading
SEC Reports were prepared in accordance with the books and records of Reading
and were prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly the financial condition of
Reading as of the respective dates indicated therein and the results of
operations and changes in financial position for the periods so indicated.
3.5 No Adverse Changes. Except as set forth in the Reading SEC
------------------
Reports, since March 31, 1996, Reading has conducted its business only in the
ordinary course, there has not been any material adverse change in the business,
financial condition, assets, liabilities, properties or business operations of
Reading or Reading Entertainment, and, except as contemplated by the
Reorganization or this Agreement, neither Reading nor Reading Entertainment has:
(a) issued or sold any stock, notes, bonds or other securities,
or any option to purchase the same, or entered into any agreement with respect
thereto, except the issuance of Reading Class A Common Stock upon the exercise
of options granted under Reading's Stock Option Plans or the issuance of Reading
Class A Common Stock in exchange for Reading Common Stock;
(b) declared, set aside or made any dividend or other
distribution on capital stock or redeemed, purchased or acquired any shares
thereof or entered into any agreement in effect to the foregoing;
(c) amended its Articles of Incorporation or By-Laws;
(d) other than in the ordinary course of business, purchased,
sold, assigned or transferred any material tangible assets (except for an
interest in the Angelika Film Center as to which Reading Investment has entered
into a binding contract of purchase) or any material license, franchise or other
intangible asset; except as disclosed in the SEC Reports, mortgaged, pledged,
granted or suffered to exist any lien or other encumbrance or charge on any
material assets or properties, tangible or intangible, other than liens for
taxes not yet delinquent and such other liens, encumbrances or charges which do
not materially adversely affect the business or financial condition of Reading
or Reading Entertainment; or waived any rights of material value or cancelled
any material debts or claims;
(e) entered into any material contract or commitment other than
contracts or commitments made in the ordinary course of business or pursuant to
or in connection with this Agreement or the Reorganization;
(f) made or suffered any material amendment, modification or
termination of any material contract, commitment or obligation to which Reading
is a party;
7.
<PAGE>
(g) borrowed or loaned any money other than pursuant to
agreements disclosed in the Reading SEC Reports;
(h) changed its method of accounting; or
(i) agreed, whether in writing or otherwise, to take any action
described in this Section 3.5.
3.6 Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with any governmental authority is required
in connection with the execution and delivery of this Agreement by Reading and
Reading Entertainment or the consummation by Reading or Reading Entertainment of
the transactions contemplated hereby, except as contemplated by Article 6 of
this Agreement.
3.7 Litigation. Except as set forth in the Reading SEC Reports, there
----------
are no actions, suits or proceedings or investigations pending at law or in
equity in any court or before any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
or, to the knowledge of Reading, threatened against or affecting it which, if
adversely determined would be reasonably likely to materially and adversely
affect the business, operations or financial condition of Reading or Reading
Entertainment.
3.8 Regulatory Compliance. Except as set forth in the Reading SEC
---------------------
Reports, each of Reading and Reading Entertainment is in substantial compliance
with all material federal, state, local and foreign laws and regulations
applicable to it, including, without limitation, environmental laws.
3.9 Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of either Reading or Reading Entertainment who
has or may have a valid claim against any of the parties to this Agreement for
any broker's or finder's fee or similar compensation, other than such fee as may
be payable by Reading to Berwind Financial Group, L.P., the financial advisor to
the Independent Committee of the Board of Directors of Reading.
3.10 Accuracy of Information Furnished. The certificates, statements,
---------------------------------
and other information furnished to Craig, CMI, Citadel and CAC in writing by or
on behalf of Reading or Reading Entertainment in connection with the
transactions contemplated hereby do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that no representation is made as to any
financial projections contained in such information other than that any such
financial projections were prepared in good faith based upon assumptions that
Reading believes are reasonable.
3.11 Investment Representation. Reading Entertainment represents and
-------------------------
warrants to Craig and CMI that the shares of Stater Preferred Stock and Citadel
Preferred Stock to be received by Reading Entertainment pursuant to Sections 2.1
and 2.2 hereof and any shares of Citadel Common Stock received upon conversion,
if any, of the Citadel Preferred Stock are being or will be acquired for
investment and not with a view to the sale or distribution of any part thereof,
and that it has no present intention of selling, granting participation in or
8.
<PAGE>
otherwise distributing the same in a transaction which would result in a
violation of the Securities Act. Reading Entertainment and Reading further
represent that there is no contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person with respect to any of the shares of Stater Preferred Stock or
Citadel Preferred Stock being acquired pursuant to Sections 2.1 and 2.2 hereof.
Reading Entertainment understands that the shares being acquired by it as
described above have not been registered under the Securities Act on the ground
that the exchange provided for in this Agreement and the issuance of securities
are exempt pursuant to Sections 4(1) and 4(2) of the Securities Act, and that
Craig's and CMI's reliance on such exemption is predicated on the
representations set forth herein. Each certificate representing the Stater
Preferred Stock and the Citadel Preferred Stock and any shares of Citadel Common
Stock issued upon conversion of shares of the Citadel Preferred Stock may be
endorsed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES AT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
Reading Entertainment understands that Stater and/or Citadel may instruct their
transfer agent not to register the transfer of any of its securities unless the
transfer is under conditions which do not violate the Securities Act.
3.12 Title to Assets. Upon consummation of the exchange contemplated by
---------------
Section 2.1 of this Agreement, Reading will own and have, and at the Closing
will deliver to Citadel, to the extent received from Craig, good and marketable
title to its interest in the Citadel Preferred Stock being transferred
hereunder, free and clear of any mortgage, lien, pledge, charge, claim,
conditional sales or other agreement, lease, right or encumbrance, other than
the provisions of the Original Citadel Certificate of Designation.
3.13 Further Investment Representation. Reading Entertainment
---------------------------------
represents and warrants to Citadel that the shares of Series B Citadel Preferred
Stock to be received by it pursuant to Section 2.4 hereof and any shares of
Citadel Common Stock received upon conversion of said shares of Series B Citadel
Preferred Stock are being or will be acquired for investment and not with a view
to the sale or distribution of any part thereof, and that Reading Entertainment
has no present intention of selling, granting participation in or otherwise
distributing the same in a transaction which would result in a violation of the
Securities Act. Reading Entertainment further represents that it has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person with
respect to any of the shares of Series B Citadel Preferred Stock being acquired
pursuant to Section 2.4 hereof. Reading Entertainment understands that the
shares of Series B Citadel Preferred Stock being acquired hereunder and the
shares of Citadel Common Stock received upon any conversion of the Series B
Citadel Preferred Stock have not been and will not be registered under the
Securities Act on the ground that the exchange provided for in this Agreement
and the issuance of such securities are exempt pursuant to Section 4(2) of the
Securities Act, and that Citadel's reliance on such exemption is predicated on
the
9.
<PAGE>
representations set forth herein. Each certificate representing the Series B
Citadel Preferred Stock and any shares of Citadel Common Stock issued upon
conversion of shares of Series B Citadel Preferred Stock may be endorsed with
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
Citadel may also instruct its transfer agent not to register the transfer of any
securities unless the conditions specified in the foregoing legend are
satisfied.
4. REPRESENTATIONS AND WARRANTIES OF CRAIG AND CMI
Craig and CMI hereby jointly and severally represent and warrant to
Reading, Reading Entertainment, Citadel and CAC as follows:
4.1 Organization and Authorization. Craig and CMI are corporations
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and California, respectively, and each has the full corporate
power and all necessary authorizations to own all of its properties and assets
and to carry on its business as it is now being conducted. Craig and CMI are
each duly qualified to do business and are in good standing in each jurisdiction
in which the nature of its or their business or character of its or their
properties requires such qualification and where the failure to be so qualified
would materially and adversely affect either corporation or its or their
business, properties or rights. Craig and CMI have each delivered to Reading and
Reading Entertainment complete and correct copies of their Certificate of
Incorporation and Articles of Incorporation, respectively, and their By-Laws, as
amended and in effect on the date of this Agreement. Craig and CMI each have all
requisite corporate power to execute, deliver and perform their obligations
under this Agreement. The execution, delivery and performance of this Agreement
by Craig and CMI, and the consummation by each of them of the transactions
contemplated hereby, have been duly authorized by the Boards of Directors of
Craig and CMI and the shareholder of CMI, and no shareholder approval of Craig
is required. Neither Craig nor CMI is an "investment company" as defined in the
Investment Company Act of 1940, as amended. This Agreement has been duly
executed and delivered by Craig and CMI and constitutes a valid and binding
agreement of Craig and CMI, enforceable in accordance with its terms except to
the extent the enforcement thereof may be limited by bankruptcy, insolvency,
rehabilitation, moratorium and similar laws now or hereafter in effect relating
to creditor's rights generally or by general equitable principles.
4.2 Non-Contravention. The execution and delivery of this Agreement do
-----------------
not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of CMI or the Certificate of
Incorporation or By-Laws of Craig, (b) violate any provision of or result in the
breach or the acceleration of or entitle any party to accelerate (whether after
the giving of notice or the lapse of time or both) any material obligation under
any mortgage, lease, agreement, license or instrument, or any order, arbitration
award, judgment or decree, to which Craig or CMI is a party or by which either
is bound, (c)
10.
<PAGE>
result in the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance on any property of Craig or CMI, or (d) to the
knowledge of either Craig or CMI, violate or conflict with any law, ordinance or
rule to which either is subject.
4.3 Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with any governmental authority is required
in connection with the execution and delivery of this Agreement by Craig and CMI
or the consummation by Craig or CMI of the transactions contemplated hereby.
4.4 Interest in Reading International. Craig owns a membership
---------------------------------
interest in Reading International entitling it to a 50% allocable share in the
net profits, net losses and similar items and in distributions from Reading
International. Craig's interest in Reading International is as set forth in
(i) the Limited Liability Company Agreement (the "LLC Agreement") entered into
as of November 9, 1995 between Craig and Reading Investment, which LLC Agreement
is in full force and effect and has not been modified or amended, and (ii) the
RC Revocable Trust dated as of November 9, 1995 between Craig, Reading
Investment and CMI as the trustee relating to rights upon the liquidation of
Reading International, which agreement is in full force and effect and has not
been modified or amended.
4.5 Title to Assets. Craig owns and has, and Reading Entertainment
---------------
will receive, good and marketable title to its interest in Reading International
and the Citadel Preferred Stock being transferred hereunder, free and clear of
any mortgage, lien, pledge, charge, claim, conditional sales or other agreement,
lease, right or encumbrance, other than the provisions of the LLC Agreement with
respect to the interest in Reading International and the provisions of the
Original Citadel Certificate of Designation and the Stock Purchase and Sale
Agreement dated as of March 27, 1996 by and between Craig and Reading Holdings,
Inc. with respect to the Citadel Preferred Stock. CMI owns and has, and Reading
Entertainment will receive, good and marketable title to the Stater Preferred
Stock being transferred to Reading Entertainment pursuant to Section 2.2 hereof,
free and clear of any mortgage, lien, pledge, charge, claim, conditional sales
or other agreement, lease, right or encumbrance, except for the provisions and
restrictions set forth in the Option Agreement described in Section 8.3(e) of
this Agreement.
4.6 Accuracy of Information Furnished. The certificates, statements,
---------------------------------
and other information furnished to Reading and Reading Entertainment in writing
by or on behalf of Craig or CMI in connection with the transactions contemplated
hereby, do not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that no representation is made as to any financial projections contained in such
information other than that any such financial projections were prepared in good
faith based upon assumptions that Craig believes are reasonable.
4.7 Securities Law Compliance. None of the information supplied by
-------------------------
Craig or CMI in writing for inclusion in the Proxy Statement, the Registration
Statement or the Prospectus, or any amendments thereof or supplements thereto,
at the time of mailing of such Proxy Statement or such amendments or
supplements, at the time of any meeting of shareholders to be held in connection
herewith, at the time the Registration Statement becomes effective and at the
mailing of the Proxy Statement and the Prospectus, will contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
11.
<PAGE>
4.8 Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Craig or CMI who has or may have a valid claim
against any of the parties to this Agreement for any broker's or finder's fee or
similar compensation, other than such fee as may be payable by Craig to Houlihan
Lokey Howard & Zukin, the financial advisor to the Independent Committee of the
Board of Directors of Craig.
4.9 Stater Financial Condition. To the best knowledge of Craig and
--------------------------
CMI, there has been no material adverse change in the financial condition of
Stater from that reflected in its audited financial statements for the year
ended September 24, 1995.
4.10 Investment Representation. Craig and CMI each represent and
-------------------------
warrant to Reading Entertainment that the shares of Reading Entertainment Common
Stock and Reading Entertainment Series B Preferred Stock to be received by them
pursuant to Sections 2.1 and 2.2 hereof and any shares of Reading Entertainment
Common Stock received upon conversion of said shares of Reading Entertainment
Series B Preferred Stock are being or will be acquired for investment and not
with a view to the sale or distribution of any part thereof, and that neither
has any present intention of selling, granting participation in or otherwise
distributing the same in a transaction which would result in a violation of the
Securities Act. Craig and CMI further represent that neither has any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person with respect to any of the
shares of Reading Entertainment Common Stock and Reading Entertainment Series B
Preferred Stock being acquired pursuant to Sections 2.1 and 2.2 hereof. Craig
and CMI understand that the shares of Reading Entertainment Common Stock and
Reading Entertainment Series B Preferred Stock being acquired hereunder and the
shares of Reading Entertainment Common Stock received upon any conversion of the
Reading Entertainment Series B Preferred Stock have not been and will not be
registered under the Securities Act on the ground that the exchange provided for
in this Agreement and the issuance of such securities are exempt pursuant to
Section 4(2) of the Securities Act, and that Reading Entertainment's reliance on
such exemption is predicated on the representations set forth herein. Each
certificate representing the Reading Entertainment Common Stock and Reading
Entertainment Series B Preferred Stock and any shares of Reading Entertainment
Common Stock issued upon conversion of shares of Reading Entertainment Series B
Preferred Stock may be endorsed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
Reading Entertainment may also instruct its transfer agent not to register the
transfer of any securities unless the conditions specified in the foregoing
legend are satisfied.
4.11 CMI. Craig has no present intention to liquidate CMI or to sell,
---
transfer or assign its ownership interest in CMI, nor to cause CMI to sell,
transfer or assign any of the Reading Entertainment Common Stock or Reading
Entertainment Series B Preferred Stock to be received by CMI pursuant to this
Agreement. CMI has no present intention to liquidate or
12.
<PAGE>
to sell, transfer or assign any of the Reading Entertainment Common Stock or
Reading Entertainment Series B Preferred Stock to be received pursuant to this
Agreement.
5. REPRESENTATIONS AND WARRANTIES OF CITADEL AND CAC
Citadel and CAC hereby jointly and severally represent and warrant to
Reading, Reading Entertainment, Craig and CMI as follows:
5.1 Organization and Authorization. CAC and Citadel are corporations
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and each has the corporate power and all necessary
authorizations to own all of its properties and assets and to carry on its
business as it is now being conducted. CAC and Citadel are each duly qualified
to do business and are in good standing in each jurisdiction in which the nature
of its or their business or character of its or their properties requires such
qualification and where the failure to be so qualified would materially and
adversely affect CAC or Citadel or its or their business, properties or rights.
CAC and Citadel have each delivered to Reading and Reading Entertainment
complete and correct copies of their Certificates of Incorporation and By-Laws,
as amended and in effect on the date of this Agreement. CAC and Citadel have
all requisite corporate power to execute, deliver and perform their obligations
under this Agreement. The execution, delivery and performance of this Agreement
by CAC and Citadel, and the consummation by CAC and Citadel of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of CAC
and Citadel, and, except as may be required with respect to an exercise by
Citadel of the Asset Put, no approval of Citadel or CAC shareholders is
required. This Agreement has been duly executed and delivered by CAC and
Citadel and constitutes a valid and binding agreement of CAC and Citadel,
enforceable in accordance with its terms except to the extent the enforcement
thereof may be limited by bankruptcy, insolvency, rehabilitation, moratorium and
similar laws now or hereafter in effect relating to creditor's rights generally
or by general equitable principles.
5.2 Non-Contravention. The execution and delivery of this Agreement do
-----------------
not and the consummation of the transactions contemplated hereby will not
(a) violate the Certificate of Incorporation or By-Laws of either CAC or
Citadel, (b) violate any provision of or result in the breach or the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or the lapse of time or both) any material obligation under any mortgage,
lease, agreement, license or instrument, or any order, arbitration award,
judgment or decree, to which CAC or Citadel is a party or by which it is bound,
(c) result in the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance on any property of CAC or Citadel, or (d) to the
knowledge of either Citadel or CAC, violate or conflict with any law, ordinance
or rule to which either is subject.
5.3 Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with any governmental authority is required
in connection with the execution and delivery of this Agreement by CAC or
Citadel or the consummation by CAC or Citadel of the transactions contemplated
hereby, except as may be required with respect to an exercise by Citadel of the
Asset Put.
5.4 Accuracy of Information Furnished. The certificates, statements,
---------------------------------
and other information furnished to Reading and Reading Entertainment in writing
by or on behalf of CAC or Citadel in connection with the transactions
contemplated hereby, do not contain any
13.
<PAGE>
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that no representation is made as
to any financial projections contained in such information other than that any
such financial projections were prepared in good faith based upon assumptions
that Citadel believes are reasonable.
5.5 Securities Law Compliance. None of the information supplied by CAC
-------------------------
or Citadel in writing for inclusion in the Proxy Statement, the Registration
Statement or the Prospectus, or any amendments thereof or supplements thereto,
at the time of mailing of such Proxy Statement or such amendments or
supplements, at the time of any meeting of stockholders to be held in connection
herewith, at the time the Registration Statement becomes effective and at the
mailing of the Proxy Statement and the Prospectus, will contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
5.6 Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of CAC or Citadel who has or may have a valid
claim against any of the parties to this Agreement for any broker's or finder's
fee or similar compensation, other than such fee as may be payable by Citadel or
CAC to Crowell, Weedon & Co., the financial advisor to the Independent Committee
of the Board of Directors of Citadel.
5.7 Investment Representation. CAC represents and warrants to Reading
-------------------------
Entertainment that the shares of Reading Entertainment Series A Preferred Stock
to be received by CAC pursuant to Section 2.3 hereof and any shares of Reading
Entertainment Common Stock received upon conversion of said shares are being or
will be acquired for investment and not with a view to the sale or distribution
of any part thereof, and that it has no present intention of selling, granting
participation in or otherwise distributing the same in a transaction which would
result in a violation of the Securities Act. Citadel and CAC further represent
that there is no contract, undertaking, agreement or arrangement with any person
to sell, transfer or grant participations to such person or to any third person
with respect to any of the shares of Reading Entertainment Series A Preferred
Stock being acquired pursuant to Section 2.3 hereof. CAC understands that the
shares being acquired by it hereunder and the shares of Reading Entertainment
Common Stock received upon any conversion thereof have not been and will not be
registered under the Securities Act on the ground that the exchange provided for
in this Agreement and the issuance of such securities are exempt pursuant to
Section 4(2) of the Securities Act, and that Reading Entertainment's reliance on
such exemption is predicated on the representations set forth herein. Each
certificate representing the Reading Entertainment Series A Preferred Stock and
any shares of Reading Entertainment Common Stock issued upon conversion of
shares of Reading Entertainment Series A Preferred Stock may be endorsed with
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
14.
<PAGE>
Reading Entertainment may also instruct its transfer agent not to register the
transfer of any securities unless the conditions specified in the foregoing
legend are satisfied.
5.8 Independent Continuing Directors. As of the date hereof and the
--------------------------------
Closing Date, CAC has and will have not less than two Independent Continuing
Directors (as defined in Article IX of the Certificate of Incorporation of CAC).
5.9 Capital Stock. The shares of Series B Citadel Preferred Stock to
-------------
be issued pursuant to this Agreement have been duly authorized, and, when issued
and paid for pursuant to the terms hereof, will be validly issued, fully paid
and non-assessable and will be entitled to all the rights, preferences and
privileges set forth in the Certificate of Designation of the Series B 3%
Cumulative Voting Convertible Preferred Stock of Citadel Holding Corporation
(the "Citadel Certificate of Designation"), attached as Exhibit 5.9 hereto. The
shares of common stock of Citadel issuable upon conversion of the Series B
Citadel Preferred Stock have been duly authorized and reserved for issuance upon
such conversion and, when issued and delivered on such conversion in accordance
with the terms of the Citadel Certificate of Designation, will be validly
issued, fully paid and non-assessable. The form of certificates representing the
shares of Series B Citadel Preferred Stock to be issued pursuant to this
Agreement will comply with the Delaware General Corporation Law, as amended. All
corporate action required to be taken for the authorization and issuance of the
Series B Citadel Preferred Stock to be issued pursuant to the Agreement has been
duly and validly taken. At or prior to the Closing, the Citadel Certificate of
Designation will have been filed with the Secretary of State of the State of
Delaware.
6. SHAREHOLDER APPROVAL; PROXY AND REGISTRATION FILINGS
6.1 Shareholder Approval. A meeting of the shareholders of Reading
--------------------
(the "Reading Shareholders") shall be held in accordance with the laws of the
State of Pennsylvania on or before November 30, 1996 (or such later date or
dates as may be approved by the Boards of Directors of all of the parties to
this Agreement) to, among other things, consider and act upon the Exchange and
the Reorganization.
6.2 Proxy Statement and Registration Statement.
------------------------------------------
(a) Reading has prepared and filed with the SEC a Proxy Statement
and related proxy material meeting the requirements of Regulation 14A of the
Securities Exchange Act to be mailed to shareholders in connection with the
meeting of the Reading Shareholders (the "Proxy Statement") referred to above,
and Reading shall use its commercially reasonable efforts to clear these
materials with the SEC and mail said materials to the Reading Shareholders on or
before October 21, 1996, or as soon as practicable thereafter. Reading further
covenants that the Proxy Statement at the time of mailing to the Reading
Shareholders and at the time of the meeting of shareholders held to approve the
Reorganization and Exchange will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading and the Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Exchange Act.
(b) Craig, CMI, Citadel and CAC shall furnish in writing for
inclusion in the Proxy Statement and the Registration Statement, described
below, such information as may
15.
<PAGE>
be reasonably necessary to comply with the provisions of the Securities Act and
the Securities Exchange Act and the rules and regulations thereunder and shall
have been requested in writing by Reading.
(c) Reading shall prepare a registration statement (the
"Registration Statement") including a form of prospectus (the "Prospectus") and
one or more amendments thereto, on Form S-4 or other appropriate form covering
the shares of Reading Entertainment Common Stock to be issued pursuant to the
Reorganization and shall use its commercially reasonable efforts to cause the
Registration Statement to become effective on or before October 21, 1996, or as
soon as practicable thereafter. Reading shall deliver to Craig, CMI, Citadel and
CAC copies of the Registration Statement and each amendment thereto filed or
proposed to be filed (and of each related preliminary prospectus). The
Registration Statement and the Prospectus, as amended at the time the
Registration Statement becomes effective, are herein called the "Registration
Statement" and the "Prospectus." Reading shall advise Craig, CMI, Citadel and
CAC and shall confirm in writing (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective and when any
amendment of or supplement to the Prospectus is filed with the SEC, (ii) when
the SEC shall make a request or suggestion for any amendment to the Registration
Statement or the Prospectus or for additional information and the nature and
substance thereof, relating solely to the Reorganization or Exchange, and (iii)
of the issuance by the SEC of a stop order suspending the effectiveness of the
Registration Statement, and shall use its commercially reasonable efforts to
prevent the issuance of a stop order and, if such order shall be issued, to
obtain the withdrawal thereof at the earliest possible time. Reading represents
and warrants to Craig, CMI, Citadel and CAC that the Registration Statement and
the Prospectus (including the information therein provided by Reading) and any
other amendments and supplements thereto, will, when they become effective,
conform in all material respects to the requirements of the Securities Act and
the rules and regulations thereunder, and will not contain any 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; provided,
however, that Reading makes no representation or warranty as to statements or
omissions therein supplied by Craig, CMI, Citadel and CAC.
(d) If, at any time prior to the Closing Date, it shall be
necessary to amend or supplement the Proxy Statement or the Registration
Statement to correct any statement or omission with respect to Reading, Reading
Entertainment, Craig, CMI, Citadel or CAC in order to comply with any applicable
legal requirements, the appropriate party to this Agreement shall supply in
writing the necessary information to Reading. To the extent necessary to comply
with applicable legal requirements, Reading shall amend or supplement the Proxy
Statement and amend or supplement the Registration Statement and Prospectus.
7. COVENANTS
7.1 Covenants of Craig, CMI, Citadel and CAC.
----------------------------------------
(a) Craig, CMI, Citadel and CAC each hereby covenant and agree
that from the date of this Agreement until the Closing Date (or until the items
referred to have either been accomplished or, in good faith, abandoned), except
with the prior written consent of Reading, it:
16.
<PAGE>
(i) shall use its commercially reasonable efforts to
promptly furnish such information to Reading or Reading Entertainment as shall
be necessary for Reading to comply with all filing and regulatory requirements
imposed on Reading or Reading Entertainment with respect to the Exchange and the
Reorganization; and
(ii) with respect to Craig and CMI, will not transfer,
pledge, encumber or allow a mortgage, lien or other charge to be placed upon any
of the assets to be transferred to Reading Entertainment pursuant to Section 2.1
or 2.2 hereunder.
(b) Subject to the terms of this Agreement, Craig agrees to vote
all shares of its Reading Class A Common Stock in favor of the Reorganization
and Exchange at the meeting of Reading Shareholders held to consider the same.
(c) Citadel hereby covenants and agrees that, so long as the
provisions of Article IX of the Certificate of Incorporation of CAC remain
applicable in accordance with their terms, Citadel (i) shall use its
commercially reasonable efforts to ensure that CAC at all times has at least one
Independent Continuing Director (as defined in such Article IX), and (ii) shall
not and shall not permit any of its subsidiaries to cause a "short-form" merger
of CAC into Citadel or any subsidiary of Citadel, or otherwise take any action
which, if taken by CAC, would violate the provisions of such Article IX.
(d) Craig covenants and agrees that at the Closing it will
transfer and assign to Reading Entertainment all of Craig's rights, and Reading
Entertainment covenants and agrees that it will assume all of Craig's
obligations, under the Preferred Stock Purchase Agreement entered into on
November 10, 1994. Citadel consents to such transfer, assumption and assignment
and agrees that the provisions of such Preferred Stock Purchase Agreement shall
apply to the Series B Citadel Preferred Stock (and the shares of Citadel Common
Stock issuable upon conversion of the Series B Citadel Preferred Stock) as if
such shares were the "Shares" as defined in such Preferred Stock Purchase
Agreement.
7.2 Covenants of Reading and Reading Entertainment.
----------------------------------------------
(a) Reading and Reading Entertainment hereby covenant and agree
that from the date of this Agreement until the Closing Date, except with the
prior written consent of Craig, CMI, Citadel and CAC, which will not be
unreasonably withheld or delayed, it:
(i) shall use its commercially reasonable efforts to
comply with all filing and regulatory requirements which may be imposed on
Reading and Reading Entertainment with respect to the Exchange and the
Reorganization, including the filing with the SEC of the Proxy Statement and the
Registration Statement;
(ii) shall use its commercially reasonable efforts to
obtain any consent, authorization or approval of, any governmental authority or
agency or other third party required to be obtained in connection with the
Exchange and the Reorganization or the taking of any action in connection with
the consummation thereof; and
(iii) use its commercially efforts to consummate the
Reorganization and hold a meeting of Reading Shareholders to approve the
Reorganization and the Exchange.
17.
<PAGE>
(b) Reading and Reading Entertainment hereby covenant and agree
that prior to the Closing, the Reading Entertainment Common Stock issuable upon
conversion of the Reading Entertainment Series A and Series B Preferred Stock
shall have been reserved for issuance by Reading Entertainment out of its
authorized but unissued shares of Common Stock and the Reading Entertainment
Common Stock issuable upon such conversion and the Reading Entertainment Common
Stock being issued pursuant to Section 2.1 and 2.2 hereof shall have been
approved for listing on NASDAQ National Market as well as any stock exchange
where Reading Entertainment Common Stock may be listed, subject to official
notice of issuance.
7.3 Access. From the date of this Agreement to the Closing Date,
------
Reading shall afford to Craig, CMI, Citadel and CAC and to the officers and
authorized representatives of each such entity (including, without limitation,
counsel, financial advisors and independent accountants) reasonable access to
its properties, personnel, books and records at such reasonable times and in
such manner as not to disrupt normal business operations; and the officers of
Reading will furnish such officers and representatives with such additional
financial and operating data and other information as to its business and
properties as may be reasonably requested. Likewise Craig shall afford to
Reading, Citadel and CAC and to the authorized representatives of each such
entity (including without limitation, counsel, financial advisors and
independent accountants) reasonable access to all information held by Craig with
respect to Stater. Each of the parties hereto shall insure that all
confidential information which such party or any of its officers, directors,
employees, counsel, agents, investment bankers, or accountants may receive under
this Section 7.3 or pursuant to Section 6.2(c)(ii) shall be kept confidential
and not published, disclosed, or made accessible by any of them to any other
person, except the persons referred to in this sentence who are advised of and
agree to maintain the confidential nature of such information; provided,
however, that the restrictions of this sentence shall not apply as may otherwise
be required by law, as may be necessary or appropriate in connection with the
enforcement of this Agreement, or to the extent such information shall have
otherwise become publicly available.
7.4 Citadel Contributions. Prior to the Closing, Citadel agrees to
---------------------
contribute $7.0 million to the capital of CAC to enable CAC to complete the
transfer described in Section 2.3 of this Agreement.
8. CONDITIONS
8.1 Conditions Precedent to the Obligations of All Parties.
------------------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of the
parties to effect the Exchange shall be subject to the fulfillment, as of the
Closing, of each of the following conditions (unless waived by the written
consent of the parties hereto):
(a) the Exchange and the Reorganization shall have been validly
approved and adopted by the affirmative vote of the holders of at least a
majority of the votes cast by the holders of the issued and outstanding shares
of Reading Class A Common Stock and Reading Common Stock, voting together as a
single class, at a duly called and held meeting of the Reading Shareholders at
which a quorum is present, and the Reorganization shall have been consummated;
18.
<PAGE>
(b) all permits, approvals and consents of any governmental body
or agency or other third party necessary or appropriate for consummation of the
Exchange and the Reorganization shall have been obtained;
(c) the Registration Statement shall have become effective under
the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings for that purpose
instituted by the SEC; the Reading Entertainment Common Stock issuable upon
conversion of the Reading Entertainment Series A and Series B Preferred Stock
shall have been reserved for issuance by Reading Entertainment out of its
authorized but unissued shares of Common Stock and the Reading Entertainment
Common Stock issuable upon such conversion and the Reading Entertainment Common
Stock being issued pursuant to Section 2.1 and 2.2 hereof shall have been
approved for listing on NASDAQ National Market as well as any stock exchange
where Reading Entertainment Common Stock may be listed, subject to official
notice of issuance;
(d) there shall not be in effect an order or decision of a court
of competent jurisdiction or a governmental agency or authority which prevents,
or would materially alter the terms of, the Exchange or the Reorganization;
(e) there shall not be any action or proceeding commenced by or
before any governmental agency or authority or threatened by any governmental
agency or authority that enjoins, restrains or prohibits or seeks to enjoin,
restrain or prohibit the Exchange or the Reorganization;
(f) the requirement to close the transfers described in Sections
2.1, 2.2, 2.3 and 2.4 of this Agreement are conditioned on all such transfers
closing simultaneously;
(g) Reading and Reading Entertainment shall have received, on or
prior to the mailing date of the Proxy Statement, an opinion reasonably
satisfactory to them from Berwind Financial Group, L.P. to the effect that the
Exchange is fair from a financial point of view to Reading and Reading
Entertainment and said opinion shall not have been withdrawn or modified in a
manner which is not reasonably satisfactory to Reading or Reading Entertainment;
and
(h) the holders of Reading's Class A Common Stock shall not have
had any dissenter's rights under Pennsylvania law in connection with the
Reorganization.
8.2 Additional Conditions Precedent to the Obligations of Reading and
-----------------------------------------------------------------
Reading Entertainment. In addition to the conditions contained in Section 8.1,
- ---------------------
the obligations of Reading and Reading Entertainment to effect the Exchange
shall also be subject to the fulfillment as of the Closing Date of each of the
following conditions (unless waived in writing by Reading and Reading
Entertainment):
(a) the representations and warranties of Craig, CMI, Citadel and
CAC contained in Section 4 and 5, respectively, shall be true in all material
respects at and as of the date hereof and as of the Closing Date as if made at
and as of the Closing Date; Craig, CMI, Citadel and CAC shall have each duly
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed or
19.
<PAGE>
complied with by them prior to or on the Closing Date; and each of Craig, CMI,
Citadel and CAC shall have delivered to Reading and Reading Entertainment a
certificate dated the Closing Date and signed by its President or its Chief
Financial Officer to the effect set forth in this subparagraph.
(b) Reading and Reading Entertainment shall have received an
opinion letter from Troy & Gould Professional Corporation, counsel to Craig and
CMI, dated the Closing Date, substantially in the form previously delivered to
counsel to Reading.
(c) Reading and Reading Entertainment shall have received an
opinion letter from Gibson, Dunn & Crutcher, special counsel to CAC, and
Citadel, dated the Closing Date, substantially in the form previously delivered
to counsel to Reading. Reading and Reading Entertainment shall have received an
opinion letter from its counsel, Duane, Morris & Heckscher, dated the Closing
Date, substantially in the form of the draft dated the date hereof, previously
delivered to Reading.
(d) All necessary corporation action on the part of the directors
of Craig, CMI, Citadel and CAC in connection with the transactions contemplated
in this Agreement shall have been duly and validly taken.
(e) From the date hereof, there shall have been no material
adverse change in the assets, business, financial condition or results of
operations of Stater and its subsidiaries, taken as a whole, or Citadel and its
subsidiaries, taken as a whole.
(f) The consummation of the Exchange and the Reorganization shall
not result in a "change of control" under the Code such that there would be a
material adverse impact on the net operating loss carryforwards of Reading or
Reading Entertainment.
(g) The Stater Stockholders Agreement, as amended, shall have been
terminated.
8.3 Additional Conditions Precedent to the Obligations of Craig and
---------------------------------------------------------------
CMI. In addition to the conditions contained in Section 8.1, the obligations of
- ---
Craig and CMI to effect the Exchange shall also be subject to the fulfillment at
the Closing Date of each of the following conditions (unless waived in writing
by Craig and CMI):
(a) the representations and warranties of Reading and Reading
Entertainment contained in Section 3 and the representations and warranties of
Citadel and CAC contained in Section 5 shall be true in all material respects at
and as of the date hereof and as of the Closing Date as if made at and as of the
Closing Date; Reading, Reading Entertainment, Citadel and CAC shall each have
duly performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed or complied
with prior to or at the Closing Date; and Reading, Reading Entertainment,
Citadel and CAC shall have each delivered to Craig and CMI a certificate dated
the Closing Date and signed by its President or Chief Financial Officer to the
respective effect set forth in this subparagraph;
(b) Craig and CMI shall have received an opinion letter from
Duane, Morris & Heckscher, counsel to Reading and Reading Entertainment, dated
the Closing Date,
20.
<PAGE>
substantially in the form previously delivered to counsel to Craig. Craig and
CMI shall have received an opinion letter from Duane, Morris & Heckscher, dated
the Closing Date, substantially in the form of the draft dated the date hereof,
previously delivered to counsel to Craig.
(c) All necessary corporate action on the part of the directors
and shareholders of Reading and the directors of Reading Entertainment and
Reading Entertainment Subsidiary and the directors and shareholder of CAC in
connection with the transactions contemplated in this Agreement shall have been
taken by the Closing.
(d) From the date hereof, there shall have been no material
adverse change in the assets, business, financial condition or results of
operations of Reading or Reading Entertainment and its or their subsidiaries,
taken as a whole.
(e) Reading Entertainment shall have delivered to CMI its
agreement to be bound by the provisions of Article I and II of that Option
Agreement entered into as of September 3, 1993 by and among Stater, Craig and
CMI with respect to the Stater Preferred Stock.
(f) Immediately prior to the Closing, Reading International and
Reading Investment shall have terminated any and all obligations of Craig and
CMI under that Amended and Restated Capital Funding Agreement entered into as of
March 8, 1996 by and among Craig, Reading Investment and CMI, and Reading
Holdings shall have terminated all of its rights with respect to the Warrant
Purchase Option set forth in Section 3.1 and the Preferred Purchase Option set
forth in Section 2.1 of the Stock Purchase and Sale Agreement entered into as of
March 27, 1996 by and between Craig and Reading Holdings.
(g) The opinion of the law firm of Morris, Nichols, Arsht &
Tunnell that no approval of the shareholders of Craig is required under Delaware
law in connection with the Exchange shall have been reissued and dated as of the
Closing Date and shall not have been modified in a manner not reasonably
satisfactory to legal counsel for Craig.
(h) The opinion of Duane, Morris & Heckscher dated as of the date
of this Agreement, and delivered to Craig and CMI shall have been reissued and
dated as of the Closing Date and shall not have been modified in a manner not
reasonably satisfactory to legal counsel for Craig.
(i) The fairness opinion of Houlihan Lokey Howard & Zukin
addressed to the Board of Directors of Craig and dated as of the date of this
Agreement shall not have been withdrawn or modified in a manner not reasonably
satisfactory to Craig.
(j) The total shareholders' equity of Reading as reflected in
financial statements set forth in the Form 10-Q filed with the SEC for the
quarter ended closest to the Closing shall not be less than $66,218,000.
8.4 Additional Conditions Precedent to the Obligations of CAC and
-------------------------------------------------------------
Citadel. In addition to the conditions contained in Section 8.1, the
- -------
obligations of CAC and Citadel to effect the Exchange shall also be subject to
the fulfillment at the Closing Date of each of the following conditions (unless
waived in writing by CAC and Citadel):
21.
<PAGE>
(a) the representations and warranties of Reading and Reading
Entertainment contained in Section 3 and the representations of Craig and CMI
contained in Section 4 shall be true in all material respects at and as of the
date hereof and as of the Closing Date as if made at and as of the Closing Date;
each of Reading, Reading Entertainment, Craig and CMI shall each have duly
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed or complied with prior
to or at the Closing Date; and each of Reading, Reading Entertainment, Craig and
CMI shall have delivered to CAC and Citadel a certificate dated the Closing Date
and signed by its President or Chief Financial Officer to the respective effect
set forth in this subparagraph.
(b) CAC and Citadel shall have received an opinion letter from
Duane, Morris & Heckscher, counsel to Reading and Reading Entertainment, dated
the Closing Date, substantially in the form of the draft previously delivered to
counsel to Citadel. CAC and Citadel shall have received an opinion letter from
Duane, Morris & Heckscher, dated the Closing Date, substantially in the form of
the draft dated the date hereof previously delivered to counsel to Citadel.
(c) All necessary corporate action on the part of the directors
and shareholders of Reading and the directors of Reading Entertainment and
Reading Entertainment Subsidiary and the directors of Craig and CMI in
connection with the transactions contemplated in this Agreement shall have been
taken by the Closing.
(d) From the date hereof, there shall have been no material
adverse change in the assets, business, financial condition, or results of
operations of Reading or Reading Entertainment and its or their subsidiaries,
taken as a whole.
(e) Each of Reading Entertainment and Craig shall have executed
and delivered to Citadel and CAC an Asset Put and Registration Rights Agreement
substantially in the form attached hereto as Exhibit 8.4(e) (the "Option
Agreement").
(f) The fairness opinion of Crowell, Weedon & Co. addressed to the
Board of Directors of Citadel and dated as of the date of this Agreement shall
not have been withdrawn or modified in a manner not reasonably satisfactory to
Citadel.
(g) The opinion of Duane, Morris & Heckscher dated as of the date
of this Agreement and delivered to Citadel and CAC shall have been reissued and
dated as of the Closing Date and shall not have been modified in a manner not
reasonably satisfactory to legal counsel for Citadel.
(h) The total shareholders' equity of Reading as reflected in
financial statements set forth in the Form 10-Q filed with the SEC for the
quarter ended closest to the Company shall not be less than $66,218,000.
22.
<PAGE>
9. TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date, whether before or after approval by the Reading Shareholders;
(a) by mutual consent of the respective Boards of Directors of
Reading, Reading Entertainment, Craig, CMI, Citadel and CAC;
(b) by any of the respective Boards of Directors of Reading,
Craig, CMI, and Citadel if the Exchange and the Reorganization shall not have
been consummated on or before December 31, 1996, except as a result of the
wilful acts or omissions of the party (or, in the case of Reading, Citadel or
Craig, its wholly owned subsidiary, or, in the case of CMI, its parent) seeking
to cancel this Agreement.
9.2 Written Notice. In order to terminate this Agreement pursuant to
--------------
Section 9.1, the party or parties so acting shall give written notice of such
termination to the other parties.
9.3 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to Section 9.1, the provisions of this Agreement shall become
void and have no effect, with no liability on the part of any party or its
shareholders or directors or officers in respect thereof, unless such
termination shall have occurred as a result of the wilful breach of this
Agreement by any party hereto.
10. GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. Other than with respect
------------------------------------------
to Sections 3.3, 3.11, 4.5, 4.10, 5.7 and 5.9 of this Agreement, the
representations and warranties set forth in this Agreement shall survive the
Closing for a period of one year. The representations and warranties set forth
in Sections 3.3, 3.11, 4.5, 4.10, 5.7 and 5.9 of this Agreement shall survive in
perpetuity.
10.2 Notices. All notices, requests, demands or other communications
-------
required or authorized or contemplated to be given by this Agreement shall be in
writing and shall be deemed to have been duly given made and received when
delivered against receipt, upon receipt of a facsimile transmission, when
deposited in the United States mails (first class postage prepaid) or when
deposited with Federal Express, and addressed as follows:
If to Reading or
Reading Entertainment: Reading Company
The Graham Building
One Penn Square West
30 South 15th Street,
Suite 1300
Philadelphia, PA 19102
Attn: James A. Wunderle
Fax: (215) 569-2862
Copies to: Duane, Morris & Heckscher
23.
<PAGE>
One Liberty Place
Philadelphia, PA 19103
Attn: Sheldon M. Bonovitz, Esq.
Fax: (215) 979-1020
and
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: Henry N. Nassau, Esq.
Fax: (215) 994-2222
If to Craig or CMI: Craig Corporation
550 S. Hope Street,
Suite 1825
Los Angeles, CA 90071
Attn: Robin Skophammer
Fax: (213) 239-0548
Copy to: Troy & Gould Professional Corporation
1801 Century Park East,
16th Floor
Los Angeles, CA 90067
Attn: James C. Lockwood, Esq.
Fax: (310) 201-4746
If to CAC or Citadel: Citadel Holding Corporation
550 S. Hope Street
Suite 1825
Los Angeles, CA 90071
Attn: Steve Wesson
Fax: (213) 239-0549
Copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attn: Dhiya El-Saden, Esq.
Fax: (213) 229-7520
or such other address and fax number as any of the parties hereto may from time
to time designate in writing, prior to the giving of such notice.
10.3 Amendment and Waiver. No amendment or waiver of any provision of
--------------------
this Agreement shall in any event be effective, unless the same shall be in
writing signed by the parties hereto, and then such amendment, waiver or consent
shall be effective only in a specific instance and for the specific purpose for
which given, except that the parties to this Agreement may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties, (ii) waive any inaccuracies in the representations and warranties
contained
24.
<PAGE>
in this Agreement or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the covenants or conditions contained in this Agreement.
10.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
10.5 Assignability. This Agreement shall not be assigned by any party
-------------
without the prior written consent of all of the parties hereto. In the event of
such assignment, this Agreement shall bind and inure to the benefit of the
parties named herein and their respective successors and assigns.
10.6 Entire Agreement. This Agreement and the documents referred to
----------------
herein contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
10.7 Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Delaware, notwithstanding any
Delaware or other conflict-of-law provisions to the contrary.
10.8 Headings. The section and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of the terms and conditions contained therein or of
this Agreement.
10.9 Costs and Expenses. Each party hereto shall bear its own costs and
------------------
expenses (including fees and disbursements of legal counsel) incurred in
connection with the negotiation and preparation of this Agreement and the
consummation of the transactions provided for herein, except that Reading
Entertainment agrees to reimburse Citadel and CAC, regardless of whether the
Closing occurs, for their aggregate reasonable out-of-pocket costs and expenses
(including reasonable fees and expenses of legal counsel and financial advisors)
related to this Agreement and the transactions contemplated hereby up to a
maximum of $280,000.
25.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
READING COMPANY
By: /S/ JAMES A. WUNDERLE
--------------------------------
Its: Chief Operating Officer
READING ENTERTAINMENT, INC.
By: /S/ JAMES A. WUNDERLE
-----------------------------
Its: Chief Operating Officer
CRAIG CORPORATION
By: /S/ S. CRAIG TOMPKINS
-------------------------------
Its: President
CRAIG MANAGEMENT, INC.
By: /S/ S. CRAIG TOMPKINS
-------------------------------
Its: President
CITADEL HOLDING CORPORATION
By: /S/ STEVE WESSON
------------------------------
Its: President
CITADEL ACQUISITION CORP., INC.
By: /S/ STEVE WESSON
-----------------------------
Its: President
26.
<PAGE>
EXHIBIT 10.34
ASSET PUT AND
REGISTRATION RIGHTS AGREEMENT
This Asset Put and Registration Rights Agreement (this "Agreement") is
---------
entered into as of this 15th day of October, 1996 by and among Reading
Entertainment, Inc., a Delaware corporation ("Reading Entertainment"), Citadel
---------------------
Holding Corporation, a Delaware corporation ("Citadel"), and Citadel Acquisition
-------
Corp., Inc., a Delaware corporation ("CAC"), with reference to the following:
---
A. The parties to this Agreement are also parties to an Exchange Agreement
dated as of August --, 1996 (the "Exchange Agreement") pursuant to which CAC is
------------------
purchasing 70,000 shares (the "Preferred Shares") of Reading Entertainment's
----------------
Series A Voting Cumulative Convertible Preferred Stock, stated value $100 per
share (the "Series A Preferred Stock"), for an aggregate cash purchase price of
------------------------
$7,000,000.
B. As conditions to CAC's purchase of the Preferred Shares, Reading
Entertainment has agreed that (i) Citadel shall have an option to exchange all
or substantially all of its assets (other than Excluded Assets as defined below)
for shares (the "Exchange Shares") of Reading Entertainment's Common Stock,
---------------
$0.001 par value (the "Common Stock"), and (ii) Reading Entertainment will under
------------
certain circumstances register under the Securities Act of 1933, as amended (the
"Act"), the Exchange Shares and any shares of Common Stock, received upon
---
conversion of the Preferred Shares (the "Conversion Shares"), all in accordance
-----------------
with and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth herein, the parties hereto agree as follows:
ARTICLE ONE
ASSET PUT
1.1 Asset Put.
---------
(a) Commencing on the date hereof, Citadel shall have the right, by
giving written notice to Reading Entertainment prior to 11:59 p.m. on the
thirtieth (30th) day following the date on which Reading Entertainment files its
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"Exchange Notice"), to exchange (the "Asset Put") all or substantially all of
---------------
its assets (other than the Excluded Assets as defined below), together with any
debt encumbering or related to such assets, including without limitation,
mortgages and leases (collectively, the "Citadel Assets"), for such number of
--------------
shares of Common Stock as are determined with reference to the Citadel Asset
Valuation and the Common Stock Value, as described below. The term "Excluded
--------
Assets" shall mean (i) all Preferred Shares and Conversion Shares (or all shares
- ------
of capital stock of CAC, if the sole assets of CAC are Excluded Assets), (ii)
such cash and/or marketable securities as a special committee comprised of the
independent directors of the Board of Directors of Citadel may reasonably
determine are necessary in order to maintain an appropriate level of liquidity
for Citadel and its subsidiaries, (iii) any assets that, in the reasonable
opinion of the Board of Directors of Reading Entertainment, are subject to
liabilities (including, without limitation, contingent or environmental
liabilities) reasonably likely to be in excess of the fair market value of such
assets, (iv) After Acquired Assets (as defined below) to the extent the After
Acquired Assets Value (as defined in Section 1.2) exceeds $5,000,000 and (v)
assets to the extent the Citadel Asset Valuation (as defined in Section 1.2)
exceeds $30,000,000. "After Acquired Assets" shall mean any assets other than
---------------------
cash and assets owned by Citadel or its subsidiaries on the date hereof and cash
proceeds of the sale thereof. If any assets are excluded by reason of clause
(iv) or (v), Reading Entertainment shall determine
<PAGE>
in good faith which assets shall be Excluded Assets on such basis. Subject to
Section 1.1(e), the Asset Put shall be consummated (the "Closing") on the tenth
business day following the Determination Date (as defined below), or such later
date as the parties may agree, at the executive offices of Citadel at 10:00 a.m.
local time (the "Closing Date"). At the Closing, Citadel shall deliver such
------------
stock powers, assignments, bills of sale, deeds, consents, cash by wire transfer
and other instruments of transfer and conveyance as shall be necessary, within
the reasonable requirements of Reading Entertainment, to transfer the Citadel
Assets to Reading Entertainment and, subject to Section 1.1(c), Reading
Entertainment shall deliver to Citadel the Exchange Shares, together with such
assumption agreements, acknowledgments and other documents as shall be
necessary, within the reasonable requirements of Citadel, to transfer and assign
the Citadel Assets to Reading Entertainment and for Reading Entertainment to
assume any and all debt encumbering the Citadel Assets.
(b) Subject to Sections 1.1(c) and 1.3, the aggregate number of Exchange
Shares to be delivered to Citadel at the Closing shall be determined by dividing
the Citadel Asset Valuation by the Common Stock Value, rounded to the nearest
whole number of shares.
(c) In the event the issuance to Citadel, upon Citadel's exercise of the
Asset Put, of the number of shares of Common Stock determined pursuant to
Section 1.1(b) would result in an "owner shift" (as defined in Section 382 of
the Internal Revenue Code, as amended (the "Code")) of Reading Entertainment
----
which, when added to all other "owner shifts" that have occurred during the
"testing period," would result in aggregate "owner shifts" that count against
the 50 percentage point limit (under Section 382(g) of the Code) in excess of 45
percentage points (the "Owner Shift Threshold"), Reading Entertainment shall
---------------------
issue to Citadel the maximum number of shares of Common Stock which would not
result in the crossing of such Owner Shift Threshold. Reading Entertainment may
elect not to issue the shares of Common Stock (the "Excess Shares") which would
-------------
exceed the number of shares determined by the preceding sentence. In such case,
Reading Entertainment shall either: (i) issue to Citadel debt securities (the
"Debt Securities") in an aggregate principal amount equal to the number of
---------------
Excess Shares multiplied by the average of the closing sales prices of Common
Stock on the Nasdaq National Market (or, if that shall not be the principal
market on which the Common Stock shall be trading or quoted, then on such
principal market)(the "Closing Price") for the thirty (30) consecutive trading
-------------
days in which trading of the Common Stock occurs immediately preceding the
Closing Date (the "Excess Share Value") or (ii) pay to Citadel cash, in
------------------
immediately available funds, in an amount equal to the Excess Shares Value (the
"Cash Portion"). The economic terms of the Debt Securities, if any, shall be
determined by an investment banking firm which shall be independent of Citadel
and Reading (the "Independent Investment Banker"), and which shall be chosen by
-----------------------------
Reading Entertainment, subject to Citadel's consent (not to be unreasonably
withheld). All fees and expenses of, and any other charges incurred by the
Independent Investment Banker shall be borne by Reading Entertainment. The form
and terms of the Debt Securities shall be as otherwise agreed by Reading
Entertainment and Citadel in good faith.
(d) As promptly as practicable after receipt of the Exchange Notice,
Reading Entertainment shall notify Citadel whether Reading Entertainment
anticipates issuing to Citadel any Debt Securities and, if so, the aggregate
principal amount of Debt Securities Reading Entertainment estimates it will
issue (provided, that an inaccuracy in such estimate shall not limit Reading
Entertainment's right to issue the full amount of Debt Securities permitted to
be issued pursuant to Section 1.1(c)). If, within ninety (90) days from the
date of such notice, Citadel notifies Reading Entertainment of Citadel's bona
fide intention to sell all, but not less than all, the Debt Securities, if
requested by Citadel in such notice, Reading Entertainment shall take all
reasonable actions to assist Citadel in the sale of all or any portion of the
Debt Securities to a third party or parties and shall, upon consummation of such
sale: (i) reimburse Citadel for all out-of-pocket expenses incurred by Citadel
in connection with the issuance of the Debt Securities and the negotiation and
consummation of such sale, including, without limitation, reasonable fees and
expenses of legal counsel, accountants, financial advisors, brokers and
investment bankers and
2
<PAGE>
(ii) pay to Citadel in cash by wire transfer in immediately available funds, the
amount by which the net proceeds received by Citadel (without duplication of
amounts reimbursed under clause (i) above) from the sale of the Debt Securities
is less than the Excess Shares Value.
(e) In the event Citadel's legal counsel advises Citadel that the
exercise of the Asset Put and consummation of the transactions contemplated
thereby will require the approval of Citadel's stockholders:
(i) Within thirty (30) calendar days of the date of the Exchange
Notice, Citadel shall prepare and file with the Securities and Exchange
Commission (the "SEC") a proxy statement and related proxy material meeting
---
the requirements of Regulation 14A of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), to be mailed to stockholders in connection
------------
with a meeting of the Citadel stockholders (the "Proxy Statement") or as
---------------
soon as practicable thereafter, and use its commercially reasonable efforts
to clear such materials with the SEC and mail such materials to the Citadel
stockholders within sixty (60) calendar days of originally filing such
materials with the SEC, or as soon as practicable thereafter. In such event,
Citadel covenants that the Proxy Statement at the time of mailing to the
Citadel stockholders and at the time of the meeting of stockholders held to
approve the consummation of the Asset Put (the "Meeting") will not contain
-------
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading (other than
statements or omissions therein supplied by Reading Entertainment in writing
for use therein) and the Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act.
(ii) Reading Entertainment shall furnish in writing for inclusion in
the Proxy Statement such information as may be reasonably necessary to
comply with the provisions of the Exchange Act and the rules and regulations
thereunder and shall have been requested in writing by Citadel.
(iii) As an additional condition to Citadel's obligation to
consummate the Asset Put, Citadel may elect to receive at Citadel's expense,
on or prior to the mailing date of the Proxy Statement, an opinion,
reasonably satisfactory to Citadel, from a financial advisor selected by
Citadel that the consummation of the Asset Put is fair from a financial
point of view to Citadel and such opinion shall not have been withdrawn or
modified in a manner which is not reasonably satisfactory to Citadel.
(iv) Reading Entertainment and Craig Corporation, a Delaware
corporation ("Craig"), agree that any Citadel voting securities which it, or
-----
any of their respective subsidiaries or affiliates, may hold on the record
date of any such meeting will be voted to approve the exercise and Closing
of the Asset Put.
(v) The Closing shall take place on or before the fifth business day
next following the Meeting. If, at any time prior to the Closing Date, it
shall be necessary to amend or supplement the Proxy Statement to correct any
statement or omission with respect to Citadel, CAC or Reading Entertainment
in order to comply with any applicable legal requirements, the appropriate
party shall supply in writing the necessary information to Citadel and
Citadel shall amend or supplement the Proxy Statement to the extent
necessary to comply with applicable legal requirements.
(f) The risk of loss or damage by fire or other casualty or cause to
the Citadel Assets until the Closing shall be upon Citadel. In the event of
loss or damage to a material amount of any
3
<PAGE>
Citadel Assets following Citadel's delivery of the Exchange Notice and prior to
the Closing, Citadel shall promptly notify Reading Entertainment in writing of
such event describing with such particularity as is possible the extent of such
loss or damage and the extent to which such loss or damage may be covered by any
insurance policy of Citadel. Within ten (10) days after receipt of written
notice from Citadel of such loss or damage, Reading Entertainment shall, at its
option, either (i) have Citadel assign to Reading Entertainment at the Closing
all insurance proceeds to which Citadel would be entitled as a result of such
loss or damage or (ii) exclude such assets from the Citadel Assets; provided
that Reading Entertainment shall have no right to exclude such assets under this
Section 1.1(f) if Citadel promptly repairs the damaged asset substantially to
its previous condition. If any assets are substituted or excluded pursuant to
this Section 1.1(f), the Citadel Asset Valuation shall be adjusted accordingly.
1.2 Citadel Asset Valuation.
-----------------------
(a) (i) The Exchange Notice shall set forth the name and address
of a qualified Member of Appraisal Institute ("MAI") real estate appraiser
to appraise the value of real estate assets which are part of the Citadel
Assets (the "Real Estate Assets") and a qualified appraiser to appraise the
------------------
value of the non-real estate assets, if any, which are part of the Citadel
Assets (the "Non-Real Estate Assets"), each appraiser chosen by Citadel
----------------------
(the "Citadel Appraisers") (such aggregate value being referred to as the
------------------
"Citadel Asset Valuation"). Within fifteen (15) business days of the date
-----------------------
of the Exchange Notice, Reading Entertainment shall give Citadel notice of
the names and addresses of a qualified MAI real estate appraiser to
appraise the value of the Real Estate Assets and a qualified appraiser to
appraise the value of the Non-Real Estate Assets, each chosen by Reading
Entertainment (the "Reading Entertainment Appraisers"). Each of the Citadel
--------------------------------
Appraisers and Reading Entertainment Appraisers (collectively, the
"Appraisers") shall value the Citadel Assets to be appraised by them as of
----------
the date the last of the Appraisers is retained (the "Valuation Date"). The
--------------
Appraisers shall be requested to separately appraise any After Acquired
Assets. The Appraisers, in appraising any Citadel Assets, shall take into
account any liabilities (including, without limitation, contingent or
environmental liabilities) relating to or encumbering such Citadel Assets
and the "value" thereof shall be determined net of any such liabilities
which will encumber the Citadel Assets following the Closing. Any mortgage
debt relating to any asset shall be deemed to be a liability equal to its
outstanding principal amount as of the Valuation Date, which amount shall
be deducted (without duplication) from the value otherwise attributable to
such asset, unless such debt is repaid by Citadel at or prior to the
Closing.
(ii) Within thirty (30) days of the date of the Exchange Notice,
Citadel and Reading Entertainment shall cause the Citadel and the Reading
Entertainment Appraisers, respectively, to deliver to both Reading
Entertainment and Citadel their respective appraisal reports setting forth
the value of the Citadel Assets appraised by them. Thereafter, Reading
Entertainment and Citadel agree to use their best efforts to agree on the
Citadel Asset Valuation and the value of the After Acquired Assets (such
value of the After Acquired Assets being the "After Acquired Asset
Valuation;" the excess of the Citadel Asset Valuation over the After
-----
Acquired Asset Valuation is hereinafter referred to as the "Existing Asset
------------------------ --------------
Valuation"). If an agreement on both valuations can be reached within five
---------
(5) business days of the latest to be delivered of the Appraisers' reports,
those valuations shall be the Citadel Asset Valuation and After Acquired
Asset Valuation. If no agreement on either or both such matters can be
reached within such five (5) business day period, the parties shall select
and jointly engage, a third set of appraisers (the "Third Appraisers") who
----------------
shall be directed, as promptly as practicable, to value the Citadel Assets
as of the Valuation Date and shall affirm the valuation of either the
Reading Entertainment Appraisers or the Citadel Appraisers. Such
determination by the Third Appraisers shall be binding upon Citadel and
Reading Entertainment and the valuations affirmed by the Third Appraisers
shall be the Citadel Asset Valuation and After Acquired Asset Valuation.
The date when the Citadel Asset
4
<PAGE>
Valuation and After Acquired Asset Valuation are determined as provided
above shall be the "Determination Date."
------------------
(iii) If required by either Citadel or Reading Entertainment, the
parties shall request the Appraisers to update their procedures, as set
forth above, to a date not later than forty-five (45) days prior to the
anticipated Closing Date, which date shall thereupon become the Valuation
Date. Upon delivery of such reports, Citadel and Reading Entertainment
shall, to the extent necessary as a result of any difference in such
reports from the original reports of the Appraisers, repeat the procedures
set forth in Section 1.2(a)(ii), and the dates and valuations, determined
by such repeated procedures, shall be substituted for the dates and
valuations as originally determined.
(iv) With respect to the liabilities encumbering or relating to the
Citadel Assets which require the consent of the other party for the
assignment of such liabilities to Reading Entertainment, at or prior to the
Closing, Citadel and Reading Entertainment shall cooperate with each other
to obtain any such consent. In the event any such consent cannot be
obtained, Reading Entertainment shall, at its own expense, refinance any or
all of such debt to permit the transfer of such assets to Reading
Entertainment.
(v) Citadel shall be entitled to all income earned or accrued and
shall be responsible for all liabilities and obligations incurred or
payable in connection with the Citadel Assets through the close of business
on the Closing Date and Reading Entertainment shall be entitled to all
income earned or accrued and shall be responsible for all assumed
liabilities incurred or payable in connection with the Citadel Assets after
the close of business on the Closing Date. At the Closing, all assumed
liabilities, accrued but unpaid expenses (including accrued interest) and
prepaid expenses relating to the Citadel Assets shall be apportioned
between Reading Entertainment and Citadel in accordance with generally
accepted accounting principles ("GAAP") as of the close of business on the
----
Closing Date and the Citadel Asset Valuation shall be adjusted accordingly.
The Citadel Asset Valuation shall also be adjusted for changes in the
principal amount of any indebtedness to be assumed by Reading Entertainment
between the Valuation Date and the Closing Date; provided however, that in
the event Reading Entertainment refinances any such debt at the Closing,
the Citadel Asset Valuation shall be determined immediately prior to the
repayment or refinance of such debt. At or prior to the Closing, the
parties will prepare a preliminary closing statement which shall set forth
the final Citadel Asset Valuation and specify on a preliminary basis all
adjustments to the Citadel Asset Valuation between the Valuation Date and
the Closing Date. Promptly following the Closing, the parties will finalize
such closing statement, making such adjustments as may be appropriate.
(b) If the parties are unable to agree upon the Third Appraisers
within the time periods set forth above, either Reading Entertainment or
Citadel, by giving seven (7) days written notice to the other, may apply to the
American Arbitration Association for the purpose of selecting the Third
Appraisers and the parties agree that the decision of the American Arbitration
Association selecting the Third Appraisers shall be final and binding.
(c) Citadel and Reading Entertainment shall each be responsible for
the fees and expenses of its own Appraisers. The fees and expenses of the Third
Appraisers, if required, shall be paid by the party whose valuation is rejected
and not affirmed by the Third Appraisers.
(d) The Citadel Assets shall be valued at their fair market value as
the assets are then constituted, assuming a willing buyer and a willing seller
dealing at arms-length and unaffiliated with the other.
5
<PAGE>
(e) All Real Estate Assets may be transferred to Reading Entertainment
subject to all debt encumbering or related to such assets, which shall, in such
event, be taken into consideration in connection with the valuation of the Real
Estate Assets.
(f) Citadel shall pay and be responsible for any transfer taxes or
fees or prepayment penalties payable as a result of the transfer of the Citadel
Assets. Reading Entertainment shall reimburse Citadel at the Closing or credit
Citadel in computing the Citadel Asset Valuation for the amount of any liability
incurred by Citadel for assumption fees relating to the assumption of any debt
encumbering the Citadel Assets.
1.3 Common Stock Valuation.
----------------------
(a) Subject to Section 1.3(b), the "Common Stock Value" shall be
------------------
calculated as follows:
(i) The Common Stock Value with respect to the first $20,000,000
of Existing Assets Valuation shall be (A) $11.75 per share if the Exchange
Notice is given on or before October 31, 1997 or (B) $12.25 per share if
the Exchange Notice is after October 31, 1997.
(ii) The Common Stock Value with respect to the excess of the
Existing Assets Valuation over $20,000,000, and with respect to the After
Acquired Asset Valuation up to $5,000,000, shall be the average of the
Closing Prices for the thirty (30) consecutive trading days in which
trading of Common Stock occurs immediately preceding the Closing Date (the
"FMV Value")
---------
(iii) Unless Reading Entertainment shall consent, Citadel shall
not be entitled to exchange After Acquired Assets to the extent the After
Acquired Asset Valuation is in excess of $5,000,000.
(iv) Unless Reading Entertainment shall consent, Citadel shall
not be entitled to exchange Citadel Assets to the extent the Citadel Asset
Valuation exceeds $30,000,000.
(b) In the event the average of the Closing Price over any sixty (60)
consecutive calendar days exceeds 130% of the Common Stock Value then in effect
under Section 1.3(a)(i), Reading Entertainment may, at its option, give Citadel
notice of such event. If Citadel does not deliver the Exchange Notice within
120 days of such notice, the Common Stock Value for all purposes shall then be
the FMV Value.
1.4 Conditions to Asset Put Closing.
-------------------------------
(a) The obligation of Citadel to convey the Citadel Assets to Reading
Entertainment as provided in Section 1.1 of this Agreement is subject to the
fulfillment, on or before the Closing Date, of each of the following conditions
(unless waived by the written consent of Citadel):
(i) Reading Entertainment shall deliver to Citadel a stock
certificate representing the Exchange Shares and such shares shall be
validly issued, fully paid and non-assessable, not subject to any
preemptive or similar right (other than as set forth in Reading
Entertainment's Certificate of Incorporation), and free and clear of any
adverse claims whatsoever;
(ii) Reading Entertainment shall deliver to Citadel certificates
representing the Debt Securities, if any, and the Debt Securities, when
delivered and paid for in accordance with
6
<PAGE>
the Agreement, will be legal, valid and binding obligations of Reading
Entertainment, enforceable in accordance with their terms, and free and
clear of any liens, charges or other encumbrances;
(iii) Reading Entertainment shall deliver to Citadel the Cash
Portion, if any;
(iv) Reading Entertainment shall deliver to Citadel such
assumption agreements, acknowledgments and other documents as Citadel may
reasonably request, in such form as shall be reasonably satisfactory to
Citadel, to transfer the Citadel Assets to Reading Entertainment and for
Reading Entertainment to assume the debt encumbering the Citadel Assets,
including without limitation, any currently existing mortgages and then
existing leases;
(v) The representations and warranties of Reading Entertainment
contained in Article Three shall be true in all material respects at and as
of the date hereof and as of the Closing Date as if made at and as of the
Closing Date and as if made with respect to the issuance of the Exchange
Shares and Debt Securities, if any, except for any changes therein which
(x) have been disclosed by Reading Entertainment in reports or statements
filed by it under the Exchange Act, prior to the date of the Exchange
Notice or (y) have otherwise been disclosed by Reading Entertainment to
Citadel and, in the case of this clause (y), are reasonably acceptable to
Citadel; Reading Entertainment shall have duly performed and complied in
all material respects with all agreements, covenants and conditions
required by this Article One to be performed or complied with prior to or
at the Closing Date; and Reading Entertainment shall have delivered to
Citadel a certificate dated the Closing Date and signed by its President or
Chief Financial Officer to the effect set forth in this subparagraph;
(vi) There shall not be in effect (x) any order or decision of a
court of competent jurisdiction or governmental agency or authority or (y)
any action or proceeding commenced by or before any court, governmental
agency or authority or threatened by any governmental agency or authority
that enjoins, restrains or prohibits or seeks to enjoin, restrain or
prohibit the consummation of the transactions provided in Section 1.1 of
this Agreement;
(vii) All consents to the assignment of any contracts to be
assigned to Reading Entertainment requiring the consent of the other party
thereto shall have been obtained pursuant to written instruments
satisfactory to Citadel or waived by Reading Entertainment; and
(viii) If required, the consummation of the Asset Put shall have
been validly adopted at the Meeting by the affirmative vote of the holders
of at least a majority of the votes cast by the Citadel stockholders
entitled to vote on the matter, and the Meeting shall have been duly called
with a quorum present.
(b) The obligation of Reading Entertainment to issue the Exchange
Shares and Debt Securities, if any, to Citadel as provided in Section 1.1 of
this Agreement is subject to the fulfillment, on or before the Closing Date, of
each of the following conditions (unless waived by the written consent of
Reading Entertainment):
(i) Citadel shall deliver to Reading Entertainment such stock
powers, assignments, bills of sale, deeds, title insurance policies,
consents, cash by wire transfer and other instruments of transfer and
conveyance as Reading Entertainment may reasonably request, in such form as
shall be reasonably satisfactory to Reading Entertainment;
(ii) The representations and warranties of Citadel contained in
Article Three shall be true in all material respects at and as of the date
hereof and as of the Closing Date as if
7
<PAGE>
made at and as of the Closing Date; Citadel shall have duly performed and
complied in all material respects with all agreements, covenants and
conditions required by this Article One to be performed or complied with by
Citadel prior to or on the Closing Date; and Citadel shall have delivered
to Reading Entertainment a certificate dated the Closing Date and signed by
its President or its Chief Financial Officer to the effect set forth in
this subparagraph;
(iii) There shall not be in effect (x) any order or decision of a
court of competent jurisdiction or governmental agency or authority or (y)
any action or proceeding commenced by or before any court, governmental
agency or authority or threatened by any governmental agency or authority
that enjoins, restrains or prohibits or seeks to enjoin, restrain or
prohibit the consummation of the transactions provided in Section 1.1 of
this Agreement;
(iv) All consents to the assignment of any contracts to be
assigned to Reading Entertainment requiring the consent of the other party
thereto shall have been obtained pursuant to written instruments
satisfactory to Reading Entertainment or waived by Citadel;
(v) Citadel shall have made such filing with, and obtained such
consents of, such governmental agencies as shall be required to be made or
obtained by Citadel to effect the transfer of the Citadel Assets to Reading
Entertainment; and
(vi) All title insurance policies on the Real Estate Assets, as
Reading Entertainment shall reasonably determine as necessary (and which
shall be obtained at Reading Entertainment's expense), shall not be subject
to any encumbrances other than encumbrances disclosed to and taken into
account by the Appraisers in determining the Citadel Asset Valuation.
(c) (i) In the event Citadel's acquisition of the Exchange Shares and
Debt Securities, if any, shall be in connection with a plan of distribution
of such Exchange Shares and Debt Securities to Citadel's stockholders or
the reorganization, restructuring, recapitalization, liquidation,
dissolution or winding up of Citadel, Reading Entertainment shall, at its
own expense, prepare a registration statement, information statement or
other documents and take such actions covering or otherwise relating to the
Exchange Shares and Debt Securities, if any, as may be required under the
Act and any other applicable state or federal securities law for Citadel to
consummate such plan of distribution, reorganization, restructuring,
recapitalization, liquidation, dissolution or winding up.
(ii) In the event Citadel's acquisition of the Exchange Shares and
Debt Securities, if any, are not in connection with such a plan,
reorganization, restructuring, recapitalization, liquidation, dissolution
or winding up, Citadel shall deliver an investment representation by
Citadel with respect to the Exchange Shares and Debt Securities, if any, in
form and substance equivalent to the investment representation made by CAC
with respect to the Series A Preferred Stock set forth in Section 5.7 of
the Exchange Agreement.
ARTICLE TWO
REGISTRATION RIGHTS
2.1 Definitions. For purposes of this Article Two only, the following
-----------
definitions shall apply.
(a) The terms "register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the SEC.
8
<PAGE>
(b) The term "Registrable Securities" refers to the Conversion Shares
and the Exchange Shares owned by (or issuable upon conversion of shares of
Series A Preferred Stock owned by) the Holders, except that the Conversion
Shares and the Exchange Shares shall cease to be Registrable Securities at the
earliest date when (i) a registration statement with respect to the sale of such
shares has become effective under the Act and the shares have been disposed of
in accordance with such registration statement; (ii) such shares may be sold to
the public pursuant to paragraph (k) of Rule 144 under the Act ("Rule 144") or
--------
any successor provision; (iii) such shares shall have been transferred (under
Rule 144 or otherwise), new certificates for the shares not bearing a legend
restricting further transfer (other than as provided in Reading Entertainment's
Certificate of Incorporation) shall have been delivered by Reading Entertainment
and subsequent disposition of the shares does not require registration or
qualification under the Act or state law then in force in the opinion of legal
counsel for Reading Entertainment; or (iv) such shares cease to be outstanding.
(c) The term "Holder" means a holder of record of Registrable
------
Securities on the books and records of Reading Entertainment which is either
CAC, Citadel (if it exercises the Asset Put), or an assignee of a Holder who
succeeds to the rights as a Holder in accordance with Section 2.9 hereof.
(d) The number of shares of "Registrable Securities then outstanding"
---------------------------------------
shall be determined by the number of shares of Common Stock which are
Registrable Securities and the number of shares of Common Stock issuable
pursuant to then convertible securities which are convertible into Registrable
Securities.
2.2 Request for Registration.
------------------------
(a) Subject to Sections 2.2(b) and 2.2(c), if Reading Entertainment
shall receive a written request (specifying that it is being made pursuant to
this Article Three), from Holders of a majority of the Registrable Securities
then outstanding, that Reading Entertainment file a registration statement under
the Act, or a similar document pursuant to any other statute then in effect
corresponding to the Act, covering the registration of at least a majority of
the Registrable Securities then outstanding, then Reading Entertainment shall,
within ten (10) business days of the receipt thereof, give written notice of
such request to all Holders at their respective addresses and shall file as soon
as practicable, and in any event within sixty (60) days of the receipt of such
request, a registration statement under the Act covering all Registrable
Securities which the Holders request to be registered within 30 days of the
mailing of such notice to all Holders.
(b) Notwithstanding the foregoing, (i) Reading Entertainment shall not
be obligated to effect a registration pursuant to this Section 2.2 during the
period starting with the date 60 days prior to Reading Entertainment's estimated
date of filing of, and ending on a date six months following the effective date
of, a registration statement pertaining to an underwritten public offering of
securities for the account of Reading Entertainment, provided that Reading
Entertainment is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that Reading
Entertainment's estimate of the date of filing such registration statement is
made in good faith; (ii) if Reading Entertainment shall furnish to the Holders
initiating the registration request hereunder (the "Initiating Holders") a
------------------
certificate signed by the President of Reading Entertainment stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to Reading Entertainment or its shareholders for a registration statement to be
filed in the near future, then Reading Entertainment's obligation to file a
registration statement shall be deferred for a period not to exceed six months;
provided, however, that Reading Entertainment may furnish such a certificate to
the Initiating Holders only once in any one-year time period, and (iii) if the
managing underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Initiating Holders shall so advise all Holders which would otherwise be
underwritten pursuant hereto, and the
9
<PAGE>
number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof in proportion to the
amount of Registrable Securities owned by each Holder; provided, however, that
the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Reading Entertainment shall be obligated to effect only two
registrations pursuant to this Section 2.2, provided however, that if the
Holders who demand registration under this Section 2.2 are unable to register at
least ninety percent (90%) of the Registrable Securities requested to be
included in such registration, then the number of registrations which Reading
Entertainment shall be obligated to effect under this Section 2.2 shall be
increased by one.
2.3 "Piggyback" Registration.
-----------------------
(a) Subject to Section 2.3(b), if at any time Reading Entertainment
determines to register (including for this purpose a registration effected by
Reading Entertainment for stockholders other than the Holders) any shares of
Common Stock under the Act in connection with the public offering of such
securities solely for cash on an SEC Form that would also permit the
registration of the Registrable Securities (other than Forms S-4 and S-8),
Reading Entertainment shall, each such time while Registrable Securities are
outstanding, promptly give each Holder written notice of such determination.
Upon the written request of each Holder given within 20 days after mailing of
any such notice by Reading Entertainment, Reading Entertainment shall, subject
to the provisions of Section 2.7, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested be registered;
provided however, that Reading Entertainment shall not be required to proceed
with such registration if the offering is abandoned in its entirety and no other
securities are offered for sale.
(b) Reading Entertainment shall not be required under this Section 2.3
to include any Registrable Securities in such underwriting unless the Holders
accept reasonable and customary terms of the underwriting as agreed upon between
Reading Entertainment and the underwriters selected by it.
2.4 Obligations of Reading Entertainment. Notwithstanding any other
------------------------------------
provision hereof, whenever required under this Article Two to effect the
registration of any Registrable Securities, Reading Entertainment shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, to keep such registration statement effective for up to 90 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be necessary for the
Holders to dispose of the Registrable Securities, provided that Reading
Entertainment shall not be required in connection therewith or as a condition
thereto to qualify to do
10
<PAGE>
business or to file a general consent to service of process or subject itself to
taxation in any such states or jurisdictions.
(e) Enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter, if any,
of such offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits 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.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Article Two, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Article Two, (i) an opinion, dated such
date, of the counsel representing Reading Entertainment for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of Reading
Entertainment, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters and to the Holders requesting registration of
Registrable Securities.
(h) Make generally available to its stockholders an earnings statement
satisfying the provisions of Section 11(a) of the Act (including by means of
satisfying the provisions of Rule 158 under the Act) as soon as reasonably
practical covering the 12-month period beginning with the first month of Reading
Entertainment's first fiscal quarter commencing after the effective date of the
registration statement.
(i) Whenever any notice is required to be given under this Article
Two, such notice may be given personally or by mail. Any notice given to a
Holder shall be sufficient if given to the Holder at the last address set forth
for such Holder on the stock transfer records of Reading Entertainment. Any
notice given by mail shall be deemed to have been given when deposited in the
United States mail with postage thereon prepaid.
2.5 Furnish Information. The selling Holders shall furnish to
-------------------
Reading Entertainment such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities as shall be required to effect the registration of the Registrable
Securities.
2.6 Expenses of Registration. All expenses other than underwriting
------------------------
discounts and commission incurred in connection with any registration, filing or
qualification pursuant to Sections 2.2 and 2.3, including, without limitation,
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for Reading Entertainment, and the reasonable
fees and disbursements of a single counsel for the selling Holders selected by
the Holders of a majority of the Registrable Securities then outstanding shall
be borne by Reading Entertainment; provided, however, that Reading Entertainment
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 2.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders shall bear
such expenses), unless, at the time of such withdrawal, the Holders have learned
of a material adverse change in the condition, business or prospects of Reading
Entertainment from that known to the Holders
11
<PAGE>
at the time of their request, in which case the Holders shall not be required to
pay any such expenses and shall retain all rights pursuant to Section 2.2.
2.7 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by Reading Entertainment,
Reading Entertainment shall not be required under Section 2.3 to include any of
the Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between Reading Entertainment and the underwriters
selected by it, and then only in such quantity as will not, in the reasonable
opinion of the underwriters, jeopardize the success of the offering by Reading
Entertainment. If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities to be sold other than by Reading Entertainment that
the underwriters reasonably believe compatible with the success of the offering,
then Reading Entertainment shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders); provided, however, that in no event
shall any securities of selling Holders be excluded until all securities of
selling employees of, or consultants and advisors to, Reading Entertainment are
excluded.
2.8 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Article Two:
(a) To the extent permitted by law, Reading Entertainment will
indemnify and hold harmless each Holder, the officers and directors of each
Holder, any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
---------
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) 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, or (iii) any violation or alleged violation by Reading
Entertainment of the Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Act, the Exchange Act or any state
securities law; and Reading Entertainment will reimburse each such Holder,
officer or director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Reading Entertainment shall not be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon (x) a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, officer, director or controlling person of such
Holder or underwriter or (y) any untrue statement or alleged untrue statement
made in, or omission or alleged omission from, any preliminary prospectus or
final prospectus, if the final prospectus or the final prospectus as amended or
supplemented, respectively, which shall have been furnished, to the underwriter
or Holder claiming indemnification, prior to the time such underwriter sent
written confirmation of or the Holder made such sale to the person alleging such
statement, alleged statement, omission or alleged omission, does not contain
such statement, alleged statement, omission or alleged omission and a copy of
such final prospectus or such prospectus as amended or supplemented,
respectively, shall not have been sent or given to such person; and provided,
further, that in no case shall Reading Entertainment be liable for amounts paid
in settlement of any such loss, claim, damage, liability,
12
<PAGE>
or action if such settlement is effected without the written consent of Reading
Entertainment, which consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless Reading Entertainment, each of its directors, each of its
officers who have signed the registration statement and any underwriters,
against any losses, claims, damages or liabilities (joint or several) to which
Reading Entertainment or any such director, officer, controlling person or
underwriter may become subject, under the Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by or on behalf of
such Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
Reading Entertainment or any such director, officer, controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 2.8(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided further that, in no event shall any indemnity
under this Section 2.8(b) exceed the net proceeds from the offering received by
such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
reasonably satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding.
(d) In order to provide for just and equitable contribution under the
Act in any case in which (i) any indemnified party makes claim for
indemnification pursuant to this Section 2.8, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact the express provisions of this Section 2.8 provide for indemnification, or
(ii) contribution under the Act may be required on the part of any indemnified
party; then the indemnifying party in lieu of indemnifying such indemnified
party hereunder shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying parties on the one hand and of the indemnified parties 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 fault of the indemnifying parties and of the
indemnified parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party, or by the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The parties further agree that it would not be just and equitable if
contribution pursuant to this Section 2.8(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
13
<PAGE>
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 2.8(d), in no
event shall any contribution under this Section 2.8(d) exceed the net proceeds
from the offering received by such Holder. No person guilty of fraudulent
misrepresentations (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.
(e) The obligations of Reading Entertainment and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article Two.
2.9 Assignment of Registration Rights. The rights to cause Reading
---------------------------------
Entertainment to register Registrable Securities pursuant to this Article Two
may be assigned by a Holder to any transferee or assignee of any amount of such
securities; provided, in each case that (i) Reading Entertainment is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (ii) such assignment shall be
effective only if, immediately following such transfer, the further disposition
of such securities by the transferee or assignee is restricted under the Act and
(iii) the transferee or assignee agrees in writing to assume all the obligations
of the transferor under this Article Two.
2.10 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, Reading Entertainment shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of Reading Entertainment which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 2.2 hereof, unless, under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of its securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective within 120 days of the effective date of any registration
effected pursuant to Section 2.2.
2.11 Amendment of Registration Rights. Any provision of this Article
--------------------------------
Two may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of Reading Entertainment and the holders of a majority of
the Registrable Securities then outstanding. Any amendment or waiver effected
in accordance with this Section 2.11 shall be binding upon each Holder of
Registrable Securities, each future holder of all such securities and Reading
Entertainment.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Reading Entertainment. Reading
-------------------------------------------------------
Entertainment hereby represents and warrants to each of Citadel and CAC as
follows:
(a) The representations and warranties of Reading Entertainment set
forth in Section 3 of the Exchange Agreement are hereby incorporated by
reference and are true and correct in all respects; and
14
<PAGE>
(b) The representations and warranties of Reading Entertainment set
forth in Section 3 of the Exchange Agreement relating to the Exchange Agreement
and the consummation of the transactions contemplated thereby are true and
correct in all respects as if made with respect to this Agreement and the
consummation of the transactions contemplated hereby, other than, with respect
to Section 3.6 of the Exchange Agreement, as required by Article Two hereof and
other than any consent, approval, order, authorization, registration,
declaration, or filing with a governmental authority which may be required to
consummate the transactions contemplated by Article One hereof.
3.2 Representations and Warranties of Citadel and CAC. Citadel and
-------------------------------------------------
CAC hereby jointly and severally represent and warrant to Reading Entertainment
as follows:
(a) The representations and warranties of each of Citadel and CAC set
forth in Section 5 of the Exchange Agreement (except Section 5.5) are hereby
incorporated by reference and are true and correct in all respects; and
(b) The representations and warranties of Citadel and CAC set forth in
Section 5 of the Exchange Agreement relating to the Exchange Agreement and the
consummation of the transactions contemplated thereby are true and correct in
all respects as if made with respect to this Agreement and the consummation of
the transactions contemplated hereby, other than, with respect to Sections 5.1
and 5.3 of the Exchange Agreement, representations and warranties relating to
or necessary in connection with approval of the stockholders of Citadel, which
if required, will be obtained on or prior to the Closing Date.
ARTICLE FOUR
READING ENTERTAINMENT CHANGE OF CONTROL
4.1 Redemption By Reading Entertainment. In the event of any "Change
-----------------------------------
in Control" (as defined in Reading Entertainment's Certificate of Designation,
Preferences and Rights of the Series A Preferred Stock and Reading
Entertainment's Series B Voting Cumulative Convertible Preferred Stock (the
"Certificate")), Reading Entertainment shall not be entitled to redeem any
-----------
Series A Preferred Stock held by Citadel, CAC or any of their respective
affiliates pursuant to the first sentence of Section 5.1(a) of the Certificate
unless, prior to or simultaneously with such redemption, Craig assumes, pursuant
to an assumption agreement in form and substance satisfactory to Citadel in its
reasonable discretion, all obligations of Reading Entertainment under Articles
One, Two (as it relates to the Exchange Shares) and Five hereunder.
Notwithstanding the foregoing, such assumption agreement by Craig shall provide:
(a) In lieu of Common Stock, Citadel will be entitled to exchange the
Citadel Assets (to the extent it would otherwise have been entitled to exchange
the Citadel Assets for Common Stock) for Craig's Class A Common Preference
Stock, par value $0.01 per share ("Craig Stock"),
-----------
(b) For purposes of Section 1.3(a)(i), the Common Stock Value shall be
determined by multiplying: (i) the average of the Closing Prices of the Craig
Stock for the twenty (20) consecutive trading days on which trading of the Craig
Stock occurs immediately prior to the date of the event which results in such
Change of Control (the "Change of Control Date") by (ii) a fraction, the
----------------------
denominator of which shall be the Closing Price of the Common Stock on the
Change of Control Date and the numerator of which shall be the applicable Common
Stock Value of the Common Stock under Section 1.3(a)(i). For all other
purposes, in determining the "Common Stock Value" with respect to the Craig
Stock, Craig and the Craig Stock shall be deemed substituted for Reading
Entertainment and the Common Stock.
15
<PAGE>
(c) Craig shall represent and warrant to Citadel and CAC as to the
matters covered by the representations and warranties of Reading Entertainment
set forth in Article Three as if made by Craig with respect to such assumption
agreements, this Agreement and the consummation of the transactions covered
thereby and hereby.
(d) References to the representations and warranties of Reading
Entertainment in Section 1.4(a)(v) shall refer to representations and warranties
of Craig as if made by Craig with respect to Craig.
ARTICLE FIVE
GENERAL PROVISIONS
5.1 General Provisions.
------------------
(a) Subject to Section 2.4(i), all notices, requests, demands or other
communications required or authorized or contemplated to be given by this
Agreement shall be in writing and shall be deemed to have been duly given, made
and received when delivered against receipt, upon receipt of a facsimile
transmission, when deposited in the United States mails (first class postage
prepaid) or when deposited with Federal Express, and addressed as provided in
Section 10.2 of the Exchange Agreement or to such other address and fax number
as any of the parties hereto may from time to time designate in writing, prior
to the giving of such notice.
(b) Except as set forth in Article Two, no amendment or waiver of any
provision of this Agreement shall in any event be effective, unless the same
shall be in writing signed by the parties hereto, and then such amendment,
waiver or consent shall be effective only in a specific instance and for the
specific purpose for which given.
(c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
(d) Except as set forth in Article Two, this Agreement shall not be
assigned by any party without the prior written consent of the other party
hereto.
(e) This Agreement and the documents and agreements referred to herein
contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, notwithstanding any Delaware or other
conflict-of-law provisions to the contrary.
(g) Each party hereto shall execute and deliver such further
agreements and instruments, and take such further actions, as the other party
may reasonably request in order to carry out the purpose and intent of this
Agreement.
(h) Except as provided in Section 1.2, should any party institute any
arbitration, action, suit or other proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith.
16
<PAGE>
(i) Other than as specifically provided herein, each party shall bear
its own costs and expenses (including fees and disbursements of legal counsel)
incurred in connection with the consummation of the transactions provided for
herein.
(j) No party, nor its respective counsel, shall be deemed the drafter
of this Agreement for purposes of construing the provisions of this Agreement,
and all language in all parts of this Agreement shall be construed in accordance
with its fair meaning, and not strictly for or against any party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
READING ENTERTAINMENT, INC.
By:/s/ S. Craig Tompkins
____________________________________
Name: S. Craig Tompkins
__________________________________
Its: President
___________________________________
CITADEL ACQUISITION CORP., INC.
By: /s/ Steve Wesson
____________________________________
Name: Steve Wesson
__________________________________
Its: President
___________________________________
CITADEL HOLDING CORPORATION
By:/s/ Steve Wesson
____________________________________
Name:Steve Wesson
__________________________________
Its: President
___________________________________
Acknowledged and agreed, as to the matters set forth in Section 1.1(e)(iv) and
Article Four:
CRAIG CORPORATION
By:/s/ Craig Tompkins
_________________________
Name: Craig S. Tompkins
_______________________
Its: President
________________________
17
<PAGE>
EXHIBIT 10.35
CERTIFICATE OF DESIGNATION
OF THE SERIES B 3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK
(Par Value $.01 Per Share)
OF
CITADEL HOLDING CORPORATION
______________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________
Citadel Holding Corporation, a Delaware corporation (the "Company"),
-------
certifies that pursuant to the authority conferred upon the Board of Directors
of the Company (the "Board of Directors") by the Certificate of Incorporation of
------------------
the Company (the "Certificate of Incorporation"), and in accordance with the
----------------------------
provisions of Section 151 of the General Corporation Law of the State of
Delaware, as amended (the "GCL"), the Board of Directors, on
---
August 23, 1996, adopted the following resolution creating a series of
its Preferred Stock, par value $.01 per share:
RESOLVED, that a class of the Company's authorized preferred stock, par
value $.01 per share, which shall consist of 1,329,114 shares of Preferred
Stock, be hereby created, and that the designation and amount thereof and the
voting powers, preferences, limitations, restrictions and relative rights and
the qualifications, limitations and restrictions thereof are as follows:
1. Designation, Issuance and Stated Value. The designation of such series
---------------------------------------
of the Preferred Stock authorized by this resolution shall be the Series B 3%
Cumulative Voting Convertible Preferred Stock (the "Preferred Stock"). The
---------------
maximum number of shares of Preferred Stock shall be 1,329,114. The shares of
Preferred Stock shall be issued by the Company for their Stated Value (as
defined herein), in such amounts, at such times and to such persons as shall be
specified by the Board of Directors from time to time. For the purposes hereof,
the "Stated Value" of each share of Preferred Stock (regardless of its par
------------
value) shall be $3.95 per share.
2. Rank. The Preferred Stock shall, with respect to dividend rights and
----
rights upon liquidation, winding up and dissolution, rank prior to the Company's
common stock, par value $.01 per share (the "Common Stock"), and to all other
------------
classes and series of equity securities of the Company now or hereafter
authorized, issued or outstanding (the Common Stock and such other classes and
series of equity securities may be referred to herein collectively as the
"Junior Stock"), other than any class or series of equity securities of the
- -------------
Company ranking on a parity with (the "Parity Stock") or senior to (the "Senior
------------ ------
Stock") the Preferred Stock as to dividend rights and/or rights upon
- -----
liquidation, dissolution or winding up of the Company. The Preferred Stock
shall be subordinate to and rank junior to all indebtedness of the Company now
or hereafter outstanding. The Preferred Stock shall be subject to creation of
Senior Stock, Parity Stock and Junior Stock, to the extent not expressly
prohibited by the Certificate of Incorporation, with respect to the payment of
dividends and/or rights upon liquidation, dissolution or winding up of the
Company.
<PAGE>
3. Cumulative Dividends; Priority.
-------------------------------
(a) Payment of Dividends. The holder of record of each share of
--------------------
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available therefor, a quarterly per
share dividend (the "Quarterly Dividend") equal to (i) one-fourth of 3% of the
------------------
Stated Value of such share (pro-rated for any portion of a Dividend Period (as
defined below) that such share shall have been issued and outstanding), plus
(ii) accrued but unpaid per share dividends as to which a Dividend Payment Date
(as defined below) has occurred. Dividends shall accrue from the last Dividend
Payment Date (as defined below) prior to the Closing Date (the "Closing Date")
of the Exchange Agreement by and among Reading Company, the Company, Craig
Corporation, Reading Entertainment, Inc., Craig Management, Inc. and Citadel
Acquisition Corp., Inc. and be payable (subject to declaration) quarterly on the
fifteenth day of January, April, July and October in each year (or if such day
is a non-business day, on the next business day), commencing on the first
Dividend Payment Date to occur after the Closing Date, in respect of the
immediately preceding calendar quarter (each of such dates a "Dividend Payment
----------------
Date"). Each declared dividend shall be payable to holders of record as they
- ----
appear on the stock books of the Company at the close of business on such record
dates as are determined by the Board of Directors or a duly authorized committee
thereof (each of such dates a "Record Date"), which Record Dates shall be not
-----------
more than 45 calendar days nor fewer than ten calendar days preceding the
Dividend Payment Dates therefor. Quarterly dividend periods (each a "Dividend
--------
Period") shall be the calendar quarters that commence on and include the first
- ------
day of January, April, July and October of each year and shall end on and
include the end of the calendar quarter that commenced with each of such dates.
Dividends on the Preferred Stock shall be fully cumulative and shall accrue
(whether or not declared), on a daily basis, from the first day of each Dividend
Period; provided, however, that the initial quarterly dividend payable on the
first Dividend Payment Date to occur after the Closing Date, and the amount of
any dividend payable for any other Dividend Period shorter than a full Dividend
Period shall be computed on the basis of a 360-day year composed of twelve 30-
day months and the actual number of days elapsed in the relevant Dividend
Period.
(b) Priority as to Dividends. No full dividend shall be declared by
the Board of Directors or paid or set apart for payment by the Company on any
Parity Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment on the Preferred Stock through the most recent
Dividend Payment Date. If any dividends are not paid or set apart in full, as
aforesaid, upon the shares of the Preferred Stock and any Parity Stock, all
dividends declared upon the Preferred Stock and any Parity Stock shall be
declared pro rata so that the amount of dividends declared per share on the
Preferred Stock and such Parity Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock and such
Parity Stock bear to each other. Unless full cumulative dividends, if any,
accrued on all outstanding shares of the Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment through the most recently completed Dividend Period,
no dividend shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other Junior
Stock (other than a dividend or distribution paid in shares of, or warrants,
rights or options exercisable for or convertible into, Common Stock or any other
Junior Stock), nor shall any Common Stock nor any other Junior Stock be
redeemed, purchased or otherwise acquired for any consideration, nor may any
moneys be paid to or made available for a sinking fund for the redemption of any
shares of any such securities, by the Company, except by conversion into or
exchange for Junior Stock. Unless full cumulative dividends, if any, accrued on
all outstanding shares of the Senior Stock have been or contemporaneously are
declared and paid or declared and a sum set apart sufficient for such payment
through the most recently completed dividend period therefor, no dividend shall
be declared or paid or set aside for payment or other distribution declared or
made upon the Preferred Stock (other than a dividend or distribution paid in
shares of, or warrants, rights or options exercisable for or convertible into,
Preferred Stock), nor shall any Preferred Stock be redeemed, purchased or
otherwise acquired for any consideration, nor may any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such
securities, by the Company, except by conversion into or exchange for Preferred
Stock, Parity Stock or Junior Stock. Holders of the shares of the Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of full cumulative dividends as provided in Section (3)(a).
2
<PAGE>
(c) Miscellaneous Provisions Relating to Dividends. Payment of
----------------------------------------------
dividends shall be subject to the following provisions:
(i) Subject to the foregoing provisions of this Section 3, the
Board of Directors may declare and the Company may pay or set apart for payment
dividends and other distributions on any of the Junior Stock or Parity Stock,
and may redeem, purchase or otherwise acquire out of funds legally available
therefor any Junior Stock, and the holders of the shares of the Preferred Stock
shall not be entitled to share therein;
(ii) Any dividend payment made on shares of the Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of the Preferred Stock;
(iii) All dividends paid with respect to shares of the Preferred
Stock pursuant to this Section 3 shall be paid pro rata to the holders entitled
thereto; and
(iv) Holders of shares of the Preferred Stock shall be entitled
to receive the dividends provided for in this Section 3 in preference to and in
priority over any dividends upon any of the Junior Stock; and
(v) Accrued but unpaid dividends on preferred stock shall not
earn interest or compound.
4. Redemption at the Option of the Company.
----------------------------------------
(a) General. Except as expressly provided herein, the Company shall
not have any right to redeem shares of the Preferred Stock prior to November
10, 1997. Thereafter, the Company shall have the right, at its sole option and
election, subject to Section 6, to redeem outstanding shares of the Preferred
Stock, in whole or in part at any, time and from time to time at a per share
price (the "Redemption Price") equal to the sum of:
----------------
(i) the Stated Value; plus
(ii) all accrued but unpaid Quarterly Dividends, whether or not
declared, plus
(iii) the "Premium," which shall mean:
-------
(A) if the Redemption Date (as defined below) is on or
prior to November 10, 1998, an amount equal to an accrual on the Stated
Value of 9% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(B) if the Redemption Date is after November 10, 1998 and
on or prior to November 10, 1999, an amount equal to an accrual on the
Stated Value of 8% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(C) if the Redemption Date is after November 10, 1999 and
on or prior to November 10, 2000, an amount equal to an accrual on the
Stated Value of 7% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(D) if the Redemption Date is after November 10, 2000 and
on or prior to November 10, 2001, an amount equal to an accrual on the
Stated Value of 6% per annum (not
3
<PAGE>
compounded) from November 10, 1994 to the Closing Date, plus an amount
equal to an accrual on the Stated Value of 3% per annum (not compounded)
from the Closing Date to the Redemption Date; or
(E) if the Redemption Date is after November 10, 2001 and
on or prior to November 10, 2002, an amount equal to an accrual on the
Stated Value of 5% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(F) if the Redemption Date is after November 10, 2002 and
on or prior to November 10, 2003, an amount equal to an accrual on the
Stated Value of 4% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(G) if the Redemption Date is after November 10, 2003 and
on or prior to November 10, 2004, an amount equal to an accrual on the
Stated Value of 3% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(H) if the Redemption Date is after November 10, 2004 and
on or prior to November 10, 2005, an amount equal to an accrual on the
Stated Value of 2% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(I) if the Redemption Date is after November 10, 2005 and
on or prior to November 10, 2006, an amount equal to an accrual on the
Stated Value of 1% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(J) if the Redemption Date is after November 10, 2006,
zero.
Holders of shares of Preferred Stock to be redeemed who fail to claim the
Redemption Price on the Redemption Date shall not be entitled to interest on the
Redemption Price after the Redemption Date.
(b) Notice of Redemption. The Company shall mail notice of redemption
--------------------
of the Preferred Stock (a "Redemption Notice") at least 30, but no more than 60,
-----------------
days prior to the date fixed for redemption (the "Redemption Date") to each
---------------
holder of Preferred Stock to be redeemed, at such holder's address as it appears
on the books of the Company.
(c) Deposit. If such notice of redemption shall have been so mailed,
-------
and if on or before the Redemption Date specified in such notice all said funds
necessary for such redemption shall have been irrevocably deposited in trust
(which deposit shall not be made sooner than the 15th day following the date of
the Company's mailing of the notice of redemption pursuant to Section 4(b)), for
the account of the holder of the shares of the Preferred Stock to be redeemed
(and so as to be and continue to be available therefor), with a bank or trust
company named in such notice doing business in the State of California and
having combined capital and surplus of at least $50,000,000, thereupon and
without awaiting the Redemption Date, all shares of the Preferred Stock with
respect to which such notice shall have been so mailed and such deposit shall
have been so made shall be deemed to be no longer outstanding, and all rights
with respect to such shares of the Preferred Stock shall forthwith upon such
deposit in trust cease and terminate, except only the right of the holders
thereof on or after the Redemption Date to receive from such deposit the amount
payable on redemption thereof, but without interest, upon surrender (and
4
<PAGE>
endorsement or assignment to transfer, if required by the Company) of their
certificates. In case the holders of shares of the Preferred Stock that shall
have been redeemed shall not within two years (or any longer period if required
by law) after the Redemption Date claim any amount so deposited in trust for the
redemption of such shares, such bank or trust company shall, upon demand and if
permitted by applicable law, pay over to the Company any such unclaimed amount
so deposited with it, and shall thereupon be relieved of all responsibility in
respect thereof, and thereafter the holders of such shares shall, subject to
applicable escheat laws, look only to the Company for payment of the redemption
price thereof, but without interest.
5. Redemption Following Change in Control.
--------------------------------------
(a) Redemption at Option of Holder of Preferred Stock. In the event
-------------------------------------------------
of a Change in Control (as defined below), each holder of shares of Preferred
Stock shall have the right, at the sole option and election of such holder
exercisable on or before the 90th day following the earliest event constituting
a Change in Control, to require the Company to redeem some or all of the shares
of Preferred Stock owned by such holder at the Redemption Price. For purposes
of this Section 5, a "Change in Control" shall mean the occurrence of either of
------------------
the following events:
(i) any person, entity or "group" (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules thereunder) other than Craig Corporation, a Delaware
corporation ("Craig"), and its successors and affiliates, acquires
beneficial ownership of over 35% of the outstanding voting securities of
the Company ("affiliate" of a person shall mean any person directly or
---------
indirectly controlling, controlled by or under common control with such
person, and "control" of a person shall mean the power to direct the
-------
affairs of such person by reason of ownership of voting stock, contract or
otherwise); or
(ii) the directors of the Company as of October 10, 1994 (the
"Current Directors"), and any future directors ("Continuing Directors") of
----------------- --------------------
the Company who have been elected or nominated by a majority of the Current
Directors or the Continuing Directors cease to constitute a majority of the
Board of Directors.
(b) Exercise of Redemption Rights. The holder of any shares of the
-----------------------------
Preferred Stock seeking to exercise its redemption rights pursuant to Section
5(a) may exercise its right to require the Company to redeem such shares by
surrendering for such purpose to the Company, at its principal office or at
such other office or agency maintained by the Company for that purpose, a
certificate or certificates representing the shares of Preferred Stock to be
redeemed accompanied by a written notice stating that such holder elects to
require the Company to redeem all or a specified integral number of such shares
in accordance with the provisions of this Section 5. As promptly as
practicable, and in any event within ten business days after the surrender of
such certificates and the receipt of such notice relating thereto, the Company
shall deliver or cause to be delivered to the holder of the shares being
redeemed payment for such shares in immediately available funds and, if less
than the full number of shares of the Preferred Stock evidenced by the
surrendered certificate or certificates are being redeemed, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares redeemed.
Such redemptions shall be deemed to have been made at the close of business on
the date of such payment and the rights of the holder thereof, except for the
right to receive the payment for the redeemed shares in accordance herewith,
shall cease on such date.
6. General Provisions Relating to Redemptions. Redemptions pursuant to
------------------------------------------
Sections 4 and 5 shall be subject to the following terms and conditions:
(a) Pro-Rata Redemption. If less than all of the Preferred Stock at
-------------------
the time outstanding is to be redeemed, the shares so to be redeemed shall be
selected by lot, pro-rata or in such other manner as the Board of Directors may
determine to be fair and proper.
(b) Payment of Taxes. The Company shall not be required to pay any
----------------
tax that may be payable in respect of any payment in respect of a redemption of
shares of Preferred Stock to a name
5
<PAGE>
other than that of the registered holder of Preferred Stock redeemed or to be
redeemed, and no such redemption payment shall be made unless and until the
person requesting such payment has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid.
(c) Status of Shares Redeemed. Shares of Preferred Stock redeemed,
-------------------------
purchased or otherwise acquired for value by the Company shall, after such
acquisition, be retired, and shall thereafter have the status of authorized and
unissued shares of preferred stock and may be reissued by the Company at any
time as shares of any series of preferred stock.
(d) Conversion Prior to Redemption. From the date of a Redemption
------------------------------
Notice until the earlier of the Redemption Date or the date the deposit of funds
in trust is made pursuant to Section 4(c), holders of shares of Preferred Stock
subject to a Redemption Notice shall retain their right to an Optional
Conversion (as defined in Section 7) of their shares.
7. Optional Conversion. Subject to the provisions of this Section 7 and
-------------------
of Section 8, shares of Preferred Stock shall be convertible, at the option of
the holder thereof (an "Optional Conversion"), into shares of Common Stock at a
-------------------
conversion ratio (the "Conversion Ratio") of one share of Preferred Stock for a
----------------
fraction of a share of Common Stock, the numerator of which is the sum of the
Stated Value plus any accrued but unpaid per share Quarterly Dividends, and the
denominator of which is the average of the closing prices per share of the
Common Stock on the American Stock Exchange (the "AMEX") for each of the 60
----
business days immediately preceding the Original Conversion Date (as defined
below), as quoted in The Wall Street Journal, or if the Common Stock is not
listed or admitted to trade on AMEX, the average of the closing prices per share
of the Common Stock on the principal national securities exchange on which the
Common Stock is listed or admitted to trade for each of the 60 business days
immediately preceding the Original Conversion Date (as defined below), as quoted
in The Wall Street Journal, or if the Common Stock is not listed or admitted to
trade on any such exchange, the average of the closing bid and asked prices for
Common Stock as reported by NASDAQ for each of the 60 business days immediately
preceding the Original Conversion Date (as defined below), as quoted in The Wall
Street Journal, or other similar organization if NASDAQ is no longer reporting
such information, or if not so available, the fair market price as determined in
good faith by the Board of Directors of the Company (the "Market Price"),
------------
subject to the following:
(a) Limits on Market Price. If the Market Price for any Optional
----------------------
Conversion would exceed $5.00, the Conversion Ratio shall be calculated as if
the Market Price were $5.00.
(b) Option of the Company to Redeem Tendered Preferred Stock. Subject
--------------------------------------------------------
to the provisions of this Section 7(b), if the Market Price for any Optional
Conversion shall be below $3.00, the Company shall have the option, exercisable
for 30 days after receipt by the Company of the Notice of Conversion (as defined
below) by written notice to the holder, to redeem any or all of the shares of
Preferred Stock that have been tendered for conversion by the holder thereof
(the "Tendered Preferred Stock") at the Redemption Price pursuant to Section
------------------------
4(a); provided, however, that the Company shall complete such redemption within
90 days of the Company's notice of redemption and the Premium shall be
calculated through the date of redemption using the accrual rate, as provided in
Section 4(a)(iii), in effect on the Original Conversion Date (as defined below).
(c) Exercise of Optional Conversion Rights. The holder of any shares
--------------------------------------
of the Preferred Stock seeking to exercise its optional conversion rights
pursuant to Section 7(a) may exercise its right to require the Company to
convert such shares by surrendering for such purpose to the Company, at its
principal office or at such other office or agency maintained by the Company for
that purpose, a certificate or certificates representing the shares of Tendered
Preferred Stock to be converted accompanied by a written notice stating that
such holder elects to require the Company to convert all or a specified integral
number of such shares into shares of Common Stock in accordance with the
provisions of this Section 7 (the "Notice of Conversion"), and the date of
--------------------
delivery to the Company of such Notice of Conversion shall be the "Original
--------
Conversion Date" for such shares of Tendered Preferred Stock. Subject to
- ---------------
Section 7(b), as promptly as practicable, the Company shall deliver or cause to
be delivered to the holder of the shares of
6
<PAGE>
Tendered Preferred Stock,(i) a new certificate or certificates representing the
number of shares of Common Stock into which the Tendered Preferred Stock has
been converted, and (ii) if less than the full number of shares of Preferred
Stock evidenced by the surrendered certificate(s) are being converted, a new
certificate or certificates, of like tenor, for the number of shares of
Preferred Stock that have not been converted and that the holder shall retain.
Such conversions shall be deemed to have been made at the close of business on
the Original Conversion Date and the rights of the holder thereof, except the
right to receive the new certificate or certificates, shall cease on the
Original Conversion Date or the Final Conversion Date (as defined below), as
applicable.
(d) Limits on Time of Conversion. Holders of shares of Preferred
----------------------------
Stock shall not be entitled to convert shares of Preferred Stock into shares of
Common Stock for a one-year period commencing on the 15th day following the
filing of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, except in the event of a Change in Control of the Company.
8. General Provisions Relating to Conversion. Conversions pursuant to
-----------------------------------------
Sections 7 shall be subject to the following terms and conditions:
(a) Conversion Restrictions Pursuant to AMEX Rules. If an Optional
----------------------------------------------
Conversion would result, on the Original Conversion Date, in the issuance of a
number of shares of Common Stock (the "Issuable Common Stock") that exceeds 20%
---------------------
of the then-outstanding shares of Common Stock and if the AMEX rules and
regulations, including, but not limited to, (S)713 of the AMEX Company Guide
(the "AMEX Rules") shall require the affirmative vote of the stockholders of the
----------
Company with respect to such issuance before it will approve such excess shares
of Issuable Common Stock for listing on AMEX (the "Ineligible Common Stock"),
-----------------------
then, subject to any rights the Company may have to redeem the Preferred Stock
in accordance with Section 7(b), the Company shall convert into Common Stock
only the number of shares of Preferred Stock that will not result in the
issuance of any Ineligible Common Stock, and shall deliver to the holder of the
shares of Preferred Stock that were the subject of the Optional Conversion or
Automatic Conversion a certificate for evidencing the shares of Preferred Stock
that would have been converted but for the issuance of Ineligible Common Stock
(the "Unconverted Preferred Stock"). The holder shall retain the Unconverted
---------------------------
Preferred Stock until the next annual or special meeting of the stockholders of
the Company at which the Company, subject to any rights it may have to redeem
the Unconverted Preferred Stock in accordance with Section 7(b), shall submit a
proposal for stockholder approval of the issuance of the Ineligible Common
Stock. Pending such stockholder approval, the Unconverted Preferred Stock shall
continue to be outstanding and entitled to all rights and privileges hereunder.
(i) If such stockholder approval is obtained, the Unconverted
Preferred Stock shall, as soon as practically possible and on a date selected by
the Board of Directors (the "Final Conversion Date"), be converted into shares
---------------------
of Common Stock at the ratio applicable to the Original Conversion Date upon (A)
surrender to the Company of the certificate(s) representing the Unconverted
Preferred Stock, (B) the Company's remittance to the holder of such Unconverted
Preferred Stock of the benefits such holder would have received had the
Unconverted Preferred Stock been converted into the Ineligible Common Stock on
the Original Conversion Date, including, but not limited to, the benefits of any
cash dividends, stock dividends, stock splits, reverse stock splits, and
recapitalizations of the Common Stock, declared (and not rescinded) or
effective, during the period from the Original Conversion Date through the Final
Conversion Date (the "Stockholder Approval Period"), and (C) such holder's
forfeiture or refund to the Company of any Quarterly Dividends on the
Unconverted Preferred Stock that have accrued or been paid in respect of the
Unconverted Preferred Stock during the Stockholder Approval Period.
(ii) If such stockholder approval is not obtained, the Company shall
redeem the Unconverted Preferred Stock at the Redemption Price; provided,
however, that the Premium shall be calculated through the date of redemption
using the accrual rate in effect on the Original Conversion Date.
(b) Request of Majority for Stockholder Vote. At any time before a
----------------------------------------
conversion described in Section 8(a) occurs, the Company shall, upon the request
of a majority of the outstanding
7
<PAGE>
shares of Preferred Stock, submit a proposal for stockholder approval of the
issuance of all shares of Common Stock issuable upon conversion of the Preferred
Stock, including, without limitation, the Ineligible Common Stock, at the next
meeting of stockholders of the Company that follows such request.
(c) Conversion Restrictions Pursuant to Number of Authorized Shares of
------------------------------------------------------------------
Common Stock. If there are an insufficient number of authorized shares of
- ------------
Common Stock to satisfy an Optional Conversion or an Automatic Conversion, the
number of shares of Preferred Stock that would have been converted in the
absence of such insufficiency shall be exchanged by the Company for a new class
of preferred shares (the "New Shares") having the same aggregate stated value as
the shares exchanged therefor and a stated value per share equal to the Market
Price (up to a maximum of $5.00); provided, however, that such new class shall
have identical rights, privileges and preferences as those of the Preferred
Stock, except as stated in this Section 8(c). If there are an insufficient
number of authorized New Shares to satisfy such exchange, the holders of shares
of Preferred Stock to be so exchanged shall each receive a pro rata allocation
of available New Shares for such exchange, and each such holder shall have the
right, exercisable by written notice of such exercise delivered to the Company
within 30 days of such exchange accompanied by certificates evidencing the
remainder of their shares of Preferred Stock that would have been so exchanged
but for such insufficiency, to require the Company to redeem such remaining
shares at the Redemption Price in effect on the date of such exchange and in
accordance with the provisions of Section 6.
(d) Pro-Rata Conversion. If less than all of the Preferred Stock at
-------------------
the time outstanding is to be converted, the shares so to be converted shall be
selected by lot, pro-rata or in such other manner as the Board of Directors may
determine to be fair and proper.
(e) No Fractional Shares. No fractional shares or scrip representing
--------------------
fractional shares of Common Stock shall be issued upon the conversion of any
shares of Preferred Stock. Instead of any fractional interest in a share of
Common Stock that would otherwise be deliverable upon the conversion of
Preferred Stock, the Company shall pay to the holder an amount in cash (computed
to the nearest cent) equal to the Market Price. If more than one share shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Preferred Stock so surrendered.
(f) Payment of Taxes. The Company will pay any and all documentary,
----------------
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on the conversion of shares of Preferred
Stock pursuant to this Section 8; provided, however, that the Company shall not
be required to pay any tax that may be payable in respect of any registration of
transfer involved in the issue or delivery of shares of Common Stock in a name
other than that of the registered holder of Preferred Stock converted or to be
converted, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Company the amount of any such tax
or has established, to the satisfaction of the Company, that such tax has been
paid.
(g) Status of Shares Converted. Shares of Preferred Stock converted
--------------------------
by the Company, shall, after such conversion, be retired, and shall thereafter
have the status of authorized and unissued shares of preferred stock and may be
reissued by the Company at any time as shares of any series of preferred stock.
9. Voting Rights. The holders of Preferred Stock shall have the
-------------
following voting rights:
(a) One Vote Per Share. Except as provided herein or by law, each
------------------
share of Preferred Stock shall entitle the holder thereof to one vote on all
matters submitted to a vote of the Company's stockholders.
(b) Voting With Common Stock. Except as otherwise provided herein or
------------------------
by law, the holders of Preferred Stock and the holders of Common Stock shall
vote together as one class on all matters submitted to a vote of the Company's
stockholders.
8
<PAGE>
(c) Dividend Arrearages and Election of Director. If dividends in an
--------------------------------------------
amount equal to two Quarterly Dividends have accrued and remain unpaid for two
consecutive Dividend Periods, the holders of the Preferred Stock will thereupon
have the right to vote as a separate class to elect one special director to the
Board of Directors (in addition to the then authorized number of directors) and
at each succeeding annual meeting of stockholders thereafter until such right is
terminated as hereinafter provided. Upon payment of all dividend arrearages,
the holders of Preferred Stock will be divested of such voting rights (until any
future time when dividends in an amount equal to two Quarterly Dividends have
accrued and remained unpaid for two consecutive Dividend Periods) and the term
of the special director will thereupon terminate and the authorized number of
directors will be reduced by one.
(d) Parity or Senior Stock. So long as any shares of the Preferred
----------------------
Stock are outstanding (except when notice of the redemption of all outstanding
shares of Preferred Stock has been given pursuant to Section 4(b) and shares of
Common Stock and any necessary funds have been deposited in trust for such
redemption pursuant to Section 4(c)), the Company shall not, without the
affirmative vote or consent of the holders of at least a majority of the
outstanding shares of Preferred Stock and any other series of preferred stock
entitled to vote thereon at the time outstanding voting or consenting, as the
case may be, together as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting called for the
purpose, create, authorize or issue any new class of Parity Stock or Senior
Stock.
(e) Matters Affecting the Rights of Holders of Preferred Stock. So
----------------------------------------------------------
long as any shares of the Preferred Stock are outstanding (except when notice of
the redemption of all outstanding shares of Preferred Stock has been given
pursuant to Section 4(b) and shares of Common Stock and any necessary funds have
been deposited in trust for such redemption pursuant to Section 4(c)), the
Company shall not, without the affirmative vote or consent of the holders of at
least a majority of the outstanding shares of Preferred Stock and any other
series of preferred stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, amend the Certificate of Incorporation or this
Certificate of Designation, directly or indirectly, whether through a merger or
otherwise, so as to affect materially and adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Preferred
Stock.
(f) Matters Deemed Not to Affect the Rights of Holders of Preferred
---------------------------------------------------------------
Stock. Except as set forth in Section 9(d) above, the creation, authorization
- -----
or issuance of any shares of any Junior Stock, Parity Stock or Senior Stock, the
creation of any indebtedness of any kind of the Company, or the increase or
decrease in the amount of authorized capital stock of any class, including
Preferred Stock, shall not require the consent of the holders of Preferred Stock
and shall not be deemed to affect materially and adversely the rights,
preferences, privileges or voting rights of holders of shares of Preferred
Stock.
(g) Nomination of Director. Subject to the fiduciary duty of the
----------------------
Board of Directors the holders of a majority of the outstanding shares of the
Preferred Stock shall have, in addition to their rights under Section 9(c), the
right to nominate one director nominee to the slate of director nominees
submitted to the stockholders of the Company by the Board of Directors.
10. No Sinking Fund. No sinking fund will be established for the
---------------
retirement or redemption of shares of Preferred Stock.
11. Preemptive Rights. Each holder of any of the shares of Preferred
-----------------
Stock shall be entitled to a preemptive right to purchase or subscribe for any
unissued voting stock of any class of the Company, or any unissued stock or
unissued other instrument which is, or may, upon the occurrence of certain
condition(s), be convertible into voting stock of the Company, that the Board
of Directors may propose to issue by means of an increase of the outstanding
shares of capital stock of any class, or the issuance of bonds, certificates of
indebtedness, debentures or other securities convertible into voting stock of
the Company (the "Proposed Voting Securities"). Such preemptive rights shall
extend only to the extent necessary to allow such holder of shares of Preferred
Stock to maintain its proportionate share of the outstanding voting stock of the
Company and the number of shares (or dollar amount, as applicable) of
9
<PAGE>
Proposed Voting Securities each holder of Preferred Stock shall be entitled to
purchase or subscribe for shall be the amount determined by multiplying the
number of shares (or dollar amount, as applicable) of Proposed Voting Securities
by a fraction, the numerator of which shall be the number of shares of Preferred
Stock held by such holder, and the denominator of which shall be the number of
votes entitled to be cast by all outstanding voting securities of the Company
before the proposed issuance.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be executed by Steve Wesson, its President as of
October 8, 1996.
CITADEL HOLDING CORPORATION
By: /s/ Steve Wesson
----------------------------------------
Name: Steve Wesson
Title: President and Chief Executive Officer
10
<PAGE>
EXHIBIT 10.36
ANGELIKA THEATRE
----------------
ASSET PURCHASE AND SALE AGREEMENT
---------------------------------
This Purchase and Sale Agreement (this "Agreement") is made and
entered into as of this 1st day of July, 1996 by and among READING INVESTMENT
COMPANY, INC., a Delaware corporation ("Reading"), ANGELIKA FILM CENTERS, INC.,
a New York corporation ("Seller"), and HOUSTON CINEMA, INC., a New York
corporation ("Houston").
RECITALS
--------
A. Seller owns certain Assets (as hereafter defined) consisting of,
among other things, the assets used in connection with the business operations
thereon commonly known as the Angelika Film Center Theatre and Cafe (the
"Angelika Theatre").
B. Houston was the original tenant of and owned a leasehold interest
in certain property in which the Angelika Theatre is located (namely the
building located at 18 W. Houston Street, New York, New York), pursuant to that
certain Agreement of Lease made as of March 4, 1988 between Cable Building
Association as landlord and Houston as tenant and as modified by that certain
Amendment of Lease dated December 26, 1989, which leasehold interest is more
particularly described on Exhibit A attached hereto (collectively, the
"Leasehold").
C. Houston previously assigned all of its right, title and interest
as tenant in and to the Leasehold to Seller, as well as all of its right, title
and interest in and to any of the assets used in connection with the business or
operations of the Angelika Theatre (collectively, the "Houston Assignment").
From and after the Houston Assignment, Seller solely owned, operated and managed
the Angelika Theatre; paid all rent, additional rent and other sums due under
the lease on the Angelika Theatre to the Landlord thereunder and otherwise
performed or satisfied all of the terms and conditions on the part of tenant to
be performed or satisfied under or pursuant to the Angelika Theatre Lease
subsequent to the Houston Assignment to and including the date hereof.
D. Reading or its designee ("Purchaser") desires to purchase, and
Seller desire to sell, the Assets described in Section 1.01 on the terms and
conditions hereinafter set forth.
E. Houston is joining into and signing this Agreement at the request
of Purchaser not only so as to confirm and ratify its prior Houston Assignment,
but also to formally waive any
<PAGE>
conceivable right, title or interest which anyone might claim Houston may have
in or to any of the Assets being sold by Seller to Purchaser.
F. This Agreement is being entered into by Seller and Houston
through and with the consent of each of Joseph J.M. Saleh, Angelika T. Saleh,
Jessica Saleh Hunt and Eva Saleh.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and
representations, warranties and covenants herein set forth, the parties hereto
agree as follows:
ARTICLE I
Purchase and Sale of Assets
---------------------------
1.01 Purchase of Assets. On the terms and subject to the conditions
------------------
set forth herein, Seller (and Houston, but only to the extent Houston has any
right, title or interest in and to any of the Assets; for convenience, any
reference to "Seller" herein shall be deemed to refer also to Houston) hereby
agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from
Seller, at the Closing (as that term is hereinafter defined in Section 1.06),
all of Seller's right, title and interest in and to the business known as the
Angelika Theatre and its property and assets (collectively, the "Assets") as
follows:
(a) Personal Property. Other than certain sculptures, paintings and
-----------------
posters presently in the Angelika Theatre, but not owned by Seller, all tangible
personal property owned by Seller and used exclusively for the operation,
maintenance and management of the Angelika Theatre (collectively, the "Personal
Property"), including all structures and fixtures located on, and all
improvements to, the Leasehold property (collectively, the "Improvements"). The
Personal Property and Improvements (are sometimes collectively referred to as
the "Theatre Property"), are more fully described in the form of Bill of Sale
(the "Bill of Sale") attached hereto as Exhibit B and incorporated herein by
reference.
(b) Contracts. All of Seller's right, title and interest in all
---------
contracts and agreements in effect and designated by Purchaser as contracts to
be assumed by Purchaser (the "Designated Contracts") at or on the "Closing Date"
(as hereafter defined), if any (collectively, the "Contracts"), as described in
the form of Assignment of Contracts (the "Assignment and Assumption of
Contracts") attached hereto as Exhibit C.
2
<PAGE>
(c) Good Will and Intellectual Property. All of Seller's right, title
-----------------------------------
and interest in and to the good will of the Angelika Theatre, all of Seller's
right, title and interest in the tradename and trademark "Angelika" for motion
picture theatre and food service purposes (the "Trademark") in the form of the
Assignment of Trademarks (the "Assignment of Trademarks") attached hereto as
Exhibit D; subject, however, to the licenses to use the Trademark from Purchaser
in favor of the Saleh Family Members and Angelika 57, Inc., in the form annexed
as Exhibits E and F (the "Trademark Licenses").
(d) Leasehold. All of Seller's right, title and interest in and to
---------
the Leasehold and all appurtenant rights, privileges and easements related or
used incidental thereto.
(e) Improvements. All of Seller's right, title and interest in and to
------------
the Improvement in, on or to the Leasehold.
The purchase price for the Assets shall be determined and paid in
accordance with the terms and provisions of Sections 1.02 through 1.04 hereof.
1.02 Purchase Price. The aggregate purchase price (the "Purchase
--------------
Price") to be paid by Purchaser for the Assets shall be an amount equal to:
(a) Twelve Million Five Hundred Thousand Dollars ($12,5000,000.00),
plus interest thereon from March 1, 1996 through the Closing Date at the
"Reference Rate" (as used herein, "Reference Rate" shall mean the thirteen
[13] week Treasury Bill rate, as it changes and is published in the Wall
Street Journal from time to time), plus
(b) the amount shown on Schedule 1 attached hereto for till cash and
inventory on hand at the Angelika Theatre and other appropriate closing
adjustments as of the Closing Date and, minus
(c) the amount shown on Schedule 1 attached hereto for the liabilities
shown thereon as of the Closing Date and specifically assumed by Purchaser,
minus
(d) a sum equal to Seller's "Estimated Pre-Closing Earnings". As used
herein, "Estimated Pre-Closing Earnings" shall be determined as follows:
3
<PAGE>
(i) Seller will prepare an income statement in accordance with
generally accepted accounting principles for the two (2)
month period beginning January 1, 1996 and ending
February 29, 1996 (the "Interim Statement");
(ii) the gross operating revenues derived from all Angelika
Theatre business and operations (including box office
receipts, concession revenues, theatre rental revenues and
membership sales) for the period beginning March 1, 1996
through the Closing Date (the "Computation Period") shall
be multiplied by the "Gross Profit Percentage" (i.e., the
ratio of gross profit -- excluding, however, the
expenditures excluded under (iii) below -- to gross
operating revenues) derived from the Interim Statement,
less
(iii) an amount equal to one-half (1/2) of all other operating
expenses as shown in the Interim Statement not included in
computing "Gross Profit Percentage" excluding, however,
interest, depreciation, taxes on income, amortization and
any (x) executive or management compensation, including any
payments to any stockholders of Seller or (y) any
professional fees for any attorneys or accountants paid by
Seller to the extent the annualized sum of (x) plus (y)
exceeds $225,000;
(iv) Multiply the amount determined in (iii) by the number of
whole and fractional months included in the Computation
Period and then subtract that product from (ii).
The final result of the calculations in (d) above are Seller's "Estimated Pre-
Closing Earnings".
4
<PAGE>
Notwithstanding anything to the contrary in this Agreement, within
five (5) business days after Purchaser receives a copy of the final
determination of the Seller's actual Pre-Closing Earnings by the Pre-Closing
Earnings Auditors (as provided in Section 1.03 below), Purchaser shall have the
exclusive right and unilateral option, exercisable by sending written notice to
Seller within such five (5) business day period, to elect to delete from the
Purchase Price and make no adjustment for: (x) any addition for interest on the
$12,500,000 from March 1 1996 through the Closing Date, as provided for in
Section 1.02(a) and (y) any subtraction for Seller's "Estimated Pre-Closing
Earnings" provided for in subparagraphs (d) of this Section 1.02 -- in which
event, all corresponding references in Section 1.03 to Seller's "Estimated Pre-
Closing Earnings" or Seller's "actual Pre-Closing Earnings" shall also be
deleted.
1.03 Closing Audit of Seller. For purposes of determining the final
-----------------------
adjustments to the Purchase Price pursuant to Section 1.02 (b) through (d)
above, on the Closing Date, Purchaser and Seller shall initially use the figures
set forth on Schedule 1 and (unless the parties in writing agree upon the actual
Pre-Closing Earnings) shall initially use the Seller's calculation of Estimated
Pre-Closing Earnings. The Purchase Price shall be paid based on these estimates
(the "Closing Estimates") subject to any necessary reconciliation as determined
by the closing audit to be performed in accordance with this Section 1.03 (the
"Closing Audit"). On or immediately after the Closing Date, the accounting firm
of Ernst & Young (the "Closing Auditors"), with the assistance and cooperation
of Seller's personnel, shall perform a complete review and, where appropriate,
an audit of the Angelika Theatre assets on hand as of the Closing Date, and
shall prepare, within thirty (30) days of the Closing Date, (1) a statement
setting forth the dollar amount as of the Closing Date of each of the assets and
liabilities listed on Schedule 1 and (2) a statement setting forth the Seller's
unpaid film rentals, if any. For purposes of this last statement, the amount
of film rentals due and owing shall be calculated by reference to the statements
provided by the lessor of such films; provided, however, for ten (10) days after
-------- -------
the Closing Date or ten (10) days after the amount of any film rental becomes
due and owing, whichever is later, Seller shall have the sole right to negotiate
settlements with respect to amounts due and owing to film lessors and thereafter
Purchaser shall do so; provided, however, that in the event that Purchaser is
-------- -------
able to negotiate a reduction in such rentals, the Seller shall be entitled to a
credit in an amount equal to such reduction. If within thirty (30) days of the
Closing Date the parties are unable to agree in writing upon the actual Pre-
Closing Earnings, then Seller shall have the sole right to designate a "Big 6"
accounting firm (the "Pre-Closing Actual Earnings Auditor") who shall be
retained by the parties to finally determine the actual Pre-Closing Earnings who
shall follow the method set forth in Section 1.02(d); provided, however, if
Seller
5
<PAGE>
fails to name the Pre-Closing Actual Earnings Auditors within forty-five (45)
days of the Closing Date, then Purchaser shall have the right to name a "Big 6"
accounting firm to act as the Pre-Closing Actual Earnings Auditors. The
foregoing statements as finally determined pursuant to this Section 1.03 are
hereinafter referred to as the "Closing Statement." The Purchaser and Seller
shall each equally pay one-half of (i) all of the fees and disbursements of the
Pre-Closing Actual Earnings Auditors in determining Seller's actual Pre-Closing
Earnings, (ii) the first $5,000 of all other fees and disbursements of the
Closing Auditors and (iii) Purchaser alone shall pay all of the fees and
expenses of the Closing Auditors in excess of $5,000.
1.04 Payment of the Purchase Price. The purchase price for the
-----------------------------
Assets shall be paid as follows:
(a) On the Closing Date, Purchaser shall make, execute and deliver to
Seller a non-negotiable promissory note in the original principal amount of
$2,000,000 dated as of the Closing Date, which promissory note shall bear
interest at the Reference Rate; provided, however, with respect to any
principal amount above $1,500,00, the interest rate shall be greater of the
Reference Rate or nine percent (9%) per annum, shall automatically be reduced
by $1,500,000 on April 1, 1997 and shall be otherwise substantially in the
form of Exhibit K/1/ attached hereto (the "Holdback Note"). On or before the
Closing Date, Purchaser shall establish an interest bearing escrow account
(the "Escrow Account") with Paine Webber, as escrow and Seller's agent (the
"Escrow Agent"), provided Seller shall pay any fees which the Escrow Agent
may charge, over and above its usual brokerage fees for buying short-term
U.S. Treasury obligations. On the Closing Date Purchaser shall deposit Two
Million Dollars ($2,000,000) in the Escrow Account and Purchaser, Seller and
Escrow Agent shall enter into an escrow agreement (the "Escrow Agreement")
substantially in the form attached hereto as Exhibit L. Purchaser hereby
grants, effective as of the Closing date and subject to the Closing of the
transactions contemplated hereby, to Seller a security interest in the Escrow
Account for the purpose of securing Purchaser's obligations under the
Holdback Note. Purchaser shall take all necessary and appropriate steps to
create a perfected security interest in favor of Seller in
- -----------------------
/1/ Exhibits G through J have been intentionally deleted.
6
<PAGE>
and to the Escrow Account. On the Closing Date, the Escrow Agent shall be
authorized to invest funds in the Escrow Account only in short-term U.S.
Treasury obligations earning at least the Reference Rate. On April 1, 1997,
provided there has been no Seller default under this Agreement, $1,500,000
under the Holdback Note shall become due and payable on April 1, 1997 and in
order to satisfy such Purchaser payment obligations, $1,500,000 in the Escrow
Account shall be released and transferred to Seller on such date, provided,
--------
however, if Purchaser claims Seller is in default under this Agreement and
-------
Escrow Agent has received Seller's Notice of Indemnity Dispute and as a
result thereof, Escrow Agent does not release and transfer the $1,500,000 to
Seller, then Seller shall have all of its rights and remedies, provided for
in the Holdback Note subject to Purchaser's right of offset thereunder. All
interest on escrowed funds shall be delivered to Purchaser promptly upon
receipt, so long as there has been no default by Purchaser under the Holdback
Note.
Subject to the provisions of Section 8.05, Purchaser shall be entitled
to first offset against the Holdback Note and simultaneously therewith assert
against the Escrow Account any claims it may have under Article VIII of this
Agreement. In addition, Purchaser shall be entitled to receive with respect
to all transactions after the Closing Date an amount equal to the difference
between the regular admission or concession price as the case may be, and the
price at which any patron purchases such admission or concession with the
benefit of any discount, guest or club card issued prior to the Closing Date
calculated without reference to any amounts paid to the Seller with respect
to such discount, guest or club card; provided, however, Purchaser shall not
be entitled to receive any amount with respect to single use, free admission
passes which, in accordance with generally accepted movie theatre practice,
Seller has given to certain religious groups, motion picture distributors and
the like, without receiving in exchange any payment or other consideration.
7
<PAGE>
(b) On the Closing Date, Purchaser shall pay to Seller by certified
check or bank check either of which shall be drawn on a bank which is a
member of the New York Clearinghouse, an amount equal to the difference
between the Purchase Price (based on the Closing Estimates), minus the sum of
(y) $2,000,000, plus (z) the Judgment Satisfaction Amount if the Judgment is
assigned to Seller in accordance with the provisions of Section 6.12.
(c) Within five (5) business days of receipt by Purchaser of the
Closing Statement, Purchaser shall pay to Seller an amount equal to the
difference, if positive, between the Closing Estimates and the results of the
Closing Audit. Within five (5) business days of receipt by Seller of the
Closing Statement, the Seller shall pay to Purchaser an amount equal to the
difference, if negative, between the Closing Estimates and the results of the
Closing Audit. Any payment required to be made pursuant to this Section
1.04(d) shall be made by certified or bank check drawn on a bank which is a
member of the New York Clearinghouse.
(d) In the event that there is any dispute as to the Closing Audit,
the parties reserve the right to contest the results of such Closing Audit
through an action for declaratory relief. However, in the event that the
court approves the Closing Audit, or approves the Closing Audit with
adjustments representing a no greater than five percent (5%) adjustment, then
the party or parties challenging such Closing Audit shall be jointly and
severally responsible for the reasonable costs of defense (including, without
limitation, reasonable attorney's fees) of both the Auditors and the party or
parties defending such action. In the event the court finds that adjustments
representing a greater than five percent (5%) adjustment are necessary, then
the party or parties defending such action shall be jointly and severally
responsible for the reasonable litigation costs (including, without
limitation, reasonable attorney's fees) of both the Auditors in defending
such action, and the party or parties challenging such Closing Audit in
litigating such action. Any funds not timely paid under Section 1.04(d) shall
bear interest at the fluctuating rate from time to time published in the Wall
8
<PAGE>
Street Journal as the "prime rate" plus 150 basis points or the maximum
amount allowed by law, whichever is less (the "Contract Rate").
1.05 Review Period. In the event and to the extent any required
-------------
Exhibits or Schedules have not been completed by Seller and attached to this
Agreement upon signing, then Seller hereby covenants and agrees to deliver to
Purchaser complete copies of any required Exhibits or Schedules not yet attached
to this Agreement, on or before the date which is ten (10) business days after
the date hereof, which still-to-be attached Exhibits and Schedules, Seller
represents and warrants will not contain any information or terms and provisions
materially and adversely affecting the business and operations of the Angelika
Theatre or the Assets being purchased hereunder not previously disclosed in
writing to Purchaser. Notwithstanding the fact that this Agreement is being
executed without some or all of the Exhibits or Schedules to be attached hereto
having been completed, Seller hereby agrees and acknowledges that this Agreement
shall constitute a binding obligation on the part of Seller to sell the Assets,
subject to the attachment of a complete set of Exhibits and Schedules in
accordance with the representations and warranties set forth in the immediately
preceding sentence. On or before the tenth (10th) business day after (i)
execution of this Agreement by Seller, (ii) the attachment of all Exhibits and
Schedules hereto and (iii) satisfaction or waiver by both the Seller and
Purchaser of the Marital Court Order set forth in Article V hereto, but not
earlier than July 23, 1996, Purchaser shall seek to obtain the approval of its
Board of Directors to this Agreement, including the completed Schedules, and the
transactions contemplated hereby. If Board approval (as evidenced by a notice
from Purchaser to Seller of such approval) is not obtained within such period,
provided Seller is not then in default under this Agreement, Seller may at any
time thereafter terminate this Agreement by sending a five (5) business day
written notice to Purchaser, which shall be effective to terminate this
Agreement five (5) business days after Purchaser's receipt of the Seller's
notice, unless Purchaser sends Seller notice of Purchaser's Board approval
within such five (5) business day period.
1.06 Closing. The Closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the offices of Baer Marks & Upham
LLP, 805 Third Avenue, New York, New York at 10:00 a.m., on the first business
day after 30 days of the date hereof (as it may be accelerated or extended, the
"Closing Date") with any date earlier or later than the first business day after
30 days of the date hereof to be mutually agreed upon by the parties.
9
<PAGE>
1.07 Transfer of Title.
-----------------
(a) On the Closing Date, Seller shall convey to Purchaser all of
Seller's right, title and interest to the Leasehold by execution and delivery of
the Assignment and Assumption of Lease substantially in the form of Exhibit M
attached hereto (the "Assignment and Assumption of Lease").
(b) On the Closing Date, Seller shall transfer to Purchaser title to
the Personal Property, the Theatre Property and Seller's interest in the
Designated Contracts by execution and delivery of the Bill of Sale and the
Assignment of Contracts.
(c) On the Closing Date, Seller shall transfer to Purchaser its
interest in the Angelika name and trademark for motion picture theatre and food
services purposes by execution and delivery of the Assignment of Trademarks.
1.08 Allocation of Purchase Price. The parties hereto agree that the
----------------------------
Purchase Price, unless the parties otherwise agree prior to the Closing Date,
shall be allocated among the Assets being transferred by using the Seller's "net
book value" of the Assets transferred, as computed and determined by Miller &
Company, CPAs, in the manner set forth on Exhibit N, such allocation to be
adjusted in a manner consistent with the adjustments to the Purchase Price as
set forth in Section 1.02(b) through (d).
ARTICLE II
Representations and Warranties
of Purchaser
------------------------------
Except as expressly set forth in this Article II, Purchaser makes no,
and has made no, representations and warranties in connection with this
Agreement, the subject matter hereof or the transactions contemplated hereby.
Purchaser represents and warrants to Seller that:
2.01 Organization, Good Standing and Authority. Purchaser is
-----------------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This
Agreement and all other agreements herein contemplated to be executed in
connection herewith by Purchaser have been (or upon execution shall have been)
duly executed and delivered by Purchaser, have been effectively authorized by
all necessary action, corporate or otherwise, and constitute (or upon execution
shall constitute) legal, valid and binding obligations of Purchaser subject only
to the Board of Directors of Purchaser approving the terms of this Agreement as
provided in Section 6.08.
10
<PAGE>
2.02 No Broker. No broker or finder has acted for Purchaser in
---------
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fees or other
commission in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Purchaser.
2.03 Agreement Not in Violation of Law. The execution and delivery
---------------------------------
of this Agreement, the consummation of the transaction contemplated hereby and
the fulfillment of the terms hereof shall not result in a material violation of
any law, rule or regulation applicable to Purchaser.
2.04 Seller's Future Movie Bookings. After the Closing, Purchaser
------------------------------
shall either (a) honor the movies bookings previously arranged by Seller through
Jeffrey Jacobs, the Angelika Theatre's present film programmer, as more
particularly shown on Schedule 2.04 or (b) to the extent Purchaser decides not
to exhibit one or more of the movies at the Angelika Theatre shown on Schedule
2.04, then Purchaser shall indemnify and hold Seller harmless from and against
any claims, losses or damages which Jeffrey Jacobs, any distributor or any other
party may assert or recover against Seller; provided, however, Purchaser shall
have the sole right to settle or defend any such claims or litigation, and
provided further, Seller shall assign to Purchaser all defenses, offsets, rights
or claims Seller may have against Jeffrey Jacobs, any distributor or any other
party.
ARTICLE III
Representations and Warranties
of Seller
------------------------------
For purposes of this Article III, the phrase "to the best knowledge of
Seller" means no stockholder, officer or director of Seller has actual
knowledge, actual belief or implied knowledge that the statement made is not
true and correct. Implied knowledge as used in the preceding sentence means
knowledge of facts discoverable from all information available in the books,
records and files of Seller. Except as expressly set forth in this Article III,
Seller makes no, and has made no, representations and warranties in connection
with this Agreement, the subject matter hereof or the transactions contemplated
hereby. The representations and warranties in this Article III shall survive
for a period of eighteen months after the Closing Date. Seller hereby
represents and warrants to Purchaser that:
3.01 Organization, Good Standing and Authority. Each of Seller and
-----------------------------------------
Houston is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York. Seller has full corporate power and
authority to own, operate and convey the Assets and to enter into and otherwise
11
<PAGE>
perform and comply with the terms of this Agreement. This Agreement and all
other agreements herein contemplated to be executed by Seller in connection
herewith have been (or upon execution shall have been) duly executed and
delivered by Seller, have been effectively authorized by all necessary action,
corporate (including Board of Directors and stockholders approvals) or otherwise
and constitute (or upon execution shall constitute) legal, valid and binding
obligations of Seller.
3.02 No Broker. No broker or finder has acted for Seller in
---------
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fees or other
commissions in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Seller.
3.03 Financial Statements. Included in Schedule 3.03 are the balance
--------------------
sheets of Seller as of December 31, 1995, and the related statements of income
and retained earnings and changes in financial position for the fiscal years
then ended, each such financial statement having been audited by an independent
certified public accountant and prepared in accordance with generally accepted
accounting principles consistently applied. If not available at the time of
signing this Agreement, Seller hereby covenants and agrees to use its
commercially reasonable efforts to deliver to Purchaser by no later than July
20, 1996 (i) the audited balance sheet of Seller as of December 31, 1995, and
the related statements of income and retained earnings and changes in financial
position for the fiscal year then ended, as well as (ii) unaudited comparative
quarterly financial statements for the three month periods ending March 31, 1995
and June 30, 1995; provided, however, it being understood that with respect to
each of the quarterly financial statements for the three months ending March 31,
1995 and June 30, 1995, no such separate financial statement was previously
prepared in the ordinary course and Seller, in cooperation with its accountant,
will review its own and its accountant's "workpapers" and use its good faith
efforts to reconstruct what Seller believes is the most accurate semi-annual
financial statement for the three month period ending March 31, 1995 and June
30, 1995. Seller hereby represents that the sum of its gross revenues
attributable to ticket sales, concession sales and its gross receipts generated
by the cafe located on the Leasehold premises was not less than $7,035,630 for
1994, $7,422,806 for 1995 and not less than $1,295,580 for the three month
period from January 1, 1996 through March 31, 1996. Seller further represents
and warrants that all books and records of the Seller requested by, and
presented to Purchaser constitute the books and records of the Seller and there
are no other books and records of the Seller which conflict with the books and
records presented to the Purchaser.
12
<PAGE>
3.04 Absence of Certain Changes. Except as disclosed in Schedule
--------------------------
3.04 or as provided for or contemplated in this Agreement and to the best
knowledge of Seller, since December 31, 1995 (the "Balance Sheet Date") there
has not been (i) any transaction not in the ordinary course of business; (ii)
any material adverse change in the results of operations, condition (financial
or otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise), business or prospects of Seller; (iii) any damage, destruction or
loss, whether or not covered by insurance, which has had or may have a material
and adverse effect on the Assets; (iv) any sale or transfer of the Assets, or
any portion thereof, except sales in the ordinary course of business of
inventory; (v) any mortgage, pledge or subjection to lien, charge or encumbrance
of any kind, except liens for taxes not due, of the Assets, or any portion
thereof; (vi) any material amendment, modification or termination of any
material contract or agreement relating in any way to the Assets to which Seller
is a party; (vii) any material alteration in the manner of keeping the books,
accounts or records of Seller relating to the Assets, or in the accounting
practices therein reflected; or (viii) any other event or condition of any
character which has had or may have a material and adverse effect on the Assets.
Purchaser acknowledges that changes in gross receipts due to fluctuations in
attendance at the Angelika Theatre in the ordinary course of business do not
constitute material adverse changes for purposes of clause (ii) above.
3.05 Leasehold. Except as indicated in Schedule 3.05:
---------
(a) Seller has good marketable title to the Assets, free and clear of
all mortgages, liens, encumbrances, leases, equities, claims, charges,
easements, rights-of-way, covenants, conditions and restrictions, except for
liens, if any, for property taxes not due;
(b) Other than the failure of Houston to have obtained the prior
written consent of the Landlord to the Houston Assignment, Seller is not in
default with respect to any material term or condition of any lease, contract
or other agreement relating to the Assets to which Seller is a party, nor has
any event occurred which through the passage of time or the giving of notice,
or both, would constitute a default thereunder by Seller or would cause the
acceleration of any obligation of Seller or the creation of a lien or
encumbrance upon the Assets, or any portion thereof; and
13
<PAGE>
(c) The Assets are in good operating condition, ordinary wear and tear
excepted, and have been maintained in accordance with reasonable industry
practices, and Seller has not received any notice of a violation of any
applicable building code, zoning ordinance or other law or regulation in
respect of the Assets.
3.06 Tangible Personal Property. There is listed on Schedule 3.06
--------------------------
(i) a description of each item of tangible personal property owned by Seller and
located on the Real Property having on the date hereof either a depreciated book
value or estimated fair market value per unit in excess of $10,000 or not owned
by Seller but located on the Real Property; and (ii) a description of the owner
of, and any agreement relating to the use of, each such item of tangible
personal property not owned by Seller and the circumstances under which such
property is used. Except as indicated in Schedule 3.06:
(a) Seller has good and marketable title to each item of such tangible
personal property free and clear of all liens, leases, encumbrances, claims
under bailment and storage agreements, equities, conditional sales contracts,
security interests, charges and restrictions, except for liens, if any, for
personal property taxes not due;
(b) Each item of such tangible personal property not owned by Seller
is in such condition that upon the return of such property to its owner in
its present condition at the end of the relevant lease term or as otherwise
contemplated by the applicable agreement between Seller, and the owner or
lessor thereof, the obligations of Seller to such owner or lessor shall be
discharged;
(c) Each item of tangible personal property listed in Schedule 3.06 is
in good operating condition, ordinary wear and tear excepted and repair and
is fit for its intended purposes; and
(d) Seller owns or otherwise has the right to use all of the tangible
personal properties now used by it in the operation of the Angelika Theatre.
3.07 Intangible Personal Property. There is listed on Schedule 3.07
----------------------------
(i) a description of the items of intangible personal property owned by Seller
and comprising part of the Assets, including, but not limited to, United States
and foreign
14
<PAGE>
patents, patent applications, tradenames, trademarks, tradename and
trademark registrations, copyright registrations and applications for any of the
foregoing and (ii) a true and complete list of all licenses or similar
agreements or arrangements to which Seller, or any of its directors, officers or
shareholders, is a party either as licensee or licensor for each such item of
intangible personal property. Except as indicated on Schedule 3.07(ii):
(a) Seller is the owner of all right, title and interest in and to
each such item of intangible personal property, free and clear of all liens,
security interests, charges, encumbrances, equities and other adverse claims;
(b) No officer, director, stockholder or employee of Seller, nor any
spouse, child or other relative or affiliate thereof, owns directly or
indirectly, in whole or in part, any of the items of intangible personal
property described on Schedule 3.07(i);
(c) No interference actions or other judicial or adversary proceedings
concerning any of such items of intangible personal property have been
initiated, there is no basis for any such action or proceeding and, to the
best knowledge of Seller, no such action or proceeding is threatened;
(d) Seller has the right and authority to use said items of intangible
personal property in connection with the conduct of its business in the
manner presently conducted, and such use does not conflict with, infringe
upon or violate any rights of any other person, firm or corporation; and
(e) There are no outstanding, nor to the best knowledge of Seller, any
threatened disputes or other disagreements with respect to any licenses or
similar agreements with respect to any licenses or similar agreements or
arrangements described on Schedule 3.07(i).
3.08 Agreement Not in Breach of Other Instruments. Neither the
--------------------------------------------
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will violate, or result in a breach
of, any of the terms and provisions of, or constitute a default under, or
conflict with, any agreement, indenture or other instrument to which Seller is a
party or by which Seller or any of the Assets is bound, the Articles or
Certificate of Incorporation or Bylaws of Seller, or
15
<PAGE>
by any judgment, decree, order or award of any court, governmental body or
arbitrator applicable to Seller, subject to the consent of the landlord under
the lease of the Angelika Theatre to the transfer of the Assets and the
assignment of such lease as contemplated hereby.
3.09 Insurance. Schedule 3.09 sets forth a true and correct list of
---------
all insurance policies of any nature whatsoever maintained by Seller as of the
date hereof in respect of the Assets and the annual or other premiums payable
from time to time thereunder. To the best knowledge of Seller, there are no
outstanding requirements or recommendations by any insurance company that issued
any such policy or by any Board of Fire Underwriters or other similar body
exercising similar functions or by any governmental authority exercising similar
functions which requires or recommends any changes in the conduct of Seller's
business relating to, or any repairs or other work to be done on or with respect
to, the Assets. Seller has not received any notice or other communication from
any such insurance company within the three (3) years preceding the date hereof
canceling or materially amending such insurance policies or materially
increasing the annual or other premiums payable under any of said insurance
policies, and to the best knowledge of Seller, no such cancellation or amendment
of such insurance policies or increase of premiums under such insurance policies
is threatened. There are no audits presently pending with respect to such
insurance policies.
3.10 Litigation. Except as listed on Schedule 3.10:
----------
(a) There is no action, suit or proceeding pertaining to any of the
Assets, or the operation thereof, pending before any court or governmental
agency, authority or body or arbitrator; to the best knowledge of Seller,
there is no such action, suit or proceeding threatened; and to the best
knowledge of Seller, there is no basis for any such action, suit or
proceeding;
(b) Neither Seller nor, to the best knowledge of Seller, any officer,
director or employee of Seller, has been permanently or temporarily enjoined
by any order, judgment or decree of any court or any governmental agency,
authority or body from engaging in or continuing any conduct or practice in
connection with the operation or use of the Assets; and
16
<PAGE>
(c) There is not in existence on the date hereof any order, judgment
or decree of any court or other tribunal or other agency enjoining or
requiring Seller to take any action of any kind with respect to the Assets.
3.11 Contracts. Schedule 3.11 sets forth a true and correct list of
---------
each contract, agreement, purchase order, lease, license, indenture or
commitment, written or oral, relating to the use and operation of any of the
Assets and to which Seller is a party.
The contracts, agreements, purchase orders, leases, licenses,
indentures or commitments which are required to be identified in Schedule 3.11
are hereinafter referred to as the "Submitted Contracts." True and complete
copies of each of the Submitted Contracts, or where they are oral, true and
complete written summaries thereof, have been delivered by Seller to Purchaser
for its approval or disapproval. Upon the later of (i) ten (10) business days
after Purchaser's receipt of all of the Submitted Contracts, and (ii) seven (7)
business days after the date hereof, Purchaser shall designate which of the
Submitted Contracts it approves and which of the Submitted Contracts it
disapproves. Only those Submitted Contracts which are Designated Contracts
shall be subject to the Assignment and Assumption of Contracts. Except as set
forth on Schedule 3.11:
(a) Each of the Contracts is a valid and binding agreement of Seller
and, to the best knowledge of Seller, all other parties thereto;
(b) Seller has fulfilled all material obligations required pursuant to
each Contract to have been performed by it prior to the date hereof, and
Seller has no reason to believe that Seller will not be able to fulfill,
when due, all of its obligations under the Contracts which remain to be
performed after the date hereof;
(c) There has not occurred any material default under any of the
Contracts on the part of Seller, or to the best knowledge of Seller, on the
part of any other party thereto nor has any event occurred which with the
giving of notice or the lapse of time, or both, would constitute a material
default on the part of Seller under any of the Contracts nor, to the best
knowledge of Seller, has any event occurred which with the giving of notice
or the lapse of time, or both, would constitute a material default on the
part of any other party to any of the Contracts; and
17
<PAGE>
(d) No consent of any party to any of the Contracts is required by the
execution, delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby.
3.12 Inventory. The inventory of Seller is good and merchantable,
---------
first quality material and is saleable in the ordinary course of business
without discount from the prices generally charged for like material of first
quality, and the quantities of all inventory are reasonable and warranted in the
present circumstances of the business of Seller.
3.13 Compliance with Law. The conduct of business by Seller in
-------------------
respect of the Assets on the date hereof does not violate any federal, state,
local or foreign laws, statutes, ordinances, rules, regulations, decrees,
orders, permits or other similar items in force on the date hereof (including,
but not limited to, any of the foregoing relating to employment discrimination,
environmental protection or conservation), the enforcement of which would
materially and adversely affect the Assets, nor has Seller received any notice
of any such violation. Notwithstanding the foregoing, Seller has timely applied
for, but not as yet received, a renewal of its public assembly permit from the
City of New York (Department of Buildings and/or Consumer Affairs), which
renewal Seller represents will be obtained by Closing.
3.14 Other Information. To the best knowledge of Seller, the
-----------------
information concerning the Assets set forth in this Agreement, the Schedules
attached hereto and any document, statement or certificate furnished or to be
furnished to Purchaser pursuant hereto, does not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances in which they are made, not
false or misleading (other than the unaudited quarterly financial statement for
the three month period ending March 31, 1995, which Seller instead represents
subject to the proviso in Section 3.03, that Seller believes it to be accurate
and that it was prepared in good faith after reviewing its own and its
accountant's "work papers"). Copies of all documents heretofore or hereafter
delivered or made available to Purchaser pursuant hereto were or will be
complete and accurate copies of such documents.
3.15 Effect of Omissions in Any Schedule. The failure of Seller to
-----------------------------------
identify a particular exception or item on a particular schedule will not
constitute a breach of the representation or warranty to which such schedule
pertains, so long as (i) the exception or item is described in another schedule
in a manner that would cause a reasonable reader to understand
18
<PAGE>
that such exception or item must also be applicable to such one or more other
schedules on which it was not identified, even though not specifically
identified therein, or (ii) Purchaser suffers no damage as a consequence of the
failure to so identify such exception or item.
3.16 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants made in Article III hereof by Seller
shall survive the Closing for a period of 18 months.
ARTICLE IV
Seller's Covenants
------------------
4.01 Conduct of Business. Prior to the Closing Date, Seller shall
-------------------
conduct its business consistent with Seller's prior practices and will not do,
or permit to be done, anything which is represented and warranted not to have
occurred since the date hereof in Section 3.04 hereof, except as otherwise
permitted by this Agreement or consented to by Purchaser in writing. Except as
otherwise permitted by this Agreement or consented to by Purchaser in writing,
prior to the Closing Date, Seller shall not:
(a) sell, assign, mortgage, hypothecate, pledge, encumber or otherwise
transfer any of the Assets, or any interest therein;
(b) fail in any material respect to comply with any material laws,
ordinances, regulations or other governmental restrictions applicable to the
Assets, or any portion thereof;
(c) make any alterations or capital expenditures in respect of the
Assets in excess of $10,000.; provided, however, that if Seller makes an
expenditure for emergency repairs in excess of the foregoing amount without
first obtaining the written consent of Purchaser thereto, then Purchaser's
sole remedy for such violation under this Section 4.01(c) shall be not to
close under this Agreement;
(d) make or entertain any solicitations with respect to the sale of,
or cooperate with any potential bidders (other than Purchaser, or its
designee) with respect to the sale of, any of the Assets, or any interest
therein; or
(e) amend or terminate the Angelika Theatre Lease without the prior
written consent of Purchaser.
19
<PAGE>
4.02 Preservation of Organization. Seller shall use commercially
----------------------------
reasonable efforts to (i) preserve its business organization intact (including
the preservation of the Assets); (ii) continue the operations of Seller at its
present level; (iii) keep available to Seller the services of the present
employees of Seller; and (iv) preserve the goodwill of the suppliers, customers
and others having business relations with Seller with respect to the Assets.
Seller shall maintain in full force and effect the insurance policies disclosed
in Schedule 3.09 (or policies providing substantially the same coverage, copies
of which shall be made available to Purchaser for its inspection)
4.03 Reports, Taxes, etc. Between the date hereof and the Closing
--------------------
Date (and continuing after the Closing Date, if required to comply with any of
its obligations hereunder), Seller shall duly and timely file all reports or
returns required to be filed with federal, state, local and foreign authorities,
and promptly pay all federal, state, local and foreign taxes, assessments and
governmental charges levied or assessed upon Seller or any of the Assets --
including all "Transfer Taxes" referred to in Section 6.10 below (unless
contesting any such in good faith and adequate provision has been made
therefor), and duly observe and conform to all lawful requirements of any
governmental authority relating to any of the Assets and all covenants, terms
and conditions upon or under which any of the Assets are held.
4.04 Management Information and Access. Seller shall give to
---------------------------------
authorized representatives of Purchaser, upon reasonable notice, full access,
during normal business hours, in such manner as not to unduly disrupt normal
business activities, to the Assets, and all contracts, commitments, books and
records of Seller relating thereto and shall cause its officers to furnish any
and all financial, technical and operating data and other information pertaining
to the Assets as Purchaser shall from time to time reasonably request.
Purchaser shall hold in confidence all information so obtained and shall use
such information only for the purpose of considering the transactions
contemplated hereby. Purchaser further agrees that it shall not otherwise
disclose any such information to any third party except upon the written consent
of the furnishing party, or except as Purchaser may be advised by its counsel
that disclosure is required by law. If the transactions contemplated hereby are
not consummated as contemplated herein, Purchaser shall return all returnable
data furnished to it to the party that furnished such data. Such obligation of
confidentiality shall not extend to any information which is shown to be or to
have been generally known to others engaged in the same trade or business as the
furnishing party, or that is or shall be public knowledge through no act or
omission by Purchaser or any of its directors, officers, employees, professional
advisors or other representatives.
20
<PAGE>
4.05 Compliance with Bulk Sales Act. To the full extent applicable
------------------------------
to the sale of any of the Assets, Seller shall, in all respects, comply with all
of the relevant provisions of Article 6 of the Uniform Commercial Code --
dealing with Bulk Transfers as adopted in New York (the "Bulk Sales Act") and at
least ten (10) days prior to the Closing Date, the Seller shall provide to
Purchaser an Affidavit signed by its President listing all creditors of
Purchaser and any other information necessary for Seller's compliance with all
of the relevant provisions of the Bulk Sales Act.
4.06 Insurance; Utilities; Security Deposit on Lease. Purchaser
-----------------------------------------------
acknowledges that Seller shall cause its policies of casualty and liability
insurance, if any, to be terminated with respect to the Real Property as of the
Closing Date. Purchaser shall be responsible for obtaining its own insurance
and utilities as of the Closing Date and thereafter. On the Closing Date all
deposits for utilities made by Seller, and subject to the assignment by Seller
to Purchaser of all of Purchaser's rights in the security deposit under the
Angelika Theatre Lease, an amount equal to the security deposit so assigned,
shall be paid to Seller by Purchaser.
4.07 Amendment of the Existing "Angelika" License Agreement. Prior to
------------------------------------------------------
the Closing, Seller and its affiliate, Angelika Films, Inc. ("AFI") shall enter
into an amendment of that certain License Agreement dated December 19, 1995
between Seller, as LICENSOR, and AFI, as LICENSEE, so as to expressly (i)
include the Saleh Family Members, as LICENSEE, and (ii) exclude from the "Grant
of License" provided in Section 1.1 the right of the LICENSEE to use The Name
"ANGELIKA" or any of the MARKS referred to therein in connection with any
"motion picture theatre" or with any "motion picture theatre and food service
purposes".
ARTICLE V
Condition to Obligations of Each Party
--------------------------------------
5.01 The obligation of each party to sell or purchase the Assets, as
the case may be, shall be subject to the fulfillment, at or prior to the Closing
Date, of the condition that no claim, action, suit, investigation or other
proceeding shall be pending or threatened before any court or governmental
agency which, in the good faith, reasonable legal opinion of counsel for either
Seller or Purchaser, presents a substantial risk of the restraint or prohibition
of such transaction or the obtaining of material damages or other relief in
connection therewith.
5.02 Without limiting the foregoing, neither party shall have an
obligation to sell or purchase the Assets, as the case may be, if at or prior to
the Closing Date:
21
<PAGE>
(i) the marital court having jurisdiction over the marital
proceeding between Joseph J.M. Saleh and Angelika T. Saleh
(the "Marital Court") shall not have either (x) approved the
Sale of the Assets pursuant to the terms hereof, or (y)
rescinded any and all orders restraining or otherwise
prohibiting such sale (the "Marital Court Order"); provided
that in the event no Marital Court Order has been entered on
or before the Closing Date, (a) Purchaser shall have the
option of extending the Closing Date for so long as and until
such time as such Marital Court Order is entered; or (b) both
Seller and Purchaser mutually agree in writing that no
Marital Court Order is required for the consummation of the
transactions contemplated by this Agreement; or
(ii) any Court of competent jurisdiction, on application of
Anthony Jones, a judgment creditor of Joseph J.M. Saleh
(Supreme Court, N.Y. Co. Index No. 124966/95), enters an
order restraining or enjoining the closing of the
transactions contemplated hereunder; provided that in such
event (i) Purchaser shall have the option of extending the
Closing Date for so long as and until such time as the
restraining order or injunction precludes the closing; and,
pending such time, (ii) Purchaser may take such action as it
deems appropriate to vacate the restraining order or
injunction, including selling all of the shares of stock
which Joseph J.M. Saleh owns in the Seller and which
Purchaser presently holds pursuant to one or more previous
levies under its prior Judgment (as more particularly
described in Section 6.12 hereof) at a public auction
22
<PAGE>
conducted by the Sheriff pursuant to Section 5233 of the
Civil Practice Law and Rules.
5.03 Good Faith Efforts. Seller and Purchaser each hereby agrees and
------------------
covenants to use all commercially reasonable efforts to bring about the
transactions contemplated by this Agreement, including without limitation, the
obtaining of any third party approvals, agreements and/or consents necessary to
effectuate the transactions contemplated hereby.
ARTICLE VI
Conditions to Obligations of Purchaser
--------------------------------------
The obligations of Purchaser to effect the transactions contemplated
hereby shall be, at the option of Purchaser, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions:
6.01 Representations and Warranties True. The representations and
-----------------------------------
warranties of Seller contained in this Agreement, the Schedules hereto, or in
any other document of Seller delivered pursuant hereto, were true and correct in
all material respects on the date such representations and warranties were made,
and continue to be true and correct as of the Closing Date and at the Closing
Seller shall have delivered to Purchaser a certificate to such effect signed by
the Seller. For purposes of this Section 6.01 only, any representation and
warranty of Seller contained in this Agreement that was qualified to the best
knowledge of Seller shall not be so qualified in determining whether such
representation and warranty was true and correct in all material respects as of
the date made.
6.02 Seller's Performance. Each of the obligations of Seller to be
--------------------
performed by it on or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed on or before the Closing Date, and at
the Closing Seller shall have delivered to Purchaser a certificate to such
effect signed by the President or Chief Financial Officer of Seller, as the case
may be. For purposes of this Section 6.02 only, any obligation of Seller in
Article VI hereof for which Seller was only required to use its good faith
efforts to perform shall be deemed not to have been performed if such obligation
was not in fact performed, regardless of whether Seller used its good faith
efforts or not.
6.03 Opinion of Seller's Counsel. Purchaser shall have been
---------------------------
furnished at the Closing with an opinion of Seller's counsel dated as of the
Closing Date, addressed to and in form and substance satisfactory to Purchaser,
to the effect that:
23
<PAGE>
(a) Each of Seller and Houston is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and
each has full corporate power and authority to carry on the business which it
is now conducting and to own, lease, operate and convey the Assets;
(b) This Agreement and each of the documents executed by Seller pursuant to
this Agreement, including the Pledge Agreement, the Escrow Agreement and any
Seller's Promissory Note delivered hereunder have each been duly and validly
executed and delivered by the Seller, and each constitutes a legal, valid and
binding obligation of Seller enforceable in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors rights;
(c) the consummation of the transactions contemplated hereby, assuming that
a Naima Saleh consent to the transactions is obtained, will not:
(1) to the knowledge of such counsel, violate, or conflict with,
or result in a breach of any provisions of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the Assets under any of the
terms, conditions or provisions of the Certificate or Articles of
Incorporation of Seller or the Bylaws of Seller, or any Designated
Contract to which Seller is a party, or by which it or any of the Assets
may be bound or affected, except for such violations, conflicts,
breaches or defaults as to which requisite waivers or consents shall
have been obtained by Seller by the Closing Date;
(2) to the knowledge of such counsel, violate any order, writ,
injunction, decree, statute, rule or regulation which has applicability
to Seller or any of the Assets;
24
<PAGE>
In the event Naima Saleh fails to consent to the transactions contemplated in
the Agreement then, to the knowledge of such counsel, Naima Saleh will have
such rights, if any, in and to the Assets being transferred as may be
declared or provided in the Final Judgment entered in that certain pending
Supreme Court, New York County lawsuit entitled "Naima Saleh, Plaintiff, vs.
---------------------------
Angelika Films, Inc., Houston Cinema, Inc. and Angelika Film Centers, Inc.,
---------------------------------------------------------------------------
Defendants." (Index No. 109393/94) and to the knowledge of such counsel,
-----------
Naima Saleh has not asserted any other claims to the Assets;
(d) to the knowledge of such counsel, except for (i) the failure of
Seller to have previously obtained the consent of the Landlord to an
assignment of the lease on the Angelika Theatre from Houston to Seller and
thereafter, if Purchaser waives the delivery of Landlord's consent, the
assignment of the lease from Seller to Purchaser, (ii) the claims asserted in
the Gourmet Deli Litigation and (iii) the failure of Seller to file New York
City Commercial Rent and Occupancy Tax Returns and to pay the taxes, interest
and penalties in connection therewith, there is no default (or event which,
with notice or lapse of time or both, would constitute a default) under any
material note, bond, mortgage, indenture, deed of trust, license, agreement
or other instrument to which any of the Assets may be subject or under any
governmental license, franchise, permit or other governmental authorization,
which defaults and events would, in the aggregate, have a material adverse
effect with respect to the Assets, or a breach of any provision of the
Certificate or Articles of Incorporation or the Bylaws of Seller; and
(e) to the knowledge of such counsel, no consent or approval, which has
not been obtained, by any governmental authority is required in connection
with the consummation by Seller of the transactions contemplated by this
Agreement.
6.04 No Adverse Change. There shall not have occurred between the
-----------------
date hereof and the Closing Date any material adverse changes in the Assets.
6.05 Compliance with Law. There shall have been obtained any and all
-------------------
permits, approvals and consents of all governmental bodies or agencies which
counsel for Purchaser may
25
<PAGE>
reasonably deem necessary or appropriate so that consummation of the
transactions contemplated by this Agreement shall be in compliance with
applicable laws.
6.06 Consent of Landlord under Angelika Theatre Lease. The landlord
------------------------------------------------
with respect to the Angelika Theatre Lease (the "Landlord") shall have consented
to the assignment of the Angelika Theatre Lease initially from Houston to Seller
and then from Seller to Purchaser as contemplated by this Agreement. Seller
shall use all commercially reasonable efforts to obtain the consent of the
Landlord to the assignment of the Angelika Theatre Lease to Purchaser. In the
event that any consent required from the Landlord under this Section 6.06 is not
obtained prior to August 15, 1996 then Purchaser may notify Seller that it
waives such consent (in which event, Purchaser shall have no claim against
Seller by reason of the failure to obtain Landlord's consent) and if Purchaser
does not waive such consent by July 30, 1996, then either party may thereafter
terminate this Agreement, provided such party is not then in default under this
Agreement and upon such termination Purchaser shall have no claim against Seller
arising out of such inability to obtain Landlord's consent.
6.07 INTENTIONALLY OMITTED
---------------------
6.08 Purchaser Board Approval. The Board of Directors of Purchaser
------------------------
shall have approved the terms of this Agreement, including the Schedules to be
attached hereto, and the transactions contemplated hereby.
6.09 Delivery of Financial Statements. Purchaser shall have received
--------------------------------
(a) the financial statements required pursuant to Section 3.03 hereof and (b)
the written consent of the Seller's accountants reporting on such financial
statements, as well as (c) the written consent of the Seller's independent
certified public accountants who audited the previously delivered financial
statements as of December 31, 1993 and December 31, 1994 to the use of such
financial statements and reports in public filings made with the Securities and
Exchange Commission and/or other regulatory agencies or bodies. In the event
that any financial statement required to be delivered under this Section 6.09 is
not obtained prior to August 15, 1996, Purchaser may waive such condition or if
Purchaser fails to waive such condition by August 30, 1996, then either party
may terminate this Agreement, provided such party is not then in default under
this Agreement and upon such termination, Purchaser shall have no claim against
Seller arising out of such inability to deliver any such financial statements.
6.10 Transfer Taxes. All New York State and New York City transfer
--------------
taxes and transfer gains taxes applicable to the transactions contemplated
hereby shall have been paid, or a mechanism acceptable to Purchaser shall be in
place for the
26
<PAGE>
payment of such taxes through the Closing, and all materials and information
required to be filed with the New York State Department of Taxation and Finance,
or other governmental authority, by Seller and Purchaser shall have been timely
filed provided, however, that Purchaser shall use its reasonable
-------- -------
commercial efforts in assisting Seller in compiling any such material or
information and, shall not unreasonably delay the execution by Purchaser of such
forms or documents necessary for Seller to file all necessary tax forms and
related questionnaires.
6.11 Delivery of Closing Documents. Purchaser shall have received
-----------------------------
each of the following closing documents executed by Seller: (i) the Assignment
of Lease, (ii) the Bill of Sale, (iii) the Assignment of Contracts, (iv) the
Assignment of Trademarks and (v) a Non-Foreign Affidavit satisfying the
requirements of Section 1445 of the United States Internal Revenue Code of 1986,
as amended, substantially in the form attached hereto as Exhibit O and
incorporated herein by reference.
6.12 Satisfaction or Assignment of Judgment. Joseph J.M. Saleh and
--------------------------------------
Angelika Saleh shall have simultaneously satisfied that certain judgment entered
in the Supreme Court, New York County Clerk's Office on December 20, 1994 (Index
No. 32147/92) in favor of Citibank, N.A. currently held by Reading jointly and
severally against Joseph J.M. and Angelika Saleh (the "Judgment") for a total
satisfaction price equal to $1,285,000 plus interest at the rate of 9% per annum
from November 8, 1995 to the date of satisfaction (the "Judgment Satisfaction
Amount"). If, for any reason, Joseph J.M. and Angelika Saleh have not satisfied
the Judgment on or before the Closing Date as herein provided, then in lieu of
paying the full amount, as provided in Section 1.04(b), Reading may instead
assign the Judgment to Seller, without any representation, warranty or recourse
and the value of the Judgment, for purposes of such assignment, shall equal the
Judgment Satisfaction Amount. Until the Closing or earlier termination of this
Agreement, Reading agrees to take no actions or pursue any collection or
enforcement remedies with respect to the Judgment or any property previously
levied upon or obtained from others in connection with the Judgment and Reading
shall promptly vacate all existing restraining notices affecting any property or
assets of Angelika T. Saleh.
6.13 Certain Shareholders Deliveries. Purchaser shall have received
-------------------------------
(i) from each of Angelika Saleh, Eva Saleh, Jessica Hurt and Joseph J.M. Saleh
and each of their affiliates a quit claim assignment of their entire rights,
title and interest, if any, in the name "Angelika" for motion picture exhibition
and cafe purposes, except as set forth in the Trademark Licenses, and (ii)
either evidence, reasonably acceptable to Purchaser, that final Marital Court
approval has been obtained or evidence, reasonably
27
<PAGE>
acceptable to Purchaser, that no Marital Court approval or action is required
for the consummation of the transactions contemplated by this Agreement.
6.14 Seller's Authority. All actions required to be taken by, or on
------------------
the part of, Seller to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Seller's Board of Directors and
Stockholders. Seller shall deliver at Closing a Certificate by an officer of
Seller certifying that corporate resolutions were duly adopted by the Board of
Directors and Stockholders of Seller authorizing Seller to execute, deliver and
perform the Agreement, as well as all related documents to be signed by
Purchaser hereunder and to consummate the transactions contemplated by the
Agreement. Such certificate shall also provide that the resolutions are in full
force and effect without modification or rescission on and as of the Closing
Date.
6.15 Occurrence of Closing. Purchaser may at its sole option
---------------------
terminate this Agreement if the Closing shall not have occurred on or prior to
September 1, 1996 provided, however, that neither Purchaser nor Seller shall be
-------- -------
relieved of any obligation to the other which arises prior to such termination
and further provided, that if the Closing shall not have occurred on or prior to
------- --------
September 1, 1996 due to the failure of Purchaser to fulfill the conditions
contained in Article VII (other than the approval of Purchaser's Board),
Purchaser may not terminate this Agreement without the consent of Seller.
ARTICLE VII
Conditions to Obligations of Seller
-----------------------------------
The obligations of Seller to effect the transactions contemplated
hereby shall be, at the option of Seller, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions:
7.01 Representations and Warranties True. The representations and
-----------------------------------
warranties of Purchaser contained in this Agreement or in any document delivered
by Purchaser pursuant hereto were true and correct in all material respects on
the date such representations and warranties were made, and at the Closing
Purchaser shall have delivered to Seller a certificate to such effect.
7.02 Opinion of Purchaser's Counsel. Seller shall have been
------------------------------
furnished at the Closing with an opinion of Purchaser's counsel dated as of the
Closing Date, addressed to and in form and substance satisfactory to Seller, to
the effect that:
28
<PAGE>
(a) Reading is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full corporate
power and authority to acquire the Assets;
(b) This Agreement and each of the documents executed by Purchaser pursuant
to the Agreement, including the Payment Note, the Pledge Agreement, the
Holdback Note, the Escrow Agreement, the Assignment and Assumption of Lease,
as well as the Assignment and Assumption of Contracts, have been duly and
validly executed and delivered by Reading, and constitute legal, valid and
binding obligations of Reading enforceable in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights;
(c) the consummation of the transactions contemplated hereby shall not:
(1) to the knowledge of such counsel, violate, or conflict with, or
result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under any of the terms, conditions or provisions of the
Certificate or Articles of Incorporation of Reading or the Bylaws of
Reading, or any agreement to which Reading is a party, or by which it may
be bound or affected.
(2) to the knowledge of such counsel, violate any order, writ,
injunction, decree, statute, rule or regulation (including, without
limitation, Regulations U and X of the Board of Governors of the Federal
Reserve System) which has applicability to Reading;
(d) to the knowledge of such counsel, no consent or approval, which has not
been obtained, by any governmental authority is required and no consent of
any other party (including shareholders of Purchaser) is required in
connection with the consummation by Purchaser of the transactions
contemplated by this Agreement.
29
<PAGE>
7.03 Performance of Covenants. Each of the obligations of Purchaser
------------------------
to be performed by it on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed on or before the Closing Date, and
at the Closing Purchaser shall have delivered to Seller a certificate to such
effect.
7.04 Purchaser's Authority. All actions required to be taken by, or
---------------------
on the part of, Purchaser to authorize the execution, delivery and performance
of this Agreement, and the consummation of the transactions contemplated hereby
shall have been duly and validly taken by the Purchaser's Board of Directors.
Purchaser shall deliver at Closing a Certificate by an officer of Purchaser
certifying that corporate resolutions were duly adopted by the Board of
Directors of Purchaser authorizing Purchaser to execute, deliver and perform the
Agreement, as well as all related documents to be signed by Purchaser hereunder
and to consummate the transactions contemplated by the Agreement. Such
certification shall also provide that the resolutions are in full force and
effect without modification or rescission on and as of the Closing Date.
7.05 Trademark Licenses. Seller shall have received, on behalf of
------------------
the named Licensees, the Trademark Licenses duly executed by Purchaser in the
form of Exhibits E and F.
7.06 Occurrence of Closing. Seller may at its sole option terminate
---------------------
this Agreement if the Closing shall not have occurred on or prior to September
1, 1996 provided, however, that neither Purchaser nor Seller shall be relieved
-------- -------
of any obligation to the other which arises prior to such termination and
further provided, that if the Closing shall not have occurred on or prior to
- ------- --------
September 1, 1996 due to the failure of Seller to fulfill the conditions
contained in Article VI (other than Sections 6.06, 6.08 or 6.09), Seller may not
terminate this Agreement without the consent of Purchaser.
7.07 Termination of the Agreement between Reading and Joseph J.M.
------------------------------------------------------------
Saleh. At or prior to the Closing and at the written request of Joseph J.M.
- -----
Saleh, Reading shall cause its affiliate Reading Cinemas, Inc. to enter into a
Termination Agreement with Joseph J.M. Saleh (the "Termination Agreement")
pursuant to which the parties to the Termination Agreement shall, effective upon
the Closing of the transactions provided for herein, terminate all of their
respective rights, duties or obligations of any kind, nature of description
under that certain prior Agreement dated October 13, 1995 as amended and
extended, between the parties to the Termination Agreement and that certain
Letter Agreement dated October 13, 1995 between the same parties executed in
connection therewith.
30
<PAGE>
ARTICLE VIII
Indemnification by Seller
-------------------------
8.01 General. From and after the Closing Date, Seller shall
-------
indemnify and hold harmless Purchaser in respect of any and all claims, losses,
damages and liabilities arising within 18 months after the Closing Date and
regardless of when they are paid or incurred, together with all expenses paid or
incurred by Purchaser (including, without limitation, settlement costs and any
legal or other expenses for investigating or defending any actions or threatened
actions -- collectively, "Defense Costs"), together with interest thereon at the
Contract Rate, compounded annually, from the date incurred until reimbursed,
reasonably incurred by Purchaser in connection with or as a result of each and
all of the following (a "Breach of Warranty"):
(a) any misrepresentation or breach of any warranty made by Seller in
Article III hereof. For purposes of this Section 8.01(a) only (and not for
purposes of Section 8.07(b), any representation and warranty of Seller
contained in Article III hereof that was qualified to the best knowledge of
Seller shall not be so qualified in determining whether such representation
and warranty was true and correct as of the date made;
(b) the breach of any covenant, agreement or obligation of Seller
contained in this Agreement or any other instrument contemplated by this
Agreement. For purposes of this Section 8.01(b) only (and not for purposes of
Section 8.07(b)), any covenant, agreement or obligation of Seller contained
in this Agreement or any other instrument contemplated by this Agreement for
which Seller was only required to use its good faith and/or commercially
reasonable efforts to perform shall be deemed to have been breached if such
covenant, agreement or obligation was not in fact performed, regardless of
whether Seller used its good faith and/or commercially reasonable efforts or
not provided, however, that in the event Purchaser elects to close
-------- -------
notwithstanding any failure by the Seller to obtain Landlord's consent to the
assignment of the lease, then Seller shall have no obligation to Purchaser
with respect to such assignments so long as Seller has used its good faith
and/or commercially reasonable efforts to acquire such Landlord's consent and
continues to cooperate with Purchaser in its efforts to obtain such consent;
and
31
<PAGE>
(c) any misrepresentation contained in any statement or certificate
furnished by Seller pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement. For purposes of this Section
8.01(c) only (and not for purposes of Section 8.07(b)), any representation
contained in any statement or certificate furnished by Seller pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement that was qualified to the best knowledge of Seller shall not be so
qualified in determining whether such representation was true and correct as
of the date made.
8.02 Special Claims. From and after the Closing Date, without any
--------------
limitation of time other than the applicable statute of limitations governing
the right to assert any such claims, Seller shall indemnify and hold Purchaser
harmless from and against any and all claims, losses, damages or liabilities,
including Defense Costs arising out of:
(a) Any governmental assertion that Purchaser is liable for any unpaid
taxes owed by Seller; or
(b) any person's assertion that (i) Purchaser is liable for any
fraudulent transfer by Seller or (ii) Purchaser does not have good title to
the Assets purchased, or (iii) Purchaser is otherwise responsible for any
unpaid debts of Seller under New York's Bulk Sales Act or Debtor and Creditor
Laws.
8.03 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification under this Article VIII, Purchaser shall promptly notify Seller
(with copy to Pledgeholder or Escrow Agent, as the case may be) of the claim
and, when known, the facts constituting the basis for such claim. In the event
of any claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by a third party, such notice shall specify, if
known, the amount or an estimate of the amount of the liability arising
therefrom. In no event shall the failure to give prompt notice of any such
claim to Seller relieve Seller from liability hereunder except to the extent,
and only to the extent, that actual prejudice from such delay is shown provided,
--------
however, that any notice of claims for indemnification or to be held harmless
- -------
under this Agreement arising within 18 months after the Closing Date must be
made (i) during the period from the Closing Date to a date 18 months from the
Closing Date or (ii) 15 days
32
<PAGE>
after Purchaser learns of the claim for indemnification, but in no event
subsequent to 20 months from the Closing Date, whichever is later.
8.04 Manner of Indemnification. Subject to the further provisions of
-------------------------
this Agreement, all indemnification by Seller under this Article VIII may be
effected, at the option of Purchaser, by claim against the Escrow Account first,
pursuant to the Escrow Agreement, or by delivery of cash by Seller.
8.05 Seller's Right to Dispute Any Purchaser Claim For
-------------------------------------------------
Indemnification. Within fifteen (15) days after Seller receives any
- ---------------
notification from Purchaser of any claim for indemnification under or pursuant
to Section 8.03, Seller may send notification to Purchaser (with copy to
Pledgeholder or Escrow Agent as the case may be) indicating that Purchaser
disagrees with and objects to Seller's claim for indemnification and further
stating all of the reasons or bases for such disagreement and objection
("Seller's Notice of Indemnity Dispute"). Pending the resolution of such
dispute either (i) by a final determination of a Court of competent jurisdiction
(a "Final Judgment") or (ii) Purchaser and Seller settling such dispute by a
written agreement signed by both Purchaser and Seller (a "Settlement
Agreement"), the Pledge Holder or the Escrow Agent, as the case may be, shall
take no action with respect to the disputed claim until it receives a copy of
the Final Judgment or Settlement Agreement directing how it should act and any
sums otherwise due and payable under either the Holdback Note or the Payment
Note to the extent of the disputed claim shall not become due and payable until
the entry of the Final Judgment of the signing of the Settlement Agreement, at
which time the proper amount due and payable under the Holdback Note or the
Payment Note, together with interest on such amount, shall be automatically
amended so as to comply with the determinations made in the Final Judgment or
the directions provided in the Settlement Agreement.
8.06 INTENTIONALLY OMITTED
---------------------
8.07 Limitation on Liability.
-----------------------
(a) The aggregate liability of Seller under this Article VIII shall be
limited to the Purchase Price paid to Seller hereunder. For purposes of this
Section 8.07, liabilities of Seller which have been satisfied out of the Escrow
Account shall not be included in determining the aggregate liability of Seller
under this Article VIII. Likewise, for purposes of this Section 8.07, the
portion of the Purchase Price attributable to the funds in the Escrow Account
shall not be deemed to have been paid to Seller until such time as, and to the
extent that, Seller actually receives monies from the release of any remaining
funds from the Escrow Account.
33
<PAGE>
(b) The limitations of this Section 8.07 do not apply to the
following:
(i) liability for any willful or fraudulent misconduct on the
part of Seller; and
(ii) liability for any conduct on the part of Seller after the
Closing.
ARTICLE IX
Miscellaneous
-------------
9.01 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by telecopy transmission or mailed by certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
If to Purchaser: Reading Investment Company, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Fax No. (302) 478-3667
Attention: President
---------
With copies to: Reading Investment Company, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
Fax No. (215) 569-2862
Attention: Mr. James A. Wunderle
---------
Donald S. Snider, Esq.
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022-7513
Fax No. (212) 702-5941
If to Seller: Angelika Film Centers, Inc.
Houston Cinema, Inc.
c/o Skolnick & Hochberg, P.C.
122 East 42nd Street
New York, New York 10017
Fax No. (212) 986-0931
Attention: Ralph R. Hochberg, Esq.
---------
34
<PAGE>
With copies to: Angelika T. Saleh
1261 Madison Avenue, Apartment 5S
New York, New York 10128
Fax No. (212) 876-4365
Jessica Saleh Hunt
330 West End Avenue, Apartment 8A
New York, New York 10023
Fax No. (212) 986-0931
Eva Saleh
35 West 90th Street
New York, New York 10021
Fax No. (212) 986-0931
Joseph J.M. Saleh
240 Central Park South, Apartment 15D
New York, New York 10019
Fax No. (212) 265-6542
David B. Bernfeld, Esq.
Hoffinger Friedland Dobrish Bernfeld &
Stern, P.C.
110 East 59th Street
New York, New York 10022
Fax No. (212) 223-3857
Michael S. Mullman, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Fax No. (212) 885-5001
9.02 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the parties hereto and their respective
successors.
9.03 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws, and not the laws
pertaining to choice or conflicts of laws, of the State of New York.
9.04 Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute but one and the same instrument.
9.05 Further Assurances. Each of Seller and Purchaser shall use
------------------
their respective commercially reasonable efforts to bring about the transactions
contemplated by this Agreement and agree to take such further actions as are
necessary to effectuate the intent of the parties hereto. Seller hereby agrees
to fully
35
<PAGE>
cooperate with Purchaser with respect to the obtaining and preparation of
certified financial statements that Purchaser, or its affiliates, may need in
connection with public reports to be filed by such entities.
9.06 Complete Agreement. This Agreement, the exhibits hereto and the
------------------
Schedules hereto delivered pursuant to this Agreement contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and, except as provided herein, supersede all previous oral
and written and all contemporaneous oral negotiations, commitments, writings and
understandings. Neither Seller nor Purchaser is relying on any inducement
whatsoever other than that represented by this Agreement in executing and
delivering this Agreement.
9.07 Modifications, Amendments and Waivers. At any time prior to the
-------------------------------------
Closing Date or termination of this Agreement, Purchaser, on the one hand, and
Seller (through unanimous action taken by all of the shareholders of Seller), on
the other hand, may, by written agreement:
(a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto;
(b) waive any inaccuracies in the representations and warranties made
by the other parties contained in this Agreement or in the Schedule hereto or
any other document delivered pursuant to this Agreement; and
(c) waive compliance with any of the covenants or agreements of the
other parties contained in this Agreement.
9.08 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.09 Severability. Any provision of this Agreement which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
9.10 Investigation of the Parties. All representations and
----------------------------
warranties contained herein which are made to the best knowledge of a party
shall require that such party make reasonable investigation and inquiry with
respect thereto to ascertain the correctness and validity thereof.
36
<PAGE>
9.11 Payment of Expenses. Purchaser, on the one hand, and Seller, on
-------------------
the other hand, shall pay all fees and expenses (including, without limitation,
legal and accounting fees and expenses) incurred by them in connection with the
transactions contemplated hereunder. Seller shall be responsible for the
payment of all taxes, including transfer taxes arising out of the conveyance of
the Assets as contemplated hereby, except Purchaser shall pay all sales taxes.
9.12 Termination for Failure of Certain Conditions. Notwithstanding
---------------------------------------------
anything herein to the contrary, no party shall have the right or privilege to
terminate this Agreement if and during any period of time when such party is in
breach of this Agreement. In the event either party properly terminates this
Agreement by reason of Sections 6.06, 6.08 or 6.09, then except as provided in
Section 9.13 below, neither party shall have any further obligation or liability
hereunder of any kind to the other party.
9.13 Rights Upon Termination. In the event this Agreement is
-----------------------
terminated (i) by Purchaser by reason of Seller's default or (ii) by Seller for
any reason other than Purchaser default or failure of Purchaser to satisfy any
condition on its party to be satisfied, then, in either event, Seller hereby
grants to Purchaser until January 1, 1997 or six months after Seller's
termination, whichever is later, a right of first refusal with respect to the
acquisition of the Angelika Theatre. Such right of first refusal shall give
Purchaser or its designee the right to acquire the Angelika Theatre on the same
terms and conditions (except as set forth below) set forth in any bona fide
offer which Seller is willing to accept (the "Third Party Offer"). Seller shall
not accept any Third Party Offer except making such acceptance expressly subject
to Purchaser's right of first refusal and Seller shall immediately send
Purchaser a copy of any Third Party Offer. If Purchaser wishes to exercise its
right of first refusal, then Purchaser must within ten (10) business days of
receipt of the Third Party Offer notify Seller of its decision to match the
Third Party Offer; provided, however, in such event Purchaser shall pay a
-------- -------
purchase price five percent (5%) higher than stated in the Third Party Offer;
provided, further, that any Seller financing specified in such Third Party Offer
will be by the issuances of similar notes of Purchaser, or its designee
(guaranteed by Purchaser), having similar terms and that any other non-cash
consideration in such offer shall be reduced to its fair market value in dollars
for purposes of such right of first refusal and, at Seller's option, Purchaser
shall pay such fair market value either in cash or by the further issuance of
additional promissory notes in the amount of the fair market value of such non-
cash consideration. If the Purchaser fails to notify Seller of its election to
exercise its right of first refusal within ten (10) business days of receipt of
the Third Party Offer, then Purchaser shall have waived such right.
37
<PAGE>
9.14 Upon Whom Binding. This Agreement shall be binding upon and
-----------------
inure to the benefit of the parties and their respective successors, assigns and
legal representatives.
9.15 Counterparts. This Agreement may be signed in counterparts and
------------
shall be binding and enforceable when signed by all parties.
9.16 All Parties Represented by Independent Counsel. The parties
----------------------------------------------
acknowledge that this Agreement is the product of negotiations by the parties
represented by independent counsel of their choice. The parties represent that
they consulted with counsel prior to the execution of this Agreement.
9.17 Interpretation of This Agreement. This Agreement shall be
--------------------------------
deemed (a) to have been fully negotiated by independent counsel for each party
of their own selection and (b) to have been drafted by counsel for each of the
parties so that in the event of any ambiguity no negative inference of any kind
shall be drawn against any drafter for either party. The captions have been
added solely for convenience and shall not be used or referred to in
interpreting this Agreement.
9.18 Attorneys Fees. Each party shall be responsible for and pay
--------------
their own attorneys in connection with the negotiations and drafting of this
Agreement. Notwithstanding the foregoing, the prevailing party shall be
entitled to recover any and all attorneys' fees and other costs paid or incurred
in connection with any action or proceeding to interpret or declare the rights,
duties or obligations of the parties or to enforce this Agreement.
38
<PAGE>
ARTICLE X
Assignment by Purchaser
-----------------------
10.01 Assignment by Purchaser. Purchaser may assign its rights under
-----------------------
this Agreement to an entity jointly owned by Purchaser, or its affiliates, and
City Cinemas, or its affiliates, provided such assignee expressly assumes in
writing Purchaser's obligations under this Agreement and such assignment shall
not relieve Purchaser of its obligations under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the date first above written.
Purchaser:
READING INVESTMENT COMPANY, INC., a
Delaware corporation
Witnessed: /s/ Donald S. Snider By: /s/ James A. Wunderle
--------------------------
Title: V.P.
----------------------
Seller:
ANGELIKA FILM CENTERS, INC., a New York
corporation
Witnessed: /s/ David B. Bernfeld By: /s/ Joseph J.M. Saleh
-------------------------------
Joseph J.M. Saleh, its authorized
agent
By: /s/ Angelika T. Saleh
-------------------------------
Angelika T. Saleh, its authorized
agent
39
<PAGE>
Witness: /s/Ralph R. Hochberg By: /s/ Jessica Saleh Hunt
-------------------------------
Jessica Saleh Hunt, its authorized
agent
Witness: /s/Ralph R. Hochberg By: /s/ Eva Saleh
-------------------------------
Eva Saleh, its authorized agent
HOUSTON CINEMA, INC., a
New York corporation
By: /s/ Joseph J.M. Saleh
--------------------------------
Joseph J.M. Saleh, its
authorized agent
Witness: /s/David B. Bernfeld By: /s/ Angelika T. Saleh
--------------------------------
Angelika T. Saleh, its
authorized agent
Witness: /s/Ralph R. Hochberg By: /s/ Jessica Saleh Hunt
--------------------------------
Jessica Saleh Hunt, its
authorized agent
Witness: /s/Ralph R. Hochberg By: /s/ Eva Saleh
---------------------------------
Eva Saleh, its authorized agent
Solely in their capacity as shareholders of the
Seller and for the sole purpose of consenting
that the Seller may enter into this Agreement
and effectuate the transactions contemplated
thereby.
<PAGE>
Saleh Family Members:
/s/ Joseph J.M. Saleh
--------------------------------
Joseph J.M. Saleh
Address:________________________
________________________
________________________
Witness: /s/ David B. Bernfeld /s/ Angelika T. Saleh
--------------------------------
Angelika T. Saleh
Address:________________________
________________________
________________________
Witness: /s/ Ralph R. Hochberg /s/ Jessica Saleh Hunt
--------------------------------
Jessica Saleh Hunt
Address:________________________
________________________
________________________
Witness: /s/ Ralph R. Hochberg /s/ Eva Saleh
--------------------------------
Eva Saleh
Address:________________________
________________________
________________________
<PAGE>
Schedule 1
CLOSING ADJUSTMENTS
-------------------
Additions to Purchase Price
- -------------------------------------
Estimated Till Cash $____________
Estimated Inventory $____________
Prorated Rent $____________
Total $____________
Deductions to Purchase Price
- -------------------------------------
Estimated CAM Adjustment $____________
Estimated Accrued Union Liabilities $____________
Accrued Vacation Pay and Benefits $____________
for Continuing Employees
Total $____________
Net Purchase Price Adjustment $____________
42
<PAGE>
EXHIBIT 10.37
AMENDMENT TO
------------
ANGELIKA THEATRE
----------------
ASSET PURCHASE AND SALE AGREEMENT
---------------------------------
This Amendment (the "Amendment Agreement") to the Angelika Theatre
Asset Purchase and Sale Agreement dated as of July 1, 1996 (the "Sale
Agreement") is made and entered into as of this 27th day of August, 1996 by and
among READING INVESTMENT COMPANY, INC., a Delaware corporation ("Reading"),
ANGELIKA FILM CENTERS, INC., a New York corporation ("Seller"), and HOUSTON
CINEMA, INC., a New York corporation ("Houston").
RECITALS
--------
A. The Sale Agreement was previously modified by Letter Agreements
dated July 9, 1996 and July 24, 1996 between the attorneys for Reading and
Seller with the prior approval and authority of their respective Clients.
B. The parties are simultaneously herewith Closing the Sale
Agreement and in connection therewith, wish to further amend the Sale Agreement
so as to defer the "Closing Audit" of Seller by the "Closing Auditors" as
required under Section 1.03 (as defined therein) until a date which is sixty
(60) days after the Closing Date in order for the parties to continue their good
faith discussions and negotiations and allow sufficient time for the parties to
agree upon not only Seller's "actual Pre-Closing Earnings" (as defined therein),
but also allow the parties to seek agreement upon any further necessary and
appropriate adjustments to the final Purchase Price.
AMENDMENT AGREEMENT
-------------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
representations, warranties and covenants herein set forth, the parties hereto
agree as follows:
1. The first clause of the second sentence of Section 1.03 of the
Sale Agreement, which provides "On or immediately after the Closing Date,",
shall be deleted and the following shall be substituted in lieu thereof: "On or
immediately following the first business day which is sixty (60) days after the
Closing Date,".
2. The Seller has recently received an audit notice from the
Department of Labor (the "Department of Labor Audit"), which Department of Labor
Audit will review and determine whether Seller has underpaid any of its
employees during the period beginning with the last quarter of 1994 to date.
The parties
<PAGE>
recognize and acknowledge that the initial "Purchase Price" stated in the Sale
Agreement for the Angelika Theatre "Assets" being sold and transferred under the
Sale Agreement was, in large part, predicated upon a formula (the "Formula"),
which Formula represented an initial Purchase Price (subject to certain agreed
upon adjustments) based upon six times (6 x) the "net income" of the Angelika
Theatre for the twelve (12) month period ended December 31, 1995. In the event
and to the extent the Department of Labor Audit finally determines that the
Seller materially underpaid its employees during calendar year 1995 and thus the
Seller not only concomitantly materially understated its labor costs, but also
to the same extent overstated its earnings under the Formula referred to above,
then the parties wish to provide and equitable post-closing adjustment to the
Purchase Price based upon the results of the Department of Labor Audit as
finally determined for calendar year 1995.
a. If the Department of Labor Audit for calendar year 1995
finally determines by order or settlement that the Seller's employees were
either not underpaid or if underpaid then by a sum not greater than $35,000
(exclusive of interest, penalties or fines), then and in such event, there shall
be no further adjustment to the Purchase Price.
b. If the Department of Labor Audit for calendar year 1995
finally determines by order or settlement that the Seller's employees were
underpaid by a sum greater than $35,000, then and in such event, for each one
dollar ($1.00) in excess of $35,000 (exclusive of interest, penalties or fines),
the Purchase Price shall be adjusted and reduced six times (6 x) the amount of
underpayment in excess of $35,000, which adjustment and reduction in Purchase
Price shall in no event exceed the total adjustment or reduction of $150,000.
c. Seller hereby instructs either its accountant, Andrew Siegel
of Miller & Co., P.C., or its attorney, Ralph R. Hochberg, Esq. of Skolnick &
Hochberg, P.C., to advise Purchaser's attorney, Donald S. Snider, Esq. of Baer
Marks & Upham, LLP, of any settlement or final determination of the Department
of Labor Audit.
d. If by reason of the Department of Labor Audit referred to
above, Purchaser is entitled to an equitable adjustment and reduction of the
Purchase Price, as provided herein, Purchaser shall have the automatic right to
offset the amount by which the Purchase Price has been reduced from any sum
which may become due and owing under the Holdback Note and in addition thereto,
instruct the Escrow Agent to pay the Purchaser such amount from the Escrow
Account securing the Holdback Note.
2
<PAGE>
3. Except as expressly provided herein, the Sale Agreement, as
previously amended, is hereby ratified and in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the date first above written.
Purchaser:
READING INVESTMENT COMPANY, INC., a
Delaware corporation
By: /s/ Charles S. Groshon
-------------------------------
Charles S. Groshon
Title: Vice President
----------------------------
Seller:
ANGELIKA FILM CENTERS, INC., a New York
corporation
By:
-------------------------------
Joseph J.M. Saleh, its authorized
agent
By: /s/ Angelika T. Saleh
-------------------------------
Angelika T. Saleh, its authorized
agent
By: /s/ Jessica Saleh Hunt
-------------------------------
Jessica Saleh Hunt, its authorized
agent
3
<PAGE>
By: /s/ Eva Saleh
-------------------------------
Eva Saleh, its authorized agent
HOUSTON CINEMA, INC., a
New York corporation
By: /s/ Joseph JM Saleh
-------------------------------
Joseph J.M. Saleh, its
authorized agent
By: /s/ Angelika T. Saleh
-------------------------------
Angelika T. Saleh, its
authorized agent
By: /s/ Jessica Saleh Hunt
-------------------------------
Jessica Saleh Hunt, its
authorized agent
By: /s/ Eva Saleh
-------------------------------
Eva Saleh, its authorized agent
Solely in their capacity as shareholders of the
Seller and for the sole purpose of consenting that
the Seller may enter into this Agreement and
effectuate the transactions contemplated thereby.
4
<PAGE>
Saleh Family Members:
/s/ Joseph JM Saleh
-----------------------------
Joseph J.M. Saleh
Address: 240 Central Park So
----------------------
New York, NY
----------------------
10019
----------------------
/s/ Angelika T. Saleh
-----------------------------
Angelika T. Saleh
Address: 1261 Madison Ave.
----------------------
NYC
----------------------
10023
----------------------
/s/ Jessica Saleh Hunt
-----------------------------
Jessica Saleh Hunt
Address: 330 West End Ave. St.
----------------------
NY NY
----------------------
10023
----------------------
/s/ Eva Saleh
-----------------------------
Eva Saleh
Address: 35 W. 90 St.
----------------------
NYC 10024
----------------------
5
<PAGE>
EXHIBIT 10.38
NON-NEGOTIABLE SECURED PROMISSORY NOTE
$2,000,000.00 New York, N.Y.
August 27, 1996
FOR VALUE RECEIVED, the undersigned, ANGELIKA FILM CENTERS LLC, a limited
liability company organized and existing under the laws of the State of
Delaware, United States of America, having an office located at c/o Reading
Theaters, 950 Third Avenue, New York, New York 10022-1207 ("Maker"), hereby
promises to pay to ANGELIKA FILM CENTERS, INC., having an office at c/o Skolnick
& Hochberg, P.C., 122 east 42 Street, New York, N.Y. 10168 ("Payee"), or at such
other place in New York as may be designated from time to time by the Payee, the
sum of TWO MILLION DOLLARS ($2,000,000) and to pay interest on the unpaid
principal from the date hereof at a rate equal to the thirteen (13) week
Treasury Bill rate, as it changes and is published in the "Wall Street Journal"
from time to time (hereinafter the "Reference Rate"), provided, however,
-----------------
interest shall be paid on any outstanding principal amount due hereunder in
excess of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) at the greater
of the Reference Rate or at the rate of nine percent (9%) per annum.
The Maker hereof promises to pay the principal and interest due hereunder
as follows: (a) accrued interest as calculated in accordance with the
provisions of this Note to be paid commencing three (3) months form the date
hereof, and quarterly thereafter during the term hereof, (b) on April 1, 1997, a
principal payment of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) and
(c) on February 27, 1998 (18 months after the date hereof) the remaining unpaid
balance of principal, together with accrued interest. All amounts paid pursuant
to this paragraph shall be applied first to the payment of accrued interest to
the date of payment and then to the reduction of principal.
This Note is subject to and entitled to the benefits of that certain
Angelika Theatre Asset Purchase and Sale Agreement entered into as of the 1st
day of July between Reading Investment Company, Inc. ("Reading"), the assignor
of the Maker and Angelika Film Centers, Inc. (herein "Sale Agreement"), the
provisions of which are hereby incorporated in this Note, with the same force
and effect as though said terms, covenants and conditions were fully set forth
herein.
Payment of principal and interest due hereunder is secured by a pledge by
the Maker of "Collateral" described in the Sale Agreement and in that certain
Pledge Agreement and Escrow Agreement of even date herewith. This Note shall be
non-recourse to the Maker unless the Collateral described in the Sale Agreement,
Escrow Agreement and Pledge Agreement is unavailable to the Holder of this Note
by reason of attachment or other actions of creditors of Reading or the Maker,
including the voluntary or involuntary bankruptcy of Reading or the Maker.
<PAGE>
Upon failure of the Maker hereof to pay any part of the principal or
interest on this Note when due and payable, the entire outstanding principal
balance and interest due on this Note shall, upon the written demand of the
holder hereof, become immediately due and payable without presentment or protest
or other notice or demand, all of which are expressly waived by the undersigned.
The undersigned waives demand, protest, and notice of maturity, non-payment
or protest and all requirements necessary to hold the undersigned liable as
maker.
In the event of any Federal, State or local authority having appropriate
jurisdiction, shall after the date hereof, duly enact or promulgate any statue
or regulation, which, if enforced, would tender the rate of interest payable
hereunder illegal or unenforceable, then, in such event, the undersigned agrees
that the rate of interest to be paid hereunder shall be appropriately reduced to
the highest rate of interest permitted by law at the time any payment of
interest shall be due.
This Note may not be changed or terminated orally, by only by an agreement
in writing and signed by the person against whom enforcement of any waiver,
change, modification or discharge is sought. No waiver of any breach or default
hereunder shall be deemed a waiver of any subsequent breach or default of the
same or similar nature.
The undersigned agrees to pay each and every cost of collection, including
reasonable attorneys' fees and attorney's expenses and other costs paid or
incurred in connection with any action or proceeding to enforce this Note,
including any appeal(s) and any judgment or order obtained in connection
therewith.
This Note shall be binding upon and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns.
This Note has been made in and shall be construed and enforced according to
the laws of the State of New York.
ANGELIKA FILM CENTERS LLC
By: /s/ Charles S. Groshon
---------------------------------
Charles S. Groshon
Vice President and Secretary
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 27th day of August 1996, before me personally came Charles S.
Groshon to me known, who, by me duly sworn, did depose and say that he resides
at Glenside, Pennsylvania, that deponent is the Vice-President and Secretary of
Angelika Film Centers LLC, the limited liability company described in, and which
executed the foregoing instrument and that deponent signed deponent's name
thereto.
/s/ Teresita Magsino
------------------------------
Notary Public
TERESITA MAGSINO
Notary Public, State of New York
No. 41-4986829
Qualified in Queens County
Commission Expires Sept. 30, 1997
<PAGE>
EXHIBIT 10.39
PLEDGE AGREEMENT
AGREEMENT made the 27th day of August 1996, by and among ANGELIKA FILM
CENTERS, INC., a corporation organized and existing under the laws of the State
of New York, having its principal offices at c/o Skolnick & Hochberg, P.C., 122
East 42 Street Suite 1507, New York, N.Y. 10168 (hereinafter "Secured Party")
and ANGELIKA FILM CENTERS LLC, a limited liability company organized and
existing under the laws of the State of Delaware having an office c/o Reading
Theaters, 950 Third Avenue, New York, N.Y. 10022-1207 (hereinafter "Debtor").
STATEMENT OF FACTS
(A) Secured Party is owed the sum of TWO MILLION DOLLARS ($2,000,000)
pursuant to the provisions of a certain Angelika Theatre Asset Purchase and Sale
Agreement dated as of July 1, 1996 between the Secured Party and Reading
Investment Company, Inc. ("Reading"), Debtor's assignor (hereinafter the "Sale
Agreement"), and as part of the agreed upon "Purchase Price" Secured Party has
taken back a Holdback Note, as such term is defined in the Sale Agreement. This
Pledge Agreement is entered into to secure the payment of the Holdback Note of
even date herewith in said amount made payable to the Secured party, bearing
interest at the rate set forth in the Holdback Note and payable in accordance
with its terms;
(B) Contemporaneously with the execution of this agreement, the Debtor has
delivered to Secured Party as collateral security for the Holdback Note the sum
of $2,000,000 by delivery thereof to Baer Marks & Upham LLP, which shall act as
Secured Party's agent and as Escrow Agent with respect to the $2,000,000
pursuant to separate Escrow Agreement. The $2,000,000 and the proceeds thereof
and all increases, substitutions and additions thereto, as maintained by the
Escrow Agent is hereinafter collectively referred to as the "Collateral."
(C) To secure payment of the Holdback Note, inclusive of accrued interest
(collectively called the "Indebtedness"), Debtor herewith pledges and assigns
the Collateral to Secured Party and grants to the Secured Party a security
interest in and to the Collateral, all proceeds thereof and all increases,
substitutions and additions thereto.
(D) The parties hereto desire to set forth their understanding and
agreements in connection with the pledge of the Collateral by Debtor to the
Secured Party.
NOW THEREFORE in consideration of the mutual promises hereinafter set
forth, it is hereby covenanted and agreed as follows:
<PAGE>
1. The Debtor agrees:
1.(a) To defend the title to the Collateral against all persons and
against all claims and demands whatsoever, which Collateral, except for the
security interest granted hereby, is lawfully owned by the Debtor and is now
free and clear of any and all liens, security interests, claims, charges,
encumbrances, taxes and assessments except as may be set forth in the schedule.
1.(b) On demand of the Secured Party to do the follow; furnish further
assurance of sale, execute any written agreement or do any other acts necessary
to effectuate the purposes and provisions of this pledge agreement, execute any
instrument or statement required by law or otherwise in order to perfect,
continue or terminate the security interest of the Secured Party in the
Collateral and pay all costs of filing in connection therewith.
2. The parties further agree:
2.(a) Waiver of acquiescence in any default by the Debtor, or failure of
the Secured Party to insist upon strict performance by the Debtor of any
warranties or agreements in this Security Agreement, shall not constitute a
waiver of any subsequent or other default or failure.
2.(b) Notices to either party shall be in writing and shall be delivered
personally or by mail addressed to the party at the address set forth in the
Sale Agreement or in this Pledge Agreement or otherwise designated in writing.
2.(c) The Uniform Commercial Code as adopted by new York shall govern the
rights, duties and remedies of the parties and any provisions herein declared
invalid under any law shall not invalidate any other provision or this
agreement.
2.(d) The following shall constitute a default by Debtor:
(i) Failure to pay the principal or any installment of principal
or of interest on the Indebtedness or any notes when due, unless such nonpayment
is permitted under the Holdback Note or Escrow Agreement; (ii) failure by Debtor
to comply with or perform any provision of this Pledge Agreement; (iii)
Subjection of the Collateral to levy of execution or other judicial process;
(iv) any reduction in the value of the Collateral caused by actions of creditors
of Reading or Debtor described in paragraph 5 below, or any act of the Debtor
which imperils the prospect of full performance or satisfaction of the Debtor's
obligations herein; and (v) Debtor's insolvency or the commission of any act of
bankruptcy by Debtor or the taking advantage of any bankruptcy act and/or other
law for the relief of debtors, including, without limitation, the filing of a
petition in bankruptcy, whether voluntary or involuntary, by or against Debtor
(unless such involuntary petition is dismissed within thirty (30) days
thereafter), an assignment for the benefit of creditors, the appointment
(whether temporary or permanent) of a receiver, trustee or liquidator of
Debtor's property,
2
<PAGE>
unless such appointment is vacated within thirty (30) days thereafter, the
filing of a petition for a composition, extension or an arrangement under the
National Bankruptcy Act, or the admission by Debtor in writing of his inability
to pay his debts as they become due.
2.(e) Upon any default of the Debtor and at the option of the Secured
Party, the obligations secured by this agreement shall immediately become due
and payable in full without notice or demand and the Secured Party shall have
all the rights, remedies and privileges with respect to repossession, retention
and sale of the Collateral and disposition of the proceeds as are accorded by
the applicable sections of the Uniform Commercial Code respecting "Default".
Upon any default, the Secured Party's reasonable attorneys' fees and
the legal and other expenses for pursuing, searching for, receiving, taking,
keeping, storing, advertising, and selling the Collateral shall be chargeable to
the Debtor.
2.(f) The Secured Party is hereby authorized to file a Financing
Statement.
3.(a) Upon payment by Debtor to the Secured Party of the entire principal
balance of the Holdback Note with accrued interest thereon together with any
other sums that may become due under the Holdback Note and hereunder, this
Pledge Agreement shall be deemed terminated and of no further force or effect,
the security interest created herein shall cease and come to an end, and the
Holdback Note, Pledge Agreement and Collateral Loan Documents (excluding the
filing officer's copies of the Financing Statement) then being held by the
Secured Party shall be returned to Debtor together with the requisite UCC-3
Termination Statement signed by Secured Party in form for filing (whereupon all
parties hereto shall be relieved of all further liability hereunder).
(b) If, in the opinion of the Secured Party's attorneys, additional
Financing Statements and/or Continuation Statements and/or amendments of any
Financing Statements are required at any time prior to the date on which all
sums owed by the Debtor to the Secured Party are fully repaid to perfect or to
continue perfection of the security interest created thereby, then the Debtor
shall execute as may counterparts of same as the Secured Party shall request
from time to time, and hereby authorizes the Secured Party to execute same on
behalf of the Debtor and to file same in the manner provided by law.
4. In the event of a default under the Holdback Note, the proceeds
received on said public or private sale shall be applied in the following order:
(a) to pay all costs and expenses of collection and of the public
or private sale (including, without limitation, reasonable attorneys' fees,
advertising costs, fees and expenses);
3
<PAGE>
(b) to pay to Secured Party all sums expended by it (if any) to
cure any default under this Pledge Agreement, plus interest thereon, pursuant to
the preceding subparagraph (a);
(c) to pay interest accrued under the Holdback Note; and
(d) to pay Secured Party the unpaid principal balance on the
Holdback Note.
5. In the even the net proceeds of such sale (after deducting the items
set forth hereinabove) shall be insufficient to any the unpaid principal balance
of the Holdback Note and accrued interest, Debtor shall not in any way be
personally liable for any deficiency unless the deficiency was caused by actions
taken by creditors of Reading or Debtor including but not limited to attachment,
or by reason of the bankruptcy of Reading or Debtor Any surplus realized after
said deductions, and the payment of interest and the unpaid principal balance of
the Holdback Note, shall be turned over to Debtor.
6. Notwithstanding that the Escrow Agent shall hold the Collateral on
behalf of the Secured party pursuant to this Pledge Agreement, the Debtor shall
be entitled to receive and retain interest, dividends or other income realized
from the Collateral, if any, to be applied first to accrued interest and then to
principal.
7. The term "Secured Party" as used in this Agreement includes the
Secured Party named herein, its successors, assigns, heirs, executors,
administrators and legal representatives.
8. The pronouns used herein shall be male, female, or neuter and in the
singular or possessive, whichever the sense requires.
9. If any action or proceeding be commenced by the Secured Party, or if
the same be commenced by the Debtor or anyone else and if the Secured Party is
made a party thereto, in which action or proceeding it becomes necessary or
desirable to foreclose, uphold or defend the security interest created by this
Agreement, or to enforce, uphold or defend any of the rights granted to the
Secured Party by this Agreement, any sums paid by the Secured Party for the
expense of such litigation (including reasonable attorneys' fees and
disbursements), together with interest thereon at the maximum rate permitted by
law, shall be added to the Indebtedness hereby secured and shall be payable to
the Secured Party by the Debtor, on demand.
10. All notices required or permitted hereunder shall be in writing and
given or made by addressing same to the party to whom directed at the address
hereinabove set forth by registered or certified mail, return receipt requested.
Either party may change the address to which notices are to be sent by a writing
directed to the other party in the manner aforesaid. Unless otherwise
specifically provided, all notices hereunder given by mail shall
4
<PAGE>
be deemed delivered when deposited in a United States Post Office, general or
branch, or an official mail depository, maintained by the U.S. Postal Service in
the City and State of New York, enclosed in a registered or certified prepaid
wrapper addressed as above provided, except notice of change of address shall be
deemed served when received.
11. This Pledge Agreement contains the full understanding of the parties
and may not be amended, altered, discharged or terminated, except by another
instrument in writing signed by the party sought to be charged therewith, or by
his, her or its duly authorized agent.
12. This Pledge Agreement shall bind and inure to the benefit of, and be
enforceable against, the heirs, distributees, executors, administrators, legal
representatives, successors and permitted assigns of the respective parties
thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year above written.
DEBTOR:
ANGELIKA FILM CENTERS LLC
By:/s/ Charles S. Groshon
---------------------------
Charles S. Groshon,
Vice-President, Secretary
SECURED PARTY:
ANGELIKA FILM CENTERS, INC.
By:/s/ Jessica Saleh Hunt
---------------------------
Jessica Saleh Hunt,
President
5
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 27th day of August 1996, before me personally came Jessica Saleh
Hunt, to me known, who, by me duly sworn, did depose and say that deponent
resides at New York, New York, that she is the President of Angelika Film
Centers, Inc., the corporation described in, and which executed the foregoing
instrument and that she signed deponent's name thereto by order of the Board of
Directors of the Corporation.
/s/ Teresita Magsino
------------------------------
NOTARY
TERESITA MAGSINO
Notary Public, State of New York
No. 41-4986829
Qualified in Queens County
Commission Expires Sept. 30, 1997
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 27th day of August 1996, before me personally came Charles S.
Groshon, to me known, who, by me duly sworn, did depose and say that deponent
resides at Glenside, Pennsylvania, that deponent is the Vice President and
Secretary of Angelika Film Centers LLC, the limited liability company described
in, and which executed the foregoing instrument and that deponent signed
deponent's name thereto.
/s/ Teresita Magsino
------------------------------
NOTARY
TERESITA MAGSINO
Notary Public, State of New York
No. 41-4986829
Qualified in Queens County
Commission Expires Sept. 30, 1997
<PAGE>
EXHIBIT 10.40
STANDARD FORM OF STORE LEASE
The Real Estate Board of New York, Inc.
AGREEMENT OF LEASE, made as of this 4th day of March 1988, between CABLE
BUILDING ASSOCIATES, having an office at c/o H.D. Carlisle Construction Corp.,
58-47 Francis Lewis Boulevard, Bayside, New York 11364, party of the first part,
hereinafter referred to as Owner, and HOUSTON CINEMA, INC., a New York
corporation, having an office at c/o Angelika Films, 1974 Broadway, New York,
New York 10023, party of the second part, hereinafter referred to as Tenant.
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner
certain premises located on the ground floor and basement levels, substantially
as shown by outlining on the floor plans annexed hereto and made a part hereof
as Exhibit "A" in the building known as 611 Broadway (the "Building" or
"building") in the Borough of Manhattan, City of New York, for the term set
forth in Article 40 of the Rider annexed hereto and made a part hereof, at an
annual rental rate as set forth on Schedule "A" annexed hereto and made a part
hereof (hereinafter referred to as "Fixed Rent") and additional charges
(hereinafter referred to as "Additional Charges") consisting of all other sums
of money as shall become due from and payable by Tenant to Owner hereunder which
Tenant agrees to pay in lawful money of the United States which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, in monthly installments in advance on the first day of each month
during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent:
1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy:
2. Tenant shall use and occupy demised premises in accordance with Article
41 of the Rider annexed hereto and made a
<PAGE>
part hereof and for no other purpose. Tenant shall at all times conduct its
business in a high grade and reputable manner, shall not violate Article 37
hereof, and shall keep show windows and signs in a neat and clean condition.
Alterations:
3. Tenant shall make no changes in or to the demised premises of any
nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and the revisions of this article, Tenant at Tenant's expense,
may make alterations, installations, additions or improvements which are non-
structural and which do not affect utility services or plumbing and electrical
lines, in or to the interior of the demised premises by using contractors or
mechanics first approved by Owner. Tenant shall, before making any alterations,
additions, installations or improvements, at its expense, obtain all permits,
approvals and certificates required by any governmental or quasi-governmental
bodies and upon completion certificates of final approval thereof and shall
deliver promptly duplicates of all such permits, approvals and certificates to
Owner and Tenant agrees to carry and will cause Tenant's contractors and sub-
contractors to carry such workman's compensation, general liability, personal
and property damage insurance as Owner may reasonable require. If any
mechanic's lien is filed against the demised premises, or the building of which
the same forms a part, for work claimed to have done for, or materials furnished
to Tenant, whether or not done pursuant to this article, the same shall be
discharged by Tenant within thirty (30) days after notice thereof at Tenant's
expense, by filing the bond required by law. All fixtures and all paneling,
partitions, railings and like installations, installed in the premises at any
time, either by Tenant or by Owner in Tenant's , shall, upon
installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises. Notwithstanding the foregoing, Tenant
shall have the right to remove built-in movie theatre seats from the premises
prior to the date fixed as the termination of this lease. Should Tenant fail to
remove such seats as aforesaid, same shall become the property of Owner and
shall remain upon and be surrendered with the demised premises. Nothing in this
article shall be construed to give Owner title to or to prevent Tenant's removal
of trade fixtures, moveable office furniture and equipment, but upon removal of
any such from the premises or upon removal of other installations as may be
required by Owner, Tenant shall immediately and at his expense, repair and
restore the premises to the condition existing prior to installation and repair
any damage to the demised premises or the building due to such removal. All
property permitted or required to be removed by Tenant at the end of the term
remaining in the premises after
<PAGE>
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner at Tenant's expense.
Repairs:
4. Owner shall maintain and repair the public portions of the building,
both exterior and interior (i being acknowledged that the public portions of the
building include the structure and facade of the building and the building
systems), except, however, that the foregoing obligation to maintain and repair
shall not apply in any respect to any public portions of the building, to the
extent same (a) constitute or relate to Tenant's Work (as hereinafter defined),
or (b) become subject to maintain or repair by reason of Tenant's acts or
omissions. Except tat if Owner allows Tenant to erect on the outside of the
building a sign or signs, or a hoist, lift or sidewalk elevator for the
exclusive use of Tenant, Tenant shall maintain such exterior installations in
good appearance and shall cause the same to be operated in a good and
workmanlike manner and shall make all repairs thereto necessary to keep same in
good order and condition at Tenant's own cost and expense, and shall cause the
same to be covered by the Insurance provided for hereafter in Article 8. Tenant
shall, throughout the term of this lease, take good care of the demised premises
and the fixtures and appurtenances therein, and the sidewalks adjacent thereto,
and at its sole cost and expense, make all non-structural repairs thereto at and
when needed to preserve them in good working order and condition, reasonable
wear and tear, obsolescence and damage from the elements, fire or other
casualty, excepted. If the demised premises be or become infested with vermin,
Tenant shall at Tenant's expense cause the same to be exterminated from time to
time to the satisfaction of Owner. Except as specifically provided in Article 9
or elsewhere in this lease, there shall be no allowance to the Tenant for the
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. The provisions of this
article 4 with respect to the making of repairs shall not apply in the case of
fire or other casualty which are dealt with in article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window
in the demised premises to be cleaned from the outside in violation of Section
202 of the New York State Labor Law or any other applicable law or of the Rules
of the Board of
<PAGE>
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
Requirements of Law, Fire Insurance:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire Underwriters
or the Insurance Services Office, or any similar body which shall impose any
violation, order or duty upon Owner or Tenant with respect to the demised
premises, and with respect to the portion of the sidewalk adjacent to the
premises. If the premises are on the street level, whether or not arising out of
Tenant's use or manner of use whereof, or with respect to the building if
arising out of Tenant's use or manner of use of the premises or the building
(including the use permitted under the lease). Except as provided in Article 29
hereof, nothing herein shall require Tenant to make structural repairs or
alterations unless Tenant has by its manner of use of the demised premises or
method of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect hereto. Tenant shall not do or permit
any act or thing to be done in or to the demised premises which is contrary to
law, or which will invalidate or be in conflict with public liability, fire or
other policies of insurance at any time carried by or for the benefit of Owner.
Tenant shall pay all costs, expenses, fines, penalties or damages which may be
imposed upon Owner by reason of Tenant's failure to comply with the provisions
of this article. If the fire insurance rate shall, at the beginning of the lease
or at any time thereafter, be higher than it otherwise would be, then Tenant
shall reimburse Owner, as additional rent hereunder for that portion of all fire
insurance premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant, to comply with the terms of this article. In
any action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by a body making
fire insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rate then applicable to said premises.
Subordination:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter
<PAGE>
affect such leases or the real property of which demised premises are a part and
to all renewals, modifications, consolidations, replacements and extensions of
any such underlying leases and mortgages. This clause shall be self-operative
and no further instrument of subordination shall be required by any ground or
underlying lease or by any mortgages, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
Tenant's Liability Insurance Property Loss, Damage, Indemnity:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, for loss of or
damage to any property of Tenant by theft or otherwise, not for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other Tenants or persons in, upon or about said building or caused by operations
in construction of any private, public or quasi-public work. Tenant agrees, at
Tenant's sole cost and expense, to maintain general public liability insurance
in standard form in favor of Owner and Tenant against claims for bodily injury
or death or property damage occurring in or upon the demised premises, effective
from the date Tenant enters into possession and during the term of this lease.
Such insurance shall be in an amount and with carriers acceptable to the Owner.
Such policy or policies shall be delivered to the Owner. On Tenant's default in
obtaining or delivering any such policy or policies or failure to pay the
charges therefore, Owner may secure or pay the charges for any such policy or
policies and charge the Tenant at additional rent therefor. Tenant shall
indemnify and have harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorneys fees, paid suffered or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees, of any covenant on condition of this lease,
or the carelessness, negligence or improper conduct of the Tenant, Tenant's
agents, contractors, employees, invitees or licensees. Tenant's liability under
this lease extends to the acts and omissions of any subtenant, and any agent,
contractor, employee, invitee or licensee of any subtenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by Counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
<PAGE>
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect not to restore
the same as hereinafter provided. (d) If the demised premises are rendered
wholly unusable or if at least thirty-five (35%) percent of the building shall
be damaged and Owner shall decide to demolish it or to rebuild it, then, in any
of such events, Owner may elect to terminate this lease by written notice to
Tenant given within 90 days after such fire or casualty specifying a date for
the expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Owner's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Notwithstanding the provisions of the
foregoing sentence, Owner shall not have the right to terminate this lease by
reason of damage to the building so long as the demised premises are not
materially damaged or rendered unusable to the extent of at least thirty-five
(35%) percent. Unless Owner shall serve a termination notice as provided for
herein, Owner shall make the repairs and restorations under the conditions of
(b) and (c) hereof, with all reasonable expedition subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. Should Owner fail to substantially repair and restore the demised
premises within ninety (90) days following its receipt of notice from Tenant as
to the occurrence and nature of such casualty, then Tenant may, within thirty
(30) days after the expiration of said ninety (9) day period, terminate this
lease by written notice to Owner. Notwithstanding the foregoing sentence, should
Owner, prior to commencing such repair and restoration, notify Tenant that such
<PAGE>
work will be substantially completed by a date designated in such notice which
will occur after the expiration of said ninety (90) day period (which designated
date, however, will occur no later than one hundred eighty (180) days following
Owner's receipt of the aforesaid notice from Tenant as to the occurrence and
nature of such casualty), Tenant shall notify Owner within twenty (20) days
following its receipt of such notice that it elects to either cancel this lease
as of the expiration of such ninety (90) day period or waive such right to
cancel hereunder. Any failure by Tenant to respond to Owner within said twenty
(20) day period shall be deemed to be an election by Tenant to waive such right
to cancel. In the event Tenant waives such right to cancel and Owner thereafter
fails to commence diligently the performance of such repair and restoration or
thereafter fails diligently to complete same, Tenant may, thirty (30) days
following delivery of notice to Owner and Owner's continued failure within said
thirty (30) day period to commence diligently or to proceed diligently and
continuously, complete such repair and restoration, and Owner shall remain
liable for the reasonable cost of such work, subject, however, to the further
provisions of this Article 9; the foregoing right of Tenant, however, shall be
extended for such period of time that Owner's failure to perform as aforesaid is
attributable to strikes, lockouts, labor difficulties, or any other cause beyond
Owner's control, it being agreed that Owner's lack of funds shall not be deemed
a cause "beyond Owner's control." Notwithstanding anything contained in this
Article 9, in the event that substantial repair and restoration of the demised
premises is delayed by reason of delays caused or occasioned by Tenant, Tenant
agrees that (a) the aforesaid ninety (90) day period (or if applicable, the
aforesaid one hundred eighty (180) day period or thirty (30) day period) shall
be extended for the period of such delay, (b) should Tenant be entitled to a
rental abatement for the duration of such delay, (c) Tenant shall not be
entitled to exercise the foregoing right to complete the repair and restoration
of the demised premises, for the duration of any such delay, and (d) Tenant
shall reimburse Owner for all additional costs incurred by Owner by reason of
any material interference by Tenant with such repair and restoration. After any
such casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises or promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy. (e) Nothing
contained hereinafter shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. Notwithstanding the foregoing,
each party shall look first to any insurance in its favor before making any
claim against the other party for recovery for loss or damage resulting from
fire or other
<PAGE>
casualty, and to the extent that such insurance is in force and collectible and
to the extent permitted by law, Owner and Tenant each hereby releases and waives
all right of recovery against the other or any one claiming through or under
each of them by way of subrogation or otherwise. The foregoing release and
waiver shall be in force only if both releasors' insurance policies contain a
clause providing that such a release or waiver shall not invalidate the
insurance and also provided that such a policy can be obtained without
additional premiums. Tenant acknowledges that Owner will not carry insurance on
Tenant's furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and agrees that Owner will
not be obligated to repair any damage thereto or replace the same. (f) Tenant
hereby waives the provisions of Section 227 of the Real Property Law and agrees
that the provisions of this article shall govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease. Tenant shall, however, have the
right to seek compensation from the condemning authority for the value of
Tenant's alterations, installations, fixtures and furnishings affected by such
taking.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns expressly
covenants that it shall not assign, mortgage or encumber this agreement, not
underlet, or suffer to permit the demised premises or any part thereof to be
used by others, without the prior written consent of Owner in each instance. If
this lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Owner may, after default by
Tenant, collect rent from the assignee, under-tenant or occupant, and apply the
net amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of the covenant,
or the acceptance of the assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Owner to an assignment or
underletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Owner to any further assignment or
underletting.
<PAGE>
Electric Current:
12. Tenant covenants and agrees that at all times its use of electric
current shall not exceed the capacity of existing feeders to the building or the
wiring installation and Tenant may not use any electrical equipment which, in
Owner's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The change at
any time of the character of electric service shall in no way make Owner liable
or responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to access the demised premises in any emergency at any time, and, at
other reasonable times on reasonable prior notice to examine the same and to
make such repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to any portion of the building of which Owner may elect to
perform in the premises following Tenant's failure to make repairs or perform
any work which Tenant is obligated to perform under this lease, or for the
purpose of complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes
and conduits in and through the demised premises and to erect new pipes and
conduits therein, provided they are within the walls. Owner may, during the
progress of any work in the demised premises, take all necessary materials and
equipment into said premises without the same constituting an eviction nor shall
the Tenant be entitled to any abatement of rent while such work is in progress
nor to any damages by reason of loss or interruption of business or otherwise.
Throughout the term hereof Owner shall have the right to enter the demised
premises at reasonable hours on reasonable prior notice for the purpose of
showing the same to prospective purchasers of mortgages of the building, and
during the last six months of the term for the purpose of showing the same to
prospective tenants and may during said six months period, place upon the
premises the notice "To Let" and "For Sale" which notices Tenant shall permit to
remain thereon without molestation. If Tenant is not present to open and permit
an entry into the premises, Owner or Owner's agents may enter the same whenever
such entry may be necessary or permissible by master key or forcibly and
provided reasonable care is exercised to safeguard Tenant's property and such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected. If during the last month
of the term Tenant shall have removed all or substantially all of Tenant's
property therefrom, Owner may immediately enter,
<PAGE>
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall nave on this lease or Tenant's obligations hereunder. Owner shall
have the right at any time, without the same constituting an eviction and
without incurring liability to Tenant therefor to change the arrangement and/or
location of public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets, or other public parts of the building and to change
the name, number or designation by which the building may be known.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Owner makes
no representation as to the location of the property line of the building All
vaults and vault space and all the such areas not within the property line of
the building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in
violation of Articles 2 or 37 hereof, or of the certificate of occupancy issued
for the building of which the demised premises are a part. Tenant has inspected
the premises and accepts them as is, subject to the riders annexed hereto with
respect to Owner's work, if any. In any event, Owner makes no representation as
to the condition of the premises and Tenant agrees to accept the same subject to
violations whether or not of record.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Landlord by the sending of a written notice to
Tenant within a reasonable time after the happening of any one or more of the
following events:
<PAGE>
(1) the commencement of a case in bankruptcy or under the laws of any state
naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any
other arrangement for the benefit of creditors under any state statute. Neither
Tenant nor any person claiming through or under Tenant, or by reason of any
estate or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part t hereof be re-let by the Owner or for the unexpired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudge the right of the Owner to prove for and
obtain as liquidated damages by reason of such termination an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which such damages are to be proved, whether or
not such amount be greater, equal to, or less than the amount of the difference
referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease or if the demised premises become vacant or deserted, or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other than
Tenant, or if this lease be rejected under Section 365 of Title II of the U.S.
Code (Bankruptcy Code), then upon Owner serving a written
<PAGE>
ten (10) days notice upon Tenant in the event of a default in the fulfillment of
any covenant for the payment of rent or additional rent and upon the expiration
of said ten (10) days without Tenant's having complied or remedied such default
or, as to any other default by Tenant under this Lease, upon Owner serving a
written thirty (30) days notice upon Tenant specifying the nature of said
default and upon the expiration of said thirty (30) days, if Tenant shall have
failed to comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured or
remedied within said thirty (30) day period, and if Tenant shall not have
diligently commenced curing such default within such thirty (30) day period and
shall not thereafter with reasonable diligence and in good faith proceed to
remedy or cure such default, then Owner may serve a written ten (10) days notice
of cancellation of this lease upon Tenant, and upon the expiration of said ten
(10) days, this lease and the term thereunder shall end and expire fully and
completely as if the expiration of such ten (10) day period were the day herein
definitely fixed for the end and expiration of this lease and the term thereof
and Tenant shall then quit and surrender the demised premises to Owner but
Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid, then and in any of such events Owner may
without notice, re-enter the demised premises either by force or otherwise and
dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove their
effects and hold the premises as if this lease had not been made and Tenant
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration. (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms which may
at Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this lease and may grant concessions or
free rent or charge a higher rental than that in this lease and/or (c) Tenant or
the legal representatives of Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants herein
contained any deficiency between the rent hereby reserved and/or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
<PAGE>
subsequent lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Owner to re-let the premises or any part or parts thereof shall
not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such reasonable
expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease. Owner, in putting the demised premises in good
order or preparing the same for re-rental may, at Owner'[s option, make such
alterations, repairs, replacements, and/or decorations in the demised premises
as Owner, in Owner's sole judgment, considers advisable and necessary for the
purpose of re-letting the demised premises, and the making of such alterations,
repairs, replacements, and/or decorations shall not operate or be construed to
release Tenant from liability. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
re-letting and in no event shall Tenant be entitled to receive any excess, if
any, of such net rent collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant or any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy shall not preclude Owner from any other remedy in
law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease and if Tenant shall
fail to cure such default within a reasonable period following notice by Owner
(it being agreed, however that such period shall in no event exceed thirty (30)
days unless such default be of a nature that same cannot be completely cured
within said thirty (30) days, in which event such period shall in no event
exceed the period of time that Tenant, proceeding with reasonable diligence and
good faith may require to cure same) then, unless otherwise provided elsewhere
in this lease Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder, and if Owner, in connection
therewith or in
<PAGE>
connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to attorney's fees, in instituting, prosecuting or
defending any actions or proceeding, such sums so paid or obligations incurred
with interest and costs shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within five (5) days of rendition of any bill
or statement to Tenant therefore, and if Tenant's lease term shall have expired
at the time of making of such expenditures or incurring of such obligations,
such sums shall be recoverable by Owner as damages. Notwithstanding the
provisions of this Article 15, Owner shall be authorized to perform any
obligation of Tenant hereunder without the delivery of notice as aforesaid in
any emergency situation or if the delay occasioned by such notice period might
subject Owner to civil penalties or fines or criminal liability or might
materially prejudice Owner.
No Representations By Owner:
20. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation, or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition, and agrees to take
the same as is and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
End of Term:
21. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear excepted, and Tenant shall remove all
its property except as
<PAGE>
otherwise set forth in Article 3 hereof. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this lease or any renewal thereof falls on
Sunday, this lease shall expire at noon on the preceding Saturday unless it be a
legal holiday in which case it shall expire at noon on the preceding business
day.
Quiet Enjoyment:
22. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to Article
33 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure To Give Possession:
23. If Owner is unable to give possession of the demised premises on the
date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants, or if the
premises are located in a building being constructed because such building has
not been sufficiently completed to make the premises ready for occupancy or
because of the fact that a certificate of occupancy has not been procured or for
any other reason, Owner shall not be subject to any liability for failure to
give possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any way to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for the inability to obtain possession) until after
Owner shall have given Tenant written notice that the premises are substantially
ready for Tenant's occupancy. If permission is given to Tenant to enter into
the possession of the demised premises or to occupy premises other than the
demised premises prior to the date specified at the commencement of the term of
this lease, Tenant covenants and agrees that such occupancy shall be deemed to
be under all the terms, covenants, conditions and provisions of this lease,
except as to the covenant to pay rent. The provisions of this article are
intended to constitute an express provision to the contrary within the meaning
of Section 223-a of the New York Real Property Law.
No Waiver:
24. The failure of Owner to seek redress for violation of
<PAGE>
or to insist upon the strict performance of any covenant or condition of this
lease or of any of the Rules or Regulations set forth or hereafter adopted by
Owner, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent with knowledge of the breach of any
covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed in acceptance
of a surrender of said premises and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
25. It is mutually agreed by and between Owner and Tenant that the
respective parties herein shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant. Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding.
Inability to Perform:
26. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no way be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any
<PAGE>
repair, additions, alterations or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Owner is prevented or delayed
from so doing by reason of strike or labor troubles, government preemption in
connection with a National Emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any government agency or
by reason of the conditions of supply and demand which have ben or are affected
by war or other emergency, or when, in the judgement of Owner, temporary
interruption of such services is necessary by reason of accident, mechanical
breakdown, or to make repairs, alterations or improvements.
Bills and Notices:
27. Except as otherwise in this lease provided, a bill, statement, notice
or communication which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or such other address as
Tenant may specify by written notice to Owner, and the time of the rendition of
such bill or statement and of the giving of such notice or communication shall
be deemed to be the time when the same is delivered to Tenant or two (2)
business days after the mailing of same. Any notice by Tenant to Owner must be
served by registered or certified mail addressed to Owner at the address first
hereinabove given or at such other address as Owner shall designate by written
notice. Tenant shall be entitled to designate one 91) additional party to
receive a copy of each notice of default which may be delivered by Owner
pursuant to Article 17 hereof, it being agreed that Tenant shall designate such
party by written notice delivered pursuant to the provisions of this Article 27
setting forth the name and address of such additional party and its relationship
to Tenant.
Water Charges:
28. If Tenant requires, uses or consumes water for any purpose in addition
to ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and thereby measures Tenant's water
consumption for all purposes. Tenant shall pay Owner for the cost of the meter
and the cost of the installation thereof and throughout the duration of Tenant's
occupancy Tenant shall keep said meter and installation equipment in good
working order and repair at Tenant's own cost and expense. Tenant agrees to pay
for water consumed, as shown on said meter as and when bills are rendered.
Tenant covenants and agrees to pay the sewer rent, charge or any other tax,
rent, levy or charge which now or hereafter is assess, imposed or a lien upon
the demised premises or the realty of
<PAGE>
which they are part pursuant to law, order or regulation made or issued in
connection with the use, consumption, maintenance or supply of water, water
system or sewage or sewage connection or system. The bill rendered by Owner
shall be payable by Tenant as additional rent. Independently of and in addition
to any of the remedies reserved to Owner hereinabove or elsewhere in this lease,
owner may sue for and collect any monies to be paid by Tenant or paid by Owner
for any of the reasons or purposes hereinabove set forth.
Sprinklers:
29. Anything elsewhere in this lease to the contrary notwithstanding, if
the New York Board of Fire Underwriters or the Insurance Services Office or any
bureau, department or official of the federal, state or city government require
or recommend the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, or if any such sprinkler system
installations, changes, modifications, alterations, additional sprinkler heads
or other such equipment, become necessary to prevent the imposition of a penalty
or charge against the full allowance for a sprinkler system in the fire
insurance rate set by any said Exchange or by any fire insurance company, Tenant
shall, at Tenant's expense, promptly make such sprinkler system installations,
changes, modifications, alterations, and supply additional sprinkler heads or
other equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
of $250 on the first day of each month during the term of this lease, as
Tenant's portion of the contract price for sprinkler supervisory service.
Heat, Cleaning:
30. As long as Tenant is not in default under any of the covenants of this
lease Owner shall, if and insofar as existing facilities permit furnish heat to
the demised premises such days as Tenant is open for business, from 8:00 a.m. to
2:00 a.m., or such lesser time as Tenant may request, which heat shall be
furnished as follows: (a) as to the basement level, to the perimeter of such
space at a location chosen by Owner, and (b) as to the ground floor level, to
the currently existing radiator system at such space (it being agreed that
should Tenant alter, modify or replace such radiator system, Owner's obligation
shall be to furnish heat solely to the perimeter of such space at a location
chosen by Owner). Notwithstanding the foregoing, Owner
<PAGE>
shall not be required to furnish heat as aforesaid to the demised premises until
the date on which Owner is notified by Tenant that Tenant has commenced the
operation of its business at the demised premises (the "Heat Notification
Date"); however, Owner shall, between the date hereof and the Heat Notification
Date, use its best efforts to furnish heat as aforesaid to the ground floor
level of the demised premises on weekdays from 9:00 a.m. to 5:00 p.m. Tenant
shall at Tenant's expense, keep demised premises clean and in order, to the
satisfaction to Owner, and if demised premises are situated on the street floor,
Tenant shall, at Tenant's own expense, make all repairs and replacements to the
sidewalks and curbs adjacent thereto, and keep said sidewalks and curbs free
from snow, ice, dirt and rubbish. Tenant shall pay to Owner the cost of removal
of any of Tenant's refuse and rubbish from the building. Bills for the same
shall be rendered by Owner to Tenant at such times as Owner may elect and shall
be due and payable when rendered, and the amount of such bills shall be deemed
to be, and be paid as, additional rent. Tenant shall, however, have the option
of independently contracting for the removal of such rubbish and refuse in the
event that Tenant does not wish to have same done by employees of Owner. Under
such circumstances, however, the removal of such refuse and rubbish by others
shall be subject to such rules and regulations as, in the reasonable judgment of
Owner, are necessary for the proper operation of the building.
Security:
31. Tenant has deposited with Owner the sum of $75,000.00 as security for
the faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent. Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. Such amount shall be held by Owner in a money-market account at a
federally insured depository institution and all interest earned thereon (less a
1% annual administrative charge to Owner) shall be paid to Tenant annually. In
the event that Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this lease, the security shall be
returned to Tenant after the date fixed as the end of the Lease
<PAGE>
and after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security, and Tenant agrees to look to
the new Owner solely for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Captions:
32. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
Definitions:
33. The term "Owner" as used in this lease means only the Owner, or the
mortgagee in possession for the time being of the land and building (or the
Owner of a lease of the building or of the land and building) of which the
demised premises form a part, so that in the event of any sale or sales of said
land and building or of said lease, or in the event of a lease of said building,
or of the land and building, the said Owner shall be and hereby is entirely
freed and relieved of all covenants and obligations of Owner hereunder, and it
shall be deemed and construed without further agreement between the parties or
their successors in interest, or between the parties and the purchaser, at any
such sale, or the said lessee of the building, or of the land and building, that
the purchaser or the lessee of the building has assumed and agreed to carry out
any and all covenants and obligations of Owner hereunder. The words "re-enter"
and "re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 30
hereof), Sundays and all days designated as holidays by the applicable building
service employees service contract or by the applicable Operating Engineer
contract with respect to HVAC service.
Adjacent Excavation -- Sharing:
34. If an excavation shall be made upon land adjacent to
<PAGE>
the demised premises, or shall be authorized to be made, Tenant shall afford to
the person contracted or authorized to cause such excavation, license to enter
upon the demised premises for the purpose of doing such work as said person
shall deem necessary to preserve the wall of the building of which demised
premises form a part from injury, damage and support the same by proper
foundations without claim for damages or indemnity against Owner, or diminution
or abatement of rent.
Rules and Regulations:
35. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe fully and comply strictly with the Rules and Regulations
and such other and further reasonable Rules and Regulations Owner or Owner's
agents may from time to time adopt. Notwithstanding any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision by the
New York office of the American Arbitration Association. Such determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless same shall be asserted by service of a notice in writing
upon Owner within ten (10) days after the giving of notice thereof. Nothing in
the lease contained shall be construed to impose upon Owner an obligation to
enforce the Rules and Regulations or terms, covenants or conditions in any other
lease as against any other tenant. Owner shall not be liable to Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees.
Glass:
36. Tenant shall replace, at its own expense, any and all plate and other
glass damaged or broken from any cause whatsoever in and about the demised
premises. Should Tenant fail to replace such glass within fifteen (15) days
following notice by owner to do so, Owner shall have the right, at the expense
of Tenant, to replace same.
Pornographic Uses Prohibited:
37. Tenant agrees that the value of the demised premises and the
reputation of the Owner will be seriously injured if the premises are used for
any other or pornographic purposes or any sort of compromise sex establishment.
Tenant agrees that Tenant will not permit any obscene or pornographic material
on the
<PAGE>
premises and shall not permit or conduct any obscene, nude, or semi-nude
performances on the premises, nor permit use of the premises for nude modeling,
rap sessions, or as a so-called rubber goods show or as a sex club of any sort,
or as a "massage parlor." Tenant agrees further that Tenant will not permit any
of these uses by any sublettor or assignee of the premises. This Article shall
directly bind any successors in interest to the Tenant. Tenant agrees that if
at any time Tenant violates any of the provisions of this Article, such
violation shall be deemed a breach of a substantial obligation of the terms of
this lease and objectionable conduct. Pornographic material defined for
purposes of this Article as any written or pictorial with prurient appeal or any
objects of instrument that are primarily concerned with lewd or prurient sexual
activity. Obscene material is defined here as it is in Penal law (S)235.00.
Estoppel Certificate:
38. Tenant, at any time, and from time to time with at least 10 days prior
notice by Owner, shall acknowledge and deliver to Owner, and/or any other
person, firm or corporation specified by Owner, a statement certifying that this
lease is unmodified and in full force and effect (or, if there have been
modifications, that the same are in full force and effect as modified and
stating the modifications and stating the dates which the rent and additional
rent have been paid, and stating whether or not there exists any defaults to
Owner under this lease, and, if so, specifying each such default and any other
statements reasonable.
Successors and Assigns:
39. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors and assigns as otherwise
provided in this lease, their assigns.
*requested by Owner. Owner, at any time and from time to time, upon at least 10
days prior notice by Tenant, shall execute, acknowledge and deliver to Tenant,
and/or to any other person, firm or corporation specified by Tenant, a statement
certifying to the matters described above in Article 38; however, Owner shall
not be required to deliver such statement more than twice during any 12-month
period during the term hereof.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this lease as of the day and time first above written.
<PAGE>
CABLE BUILDING ASSOCIATES
-------------------------
HOUSTON CINEMA, INC.
/s/ Joseph Saleh
-------------------------
V.P.
<PAGE>
RIDER TO LEASE DATED MARCH 4, 1988 BETWEEN CABLE BUILDING ASSOCIATES, AS
OWNER, AND HOUSTON CINEMA, INC., AS TENANT.
40. TERM. (a) The term of this lease shall commence on March 15, 1988
----
(the "Commencement Date") and shall end on December 31, 2008 (the "Expiration
----------------- ----------
Date") or on such earlier date upon which the term of this lease shall expire or
- ----
be cancelled or terminated pursuant to any of the terms, conditions or covenants
of this lease or pursuant to law.
(b) If the Commencement Date or Expiration Date occurs on a day
other than the first day of a calendar month, the Fixed Rent for such partial
calendar month shall be prorated.
(c) Anything contained herein to the contrary notwithstanding,
provided that Tenant shall not be in default hereunder, beyond the expiration of
the applicable grace period, if any, Fixed Rent shall be abated as follows: (a)
for the period from the first day of the calendar month immediately following
the Approval Date (hereinafter defined) (the "Abatement Commencement Date") to
and including the date which is the nine-month anniversary (less one day) of the
Abatement Commencement Date, Fixed Rent shall be fully abated; and (b) for the
period from the nine-month anniversary of the Abatement Commencement Date to and
including the fifteen-month anniversary (less one day) of the Abatement
Commencement Date, Fixed Rent shall be abated in the amount of $6,000 per month.
As used in this Article 40, the term "Approval Date" shall mean the date upon
which the Buildings Department (hereinafter defined) (i) gives final approval(s)
allowing the construction by Tenant of the Initial Tenant Work (hereinafter
defined) in accordance with the Initial Plans (hereinafter defined), and (ii)
accepts an application for a "public assembly" permit for the demised premises
in accordance with the applicable provisions of Local Law 41, subject to
Tenant's completion of the Initial Tenant Work in accordance with the Initial
Plans.
41. USE AND OCCUPANCY. Supplementing the provisions of Article 2 of this
-----------------
lease:
(a) Tenant agrees that during the first two (2) years and four
and one-half (4-1/2) months of the term of this lease, it shall use, occupy,
operate and maintain the basement level of the demised premises throughout the
term of this lease as a first-class motion picture theatre only. Should Tenant
thereafter desire to use the basement level of the demised premises for any
other purpose, it shall first obtain the prior written consent of Owner. In its
request for such other use, Tenant shall inform Owner in writing as to the exact
nature and duration of such use. Owner agrees that it shall not
<PAGE>
unreasonably withhold its consent to such other use of the basement level.
Notwithstanding anything herein contained, under no circumstances shall Tenant
use the basement level or any part thereof for the sale or service of food or
beverages (except for food sold by Tenant or concessionaires for movie theatre
patrons only) or as a nightclub, discotheque or cabaret.
(b) Tenant agrees to use, occupy, operate and maintain the ground
floor level of the demised premises throughout the term of this lease as either
a first-class motion picture theatre and/or as a cafe restaurant. Should Tenant
desire to use the ground floor level of the demised premises for any other
purpose, it shall first obtain the prior written consent of Owner. In its
request for such other use, Tenant shall inform Owner in writing as to the exact
nature and duration of such use. Owner agrees that it shall not unreasonably
withhold its consent to such other use of the ground floor level.
(c) Tenant agrees to use, occupy and maintain the demised
premises throughout the term of this lease in a high grade and reputable manner
and in a manner which shall not detract from the character, appearance or
dignity of the Building. Tenant further agrees not to (i) engage in any
unethical method of business operation, (ii) use or permit to be used the
sidewalks or other space outside the demised premises for any display, sale or
similar undertaking or storage, unless in each instance Tenant as acquired all
necessary permits in connection with the foregoing and has complied with all
laws, rules and regulations pertaining thereto, or (iii) use or permit to be
used any loudspeaker, phonograph or other sound system or advertising device
which may be heard outside the demised premises. Tenant acknowledges that
Owner's damages resulting from any breach of the provisions of Articles 2 and 37
hereof or of this Article are difficult, if not impossible, to ascertain and by
law or the provisions of this lease, Owner shall be entitled to enjoin Tenant
from any violation of said provisions.
(d) Tenant shall not at any time use or occupy the demised
premises or the Building, or suffer or permit anyone to use or occupy the
demised premises, or do anything in the demised premises or the Building, or
suffer or permit anything to be done in, brought into or kept on the demised
premises, which (i) violates the certificate of occupancy for the demised
premises, if any, or for the Building; (ii) causes or is liable to cause injury
to the demised premises or the Building or any equipment, facilities or systems
therein; (iii) constitutes a violation of the laws and requirements of any
public authorities or the requirements of insurance bodies; (iv) impairs or
tends to impair the proper and economic maintenance, operation and repair of the
Building and/or its equipment, facilities or systems; (v)
<PAGE>
constitutes a nuisance, public or private; (vi) makes unobtainable from
reputable insurance companies authorized to do business in New York State any
fire insurance with extended coverage, or liability, elevator, boiler or other
insurance at standard rates (for buildings containing a motion picture theatre)
required to be furnished by Owner under the terms of any mortgages covering the
demised premises; or (vii) discharges objectionable fumes, vapors or odors into
the Building's flues or vents or otherwise in such manner as may offend other
tenants or occupants of the Building.
(e) If any governmental license or permit shall be required for
the proper and lawful conduct of Tenant's business in or adjacent to the demised
premises or any part thereof, including without limitation any "public assembly"
permit in accordance with the applicable provisions of Local Law 41, Tenant, at
its expense, shall duly procure and thereafter maintain such license or permit
and submit the same to Owner for inspection. Tenant shall at all times comply
with the terms and conditions of each such license or permit.
(f) Tenant shall not use the demised premises or any part thereof
for the exhibition of pornographic motion pictures; however, Tenant may exhibit
motion pictures at the demised premises which are similar to those motion
pictures then being shown at public theaters operated by such companies as
United Artists, the Walter Reade Organization, Lincoln Plaza, Cineplex and Film
Forum.
(g) Should Tenant use the ground floor level of the demised
premises as a cafe restaurant, it shall at its own cost and expense install and
maintain all necessary exhaust vent systems for cooking and other apparatus
utilized; in connection with the foregoing, Owner agrees that it shall designate
an area of the Building in which Tenant may reasonably extend its exhaust vent
system, it being agreed that any such extension shall be performed at Tenant's
sole cost and expense and otherwise in accordance with the provisions of this
lease and that Tenant shall be solely responsible for the repair and maintenance
of such system. It is the specific intention of the parties that the other
portions of the Building shall not in Owner's reasonable judgment be affected or
disturbed in any way by smoke, fumes or odors emanating from the demised
premises. Tenant shall at its own cost and expense install and maintain in the
demised premises such systems which may be required by the Fire Department of
the City of New York or any other applicable governmental authority and shall
comply with any applicable governmental rules, regulations and ordinances.
(h) Tenant's failure to maintain the installations
<PAGE>
required under subparagraph (g) above to the reasonable satisfaction of the
Owner or to remedy promptly and cure after notice from Owner any violation of
applicable governmental rules, regulations or ordinances with respect to smoke,
fumes or odors caused by Tenant's use of the demised premises shall constitute a
breach of a material and substantial obligation by Tenant under this lease and
Owner shall have the right either to perform at the expense of the Tenant any
work which it deems necessary in order to cure, reduce or eliminate such
disturbance (including, but not limited to, the extension of any exhaust vent
system to the roof or any other portion of the Building) or to avail itself of
any other rights or remedies provided for herein or at law in the event of a
default by Tenant hereunder.
(i) So long as Tenant serves or allows liquor or other alcoholic
beverages at the demised premises, Tenant shall at all times observe, perform
and comply with the New York State liquor and alcoholic beverage control laws
and the rules, regulations, orders and requirements of all federal, state and
municipal bodies having jurisdiction over the sale and use of liquor and
alcoholic beverages. Any breach or violation by Tenant of its obligations under
this subparagraph shall constitute a default under this lease and shall entitle
Owner, at its option, to exercise all rights and remedies provided for hereunder
in the event of Tenant's default. Owner makes no representations or warranties
whatsoever as to whether Tenant may legally serve or allow liquor or other
alcoholic beverages at the demised premises.
(j) Notwithstanding the provisions of subparagraph (b) hereof,
Tenant shall not use, or suffer or permit anyone to use, the demised premises or
any part thereof, for a cafeteria, self-service restaurant, luncheonette, coffee
shop, pizza parlor, salad bar, fast food restaurant or establishment selling
food or beverages for off-premises consumption. The foregoing shall not prohibit
Tenant from allowing the operation of a typical concession stand to sell food
and beverages to movie theatre patrons at the demised premises.
(k) Except as may otherwise be set forth herein, Tenant
acknowledges that Owner makes no representations or warranties whatsoever as to
the ability of Tenant to use the demised premises for any specific purpose.
Should Tenant desire a change in use of the ground floor level in accordance
with subparagraph (b) hereof, it shall be solely responsible for the performance
of all proposed alterations, installations, additions and improvements and for
obtaining all necessary permits or changes in the certificate of occupancy
affecting the Building; all of such proposed alterations, installations,
additions and inspections shall be performed by Tenant in strict accordance
<PAGE>
with Articles 3 and 49 hereof.
42. TAXES. A. The terms defined below shall for the purposes of this
-----
lease have the meanings herein specified:
(i) "Taxes": All real estate taxes, sewer rents, water frontage
charges (unless the demised premises are separately metered for water
consumption), and assessments, special or otherwise, levied, assessed or imposed
by the City of New York or any other taxing authority upon or with respect to
the building containing the demised premises and the land thereunder (the
"Land") and all taxes assessed or imposed with respect to the rentals payable
----
hereunder other than general income and gross receipts taxes (except that
general income and gross receipts taxes shall be included if covered by the
provisions of the following sentence). Taxes shall also include any taxes,
charges or assessments levied, assessed or imposed by any taxing authority in
addition to or in lieu of the present method of real estate taxation, provided
such substitute taxes, charges and assessments are computed as if the Building
were the sole property of the Owner subject to said substitute tax, charge or
assessment. Tenant hereby waives any right to institute or join in tax
certiorari proceedings or other similar proceedings contesting the amount or
validity of any Taxes.
(ii) "Base Tax Year" shall mean the fiscal tax year commencing
on July 1, 1989 and ending June 30, 1990.
(iii) "Base Taxes" shall mean the Taxes payable for the Base Tax
Year.
(iv) "Tax Year" shall mean each period of twelve (12) months,
commencing on the first day of July of each such period, in which occurs any
part of the term of this lease or such other period of twelve (12) months
occurring during the term of this lease as hereafter may be duly adopted as the
fiscal year for real estate tax purposes of the City of New York.
(v) "Tax Statement" shall mean an instrument or instruments
setting forth the amount payable by Tenant for a specified Tax year pursuant to
this Article.
(vi) "Tenant's Tax Percentage" shall mean six and eight-tenths
(6.8%) percent.
B. If Taxes payable for any Tax Year or any part thereof shall exceed
the Base Taxes, Tenant shall pay to Owner as Additional Charges an amount
(herein called the "Tax Payment) equal to Tenant's Tax Percentage of the amount
-----------
by which the Taxes for such Tax Year are greater than the Base Taxes, which
amount
<PAGE>
shall be payable as hereinafter provided.
C. The Tax Payment shall be payable by Tenant, in its entirety, as an
Additional Charge, within ten (10) days after Tenant shall have received a Tax
Statement from Owner. Notwithstanding the foregoing, Tenant shall be allowed to
make such payments to Owner in similar installments as Taxes are payable by
Owner provided, however, that (1) such payments shall in each instance be
delivered to Owner by the later to occur of (A) ten (10) days following receipt
by Tenant of the applicable bill from Owner; or (B) five (5) days prior to the
due date by which Owner or its agent must pay the affected installment to the
City of New York without the applicability of any grace period. Owner's failure
to render a Tax Statement with respect to any Tax Year shall not prejudice
Owner's right thereafter to render a Tax Statement with respect to any such Tax
Year nor shall the rendering of a Tax Statement prejudice Owner's right
thereafter to render a corrected Tax Statement for that Tax Year.
D. If the amount of Taxes payable during the Base Tax Year is reduced
by final determination of legal proceedings, settlement or otherwise, the
reduced amount of such Taxes shall determine the amount of the Tax Payment
pursuant to this Article. The Tax Payment theretofore paid or payable under this
Article shall be recomputed on the basis of such reduction, and the Tenant shall
pay to Owner as Additional Charges within ten (10) days after being billed
therefore, any deficiency between the amount of the Tax Payment theretofore
computed and the amount thereof due as a result of such recomputation.
E. In the event Taxes for any Tax Year or part thereof shall be
reduced after Tenant shall have paid Tenant's Tax Percentage of any increase
thereof in respect of such Tax year, Owner shall set forth in the first Tax
Statement thereafter submitted to Tenant the amount of such refund and the
amount of the legal fees and other expenses incurred in connection with the
collection of the refund; and, provided that Tenant is not then in default under
this lease, beyond the applicable grace period, if any, Tenant shall receive a
credit against the installment or installments of rent next falling due equal to
Tenant's Tax Percentage of the amount by which the refund exceeds said fees and
expenses, but in no event shall the credit exceed the amount of the Additional
Charges paid by Tenant with respect to Taxes for said Tax Year.
F. The expiration or termination of this lease during any Tax Year
for any part or all of which there is a Tax Payment due under this Article shall
not affect the rights or obligations of the parties hereto respecting such Tax
Payment and any Tax Statement relating to such Tax Payment may, on a pro rata
basis,
<PAGE>
be sent to Tenant subsequent to, and all such rights and obligations shall
survive, any such expiration or termination. Any payments due under such Tax
Statement shall be payable within ten (10) days after such statement is sent to
Tenant.
43. PORTER'S WAGE ESCALATION.
------------------------
(a) The terms defined below shall for the purposes of this Article
have the meanings herein specified:
(i) "R.A.B." shall mean the Realty Advisory Board On Labor
Relations, Incorporated, or its successor.
(ii) "Local 32B-32J" shall mean Local 32B-32J of the Building
Service Employees International Union, AFL-CIO, or its successor.
(iii) "Class A Office Buildings" shall mean office buildings in
the same class or category as the building under any agreement between R.A.B.
and Local 32B-32J, regardless of the designation given to such office buildings
in any such agreement.
(iv) "Labor Rates" shall mean a sum equal to the regular hourly
wage rate required to be paid to Others (hereinafter defined) employed in Class
A Office Buildings pursuant to an agreement between R.A.B. and Local 32B-32J
(exclusive of fringe benefits); provided, however, that if, as of January 1st of
any Operation Year, any such agreement shall require Others in Class A Office
Buildings to be regularly employed on days or during hours when overtime or
other premium pay rates are in effect pursuant to such agreement, then the term
"regular hourly wage rate", as used in this subsection shall mean the average
hourly wage rate for the hours in a calendar week during which Others are
required to be regularly employed; and provided, further, that if no such
agreement is in effect as of January 1st of any Operation Year with respect to
Others, then the term "regular hourly wage rate", as used in this subsection
shall mean the regular hourly wage rate actually paid to Others employed in the
Building by owner or by an independent contractor engaged by Owner.
(v) "Others" shall mean that classification of employees engaged
in the general maintenance and operation of Class A Office Buildings most nearly
comparable to the classification now applicable to "others" in the current
agreement between R.A.B. and Local 32B-32J.
(vi) "Base Labor Year" shall mean the calendar year commencing
January 1989.
<PAGE>
(vii) "Base Labor Rates" shall mean the Labor Rates in effect for
the Base Labor Year.
(viii) "Owner's Statement" shall mean an instrument or
instruments setting forth the amount of any additional rent payable by Tenant
for a specified Operation Year.
(ix) "Operation Year" shall mean each calendar year, subsequent
to the calendar year 1989, in which occurs any part of the term of this lease.
(b) If the Labor Rates in effect for any Operation Year (any part or
all of which falls within the term) shall be grater than the Base labor Rates,
then for such Operation Year and continuing thereafter until a new Owner's
Statement is rendered to Tenant with respect to Operating Payments (hereafter
defined), Tenant shall pay to Owner an amount equal to the sum of (a) six
thousand one hundred eighty (6,180) multiplied by one (1) times the number of
cents (inclusive of any fractions of a cent) of such increase; and (b) ten
thousand (10,000) multiplied by one-half (1/2) times the number of cents
(inclusive of any fractions of a cent) of such increase (collectively,
"Operating Payment").
-----------------
(c) Owner may furnish to Tenant, prior to the commencement of each
Operation Year, a written statement setting forth Owner's reasonable estimate of
the Operating Payment for the next Operation Year. Tenant shall pay to Owner on
the first day of each month during such Operation Year, an amount equal to one-
twelfth of Owner's estimate of the Operating Payment for such Operation Year.
If, however, Owner shall not furnish any such estimate for an Operation Year or,
if Owner shall furnish any such estimate for an Operation Year subsequent to the
commencement thereof, then (a) until the first day of the month following the
month in which such estimate is furnished to Tenant, Tenant shall pay to Owner
on the first day of each month an amount equal to the monthly sum payable by
Tenant to Owner under this Article in respect of the last month of the preceding
Operation Year; (b) after such estimate is furnished to Tenant, Owner shall give
notice to Tenant stating whether the installments of the Operating Payment
previously made for such Operation Year are greater or less than the
installments of the Operating Payment to be made for such Operation Year, in
accordance with such estimate, and (i) if there shall be a deficiency, Tenant
shall pay the amount thereof within 10 days after demand therefor, or (ii) if
there shall have been an overpayment, Owner shall refund to Tenant the amount
thereof; and (c) on the first day of the month following the month in which such
estimate is furnished to Tenant and monthly thereafter throughout the remainder
of such Operation Year, Tenant shall pay
<PAGE>
to Owner an amount equal to one-twelfth (1/12th) of the Operating Payment shown
on such estimate.
(d) Owner shall furnish to Tenant an Owner's Statement for each
Operation Year; such Owner's Statement shall be furnished by Owner no later than
the latter to occur of (A) the date which is 90 days following the expiration of
the affected Operation Year, or (B) the date which is 30 days following Owner's
receipt of written notice from Tenant requesting the Owner's Statement, which
notice may be sent by Tenant no earlier than the final day of the affected
Operation Year. (i) If Owner did not furnish to Tenant a statement of estimated
Operating Payment under the preceding subparagraph (c), then Tenant shall pay to
Owner, within 15 days of the furnishing of Owner's Statement, the Operating
Payment for the Operation Year. (ii) If Owner has furnished to Tenant a
statement of the estimated Operating Payment under the preceding subparagraph
(c), then if the Owner's Statement shall show that the sums paid by Tenant under
subparagraph (c) exceeded the Operating Payment to be paid by the amount of such
excess simultaneously with the rendition of such Owner's Statement; and if the
Owner's Statement for such Operation Year shall show that the sums so paid by
Tenant were less than the Operating Payment to be paid by Tenant for such
Operation Year, Tenant shall pay the amount of such deficiency within 15 days
after demand therefor.
44. FUEL ESCALATION. Tenant agrees to pay a sum equal to Six and Eight-
---------------
Tenths (6.8%) Percent per annum of the increased difference of the cost of fuel
oil (including sales or other taxes thereon) for as many gallons supplied to the
Building, of which the demised premises form a part, as compared to the cost of
sixty ($.60) cents per gallon. Payment to Owner shall be due and payable as and
when bills are rendered and shall be deemed additional rent and collectible as
such. Bills to be rendered for periods are at Owner's discretion. In the event
Owner, at its option, elects to change the fuel presently used for the Building
to any other type of fuel, then and in that event, the Tenant agrees to pay a
share equal to Six and Eight-Tenths (6.8%) Percent per annum of the increased
cost of such other fuel supplied to the Building for the term of the within
lease based upon the cost of sixty ($.60) cents per gallon. Payment to Owner
shall be due and payable as and when bills are rendered accompanied by evidence
that the fuel bills have been paid by Owner and shall be deemed additional rent
and collectible as such.
45. COMPLIANCE WITH LAWS. If any capital improvement is made to the
--------------------
Building or the Land thereunder during any calendar year during the term in
compliance with requirements of any Federal, state or local law or governmental
regulation (other
<PAGE>
than requirements currently in effect which have not been complied with by
Owner, which Owner agrees it shall comply with at its sole cost and expense),
then Tenant shall pay to Owner, immediately upon demand therefor, Tenant's Tax
Percentage of the reasonable annual amortization, with interest at the rate of
10% per annum, of the cost of such improvement in each calendar year during the
term during which such amortization occurs.
46. ATTORNMENT AND NOTICE TO OWNER. Supplementing the provisions of
------------------------------
Article 7 of this lease:
A. If at any time or times during the term of this lease, (i) the
Owner of the demised premises shall be the holder of a leasehold estate covering
premises of which the demised premises are a part, and if such leasehold estate
shall expire or terminate for any reason, or (ii) if the Building, Land or the
Owner's aforesaid leasehold estate shall be affected by a mortgage, then Tenant
shall, at the election and upon demand of any owner of the premises of which the
demised premises are a part, or of any mortgagee in possession thereof, attorn
to any such owner or mortgagee upon the terms and conditions set forth herein
for the remainder of the term of this lease. The foregoing provisions shall
inure to the benefit of any such owner or mortgagee and shall, in the even of
any such election and demand, be self-operative without the necessity of the
execution of any further instruments; but Tenant agrees upon the demand of any
such owner or mortgagee to execute, acknowledge and deliver any instrument or
instruments confirming such attornment. The foregoing provisions shall not be
construed to limit or preclude any other rights which such owner or mortgagee
may then have under law or otherwise.
B. In the event of an act or omission or alleged act or omission by
Owner which would give Tenant the right to terminate this lease or to abate the
payment of rent or to claim a partial or total eviction, Tenant shall not
exercise any such right unless (i) Tenant shall first have given written notice
of such act or omission to Owner and to the holder of any mortgage on the
Building (whose name and address shall previously have been furnished to Tenant)
and (ii) neither Owner nor any mortgagee shall have commenced to cure such act
or omission within a reasonable period of time following the giving of such
notice (which reasonable period shall in no event be less than the period to
which owner would be entitled under this lease or otherwise, after similar
notice, to effect such remedy).
C. Owner agrees that promptly after the execution of this lease, in
the event this lease shall be in full force and effect and without default by
Tenant, it shall request the holder of any current mortgage encumbering the
Building and the Land
<PAGE>
("Superior Mortgage") to enter into an agreement substantially to the effect
that so long as Tenant is in full compliance with the terms, covenants and
conditions of this lease, its possession of the demised premises shall not be
disturbed in the event of a foreclosure of such Superior Mortgage (such
agreement from a holder of a Superior Mortgage, or, if applicable, a lessor
under a Superior Lease (hereinafter defined) being hereinafter called a "Non-
Disturbance Agreement"). If Owner is unable in good faith to obtain such a Non-
Disturbance Agreement within fifteen (15) days from the date hereof, it shall
notify Tenant and Tenant shall, by notice delivered to Owner within twenty (20)
days thereafter, have the right to terminate this lease. Failure by Tenant to
notify Owner within said twenty (20)-day period shall be deemed an election by
Tenant to waive any further right to terminate this lease under this Section C.
D. Owner agrees that so long as this lease shall be in full force and
effect, the subordination of this lease as set forth in Article 7 hereof shall
be conditioned upon Owner's compliance with the following provisions: (i) should
Owner hereafter enter into any Superior Mortgage and Tenant is not then in
default hereunder beyond the applicable grace period, if any, same shall contain
a covenant on the part of the holder thereof (or such holder shall provide in a
separate document) substantially to the effect that so long as Tenant is in full
compliance with the terms, covenants and conditions of this lease, its
possession of the demised premises shall not be disturbed in the event of a
foreclosure under such Superior Mortgage; and (ii) should Owner hereafter enter
into any ground or underlying lease ("Superior Lease") and Tenant is not then in
default hereunder beyond the applicable grace period same shall contain a
covenant on the part of the lessor thereunder (or such lessor shall provide in a
separate document) substantially to the effect that so long as Tenant is in full
compliance with the terms, covenants and conditions of this lease, its
possession of the demised premises shall not be disturbed in the event of the
termination of such Superior Lease.
E. If required by the holder of a Superior Mortgage or the lessor
under a Superior Lease, Tenant shall promptly shall join in any Non-Disturbance
Agreement in such form as prepared by holder of such Superior Mortgage or
Superior Lease to indicate its concurrence with the provisions thereof and its
agreement, in the event of a foreclosure of such Superior Mortgage or the
termination of such Superior Lease, as the case may be, to attorn to such holder
or lessor, as the case may be, as Tenant's landlord hereunder and such other
terms and conditions reasonably requested by the holder of any such Superior
Lease or Superior Mortgage.
<PAGE>
F. Owner represents that there is no Superior Lease currently
affecting the demised premises.
47. ASSIGNMENT AND SUBLETTING.
-------------------------
A. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise (a) assign or otherwise transfer this lease or the
term and estate hereby granted, or advertise to do so referring to the name or
address of the Building, (b) sublet the demised premises or advertise to do so
referring to the name or address of the building, or allow the same to be used,
occupied or utilized by anyone other than Tenant, (c) mortgage, pledge, encumber
or otherwise hypothecate this lease or the demised premises or any part thereof
in any manner whatsoever or (d) permit the demised premises or any part thereof
to be occupied, or used for desk space, mailing privileges or otherwise, by any
person other than Tenant, without in each instance obtaining the prior written
consent of Owner.
B. (i) Tenant expressly covenants and agrees that a transfer of more
than fifty percent (50%) (at any one time or, in the aggregate from time to
time) of the shares of any class of the issued and outstanding stock of Tenant,
its successors or assigns or the issuance of additional shares of any class of
its stock to the extent of more than 50% of the number of shares of said class
of stock issued and outstanding at the time that it became the tenant hereunder
or the sale or transfer of more than 50% of the partnership, joint venture or
other unincorporated association interests of Tenant, its successors or assigns
shall constitute an assignment of this lease and, unless in each instance the
prior written consent of Owner has been obtained, shall constitute a default
under this lease and shall entitle Owner to exercise all rights and remedies
provided for herein in the case of default.
(ii) Notwithstanding the provisions of subsection (i) above,
Owner shall not unreasonably withhold its consent to the sale in a single
transaction of all of the issued and outstanding shares of stock of Tenant (or,
if applicable, the sale in a single transaction of all of the partnership, joint
venture of other unincorporated association interests of Tenant), provided that
(i) Tenant shall not then be in default after the expiration of the applicable
grace period, if any, in the performance of any obligations on its part to be
performed hereunder; (ii) the shareholders (or, if applicable, the holders of
unincorporated interests) of Tenant shall each have furnished Owner with notice
of their desire to sell such stock (or, if applicable, unincorporated
interests), which notice shall be accompanied by (A) conformed or photostatic
copies of all proposed transfer documents, the effective date of which shall be
<PAGE>
at least thirty (30) days after the giving of such notice; (B) a statement
setting forth in reasonable detail the identity of the proposed purchaser(s) of
such shares (or, if applicable, other unincorporated interests) and such proof
as Owner may reasonably require evidencing that said purchaser(s) are
experienced in the business being conducted at the demised premises as permitted
under the terms of this lease, are of sound financial condition considering the
responsibilities involved and are of good character; and (iii) the shareholders
(or, if applicable, holders of unincorporated interests) of Tenant shall
reimburse Owner on demand for any reasonable costs that may be incurred by Owner
in connection with said sale of shares (or, if applicable, unincorporated
interests), including, without limitation, the costs of making investigations as
to the acceptability of said proposed purchaser(s) and legal costs incurred in
connection with the granting of such requested consent.
(iii) Notwithstanding the provisions of subsection (i) hereof,
the shareholders (or, if applicable, holders of unincorporated interests) of
Tenant may without Owner's consent transfer their interests to any members(s) of
the immediate family of Joseph Saleh or to a trust for the sole benefit of
Joseph Saleh or to any entity at least 50% of which is owned and controlled by
Joseph Saleh and/or such immediate family member(s) or trust. The foregoing
right to transfer shall be subject to the following provisions: (A) Tenant shall
not then be in default after the expiration of the applicable grace period, if
any, in the performance of any obligations on its part to be performed
hereunder; and (B) Tenant shall have furnished to Owner conformed or photostatic
copies of all transfer documents within ten (10) days following execution
thereof. As used in this subparagraph (iii), the term "immediate family" shall
refer only to the spouse, sister, brother or children of Joseph Saleh.
C. If this lease be assigned, whether or not in violation of the
provisions of this lease, Owner may collect rent from the assignee. If the
demised premises are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this lease, Owner may, after default by Tenant,
and expiration of Tenant's time to cure such default, collect rent from the
subtenant or occupant. In either event, Owner may apply the net amount collected
to the Fixed Rent and Additional Charges herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of any
of the provisions of Section A, or the acceptance of the assignee, subtenant or
occupant as tenant, or a release of Tenant from the performance by Tenant of
Tenant's obligations under this lease. The consent by Owner to a particular
assignment, mortgaging, subletting or use or occupancy by others shall not in
any way be considered a consent by Owner to any other or further assignment,
mortgaging
<PAGE>
or subletting or use or occupancy by others not expressly permitted by this
Article. References in this lease to use or occupancy by others (that is, anyone
other than Tenant) shall not be construed as limited to subtenants and those
claiming under or through subtenants but shall also include licensees and others
claiming under or through Tenant, immediately or remotely.
D. Any assignment or transfer, whether made with Owner's consent
pursuant to Section A or Section G or without Owner's consent pursuant to
Section B, shall be made only if, and shall not be effective until, the assignee
shall execute, acknowledge and deliver to Owner an agreement in form and
substance reasonably satisfactory to Owner whereby the assignee shall assume the
obligations of this lease on the part of Tenant to be performed or observed and
whereby the assignee shall agree that the provisions in Section A shall,
notwithstanding such assignment or transfer, continue to be binding upon it in
respect of all future assignments and transfers. The original named Tenant
covenants that, notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this lease, and notwithstanding the acceptance of
Fixed Rent and/or Additional Charges by Owner from an assignee, transferee, or
any other party, the original named Tenant shall remain fully liable for the
payment of the Fixed Rent and Additional Charges and for the other obligations
of this lease on the part of Tenant to be performed or observed.
E. The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Owner extending the time of, or modifying any of the
obligations of, this lease, or by any waiver or failure of Owner to enforce any
of the obligations of this lease.
F. The listing of any name other than that of Tenant, whether on the
doors of the demised premises or the Building directory, or otherwise, shall not
operate to vest any right or interest in this lease or in the demised premises,
nor shall it be deemed to be the consent of Owner to any assignment or transfer
of this lease or to any sublease of the demised premises or to the use or
occupancy thereof by others.
G. Notwithstanding the provisions of Section A of this Article 47,
Owner hereby agrees that it shall not unreasonably withhold or delay its consent
to an assignment of Tenant's entire interest under this lease (and Owner further
agrees that should such assignment constitute a conditional assignment pending
the full payment by the proposed assignee of the purchase price for
<PAGE>
Tenant's business, it shall not unreasonably withhold its consent to a
simultaneous interim subletting of the entire demised premises to such
assignee), subject, however, to the following terms and conditions:
(i) Tenant shall not then be in default, after the expiration of
the applicable grace period, if any, in the performance of any obligations on
its part to be performed hereunder;
(ii) Such assignment (and, if applicable, interim sublease)
shall be entered into at least one (1) year following the Commencement Date:
(iii) Such assignment (and if applicable, interim sublease)
shall be made in connection with the sale by Tenant of all or substantially all
of its assets at the demised premises to the assignee, which assets shall
include, without limitation, Tenant's good will and all of Tenant's business
inventory and trade fixtures;
(iv) Tenant shall have furnished Owner with notice of its desire
to assign this lease (and, if applicable, sublet the entire demised premises),
which notice shall be accompanied by (a) a conformed or photostatic copy of the
proposed assignment (and, if applicable, the interim sublease), the effective or
commencement date of which shall be at least thirty (30) days after the giving
of such notice, (b) a statement setting forth in reasonable detail the identity
of the proposed assignee and the principals thereof and such proof as Owner may
reasonably require evidencing that the proposed assignee or such principals
thereof (A) are experienced in the business being conducted at the demised
premises as permitted under the terms of this lease, (B) are of sound financial
condition considering the responsibilities involved; (C) are of good character;
and (D) if such assignee is a partnership, corporation or other entity, such
entity is validly formed, is qualified to transact business in the State of New
York and has duly authorized the signatories to sign all documents on its behalf
so as to bind the assignee; and (C) a statement setting forth in reasonable
detail the nature of the proposed assignee's business and its proposed use of
the demised premises:
(v) The proposed assignee (or subtenant) shall use the demised
premises only as permitted by the terms of this lease;
(vi) Upon the effective date of such assignment (and, if
applicable, upon the commencement date of such interim sublease), Tenant shall
deliver to Owner, as additional security
<PAGE>
hereunder, to be held by Owner in accordance with Article 31 hereof, a sum equal
to one (1) monthly installment of the then Fixed Annual Rent;
(vii) The form of the proposed assignment (and, if applicable,
the interim sublease) shall be in form reasonably satisfactory to Owner and
shall comply with the applicable provisions of this Article;
(viii) Tenant shall reimburse Owner on demand for any reasonable
costs that may be incurred by Owner in connection with said assignment (and, if
applicable, the interim sublease), including, without limitation, the costs of
making investigations as to the acceptability of the proposed assignee, and
legal costs incurred in connection with the granting of any requested consent;
(ix) The proposed assignee is not entitled, directly or
indirectly, to diplomatic or sovereign immunity and is subject to the service of
process in, and the jurisdiction of the courts of, New York State; and
(x) Tenant shall not have advertised the availability of the
demised premises referring to the name or address of the Building.
H. Owner hereby agrees that it shall not unreasonably withhold or
delay its consent to a subletting by Tenant of all or part of the ground-level
floor portion or the basement level portion of the demised premises, provided
and upon condition that:
(i) Tenant shall not then be in default after the expiration of
the applicable grace period, if any, in the performance of any obligations on
its part to be performed hereunder;
(ii) In Owner's reasonable judgment the proposed subtenant is
engaged in a business and the demised premises will be used in a manner which
(a) is in keeping with the then standards of the Building, (b) is limited to the
use permitted by the terms of this lease, and (c) will not violate any negative
covenant as to use contained in any other lease of space in the Building;
(iii) The proposed subtenant is a reputable person of good
character and with sufficient financial worth considering the responsibility
involved, and Owner has been furnished with reasonable proof thereof;
<PAGE>
(iv) The proposed sublessee is not entitled, directly or
indirectly, to diplomatic or sovereign immunity and is subject to the service of
process in, and the jurisdiction of the courts of, New York State;
(v) The form of the proposed sublease shall be in form
reasonably satisfactory to Owner and shall comply with the applicable provisions
of this Article;
(vi) There shall not at any one time be more than two (2)
subtenants of the entire demised premises;
(vii) Tenant shall reimburse Owner on demand for any reasonable
costs that may be incurred by Owner in connection with said sublease, including,
without limitation, the costs of making investigations as to the acceptability
of the proposed subtenant, and legal costs incurred in connection with the
granting of any requested consent; and
(viii) Tenant shall not have advertised the availability of the
demised premises referring to the name or address of the Building.
(ix) Tenant may during the term hereof, without obtaining
Owner's prior consent, permit part of the basement level space to be used by a
third party for the operation of a customary concession stand for the sale of
food and beverages to movie theatre patrons; for the purposes of subsection (vi)
of Section H hereof, such third party shall not constitute a "subtenant" of the
demised premises. The foregoing, however, is subject to the following terms and
conditions: (A) only one such concession stand shall be allowed at any one time
during the term hereof; and (B) Tenant shall deliver to Owner a full and
complete copy of the agreement between Tenant and such third party establishing
such use, in each case at least ten (10) days following the execution thereof.
I. In the event that (a) Owner consents to a proposed assignment or
sublease, and (b) Tenant fails to execute and deliver the assignment or sublease
to which Owner consented within 90 days after the giving of such consent, then,
Tenant shall again comply with all of the provisions and conditions of Sections
B, G or H, as the case may be, before assigning this lease (and, if applicable,
entering into a simultaneous interim sublease) or subletting all or any part of
the ground-level of the demised premises.
J. With respect to each and every sublease or subletting authorized
by Owner under the provisions of this lease, it is further agreed:
<PAGE>
(i) No subletting shall be for a term ending later than one day
prior to the expiration date of this lease.
(ii) No sublease shall be valid, and no subtenant shall take
possession of the demised premises until an executed counterpart of such
sublease has been delivered to Owner.
(iii) Each sublease shall provide that it is subject and
subordinate to this lease and to the matter to which this lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess by
Owner under this lease Owner may, at its option, take over all of the right,
title and interest of Tenant, as sublessor, under such sublease, and such
subtenant shall, at Owner's option, attorn to Owner pursuant to the then
executory provisions of such sublease, except that Owner shall not (a) be liable
for any previous act or omission of Tenant under such sublease, (b) be subject
to any offset not expressly provided in such sublease, which theretofore accrued
to such subtenant against Tenant, or (c) be bound by any previous modification
of such sublease or by any previous prepayment of more than one month's rent.
K. In no event shall Tenant be entitled to make, nor shall Tenant
make any claim, and Tenant hereby waives any damages by way of set-off,
counterclaim or defense, based upon any claim or assertion by Tenant that Owner
has unreasonably withheld or unreasonably delayed any consent or approval to a
proposed assignment or subletting as provided for above, but Tenant's sole
remedy shall be an action or proceeding to enforce any such provision, or for
specific performance, injunction or declaratory judgment.
L. If Tenant is a partnership (or is comprised of two (2) or more
persons, individually and/or as co-partners of a partnership) or if Tenant's
interest in this lease shall be assigned to a partnership (or to two (2) or more
persons, individually and/or as co-partners of a partnership) pursuant to this
Article (any such partnership and such persons are referred to in this section
as "Partnership Tenant"), the following provisions of this section shall apply
------------------
to such Partnership Tenant: (i) the liability of each of the general partners
comprising partnership Tenant shall be joint and several, and (ii) each of the
general partners comprising Partnership Tenant hereby consents in advance to,
and agrees to be bound by, any written instrument which may hereafter be
executed, changing, modifying or discharging this lease, in whole or in part, or
surrendering all or any part of the demised premises to Owner or renewing or
extending this lease and by any notices, demands, requests or other
communications which may hereafter be given, by Partnership Tenant or by any of
the parties comprising
<PAGE>
Partnership Tenant, and (iii) if Partnership Tenant shall admit new general
partners, all of such new general partners shall, by their admission to
Partnership Tenant, be deemed to have assumed performance of all of the terms,
covenants and conditions of this lease on Tenant's part to be observed and
performed.
M. Each subletting shall be subject to all of the covenants,
agreements, terms, provisions and conditions contained in this lease.
Notwithstanding any such subletting and/or acceptance of rent or additional rent
by Owner from any subtenant, Tenant shall and will remain fully liable for the
payment of the Fixed Rent and Additional Charges due and to become due hereunder
and for the performance of all the covenants, agreements, terms, provisions and
conditions contained in this lease on the part of Tenant to be performed and all
acts and omissions of any licensee or subtenant or anyone claiming under or
through any subtenant which shall be in violation of any of the obligations of
this lease, and any such violation shall be deemed to be a violation by Tenant.
Tenant further agrees that notwithstanding any such subletting, no other and
further subletting of the demised premises by Tenant or any person claiming
through or under Tenant shall or will be made except upon compliance with and
subject to the provisions of this Article.
N. Supplementing the foregoing provisions of this Article 47,
provided Tenant is not in default under the terms of this lease, beyond the
applicable grace period, if any, Owner agrees that Tenant shall have the right
to assign, pledge or hypothecate, this lease to a lending institution as
security for financing obtained by Tenant from such institution. A copy of such
assignment, pledge or hypothecation, shall be submitted forthwith to Owner.
O. Notwithstanding anything contained in this Article 47 to the
contrary, and except as provided in Paragraph 47 N., Tenant shall not enter into
any agreement to assign this Lease or sublet the basement space or any part
thereof until the substantial completion by Tenant of the Initial Tenant Work
(hereinafter defined).
48. INSURANCE. Supplementing the provisions of Articles 8 and 9 of this
---------
lease:
A. Tenant, at its expense, shall maintain at all times during the
term of this lease public liability insurance in respect of the demised premises
and the conduct or operation of business therein, with Owner and its managing
agent, if any, and Owner's lessor(s) and mortgagee(s) whose names and addresses
shall previously have been furnished to Tenant, as additional
<PAGE>
named insureds, with limits of not less than $5,000,000 combined single limit
bodily injury and property damage liability. Tenant shall deliver to Owner and
any additional named insured such fully paid-for policies or certificates of
insurance, in form reasonably satisfactory to Owner issued by the insurance
company or its authorized agent, at least 10 days before the commencement date.
Tenant shall procure and pay for renewals of such insurance from time to time
before the expiration thereof, and Tenant shall deliver to Owner and any
additional named insured such renewal policy or a certificate thereof at least
30 days before the expiration of any existing policy. All such policies shall be
issued by companies of recognized responsibility licensed to do business in New
York State, and all such policies shall contain a provision whereby the same
cannot be cancelled or modified unless Owner and any additional named insured
are given at least 20 days' prior written notice of such cancellation or
modification.
B. Owner may from time to time require that the amount of the
insurance to be maintained by Tenant under Section A be increased, so that the
amount thereof reasonably protects Owner's interest.
C. Tenant and Owner shall secure (if available) an appropriate clause
in, or an endorsement upon, each of their respective insurance policies covering
or applicable (in the case of Tenant) to the demised premises and the personal
property, fixtures and equipment located therein or thereon and the Building (in
the case of Owner), pursuant to which Owner and Tenant's respective insurance
companies waive subrogation or permit the insured, prior to any loss, to agree
with a third party to waive any claim it might have against said third party
without invalidating the coverage under said insurance policy. The waiver of
subrogation or permission for waiver of any claim obtained by Tenant shall
extend to Owner and its agents and employees and each mortgagee of Owner.
49. TENANT'S WORK AND ALTERATIONS. Supplementing the provisions of
-----------------------------
Article 3 of this lease:
A. Tenant shall make no changes or alterations in or to the demised
premises of any nature without Owner's prior written approval. Prior to
commencing any work in the demised premises, Tenant shall submit to Owner for
Owner's written approval complete drawings, plans and specifications (herein
collectively referred to as "Tenant's Plan") for the improvements and
-------------
installations to be made by Tenant (herein collectively referred to as "Tenant's
--------
Work"). Tenant's Plan shall be fully detailed and shall show complete
- ----
dimensions, shall not be in conflict with Owner's basic plans for the Building,
shall not
<PAGE>
require any changes in the structure of the Building and shall not be in
violation of any laws, orders, rules or regulations of any governmental
department or bureau having jurisdiction of the demised premises.
B. (i) Within twenty (20) days after submission to Owner or Tenant's
Plan, Owner shall either approve same or shall set forth in writing the
particulars in which Owner does not approve same, in which latter case Tenant
shall, within ten (10) days after Owner's notification, return to Owner
appropriate corrections thereto. Such corrections shall be subject to Owner's
approval. Tenant shall pay to Owner, promptly upon being billed and as
Additional Charges, any charges or expenses Owner may incur in reviewing
Tenant's Plan. Tenant agrees that any review or approval by Owner of Tenant's
Plan is solely for Owner's benefit, and without any representation or warranty
whatsoever to Tenant with respect to the adequacy, legality, correctness or
efficiency thereof or otherwise. Owner agrees that it shall not unreasonably
withhold or delay its consent to Tenant's Plan or any revisions thereof.
(ii) Notwithstanding the foregoing provisions of this Article 49,
following completion by Tenant of the Initial Tenant Work (hereinafter defined),
Owner's consent shall not be required hereunder for any subsequent Tenant's
Work, subject, however, to the following terms and conditions: (a) prior to
commencing any such work, Tenant shall submit to Owner the Tenant's Plan; (b) in
its performance of Tenant's Work, Tenant shall comply fully with applicable
provisions of Article 3 and this Article 49; and (c) such Tenant's Work shall
not affect the public portions or systems of the Building or otherwise affect
the structural integrity of the Building.
C. Following compliance by Tenant with its obligations under the
foregoing sections of this Article, Tenant shall timely commence Tenant's Work
in order to complete same within a reasonable period of time. Tenant's Work
shall be diligently pursued and shall be performed in a good and workmanlike
manner.
D. Tenant agrees that in the performance of Tenant's Work (i) that
Tenant shall comply with any reasonable work schedule, rules and regulations
proposed by Owner, its agents or employees, (ii) that the labor employed by
Tenant shall be harmonious and compatible with the labor employed by Owner in
the Building, it being agreed that if in Owner's judgment the labor is
incompatible Tenant shall forthwith upon Owner's demand withdraw such labor from
the demised premises, (iii) that Tenant shall procure and deliver to Owner
workmen's compensation, public liability, property damage and such other
insurance policies, in such amounts as shall be reasonably acceptable to Owner
in
<PAGE>
connection with Tenant's Work, and shall upon Owner's request cause Owner to be
named as an insured thereunder, (iv) that Tenant shall hold Owner harmless from
and against any and all claims arising from or in connection with any act or
omission of Tenant or its agents or employees, (v) that Tenant's Work shall be
performed in accordance with the approved Tenant's Plan and in compliance with
the laws, orders, rules and regulations of any governmental department or bureau
having jurisdiction of the demised premises, and (vi) that Tenant shall promptly
pay for Tenant's Work in full and shall not permit any lien to attach to the
demised premises or the Building.
E. (i) Upon Owner's approval of Tenant's Plans (if required
hereunder) and the selection by Tenant of all final bids in connection with
Tenant's Work, Tenant shall submit to Owner the full estimated cost for such
work certified by Tenant's architect. The determination of such full estimated
cost shall be subject to Owner's approval, not to be unreasonably withheld.
(ii) Upon a final determination being made of the estimated cost
of Tenant's Work, as provided in subsection (i) above, should such estimated
cost of Tenant's Work exceed the aggregate sum of One Hundred Seventy-Five
Thousand ($175,000) Dollars, Tenant shall, prior to Tenant's commencing any
work, deliver to Owner, to secure the prompt and proper completion of Tenant's
Work, a cash deposit or an irrevocable, unconditional, negotiable letter of
credit, issued by and drawn on a bank or trust company in a form reasonably
satisfactory to Owner, in an amount equal to the aggregate of (A) the aforesaid
final cost estimate and (B) ten (10%) per cent of such sum. Such letter of
credit shall be for one year and shall be renewed by Tenant each and every year
until Tenant's Work is completed and shall be delivered to Owner not less than
30 days prior to the expiration of the then current letter of credit. Failure to
deliver such new letter of credit on or before said date shall be a material
breach of this lease and Owner shall have the right, inter alia, to present the
----- ----
then current letter of credit for payment. Notwithstanding the foregoing, Tenant
shall have the right from time to time (but not more frequently than once each
30 days) to reduce the face amount of said letter of credit, subject in each
instance to the following provisions: Tenant may in each instance reduce the
then face amount of the letter of credit by an amount equal to the sum of
receipted invoices from contractor(s) delivered to Owner, which invoices shall
be accompanied by lien waivers to the extent of such requested reduction,
provided, however, that at no time shall the face amount of said letter of
credit be less than a sum equalling 110% of the remaining sum certified from
time to time by Tenant's architect to be necessary to complete such Tenant's
Work.
<PAGE>
(iii) Upon (A) the completion of Tenant's Work in accordance with
the terms of this Article and (B) the submission to Owner of proof evidencing
the payment in full for Tenant's Work, the letter of credit (or the balance of
the proceeds thereof, if Owner has drawn on said letter of credit) shall be
returned to Tenant.
(iv) Upon the Tenant's failure to properly perform, complete and
fully pay for Tenant's Work, as reasonably determined by Owner, Owner shall be
entitled to draw down on the letter of credit to the extent it deems necessary
in connection with Tenant's Work, the restoration and/or protection of the
demised premises or the Building and the payment or satisfaction of any costs,
damages or expenses in connection with the foregoing and/or Tenant's obligations
under this Article.
(v) Upon a final determination being made of the estimated cost
of Tenant's Work, as provided in subsection (i) above, should such estimated
cost of Tenant's Work exceed the aggregate sum of One Hundred Seventy-Five
Thousand ($175,000) Dollars, Tenant shall, prior to Tenant's commencing any
work, also deliver to Owner, as further security for the prompt and proper
completion of Tenant's Work, an absolute and unconditional guaranty of payment
and performance executed by Joseph Saleh, in form and substance reasonably
satisfactory in all respects to Owner, which document shall guarantee (A)
Tenant's performance of Tenant's Work free and clear of all liens, and (B) the
payment by Tenant of all sums which may be owing under subparagraph (e) of
Article 56 hereof. Upon (A) the completion of Tenant's Work in accordance with
the terms of this Article and (B) the submission to Owner of proof evidencing
the payment in full for Tenant's Work, the aforesaid guaranty shall be returned
to Tenant. In the even that his Lease is assigned to a corporation or
partnership in which Joseph Saleh is not a director, stockholder, officer or
partner, as the case may be, Owner agrees that the foregoing provisions of this
subsection (v) shall not apply to Tenant's Work (other than the Initial Tenant's
Work) to be performed by such assignee, it being agreed, however, that all other
terms and conditions of this Article 49 shall apply fully to such Tenant's Work
to be performed by such assignee, except that the dollar figure "$175,000" set
forth in subsection E(ii) of this Article 49 shall be reduced to "$50,000." The
parties hereto acknowledge and agree that the provisions of the immediately
preceding sentence shall not apply in any respect to an assignee of Tenant
pursuant to Section B(iii) of Article 47 hereof.
F. (i) Owner represents and warrants that under existing zoning rules
and regulations the demised premises permit the use thereof for motion picture
theatre(s), and that, subject to compliance with all other building codes, rules
and
<PAGE>
regulations ("Regulations"), the preliminary plans heretofore submitted by
Tenant to Owner entitled "Proposed Building-A Six Theatre Complex-Soho Theatre
Center" (Drawings A-1 to and including A-5) prepared by Michael Schimenti P.C.
and initialled by Tenant (collectively, the "Schimenti Plans") will not violate
existing zoning rules thereby (subject to compliance with Regulations)
permitting use of the demised premises for motion picture theatre(s). In the
event Tenant determines that the foregoing representation is not true in all
material respects, then either party may elect to terminate this Lease,
provided, however, such election is made in writing not later than thirty days
after submission by Tenant of the Initial Plans (hereinafter defined) to the
Buildings Department (hereinafter defined). Failure by either party to exercise
its right to cancel as provided for in this subparagraph F(i) shall constitute a
waiver of such party's right to terminate this Lease pursuant to this
subparagraph F(i).
(ii) Owner hereby approves the Schimenti Plans subject, however,
to Tenant's compliance with the provisions of Article 3 hereof and this Article
49. Tenant agrees that Owner's approval of such initialled preliminary plans is
without any representation or warranty whatsoever to Tenant with respect to the
adequacy, legality, correctness or efficiency thereof or otherwise.
G. Tenant agrees that in connection with the Tenant's Work to be
performed in order to prepare the demised premises for Tenant's occupancy
("Initial Tenant Work"), it shall, within ninety (90) days from the date of
execution and delivery (free of escrow) hereof, submit to Owner all of Tenant's
architectural drawings and such other plans or drawings as may be required to be
submitted to the New York City Department of Buildings (the "Buildings
Department") in order for Tenant to commence construction of the Initial Tenant
Work (collectively, the "Initial Plans"). Within ten (10) days following its
receipt of the proposed Initial Plans, Owner shall notify Tenant as to either
its approval of such plans or such changes thereto as Owner determines are
reasonably necessary; within ten (10) days following its receipt from Owner of
any reasonable proposed changes, provided such changes do not (i) substantially
increase the cost of the Initial Tenant Work, or (ii) reduce the proposed
aggregate searing capacity of the motion picture theatre(s) described in the
Initial Plans by more than fifty (50) seats, or (iii) reduce the number of
proposed motion picture theatre(s) at the demised premises, Tenant shall cause
its architect to make such changes to such plans and again submit same to Owner
for its approval. Within five (5) days following Owner's notifying Tenant as to
its approval of the Initial Plans, Tenant shall deliver the Initial Plans to the
Buildings Department for the
<PAGE>
latter party's approval. The parties hereto agree that they shall each cooperate
in connection with the prompt application to the Buildings Department for
approval of the Initial Plans, it being agreed that same shall be done at
Tenant's sole cost and expense. Should the Buildings Department thereafter
require changes to the Initial Plans, provided such changes do not (i)
substantially increase the cost of the Initial Tenant Work, or (ii) reduce the
proposed aggregate seating capacity of the motion picture theatre(s) described
in the Initial Plans by more than fifty (50) seats, or (iii) reduce the number
of proposed motion picture theatre(s) at the demised premises to four (4) or
fewer (provided that the Initial Plans shall have provided for at least five (5)
such theaters), Tenant shall promptly cause its architect to make such changes
and submit the revised Initial Plans to the Buidlings Department, subject to
Owner's consent, which shall not be unreasonably withheld or delayed. Should the
Buildings Department approve the Initial Plans as herein provided, Tenant shall
perform the Initial Tenant Work in full accordance with the provisions of this
lease, including without limitation, Article 3 and this Article 49.
Notwithstanding anything herein contained, should the Buildings Department fail
to approve the Initial Plans and accept the application for a public assembly
permit within 60 days from the date that the Initial Plans are initially
submitted, Tenant shall have the right to cancel this lease by notice delivered
to Owner within 15 days thereafter, in which event this lease shall terminate on
the date which is 30 days following the delivery of such notice as if such
termination date was the date originally set forth as the expiration date of
this lease and Owner shall return all unapplied security deposits and prepaid
rent, provided same have not been applied by Owner by reason of Tenants default
hereunder. Notwithstanding the foregoing sentence, should the failure by Tenant
to comply with the provisions of this Section (G) result in the failure by the
buildings Department to approve the Initial Plans within the aforesaid 60-day
period, Tenant shall not be entitled to terminate this lease as aforesaid.
H. Should Tenant, as part of the Initial Tenant Work, elect to
install an elevator at the demised premises, which installation is approved by
Owner in accordance with the provisions of this Article 49, Owner shall
reimburse Tenant for the cost of such elevator installation in an amount equal
to the lesser of (i) fifty (50%) percent of the cost of such installation, or
(ii) fifty thousand ($50,000) Dollars, which reimbursement shall be delivered
within fifteen (15) days following compliance by Tenant with each of the
following terms and conditions:
(a) Tenant shall have supplied to Owner evidence reasonably
satisfactory to Owner establishing (1) that the
<PAGE>
aforesaid elevator installation has been completed, (2) the cost thereof, (3)
that all sums due and owing to contractors, subcontractors and materialmen have
been paid (it being acknowledged by Owner that original receipted invoices from
such parties shall be deemed satisfactory evidence as to such payment), and (4)
that Tenant otherwise complied with the provisions of Article 3 hereof and this
Article 49 in connection with the performance and completion of such elevator
installation; and
(b) Tenant shall not then be in default under the terms of this
lease beyond the applicable grace period, if any.
I. All fixtures and equipment installed or used by Tenant in the
Premises (except for moveable fixtures and equipment and built-in movie theatre
seats) shall be fully paid for by Tenant in cash and shall not be subject to
conditional bills of sale, financing statement or other title retention
agreements.
50. REPAIRS. Supplementing the provisions of Article 4 of this lease:
-------
Owner shall maintain and repair the public portions of the Building,
both exterior and interior (excluding the exterior and interior of all windows,
plate glass, showcases, doors, door frames and bucks). Tenant, throughout the
term of this lease, shall take good care of the demised premises, the fixtures
and appurtenances therein (including, without limitation, the sprinkler system
and any other equipment installed y Tenant in accordance with the provisions of
Article 29 hereof, and all installations required for the furnishing to the
demised premises of the services enumerated in Article 51 hereof), and the store
front and entrance doors thereto and, at Tenant's sole cost and expense, shall
clean the sidewalks and curbs adjacent to the demised premises and make all non-
structural repairs thereto and to the demised premises (including the exterior
and interior of all windows, plate glass, showcases, doors, door frames and
bucks) as and when needed to preserve the same in good working order and
condition. Notwithstanding the foregoing, all damage or injury to the demised
premises or to any other part of the Building, or to its fixtures, equipment and
appurtenances, or to the sidewalks or curbs adjacent to the demised premises,
whether requiring structural or non-structural repairs, caused by or resulting
from (i) the moving of Tenant's fixtures, furniture and equipment or (ii) any
act, omission, neglect or improper conduct of, or alterations made by, Tenant,
Tenant's servants, employees, invitees or licensees, shall be repaired promptly,
either by Owner at Tenant's sole cost and expense, or, at Owner's option, by
Tenant at Tenant's sole cost and expense, to the satisfaction
<PAGE>
of Owner. All the aforesaid repairs shall be of a quality or class equal to the
original work or construction and shall be made in accordance with the
provisions of Articles 3 and 49 hereof. If Tenant, within 20 days following
written notice by Owner, fails to commence the performance of any repairs
required to be made by Tenant hereunder or if Tenant thereafter fails to
diligently prosecute the performance of such repairs to full completion, the
same may be made by owner, and the expenses thereby incurred by Owner shall be
collectible as Additional Charges. Tenant shall give Owner prompt notice f any
defective condition in any mechanical, electric, sanitary, plumbing, utility or
other service system (or any part thereof) located in, servicing or passing
through the demised premises and Owner shall thereafter repair such condition,
subject, however, to the further provisions of this lease. The water and wash
closets and other plumbing fixtures shall not be used for any purposes other
than those for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other substances shall be deposited therein.
51. SERVICES. A. Except as otherwise provided herein, Owner shall have
--------
no obligation to furnish to the demised premises cleaning services, electric
energy, water, air-conditioning, ventilation, gas or any other service or
utility. Tenant shall obtain air-conditioning, ventilation, gas and any other
services or utilities required by Tenant at Tenant's sole cost and expense and
in compliance with the applicable provisions of (i) all rules, regulations and
statutes promulgated by any governmental or quasi-governmental authority having
jurisdiction over the Building, (ii) all rules and regulations of Owner and any
public utility or other company furnishing such service or utility, and (iii)
this lease, including, without limitation, Article 3 hereof. Tenant shall
install, maintain, operate and repair the ventilating, air-conditioning, and
exhaust systems located or to be located in the demised premises at Tenant's
sole cost and expense, and shall obtain and keep in full force and effect during
the term of this lease a service contract, with a reputable contractor or
contractors, to maintain the ventilating, air-conditioning and exhaust systems
located or to be located in the demised premises. Tenant shall deliver to Owner
a duplicate copy of each such service contract within sixty (60) days of the
Commencement Date, and shall renew each such contract, and deliver a duplicate
copy of such renewal to Owner, no later than ten (10) days prior to the
expiration of the term of each contract. If Tenant shall fail to obtain or
maintain the service contracts required pursuant to this Section A, Owner may
obtain and maintain the same, and the cost thereof shall be collectible by Owner
as Additional Charges. Upon the expiration or earlier termination of the term of
this lease, Tenant shall surrender to Owner such ventilating, air-conditioning
and exhaust systems and
<PAGE>
all equipment and fixtures used in connection therewith in as good order and
condition as the same were in when installed, reasonable wear and tear excepted.
B. (i) Tenant, at Tenant's sole cost and expense, shall (a) keep the
demised premises in good order, (b) cause the demised premises and the store
front, the entrance door or doors and all glass surfaces (interior and exterior)
and any entrance areas (including service entrances) to be cleaned at regular
intervals (but not less frequently than weekly), (c) keep the sidewalk and curb
directly in front of the demised premises clean (and not at any time sweep any
refuse, rubbish or dirt into the gutters or streets), (d) cause Tenant's refuse
and rubbish to be kept completely out of view (except when the same is being
taken to the location of collection) and removed daily from the demised premises
and the Building, but in no event between the hours of 8:30 a.m. and 8:00 p.m.
on business days, and (e) cause any portions of the demised premises used for
storage, preparation, service or consumption of food or beverages to be
exterminated against infestation by vermin, roaches or rodents on a regular
basis. Tenant shall cause the removal of such refuse and rubbish and the
furnishing of cleaning and exterminating services to be performed in accordance
with all reasonable applicable rules and regulations of Owner, and shall not
permit any person to enter the demised premises or the Building for such
purposes, other than persons first approved by Owner.
(ii) If Tenant shall use any portion of the demised premises for
the sale of food or beverages, whether for consumption within or outside the
demised premises, Tenant shall cause all refuse and rubbish in the demised
premises to be stored in sealed, watertight, metal containers having rubber
wheels and bumpers so fashioned as to prevent damage to the demised premises and
the Building. Notwithstanding the foregoing, Tenant shall have the right to
cause all rubbish and refuse to be stored in plastic containers or bags so long
as same are at all times sealed and water tight so that no spillage whatsoever
occurs therefrom. In addition, Tenant shall not suffer or permit Tenant's
employees or any persons making deliveries to or from the demised premises or
removing refuse and rubbish therefrom, to leave any food, refuse and rubbish
containers or other matter standing upon the streets or sidewalks adjacent to
the Building (subject, however, to the provisions of clause (d) of the preceding
subparagraph (i) hereof). If Tenant shall fail to comply with the foregoing
provisions of this subparagraph, Owner, in addition to all other remedies
provided in this lease and at law, may remove any food, refuse and rubbish
containers and other matter so left standing, without any liability on the part
of Owner therefor, and the cost thereof shall be collectible as Additional
Charges. If the demised premises shall have an
<PAGE>
appurtenant service entrance, Tenant shall cause all deliveries to and from the
demised premises and refuse and rubbish removal to be made through such service
entrance.
C. Tenant shall arrange to obtain electric energy directly from the
public utility servicing the Building and understands and agrees that Owner
shall not be obligated to furnish the same to Tenant. Such electric energy may
be furnished to Tenant by means of the then existing Building electric systems
to the extent that, in Owner's opinion, the same are available, suitable and
safe for such purposes. All meters, submeters and all additional panel boards,
feeders, risers, wiring, and other conductors and equipment which may be
required to obtain electric energy shall be installed by Tenant (to the extent
the same are not already installed in the demised premises), at Tenant's sole
cost and expense, and the installation thereof shall be subject to Owner's
approval and performed in accordance with all other provisions of Articles 3 and
49 hereof. Tenant shall, simultaneously with each payment to the public utility
company of electrical charges for the demised premises, pay to Owner as
Additional Charges a sum equal to five (5%) percent of each electrical bill;
Tenant, shall, simultaneously with each payment to Owner of such Additional
Charges, include a copy of the corresponding electrical bill.
D. Within 90 days following receipt by Owner of Tenant's request,
which shall be made no later than nine (9) months from the date hereof, Owner
shall during the remainder of the term hereof supply water from the cooling
tower on the roof above the Building to the perimeter of the demised premises
for Tenant's air-conditioning system, which water shall be supplied during
Tenant's ordinary business hours. Tenant shall pay to Owner, as additional rent
hereunder, the sum of $25,000 per annum for its receipt of such water, which sum
shall be payable in equal monthly installments simultaneously with Tenant's
payments of fixed rent hereunder. In addition, Tenant shall pay to Owner as
additional rent all of Owner's costs for operation of the cooling tower beyond
Tenant's ordinary business hours (it being acknowledged that for the purposes
hereof, Tenant's "ordinary business hours" shall be on such days as Tenant is
open for business from 8:00 a.m. to 2:00 a.m.; should a dispute arise between
the parties as to the amount of such additional rent, Tenant shall nevertheless
be required to pay the amount billed, but same shall be resolved by a court of
competent jurisdiction; it being agreed that if such court shall find that Owner
overcharged Tenant, Owner shall refund to Tenant the amount of such overcharge,
together with interest thereon from the date of payment to the date of repayment
at the rate of 15% per annum. Tenant shall install all equipment required to
utilize such water, including but not limited to, air-conditioning units,
<PAGE>
ducts, lines, meters, pumps, connections and vents solely at its own cost and
expense, and shall maintain all such equipment in accordance with the provisions
of Article 3 and Article 49 hereof. Should Tenant fail to submit its request for
Owner to supply water as aforesaid within nine (9) months following the date
hereof, Tenant shall be deemed to have waived its right to receive such water
during the term of this lease.
E. Within 90 days after the execution and delivery (free of escrow)
of this Lease, Tenant shall have the right to elect that Owner refrain from
supplying heat to Tenant during the hours set forth elsewhere in this Lease. If
Tenant shall timely so elect, then (i) Owner shall have no further obligation to
supply heat to the Premises during the term hereof, (ii) the first sentence of
Article 30 and the provisions of Article 44, (Fuel Escalation) hereof shall be
---------------
of no further force or effect, and (iii) provided Tenant is not then in default
under this lease beyond the applicable cure period, if any, Owner shall, within
ten (10) days after receipt of notice from Tenant as to such election,
contribute the sum of $15,000 which Tenant shall apply to pay the hard costs of
construction of Tenant's Work.
52. INDEMNIFICATION. Tenant shall indemnify and hold harmless Owner and
---------------
Owner's mortgagee and its and their respective partners, directors, officers,
agents and employees from and against any and all claims arising from or in
connection with (a) the conduct or management of the demised premises or of any
business therein, or any work or thing whatsoever done, or any condition created
(other than by Owner) in or about the demised premises during the term of this
lease or during the period of time, if any, prior to the commencement date that
Tenant may have been given access to the demised premises; (b) any act, omission
or negligence of Tenant or any of its subtenants or licensees or its or their
partners, directors, officers, agents, employees or contractors; (c) any
accident, injury or damage whatever (except to the extent caused by Owner's
negligence) occurring in, at or upon the demised premises; and (d) any breach or
default by Tenant in the full and prompt payment and performance of Tenant's
obligations under this lease; together with all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon, including, without limitation, all attorneys' fees and
expenses. In case any action or proceeding be brought against Owner and/or its
mortgagee and/or its or their partners, directors, officers, agents and/or
employees by reason of any such claim, Tenant, upon notice from Owner or such
mortgagee, shall resist and defend such action or proceeding (by counsel
reasonably satisfactory to Owner or such mortgagee).
53. LATE CHARGE. In addition to any other remedies Owner
-----------
<PAGE>
may have under this lease, and without reducing or adversely affecting any of
Owner's rights and remedies hereunder, if any Fixed Rent, Additional Charges or
damages payable hereunder by Tenant to Owner are not paid within seven days
following the due date thereof, Tenant shall pay Owner as Additional Charges, o
or before the first day of the following month, 6 cents for each dollar so
overdue in order to defray Owner's administrative and other costs in connection
therewith.
54. BROKER. Tenant covenants, warrants and represents that no broker
------
except Spender, Gerard and Schermer, Inc. (the "Broker") was instrumental in
------
bringing about or consummating this lease and that Tenant had no conversations
or negotiations with any broker except the Broker concerning the leasing of the
demised premises. Owner covenants, warrants and represents that no broker except
the Broker was instrumental in bringing about or consummating this lease and
that Owner had no conversations or negotiations with any broker except the
Broker concerning the leasing of the demised premises to Tenant. Tenant agrees
to indemnify and hold harmless Owner against and from any claims for any
brokerage commissions and all costs, expenses and liabilities in connection
therewith, including, without limitation, attorneys' fees and expenses, arising
out of any conversations or negotiations had by Tenant with any broker other
than the Broker. Owner shall pay commissions owing to the Broker pursuant to
separate agreement.
55. SIGNS. (a) Tenant shall not install, affix or display any signs,
-----
canopies, flags, marquees, placards, posters, lights or other material
(collectively, "Signs") on the exterior of the Building or on the inner or outer
-----
faces of the windows or doors of the demised premises without Owner's prior
written consent, irrespective of whether the same be temporary or permanent.
Owner agrees that such prior written consent shall not be unreasonably withheld
and Owner shall notify Tenant as to its consent or rejection within twenty (20)
days after its receipt of Tenant's submission as to the location, design, color,
size, materials and content of each proposed Sign. If Owner gives such consent,
the Signs shall be installed subject to the following terms and conditions:
(i) The Signs shall be installed and be maintained by Tenant in
accordance with applicable law, in a good and safe manner and subject to such
reasonable restrictions as Owner may impose;
(ii) The Signs shall be reasonably satisfactory to Owner in terms
of location, design, color, size, materials and content;
<PAGE>
(iii) All fees payable in connection with the installation and
maintenance of the Signs and obtaining of required permits therefor shall be
paid by Tenant;
(iv) The signs shall at all times during the term of this lease
be kept in good repair by Tenant at Tenant's sole cost and expense; and
(v) Tenant shall indemnify and hold Owner harmless from any
damage, cost, claim, liability or expense (including, without limitation,
attorneys' fees) arising out of or in connection with Tenant's failure to comply
with the provisions of this paragraph.
(vi) Nothing herein contained is intended to restrict Tenant's
right, without Owner's consent, from time to time to change posters, displays,
lettering on marquees and make similar nonstructural changes to reflect changes
in films shown at the Premises.
(b) Subject to the provisions of the foregoing subsection 9a), Owner
shall, upon request by Tenant, reasonably cooperate with Tenant in its
application for the necessary permits or other required governmental approvals
in connection with the Signs. Any such cooperation by Owner shall be at Tenant's
sole cost and expense.
(c) In the event Owner deems it necessary to remove any Signs of
Tenant in order to make any repairs, alterations or improvements in, to, or
upon, the demised premises or the Building, Owner shall have the right to do so
upon not less than 20 days prior notice to Tenant (except that no such notice
shall be required in an emergency situation or if the delay occasioned by such
notice period might subject Owner to civil penalties or fines or criminal
liability or might materially prejudice Owner) provided the same be removed and
replaced at Owner's expense promptly upon completion of such repair, alteration
or improvement. Any work by owner hereunder shall be performed and completed
with due diligence.
(d) Should Owner hereafter erect any scaffolding at the Building by
reason of any work referred to in subsection (c) hereof, it shall not
unreasonably withhold its consent to Tenant's affixing temporary Signs on such
scaffolding until the replacement of the Signs originally removed. Any such
temporary Signs shall be affixed at the sole expense of Tenant.
56. MECHANIC'S LIENS. (a) Tenant shall have no power to do any act or
----------------
make any contract which may create or be the foundation for any lien upon the
reversion of Owner, the demised
<PAGE>
premises or the Building and improvements; it being agreed that should Tenant
cause any alterations, changes or labor to be performed or material to be
furnished therein or thereon, neither Owner nor the demised premises shall under
any circumstances be liable for the payment of expenses incurred or for the
value of any such work done or material furnished to the demised premises or any
part thereof; but all such alterations, changes, additions, improvements and
repairs and materials and labor shall be at Tenant's expense, and Tenant shall
be solely and wholly responsible to contractors, laborers and materialmen
furnishing labor and material to said premises and Building, or any part
thereof, for or on behalf of Tenant.
(b) Tenant shall not suffer or permit any mechanic's lien to be filed
against the fee ownership (or ground leasehold, if any) of the demised premises
nor against Tenant's leasehold interest in said premises, by reason of work,
labor, services or materials supplied or claimed to have been supplied to Tenant
or to any occupant of the demised premises claiming by, through or under Tenant.
If any such mechanic's lien shall at any time be filed against the demised
premises or the land, Building and improvements thereon, Tenant shall, at its
own cost and expense, cause the same to be cancelled and discharged of record by
surety bond or appropriate cash deposit or otherwise within thirty (30) days
after the date of notice to Tenant of filing of the same, and Tenant shall
indemnify and save harmless Owner from and against any and all costs, expenses,
claims, losses or damages resulting therefrom or by reason thereof.
(c) Tenant shall also defend on behalf of Owner and the fee at
Tenant's sole cost and expense, any action, suit or proceeding which may be
brought thereon or for the enforcement of such liens, and Tenant shall pay any
damages and satisfy and discharge any judgment entered thereon and save harmless
Owner and the fee owner from any claim or damages resulting therefrom.
(d) If Tenant shall fail to discharge such mechanic's lien within the
aforesaid period, then, in addition to any other right or remedy of Owner, Owner
may, but shall not be obligated to, discharge the same, either by paying the
amount claimed to be due or by procuring the discharge of such lien by deposit
in court or by bonding, and in such event Owner shall be entitled, if Owner so
elects, to compel the prosecution of any action for the foreclosure of such
mechanic's lien by the lienor and to pay the amount of the judgment, if any, in
favor of the lienor, with interest, costs and allowances.
(e) Any amount paid by Owner for any of the aforesaid charges and all
reasonable legal and other expenses of Owner, including reasonable counsel fees,
in defending any such action
<PAGE>
or in procuring the discharge of said lien, with all necessary disbursements in
connection therewith, with interest thereon at the rate of fifteen (15%) percent
per annum (but in no event to exceed the maximum legal rate of interest then
chargeable to Tenant), from the date of payment, shall be repaid within a period
of twenty (20) days after written demand therefor by Owner to Tenant, and the
same shall be deemed additional rent payable by Tenant hereunder and collectible
as such.
57. OWNER'S INITIAL WORK. A. Owner shall at its own expense perform the
--------------------
following work at the demised premises: (a) removal of the single cinder block
wall running north-to-south at the basement level; and (b) patch all ceiling
holes (collectively, "Owner's Initial Work"). Owner's Initial Work shall be
performed by Owner only once, it being understood that Owner's obligation to
perform the work is a single, non-recurring obligation.
B. If for any reason whatsoever Owner's Initial Work shall not have
been substantially completed on the date originally set forth herein as the
Commencement Date or Owner shall for any reason be unable to deliver possession
of the demised premises to Tenant on said date in accordance with the terms of
this lease, then notwithstanding anything to the contrary hereinabove contained,
the term of this lease shall commence on the date on which said work shall have
been substantially completed and Owner is able to so deliver possession, all
dates for increases in fixed rent shall be deferred for a like period, and the
lease expiration date hereinabove set forth shall be extended by a period of
time equal to the period between the date hereinabove set forth as the
commencement date of the lease term and the actual commencement date hereof as
determined pursuant to this Article. If such dates are so deferred, Owner and
Tenant will enter into a supplement to this lease confirming such new dates.
Tenant waives any right to rescind this lease under Section 223(a) of the Real
Property Law of the State of New York and further waives any damages which may
result from any delay in the substantial completion of the aforementioned work
or delivery of possession of the demised premises. If Tenant takes possession of
the premises prior to the date hereinabove set forth as the date of commencement
of the lease term, Tenant's obligation to pay Fixed Rent and Additional Charges
hereunder and to observe and perform all other conditions and agreements
hereunder shall commence on such earlier date of possession but the term of the
lease shall nevertheless expire on the date hereinabove set forth as the date of
expiration of the lease term. Notwithstanding the provisions of this Section B,
should Owner be unable to deliver possession of the demised premises, with
Owner's Initial Work substantially completed, on or before sixty (60) days
following the date
<PAGE>
originally set forth as the Commencement Date hereunder, Tenant shall have the
right, to be exercised by notice to Owner delivered within fifteen (15) days
following the expiration of such 60-day period, to cancel this lease, in which
event (i) the security deposit and the first month's Fixed Rent being delivered
simultaneously with the execution of this lease shall be returned promptly to
Tenant (ii) Owner shall reimburse Tenant for all architectural, engineering and
Environmental Solutions, Ltd. (ESL) expediter fees incurred in connection with
this lease or the Premises prior to the date of lease cancellation (but
reimbursement for architectural and engineering fees shall not exceed $35,000 in
the aggregate), (iii) this lease shall be deemed cancelled and of no further
force or effect, and (iv) neither party shall have any claim against the other
arising from the execution of this lease.
58. MISCELLANEOUS PROVISIONS. A. No agreement shall be effective to
------------------------
change, modify, waive, release, discharge, terminate or effect an abandonment of
this lease, in whole or in part, unless such agreement is in writing, refers
expressly to this lease and is signed by the party against whom enforcement of
the change, modification, waiver, release, discharge, termination or
effectuation of the abandonment is sought.
B. Except as otherwise expressly provided in this lease, the
obligations of this lease shall bind and benefit the successors and assigns of
the parties hereto with the same effect as if mentioned in each instance where a
party is named or referred to; provided, however, that (i) no violation of the
provisions of Article 46 shall operate to vest any rights in any successor or
assignee of Tenant.
C. If Owner or a successor in interest is an individual (which term
as used herein includes aggregates of individuals, such as joint ventures,
general or limited partnerships or associations), such individual shall be under
no personal liability with respect to any of the provisions of this lease, and
if such individual is in breach or default with respect to its obligations under
this lease, Tenant shall look solely to the equity of such individual in the
Land and Building of which the demised premises form a part for the satisfaction
of Tenant's remedies and in no even shall Tenant attempt to secure any personal
judgment against Owner or against any partner, principals (disclosed or
undisclosed), employee or agent of Owner by reason of such default by Owner.
D. The submission by Owner of the lease in draft form shall be deemed
submitted solely for Tenant's consideration and not for acceptance and
execution. Such submission shall have no binding force or effect and shall
confer no rights nor impose any
<PAGE>
obligations, including brokerage obligations, on either party unless and until
both Owner and Tenant shall have executed the lease and duplicate originals
thereof shall have been delivered to the respective parties.
E. If and to the extent that there is a conflict between the
provision contained in the printed portion of the Lease to which this Rider is
attached and the provisions contained in this Rider, then the provision
contained in this Rider shall govern and be controlling to the extent necessary
to resolve such conflict.
F. If any of the Fixed Rent or Additional Charges payable under the
terms and provisions of this lease shall be or become uncollectible, reduced or
required to be refunded because of any act or law enacted by a governmental
authority, Tenant shall enter into such agreement(s) and take such other steps
(without additional expense to Tenant) as Owner may request and as may be
legally permissible to permit Owner to collect the maximum rents which from time
to time during the continuance of such legal rent restriction may be legally
permissible (and not in excess of the amounts reserved therefor under this
lease). Upon the termination of such legal rent restriction, (a) the Fixed Rent
and/or Additional Charges shall become and thereafter be payable in accordance
with the amounts reserved herein for the periods following such termination, and
(b) Tenant shall pay to Owner promptly upon being billed, to the maximum extent
legally permissible, an amount equal to (i) the Fixed Rent and/or Additional
Charges which would have been paid pursuant to this lease but for such legal
rent restriction less (ii) the rents paid by Tenant during the period such legal
rent restriction was in effect.
G. Notwithstanding anything herein contained to the contrary,
wherever in this Lease there is a provision for Owner's consent or approval,
which consent or approval is not to be unreasonably withheld or delayed,
Tenant's sole remedy for Owner's either withholding and/or delaying such consent
or approval shall be to commence an action to enforce such provision, or for
specific performance, injunction or declaratory judgment and in no event shall
Tenant be entitled to make, nor shall Tenant make any claim and Tenant hereby
waives any claim for money damages, nor shall Tenant claim any money damages by
way of set-off, counterclaim or defense based upon any claim or assertion by
Tenant that Owner has unreasonably withheld or unreasonably delayed (or both)
any consent or approval.
<PAGE>
SCHEDULE "A"
------------
Fixed Rent
<TABLE>
<CAPTION>
Period Fixed Rent
------ ----------
<S> <C>
From March 15, 1988 (subject to the Three Hundred Fifty-Nine Thousand Two
abatement set forth in Section 40(c) Hundred Twenty ($359,220) Dollars per
hereof) to June 30, 1991, both dates annum, payable in equal monthly
inclusive installments of Twenty-Nine Thousand
Nine Hundred Thirty-Five ($29,935)
Dollars
From July 1, 1991 to July 31, 1993, three Hundred Sixty-Nine Thousand Two
both dates inclusive Hundred Twenty ($369,220) Dollars per
annum, payable in equal monthly
installments of Thirty Thousand Seven
Hundred Sixty-Eight and 33/100
($30,768.33) Dollars
From August 1, 1993 to July 31, 1998, Four Hundred Twenty-four Thousand Six
both dates inclusive Hundred Three ($424,603) Dollars per
annum, payable in equal monthly
installments of Thirty-Five Thousand
Three Hundred Eighty-Four ($35,384)
Dollars
From August 1, 1998 to July 31, 2003, Four Hundred Eighty-Eight Thousand
both dates inclusive Two Hundred Ninety-Four ($488,294)
Dollars per annum, payable in equal
monthly installments of Forty
Thousand Six Hundred Ninety-One and
16/100 ($40,691.16) Dollars
From August 1, 2003 to December 31, Five Hundred Sixty-One Thousand Five
2008, both dates inclusive Hundred Thirty-Eight ($561,538)
Dollars per annum, payable in equal
monthly installments of Forty-Six
Thousand Seven Hundred Ninety-four
and 83/100 ($46,794.83) Dollars
</TABLE>
<PAGE>
AMENDMENT OF LEASE
------------------
THIS AGREEMENT (the "Amendment") dated as of the 26th day of December, 1989
between CABLE BUILDING ASSOCIATES, a New York limited partnership having an
office at 611 Broadway, New York, New York ("Landlord") and HOUSTON CINEMA,
INC., a New York corporation having an office c/o Angelica Films, 1974 Broadway,
New York, New York ("Tenant").
W I T N E S S E T H
WHEREAS, by agreement of lease dated as of March 4, 1988, as amended by
letter agreement dated March 4, 1988 and letter agreement dated December 20,
1988 (collectively, the "Lease"), Landlord did demise and let to Tenant, and
Tenant did hire and take from Landlord, part of the ground floor and basement,
as more particularly described in the Lease (the "Demised Premises") in the
building known as 611 Broadway, New York, New York (the "Building"), for a term
expiring December 31, 2008; and
WHEREAS, the parties hereto desire to amend the Lease with respect to
those matters hereinafter set forth.
NOW THEREFORE, in consideration of the sum of Ten ($10.00) Dollars paid by
Tenant to Landlord and for other good and valuable consideration, the mutual
receipt and legal sufficiency of which is hereby acknowledged, the parties
hereto agree as follows. (For purposes of this Amendment, capitalized terms
should have the meanings ascribed to them in the Lease, unless otherwise defined
herein).
1. As of January 1, 1990 (the "Effective Date") and for the remainder of
the term of the Lease, there shall be added to and included in the Premises
originally demised under the Lease, without further act of the parties, the
portion of the Building substantially as shown cross-hatched on the floor plan
annexed hereto and made a part hereof as Exhibit A (hereinafter referred to as
---------
the "Additional Space"), upon and subject to all the covenants, agreements,
terms and conditions of the Lease, as supplemented and amended by this
Amendment. From and after the Effective Date, wherever the Lease refers to the
"Premises" or the "premises" or the "Demised Premises" or "demised premises"
such terms shall be deemed to include the Additional Space, unless otherwise
provided to the contrary herein.
2. The provisions of Article 57 of the Lease are not applicable to the
Additional Space.
3. Tenant shall accept the Additional Space "as is" on the Effective Date
and Landlord shall not be required to perform any
<PAGE>
work, install any fixtures or equipment or render any services whatsoever to
make the Building or the Additional Space ready or suitable for Tenant's use or
occupancy.
4. As of the Effective Date, the Fixed Rent payable pursuant to "Schedule
A" of the Lease shall be increased and the new Fixed Rent shall be as follows:
a. For the period from the Effective Date to June 30, 1991, both
dates inclusive, the Fixed Rent shall be three hundred seventy four thousand two
hundred twenty ($374,220) dollars per annum, payable in equal monthly
installments of thirty one thousand one hundred eighty-five ($31,185) dollars.
b. From July 1, 1991 to July 31, 1993 both dates inclusive, the Fixed
Rent shall be increased to three hundred eighty four thousand two hundred twenty
($384,220) dollars per annum, payable in equal monthly installments of thirty-
two thousand eighteen and 33/100 ($32,018.33) dollars.
c. From August 1, 1993 to July 31, 1998, both dates inclusive, the
Fixed Rent shall be increased to forty three hundred nine thousand six hundred
three ($439,603) dollars per annum, payable in equal monthly installments of
thirty six thousand six hundred thirty-three and 58/100 ($36,633.58) dollars.
d. From August 1, 1998 to July 31, 2003, both dates inclusive, the
Fixed Rent shall be increased to five hundred three thousand two hundred ninety-
four ($503,294) dollars per annum, payable in equal monthly installments of
forty one thousand nine hundred forty-one and 17/100 ($41,941.17) dollars.
e. From August 1, 2003 to December 31, 2008, both dates inclusive,
the Fixed Rent shall be increased to five hundred seventy six thousand five
hundred thirty-eight ($576,538) dollars per annum, payable in equal monthly
installments of forty eight thousand forty-four hundred and 83/100 ($48,044.83)
dollars.
5. Article 42 of the Lease is hereby amended as follows:
The term "tenant's tax percentage" as defined in subparagraph (vi)
thereof shall be deemed to be seven and one-tenths (7.1%) percent.
6. Article 43 of the Lease is hereby amended as follows:
The number six thousand one hundred eighty (6,180) contained in
paragraph (b) thereof shall be deleted and the
<PAGE>
number six thousand nine hundred twelve (6,912) shall be inserted in its place
and stead.
7. Article 44 of the Lease is hereby amended as follows:
a. The percentage of six and eight tenths (6.8%) percent contained in
this Article shall be deemed to be seven and one-tenths (7.1%) percent.
8. Tenant and Landlord covenant, warrant and represent that no broker
brought about this Amendment and that neither Tenant nor Landlord had
conversations or negotiations with any broker concerning this Amendment and the
terms hereof. Tenant and Landlord agree to indemnify and hold harmless, against
and from any claims for any brokerage commissions and all costs, expenses and
liabilities in connection therewith, including, without limitation, attorneys
fees and expenses, arising out of any conversations or negotiations had by
Tenant or Landlord with any broker.
9. It is understood and agreed that in addition to Fixed Rent and
Additional Charges payable under the Lease, (including, without limitation,
Additional Charges payable under Article 51D of the Lease), and this Amendment,
Tenant has been paying to Landlord a sum equal one thousand two hundred eighty
three and 33/100 ($1,283.33) dollars monthly as Additional Charges for Tenant's
use of Landlord's equipment to bring cooling water into Tenant's demised
premises. As of the Effective Date, Tenant agrees to and shall continue to
deliver to landlord one thousand two hundred eighty-three and 33/100 ($1,283.33)
dollars on the first day of the month each month until the Expiration Date of
the Lease.
10. It is specifically understood and agreed that this Amendment shall not
be construed as a release or waiver of any claims Landlord may have against
Tenant for Tenant's defaults under the Lease which either have occurred,
continue to occur or may occur in the future or any other claims Landlord may
have against Tenant whether presently the subject of pending litigation
proceedings or otherwise. In consideration for Landlord entering into this
Amendment, Tenant expressly agrees that this Amendment is not intended to nor
shall it prejudice Landlord's claims against Tenant.
11. Tenant shall be permitted, at Tenant's sole cost and expense, to
arrange with all applicable authorities to have all of the vaults, vault space
or areas located in and under the Building closed and removed form the tax rolls
(hereinafter the "Vault Removal Option"), provided (1) Tenant shall give
Landlord written notice of its intention to arrange to close the vaults no
<PAGE>
less than 365 days prior to the commencement by Tenant of any such actions
and/or arrangements to close the vaults along with a copy of Tenant's Plan for
Tenant's Work; (ii) Tenant shall not be permitted to exercise such notice until
January 1, 1991; (iii) Tenant shall be permitted to exercise the Vault Removal
Option only once during the term of the Lease; (iv) any alterations or
construction undertaken by Tenant or on behalf of Tenant to close such vaults
shall be done pursuant to Articles 3 and 49 of the Lease and (v) Landlord shall
approve Tenant's Plan. In the event Tenant has complied with the foregoing
requirements, Tenant's Fixed Rent shall be reduced by seven thousand ($7,000)
dollars per annum upon written notice to Tenant from Landlord within sixty (60)
days from the date Landlord receives satisfactory evidence, in Landlord's sole
discretion, that (i) all applicable and required approvals have been issued by
any federal, state or municipal authority and/or public utility, the Department
of Buildings and/or the Department of Highways, and/or other applicable agency
or authority with respect to the closing of the vault, vault space or areas; and
(ii) all of the vaults, vault space or areas in and/or under the Building have
been removed whatsoever. Tenant shall deliver, along with such evidence an
indemnity, in form satisfactory to Landlord, indemnifying Landlord for any and
all charges or costs that may accrue or be charged as a result of such vaults,
vault spaces or areas being improperly removed from the tax rolls or not being
removed from the tax rolls at all or for construction work improperly or
inadequately performed by or on behalf of Tenant.
12. Tenant shall not record this Amendment, the Lease, or any memorandum
thereof.
13. This Agreement shall not be binding upon Landlord until and unless it
is signed by Landlord.
14. Except as modified by this Amendment, the Lease and all the covenants,
agreements, terms, provisions and conditions thereof shall remain in full and
effect. The covenants, agreements, terms,provisions and conditions contained in
this Amendment shall bind and inure to the benefit of the parties hereto and
their respective successors, and except as otherwise provided in the Lease as
modified by this Amendment, their respective assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date and year first above written.
LANDLORD:
CABLE BUILDING ASSOCIATES
<PAGE>
By:
------------------------------
TENANT:
HOUSTON CINEMA, INC.
By:
------------------------------
<PAGE>
EXHIBIT 10.41
-------------
Limited Liability Company Agreement
-----------------------------------
This Limited Liability Company Agreement of Angelika Film Centers LLC is
made and entered into as of this 27th day of August, 1996 by and between the
Members.
For and in consideration of the mutual covenants, rights, and
obligations set forth herein, the benefits to be derived therefrom, than other
good and valuable consideration, the receipt and sufficiency of which each
Member acknowledges, the Members agree as follows:
ARTICLE I
DEFINITIONS, CONSTRUCTION
1.1 Definitions. When used herein, the following capitalized terms
-----------
shall have the meanings indicated:
"Act" means the Delaware Limited Liability Company Act and any
---
successor statute, as amended from time to time.
"Affiliate" means as to any Person, a director of such Person
---------
or any other Person who, directly or indirectly, through one or more
intermediaries, Controls or is Controlled by or under common Control
with that Person.
"Agreement" means this Limited Liability Company Agreement, as
---------
originally executed and as amended from time to time.
"Angelika, Inc." means Angelika Cinemas, Inc., a New York
-------------
corporation and an indirect wholly-owned subsidiary of Reading Company.
"Angelika Theatre" means that certain multiplex cinema and cafe
----------------
complex located at 18 W. Houston Street, New York, New York.
"Approval of the Members" means, except as specified in Section
-----------------------
III.3, the approval, vote or written consent of those Members holding
more than 50% of the Membership Interests.
"Capital Account" means the capital account established and
---------------
maintained for a Member pursuant to Article IV.
"Capital Contribution" means as to any Member the cumulative
--------------------
sum of money contributed by the Member to the capital of the Company, as
provided in Article IV.
Page 1
<PAGE>
"Certificate" or "Certificate of Formation" means the certificate of
----------- ------------------------
formation of the Company filed on July 16, 1996 in accordance with the Act and
as amended from time to time.
"City Cinemas" means City Cinemas Corporation, a New York corporation.
------------
"Code" means the Internal Revenue Code of 1986 and any successor
----
statute, as amended from time to time.
"Company" means Angelika Film Centers, LLC, a Delaware limited liability
-------
company.
"Company Minimum Gain" has the meaning ascribed to the term "Partnership
--------------------
Minimum Gain" in Treas. Reg. (S)1.704-2(d).
"Control," "Controls," or "Controlled" (and derivations thereof) means
-------- --------- ----------
as to a corporation the right to exercise, directly or indirectly, more than 50%
of the voting rights in the corporation, and as to any other Entity the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the same.
"Depreciation" means depreciation and amortization of all of the assets
------------
of the Company (including, without limitation, depreciation of real and personal
property related thereto and the Lease).
"Dispose," "Disposing," or "Disposition" means a sale, assignment,
-------- ---------- -----------
transfer, exchange, mortgage, pledge, grant of a security interest, or other
disposition or encumbrance (including, without limitation, by operation of law),
or the acts thereof.
"Dissolution Event" means a Member's resignation, removal, withdrawal,
-----------------
bankruptcy or dissolution.
"Distributable Cash" means the amount of money on hand of the Company
------------------
and available for distribution to the Members, taking into account all accrued
debts, liabilities, and obligations of the Company and any amounts necessary or
advisable to reserve, designate, or set aside for actual or anticipated costs,
payments, liabilities, obligations, claims with respect to the Company's
business or reinvested in any lawful activity that may be undertaken by the
Company, as determined by a Majority in Interest of the Members.
"Entity" means any association, corporation, estate, limited liability
------
company, limited partnership, partnership, venture or other entity.
"Income" means any item of Company economic income not includable in
------
gross income for federal income tax purposes, and Company taxable income for
federal income
Page 2
<PAGE>
tax purposes, including Tax Items (items of income, gain, loss, deduction, or
credit of the Company) taken into account separately by the Members.
"Lease" means the Lease dated as of March 4, 1988, between Cable Building
-----
Associates, as lessor, and Houston Cinema, Inc., a New York corporation, as
lessee, regarding the premises located at 18 W. Houston Boulevard, New York, New
York, which Lease was subsequently assigned to Angelika Film Centers, Inc., and
then to the Company pursuant to the Assignment and Assumption of Lease dated as
of August 27, 1996, and as such lease may be amended, modified or supplemented
from time to time.
"Loss" means (i) any Company deduction specially allocable to a Member,
----
(ii) any Company expenditure that is neither deductible nor chargeable to
capital account under section 705(e)(2)(B) of the Code or Treasury Regulation
section 1.704-1(b)(2)(iv) and (d)(2), and (iii) the Company's net loss for
federal income tax purposes, excluding deductions described in clause (i) and
including Company Tax Items taken into account separately by the Members.
"Majority in Interest" has the meaning specified in Section III.2.
--------------------
"Management Agreement" means the Management Agreement dated as of the date
--------------------
hereof between the Company and City Cinemas, substantially in the form of
Exhibit A hereto.
"Member Nonrecourse Debt" has the meaning ascribed to the term "Partner
-----------------------
Nonrecourse Debt" in Treas. Reg. (S) 1.704-2(b)(4).
"Member Nonrecourse Deductions" means items of Company loss, deduction or
-----------------------------
Code section 705(a)(2)(B) expenditures which are attributable to Member
Nonrecourse Debt.
"Members" means the persons listed in Section III.1 of this Agreement and
-------
those persons subsequently admitted as Members pursuant to the terms of this
Agreement, so long as they have not ceased being Members pursuant to the terms
of this Agreement. A reference to a "Member" means any of the Members, and a
reference to a "Majority in Interest" of the Members means a Member or Members
owning a majority of the Membership Interest in the Company.
"Membership Interest" means a Member's interest in income of the Company,
-------------------
as determined under Section V.I., together with rights and obligations of such
Member under the provisions of this Agreement.
"Nonrecourse Liability" has the meaning set forth in Treas. Reg. (S)
---------------------
1.752-1(a)(2).
"Person" means any individual or Entity.
------
Page 3
<PAGE>
"Secretary of State" means the Secretary of State of the State of
------------------
Delaware.
"Super Majority in Interest" has the meaning specified in Section
--------------------------
III.3.
"Sutton Hill" means Sutton Hill Associates, a California general
-----------
partnership.
"Tax Items" has the meaning set forth under the definition of
---------
"Income".
I.2 Directly or Indirectly. Any provision of this Agreement which refers
----------------------
to an action which may be taken by any Person, or which a Person is prohibited
from taking, shall include any such action taken directly or indirectly by or on
behalf of such Person, including by or on behalf of any Affiliate or agent of
such Person.
I.3 Captions. All captions in this Agreement are inserted for reference
--------
only and are not to be considered in the construction or interpretation of any
provision hereof.
I.4 Interpretation. In the event any claim is made by any Person relating
--------------
to any conflict, omission or ambiguity in this Agreement, no presumption or
burden of proof or persuasion shall be implied by virtue of the fact that this
Agreement was prepared by or at the request of a particular Person or its
counsel.
I.5 References to this Agreement. References to numbered or lettered
----------------------------
articles, sections, and subsections refer to articles, sections, and subsections
of this Agreement unless otherwise expressly stated.
ARTICLE II
FORMATION
II.1 Formation. As of the effective date of this Agreement, the Company
---------
has been formed as a Delaware limited liability company under and pursuant to
the Act. The Company has executed and filed the Certificate with the Secretary
of State.
II.2 Name. The name of the Company shall be Angelika Film Centers LLC. The
----
business of the Company shall be conducted under that name or any other name or
names selected by the Members.
II.3 Principal Office. The principal office of the Company shall be
----------------
Angelika Film Centers, LLC, c/o City Cinemas Corporation, 950 Third Avenue, 26th
Floor, New York, New York 10022 or such other office as the Members may
designate from time to time. The Company also may have such other offices within
the United States as the Members may from time to time determine.
II.4 Agent. The Company shall at all times maintain a registered agent as
-----
required under
Page 4
<PAGE>
the Act who shall be as stated in the Certificate or as otherwise may be
determined from time to time by the Members in the manner provided by law.
II.5 Business; Purpose; Powers. The business and purpose of the
-------------------------
Company is to develop, own and operate the Angelika Theatre and to conduct such
other business reasonably related thereto as the Company may engage from time to
time as permitted by the Act.
II.6 Term of the Company. The term of the Company shall commence on
-------------------
the date hereof and the Company shall continue in existence as long as the Lease
is in full force and effect, or such earlier time as specified in or pursuant to
this Agreement.
ARTICLE III
MEMBERS AND MEMBERSHIP INTERESTS
III.1 Members. Angelika, Inc. and Sutton Hill are hereby admitted as
-------
Members. Except as otherwise specifically provided in this Agreement, after the
date hereof, no Person may be admitted as an additional Member except with the
Approval of the Members.
III.2 Voting Rights; Approval Required. Except as otherwise
--------------------------------
specifically provided in this Agreement, the vote, consent, or approval of
Members holding in the aggregate more than fifty percent (50%) of the Membership
Interests (a "Majority in Interest") shall be required as to all matters as to
which the vote, consent or approval of the Members is required or permitted
under this Agreement. The vote, consent or approval of the Members, wherever
required or permitted hereunder, may be obtained in any manner permitted
hereunder or under the Act.
III.3 Super Majority Voting Rights.
----------------------------
Notwithstanding anything in this Agreement to the contrary, each
of the following will require the approval of Members holding 85% or more of the
Membership Interests (a "Super Majority in Interest") (i) any sale of all or
substantially all of the assets of the Company, (ii) any change in the business
and purpose of the Company as set forth in Section II.5 hereof (including,
without limitation, the entrance by the Company into a new line of business),
(iii) any amendment, modification or supplement to this Agreement which has an
adverse effect to any Member not holding a Majority in Interest, (iv)
acquisition of additional cinemas, (v) the issuance by the Company of a
guarantee of the indebtedness of any third party, and (vi) any transaction
involving the Company and an Affiliate of Angelika, Inc.
III.4 Meetings of Members.
-------------------
III.4.1 No annual or regular meetings of the Members shall be
required; if convened, however, meetings of the Members may be held at such
date, time, and place as the Members may fix from time to time.
Page 5
<PAGE>
III.4.2 A meeting of the Members may be called at any time by
any one or more Members representing fifteen percent (15%) or more of the
Membership Interests for the purpose of addressing any matter on which the vote,
consent or approval of the Members is required under this Agreement.
III.4.3 Notice of any meeting of the Members shall be sent or
otherwise given to the Members in accordance with this Agreement not less than
ten nor more than 60 days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and the general nature of the
business to be transacted. Except as the Members may otherwise agree, no
business other than that described in the notice may be transacted at the
meeting.
III.4.4 Attendance, in person or by proxy, of a Member at a
meeting shall constitute a waiver of notice of that meeting, except when the
Member objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not fully called or convened, and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice of the meeting if that
objection is expressly made at the meeting. Neither the business to be
transacted nor the purpose of any meeting of Members need be specified in any
written waiver of notice. The Members may participate in any meeting of the
Members by means of conference telephone or similar means as long as both
Members can hear one another. A Member so participating shall be deemed to be
present in person at the meeting.
III.4.5 Any action that can be taken at a meeting of the Members
may be taken without a meeting if a consent in writing setting forth the action
so taken is signed and delivered to the Company by a Majority in Interest or
Super Majority in Interest of the Members, as the case may be. All such
consents shall be maintained in the books and records of the Company.
III.4.6 Any Member entitled to vote on any matter shall have the
right to do so either in person or by one or more agents authorized by a written
proxy signed by the Member and delivered to the other Member. The use of
proxies in all other respects shall be governed by the provisions of the
Delaware General Corporation Law pertaining to the use of proxies by corporate
stockholders.
III.5 Disposition of Interests.
------------------------
III.5.1 No Member shall Dispose of all or any part of its
Membership Interest without the approval each of the other Members, except as
provided below. Any attempted Disposition of a Membership Interest, or any part
thereof, other than in accordance with either Section III.6 or Section III.7
shall be, and hereby is declared, null and void ab initio.
III.5.2 No Member shall, directly or indirectly, sell, assign,
transfer or otherwise dispose of (collectively, a "transfer") its Membership
Interest or any part thereof, at any time, except for the transfers:
Page 6
<PAGE>
(i) to an Entity wholly-owned (directly or indirectly) by
one or more Members; or
(ii) to the parent of any Member; or
(iii) in the case of Sutton Hill, to James J. Cotter and/or
any of his lineal descendants, any trust for the benefit
of such person and any trustee thereof; or any Entity
controlled by any of the foregoing;
(iv) in the case of Sutton Hill, to Michael Forman, and/or
any of his lineal descendants, any trust for the benefit
of such person and any trustee thereof; or any Entity
controlled by any of the foregoing;
(v) in the case of a Member that is a natural person, to any
spouse or direct lineal descendants of such Member (an
"Heir"), or a trust, corporation or partnership for the
benefit of such member and/or one or more of such
Member's Heirs;
(vii) in the case of Sutton Hill, any Entity controlled by
James J. Cotter and/or Michael Forman;
(viii) in accordance with the terms and conditions of Sections
III.6 and III.7.
III.5.3 If in connection with a permitted Disposition of a
Membership Interest a Member purports to grant the Person to which the
Membership Interest is Disposed the right to be admitted as a member of the
Company, such Person shall have the right to be so admitted as a member if the
other Members receive a document (i) executed by both the Member effecting such
Disposition and the Person to which the Membership Interest is Disposed, (ii)
including the notice and payment address and facsimile number of the Person to
be admitted to the Company as a member and the written acceptance by such Person
of all the terms and provisions of this Agreement and an agreement by such
Person to perform and discharge timely all of the obligations and liabilities in
respect of the Membership Interest being acquired, (iii) setting forth the
respective percentage interests in Company allocations after the Disposition of
the Member effecting the Disposition and the Person to which the Membership
Interest is Disposed, which together shall total the percentage interest
in Company allocations of the Member effecting such Disposition prior thereto,
(iv) containing a representation and warranty by the Member effecting the
Disposition and the Person to which the Membership Interest is Disposed to the
effect that such Disposition was made in accordance with all laws and
regulations, including securities laws, applicable to such Member or Person, as
appropriate, and (v) setting forth the effective date of the Disposition.
III.6 Right of First Refusal
----------------------
No Member shall be entitled to transfer its Membership Interest, or any
part thereof, except
Page 7
<PAGE>
in a sale exclusively for cash in accordance with this Section III.6 or in a
transfer expressly permitted by this Agreement at any time; provided that no
Member shall transfer its Membership Interest in a sale for cash at any time
without first giving written notice to the Company and the other Members of its
intention to transfer such Membership Interest. Any such notice shall specify
the identity of the transferee and the amount of the cash purchase price
proposed to be paid for such Membership Interest, and shall include a copy of
the written offer of such transferee to purchase such Membership Interest, which
offer shall be in a form legally capable of acceptance and without
contingencies.
Any transfer of Membership Interest requiring the giving of written
notice under this Section III.6 shall be subject to a right of first refusal on
the part of the Company exercisable within thirty (30) days of receipt of such
written notice (the "Company Period"). During the Company Period, the Company,
subject to any restrictions imposed by law, shall have the right to elect to
purchase all or any part (subject to the condition set forth below) of the
Membership Interest (the "Subject Membership Interest") proposed to be sold by
the Member delivering such notice (the "Selling Member") for cash equal to the
cash purchase price, if any, proposed to be paid for such Membership Interest.
The Company shall exercise its election right by written notice delivered to the
Selling Member and the other Members within the Company Period. If the Company
does not elect to purchase all of the Subject Membership Interest, then such
right of first refusal shall pass to the other Members as follows:
Upon the expiration of the Company Period, each Member, other than the
Selling Member, shall have fifteen (15) days (the "Member Period") to elect in
writing to purchase all or any part of the Subject Membership Interest not
subject to purchase by the Company. In the event that the other Members elect
to purchase in the aggregate more Membership Interest than the Subject
Membership Interest available for sale, the Subject Membership Interest shall be
apportioned among the other Members in accordance with their percentage
interest in the Company. The other Members shall exercise their election right
by written notice delivered to the Selling Member and the Company within the
Member Period. If the Company and the other Members entitled to this right of
first refusal decline to purchase in the aggregate an amount equal to all of
the Subject Membership Interest, the Selling Member may thereafter transfer all,
but not less than all, the Subject Membership Interest in accordance with the
terms set forth in the written notice to the Company and the other Members.
If the Company elects to purchase all of the Subject Membership Interest
it shall tender payment for such interest within One Hundred Twenty Days
following the end of the Company Period to the Selling Member. If the Company
does not elect to purchase all of the Subject Membership Interest, but the
Company and/or the other Members elect to purchase all of the Subject Membership
Interest, they shall tender payment for such interest within One Hundred Twenty
Days following the end of the Member Period to the Selling Member. Failure to
tender the full payment for all the Subject Membership Interest shall terminate
the Company's and the other Members' rights to purchase and the Selling Member
may thereafter transfer all, but not less than all, of the Subject Membership
Interest in accordance with the terms set forth in the written notice to the
Company and the other Members.
Page 8
<PAGE>
No transfer of the Subject Membership Interest shall be made after the
end of One Hundred Eighty (180) days after the original notice given to the
Company and the Members under this Section III.6 or for a price that is lower
than the price specified in the notice referred to in this Section III.6, unless
the Membership Interest are first offered again to the Company and the other
Members in accordance with this Section III.6.
III.7 Tag Along Rights.
-----------------
In the event that Angelika, Inc. or any successors or assigns thereof, proposes
to transfer all, or any portion of its Membership Interest to a Person (other
than a transferee pursuant to Section III.5.2), then Angelika, Inc., shall
promptly give written notice (the "Tag Along Notice") to the Company and the
other Members of its intention to transfer such Membership Interest at least
forty-five (45) days prior to the closing of such transfer. Any such Tag Along
Notice shall specify in reasonable detail the proposed transfer, including the
identity of the transferee and the amount of the purchase price to be paid for
such Membership Interest or portion thereof, and shall include a copy of the
documentation evidencing such transaction and the date such proposed transfer is
expected to be consummated. It is understood by the parties hereto that
transfers of any interest in Angelika, Inc. by the shareholders thereof shall
constitute a transfer pursuant to this Section III.7.
Each Member shall have the right, exercisable upon written notice delivered to
Angelika, Inc., within twenty (20) days after receipt of such notice, to
participate in such sale on substantially the same terms and conditions set
forth in the Tag Along Notice, and to sell all of its Membership Interest for
the same consideration (adjusted to reflect such Member's percentage interest in
the Company) received by Angelika, Inc. It is understood by each of the Members
that, in the event the transferee in a transfer contemplated by this Section
III.7, will not agree to purchase such Member's interest on the terms and
conditions described above, Angelika, Inc. shall not be entitled to sell its
Membership Interest pursuant to this Section III.7.
The non-exercise of the rights of the Members hereunder to participate in one or
more transfers of the Membership Interest of Angelika, Inc., shall not adversely
affect their rights to participate in subsequent sales of the Membership
Interest of Angelika, Inc.
III.8 Amendment of Agreement to Reflect New Members. If a Person is to be
---------------------------------------------
admitted to the Company as a new member, the Person to be admitted as a new
member shall execute appropriate amendments to this Agreement to take into
account the Person's admission as a new member. In the case of any admission
pursuant to Section III.5.2, amendment shall provide, among things, that the
admission of the new member shall be deemed to occur immediately before any
withdrawal of the transferor Member.
III.9 No Resignation or Removal. Except as otherwise specifically
-------------------------
provided in this Agreement, a Member does not have the right or power to resign
or withdraw from the Company as a Member and shall be entitled to do so only
with the approval of the other Members.
Page 9
<PAGE>
III.10 No Liability to Third Parties. No Member shall have any personal
------------------------------
obligation for any liabilities of the Company, whether liabilities arise in
contract, tort or otherwise, except to the extent that any liabilities are
expressly assumed in a separate writing by the Member.
III.11 Indemnification by Members. To the fullest extent permitted by
--------------------------
law, each Member shall indemnify the Company, the other Members, and their
respective members, trustees, officers, directors, shareholders, employees,
associates, agents, and Affiliates, and hold them harmless from and against, any
and all losses, costs, liabilities, damages, and expenses (including, without
limitation, costs of suit and reasonable attorney's fees) (collectively referred
to herein as "Damages") they may incur on account of any material breach by the
Member of any provision of this Agreement.
III.12 Rights of Assignees. In the event the Company is required to
-------------------
recognize the validity of a Disposition notwithstanding the provisions of this
Article III to the contrary, the assignee of a Membership Interest who has not
been admitted to the Company in accordance with this Article III shall be
entitled only to allocations and distributions with respect to Membership
Interest as provided in this Agreement, but shall have no right to any
information or accounting of the affairs of the Company, or to inspect the books
or records of the Company, and shall not have any rights of a Member under the
Act or this Agreement.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
IV.1 Capital Contributions. Angelika, Inc. hereby agrees to make, on
---------------------
an as needed basis, an initial Capital Contribution of $10,340,683. Sutton Hill
hereby agrees to make, on an as needed basis, an initial Capital Contribution of
$2,068,137. The initial membership interests will be as follows: Angelika,
Inc., 83.34% and Sutton Hill, 16.66%. The Members agree to fund timely their
capital commitments on a pro-rata basis in accordance with the above
percentages.
IV.2 No Return of Capital Contribution; No Interest. Except as otherwise
----------------------------------------------
specifically provided in this Agreement, a Member shall not be entitled to
demand or receive the return of all or any portion of the Member's Capital
Contribution or to be paid interest in respect of either its Capital Account or
Capital Contribution. Under circumstances permitting or requiring a return of a
Member's Capital Contribution, the Member shall have no right to receive
property other than cash. No Member shall be required to contribute or to lend
any money or property to the Company to enable the Company to return any other
Member's Capital Contribution.
IV.3 Capital Accounts. A Capital Account shall be established and
----------------
maintained for each Member. Each Member's Capital Account (a) shall be
increased by (i) the amount of money contributed by or on behalf of that Member
to the Company, (ii) the fair market value of property contributed by or on
behalf of that Member to the Company (net of liabilities secured by contributed
property that the Company is considered to assume or take subject to under
section 752 of the Code), and (iii) allocations to that Member of Company Income
and gain (or items thereof), including
Page 10
<PAGE>
income and gain exempt from tax and income and gain described in Treas. Reg. (S)
1.704-1(b)(2)(iv)(g), but excluding income and gain described in Treas. Reg. (S)
1.704-1(b)(4)(i), and (b) shall be decreased by (i) the amount of money
distributed to that Member by the Company, (ii) the fair market value of
property distributed to that Member by the Company (net of liabilities secured
by the distributed property that the Member is considered to assume or take
subject to under section 752 of the Code), (iii) allocations to that Member of
expenditures of the Company described in section 705(a)(2)(B) of the Code, and
(iv) allocations of Company loss and deduction (or items thereof), including
loss and deduction described in Treas. Reg. (S) 1.704-1(b)(2)(iv)(g), but
excluding items described in clause (b)(iii) of this sentence and loss or
deduction described in Treas. Reg. (S) 1.704-1(b)(4)(i) or 1.704-1(b)(4)(iii).
The Capital Accounts shall also be maintained and adjusted as permitted by the
provisions of Treas. Reg. (S) 1.704-1(b)(2)(iv)(f) and as required by the other
provisions of Treas. Reg. (S)(S) 1.704-1(b)(2)(iv) and 1.704-1(b)(4), including
adjustments to reflect the allocations to the Members of depreciation,
depletion, amortization, and gain or loss as computed for book purposes rather
than the allocation of the corresponding items as computed for tax purposes, as
required by Treas. Reg. (S) 1.704-1(b)(2)(iv)(g). On the transfer of all or part
of a Membership Interest, the Capital Account of the transferor that is
attributable to the transferred Membership Interest or part thereof shall carry
over to the transferee in accordance with the provisions of Treas. Reg. (S)
1.704-1(b)(2)(iv)(l).
IV.4 No Obligation to Restore Deficits. No Member shall have any
---------------------------------
Liability or obligation to the Company, the other Members or any creditor of the
Company to restore at any time any deficit balance in Member's Capital Account.
IV.5 Additional Capital Contributions.
--------------------------------
(a) Member Preemptive Rights: To the extent that additional
------------------------
capital is required, the Members will have a forty-five day
preemptive right (the "Rights Period") to provide such capital, with
the intention that each Member will have the opportunity to preserve
such Member's proportionate Membership Interest through the provision
of such further capital.
(b) Contribution Right: So long as it is a Member with a
------------------
Membership Interest representing at least 50% of the aggregate
Membership Interests, Angelika, Inc. will have the right, but not the
obligation, to provide capital to the Company to meet the obligations
of the Company. This right is subject to the preemptive rights of the
other Members, as set forth in subsection (a), immediately above.
However, such contributions may be made immediately, subject to
repayment (with interest at the rate of 30 Day LIBOR plus 2.25 basis
points) from the proceeds of any such exercise of preemptive rights
within forty-five (45) days of notice to the Members of such capital
contribution by Angelika, Inc. Such contributions will be treated as
contributions to capital by Angelika, Inc. effective on the date
funded, and Angelika, Inc.'s Membership Interest will be increased
proportionately by the
Page 11
<PAGE>
amount of such contributions, except to the extent such
contributions, if any, are repaid from the proceeds of an exercise by
Members of preemptive rights during the Rights Period.
IV.6 Member Guarantees. No member will be required to issue any
-----------------
guarantee.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
V.1 Allocations of Income and Loss. Income and Loss for each year shall
------------------------------
be allocated as follows:
V.1.1 After giving effect to the special allocations set forth in
Section V.2, Income shall be allocated to the Members, 83.34% to Angelika, Inc.
and 16.66% to Sutton Hill.
V.1.2 After giving effect to the special allocations set forth in
Section V.2, Loss shall be allocated to the Members, 83.34% to Angelika, Inc.
and 16.66% to Sutton Hill.
V.2 Special Allocations.
-------------------
V.2.1 Notwithstanding the provisions of Section V.1, if there is a
net decrease in Company Minimum Gain during any taxable year, each Member shall
be specially allocated items of Company income and gain for year (and, if
necessary, in subsequent years) in an amount equal to the portion of Member's
share of the net decrease in Company Minimum Gain that is allocable to the
disposition of Company property subject to a Nonrecourse Liability, which share
of net decrease shall be determined in accordance with Treas. Reg. (S) 1.704-
2(g)(2). Allocations pursuant to this Section V.2.1 shall be made in proportion
to the amounts required to be allocated to each Member under this Section V.2.1.
The items to be so allocated shall be determined in accordance with Treas. Reg.
(S) 1.704-2(f). This Section V.2.1 is intended to comply with the minimum gain
chargeback requirement contained in Treas. Reg. (S) 1.704-2(f) and shall be
interpreted consistently therewith.
V.2.2 Notwithstanding the provisions of Section V.1, if there is a
net decrease in Minimum Gain attributable to a Nonrecourse Liability during any
taxable year, each Member who has a share of Company Minimum Gain attributable
to Nonrecourse Debt (which share shall be determined in accordance with Treas.
Reg. (S) 1.704-2(i)(5)) shall be specially allocated items of Company income and
gain for taxable year (and, if necessary, in subsequent years) in an amount
equal to that portion of Member's share of the net decrease in Company Minimum
Gain attributable to Nonrecourse Liability that is allocable to the disposition
of Company property subject to Nonrecourse Debt (which share of net decrease
shall be determined in accordance with Treas. Reg. (S) 1.704-2(i)(5)).
Allocations pursuant to this Section V.2.2 shall be made in proportion to the
amounts required to be allocated to each Member under this Section V.2.2. The
items to be so allocated shall be determined in accordance with Treas. Reg. (S)
1.704-2(i)(4). This Section V.2.2 is
Page 12
<PAGE>
intended to comply with the minimum gain chargeback requirement contained in
Treas. Reg. (S) 1.704-2(i)(4) and shall be interpreted consistently therewith.
V.2.3 Notwithstanding the provisions of Section V.1, any nonrecourse
deductions (as defined in Treas. Reg. (S) 1.704-2(b)(1)), other than
depreciation and amortization deductions specially allocated pursuant to Section
V.2.8, for any taxable year or other period shall be specially allocated to the
Members in accordance with their respective percentage interests in Income and
Member Nonrecourse Deductions shall be allocated to the Member to whom the
Member Nonrecourse Debt is allocated.
V.2.4 Notwithstanding the provisions of Section V.1, those items of
Company loss, deduction, or expenditures under section 705(a)(2)(B) of the Code
which are attributable to Member Nonrecourse Debt for any taxable year or other
period shall be specially allocated to the Member who bears the economic risk of
loss with respect to the Member Nonrecourse Debt to which items are
attributable in accordance with Treas. Reg. (S) 1.704-2(i).
V.2.5 Notwithstanding the provisions of Section V.1, if a Member
unexpectedly receives any adjustments, allocations, or distributions described
in Treas. Reg. (S) 1.704-1(b)(2)(ii)(d)(4), (5) or (6), or any other event
creates a deficit balance in Member's Capital Account in excess of Member's
share of Minimum Gain, items of Company income and gain shall be specially
allocated to Member in an amount and manner sufficient to eliminate excess
deficit balance as quickly as possible. Any special allocations of items of
income and gain pursuant to this Section V.2.5 shall be taken into account in
computing subsequent allocations of income and gain pursuant to this Article V
so that the net amount of any item so allocated and the income, gain, and losses
allocated to each Member pursuant to this Section V.2.5 to the extent possible,
shall be equal to the net amount that would have been allocated to each Member
pursuant to the provisions of this Article V if unexpected adjustments,
allocations, or distributions had not occurred.
V.2.6 Notwithstanding any other provision in this Article V, in
accordance with section 704(C) of the Code, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Company shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of property to the Company for federal
income tax purposes and its fair market value on the date of contribution.
Allocations pursuant to this Section V.2.5 are solely for purposes of federal,
state, and local taxes; as , they shall not affect or in any way be taken into
account in computing a Member's Capital Account or share of Income, Loss, or
items of distribution pursuant to any provision of this Agreement.
V.2.7 In the event any Member has a deficit Capital Account at the
end of any Company taxable year which is in excess of the sum of (i) the amount,
if any, Member is obligated to restore and (ii) the amount Member is deemed to
be obligated to restore pursuant to the next to the last sentences of Treas.
Reg. (S)(S) 1.704-2(g)(1) and 1.704(2)(i)(5), each Member shall be specially
allocated items of Company income and gain in the amount of excess as quickly
as possible, provided that an allocation pursuant to this Section V.2.7 shall be
made if and only to the extent that
Page 13
<PAGE>
Member would have a deficit Capital Account in excess of sum after all other
allocations provided for in this Article V have been tentatively made as if this
Section V.2.7 and Section V.2.5 hereof were not in this Agreement.
V.2.8 100% of the Company's Depreciation deductions shall be
allocated to Sutton Hill, up to an amount equal to its initial Capital
Contribution. Thereafter, 100% of the Company's Depreciation deductions shall be
allocated to Angelika, Inc. up to an amount equal to its initial Capital
Contribution. Thereafter, Depreciation deductions will be allocated 16.66% to
Sutton Hill and 83.34% to Angelika, Inc.
V.3 Allocation of Income and Loss in Respect of a Transferred Interest.
------------------------------------------------------------------
V.3.1 If a Member's Membership Interest is transferred, or is
adjusted by reason of additional Capital Contributions, the admission of a new
Member, or otherwise, during any taxable year, each item of income, gain, loss,
deduction, or credit of the Company for taxable year shall be assigned pro rata
to each day in the particular period of year to which item is attributable
(i.e., the day on or during which it is accrued or otherwise incurred) and the
amount of each item so assigned to any day shall be allocated to the Member
based upon its percentage interest in Company allocations at the close of day.
For the purpose of accounting convenience, except as provided below, the Company
may treat a transfer of, or an adjustment in, a Membership Interest which occurs
at any time during a semi-monthly period (commencing with the semi-monthly
period including the date hereof) as having been consummated on the first day of
semi-monthly period, regardless of when during semi-monthly period transfer or
adjustment actually occurs.
V.3.2 Notwithstanding any provision to the contrary in this
Agreement, gain or loss of the Company realized in connection with a Disposition
of any of the assets of the Company shall be allocated solely to the Members as
of the date Disposition occurs (or to any particular Member or Members as
required by Code section 704(c), if applicable to Disposition).
V.5 Distributions.
-------------
V.5.1 Subject to any restrictions under applicable law, the Company
shall periodically distribute Distributable Cash to the Members not less
frequently than quarterly, with the amount and timing of distributions to be
determined by the Members.
V.5.2 Except as otherwise provided in the case of the Company's
liquidation and termination, all distributions of Distributable Cash shall be
made 83.34% to Angelika, Inc. and 16.66% to Sutton Hill.
V.6 Form of Distributions. A Member has no right to demand or receive any
---------------------
distribution from the Company in any form other than cash. Likewise, except in
connection with the dissolution of the Company as provided herein, no Member
shall be compelled to accept from the Company a distribution of any asset in
kind.
Page 14
<PAGE>
ARTICLE VI
MANAGEMENT AND OPERATION
VI.1 Management of Company by Members.
--------------------------------
The business, property, and affairs of the Company shall be managed
exclusively by the Members. The full, complete, and exclusive authority to
manage and control the business, affairs, and properties of the Company in
accordance with the terms of this Agreement, to make all decisions regarding the
same, and to perform any and all other acts or activities consistent therewith
which are customary or incidental to the management of the Company's business is
subject to the Approval of the Members.
VI.2 Administration.
--------------
VI.2.1 Officers and Employees. In order to provide for the orderly
----------------------
administration of the Company, the Members may designate from time to time an
administrative committee and/or may appoint officers to administer the business
and affairs of the Company, as set forth in a resolution executed by a Majority
in Interest of the Members. Initially, James J. Cotter, Robert Smerling and S.
Craig Tompkins will serve as Managing Directors of the Company, but will not
receive any separate compensation from the Company for their services in such
capacities. The execution of any document by two or more Managing Directors
will bind the Company in its affairs with all persons other than the Members and
their Affiliates. At the direction of the Members, the Company may also retain
employees to carry out the business of the Company.
VI.2.2 Management Agreement. Simultaneously with the execution of
--------------------
this Agreement, the Company is entering into the Management Agreement.
VI.3 Other Theatres.
--------------
Each of the Members hereby acknowledge and agree that Angelika, Inc. and/or one
or more of its Affiliates may develop, own, lease or operate, as applicable,
movie theatres located outside New York City including, without limitation,
theatres that exhibit specialty art films (collectively, "Reading Theatres").
Subject to the Executive Sharing Agreement dated as of November 1, 1993 by
and between Reading Company and City Cinemas, each of the Members acknowledge
and agree that Sutton Hill and/or its Affiliates has and may develop, own, lease
or operate, as applicable, other movie theatres located inside and outside of
New York City. It is further acknowledged and agreed that neither Sutton Hill,
Angelika, Inc. nor any of their respective Affiliates shall have any right to
contribute capital with respect to or acquire any ownership interest in,
participate in any profits generated by, or manage, other theatres that are
developed, owned, leased or operated by the other party. It is further
acknowledged and agreed by the Members that Angelika, Inc. may use the tradename
"Angelika" in connection with its development, ownership, lease or operation, as
applicable, of such Reading Theatres, subject to the documentation of a
reasonable royalty-free license agreement, approval of which will not be
unreasonably withheld or delayed; provided it is understood that, in no event
may Angelika, Inc. use the tradename "Angelika" in New York City without the
written approval of Sutton Hill.
Page 15
<PAGE>
VI.4 Financing.
---------
Each of the Members acknowledge and agree that it is the Company's current
intention to seek third party financing (collectively "Indebtedness") secured by
the Angelika Theatre in an amount at least equal to the initial Capital
Contribution of Angelika, Inc. Each of the Members agree that the portion of
such financing proceeds equal to Angelika, Inc.'s initial Capital Contribution
shall be lent by the Company to Angelika, Inc., and the remainder of such
proceeds shall be lent by the Company to Sutton Hill, up to the amount of Sutton
Hill's initial Capital Contribution. These loans will be evidenced by promissory
notes reflecting the economics of the underlying loan to the Company. It is
further acknowledged and agreed that Angelika, Inc. may pledge its Membership
Interest in connection with borrowings by Angelika, Inc. and/or its Affiliates
and that such indebtedness may be in excess of the initial Capital Contribution
of Angelika Inc.
VI.5 Subordination.
-------------
In connection with any indebtedness of the Company or Angelika, Inc. described
in Section VI.4 above pursuant to which either the Angelika Theatre or Angelika
Inc.'s Membership Interest serves as security (collectively, "Indebtedness"),
Sutton Hill hereby agrees that it shall execute any reasonable agreement,
instrument or other document evidencing that Sutton Hill shall subordinate
solely the rights incident to its Membership Interest to the lenders extending
such Indebtedness to the extent the portion of such Indebtedness secured by such
Membership Interest does not exceed Angelika, Inc.'s initial Capital
Contribution; provided that Sutton Hill is provided commercially reasonable
notice and cure rights with respect to any such Indebtedness. To the fullest
extent permitted by law, Angelika, Inc. shall indemnify Sutton Hill and its
partners, officers, directors, employees, associates, agents and Affiliates
harmless from and against any Damages they may incur on account of any default
by the Company or Angelika, Inc., as the case may be, in connection with any
such Indebtedness.
ARTICLE VII
TAX MATTERS
VII.1 Tax Returns. The Company shall prepare or cause to be prepared
-----------
and filed all necessary federal, state, and local income tax returns for the
Company. The Company shall furnish to each Member copies of all returns that
are actually filed and shall keep them informed of any and all pending or
threatened tax proceedings regarding the Company.
VII.2 Tax Matters Partner. Angelika, Inc. shall be the "tax matters
-------------------
partner" of the Company pursuant to section 6231(a)(7) of the Code. Angelika,
Inc. shall take action as may be necessary to cause each other Member to become
a "notice partner" within the meaning of section 6231(a)(8) of the Code, and
shall inform each other Member of all significant matters that may come to its
attention in its capacity as "tax matters partner" and, shall forward to each
Member copies of all significant written communications it may receive in
capacity. Angelika, Inc. shall not take any
Page 16
<PAGE>
action contemplated by sections 6222 through 6231 of the Code without the
consent of the Members.
VII.3 Tax Elections. The Company shall make the following elections on
-------------
the appropriate tax returns:
VII.3.1 to adopt the calendar year as the Company's fiscal year;
VII.3.2 to adopt an appropriate method of accounting and to keep
the Company's books and records on that method; and
VII.3.3 any other election Angelika, Inc. deems appropriate and in
the best interests of the Company and the Members. It is the intent of the
Members that the Company be treated as a partnership for United States federal
income tax purposes and, to the extent permitted by applicable law, for state
and local franchise and income tax purposes. Neither the Company nor any other
Member may make an election for the Company to be excluded from the application
of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any
similar provisions of applicable state or local law, and no provision of this
Agreement shall be construed to sanction or approve an election.
VII.4 Withholding. With respect to any Member who is not a United States
-----------
person within the meaning of the Code, any tax required to be withheld under
section 1446 or other provisions of the Code, or under state law, shall, unless
already reflected by an appropriate charge to that Member's Capital Account, be
charged to that Member's Capital Account as if the amount of tax had been
distributed to Member. The amount so withheld shall be treated as a
distribution of Distributable Cash to Member for all purposes of this
Agreement.
ARTICLE VIII
INFORMATION
VIII.1 Information. In addition to the other rights specifically set forth
-----------
in this Agreement, each Member shall have access to all information to which a
Member is entitled to have access pursuant to the Act and other information
regarding the Company, as it may reasonably request from time to time.
ARTICLE IX
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
IX.1 Maintenance of Books. The books of account for the Company shall be
--------------------
maintained on an accrual basis in accordance with the terms of this Agreement,
except that Capital Accounts shall be maintained in accordance with Article IV.
The calendar year shall be the accounting year of the Company.
IX.2 Financial Information. The Company shall prepare, or shall cause to
---------------------
be prepared, as
Page 17
<PAGE>
soon as practicable after the end of each fiscal year of the Company, and in any
event on or before the 90th day thereafter, a balance sheet, an income statement
and a statement of changes in Members' capital in the Company for, or as of the
end of, that year. In addition, the Company shall deliver to each Member within
90 days after each fiscal year a copy of the Company's federal income tax return
for that year and a Schedule K-1 setting forth Member's distributions and
allocations.
IX.3 Bank Accounts. The Company shall establish and maintain one or more
-------------
separate bank and investment accounts for the Company's funds in the Company's
name with financial institutions and firms as the Members may select and
designate signatories thereon. The Company's funds may not be commingled with
other funds of any other Person.
ARTICLE X
DISSOLUTION AND WINDING UP
X.1 Conditions of Dissolution. The Company shall be dissolved, its
-------------------------
assets shall be disposed of, and its affairs wound up on the first to occur of
the following:
(a) the vote, consent or approval of a Majority in Interest
of the Members at any time to dissolve the Company;
(b) the occurrence of a Dissolution Event, unless within
ninety (90) days after the occurrence, the remaining Members (other
than the Member as to which Dissolution Event occurred) consent to
continue the Company;
(c) the Disposition of all of the property and assets of the
Company;
(d) the entry of a decree of judicial dissolution under the
Act; or
(e) the expiration of the term of existence of the Company.
X.2 Liquidation and Termination.
---------------------------
X.2.1 Upon the dissolution of the Company as provided in Section
X.1, the Company shall continue solely for the purpose of winding up its affairs
in an orderly manner, liquidating its assets, and satisfying the claims of its
creditors. The Members shall act as liquidators or may appoint one or more other
Persons to act as liquidator. The liquidator shall oversee the winding up and
liquidation of the Company, take full account of the liabilities of the Company
and assets, either cause the Company's assets to be sold as promptly as is
consistent with obtaining fair market value therefor (or, with the consent of
the Members, distributed to the Liquidation Member) and, if sold, shall cause
the proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed as provided in paragraph (c) below. Until final distribution, the
liquidator shall manage
Page 18
<PAGE>
the Company's business and other property and assets with all of the power and
authority of the Members. The steps to be accomplished by the liquidator are as
follows:
(a) as promptly as possible after dissolution and again after
final liquidation, the liquidator shall cause a proper accounting to
be made of the Company's assets, liabilities, and operations through
the last day of the calendar month in which the dissolution shall
occur or the final liquidation shall be completed, as applicable;
(b) during the period commencing on the first day of
dissolution pursuant to Section X.1 hereof and ending on the date on
which all of the assets of the Company have been distributed to the
Members in accordance with this Section X.2, the Members shall
continue to share Income, Loss, and other items of Company income,
gain, loss or deduction in the manner provided in Article V, provided
that no distributions shall be made pursuant to Section V.4;
(c) the liquidator shall pay or discharge from Company funds
all of the debts, liabilities and obligations of the Company
(including, without limitation, but subject to the provisions of
applicable law, all expenses incurred in liquidation) or otherwise
make reasonably adequate provision therefor (including, without
limitation, the establishment of a cash escrow fund for contingent
liabilities in amount and for terms as the liquidator may reasonably
determine);
(d) all remaining assets of the Company shall be distributed to
the Members in accordance with the positive balances of their Capital
Accounts; and
(e) the liquidator may sell any or all Company property,
including to the Members for fair market value.
X.2.2 Any distributions in kind to the Members shall be made subject
to the liability of distributee for costs, expenses, and liabilities
theretofore incurred or for which the Company has committed prior to the date of
termination.
X.3 Cancellation of Filings. Upon completion of the distribution of
-----------------------
Company assets as provided herein, the Company is terminated, and the liquidator
shall take actions as may be necessary to terminate the Company.
ARTICLE XI
INDEMNIFICATION AND INSURANCE
Page 19
<PAGE>
XI.1 Indemnification by Company
--------------------------
XI.1.1 The Company shall indemnify and defend each Member or
officer or employee of the Company who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding") by reason of the fact that it is or was a Member, manager,
----------
officer, or other agent of the Company or that, being or having been a Member,
manager, officer or agent, it is or was serving at the request of the Company as
a manager, director, officer, employee, or other agent of another Person (all
Persons being referred to hereinafter as an "agent"), to the fullest extent
-----
permitted by applicable law in effect on the date hereof and to greater extent
as applicable law may hereafter from time to time permit; provided, however,
that no Person shall be entitled to indemnification hereunder for any act or
omission constituting gross negligence, willful misconduct or material breach of
this Agreement. Furthermore, the Company may, but shall not be obligated to,
indemnify any other Person who was or is a party or is threatened to be made a
party to, or otherwise becomes involved in, a Proceeding by reason of the fact
that person is or was an agent to the same extent as is provided for in the
preceding sentence with respect to a Member or agent.
XI.1.2 The indemnification provided by, or granted pursuant to, the
provisions of this Article XI shall not be deemed exclusive of any other rights
to which any Person seeking indemnification may be entitled under any agreement,
vote of Members, or otherwise, both as to action in Person's capacity as an
agent of the Company and as to action in another capacity while serving as an
agent. All rights to indemnification under this Article XI shall be deemed to
be provided by a contract between the Company and each Member and officer who
serves in capacity at any time while this Agreement and relevant provisions of
the Act and other applicable law, if any, are in effect. Any repeal or
modification hereof or thereof shall not affect any rights then existing.
ARTICLE XII
GENERAL PROVISIONS
XII.1 Notices All notices and other communications provided for or
-------
permitted to be given under this Agreement shall be in writing and shall be
given by depositing the notice in the United States mail, addressed to the
Person to be notified, postage paid, and registered or certified with return
receipt requested, or by notice being delivered in person or by facsimile
communication to party. Notices given or served pursuant hereto shall be
effective upon receipt by the Person to be notified. All notices to be sent to
a Member shall be sent to or made at, and all payments hereunder shall be made
at, the address given for that Member or other address as that Member may
specify by notice to the Company and the other Members.
XII.2 Entire Agreement; Waivers and Modifications.
-------------------------------------------
XII.2.1 The Certificate and this Agreement constitute the entire
agreement of the Members and their respective Affiliates relating to the Company
and supersedes any and all prior contracts, understandings, negotiations, and
agreements with respect to the Company and the subject
Page 20
<PAGE>
matter hereof, whether oral or written.
XII.2.2 The Certificate and this Agreement may be amended or
modified from time to time only by a written instrument executed by the Members.
XII.2.3 In the event of an inconsistency or conflict between the
provisions of this Agreement and any resolution adopted by the Members,
resolution shall be deemed an amendment to this Agreement and a waiver by the
Members of the inconsistent or conflicting provision of this Agreement. Any
waiver or consent, express, implied or deemed to or of any breach or default by
any Person in the performance by that Person of its obligations with respect to
the Company or any action inconsistent with this Agreement is not a consent or
waiver to or of any other breach or default in the performance by that Person of
the same or any other obligations of that Person with respect to the Company or
any other action. Failure on the part of a Person to complain of any act of any
Person or to declare any Person in default with respect to the Company,
irrespective of how long that failure continues, does not constitute a waiver by
that Person of its rights with respect to that default until the applicable
statute of limitations period has run. Except with respect to the matters
described in the first sentence of this Section XII.2.3, all waivers and
consents hereunder shall be in writing and shall be delivered to the Company and
the Members in the manner set forth in Section XII.1. A Member may grant or
withhold any waiver or consent in its absolute sole discretion.
XII.3 Binding Effect; No Third-Party Beneficiaries. Subject to the
--------------------------------------------
restrictions on Dispositions set forth herein, this Agreement is binding on and
inures to the benefit of the Members and their respective successors and
assigns. Nothing in this Agreement shall provide any benefit to any third party
or entitle any third party to any claim, cause of action, remedy or right of any
king, it being the intent of the parties that this Agreement shall not be
construed as a third-party beneficiary contract.
XII.4 Governing Law. This Agreement is governed by and shall be construed
-------------
in accordance with the law of the State of Delaware, excluding any conflict-of-
laws rule or principle that might refer the governance or construction of this
agreement to the law of another jurisdiction. If any provision of this
Agreement or the application thereof to any Person or circumstance is held
invalid or unenforceable to any extent, the remainder of this Agreement and the
application of that provision to other Persons or circumstances is not affected
thereby, and that provision shall be enforced to the greater extent permitted by
law.
XII.5 Further Assurances. In connection with this Agreement and the
------------------
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
XII.6 Waiver of Certain Rights. Each Member irrevocably waives any right
------------------------
it might have to maintain any action for partition of the property of the
Company.
Page 21
<PAGE>
XII.7 Multiple Counterparts; Facsimile Transmissions. This Agreement may
----------------------------------------------
be executed in multiple counterparts with the same effect as if the signing
parties had signed the same document. All counterparts shall be construed
together and constitute the same instrument. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Upon the request
of any party, any party who shall have delivered an executed counterpart of this
Agreement by facsimile shall deliver a manually executed counterpart as well,
but the failure to so deliver a manually executed counterpart shall not affect
the validity, enforceability and binding effect of this Agreement.
XII.8 Submission to Jurisdiction. Each of the Members hereby consents to
--------------------------
the jurisdiction of any state or federal court located within the State of
Delaware, and, subject to the provisions of Section XII.8, irrevocably agrees
that all actions or proceedings relating to this Agreement shall be instituted
and heard by the courts of jurisdiction. Each Member hereby waives any
objection that it may have based on improper venue or forum non conveniens to
the conduct of any proceeding in any court and personal service of any and all
process upon it, and consents to any service of process made in the manner
provided herein for the giving of notices under this Agreement.
IN WITNESS WHEREOF, the parties hereto executed this Agreement effective as
of the date first above written.
MEMBERS:
-------
ANGELIKA CINEMAS, INC.
By: /s/ Charles S. Groshon
-------------------------------------
Name: Charles S. Groshon
Title: Vice President
SUTTON HILL ASSOCIATES, a California
General Partnership
By: /s/ Bradley J. Neel
-------------------------------------
Name: Bradley J. Neel
Its: Secretary
Page 22
<PAGE>
EXHIBIT 10.42
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into as
of the 27th day of August, 1996, by and between ANGELIKA FILM CENTERS LLC, a
Delaware limited liability company ("Owner"), and CITY CINEMAS CORPORATION, a
New York corporation ("Manager").
RECITALS
A. Owner is the current owner or lessee under the lease dated as of
March 4, 1988 (as amended, modified or supplemented from time to time, the
"Lease") between Cable Building Associates, as lessor, and Houston Cinema Inc.,
as lessee, of the premises commonly known as the Angelika Theatre (the
"Theatre") located at 18 W. Houston, in the Borough of Manhattan, City of New
York, as such Lease was subsequently assigned to Angelika Film Centers, Inc.,
and then further assigned to the Company.
B. Manager is experienced in operating and managing motion picture
theatres and buying and booking films.
C. Owner desires to engage Manager to manage the Theatre and
Manager desires to manager the Theatre for (i) an annual Management Fee of One
Hundred Twenty-Five Thousand Dollars ($125,000), adjusted as described herein,
and (ii) a Bonus Fee equal to the positive difference, if any, between (a) the
lesser of (1) fifty percent (50%) the "Net Excess Amount," or (2) five percent
(5%) of "Gross Income," and (b) an amount equal to the Management Fee, all as
described in Section 5 below.
AGREEMENT
NOW, THEREFORE, in consideration of the above stated premises, the
mutual covenants and agreements contained herein and other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Owner and Manager agree follows:
1. APPOINTMENT
-----------
Commencing August 27, 1996 (the "Commencement Date") and
continuing thereafter until December 31, 2003 (the"Initial Term"), Owner hereby
engages Manager to operate, manage and maintain the Theatre in accordance with
the terms and conditions set forth in this Agreement, and Manager hereby accepts
such engagement. After the Initial Term, this Agreement shall automatically
renew and continue in full force and effect for successive one (1) year periods
(the "Successive Terms") unless and until either party terminates this Agreement
by giving to the other party written notice of its desire to terminate the
Agreement, delivered no less than one hundred.
Page 1
<PAGE>
eighty (180) days prior to the expiration of either the Initial Term, or any
Successive Term.
2. POWERS OF MANAGER.
------------------
2.1 Grant and Delegation. Owner hereby grants and delegates
---------------------
to Manager the following authority, powers and duties:
(a) Licensing. To arrange licensing for all motion
---------
picture films for the Theatre; provided it is understood that
administrative fees shall be the responsibility of Manager;
(b) Maintenance and Repair. To maintain or cause to
----------------------
be maintained the Theatre; to make or cause to be made and
supervise minor repairs; to purchase supplies required for the
operation and maintenance of the Theatre, and pay all bills
therefor, and to report to Owner any conditions in the Theatre
requiring the attention of Owner; provided that Manager shall not
make any expenditures for maintenance and repairs in excess of
$25,000.00, except for emergency repairs if, in the opinion of
Manager, such repairs are necessary to protect the Theatre or its
patrons or personnel;
(c) Employees. To hire theatre personnel, in such
---------
reasonable numbers as shall be required for the operation and
maintenance of the Theatre and to supervise, direct and discharge
all such theatre personnel; all such theatre personnel are to be
deemed the employees of Manager and not of Owner;
(d) Utilities and Service Contracts. To make
-------------------------------
arrangements for electricity, gas, fuel, water and telephone
service and any and all necessary contracts for landscaping,
security, elevator maintenance, window cleaning, trash and
rubbish hauling, pest control, HVAC and similar services;
(e) Taxes. To promptly send to Owner upon receipt,
-----
all notices of assessment or reassessment and tax bills affecting
the Theatre; provided that Manager will be responsible to pay
before delinquency any and all taxes and assessments (other than
income taxes) on behalf of Owner. In no event shall Manager have
any obligation for the payment of any income and/or estate or
other taxes of Owner;
(f) Licenses and Permits. To acquire and keep in
--------------------
force all licenses and permits required for the operation of the
Theatre as a motion picture theatre with concession and
merchandising facilities and operations and such uses incidental
or accessory thereto;
(g) Insurance. To obtain for the benefit of Owner,
---------
and for the Landlord
Page 2
<PAGE>
under the Lease (if and to the extent required under the Lease), the following
insurance, and to cooperate with the insurance carriers under such policies to
make, administer and settle any claims thereunder:
1. Comprehensive general liability insurance (including bodily
injury and property damage) in an amount not less than a combined single
limit of Ten Million Dollars ($10,000,000), or such other amount as may be
agreed upon by Owner or Manager;
2. Property damage insurance covering the Theatre and all
improvements and property, providing "all risk" protection coverage; and
3. Such other insurance as may be required to be carried by
Owner under the terms of the Lease and otherwise as may be reasonably
agreed upon by Owner and Manager from time to time.
Manager shall also be named as an insured under any policy carried under this
subparagraph (g); at Manager's option, Manager may fulfill its obligations
hereunder by naming Owner (and, if and to the extent required under the Lease,
Landlord) as an additional insured(s) under any applicable blanket insurance
policy Manager may carry, and charge Owner its pro rata share of such coverage;
provided, however, that Owner may, at its election, require that such insurance
be obtained through one or more insurance companies, agencies or brokers
providing such insurance or service to Owner or any one or more of its
affiliates.
(h) Advertising. To advertise the films to be exhibited in the Theatre
------------
in such manner as is customary in the industry. Manager may combine such
advertisement of films to be exhibited in other theatres owned or operated by
Manager; provided, however, that only the prorated cost of such advertisement
properly allocable to the Theatre shall be charged as expenses of the Theatre;
provided, further, however, that Manager will consult with and follow the
directions of Owner with respect to the use of the "Angelika" name and will take
commercially reasonable measures to protect the goodwill associated therewith.
(i) Concessions. To purchase inventory and supplies;
------------
(j) Supervision. To supervise the general operation of the Theatre;
------------
and
(k) Payment of Operating Expenses. To incur and pay or cause to be
------------------------------
paid, out of Gross Income and any operating reserve which may be established,
all normal and proper operating expenses of the Theatre (except mortgage
payments, if any, which shall be paid directly by Owner) incurred or authorized
by Manager in the performance of the duties required to be
Page 3
<PAGE>
performed by Manager under this Agreement. All such expenses
incurred by Manager, including, without limitation, (i) rental
under the Lease; (ii) the prorated cost of labor (including
without limitation the prorated cost of fringe benefits,
withholdings, payroll accounting and overhead in connection with
such labor) employed by Manager and of the equipment of Manager
used in connection with and while engaged on site in the
operation, maintenance and repair of the Theatre; and (iii) the
cost of the items and services described in subparts (a)-(i),
above, shall be charged as expenses of the Theatre.
Notwithstanding the foregoing, the following expenses incurred by
Manager under this Agreement shall not be paid out of Gross Income
or the operating reserve, they being deemed expenses not properly
allocable to the Theatre, but rather deemed expenses of Manager
for which Manager is compensated by the Management Fee: (i)
expenses for off-site office and administration, and (ii) direct
or indirect overhead expenses.
2.2 Reservation. All powers not expressly granted to Manager by this
-----------
Agreement are reserved by Owner.
3. DUTIES OF MANAGER.
-----------------
3.1 Management. Manager agrees to use reasonable efforts in the exercise
----------
of the powers conferred and assumed in Section 2.1 hereof and in the operation,
management and maintenance of the Theatre in accordance with this Agreement.
3.2 Accounting.
----------
(a) Manager shall maintain books of account based upon its ordinary
accounting practices at its offices in Los Angeles, California, with respect to
the Theatre. Said books of account shall be available to properly authorized
representatives and agents of Owner during all reasonable business hours upon
reasonable notice. Manager shall furnish Owner with a monthly profit and loss
statement in a form normally and customarily used by Manager, which form shall
show all receipts and estimated expenses of the Theatre for the preceding month,
and shall furnish Owner with weekly reports of "Gross Income" (as hereinafter
defined) after the close of each week. Manager shall retain all original
statements and invoices for the expenses of the Theatre for a period of at least
two (2) years and such statements shall be available to Owner during all
reasonable business hours upon reasonable notice.
(b) As soon as practicable, but in any event within forty-five (45)
days of the end of each calendar year, Manager shall prepare and furnish to
Owner a balance sheet, a statement of cash flows and a profit and loss statement
which shall show the Gross Income and actual expenses of the Theatre for the
immediately preceding calendar year, each based upon generally accepted
accounting principles consistently applied. Manager understands
Page 4
<PAGE>
that Owner's affiliate, Reading Company, will use such information in the
preparation of its annual audited financial statements and agrees to cooperate
fully with Reading Company's independent public accountants in the preparation
of such audited financial statements. Similar information will be provided
quarterly by Manager within twenty-five (25) days after the end of each of the
first three calendar quarters of each calendar year.
3.3 Bank Account.
------------
(a) Manager shall cause a bank account or bank accounts (hereinafter
collectively referred to as the "Bank Accounts") to be opened and maintained
separate and apart from all other bank accounts of Manager for the sole purpose
of handling transactions under this Agreement. All receipts from the operation
of the Theatre shall be deposited in the Bank Account, and all payments of
costs, expenses and charges to be made by Manager under this Agreement
(including the remuneration to be paid Manager as hereinafter provided) shall be
paid out of the Bank Account. In the event the balance in the Bank Account is
insufficient to enable Manager to meet the obligations incurred or accrued
pursuant to the provisions of this Agreement as they mature, Owner, within five
(5) days following receipt of a request from Manager, shall furnish such
additional sums to Manager as Manager may reasonably require in order to enable
Manager to meet said obligations as they mature. Manager shall have the right,
but shall not be obligated, to advance on behalf of Owner, upon the failure of
Owner to timely provide such sums, the amounts which Manager requires for such
purposes. Manager is hereby authorized at any time, in the event of such
advances by it, to withdraw from the Bank Account, after five (5) days notice to
Owner, sufficient sums to repay itself with interest thereon at the fluctuating
rate equal to the discount rate announced from time to time by the Federal
Reserve Bank of San Francisco, plus 200 basis points, or the maximum amount
allowed by law, whichever is less (the "Agreement Rate"). The Bank Account will
be the property of the Owner. Any check of more than $50,000 (other than
regularly scheduled periodic payments such as rent) shall be subject to the
written authorization of Robert Smerling or, in his absence another designee
acceptable to Owner.
(b) All withdrawals from the Bank account shall be made by checks signed
by the authorized signatories of Manager, and Manager will furnish to Owner,
within thirty (30) days following the expiration of each month, a statement of
the receipts and expenses of the operation of the Theatre during such month.
(c) As often as reasonably practicable, but in no event less than promptly
following the end of each calendar month, Manager shall remit to Owner, from the
Bank Account, the excess of moneys which were on deposit therein at the
expiration of such theatre month, or other applicable period, after deducting
the amount required to make the payments herein provided to be paid by or to
Manager during such month and reasonable reserves for anticipated expenses.
3.4 Notices and Documents. Manager shall advise Owner promptly of the service
---------------------
upon
Page 5
<PAGE>
Manager of any summons, subpoena, or other like legal document, including any
notices, letters or other communications setting out or claiming an actual or
alleged potential liability of Owner or the Theatre (including all notices
from any landlord), and will reasonably cooperate with Owner in connection with
any legal or arbitration proceeding arising in connection with the Theatre, or
its operation. Manager shall also notify Owner promptly of (i) any notice of
violation or claimed violation of any Governmental requirement; (ii) any
material damage to the Theatre; and (iii) any actual or alledged personal injury
or property damage occurring to or formally claimed by any landlord, third party
or employee on or with respect to the Theatre.
4. TERMINATION
-----------
4.1. Default by Manager. In the event of a breach of the provisions of
------------------
this Agreement by Manager, Owner shall have the right to give to Manager thirty
(30) days' written notice to cure such breach, and in the event of the failure
of Manager to do so within such period, Owner shall have the right to thereafter
terminate this Agreement upon least thirty (30) days' written notice of such
election to terminate, such termination to be effective as of the end of the
first full month following the giving of such termination notice; provided that
if the breach is of such nature that it cannot be cured within such thirty (30)
day period, this Agreement shall not be terminable on account of such breach so
long as, within such thirty (30) day period, Manager shall have commenced to
cure such breach and shall thereafter dilligently prosecute the cure thereof.
4.2. Default by Owner. In the event of any failure by Owner to supply
----------------
and funds required under this Agreement, Manager shall have the right to
terminate this Agreement upon five (5) days' written notice to Owner, or such
longer time as such notice may state, unless Owner has, within such time period,
deposited such funds in the BankAccount or otherwise delivered to Manager good
and sufficient funds in the amount required. In the event of any other breach of
the provisions of this Agreement by Owner, Manager shall have the right to give
to Owner thirty (30) days written notice to cure such breach, and in the event
of the failure of Owner to do so within such period, Manager shall have the
right to thereafter terminate this Agreement upon an additional thirty (30) days
written notice of such election to terminate, such termination to be effective
as of the end of the first full month following the giving of such termination
notice; provided that if the breach is of such nature that it cannot be cured
within such thirty (30) day period, this Agreement shall not be terminable on
account of such breach so long as, within such thirty (30) day period, Owner
shall have commenced to cure such breach and shall thereafter diligently
prosecute the cure thereof.
4.3. Special Owner Termination Rights: Owner will have the right, but
--------------------------------
not the obligation to terminate this Agreement in the event of any of the
following:
(a) Bankruptcy: Immediately, with or without notice, in the
----------
event of any Event of Bankruptcy by Manager or any affiliate of Manager. "Event
of Bankruptcy" shall mean the filing of a voluntary or involuntary petition in
bankruptcy with respect to such party (unless in the case of an involuntary
petition, the same is dismissed within sixty (60) days); the adjudication of
such party as insolvent; the filing of a petition or answer with respect to such
party seeking any
Page 6
<PAGE>
reorganization, liquidation, or similar relief for itself under the present or
any future applicable law relating to relief for debtors (unless, in the case of
a petition filed against such party, the same is dismissed within sixty (60)
days); or the appointment of any trustee, receiver, conservator, or liquidated
with respect to all or any substantial part of such party's property (where
possession of such property is not restored to such party within in sixty (60)
days).
(b) Change of Control: Upon not less than five (5) days notice in
-----------------
the event that more than 50% of the capital stock or partnership interests of
Manager or Sutton Hill Associates are transferred to a person or persons
unaffiliated with James J. Cotter and/or Michael Forman. Manager agrees to give
written notice to Owner both of any such contemplated transfer and of the
completion of any such transfer.
(c) Sale of Interest: Upon not less than five (5) days notice in the
----------------
event that all or any portion of the equity interest in Owner currently held by
Sutton Hill Associates is sold to a person or persons unaffiliated with James J.
Cotter and/or Michael Forman. Manager agrees to give written notice to Owner
both of any such contemplated sale and of the completion of any such sale.
4.4 Effect of Termination on Booking. Notwithstanding the term provided
--------------------------------
for in Section 1 or the giving of any earlier notice of termination pursuant to
any of Sections 4.1 through 4.3 above, Manager shall during the entire term of
this Agreement continue to use its reasonable efforts to book films for
exhibition in the Theatre in accordance with reasonable industry standards, even
though such films may have exhibition dates after the termination of this
Agreement. Owner shall honor all booking commitments for the Theatre made prior
to the termination of this Agreement, notwithstanding that such bookings may be
for the period after the effective date of termination of this Agreement.
4.5 Delivery of Records; Final Accounting. Upon termination, Manager
-------------------------------------
shall (i) deliver to Owner all books, records and the like maintained solely in
connection with the operation and management of the Theatre; (ii) render a final
accounting to Owner within ninety (90) days after termination, reflecting the
balance of income and expenses of the Theatre, as of the date of termination;
and (iii) deliver to Owner the balance of the Bank Account.
4.6 Right of Termination on Other Remedies. The right to terminate
---------------------------------------
provided under this Section 4 shall be in addition to, and not in lieu of, any
other rights or remedies which the parties may have under this Agreement, at
law or in equity, including, without limitation, the right to receive specific
performance and/or to obtain damages.
5. COMPENSATION TO MANAGER.
-----------------------
5.1 Gross Income Defined. For the purposes of this Agreement, the term
--------------------
"Gross Income" shall mean: (i) all monies received for admission to the Theatre,
exclusive of admission taxes or other taxes required by law to be collected from
the patron at the time of the sale of the tickets at the
Page 7
<PAGE>
box office or other place where admissions are sold, and exclusive of all bona
fide refunds made to patrons; (ii) all monies received from sales of food,
beverages and merchandise at the Theatre, exclusive of sales tax required by law
to be paid in connection with such sales; (iii) the gross amount received (less
any applicable taxes) from the use of the Theatre in its entirety by a third
party for the exhibitions of films (i.e., a "four wall deal") or for theatrical
performances, lectures, concerts or the like where the party using the Theatre
is entitled to retain the receipts from admissions to such event and pays a flat
fee or percentage of receipts for such use; (iv) the receipts from any vending
or video machines located at the Theatre; (v) if applicable, parking receipts;
and (vi) all other monies received from the operation or use of the Theatre
(including without limitation, rebates, commissions and shrinkage and all
revenues obtained in connection with the advertising of the Theatre or motion
pictures exhibited therein). Admission prices and classifications shall be
determined by Manager, subject to the approval of Owner prior to any change,
which approval shall not be unreasonably withheld or delayed.
5.2 Net Income Defined. For the purposes of this Agreement, the term
------------------
"Net Income" shall be defined as the "Gross Income" less the sum of all ordinary
and necessary operating expenses of Theatre paid by Manager or Owner pursuant to
Section 2.1(k) ("Theatre Expenses"); provided it is understood, for purposes of
this Agreement, payments of principal and interest in respect of any
indebtedness of the Company and the Management Fee shall not be deemed Theatre
Expenses.
5.3 Net Excess Amount. For purposes of this Agreement, the term "Net
-----------------
Excess Amount" shall be defined as the positive difference, if any, between the
Net Income and the Net Income Base.
5.4 Net Income Base. For purposes of this Agreement, the term "Net
---------------
Income Base" shall be defined as an amount equal to $2 million; provided that on
the third, sixth and ninth anniversaries hereof and each such third anniversary
thereafter during the term of this Agreement, such amount shall be adjusted by
an amount (such amount referred to herein as the "Inflation Amount"), equal to
the cumulative inflation rate over each such three-year period; provided further
that the Inflation Amount shall in no event exceed 9%.
5.5 Management Fee/Bonus Fee. As compensation to Manager for the
------------------------
full and faithful performance of its duties under this Agreement, Owner shall
pay Manager the Management Fee and Bonus Fee described below.
(a) The Management Fee as to each "Management Year" (as defined
below) shall be the amount of One Hundred Twenty-Five Thousand Dollars
($125,000); provided that on the third, sixth and ninth anniversaries hereof and
each such third anniversary thereafter during the term of this Agreement, such
amount shall be adjusted by the Inflation Amount, provided further that the
Inflation Amount shall in no event exceed 9%. The Management Fee shall be
prorated for any Management Year comprised of less than twelve (12) calendar
months.
(b) The Bonus Fee as to each Management Year shall be an amount
equal to the positive difference, if any, between (A) the lesser of (i) five (5)
percent of Gross Income for such
Page 8
<PAGE>
Management Year as specified in Recital C above, or (ii) fifty percent (50%) of
the Net Excess Amount for such Management Year; and (B) an amount equal to the
Management Fee paid to Manager with respect to such Management Year. In the
event this Agreement is terminated on other than the end of a Management Year,
the Bonus Fee shall be payable to Manager for such incomplete Management Year,
if the Net Income for such partial Management Year is equal to, or greater than,
the product of the Net Income Base multiplied by a fraction, the denominator of
which is twelve (12), and the numerator of which is the number of calendar
months comprising such partial Management Year. With respect to the first
Management Year, the Bonus Fee shall be payable to Manager for such Management
Year if the Net Income for such Management Year is equal to, or greater than an
amount equal to the product of $2,000,000 multiplied by a fraction the numerator
of which is the number of calendar days remaining in the first Management Year
and the denominator of which is 365. As used herein, the term "Management Year"
shall mean, as to the first Management Year, the period commencing on the date
hereof and terminating December 31, 1996; thereafter, the term "Management Year"
shall mean the twelve month period commencing January 1, 1997, and terminating
December 31, 1997, and each twelve (12) calendar month period thereafter.
5.6 Payment of Management Fee and Bonus Fee. The Management Fee and
---------------------------------------
Bonus Fee shall be determined and payable as follows:
(a) Manager shall be entitled to withdraw from the Bank Account,
as its Management Fee for such month, an amount equal to one-twelfth (1/12) of
the annual Management Fee.
(b) Within ninety (90) calendar days after the end of each
Management Year, and within ninety (90) calendar days after the termination date
of this Agreement, Manager shall furnish to Owner a statement in writing showing
the total Gross Income and Net Income for the Theatre for such Management Year
(or, with respect to the final statement following the termination of this
Agreement, for such portion of such Management Year). Promptly thereafter,
Manager shall receive and be entitled to its Bonus Fee (if applicable).
6. ACKNOWLEDGMENT AND OBLIGATIONS OF OWNER.
---------------------------------------
6.1 Operations of Other Theatres by Manager. Owner specifically
---------------------------------------
acknowledges that Manager and its affiliates own and operate other theatres in
the same area in which the Theatre is located, which are in direct competition
with the Theatre, and nothing herein contained shall in any way affect the right
of Manager and its affiliates now or in the future to own, operate, or manage,
or book and buy for other theatres for their own account or for the account of
others or to expand or contract their operations.
6.2 Lease. Owner shall remain obligated to perform all of its
------
obligations as tenant under the Lease. Manager shall, however, perform certain
of those obligations on Owner's behalf as its agent, but only as provided for in
this Agreement, and Manager shall have no obligation to the
Page 9
<PAGE>
Landlord under the Lease.
6.3 Limitation on Damages. Owner acknowledges and agrees that in no
---------------------
event shall Manager be liable, under Sections 4.5 and 7 or at law or otherwise,
for punitive or consequential damages.
7. INDEMNIFICATION.
---------------
7.1 Indemnification by Manager. Manager shall defend, indemnify and
--------------------------
hold Owner harmless from and against any and all claims, demands, causes of
action, loss and liability to third parties (including all costs and reasonable
attorneys' fees) arising out of or resulting from (i) breach by Manager (or
Manager's agents, employees or subcontractors) of any of its duties or
obligations under this Agreement (except that Manager shall have no liability
for (a) failure to take any action under this Agreement that requires Owner's
prior approval or authorization, if Manager notified Owner that such action is
necessary and Owner has refused or failed to authorize Manager to take the same
or (b) any action taken in good faith by Manager under this Agreement (x) in
what it reasonably believed to be the best interests of Owner and consistent
with the approvals or authority given to it under or pursuant to this Agreement
or (y) with Owner's knowledge or consent); or (ii) actions taken by Manager
outside the scope of this Agreement. If under this Section 7.1, Manager
defends, indemnifies, or holds Owner harmless with respect to an item that is
covered by an insurance policy obtained in accordance with the provisions of
Subparagraph 2.1(g) hereof, then to the extent that amounts are actually paid
under such insurance policy in connection with such item, the liability of
Manager under this Section 7.1 in connection with such item shall be reduced.
7.2 Indemnification by Owner. Owner shall defend, indemnify and hold
------------------------
Manager harmless from and against any and all claims, demands, causes of action,
loss and liability to third parties (including all costs and reasonable
attorneys' fees) arising out of or resulting from (i) damage to property, or
injury to, or death of, persons (including the property and person of the
parties hereto, and their agents, subcontractors and employees) occasioned by or
in connection with the acts or omissions of Owner or Owner's agents, employees
or subcontractors (including the failure to timely authorize any action; under
this Agreement that requires Owner's prior approval or authorization if Manager
has not yet notified Owner that the same is necessary); (ii) contracts entered
into by Owner (including contracts entered into prior to the execution of this
Agreement); (iii) breach by Owner (or Owner's agents, employees or
subcontractors), of any of its duties or obligations under this Agreement; and
(iv) any act or action taken by Manager pursuant to this Agreement (including
without limitation the booking and buying of motion picture films and inventory
for the Theater) taken in good faith (x) in what Manager reasonably believed to
be consistent with the approvals or authority given to it under or pursuant to
this Agreement or (y) or with Owner's knowledge or consent. Notwithstanding
anything to the contrary contained herein, it is understood and agreed that
Owner shall advance to Manager all costs of litigation , (including without
limitation reasonable attorneys' fees) and pay any judgments and/or settlements
resulting from litigation in the event that Manager is made a defendant in any
litigation resulting from its activities under this Agreement except to the
extent it is ultimately determined that such liability is the proximate result
of a matter
Page 10
<PAGE>
with respect to which Manager is not entitled to indemnification hereunder;
provided that Manager undertakes to repay such advances, together with interest,
in the event it is ultimately determined that it was not entitled to
indemnification. Interest will be calculated at the Agreement Rate.
If, under this Section 7.2, Owner defends, indemnifies, or holds Manager
harmless with respect to an item that is covered by an insurance policy obtained
in accordance with the provisions of Subparagraph 2.1(g) hereof, then to the
extent that amounts are actually paid under such insurance policy in connection
with such item, the liability of Owner under this Section 7.2 in connection with
such item shall be reduced.
7.3 Procedure Relative to Indemnification.
-------------------------------------
(a) In the event that any party hereto shall claim that it is
entitled to be indemnified pursuant to the terms of this Section 7 (the
"Indemnified Claim"), it (the "Claiming Party") shall so notify the party
against which the Indemnified Claim is made (the "Indemnifying Party") in
writing of such Indemnified Claim within ninety (90) days after receipt of a
notice of such Indemnified Claim or notice of any claim of a third party that
may reasonably be expected to result in a claim by such party (the "Third Party
Claim") against the party to which such notice is given; provided, however, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure. Such notice shall specify the nature of
the Indemnified Claim and the liability, loss, cost or expense incurred by or
imposed upon the Claiming Party on account hereof. If such liability, loss, cost
or expense is liquidated in amount, the notice shall so state and such amount
shall be deemed the amount of the claim of the Claiming Party. If the amount is
not liquidated, the notice shall so state and in such event an Indemnified Claim
shall be deemed asserted against the Indemnifying Party on behalf of the
Claiming Party, but no payment shall be made on account thereof until the amount
of such Indemnified Claim is liquidated and finally determined.
(b) The Indemnifying Party shall, upon receipt of such written
notice and at its expense, defend such Indemnified Claim in its own name or, if
necessary, in the name of the Claiming Party unless the Claiming Party
reasonably believes that its interests are adverse to those of the Indemnifying
Party in which event the Claiming Party may control its defense of the claim and
be reimbursed for its expenses, including reasonable attorneys' fees, as herein
provided. The Claiming Party will cooperate with and make available to the
Indemnifying Party such assistance and materials as may be reasonably requested
of it, and the Claiming Party shall have the right, at its expense (except as
provided above), to participate in the defense. The Indemnifying Party shall
have the right to settle and compromise any Third Party Claim only with the
consent of the Claiming Party unless the settlement does not involve any
confession or other acknowledgment of wrongdoing by the Claiming Party and
provides a complete release of all Third Party Claims against it, in which event
the Claiming Party's consent shall not be required. If the proceeding involves a
matter solely of concern to the Claiming Party in addition to the claim for
which indemnification under this Section 7 is being sought, such matter shall be
within the sole responsibility of the Claiming Party and its counsel.
Page 11
<PAGE>
(c) In the event the Indemnifying Party shall notify the Claiming
Party that it disputes any Indemnified Claim made by the Claiming Party and/or
it shall refuse to conduct a defense against any Third Party Claim, then the
Claiming Party shall have the right to conduct a defense against such Third
Party Claim and shall have the right to settle and compromise such Third Party
Claim without the consent of the Indemnifying Party. Once the amount of such
claim is liquidated and the claim is finally determined, the Claiming Party
shall be entitled to pursue each and every remedy available to it at law or in
equity to enforce the indemnification provisions of this Section 7 and, in the
event it is determined, or the Indemnifying Party agrees, that it is obligated
to indemnify the Claiming Party for such Third Party and Indemnified Claim, the
Indemnifying Party agrees to pay, in addition to all damages, costs, expenses,
and fees, including all reasonable attorneys' fees which may be incurred by the
Claiming Party in attempting to enforce indemnification under this Section 7,
whether the same shall be enforced by suit or otherwise, and interest thereon at
the Agreement Rate.
7.4 Effect of Insurance and Other Benefits. The determination of any
--------------------------------------
liability, claim, lien, encumbrance, charge, fine or penalty for which
indemnification may be claimed under this Section 7 shall be net of any benefit
derived and insurance proceeds received by the party bearing such liability,
claim, lien, encumbrance, charge, fine or penalty as a result thereof.
8. GENERAL PROVISIONS
------------------
8.1 Counterparts. This Agreement may be executed in counterparts ,
------------
each of which shall be deemed an original, but all or which, taken together,
shall constitute one and the same instrument.
8.2 Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties respecting the subject matter of this Agreement and
supersedes all prior understanding and agreements, whether oral or in writing,
between the parties respecting the subject matter of this Agreement.
8.3 Legal Advice; Neutral Interpretation. Each party has received
-------------------------------------
independent legal advice from its attorneys with respect to the advisability
executing this Agreement and the meaning of the provisions hereof. The
provisions of this Agreement shall be construed as to their fair meaning, and
not for or against any party based upon any attribution to such party as the
source of the language in question.
8.4 Choice of Law. This Agreement shall be governed by the laws of
-------------
the State of New York, applicable to contracts entirely performed and made in
New York.
8.5 Severability. If any term, covenant, condition or provision of
------------
this Agreement, or the application thereof to any person or circumstance, shall
to any extent be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, covenants, conditions or
provisions of this Agreement, or the application thereof to any person or
circumstance, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby.
Page 12
<PAGE>
8.6 Waiver of Covenants, Conditions or Remedies. The waiver by one
-------------------------------------------
party of the performance of any covenant or condition under this Agreement shall
not invalidate this Agreement nor shall it be considered a waiver by it of any
other covenant or condition under this Agreement. The waiver by either or both
parties of the time for performing any act under this Agreement shall not
constitute a waiver of the time for performing any other act or an identical act
required to be performed at a later time. The exercise of any remedy provided
in this Agreement shall not be a waiver of any consistent remedy provided by
law, and the provision in this Agreement for any remedy shall not exclude other
consistent remedies unless they are expressly excluded.
8.7 Exhibits. All exhibits to which reference is made in this
--------
Agreement are deemed incorporated in this Agreement.
8.8 Amendment. This Agreement may be amended only by the written
---------
agreement of owner and manager. All amendments, changes, revisions and
discharges of this Agreement, in whole or in part, and from time to time, shall
be binding upon the parties despite any lack of legal consideration, so long as
the same shall be in writing and executed by the parties hereto.
8.9 Relationship of Parties. The parties agree that their
-----------------------
relationship is that of owner and manager, and that nothing contained herein
shall constitute either party as employee or legal representative of the other
for any purpose whatsoever, nor shall this Agreement be deemed to create any
form of business organization, joint venture or partnership between the parties
hereto or as giving Manager any type of property interest in the Theatre, nor is
either party granted any right or authority to assume or create any obligation
or responsibility on behalf of the other party, except as otherwise provided
herein, nor shall either party be in any way liable to third parties for any
debt of the other.
8.10 No Third Party Benefit. This Agreement is intended to benefit
----------------------
only the parties hereto and no other person or entity has or shall acquire any
rights hereunder.
8.11 Time of the Essence. Time shall be of the essence as to all
-------------------
dates and times of performance contained herein.
8.12 Further Acts. Each party agrees to perform any further acts and
------------
to execute, acknowledge and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
8.13 Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the successors and assigns of the parties to
this Agreement; provided, however, that in the event of assignment to any person
other than a wholly owned subsidiary, parent or sister company, or pursuant to a
sale of all or substantially all of the assets of the assigning party to a
single buyer, any such assignment shall give rise to a right of termination by
the non-assigning party which right may be exercised at any time within ninety
(90) days of the effectuation of such assignment.
Page 13
<PAGE>
8.14 Manner of Giving Notice. All notices and demands which either
-----------------------
party is required or desires to give to the other shall be given in writing by
personal delivery or by express courier services or by certified mail, return
receipt requested, to the address set forth below for the respective party,
provided that if any party gives notice of a change of name or address, notices
to that party shall thereafter be given as demanded in that notice. All notices
and demands given by personal delivery or by express courier service shall be
effective on the date of delivery; all notices and demands given by mail as set
forth above shall be effective on the fourth business day after mailing.
To Owner: With copies to:
- --------- ---------------
Angelika Film Centers, LLC Reading Company
c/o Reading Company c/o Craig Corporation
The Graham Building 550 South Hope Street, Suite 1825
One Penn Square West Los Angeles, CA 90071
30 S. l5th St., Ste.l300 Attn: S. Craig Tompkins
Philadelphia, CA 19102-4813
Attn: James A. Wunderle
To Manager: With copies to:
- ----------- ---------------
City Cinemas Corporation City Cinemas Corporation
950 Third Avenue, 26/th/ Floor 120 North Robertson Boulevard
New York, New York 10022 Third Floor
Attn: Robert F. Smerling Los Angeles, CA 90048
Attn: Ira S. Levin, Esq.
Page 14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed as of the day and year first above written.
OWNER:
Angelika Film Centers, LLC,
a Delaware limited liability company
By: /s/ S. Craig Tompkins
---------------------------------
Name: S. Craig Tompkins
Title: Managing Director
MANAGER:
CITY CINEMAS CORPORATION,
a New York corporation
By: /s/ Bradley J. Neel
---------------------------------
Name: Bradley J. Neel
Title: Secretary
Page 15
<PAGE>
Exhibit 10.43
PURCHASE AGREEMENT
------------------
Equipment Leasing Associates 1995-VI Limited Partnership ("Seller")
hereby agrees to sell certain equipment to FA, Inc. ("Buyer") on the terms and
conditions set forth below in this Purchase Agreement and the parties further
agree that this Purchase Agreement shall establish binding commitments and
unconditional promises of the parties hereto with respect to the subject matter
hereof.
1. Purchase and Sale of Equipment. The equipment being purchased is
------------------------------
more particularly described on Schedule A hereto ("Equipment"). Buyer
acknowledges that the Equipment is presently being leased to the various parties
set forth on the pages attached to Schedule A, and is being conveyed subject to
such leases. Buyer also acknowledges that the Equipment is also subject to
certain encumbrances which are also listed on Schedule A (the "Senior Liens").
2. Purchase Price. The purchase price of the Equipment is set forth
--------------
on Schedule B and shall be paid in the manner specified in Schedule B.
3. Transfer of Title. The parties agree that the sale shall be
-----------------
consummated and the transfer of title to said Equipment shall be deemed to have
occurred on December 20, 1996 when:
(a) the Seller and Buyer have executed this Purchase Agreement;
(b) Seller has delivered of a Bill of Sale by Seller to Buyer which is
accepted by Buyer; and
(c) Buyer has paid the consideration set forth on Exhibit B to Seller in
the amounts and in the manner specified on Schedule B.
4. Purchase Money Security Interest. Notwithstanding the foregoing,
--------------------------------
Seller shall retain a purchase money security interest in the Equipment for any
unpaid portion of the purchase price. Upon Buyer's failure to make payment in
full upon the dates specified on Schedule B, Seller shall have the right, upon
notice to Buyer, to take possession of the Equipment, to sell the Equipment, and
exercise any and all rights with respect to the Equipment and the lease(s) of a
secured party under the Uniform Commercial Code of Virginia if payment is not
make in full upon the dates specified on Schedule B.
5. Leaseback. Seller and Buyer hereby agree that in conjunction
---------
with the sale of the Equipment, Seller agrees to lease from Buyer and Buyer
agrees to lease to Seller all of the Equipment for a term of sixty (60) months
from December 20, 1996 with payments paid annually in arrears based on a present
value of $38,989,635.00. Said annual payments in arrears will be computed using
a ten percent (10%) debt rate. The proforma Master Lease Agreement ("Wrap
Lease") to be used by the parties is attached hereto for reference. As
consideration for the Leaseback, Seller, as Lessee, agrees to pay to Buyer, as
Lessor, an amount of 5.0% of any and all remarketing proceeds received by Lessee
with respect to the period from January 1, 1998 through December 31, 1998, for
transactions wherein the original user lease has expired and a new user lease
has commenced.
1
<PAGE>
6. Further Documents. Seller and Buyer agree to execute such
-----------------
further documents and instrument as are necessary, appropriate, and reasonable
to more fully and fairly detail this Purchase Agreement and related agreements
and understandings between the parties.
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement
effective as of December 20, 1996.
SELLER:
EQUIPMENT LEASING ASSOCIATES
1995-VI LIMITED PARTNERSHIP
By: Management Associates Limited
Partnership VIII, General Partner
By: Managing Partners Corporation,
General Partner
By: /s/ Donald Butler
-------------------------------------
Title: Executive Vice President
-----------------------------------
BUYER:
FA, INC.
By: /s/ S. Craig Tompkins
-------------------------------------
Title: President
-----------------------------------
2
<PAGE>
PURCHASE AGREEMENT
------------------
SCHEDULE A
----------
User Lessee: See attached schedule(s) (12 pages)
(The Equipment Schedules, submitted as exhibits to the Purchase Agreement
are omitted for purposes of this filing as it is written in French and
would require translation. A copy is available at the Company's office.)
Equipment: See attached schedule(s) (12 pages)
(The Equipment Schedules, submitted as exhibits to the Purchase Agreement
are omitted for purposes of this filing as it is written in French and
would require translation. A copy is available at the Company's office.)
Equipment Locations: To be further identified.
3
<PAGE>
PURCHASE AGREEMENT
------------------
SCHEDULE B
----------
1. Purchase Price: $40,934,000.00
--------------
2. Method of Payment:
-----------------
a. Equity:
------
(i) Cash payment in the amount of $75,000.00 upon execution hereof.
(ii) Cash payment in the amount of $1,869,365.00 on or before January
31, 1997.
b. Debt:
----
Delivery of a nonrecourse Promissory Note payable to the order of
Seller in the amount of $38,989,635.00.
3. Effective Date: December 20, 1996.
--------------
4
<PAGE>
Exhibit 10.44
MASTER LEASE AGREEMENT
----------------------
MASTER LEASE AGREEMENT, dated as of December 20, 1996, ("Lease"), between
FA, Inc. ("Lessor"), and Equipment Leasing Associates 1995-VI Limited
Partnership ("Lessee").
Lessor agrees to lease the equipment and accessories thereto listed on
Schedule A attached hereto (the "Equipment") to Lessee, and Lessee hereby agrees
to lease the Equipment from Lessor, on the terms and subject to the conditions
specified herein. (If and to the extent that there are more than one Schedule A
and related Schedule B attached hereto, each Schedule A and related Schedule B
shall incorporate this Master Lease Agreement and shall be deemed a separate and
distinct lease of the Equipment covered thereby.) The definition of terms in the
Purchase and Sale Agreement of even date herewith between the Lessor, as
"Buyer," and the Lessee, as "Seller" (the "Purchase Agreement"), regarding the
applicable Equipment shall apply herein.
1. TERM. The term of this Lease shall commence and end on the dates
----
specified in Schedule B attached hereto.
2. RENT. Lessee hereby agrees to pay Lessor fixed rent in the amounts
----
and on the dates specified in Schedule B ("Fixed Rents"). Any and all payments
of rent not paid when due as specified on Schedule B shall bear interest after
the due date thereof at the rate of 10% per annum. Such interest shall accrue
for every day such rent payment is overdue.
3. ACCEPTANCE OF EQUIPMENT BY LESSEE. Lessee hereby agrees that its
---------------------------------
execution of this Lease shall, without further act, irrevocably constitute
acceptance by Lessee of the Equipment for all purposes of the Lease in an "as
is" condition.
4. MOVEMENT OF EQUIPMENT. In no event shall any Equipment be moved from
---------------------
its present country without the written consent of Lessor.
5. RETURN OF EQUIPMENT. Unless a unit of Equipment has been previously
-------------------
disposed of in accordance with Section 11(a) or (c), or in accordance with any
other written agreement between Lessor and Lessee, Lessee will, at its own cost
and expense, deliver possession of each unit of Equipment to Lessor upon the
termination hereof, in the condition required for it to be maintained by Lessee
pursuant to Section 8(b), at the location of the Equipment on that date, free
and clear of any liens, charges, security interests, encumbrances or rights of
any person, other than the rights of Lessor or any User Lessee or any lien,
charge, security interest or encumbrance incurred by or on behalf of Lessor.
6. WARRANTIES AND SERVICE POLICIES. Unless Lessee shall have been
-------------------------------
declared in default pursuant to Section 16, Lessor hereby covenants and agrees
that Lessor will assign or otherwise make available to Lessee such rights as
Lessor may have under any warranty or service policy with respect to the
Equipment made by the manufacturer of the Equipment (the
1
<PAGE>
"Manufacturer"), any subcontractors of the Manufacturer, or any vendors to the
extent that the same may be assigned or otherwise made available to Lessee.
7. GENERAL TAX INDEMNITY. Lessee will pay, and will defend, indemnity
---------------------
and hold Lessor harmless on an after-tax basis from, any and all Taxes (as
defined below) and related audit and contest expenses on or relating to (a) any
of the Equipment, (b) the Lease, (c) purchase acceptance, ownership, lease,
possession, use operation, transportation, return or other disposition of any of
the Equipment, and (d) rentals or earnings relating to any of the Equipment or
the Lease. "Taxes" means present and future taxes or other governmental charges
that are not based on the net income of Lessor, whether they are assessed to or
payable by Lessee or Lessor, including, without limitation (i) sales, use,
excise, licensing, registration, titling, franchise, business and occupation,
gross receipts, stamp and personal property taxes, (ii) levies, imposts, duties,
assessments, charges and withholdings, (iii) penalties, fines, and additions to
tax and (iv) interest on any of the foregoing. Unless Lessor elects otherwise,
Lessor will prepare and file all reports and returns relating to any Taxes and
will pay all Taxes to the appropriate taxing authority. Lessee will reimburse
Lessor for all such payments promptly on request. On or after any applicable
assessment/levy/lien date for any personal property Taxes relating to any
Equipment, Lessee agrees that upon Lessor's request Lessee shall pay to Lessor
the personal property Taxes which Lessor reasonably anticipates will be due,
assessed, levied or otherwise imposed on any Equipment during its Lease Term. If
Lessor elects in writing, Lessee will itself prepare and file all such reports
and returns, pay all such Taxes directly to the taxing authority, and send
Lessor evidence thereof. Lessee's obligations under this section shall survive
the expiration, cancellation or termination of the Lease.
8. POSSESSION; USE AND MAINTENANCE; COMPLIANCE WITH LAWS; INSURANCE.
----------------------------------------------------------------
(a) Possession. So long as no Event of Default shall have occurred
----------
and be continuing, Lessee and any User Lessee shall be entitled, as against
Lessor or its assignee, to the possession and use of the Equipment in accordance
with and during the term of this Lease; as long as any User Lessee is not in
default under the User Lease, the User Lessee shall be entitled to continued
possession and use of the Equipment.
(b) Use and Maintenance.
-------------------
(i) Lessee shall cause the Equipment to be used only in the
manner for which it was designed and intended and so as to subject it only to
ordinary wear and tear. Lessee shall not modify any unit of Equipment without
the prior written approval of Lessor, except as provided in (ii) and (iii) below
or as may be authorized by any sublease or User Lease as permitted under Section
14 hereof. Notwithstanding the preceding, Lessee may add, delete or substitute
features or options on any unit of the Equipment provided none thereof decrease
the value of the Equipment, in any way damage or injure the Equipment, interfere
with the normal or satisfactory operation or maintenance of the Equipment or
create a safety hazard, and, provided further, that at or following the
expiration of the term hereof, Lessee shall, at its expense, remove such
additions or alterations promptly on demand of Lessor, and, forthwith upon such
removal, restore the Equipment to its original condition, less ordinary wear and
tear. In the event that at the expiration of the term of the Lease for any item
of Equipment, such item has been upgraded by additions, and/or replacements such
that the item's value has been
2
<PAGE>
increased over that which it would be absent such upgrades, then Lessee, in lieu
of removing such upgrades, may leave same attached to the subject item and
Lessor and Lessee agree to permit the item and such upgrades to be remarketed as
a single unit, with any proceeds from such remarketing being distributed to
Lessor and Lessee based upon the respective then fair market values (as defined
in Section 23(h) hereof).
(ii) Lessee may acquire and install, at Lessee's expense, such
additional features or options (including memory) as may be available from time-
to-time. Such additional features or options shall be removed by Lessee before
the Equipment is returned to Lessor and Lessee shall repair all damages to the
Equipment resulting from such installation and removal; provided, however, that
Lessee shall not be required to remove additional features or options if Lessee
complies with the procedures set forth in (i) above.
(iii) Lessee shall, at Lessor's expense, make any modifications
and acquire any additional features requested in writing by Lessor.
(iv) Lessee shall cause all units of Equipment under lease to
User Lessees to be maintained in good operating condition and repair, and will
cause all necessary adjustments and repairs to be made to the Equipment. Lessee
is hereby authorized to provide directions with respect to such maintenance,
adjustments and repairs, and such maintenance shall be subject to the reasonable
safety and security regulations of Lessee and any User Lessee.
Charges for maintenance, installation and dismantling of
the Equipment shall be borne by Lessee, and Lessee agrees promptly to reimburse
Lessor for any amount thereof paid by Lessor. All Equipment shall be installed
and operated as specified in the Manufacturer's installation manual and in
places meeting at all times the standards established by Lessee for location and
operation of similar equipment owned or leased by it. All units not leased to
User Lessees shall be properly maintained to prevent deterioration or other
damage.
(v) Notwithstanding anything contained herein to the contrary,
any improvements or additions that are made by Lessee shall be owned by Lessee
provided that such improvements and additions shall be readily removable without
causing material damage to the Equipment and any damage so caused is repaired or
Lessee complies with the procedures set forth in (i) above; but ordinary
maintenance and repairs performed by Lessee will not constitute an improvement
or addition to the Equipment within the meaning hereof.
(c) Governing Laws. Rules and Regulations. Lessee agrees to comply
-------------------------------------
with all governmental laws, regulations, requirements and rules with respect to
the use, maintenance and operation of each unit of Equipment.
(d) Insurance. Lessee at its sole expense shall at all times keep
---------
each item of Equipment insured against all risks of loss or damage from every
cause whatsoever for an amount not less than the full replacement value of such
item of Equipment. Lessee at its sole expense shall at all times carry public
liability and property damage insurance in amounts reasonably satisfactory to
Lessor protecting Lessee and Lessor from liabilities for injuries to persons and
damage to property of others relating in any way to the Equipment. All insurers
shall be reasonably satisfactory to Lessor. Lessee
3
<PAGE>
shall deliver to Lessor satisfactory evidence of such coverage. Proceeds of any
insurance covering damage or loss of the Equipment shall be payable to Lessor as
loss payee and shall, at Lessor's option, be applied toward (a) the replacement,
restoration or repair of the Equipment, or (b) payment of the obligations of
Lessee under the Lease. If the User Lessee's insurance permits the User Lessee
to replace the equipment with the insurance proceeds, then Lessor shall be
obligated to allow the replacement or repair of the equipment with such
insurance proceeds. Proceeds of any public liability or property insurance
shall be payable first to Lessor as additional insured to the extent of its
liability, then to Lessee. If an event of default occurs and is continuing, or
if Lessee fails to make timely payments due under Section 2 hereof, then Lessee
automatically appoints Lessor as Lessee's attorney-in-fact with full power and
authority in the place of Lessee and in the name of Lessee or Lessor to make
claim for, receive payment of, and sign and endorse all documents, checks or
drafts for loss or damage under any such policy. Each insurance policy will
require that the insurer give Lessor at least 30 days prior written notice of
any cancellation of such policy and will require that Lessor's interests remain
insured regardless of any act, error, omission, neglect or misrepresentation of
Lessee. The insurance maintained by Lessee shall be primary without any right
of contribution from insurance which may be maintained by Lessor.
Lessor agrees that Lessee's obligations under this paragraph (d) of Section 8
shall be deemed satisfied with respect to any unit of Equipment subject to a
User Lease or sublease permitted under Section 14 hereof which provides for the
User Lessee or sublessee or any other party thereunder to insure the Equipment
in a manner and in such amounts as comply with Lessee's responsibilities set
forth in this subparagraph and if Lessee provides Lessor with an assignment of
said insurance reasonably satisfactory to Lessor.
(e) Inspection. Lessee will permit any authorized representative of
----------
Lessor to inspect the Equipment and reasonably to examine, copy or make extracts
from, any and all books, records and documents in the possession of Lessee
relating to the Equipment and performance of this Lease, all at such reasonable
times and as often as may reasonably be requested.
9. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) Lessee's Representations. Lessee represents and warrants to, and
------------------------
covenants with, Lessor, as follows:
(i) Organization and Existence. Lessee is, at the time of
--------------------------
executing and delivering this Lease, and will be, on the Commencement Date and
throughout the term of this Lease, a limited partnership duly and validly
organized and existing in good standing under the laws of the State of Delaware
and duly qualified to own its properties and carry on its business in each
jurisdiction where the failure to be so qualified would be materially adverse to
Lessee or its business, or Lessor.
(ii) Power and Authority. Lessee has the power and authority to
-------------------
execute and deliver this Lease and will at the time of execution and delivery
hereof have the power and authority to execute and deliver or accept, as the
case may be, any and all other agreements, instruments and documents executed
and delivered or accepted in connection herewith or therewith and to pay and
perform, when due, its obligations hereunder and thereunder.
4
<PAGE>
(iii) Authorization. The execution and delivery or acceptance,
-------------
as the case may be, of this Lease and the other documents contemplated hereby by
Lessee have been duly authorized by all necessary action of Lessee and do not,
and at the time of their execution and delivery or acceptance will not, violate
or conflict with, or, with or without the giving of notice, the passage of time
or both, constitute a default under, any provision of Lessee's instruments of
organization, any law, or any order, writ, injunction, decree, rule or
regulation of any court, administrative agency or any other governmental
authority or any agreement or other document or instrument to which Lessee is,
or will then be, a party, or by which Lessee or the Equipment is, or may then
be, bound.
(iv) Enforceability. This Lease and the other documents
--------------
contemplated hereby constitute, or when executed and delivered will constitute,
the valid and binding obligations of Lessee, enforceable against it in
accordance with their respective terms, subject, however, to laws of general
application affecting creditors' rights.
(b) Lessor's Representations and Warranties. Lessor represents and
---------------------------------------
warrants to, and agrees with, Lessee as follows:
(i) Organization and Existence. Lessor is, at the time of
--------------------------
executing and delivering this Lease, and will be, on the Commencement Date and
throughout the term of this Lease, a corporation duly and validly organized and
existing under the laws of the state of Delaware and duly qualified to own its
properties and carry on its business in each jurisdiction where the failure to
be so qualified would be materially adverse to Lessor or its business, or
Lessee.
(ii) Power and Authority. Lessor has the power and authority to
-------------------
execute and deliver this Lease and will, at the time of execution and delivery
thereof have the power and authority to execute and deliver or accept, as the
case may be, the other documents contemplated hereby and to pay and perform,
when due, its obligations hereunder and thereunder.
(iii) Authorization. The execution and delivery or acceptance,
-------------
as the case may be, of this Lease and the other documents contemplated hereby by
Lessor, and the payment and performance by Lessor, when due, of its obligations
hereunder and thereunder, have been duly authorized by all necessary action of
Lessor and do not, and at the time of their execution and delivery or
acceptance, as the case may be, will not, violate or conflict with, or, with or
without the giving of notice, the passage of time or both, constitute a default
under, any provision of Lessor's instruments of organization, any order, writ,
injunction, decree, rule or regulation of any court, administrative agency or
any other governmental authority or any agreement or other document or
instrument to which Lessor is a party, or by which Lessor is, or may be, bound.
(iv) Enforceability. This Lease and the other documents
--------------
contemplated hereby constitute, or when executed and delivered will constitute,
the valid and binding obligations of Lessor, enforceable against it in
accordance with their respective terms, subject, however, to laws of general
application affecting creditors' rights.
5
<PAGE>
10. OWNERSHIP; FILING.
-----------------
(a) Retention of Title. Lessor or its transferee shall and hereby
------------------
does retain full legal title to the Equipment notwithstanding the delivery of
possession to, and use by, Lessee.
(b) Duty to Mark Equipment. Lessee agrees to mark the Equipment with
----------------------
all information as may from time to time be required by Lessor in order to
protect the title of Lessor to the Equipment and Lessor's rights under this
Lease, and Lessee will replace promptly any such-markings which may be removed,
defaced or destroyed. The failure to mark or identify any equipment shall not
serve to diminish or prejudice Lessor's full legal title and ownership of the
Equipment.
(c) Filing. Lessee will cooperate with Lessor for the purpose of
------
protecting Lessor's title to the Equipment and the sums due under this Lease,
including executing and filing appropriate financing statements.
(d) Encumbrance: Disposition. Lessee shall not encumber and shall
------------------------
not by contract permit sublessees to encumber, nor shall Lessee dispose of, the
Equipment other than as expressly permitted by this Lease; and Lessee agrees to
cause the Equipment to remain free and clear of any such encumbrance.
Furthermore, Lessee agrees that it shall claim no depreciation deduction for
income tax purposes for the Equipment. In no event shall Lessee take any
position on its tax return or any other document relating thereto that is
inconsistent with Lessor's ownership of the Equipment.
11. DAMAGE TO EQUIPMENT; REQUISITION; EARLY TERMINATION.
---------------------------------------------------
(a) Casualty Occurrence. In the event any unit of Equipment is
-------------------
damaged, destroyed, lost, stolen, or title thereto shall be requisitioned or
taken by any governmental authority under power of eminent domain or otherwise,
such fact shall promptly be reported by Lessee to Lessor. Lessee shall determine
in the event of damage, whether such unit of Equipment can be repaired. In the
event Lessee determines that such unit of Equipment can be repaired, Lessee
shall cause such unit of Equipment to be repaired, at Lessee's expense, as soon
as reasonably practicable. Lessee shall be entitled to reimbursement from and to
the extent of any insurance proceeds paid with respect to a unit of Equipment
repaired by Lessee. In the event Lessee determines that the unit of Equipment
cannot be repaired or in the event of such destruction, loss, theft, requisition
or taking of title, such unit of Equipment shall be deemed to have suffered a
"Casualty Occurrence" and, as soon as reasonably practicable after the date of
such Casualty Occurrence, Lessee shall either (at Lessee's option) (x) pay to
Lessor a purchase price equal to such Equipment's fair market value (as defined
in Section 23(h) hereof plus a lease termination fee equal to the present value
(using a discount rate equal to the discount rate set forth on Schedule B (the
"Discount Rate")) of the remaining Fixed Rent applicable to the subject
Equipment less the fair market value of Lessee's remaining leasehold interest
hereunder with respect to such Equipment, or (y) replace such item with any item
or items of like kind equipment, in accordance with the terms set forth in
Section 23(g) hereof. The repair or replacement of the Equipment as hereinabove
provided shall not result in any abatement or reduction in, or in any other way
affect, the rent to be paid with respect to such Equipment, it being expressly
agreed that the Fixed Rent payable with respect thereto shall continue in the
same amounts and be payable at the same times as prescribed on Schedule B hereto
as if such repair or replacement did not occur. In the event Lessee elects (in
lieu of replacing) to purchase any unit of Equipment, as described above, the
Fixed Rent
6
<PAGE>
payable pursuant to Schedule B shall (as of the next rental payment) be reduced
to an amount which bears the same relationship to the rental payable before such
reduction as the value of Equipment leased after the Casualty Occurrence bears
to the value of Equipment leased prior to the Casualty Occurrence.
(b) Risk of Loss. Lessee shall, during the entire term of this
------------
Lease, bear the risk of loss to the Equipment and, except as provided in
paragraph (a) of Section 11, shall not be released from its obligations
hereunder in the event of any Casualty Occurrence to any unit of Equipment.
(c) Option. So long as no Event of Default (as defined herein) shall
------
have occurred and be continuing, if, when and to the extent (x) a User Lessee
exercises its option to purchase any unit of Equipment pursuant to an option
contained in a User Lease, or (y) with respect to an item of Equipment not
currently on lease to a User Lessee, Lessee determines that it is uneconomical
to continue to hold such items of Equipment on lease, Lessee shall have the
right to purchase the subject Equipment (the "Off-Lease Item") at a purchase
price equal to its then fair market value (as herein defined and determined) and
Lessee shall pay to Lessor a lease termination fee equal to the present value
(discounted at the Discount Rate) of the remaining Fixed Rent applicable to the
subject Equipment less the fair market value of Lessee's remaining leasehold
interest hereunder. Lessor shall convey the Off-Lease Item to Lessee free and
clear of any liens, claims or encumbrances created by, through or under Lessor,
other than any underlying lien and the User Lease, if any, then in effect.
Thereupon, this Lease shall terminate with respect to the Off-Lease Item. In
lieu of the foregoing purchase and sale, Lessee shall have the right instead to
substitute and replace such Item with other equipment which is substantially
similar within the parameters set forth in Section 23(g) hereof (the
"Replacement Item"). Effective upon such replacement, all incidents of Lessee's
interest as Lessee hereunder in the Off-Lease Item ipso facto shall cease and
terminate automatically and the Replacement Item shall become Equipment leased
hereunder instead of the Off-Lease Item. In addition, effective upon such
replacement, all of Lessor's right, title and interest in and to the Off-Lease
Item shall be automatically assigned and shall pass to Lessee and Lessor shall
have no further interest therein. The substitution for a unit of Equipment shall
not result in any abatement or reduction in, or in any other way affect, the
rent to be paid with respect to such Equipment, it being expressly agreed that
the rent payable with respect thereto shall continue in the same amounts and be
payable at the same times as prescribed on Schedule B hereto as if such
substitution did not occur. In the event Lessee elects to purchase any unit of
Equipment which was the subject of the option, in lieu of replacing such unit of
Equipment, the rent payable pursuant to Schedule B shall (as of the next rental
payment) be reduced to an amount which bears the same relationship to the rental
payable before such reduction as the value of the Equipment leased after the
exercise of the option bears to the value of Equipment leased prior to the
exercise of the option. For purposes of the preceding sentence "value" shall be
determined by reference to original cost of the Equipment to Lessor.
12. GENERAL INDEMNITY. Lessee assumes all risk and liability for, and
-----------------
shall defend, indemnity and keep Lessor harmless on an after-tax basis from, any
and all liabilities, obligations, losses, damages, penalties, claims actions,
suits, costs and expenses, including reasonable attorney fees and expenses, of
whatsoever kind and nature imposed on, incurred by or asserted against Lessor,
in any way relating to or arising out of the manufacture, purchase, acceptance,
rejection, ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any part
thereof (including, without limitation, any claim for latent or other defects,
7
<PAGE>
whether or not discoverable by Lessee or any other person, any claim for
negligence, tort or strict liability, any claim under any environmental
protection or hazardous waste law and any claim for patent, trademark or
copyright infringement). Lessee will not indemnity Lessor under this section for
loss or liability caused directly and solely by the gross negligence or willful
misconduct of Lessor. Lessee shall not be required to indemnify Lessor or
Lessor's successors and assigns for loss or liability in respect of any unit of
Equipment arising from acts or events that occur after possession of such unit
of Equipment has been delivered to Lessor in accordance with Section 5. In this
section, "Lessor" also includes any director, officer, employee, agent,
successor or assign of Lessor. Lessee's obligations under this section shall
survive the expiration, cancellation or termination of the Lease.
13. ASSIGNMENT.
----------
(a) By Lessor. Lessee agrees that Lessor may transfer or assign all
---------
or any part of Lessor's right, title and interest in, under or to the Equipment
and this Lease and any or all sums due or to become due pursuant to any of the
above, to any third party (the "Assignee") for any reason. Lessee agrees that
upon receipt of written notice from Lessor of such assignment, Lessee shall
perform all of its obligations hereunder for the benefit of Assignee and, if so
directed, shall pay all sums due or to become due hereunder directly to the
Assignee or to any other party designated by the Assignee. Lessee hereby
covenants, represents and warrants as follows and agrees that the Assignee shall
be entitled to rely on and shall be considered a third-party beneficiary of the
following covenants, representations and warranties:
(i) Lessee's obligations to Assignee hereunder are absolute and
unconditional and are not subject to any abatement, reduction, recoupment,
defense, offset or counterclaim available to Lessee for any reason whatsoever
including operation of law, defect in the Equipment, failure of Lessor to
perform any of its obligations hereunder or for any other cause or reason
whatsoever, whether similar or dissimilar to the foregoing;
(ii) Lessee will not look to Assignee to perform any of Lessor's
obligations hereunder;
(iii) Lessee will not amend or modify this Lease without the
prior written consent of the Assignee; and
(iv) Lessee will send a copy to Assignee of each notice which
Lessee sends to Lessor.
(b) By Lessee. Lessee shall not, directly or indirectly, (a) mortgage,
---------
assign, sell, transfer, or otherwise dispose of the lease or any interest
therein or the equipment or any part thereof, or (b) sublease, rent, lend or
transfer possession or use of the equipment or any part thereof to any party
(except User Lessees as set forth in paragraph 14 below) or (c) create, incur,
grant, assume or allow to exist any lien on the lease, any schedule, the
equipment or part thereof.
14. SUBLEASE BY LESSEE. Subject to the terms and conditions of this
------------------
Section 14, Lessee may sublease any or all of the Equipment without the consent
of Lessor or its Assignees if:
8
<PAGE>
(a) the terms and conditions of such User Lease are generally as
favorable to Lessee as the terms and conditions in Lessee's leases or subleases
then being offered to others leasing similar equipment; and
(b) the sublease is in the ordinary course of Lessee's business;
(c) the sublease of any Equipment is not beyond the term of this
Lease without the consent of the Lessor, which consent shall not be unreasonably
withheld.
Lessee, shall be responsible for any and all remarketing fees incurred in
connection with the sublease of the Equipment, and Lessor, as between Lessor and
Lessee, shall be responsible for any and all other reasonable costs and expenses
incurred in connection therewith.
15. ASSIGNMENT OF SUBLEASES AND OTHER RESPONSIBILITIES. Lessor hereby
--------------------------------------------------
assigns, transfers and conveys to Lessee, effective upon the Commencement Date
hereof, all of Lessor's rights, title and interest in, under and to the initial
User Lease(s) and the Remarketing Agreement. In consideration therefor, Lessee,
for the benefit of Lessor (but not for the benefit of any other party,
including, but not limited to, the User Lessee), hereby agrees to assume and
discharge each and every one of the obligations of Lessor thereunder and hereby
relieves Lessor of and releases Lessor from every obligation thereunder. Lessee
further agrees (i) that it will pay and apply all rentals and other sums
otherwise to be retained by Lessee under User Lease(s) to pay amounts due on the
Underlying Debt, (ii) that it will not commingle such rents and other sums under
any such User Lease(s) with its other assets so long as any such Underlying Debt
applicable to such User Lease(s) remains outstanding, and (iii) that, subject to
the rights of any Underlying Lender with respect to any Underlying Debt, it will
pursue in a commercially reasonable manner its remedies against any User Lessee
arising from any default or violation of any User Lease(s). Lessor agrees that
so long as Lessee fulfills its covenants and obligations in this paragraph,
Lessee shall have not further obligations or personal liability to discharge any
Underlying Debt in favor of any Underlying Lender or to make any payment on
account thereof.
16. EVENTS OF DEFAULT. The following events shall constitute Events of
-----------------
Default:
(a) Lessee shall fail to make any payment of rent when the same shall
become due and such failure shall continue unremedied for a period of 15 days
(fifteen) after written notice to Lessee; or
(b) Lessee shall fail to provide or maintain insurance as required by
paragraph above and such failure shall continue unremedied for a period of 5
(five) days after written notice to Lessee;
(c) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it hereunder, and such
failure shall continue unremedied for a period of thirty (30) days after written
notice thereof by Lessor, unless, if such default cannot reasonably be cured
within said thirty (30) days, Lessee shall have promptly commenced action to
cure such default during said period and shall diligently pursue said action; or
9
<PAGE>
(d) Any representation or warranty made by Lessee herein, or in any
agreement, document, or certificate furnished Lessor in connection herewith or
pursuant hereto or pursuant to which this Lease is executed, shall prove to be
incorrect at any time in any material respect and shall continue unremedied (if
such representation or warranty is capable of being remedied) for a period of
thirty (30) days after written notice thereof by Lessor; or
(e) Lessee shall admit in writing its inability to pay its debts or
shall have made a general assignment for the benefit of creditors; or shall have
permitted the entry of an order for relief in bankruptcy; or shall take any
action towards its dissolution or liquidation; or shall have filed a voluntary
petition in bankruptcy or for reorganization or to effect a plan or other
arrangement with creditors; or shall have filed an answer to a creditor's
petition or other petition filed against it (admitting the material allegations
thereof) for an order for relief in bankruptcy or for a reorganization; or shall
have applied for or permitted the appointment of a receiver or trustee or
custodian for any of its property or assets and such receiver, trustee or
custodian so appointed shall not have been discharged within sixty (60) days
after the date of his appointment; or if an order shall be entered, and shall
not be dismissed or stayed within sixty (60) days from its entry, approving any
petition for a reorganization of Lessee.
17. REMEDIES. Upon the occurrence of any Event of Default and, at any
--------
time after notice and grace period duly given to Lessee as provided herein to
cure said Event of Default, so long as the same shall be continuing, Lessor may,
at Lessor's option, declare this Lease to be in default by written notice to
such effect delivered to Lessee and, at any time thereafter, Lessor may exercise
one or more of the following remedies, as Lessor in Lessor's sole discretion
shall elect:
(a) Proceed by appropriate court action, either at law or in equity,
to enforce performance by Lessee of the applicable covenants of this Lease or to
recover damages for the breach thereof;
(b) Declare the entire amount of rent for the remainder of the term
to be immediately due and payable without notice or demand to Lessee, whereupon
Lessee shall pay such amount to Lessor discounted to present value at the
Discount Rate;
(c) Subject to the rights of any Underlying Lender and of any User
Lessee not in default under a User Lease, cause Lessee, at its expense, promptly
to return the Equipment to the possession of Lessor at the location where the
Equipment is in last use and in the condition required upon the return thereof
pursuant to Section 5, or Lessor, at Lessor's option, may enter upon the
premises where the Equipment is located and take immediate possession of the
same and render it unusable or remove it by summary proceedings or otherwise;
(d) Subject to the rights of any Underlying Lender and of any User
Lessee not in default under a User Lease, sell the Equipment at public or
private sale as Lessor may determine, free and clear of any rights of Lessee,
and hold Lessee liable for any deficiency resulting from an excess of the sum of
all unpaid rent (if any) due and payable for periods up to and including the
rental period during which such sale occurs, plus any accelerated rent
(discounted as provided in (b)above), plus Lessor's costs and expenses incurred
in connection with such repossession and sale, over the gross proceeds of such
sale;
10
<PAGE>
(e) Subject to the rights of any Underlying Lender and of any User
Lessee not in default under an User Lease, Lessor may use, operate, lease, or
hold the Equipment as Lessor in Lessor's sole discretion may decide. In
addition, Lessee shall be liable for any and all costs and expenses (to the
extent not provided for hereinabove), including reasonable attorney's fees,
disbursements and any costs and expenses in placing the Equipment in the
condition required by the terms hereof, including Section 5, incurred by reason
of the occurrence of any Event of Default or the exercise of Lessor's remedies
with respect thereto;
(f) Except as otherwise provided above, no remedy referred to in this
Section 17 is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to Lessor
at law or in equity, including, but not limited to, the right to terminate this
Lease. No express or implied waiver by Lessor of any Event of Default hereunder
shall in any way be, or be construed to be, a waiver of any future or subsequent
Event of Default.
(g) If an Event of Default hereunder shall occur which affects and
relates to some but not all of the Equipment leased hereunder, then Lessor's
foregoing remedies may be exercised only with respect to that item or those
items of Equipment to which the Event of Default relates.
18. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make any
------------------------------------
payment required to be made by it hereunder or fails to perform or comply with
any of its agreements contained herein, Lessor may, upon ten (10) days' prior
written notice to Lessee, make such payment and the amount of the reasonable
expenses of Lessor incurred in connection with such payment or the performance
of or compliance with such agreement, as the case may be, together with interest
at the rate of ten percent (10%), shall be payable by Lessee upon demand.
19. NOTICES. All notices required or permitted to be delivered to any
-------
party shall be in writing, and shall be deemed to be given when delivered, or
when deposited in the United States mails, certified or registered and postage
prepaid, with return receipt requested, as follows:
(a) If to Lessor:
FA, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
(b) If to Lessee: Equipment Leasing Associates
1995-VI Limited Partnership
11130 Sunrise Valley Drive, Suite 206
Reston, Virginia 22091
or to such other address as may be designated in writing from time to time by
one party to the other.
20. NO SET-OFF FOR LESSEE. This Lease is a net lease, and Lessee's
---------------------
obligation to pay all rent payable hereunder shall be absolute and
unconditional, and all such rent shall be paid (and not recovered back for any
reason) notwithstanding any circumstances, including without limitation (i) any
11
<PAGE>
set-off, counterclaim, recoupment, defense or other right which Lessee may have
against Lessor, the Manufacturer or anyone else for any reason whatsoever, (ii)
except as provided in paragraphs (a) and (c) of Section 11, any defect in the
Equipment, condition, title, design, operation or fitness for use of, or any
damage to or loss or destruction of, the Equipment or an interruption or
cessation in the use or possession thereof by Lessee for any reason whatsoever,
or (iii) any insolvency, bankruptcy, reorganization or similar proceedings by or
against Lessee. Anything contained in this Lease or any other agreement to the
contrary notwithstanding, any obligation of Lessor shall be separate and
independent from and shall not affect Lessee's obligation to make payment
hereunder.
21. NO WARRANTIES BY LESSOR. LESSOR SUPPLIES THE EQUIPMENT AS IS AND NOT
-----------------------
BEING THE MANUFACTURER OF THE EQUIPMENT, THE MANUFACTURER'S AGENT OR THE
SELLER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED,
AS TO THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DESIGN,
CONDITION, QUALITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT
INFRINGEMENT OR THE LIKE, it being agreed that all such risks, as between Lessor
and Lessee, are to be borne by Lessee. Lessee agrees to look solely to the
Manufacturer or to suppliers of the Equipment for any and all warranty claims
and any and all warranties made by the Manufacturer or the supplier of Lessor
are hereby assigned to Lessee for the term of this Lease. Lessee agrees that
Lessor shall not be responsible for the delivery, installation, maintenance,
operation or service of the Equipment or for delay or inadequacy of any or all
of the foregoing. Lessor shall not be responsible for any direct or
consequential loss or damage resulting from the installation, operation or use
of the Equipment or otherwise.
22. SECURITY INTEREST.
-----------------
(a) To secure payment of the rent and its other obligations
hereunder, Lessee hereby grants Lessor a security interest in all of Lessee's
contract rights (and the proceeds thereof) under the following collateral (the
"Collateral"):
(i) Any and all User Leases, including any renewal or extension
thereof;
(ii) All rental or other payments due or to become due from User
Lessees under the User Leases, including late charges, damages, insurance
payments, or otherwise;
(iii) Lessee's rights, if any, to the Equipment as now or later
described in the schedules in accordance with the provisions of this Lease;
(iv) Any and all collateral or security given for the
performance of the obligations under any or all of the User Leases; and
(v) Any and all proceeds from the User Leases, together with
all of the rights and remedies of the Lessee under the User Leases.
(b) Lessee agrees to take whatever steps are reasonably requested by
Lessor to further evidence and perfect the Lessor's security interest granted
herein, including, but not limited to,
12
<PAGE>
executing and delivering a Collateral Lease Assignment to and for the benefit of
Lessor contemporaneous with Lessee's execution and delivery hereof.
23. MISCELLANEOUS.
-------------
(a) Consent. Unless otherwise expressly provided, wherever consent
-------
or approval of either party is required herein, such consent or approval shall
not be unreasonably withheld.
(b) Counterparts. This Lease may be executed in several
------------
counterparts, each of which so executed shall be deemed to be an original, and
in each case such counterparts shall constitute but one and the same instrument.
(c) Severability. Any provision of this Lease which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, Lessor and Lessee
hereby waive any provision of law which renders any provision hereof prohibited
or unenforceable in any respect.
(d) Modification of Lease. No term or provision of this Lease may be
---------------------
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against whom the enforcement of the change, waiver,
discharge or termination is sought.
(e) Captions. The captions in this Lease are for convenience of
--------
reference only and shall not define or limit any of the terms or provisions
herein.
(f) Governing Law. This Lease shall in all respects be governed by
-------------
and construed in accordance with the laws of the Commonwealth of Virginia
including all matters of construction, validity and performance.
(g) Substitution of Equipment. Whenever Lessee elects to substitute
-------------------------
equipment ("Substituted Equipment") as provided in Section 11(a) and (c) hereof,
Lessee shall replace such item with any item or items of like kind equipment
reasonably satisfactory to Lessor; provided, however, that (i) Lessee transfers
to Lessor (by bill of sale or other documents necessary to effect such transfer)
such Substituted Equipment, free and clear of all security interest, liens,
leases, claims, charges and encumbrances, except as expressly permitted below,
(ii) at the time of such replacement, the Substituted Equipment shall have an
aggregate fair market value equal to or greater than the aggregate fair market
value of the replaced Equipment (the "Replaced Equipment") immediately prior to
the damage or destruction requiring its replacement; and (iii) the Substituted
Equipment has the same cost recovery period under Section 168(c) of the Code as
the Replaced Equipment and the substitution will be effectuated in accordance
with, and qualify as, a "like kind exchange" pursuant to, and as defined in,
Code Section 1031. Any item or items of Substituted Equipment may be subject to
security interests, liens, or encumbrances, provided that the indebtedness
relating to such security interest, liens or encumbrances, when added to all
other indebtedness then outstanding on the Equipment (other than indebtedness on
the Replaced Equipment), will not be in excess of the aggregate unpaid balance
of the unpaid balance (principal and interest) outstanding on the Nonrecourse
Note, and will be satisfied and
13
<PAGE>
discharged in full by the payment of rent to be earned during the noncancellable
terms of User Leases for the Equipment. For purposes hereof, a cancellation
provision in a User Lease will not cause the otherwise non-cancelable terms
thereof to be deemed cancelable provided that such cancellation provision
requires that a termination or similar payment be made which will discharge and
satisfy in full such outstanding indebtedness. Lessee shall give Lessor at least
ten (10) days prior notice of any such substitution, which notice shall include
(i) a description and appraisal (by an appraiser reasonably acceptable to
Lessor) of the fair market value of the item or items of Replaced Equipment and
proposed Substituted Equipment, (ii) copies of any and all leases, security
agreements and other documents relating to security interest, liens, leases or
encumbrances imposed or to be imposed, as permitted hereunder, on the item or
items of proposed Substituted Equipment and (iii) a statement of the amounts
secured by security interests, liens and encumbrances on the item or items to be
replaced and on the proposed Substituted Equipment. The parties agree that,
effective upon the substitution of Equipment in accordance with the provisions
hereof, all incidents of Lessee's interest as Lessee hereunder in the Replaced
Equipment ipso facto shall cease and terminate automatically and the Substituted
Equipment shall become Equipment leased hereunder instead of the Replaced
Equipment. In addition, effective upon such substitution, all of Lessor's right,
title and interest in and to the Replaced Equipment shall be automatically
assigned and shall pass to Lessee and Lessor shall have no further interest
therein. Lessee and Lessor agree to execute and deliver such documents as are
necessary to transfer title to and ownership of the Substituted Equipment to
Lessor and title to and ownership of the replaced Equipment to Lessee.
(h) Fair Market Value. For purposes hereof, the term "fair market
-----------------
value" shall mean the purchase price or rental, as the case may be, that would
be obtained in an arm's-length transaction between an informed and willing buyer
or lessee under no compulsion to buy or lease and an informed and willing seller
or lessor under no compulsion to sell or lease, as determined in the good faith
exercise of the judgment of Lessor and Lessee at the applicable time. In the
event the parties are unable to agree upon a fair market value of the Equipment,
such value shall be determined in accordance with the foregoing definition by an
independent appraiser to be mutually agreed upon by the parties or, failing such
agreement, by a panel of three appraisers, one selected by Lessor, one selected
by Lessee and a third selected by the first two, the cost of which will be
deemed a remarketing expense payable out of the Equipment proceeds.
(i) Legal Costs and Attorneys' Fees. Each of the parties hereto
-------------------------------
agree that it shall pay directly any and all legal costs which it has incurred
on its own behalf in the preparation of this Lease and other agreements
pertaining to this Lease and any related transactions. In the event it becomes
necessary for either party hereto to hire counsel to review or enforce any
remedies arising out of any breach of this Lease, or if it becomes necessary for
either party hereto to file suit to enforce this Agreement, or any provision
contained herein, the party prevailing in such suit shall be entitled to
recover, in addition to all other remedies or damages, as provided herein,
reasonable attorneys' fees and costs incurred in such suit.
(j) Other Documents: Expenses. Lessee agrees to sign and deliver to
-------------------------
Lessor any additional documents reasonably deemed desirable by Lessor to effect
the terms of the Master Lease or this Schedule including, without limitation,
Uniform Commercial Code financing statements which Lessor is authorized to file
with the appropriate filing officers. Lessee hereby irrevocably appoints Lessor
as Lessee's attorney-in-fact with full power and authority in the place of
Lessee and in the name
14
<PAGE>
of Lessee to prepare, sign, amend, file or record any Uniform Commercial Code
financing statements or other documents deemed desirable by Lessor to perfect,
establish or give notice of Lessor's interests in the Equipment or any
collateral as to which Lessee has granted Lessor a security interest. The
signing or filing of Uniform Commercial Code financing statements and other
recordings are undertaken as a precaution only since the parties intend this
Schedule to be a lease transaction. Lessee shall pay upon Lessor's written
request any actual out-of-pocket costs and expenses reasonably paid or incurred
by Lessor in connection with the above terms of this section or the funding and
closing of this Schedule.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of
the date first above written.
LESSOR: FA, INC.
By: /s/ S. Craig Tompkins
------------------------------------------
Name: S. Craig Tompkins
------------------------------------------
Title: President
------------------------------------------
LESSEE: EQUIPMENT LEASING ASSOCIATES
1995-VI LIMITED PARTNERSHIP
By: Management Associates Limited
Partnership VIII, General Partner
By: Managing Partners Corporation,
General Partner
By: /s/ Donald Butler
------------------------------------------
Name: Donald Butler
------------------------------------------
Title: Executive Vice President
------------------------------------------
16
<PAGE>
MASTER LEASE AGREEMENT
SCHEDULE A
See attached Equipment Schedules (12 pages).
17
<PAGE>
EQUIPMENT SCHEDULES
(The Equipment Schedules, submitted as exhibits to Exhibit A, Master Lease
Agreement are omitted for purposes of this filing as it is written in French and
would require translation. A copy is available at the Company's office.)
18
<PAGE>
FA, Inc./Equipment Leasing Associates 1995-VI Limited Partnership
-----------------------------------------------------------------
MASTER LEASE AGREEMENT
----------------------
SCHEDULE B
----------
I. RENT: The Fixed Rent specified under Section 2 of the Master Lease Agreement
----
shall be payable as follows:
<TABLE>
<CAPTION>
Amount Due Date
------ --------
<S> <C>
$288,989.14 December 31, 1996
$10,403,619.55 December 31, 1997
$10,403,619.55 December 31, 1998
$10,403,619.55 December 31, 1999
$10,403,619.55 December 31, 2000
$10,114,629.54 December 31, 2001
</TABLE>
II. TERM: The term of this Lease shall commence on December 20, 1996 and
----
continue through December 20, 2001.
III. DISCOUNT RATE: Ten Percent (10%) per annum.
-------------
IV. SUPPLEMENTAL RENT: Lessor shall also be entitled to five per cent (5%) of
-----------------
any and all remarketing proceeds from the Equipment with respect to the period
from January 1, 1998 through December 31, 1998 for transactions wherein the
original User Lease has expired and a new User Lease has commenced.
19
<PAGE>
Exhibit 10.45
NONRECOURSE PROMISSORY NOTE
$38,989,635.00 Date: As of December 20, 1996
FOR VALUE RECEIVED, the undersigned, FA, INC. ("Payor"), with an address at
103 Springer Building, 3411 Silverside Road, Wilmington, Delaware 19810,
promises to pay to the order of EQUIPMENT LEASING ASSOCIATES 1995-VI LIMITED
PARTNERSHIP ("Payee"), a limited partnership organized and existing under the
laws of the State of Delaware, in accordance with the terms and provisions set
forth below, the principal sum of Thirty Eight Million Nine Hundred Eighty Nine
Thousand Six Hundred Thirty Five Dollars ($38,989,635.00), together with
interest on the outstanding principal from the effective date hereof at the rate
of Ten percent (10%) per annum.
--- -----
I. UNDERLYING TRANSACTIONS. Payor has as of this date purchased certain
-----------------------
equipment described on Schedule A hereto (the "Equipment") from Payee, a portion
of the purchase price for which is represented by the execution and delivery of
this Nonrecourse Promissory Note (this "Promissory Note").
II. SECURITY. To secure payment of the amounts of principal and interest
--------
due hereunder, the Payor has executed a Security Agreement with Payee granting a
subordinate security interest in the Equipment to Payee.
III. NONRECOURSE OBLIGATION. This Promissory Note is a negotiable,
----------------------
nonrecourse obligation of the Payor, and the Payee shall, in the event of a
default hereunder, be entitled to look solely to the Equipment and other
"Collateral" (as defined in and solely in accordance with the terms of the
Security Agreement of even date herewith) for satisfaction and payment of the
amounts due hereunder. Further, Payor shall have no personal liability
whatsoever for: (i) payment of any indebtedness now or hereafter owing under or
in connection with this Promissory Note and any other agreement relating
thereto, (ii) any amounts owing under in connection with the Security Agreement
of even date herewith, (iii) performance of any duty or obligation created or
arising under, pursuant to or in connection with the Promissory Note, Security
Agreement, and/or any other agreement relating thereto.
IV. MANNER OF PAYMENT. The amounts of principal and interest due
-----------------
hereunder shall be payable annually, in arrears, on a proportionate basis,
compounded monthly and on the basis of a 360-day year of twelve 30-day months in
United States currency remitted in accordance with the Schedule of Payments
attached hereto as Schedule A.
V. APPLICATION OF PAYMENTS. All payments under this Promissory Note shall
-----------------------
be applied in satisfaction of the amount of interest accrued hereunder which is
due and outstanding at the time of such payment. Only after all such interest
has been paid shall the remainder, if any, be applied to reduce the then
outstanding principal balance hereunder.
VI. PLACE OF PAYMENT. All payments of this Promissory Note shall be made
----------------
at such place in the United States as Payee may from time to time designate by
notice pursuant to Article XI hereof.
-1-
<PAGE>
VII. PREPAYMENT. The amounts due under this Promissory Note may not be
----------
voluntarily prepaid without the written consent of Payee and must be mandatorily
prepaid to the extent of any rents or other amounts received by Payor or its
assigns under that certain Master Lease Agreement between Payor, as "Lessor,"
and Payee, as "Lessee," to the extent the same relate to the Equipment.
VIII. DELINQUENT PAYMENTS. All amounts delinquent hereunder, whether of
-------------------
principal or accrued interest, shall bear interest after the due date thereof at
the rate of 10% per annum, computed on the basis of a 360-day year of twelve 30-
--- -----
day months. Such interest shall accrue for every day such payment is overdue.
IX. DEFAULT. Payor shall be deemed to be in default under this Promissory
-------
Note upon the failure of Payor to pay any installment of interest or principal
due hereunder in accordance with the terms and conditions hereof within fifteen
(15) days after written notice of Payor's failure to pay any installment of
interest or principal due hereunder.
X. REMEDIES. If Payor shall be in default under this Promissory Note,
--------
Payee shall have available to it all remedies available at law or in equity
including the right to accelerate the payments due hereunder.
XI. NOTICES. Any notice required or permitted to be given by Payor or
-------
Payee pursuant to the terms of this Promissory Note shall be deemed given only
if in writing when actually received by addressee or when mailed by certified or
registered mail, return receipt requested, or foreign equivalent, addressed as
follows:
If to Payor: FA, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
If to Payee: Equipment Leasing Associates
1995-VI Limited Partnership
11130 Sunrise Valley Drive, Suite 206
Reston, Virginia 22091
The person and place to which notices are to be mailed to either party may be
changed from time to time by such party by written notice to the other party.
XII. SEVERABILITY. Except for section III, the invalidity or
------------
unenforceability of any provision of this Promissory Note shall not affect the
validity or Enforceability of any other provision hereof.
XIII. ASSIGNABILITY; SUCCESSORS AND ASSIGNS. This Promissory Note shall
-------------------------------------
be binding upon Payor and shall inure to the benefit of Payee and its
successors and assigns in the same manner and to the same extent and with like
effect as if such successors and assigns were named in and made parties to this
Promissory Note.
XIV. ARTICLE HEADINGS. Article headings used herein are solely for
----------------
convenience of the parties hereto and shall not affect the interpretation or
construction of this Promissory Note.
-2-
<PAGE>
XV. APPLICABLE LAW. This Promissory Note shall be governed and construed
--------------
for all purposes under and in accordance with the laws of the Commonwealth of
Virginia applicable to contracts made and to be performed in such jurisdiction,
without giving effect to the principles thereof with respect to the conflict of
laws.
XVI. NON-WAIVER. No term or condition of this Promissory Note can be
----------
waived except by the written consent of the Payee. Forbearance or indulgence by
Payee in any regard whatsoever shall not constitute a waiver of the provisions
of said terms or conditions, nor of any remedies otherwise available to Payee
under this Promissory Note or at law or in equity.
XVII. AMENDMENTS. This instrument shall not be amended, altered or
----------
changed without the express written consent of both parties.
XVIII. CERTAIN PAYMENTS. Any payment by, or for the account of, Payor to
----------------
the holder of any First or Second Senior Lien (as said terms are defined in that
certain Purchase and Sale Agreement of even date herewith between Payor, as
Buyer, and Payee, as Seller) which is credited against principal of, or interest
on, such Senior Lien, shall, as between Payor and Payee, be deemed to be a
payment under this Promissory Note.
IN WITNESS WHEREOF, the Payor has executed this instrument as of the date
and year first above written.
PAYOR: FA, Inc.
By: /s/ S. Craig Tompkins
-------------------------------
Title: President
------------------------------
-3-
<PAGE>
Fa, Inc./Equipment Leasing Associates 1995-VI Limited Partnership
-----------------------------------------------------------------
NONRECOURSE PROMISSORY NOTE
---------------------------
SCHEDULE A
<TABLE>
<CAPTION>
SCHEDULE OF PAYMENTS:
Amount* Due Date
------- --------
<S> <C>
$288,989.14 December 31, 1996
$10,403,619.55 December 31, 1997
$10,403,619.55 December 31, 1998
$10,403,619.55 December 31, 1999
$10,403,619.55 December 31, 2000
$10,114,629.54 December 31, 2001
</TABLE>
*Includes interest at 10% per annum.
Equipment Schedule: See attached.
(The Equipment Schedules, submitted as exhibits to the Nonrecourse
Promissory Note are omitted for purposes of this filing as it is written in
French and would require translation. A copy is available at the Company's
office.)
-4-
<PAGE>
Exhibit 10.46
LEASE RENTAL PURCHASE AGREEMENT
-------------------------------
This Purchase Agreement, dated as of the 31st day of December, 1996, by and
between FA, INC., having an office and place of business at 103 Springer
Building, 3411 Silverside Road, Wilmington, Delaware 19810, as seller (the
"Seller"), and Ralion Financial Services, Inc., having an office and place of
business at 54 Sasco Hill Road, Fairfield, Connecticut 06430, as buyer (the
"Buyer").
WITNESSETH:
----------
WHEREAS, Seller is the owner of certain equipment described on Schedule A
annexed hereto (the "Equipment"), which is presently being leased by Seller to
Equipment Leasing Associates 1995-VI Limited Partnership the ("Lessee") pursuant
to the lease described on Schedule A (the "Lease"); and
WHEREAS, the Equipment and the Lessee's obligation to pay rent is
encumbered by lien(s) (singly or collectively, as the case may be, the "Senior
Lien"), in favor of the lender or lenders described on Schedule A with respect
to the Equipment described therein (singly or collectively, as the case may be,
the "Lender") including any purchase money lien to secure indebtedness incurred
by Seller in connection with the Seller's acquisition of the Equipment; and
WHEREAS, Seller desires to sell and Buyer desires to purchase all of
Seller's right to receive Rent (as defined hereinbelow), certain Rent-Related
Payments (as defined hereinbelow), and a certain 5% payment of remarketing
proceeds payable from Lessee under the Lease as more fully identified in
Schedule A and described in Section 1.1 below, on the terms set forth below;
WHEREAS, Seller only intends to sell and Buyer only intends to purchase
Seller's right to receive Rent and certain Rent-Related Payments under the Lease
and not Seller's interest in the Equipment;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties agree as follows:
1. Sale of Assigned Rent.
---------------------
1.1 Definition of Rent. As used in this Purchase Agreement, the term
------------------
"Rent" shall mean and be limited to the periodic rental payments to be paid by
Lessee under the Lease, and any late charges associated therewith under the
Lease.
1.2 Definition of Rent-Related Payments. As used in this Purchase
-----------------------------------
Agreement, the term "Rent-Related Payments" shall mean and be limited to the
following payments that may be payable under the Lease, subject to the
limitations set forth hereinbelow: insurance payments, termination payments,
loss payments, including the right, if any, of the lessor under the Lease to
receive from Lessee any amounts from the proceeds of Subleases of the Equipment.
The foregoing payments shall constitute Rent-Related Payments: (a) only to the
extent that such payments are on account of or in lieu of Rent, and (b) shall be
limited to such amounts as may be necessary to compensate the owner of the Rent
for its damages, if any, arising from
-1-
<PAGE>
any cessation of payment of Rent, provided, however that such damages shall be
limited to the present value of such owner's interest in the due and unpaid Rent
after discounting the value of the due and unpaid Rent to present value.
1.3 Definition of Assigned Rent: As used in this Purchase Agreement,
---------------------------
the term "Assigned Rent" shall mean and be limited to Seller's right, if any, to
receive Rent and Rent-Related Payments under the Lease, which right is to be
sold and assigned by Seller and purchased by Buyer pursuant to this Purchase
Agreement.
1.4 Conveyance. Subject to the terms and conditions hereof, Seller
----------
hereby sells and assigns to Buyer, and Buyer hereby purchases from Seller, the
Assigned Rent. Buyer acknowledges that the right to receive the Assigned Rent,
and the Lease, are each encumbered by and subordinate to the rights of the
Lender under the Senior Lien, and the rights of any Users under the User Leases.
Seller further sells and assigns it interest in the 5% of remarketing proceeds
to be paid to Seller by Lessee under the Master Lease Agreement. Notwithstanding
anything herein to the contrary, Buyer does not assume, nor shall Lessee or any
third party have the right to seek performance by Buyer of, any of Seller's
obligations under the Lease, other than Seller's covenant of quiet enjoyment
with respect to the Equipment.
1.5 Price. The purchase price to be paid by Buyer to Seller for the
-----
Assigned Rent is the amount specified on Schedule A as the "full purchase price"
therefor. Payment of the full purchase price is being made as follows: (a) by
payment to Seller concurrently with the execution and delivery hereof, of the
total amount specified in Schedule A as the "cash portion" (if any) by check
payable to Seller; and (b) by Buyer's assumption, for the benefit of Seller, of
all of Seller's outstanding obligations with respect to the "Applicable
Indebtedness" as described in Schedule A. Buyer's assumption of the Applicable
Indebtedness is further described in Section 5 of this Agreement.
1.6 Closing Date. The closing date (the "Closing Date") hereof, upon
------------
which the transaction described herein shall become effective, shall be December
31, 1996.
2. Representations, Warranties and Covenants of Seller. Seller
---------------------------------------------------
represents, warrants and covenants to Buyer as follows:
2.1 Good Standing; Binding Obligation. Seller is a corporation duly
---------------------------------
and validly organized and existing in good standing under the laws of the State
of Delaware. Seller has full power and authority to enter into this Agreement.
Seller had full power and authority to enter into the Lease and the transactions
evidencing the Applicable Indebtedness at the time they were entered into.
Seller has, and at all relevant times had, full power and authority to execute
and deliver all other instruments and documents executed and delivered in
connection with or relating to the transactions contemplated hereby and thereby,
and to consummate the transactions contemplated hereby and thereby. This
Agreement and the consummation of the transactions contemplated hereby,
including the transactions creating or evidencing the Applicable Indebtedness
and the Lease (collectively the "Underlying Agreements"), have been duly
authorized by all necessary action of Seller, and each such agreement
(including, without limitation, the Lease) has been duly executed and delivered
by, and constitutes the legal, valid and binding obligations of, Seller, and to
the best of Seller's knowledge, the other parties thereto, enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
relating to or affecting creditors' rights generally. There is no action, suit
or proceeding pending against Seller and no law or any order,
-2-
<PAGE>
writ, injunction, decree, rule or regulation of any court, administrative agency
or other governmental authority which brings into question the validity of, or
might in any way impair, the execution, delivery or performance by Seller of
this Agreement or any of the Underlying Agreements. All approvals of and
consents from governmental authorities and third parties required for the
execution, delivery or performance by Seller of this Agreement and the
Underlying Agreements have been (or will be) obtained and copies thereof have
been (or will be) delivered to Buyer.
2.2 Inconsistent Agreements. The execution, delivery and performance by
-----------------------
Seller of this Agreement and the transactions contemplated hereby, including
under any of the Underlying Agreements, do not contravene, violate or conflict
with any provisions of any law or any order, writ, injunction, decree, rule or
regulation of any court, administrative agency or any other governmental
authority applicable to Seller, and do not conflict with and are not
inconsistent with, and will not result (with or without the giving of notice or
passage of time or both) in a breach of, or constitute a default or require any
consent not heretofore requested or obtained under, the terms of any of the
Underlying Agreements, any credit agreement, lease, guarantee, document,
agreement or instrument to which Seller is a party, by which Seller or its
property is or may be bound, or to which Seller or its property may be subject
and will not result in the creation of any lien, charge or encumbrance on the
Assigned Rent, the Lease, or the Equipment or on any User Lease thereof, or be
in violation of or beyond the authority conferred by Seller's agreement or
certificate of limited partnership or any of Seller's other enabling or
governing instruments.
2.3 Right to Receive Rent. On the date hereof, Seller shall, and hereby
---------------------
does, transfer to Buyer the right to receive all Assigned Rent free and clear of
all leases, liens, claims, charges, equities and encumbrances of any kind or
nature whatsoever, except for the Applicable Indebtedness or as otherwise
described herein or in Schedule A; neither the Lease nor the Applicable
Indebtedness shall impair the consummation of the transactions contemplated
hereby or impose obligations on the Buyer, other than those expressly agreed to
in Sections 3.3 and 3.4 hereof.
2.4 Documentation. Seller will furnished to Buyer a true, correct and
-------------
complete copy of each and every material document delivered to or by Seller in
connection with the purchase of the Equipment by Seller and the right to receive
Assigned Rent by Seller and the leasing of the Equipment pursuant to the Lease,
and all material documents creating or relating to any lien, claim, charge,
equity, encumbrance or transfer of title of any kind or nature concerning the
Assigned Rent, the Lease, or the Equipment. Nothing has come to Seller's
attention which would lead Seller to believe that (i) the Equipment is not in
good working order, condition and appearance, or the Lease is not in full force
and effect, or (ii) the sale of the Assigned Rent by Seller to Buyer hereunder,
violates or infringes the rights of any party.
2.5 No Representations or Warranties by Seller. Buyer acknowledges
-------------------------------------------
and agrees that Seller has not made, does not make and specifically negates and
disclaims any representations, warranties, promises, covenants, agreements or
guaranties of any kind or character whatsoever, whether express or implied, oral
or written, past, present or future, of, as to, concerning or with respect to:
(a) the value, nature, quality or condition of the Assigned Rents and the
advisability of Buyer purchasing the Assigned Rents;
(b) the profitability of purchasing the Assigned Rents;
(c) Buyer affirms that it has not relied on Seller's skill or judgment to
decide whether and under what conditions to purchase the Assigned Rents and
further affirms that Seller has made no warranty that the purchase is
appropriate or that the purchase will be economically viable;
(d) the value, use, or quality of the Assigned Rents;
-3-
<PAGE>
Buyer further acknowledges:
(e) no person acting on behalf of Seller is authorized to make, and by
execution of this Agreement Buyer acknowledges that no person has made, any
representation, agreement, statement, warranty, guaranty or promise regarding
the purchase to be made by Buyer or any transaction contemplated herein; and no
such representation, warranty, agreement, guaranty, statement or promise if any,
made by any person acting on behalf of Seller shall be valid or binding upon
Seller unless expressly set forth herein;
(f) it has been given the opportunity to inspect all aspects of Assigned
Rents, including without limitation, all financial aspects of Assigned Rents and
is relying solely on its own investigation of Assigned Rents and not on any
information provided or to be provided by Seller.
The provisions of this section 2.5 shall survive the closing or any
termination of this Agreement.
2.6 Warranty Disclaimer. EXCEPT AS SET FORTH HEREIN SELLER MAKES NO
-------------------
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER.
Seller shall in no event be liable to Buyer for any direct, indirect, special or
consequential damages caused, directly or indirectly, by the Equipment or any
inadequacy thereof for any purpose, or any deficiency or defect therein, by the
use or maintenance thereof, or any repairs, servicing or adjustments thereto or
by the failure of Lessee to make any payments of Assigned Rent for any reason,
including the lack of creditworthiness of the Lessee or the User Lessees, or for
any other reason. The provisions of this section 2.6 shall survive the closing
or any termination of this Agreement.
3. Representations, Warranties and Covenants of Buyer. Buyer hereby
--------------------------------------------------
represents, warrants and covenants to Seller as follows:
3.1 Binding Obligation. Buyer is duly organized and validly existing as a
------------------
corporation in good standing under the laws of the state of its incorporation.
Buyer has full power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action of Buyer and this Agreement constitutes the legal, valid
and binding obligations of Buyer, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium, or similar laws relating to or affecting
creditors' rights generally. There is no action, suit or proceeding pending
against Buyer before or by any court, administrative agency or other
governmental authority which brings in question the validity of, or might in any
way impair, the execution, delivery or performance by Buyer of its obligations
hereunder. No approval of, or consent from, any governmental authority or other
third party is required for the execution, delivery or performance by Buyer of
this Agreement.
3.2 Inconsistent Agreements. The execution, delivery and performance by
-----------------------
Buyer of this Agreement and the transactions contemplated hereby do not
contravene any law or any order, writ, injunction, decree, rule or regulation of
any court, administrative agency or any other governmental agency, applicable to
Buyer, and do not conflict with and are not inconsistent with, and will not
result (with or without the giving of notice or passage of time or both) in a
breach of or constitute a default or require any consent under, the terms of any
credit agreement, indenture, mortgage,
-4-
<PAGE>
agreement, deed of trust, security agreement, lease, guarantee or other
instrument to which Buyer is a party or by which Buyer or its property is or may
be bound, and will not be in violation of, or beyond the authority conferred by,
Buyer's certificate of incorporation or other enabling or governing instruments
of Buyer.
3.3 Quiet Enjoyment. So long as a User or Lessee shall not be in default
---------------
under any of the provisions of a User Lease or Lease, as the case may be, Buyer
shall take no action to interfere with such User's or Lessee's quiet and
peaceful possession of the Equipment pursuant to such User Lease or Lease.
3.4 Priority of Liens. Buyer agrees, at the request of Seller, to execute
-----------------
and deliver such documents, instruments and agreements as may be required to
evidence, perfect and maintain the priority of the security interests
represented by the Senior Lien including, without limitation, any subordination
or security agreement in favor of Lender and any financing statements in form
acceptable for recording in any appropriate jurisdiction.
3.5 Further Sales of the Right to Receive Rent. No sale, assignment,
------------------------------------------
transfer, encumbrance or hypothecation of the right to receive any Assigned Rent
shall relieve Buyer of any of its obligations to Seller hereunder or otherwise.
4. Deliveries at Closing.
---------------------
4.1 Deliveries by Buyer. If required by the Lender, Buyer shall deliver
-------------------
to Seller a document, acceptable in form and substance to the Lender, by which
Buyer shall assume Seller's obligations with respect to the Applicable
Indebtedness.
5. Specific Covenants.
------------------
(a) Of Buyer. Regardless of whether Buyer receives payment of Assigned
--------
Rent, Buyer agrees (i) to pay or to cause or be paid on behalf of, as the case
may be, the Lender, all principal of, all interest on, and all other sums due to
the Lender on account of the Applicable Indebtedness, as and in the manner
provided in the Underlying Agreements with respect to all Equipment, when due,
(ii) to pay and perform when due, all of Seller's other obligations under the
Underlying Agreements with respect to the Applicable Indebtedness, and (iii) not
to modify or amend (or cause to be modified or amended) any of such Underlying
Agreements without the prior written consent of Seller. Buyer's covenant and
agreement as set forth in this paragraph 5(a) shall be a nonrecourse obligation
and Buyer shall have no personal liability in connection therewith. However, if
Buyer fails to comply with its covenant and agreement as set forth in this
paragraph 5(a), then Buyer's right to receive and retain payment of the Assigned
Rent shall immediately cease and terminate and such right shall revert to Seller
in its entirety. In that event, Buyer shall thereafter forward any payment of
Assigned Rent received by Buyer to Seller immediately upon receipt by Buyer, and
Buyer shall be personally liable for its failure to do so.
(b) Of Seller. If Seller shall receive any payment from a Lessee or User
---------
which includes Assigned Rent, Seller will hold the same in trust for Buyer and
will, immediately and without demand, deliver same to Buyer, or, if so provided
in the Underlying Agreements, pay or cause such amounts to be paid to Lender in
respect of the Applicable Indebtedness secured thereby. Seller shall, upon
written request of Buyer, cause notice of the sale of the Assigned Rent hereby
to Buyer and the assumption of Seller's obligations with respect to the
Applicable Indebtedness to be served upon Lessee and any Lender, and to direct
all payments of Assigned Rent hereafter to be made by Lessee to Buyer or as
otherwise directed by Buyer or provided
-5-
<PAGE>
in the Lease with respect thereto.
6. Assignment. Notwithstanding anything herein to the contrary, Buyer
----------
shall not, without the prior written consent of Seller, transfer or assign any
or all of its rights under this Agreement, the Lease or any Underlying
Agreements or User Lease to any third party.
7. Miscellaneous.
-------------
7.1 Assigns. Subject to the terms and conditions of Section 6 hereof,
-------
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
7.2 Survival. The agreements, representations, warranties and
--------
covenants made herein shall survive the execution and delivery of this Agreement
and the consummation of the transactions described herein.
7.3 Captions. The captions appearing in this Agreement and in any
--------
other documents relating to this transaction are inserted only as a matter of
convenience and in no way define, limit or describe the scope or intent of such
sections or articles nor in any way affect this Agreement or any other documents
relating to this transaction.
7.4 Modifications. This Agreement may not be altered, modified or
-------------
amended except by a writing signed by the party against whom such alteration,
modification or amendment is sought.
7.5 Further Assurances. The parties hereto agree to execute and
------------------
deliver, or cause to be executed and delivered, such further instruments or
documents and take such other action as may be required to effectively carry out
the transactions contemplated herein, provided the same do not impose any
additional liabilities or obligations upon Buyer or Seller.
7.6 Entire Agreement. This Agreement embodies the entire agreement
-----------------
between the parties relative to the subject matter hereof, and there are no oral
or written agreements between the parties, nor any representations made by
either party relative to the subject matter hereof, which are not expressly set
forth herein.
7.7 Jury Waiver. SELLER AND BUYER DO HEREBY KNOWINGLY, VOLUNTARILY
------------
AND INTENTIONALLY WAIVE THEIR RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, OR UNDER OR IN CONNECTION WITH THIS
AGREEMENT, THE DOCUMENTS DELIVERED BY Buyer AT CLOSING OR SELLER AT CLOSING, OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ANY ACTIONS OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER
WITH THIS AGREEMENT OR THE PROPERTY (INCLUDING WITHOUT LIMITATION, ANY ACTION TO
RESCIND OR CANCEL THIS AGREEMENT AND ANY CLAIMS OR DEFENSES ASSERTING THAT THIS
AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS
WAIVER IS A MATERIAL INDUCEMENT FOR SELLER TO ENTER INTO AND ACCEPT THIS
AGREEMENT AND THE DOCUMENTS DELIVERED BY BUYER AT CLOSING AND SHALL SURVIVE THE
CLOSING OR TERMINATION OF THIS AGREEMENT.
7.8 Notices. Any notice, request or other communication to either
-------
-6-
<PAGE>
party by the other hereunder shall be deemed given on the earlier of the date
the same is (i) actually received, or (ii) five (5) days after mailing by
certified or registered mail, return receipt requested, postage prepaid and
addressed to the party for which it is intended at the address set forth at the
head of this Agreement. The place to which notices are to be given to either
party may be changed from time to time by either party by like notice to the
other.
7.9 Choice of Law. This Agreement shall be governed by and
-------------
interested under the laws of the Commonwealth of Virginia without giving effect
to the principles of conflicts of laws .
7.10 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision.
7.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute on and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
SELLER: FA, INC.
By: /s/ S. Craig Tompkins
-------------------------------
Name: S. Craig Tompkins
-------------------------------
Title: President
-------------------------------
BUYER: Ralion Financial Services, Inc.
By: /s/ John M. Costello
-------------------------------
Name: John M. Costello
-------------------------------
Title: President
-------------------------------
-7-
<PAGE>
SCHEDULE A
----------
1. LEASE:
(a) That certain Master Lease Agreement dated as of December 20, 1996 between
Lessee and Seller. (See Exhibit 10.29 of Reading Entertainment, Inc.'s
December 31, 1996 10-K.)
2. USER(S) (IF OTHER THAN LESSEE): See attached Schedule.
3. USER LEASE(S) (IF OTHER THAN LEASE): See attached Schedule.
4. EQUIPMENT DESCRIPTION & LOCATION: See attached Schedule.
5. LENDER:
(a) See attached Schedule for lenders with respect to User Leases.
(b) ISO-trade with respect to certain remarketing proceeds from the
Equipment.
(c) Lessee, pursuant to that certain Nonrecourse Promissory Note (and
related Security Agreement) dated as of December 20, 1996 issued by
Seller to Lessee and payable out of the fixed rentals under the Lease.
6. APPLICABLE INDEBTEDNESS:
That certain indebtedness in favor of the Lessee referenced in 5 (c). above,
secured by the Lease referenced in 1 above and the Equipment.
7. FULL PURCHASE PRICE: See Schedule B.
(The Schedules for Items 2., 3., 4., and 5.(a) submitted as exhibits to
this Lease Rental Purchase Agreement are omitted for purposes of this
filing as they are written in French and would require translation. A
copy is available at the Company's office.)
-8-
<PAGE>
SCHEDULE B
----------
<TABLE>
<CAPTION>
<S> <C>
FULL PURCHASE PRICE: $38,840,950.29
1. Cash payment on or before
December 31, 1996
in the amount of: $32,000.00
2. Assumption of the Applicable
Indebtedness in the outstanding
amount of: $38,808,950.29
</TABLE>
-9-
<PAGE>
EXHIBIT 10.47
STOCK PLEDGE AGREEMENT
----------------------
STOCK PLEDGE AGREEMENT, dated as of April 11, 1997 (as amended from time
to time, the "Agreement"), by and among CRAIG CORPORATION, a Delaware
---------
corporation ("Pledgor"), and CITADEL HOLDING CORPORATION, a Delaware corporation
-------
(the "Secured Party").
-------------
R E C I T A L S
---------------
A. The Pledgor holds a warrant (the "Warrant") to purchase Six Hundred
Sixty-Six Thousand (666,000) shares of common stock (the "Common Stock") of the
Secured Party at an exercise price of Three Dollars ($3.00) per share, which
Warrant the Pledgor plans to exercise on April 11, 1997.
B. The Secured Party has agreed to make a loan to the Pledgor, which loan
shall be evidenced by a Promissory Note dated April 11, 1997 in the principal
amount of One Million Nine Hundred Ninety-Eight Thousand Dollars ($1,998,000)
(the "Note"), which amount shall be used by the Pledgor to purchase the Common
----
Stock.
C. It is a condition to the extension of such loan that the Note be
secured by a pledge of Five Hundred Thousand (500,000) shares of common stock,
par value $.001 per share, of Reading Entertainment, Inc., a Delaware
corporation, held by the Pledgor (the "Pledged Stock") to the Secured Party as
-------------
set forth herein.
D. Section 153 of the Delaware General Corporation Law provides for the
acceptance of a secured promissory note in consideration for the issuance of
stock by a company.
A G R E E M E N T
-----------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1.
DEFINITIONS AND RELATED MATTERS
-------------------------------
SECTION 1.1 DEFINITIONS.
-----------
Capitalized terms not otherwise defined herein have the respective meanings
set forth in the Note. In addition, the following terms with initial capital
letters have the following meanings:
"ACCELERATION" is defined in Section 5.2.
------------
<PAGE>
"AFFILIATE" means, with respect to a Person, any other Person that,
---------
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person. The term
"control" means the possession, directly or indirectly, of the power to direct
- --------
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities or other equity interests, by
contract or otherwise, and the terms "controlled" and "common control" have
---------- --------------
correlative meanings. Notwithstanding the foregoing, in no event shall the
Secured Party be deemed to be an Affiliate of the Pledgor.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
---------------
Section 101 et seq.), as amended from time to time, or any successor statute.
-- ---
"CHARGES" means all federal, state, county, city, municipal or other taxes,
-------
levies, assessments or charges that, if not paid when due, may result in a Lien
of any Governmental Authority against Collateral.
"COLLATERAL" is defined in Section 2.1.
----------
"DEFAULT" means any condition or event that, with the giving of notice or
-------
the lapse of time, or both, would become an Event of Default, unless cured or
waived.
"EVENT OF DEFAULT" is defined in Section 5.1.
----------------
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended (or
------------
any similar statute from time to time in effect).
"GOVERNMENTAL APPROVAL" means any authorization, approval, permit or
---------------------
license of or by or filing with any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any nation, any state or other political
----------------------
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of government, including any tribunal or
arbitrator(s) of competent jurisdiction.
"LIEN" means any lien, mortgage, pledge, security interest, charge or
----
encumbrance of any kind (including any conditional sale or other title retention
agreement or any lease in the nature thereof) and any agreement to give or
refrain from giving any of the foregoing.
"NOTE" is defined in the Recitals.
----
"PERSON" means an individual, a corporation, a partnership, a trust, an
------
unincorporated organization or any other entity or organization, including a
Governmental Authority.
2
<PAGE>
"PLEDGED STOCK" shall have the definition set forth in the Recitals, as
-------------
modified by Section 4.10.
"PLEDGOR" is defined in the Preamble.
-------
"PROCEEDS" is defined in Section 2.1.
--------
"SECURED OBLIGATIONS" is defined in Section 2.2.
-------------------
"SECURED PARTY" is defined in the Preamble.
-------------
"SECURITIES ACT" means the Securities Act of 1933, as amended (or any
--------------
similar statute from time to time in effect).
"SECURITY INTEREST" is defined in Section 2.1.
-----------------
"UCC" means the Uniform Commercial Code (as amended from time to time) of
---
the State of California.
SECTION 1.2. RELATED MATTERS.
---------------
1.2.1. TERMS USED IN THE UCC. Unless the context clearly otherwise
---------------------
requires, all lower-case terms used and not otherwise defined herein that are
used or defined in Article 8 or 9 (or any equivalent subpart) of the UCC have
the same meanings herein.
1.2.2. CONSTRUCTION. Unless the context of this Agreement clearly
------------
requires otherwise, references to the plural include the singular, the singular
includes the plural, the part includes the whole, and "including" is not
limiting. The words "hereof," "herein," "hereby," "hereunder" and similar terms
in this Agreement refer to this Agreement as a whole (including the Preamble,
the Recitals and all Schedules and Exhibits) and not to any particular provision
of this Agreement. Article, section, subsection, exhibit, recital, preamble and
schedule references in this Agreement are to this Agreement unless otherwise
specified. References in this Agreement to any agreement, other document or law
"as amended" or "as amended from time to time," or to amendments of any document
or law, shall include any amendments, supplements, replacements, renewals,
waivers or other modifications not prohibited by the Note Documents. References
in this Agreement to any law (or any part thereof) include any rules and
regulations promulgated thereunder (or with respect to such part) by the
relevant Governmental Authority, as amended from time to time.
1.2.3. GOVERNING LAW. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of California (other than choice of
law rules that would require the application of the laws of any other
jurisdiction).
3
<PAGE>
1.2.4. HEADINGS. The Article and Section headings used in this Agreement
--------
are for convenience of reference only and shall not affect the construction
hereof.
1.2.5 SEVERABILITY. If any provision of this Agreement or any Lien or
------------
other right hereunder shall be held to be invalid, illegal or unenforceable
under applicable laws and regulations in any jurisdiction, such provision, Lien
or other right shall be ineffective only to the extent of such invalidity,
illegality or unenforceability, which shall not affect any other provisions
herein or any other Lien or right granted hereby or the validity, legality or
enforceability of such provision, Lien or right in any other jurisdiction.
1.2.6. NO PARTY DEEMED DRAFTER. None of the parties to this Agreement,
-----------------------
nor their respective counsel, shall be deemed to be the drafter of this
Agreement, and all provisions of this Agreement shall be interpreted in
accordance with their fair meaning, and not strictly for or against any party
hereto.
ARTICLE 2.
THE SECURITY INTEREST; SECURED OBLIGATIONS
------------------------------------------
SECTION 2.1. SECURITY INTEREST. To secure the payment and performance of
-----------------
the Secured Obligations (as defined below) as and when due, the Pledgor hereby
conveys, pledges, assigns and transfers to the Secured Party, and grants to the
Secured Party a security interest (the "Security Interest") in, all right,
-----------------
title, claim and interest of the Pledgor in and to the following property,
whether now owned and existing or hereafter acquired or arising, and wherever
located (such property being, collectively, the "Collateral"):
----------
2.1.1. The Pledged Stock and all certificates and instruments representing
or evidencing the Pledged Stock;
2.1.2. Any and all proceeds and products of any of the foregoing, whether
now held and existing or hereafter acquired or arising, including any and all
cash, securities, instruments and other property from time to time paid, payable
or otherwise distributed in respect of or in exchange for any or all of the
foregoing (collectively, the "Proceeds"). "Proceeds" shall include (i) any
-------- --------
options, warrants, securities or other property issued or delivered by the
issuer of or obligor on any Collateral as a stock dividend or distribution in
connection with any reclassification, increase or reduction of capital or issued
or delivered in connection with any merger or other reorganization, and (ii) any
property received upon the liquidation or dissolution of any issuer of or
obligor on any Collateral or upon or in respect of any distribution of capital.
4
<PAGE>
SECTION 2.2. SECURED OBLIGATIONS.
-------------------
The Security Interest shall secure the due and punctual payment and
performance of any and all present and future obligations and liabilities of
(a) the Pledgor of every type or description to the Secured Party, or any
of its successors or assigns, arising under or in connection with the Note; and
(b) the Pledgor of every type or description to the Secured Party, or any
of its successors or assigns, or any other Person arising under or in connection
with this Agreement;
in each case whether for principal, interest, fees, expenses, indemnities or
other amounts (including attorneys' fees and expenses), whether due or not due,
direct or indirect, joint and/or several, absolute or contingent, voluntary or
involuntary, liquidated or unliquidated, determined or undetermined, now or
hereafter existing, renewed or restructured, whether or not from time to time
decreased or extinguished and later increased, created or incurred, whether or
not arising after the commencement of a proceeding under the Bankruptcy Code
(including post-petition interest) and whether or not allowed or allowable as a
claim in any such proceeding (all obligations and liabilities described in this
Section 2.2 are collectively referred to herein as the "Secured Obligations").
-------------------
ARTICLE 3.
WARRANTIES AND REPRESENTATIONS
------------------------------
The Pledgor makes the following representations and warranties, all of
which shall survive until termination of this Agreement pursuant to Section 6.7.
SECTION 3.1. POWERS. The Pledgor has all requisite power and authority to
------
enter into the Note and this Agreement and to carry out the transactions
contemplated hereby and thereby.
SECTION 3.2. BINDING EFFECT, NO CONFLICT, ETC.
--------------------------------
3.2.1. The Note and this Agreement have been duly executed and delivered by
the Pledgor and such agreements are the legal, valid and binding obligations of
the Pledgor, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally. The execution, delivery and performance by the Pledgor of the
Note and this Agreement, the consummation of the transactions contemplated
hereby or thereby, and the exercise by the Secured Party of any of the voting
and other rights or remedies hereunder, do not and will not (a) conflict with,
result in a breach of or constitute (or, with the giving of notice or lapse of
time, or both, constitute) a default under, or require the approval or consent
of any Person pursuant to, or accelerate any obligations under, any agreement,
contract,
5
<PAGE>
instrument, understanding or arrangement to which the Pledgor is a party or by
which the Pledgor or any of its assets is bound, or violate any provision of
applicable laws and regulations binding on the Pledgor, or (b) result in the
creation or imposition of any Lien of any nature whatsoever upon any of the
Pledgor's assets except for Liens created under this Agreement. No Governmental
Approval is or will be required in connection with the execution, delivery and
performance by the Pledgor of the Note or this Agreement, the consummation of
the transactions contemplated hereby or thereby, or the exercise by the Secured
Party of any of the voting and other rights or remedies hereunder, or to ensure
the legality, validity or enforceability hereof or thereof, except as may be
required in connection with the disposition of Collateral by laws affecting the
offering and sale of securities generally.
SECTION 3.3. TITLE TO COLLATERAL; VALIDITY AND PERFECTION OF SECURITY
--------------------------------------------------------
INTEREST; ABSENCE OF OTHER LIENS.
- --------------------------------
3.3.1. The Pledgor has good and marketable title to all Collateral. The
Security Interest constitutes a valid and, upon delivery of all Collateral to
the Secured Party pursuant to Section 4.1 hereof, perfected first priority Lien
in all of the Collateral and secures payment and performance of the Secured
Obligations.
3.3.2. The Collateral is free and clear of all Liens other than the
Security Interest and Liens arising under the Shareholder Agreement.
ARTICLE 4.
COVENANTS AND AGREEMENTS
------------------------
SECTION 4.1. DELIVERY OF PLEDGED COLLATERAL, ETC.
-----------------------------------
4.1.1. On the date hereof, the Pledgor is delivering to the Secured Party
all Collateral consisting of certificated securities, instruments or the like
the physical possession of which is necessary in order for the Security Interest
to be perfected or delivery of which was requested by the Secured Party to
assure the priority of the Security Interest therein. The Pledgor shall deliver
to the Secured Party promptly after acquisition thereof all Collateral acquired
after the date hereof. All Collateral shall be in suitable form for transfer by
delivery, or be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Secured
Party. The Secured Party shall have the right, at any time in its discretion and
without notice to the Pledgor, to transfer to or to register in the name of the
Secured Party or its nominee any or all of the Collateral, subject only to the
revocable rights specified in Section 4.6.1. In addition, the Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Collateral for certificates or instruments of smaller
or larger denominations.
6
<PAGE>
4.1.2. Without limitation of subsection (a) above, if the Pledgor receives
or becomes entitled to receive any securities issued by any issuer of
Collateral, or any successor thereto, in any manner in substitution for or with
respect to any of the Collateral, or if the Pledgor shall become entitled to
receive or shall receive any securities or other property in addition to, in
substitution of, as a conversion of, or in exchange for, or with respect to any
of the Collateral, the Pledgor shall receive the same as the agent for the
Secured Party, and shall hold the same in trust for and deliver the same
promptly to the Secured Party in the exact form in which received, together with
appropriate instruments of transfer or assignments in blank, to be held by the
Secured Party as Collateral hereunder.
SECTION 4.2. FURTHER ASSURANCES. The Pledgor shall, at its own expense,
------------------
perform on request of the Secured Party, such acts as may be necessary or
advisable in the opinion of the Secured Party, or that the Secured Party may
request at any time, to assure the attachment, perfection and first priority of
the Security Interest, to exercise the rights and remedies of the Secured Party
hereunder or to carry out the intent of this Agreement. Without limiting the
foregoing, the Pledgor shall, upon request of the Secured Party, execute and
deliver a UCC-1 financing statement covering the Collateral in a form
satisfactory for filing in the Office of the Secretary of State of the State of
California.
SECTION 4.3. POWER OF ATTORNEY. The Pledgor hereby irrevocably appoints
-----------------
the Secured Party and its employees and agents as the Pledgor's true and lawful
attorneys-in-fact, with full power of substitution, to do (a) all things
required to be done by the Pledgor under this Agreement, and (b) to do all
things that the Secured Party may deem necessary or advisable to assure the
attachment, perfection and first priority of the Security Interest or otherwise
to exercise the rights and remedies of the Secured Party hereunder or carry out
the intent of this Agreement (including by voting any Collateral as contemplated
by Section 4.7), in each case irrespective of whether a Default or Event of
Default then exists (except as otherwise provided herein) and at the Pledgor's
expense. Without limitation, the Secured Party and its officers and agents shall
be entitled to do all of the following, as fully as the Pledgor might: (a)
affix, by facsimile signature or otherwise, the general or special endorsement
of the Pledgor, in such manner as the Secured Party shall deem advisable, to any
Collateral that has been delivered to or obtained by the Secured Party without
appropriate endorsement or assignment, which endorsement shall be effective for
all purposes, and (b) vote any Collateral as contemplated by Section 4.7.
SECTION 4.4. PAYMENT OF CHARGES AND CLAIMS. The Pledgor shall pay (a) all
-----------------------------
Charges imposed upon any Collateral, and (b) all claims that have become due and
payable and, under applicable laws and regulations, have or may become Liens
upon any Collateral, in each case before any penalty shall be incurred with
respect thereto. If the Pledgor fails to pay or obtain the discharge of any
Charge, claim or Lien required to be paid or discharged under this Section and
asserted against any of the Collateral, the Secured Party may, at any time and
from time to time, in its sole discretion and without
7
<PAGE>
waiving or releasing any obligation of the Pledgor under this Agreement or
waiving any Default or Event of Default, make such payment, obtain such
discharge or take such other action with respect thereto as the Secured Party
deems advisable, and all amounts so expended by the Secured Party shall be
included in the Secured Obligations.
SECTION 4.5. DUTY OF CARE. The Secured Party shall have no duty of care
------------
with respect to the Collateral, except that the Secured Party shall have an
obligation to exercise reasonable care with respect to Collateral in its
possession; provided that (i) the Secured Party shall be deemed to have
exercised reasonable care if Collateral in its possession is accorded treatment
substantially comparable to that which the Secured Party accords its own
property or treatment substantially in accordance with actions requested by the
Pledgor in writing, and (ii) the Secured Party shall have no obligation to take
any actions to preserve rights against other parties with respect to any
Collateral. Without limitation, the Secured Party shall (A) bear no risk or
expense with respect to any Collateral and (B) have no duty with respect to
calls, conversions, presentments, maturities, notices or other matters relating
to Collateral, or to maximize interest or other returns with respect thereto.
4.5.1. The Pledgor hereby agrees to indemnify and hold harmless the Secured
Party and its directors, officers, employees and agents against any and all
claims, actions, liabilities, costs and expenses of any kind or nature
whatsoever (including reasonable fees and disbursements of counsel) that may be
imposed on, incurred by, or asserted against any of them, in any way relating to
or arising out of this Agreement or any action taken or omitted by them
hereunder, except to the extent a court holds in a final and nonappealable
judgment that they directly resulted from the negligence or misconduct of such
indemnified Persons.
SECTION 4.6. SALE OF COLLATERAL; FURTHER ENCUMBRANCES. The Pledgor shall
----------------------------------------
not (a) except for dispositions with the prior written consent of the Secured
Party, sell, lease or otherwise dispose of any Collateral, or any interest
therein, or (b) grant or suffer to exist any other Lien in or on any Collateral.
If any Collateral, or any interest therein, is disposed of in violation of these
provisions, the Security Interest shall continue in such Collateral or interest
notwithstanding such disposition, and the Pledgor shall deliver all Proceeds
thereof to the Secured Party to be held as Collateral hereunder.
SECTION 4.7. VOTING AND OTHER CONSENSUAL RIGHTS.
----------------------------------
4.7.1. So long as no Event of Default shall exist, the Pledgor shall be
entitled to exercise any and all voting and other consensual rights pertaining
to any Collateral, for any purpose not inconsistent with the terms of this
Agreement.
4.7.2. So long as an Event of Default shall exist, at the sole option of
the Secured Party, any or all rights of the Pledgor to exercise voting and other
consensual rights as permitted above shall cease, and the Secured Party, if and
when it notifies the
8
<PAGE>
Pledgor of the exercise of such option, shall have the sole right to exercise
any or all such voting and other consensual rights.
4.8. DISTRIBUTIONS.
-------------
4.8.1. Any and all cash paid or otherwise distributed in respect of the
Collateral shall be applied toward satisfaction of the Secured Obligations, and
the Pledgor shall, upon receipt of any such payment or distribution, hold it in
trust for the benefit of the Secured Party and shall immediately deliver the
same to the Secured Party for application against the Secured Obligations. Any
and all dividends and other distributions paid, distributed or payable (other
than in cash) in respect of Collateral, whether in respect of the liquidation or
dissolution of any issuer thereof or upon or in respect of any distribution of
capital or redemption or exchange of any Collateral, shall constitute additional
Collateral and shall be delivered to the Secured Party, in the exact form
received, to be held as Collateral hereunder.
4.8.2. All cash and other property required to be delivered to the Secured
Party hereunder shall, if received by the Pledgor, be received in trust for the
benefit of the Secured Party, be segregated from the other property of the
Pledgor, and promptly be delivered to the Secured Party in the same form as so
received (with any appropriate endorsements or assignments).
SECTION 4.9. REGISTRATION RIGHTS.
-------------------
4.9.1 The Pledgor agrees that, at any time following the occurrence of an
Acceleration, upon request of the Secured Party and without expense to the
Secured Party, it shall at its own expense:
4.9.1.1. prepare, cause to be filed and use its best efforts to
cause to become effective with respect to the Collateral one or more
registration or qualification statements and similar documents under the
applicable federal, state or other securities laws with respect to the public
offering and sale of the Collateral and to obtain such Governmental Approvals
for the sale of the Collateral as the Secured Party may request in connection
with any such offering or sale; and
4.9.1.2. furnish the Secured Party with such amendments to such
registration statements and other documents and such legal opinions,
prospectuses and other documents as the Secured Party may from time to time
request and do such further acts and things as the Secured Party may deem
necessary or advisable to effectuate the offering and sale by the Secured Party
of such Collateral in compliance with applicable laws and regulations.
4.9.2. The Pledgor agrees to indemnify and hold harmless the Secured Party
and each underwriter (within the meaning of the Securities Act) acting in the
transaction, and each Person controlling (within the meaning of the Securities
Act) the Secured Party or underwriter, from and against any and all claims,
actions, liabilities,
9
<PAGE>
costs and expenses (including legal fees and expenses) based upon or arising out
of any actual or alleged untrue statement of a material fact contained in any
such registration statement, qualification statement or similar document, or any
actual or alleged omission to state a material fact required to be stated in any
such document, or necessary to make the statements contained therein not
misleading. If the indemnification provided for in this Section 4.9 is
unavailable to or otherwise insufficient to hold harmless an indemnified party
hereunder in respect of any claims, actions, liabilities, costs or expenses
referred to herein, then the Pledgor, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such claims, actions, liabilities, costs or expenses in such
proportion as is appropriate to reflect the relative fault of the Pledgor, the
Secured Party and each underwriter in connection with the statements or
omissions that resulted in such claims, actions, liabilities, costs or expenses,
as well as any other relevant equitable considerations.
SECTION 4.10. PLEDGED STOCK. Within two (2) weeks of the date hereof, the
-------------
Pledgor agrees to substitute in replacement of the Pledged Stock Five Hundred
Thousand (500,000) shares of common stock, par value $.001 per share, of Reading
Entertainment, Inc., a Delaware corporation, which either (i) have been owned by
the Pledgor, and fully paid for, for a period of at least one (1) year preceding
the date hereof, or (ii) do not constitute "restricted securities" within the
meaning of that term under Rule 144 promulgated under the Securities Act (the
"Substitute Stock"), accompanied by a certificate of a responsible officer of
the Pledgor representing and warranting that the Substitute Stock meets such
criteria. From and after such substitution the Substitute Stock shall for all
purposes of this Agreement constitute the Pledged Stock.
SECTION 4.11. FILING OF APPLICABLE FORMS PURSUANT TO MARGIN REQUIREMENTS.
----------------------------------------------------------
The Pledgor agrees to file Form F. R. G-3 in relation to the Pledged Stock in
order to comply with applicable margin requirements issued by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant
to Section 7 of the Exchange Act.
ARTICLE 5.
EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT
-------------------------------------------------
SECTION 5.1. EVENT OF DEFAULT. The occurrence of any one or more of the
----------------
following shall constitute an event of default (an "Event of Default"):
----------------
5.1.1. The Pledgor shall fail to pay when due any principal (whether at
stated maturity, upon acceleration, upon required prepayment or otherwise) or
other sum due under the Note, which default is not cured within ten (10)
business days after written notice to the Pledgor;
5.1.2. The Pledgor (i) shall default in the payment, beyond any period of
grace provided therefor, of any principal of or interest of the Secured
Obligations in an
10
<PAGE>
amount exceeding $200,000, or (ii) shall commit any breach of or default under
any other term of any agreement or indenture or instrument relating to the
Secured Obligations, if the effect of such breach or default is to cause, or to
permit the Holder (or a person on behalf of such holders) to cause (upon the
giving of notice or the lapse of time or both, or otherwise), any such Secured
Obligation to become or be declared due and payable prior to its stated maturity
(or to be, or become required to be, purchased or redeemed prior to its stated
maturity) or to cause, or to permit the holder or holders thereof to cause, the
Pledgor to be deprived of any of the Pledgor's assets having a value in excess
of $200,000;
5.1.3. Any representation or warranty or certification made or furnished
by the Pledgor under this Agreement or any other related document shall prove to
have been false or incorrect in any material respect when made (or deemed made);
5.1.4. The Pledgor shall fail to perform, comply with or observe any
agreement or obligation to be performed or complied with by it under this
Agreement (other than those provisions referred to in Section 5.1.1 above) or
any other related document, and such failure shall not have been remedied within
30 days after notice thereof from the Lender to the Pledgor;
5.1.5. There shall be commenced against the Pledgor an involuntary case
seeking the liquidation or reorganization of the Pledgor under Chapter 7, 11 or
13, respectively, of the Bankruptcy Code or any similar proceeding under any
other applicable law or an involuntary case or proceeding seeking the
appointment of a receiver, liquidator, sequestrator, custodian, trustee or other
officer having similar powers of the Pledgor or to take possession of all or a
substantial portion of its property or to operate all or a substantial portion
of its business, and any of the following events occur: (i) the Pledgor consents
to the institution of the involuntary case or proceeding; (ii) the petition
commencing the involuntary case or proceeding is not timely controverted; (iii)
the petition commencing the involuntary case or proceeding remains undismissed
and unstayed for a period of 60 days; or (iv) an order for relief shall have
been issued or entered therein;
5.1.6. The Pledgor shall institute a voluntary case seeking liquidation or
reorganization under Chapter 7, 11 or 13, respectively, of the Bankruptcy Code
or any similar proceeding under any other applicable law, or shall consent
thereto; or shall consent to the conversion of an involuntary case to a
voluntary case; or shall file a petition, answer a complaint or otherwise
institute any proceeding seeking, or shall consent or acquiesce to the
appointment of, a receiver, liquidator, sequestrator, custodian, trustee or
other officer with similar powers of it or to take possession of all or a
substantial portion of its property or to operate all or a substantial portion
of its business; or shall make a general assignment for the benefit of
creditors; or shall generally not pay its debts as they become due; or the board
of directors (or any committee thereof) of the Pledgor adopts any resolution or
otherwise authorize action to approve any of the foregoing;
11
<PAGE>
5.1.7. This Agreement, the Note or any other related document, or any
material provision in any of them, shall cease to be in full force and effect as
against the Pledgor for any reason other than a release or termination thereof
upon the payment and satisfaction of the Secured Obligations thereunder pursuant
to its terms, or the Pledgor shall contest or purport to repudiate or disavow
any of its obligations thereunder or the validity of enforceability thereof.
SECTION 5.2. REMEDIES. If (a) upon or after the occurrence of any Event of
--------
Default, the Secured Party elects to exercise remedies under this Agreement or
(b) there occurs an Event of Default under Section 5.1.5 or 5.1.6 (the
occurrence of any such event shall be referred to as an "Acceleration"), then,
--------------
whether or not all the Secured Obligations shall have become immediately due and
payable:
5.2.1. In addition to all its other rights, powers and remedies under this
Agreement and applicable laws and regulations, the Secured Party shall have, and
may exercise, any and all of the rights, powers and remedies of a secured party
under the UCC, all of which rights, powers and remedies shall be cumulative and
not exclusive, to the extent permitted by applicable laws and regulations.
5.2.2. The Secured Party shall have the right, all at the Secured Party's
sole option and as the Secured Party in its discretion may deem necessary or
advisable, to do any or all of the following:
5.2.2.1. to foreclose the Security Interest by any available
judicial procedure or without judicial process; and
5.2.2.2. to exercise any and all other rights, powers, privileges
and remedies of an owner of the Collateral.
5.2.3. The Secured Party shall have the right to sell or otherwise dispose
of all or any Collateral at public or private sale or sales, with such notice as
may be required by Section 5.4 in lots or in bulk, at any exchange, over the
counter or at any of the Secured Party's offices or elsewhere, for cash or on
credit, with or without representations or warranties, all as the Secured Party,
in its discretion, may deem advisable. The Collateral need not be present at any
such sales. If sale of all or any part of the Collateral is made on credit or
for future delivery, the Collateral so sold may be retained by the Secured Party
until the sale price is paid by the purchaser thereof, but the Secured Party
shall not incur any liability in case any such purchaser shall fail to take up
and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. The Secured Party shall not be
obligated to make any sale of the Collateral regardless of notice of sale having
been given. The Secured Party may purchase all or any part of the Collateral at
public or, if permitted by applicable laws and regulations, private sale, and in
lieu of actual payment of the purchase price, the Secured Party may apply
against such purchase price any amount of the Secured Obligations. The Pledgor
agrees that any sale of Collateral conducted by the Secured Party in accordance
12
<PAGE>
with the foregoing provisions of this Section and Section 5.2.4 shall be deemed
to be a commercially reasonable sale under Section 9-504 of the UCC.
5.2.4. The Secured Party shall not be required to register or qualify any
of the Collateral that constitutes securities under applicable state or federal
securities laws in connection with any sale or other disposition thereof if such
disposition is effected in a manner that complies with all applicable federal
and state securities laws. The Secured Party shall be authorized at any such
disposition (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
"accredited investors" or "qualified institutional buyers" under applicable laws
and regulations and purchasing the Collateral for their own account for
investment and not with a view to the distribution or sale thereof. If any such
Collateral is sold at private sale, the Pledgor agrees that if such Collateral
is sold in a manner that the Secured Party in good faith believes to be
reasonable under the circumstances then existing, then (A) the sale shall be
deemed to be commercially reasonable in all respects, (B) the Pledgor shall not
be entitled to a credit against the Secured Obligations in an amount in excess
of the purchase price, and (C) the Secured Party shall not incur any liability
or responsibility to the Pledgor in connection therewith, notwithstanding the
possibility that a substantially higher price might have been realized at a
public sale. The Pledgor recognizes that a ready market may not exist for such
Collateral if it is not regularly traded on a recognized securities exchange,
and that a sale by the Secured Party of any such Collateral for an amount
substantially less than the price that might have been achieved had the
Collateral been so traded may be commercially reasonable in view of the
difficulties that may be encountered in attempting to sell Collateral that is
privately traded.
SECTION 5.3. APPLICATION OF PROCEEDS.
-----------------------
5.3.1. Any cash proceeds received by the Secured Party in respect of any
sale of, collection from, or other realization upon, all or any part of the
Collateral following the occurrence of an Acceleration or otherwise (including
insurance proceeds) may be held by the Secured Party as Collateral and/or then
or at any time thereafter applied as follows:
5.3.1.1. first, to pay all advances, charges, costs and expenses
payable to the Secured Party pursuant to Section 6.1; and
5.3.1.2. second, to pay the Secured Obligations in the order
determined by the Secured Party in its sole discretion.
5.3.2 The Pledgor and any other Person then obligated therefor shall pay to
the Secured Party on demand any deficiency with regard to the Secured
Obligations that may remain after such sale, collection or realization of, from
or upon the Collateral.
SECTION 5.4. NOTICE. Unless the Collateral is perishable or threatens to
------
decline speedily in value or is of a type customarily sold on a recognized
market, the
13
<PAGE>
Secured Party will send or otherwise make available to the Pledgor reasonable
notice of the time and place of any public sale or of the time on or after which
any private sale of any Collateral is to be made. The Pledgor agrees that any
notice required to be given by the Secured Party of a sale or other disposition
of Collateral, or any other intended action by the Secured Party, that is
received in accordance with the provisions set forth in Section 6.4 five (5)days
prior to such proposed action shall constitute commercially reasonable and fair
notice thereof to the Pledgor. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Pledgor hereby waives any right to
receive notice of any public or private sale of any Collateral or other security
for the Secured Obligations except as expressly provided for in this Section.
ARTICLE 6.
GENERAL
-------
SECTION 6.1. SECURED PARTY'S EXPENSES, INCLUDING ATTORNEYS' FEES.
---------------------------------------------------
Regardless of the occurrence of a Default or Event of Default, the Pledgor
agrees to pay to the Secured Party any and all advances, charges, costs and
expenses, including the fees and expenses of counsel and any experts or agents,
that the Secured Party may incur in connection with (a) the administration of
this Agreement, (b) the creation, perfection or continuation of the Security
Interest or protection of its priority or the Collateral, including the
discharging of any prior or junior Lien or adverse claim against the Collateral
or any part thereof that is not permitted hereby or by the Note, (c) the
custody, preservation or sale of, collection from, or other realization upon,
any of the Collateral, (d) the exercise or enforcement of any of the rights,
powers or remedies of the Secured Party under this Agreement or under applicable
laws and regulations or in any workout or restructuring or insolvency or
bankruptcy proceeding or (e) the failure by the Pledgor to perform or observe
any of the provisions hereof. All such amounts and all other amounts payable
hereunder shall be payable on demand, together with interest at a rate equal to
the lesser of (i) the Default Interest Rate (as defined in the Note) (based on a
year of 360 days), or (ii) the maximum rate allowed by applicable laws and
regulations, from and including the due date to and excluding the date of
payment.
SECTION 6.2. AMENDMENTS AND OTHER MODIFICATIONS. No amendment of any
----------------------------------
provision of this Agreement (including a waiver thereof or consent relating
thereto) shall be effective unless the same shall be in writing and signed by
the Secured Party. Any waiver or consent relating to any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Pledgor in any case shall
entitle the Pledgor to any other or further notice or demand in similar or other
circumstances.
SECTION 6.3. CUMULATIVE REMEDIES; FAILURE OR DELAY. The rights and
-------------------------------------
remedies provided for under this Agreement are cumulative and are not exclusive
of any
14
<PAGE>
rights and remedies that may be available to the Secured Party under applicable
laws and regulations or otherwise. No failure or delay on the part of the
Secured Party in the exercise of any power, right or remedy under this Agreement
shall impair such power, right or remedy or shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or remedy
preclude other or further exercise of such or any other power, right or remedy.
SECTION 6.4. NOTICES, ETC. All notices and other communications under this
------------
Agreement shall be in writing and shall be personally delivered or sent by
prepaid courier, by overnight, registered or certified mail (postage prepaid) or
by prepaid telex, telecopy or telegram, and shall be deemed given when received
by the intended recipient thereof. Unless otherwise specified in a notice given
in accordance with the foregoing provisions of this Section 6.4, notices and
other communications shall be given to the parties hereto at their respective
addresses (or to their respective telex or telecopier numbers) indicated on the
signature page(s) hereto.
SECTION 6.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
----------------------
and, subject to the next sentence, inure to the benefit of the Pledgor and the
Secured Party and their respective successors and assigns. The Pledgor shall not
assign nor transfer any of its rights or obligations hereunder without the prior
written consent of the Secured Party. The benefits of this Agreement shall pass
automatically with any assignment of the Secured Obligations (or any portion
thereof), to the extent of such assignment.
SECTION 6.6. PAYMENTS SET ASIDE. Notwithstanding anything to the contrary
------------------
herein contained, this Agreement, the Secured Obligations and the Security
Interest shall continue to be effective or be reinstated, as the case may be, if
at any time any payment, or any part thereof, of any or all of the Secured
Obligations is rescinded, invalidated, declared to be fraudulent or preferential
or otherwise required to be restored or returned by the Secured Party in
connection with any bankruptcy, reorganization or similar proceeding involving
the Pledgor, any other party liable with respect to the Secured Obligations or
otherwise, if the proceeds of any Collateral are required to be returned by the
Secured Party under any such circumstances, or if the Secured Party elects to
return any such payment or proceeds or any part thereof in its sole discretion,
all as though such payment had not been made or such proceeds not been received.
Without limiting the generality of the foregoing, if prior to any such
rescission, invalidation, declaration, restoration or return, this Agreement
shall have been canceled or surrendered or the Security Interest or any
Collateral shall have been released or terminated in connection with such
cancellation or surrender, this Agreement and the Security Interest and such
Collateral shall be reinstated in full force and effect, and such prior
cancellation or surrender shall not diminish, discharge or otherwise affect the
obligations of the Pledgor in respect of the amount of the affected payment or
application of proceeds, the Security Interest or such Collateral.
15
<PAGE>
SECTION 6.7. CONTINUING SECURITY INTEREST; TERMINATION. This Agreement
-----------------------------------------
shall create a continuing security interest in the Collateral and, except as
provided below, the Security Interest and all agreements, representations and
warranties made herein shall survive until, and this Agreement shall terminate
only upon, the indefeasible payment in full of the Secured Obligations.
Notwithstanding anything in this Agreement or applicable laws and
regulations to the contrary, the agreements of the Pledgor set forth in Sections
4.5.1, 4.9 and 6.1 shall survive the payment of all other Secured Obligations
and the termination of this Agreement.
SECTION 6.8. WAIVER AND ESTOPPEL. Except as otherwise provided in this
-------------------
Agreement, the Pledgor hereby waives: (a) presentment, protest, notice of
dishonor, release, compromise, settlement, extension or renewal and any other
notice of or with respect to the Secured Obligations and hereby ratifies and
confirms whatever the Secured Party may do in this regard; (b) notice prior to
taking possession or control of any Collateral or any bond or security that
might be required by any court prior to allowing the Secured Party to exercise
any of their rights, powers or remedies; (c) the benefit of all valuation,
appraisement, redemption and exemption laws; (d) any rights to require
marshaling of the Collateral upon any sale or otherwise to direct the order in
which the Collateral shall be sold; (e) any set-off; and (f) any rights to
require the Secured Party to proceed against any Person, proceed against or
exhaust any Collateral or any other security interests or guaranties or pursue
any other remedy in the Secured Party's power, or to pursue any of such rights
in any particular order or manner, and any defenses arising by reason of any
disability or defense of any Person.
SECTION 6.9. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
-------------------------
any number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
SECTION 6.10. COMPLETE AGREEMENT. This Agreement, together with the
------------------
exhibits and schedules hereto, is intended by the parties as a final expression
of their agreement regarding the subject matter hereof and as a complete and
exclusive statement of the terms and conditions of such agreement.
SECTION 6.11. LIMITATION OF LIABILITY. No claim shall be made by the
-----------------------
Pledgor against the Secured Party or the affiliates, directors, officers,
employees or agents of the Secured Party for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or under any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and the Pledgor hereby waives, releases and
agrees not to sue upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.
16
<PAGE>
SECTION 6.12. WAIVER OF TRIAL BY JURY. THE PLEDGOR AND THE SECURED PARTY
-----------------------
WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS AGREEMENT,
REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
PLEDGOR:
- -------
CRAIG CORPORATION Address: 550 South Hope Street
Suite 1825
Los Angeles, CA 90071
By: /s/ Robin Skophammer
--------------------------- Telecopy: (213) 239-0548
Title: Chief Financial Officer
------------------------
SECURED PARTY:
- -------------
CITADEL HOLDING CORPORATION Address: 550 South Hope Street
Suite 1825
Los Angeles, CA 90071
By: /s/ S. Craig Tompkins
------------------------- Telecopy: (213) 239-0548
Title: Vice Chairman
----------------------
18
<PAGE>
EXHIBIT 10.48
SECURED PROMISSORY NOTE
$1,998,000.00 Los Angeles, California
April 11, 1997
FOR VALUE RECEIVED, the undersigned, CRAIG CORPORATION, a Delaware
corporation, with an address at 550 South Hope Street, Suite 1825, Los Angeles,
California, 90071 ("Craig"), hereby promises to pay to the order of CITADEL
HOLDING CORPORATION ("CHC"), at CHC's office at 550 South Hope Street, Suite
1825, Los Angeles, California, 90071, or at such other place as CHC or other
holder (the "Holder") of this Note (this "Note") may from time to time
designate, the principal sum ("Principal Sum") of ONE MILLION NINE HUNDRED
NINETY-EIGHT THOUSAND AND 00/100 DOLLARS ($1,998,000.00) together with interest
thereon at the rate hereinafter specified and any and all other sums which may
be owing to the Holder by Craig, as hereinafter provided.
1. Interest Rate. Interest ("Interest") on the unpaid balance of the
-------------
Principal Sum shall be charged at the fluctuating rate equal from time to time
to the "Prime" rate as published in the Wall Street Journal (the "Prime Rate").
Interest shall be computed on the basis of a 360 day-year and the actual number
of days elapsed.
2. Payments. Interest will be paid quarterly in arrears, within ten (10)
--------
business days following the end of each fiscal quarter. Principal and all
accrued and unpaid interest will be due upon the earlier of (a) the fifth
anniversary of the note, (b) one hundred twenty (120) days following receipt by
Craig of Holder's written demand for payment, or (c) the date of acceleration of
this Note pursuant to Paragraph 6 below (the "Maturity Date"). This Note may be
prepaid, in whole or in part, at any time by Craig without penalty or premium,
and shall be prepaid when required under Section 4.8.1 of that certain Stock
Pledge Agreement (as more fully described in Paragraph 19 below).
3. Application of Payments. All payments made hereunder shall be applied
-----------------------
first to any and all late fees and prepayment fees, next to accrued and unpaid
Interest, and then to the Principal Sum, or in such other order or proportion as
the Holder, in its sole and absolute discretion, may determine from time to
time.
4. Manner of Payments. All payments shall be made in immediately
------------------
available funds during regular business hours at the office of CHC, or such
other place as the Holder may designate from time to time, in coin or currency
of the United States of America which at the time of such payment is legal
tender for the payment of public and private debts. No payment shall be deemed
made until actually received by the Holder.
5. Default Rate. Upon a default in the payment when due of any sum due
------------
under this Note, which default is not cured within ten (10) business days after
written notice to Craig or upon the occurrence of any Event of Default (as that
term is defined in Section 5.1 of the Stock Pledge Agreement), the Holder, in
the Holder's sole discretion and without notice or demand,
<PAGE>
Promissory Note between
Craig Corporation and
Citadel Holding Corporation
Page 2
may raise the rate of Interest accruing on the unpaid Principal Sum to the
Default Interest Rate (such rate being defined for purposes of this Note as the
Prime Rate plus 200 basis points) independent of whether the Holder elects to
accelerate the unpaid Principal Sum as a result of such default. From and after
the Maturity Date, whether by acceleration or in due course, the entire unpaid
balance of the principal sum hereunder, all unpaid interest accrued thereon at
such maturity, and all other amounts due hereunder shall bear interest at the
Default Interest Rate.
6. Acceleration Upon Default. Upon a default in the payment of any
-------------------------
installment of Interest due hereunder or upon the occurrence of any other Event
of Default, the Holder may, in the Holder's sole and absolute discretion and
without notice or demand, declare the entire unpaid balance of principal plus
accrued Interest, late payment fees, and any other sums due hereunder
immediately due and payable. Upon the occurrence of any Event of Default, the
entire unpaid balance of principal plus accrued Interest, late payment fees and
any other sums due hereunder shall thereupon become, regardless of whether any
such declaration is made, immediately due and payable.
7. Interest Rate After Judgment. If judgment is entered against Craig
----------------------------
under this Note, the amount of the judgment entered (which may include Principal
Sum, Interest, default interest, prepayment fees, late charges, and other fees,
and costs) shall bear interest at the Default Interest Rate as of the date of
entry of the judgment.
8. Expenses of Collection. Upon a default by Craig under this Note,
----------------------
Craig shall pay all of the Holder's reasonable costs, fees, and expenses in
connection with the enforcement or collection of this Note, including attorneys'
fees and related legal and court costs, whether or not judgment has been
confessed, suit has been filed, or any other action has been commenced by or on
behalf of the Holder to enforce or collect this Note, all of which shall be
added to and become part of the debt evidenced hereby, and shall bear interest
at the Default Interest Rate.
9. Waivers. Craig, and all parties to this Note, whether maker, endorser
-------
or guarantor, hereby waive presentment of this Note for payment, protest and
demand, dishonor and notice of protest, demand or dishonor and nonpayment under
this Note, and agree that, without giving notice to or obtaining the consent of
Craig or any other person, the Holder may extend the time of payment, extend the
Maturity Date, release any party liable for any obligation hereunder, release
any of the security for this Note, accept other security therefor, and otherwise
modify the terms of payment of any or all of the debt evidenced by this Note,
with or without having been requested to do so by any other person liable
hereon, and such consent shall not alter nor diminish the liability of Craig or
any other person hereunder, except if and to the extent that the Holder may
otherwise agree with, respectively, Craig or such other person, expressly and in
writing.
10. Non-Waiver by Holder. The rights and remedies of the Holder under
--------------------
this Note shall be cumulative and concurrent and may be pursued singularly,
successively or together at the sole and absolute discretion of the Holder, and
may be exercised as often as occasion therefor
<PAGE>
Promissory Note between
Craig Corporation and
Citadel Holding Corporation
Page 3
shall occur, and the failure to exercise any such right or remedy shall in no
event be construed as a waiver or release of the same or any other right or
remedy. By accepting full or partial payment after the due date of any amount of
Principal Sum or of Interest on this Note, the Holder shall not be deemed to
have waived the right either to require prompt payment when due and payable of
all other amounts of Principal Sum or of Interest on this Note or to exercise
any remedies available to it in order to collect all such other amounts due and
payable under this Note. No delay in the exercise of or failure to exercise, any
right, remedy, or power accruing upon any default or failure of Craig in the
performance of any obligation under this Note shall impair any such right,
remedy of power or shall be construed to be a waiver thereof, but any such
right, remedy, or power may be exercised from time to time and as often as may
be deemed expedient by the Holder. If Craig should default in the performance of
any obligation under this Note, and such default should thereafter be waived by
the Holder, such waiver shall be limited to the particular default so waived.
11. Applicable Law and Consent to Jurisdiction. This Note shall be
------------------------------------------
governed, construed and enforced in strict accordance with the internal laws of
the State of California.
12. Severability Clause. In case any provision (or any part of any
-------------------
provision) contained in this Note shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision (or remaining part of the
affected provision) of this Note but this Note shall be construed as if such
invalid, illegal or unenforceable provision (or part thereof) had never been
contained herein but only to the extent it is invalid, illegal or unenforceable.
13. Excess Interest. Nothing herein contained, nor any transaction
---------------
related hereto, shall be construed or so operate as to require Craig to pay
interest at a greater rate than the maximum allowed by law. Should any interest
or other charges paid or payable by Craig in connection with this Note, or any
other document delivered in connection herewith, result in the computation or
earning of interest in excess of the maximum allowed by law, then any and all
such excess shall be, and the same hereby is, waived by the Holder, and any and
all such excess paid shall be automatically credited against and in reduction of
the balance due under this Note, and the portion of said excess which exceeds
the balance due under this Note shall be paid by the Holder to Craig.
14. Assignability. This Note may be assigned by CHC or any Holder at any
-------------
time or from time to time without notice to or consent of Craig. In the event
that CHC or any Holder of this Note transfers this Note for value, Craig agrees
that no subsequent Holder of this Note shall be subject to any claims or
defenses which Craig may have against a prior Holder, all of which are waived as
to the subsequent Holder, and that all subsequent Holders shall have all of the
rights of a Holder in due course with respect to Craig even though the
subsequent Holder may not qualify, under applicable law, absent this paragraph,
as a Holder in due course. This Note shall inure to the benefit of and be
enforceable by CHC and CHC's successors and assigns and any other person to whom
CHC may grant an interest in Craig's obligations to CHC, and shall be
<PAGE>
Promissory Note between
Craig Corporation and
Citadel Holding Corporation
Page 4
binding and enforceable against Craig and Craig's personal representatives,
successors, heirs and assigns.
15. Actions Against Holder. Any action brought by Craig against the
----------------------
Holder which is based, directly or indirectly or in whole or in part on the Note
or any matter in or related to this Note, including but not limited to the
making of the loan or the administration or collection thereof, shall be brought
only in the courts of the State of California and the Holder hereby consents to
the jurisdiction of such courts and the suitability and correctness of such
venue. All reasonable costs and expenses, including all attorneys fees, incurred
by the Holder in successfully defending any such action or counterclaim brought
by Craig against the Holder shall be paid by Craig to the Holder.
16. Time of the Essence. Time shall be of the essence of this Note.
-------------------
17. Headings. The headings used in this Note are for convenience only and
--------
are not to be interpreted as a substantive part of this Note.
18. Notices. All notices given by Holder to Craig or by Craig to Holder
-------
shall be given personally or by registered or certified mail and shall be deemed
delivered when actually received (if personally delivered) and otherwise on the
fourth business day following deposit, postage pre-paid, in the U.S. Mail within
the United States to the address first set forth above for such party in the
Note, and such address may be changed from time to time pursuant to notice given
in accordance with this provision.
19. Collateral Pledge. This Note is secured by the pledge of certain
-----------------
collateral as set forth in that certain Stock Pledge Agreement between Craig and
CHC, of even date herewith.
IN WITNESS WHEREOF, Craig has caused this Note to be executed under seal by
its duly authorized representative as of the day and year first above written.
ATTEST/WITNESS: CRAIG CORPORATION
By: /s/ Robin Skophammer (Seal)
- ---------------------------- --------------------------------
Name: Robin Skophammer
------------------------------
Title: Chief Financial Officer
-----------------------------
<PAGE>
EXHIBIT 10.49
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
AND
SERIES B VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
READING ENTERTAINMENT, INC.
Reading Entertainment, Inc., a Delaware corporation (the
"Corporation"), hereby certifies that, pursuant to the authority contained in
Article FOURTH of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Corporation's Board of Directors has duly adopted the following
resolution creating two series of its Preferred Stock, $.001 par value per
share, designated as Series A Voting Cumulative Convertible Preferred Stock and
Series B Voting Cumulative Convertible Preferred Stock:
RESOLVED, that two series of the class of the authorized Preferred
Stock of the Corporation be created hereby, and that the designations and
amounts thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of each such series, and the
qualifications, limitations or restrictions thereof, are as follows:
1. Designations and Numbers of Shares. Seventy thousand (70,000)
----------------------------------
shares of the Preferred Stock of the Corporation are hereby constituted as a
series of Preferred Stock, $.001 par value per share, and designated as "Series
A Voting Cumulative Convertible Preferred Stock" (hereinafter called the "Series
A Stock") and five hundred fifty thousand (550,000) shares of the Preferred
Stock of the Corporation are hereby constituted as a series of Preferred Stock,
$.001 par value per share, and designated as "Series B Voting Cumulative
Convertible Preferred Stock" (hereinafter called the "Series B Stock"; the
Series A Stock and the Series B Stock are hereinafter collectively called the
"Convertible Preferred Stock").
2. Liquidation. Upon any voluntary or involuntary dissolution,
-----------
liquidation or winding up of the Corporation (a "Liquidation"), the holder of
each share of each series of Convertible Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any distribution of assets shall be
made to the holders of Common Stock of the Corporation or to the holders of
other stock of the Corporation that ranks junior to such series of the
Convertible Preferred Stock in respect to distributions upon a Liquidation of
the Corporation ("Junior Stock"), an amount equal to $100 per share (the "Stated
Value"), plus an amount equal to all dividends (whether or not declared or due)
accrued and unpaid on such share on the date fixed for distribution of assets of
the Corporation to the holders of the Convertible Preferred Stock. The Series B
Stock shall rank junior to the Series A Stock in right to distributions on
Liquidation and shall be "Junior Stock" with respect to the Series A Stock.
Neither a consolidation or merger of the Corporation with or into any other
entity, nor a merger of any other entity with or into the Corporation, nor a
sale or transfer of all or any part of the Corporation's assets for cash or
securities or any other property, shall be
-1-
<PAGE>
considered a Liquidation. Written notice of any Liquidation shall be given to
the holders of the Convertible Preferred Stock not less than thirty days prior
to any payment date stated therein.
3. Dividends.
---------
3.1 The holders of Convertible Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, but only
out of surplus and capital legally available for the payment of dividends,
cumulative dividends at the annual rate of $6.50 per each share of Series A
Stock, and at the annual rate of $6.50 per each share of Series B Stock
("Regular Dividends"), in each case before any dividends or other distributions
(other than dividends in Common Stock or any other stock which ranks junior in
respect to such series of the Convertible Preferred Stock in respect to
dividends) are paid to the holders of the Common Stock or any other stock which
is Junior Stock with respect to such series. The Series B Stock shall rank
junior to the Series A Stock in right to dividends and shall be "Junior Stock"
with respect to the Series A Stock. Such dividends shall accumulate on each
share of Convertible Preferred Stock from the date of its original issuance and
from day to day and shall be payable (subject to declaration by the Board of
Directors and the existence of surplus and capital legally available for the
payment of such dividends) in equal quarterly installments on the last day of
March, June, September and December of each year (except that, if such date is
not a business day, the dividend shall be payable on the first immediately
succeeding business day); provided, however, that the initial quarterly dividend
-------- -------
payment payable on any share of Convertible Preferred Stock shall be an amount
equal to the product determined by multiplying the Regular Dividend for a
quarter by a fraction, the numerator of which is the number of days from (but
not including) the date of issuance of such share to the end of the dividend
quarter during which such share of Convertible Preferred Stock is issued and the
denominator of which is the total number of days in such dividend quarter.
3.2 Dividends at the rate specified in Section 3.1 hereof shall
accumulate whether or not they have been declared and whether or not there is
surplus and capital legally available for the payment of dividends.
3.3 To the extent any dividends on the Convertible Preferred
Stock accumulate and are in arrears, such dividend shall not bear interest.
4. Conversion Rights.
-----------------
4.1(a) Shares of Series A Stock may be converted, at the option
of the holder thereof, in whole or in part, upon delivery of a certificate
representing such shares to the Corporation, together with a notice specifying
the number of shares to be converted (the date of such delivery, or of delivery
of shares of Series B Stock on conversion thereof as hereinafter provided, is
hereinafter referred to as the "Conversion Date"), (i) at any time after the
date which is 18 months after the first issuance of the Convertible Preferred
Stock (the date of such first issuance being the "Original Issue Date") or (ii)
at any time prior to the later of (A) the 90th day after the earliest event
constituting a Change in Control (as hereinafter defined) and (B) the 30th day
after the consummation of the transaction the announcement of which constituted
such Change in Control (the period from the date of such Change in Control to
the later of such 90th or 30th day being the "Change in Control Period"). A
"Change in Control" shall mean the occurrence of either of the following events:
(x) any person, entity or "group" (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder) other
than Craig Corporation and its successors and affiliates (collectively,
"Craig"), shall publicly announce or disclose having entered into a transaction
as a result of which such person, entity or group would acquire beneficial
ownership of 50% or more of the outstanding Common Stock or securities entitling
such person, entity or group to cast 50% or more of the votes entitled to be
cast at any regular election of directors of the Corporation (where "affiliate"
of a person means a person directly or indirectly controlling, controlled by or
under common control with such person and "control" means the power to direct
the affairs of such person by reason of ownership of voting securities, contract
or otherwise) or (y) the directors of the Corporation as of the Original Issue
Date (the "Current Directors") and any future directors (the
-2-
<PAGE>
"Continuing Directors") elected or nominated by a majority of the Current
Directors or Continuing Directors cease to constitute a majority of the Board of
Directors of the Corporation.
(b) Shares of Series B Stock may be converted, at the option of the
holder thereof, in whole or in part, upon delivery of a certificate representing
such shares to the Corporation, together with a notice specifying the number of
shares to be converted, at any time after the date which is 18 months after the
Original Issuance Date.
(c) Notwithstanding the foregoing, a holder of shares of
Convertible Preferred Stock may not convert any shares of Convertible Preferred
Stock that have been called for redemption after 5:00 p.m. Eastern Time on the
date for such redemption.
4.2 Each share of Series A Stock shall be convertible into
shares of the Corporation's Common Stock at a conversion price of $11.50 per
share (as adjusted, the "Series A Conversion Price"), subject to certain
adjustments as described below; and each share of Series B Stock shall be
convertible into shares of the Corporation's Common Stock at a conversion price
of $12.25 per share (as adjusted, the "Series B Conversion Price"; the Series A
Conversion Price and the Series B Conversion Price are each hereinafter referred
to as a "Conversion Price"), subject to certain adjustments as described below.
The number of shares of Common Stock to be delivered on conversion of any shares
of Convertible Preferred Stock shall equal the aggregate Stated Value thereof
divided by the applicable Conversion Price then in effect, calculated to the
nearest 1/100th of a share, subject to Section 4.5. Except as provided in
Section 4.7, the Corporation shall make no payment or adjustment on the account
of any unpaid cumulative dividends on the shares of Convertible Preferred Stock
surrendered for conversion or on account of any dividends on the Common Stock.
4.3 If the Corporation shall (a) pay a dividend or make a
distribution on its outstanding shares of Common Stock in shares of its Common
Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of Common Stock into a smaller number of shares, then each
Conversion Price in effect immediately prior to such action shall be adjusted so
that the holder of any shares of Convertible Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
capital stock of the Corporation which he would have owned immediately following
such action had such shares of Convertible Preferred Stock been converted
immediately prior thereto. An adjustment made pursuant to this Section 4.3
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
The Corporation shall give notice to the holders of the Convertible Preferred
Stock of any adjustment pursuant to this Section 4.3 (stating the adjusted
Conversion Prices and the reasons therefor) not less than 10 days prior to the
record date for such dividend, distribution, subdivision, combination or
reclassification.
4.4 If the Corporation shall consolidate or merge into or with
another corporation, or if the Corporation shall sell or convey to any other
person or persons all or substantially all of the assets of the Corporation, or
shall issue by reclassification of its shares of Common Stock any shares of
capital stock of the Corporation, each holder of Convertible Preferred Stock
then outstanding shall have the right thereafter to convert each share of
Convertible Preferred Stock held by him into the kind and amount of shares of
stock, other securities, cash and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such share might have been converted immediately prior to such
consolidation, merger, sale or conveyance, and shall have no other conversion
rights. In any such event, effective provision shall be made, in the
certificate of incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale and conveyance so that, so far as
appropriate and as nearly as reasonably may be, the provisions set forth herein
for the protection of the conversion rights of the shares of the Convertible
Preferred Stock shall thereafter be made applicable.
-3-
<PAGE>
4.5 In connection with the conversion of any shares of the
Convertible Preferred Stock hereunder, no fractions of shares of Common Stock
shall be issued, but the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to a like fraction of an amount
equal to the closing sales price (the "Closing Price") of a share of the
Corporation's Common Stock on the National Association of Securities Dealers
Automated Quotation National Market System (or, if that shall not be the
principal market on which the Common Stock shall be trading or quoted, then on
such principal market) on the business day next preceding the Conversion Date.
4.6 The Corporation shall at all times reserve and keep available
out of its authorized Common Stock the full number of shares of Common Stock of
the Corporation issuable upon the conversion of that number of shares of the
Convertible Preferred Stock permitted to be converted into Common Stock
hereunder.
4.7 (a) In the event that the average of the Closing Prices of the
Common Stock, over any 180 consecutive trading day period ending within 15 days
of the date of the notice provided for in Section 4.7(b) (each such Closing
Price having been adjusted in proportion to any adjustment in the Conversion
Prices made after the date of such Closing Price), exceeds 135% of the Series A
Conversion Price then in effect, the Corporation may, at its option, require the
holders of all, but not less than all, of the issued and outstanding shares of
Series A Stock to convert such shares into Common Stock of the Corporation at
the Series A Conversion Price.
(b) Not less than ten nor more than sixty days prior to the
date fixed for mandatory conversion of the Series A Stock pursuant to Section
4.7(a) ("Mandatory Conversion"), notice by mail, postage prepaid, shall be given
to each holder of shares of Convertible Preferred Stock required to be
converted. On or after the date fixed for Mandatory Conversion, as stated in
such notice, each holder of the shares required to be converted shall surrender
his certificate(s) evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive the shares
of Common Stock deliverable upon conversion plus any accrued and any unpaid
dividends on such shares of Convertible Preferred Stock. If such notice of
Mandatory Conversion shall have been duly given, and if, on the date fixed for
Mandatory Conversion, funds necessary for the payment of dividends, if any,
shall be available therefor, then, notwithstanding that the certificates
evidencing any shares required to be converted shall not have been surrendered,
from and after the date fixed for Mandatory Conversion, dividends with respect
to the shares so converted shall cease to accrue, the shares shall no longer be
deemed outstanding, the holders thereof shall cease to be holders of the shares
of Convertible Preferred Stock, all rights whatsoever with respect to the shares
so converted shall forthwith terminate except only the right of the holders to
receive the previously accrued dividends without interest thereon and the shares
of Common Stock deliverable on conversion, upon surrender of their certificates
therefor, and such holders shall for all purposes be deemed holders of such
shares of Common Stock.
4.8 The issuance of certificates for shares of Common Stock upon
the conversion of shares of Convertible Preferred Stock shall be made without
charge to the holders of shares of Convertible Preferred Stock for any issue or
stamp tax in respect of the issuance of such certificates, and such certificates
shall be issued in the respective names of, or in such names as may be directed
by, the holders of shares of Convertible Preferred Stock converted; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of transfer involved in the issuance and delivery of any such
certificate in a name other than that of the holder of shares of Convertible
Preferred Stock converted, and the Corporation shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Corporation the amount of such tax or
shall have established to the satisfaction of the Corporation that such tax has
been paid. If less than all of the shares of Convertible Preferred Stock
represented by a certificate surrendered for conversion are converted, the
Corporation shall deliver to the holder of such shares a new certificate for the
shares not so converted.
-4-
<PAGE>
4.9 The Corporation from time to time may reduce either Conversion
Price by any amount for any period of time in the discretion of the Board of
Directors.
4.10 No adjustment in either Conversion Price shall be required
unless such adjustment would result in an increase or decrease of at least 1% in
such Conversion Price as then in effect; provided, however, that any adjustments
that by reason of this Section 4.10 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
5. Redemption.
-----------
5.1(a) The shares of Series A Stock may be redeemed at the
option of the Corporation, in whole or in part, upon prior written notice of
such redemption given by the Corporation in accordance with Section 5.2 hereof
at any time prior to the later of (i) the 120th day after the earliest event
constituting a Change in Control and (ii) the 60th day after the consummation of
the transaction the announcement of which constituted such Change in Control, at
the Change in Control Redemption Price (as hereinafter defined); provided, that
the Corporation may not, pursuant to this sentence, redeem shares of Series A
Preferred Stock held by Citadel Holding Corporation ("Citadel") or any of its
affiliates unless, prior to or simultaneously with such redemption, Craig
assumes certain obligations of the Corporation as provided in Section 4.1 of the
Asset Put and Registration Rights Agreement, dated the Original Issue Date,
among the Corporation, Craig, Citadel, and Citadel Acquisition Corp., Inc. (the
"Put Agreement"), and provided further that the Corporation may not redeem any
shares of Series A Stock pursuant to this sentence after the fifth anniversary
of the Original Issue Date. In addition, any or all of the shares of Series A
Stock may be redeemed at the option of the Corporation, upon prior written
notice of such redemption given by the Corporation in accordance with Section
5.2 hereof, at any time after the fifth anniversary of the Original Issue Date,
at the Standard Redemption Price (as hereinafter defined). The "Change in
Control Redemption Price" of each share of Series A Stock at any date shall mean
an amount equal to the sum of (x) the Stated Value thereof, (y) an accrual on
the Stated Value, from the date of issuance of such share to the date of
redemption, at a percentage per annum (not compounded) equal to 8% if such
redemption is on or before the fourth anniversary of the Original Issue Date or
7% if thereafter, and (z) all accrued and unpaid dividends thereon to the date
fixed for redemption; and the "Standard Redemption Price" of each share of
Convertible Preferred Stock at any date shall mean an amount equal to the
percentage for such date, as set forth below, of the Stated Value thereof, plus
an amount equal to all accrued and unpaid dividends thereon to the date fixed
for redemption:
<TABLE>
<CAPTION>
Anniversary of Original Issue Date Percentage
---------------------------------- ----------
<S> <C>
On or after the fifth anniversary and until the
sixth anniversary 108%
On or after the sixth anniversary and until the
seventh anniversary 106%
On or after the seventh anniversary and until
the eighth anniversary 104%
On or after the eighth anniversary and until the
ninth anniversary 102%
On or after the ninth anniversary 100%
</TABLE>
(b)(i) Subject to the provisions hereof, the holders of
a majority of the outstanding shares of Series A Stock (the "Requesting
Holders") may require that the Corporation purchase all, but (except as
otherwise provided in this Section 5.1(b)) not less than all, of the outstanding
shares of Series A Stock held by the Requesting Holders and those other holders
(the "Nonrequesting Holders") who so request as provided below, by notice (the
"Holders' Notice") given by the Requesting Holders to the Corporation at any
time (A) after 18 months after the Original Issue Date, if at the time of giving
such notice the quarterly dividends payable on the Series A Stock as provided in
Section 3 hereof are in arrears in an aggregate amount equal to at least four
full quarterly dividends (which need
-5-
<PAGE>
not be consecutive), or (B) within the 90-day period beginning on the fifth
anniversary of the Original Issue Date (but not, in the case of this clause (B),
after the exercise by Citadel of the Asset Put (as defined in the Put
Agreement)), in either case at a redemption price equal to the Stated Value
thereof plus all accrued and unpaid dividends thereon to the date fixed for
redemption. As promptly as practicable, and in any case within ten days, after
receipt of a Holders' Notice, the Corporation shall give a notice to each
Nonrequesting Holder, offering to redeem the shares of Series A Stock held by
such Nonrequesting Holder on the same terms, and subject to the same
limitations, as the shares held by the Requesting Holders, provided such
Nonrequesting Holder, within 10 days of the Corporation's notice (the "Response
Period"), gives notice to the Corporation stating that such Nonrequesting Holder
desires to have his shares redeemed. The Nonrequesting Holders who do not elect
to have their shares redeemed shall have no subsequent right to require
redemption pursuant to this Section 5.1(b)(i).
(ii) Citadel may require that the Corporation purchase
all, but (except as otherwise provided in this Section 5.1(b)) not less than
all, of the outstanding shares of Series A Stock owned by it and its affiliates,
by notice given by it to the Corporation at any time during the Change in
Control Period (but not after the fifth anniversary of the Original Issue Date)
at the Change in Control Redemption Price.
(iii) As promptly as practicable, and in any case
within ten days, after the expiration of the Response Period, in the case of a
redemption pursuant to Section 5.1(b)(i), or the notice given by Citadel, in the
case of a redemption pursuant to Section 5.1(b)(ii), the Corporation shall give
a notice of redemption pursuant to Section 5.2 and thereafter proceed to
effectuate such redemption as promptly as practicable.
(iv) Notwithstanding the foregoing, if, at the time
the Corporation is required to redeem shares of the Series A Stock, the funds of
the Corporation legally available for such redemption are insufficient to redeem
in full the shares of the Series A Stock required to be redeemed, (A) the
Corporation shall utilize the funds legally available to redeem the maximum
number of such shares which can be legally redeemed and (B) the remaining such
shares shall remain outstanding and not be redeemed.
(c) The shares of Series B Stock may be redeemed at
the option of the Corporation, in whole or in part, at any time after the fifth
anniversary of the Original Issue Date, upon prior written notice of such
redemption by the Corporation in accordance with Section 5.2, at a per share
redemption price equal to the Standard Redemption Price thereof.
(d) Notwithstanding the foregoing, the Corporation
may not, pursuant to Section 5.1(a) or (c), redeem less than all of the
outstanding shares of a series of Convertible Preferred Stock while any
additional dividends are accumulated and unpaid on such series pursuant to
Section 3 hereof without first declaring and paying all such additional
dividends on such series.
(e) If fewer than all of the outstanding shares of a
series of Convertible Preferred Stock are to be redeemed pursuant to this
Section 5.1 (other than pursuant to Section 5.1(b)(ii)), such shares shall be
redeemed pro rata from each holder of such series of Convertible Preferred Stock
--- ----
(with adjustments to avoid redemptions of fractional shares).
5.2 (a) Not less than thirty nor more than sixty days
prior to the date fixed for redemption, notice by mail, postage prepaid, shall
be given to each holder of shares of the Convertible Preferred Stock to be
redeemed. The redemption notice shall specify the date of redemption, the
certificates to be redeemed, and the applicable redemption price (the
"Redemption Price"); but failure to mail such notice or any defect therein or in
the mailing thereof shall not affect the validity of the proceeding for the
redemption of any shares so to be redeemed. On or after the date fixed for
redemption,
-6-
<PAGE>
as stated in the notice, each holder of the shares called for redemption shall
surrender his certificate(s) evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price thereof. In case less than all of the shares of
Convertible Preferred Stock represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
(b) Anything herein to the contrary notwithstanding,
if notice of redemption shall be given as provided in Section 5.2(a) above and
if, on or at any time prior to the date fixed for redemption therein, an amount
equal to the Redemption Price times the number of shares of Convertible
Preferred Stock called for redemption shall be deposited in trust for the
benefit of the holders of the shares of Convertible Preferred Stock called for
redemption with a bank or trust company having a combined capital and surplus of
at least $50 million according to its last published statement of condition,
then, notwithstanding that any certificates for shares of Convertible Preferred
Stock so called for redemption shall not have been surrendered for redemption,
such shares shall be deemed to be redeemed upon the date fixed for redemption
and shall cease to be outstanding for any purpose, the right to receive
dividends thereon shall cease to accrue from and after the date fixed for
redemption and all rights of the holders of the shares of Convertible Preferred
Stock called for redemption shall forthwith on the date fixed for redemption
cease and terminate except for the right of the holders thereof, upon
presentation and surrender of their respective certificates representing such
shares, to receive from such bank or trust company on or after the date fixed
for redemption the amount payable upon the redemption thereof, but without
interest. The Corporation shall be entitled to any interest payable on the funds
so deposited. Any funds so deposited and otherwise unclaimed at the end of three
years shall be repaid to the Corporation, after which holders of the redeemed
stock shall look only to the Corporation for payment of the amount payable upon
redemption thereof, but without interest thereon.
6. Voting Rights.
-------------
6.1 The holders of the shares of Convertible Preferred Stock
shall initially be entitled to cast 9.64 votes per share held on all matters
submitted to a vote of the Corporation's stockholders. The number of votes
entitled to be cast per share of Convertible Preferred Stock shall be adjusted
in inverse proportion to any adjustment in the Conversion Prices.
6.2 Except as otherwise provided herein or by law, the
holders of Convertible Preferred Stock and the holders of Common Stock shall
vote together as one class on all matters submitted to a vote of the
Corporation's stockholders.
6.3 (a) In the event that the quarterly dividends payable
on a series of the Convertible Preferred Stock as provided in Section 3 hereof
are in arrears in an aggregate amount equal to at least six full quarterly
dividends (which need not be consecutive), the number of directors constituting
the Board of Directors of the Corporation shall be increased by one for each
such series so in default and the holders of each series of the Convertible
Preferred Stock as to which dividends are so in default shall have, in addition
to the rights set forth in Sections 6.1, 6.2 and 6.4 hereof, the special right,
voting separately as a single class, to elect one director of the Corporation to
fill such newly created directorship at the next succeeding annual meeting of
stockholders thereafter or at a special meeting of the holders of such series of
the Convertible Preferred Stock called as hereinafter provided, until such right
shall terminate as hereinafter provided.
(b) At any time when the special voting rights provided in
Section 6.3(a) shall have so vested in the holders of a series of the
Convertible Preferred Stock, the Secretary of the Corporation may, and upon the
written request of the holders of 25% or more of the number of shares of such
series of Convertible Preferred Stock then outstanding shall, call a special
meeting of the holders of such series of the Convertible Preferred Stock for the
election of the directors, to be held at the place and upon the notice provided
by law and in the Bylaws for the holding of meetings of stockholders; except
that the Secretary shall not be required to call such a special meeting in the
case of any such request received less than 90 days before the date fixed for
the next annual or other special meeting of stockholders. No such
-7-
<PAGE>
special meeting and no adjournment thereof shall be held on a date less than 30
days before the annual meeting of the stockholders (or a special meeting held in
place thereof) next succeeding the time when the holders of such series of the
Convertible Preferred Stock become entitled to elect directors as provided in
Section 6.3(a). The Corporation shall include, in any notice of such meeting,
any nominee for director who has been proposed by the holders of twenty-five
percent or more of the shares of such series of Convertible Preferred Stock then
outstanding. The directors so elected shall serve until the next annual meeting
or until their respective successors shall be elected and qualify.
(c) At each meeting of stockholders at which the holders of
a series of the Convertible Preferred Stock shall have the right to vote as a
class, as provided in this Section 6.3, the presence in person or by proxy of
the holders of a majority of the total number of shares of such series of the
Convertible Preferred Stock then outstanding shall be necessary and sufficient
to constitute a quorum of such class for such election by such stockholders as a
class. At any such meeting or adjournment thereof:
(i) the absence of a quorum of the holders of a
series of the Convertible Preferred Stock shall not prevent the election of
directors other than those to be elected by the holders of such series of the
Convertible Preferred Stock and the absence of a quorum of the holders of any
other class of stock for the election of such other directors shall not prevent
the election of the directors to be elected by the holders of a series of the
Convertible Preferred Stock; and
(ii) in the absence of either or both such quorums,
the holders of a majority of the shares present in person or by proxy of the
respective class or classes which lack a quorum shall have the power to adjourn
the meeting for the election of directors which they are entitled to elect from
time to time for a period of up to 30 days without notice, other than
announcement at the meeting, until a quorum shall be present.
(d) Each director elected by the holders of a series of the
Convertible Preferred Stock as provided in this Section 6.3 shall hold office
until the annual meeting of stockholders next succeeding his election or until
his successor, if any, is elected by such holders and qualified.
(e) If any vacancy shall occur among the directors elected
by the holders of a series of the Convertible Preferred Stock as provided in
this Section 6.3, such vacancy shall be filled for the unexpired portion of the
term by the vote of the stockholders of such series given at a special meeting
of such stockholders called for that purpose.
(f) Whenever all dividends accrued and unpaid on a series of
the Convertible Preferred Stock shall have been paid, the special right of the
holders of such series of the Convertible Preferred Stock to elect directors as
provided in this Section 6.3 shall terminate, but subject always to the same
provisions for the vesting of such special right of the holders of such series
of the Convertible Preferred Stock to elect directors in the case of future
unpaid dividends as hereinabove provided.
(g) Any director elected by the holders of a series of
Convertible Preferred Stock may be removed by, and shall not be removed
otherwise than by, the vote of the holders of a majority of the outstanding
shares of such series.
(h) Upon any termination of the right of the holders of a
series of the Convertible Preferred Stock to vote for directors as herein
provided, the term of office of all directors then in office elected by holders
of such series shall terminate immediately.
6.4 The consent of the holders of at least a majority of the
outstanding shares of a series of the Convertible Preferred Stock, voting
separately as a single class, in person or by proxy, either
-8-
<PAGE>
in writing without a meeting or at a special or annual meeting of stockholders
called for the purpose, shall be necessary to (i) create or issue any shares of
a class of capital stock ranking, either as to payment of dividends or
distribution of assets, on a parity with or senior to such series of the
Convertible Preferred Stock, (ii) alter or change the preferences, rights,
designations or powers of the shares of such series of Convertible Preferred
Stock as a class, or the provisions of Article FOURTH of the Corporation's
Certificate of Incorporation, in either case so as to affect such holders
adversely, or (iii) increase the total number of authorized shares of
Convertible Preferred Stock.
7. Holders; Notices. The term "holder" or "holders" wherever used
----------------
herein with respect to a holder or holders of shares of Convertible Preferred
Stock shall mean the holder or holders of record of such shares as set forth on
the stock transfer records of the Corporation. Whenever any notice is required
to be given under this Certificate of Designation, such notice may be given
personally or by mail. Any notice given to a holder of any share of Convertible
Preferred Stock shall be sufficient if given to the holder of record of such
share at the last address set forth for such holder on the stock transfer
records of the Corporation. Any notice given by mail shall be deemed to have
been given when deposited in the United States mail with postage thereon
prepaid.
-9-
<PAGE>
IN WITNESS WHEREOF, said Reading Entertainment, Inc. has caused this
Certificate of Designation, Preferences and Rights of Series A Voting Cumulative
Convertible Preferred Stock and Series B Voting Cumulative Convertible Preferred
Stock to be executed by its duly authorized officers this twelfth day of
September, 1996.
READING ENTERTAINMENT, INC.
Attest:
By: /s/ James A. Wunderle By: /s/ S. Craig Tompkins
---------------------------------- ----------------------------
Name: James A. Wunderle Name: S. Craig Tompkins
Title: Chief Operating Officer Title: President
-10-
<PAGE>
Exhibit 21
CRAIG CORPORATION
Subsidiaries of the Registrant
Craig Management, Inc., a California corporation, wholly owned by Registrant.
Dimension Specialty Company, a Delaware corporation, owned by Registrant.
James J. Cotter Company & Associates, Inc., a California corporation, wholly
owned by Registrant.
Craig Food and Hospitality, Inc., a Delaware corporation, wholly-owned by
Registrant.
Hope Street Hospitality, LLC, a Delaware limited liability corporation, 50%
owned by Registrant.
Reading Entertainment, Inc., a Delaware corporation, 78% voting ownership by
Registrant.
Citadel Holding Corporation, a Delaware corporation, 33.4% direct and
indirect voting ownership by Registrant.
The subsidiaries omitted from the foregoing list do not, considered in the
aggregate, constitute a significant subsidiary.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No.33-36233) pertaining to the 1984 Stock Option Plan of Craig Corporation
of our report dated April 14, 1997, with respect to the consolidated financial
statements of Craig Corporation and subsidiaries included in the Annual Report
(Form 10-K) for the year end December 31, 1996.
ERNST & YOUNG LLP
Los Angeles, California
April 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 52,172
<SECURITIES> 0
<RECEIVABLES> 3,361
<ALLOWANCES> 0
<INVENTORY> 151
<CURRENT-ASSETS> 60,223
<PP&E> 18,599
<DEPRECIATION> (2,224)
<TOTAL-ASSETS> 165,968
<CURRENT-LIABILITIES> 14,436
<BONDS> 7,500
0
0
<COMMON> 1,377
<OTHER-SE> 98,448
<TOTAL-LIABILITY-AND-EQUITY> 165,968
<SALES> 18,236
<TOTAL-REVENUES> 27,865
<CGS> 14,452
<TOTAL-COSTS> 25,843
<OTHER-EXPENSES> (66,428)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 68,450
<INCOME-TAX> 25,803
<INCOME-CONTINUING> 42,647
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,647
<EPS-PRIMARY> 7.55
<EPS-DILUTED> 7.55
</TABLE>
