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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, 1999
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)
NEVADA 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:
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Title of each class Names of exchanges on which each class registered
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Common stock, $0.25 par value, New York Stock Exchange
Class A Common preference stock, And Pacific Stock Exchange
$.01 par value
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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 [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $28,806,597 as of March 31, 2000.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of March 31, 2000, there
were 3,440,808 shares of Common Stock, $0.25 par value per share, and 7,058,408
shares of Class A Common Preference Stock, $0.01 par value per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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$/nofolio
CRAIG CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
INDEX
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<S> <C> <C>
PART I.
Item 1. Business 1
Item 2. Properties 19
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") 26
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 43
Item 8. Financial Statements and Supplementary Data 44
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure 44
PART III.
Item 10. Directors and Executive Officers of the Registrant 45
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and Management 52
Item 13. Certain Relationships and Related Transactions 56
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 59
Signatures 63
</TABLE>
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PART I
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ITEM 1. BUSINESS
General
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Introduction: Craig Corporation (Craig, collectively with its predecessors
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and wholly owned subsidiaries, the "Company", and collectively with its
predecessors and consolidated subsidiaries the "Consolidated Company") was
formed in December 1999 incident to the reincorporation of the Company in Nevada
and 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.
The Company's principal holdings at December 31, 1999 consisted of (i)
common and preferred stock representing approximately 78% of the voting power of
Reading Entertainment, Inc. ("REI" and collectively with its predecessors and
consolidated subsidiaries, "Reading"), (ii) common shares representing
approximately 16.4% of the outstanding shares of the Class A Nonvoting Common
Stock and Class B Voting Common Stock of Citadel Holding Corporation ("CHC" and
collectively with its predecessors and consolidated subsidiaries "Citadel") and,
(iii) 16.4% of the outstanding common stock of Big 4 Ranch, Inc., a company
owning a 40% interest in certain agricultural properties located in Kern County,
California, and (iv) cash and cash equivalents. The Consolidated Company holds
a 48% interest in Citadel and 49% interest in Big 4 Ranch, Inc. ("BRI").
On April 5, 2000, the Consolidated Company exchanged a 50% Membership
interest in the Angelika Film Center LLC ("AFC:), for 8,999,900 shares of Common
Stock and 100 shares of Series A Preferred Stock of National Auto Credit, Inc.
(OTC Bulletin Board: NAKD), representing approximately 26% of the outstanding
equity of that company (calculated after the issuance of such shares), and 100
shares of Series A Preferred Stock of the NAC representing 100% of such class.
In addition, Citadel holds 925,100 shares of National Auto Credit, Inc. ("NAC")
Common Stock, increasing the collective ownership of Citadel, Craig and Reading
to approximately 29% of that company. The Consolidated Company has also granted
the NAC certain options to acquire certain additional cinema assets currently
held by Reading in the United States.
NAC was historically in the business of buying and servicing loans secured
by second hand automobiles. However, over the past year, NAC has reduced its
assets, in essence, to cash and real estate. AFC owns the Angelika Film Center
and Cafe located in the Soho district of Manhattan. This transaction reduces
the Consolidated Company's direct interest in AFC from 83.33% to 33.33%.
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 historically maintained separate offices
and, with certain exceptions, separate officers and directors from Reading.
These common officers and directors historically have been separately
compensated by the Company and Reading. The Company, Reading and Citadel are
currently working on a plan to centralize all administrative functions for the
three companies in Los Angeles. It is anticipated that certain economies of
scale will result form such a centralization. Upon consummation of this
centralization, it is contemplated that all general and administrative personnel
will be employees of Craig, and that the costs of such personnel will be
allocated between the three companies on an appropriate basis, taking into
account the amount of time spent by such personnel on the business and affairs
of the three companies.
Reading: The Company began accumulating stock in REI, a publicly traded
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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
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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"), owned in equal portions by the Company
and Reading, to pursue the development of cinemas in Australia. During the first
quarter of 1996, the Company conveyed to Reading 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, CHC 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
an Asset Put Option described below. 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.
Reading is principally engaged in the cinema exhibition business in the
Australia, New Zealand, the United States and Puerto Rico and in the development
of cinema based entertainment centers in Australia and New Zealand.
The Company's Chairman and President are, respectively, the Chairman and
Vice Chairman of the Board of Directors of REI, and comprise two of the six
directors of that company. In addition, the Company's Chief Financial Officer
also serves as the Chief Administrative Officer of REI.
Citadel: In 1986, the Company acquired options to purchase 4.5% of the
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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 owned approximately 9% of the outstanding common stock of
CHC by the close of that year. 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 by declines in the Southern
California real estate market and the Northridge earthquake (which was centered
in one of the Company's principal lending areas), Fidelity consummated a
recapitalization transaction in which CHC received certain real estate assets
and litigation claims from Fidelity. As a consequence of the issuance of new
equity securities by Fidelity following the recapitalization, CHC's interest in
Fidelity was diluted from 100% to approximately 16%. Following that
recapitalization, the Consolidated Company has increased its voting interest in
CHC to approximately 49% at December 31, 1999. At December 31, 1999, the
Consolidated Company's carrying value of its equity investment in Citadel
totaled approximately $17,246,000.
At December 31, 1999, Citadel's assets had a book value for purposes of
Citadel's consolidated financial statements on CHC's consolidated balance sheet
of $47,206,000, consisting principally of (1) an office building located in
Glendale, California, (2) 70,000 shares of REI Series A Convertible Preferred
Stock, (3) a 40% interest in certain agricultural partnerships, (4) an 80%
interest in Big 4 Farming LLC, a farming management company, (5) 542,500
(15.62%) shares of Common Stock of Gish Biomedical, Inc. ("Gish") and (6) cash
and cash equivalents. Citadel's liabilities at December 31, 1999 was
$13,723,000 and consisted of mortgage debt on its office property.
The Company's Chairman is the Chairman and Chief Executive Officer of CHC,
the Company's President is the Vice Chairman, Secretary, and Treasurer of CHC,
and the Company's Chief Financial Officer is the Chief Financial Officer of CHC.
The Company's Chairman and President constitute two of CHC's five directors.
Citadel shares office space with the Company and receives certain administrative
support services under a cost sharing arrangement between the two companies.
Certain employees of
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Citadel have historically provided consulting services to Reading under a
consulting agreement between CHC and REI.
Big 4 Ranch, Inc.: On December 29, 1997, Citadel capitalized a wholly
-----------------
owned subsidiary, Big 4 Ranch, Inc. ("BRI"), with a cash contribution of
$1,200,000 and then distributed 100% of the shares of BRI to Citadel's common
shareholders of record as of the close of business on December 23, 1997 as a
spin-off dividend. The Consolidated Company received 2,230,473 shares or 33.4%
of BRI. The Company recorded the distribution of BRI as a return of its
investment in Citadel and correspondingly decreased its recorded investment in
Citadel by $401,000. At the same time, the Company recorded a $401,000
investment in BRI. During 1998, the Company purchased an additional 430,106
shares of BRI and Reading purchased 661,700 shares of BRI for an aggregate
purchase price of approximately $136,000, increasing the Consolidated Company's
holdings in BRI to approximately 49.8%. Also during 1998, a company owned by
the Chairman and a trust for the benefit of a child of the Vice Chairman
purchased approximately 3.2% of BRI. At December 31, 1999, the Board of
Directors and executive officers of BRI were comprised of certain directors of
the Company, Gerard Laheney, William D. Gould and Margaret Cotter.
Prior to the stock spin-off, BRI, Citadel and Visalia LLC; a limited
liability company controlled by Mr. James J. Cotter, the Chairman of the Board
of Craig, REI and CHC, and owned by Mr. Cotter and certain members of his family
"Visalia") entered into three general partnerships (the "Agricultural
Partnerships"). The Agricultural Partnerships are owned 40% by BRI, 40% by
Citadel and 20% by Visalia. On December 31, 1997, the Agricultural Partnerships
acquired approximately 1,580 acres of agricultural property in Kern County,
California, for approximately $7,600,000. The acquisition was financed by a 10-
year purchase money mortgage in the amount of $4,050,000, draw downs on a line
of credit from Citadel in the amount of $831,000 and pro rata capital
contributions from the partners in the amount of $2,700,000. Through the
Consolidated Company's holding in BRI and Citadel, the consolidated Company owns
approximately 39% of such Agricultural Partnerships at December 31, 1999. The
Company's Chairman and President serve as two of the three members of the
management committees of these three partnerships. The Agriculture Partnerships
have each retained Big 4 Farming LLC (owned 80% by Citadel and 20% by Visalia)
to farm their properties.
In December 1998, the Kern County area suffered a devastating freeze and
substantially all of the Agricultural Partnerships' citrus crop was destroyed.
As the crop was principally not insured against freeze damage, the Agricultural
Partnerships booked a loss of $2,651,000 for 1998 (inclusive of $1,577,000
related to the inventory loss resulting from the freeze). BRI's share of the
1998 loss was $1,061,000 and the Consolidated Company reported an equity loss of
approximately $520,000. The Agricultural Partnerships also reported a loss for
1999 amounting to $1,073,000, as they will not have any material crop revenues
until the harvest of the 1999-2000 crops in the second and third quarters of
2000. After recording the 1998 operating losses, BRI stockholders' equity was
generally eliminated at December 31, 1998. BRI recorded a loss of approximately
$322,000 in 1999, however, the Consolidated Company did not record any portion
of the 1999 loss since the carrying value had been reduced to zero in 1998, when
the $520,000 equity loss was recorded by the Consolidated Company.
Citadel is the principal source of funding for the operations of the
Agricultural Partnerships. The costs of the destroyed crop were funded through
a line of credit from Citadel to the Agricultural Partnerships. As of March 11,
2000, approximately $2,730,000 had been drawn down under a $3,250,000 line of
credit with Citadel. Since the Agricultural Partnerships do not anticipate
having revenue until the sale of the 1999-2000 crop, the Agricultural
Partnerships do not currently have any source of funds with which to repay that
line of credit when it comes due in August 2000, or any funds (other than the
remaining undrawn upon balance of the line of credit) with which to cover its
2000 cultural, administrative and interest costs and capital improvement budget
currently projected at $3,501,000. The
3
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property included approximately 600 acres of open land at the time of
acquisition by the Partnership. Approximately 60 acres of this land was planted
with citrus in 1998, and an additional 300 acres are scheduled for planting in
2000.
Hope Street Hospitality, LLC: In January 1996, the Company formed a joint
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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. The venture has
not been successful and that operation has been closed.
The Stock Transactions
- ----------------------
In October 1996, shareholders of REI approved a reorganization of Reading
Company under REI a Delaware corporation, (the "96 Reorganization") and the
placement of Common and Preferred Stock by REI to the Company and Citadel
("Stock Transactions"). Both transactions were completed on October 15, 1996.
In the Stock Transactions, REI issued (i) 70,000 shares of Series A Voting
Cumulative Convertible Preferred Stock ("Series A Preferred Stock") to Citadel,
and granted certain contractual rights to Citadel including the Asset Put Option
described below in return for $7 million in cash and (ii) 550,000 shares of
Series B Voting Cumulative Convertible Preferred Stock ("Series B Preferred
Stock") 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, which
were subsequently redeemed by Citadel.
Under the terms of the "Asset Put Option," CHC has the right to exchange
all of its assets, other than the Series A Convertible Preferred Stock, for REI
common stock and expires 30 days after REI files this Annual Report on Form 10K.
CHC has advised the Company that it does not intend to exercise this option.
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. 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
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
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component of Shareholders' Equity in the Consolidated Balance Sheet and is
separately categorized as "Redeemable Preferred Stock of Reading."
Description of Business
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General: The Company's business is the identification, acquisition,
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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: Reading (cinema exhibition and real estate development), Citadel
(currently principally a real estate company) and Stater (retail grocery). In
1997, the Consolidated Company's interest in Stater was repurchased by that
Company. At December 31, 1999, the material portion of the Company's book value
and source of cash flows is comprised from its investment in Reading.
Employees: The Company's executives consist of Mr. S. Craig Tompkins
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(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 [and Treasurer] of CHC, the President of Citadel Agriculture, Inc.,
and a member of the management committees of various agricultural partnerships
in which Citadel and Big 4 Ranch, Inc. hold ownership interests), Mr. Andrzej
Matyczynski (formerly a director with Beckman Coulter) is currently the Chief
Financial Officer of the Company and CHC and the Chief Administrative Officer of
REI. Mr. James J. Cotter, the Company's Chairman and Chief Executive Officer,
is the Chairman of REI, the Chairman of CHC, and provides services to the
Company pursuant to a consulting arrangement. Mr. Cotter owns, assuming
exercise of his outstanding options, 27.7% of the Company's currently issued
equity securities and, together with other securities which Mr. Cotter has
beneficial voting ownership, approximately 57.4% of the voting power of the
Company.
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, 1999, the Company held 5,165,516 shares of REI Common Stock
and 550,000 shares of REI Series B Preferred Stock, which together represent
approximately 78% 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. For
financial statement purposes, REI assets and liabilities are consolidated as a
majority owned subsidiary of the Company and, accordingly, the Company's stock
investments in REI is eliminated in the December 31, 1999 and 1998 consolidated
financial statements.
Reading Business
Reading General
Reading Entertainment, Inc., a Nevada corporation ("REI" and collectively
with its various subsidiaries and predecessors, "Reading"), was formed in 1999
in a reorganization of Reading under a
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Nevada holding company. Initially organized in 1833, Reading has been doing
business in the United States for over 165 years. Currently, operating 182
screens in twenty-seven multiplex cinema complexes, located principally
overseas, and owning nearly two million square feet of land capable of
supporting approximately 1.85 million square feet of land capable of supporting
approximately .75 million square feet of development in Australia and New
Zealand, Reading is principally in two lines of business (i) the development and
operation of multiplex cinemas in Australia, New Zealand, Puerto Rico and the
United States and (ii) the development and operation of cinema based
entertainment centers in Australia and New Zealand.
Prior to 1976, Reading was principally in the transportation business,
owning and operating the Reading Railroad. Following the disposition of
substantially all of its rolling stock and active rail lines 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 purposes. Since 1976, Reading
has reduced its railroad real estate holdings from approximately 700 parcels and
rights-of-way to approximately fifteen.
In 1993, following the sale of its last major railroad real estate asset --
the historic Reading Terminal Headhouse in downtown Philadelphia--Reading
entered the "Beyond the Home" or real estate based segment of the entertainment
industry. Since that date, Reading has acquired and updated a chain of multiplex
cinemas in Puerto Rico ("CineVista") featuring conventional film product;
acquired or developed certain multiplex cinemas in the United States featuring
principally art, specialty and sophisticated or upper-end conventional film
product ("Angelika Cinemas") and/or conventional film product ("Reading
Cinemas"); and developed a chain of cinemas currently comprising seventy-one
screens in Australia featuring conventional film product ("Reading Cinemas") and
a 50% interest in a thirteen screen cinema chain in New Zealand ("Berkley
Cinemas"). In 1999, Reading grew from 96 to 174 screens, with most of the new
screens coming on line in the fourth quarter of that year. At December 31, 1999,
Reading had under development or agreements to lease, acquire or manage, cinemas
representing approximately thirty-two additional screens. Reading currently
anticipates adding approximately 26 of these screens in 2000, including an
Australia location with eight screens which commenced operations in March 2000.
In Australia and New Zealand, Reading is also in the business of developing
entertainment centers, typically consisting of a multiplex cinema, complementary
restaurant and retail uses, and convenient parking, all located on land owned or
controlled by Reading. Reading opened the cinema portion of its initial
entertainment center in Perth in December 1999 (the entertainment retail space
is expected to be placed in operation in mid-2000), and anticipates opening a
second and substantially larger entertainment center in a suburb of Auburn,
Sydney in the third quarter of 2000.
Reading, where feasible, prefers to own the land on which it constructs its
cinemas. In the United States and Puerto Rico, a variety of factors (including
land acquisition costs, the proliferation of suburban multiplex cinemas and
competition from existing developers and shopping center owners) have caused
Reading to rely on leasehold sites in established urban areas or suburban malls.
However, an ownership-oriented approach is being pursued in urban centers in
Australia and New Zealand. This means that many of Reading's projects in
Australia and New Zealand are more capital intensive, have longer lead times,
entail greater development risks and have initially lower cash returns than the
more leveraged development of cinemas in leased facilities in established malls.
However, Reading believes that these risks are more than offset by the greater
control and flexibility that the ownership of such sites provides to Reading and
by the opportunity given to Reading to participate in the enhancement to the
value of such land likely to result from the consumer traffic generated by a
successful cinema operation. To date, Reading has acquired (directly or through
joint venture or tenant-in-common investments), or has the contract right to
acquire, 6 sites in Australia and New Zealand which it believes are suitable for
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development or redevelopment as entertainment centers. During 1999 Reading
acquired 100% ownership of an entertainment site in Wellington, New Zealand.
Prior thereto, Reading held a 50% interest in such site. These sites (which
include the entertainment center to be opened in Sydney later this year)
represent approximately 1.85 million square feet of land area with the potential
to support nearly .75 million square feet of improvements.
Reading has elected to focus its future cinema exhibition activities in
Australia and New Zealand. Reading believes that, given its finite capital
resources, the scope and extent of its current activities, its investments and
commitments in Australia and New Zealand, and the opportunities available to it
in Australia and New Zealand, that it is in the best interests of Reading and
its stockholders to concentrate on Australia and New Zealand and to reduce
development undertakings relating to its domestic cinema assets. Accordingly,
Reading has sold to a third party a 50% membership interest in the Angelika Film
Center ("AFC"), has granted to that same third party certain options to acquire
Reading's remaining 33.33% membership interest in AFC and to acquire the
remainder of Reading's U.S-based cinema assets (including its rights with
respect to the City Cinemas Transaction), is in negotiations with Citadel to
transfer to Citadel, subject to such option, Reading's rights with respect to
both the City Cinemas Transaction and the OBI Transaction, and is in
negotiations with a third party to sell its interest in the Royal George Theater
("RGT") in Chicago. The only domestic cinema development contemplated for 2000
is the development of an 8-screen cinema in Dallas, which will feature art and
upper-end film products.
Reading currently has the right under an agreement with Messrs. James J.
Cotter (Chairman of Craig, Reading and Citadel's Board of Directors) and Michael
Forman (a major shareholder in Craig Corporation), and certain of their
affiliates (collectively referred to as "Sutton Hill") a) to lease, with option
to purchase, the Cinemas I, II and III, the Murray Hill, the Sutton, and the
Village East Cinemas, and to manage the Angelika Film Center located in Soho,
Gotham, 56th Street Playhouse, and the 86th Street Theatre, all of which are
located in Manhattan, and which are operated collectively as the City Cinemas
chain, b) to purchase the 1/6th interest in the Angelika Film Center located in
Soho not already owned by Reading and c) to acquire, through a stock merger, the
assets and business of Off Broadway Investments, Inc.("OBI"), which assets
currently consist of the Minetta Lane, Orpheum and Union Square theaters in
Manhattan (the "OBI Transaction"). The acquisition of the cinema leases, cinema
interest and the related management rights is collectively referred to as the
"City Cinemas Transaction".
On April 5, 2000, the Consolidated Company sold a 50% membership interest
in the Angelika Film Center LLC ("AFC") to National Auto Credit, Inc. ("NAC").
AFC is the owner of the NY Angelika. The 50% membership interest (the "Angelika
Interest") was conveyed in exchange for 8,999,900 shares of the NAC Common Stock
representing approximately 26% of the outstanding common stock of that company
(calculated after the issuance of such shares), and 100 shares of Series A
Preferred Stock of the NAC representing 100% of such class. NAC Common Stock,
which is traded in the over-the-counter market, closed April 10, 2000 at
$1-5/64. The Series A Preferred Stock has a liquidation preference of $1.50 per
share, is convertible into the common stock of NAC on a share for share basis,
is entitled to a dividend preference equal to any dividends declared on the NAC
common stock (determined on a per share basis), and enjoys certain voting
rights. As a consequence of the transfer, (a) AFC is now owned 50% by NAC,
33.33% by Reading, and 16.67% by Sutton Hill and (b) the Company and its
affiliates own approximately 29% of the outstanding common stock of NAC.
NAC is a publicly traded company whose shares are traded in the
over-the-counter market. Historically, NAC has been in the business of
originating, purchasing and servicing sub-prime loans secured by second hand
automobiles. However, in the recent periods, NAC has sold substantially all of
its inventory of loans, substantially reduced it's work force, and in essence,
reduced its assets to cash and real estate. Reading is advised by NAC that it
is considering investments in several industries, one of them being domestic
cinema exhibition, and that the acquisition of the AFC Interest constituted a
possible first step in what may be a substantially larger commitment to that
industry. Accordingly, Reading has also granted to NAC two separate and
independent options to acquire additional U.S. cinema assets of Reading.
Under the first option (the "AFC Option"), NAC has the right to acquire the
remaining 33.33% membership interest in AFC owned by the Company in exchange for
an additional 6 million shares of NAC common stock, to the extent that
authorized but unissued shares of HAC common stock are available for such
purposes. To the extent that NAC has less than 6 million shares available for
such purposes, NAC has the right to substitute cash for such shares at the rate
of $1.50 per share to the extent necessary to make up for any such shortfall.
The AFC option can be exercised through May 20, 2000. Following the exercise of
the AFC option, the remaining 16.67% membership interest in AFC would continue
to be owned by Sutton Hill, and the cinema would continue to be managed as part
of the City Cinemas chain.
Under the second option (the "City Cinemas Option"), NAC has the right to
acquire the remainder of Reading's domestic assets for cash (including Reading's
rights to the City Cinemas and if, NAC has not previously exercised the AFC
Option, Reading's remaining interest in AFC). The City Cinemas Option can be
exercised through June 5, 2000. Reading has received $500,000 in consideration
of the grant of the City Cinemas Option. NAC has the right to extend the option
for two 30-day periods, by payment of an additional $100,000 for each such
30-day extension.
If NAC exercises the City Cinemas Option, it is required to give to Citadel
a right to participate in the transaction on a 50/50 basis. The decision
whether or not to proceed with either or the options described above rests with
NAC and not with the Consolidated Company or Citadel. Such transactions are
also subject to Hart Scott Rodino review and clearance. Accordingly, no
assurances can be given that any further transactions will be effected between
the companies.
Reading is also in negotiations with Citadel to assign to it Reading's
rights to City Cinemas Transaction and the OBI Transaction. The negotiations
with respect to the acquisition of the City Cinemas Chain are, of course,
subject to a determination by NAC not to exercise its rights under its City
Cinemas Option. Citadel has advised Reading that it is interested in taking
over the Reading's position under these agreements, if certain modifications to
the transactions can be negotiated, and has delegated to a committee comprised
of independent directors to review the transactions and to negotiate such
modifications directly with Sutton Hill.
The Consolidated Company has taken writedowns in the amount of $14,991,000
with respect to its Puerto Rico operations in 1999. These writedowns are
primarily the result of the determination by the owners of the Plaza Las
Americas in San Juan not to honor what Reading believes to have been a
contractually binding obligation to lease to Reading a new state of the art
cinema complex at the Plaza
7
<PAGE>
Las Americas in the third quarter of 1999. The Plaza Las Americas is the largest
shopping center in Puerto Rico. Reading currently leases an older eight-screen
cinema at another location at the Plaza. The determination of the Plaza's owners
to instead lease the new facility in the Plaza to Reading's principal competitor
in Puerto Rico has eliminated the value of Reading's existing cinema in that
shopping center, and will likely materially adversely effect the value of the
remainder of the CineVista circuit. In the fourth quarter, the Consolidated
Company further reduced the carrying value of the CineVista circuit to its
estimated net realizable value based on Reading's decision to exit the Puerto
Ricon market. Reading is currently reviewing its options with respect to Puerto
Rico. Among those options may be litigation against the Plaza for breach of
contract and against Reading's principal competitor in Puerto Rico which already
controls over 80% of the box office in Puerto Rico) for violation of various
anti-trust and unfair competition laws. Given the difficulties inherent in this
type of litigation, no assurance of success can be given. Reading intends to
endeavor to sell its Puerto Rico circuit, in order to free up further assets for
deployment in Australia and New Zealand. No assurances can be given that these
endeavors will be successful.
In addition to its principal cinema and entertainment center development
activities, Reading continues to wind up its historic railroad related
activities, including the sale or other exploitation of its residual real estate
interests, and to lease equipment to third parties. Reading also owns a fifty-
acre property assemblage located in the greater Melbourne, Australia area.
Originally acquired in 1996 as a potential entertainment site, the property is
currently held for non-cinema development. Reading believes this site to be the
largest site available for development in the greater Melbourne metropolitan
area, and to have a value in excess of its book value. Reading is reviewing its
alternatives with respect to this site.
In recognition of the significant amount of capital required to compete
in the cinema exhibition and real estate development businesses, and in
furtherance of its plan to focus on the development of cinemas and cinema based
entertainment centers, Reading completed an Australian dollar credit facility
which provides for initial funding of up to $15 million in March 2000 and, under
certain circumstances, up to $47.8 million, to provide funding for the
construction of additional entertainment centers in Australia.
Shares of REI's common stock, par value $.001 per share (the "Common
Stock"), are quoted on the Nasdaq National Market ("NNM") and the Philadelphia
Stock Exchange ("PHLX") under the symbol RDGE and RDE, respectively. Reading has
filed an application with the Securities and Exchange Commission to withdraw
its listing from the PHLX and anticipates its acceptance on or about April 21,
2000.
Description of Business
- -----------------------
Reading is primarily engaged in the development in Australia and New
Zealand of cinema based entertainment centers and in the multiplex cinema
exhibition business (focusing on the market for multiplex complexes featuring
principally commercial film in, Australia and New Zealand and Puerto Rico, and
featuring art, specialty and more sophisticated upper-end film product as well
as commercial film product in the United States).
While exceptions may be made from time to time with respect to certain
well-situated cinemas with proven or projected draw as art and specialty houses,
it is Reading's general intention to develop or acquire state-of-the-art
multiplex venues. With respect to new cinema construction, it is Reading's
intention to concentrate primarily upon a stadium seating format, and to feature
wall-to-wall screens with state-of-the-art projection and sound. Reading's
entertainment centers will typically be centered around a multiplex cinema, and
feature complimentary retail and restaurant facilities and convenient parking
all on land owned or controlled by Reading. Where possible, Reading prefers to
own rather than lease properties.
8
<PAGE>
In the future, Reading intends to focus on the cinema and entertainment
center market in Australia and New Zealand and to de-emphasize and ultimately to
phase out the domestic and Puerto Rican cinema markets.
Reading Cinemas (Australia and New Zealand)
- -------------------------------------------
Reading currently operates ten cinemas, consisting of seventy-one screens,
in Australia and holds a 50% joint venture interest in three cinemas, consisting
of thirteen screens in New Zealand. Reading anticipates that it will open an
additional cinema, consisting of ten screens in Australia during the remainder
of 2000.
Reading commenced activities in Australia in mid-1995, and conducts
business in Australia through its wholly owned affiliate, Reading Entertainment
Australia Pty Limited ("REA" and, collectively with its various subsidiaries,
"Reading Australia"). Reading Australia is currently engaged in the development
and operation of multiplex cinemas featuring conventional film product and the
development of entertainment centers in Australia and New Zealand. Reading
Australia's seventy-one screens are located in seven leased, one managed and two
owned locations.
Reading commenced operations in New Zealand in 1997 and currently conducts
operations in New Zealand through its wholly owned affiliate, Reading New
Zealand Limited (collectively with its various subsidiaries, "Reading New
Zealand"). At the present time, all of Reading's cinema interests are held
through a 50/50 joint venture with an experienced cinema operation. The joint
venture currently operates three cinemas representing thirteen screens at two
owned and one leased facility.
Reading Australia and Reading New Zealand are also engaged in the
development of entertainment centers which will typically consist of a multiplex
cinema, complementary restaurant and retail facilities, and convenient parking,
all on land owned or controlled by Reading. In December 1999, Reading opened
the cinema portion of its first entertainment center in Australia. Located in
Perth, the entertainment center includes a ten screen cinema and upon
completion, approximately 17,000 square feet of retail space. Reading
anticipates opening a second and substantially larger entertainment center in
the third quarter of this year. That entertainment center, located in Sydney
near the site of the Olympic Village, includes a ten-screen cinema and
approximately 60,000 square feet of retail space. At the present time, Reading
Australia owns or has development rights to own an additional three locations
which it intends to use for entertainment center purposes. None of the
properties under development currently produce material cash flow.
Reading Australia also owns a 50% joint venture interest in an existing
shopping center located on leased land in the Melbourne area of Victoria, which
it acquired in anticipation of redevelopment as an entertainment center (the
"Whitehorse Center"). In December 1998, that joint venture entered into an
agreement to acquire the land underlying that center. Reading's joint venture
partner has not proved to be the source of financial strength that was
anticipated by Reading at the time it entered into the joint venture.
Accordingly, Reading has advised its joint venture partner of its desire to sell
the shopping center and the rights of the joint venture to acquire the land
underlying the shopping center. While certain disputes exist between Reading and
its joint venture partner, the joint venture has retained a broker to market the
property and Reading's interest has been classified as "Held for sale" in the
Consolidated Balance Sheet at December 31, 1999. While Reading remains
interested in building a cinema at the shopping center, assuming that
commercially reasonable terms can be negotiated with the purchaser of the
center, no assurances can be given that Reading will be successful in developing
a multiplex facility at that site. Accordingly, Reading no longer considers the
Whitehorse Center to be a potential entertainment location.
9
<PAGE>
Reading New Zealand owns a 115,000 square foot site located in downtown
Wellington, the capital and second largest city in New Zealand, and an 327,000
square foot nine story parking facility located adjacent to that property.
Reading New Zealand has also purchased a 678,000 square foot site in a
developing suburb of Auckland. Reading currently intends to develop these
properties as entertainment centers.
The six potential entertainment center sites described above (calculated
exclusive of the Whitehorse Center) include the potential for the development of
over sixty-four screens. Three of the projects have either entitlement as of
right with respect to the construction of cinemas or otherwise currently hold
government approvals for such use.
Summarized below are the entertainment center projects currently open or
under development by Reading Australia and Reading New Zealand:
<TABLE>
<CAPTION>
Site Land Size Approximate Approximate Estimated Development
---- in Square Purchase Cinema Size in Size in Square Footage
Footage Price Square Feet of Improvements
------- ----- ----------- ---------------
Australia
<S> <C> <C> <C> <C>
Auburn, NSW 522,720 $6,800,000 60,000 210,000
Frankston, Victoria 227,750 N/A\1\ 64,000 94,000
Moonee Ponds, Victoria 129,949 $4,200,000 54,000 103,000
Newmarket, Queensland 172,160 $4,500,000 49,000 161,000
New Zealand
Wellington 115,000 $3,300,000 77,000 133,000
Takanini 678,132 $3,200,000 41,000 56,000
</TABLE>
/1/ Under the applicable development agreement, Reading Australia is required to
make certain infrastructure improvements which are estimated to cost
approximately $4,000,000 in consideration of a grant to the underlying land.
In addition to the above, Reading has accumulated, as the consequence of
three separate acquisitions, a fifty-acre site in Burwood, Victoria. This site
was originally acquired for development of a megaplex cinema. However, such use
is currently prohibited as a consequence of an adverse land use determination,
which negated certain permits for the construction of cinemas on the site which
were in place at the time the properties were acquired by Reading Australia. Due
to the size of the accumulation and its location at the demographic center of
the greater Melbourne metropolitan area, Reading believes that the accumulation
has value over and above its original purchase price and is currently reviewing
its options as to potential development alternatives for the site.
Two of Reading's cinemas, consisting of eleven screens, and located in
country towns, are owned by Australia Country Cinemas Pty Limited ("ACC"), a
company owned 75% by Reading Australia and 25% by a company owned by an
individual familiar with the market for cinemas in country towns. ACC has a
limited right of first refusal to develop any cinema sites identified by Reading
Australia or such individual which are located in country towns.
10
<PAGE>
One of Reading's cinemas, a five-screen facility in Melbourne, is owned by
a joint venture in which Reading has a 66.6% interest.
Reading New Zealand has a 50% joint venture interest in a five screen
multiplex cinema located in Whangaparoa, New Zealand, a four screen multiplex
cinema located in Mission Bay, New Zealand, and a four screen cinema located in
Takapuna. Reading New Zealand's partner in these ventures is an experienced
cinema owner and operator. Two of the joint venture cinemas are fee properties
and the third is leased.
At the present time Reading's activities in Australia and New Zealand are
in large part in the nature of speculative real estate development. While, in
each case, Reading is its own anchor tenant, the success of the real estate
aspects of Reading's business will depend upon a number of variables and are
subject to a number of risks, some of which are outside of Reading's control.
These variables and risks include, without limitation:
. construction risks, such as weather, unknown and unknowable site
conditions, and the availability and cost of materials and labor;
. leasing risk with respect to ancillary space being constructed in
connection with the entertainment centers -- in certain cases such
ancillary space constitutes a substantial portion of the net leasable
area of a particular entertainment center and there is not presently
any established Australian and New Zealand markets for entertainment
center space;
. political risk, such as the possible change in mid-stream of existing
zoning or development laws to accommodate competitive interests at
Burwood; and
. financing risks, such as the risk of investing U.S. dollars in
Australia during times of currency exchange rate instability, and the
difficulties of acquiring construction finance while the great
majority of Reading's projects are developmental in nature.
In light of these risks, no assurances can be given that Reading will be
able to accomplish its business objectives in Australia and/or New Zealand.
Furthermore, even if those objectives are eventually achieved, the realization
of these objectives may require a longer period of time and a greater level of
developmental costs than currently anticipated by Reading.
Reading Australia's cinemas are managed by employees of Reading. Reading
New Zealand's cinemas are operated by a joint venture partner.
Australia
- ---------
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
11
<PAGE>
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, 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 emigrated 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. On July 1, 2000, Australia will implement a goods and services
tax ("GST") on all goods and services at a consistent rate of 10%. Reading
currently believes that GST rules will allow it to pass 100% of such taxes
through to the ultimate consumers of its goods and services, subject to market
pricing restraints.
New Zealand
- -----------
New Zealand is a self-governing member of the Commonwealth of Nations. It
is comprised of two large islands, and numerous small islands, with a total land
area of approximately 104,500 square miles. The country has a population of
approximately 3.6 million people, most of who are of European descent and the
principal language is English. Wellington, with a population of approximately
350,000, is the capital and Auckland, with a population of approximately one
million, the largest city. Most of the population lives in urban areas.
New Zealand is a prosperous country with a high standard of social
services. The national economy is largely dependent upon the export of raw and
processed foods, timber and wool. Principally a trading nation, New Zealand
exports about 30% of its gross national product. In the past (particularly
before the United Kingdom entered the Common Market in 1973), New Zealand's
marketing focused on a small number of countries, principally the United
Kingdom. Currently, only approximately 7% of New Zealand's trade is with the
United Kingdom, with Japan and Australia being its principal trading partners.
While no country currently accounts for more than 20% of its exports, its
economy remains sensitive to fluctuations and demand for its principal exports.
Like Australia, New Zealand has a largely ceremonial governor-general,
appointed by the Queen of England. However, the executive branch is run by a
prime minister -- typically the leader of the majority party in Parliament --
and appointed ministers (typically chosen from the members of Parliament). The
Parliament is elected by universal adult suffrage using a mixed member
proportional system. Under this system, each voter casts two votes at the
federal level, one for a local representative and one for a party. Fifty
percent of the 120 seats in Parliament are determined by the direct election of
local representatives, and the remaining fifty percent are elected based upon
the number of votes garnered
12
<PAGE>
by the parties. The Prime Minister and his cabinet serve so long as they retain
the confidence of the Parliament.
With the exception of special excise taxes on tobacco, liquor, petroleum
products and motor the only general sales tax is a Goods and Services Tax
("GST") imposed on all such services at the consistent rate of 12.5%. In
effect, by a series of refunds, GST is only paid by the end-user of the goods or
services in question. Resident companies pay income tax at a rate of 33%,
however, dividend imputation credits generally prevent double taxation of
company profits. There are no restrictions on repatriation of capital or
profits, but some payments to overseas parties are subject to withholding tax.
There is no Capital Gains Tax, and there are tax treaties with many countries,
including the United States.
The laws for monitoring and approving significant overseas investment into
New Zealand reflect the country's generally receptive attitude towards such
investment and the generally facilitating nature of the country's foreign
investment policies. One hundred percent overseas ownership can be approved in
nearly all industry sectors, including motion picture exhibition and
distribution. A review process is also applicable to certain land transactions
and the purchase of businesses or assets having a value of NZ$l0,000 or more.
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 and Reading New Zealand license films from all film
distributors as appropriate to each location. Generally, film payment terms are
based upon various formulas which provide for payments based upon a specified
percentage of box office receipts.
Competition: The principal exhibitors in Australia and New Zealand include
-----------
Village Roadshow Limited ("Village") with approximately 419 screens in Australia
and 85 in New Zealand, Greater Union and affiliates with approximately 328
screens in Australia and Hoyts Cinemas ("Hoyts") with approximately 242 screens
in Australia and 92 in New Zealand. Independents, as a group, operate
approximately 560 screens in Australia and 130 in New Zealand. The film
exhibition business in Australia and New Zealand is concentrated and, to a
certain extent, vertically integrated.
Greater Union is the owner of Birch Carroll & Coyle and a part owner of
Village. All 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 168 new multiplex screens in Australia by
2003 with 61 currently under construction.
These companies have substantial capital resources. Village had a publicly
reported consolidated net worth of approximately A$900 million at June 30, 1999.
The Greater Union organization does not separately publish financial reports,
but its parent, Amalgamated Holdings, had a publicly reported consolidated net
worth of approximately A$300 million at June 30, 1999. Hoyts Cinemas does not
separately publish financial reports as it has been acquired by a major
Australian media and entertainment company, Consolidated Press Holdings.
The industry is somewhat vertically integrated in that Village also serves
as a distributor of film in Australia and New Zealand for Warner Bros. and New
Line. 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.
13
<PAGE>
In the view of Reading, the principal competitive restraint on the
development of its business in Australia and New Zealand is the availability of
sites. Reading's principal competitors and certain major commercial landlords
are currently attempting to use the historical course of land use development in
Australia to prevent the construction of freestanding cinemas in new
entertainment oriented complexes, particularly where those complexes are located
outside of an established central business district or shopping center
development. Competitors or shopping center landlords typically contest the
suitability of Reading's projects, resulting in appeals to applicable land
tribunals and delays in development. In the case of Reading's fifty acre site
at Burwood, the Minister for Planning and Local Government preempted local
zoning authorities to prohibit Reading's intended development of a twenty-five
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 retail landlords in Australia.
As reported in a recent documentary news presentation by the Australian
television network nine, this decision by the minister followed a record
breaking cash contribution by Village Roadshow to that minister's political
party. According to other published reports, the amount of that contribution
was in the range of A$800,000.
In light of recently published revelations about the extent to which major
shopping center interests such as Westfields and major film exhibition
companies, such as Village, have been willing to go to block competitive
developments, Reading is hopeful that the use of these types of tactics will be
reduced in Australia. Recently, for example, all opposition to Reading's
project at Whitehorse Plaza, Box Hill was dropped. However, it is clear that
the opposition of entrenched interests such as Westfields and Village have
substantially delayed and otherwise adversely effected Reading's endeavors to
become the largest independent cinema exhibitor in Australia and New Zealand.
Reading generally has not encountered problems in obtaining access to first
run film product in Australia or New Zealand. However, Reading has encountered
some difficulty where it has attempted to take on the established competitors in
the central business district of Sydney. As the theatre involved is one
managed, as opposed to leased or owned, by Reading, this difficulty has not been
material to the business or operations of Reading. However, Reading has
retained counsel experienced in trade practice matters, and intends to
vigorously contest the current division of product by the majors in the downtown
Sydney market.
In New Zealand, Village and Hoyts have announced a merger, which would
result in a new entity controlling over 80% of the cinema box office in New
Zealand. That merger is being opposed by the New Zealand Commerce Commission,
the government agency responsible for the enforcement of New Zealand's anti-
trust laws. The Commerce Commission has sued to prevent the merger, and it is
anticipated that that case will go to trial later this year. While no
assurances can be given, representatives of the Commerce Commission have advised
Reading that the Commission is confident that it will be able to prevent the
merger.
Currency Risk: Generally speaking, Reading does not engage in currency
-------------
hedging. Reading presently intends, to the fullest extent possible, to operate
each of its Australian and New Zealand operations on a self-funding basis. The
book value, stated in US dollars, of the Consolidated Company's net assets
(assets less third party liabilities and minority interests) in Australia and
New Zealand, are as follows:
14
<PAGE>
<TABLE>
<CAPTION>
Net Assets
----------------------
<S> <C>
Reading Australia $66,445,000
Reading New Zealand 14,007,000
----------------------
$80,452,000
======================
</TABLE>
Reading believes that its asset base in Australia should provide a
sufficient capital base to support the borrowings needed to complete the cinema
and entertainment center projects contemplated for at least 2000. Reading has
put into place an Australia credit facility sufficient to permit the build out
of its Auburn Project in Sydney. That project is scheduled for completion in
the third quarter of this year. Subject to the syndication of the credit
facility, that credit facility will also provide the funds required by Reading
to complete the construction of at least one additional entertainment center and
one additional cinema complex in Australia.
With respect to New Zealand, Reading likewise believes that its assets in
New Zealand, should provide a sufficient capital base to support the borrowings
needed to complete the currently contemplated entertainment center in downtown
Wellington and, possibly, its suburban Auckland Project. Reading is in
discussion with several New Zealand based lenders with regard to a New Zealand
credit facility sufficient to cover all of the costs of developing the downtown
Wellington site. It is currently contemplated that the Wellington project will
break ground in the second quarter of this year, depending upon the pace of
Reading's pre-leasing activities.
At the present time, the Australian and New Zealand dollars are trading at
the lower end of their historic range vis-a-vis the US dollar. Set forth below
is a chart of the exchange ratios between these three currencies over the past
twenty-five years.
<TABLE>
<CAPTION>
Date $US/AUS$ $US/NZ$ Date $US/AUS$ $US/NZ$
------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
1975 $1.2545 $1.0385 1987 $0.7220 $0.6602
1976 $1.0890 $0.9450 1988 $0.8535 $0.6290
1977 $1.1380 $1.0160 1989 $0.7893 $0.5937
1978 $1.1500 $1.0640 1990 $0.7720 $0.5865
1979 $1.1057 $0.9830 1991 $0.7593 $0.5403
1980 $1.1814 $0.9618 1992 $0.6890 $0.5135
1981 $1.1280 $0.8230 1993 $0.6783 $0.5590
1982 $0.9800 $0.7325 1994 $0.7753 $0.6402
1983 $0.8965 $0.6545 1995 $0.7432 $0.6537
1984 $0.8250 $0.4755 1996 $0.7944 $0.7065
1985 $0.6818 $0.5005 1997 $0.6515 $0.5803
1986 $0.6653 $0.5305 1998 $0.6123 $0.5270
1999 $0.6560 $0.5234
</TABLE>
Seasonality: Major films are generally released to coincide with the
-----------
school holiday trading periods, particularly the summer holidays. Accordingly,
Reading Australia and Reading New Zealand record greater revenues and earnings
during the first half of the calendar year.
Employees: Reading Australia has twenty-three full time executive and
---------
administrative employees and approximately 350 theater employees. Reading New
Zealand currently has no employees. Reading believes its relations with its
employees to be good.
Puerto Rico (CineVista)
- -----------------------
Acquired in 1994, CineVista currently operates fifty-six screens in eight
leased facilities in Puerto Rico. During 1999, Reading opened a new twelve-
screen complex of the Plaza Carolina, a regional shopping center in the San Juan
area. Reading does not presently anticipate further expansion of this circuit,
and would like to exit this market if a suitable buyer can be found.
In Puerto Rico, Reading has determined to concentrate on multiplex cinemas
located on leasehold properties, and the exhibition of conventional film
product. Generally speaking, Reading's current and future developments are
being constructed in existing malls with proven foot traffic and self-contained
parking. All of CineVista's theaters are modern multi-screen facilities.
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
15
<PAGE>
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. The United States mainland is Puerto
Rico's largest trading partner.
During the last five 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 six complexes adding
approximately eighty-two screens since the beginning of 1996, and is believed to
have at least thirty screens at three locations under development. These new
screens have adversely affected Reading's current operations, reducing Reading's
market share from approximately 34% in 1995 to approximately 20% percent in
1999. Reading believes that the Puerto Rico market is substantially built out,
and that there will be few if any opportunities in the near to medium term that
would be attractive to Reading.
CineVista 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
CineVista. 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. CineVista has
implemented training programs and incentive programs and experiments with
product mix changes with the objective of increasing the amount and frequency of
concession purchases by theater patrons.
Screen advertising revenues contribute approximately 5% of total revenues.
CineVista 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 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 anti-
competitive practices. Films are licensed on a film-by-film, theater-by-theater
basis. Generally, film payment terms provide for payment to film distributors
under various formulas which provide for payments based upon a percentage of
gross box office receipts.
CineVista licenses film from substantially all of the major United States
studios and is not dependent upon any one film distributor for all of its
product. However, in the event Reading was unable to license film from a major
studio, such lack of supply could have a material effect upon CineVista's
business. CineVista believes that the popularity of the Puerto Rico exhibition
market and Puerto Rico rules governing film licensing make such a situation
unlikely. In 1999, films licensed from CineVista's nine largest film suppliers
accounted for approximately 90% of CineVista's box office revenues.
Competition: Reading believes there are approximately thirty-one first-run
-----------
movie theaters in daily operation with approximately 220 screens in Puerto Rico.
Based upon number of screens, box office revenues and number of theaters,
CineVista is the second largest exhibitor in Puerto Rico, with the two largest
exhibitors accounting for over 99% of the box office revenues recorded in 1999,
measured by
16
<PAGE>
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. CineVista's principal competitor is
expected to continue to open theaters competitive with those of CineVista's.
Since the beginning of 1996, Reading's principal competitor has opened 4
complexes in the San Juan metropolitan area, adding sixty-four screens, all of
which are competitive with Reading's theaters, and which have attracted business
that would otherwise have gone to theaters owned by CineVista. This competitor
has at least one additional competitive theater under development which is
expected to add thirteen screens to the San Juan market. Since 1994, this
competitor's share of the Puerto Rico box office has increased from 48% to 80%.
In Puerto Rico, Reading's strategy has been to build generally higher
quality cinemas, with larger seats, more leg room and better sound than those
constructed by its principal competitor, and to seek out and build in either
well established retail centers with adequate parking on-site or in connection
with the development of new retail centers being developed by experienced and
well financed developers.
Reading's principal competitor appears to have adopted a strategy of market
dominance, building cinemas in areas which are, in the view of Reading, already
over screened, and offering rents which, again in the view of Reading, do not
provide for an adequate return on capital for the cinema operator.
In 1999, the owner of the Plaza Las Americas and this competitor entered
into a lease with respect to the development of a new state of the art cinema
complex in that shopping center. With the opening of this new cinema in late
2000 or early 2001, it is likely that with the opening of this complex this
competitor's market shares in Puerto Rico will increase to over 90%. Reading
believes that this action was in violation of agreements reached between it and
the owner of the Plaza, and was an exercise of monopoly power by the Plaza and
this competitor. Reading presently intends to pursue these claims as this
action on the part of the Plaza and this competitor has eliminated value of
Reading's existing eight-screen cinema at the Plaza. In 1999, the Plaza cinema
complex accounted for approximately 42% of the gross box office revenues of
CinaVista.
Seasonality: Most major films are released to coincide with the summer
-----------
months, when schools are closed or the winter holiday seasons. Accordingly,
CineVista has historically recorded greater revenues and earnings during the
second half of the calendar year, except during 1998 when first half revenues
were unseasonably high due to the strong box office performance of Titanic.
Employees: CineVista has approximately 180 employees in Puerto Rico,
---------
twelve of whom are employed under the terms of a collective bargaining
agreement. The collective bargaining agreement expires in May 2000. Reading
believes its relations with its employees in Puerto Rico to be good.
Domestic Cinemas
- ----------------
Reading has focused its domestic cinema activities on the art and specialty
film exhibition market, and the selective acquisition and/or development of
conventional commercial cinemas. At December 31, 1999, Reading operated six
domestic cinemas with forty-two screens. Reading has entered into agreements to
lease or manage an additional eight domestic locations with a total of forty-two
screens. However, in light of Reading's decision to concentrate its future
activities on the Australian and New Zealand markets, Reading has entered into
negotiations with NAC and Citadel to sell the remainder of Reading's domestic
cinema assets as previously discussed.
17
<PAGE>
Reading's first domestic art theater was acquired in August 1996. This
cinema, known as The Angelika Film Center (the "NY Angelika"), is a six screen
multiplex theater located in the Soho district of New York City, and was
acquired by Reading and Sutton Hill Associates ("Sutton Hill") through a newly
formed limited liability company, Angelika Film Centers LLC ("AFC"). Reading
contributed 83.3% of the capital of AFC and Sutton Hill contributed the
remaining 16.7%. The theater is held under a long-term lease with a remaining
term of approximately twenty-six years. On April 5, 2000, Reading sold a 50%
interest in AFC to NAC for common and preferred stock of NAC (This transaction
is described in greater detail above in Item 1.)
In 1997 Reading opened an eight screen, 31,700 square foot art and
specialty cinema and cafe facility at the Bayou Place entertainment center in
Houston, Texas and acquired an existing five screen, 18,100 square foot facility
in Minneapolis, the former featuring art and specialty film product and the
later commercial film product. In 1998, Reading commenced operation of a three
screen, 18,000 square foot facility in Sacramento, California. In 1999, Reading
opened a new 46,000 square foot twelve screen complex in Manville, New Jersey
for the exhibition of conventional film product and leased a 27,400 square foot
eight screen complex in Buffalo, New York for use as an art cinema.
City Cinemas Corporation ("City Cinemas"), an affiliate of Sutton Hill,
manages AFC and Reading's Minneapolis and Houston cinemas. Reading manages
directly its Sacramento, Manville and Buffalo operations.
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 agreed upon
percentage of box office receipts.
Competition: In most markets, art and specialty film is generally
-----------
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 the exhibition of first run art and specialty films
has historically been and in significant part continues to be a niche business,
in some ways distinct from the business of exhibiting bigger budget wide release
films. At the present time there exists one national chain specializing in art
and specialty film which circuit operates approximately 150 specialty screens in
approximately over fifty locations, principally in California and Washington.
Many larger cities have smaller chains which operate one to five locations. One
major commercial cinema circuit has formed a joint venture which is developing
cinemas specializing in the exhibition of independent film.
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. This proliferation of
screens has increased the appetite of the conventional multiplex operators for
art and specialty product, bringing them into direct competition with art and
specialty cinema operators. Often, these conventional multiplex operators are
able to offer better facilities and better terms than are the smaller, less
well-capitalized art and specialty operators. The availability of screens on a
national scale from the larger conventional multiplex operators has also
effected release patterns. Popular art and specialty films such as Shakespeare
in Love and The Blair Witch Project which might have had significant exclusive
or near exclusive runs in the art cinemas, are now offered in general release
immediately upon establishing themselves as potentially high grossing films.
Other films, such as Cider House Rules and The Talented Mr. Ripley, have gone
immediately into general release, with 1,600 to 2,000 copies of these films
being offered for initial release, as opposed to the between 800 to 1,000 copies
which would typically be prepared for an art film release.
Due to the relatively small scale of Reading's current US operations and
the geographical dispersion of its Domestic cinemas, Reading may have difficulty
securing certain film product due to
18
<PAGE>
competitive pressures of larger domestic cinema chains or more regionally
concentrated exhibitors, and faces competition for sites from much larger and
better-known competitors.
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 $112,000,000, $244,000,000,
$372,000,000, $355,000,000, $500,000,000, $525,000,000, $545,000,000 and
approximately $550,000,000 in 1992 through 1999, respectively (based upon
management estimates).
Employees: At December 31, 1999 approximately 275 cinema employees were
---------
employed by City Cinemas to operate Reading's domestic cinemas including forty
employees employed under the terms of two collective bargaining agreements one
of which expires in December 2001 and the other of which has been extended on a
month-to-month basis for two years. Reading has approximately seventy-five
direct cinema employees approximately forty employees at RGT and eighteen
executive and administrative staff which, while located in the United States,
provide service with respect to all of Reading's operations.
Reading is currently in the process of consolidating its general and
administrative functions to Los Angeles, California, and closing down its
executive headquarters in Philadelphia, Pennsylvania. The executive offices of
Craig Corporation ("Craig) and Citadel Holding Corporation ("Citadel") are
located in Los Angeles and it is anticipated that certain economies can be
achieved if the general and administrative functions of these three companies
are consolidated. Accordingly, on a going forward basis, the general and
administrative functions of Craig, Reading, and Citadel will be performed
principally by employees of Craig. The cost of such functions will be shared on
an appropriate basis between the three companies. As the relative general and
administrative demands of the three companies will likely vary from year to
year, it is currently expected that this allocation will be reviewed by the
management on a periodic basis, as deemed appropriate. Reading believes its
relationship with its employees to be good.
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
that 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 and has a term ending in 2006.
The Company has not guaranteed any of the leasehold or other obligations of any
of its affiliates.
19
<PAGE>
Reading Properties
Executive and Administrative Offices
- ------------------------------------
Reading leases approximately 25,000 square feet of office space in
Philadelphia, Manhattan and Los Angeles in the United States, Melbourne and
Sydney, in Australia and in San Juan, Puerto Rico. The space is typically held
under lease having remaining terms of less than three years.
Entertainment Properties
- ------------------------
Leasehold Interests
-------------------
Reading currently leases approximately 600,000 square feet of completed
theater space in Australia, the United States, and Puerto Rico as follows:
<TABLE>
<CAPTION>
Approximate
---------------------
Aggregate Range of Terms
Square ---------------------
Footage (including renewals)
-------- ---------------------
<S> <C> <C>
Australia 233,000 29-40 years
- --------- ------- -----------
United States 160,000 10-40 years
- ------------- ------- -----------
Puerto Rico 204,000 13-40 years
- ----------- ------- -----------
</TABLE>
In addition, Reading has signed leases or agreements to lease with respect
to additional to-be-built theater space of approximately 88,000 square feet in
Australia and 30,000 square feet in the U.S.
Fee Interests
-------------
In Australia, Reading currently owns approximately, 930,000 square feet of
land at five locations. Substantially all of this land is located in the urban
areas of Brisbane, Melbourne and Sydney.
In New Zealand, Reading owns a 115,000 square foot site and an adjacent
372,000 square foot nine story parking structure in the heart of Wellington (the
capital of New Zealand) and a 678,100 square foot parcel in Takanini (a suburb
of Auckland), both of which it intends to develop as entertainment centers,
subject to obtaining the necessary land use approvals.
In the United States, Reading owns the fee interest in the Royal George
Theatre, a 30,000 square foot, four auditorium live theater office and
restaurant complex located in Chicago, Illinois. Also, Reading has an Agreement
in Principle to acquire (i) the fee interests in the Minetta Lane and Orpheum
Theatres in Manhattan, New York and (ii) the option to acquire the fee
interests underlying the Sutton and Murray Hill Cinemas also in Manhattan.
Reading anticipates selling the Royal George Theatre in 2000 and is currently in
negotiation with NAC and Citadel.
Joint Venture Interests
-----------------------
Reading Australia owns a 50% joint venture interest in a shopping center
located on leased land in the Melbourne area of Victoria. and a 66% joint
venture interest in a leased five screen multiplex cinema in Melbourne. In
December 1998, the shopping center joint venture entered into an agreement
giving to it the right, subject to certain conditions, to acquire the land
underlying the shopping center
20
<PAGE>
property. The joint venture's rights to acquire such fee interest is subject to
the completion of certain improvements to that shopping center. Certain disputes
have arisen with Reading's joint venture partner with respect to the development
of the shopping center, and the joint venture has retained a broker to market
the property.
In New Zealand, Reading has 50% tenant in common interests in three pieces
of real property, totaling approximately 87,100 square feet. Two of these
parcels are improved with cinema/restaurant complexes. The third is improved
with a new multiplex cinemas.
Non-Entertainment Properties
- ----------------------------
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
Fairmount Avenue and adjacent parcels, comprising approximately 6.75 acres; and
properties owned by certain partnerships described below in which Reading has
interests.
Domestic 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. Reading does not believe that its general
partnership interest has any value.
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 fifteen 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.
Reading Australia
-----------------
In December 1995, Reading Australia acquired a fifty-acre site in a
suburban area outside of Melbourne. Reading Australia had intended to build a
multiplex 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 believes that the site has value as an
assemblage for other uses, even if it is unable to develop the site as a
theater.
21
<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 "Certain Shareholder Litigation."
Reading Legal Proceedings
Certain Shareholder Litigation
- ------------------------------
In September 1996, the holder of fifty shares of 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
the action (the "Complaint") named Reading, Craig, two former directors of
Reading and all of the them current directors of Reading (other than Gregory R.
Brundage and Robert F. Smerling) 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
96 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.
In November 1996, plaintiffs filed an Amended Complaint against all of
Reading's present directors, its two former directors and Craig. The Amended
Complaint does not name Reading 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. On December 9,
1997, the Court certified the case as a Class Action and approved the plaintiff
as Class Representative.
On April 24, 1997, plaintiff filed a purported derivative action against
the same defendants. This action included claims substantially similar to those
asserted in the class action and also alleged waste of tax benefits relating to
Reading's historic railroad operating losses. Reading moved to dismiss this
case for failure by the plaintiff to comply with the mandated procedures for
bringing such an action. On January 23, 1998, the Court dismissed the
derivative action. The dismissal of the derivative action does not affect the
class action case, nor does it preclude reassertion to the claims contained in
the derivative action.
On September 28, 1998, the defendants filed a motion for summary judgment.
In February 2000 the court granted summary judgment against the Plaintiff and in
favor of all of the Defendant directors. Craig was not dismissed, however, the
Court has agreed to reconsider Craig's motion in light of its decision to
dismiss the claims against all of the defendant Directors. The plaintiff has
not elected to seek any rehearing or interlocutory appeal of the trial court's
decision to dismiss the defendant directors.
Redevelopment Authority of the City of Philadelphia v. Reading
--------------------------------------------------------------
On December 12, 1997, the Redevelopment Authority filed an action in the
Philadelphia Court of Common Pleas which relates to the 1993 sale of the
Headhouse property by Reading to the Authority.
22
<PAGE>
Plaintiff has alleged discovery of various contaminants -- asbestos, PCB's lead
paint -- and alleges past and future clean-up costs in excess of $1,000,000. The
action is based upon theories of contract and state environmental law. Reading
has denied liability and intends to vigorously defend. It is Reading's opinion
that the Authority's claim is meritless in that Reading adequately disclosed the
condition of the property and expressly limited its representations made in
connection with the sale.
Other Claims
------------
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. While the City of Philadelphia has asserted
that Reading's share of any environmental clean up costs related to its North
Viaduct Property would be in the range of $3.5 million, Reading does not believe
that it has any current obligation to commence such remediation.
Other Claims
- ------------
Reading and Craig are not a party to any other pending legal proceedings or
environmental actions which management believes could have a material adverse
effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS
At the Company's 1999 Annual Meeting of Shareholders held on December 17,
1999, shareholders elected the Company's directors and approved the proposed
merger between the Company and Craig Holding Corporation, a Nevada Corporation.
The results of the votes were as follows:
<TABLE>
<CAPTION>
Election of Directors For Withheld
- --------------------- --- --------
<S> <C> <C>
James J. Cotter 91,825,382 6,199,426
S. Craig Tompkins 91,199,547 6,825,261
Margaret Cotter 91,822,382 6,202,426
William D. Gould 91,834,582 6,190,226
Gerald P. Laheney 91,825,382 6,199,426
Proposed Merger For Against Abstain/No-Vote
- --------------- --- ------- ---------------
Common stock 73,142,820 9,952,650 8,739,300
Class A Preference 3,325,151 897,546 1,967,341
</TABLE>
23
<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, 1999
Quarter Ended:
December 31, 1999 6 5/16 5 3/16 6 3/4 5 3/4
September 30, 1999 7 1/4 6 3/16 7 3/8 6 5/8
June 30, 1999 7 5/8 6 11/16 8 1/4 6 5/8
March 31, 1999 7 7/8 6 5/16 8 1/16 7
Year Ended December 31, 1998
Quarter Ended:
December 31, 1998 8 1/2 6 5/8 9 7 1/16
September 30, 1998 11 3/16 7 7/16 11 7/16 7 9/16
June 30, 1998 13 1/2 10 7/16 13 7/8 10 3/4
March 31, 1998 11 7/16 9 1/16 12 5/16 9
</TABLE>
The approximate number of holders of record of the Company's Common Stock
and Class A Common Preference Stock as of March 31, 2000 was 704 and 692,
respectively. On March 31, 2000, the high, low and closing prices of the
Company's Common Stock was as follows:
<TABLE>
<CAPTION>
Common Class A
------ -------
<S> <C> <C>
High $5 1/8 $ 4 7/8
Low $ 5 $ 4
Closing $5 1/8 $4 7/16
</TABLE>
On December 15, 1997, the Board of Directors declared a stock distribution
of one share of Class A Common Preference Stock to all shareholders of the
Common Stock (3,762,912 shares) and the Class A Common Preference Stock
(1,622,000 shares) of record on January 5, 1998. The share prices for the first
quarter of 1998 included in the table have been adjusted to reflect the pro
forma impact on the historical market prices of the Common Stock and Class A
Common Preference Stock resulting from such Class A Common Preference Stock
distribution on February 1998 as if the distribution was a stock split.
No cash dividends were declared or paid on the Company's Common Stock or
Class A Common Preference Stock during the fiscal years ended December 31, 1999
and 1998. 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.
24
<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.
<TABLE>
<CAPTION>
Three
Month Year
Year Ended Ended Ended
December 31, Dec. 31, Sept. 30,
------------------------------------------------------------ --------- ---------
1999 1998 1997 1996 1995 1995
---- ---- ---- ---- ---- ----
(in thousands, except per share information)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 38,488 $33,929 $32,466 $27,865 $2,288 $ 6,182
Net income (loss)
applicable to common
shareholders $(15,808) $ (854) $ 2,851 $42,552 $ 850 $ 3,458
===================================================================================================================================
Basic earnings (loss)
per share $ (1.49) $ (0.08) $ 0.26 $ 3.78 $ 0.07 $ 0.29
Diluted earnings
(loss) per share $ (1.49) $ (0.08) $ 0.26 $ 3.76 $ 0.07 $ 0.29
===================================================================================================================================
As of Year
As of Ended Sept.
December 31, 30,
---------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
Total Assets $148,006 $164,591 $167,125 $165,968 $84,669
Long term debt $ 1,035 $ 920 $ 1,609 $ 1,016 --
Redeemable preferred
stock $ 7,000 $ 7,000 $ 7,000 $ 7,000 --
Shareholders' equity $ 80,603 $ 95,342 $ 98,239 $ 99,829 $63,891
===================================================================================================================================
</TABLE>
In 1996, the Company changed its fiscal year end from September 30 to
December 31, and accordingly, the previously issued Consolidated Financial
Statements reported the results of operations, cash flows and the statements of
stockholders' equity the three months ended December 31, 1995 and the years
ended September 30, 1995 and 1994. In addition, Fiscal 1999, 1998, 1997 and
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 1999, 1998, 1997 and 1996 on a consolidated basis as compared to the
equity method of accounting in previous periods.
Fiscal 1999 results include the asset impairment write down of $17,319,000
and restructuring charge of $889,000 (See Footnote 5 to the Consolidated
Financial Statements included elsewhere herein).
Fiscal 1998 includes the results of three new cinemas which were opened
during the year. Fiscal 1997 and 1996 includes a gain of approximately
$2,002,000 and $58,978,000, respectively, from the conversion/redemption of the
Company's common stock holdings in Stater to Preferred Stock (see Footnote 9 to
the Consolidated Financial Statements included elsewhere herein). In addition,
Fiscal 1997 includes the results of five new cinemas which opened during the
year.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this document.
Historical results and percentage of ownership of affiliated companies are not
necessarily indicative of operating results for any future period.
General
- -------
The Company is in the business of identifying, acquiring, owning, and
strategically managing controlling interests in other operating companies. At
December 31, 1999, the Company's consolidated total assets of $148,006,000 and
net loss applicable to common shareholders of $(15,808,000) were principally
derived from its holdings in Reading Entertainment, Inc. ("REI" and collectively
with its subsidiaries, "Reading").
At December 31, 1999, the Company owned REI common stock and REI Series B
preferred stock representing approximately 78% of the voting power of that
company, and 1,096,106 shares of Citadel common stock, which, together with the
2,113,173 shares of Citadel common stock held by Reading, represented
approximately 48% of the outstanding common stock of Citadel. 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 REI (and collectively with its subsidiaries, "Reading"). 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
historically has maintained separate offices from Reading.
Reading is principally in the business of developing and operating
multiplex cinemas in Australia, New Zealand, the United States and Puerto Rico,
and in developing cinema based entertainment centers in Australia and New
Zealand. During 1998 and 1999, Reading has invested substantially all of its
liquid assets in cinemas and in land held for development as entertainment
centers, principally in the Australian and New Zealand markets. In 1998 and
1999, Reading opened or acquired, directly or indirectly through joint ventures,
29 screens and 78 screens (after consideration of 5 closed screens),
respectively. Currently, Reading has, directly or through joint ventures, 71
screens in 10 cinema complexes in Australia, 13 screens in 3 cinema complexes in
New Zealand, 56 screens in 8 cinema complexes in Puerto Rico and 42 screens in 6
cinema complexes in the United States.
Since most of the screens added in 1999 were opened late in the year,
neither their revenues nor expenses are fully reflected in the Company's 1999
results of operations. Also, it is anticipated that the costs of operation for
these new cinemas will be higher during their initial operation than on a
normalized basis, due to the higher staffing and advertising costs typically
associated with a new cinema.
Going forward, Reading has determined to focus its efforts on the
Australian and New Zealand markets. Reading opened an 8-screen complex in
Australia in March 2000 and anticipates opening an additional 10-screen complex
in Australia in the third quarter of 2000. At the present time, there are no
plans to expand the Puerto Rican circuit and plans to open only a single
additional cinema in the United States in 2000. Ultimately, Reading intends to
phase out of the exhibition business domestically and in Puerto Rico.
26
<PAGE>
In 1999, the Consolidated Company incurred an asset impairment write down
totaling approximately $17,319,000. Of this amount, approximately $14,991,000
related to the impairment of Reading's domestic and Puerto Rican cinema assets.
The impairment write down related to Puerto Rico of $14,853,000 was principally
the result of the anticipated opening of a new 13-screen cinemas at the Plaza
Las Americas by the dominant exhibiter in the Puerto Rican market, in direct
competition with the 8-screen cinema currently operated by Reading in that same
shopping center. Then in the fourth quarter of 1999, Reading took additional
write downs in order to reduce the carrying value of CineVista circuit to its
estimated net realizable value based on Reading's decision to exit the Puerto
Rican market. The asset impairment write down with respect to Reading's domestic
cinema operations relates to the impairment of a single cinema that has fallen
victim to overbuilding by competitors. In addition, Reading has written off the
residual value of certain computer equipment held for lease amounting to
approximately $2,125,000.
Also in 1999, Reading has recorded approximately $889,000 in restructuring
charges. Reading is currently in the process of consolidating its general and
administrative functions to Los Angeles, California, and closing down its
executive headquarters in Philadelphia, Pennsylvania. The executive offices of
Craig Corporation ("Craig) and Citadel Holding Corporation ("Citadel") are
located in Los Angeles and it is anticipated that certain economies can be
achieved if the general and administrative functions of these three companies
are consolidated. Accordingly, on a going forward basis, the general and
administrative functions of Craig, Reading, and Citadel will be performed
principally by employees of Craig. The cost of such functions will be shared on
an appropriate basis between the three companies. As the relative general and
administrative demands of the three companies will likely vary from year to
year, it is currently expected that this allocation will be reviewed by the
management on a periodic basis, as deemed appropriate.
To date, the Consolidated Company's development activities have been funded
with cash resulting, in large part, from the disposition of the Stater Bros.
Preferred Stock and Citadel Preferred Stock. A significant portion of this cash
has gone from interest earning cash balances and short term investments to non-
income producing property which is currently under development or held for
development. It is clear that the Consolidated Company will need to borrow
funds in order to complete its currently planned buildout and development
projects, as well as fund its general and administrative costs. The Company
expects that it should be able to raise the capital needed to fund its build-
out, as currently staged over the remainder of 2000.
Results of Operations
Due to the nature of the Consolidated Company's development and acquisition
activities and the timing associated with the results of such activities, the
effect of the gains recorded with respect to the Consolidated Company's
investment in Stater, the effect of litigation awards and settlements, the Stock
Transactions, the timing of new cinema openings and acquisitions, and the long-
term nature of the real estate development activities, historical revenues and
earnings have varied significantly.
None of the Consolidated Company's entertainment center developments have
commenced full operations and several still in the early stage of development
generally have not produced material income or cash flow. Accordingly, general
and administrative expenses related to such real estate development activities
have not been supported by operating income. The cinema at one of the six
entertainment center projects was placed in service in December 1999, however,
the entertainment-related retail space is not expected to be place in operation
until mid-2000. A second entertainment center project which includes a 10-
screen cinema, commenced construction during 1999 and is expected to begin
operations in 2000. During 1999, due to the varying pace of development
activities and the timing of new cinema openings, 9 new cinemas were opened with
a total of 78 screens, four of which commenced operation in December 1999.
27
<PAGE>
The following summarizes cinema activity for the three years ended December 31,
1999 and anticipated 2000 additions:
<TABLE>
<CAPTION>
Total
Cinemas Total Screens Location
- ------------------------------------------------------------------------------
CineVista
- ---------
<S> <C> <C> <C>
Fiscal 1997 7 44
March 8 50 Mayaguez
May 8 48 Homigueros/3/
Fiscal 1998
February 7 44 Homigueros/3/
February 7 42 San Juan/4/
June 8 50 Homigueros/3/
September 7 44 Bayamon/5/
Fiscal 1999
December 8 56 Carolina
Domestic Cinemas
- ----------------
Fiscal 1997 1 6 Manhattan, New York
December 2 14 Houston, Texas
December 3 19 Minneapolis, Minnesota
Fiscal 1998
November 4 22 Sacramento, California
Fiscal 1999
May 5 34 Manville, New Jersey
July 6 42 Buffalo, New York
2000 (Projected) 6
Fourth quarter 8 50 Dallas, Texas
Reading Australia
- -----------------
Fiscal 1997 1 6 Townsville
July 2 10 Bundaberg
November 3 16 Mandurah
Fiscal 1998
November 4 21 Market City
Fiscal 1999
May 5 26 Dubbo
September 6 31 Elsternwick
December 9 63 Belmont, Redbank, Harbour Town1
2000 (Projected)
First Quarter 10 71 Warn Ponds
Third Quarter 11 81 Sydney/1/
Reading New Zealand/2/
- ----------------------
Fiscal 1998
June 2 9 Mission Bay, Whangaparoa
Fiscal 1999
August 3 13 Takapuna
</TABLE>
28
<PAGE>
/1/ Includes a 10-screen cinema located in an entertainment center.
/2/ New Zealand cinemas are 50% owned by the Company.
/3/ CineVista replaced an existing 6-screen cinema in Homigueros with a newly
constructed 8-screen cinema in June 1998. In order to accommodate the
construction of the new cinema, two screens were closed at this location in May
1997. The remaining four screens were closed in January 1998.
/4/ In San Juan, two screens were closed where CineVista continues to operate
eight screens.
/5/ A location in Bayamon was damaged by Hurricane Georges. In the fourth
quarter of 1998, CineVista determined that it would not re-open this 6-screen
cinema.
/6/ Does not include possible acquisition of City Cinemas circuit.
Revenue
- -------
Theater Revenue
- ---------------
Theater Revenue is comprised of admissions, concessions and advertising,
and other revenues from Reading's cinema operations and totaled the amounts set
forth below in each of the three years ended December 31, inclusive of minority
interests where applicable:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
Cine Vista $12,974,000 $16,210,000 $15,186,000
Domestic Cinemas 15,504,000 11,134,000 7,978,000
Australia 9,333,000 6,212,000 3,820,000
----------- ----------- -----------
$37,811,000 $33,556,000 $26,984,000
=========== =========== ===========
</TABLE>
CineVista's Theater revenues decreased approximately $3,236,000 or 20.0%
----------------------------
from $16,210,000 in 1998 to $12,974,000 in 1999, primarily due to deteriorating
market conditions as competing cinemas opened or completed a full year of
operations. In the San Juan market area, CineVista's Theater Revenues decreased
$1,461,000 from the prior year as 27 new competing screens opened between
December 31, 1998 and December 31, 1999. In addition, 1998 Theater Revenues
included $459,000 in revenues from a San Juan 6-screen cinema which was
destroyed by a hurricane in September 1998. In the Cayey and Mayguez markets,
CineVista recorded Theater Revenue decreases of $389,000 and $590,000,
respectively, as new competing screens captured market share. CineVista opened
a new 12-screen cinema in December 1999. CineVista has no new cinemas under
development.
CineVista's Theater Revenues increased $1,024,000 or 6.7% to $16,210,000 in
1998 from $15,186,000 in 1997, primarily as a result of more favorable film
product in the first quarter of 1998. The increase in Theater revenues is net
of a decrease of approximately $279,000 resulting from the closing of 8-screens
in 1997 and 1998, offset in part by increase revenues associated with a full
year of operations from a 6-screen cinema open in March 1997 and an 8-screen
cinema which opened in June 1998.
29
<PAGE>
Domestic Cinemas Theater revenues increased $4,370,000 or 39.3% to
---------------------------------
$15,504,000 in 1999 from 1998 primarily as a result of the inclusion of a 3-
screen cinema which opened in November 1998, a new 12-screen cinema which opened
in May 1999, a new 8-screen cinema which opened in July 1999 and the inclusion
of $1,161,000 in Theater Revenues from the Royal George Theater, which is
currently held for sale, in the current period. The Company has one 8-screen
Domestic Cinema under development which is expected to open in late 2000.
Domestic Cinemas Theater Revenues increased approximately $3,156,000 to
$11,134,000 in 1998 from $7,978,000 in 1997 due in part to new cinema openings.
Reading opened a new 8-screen, 31,700 square foot cinema and cafe complex in
Houston, Texas (the "Houston Angelika") and acquired a 5-screen cinema located
in Minneapolis, Minnesota (the "St. Anthony") in December 1997. Reading also
acquired the lease on an existing 3-screen cinema in Sacramento, California (the
"Tower Theater") in November 1998. Theater Revenues from this cinema were not
material in 1998.
Reading Australia's Theater revenues increased $3,121,000 or 50.2% in 1999
------------------------------------
from $6,212,000 in 1998 to $9,333,000 in 1999 as a result of a 5.6% increase in
Theater Revenues from cinemas which were open for twelve months in both 1999 and
1998, and the contribution of new screens opened during the year. During 1999,
Reading Australia commenced operations of five new cinemas with a total of 42
screens. Most of these new cinemas were placed in operation late in the year
and are expected to significantly increase Reading Australia's Theater Revenues
in 2000 as a full year of operations is recorded. Reading Australia anticipates
opening two new cinemas in 2000 with a total of 18 screens as well as two
entertainment center retail projects.
Theater Revenues from Australian operations increased $2,392,000 or 62.6%
to $6,212,000 in 1998 from $3,820,000 in 1997. The increase from the prior year
includes the effect of a full year of operation of a 4-screen cinema located in
Bundaberg, Victoria (the "Bundaberg Cinema") which was purchased in July 1997
for approximately $1,600,000 and a 6-screen cinema located in Mandurah, Western
Australia (the "Mandurah Cinema") which opened in November 1997. Reading
Australia's first cinema located in Townsville, Queensland (the "Townsville
Cinema") was open throughout each of the respective periods. In November 1998,
Reading Australia opened a 5-screen cinema in Sydney, Australia (the "Market
City Cinema") which it operates under a management contract. Theater Revenues
from this cinema were not material in 1998.
The Company commenced cinema operations in New Zealand in 1998 through a
50% joint venture which operates 13 screens at three locations. The Company
records the results of such operations under the equity method of accounting,
and therefore does not include the revenues of such operations in its Theater
Revenues (See Equity in earnings (losses) of foreign affiliates below).
Real Estate
- -----------
Real Estate revenues include rental income and the net proceeds of sales of
Reading's domestic real estate. Reading Australia did not have material
revenues relating to its real estate entertainment development activities in any
of the three years ended December 31, 1999. Reading New Zealand recorded
$297,000 in Real Estate Revenues in 1999 primarily from rental income a parking
garage which was acquired in 1999. Reading Australia anticipates recording Real
Estate revenues in 2000 as two entertainment centers commence rental operations
in 2000.
30
<PAGE>
Real estate revenues were $677,000, $373,000 and $180,000 in 1999, 1998,
and 1997, respectively. Gains on sale of domestic real estate were not material
in any of the three years ended December 31, 1999. Reading has approximately 15
parcels and rights-of-way remaining from its historic railroad operations, many
of which are of limited marketability. Future domestic real estate revenues,
with respect to these historical properties, may increase as larger properties
are sold. However, management believes that most of the properties held for
sale will be liquidated within the next one to two years.
Income from Investment in Stater
- --------------------------------
The Consolidated Company's investment in Stater Bros. ("Stater" or "SBH")
was repurchased by Stater in August 1997 and the Consulting Agreement between
the Company and Stater, which provided a fee of approximately $1,500,000
annually, was terminated. Upon the SBH Preferred Stock repurchase in August
1997, the Consolidated Company recognized income of approximately $2,002,000
comprised of (i) $1,387,000 (difference between the $69,365,000 stated value of
the SBH Preferred Stock and the carrying value) and (ii) $615,000 received from
Stater at the time of the SBH Preferred Stock repurchase for REI's agreement to
enter into a covenant-not-to-compete for a one year period. In addition, the
Consolidated Company had received $4,330,000 in dividend income and $972,000 in
service fee income from Stater in fiscal 1997.
Expenses
- --------
"Theater costs", "Theater concession costs" and principally all of the
amounts reported as "Depreciation and amortization" included in the Statement of
Operations (collectively "Theater Operating Expenses") reflects the direct
theater expenses associated with cinema operations and totaled the amounts set
forth below in each of the three years ended December 31, 1999, inclusive of
minority interest where applicable.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CineVista $12,381,000 $13,693,000 $13,286,000
Domestic Cinemas 13,319,000 9,475,000 5,989,000
Australia 8,753,000 5,286,000 3,664,000
----------- ----------- -----------
$34,453,000 $28,454,000 $22,939,000
=========== =========== ===========
</TABLE>
CineVista Theater Operating expenses decreased approximately $1,312,000 or
------------------------------------
9.6% between 1999 and 1998 as a result of a reduction in expenses which vary
directly as a percentage of Theater Revenues, including film rent and cost of
concessions which decreased approximately 1.4% as a percentage of Theater
Revenues in 1999 from 1998 levels due to the reduction in Theater Revenues in
1999. Other theater operating expenses decreased approximately $229,000
primarily due to decreased labor costs which was partially offset by a $167,000
increase in depreciation and amortization expense resulting from the inclusion
of a full year of operation of a new 8-screen cinema in 1999. CineVista Theater
Operating Expenses increased approximately $407,000 or 3.1% to $13,693,000 in
1998 from $13,286,000 in 1997 due primarily to increases in expense items which
vary in proportion to Theater Revenues, offset by a net decrease in Theater
Operating Expenses of $1,283,000 from the closing of eight screens during the
periods offset by the effect of opening eight screens in June 1998.
31
<PAGE>
Domestic Cinemas Theater Operating expenses increased approximately
-------------------------------------------
$3,844,000 or 40.6% in 1999 from 1998 due primarily to the increased number of
locations and screens in 1999 and the operations of the Royal George Theater
starting in March 1999. Theater operating expenses as a percentage of Theater
Revenues increased by approximately 1%. Management expects the operating
margins to improve as a full year of operations are recorded and results no
longer include initial non-recurring start-up expenses. Domestic Cinemas
Theater Operating Expenses increased approximately $3,486,000 or 58.2% in 1998
from 1997 as a result of the inclusion of a full year of operations of the
Houston Angelika and the St. Anthony and startup costs associated with the Tower
Theater from November 1998 through year-end.
Reading Australia's Theater Operating expenses increased $3,467,000 or
----------------------------------------------
65.6% in 1999 from 1998 primarily as a result of additional start-up costs
incurred for the new locations that opened during the year. Operating margins
are expected to improve as the new cinemas commence full operations. Australian
theater operating expense increased $1,622,000 or 44.3% in 1998 from 1997
primarily due to the inclusion of a full year of operations from the Bundaberg
and Mandurah Cinemas. Theater Operating Expenses from Australian operations as
a percentage of Theater Revenues remained constant throughout the period.
General and administrative expenses
- -----------------------------------
General and administrative expenses of the Consolidated Company amounted to
$13,444,000, $11,897,000, and $11,449,000 in Fiscal 1999, 1998, 1997,
respectively. "General and administrative" expenses by operating entity
follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reading:
CineVista $ 910,000 $ 1,292,000 $ 767,000
Domestic Cinemas*** 618,000 597,000 645,000
Australia** 4,074,000 3,739,000 3,714,000
New Zealand* 455,000 176,000 --
Corporate 6,398,000 4,453,000 4,611,000
Craig: 989,000 1,640,000 1,712,000
----------- ----------- -----------
Total $13,444,000 $11,897,000 $11,449,000
=========== =========== ===========
</TABLE>
________________________
* Relates to Reading New Zealand's real estate development segment.
** Includes $3,102,000 and $3,021,000 related to Reading Australia's
real estate development in 1999 and 1998, respectively.
*** Includes $80,000 relating to live theater operations in 1999.
CineVista's "General and administrative" expenses decreased $382,000 or 29.6%
-------------------------------------------------
from $1,292,000 in 1998 to $910,000 in 1999, due primarily to the elimination of
$413,000 in charges relating to the closing of 10 screens during 1998 (discussed
below), offset in part by the write off of $121,000 in capitalized development
costs in 1999, and increase in professional fees of $160,000 in 1999.
32
<PAGE>
In 1998, CineVista's "General and administrative" expenses increased
approximately $525,000 or 68.4% from $767,000 in 1997 to $1,292,000 in 1998,
primarily as a result of $413,000 of charges related to the closing of 4 screens
in the first quarter of 1998, and a charge relating to the Company' election not
to rebuild a 6-screen cinema in the fourth quarter of 1998 which had been
damaged by Hurricane Georges. A first quarter charge was comprised of a $395,000
loss on leasehold improvements, net of a reversal of a $230,000 provision for
deferred rent. A fourth quarter charge was comprised of a $336,000 loss on
leasehold improvements net of an $88,000 gain on the cancellation of a capital
lease obligation.
Domestic Cinemas "General and administrative" expenses remained relatively
------------------------------------------------------
flat between 1999 and 1998. Domestic Cinemas "General and administrative"
expenses include $448,000, $488,000, and $370,000 in 1999, 1998, and 1997,
respectively, of management fees to City Cinemas with respect to the management
of the Domestic Cinemas. (See Note 4 to the Consolidated Financial Statements
contained elsewhere herein.) "General and Administrative" expenses decreased
$48,000 or 7.4% to $597,000 in 1998 from $645,000 in 1997, primarily due to
decreased professional fees associated with the NY Angelika and decreased travel
expense which were incurred in 1997 relating to the opening of the Houston
Angelika and the St. Anthony cinemas, offset by the increased management fees.
Reading Australia's "General and administrative" expenses increased
---------------------------------------------------------
$335,000 or 9.0% from $3,739,000 in 1998 as the Australian operations expanded
its cinema and entertainment development and operating activities. Significant
components of the increase include an $180,000 increase in property carrying
costs and a $140,000 increase in write-offs of capitalized project costs.
"General and administrative" expenses from Australian operations of $3,739,000
in 1998 were comparable to $3,714,000 in 1997, resulting from a decrease in the
write-off of Property Development costs related to project abandonments of
$755,000, offset by increased payroll costs, professional fees, office expenses,
and carrying costs of land held for development, primarily of which are
associated with the continued expansion of cinema operations and development
activities in Australia.
Reading New Zealand's "General and administrative" expenses increased from
-----------------------------------------------------------
$176,000 in 1998 to $455,000 in 1999 as the Company's expanding real estate
development activities in 1999, and the inclusion of a full year of activities
in 1999 verses seven months in 1998. Substantially all such expenses are
comprised of professional fees (legal and accounting) which are not direct
project expenses.
Reading's corporate "General and Administrative" expenses increased
---------------------------------------------------------
$1,945,000 or 43.7% from $4,453,000 in 1998 to $6,398,000 in 1999. Significant
components of the increase include an increase in intercompany allocation of
general and administrative charges from Craig of approximately $580,000, the
write-off of $500,000 of expenses relating to the acquisition of City Cinemas
and Off Broadway Investments which were charged to expense in 1999, a $300,000
increase in professional fees, and an increase in salary and wages of
approximately $300,000. During the fourth quarter of 1999, Reading's Board of
Directors reviewed the allocations of the costs and expenses of Messrs, Cotter
and Tompkins, and certain administrative personnel of Craig who perform services
for Reading and determined that Reading should reimburse Craig with respect to
certain corporate costs and expenses that had been incurred on behalf of
Reading.
Reading corporate "General and Administrative" expenses decreased $158,000
or 3.4% to $4,453,000 in 1998 from $4,611,000 in 1997, primarily from the
inclusion in 1997 of bonus expense of $475,000 for a bonus paid to the
Consolidated Company's Chairman of the Board of Directors and a
33
<PAGE>
$110,000 investment banking fee paid to the Consolidated Company's former
Corporate Secretary, offset by an increase in 1998 in non-capitalizable
development costs associated with its Domestic Cinema development activities of
approximately $140,000 and an increase in travel expenses of approximately
$149,000 related to increased Domestic Cinema development activities.
Craig general and administrative expenses in Fiscal 1999, 1998 and 1997 and
-----------------------------------------
totaled $989,000, $1,640,000, and $1,712,000, respectively. As discussed above,
the $651,000 or 39.8% decrease in general and administrative expenses from
$1,640,000 in 1998 was primarily attributable to the $580,000 reallocation of
costs to Reading. The decrease in Fiscal 1998 is principally a result of reduced
salaries as a result of one officer transferring to Reading and one employee
retiring. Craig incurred development write-offs and operating losses with
respect to its 50% membership in Hope Street Hospitality ("HSH") amounting to
approximately $164,000 and $207,000 in Fiscal 1998 and 1997, in addition to
general and administrative expenses.
Asset Impairment and Restructuring Charges
- ------------------------------------------
During 1999, the Consolidated Company recorded an asset impairment charge
of $17,319,000 related to the investment in CineVista, certain Pennsylvania real
estate, and to the 1996 investment in leased computer equipment (See Note 5 to
the Consolidated Financial Statements included elsewhere herein). The Company
also recorded a restructuring charge of $889,000 upon the adoption of a plan by
the Reading's Board of Directors to relocate Reading's corporate headquarters
from Philadelphia, Pennsylvania, to Los Angeles, California.
During the fourth quarter of 1999, Reading determined that it should
initiate efforts to exit the Puerto Rico cinema market. In anticipation thereof,
the Consolidated Company recorded an asset impairment write down which reflects
the difference between the carrying value of CineVista and the estimated net
realizable value of the CineVista cinema circuit. The Consolidated Company has
not categorized CineVista's assets as "Held for Sale" in the 1999 Consolidated
Balance Sheet as the management does not believe that it is likely that a sale
or other disposition of CineVista can be concluded within one year due to
CineVista's poor competitive position in the Puerto Rican cinema exhibition
market as well as the anticipated legal actions related thereto.
During 1999, the Consolidated Company was advised by the partnership which
manages the Company's portfolio of leased equipment that the market for used
computer equipment had deteriorated due to the over-abundance of used computer
equipment available as a result of the global Year 2000 remediation efforts. In
addition, a decision by a large lessee to upgrade certain computer equipment,
including equipment leased from the Company's leasing portfolio, is also
anticipated to have an effect upon the future value of the portfolio. Based
upon discussions with computer equipment vendors, the Consolidated Company
determined that the carrying value of the computer equipment had been impaired
and wrote off the entire carrying value of the leased equipment amounting to
$2,125,000 in 1999.
The Consolidated Company wrote off the entire net carrying value of two of
its domestic cinemas totaling approximately $136,000 in 1999. After a review of
the estimated market value of certain domestic real estate held for sale, the
Company also recorded a $203,000 impairment charge related to such real estate.
In addition, in conjunction with a proposal to the City of Philadelphia (the
"City") for the possible disposition of the environmentally impaired North
viaduct property in return for a cash payment from the Company to the City, the
Company increased its environmental reserve by $500,000 from $1,256,000 to
$1,756,000.
34
<PAGE>
During the fourth quarter of 1999, the Consolidated Company adopted a plan
and commenced steps to relocate Reading's headquarters from Philadelphia,
Pennsylvania, to Los Angeles, California, and recorded a "Restructuring Charge"
of $889,000 in 1999. The restructuring charge includes a provision for a lease
termination charges, duplicate office, employee expenditures, and employee
severance obligations.
Earnings from equity investments
- --------------------------------
The following summarizes earnings (losses) from the Consolidated Company's
investment in Citadel, Big 4 Ranch, Inc. ("BRI"), New Zealand Joint Ventures and
Whitehorse Property Group as included in the accompanying Consolidated
Statements of Operations for the years ended December 31, 1999 and 1998 and
1997.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1998 1997
-------- ------- -----
(in thousands)
<S> <C> <C> <C>
Equity earnings of Citadel $4,174 $2,233 $ 392
Equity earnings from New Zealand JVs 21 -- --
Equity losses from Big 4 Ranch, Inc. -- (520) --
Equity earnings (losses) from Whitehorse (172) 26 --
------ ------ -----
Earnings from equity investments $4,023 $1,739 $ 392
====== ====== =====
</TABLE>
Citadel
- -------
Citadel reported net income applicable to common shareholders of
approximately $9,487,000, $5,687,000, and $1,530,000 in Fiscal 1999, 1998 and
1997, respectively, (the Consolidated Company's share calculated after
consideration of preferred dividends paid by Reading to Citadel, amounting to
approximately $4,174,000, $2,233,000 and $392,000, respectively).
In 1999, Citadel's earnings was primarily comprised of the $13,337,000 of
gain realized on disposal of the commercial property in Phoenix, Arizona (the
"Arboleda Property"). The gain was partially offset by a $1,772,000 or a 32.4%
decrease in rental income from prior year. In 1998, Citadel's earnings include
an income tax benefit of approximately $4,828,000 resulting principally from a
reversal of previously reserved deferred tax assets offset, in part, by a
$990,000 loss representing Citadel's share of the loss of certain agricultural
partnerships which were accounted for under the equity method (See Note 7 to
Consolidated Financial Statements contained elsewhere herein). Citadel's net
earnings for 1999, 1998 and 1997 included approximately $832,000, $1,022,000 and
$820,000 received from the Consolidated Company, as dividends, interest income
and consulting income.
BRI
- ---
On December 29, 1997, Citadel capitalized a wholly owned subsidiary, BRI.,
with a cash contribution of $1,200,000 and then distributed 100% of the shares
of BRI to Citadel's common shareholders of record as of the close of business on
December 23, 1997, as a spin-off dividend. The Consolidated Company received
2,213,043 shares or 33.4% of BRI. During 1998, the Consolidated Company
purchased additional shares of BRI increasing its ownership to approximately
49%.
35
<PAGE>
In 1997, BRI (owning 40%), Citadel (owning 40%) and Visalia LLC (owning
20%; a limited liability company controlled by Mr. James J. Cotter, the Chairman
of the Board of Craig, REI and Citadel, and owned by Mr. Cotter and certain
members of his family) entered into three general partnerships, which
partnerships acquired on December 31, 1997 certain agricultural properties
located in Kern County, California (purchase price amounting to approximately
$7,600,000). The acquisition was financed by a 10-year purchase money mortgage
in the amount of $4,050,000, a line of credit from Citadel and pro rata
contributions from the partners. Through the Consolidated Company's holding in
Big 4 Ranch, Inc. and Citadel, the Consolidated Company owns approximately 38%
of such partnerships at December 31, 1999. In December 1998, the partnerships
suffered a freeze which destroyed the 1998-1999 citrus crop. The partnerships
have no funds to repay the line of credit from Citadel when it becomes due in
August 2000 or fund the estimated $3,501,000 required to meet the costs
associated with production of a 2000-2001 crop and complete the proposed 2000
planting, other than either to call upon its partners for funding or to borrow
further funds from Citadel. BRI has no funds or resources with which to provide
such funding, other than to call upon its separate line of credit from Citadel.
As a result of the freeze, the book value of BRI was essentially reduced to zero
and, accordingly, the Consolidated Company recorded a loss of approximately
$520,000, which loss is included in the Statement of Operations for the year
ended December 31, 1998 as a component of "Earnings from equity investment." BRI
recorded a loss of approximately $322,000 in 1999, however, the Consolidated
Company did not record any portion of the loss since the carrying value had been
reduced to zero in 1998.
Whitehorse Property Group
- -------------------------
In November 1997, Reading Australia acquired a 50% interest from Burstone
Victoria Pty. Ltd. ("Burstone") in the Whitehorse Property Group Unit Trust
("WPG") for approximately $1,600,000. WPG owns a shopping center located near
Melbourne, Australia, located on land leased pursuant to a long-term lease (the
"Land Lease"). In early 2000, Reading Australia and Burstone agreed to sell the
shopping center and are actively seeking buyers. No assurances can be made that
the shopping center can or will be sold a price acceptable to the Company and
Burstone. The Company believes that the estimated net realizable value from the
sale of WPG and repayment of the partner loan described below, is approximately
equal to the carrying value of such assets amounting to $2,847,000, classified
as "Property held for Sale" in the Company's consolidated balance sheet at
December 31, 1999.
WPG incurred a net loss of approximately $194,000 during 1999 as compared
to net earnings of $50,000 in 1998. The Company recorded a loss of $172,000 in
1999 and income of $25,000 in 1998 which are included in "Equity in Earnings of
Affiliates". During 1999, the Company recognized 100% of WPG's loss in excess
of WPG's retained earnings to prevent the aggregate carrying value of WPG from
exceeding WPG's total net asset value. WPG's asset and liabilities totaled
$11,100,000 and $8,200,000, respectively, at December 31, 1999. The Company has
guaranteed the repayment of 50% of a secured bank loan which is owed by WPG and
deferred rent and related charges pursuant to the Land Lease. The principal
outstanding on the loan totaled approximately $3,700,000 and the deferred rent
totaled $500,000 at December 31, 1999, resulting in a guarantee by the Company
of approximately $4,200,000. The bank loan originally was due in June 1999. The
lender has agreed to extend the maturity of the loan on a month-to-month basis
pending a sale of WPG. No assurance can be made that the bank loan will continue
to be available to WPG.
36
<PAGE>
Interest and dividend income
- ----------------------------
Interest and dividend income in Fiscal 1999, 1998 and 1997, amounted to
$1,831,000, $4,755,000, and $3,444,000, respectively. The decrease in interest
income for Fiscal 1999 of $2,924,000 or 61.5% reflects the decreasing balance of
liquid funds as these short-term investment funds were expended for cinema and
entertainment center development projects. The Fiscal 1998 increase is
principally due to a full year's investment of the proceeds received from the
redemption of the Stater Preferred Stock on money market accounts since August
1997. The average yield on such investments was approximately 5.5% for the year
ended December 31, 1998. It is expected that interest and dividend income will
continue to decrease as the balance of liquid funds is deployed.
Other Income
- ------------
"Other income (expense)" totaled $1,033,000, ($587,000), and $1,158,000 in
Fiscal 1999, 1998 and 1997, respectively. In Fiscal 1999, "Other income" was
principally comprised of approximately $605,000 of business interruption
insurance recovery for the CineVista locations damaged by the Hurricane George
and approximately $65,000 from renting out excess office and parking space at
the Royal George Theater.
In Fiscal 1998, "Other Expenses" was principally comprised of losses on
foreign currency derivative contracts. The Company does not currently have any
foreign derivative contracts. Fiscal 1997, "Other income" includes $260,000
from a third party as reimbursement of certain acquisition related expenditures
which were expensed by the Company in prior periods, $490,000 of income realized
upon settlement of certain litigation relating to a discontinued subsidiary's
operations, and a $220,000 gain from foreign currency transactions.
Minority Interest
- -----------------
The components of "Minority Interest" is Fiscal 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- --------------------- -----------------
(in thousands)
----------------------------------------------------------------
<S> <C> <C> <C>
REI $7,561 $1,972 $ 330
Angelika NY (288) (306) (239)
Australian Cinema (33) (37) 42
------ ------ -----
Income (expense) $7,240 $1,629 $ 133
====== ====== -----
</TABLE>
The principal component of minority interest is derived from the Company's
holdings in REI. The Company owns preferred stock in REI which accrete an annual
dividend of approximately $3,575,000, and approximately 69% of the outstanding
REI common stock. REI minority (loss) income in Fiscal 1999, 1998, and 1997
reflects the 30.7% minority interests share of REI losses and preferred
dividends paid to the Company. The 16.67% minority interest in income of
Angelika NY amounted to $288,000, $306,000 and $239,000 in Fiscal 1999, 1998,
and 1997. Minority interest in income of the Australian Cinema represents the
25% minority interests ownership in such cinema which was opened in 1997.
Income Taxes
- ------------
Provisions from income taxes provided in Fiscal 1999, 1998 and Fiscal 1997
amounted to approximately $1,147,000, $986,000, and $1,312,000, respectively.
Fiscal 1999, 1998, and 1997 income tax expense consisted principally of Reading
accruals for foreign withholding taxes which will be paid if certain
intercompany loans are repaid, of Federal Alternative Minimum Taxes and state
income and franchise taxes. The Fiscal 1999 income tax provision includes
approximately $223,000 related to the settlement of Craig Corporation's Federal
income tax returns for the 1997 and 1998 tax return periods.
37
<PAGE>
Net income (loss) applicable to common stockholders
- ---------------------------------------------------
Net (loss) income applicable to Common Stockholder's amounted to
approximately $(15,808,000) $(854,000), and $2,851,000, for Fiscal 1999, 1998,
and 1997, respectively. "Net income applicable to common stockholders' has been
reduced by the 6.5% per annum dividend on the $7,000,000 of Convertible
Redeemable Preferred Stock issued to Citadel by Reading in October 1996
amounting to $455,000 per annum for each of three years ended December 31, 1999.
Liquidity and Capital Resources
At December 31, 1999 and 1998, Craig had cash and cash equivalents of
approximately $1,801,000 and $4,721,000, respectively. At December 31, 1999 and
1998, the Consolidated Company had cash and cash equivalents totaling
approximately $15,077,000 and $63,314,000, which include approximately
$13,277,000 and $58,593,000 held by Reading, respectively. REI is majority
owned by the Company and, accordingly, is included in the consolidated financial
statements of the Company as of December 31, 1999 and 1998. 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.
Since Reading determined to become principally involved in the Beyond the
Home or real estate based segment of the entertainment industry in 1993, it has
funded its development activities principally from cash derived from the
disposition of its historic railroad assets and other operating interests. In
1996, in view of the substantial capital resources required to take advantage of
the opportunities available to it in this industry, Reading and Craig entered
into the 1996 Stock Transaction which had the result of providing Reading with
substantial liquid resources.
The Stock Transactions transferred the title of a material portion of
Craig's assets to REI, resulting in Craig's assets being principally comprised
of REI Common and Preferred stock. Accordingly, the future liquidity of Craig
has been and continues to be principally dependent on Reading's ability to pay
dividends in accordance with the terms of the Reading Preferred Stock amounting
to approximately $3,575,000 annually. For the year ended December 31, 1999,
Reading has not paid the $3,575,000 in dividends on the Series B Preferred Stock
held by Craig. Reading does not currently have the resources to pay dividends
and accordingly, Craig's future liquidity will be dependent on Reading obtaining
financing without restrictions on dividend payouts, selling Citadel or Reading
securities held by Craig, or equity financing.
As a consequence of the Consolidated Company's business plan for Australia
and New Zealand, the Consolidated Company is carrying significantly more land
(undeveloped land is classified as "Property held for development" in the
Consolidated Balance Sheet) than might be the case with a more mature cinema
company. The acquisition of these properties has required the commitment of
significant sums. Since most of the acquired properties are not currently
income producing, the financing of such asset is more difficult and more
expensive than would be the financing of cash flowing assets.
In late 1999, Reading determined that it would be in best interest of the
company and its shareholders to concentrate on Australia and New Zealand real
estate and cinema development activities on properties now owned by Reading.
This decision was based in part upon management's view that deployment of
Reading's limited capital resources in these markets would ultimately prove to
be more
38
<PAGE>
profitable than further investments in CineVista or the Company's domestic
cinemas. Accordingly, Reading is in negotiations with Citadel to assign its
rights to acquire the 16-screen City Cinemas cinema circuit, certain management
rights related thereto (the "City Cinemas Transactions") and 3 live theaters
(the "OBI Transactions") pursuant to a 1998 letter agreement with James J.
Cotter, the Consolidated Company's Chairman of the Board of Directors and
Michael Forman, a major shareholder of Craig.
In recognition of this decision, Reading commenced efforts to sell the
Royal George Theater, a live theater that was to have been operated in
conjunction with the three live theaters to have been acquired in the OBI
Transaction. Reading has also determined that it will exit the Puerto Rico
cinema market and has no additional cinemas under development in that market.
Reading presently has only one domestic cinema under development and is
contemplating selling its existing domestic cinemas.
At December 31, 1999, the Consolidated Company has a note payable amounting
to $8,618,000 including $4,400,000 of bank debt outstanding; $3,000,000 under
CineVista's line of credit and $1,400,000 under a property term loan in New
Zealand (See Footnote 13 to the Consolidated Financial Statements included
elsewhere herein). In addition, Craig has a demand note due to Citadel of
$1,998,000 and Reading has $7,000,000 of Redeemable Preferred Stock subject to
redemption by Citadel in October 2001. In March 2000, Reading Australia entered
into a $16,350,000 line of credit (the "Australian Bank Loan"), which may be
increased to $49,000,000 (the "Increased Commitment"), if additional bank
participants can be secured. The Australian Bank Loan will provide Reading
Australia with adequate funds to complete, in 2000, an entertainment center
development currently under construction in Sydney, and if the Increased
Commitment is secured, to complete a second planned entertainment center project
in Melbourne during 2001. All amounts outstanding under CineVista's line of
credit are due on December 31, 2000, as are amounts outstanding under the new
Zealand loan and Australian Bank Loan if the Increased Commitment is not
secured. If the Increased Commitment is not secured, the Australian Bank Loan
matures in December 2003.
In addition to deficit working capital at December 31, 1999 of
approximately $2,861,000 including maturing bank debt of $4,500,000, Reading has
committed development expenditures relating to cinema and entertainment
development projects of approximately $50,000,000. Approximately $25,000,000 of
this $50,000,000 commitment is expected to be funded in 2000 and the remaining
$25,000,000 to be funded thereafter is expected to be funded, in part, by the
Increased Commitment, if secured. Payment of existing Corporate commitments is
based upon further financing. Reading does not anticipate incurring additional
development commitments in New Zealand or Australia until additional financing
is secured. CineVista is in violation of certain of the loan covenants in its
line of credit and is seeking a waiver of such violation from the lender. If a
waiver is not received, CineVista will be in default of the terms of the line of
credit and the lender could demand immediate payment of amounts due thereunder,
which amounts totaled $3,000,000 on December 31, 1999 and $4,250,000 on April
12, 2000. No assurances can be made that the lender will waive the covenant
violation.
In April 2000, Reading received an oral commitment for an 18-month
$7,000,000 line of credit secured by a pledge of certain domestic cinema assets
and the Company's interest in Citadel (the "Domestic Line of Credit"). However,
as a result of the sale of AFC interest to NAC (See Note 24), the terms of the
loan commitment will have to be renegotiated. No assurances can be made that the
lender will be willing to fund Reading under revised terms. Proceeds of the
Domestic Line of Credit, if finalized, are expected to be used to pay off a
portion of the accumulated dividends under the Series B Preferred Stock as
Reading did not pay $3,575,000 in dividends on the Series B Preferred Stock held
by Craig in 1999. In addition, Reading expects to use the proceeds from the
Domestic Line of Credit to pay the purchase money debt of $1,180,000 due in May
2000 from the purchase of the Royal George Theatres and fund the development
cost of one additional domestic cinema. Reading anticipates acquiring additional
financing to fund its development obligations which are due in 2001. In New
Zealand, Reading has a $2,800,000 property purchase mortgage and a $1,400,000
bank loan due in 2000. Reading New Zealand is presently evaluating a bank
proposal to refinance both of these obligations and provide construction funding
for an entertainment center in Wellington. Reading does not anticipate
commencement of construction of new projects until financing has been arranged.
39
<PAGE>
The following summarizes the major sources and uses of cash funds in each
of the three years ended December 31, 1999, 1998 and 1997:
Fiscal 1999
- -----------
"Unrestricted cash and cash equivalents decreased $48,237,000 in 1999 from
$63,314,000 at December 31, 1998 to $15,077,000 at December 31, 1999 due
primarily to the effects of the acquiring property and equipment. Working
capital decreased $50,386,000 from $47,445,000 at December 31, 1998 to
$(2,861,000) at December 31, 1999.
Principal sources of liquid funds in 1999 were (i) proceeds from short-term
debt in the amount of $4,639,000, and (ii) proceeds from sale of investment
properties. In addition to payment of operating expenses, the principal use of
cash funds included $40,958,000 in acquisition of property held for development
and the acquisition of property and equipment, $879,000 for the repurchase of
Craig securities, and $7,938,000 of payments made on purchase commitments.
Additionally, principal sources of liquid funds included a net increase of
$1,343,000 in "Accounts payable and accrued expenses."
Fiscal 1998
- -----------
"Unrestricted cash and cash equivalents decreased $34,888,000 in 1998 from
$98,202,000 in 1997 to $63,314,000 at December 31, 1998. Working capital
decreased $42,320,000 from $89,765,000 at December 31, 1997 to $47,445,000 at
December 31,1998.
Other sources of liquid funds in 1998 include $4,755,000 in interest
income, a net increase in purchase commitments of $4,550,000, and real estate
revenue of $373,000.
In addition to the payment of operating expenses, the principal use of cash
funds included the repurchase of Craig common stock totaling $984,000, the
payment of $455,000 of dividends with respect to the REI Convertible Preferred
stock, purchases of property and equipment of $11,083,000 ($1,772,000 which
related to Reading Australia, $7,106,000 which related to CineVista, and
$2,205,000 relating to the Domestic Cinemas), the investment of $12,445,000 in
property held for development ($2,645,000 relates to Reading New Zealand and
$9,800,000 relates to Reading Australia), the payment of $1,370,000 relating to
the acquisition of the Royal George Theater, the payment of $1,272,000 relating
to a deposit and other costs associated with the Cinema Transaction and the
Theater Transaction, the investment of $4,290,000 by Reading New Zealand in two
joint ventures (including a loan of $587,000 to a joint venture partner with
respect to property on which Reading New Zealand intends to develop an
entertainment center) and investments in Citadel and Big 4 common stock of
$3,636,000 (See Note 7 to the Consolidated Financial statements contained
elsewhere herein).
Fiscal 1997
- -----------
"Unrestricted cash and cash equivalents increased $46,030,000 in 1997 from
$52,172,000 in 1996 to $98,202,000 at December 31, 1998. Working capital
increased $43,978,000 from $45,787,000 at December 31, 1996 to $89,765,000 at
December 31, 1998.
The principal source of liquid funds in 1997 was the $73,915,000 in
proceeds from the redemption of the Stater Preferred Stock investment inclusive
of accrual dividends. Other sources of liquid funds in 1997 include $2,360,000
in payment of a 1996 litigation settlement, $3,444,000 in "Interest and
dividend" income, and $260,000 from "Other income".
40
<PAGE>
In addition to the payment of operating expenses the principal use of cash
funds included the payment of $455,000 of dividends on the Company's REI
Convertible Preferred Stock, the additional purchase of REI Common Stock
amounting to $819,000, and purchases of a theater and property and equipment of
$20,118,000 ($11,743,000 which relates to Reading Australia, $4,079,000 relating
to CineVista and $4,296,000 to the Domestic Cinemas), and the investment of
$3,871,000 by Reading Australia in a joint venture and a loan to the joint
venture partner with respect to an existing shopping center property which
Reading Australia is considering as a potential site for redevelopment as an
entertainment center intends to develop a multiplex cinema.
The Reorganization and Stock Transactions
Reading Entertainment Inc., a Nevada corporation, was initially formed in
1996 in a reorganization of the Company under a Delaware holding company. In
1999, REI was reincorporated a Nevada corporation. The Consolidated Company
believes that such a structure would facilitate the financing of Reading, by
permitting it to seek new capital without subjecting the new capital to the
contingent liabilities of Reading's historical railroad business, and permit
Reading to avail itself of a more established body of corporate law that that of
Pennsylvania.
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 REI to acquire substantially all of Citadel's
assets and assume related liabilities in return for the issuance of REI Common
Stock at any time through a date 30 days after REI files its 1999 Annual Report
on Form 10-K. Citadel has informed Reading it does not intend to exercise the
Asset Put Option. REI received from Craig the Stater Preferred Stock with a
stated value of $69,365,000, the CHC Preferred Stock with a stated value of
$5,250,000 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 1996 Reorganization and the 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>
Citadel Preferred Stock $ 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
===========
* Plus accrued and unpaid dividends
</TABLE>
The Stock Transactions were intended to qualify as an exchange under
Section 351(a) (a "351 Exchange") of the Internal Revenue Code of 1986, as
amended (the "Code") with no taxable gain recognized in the transaction.
Accordingly, REI's tax basis in the acquired assets was the same as Craig's
basis in those assets had been immediately before the contribution. The Stater
Bros. stock was the only asset which, at the time of the transaction, had a
market value substantially in excess of the tax basis.
41
<PAGE>
In December 1996, the Stater Preferred Stock was contributed by REI to
Reading Australia. Management believes that the gain for federal tax purposes
resulting from that transfer was offset by REI's NOL carryforwards (See Note 17
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 will 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
REI. While the transfer restrictions which are applicable to REI'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 applied to the contribution by REI of the
Stater Preferred Stock to Reading Australia, there can be no assurance that the
IRS will not take a different position. The IRS is presently examining Reading's
1996 tax return in which the Company utilized $104,300,000 of the NOL. If the
IRS 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.
Effects on Inflation
The Consolidated Company continually monitors inflation and the effects of
changing prices. Inflation increases the costs of goods and services consumed
by the Consolidated Company. Competitive conditions in the market, however,
restrict our ability to fully recover the higher costs of doing business during
inflationary periods. The effects of inflation have, in the management's
opinion, been managed appropriately.
Recent Accounting Pronouncements
Effective January 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). SFAS 133 is effective for fiscal years beginning after
June 15, 2000 and requires all derivatives to be recorded on the balance sheet
at fair value as either assets or liabilities depending on the rights or
obligations under the contract. SFAS 133 also establishes new accounting
methodologies for the following three classifications of hedges: fair value,
cash flow, and net investment in foreign operations. Management believes the
adoption of SFAS 133 will not have a material impact on the Company's financial
position or results of operations.
42
<PAGE>
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 Consolidated
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 Consolidated Company's
investment activities and other factors described herein.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The financial performance and results of operations of the Consolidated
Company may be affected by changes in interest rates, currency exchange rates,
and inflation.
The Consolidated Company maintains most of its cash and cash equivalent
balances in Eurodollar time deposits and short-term money market instruments
with original maturities of six months or less. Eurodollar time deposits are
not readily marketable and therefore are not subject to interest rate risk,
although the Consolidated Company may lose the ability to realize the benefit of
increased interest income if interest rates were to rise. Other money market
investments are subject to interest rate risk and will decline in value if
interest rates increase. Due to the short-term nature of such investments, a
change of 1% in short-term interest rates would not have a material effect on
the Company's financial condition.
Approximately 82% and 17% of the consolidated Company's net assets (assets
less liabilities) were invested in assets denominated in Australian dollars
(Reading Australia) and New Zealand dollars (Reading New Zealand), respectively,
at December 31, 1999. The Consolidated Company anticipates expenditure of its
remaining cash balances in 2000 in furtherance of its development activities and
has therefore converted portions of its cash funds to Australian and New Zealand
dollars. At December 31, 1999, $9,770,000 of the cash and cash equivalents were
invested in Australian and New Zealand dollars compared to $1,272,000 for the
prior year. Upon the expenditure of the remaining cash balances, it is expected
that funding for development expenditures will be secured through bank
borrowings. Such borrowings will be originated in the same currencies as the
expenditures. Accordingly, unless the Reading elects to hedge its foreign
exchange exposure, a significant portion of Reading's net assets (based upon the
amount at December 31, 1999) will continue to be invested in assets subject to
exchange fluctuations between the U.S., Australian, and New Zealand dollars. At
December 31, 1998, approximately 26% of the Reading's net assets were invested
in assets subject to currency fluctuations. Reading has no current plan to hedge
such exposure.
43
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to pages
F-1 through F-39.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
44
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the directors and executive officers, together with certain
information regarding them, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------ --- -------------------------------
<S> <C> <C>
James J. Cotter 62 Chairman of the Board
S. Craig Tompkins 49 President and a Director
Margaret Cotter 32 Director
William D. Gould(1)(2) 61 Director
Gerard P. Laheney(1) 62 Director
Robert W. Loeffler(2) 76 Director
Andrzej Matyczynski 47 Chief Financial Officer
Ellen M. Cotter 34 Vice President-Business Affairs
</TABLE>
(1) Member of the Compensation Committee. The Compensation Committee's
functions include the review of all compensation and employment
agreements with the Company's officers and directors.
(2) Member of the Audit Committee. The Audit Committee's functions include
the recommendation of independent auditors to the Board and approval of
the scope of their services and proposed fees for such services.
Mr. Cotter has been a Director of Craig since 1985 and the Chairman of the
Board of Directors since 1988. Mr. Cotter has been Chairman of the Board of
Reading Entertainment, Inc. ("REI," and collectively with its predecessor,
Reading Company, "Reading") and its predecessor and of Reading since December
1991. Mr. Cotter has been a director and the Chairman of the Board of Citadel
Holding Corporation ("Citadel") since 1991 and the Chief Executive Officer of
Citadel since August 1999. Mr. Cotter is the Chairman and director of Citadel
Agriculture, Inc., a wholly owned subsidiary of Citadel ("CAI"); the Chairman
and member of the Management Committees of each of three agricultural
partnerships (the "Agricultural Partnerships") which constitute the principal
assets of CAI, and the Chairman and a member of the Management Committee of Big
4 Farming, LLC, a farm management company, 80% owned by Citadel and 20% by
Visalia LLC and formed to manage the properties owned by the Agricultural
Partnerships. From 1998 through January 1993, Mr. Cotter also served as the
President and a director of Cecelia Packing Corporation (a citrus grower and
packer), a company wholly owned by Mr. Cotter and certain members of his family
and which holds a 20% interest in each of the Agricultural Partnerships and in
Farming and a director of Visalia LLC. Between 1987 and September 1997, Mr.
Cotter served as a director of Stater Bros. Holdings Inc. and its predecessors
(a retail grocery chain). Mr. Cotter has been a director and Chief Executive
Officer of Townhouse Cinemas Corporation (motion picture exhibition) since 1987,
and has been the Executive Vice President and a director of the Decurion
Corporation (motion picture exhibition) and of Pacific Theaters, Inc., a wholly
owned subsidiary of Decurion Corporation, since 1969. Mr. Cotter also has a 50%
ownership in Sutton Hills Associates (See Item 13 contained elsewhere herein)
and is the General Partner of a limited partnership which is, in turn, the
General Partner of Hecco Ventures. Hecco Ventures owns 17.6% of the common
stock shares and 10.2% of the Class A Common Preference Stock shares of Craig.
45
<PAGE>
Mr. Tompkins has been President and a director of Craig and a director of
Reading since March 1993 and served as the President of Reading between March
1993 and January 1997. Since January 1997, he has served as the Vice Chairman
of REI. Prior thereto, Mr. Tompkins was a partner in the law firm of Gibson,
Dunn & Crutcher. Mr. Tompkins has been a director of Citadel since May 1993,
became Vice Chairman in July 1994 and the Company's Secretary/Treasurer in
August 1994. From August 1994 until November 1999, Mr. Tompkins also served as
the Principal Accounting Officer of Citadel. In 1997, Mr. Tompkins became the
President of Citadel Agricultural, Inc., a member of the Management Committee of
each of the Agricultural Partnerships and of Farming. For administrative
convenience, Mr. Tompkins also serves as an Assistant Secretary of Big 4 Ranch,
Inc., and Visalia LLC. He has been a director of G&L Realty Corp., a New York
Stock Exchange listed REIT, since December 1993, and serves as the Chairman of
the Audit Committee and the Strategic Planning Committee of that company.
Ms. Margaret Cotter is a member of the New York State Bar and, since
September 1997, has been Vice President of Cecelia Packing Corporation, a
company wholly-owned by Mr. James J. Cotter, engaged in the citrus packing and
marketing business in Fresno, California. From February 1994 until September
1997, Ms. Cotter was an Assistant District Attorney for King's County in
Brooklyn, New York. Ms. Cotter graduated from Georgetown University Law Center
in 1993 and is the daughter of Mr. James J. Cotter. Ms. Cotter is a limited
partner in James J. Cotter Ltd. (Mr. Cotter is the general partner), which is a
general partner of Hecco Ventures. James J. Cotter Ltd. has shared voting power
with respect to the Company's equity shares held by Hecco Ventures. Ms. Cotter
serves as a director of Big 4 Ranch, Inc. and is a member of Visalia LLC.
During 1998, Ms. Margaret Cotter joined Union Square Management, Inc., as a
Senior Vice President (see Item 13 contained elsewhere herein).
Mr. Gould has been a director of the Company since 1985, and is Chairman of
the Compensation Committee. Mr. Gould served as a director of Citadel between
June 1995 and June 1996 and in December 1997 became a director of Big 4 Ranch,
Inc. Since July 1986, Mr. Gould has been a member of Troy & Gould Professional
Corporation, a law firm that the Company has retained during its last fiscal
year.
Mr. Laheney has been a director of the Company since 1990. Mr. Laheney
served as a director of Reading Company, predecessor of REI, between November
1993 and June 1996. In November 1998, Mr. Laheney became Chairman and President
of Big 4 Ranch, Inc. and a member of the management committee of each of the
Agricultural Partnerships. Between July 1995 and July 1996, Mr. Laheney was a
consultant for Portfolio Resources Group overseeing global equities, fixed
income and foreign exchange investments. Mr. Laheney has been President of
Aegis Investment Management Company, an investment advisory firm specializing in
global investment portfolio management since August 1993. Mr. Laheney was Vice
President of The Partners Financial Group, Inc., between December 1993 through
June 1995 and a Vice President of Dean Witter Reynolds from April 1990 until
December 1993.
Mr. Loeffler, who currently serves as a Director and as member of the of
Audit Committee of Reading Entertainment, Inc. was elected as a Director and as
member of the Audit Committee of Craig as of February 22, 2000.
Mr. Matyczynski has been the Chief Financial Officer of Craig since
November 1999. Prior to November 1999, Mr. Matyczynski served as a Director at
Beckman Coulter, a multi-national biomedical company.
46
<PAGE>
Ms. Ellen Cotter has been the Vice President of Business Affairs of Craig
since August 1996 and since March 1998 is Vice President of Business Affairs of
Reading and Vice President of Angelika Cinemas, Inc. since May 1997. Prior
thereto, she was an attorney specializing in corporate law with White & Case, a
New York law firm. Ms. Ellen Cotter is the daughter of Mr. James J. Cotter.
Ms. Ellen Cotter is a member of Visalia LLC and a limited partner in James J.
Cotter, Ltd. (Mr. Cotter is a general partner), which is a general partner of
Hecco Ventures. James J. Cotter Ltd. has shared voting power with respect to
the Company's equity shares held by Hecco Ventures.
In addition to Mr. Cotter, Mr. Tompkins, and Mr. Matyczynski, who are also
officers of Craig, the principal executive officers of Reading, the Company's
majority owned subsidiary, are as follows:
Mr. Robert Smerling has been a Director since September 1997, 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
Reading's various domestic and Puerto Rican exhibition subsidiaries since 1994.
Mr. Smerling served as president of Loews Theater Management Corporation, a
subsidiary of Sony Corporation, from May 1990 until November 1993. Mr. Smerling
also serves as President and Chief Executive Officer of City Cinemas, a motion
picture exhibitor located in New York City, New York which provides management
services to Reading. 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. James 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.
Mr. Lawson has been the Director of REI's principal Australian operating
company, Reading Entertainment Australia Pty Limited since May 1999. Prior to
joining REI, Mr. Lawson served as the Asset General Manager responsible for New
South Wales for Westfield from 1996 to 1998, and as the General Manager (Retail
Property Development) for Coles Myer from 1994 to 1995.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who own more than 10% of
the Company's Common Stock or Class A Common Preference Stock to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). The Commission's rules also require such reporting persons
to furnish the Company with a copy of all Section 16(a) forms they file.
Based solely on a review of the copies of the forms which the Company
received and written representations from certain reporting persons, the Company
believes that, during the year ended December 31, 1999, all filing requirements
applicable to reporting persons were fulfilled.
47
<PAGE>
Item 11. Executive Compensation
I. Summary Compensation Table
--------------------------
The following table shows, for the year ended December 31, 1999, 1998 and
1997, the cash compensation paid by the Company and its affiliates, as well as
certain other compensation paid or accrued for those years, to the Chairman of
the Board and each of the most highly compensated executive officers of Craig
whose compensation exceeded $100,000 in all capacities in which they served.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Awards
------------------------------------------- ------------
Other Annual
Compensation All Other
Name and Salary Bonus (1)(9) Options Compensation
Principal Position Year ($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James J. Cotter:
Chairman of the Board
Craig(2)(11) 1999 -- -- $350,000 -- --
1998 -- -- $350,000 -- --
1997 -- -- $350,000 -- --
Chairman of the Board
Reading (3) 1999 -- -- $150,000 -- --
1998 -- -- $150,000 -- --
1997 -- $475,000 $150,000 460,000/7/ --
Chairman of the Board
Citadel(3) 1999 -- -- $ 45,000 -- --
1998 -- $200,000 $ 45,000 -- --
1997 -- -- $ 45,000 -- --
S. Craig Tompkins(4):
President, Craig (11) 1999 $180,000 -- -- -- $ 21,422 /8/
1998 $180,000 -- -- -- $ 106,931/8/
1997 $180,000 -- -- -- --
President, Reading(3) 1999 $180,000 -- -- -- --
1998 $180,000 -- -- -- --
1997 $180,000 -- -- 20,000/7/ --
Director, Citadel(3) 1999 -- -- $ 40,000 40,000/13/ --
1998 -- $ 50,000 $ 40,000 -- --
1997 -- -- $ 40,000 -- --
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation Awards
--------------------------------------- ----------
Other Annual
Compensation All Other
Name and Salary Bonus (1)(9) Options Compensation
Principal Position Year ($) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robin W. Skophammer
Chief Financial 1999 $151,250 -- $15,400 -- $ 20,880(8)
Officer, Craig(12) 1998 $165,000 -- $16,800 30,000 $135,866(8)
1997 $165,000 -- $16,800 -- $30,000(5)
Andrzej Matyczynski(5):
Chief Financial 1999 (5) -- -- 30,000(14) $40,000(5)
Officer, Craig (11)
Chief Administrative 1999 (5) -- -- -- --
Officer, Reading(11)
Chief Financial 1999 (5) -- 30,000(14) -- --
Officer, Citadel(11)
Ellen M. Cotter:
Vice President, Business 1999 -- -- -- -- --
Affairs, Craig 1998 $ 16,700 -- $ 2,300 -- --
1997 $ 92,500 -- $12,220 -- --
Vice President, Business
Affairs, Reading and 1999 $150,000 -- $14,331 -- $ 4,800
Subsidiaries 1998 $ 80,770 $25,000 $11,148 -- $ 2,423(10)
1997 -- -- 10,000(7) --
Officers of Reading
- ---------------------------
Robert F. Smerling(6)
President, Reading 1999 $175,000 -- -- -- $20,415
Entertainment, Inc. 1998 $175,000 -- -- -- --
1997 $175,000 -- -- 35,000(7) --
James A. Wunderle
Exec. Vice President 1999 $175,000 -- -- -- $4,800
and Chief Financial 1998 $175,000 -- -- -- 4,500(10)
Officer and Treasurer 1997 $170,000 $5,000 -- 17,000(7) --
of REI
David Lawson
Director of Reading 1999 A$307,200(15) -- -- -- A$21,504(15)
Entertainment, Inc.
</TABLE>
49
<PAGE>
(1) Excludes perquisites if the aggregate amount of such annual compensation to
the executive did not exceed $50,000 or 10% of the annual salary plus
bonus, unless otherwise noted.
(2) Amount is paid pursuant to a consulting agreement between the Company and
Mr. James J. Cotter. The Company and Mr. Cotter have agreed to continue
the consulting arrangement on a month-to-month basis for a monthly fee of
approximately $29,166. The Company owns a condominium in a high-rise
building, located in Hollywood, California, which the Company uses as an
executive office, and which is personally used from time to time by the
Chairman of the Board. Since the incremental cost to the Company of Mr.
Cotter's personal use of these facilities does not exceed $50,000 or 10% of
his annual consulting fee, the cost has not been included as compensation
in the table.
(3) Reading Entertainment, Inc. is a majority owned subsidiary of Craig and
Citadel Holding Corporation ("Citadel") is considered an affiliate of Craig
and, accordingly, amounts paid or earned by the listed executives from
their services provided to these companies are included in this schedule.
As of December 31, 1999, Craig has no liability to the individuals for
these amounts. All amounts reported are liabilities or have been paid
directly by the respective company to the executives for services rendered
in the capacities outlined. Any shares listed as option awards refer to
that respective Company's securities.
(4) Mr. Tompkins was elected as the President of the Company and was appointed
to the Board of Directors of the Company on February 26, 1993. On that
same date, he was elected by the Directors of Reading Company as the
President and as a member of the Board of Directors of that corporation.
Effective January 17, 1997, Mr. Tompkins was appointed Vice Chairman of the
Board of Directors of REI and Mr. Smerling was appointed President of REI.
While no formal written agreement exists as to the terms of Mr. Tompkins
employment in the case of his employment by Craig and Reading, Mr. Tompkins
is entitled to his annual base salary from each respective company for a
period of a year in the event that his employment is voluntarily terminated
and no change of control has occurred. Mr. Tompkins is entitled to a
severance payment equal to two years his base salary in the event of a
change of control of Craig, and to a two-year severance payment in the case
of a change of control of Reading.
(5) Mr. Matyczynski was named the Chief Financial Officer of Craig and Citadel
and the Chief Administrative Officer of Reading in November 1999. Pursuant
to the employment agreement, in the event of termination of his employment
for any reason other than death, or in the event of a merger, acquisition
or any restructuring of Craig in which there is a change of control, as
defined, a severance payment equal to six months' base compensation would
be paid on the date of termination. In addition, Mr. Matyczynski was
granted a $33,000 loan in November 1999, to be forgiven ratably over the
next three years. Mr. Matyczynski's compensation for the year ended
December 31, 1999 did not exceed $100,000, however, the companies have
contracted to pay Mr. Matyczynski an annual salary of $185,000.
(6) Mr. Smerling was appointed President of REI effective January 17, 1997.
Mr. Smerling also serves as President of City Cinemas from which he is paid
separately. City Cinemas provides management services to Reading for a
fee. Messrs. Smerling and Wunderle are entitled to receive a payment equal
to a year's annual base salary in the event their individual employment
with Reading is involuntarily terminated.
50
<PAGE>
(7) In September 1997, the shareholders of REI approved the grant of an option
to Mr. Cotter to purchase, subject to various conditions and certain
contingencies, up to 460,000 shares of REI Common Stock at $12.80 per
share. In addition, the shareholders of REI approved a 1997 Equity
Incentive Plan under which Ms. Cotter and Messrs. Smerling, Wunderle and
Tompkins, as employees of Reading, were granted incentive stock options to
exercise REI common stock, subject to vesting conditions, at $12.80 per
share in amounts as detailed in the schedule. Messrs. Tompkins, Smerling
and Wunderle surrendered non-qualified options to purchase 17,500, 15,000
and 5,000 shares, respectively, of REI stock in connection with such grant.
(8) Effective January 1, 1999, two individual became participants in a Pension
Plan authorized by the Board of Director. Included in Fiscal 1998 is the
past service cost accrued to Mr. Tompkins and Ms. Skophammer since their
dates of hire.
(9) Other annual compensation consists of an automobile allowance.
(10) Other compensation represents contributions under Reading's Retirement
Savings Plan.
(11) Pursuant to the management agreement entered into by Craig, Reading, and
Citadel in December 1999, compensation paid to certain executives by Craig
was reallocated, through a management fee arrangement, between the three
companies.
(12) Ms. Skophammer and the Company entered into a letter agreement dated as of
September 24, 1999, pursuant to which Ms. Skophammer continued as the
Company's Chief Financial Officer through November 19, 1999, and thereafter
has agreed to make herself available as a consultant through December 31,
2000 subject to a right by Ms. Skophammer to terminate such consulting
arrangement on 30 days' notice. In addition, such letter agreement provides
for Ms. Skophammer to be entitled to receive a bonus. The amount of such
bonus has not yet been finalized nor included in the compensation schedule
for 1999.
(13) Mr. Tompkins was granted 40,000 shares of Citadel stock options in November
1999. The options granted to Mr. Tompkins vest over four years in equal
amounts except for the 8,000 shares that vested immediately on the grant
date. These stock option shares have exercise prices equal to the fair
market value of the shares on the date of the grant.
(14) Mr. Matyczynski was granted 30,000 shares of Craig stock options and 30,000
shares of Citadel stock options in November 1999. The shares of Craig and
Citadel stock options vest as follows: 15,000 shares of Craig and 15,000
shares of Citadel vest at the end of the first year and the remaining
shares vest over the next four years in equal amounts.
(15) Mr. Lawson's annual compensation was paid and disclosed in Australian
dollars.
51
<PAGE>
Director Compensation
- ---------------------
Directors who are not officers or employees of the Company receive for
services as a Director a fee of $25,000 per annum.
II. Option Grant Table
------------------
The following provides information regarding the grant of Craig stock
options during 1999.
<TABLE>
<CAPTION>
Potential Realizable
% of Value at Assumed Annual
Total Rates of Stock Price
Options Appreciation
Options Granted Exercise for Option Term
Granted in Fiscal Price Expiration -------------------------
Name (#) Year ($/sh) Date 5% 10%
- ------ --- ---- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Andrzej Matyczynski 30,000(1) 100% $6.00 11/15/2009 $203,700 $229,700
</TABLE>
__________________
(1) Option to acquire shares of the Company's Common Stock granted in November
1999.
III. Option Exercises and Year-end Table
-----------------------------------
The following sets forth information with respect to the executives named
in the Summary Compensation Table, concerning the exercise of options during the
year ended December 31, 1999 and unexercised options as of December 31, 1999.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money at
Option at 12-31-1999 12-31-1999
Exercisable/ Exercisable/
Shares ------------ ------------
Name Security Exercised Unexercisable Unexercisable (1)
---- -------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
James J. Cotter Common Stock 0 594,940/0 $612,800/$0
Gerald P. Laheney Class A Common 0 15,000/0 $ 2,000/$0
Preference Stock
Common Stock 0 15,000/0 $ 0/0
S. Craig Tompkins Class A Common 0 35,000/0 $ 59,500/$0
Preference Stock
Andrzej Matyczynski Common Stock 0 15,000/15,000 $11,250/$11,250
</TABLE>
________________
(1) Represents the amount by which the aggregate market price on December 31,
1999 of the shares subject to such options exceeded the exercise price of
such options.
Item 12. Security ownership of certain beneficial owners and management
52
<PAGE>
As of March 31, 2000, the outstanding voting securities of Craig consisted
of 3,440,808 shares of common stock and 7,058,408 shares of Class A common
preference stock. Shareholders are entitled to 30 votes for each share of Common
Stock and 1 vote for each of Class A Common Preference Stock.
The following table sets forth information as of March 31, 2000 with
respect to persons known by Craig to own beneficially more than 5% of the
outstanding shares of Common Stock or Class A Common Preference Stock of Craig
and as to the number of shares beneficially owned by each director, and by the
Company's officers and directors as a group. All persons listed, unless
otherwise stated, have sole voting and investment power with respect to the
Common Stock and Class A Common Preference Stock beneficially owned by them.
53
<PAGE>
<TABLE>
<CAPTION>
Class A Common
Common Stock Preference Stock
--------------- -------------------
Amount Amount Percentage Amount Percentage
Name and Address Beneficial of Beneficially of Class A
of Beneficial Owner Owned(1) Common Stock(1) Owned(1) Common Stock(1)
------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C>
James J. Cotter(2) 2,385,142 59.1% 2,021,702 28.6%
120 N. Robertson Blvd.
Los Angeles, CA 90048
Hecco Ventures(2) 617,438 17.9% 720,838 10.2%
120 N. Robertson Blvd.
Los Angeles, CA 90048
Artisan Partners LTD/(3) 649,000 18.9%
Artisan Investment Corporation
1000 North Water Street, #1770
Milwaukee, WI 53202
Dimensional Fund Advisors, Inc.(4) 257,900 7.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
First Pacific Advisors, Inc.(5) 896,400 12.7%
11400 West Olympic Blvd.
Suite 1200
Los Angeles, CA 90064
Lawndale Capital Management, Inc.(6) 530,900 7.5%
One Sansome St. Ste. 3900
San Francisco, CA 94104
Ellen M. Cotter** 1,000 * 1,000 *
Margaret Cotter**(7) 9,500 * 9,500 *
William D. Gould**(8) 17,000 * 20,000 *
Gerard P Laheney**(9) 15,000 * 15,000 *
Robert W. Loefflen**
Andrzej Matyczynski**(10) 15,000 *
S. Craig Tompkins**(11) 37,000 *
Officers and Directors as
a group (8 persons)(12) 2,444,642 60.6% 2,104,802 29.8%
</TABLE>
_______________
* Represents less than 1%.
** Business address: c/o Craig Corporation, 550 South Hope Street, Suite 1825,
Los Angeles, CA 90071.
(1) Applicable percentage of ownership is based on 3,440,808 shares of Common
stock and 7,058,408 shares of Class A Common Preference Stock shares
outstanding as of March 31, 2000 plus the applicable options for such
shareholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and includes voting and
investment power with respect to such shares. Shares subject to options
currently exercisable or exercisable within 60 days of March 31, 2000 are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
54
<PAGE>
(2) Includes the Common Stock and Class A Common Preference Stock owned by
Hecco Ventures ("HV"), which is a California general partnership. James J.
Cotter is the general partner of a limited partnership which is the general
partner of HV. Also includes 594,940 shares of common stock subject to
stock options held by Mr. Cotter. Margaret Cotter, a director, and Ellen
Cotter, Vice President of Business Affairs for the Company, are the
daughters of Mr. Cotter and each are limited partners in the above-
reference limited partnership. The other general partners of HV are
Michael Forman and a subsidiary of the Decurion Corporation, a company
privately owned by Michael Forman and certain members of his family. HV
has granted Mr. Cotter the right to vote the shares held by it
Accordingly, Mr. Cotter has sole voting power and share investment power.
Mr. Cotter is also the beneficial owner of 326,232 shares of the Common
Stock of REI consisting of 6,000 shares held in a profit sharing plan, and
320,232 shares issuable within 60 days of March 31, 2000 upon the exercise
of outstanding stock option.
(3) According to filing with the Securities and Exchange Commission ("SEC")
dated February 14, 2000, includes 649,000 Common Stock shares which are
owned of record by Artisan Partners LTD/Artisan Investment Corporation
("Artisan").
(4) According to filing with the SEC dated February 3, 2000, Dimensional Fund
Advisors Inc. ("Dimensional"), a registered investment manager to certain
other investment vehicles, including commingled group trusts (the
"Portfolios"). Dimensional possesses both voting and investment power over
the shares of Common Stock shown, however, the shares are owned of record
by the Portfolios, and Dimensional disclaims beneficial ownership of all
such shares.
(5) According to filings with the SEC dated February 11, 2000, includes 217,200
shares which have shared voting power.
(6) According to filings with the SEC, includes 449,200 Class A Common
Preference Shares which are owned of record by Diamond A Partners, L.P.
("DAP") and 81,700 Class A Common Preference Shares which are owned of
record by Diamond A Investors L.P. ("DAI") over which Lawndale Capital
Management, Inc. ("LAM") and Andrew E. Shapiro have shared voting and
dispositive power. According to filings with SED, Lawndale Capital
Management, Inc., is the investment advisor to DAP and DAI, which are
investment limited partnerships and Mr. Shapiro is the sole manager of LAM.
(7) The shares held by Ms. Cotter include 7,500 shares of both Common and Class
A Common Preference Stock subject to a vested stock option.
(8) Includes 2,000 shares of Common Stock and 3,000 shares of Class A Common
Preference Stock owned by a trust for the benefit of Mr. Gould's children,
of which he is co-trustee; Mr. Gould disclaims beneficial ownership of the
shares held in the trust.
(9) Represents shares subject to an exercisable option to purchase Common Stock
and/or Class A Common Stock within 60 days of March 31, 2000.
(10) Mr. Matyczynski was elected Chief Financial Officer of the Company on
November 19, 1999. On that date, he was granted 30,000 shares of Craig
common stock.
55
<PAGE>
(11) Includes 35,000 shares subject to a stock option and 2,000 shares held in
various retirement accounts for the benefit of Mr. Tompkins and his wife.
(12) Includes 632,440 shares of Common Stock and 57,500 shares of Class A Common
Preference Stock subject to stock options.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation Committee in 1999 was composed of two directors, William D.
Gould and Gerard P. Laheney. Mr. Gould is a member of Troy & Gould Professional
Corporation, a law firm that Craig retained and paid approximately $6,000 in
Fiscal 1999. Messrs. Cotter and Tompkins serve as members of REI's Board of
Directors and, as directors, approve decisions of REI's Compensation Committee
with respect to compensation of REI's officers and directors. Messrs. Cotter and
Tompkins serve as members of Citadel Holding Corporation's Board of Directors,
and, as directors, approve decisions of Citadel's Compensation Committee with
respect to compensation of Citadel's officers and directors. Mr. Cotter is a
member of Citadel's Compensation Committee.
The Company, together with Reading, owns a 49% interest in BRI and Mr.
Cotter and Mr. Tompkins each have a 1.6% beneficial interest in BRI. Directors
Messrs. Gould, Laheney and Ms. Margaret Cotter also serve as directors and
employees of BRI, from whom they receive compensation as detailed under the
caption "Director Compensation".
Item 13. Certain Relationships and Related Transactions
General
- --------
The Company is principally engaged in the business of identifying,
acquiring, owning and strategically managing controlling interests in other
operating public companies. Accordingly, the Company operates primarily through
less than wholly-owned affiliates. Only one of these affiliates, Reading
Entertainment, Inc., is consolidated for financial reporting purposes. These
affiliated companies have certain over-lapping ownership and management
structure, as described below.
Ownership and Management Interlocks
- -----------------------------------
The Company owns common stock and convertible preferred stock comprising
78% of the voting securities of Reading Entertainment, inc., ("REI" and
collectively with its wholly owned subsidiaries "Reading"). The Company, on a
consolidated basis with Reading, owns common stock representing 48% of Citadel
Holding Corporation ("CHC" and collectively with its wholly owned subsidiaries
"Citadel") (real estate and agricultural interests), and 49% of Big 4 Ranch,
Inc. ("BRI") (agricultural interests). Cecelia Packing, a company wholly owned
by Mr. Cotter ("Cecelia"), and the trust for one of Mr. Tompkins' children each
own an additional .6% of the common stock of BRI, resulting in a combined voting
interest of greater than 51% in that company. Citadel and BRI each own a 40%
(for an aggregate 80% interest) in three agricultural partnerships (the
"Agricultural Partnerships"), which collectively own approximately 1,600 acres
of California agricultural land, improved principally with citrus groves.
Citadel owns 80% of Farming, which manages the agricultural properties for the
Agricultural Partnerships.
56
<PAGE>
The Company's principal assets is its REI securities. At December 31,
1999, the Company's carrying value of its interests in REI, CHC and BRI at the
Craig Corporation level were $104,040,000, $6,288,000 and $0, respectively. BRI
was formed by Citadel to satisfy certain federal limitations on the ownership of
land irrigated with water from federal water projects and spun-off to the
stockholders of CHC, including the Company and REI, in December 1997.
James J. Cotter is the Chairman of the Board of the Company, REI and CHC
and the Chief Executive Officer of CHC. S. Craig Tompkins is the President and
a director of the Company, the Vice Chairman of REI, the Vice Chairman, and
Secretary/Treasurer of CHC, and serves for administrative convenience as an
assistant secretary of BRI. Andrzej Matyczynski serves as the Chief Financial
Officer of the Company and CHC, and as the Chief Administrative Officer of REI.
Margaret Cotter is a director of the Company. William D. Gould is a director of
REI, and Gerard P. Laheney is the Chairman and Chief Executive Officer of BRI.
Ellen Cotter is the Vice President of Angelika Cinemas, Inc., a wholly owned
subsidiary of Reading, and the Secretary/Treasurer of Citadel Agriculture, Inc.
The Company shares office space and certain administrative costs and
expenses with Citadel. Citadel provides real estate advisory services to
Reading, and certain general administrative services to BRI, for which it was
paid $185,000 in 1999. Farming receives in consideration of its services to the
Agricultural Partnerships reimbursement of its costs plus 5% of the net revenues
from the farming operation, calculated after picking, packing and hauling.
Related Party Transactions with Affiliates
- ------------------------------------------
The Company's operating affiliates Reading, Citadel and BRI have from time
to time entered into transactions involving the Company's controlling
stockholders and affiliates. These transactions are described in greater detail
below.
Agricultural Transactions: On December 31, 1997, BRI, Citadel, Cecelia and
-------------------------
Visalia LLC (a limited liability company controlled by James J. Cotter and owned
by Mr. Cotter and his children) formed the Agricultural Partnerships. The
Agricultural Partnerships are owned 40%, 40%, and 20%, respectively, by these
three entities. On December 31, 1997, the Agricultural Partnerships acquired a
citrus-producing agricultural property for approximately $7,600,000. The
Partnerships currently use Farming to farm their properties as described above.
Farming is owned 80% by Citadel and 20% by Visalia. Farming, in turn, contracts
with Cecelia for certain bookkeeping and administrative services, for which it
pays a fee of $6,000 per month. Cecelia also packs fruit for the Agricultural
Partnerships.
The acquisition was financed by a ten-year purchase money mortgage in the
amount of $4,050,000 million, a line of credit from Citadel and pro-rata
contributions from the partners. Through its holdings in BRI and Citadel, the
Company owns approximately 38% of such Partnerships at December 31, 1999. In
December 1998, the Partnerships suffered a freeze which destroyed the 1998-1999
crop. The Partnerships have no funds to make capital contributions to repay the
of credit from Citadel or fund the estimated $3,501,000 required to fund costs
associated with production of a 1999-2000 crop and complete the proposed 1999
planting other than to call upon the partner for funding. BRI has no funds or
resources with which to provide such funding, other than to call upon its
separate line of credit from Citadel. To date, Citadel and Visalia have loaned
the funds required by the Agricultural Partnerships on an 80/20 basis.
57
<PAGE>
Certain Entertainment Related Transactions: The Angelika Film Center
------------------------------------------
("AFC") is owned on a 50/50 basis by Reading and Sutton Hill, a partnership
affiliated with City Cinemas, a Manhattan-based cinema operator owned in equal
parts by James J. Cotter and Michael Forman. Mr. Foreman is a general partner
of HV which owns capital stock comprising 16.9% of the voting power of the
Company's securities. City Cinemas manages the AFC and two other cinemas
operated by Reading pursuant to management agreements. Robert F. Smerling,
President of Reading, and Neil Sefferman, Vice President - Film of the Company,
also serve in the same positions with City Cinemas.
In December 1998, the Company and Sutton Hill entered into an Agreement in
Principle to lease and operate four cinemas and manage three other cinemas all
of which are located in Manhattan and which together constitute the City Cinemas
circuit. In addition the Agreement in Principle provides for the acquisition by
the Company of three live "Off Broadway" theaters also located in Manhattan.
The Conflicts Committee of the REI Board of Directors (the "Conflicts
Committee"), comprised entirely of directors independent of Messrs. Cotter and
Foreman, reviewed and negotiated the transaction. Consummation of the
transaction is contingent upon, among other things, receipt of fairness opinions
relating to the transactions and approval of REI's shareholders of the issuance
of Common Stock for the acquisition of the "Off Broadway Theaters." In December
1998, the Company paid a deposit of $1,000,000 in connection with these
transactions.
It is anticipated that the Manhattan "Off Broadway" theaters, as well as
another live theater owned by the Company will be booked and managed by Union
Square Management, Inc., a live theater management company specializing in the
booking and management of "Off Broadway" style live theaters. Margaret Cotter,
daughter of Mr. James J. Cotter, is a Senior Vice President with Union Square
Management, Inc. In December 1998 the Company agreed to guarantee a $100,000
bank loan to Alan Schuster, the principal shareholder of Union Square
Management, Inc.
Certain Family Relationships: Mr. Cotter, the Company's controlling
----------------------------
stockholder, has advised the Company that he considers his holdings in the
Company to be a long-term investment to be passed to and eventually to be
controlled by his heirs. The Directors believe that it is in the best interest
of the Company and its stockholders for these heirs to become experienced in the
operations and affairs of the Company and its operating affiliates.
Accordingly, Margaret Cotter serves as a director of the Company and as an
officer and director of BRI. Ms. M. Cotter also serves as an officer of Cecelia
and Union Square Management, Inc. Ms. E. Cotter serves as the Vice President
Business Affairs for the Company and REI and as the Chief Financial Officer and
Secretary of Citadel Agriculture, Inc. Ms. M. Cotter and Ms. E. Cotter are each
graduates of the Georgetown Law Center and were in public and private practice,
respectively, prior to joining the Company. Mr. Cotter's son, an attorney, was
elected to the Board of Directors of Gish Biomedical, Inc. on September 15,
1999. Citadel owns 15.6% of the outstanding common stock of Gish Biomedical,
Inc. The directors of Gish currently serve without compensation.
Certain Miscellaneous Transactions: In 1997, Reading loaned Mr. R.
----------------------------------
Smerling, its President, an aggregate of $70,000. This non-interest bearing
loan is payable upon demand.
58
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
8-K
(a)(1) Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets
As of December 31, 1999 and 1998...................... F-1
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997..... F-3
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997..... F-4
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997..... F-5
Notes to Consolidated Financial Statements............ F-7
Report of Independent Auditors........................ F-38
</TABLE>
All schedules other than those listed above are omitted because they are not
applicable, not required, or the information required to be set forth therein is
included in the financial statements or the 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 May 28, 1999, September 23, 1996 and October 30, 1996.
(c) Exhibits (Items denoted by * represent management or compensatory
contract)
3.1 Certificate of Amendment and Restatement of the Articles of
Incorporation, a Nevada corporation (filed herewith).
3.2 Restated and Amended Bylaws of Craig Corporation, a Nevada
corporation (filed herewith).
10.1* 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).
10.2 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).
59
<PAGE>
10.3* 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).
10.4 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).
10.5 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).
10.6* Exchange Agreement among Reading Company, Reading
Entertainment, Inc., Craig Corporation, Craig Management,
Inc., Citadel Holding Corporation and Citadel Acquisition
Corp., Inc. (incorporated by reference to the Company's
Report on Form 10-K for the year ended December 31, 1996).
10.7 Asset Put and Registration Rights Agreement dated October
15, 1996 by and among Reading Entertainment, Inc., Citadel
Holding Corporation, and Citadel Acquisition Corp., Inc.
(incorporated by reference to the Company's Report on Form
10-K for the year ended December 31, 1996).
10.8 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 (incorporated by reference to the
Company's Report on Form 10-K for the year ended December
31, 1996).
10.9 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. (incorporated by reference to
the Company's Report on Form 10-K for the year ended
December 31, 1996).
10.10 $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 (incorporated by reference to the
Company's Report on Form 10-K for the year ended December
31, 1996).
10.11 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 (incorporated by reference to
the Company's Report on Form 10-K for the year ended
December 31, 1996).
10.12 Limited Liability Company Agreement between Angelika
Cinemas, Inc. and Sutton Hill Associates dated August 27,
1996 (incorporated by reference to the Company's Report on
Form 10-K for the year ended December 31, 1996).
60
<PAGE>
10.13 Management Agreement dated as of August 27, 1996 between
Angelika Film Centers, LLC and City Cinemas Corporation
(incorporated by reference to the Company's Report on Form
10-K for the year ended December 31, 1996).
10.14 Purchase Agreement between Equipment Leasing Associates
1995-VI Limited Partnership and FA, Inc. effective December
20, 1996 (incorporated by reference to the Company's Report
on Form 10-K for the year ended December 31, 1996).
10.15 Master Lease Agreement between FA, Inc. and Equipment
Leasing Associates 1995-VI Limited Partnership dated
December 20, 1996 (incorporated by reference to the
Company's Report on Form 10-K for the year ended December
31, 1996).
10.16 Nonrecourse Promissory Note between FA, Inc. and Equipment
Leasing Associate 1995-VI Limited Partnership effective
December 20, 1996 (incorporated by reference to the
Company's Report on Form 10-K for the year ended December
31, 1996).
10.17 Lease Rental Purchase Agreement between FA, Inc. and Ralion
Financial Services, Inc. dated December 31, 1996
(incorporated by reference to the Company's Report on Form
10-K for the year ended December 31, 1996).
10.18 Stock Purchase Agreement dated as of April 11, 1997 by and
between Craig Corporation and Citadel Holding Corporation
(incorporated by reference to the Company's Report on Form
10-K for the year ended December 31, 1996).
10.19 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 (incorporated by reference to
the Company's Report on Form 10-K for the year ended
December 31, 1996).
10.20 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. (incorporated by reference to
the Company's Report on Form 10-K for the year ended
December 31, 1996).
10.21 Master Management Agreement between Angelika Holdings, Inc.
and City Cinemas Corporation dated November 26, 1997
(incorporated by reference to Exhibit 10.50 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.22* Amended and Restated Stock Option Agreement between Craig
Corporation and James J. Cotter dated December 8, 1997
(incorporated by reference to Exhibit 10.51 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
61
<PAGE>
10.23* Stock Option Agreement between Craig Corporation and S.
Craig Tompkins (incorporated by reference to Exhibit 10.52
to the Company's Report on Form 10-K for the year ended
December 31, 1997).
10.24 Agreement in Principle between Reading Entertainment, Inc.
and City Cinemas dated December 2, 1998 (incorporated by
reference to Exhibit 10.26 to the Company's Report on Form
10-K for the year ended December 31, 1998).
10.25* Craig Corporation Key Personnel Retirement Plan
(incorporated by reference to Exhibit 10.27* to the
Company's Report on Form 10-K for the year ended December
31, 1998).
10.26* Employment contract between Andrzej Matyczynski and Craig
Corporation dated October 28, 1999 (filed herewith).
10.27 1999 Craig Stock Option Plan (filed herewith).
10.28 Craig Employee 401(k) Savings Plan -Plan Document (filed
herewith).
10.29 Purchase agreement between Reading Entertainment and
National Auto Credit, Inc. dated April 5, 2000 (filed
herewith).
16 Notice of Change of Principal Accountants (filed herewith).
21 Subsidiaries of the Registrant (filed herewith).
27 Financial Data Schedule
62
<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
<TABLE>
<CAPTION>
<S> <C>
By: /s/ S. Craig Tompkins By: /s/ Andrzej Matyczynski
--------------------- -----------------------
S. CRAIG TOMPKINS ANDRZEJ MATYCZYNSKI
President Chief Financial Officer
April 11, 2000 April 11, 2000
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 11, 2000 April 11, 2000
By: /s/ Gerard P. Laheney By: /s/ Margaret Cotter
--------------------- -------------------
GERARD P. LAHENEY MARGARET COTTER
Director Director
April 11, 2000 April 11, 2000
By: /s/ S. Craig Tompkins
---------------------
S. CRAIG TOMPKINS
Director
April 11, 2000
</TABLE>
63
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
--------------- ---------------
ASSETS (In thousands of dollars)
- -------------------------------------------------- -----------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 15,077 $ 63,314
Receivables 695 582
Restricted cash 948 904
Inventories 316 236
Prepayments and other current assets 1,389 543
Due from affiliate 1,000 1,000
- -------------------------------------------------------------------------------------------------------------------
Total current assets 19,425 66,579
- -------------------------------------------------------------------------------------------------------------------
Equity investment in Citadel 17,246 12,962
Equity investments in foreign affiliates 2,140 5,187
Note receivable from joint venture partners 1,549 2,357
Net investment in leased equipment -- 2,125
Assets held for sale 5,740 --
Property held for development 31,623 32,949
Property and equipment, net 58,501 28,063
Other assets 1,807 3,758
Excess of cost over net assets acquired, net 9,975 10,611
- -------------------------------------------------------------------------------------------------------------------
Total assets $148,006 $164,591
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
--------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands of dollars)
- ------------------------------------ ---------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 3,340 $ 3,155
Film rental payable 1,718 1,347
Accrued property costs 4,355 1,734
Accrued taxes 708 495
Accrued restructuring charges 846 --
Property purchase commitments -- 8,066
Note payable 8,618 149
Note payable to Citadel 1,998 1,998
Short term debt -- 594
Other liabilities 703 596
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 22,286 18,134
- --------------------------------------------------------------------------------------------------------------------
Note payable 1,035 920
Other liabilities 5,917 4,606
Deferred tax liabilities 8,368 8,368
- --------------------------------------------------------------------------------------------------------------------
Total long term liabilities 15,320 13,894
- --------------------------------------------------------------------------------------------------------------------
Redeemable Preferred stock of Reading 7,000 7,000
Minority interest in equity of subsidiaries 22,797 30,221
Lease agreements and commitments
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, 8,734,065 issued and 7,058,408 and 7,058,412
outstanding at December 31, 1999 and 1998, respectively 87 87
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 and 3,512,308 and 3,628,612 outstanding
at December 31, 1999 and 1998, respectively 1,361 1,361
Additional paid-in capital 31,111 31,111
Accumulated other comprehensive (loss) (4,052) (6,000)
Retained earnings 73,449 89,257
Cost of treasury shares, 3,607,406 and 3,491,106 at
December 31, 1999 and December 31, 1998, respectively (21,353) (20,474)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 80,603 95,342
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $148,006 $164,591
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ----
(In thousands of dollars, except per share amounts)
---------------------------------------------------
<S> <C> <C> <C>
Revenues:
Theater:
Admissions $ 27,604 $24,792 $19,978
Concessions 8,450 7,625 6,078
Advertising and other 1,757 1,139 928
Real estate 677 373 180
Dividend income from Stater -- -- 4,330
Service income from Stater -- -- 972
- ------------------------------------------------------------------------------------------------------------------------
38,488 33,929 32,466
- ------------------------------------------------------------------------------------------------------------------------
Expenses:
Theater costs 29,644 24,370 20,081
Theater concession costs 1,930 1,653 1,296
Depreciation and amortization 3,061 2,570 1,737
Loss from joint venture -- 164 207
General and administrative 13,444 11,897 11,449
Asset impairment and restructuring charges 18,208 -- --
- ------------------------------------------------------------------------------------------------------------------------
66,287 40,654 34,770
- ------------------------------------------------------------------------------------------------------------------------
Loss from operations (27,799) (6,725) (2,304)
Earnings from equity investments 4,023 1,739 392
Other income (expense) 1,033 (587) 1,158
Interest and dividend income 1,831 4,755 3,444
Interest expense (534) (224) (207)
Gain from conversion of common stock interest in
Stater -- -- 2,002
- ------------------------------------------------------------------------------------------------------------------------
(Loss) earnings before taxes and minority interest (21,446) (1,042) 4,485
Minority interest 7,240 1,629 133
- ------------------------------------------------------------------------------------------------------------------------
(Loss) earnings before taxes (14,206) 587 4,618
Provision for taxes (1,147) (986) (1,312)
- ------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings (15,353) (399) 3,306
Dividends paid on subsidiary redeemable
preferred stock (455) (455) (455)
- ------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings applicable to Craig common
shareholders $(15,808) $ (854) $ 2,851
========================================================================================================================
Basic (loss) earnings per share $(1.49) $(0.08) $0.26
========================================================================================================================
Diluted (loss) earnings per share $(1.49) $(0.08) $0.26
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands)
Common Stock Class A
Outstanding Common Stock Accumulated
--------------- -------------- Other
Par Par Paid-In Comprehensive Retained
Shares Value Shares Value Capital Income (Loss) Earnings
------ ------ ------ ----- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Jan. 1, 1997 5,444 $1,361 1,645 $16 $30,828 $ 114 $ 87,260
Net income (including comprehensive loss) (4,437) 3,306
Stock dividend declared 5,385
Dividends paid on Reading redeemable
preferred stock (455)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at Dec. 31, 1997 5,444 $1,361 7,030 $16 $30,828 $(4,323) $ 90,111
Net loss (including comprehensive loss) (1,677) (399)
Stock repurchases
Issuance of stock dividend 1,704 71 (71)
Issuance of treasury stock 354
Dividends paid on Reading preferred stock (455)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at Dec. 31, 1998 5,444 $1,361 8,734 $87 $31,111 $(6,000) $ 89,257
Net loss (including comprehensive income) 1,948 (15,353)
Stock repurchases
Dividends paid on Reading redeemable
preferred stock (455)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at Dec. 31, 1999 5,444 $1,361 8,734 $87 $31,111 $(4,052) $ 73,449
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands)
Treasury Total
Stock Shareholders'
at Cost Equity
--------- ------------
<S> <C> <C>
Balance at Jan. 1, 1997 $(19,754) $ 99,825
Net income (including comprehensive loss) (1,131)
Stock dividend declared
Dividends paid on Reading redeemable
preferred stock (455)
- ------------------------------------------------------------------------------------
Balances at Dec. 31, 1997 $(19,754) $ 98,239
Net loss (including comprehensive loss) (2,076)
Stock repurchases (984) (984)
Issuance of stock dividend
Issuance of treasury stock 264 618
Dividends paid on Reading preferred stock (455)
- ------------------------------------------------------------------------------------
Balances at Dec. 31, 1998 $(20,474) $ 95,342
Net loss (including comprehensive income) (13,405)
Comprehensive gain
Stock repurchases (879) (879)
Dividends paid on Reading redeemable
preferred stock (455)
- ------------------------------------------------------------------------------------
Balances at Dec. 31, 1999 $(21,353) $ 80,603
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
------------------------------------------------------
(in thousands of dollars)
------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net (loss) earnings $(15,353) $ (399) $ 3,306
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Gain on conversion of Stater common stock -- -- (2,002)
Depreciation 2,628 1,895 1,108
Amortization 433 675 629
Asset impairment write-down 18,208 -- --
Deferred rent expense 395 217 406
Equity losses of affiliates (4,023) (1,739) (392)
Write off of capitalized development 385 542 1,308
(Gain) loss on disposal of assets 88 634 (15)
Preferred stock dividend income -- -- --
Increase in deferred taxes -- -- 160
Minority interest (7,240) (1,629) (133)
Changes in operating assets and
liabilities:
(Increase) decrease in current assets (925) 1,348 2,807
Increase (decrease) in payables 1,343 (571) (3,410)
Increase (decrease) in film rental 357 (284) 545
Increase (decrease) in other liabilities (18) (447) 654
Other, net 595 (27) (284)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (3,127) 215 4,687
- --------------------------------------------------------------------------------------------------------------------
Investing activities
Purchase of property held for development (1,739) (12,445) (5,106)
Purchase of property and equipment (39,219) (11,083) (14,783)
Payments on property purchase commitments (7,938) (3,397) --
Purchase of Angelika theaters -- -- (229)
Purchase of Reading stock from minority -- -- (819)
interests
Investment in joint ventures (275) (2,601) (1,850)
Loan to joint venture partners -- (594) (2,021)
Proceeds from sale of investment property 2,146 -- --
Proceeds from redemption of Stater Preferred -- -- 69,980
Investment in Citadel and Big 4 Common Stock -- (3,636) (1,998)
Investment in Royal George Theater (105) (1,369) --
Investment in New York live theaters and City
Cinemas -- (1,332) --
Decrease (increase) in restricted cash 44 3,664 (1,421)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (47,086) (32,793) 41,753
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CRAIG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
-------------------------------------------------------------------
(in thousands of dollars)
-------------------------------------------------------------------
<S> <C> <C> <C>
Financing activities
Minority interest distributions (470) (417) (371)
Change in minority partner 278 -- --
Payment of Reading preferred dividends (455) (455) (455)
Proceeds from short-term debt 4,639 601 --
Borrowings from affiliates -- -- 1,998
Treasury stock repurchases (879) (984) --
Proceeds from landlord -- -- 280
Payment of debt and liabilities (739) (766) (1,500)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
Financing activities 2,374 (2,021) (48)
- --------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes (398) (289) (362)
- --------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (48,237) (34,888) 46,030
Cash and cash equivalents at beginning of
the period 63,314 98,202 52,172
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 15,077 $ 63,314 $98,202
==============================================================================================================
Supplemental disclosures:
Interest paid $ 471 $ 220 $ 207
Taxes paid $ 320 $ 408 $ 2,405
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Craig
Corporation and its wholly owned subsidiaries ("Craig" or the "Company") 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").
The Company's principal holdings at December 31, 1999 consisted of (i)
common and preferred stock representing approximately 78% of the voting power of
REI (ii) common shares representing approximately 16.4% of the outstanding
common shares of Citadel Holding Corporation ("CHC" and collectively with its
consolidated subsidiaries "Citadel") and, (iii) 16.4% of the outstanding common
stock of Big 4 Ranch, Inc., a company owing a 40% interest in certain
agricultural properties located in Kern County, California, and (iv) cash and
cash equivalents. The Consolidated Company holds a 48% interest in Citadel and
49% interest in Big 4 Ranch, Inc.
Through its majority owned subsidiaries, REI is principally in the business
of developing and operating multi-plex cinemas in Australia and New Zealand.
REI also operates cinemas in Puerto Rico and the United States. Reading's
cinemas are owned through various subsidiaries and operates under the Angelika
Film Centers and Reading Cinemas names in the mainland United States (the
"Domestic Cinemas"); through Reading Cinemas of Puerto Rico, Inc., a wholly-
owned subsidiary, under the name CineVista in Puerto Rico; through Reading
Entertainment Australia Pty Limited (collectively with its subsidiaries referred
to herein as "Reading Australia") under the Reading Cinemas name in Australia
(the "Australia Circuit") and through a 50/50 joint venture in New Zealand under
the Berkeley Cinemas name. Reading's entertainment center development
activities in Australia and New Zealand are conducted through Reading Australia
and through affiliates of Reading New Zealand Ltd. (collectively referred to
herein as "Reading New Zealand"), respectively.
Through its ownership of REI, the Company principally operates in two
business segments, cinema operations and real estate development (Note 3).
Basis of Consolidation: All significant intercompany transactions and
accounts have been eliminated in consolidation. Minority interest in equity of
subsidiaries 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. Investments in other companies are carried at
cost.
Basis of Accounting: The consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States of America.
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.
Income Taxes: 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-7
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
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 Eurodollar time deposits, interest-bearing bank deposits, federal agency
securities and short-term money market instruments.
Inventories: Inventories are comprised of confection goods used in theater
operations and are stated at the lower of cost (first-in, first-out method) or
net realizable value.
Property held for development: Property held for development consists of
land, including land acquisition costs, acquired for the potential development
of multiplex cinemas and/or entertainment centers and currently held either for
such purposes or for other development purposes. Property held for development
is carried at cost and, at such time that construction of the related multiplex
cinema and/or entertainment center commences, is transferred to Property and
equipment with future construction costs accounted for as Construction-in-
progress.
Property and Equipment: Property and equipment is carried at cost.
Depreciation of buildings, capitalized 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, whichever
is shorter. The estimated useful lives are generally as follows:
<TABLE>
<CAPTION>
<S> <C>
Building and Improvements 20-40 years
Equipment 3-15 years
Furniture and Fixtures 3-7 years
Leasehold Improvements 10-20 years
</TABLE>
Construction in Progress and Property Development Costs: Construction-in-
progress and property development costs are comprised of direct costs associated
with the development of potential cinemas (whether for purchase or lease) or
entertainment center locations. Startup costs and other costs not directly
related to the acquisition of long term assets are expensed as incurred.
Amounts are carried at cost unless management decides that a particular location
will not be pursued to completion or if the costs are no longer relevant to the
proposed project. If such a judgment is made, previously capitalized costs
which are no longer of value to the Consolidated Company are expensed. Included
in the Statement of Operations as "General and administrative expenses" are
write-offs of such development costs for the years ended December 31, 1999, 1998
and 1997, amounting to approximately $682,000, $542,000, and $1,308,000,
respectively.
Cost in Excess of Net Assets Acquired: Cost in excess of net assets
acquired resulted from the acquisition of the Angelika Film Center, a 6-screen
cinema located in the Soho area of Manhattan, New York (the "NY Angelika") by
Reading in August 1996 and in December 1997 acquisition of a 5-screen cinema
located in Minneapolis, Minnesota (the "St. Anthony"). The amount of the
purchase price of the NY 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 the NY Angelika assets was determined by an
independent appraiser. The purchase price of the St. Anthony is being amortized
on a straight-line basis over the remaining life of the lease which is
approximately 4 years. Accumulated amortization at December 31, 1999 and 1998
was approximately $2,062,000 and $1,426,000, respectively.
F-8
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Advertising Costs: The Company expenses the costs of advertising as
incurred. Advertising expense was $1,518,000, $1,005,000, and $670,000 for the
years ended December 31, 1999, 1998, and 1997, respectively.
Accounting for the Impairment of Long Lived Assets: The Company reviews
long-lived assets, including intangibles, for impairment if events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. If the sum of the estimated future cash flows, undiscounted and
without interest charges, is less than the carrying amount of the asset, an
impairment loss is recognized on the amount by which the carrying value of the
asset exceeds its estimated fair value. The fair value of assets is determined
as either the expected selling price less selling costs or the present value of
the estimated future cash flows (See Note 5).
Translation of Non-U.S. Currency Amounts: The financial statements and
transactions of Reading Australia's and Reading New Zealand's cinema and real
estate operations are maintained in their functional currency, Australian and
New Zealand dollars, and translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." Assets and liabilities of such operations are denominated in
their functional currency and translated at exchange rates in effect at the
balance sheet date. Revenues and expenses are translated at the average
exchange rate for the period. Translation adjustments are comprehensive income
(loss) reported as a component of Shareholders' equity.
Earnings (Loss) Per Share: Basic earnings (loss) per share is calculated by
dividing net earnings (loss) applicable to common shareholders by the weighted
average shares outstanding during the periods presented. The weighted average
number of shares used in the computation of basic earnings (loss) per share was
10,636,303, 10,777,325, and 10,769,824, for the years ended December 31, 1999,
1998 and 1997, respectively. Diluted earnings (loss) per share, is calculated
by dividing net earnings (loss) applicable to common shareholders by the
weighted average common shares outstanding for the period presented plus the
dilutive effect of stock options. The weighted average number of shares used in
the computation of diluted earnings (loss) per share was 10,636,303, 10,777,325,
and 10,966,079, for the years ended December 31, 1999, 1998 and 1997,
respectively. During fiscal 1999 stock options to purchase 719,940 shares of
common stock were outstanding at an average market price of $6.24 per share,
however, the Company reported a net loss in Fiscal 1999 and therefore, the stock
options were anti-dilutive. Basic and diluted net earnings (loss) per share for
Fiscal 1999, 1998 and 1997 were calculated based on net earnings (loss)
applicable to common stock shareholders, which includes a reduction for
dividends declared on the redeemable preferred stock of REI amounting to
$455,000 per year for each of the three years (Note 14).
Stock-Based Compensation: The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and complies with the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Under APB 25, compensation cost is recognized over the vesting period
based on the difference, if any, on the date of grant between the fair value of
the Company's stock and the amount an employee must pay to acquire the stock
(Note 16).
F-9
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Comprehensive income: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") was adopted in 1998. The standard
establishes guidelines for the reporting comprehensive income and its components
in the financial statement. Comprehensive income includes unrealized gains and
losses on debt and equity securities classified as available-for-sale as well as
the Company's foreign currency adjustments (See Note 23).
Recent Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities", ("SFAS 133").
SFAS 133 is effective for fiscal years beginning after June 15, 2000 and
requires all derivatives to be recorded on the balance sheet at fair value as
either assets or liabilities depending on the rights of obligations under the
contract. SFAS 133 also establishes new accounting methodologies for the
following three classifications of hedges: fair value, cash flow and net
investment in foreign operations. Management believes the adoption of SFAS 133
will not have a material impact on the Company's financial position or results
or operations.
Reclassification: Certain amounts in previously issued financial
statements have been reclassified to conform to the current presentation.
NOTE 2 -- ACQUISITION OF READING ENTERTAINMENT, INC. ("READING")
In a transaction between Craig, Reading, Citadel Holding Corporation ("CHC"
and collectively with its consolidated subsidiaries, "Citadel") and certain of
their affiliates, 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 ("Stock
Transactions").
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 14) and granted certain contractual rights to Citadel in
return for $7,000,000 in cash and (ii) 550,000 shares of Series B 6.5% Voting
Cumulative Convertible Preferred Stock with a stated value of $55,000,000, ("REI
Series B Preferred Stock"), and 2,476,190 shares of Common Stock to Craig in
exchange for certain assets owned by Craig ("Craig Assets"). The REI Series B
Preferred Stock bears a cumulative dividend of 6.5%, payable quarterly and is
convertible into REI common shares at a conversion price of $12.25 per share.
The Craig Assets consisted of 693,650 shares of Stater Bros. Holdings, Inc.'s
("Stater") Series B Preferred Stock ("Stater Preferred Stock"), a 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
("CHC Preferred Stock").
The contractual rights granted to Citadel in the Stock Transactions are set
forth in an Asset Put and Registration Rights Agreement ("Asset Put Option")
pursuant to which Citadel has the right to require REI to acquire substantially
all of Citadel's assets and assume related liabilities for shares of REI Common
Stock, until 30 days after REI files its Annual Report on Form 10-K for the year
ending December 31, 1999. Citadel has advised REI that it does not intend to
exercise the Asset Put Option.
F-10
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
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 of the Fiscal 1996 Stock
Transaction purchases of REI stock amounted to approximately $66,400,000, which
amount represented the carrying value of the assets contributed in the exchange
amounting to approximately $86,400,000, net of federal tax liabilities amounting
to approximately $22,000,000 less transaction costs. Accordingly, the purchase,
for financial statement purposes, resulted in negative goodwill in the amount of
approximately $22,000,000, which 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.
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 years ended December 31, 1999 and 1998 is the
30.7% separate public ownership of REI, as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Minority interest in (earnings) loss of Reading $ 7,561 $ 1,972 $ (330)
Minority interest in equity of Reading $20,733 $28,294 $30,277
</TABLE>
NOTE 3 -- BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
The Company, through its ownership of REI, develops and operates multiplex
cinemas in the United States, Puerto Rico, Australia and New Zealand and is
developing cinema based entertainment centers in Australia and New Zealand.
Accordingly, the Consolidated Company operates in two business segments, cinema
development and operations, and real estate development (entertainment center
development activities).
The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is operating income (loss) from
operations. Accounting policies of the business segments are the same as those
described in the summary of significant accounting polices (See Note 1).
Business segment assets are the owned or allocated assets used in each
geographic or functional area.
The corporate component of operating income (loss) from operations includes
corporate general and administrative expenses, dividend and service income from
State, and certain other income. Corporate assets primarily consist of
corporate cash, the investments in Citadel and Big 4, net investment in leased
equipment and certain other corporate property and equipment.
The following sets forth certain information concerning the Company's two
segments, real estate development and cinema operations, for the three years
ended December 31, 1999:
F-11
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Corporate
1999 Real Estate Cinema and
---- Development Operations Eliminations Consolidated
----------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
Revenues $ 297 $ 37,811 $ 380 $ 38,488
Operating loss (3,180) (13,791) (10,828) (27,799)
Identifiable assets/2/, /3/,/4/ 61,962 50,969 35,075 148,006
Depreciation and amortization 128 2,827 106 3,061
Capital expenditures/1/,/5/ 9,569 29,547 1,842 40,958
Corporate
1998 Real Estate Cinema and
---- Development Operations Eliminations Consolidated
----------- ---------- ------------ ----------------
Revenues $ 0 $33,556 $ 373 $ 33,929
Operating income (loss) (3,197) 2,511 (6,039) (6,725)
Identifiable assets/2/,/3/,/4/ 42,125 39,286 83,180 164,591
Depreciation and amortization 0 2,394 176 2,570
Capital expenditures/1/, /5/ 12,445 11,011 72 23,528
Corporate
1997 Real Estate Cinema and
---- Development Operations Eliminations Consolidated
----------- ---------- ------------ ----------------
Revenues/6/ $ 0 $26,984 $ 5,482 $ 32,466
Operating income (loss)/6/ (3,198) 778 116 (2,304)
Identifiable assets/2/,/3/,/4/ 18,910 34,372 113,843 167,125
Depreciation and amortization 0 1,531 206 1,737
Capital expenditures/1/,/5/ 7,586 12,213 319 20,118
</TABLE>
1 Real estate capital expenditures are net of "Purchase commitments" of
$8,066,000 and $3,516,000 in 1998 and 1997, respectively.
2 Real estate identifiable assets include investments in unconsolidated
affiliates of $2,847,000, $3,608,000, and $1,608,000 at December 31, 1999,
1998, and 1997, respectively.
3 Cinema operations identifiable assets include investments in unconsolidated
affiliates of $2,139,000 and $1,578,000 at December 31, 1999 and 1998,
respectively.
4 Corporate identifiable assets includes investments in Citadel of $17,246,000,
$12,962,000 and $6,594,000 at December 31, 1999, 1998 and 1997, respectively.
5 Includes purchases of property held for development of $31,623,000,
$12,445,000 and $7,382,000 at December 31, 1999, 1998, and 1997,
respectively.
6 Corporate revenue and operating income in 1997 includes "Dividend and service
income from Stater" amounting to $5,302,000.
F-12
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
The following table indicates the relative amounts of revenues from theater
operations (excluding revenue from the Company's previous holdings in Stater)
and property, plant, and equipment of the Company, before consideration of asset
impairment reserve, by geographic area during the three-year period ended
December 31, 1999. The Company has no export revenues.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Revenues:
<S> <C> <C> <C>
Puerto Rico............................................. $12,974 $16,210 $15,186
Mainland United States.................................. 15,504 11,134 7,978
Australia............................................... 9,333 6,212 3,820
Property, plant and equipment:
Puerto Rico............................................. $ 2,963 13,224 7,949
Mainland United States.................................. 18,370 8,819 7,160
Australia2,1............................................ 56,831 29,420 20,549
New Zealand3............................................ 14,853 9,549 0
</TABLE>
____________________
1 Includes property held for sale of $2,893,000 at December 31, 1999.
2 Includes property held for development of $23,702,000, $23,400,000, and
$14,714,000 at December 31, 1999, 1998 and 1997, respectively.
3 Includes property held for development of $7,921,000 and $9,549,000 at
December 31, 1999 and 1998.
NOTE 4 -- THEATER ACQUISITION AND DEVELOPMENT ACTIVITIES
Live Theater Acquisition
- ------------------------
On March 18, 1999, Reading acquired a four-auditorium live theater complex
in Chicago (the "RGT") which operates under the name "The Royal George Theater"
for approximately $2,800,000, of which $1,180,000 of the purchase price was
financed with a purchase money mortgage due in May 2000. The balance of the
purchase price was paid in cash. In early 2000, the Company determined that it
would sell the RGT. Accordingly, RGT was classified as "Property held for sale"
in the Consolidated Balance Sheet at December 31, 1999 (See Note 6).
Domestic Cinema Activity
- ------------------------
Reading acquired the 6-screen Angelika Film Center in August 1996. Since
then, Reading has acquired or built five cinemas, increasing the domestic screen
count to 42. All domestic cinemas are leased.
F-13
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
New York Acquisition - In December 1998, Reading entered into an Agreement
in Principle with Sutton Hill (Note 20), a related party, to lease and operate
the cinemas constituting the City Cinemas circuit located in Manhattan (the
"City Cinemas Transaction") and to acquire three live "Off Broadway" theaters
(the "OBI Transaction") also located in Manhattan, New York. Pursuant to the
City Cinemas Transaction, the Reading was to also acquire the 16.7% interest in
AFC not already owned by it and certain management rights with respect to three
other cinemas located in Manhattan.
In April 2000, Reading sold National Auto Credit, Inc. ("NAC") a 50%
interest in AFC and options to acquire Reading's position under these
agreements. Reading has offered Citadel the opportunity to take over its
position under the OBI transactions and the City Cinemas Transaction under
certain circumstances (See Note 24). Citadel has advised Reading that it is
interested in taking over Reading's position under these agreements, if certain
modifications to the transaction can be negotiated, and has delegated authority
to review the transactions and to negotiate such modifications directly with
Sutton Hill to a committee of independent directors.
In 1998, Reading made a deposit of $1,000,000 to Sutton Hill for the City
Cinemas Transaction. This deposit was recorded as "Due from Affiliate" in the
Consolidated Balance Sheet at December 31, 1998 and 1999. It is contemplated
that, if NAC or Citadel consummates a transaction with Sutton Hill, Reading will
receive the $1,000,000 deposit that it had made under its agreement with Sutton
Hill, at the time of closing. Reading has also advised Citadel that, if Citadel
consummates a transaction with Sutton Hill, Reading will then give Citadel a
first right of negotiation to acquire the remaining cinema assets of Reading,
including the Dallas cinema currently under development.
The Houston Angelika, the St. Anthony, and the NY Angelika are managed by
City Cinemas, a New York motion picture exhibitor and an affiliate of Sutton
Hill, pursuant to management agreements. The management agreements for the St.
Anthony and the Houston Angelika provide for City Cinemas to review a fee equal
to 2.5% of revenues. The NY Angelika management agreement provides for the
payment of a minimum fee of $125,000 plus an incentive fee equal to 50% of
annual cash flow (as defined) over prescribed levels provided, however, that the
maximum annual aggregate fee cannot exceed 5% of NY Angelika's revenues. City
Cinemas received approximately $488,000, $488,000 and $370,000 for the Fiscal
1999, 1998 and 1997, respectively.
Reading Australia
- -----------------
In 1995, Reading commenced cinema development activities in Australia.
Since formation, Reading Australia has opened ten cinemas (inclusive of one
entertainment center, the cinema portion of which opened in December 1999),
seven in leased facilities, two in owned facilities, and one at a managed
facility, with a total of 71 screens (including an 8-screen cinema which opened
in March 2000). In 2000, Reading Australia also anticipates opening an
entertainment center with a 10-screen cinema as well as the entertainment center
portion of a recently complete facility. Reading Australia has acquired rights
to, or fee interests in, land on which it intends to develop an additional three
entertainment centers.
F-14
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Puerto Rico
- -----------
Reading acquired CineVista effective in 1994. Since that time Reading has
opened four new cinemas with a total of 34 screens and closed two cinemas with a
total of 20 screens. CineVista opened a new 12-screen cinema in December 1999
and an 8-screen cinema in June 1998 which replaced a 6-screen cinema at the same
location. During 1999, Reading recorded an asset impairment write-down of the
CineVista circuit, which reduced its book value to zero (See Note 5).
New Zealand
- -----------
During 1998, Reading New Zealand Limited (together with its subsidiaries,
"Reading New Zealand") entered into two 50/50 joint ventures, one of which
currently operates 13 screens in 3 locations.
The second joint venture owns a parcel of land in Wellington on which the
joint venture intended to develop an entertainment center featuring a 12-screen
multiplex cinema. In July 1999, Reading New Zealand acquired 100% ownership of
the property. In addition, Reading New Zealand acquired ownership of a property
adjacent to the development site and a multiple story parking garage in 1998.
Also in 1998, Reading New Zealand acquired a 15-acre site on which it intends to
develop a cinema and an entertainment center.
NOTE 5 - ASSET IMPAIRMENT AND RESTRUCTURING CHARGES
During 1999, the Consolidated Company recorded an asset impairment charge
of $17,319,000 included in the Consolidated Statement of Operations as "Asset
impairment and restructuring charge" for the year ended December 31, 1999. As
disclosed in Note 2, the Consolidated Company's carrying value of Reading assets
acquired in 1996 differs from that of Reading's on a stand-alone basis due to
the allocation of negative goodwill. Accordingly, the Consolidated Company's
loss from Reading's asset impairment differs from that being separately reported
by Reading. The asset impairment charge of $17,319,000 is comprised of,
$14,991,000 related to Reading's investment in CineVista, $203,000 to certain
Philadelphia real estate and $2,125,000 to a 1996 investment in leased computer
equipment discussed below. Reading also recorded a restructuring charge of
$889,000 during the fourth quarter of 1999 upon adoption of a plan to relocate
Reading's corporate headquarters from Philadelphia to Los Angeles.
During the third quarter of 1999, the Consolidated Company recorded an
asset impairment charge of $197,000 representing the remaining carrying value of
the 8-screen cinema it operates at the Plaza Las Americas Mall (the "Plaza
Cinema"). Prior thereto, CineVista believed it had reached agreement with the
landlord as to the terms of the lease with respect to the opening of a new 10-
screen cinema at a second location in the mall. However, CineVista was advised
by the landlord that the landlord had entered into a lease for the new cinema
complex with a third party. In light of the anticipated adverse change in the
Plaza Cinemas business prospects upon the opening of a competing state-of-the-
art cinema in the same mall, the Consolidated Company evaluated the
recoverability of its investment in the Plaza Cinema and determined that the
entire carrying amount value of the Plaza Cinemas was impaired and should be
written off. Also in the third quarter of 1999, CineVista determined to close a
4-screen leased cinema and recorded an asset impairment charge of $138,000
relating to such closure based upon the appraised value of the leasehold
interest.
F-15
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
During the fourth quarter of 1999, the Consolidated Company decided that it
should initiate efforts to exit the Puerto Rico market and therefore wrote down
the carrying value of the CineVista theater circuit to its estimated net
realizable value, resulting in an additional asset impairment charge of
$14,656,000. The estimated net realizable value of CineVista was determined by
applying market comparable sale cash flow multiples to CineVista's estimated
future cash flows. In conjunction with the asset impairment charge, the
Consolidated Company created a $14,656,000 asset impairment reserve which is
included in the Consolidated Balance Sheet as "Property and Equipment".
Also in the fourth quarter of 1999, Reading was advised by the partnership
that manages Reading's portfolio of leased equipment (See Note 10) that used
computer equipment market had deteriorated as the global Year 2000 remediation
efforts had created overabundance of used computer equipment. In addition, a
decision by a large lessee to upgrade certain computer equipment, including
equipment leased from Reading, is also anticipated to have an effect on the
future value of the portfolio. Based upon discussions with computer equipment
vendors, Reading determined that the carrying value of the computer equipment
had been impaired and wrote off the entire carrying value of $2,125,000.
During the fourth quarter of 1999, Reading adopted a plan and commenced
steps to relocate the headquarters from Philadelphia to Los Angeles and recorded
a restructuring charge of $889,000. The restructuring charge includes a
provision for lease termination charges, duplicate office and employee
expenditures, and employee severance obligations.
NOTE 6 - PROPERTY HELD FOR SALE
White Horse Property Group
- ---------------------------
In November 1997, Reading Australia acquired a 50% interest from Burstone
Victoria Pty. Ltd. ("Burstone") in the Whitehorse Property Group Unit Trust
("WPG") for approximately $1,600,000. WPG owns a shopping center located near
Melbourne, Australia, located on land leased pursuant to a long-term lease. In
early 2000, Reading Australia and Burstone agreed to sell the shopping center
and are actively seeking buyers. No assurances can be made that the shopping
center can or will be sold at a price acceptable to the Company and Burstone.
The Company believes that the estimated net realizable value from the sale of
WPG and repayment of the partner loan described below is approximates the
carrying value of such assets. The carrying value of such assets, amounting to
$2,847,000, has been classified as "Property held for Sale " in the Company's
consolidated balance sheet at December 31, 1999.
WPG incurred a net loss of approximately $194,000 during 1999 as compared
to net earnings of $50,000 in 1998. Reading recorded a loss of $172,000 in 1999
and income of $26,000 in 1998. During 1999, the Company recognized 100% of
WPG's loss in excess of WPG's retained earnings to prevent the aggregate
carrying value of WPG from exceeding WPG's total net asset value. WPG's assets
and liabilities totaled $11,100,000 and $8,200,000 at December 31, 1999.
Reading has guaranteed the repayment of 50% of a secured bank loan which is owed
by WPG and deferred rent and related charges pursuant to lease. The principal
outstanding on the loan totaled approximately $3,700,000 and the deferred rent
totaled $500,000 at December 31, 1999, resulting in a guarantee by the Company
of approximately $4,200,000. The bank loan originally was due in June 1999.
The lender has agreed to extend the maturity of the loan on a month-to-month
basis pending a sale of WPG. No assurances can be made that the bank loan will
continue to be available to WPG.
F-16
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Royal George Theater
- --------------------
In early 2000, in order to maximize capital available for the Reading
Australia's and Reading New Zealand's development activities, Reading decided
that that it would sell RGT. Accordingly, Reading's net carrying value of RGT
of $2,893,000, which Reading believes is less than the estimated net realizable
value (based on an appraisal of the property), has been classified as "Property
held for sale" in the Consolidated Balance Sheet at December 31, 1999.
NOTE 7 - INVESTMENT IN CITADEL ("Citadel") AND BIG 4 RANCH, INC. ("BRI")
Citadel, a Nevada corporation ("CHC" and collectively with its consolidated
subsidiaries and corporate predecessors, "Citadel"), was formed in 1999 and on
January 3, 2000 merged with Citadel Holding Corporation, a Delaware corporation
("CHC Delaware"), in a transaction which resulted in a reincorporation of the
Company under the laws of Nevada and a reclassification of the common stock of
the Consolidated Company on January 4, 2000 into 5,335,939 shares of Class A
Nonvoting Common Stock, par value $.01 per share, and 1,333,984 shares of Class
B Voting Common Stock par value $.01 per share.
CHC, whose stock is traded on the American Exchange, has been engaged in
recent periods primarily in the business of owning and managing its real estate
intensive assets, in the offering of various real estate consulting services to
its affiliates and, since December 31, 1997, the management of the farming
operations of Big 4 Agricultural Properties described below. At December 31,
1999, CHC also has minority interest in certain other publicly traded companies
including (i) 70,000 shares of REI Redeemable Cumulative Voting Convertible
Stock (See Note 14), which represents 5% of the outstanding voting securities of
REI, and an Asset Put Option, (ii) 542,500 shares representing approximately
15.62% of the outstanding common stock of Gish Biomedical Inc., a company
engaged primarily in the business of developing, manufacturing, and distributing
cardiovascular devices, and (iii) 342,500 shares representing approximately
1.25% of the outstanding common stock of National Auto Credit Inc., a company
consisting primarily of cash, sub-prime loans secured by previously owned
automobiles, and real estate, located in Cleveland, Ohio.
As of December 31, 1999 and 1998, the Consolidated Company's common stock
ownership in Citadel represented an ownership interest of approximately 48%.
During 1998, the Consolidated Company purchased 979,306 CHC shares and 1,091,806
shares of BRI from the sellers of the CHC securities. The purchase price of
430,106 CHC securities and BRI securities by Craig was $4.625 per share and
$0.125 per share, respectively, and the purchase price of the CHC securities and
BRI securities by REI were $3.875 and $0.125 per share, respectively. The
purchase of such shares by Craig was consummated pursuant to the delivery by the
Consolidated Company of $3,636,000 and the issuance of 51,500 treasury shares of
Craig Corporation Class A Common Preference Stock. The issuance of the
Company's Class A Common Preference Stock was reflected in the Balance Sheet as
an increase to shareholders' equity in the amount of $618,000 as of December 31,
1998.
As of December 31, 1999 and 1998, the Consolidated Company's investment in
Citadel was $17,246,000 and $12,962,000, respectively. Retained earnings
represented by undistributed earnings of the Consolidated Company's investment
in Citadel amounted to approximately $8,276,000 at December 31, 1999. Based upon
the closing price of Citadel's common stock of $3.438 at December 31, 1999, the
aggregate market value of the Consolidated Company's common stock interest in
Citadel was approximately $11,035,000.
F-17
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
The Consolidated Company's earnings from its investment in Citadel as
included in the accompanying Consolidated Statements of Operations was
$4,174,000, $2,233,000, and $392,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
On December 29, 1997, Citadel capitalized a wholly owned subsidiary, BRI,
with a cash contribution of $1,200,000 and then distributed 100% of the shares
of BRI to Citadel's common shareholders of record as of the close of business on
December 23, 1997, as a spin-off dividend. The Consolidated Company received
2,213,043 shares or 33.4% of BRI. The Company recorded such distribution of Big
4 Ranch, Inc. as a reduction of its investment in Citadel in the amount of
approximately $401,000 and a corresponding increase as investment in Big 4
Ranch, Inc. As described above, in 1998, the Company increased its ownership in
BRI to approximately 49% for a purchase price of approximately $136,000.
In 1997, BRI (owning 40%), Citadel (owning 40%) and Visalia LLC
(owning 20%; a limited liability company controlled by Mr. James J. Cotter, the
Chairman of the Board of Craig, REI and Citadel, and owned by Mr. Cotter and
certain members of his family including Margaret Cotter) entered into three
general partnerships, which partnerships acquired on December 31, 1997 certain
agricultural properties located in Kern County, California (purchase price
amounting to approximately $7,600,000). The acquisition was financed by a 10-
year purchase money mortgage in the amount of $4,050,000, a line of credit from
Citadel and pro rata contributions from the partners. Through the Consolidated
Company's holding in Big 4 Ranch, Inc., and Citadel, the Company owns
approximately 38% of such partnerships at December 31, 1999. In December 1998,
the Partnerships suffered a freeze which destroyed the 1998-1999 citrus crop.
The Partnerships have no funds to repay any borrowings made pursuant to a
$3,250,000 million line of credit from Citadel or fund the estimated $3,501,000
required to fund costs associated with production of a 1999-2000 crop and
complete the proposed 1999 planting, other than to call upon the partners for
funding or borrowing further funds from Citadel. BRI has no funds or resources
with which to provide such funding, other than to call upon its separate line of
credit from Citadel. As a result of the freeze, the book value of BRI was
essentially reduced to zero in 1998 and, accordingly, the Consolidated Company
recorded a loss of approximately $520,000, which is included in the Statement of
Operations for the year ended December 31, 1999 as a component of "Earnings from
equity investment". Funding for the 2000 crop and for capital improvements since
January 1, 1999 to the land held by the Agricultural Partnerships has been
provided 80% by Citadel and 20% by Visalia. As of December 31, 1999, Citadel has
provided total funds to the Agricultural Partnerships amounting to approximately
$2,730,000. The Company is currently reviewing its situation, but will likely
continue providing the financing required to produce the 2000 crop and to
complete the planting planned for 2000 as long as Visalia continues to funds its
20% share of such amounts.
Summarized financial information of Citadel as of December 31, 1999 and
1998 and for each of the three years ended December 31, 1999 follows:
F-18
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------
Condensed Balance Sheets: 1998 1998
- ------------------------- ---- ----
<S> <C> <C>
Cash and cash equivalents $24,732 $ 4,367
Rental Properties and Properties held for sale 7,731 13,877
Investment in Reading 7,000 7,000
Investment and advance to Agricultural Partnerships 2,669 1,561
Other assets 3,949 3,842
Deferred tax asset 1,125 4,398
Accrued and other liabilities 2,723 2,080
Mortgage liabilities 11,000 9,224
Stockholders' equity 33,483 23,741
Years Ended December 31,
---------------------------------------------------
Condensed Statements of Operations: 1999 1998 1997
- ----------------------------------- ----- ----- ----
<S> <C> <C> <C>
Revenues $ 3,952 $ 5,985 $ 5,350
Expenses (3,445) (4,982) (4,665)
Loss from investment in Agricultural Partnerships (201) (990) --
Dividends from Reading 455 455 455
Interest income 698 391 451
Gain (loss) on sale of rental property 13,337 -- (16)
Income tax benefit (expense) (5,309) 4,828 (45)
------- ------- -------
Net earnings $ 9,487 $ 5,687 $ 1,530
======= ======= =======
</TABLE>
Citadel's net earnings for the year ended December 31, 1999, 1998 and 1997
include dividends, interest income and consulting fees from the Consolidated
Company amounting to $832,000, $1,022,000, and $820,000, respectively.
During 1997, Craig acquired 666,000 CHC shares upon the exercise of a
warrant at a cost of approximately $3.00 per share, or $1,998,000. Such
exercise was consummated pursuant to delivery by Craig of its secured promissory
note in the amount of $1,998,000, secured by 500,000 shares of REI Common Stock.
Interest is payable quarterly in arrears at the prime rate, which amounted to
8.50% at December 31, 1999. Interest expense paid pursuant to this note
amounted to approximately $162,000 and $169,000 for the years ended December 31,
1999 and 1998, respectively. Principal and accrued but unpaid interest is due
upon the earlier of April 11, 2002 or 120 days following Citadel's written
demand for payment and has been included in the accompanying Balance Sheet as
"Note Payable to Citadel."
F-19
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 8 -- EQUITY INVESTMENTS IN FOREIGN AFFILIATES
During the second quarter of 1998, Reading New Zealand entered into two
50/50 joint ventures, one with a cinema operator and one with a property
developer in New Zealand (the "NZ JV"). At December 31, 1999, the Company's
aggregate investment in these joint ventures totaled $2,140,000, and was
reflected in the Consolidated Balance Sheet as "Equity investment in foreign
affiliates". In connection with the joint venture, the Company has made a loan
to the joint venture of $1,200,000 in order to finance a portion of the
acquisition price of two multiplex cinemas and the underlying property
acquisition and construction costs of a cinema which the joint venture
developed.
NOTE 9 -- INVESTMENT IN STATER BROS. HOLDINGS, INC.
("SBH" and together with its subsidiaries, "STATER")
Stater is a supermarket chain in Southern California. Between 1989 and
1996, Craig held a 50% common stock interest in SBH, which for accounting
purposes, was accounted for in accordance with the equity method of accounting.
During 1994, Craig consummated several agreements with Stater which, among other
things, provided Stater with the right to convert the Company's common stock
interest in SBH into a preferred stock and an option to purchase the Company's
equity interest in SBH at a formula price. Also, as part of the transactions,
Craig entered into a consulting agreement with Stater pursuant to which Craig,
among other things, agreed to render consulting services through March 1999 for
$1,500,000 annually.
Effective March 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 had a liquidation preference and redemption value of $69,365,000
and a cumulative dividend preference beginning at 10.5%. Upon this conversion,
the Consolidated Company discontinued the use of the equity method of accounting
for its investment in Stater.
In October 1996, the SBH Preferred Stock was transferred to Reading in the
Stock Transactions. In August 1997, the SBH Preferred Stock was repurchased in
its entirety by SBH and the Consulting Agreement between the Company and Stater
was terminated. Upon its repurchase in August 1997, the Consolidated Company
recognized income of approximately $2,002,000 comprised of (i) $1,387,000
(difference between the approximately $69,365,000 stated value of the SBH
Preferred Stock and the $67,978,000 carrying value) and (ii) $615,000 received
from Stater at the time of the SBH Preferred Stock repurchase for REI's
agreement to enter into a covenant-not-to-compete for a one year period. In
addition, the Consolidated Company received $4,330,000 in dividend income and
$972,000 in service fee income from Stater for the year ended December 31, 1997.
F-20
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 10 -- NET INVESTMENT IN LEASED EQUIPMENT
During 1996, a wholly owned subsidiary of REI purchased computer equipment
that was leased to various retail companies for $40,934,000 (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 $38,900,000. 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 was reflected at its net cost of
$2,125,000 which was recorded in the Consolidated Balance Sheet at December 31,
1998 as "Net investment in leased equipment". In 1999, Reading determined that
the value of the asset was impaired and wrote off the remaining carrying value
of the equipment in conjunction with the asset impairment write-down (See Note
5).
NOTE 11 -- PROPERTY, PLANT AND EQUIPMENT
The Consolidated Company's property, plant and equipment at December 31,
1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------- --------------------
<S> <C> <C>
Land (including land associated with cinemas) $ 3,015 $ 378
Buildings 13,258 1,858
Leasehold improvements 28,138 15,722
Equipment 24,717 9,205
Construction in progress/property development 11,137 5,714
-------- -------
80,265 32,877
Less: Accumulated depreciation (7,108) (4,814)
Less: Provision for asset impairment of CineVista (14,656) --
-------- -------
Property, plant and equipment, net $ 58,501 $28,063
======== =======
</TABLE>
NOTE 12 -- LEASE AGREEMENTS AND COMMITMENTS
Annual base rent expense is determined by amortizing total minimum lease
obligations on a straight-line basis over the lease terms. The Consolidated
Company's base rental expense for the twelve months ended December 31, 1999,
1998 and 1997 was $5,349,000, $4,753,000, and $4,225,000. Subrental income paid
by Citadel to Craig for the rental of office space to Citadel amounted to $2,000
per month since July 15, 1995. In 1999, 1998 and 1997, contingent rental expense
under operating lease totaled $336,000, $134,000, and $25,000, respectively. The
following separately summarizes the lease and purchase commitments of Craig and
Reading.
F-21
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Craig
- -----
Craig leases certain office space under a lease expiring in October 2001.
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 $75,000
annually.
During Fiscal 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. 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, 1998 and 1997, a loss from this joint venture of
$163,000 and $207,000, respectively, 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 approximately $103,000, to be paid in monthly installments for ten
years.
In 1997, Craig purchased 666,000 shares of Citadel's common stock at an
exercise price of $1,998,000 from Citadel. The purchase was made pursuant to
the delivery of a secured promissory note for which the principal and accrued
but unpaid interest is due upon the earlier of April 11, 2002 or 120 days
following Citadel's written demand for payment.
Reading Leases and Purchase Commitments
- ---------------------------------------
CineVista and the Domestic Cinemas conduct their operations in leased
premises. Seven of Reading Australia's nine operating multiplexes are in leased
facilities. The cinema leases have remaining terms, inclusive of options, of 10
to 40 years. Certain of the Reading's cinema leases 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. Reading also leases
office space, warehouse space, and equipment under noncancellable operating
leases. All leases are accounted for as operating leases.
Future minimum lease payments, by year and in the aggregate, under
noncancellable operating leases consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
Operating Leases
<S> <C>
(in 000's)
2000 $ 6,511
2001 6,853
2002 6,808
2003 6,143
2004 6,229
Thereafter 92,563
--------
Total net minimum lease payments $125,107
========
</TABLE>
F-22
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
In addition to the Consolidated Company's working capital deficit of
approximately $2,861,000 at December 31, 1999, the Consolidated Company had
committed development expenditures relating to cinema and entertainment
development projects of approximately $50,000,000 (not including the potential
obligations relating to the City Cinemas Transaction and the OBI Transaction or
the $7,000,000 in REI Series A Preferred Stock held by Citadel which require
redemption in October 2001) of which approximately $25,000,000 is expected to be
funded in 2000 and the remainder to be funded thereafter. A portion of the
funding will be made from the Australian dollar line of credit (the "Australian
Line of Credit"). The Consolidated Company does not plan to enter into
additional development commitments or commence construction of new projects in
New Zealand or Australia until additional financing is secured.
CineVista is in violation of certain of the loan covenants in its line of
credit and is seeking a waiver from the lender. If a waiver is not received,
CineVista will be in default of the terms of the line of credit and the lender
could demand immediate repayment of amounts due thereunder, which amounts
totaled $3,000,000 on December 31, 1999 and $4,250,000 on April 12, 2000. No
assurances can be made that the lender will waive the covenant violation. In
April 2000, Reading received a commitment for an 18-month $7,000,000 line of
credit secured by a pledge of certain domestic cinema assets and interest in
Citadel (the "Domestic Line of Credit"). However, as a result of the sale of AFC
interest to NAC (See Note 24), the terms of the loan commitment will have to be
renegotiated. No assurances can be made that the lender will be willing to fund
the Domestic Line of Credit under revised terms satisfactory to the Company.
The proceeds of the Domestic Line of Credit were to be used to pay off a
portion of the $3,575,000 in accumulated dividends payable to Craig, pay
purchase money debt of $1,180,000 due in May 2000 from the purchase of the RGT,
and fund the development of one additional domestic cinema. The Consolidate
Company, however, anticipates acquiring additional financing to fund its
development obligations that are due in 2001. In order to do so, the Company may
be required to arrange for alternative financing, sell assets, or bring in joint
venture partners with respect to certain of its projects. The Consolidated
Company also had a $2,800,000 property purchase mortgage and a $1,500,000 bank
loan due in 2000. Reading New Zealand is presently evaluating a bank proposal to
refinance both of these obligations and provide construction funding for an
entertainment center in Wellington.
The Agreement in Principle contemplates the acquisition of certain live
theater assets in exchange for Reading stock. However, under certain
circumstances, the Company could be required to fund the Theater Transaction
with a cash payment of approximately $9,900,000. Citadel is presently
considering the acquisition of Reading's rights under a letter of intent and
accordingly, believes it unlikely that the transaction will be consummated by
Reading.
Under the terms of the joint venture agreement with WPG (See Note 6), the
Company has guaranteed approximately $3,700,000 of WPG debt and land lease
obligations.
The City of Philadelphia (the "City") has asserted that Reading's North
Viaduct property requires decontamination and that Reading's share of any such
remediation cost will aggregate approximately $3,500,000. The Company presently
is in discussions with the City involving a possible conveyance of the property
and believes that reserves related to the North Viaduct are adequate.
Reading's 1996 federal income tax return is currently being examined by the
Internal Revenue Service ("IRS"). While Reading believes its tax reporting
position to be reasonable and the IRS has not alleged any deficiencies, no
assurances can be made that Reading's tax reporting position will be upheld.
F-23
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 13-- BANK CREDIT FACILITIES
CineVista has a $5,000,000 line of credit (the "Line of Credit") which
expires on December 31, 2000. Under terms of the Line of Credit, CineVista may
borrow up to $5,000,000 until June 30, 2000, up to $4,650,000 through September
30, 2000, and up to $4,300,000 until December 31, 2000 when all amounts
outstanding under the Line of Credit are due and payable. As security for the
loan, CineVista has pledged substantially all of its assets. At December 31,
1999, $3,000,000 was outstanding under the Line of Credit. The provisions of the
Line of Credit require CineVista 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 Line of Credit accrue
interest at the LIBOR plus 2.25%, or the base rate plus 1/2 of 1%, at
CineVista's election. In accordance with the provisions of the Line of Credit,
CineVista is required to pay a commitment fee on the unused commitment equal to
1/2 of 1%. CineVista was not in compliance with the minimum net worth covenant
at December 31, 1999 and is currently working with the lender to obtain a
waiver. If a waiver is not received, CineVista will be in default of the terms
of the Line of Credit and the lender could demand immediate repayment of amounts
due under the Line of Credit, which amounted to $4,250,000 on April 12, 2000. No
assurances can be made that the lender will waive the covenant violations.
In March 2000, Reading Australia entered into the Australian Line of Credit
with a major bank which provides for borrowings of up to approximately
$15,000,000 ($16,350,000 less an interest reserve of $1,350,000) for the
construction of an entertainment center and cinema in Sydney. The Australian
Line of Credit contemplates an increase in the commitment amount to
approximately $49,000,000 (the "Expanded Commitment") if additional banks elect
to participate in the Australian Line of Credit agreement. Under the Expanded
Commitment, the term of the credit facility will be extended from December 31,
2000 to December 31, 2003 and provide funding for the construction of a proposed
entertainment center in Melbourne. No assurances can be made that additional
participants will be found. The Australian Line of Credit is secured by a
pledge of substantially all of Reading Australia's assets and those of its 100%
owned subsidiaries and requires Reading Australia to maintain various financial
covenants, restricts dividends, and limits additional borrowings. Reading
Australia is required to pay a commitment fee of 0.60% on the commitment.
In April 2000, Reading received a commitment for a domestic line of
credit (the "Domestic Line of Credit") an 18-month $7,000,000 line of credit
secured by a pledge of certain domestic cinema assets and interest in Citadel.
However, also in April 2000, Reading sold a portion of its interest in AFC. Such
interest was to be included as collateral for the Domestic Line of Credit and as
such, the terms of the commitment will have to be renegotiated. No assurances
can be given that the lender will agree to terms satisfactory to Reading.
Reading New Zealand has a term loan in the amount of approximately
$1,500,000 secured by a property in Wellington. The term loan matures December
15, 2000.
NOTE 14-- REDEEMABLE PREFERRED STOCK OF READING
The 70,000 shares of REI Series A Preferred Stock have a stated value of
$100 per share of $7,000,000 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 in 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, at 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 the event that REI fails to pay
dividends on the Series A Preferred Stock in any four quarterly periods. In the
event of a change in control of REI, the holders of a majority of 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" until such time that the redemption provision is
exercised.
F-24
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Each share of Series A Preferred Stock is convertible into shares of REI
Common Stock at a conversion price of $11.50 per share. 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
$15.525 per share. 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 years ended December 31, 1999,
1998 and 1997 amounted to approximately $455,000 per year.
NOTE 15 -- 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.
On December 15, 1997, the Board of Directors declared a stock dividend
which provided all Common Stock and Class A Common Preference Stock shareholders
of record on January 5, 1998 to receive one share of Class A Common Preference
Stock. Such stock distribution occurred on February 5, 1998 resulting in an
increase in the outstanding Class A Common Preference Stock to 7,006,908 shares.
In addition, at the date of stock distribution, the Company held 1,704,412
shares of the Company's Common Stock (1,683,912) and Class A Common Preference
Stock (23,000) shares in treasury and received a Class A Common Preference stock
dividend on such treasury shares. Approximately $71,000 was transferred from
additional paid in capital to the Class A Common Preference account to record
this stock distribution in February 1998. Craig repurchased 134,300 common
shares in Fiscal 1998 and 539,100 common shares in Fiscal 1996 at a purchase
price of approximately $984,000 and $7,585,000, respectively. During Fiscal
1999, the Company has repurchased an additional 116,300 shares at an aggregate
cost of approximately $879,000. The Company issued 51,500 shares of Class A
Common Preference Stock in connection with the Company's purchase of CHC and Big
4 common stock which resulted in an increase in shareholders' equity of
approximately $618,000.
NOTE 16 -- STOCK OPTIONS AND PENSION PLANS
The 1984 Stock Option Plan, as amended, provided for the granting of
options to 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 after five years and
may be exercisable in installments, generally beginning one year after the date
of grant. In 1999, the Board extended for two years the 30,000 shares due to
expire in October 1999 under this plan. At December 31, 1999, no other options
are outstanding pursuant to the plan.
F-25
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
As described in Note 15, the Board of Directors declared a stock dividend
of Class A Common Stock on December 5, 1997. The stock option data below has
been adjusted to reflect the stock option activity since January 1, 1996 as if
the adjustments to the options granted had occurred on such date. The stock
distribution had the effect of increasing the number of shares outstanding under
option. With the exception of the Chairman of the Board, the number of shares
available for option was increased by the number of option shares previously
granted, however, the increase was in Class A Common Preference stock. In
December 1997, the Board of Directors amended the option agreement with the
Chairman of the Board providing for his options to be increased in the same
security as the options were granted (common stock), adjusted for the variance
in market price between the two stocks.
<TABLE>
<CAPTION>
Class A Common
Common Stock Preference Stock
----------------------------------- ------------------------------
Weighted Weighted
Average Average
Options Price Options Price
--------------- ----------------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 and 1996 639,940 $ 5.97 50,000 $5.72
Granted(1) 15,000 $10.07 15,000 $9.74
Expired(2) (30,000) $(6.38) _____ _____
------- ------
Outstanding at December 31, 1997 624,940 $ 6.05 65,000 $6.65
Granted(1) 30,000 $ 9.50 _____ _____
------- ------
Outstanding at December 31, 1998 654,940 $ 6.20 65,000 $6.65
Granted(3) 30,000 $ 6.00 - -
Expired(4) (30,000) $(9.50) - -
------- ------ ------ -----
Outstanding at December 31, 1999 654,940 $ 6.04 65,000 $6.65
------- ------ ------ -----
Exercisable at December 31, 1999 613,690 $ 5.97 65,000 $6.00
------- ------ ------ -----
</TABLE>
(1) Such options have a 10-year life and vest 25% each year.
(2) In agreement for the holder to not exercise such shares, the Company
paid $30,000 to such holder subsequent to the option expiration in
January 1997.
(3) Such options have a 4-year life and vest 25% each year.
(4) Options expired on November 19, 1999.
The weighted-average remaining contractual life of all options
outstanding at December 31, 1999 was 6.12 years.
Pro forma net earnings and earnings per share information reflecting the
fair value approach to valuing stock options and the corresponding increase in
compensation expense is required by SFAS No. 123 in each of the years that a
company grants stock options. The Company granted 30,000 options per annum in
each of the three years ended December 31, 1999. The fair value of the options
granted in 1999, 1998, and 1997 was estimated at the date of grant using a
Black-Sholes option pricing model with the following weighted average
assumptions:
F-26
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Stock option exercise price $ 6.00 $ 9.50 $ 9.90
Risk-free interest rate 6.00% 6.00% 5.73%
Expected dividend yield 0.00% 0.00% 0.00%
Expected option life 5 years 5 years 5 years
Expected volatility 26.60% 23.80% 24.80%
Weighted average fair value $ 1.41 $ 2.00 $ 2.17
</TABLE>
The pro forma effect of the issuance of these options would have been to
increase the "Net loss applicable to common shareholders" for the year ended
December 31, 1999, 1998 and 1977 by $21,141, $58,934 and $1,511,
respectively. The pro forma adjustments may not be representative of future
disclosures because the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years. Further, SFAS No. 123 requires assumptions by management, regarding the
likelihood of events on which the vesting of contingent, performance based
options are predicated.
During the first quarter of 1999, the Board of Directors finalized the
Craig Corporation Key Personnel Retirement Plan ("Plan"). Such Plan provides
that any participant, as permitted by the Board, will be credited an amount
equal to 10% of such participants compensation (up to the maximum allowed by
Section 401(c)(17) of the Internal Revenue Code). As of the effective date of
the Plan, January 1, 1999 only two employees have been granted participation in
the Plan which resulted in past service costs accruing of approximately
$243,000. Any amounts credited to the participants account earn interest at
LIBOR and may be paid to the employee upon their termination. Each participant
may, from time to time, irrevocably elect to convert a part or all of such
amounts accrued to their account into Phantom Common Stock based upon the
closing price of such stock on the date of election. One of the two participants
in the Plan terminated her employment with the Company in November 1999 and
received a lump-sum distribution of her account balance. At December 31, 1999,
the Plan liabilities totaled approximately $159,000.
NOTE 17 -- INCOME TAXES
Craig and Reading file separate 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
company's tax liabilities. Significant components of the provisions for income
taxes attributable to operations are as follows:
F-27
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes (benefit):
Current:
Federal $ 223 $ 253 $ 181
Foreign 818 786 698
State and local 106 78 273
------- ------ -------
Total current 1,147 1,117 1,152
------- ------ -------
Deferred:
Federal -- (131) 160
State -- -- --
------- ------ -------
Total deferred: -- 131 160
------- ------ -------
Total income taxes $ 1,147 $ 986 $ 1,312
======= ====== =======
</TABLE>
The reconciliation of income taxes at United States statutory rates to
income taxes as reported are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rates $(4,972) $ 200 $ 1,570
Foreign withholding tax 818 786 698
Use of net operating loss carryforwards -- -- (2,344)
Foreign and U.S. losses not benefited 4,970 161 1,593
Dividend exclusion on dividend income -- (242) (698)
Unrealized tax benefits, net of AMT -- -- 238
Other tax expense 225 -- --
State taxes, net of federal benefit 106 81 255
------- ------ -------
Total income expense $ 1,147 $ 986 $ 1,312
======= ====== =======
</TABLE>
Carryforwards and temporary differences which give rise to deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------
Deferred tax liabilities: 1999 1998
---- ----
<S> <C> <C>
Tax basis difference of investments in affiliates $12,286 $12,286
------- -------
Deferred tax assets:
Craig:
Capital loss carryforward 1,370 1,370
Federal benefit of state taxes 2,385 2,385
Other 163 163
</TABLE>
F-28
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Reading:
Net operating loss carryforwards 20,715 16,314
Alternative minimum taxes 3,189 3,189
Wrap lease rental sale 6,981 8,485
Reserves and other, net 16,314 1,578
-------- --------
Gross deferred asset 47,199 33,484
--------
Valuation allowance (47,199) (29,566)
-------- --------
3,918 3,918
Net deferred tax asset -------- --------
Net deferred tax liabilities $ 8,368 $ 8,368
======== ========
</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 $47,199,000 was necessary at December 31, 1999.
Reading's federal tax net operating loss carryforwards amounting to $29,208,000
expire as follows:
<TABLE>
<CAPTION>
Year Amount
---------------------------- ------------------
<S> <C>
2000........................ $16,196
2002........................ 7,382
2003........................ 589
2007........................ 1,443
2008........................ 1,155
2009........................ 32
2018........................ 311
2019........................ 2,100
-------
$29,208
=======
</TABLE>
In addition to the federal net operating loss carryforwards, Reading has
alternative minimum tax credits of $3,189,000 which can be carried forward
indefinitely, as well as, foreign net operating loss carryforwards of
$27,639,000 of which $14,102,00 expires between 2002 and 2006 unless utilized
prior thereto. At December 31, 1999, Craig has capital loss carryforwards of
approximately $3,200,000 which expire in 2001 unless utilized prior thereto.
Reading's 1996 consolidated federal income tax return is under currently
being examined by the Internal Revenue Service.
NOTE 18 -- OTHER INCOME (EXPENSE) AND FINANCIAL INSTRUMENTS
"Other income (expense)" totaled $1,033,000, $(587,000), and $1,158,000,
for the years ended December 31, 1999, 1998 and 1997, respectively. The other
income in 1999 was principally comprised of approximately $605,000 of business
interruption insurance recovery for the CineVista locations damaged by the
Hurricane George, approximately $65,000 from renting out excess office and
parking space at the Royal George Theater, and approximately $185,000 of
realized gain on selling of an investment property held by Craig.
F-29
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Other expense in 1998 was principally a result of a loss on foreign currency
contract transactions amounting to approximately $670,000. Other income in 1997
included (i) a $490,000 reversal of a provision for estimated costs incurred in
prior years, (ii) $260,000 received from a third party as reimbursement of
certain acquisition related expenditures which were expensed in prior periods,
and (iii) approximately $220,000 from foreign currency agreements.
NOTE 19 - LEGAL PROCEEDINGS
Certain Shareholder Litigation
- ------------------------------
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 Stock Transactions
(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 and Robert F. Smerling) 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.
In November 1996, plaintiffs filed an Amended Complaint against all of the
Company's present directors, its two former directors and Craig. The Amended
Complaint does not name the 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 t the alleged class. The Amended Complaint seeks unspecified damages on
behalf of the alleged class and attorney's and experts' fees. On December 9,
1997, the Court certified the case as a Class Action and approved the plaintiffs
as Class Representatives.
On April 24, 1997, plaintiffs filed a purported derivative action against
the same defendants. This action included claims substantially similar to those
asserted in the class action and also alleged waste of tax benefits relating to
the Company's historic railroad operating losses. The Company moved to dismiss
this case for failure to comply with the mandated procedures for bringing such
an action. On January 23, 1998, the Court dismissed the derivative action. The
dismissal of the derivative action does not affect the class action case, nor
does it preclude re-assertion of the claims contained in the derivative action.
On September 28, 1998, the defendants filed a motion for summary
judgment. In February 2000, the court granted summary judgment against the
Plaintiff and in favor of all of the Defendant directors. Craig was not
dismissed, however, and the Court has agreed to reconsider Craig's motion in
light of its decision to dismiss the claims against all of the defendant
directors. The plaintiff has not elected to seek any rehearing or interlocatory
appeal of the trial court's decision to dismiss the defendant directors.
F-30
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Other Claims
- ------------
The Company 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. While the City of Philadelphia has asserted
that the Company's share of any environmental clean-up costs related to its
North Viaduct property would be in the range of $3,500,000, the Company does not
believe that it has any current obligation to commence such remediation.
Redevelopment Authority of the City of Philadelphia v. Reading
- --------------------------------------------------------------
In December 1997, the Redevelopment Authority of the City of Philadelphia
(the "RDA") filed an action in the Philadelphia Court of Common Pleas which
relates to the 1993 sale of the Headhouse property by Reading to the RDA.
Plaintiff has alleged discovery of asbestos, PCB's, lead paint, and alleges past
and future clean-up costs in excess of $1,000,000. The action is based upon
theories of contract and state environmental law. The Company has denied
liability and intends to vigorously defend. It is management's opinion that the
RDA's claim is meritless in that Reading adequately disclosed the condition of
the property and expressly limited its representations made in connection with
the sale.
NOTE 20 -- RELATED PARTY TRANSACTIONS
Reading acquired the NY Angelika on August 27, 1996 (See Note 4). The
theater is owned jointly by Reading 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 a Management Agreement. Mr. Cotter is the
Chairman of the Board of REI and Craig and the principal shareholder of Craig,
owning 23% of the Company's outstanding securities which represents
approximately 31% of the vote of the Company's outstanding securities. Hecco
Ventures, a company controlled by Mr. Forman and his family beneficially own
approximately 17.4% of Craig's outstanding securities. Mr. Cotter votes
directly or by proxy his shares representing approximately 33.1% of the voting
power of Craig and is a general partner of a limited partner of Hecco Ventures,
and, accordingly, has shared voting power with respect to the shares held by
Hecco Ventures, which together with his direct ownership represents
approximately 50.6% of the voting power of Craig.
City Cinemas manages the AFC and two other cinemas operated by Robert F.
Smerling, President of the Company, and Neil Sefferman, Vice President - Film of
the Company also serve in the same positions with City Cinemas.
In December 1998, the Company and Sutton Hill entered into an Agreement in
Principle to lease and operate four cinemas and manage three other cinemas all
of which are located in Manhattan and which together constitute the City Cinemas
circuit. In addition, the Agreement in Principle provides for the acquisition
by the Company of three live "Off Broadway" theaters also located in Manhattan.
The Conflicts Committee of the REI Board of Directors (the "Conflicts
Committee"), comprised entirely of directors independent of Messrs. Cotter and
Forman, reviewed and negotiated the transaction. Consummation of the transaction
is contingent upon, among other things, receipt of fairness opinions relating to
the transactions and approval of REI's shareholders of the issuance of Common
Stock for the acquisition of the "Off Broadway Theaters".
F-31
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
Under the terms of the Agreement in Principle, Reading is to lease and
operate the City Cinemas Circuit for an initial term of ten years and to acquire
the Off Broadway Theaters. In addition, Reading is to acquire the 16.7%
interest in AFC not already owned by it for $4.5 million, to be paid in a ten-
year installment sale note. Reading had agreed to provide to the sellers, at
the election of the sellers, standby credit facilities of up to $32.5 million
maturing in 10 years.
In fiscal 1999, Reading has offered Citadel the opportunity to take over
its position under this agreement. Citadel has advised Reading that it is
interested in taking over Reading's position under these agreements, if certain
modifications to the transactions can be negotiated, and has formed a special
committee comprised entirely of independent directors to review the transactions
and to negotiate such modifications directly with Sutton Hill. While no
assurances can be given, it is contemplated that, if Citadel consummates a
transaction with Sutton Hill, Citadel will refund Reading's $1,000,000 deposit
that it had paid to Sutton Hill and that Reading will work in good faith with
Citadel to negotiate a transaction which may permit Citadel to acquire the
remaining domestic cinemas assets of the Company, including a cinema in Dallas
currently under development.
The Agreement in Principle provides that the Manhattan "Off Broadway"
theaters, as well as another live theater owned by the Company will be booked
and managed by Union Square Management, Inc., a live theater management company
specializing in the booking and management of "Off Broadway" style live
theaters. Margaret Cotter, daughter of Mr. James J. Cotter, is a Senior Vice
President with Union Square Management, Inc. In December 1998 the Company
agreed to guarantee a $100,000 bank loan to Alan Schuster, the principal
shareholder of Union Square Management, Inc.
A company owned by a consultant 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 purchased a 25% interest in the theater which was opened by Reading
Australia in December 1996 which amount totaling $A500,000 was funded by a loan
from Reading Australia.
The Consolidated Company owns approximately 48% of Citadel Holding
Corporation (See Note 7). Messrs. Cotter and Tompkins each serve as directors
of that company. Mr. Cotter serves as Chairman and Mr. Tompkins serves as Vice
Chairman, Secretary and Chief Accounting Officer of Citadel. During the years
ended December 31, 1999, 1998 and 1997, Reading utilized the services of certain
Citadel employees, including the President and Chief Executive Officer of
Citadel, for real estate advisory services for which Reading paid Citadel
$215,000, $410,000, and $240,000, respectively, 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 approximately
$72,000 per annum for each of the years ended December 31, 1999, 1998, and 1997.
The Consolidated Company owns approximately 49% of BRI. In addition,
Cecelia Packing ("Cecelia"), a company wholly owned by Mr. Cotter, and a trust
for the benefit of one of Mr. Tompkins children individually own shares of BRI
which, when combined with the shares owned by the Consolidated Company, result
in a voting interest in excess of 50%. The Board of Directors and executive
officers of BRI are comprised of three Craig directors, including Margaret
Cotter, the daughter of James Cotters and a member of Visalia, LLC.
F-32
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
On December 31, 1997, BRI (owning 40%), Citadel (owning 40%) and Visalia,
LLC (a limited liability company controlled by James J. Cotter, the Chairman of
the Board of REI, Craig, and Citadel, and owned by Mr. Cotter and certain
members of his family) entered into three general partnerships (the
"Partnerships"). The Partnerships acquired an agricultural property (purchase
price amounting to approximately $7.6 million) planted with citrus trees. The
Partnerships currently use Big 4 Farming LLC ("Farming) to farm their
properties. Farming is owned 80% by Citadel and 20% by Visalia, and it receives
in consideration of its services reimbursement of its costs plus 5% of the net
revenues of the farming operations after picking, packing and hauling. Farming,
in turn, contracts with Cecelia for certain bookkeeping and administrative
services, for which it pays a fee of $6,000 per month. Cecelia also packs fruit
for the Partnerships. The acquisition was financed by a ten-year purchase money
mortgage in the amount of $4.05 million, a line of credit from Citadel and pro-
rata contributions from the partners. Through its holdings in BRI and Citadel,
the Company owns approximately 38% of such Partnerships at December 31, 1999.
In December 1998, the Partnerships suffered a freeze which destroyed the 1998-
1999 crop. The Partnerships have no funds to repay a $3,250,000 line of credit
from Citadel or fund the estimated $3,501,000 required to fund costs associated
with production of a 1999-2000 crop and complete the proposed 2000 planting,
other than to call upon the partners for funding or to borrow additional funds
from Citadel. BRI has no funds or resources with which to provide such funding,
other than to call upon its separate line of credit from Citadel. Citadel and
Visalia have continued to fund the Partnerships' operating and agricultural
costs on an 80/20 basis. Citadel is currently reviewing the situation, but will
likely continue providing the financing required to produce the 2000 crop and
complete the planting planned for 20000 so long as Visalia continues to fund its
20% share of such amounts.
In December 1997, the Board of Directors declared a stock dividend of Class
A Common Stock to all holders of record of Common Stock and Class A Common
Preference Stock on December 5, 1997. Also, in December 1997, the Board of
Directors amended the option agreement with the Chairman of the Board providing
for his option to purchase 300,000 shares of Common Stock to be increased in the
same security as the options were granted (common stock), adjusted for the
variance in market price between the two stocks.
In 1997 Reading loaned Robert Smerling, President of REI, $70,000. The
non-interest bearing loan is payable upon demand.
NOTE 21 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1999,
1998, and 1997 are summarized below:
F-33
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Net (Loss) Basic and
Earnings Diluted
Net Applicable to Earnings
Revenues Stockholders Per Share
-------- ------------ ---------
Year Ended December 31, 1999 (In thousands, except per share amounts)
- ------------------------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Quarter ended March 31, 1999 $ 7,518 $ (1,206) $(0.11)
Quarter ended June 30, 1999 9,274 1,314 0.12
Quarter ended September 30, 1999 11,404 (1,460) (0.14)
Quarter ended December 31, 1999 10,292 (14,456) (1.36)
------- --------
$38,488 $(15,808)
======= ========
Year Ended December 31, 1998
- -------------------------------------------
Quarter ended March 31, 1998 $ 8,745 $(173) $(0.02)
Quarter ended June 30, 1998 8,559 (141) (0.01)
Quarter ended September 30, 1998 8,820 (455) (0.04)
Quarter ended December 31, 1998 7,805 (85) (0.01)
------- -----
$33,929 $(854)
======= =====
</TABLE>
1999:
- -----
The first quarter loss applicable to common shareholders is primarily
attributable to the decrease in theater operating income and an increase in
general and administrative expenses. The decrease in theater operating income
reflects the closing of four screens at two CineVista locations during first
quarter of 1998. Increase in general and administrative expenses during the
first quarter reflects the increased costs associated with continued expansion
of operations and development activities in Australia. The net income available
to common shareholders for the second quarter increased principally due to the
increased equity earnings from the Consolidated Company's 48% investment in
Citadel. Citadel reported a significant gain from the sale of property during
this period. The results of the third and fourth quarters included asset
impairment write-downs for the CineVista locations. Specifically, the Company
wrote off approximately $14,991,000 in property and equipment, and leasehold
improvements relating primarily to Reading Puerto Rico during principally the
fourth quarters of fiscal 1999.
F-34
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
1998:
- -----
The first quarter loss applicable to common shareholders reflects a charge
of $165,000 relating to the closing of four screens at a CineVista location.
The results of the third quarter included a loss of $114,000 representing the
Company's share in losses of unconsolidated affiliates. In the fourth quarter
1998, the Company closed a CineVista cinema as a result of damage sustained from
Hurricane George and recorded a write-off of $248,500 related to abandoned
assets. Further, in the fourth quarter, the Company recorded a charge of
$332,000 for previously capitalized project costs related to Australian
development activities. Additionally, in the fourth quarter, the Consolidated
Company recorded income of $1,743,000 representing the Company's share of
earnings (losses) in Citadel and BRI.
1997:
- -----
Revenues in the first three quarters of Fiscal 1997 include income from
Stater Preferred Stock and Stater's Consultancy Agreement of $2,350,000,
$2,191,000 and $2,308,000, respectively. First quarter revenues include
$260,000 received from a third party as reimbursement of certain acquisition
related expenditures which were expensed by the Company in prior periods. Third
Quarter income includes $615,000 received from Stater in return for REI's
agreement not to provide consulting services for, nor own a controlling interest
in, a business which competes with Stater for a period of one year. During the
fourth quarter, the Company concluded all obligations related to a previously
owned subsidiary. The Company had been guarantor on various performance bonds
issued by this subsidiary. As a result of the conclusion of activities,
$490,000 was recorded as income to reverse the provision for this matter
recorded in prior years. Also, during the fourth quarter, Reading Australia
wrote off $554,000 of previously capitalized project costs.
NOTE 22-- 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.
F-35
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
December 31,
----------------------------
Condensed Balance Sheet: 1999 1998
---- ----
<S> <C> <C>
Assets:
- ------
Cash $ 1,801 $ 4,721
Other current assets 743 18
-------- --------
Total current assets 2,544 4,739
Investment in Citadel 6,288 4,804
Investment in Common Stock of Reading 49,040 63,761
Investment in Preferred Stock of Reading 55,000 55,000
Property and equipment, net 689 694
Other assets 117 157
Excess of cost over net assets acquired 1,065 1,109
-------- --------
Total assets $114,743 $130,264
======== ========
Liabilities and stockholders equity:
- -----------------------------------
Accounts payable and accrued expenses $ 493 $ 674
Note payable to Citadel, current 1,998 1,998
Deferred tax liabilities 30,410 30,410
Stockholders' equity 81,842 97,182
-------- --------
Total liabilities and stockholders' equity $114,743 $130,264
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
Condensed Statement of Operations: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
- --------
Equity earnings (losses) of Reading $(16,070) $(3,175) $ 543
Equity in earnings of Citadel 1,484 843 94
Equity losses of Big 4 -- (174) --
Dividend income from Reading 13 3,575 3,575
Service income from Stater -- -- 972
Interest income 113 235 196
-------- ------- ------
(14,460) 1,304 5,380
-------- ------- ------
Expenses:
- --------
General and administrative 987 1,640 1,712
Depreciation and amortization 169 185 240
Interest expense 154 169 125
Loss from Australian theatre developments -- -- --
Loss from joint venture -- 164 207
-------- ------- ------
1,310 2,158 2,284
-------- ------- ------
(Loss) earnings before other income and taxes (15,770) (854) 3,096
Gain from sale of property 185 -- --
-------- ------- ------
(Loss) earnings before income taxes (15,585) (854) 3,096
Income taxes 224 -- 245
-------- ------- ------
Net (loss) earnings $(15,809) $ (854) $2,851
======== ======= ======
</TABLE>
F-36
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------------------------
Condensed Statement of Cash Flows: 1999 1998 1997
---- ---- ----
Operating Activities:
- --------------------
<S> <C> <C> <C>
Net earnings $(15,809) $ (853) $2,808
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Gain on sale of G&L property (185) -- --
Depreciation and amortization 169 -- --
Equity earnings (losses) of equity affiliates 14,584 2,506 (594)
Increase in deferred taxes -- -- 160
Other (907) 150 287
-------- ------ ------
Net cash provided by operating activities (2,148) 1,803 2,661
Investing Activities:
- --------------------
Acquisition of G&L common stock (361) -- (819)
Acquisition of G&L property (1,600) -- --
Sale of G&L common stock 387 -- --
Sale of G&L property 1,760 -- --
Purchase of Citadel common stock -- (1,425) (1,998)
Purchase of equipment (79) (5) (2)
------ ------ ------
Net cash provided by (used in) investing 107 (1,430) (2,819)
activities
Financing Activities:
- -----------------------------------------------
Purchase of Citadel stock for a note -- -- 1,998
Treasury Stock Repurchases (879) (984) --
------- ------ ------
Net cash (used in) financing activities (879) (984) 1,998
------- ------ ------
Decrease in cash and cash equivalents (2,920) (611) 1,840
Cash and cash equivalents at January 1, 4,721 5,332 3,492
------- ------ ------
Cash and cash equivalents at December 31, $ 1,801 $4,721 $5,332
======= ====== ======
</TABLE>
NOTE 23- COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Consolidated Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes rules for the reporting and presentation of comprehensive
income and its components. SFAS 130 requires the Company to classify foreign
currency translation adjustments which, prior to adoption, were reported
separately in shareholders; equity to be included in comprehensive income. The
following sets forth the Consolidated Company's comprehensive (loss) income for
the three years ended:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net (loss) income $(15,353) $ (399) $ 3,306
Other comprehensive income (loss),
net of tax 1,948 (1,677) (4,437)
-------- ------- -------
Comprehensive (loss) $(13,405) $(2,076) $(1,131)
======== ======= =======
</TABLE>
NOTE 24 -SUBSEQUENT EVENTS
On April 5, 2000, Reading sold a 50% interest in the AFC to National Auto
Credit, Inc. AFC is the owner of the NY Angelika. The 50% membership interest
(the "Angelika Interest") was conveyed in exchange for 8,999,900 shares of the
common stock of NAC, representing approximately 26% of the outstanding common
stock of that company (calculated after the issuance of such shares), and 100
shares of the Series A Preferred Stock of NAC, representing 100% of such class.
The Series A Preferred Stock has a liquidation preference of $1.50 per share, is
convertible into the common stock of NAC on a share for shares basis, is
entitled to a dividend preference equal to any dividends declared on the NAC
common stock (determined on a per share basis), and enjoys certain special
voting rights. As a consequence of that transfer, (a) AFC is now owned 50% by
NAC, 33.3% by Reading, and 16.7% by Sutton Hill and (b) the Company and its
affiliates own approximately 29% of the outstanding common stock of NAC. NAC
Common Stock closed on April 10, 200O at $1.08.
NAC is a publicly traded company whose shares are traded in the over-the-
counter market. Historically, NAC has been in the business of originating,
purchasing and servicing sub-prime loans secured by second hand automobiles.
However, in recent periods, NAC has sold substantially all of its inventory of
loans, substantially reduced its work force and, in essence, reduced its assets
to cash and real estate. The Company is advised by NAC that it is considering
investments in several industries, one of them being domestic cinema exhibition,
and that the acquisition of the AFC Interest constituted a possible first step
in what may be a substantially larger commitment to that industry. Accordingly,
Reading has also granted to NAC two separate and independent options to acquire
additional US cinema assets of the Company.
Under the first option (the "AFC Option"), NAC has the right to acquire the
remaining 33.3% membership interest in AFC owned by Reading in exchange for an
additional 6 million shares of NAC common stock, to the extent that authorized
but unissued shares of NAC common stock are available for such purpose. To the
extent that NAC has less than 6 million shares available for such purpose, NAC
has the right to substitute cash for such shares (at the rate of $1.50 per
share) to the extent necessary to make up for any such shortfall. The AFC Option
can be exercised through May 20, 2000. Following the exercise of the AFC Option,
the remaining 16.7% membership interest in AFC would continue to be owned by
Sutton Hill, and the cinema would continue to be managed as a part of the City
Cinemas Chain.
Under the second option (the "City Cinemas Option"), NAC has the right to
acquire the remainder of Reading's domestic assets for cash (including the
Company's rights to the City Cinemas Transaction, and, if NAC has not previously
exercised the AFC Option, the Company's remaining interest in AFC). The City
Cinemas Option can be exercised through June 5, 2000. The Company has received
$500,000 in consideration of the grant of the City Cinemas Option. NAC has the
right to extend the option for two 30-day periods, by payment of an additional
$100,000 for each such 30-day extension period.
If NAC exercises the City Cinemas Option, it is required to give to Citadel
a right to participate in the transaction on a 50/50 basis. The decision whether
or not to proceed with either of the options described above rests with NAC and
not with the Consolidated Company or Citadel. Such transactions are also subject
to Hart Scott Rodino review and clearance. Accordingly, no assurances can be
given that any further transactions will be effected between the companies.
F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Craig Corporation
We have audited the accompanying consolidated balance sheets of Craig
Corporation and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 1999. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Craig Corporation and
subsidiaries at December 31, 1999, and the results of their operations and their
cash flows for the year ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE
Los Angeles, California
April 11, 2000
F-38
<PAGE>
Report of Independent Auditors
The Board of Directors
Craig Corporation
We have audited the accompanying consolidated balance sheet of Craig Corporation
and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1998, and the consolidated results
of their operations and their cash flow for each of the two years in the period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Los Angeles, California
March 31, 1999
F-39
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
CRAIG HOLDING CORPORATION
A Nevada Corporation
This Certificate of Amendment and Restatement (this "Certificate") is filed
on behalf of Craig Holding Corporation, a Nevada corporation (the
"Corporation"), pursuant to Sections 78.380 and 78.403 of the Nevada Revised
Statutes ("NRS"), and its sole incorporator does hereby certify as follows:
1. That the signor of this Certificate is the original sole
incorporator of the Corporation.
2. That the original Articles of Incorporation of the Corporation
were filed in the Office of the Nevada Secretary of State on November 19, 1999.
3. That as of the date of this Certificate, no stock of the
Corporation has been issued.
4. That the Articles of Incorporation of the Corporation are
hereby amended as follows:
ARTICLE I
The name of the corporation is Craig Corporation (the "Corporation").
5. That the text of the Amended and Restated Articles of
Incorporation of the Corporation is hereby amended and restated by this
Certificate to read in full as follows:
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CRAIG HOLDING CORPORATION
A NEVADA CORPORATION
I, the Undersigned, being the original incorporator herein named, for the
purpose of forming a corporation under Chapter 78 of the Nevada Revised Statutes
(the "NRS"), to do business both within and without the State of Nevada, do make
and file these Articles of Incorporation hereby declaring and certifying that
the facts herein stated are true:
ARTICLE I
NAME
The name of the corporation is Craig Corporation (the "Corporation").
ARTICLE II
RESIDENT AGENT AND REGISTERED OFFICE
The name and address of the Corporation's resident agent for service of
process is Kummer Kaempfer Bonner & Renshaw, 3800 Howard Hughes Parkway, Seventh
Floor, Las Vegas, Nevada 89109.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the NRS.
ARTICLE IV
CAPITAL STOCK
4.1. Number of Shares Authorized; Par Value. The Corporation shall
--------------------------------------
be authorized to issue four classes of stock to be designated, respectively,
"Common Stock," "Class A Common Preference Stock," "Class B Common Stock" and
"Preferred Stock;" the total number of shares which the Corporation shall have
authority to issue is seventy-eight million five hundred thousand (78,500,000),
divided as follows:
2
<PAGE>
(a) Common Stock. The total number of authorized shares of
------------
Common Stock shall be seven million five hundred thousand (7,500,000); each
share of Common Stock shall have a par value of Twenty-Five Cents ($0.25).
(b) Class A Common Preference Stock. The total number of
-------------------------------
authorized shares of Class A Common Preference Stock shall be fifty million
(50,000,000); each share of Class A Common Preference Stock shall have a par
value of One Cent ($0.01).
(c) Class B Common Stock. The total number of authorized
--------------------
shares of Class B Common Stock shall be twenty million (20,000,000); each share
of Class B Common Stock shall have a par value of One Cent ($0.01).
(d) Preferred Stock. The total number of authorized shares
---------------
of Preferred Stock shall be one million (1,000,000); each share of Preferred
Stock shall have a par value of One Cent ($0.01).
(e) Increase or Decrease in Authorized Shares. The total
-----------------------------------------
number of authorized shares of Common Stock, Class A Common Preference Stock,
Class B Common Stock or Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the Corporation entitled to vote.
4.2. Common Stock and Class A Common Preference Stock Voting Rights.
--------------------------------------------------------------
(a) Common Stock. Each share of Common Stock shall be entitled
------------
to thirty (30) votes upon any matter presented to the stockholders for their
vote or approval, including the election of directors. Except as otherwise
required by law, the Common Stock and the Class A Common Preference Stock shall
vote together as one class on all matters presented to the stockholders for
their vote or approval, including the election of directors.
(b) Class A Common Preference Stock. Each share of Class A Common
-------------------------------
Preference Stock shall be entitled to one (1) vote upon any matter presented to
the stockholders for their vote or approval, including the election of
directors. Except as otherwise required by law, the Class A Common Preference
Stock shall vote together with the Common Stock as one class on all matters
presented to the stockholders for their vote or approval, including the election
of directors.
4.3. Rights of Common Stock and Class A Common Preference Stock Upon
---------------------------------------------------------------
Liquidation. In the event of any liquidation, dissolution or winding up of the
- -----------
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation shall be made to or set apart for
the holders of the Common Stock or other class or classes or series of stock or
other securities of the Corporation ranking junior to the Class A Common
Preference Stock upon liquidation, dissolution or winding up, and after the
payment or distribution to the holders of any class or classes or series of
stock or other securities of the Corporation ranking prior, upon liquidation,
dissolution or winding up, to the Class A Common Preference Stock, the holders
of the Class A Common Preference Stock shall be entitled to
3
<PAGE>
receive $5.00 per share (the "Liquidation Preference Amount") for each share of
Class A Common Preference Stock. The holders of the Class A Common Preference
Stock shall not be entitled to receive or participate in any payment or
distribution of the assets of the Corporation upon such liquidation, dissolution
or winding up of the Corporation in excess of an amount per share equal to the
Liquidation Preference Amount until the holders of the Common Stock shall have
received $5.00 per share for each share of Common Stock upon such liquidation,
dissolution or winding up of the Corporation, and thereafter the holders of the
Common Stock and the Class A Common Preference Stock (together with the holders
of any series of Preferred Stock and/or Class B Common Stock which, pursuant to
the resolution or resolutions of the board of directors providing for the issue
of such series, shall be entitled to participate therein with the holders of the
Common Stock and the Class A Common Preference Stock) shall be entitled to
participate equally, share-for-share as if a single class, in any further
payment or distribution of the assets of the Corporation upon such liquidation,
dissolution or winding up of the Corporation.
4.4. Rights of Common Stock and Class A Common Preference Stock With
---------------------------------------------------------------
Respect to Dividends. Whenever the full dividends upon any outstanding series of
- --------------------
Preferred Stock and/or Class B Common Stock ranking prior, as to dividends, to
the Common Stock and the Class A Common Preference Stock shall have been paid
for all past dividend periods and the full dividends thereon for the then
current respective dividend periods shall have been paid or declared and a sum
sufficient for respective payments thereof set apart, the holders of the Common
Stock and the Class A Common Preference Stock (together with the holders of any
series of Preferred Stock and/or Class B Common Stock which, pursuant to the
resolution or resolutions of the board of directors providing for the issue of
such series, shall be entitled to participate therein with the holders of the
Common Stock or Class A Common Preference Stock) shall be entitled to receive
such dividends and distributions, payable in cash or otherwise, as may be
declared thereon by the board of directors from time to time out of assets or
funds of the Corporation legally available therefor, provided that all such
dividends or distributions paid or made with respect to the Common Stock shall
also be paid or made with respect to the Class A Common Preference Stock in
equal per share amounts with the Common Stock, share-for-share, as if a single
class, except that in the event any dividend shall be declared on the Common
Stock payable in shares of Common Stock, such dividend shall be declared at the
same rate per share on Class A Common Preference Stock, but the dividend payable
on shares of Common Stock shall be payable in shares of Common Stock and the
dividend payable on shares of Class A Common Preference Stock shall be payable
in shares of Class A Common Preference Stock. Subject to the provisions of
Section 4.3, the board of directors may, in its sole discretion, from time to
time out of assets or funds of the Corporation legally available therefor,
declare dividends or distributions (in addition to the dividends and
distributions payable on the Class A Common Preference Stock pursuant to the
proviso contained in the immediately preceding sentence) payable exclusively to
the holders of Class A Common Preference Stock without declaring a similar
dividend or distribution with respect to the Common Stock, without regard to the
differences between the Class A Common Preference Stock and the Common Stock in
voting and liquidation rights, prior earnings or prior dividends declared. If
the Corporation in any manner splits, subdivides or combines the outstanding
shares of Common Stock, the outstanding
4
<PAGE>
shares of Class A Common Preference Stock shall be split, subdivided or combined
in the same manner proportionately and on the same basis per share.
4.5. Other Rights and Preferences of Common Stock and Class A Common
---------------------------------------------------------------
Preference Stock. Except as otherwise specifically set forth under "Common Stock
- ----------------
and Class A Common Preference Stock Voting Rights," "Rights of Common Stock and
Class A Common Preference Stock Upon Liquidation" and " Rights of Common Stock
and Class A Common Preference Stock With Respect to Dividends," described above,
all shares of Common Stock and Class A Common Preference Stock shall have the
same rights, preferences and privileges.
4.6. Class B Common Stock. The Class B Common Stock may be issued at any
--------------------
time or from time to time, in one or more series, and any such series shall be
comprised of such number of shares and may have such voting powers, whole or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitation
or restrictions thereof, including liquidation preferences, as shall be stated
and expressed in the resolution or resolutions providing for the issue of such
stock or any such series adopted by the board of directors of the Corporation,
the board of directors being hereby expressly vested with such power and
authority to the full extent now or hereafter permitted by law.
4.7. Preferred Stock. The Preferred Stock may be issued at any time or
---------------
from time to time, in any one or more series, and any such series shall be
comprised of such number of shares and may have such voting powers, whole or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including liquidation preferences, as shall be stated
and expressed in the resolution or resolutions of the board of directors of the
Corporation, the board of directors being hereby expressly vested with such
power and authority to the full extent now or hereafter permitted by law.
ARTICLE V
DIRECTORS
The business and affairs of the Corporation shall be managed by or under
the direction of the board of directors, which initially shall consist of one
director. Provided that the Corporation has at least one director, the number
of directors may at any time or times be increased or decreased as provided in
the bylaws; provided, however that the number of directors shall not exceed ten.
The name and address of the initial member of the board of directors is as
follows:
NAME ADDRESS
---- -------
S. Craig Tompkins 550 South Hope Street, Suite 1825
Los Angeles, California 90071
5
<PAGE>
ARTICLE VI
ELECTION OF DIRECTORS
Except as may otherwise be provided in the bylaws of the Corporation, the
election of directors may be conducted at a meeting of the stockholders, whether
telephonic or not, within or without the State of Nevada or by written consent
and such election need not be by written ballot.
ARTICLE VII
SALE OF ASSETS
In furtherance of the powers conferred on the stockholders of the
Corporation by the NRS, the stockholders of the Corporation shall have the power
to vote on any proposed sale, lease or exchange of all or substantially all of
the Corporation's assets.
ARTICLE VIII
AMENDMENT OF ARTICLES OF INCORPORATION
In the event the board of directors of the Corporation determines that it
is in the Corporation's best interest to amend these Articles of Incorporation,
the board of directors shall adopt a resolution setting forth the proposed
amendment and declaring its advisability and submit the matter to the
stockholders entitled to vote thereon for the consideration thereof in
accordance with the provisions of the NRS and these Articles of Incorporation.
In the resolution setting forth the proposed amendment, the board of directors
may insert a provision allowing the board of directors to later abandon the
amendment, without concurrence by the stockholders, after the amendment has
received stockholder approval but before the amendment is filed with the Nevada
Secretary of State.
ARTICLE IX
INCORPORATOR
The name and address of the incorporator of the Corporation is Elizabeth A.
Savage, Kummer Kaempfer Bonner & Renshaw, 3800 Howard Hughes Parkway, Seventh
Floor, Las Vegas, Nevada 89109.
ARTICLE X
ACQUISITIONS OF CONTROLLING INTEREST
The Corporation elects not to be governed by the provisions of Chapters
78.378 to 78.3793, inclusive, of the NRS pertaining to the acquisitions of
controlling interest.
ARTICLE XI
COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation elects not to be governed by the provisions of Chapters
78.411 to 78.444, inclusive, of the NRS pertaining to combinations with
interested stockholders.
6
<PAGE>
ARTICLE XII
DIRECTORS' AND OFFICERS' LIABILITY
A director or officer of the Corporation shall not be personally liable to
this Corporation or its stockholders for damages for breach of fiduciary duty as
a director or officer, but this Article shall not eliminate or limit the
liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (ii) the unlawful
payment of distributions. Any repeal or modification of this Article by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the Corporation for acts or omissions prior to such repeal or
modification.
In Witness Whereof, the undersigned has executed this Certificate of
Amendment and Restatement as of the 17th day of December, 1999.
_________________________________
Elizabeth A. Savage - Incorporator
7
<PAGE>
EXHIBIT 3.2
RESTATED AND AMENDED
BYLAWS
OF
CRAIG CORPORATION
A Nevada Corporation
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
CRAIG CORPORATION
A Nevada Corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- ----
<S> <C> <C>
ARTICLE I STOCKHOLDERS............................................... 1
Section 1 Annual Meeting............................................. 1
Section 2 Special Meetings........................................... 1
Section 3 Notice of Meetings......................................... 1
Section 4 Place of Meetings.......................................... 1
Section 5 Quorum; Adjourned Meetings................................. 1
Section 6 Voting..................................................... 1
Section 7 Proxies.................................................... 1
Section 8 Action Without Meeting..................................... 1
ARTICLE II DIRECTORS.................................................. 1
Section 1 Management of Corporation.................................. 1
Section 2 Number, Tenure, and Qualifications......................... 1
Section 3 Nomination of Stockholders................................. 1
Section 4 Chairman of the Board...................................... 1
Section 5 Vacancies.................................................. 1
Section 6 Annual and Regular Meetings................................ 1
Section 7 First Meeting.............................................. 1
Section 8 Special Meetings........................................... 1
Section 9 Business of Meetings....................................... 1
Section 10 Quorum; Adjourned Meetings................................. 1
Section 11 Committees................................................. 1
Section 12 Action Without Meeting; Telephone Meetings................. 1
Section 13 Special Compensation....................................... 1
ARTICLE III NOTICES.................................................... 1
Section 1 Notice of Meetings......................................... 1
Section 2 Effect of Irregularly Called Meetings...................... 1
Section 3 Waiver of Notice........................................... 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
- ----
<S> <C> <C>
ARTICLE IV OFFICERS................................................... 1
Section 1 Election................................................... 1
Section 2 Chairman of the Board...................................... 1
Section 3 President.................................................. 1
Section 4 Vice-President............................................. 1
Section 5 Secretary.................................................. 1
Section 6 Assistant Secretaries...................................... 1
Section 7 Treasurer.................................................. 1
Section 8 Assistant Treasurers....................................... 1
Section 9 Compensation............................................... 1
Section 10 Removal; Resignation....................................... 1
Section 11 Vacancies.................................................. 1
ARTICLE V CAPITAL STOCK.............................................. 1
Section 1 Certificates............................................... 1
Section 2 Surrendered; Lost or Destroyed Certificates................ 1
Section 3 Regulations................................................ 1
Section 4 Record Date................................................ 1
Section 5 Registered Owner........................................... 1
ARTICLE VI GENERAL PROVISIONS......................................... 1
Section 1 Registered Office.......................................... 1
Section 2 Checks; Notes.............................................. 1
Section 3 Fiscal Year................................................ 1
Section 4 Stock of Other Corporations or Other Interests............. 1
Section 5 Corporate Seal............................................. 1
ARTICLE VII INDEMNIFICATION............................................ 1
Section 1 Indemnification of Officers, Directors Employees and Agents 1
Section 2 Insurance.................................................. 1
Section 3 General Provisions Regarding Indemnification............... 1
Section 4 Further Bylaws............................................. 1
ARTICLE VIII AMENDMENTS................................................. 1
Section 1 Amendments by Stockholders................................. 1
Section 2 Amendments by Board of Directors........................... 1
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
BYLAWS/1/
OF
CRAIG CORPORATION
A Nevada Corporation
ARTICLE I
STOCKHOLDERS
Section 1 Annual Meeting
Annual meetings of the stockholders, commencing with the year 2000, shall
be held at such time as may be set by the Board of Directors/2/ from time to
time, at which the stockholders shall elect by vote a Board of Directors and
transact such other business as may properly be brought before the meeting.
Section 2 Special Meetings
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Articles of Incorporation, may be
called by the Chairman of the Board, if any, the President or the Secretary at
the written request of a majority of the Board of Directors or at the written
request of stockholders owning outstanding shares representing a majority of the
voting power of the Corporation.
Section 3 Notice of Meetings
Written notice of stockholders meetings, stating the place, date and hour
thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, if
any, the President, any Vice President, the Secretary or an Assistant Secretary,
to each stockholder entitled to vote thereat at least ten days but not more than
sixty days before the date of the meeting, unless a different period is
prescribed by statute.
- -------------------
/1/ These Amended and Restated Bylaws are hereinafter referred to as the Bylaws.
/2/ The "Board" and "Board of Directors" are hereinafter used in reference to
the Board of Directors of Craig Corporation.
<PAGE>
Section 4 Place of Meetings
All annual meetings of the stockholders shall be held at the registered
office of the Corporation or at such other place within or without the State of
Nevada as the directors shall determine. Special meetings of the stockholders
may be held at such time and place within or without the State of Nevada as
shall be stated in the notice of the meeting, or in a duly executed waiver of
notice thereof. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 5 Quorum; Adjourned Meetings
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the Articles of Incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have the power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed.
Section 6 Voting
Except as otherwise provided by statute or the Articles of Incorporation or
these Bylaws, and except for the election of directors, at any meeting duly
called and held at which a quorum is present, a majority of the votes cast at
such meeting upon a given matter by the holders of outstanding shares of stock
of all classes of stock of the Corporation entitled to vote thereon who are
present in person or by proxy shall decide such matter. At any meeting duly
called and held for the election of directors at which a quorum is present,
directors shall be elected by a plurality of the votes cast by the holders
(acting as such) of shares of stock of the Corporation entitled to elect such
directors.
Section 7 Proxies
At any meeting of the stockholders any stockholder may be represented and
vote by a proxy or proxies appointed by an instrument in writing. In the event
that any such instrument in writing shall designate two or more persons to act
as proxies, a majority of such persons present at the meeting, or, if only one
shall be present, then that one shall have and may exercise all of the powers
conferred by such written instrument upon all of the persons so designated
unless the instrument shall otherwise provide. No proxy or power of attorney to
vote shall be used to vote at a meeting of the stockholders unless it shall have
been filed with the secretary of the meeting. All questions regarding the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided by the inspectors of election who shall be appointed
by the Board of Directors, or if not so appointed, then by the presiding officer
of the meeting.
2
<PAGE>
Section 8 Action Without Meeting
Any action which may be taken by the vote of the stockholders at a meeting
may be taken without a meeting if authorized by the written consent of
stockholders holding at least a majority of the voting power, unless the
provisions of the statutes governing the Corporation or of the Articles of
Incorporation require a greater proportion of voting power to authorize such
action in which case such greater proportion of written consents shall be
required. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
DIRECTORS
Section 1 Management of Corporation
The business of the Corporation shall be managed by its Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Articles of Incorporation or by
these Bylaws directed or required to be exercised or done by the stockholders.
Section 2 Number, Tenure, and Qualifications
The number of directors, which shall constitute the whole board, shall be
five. The number of directors may from time to time be increased or decreased
to not less than one nor more than ten by action of the Board of Directors. The
directors shall be elected by the holders of shares entitled to vote thereon at
the annual meeting of the stockholders and, except as provided in Section 5 of
this Article, each director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
Section 3 Nomination of Stockholders
No stockholder shall be permitted to nominate a candidate for election as a
director at any annual meeting unless such stockholder shall provide in writing,
not later than one hundred twenty days before the first anniversary of the
preceding annual meeting of the stockholders, to the Nominating Committee of the
Board of Directors or, in the absence of such committee, to the Secretary of the
Corporation, information about such candidate which, were such candidate a
nominee of the Board of Directors for whom the Corporation solicited proxies,
would be required to be disclosed in the proxy materials pursuant to which such
proxies would be solicited as set forth in Items 7-8 of Schedule 14A promulgated
by the Securities and Exchange Commission, or any successor provisions.
Section 4 Chairman of the Board
The directors may elect one of their members to be Chairman of the Board of
Directors. The Chairman shall be subject to the control of and may be removed by
the Board of Directors. The Chairman shall perform such duties as may from time
to time be assigned to him by the Board of Directors.
3
<PAGE>
Section 5 Vacancies
Vacancies in the Board of Directors, including those caused by an increase
in the number of directors, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual or a special meeting of the stockholders. The holders of no less than
two-thirds of the outstanding shares of stock entitled to vote may at any time
peremptorily terminate the term of office of all or any of the directors by vote
at a meeting called for such purpose or by written consent filed with the
Secretary or, in his absence, with any other officer. Such removal shall be
effective immediately, even if successors are not elected simultaneously.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
in case of the death, resignation or removal of any directors, or if the
authorized number of directors be increased, or if the stockholders fail at any
annual or special meeting of stockholders at which any director or directors are
elected to elect the full authorized number of directors to be voted for at that
meeting.
If the Board of Directors accepts the resignation of a director tendered to
take effect at a future time, the Board or the stockholders shall have power to
elect a successor to take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
Section 6 Annual and Regular Meetings
Annual and regular meetings of the Board of Directors shall be held at any
place within or without the State of Nevada, which has been designated from time
to time by resolution of the Board of Directors or by written consent of all
members of the Board of Directors. In the absence of such designation, annual
and regular meetings shall be held at the registered office of the Corporation.
Regular meetings of the Board of Directors may be held without call or notice at
such time and at such place as shall from time to time be fixed and determined
by the Board of Directors.
Section 7 First Meeting
The first meeting of each newly elected Board of Directors shall be held
immediately following the adjournment of the meeting of stockholders and at the
place thereof. No notice of such meeting shall be necessary to the directors in
order legally to constitute the meeting, provided a quorum is present. In the
event such meeting is not so held, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors.
4
<PAGE>
Section 8 Special Meetings
Special meetings of the Board of Directors may be called by the Board of
Directors or the President, the Secretary or any two of the directors then in
office.
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of the special meetings of
the Board of Directors by telecopy or electronic mail at least forty-eight hours
before the meeting, or by mail at least two days before the meeting, or by
telegram, cable, radiogram or personal service at least two days before the
meeting. Unless otherwise stated in the notice thereof, any and all business
may be transacted at any meeting without specification of such business in the
notice.
Section 9 Business of Meetings
The transactions of any meeting of the Board of Directors, however called
and noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present, and if, either
before or after the meeting, each of the directors not present signs a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 10 Quorum; Adjourned Meetings
A majority of the authorized number of directors shall be necessary to
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors, unless a greater number be
required by law or by the Articles of Incorporation. Any action of a majority,
although not at a regularly called meeting, and the record thereof, if assented
to in writing by all of the other members of the Board shall be as valid and
effective in all respects as if passed by the Board of Directors in regular
meeting.
A quorum of the directors may adjourn any directors meeting to meet again
at a stated day and hour; provided, however, that in the absence of a quorum, a
majority of the directors present at any directors meeting, either regular or
special, may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors.
Meetings shall be presided over by the Chairman of the Board, if any, or in
his absence by the President, or in the absence of the foregoing by such other
person as the directors may select. The Secretary of the Corporation shall act
as secretary of the meeting, but in his absence the Chairman of the meeting may
appoint any person to act as secretary of the meeting.
Notice of the time and place of holding an adjourned meeting need not be
given to the absent directors if the time and place are fixed at the meeting
adjourned.
5
<PAGE>
Section 11 Committees
The Board of Directors may, by resolution adopted by a majority of the
whole Board, designate one or more committees of the Board of Directors, each
committee to consist of at least two or more directors of the Corporation which,
to the extent provided in the resolution, shall have and may exercise the power
of the Board of Directors in the management of the business and affairs of the
Corporation and may have power to authorize the seal of the Corporation to be
affixed to all papers which may require it. Such committee or committees shall
have such name or names as may be determined from time to time by the Board of
Directors. The members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. At meetings of such
committees, a majority of the members or alternate members shall constitute a
quorum for the transaction of business, and the act of a majority of the members
or alternate members at any meeting at which there is a quorum shall be the act
of the committee.
The committees shall keep regular minutes of their proceedings and report
the same to the Board of Directors.
Section 12 Action Without Meeting; Telephone Meetings
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
Nothing contained in these Bylaws shall be deemed to restrict the powers of
members of the Board of Directors, or any committee thereof, to participate in a
meeting of the Board or committee by means of telephone conference or similar
communications equipment whereby all persons participating in the meeting can
hear each other.
Section 13 Special Compensation
The directors may be paid their expenses of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of committees may be
allowed like reimbursement and compensation for attending committee meetings.
ARTICLE III
NOTICES
Section 1 Notice of Meetings
Notices of meetings shall be in writing and signed by the President or a
Vice-President or the Secretary or an Assistant Secretary or by such other
person or persons as the directors shall designate. Such notice shall state the
purpose or purposes for which the meeting is called and the
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time and the place, which may be within or without this State, where it is to be
held. A copy of such notice shall be either delivered personally to or shall be
mailed, postage prepaid, to each stockholder of record entitled to vote at such
meeting not less than ten nor more than sixty days before such meeting. If
mailed, it shall be directed to a stockholder at his address as it appears upon
the records of the Corporation and upon such mailing of any such notice, the
service thereof shall be complete and the time of the notice shall begin to run
from the date upon which such notice is deposited in the mail for transmission
to such stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association or partnership. In the
event of the transfer of stock after delivery of such notice of and prior to the
holding of the meeting it shall not be necessary to deliver or mail notice of
the meeting to the transferee. Notice to directors may also be given by
telegram.
Section 2 Effect of Irregularly Called Meetings
Whenever all parties entitled to vote at any meeting, whether of directors
or stockholders, consent, either by a writing on the records of the meeting or
filed with the secretary, or by presence at such meeting and oral consent
entered on the minutes, or by taking part in the deliberations at such meeting
without objection, the doings of such meeting shall be as valid as if had at a
meeting regularly called and noticed, and at such meeting any business may be
transacted which is not excepted from the written consent or to the
consideration of which no objection for want of notice is made at the time, and
if any meeting be irregular for want of notice or of such consent, provided a
quorum was present at such meeting, the proceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties having the right to vote at
such meeting; and such consent or approval of stockholders may be by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
Section 3 Waiver of Notice
Whenever any notice whatever is required to be given under the provisions
of the statutes, of the Articles of Incorporation or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE IV
OFFICERS
Section 1 Election
The officers of the Corporation shall be chosen by the Board of Directors
and shall be a President, one or more Vice Presidents, a Treasurer and a
Secretary, and such other officers with such titles and duties as the Board of
Directors may determine, none of whom need be directors. Any person may hold
one or more offices and each officer shall hold office for such term as may be
prescribed by the Board of Directors from time to time.
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Section 2 Chairman of the Board
The Board of Directors at its first annual meeting after each annual
meeting of the stockholders may choose a Chairman of the Board from among the
directors of the Corporation. The Chairman of the Board shall preside at
meetings of the stockholders and the Board of Directors and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
Section 3 President
The President shall be the chief operating officer of the Corporation and
shall have active management of the business of the Corporation. The President
shall execute on behalf of the Corporation all instruments requiring such
execution except to the extent the signing and execution thereof shall be
expressly designated by the Board of Directors to some other officer or agent of
the Corporation.
Section 4 Vice-President
The Vice-President shall act under the direction of the President and in
the absence or disability of the President shall perform the duties and exercise
the powers of the President. The Vice-President shall perform such other duties
and have such other powers as the President or the Board of Directors may from
time to time prescribe. The Board of Directors may designate one or more
Executive Vice-Presidents or may otherwise specify the order of seniority of the
Vice-Presidents. The duties and powers of the President shall descend to the
Vice-Presidents in such specified order of seniority.
Section 5 Secretary
The Secretary shall act under the direction of the President. Subject to
the direction of the President, the Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record the
proceedings. The Secretary shall perform like duties for the standing
committees when required. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
President or the Board of Directors.
Section 6 Assistant Secretaries
The Assistant Secretaries shall act under the direction of the President.
In order of their seniority, unless otherwise determined by the President or the
Board of Directors, they shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary. They shall perform
such other duties and have such other powers as the President or the Board of
Directors may from time to time prescribe.
Section 7 Treasurer
The Treasurer shall act under the direction of the President. Subject to
the direction of the President, the Treasurer shall have custody of the
corporate funds and securities and shall
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keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all monies and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer shall disburse the funds of
the Corporation as may be ordered by the President or the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the President
and the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all transactions as Treasurer and of the
financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of such person's office and for the restoration to the Corporation, in
case of such person's death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in such
person's possession or under such person's control belonging to the Corporation.
Section 8 Assistant Treasurers
The Assistant Treasurers in the order of their seniority, unless otherwise
determined by the President or the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer. They shall perform such other duties and have such other powers as
the President or the Board of Directors may from time to time prescribe.
Section 9 Compensation
The salaries and compensation of all officers of the Corporation shall be
fixed by the Board of Directors.
Section 10 Removal; Resignation
The officers of the Corporation shall hold office at the pleasure of the
Board of Directors. Any officer elected or appointed by the Board of Directors,
or any member of a committee, may be removed at any time, with or without cause,
by the Board of Directors by a vote of not less than a majority of the entire
Board at any meeting thereof or by written consent. Any vacancy occurring in
any office of the Corporation by death, resignation, removal or otherwise shall
be filled by the Board of Directors.
Any director or officer of the Corporation, or any member of any committee,
may resign at any time by giving written notice to the Board of Directors, the
Chairman of the Board, the President, or the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
is not specified, then upon receipt thereof. The acceptance of such resignation
shall not be necessary to make it effective.
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Section 11 Vacancies
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification or other cause and any additional
directorship resulting from an increase in the number of directors, may be
filled at any time by a majority of the directors then in office (even though
less than a quorum) or, in the case of any vacancy in the office of any
director, by the stockholders and subject to the provisions of this Article IV,
the person so chosen shall hold office until his successor shall have been
elected and qualified; or, if the person so chosen is a director elected to fill
a vacancy, he shall (subject to the provisions of this Article IV) hold office
for the unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
Section 1 Certificates
Every stockholder shall be entitled to have a certificate signed by the
President or a Vice-President and the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such person in the Corporation. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of the various classes of stock or series
thereof and the qualifications, limitations or restrictions of such rights,
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such stock; provided, however,
that except as otherwise provided in NRS 78.242, in lieu of the forgoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests, the designations, preferences and relative, participating,
optional or other special rights of the various classes or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
If a certificate is signed (1) by a transfer agent other than the
Corporation or its employees or (2) by a registrar other than the Corporation or
its employees, the signatures of the officers of the Corporation may be
facsimiles. In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall cease to be such officer before such
certificate is issued, such certificate may be issued with the same effect as
though the person had not ceased to be such officer. The seal of the
Corporation, or a facsimile thereof, may, but need not be, affixed to
certificates of stock.
Section 2 Surrendered; Lost or Destroyed Certificates
The Board of Directors or any transfer agent of the Corporation may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors (or any transfer
agent of the Corporation authorized to do so by a resolution of the Board of
Directors) may, in its discretion
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and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or the owner's legal
representative, to advertise the same in such manner as it shall require and/or
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
Section 3 Regulations
The Board of Directors shall have the power and authority to make all such
rules and regulations and procedures as it may deem expedient concerning the
issue, transfer, registration, cancellation and replacement of certificates
representing stock of the Corporation.
Section 4 Record Date
The Board of Directors may fix in advance a date not exceeding sixty days
nor less than ten days preceding the date of any meeting of stockholders, or the
date for the payment of any distribution, or the date for the allotment of
rights, or the date when any change or conversion or exchange of capital stock
shall go into effect, or a date in connection with obtaining the consent of
stockholders for any purpose, as a record date for the determination of the
stockholders entitled to notice of and to vote at any such meeting, and any
adjournment thereof, or entitled to receive payment of any such distribution, or
to give such consent, and in such case, such stockholders, and only such
stockholders as shall be stockholders of record on the date so fixed, shall be
entitled to notice of and to vote at such meeting, or any adjournment thereof,
or to receive payment of such dividend, or to receive such allotment of rights,
or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
Section 5 Registered Owner
The Corporation shall be entitled to recognize the person registered on its
books as the owner of shares to be the exclusive owner for all purposes
including voting and distribution, and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE VI
GENERAL PROVISIONS
Section 1 Registered Office
The registered office of the Corporation shall be in the County of Clark,
State of Nevada. The principal office of the Corporation shall be located in
the County of Los Angeles, State of California.
The Corporation may also have offices at such other places both within and
without the State of Nevada as the Board of Directors may from time to time
determine or the business of the Corporation may require.
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Section 2 Checks; Notes
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
Section 3 Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
Section 4 Stock of Other Corporations or Other Interests
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such other attorneys or agents of the Corporation as may be from
time to time authorized by the Board of Directors or the President, shall have
full power and authority on behalf of the Corporation to attend and to act an
vote in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which the Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which the Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The President, the Secretary or other such attorneys or
agents may also execute and deliver on behalf of the Corporation, powers of
attorney, proxies, consents, waivers and other instruments relating to the
shares or securities owned or held by the Corporation.
Section 5 Corporate Seal
The corporation will have a corporate seal, as may from time to time be
determined by resolution of the Board of Directors. If a corporate seal is
adopted, it shall have inscribed thereon the name of the corporation and the
words "Corporate Seal" and "Nevada." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE VII
INDEMNIFICATION
Section 1 Indemnification of Officers, Directors Employees and Agents
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, proceeding, whether civil criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason of the fact that
he is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or
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upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made with respect to any
claim issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that a court of competent jurisdiction
or the court in which such action or suit was brought shall determine that,
despite the adjudication of liability but in view of all of the circumstances of
the case, such person is fairly and reasonably entitled to indemnification for
such expenses which the court shall deem proper.
To the extent that a person who is a director or officer of the
Corporation, or is a director or officer of another corporation, partnership,
joint venture, trust or other enterprise in which he is serving at the request
of the Corporation, has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in this Article VII, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Any indemnification under this Article VII (unless ordered by a court)
shall be made by the Corporation only upon a determination that indemnification
of the director or officer is proper under the circumstances because he met the
applicable standard of conduct set forth in this Article VII. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such quorum is not attainable, or, even if attainable and
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (c) by the stockholders of the Corporation.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors upon a
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VII.
Persons who are not directors or officers of the Corporation but who are
employees or agents of the Corporation or who are serving at the request of the
Corporation as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise may be
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indemnified to the extent authorized at any time, or from time, to time by the
Board of Directors of the Corporation, upon a determination that indemnification
of the employee or agent is proper under the circumstances because he has met
the applicable standard of conduct set forth in this Article VII. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such quorum is not attainable, or, even if attainable and
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (c) by the stockholders of the Corporation.
The indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which any person so indemnified may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in his official capacity and as to actions in some
other capacity while holding such office, and shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 2 Insurance
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability pursuant to the provisions of this Article VII or Section 78.752
of the NRS.
Section 3 General Provisions Regarding Indemnification
For purposes of this Article VII, references to the "Corporation" include,
in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had the power and authority
to indemnify its directors, officers, employees and agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation partnership
joint venture trust or other enterprise, shall stand in the same position under
the provisions of this Article VII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
The invalidity or enforceability of any provision of this Article VII shall
not affect the validity or enforceability of any other provision hereof.
Section 4 Further Bylaws
The Board of Directors may from time to time adopt further Bylaws with
respect to indemnification and may amend these and such Bylaws to provide at all
times the fullest indemnification permitted by the laws of the State of Nevada.
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ARTICLE VIII
AMENDMENTS
Section 1 Amendments by Stockholders
The Bylaws may be amended by the stockholders at any annual or special
meeting of the stockholders by a majority vote, provided notice of intention to
amend or repeal shall have been contained in the notice of such meeting.
Section 2 Amendments by Board of Directors
The Board of Directors at any regular or special meeting by a majority vote
may amend these Bylaws, including Bylaws adopted by the stockholders, but the
stockholders may from time to time specify particular provisions of the Bylaws,
which shall not be amended by the Board of Directors.
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CERTIFICATE OF SECRETARY
I, the Undersigned, hereby certify that I am the duly elected and qualified
Secretary of Craig Corporation, a Nevada corporation (the "Company"), and that
the foregoing Amended and Restated Bylaws, consisting of 16 pages (including
cover page and table of contents), constitute the code of Bylaws of the Company
as duly adopted by the unanimous written consent of the Board of Directors as of
_____________ ___, 1999.
In Witness Whereof, I have hereunto subscribed my name this ________ day of
_______ 1999.
--------------------------------------
, Secretary
<PAGE>
EXHIBIT 10.26
PERSONAL AND CONFIDENTIAL
October 28, 1999
Mr. James J. Cotter
Chairman & CEO
Craig Corporation
This memo will set out the details of the job offer discussed between us in our
meetings of October 21 and October 27, 1999.
Position Description: CFO Craig Corporation
CFO Citadel Holding Corporation
CAO Reading Entertainment, Inc.
Reporting To: James J. Cotter, Chairman & CEO
Main Responsibilities: All financial and administrative functions for the
above mentioned three (3) Companies with reporting
lines from all finance/accounting Managers in the
various subsidiaries.
Salary: Base salary $180,000/annum
Bonus: Unconditional - 12,0000/annum
Conditional - 25% of base salary.
In the first year, conditional bonus will be
conditioned on the successful transfer of the
finance group from Philadelphia to California.
Signing Bonus - $40,0000 payable on starting date.
Interest Free Loan: $33,000 payable on starting date. This amount will
be repaid on the date of my leaving Craig
Corporation employment, at which time a $50,000
leaving bonus will be paid to offset the loan.
<PAGE>
James J. Cotter
Craig Corporation
October 28, 1999
Page 2
Leaving Bonus: In the event of termination of employment for other
than unlawful causes, a 6-month base salary will be
paid.
Stock Options: 30,000 stock options from Craig Corporation.
30,000 stock options from Citadel Holding
Corporation.
The above stock options will be deeded to me on the
starting date. These 60,000 stock options will vest
in the following manner:
- 30,000 shares at the end of 12 months from start
of employment.
- 10,000 shares at the end of 24 months from start
of employment.
- 10,000 shares at the end of 36 months from start
of employment.
- 10,000 shares at the end of 48 months from start
of employment.
Company Car: A company car will be available for this position
valued at $1000/month for the total package.
401K Contribution: The Company will contribute a matching amount of 3%
of total pay (salary & unconditional and
conditional bonus) into the 401K Plan.
Vacation: Official vacation of 2 weeks/annum.
3 weeks after 5 years, however, flexibility will be
available at the discretion of the Chairman/CEO.
Medical: Benefits to be the same as currently being enjoyed
under the Beckman Coulter, Inc. Plan for medical,
dental and vision and will be reimbursed by the
Company.
Incidentals: Parking fees will be paid by the Company.
Cellular phone and internet connection at home will
be paid by the Company.
Normal business expenses will be reimbursed.
Starting date: ASAP
James J. Cotter
<PAGE>
Craig Corporation
October 28, 1999
Page 3
Based on the above, if this is acceptable to you, can you please sign and refax
back to me at (714) 508-5726.
ACCEPTED: ________________________________
James J. Cotter
Chairman and CEO
Best regards,
Andrzej Matyczynski
<PAGE>
EXHIBIT 10.27
1999 STOCK OPTION PLAN
OF
CRAIG CORPORATION
1. PURPOSES OF THE PLAN
--------------------
The purposes of the 1999 Stock Option Plan ("Plan") of Craig Corporation, a
Delaware corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to improve
operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to accept or
continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the Company Stock and Class A Common Preference Stock of the Company
(collectively, the "Company Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code"), or "nonqualified options" ("NQOs").
2. ELIGIBLE PERSONS
----------------
Every person who at the date of grant of an Option is an employee of the
Company or of any Affiliate (as defined below) of the Company is eligible to
receive NQOs or ISOs under this Plan. Every person who at the date of grant is
a consultant to, or non-employee director of, the Company or of any Affiliate
(as defined below) of the Company is eligible to receive NQOs under this Plan.
The term "Affiliate" as used in this Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
Page 1 of 10
<PAGE>
3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
----------------------------------------------------
Subject to the provisions of Section 6.1.1 of this Plan, the total number
of shares of stock which may be issued under Options granted pursuant to this
Plan shall not exceed 350,000 shares of Company Stock and 700,000 shares of
Class A Common Preference Stock. The shares covered by the portion of any grant
under this Plan which expires, terminates or is cancelled unexercised shall
become available again for grants under this Plan. Where the exercise price of
an Option is paid by means of the optionee's surrender of previously owned
shares of Company Stock or the Company's withholding of shares otherwise
issuable upon exercise of the Option as permitted herein, only the net number of
shares issued and which remain outstanding in connection with such exercise
shall be deemed "issued" and no longer available for issuance under this Plan.
No eligible person shall be granted Options during any twelve-month period
covering more than 200,000 shares of Company Stock.
4. ADMINISTRATION
--------------
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee (the "Committee") to which
administration of this Plan, or of part of this Plan, is delegated by the Board
(in either case, the "Administrator"). The Board shall appoint and remove
members of the Committee in its discretion in accordance with applicable laws.
If necessary in order to comply with Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Section 162(m) of the Code,
the Committee shall, in the Board's discretion, be comprised solely of "non-
employee directors" within the meaning of said Rule 16b-3 and "outside
directors" within the meaning of Section 162(m) of the Code. The foregoing
notwithstanding, the Administrator may delegate nondiscretionary administrative
duties to such employees of the Company as it deems proper and the Board, in its
absolute discretion, may at any time and from time to time exercise any and all
rights and duties of the Administrator under this Plan.
(b) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its discretion: (i) to grant Options; (ii) to
determine the fair market value of the Company Stock subject to Options; (iii)
to determine the exercise price of Options granted; (iv) to determine the
persons to whom, and the time or times at which, Options shall be granted, and
the number of shares subject to each Option; (v) to construe and interpret the
terms and provisions of this Plan and of any option agreement and all Options
granted under this Plan; (vi) to prescribe, amend, and rescind rules and
regulations relating to this Plan; (vii) to determine the terms and provisions
of each Option granted (which need not be identical), including but not limited
to, the time or times at which Options shall be exercisable; (viii) with the
consent of the optionee, to modify or amend any Option; (ix) to reduce the
exercise price of any Option; (x) to accelerate or defer (with the consent of
the optionee) the exercise date of any Option; (xi) to authorize any person to
execute on behalf of the Company
Page 2 of 10
<PAGE>
any instrument evidencing the grant of an Option; and (xii) to make all other
determinations deemed necessary or advisable for the administration of this Plan
or any option agreement or Option. The Administrator may delegate
nondiscretionary administrative duties to such employees of the Company as it
deems proper.
(c) All questions of interpretation, implementation, and application of
this Plan or any option agreement or Option shall be determined by the
Administrator, which determination shall be final and binding on all persons.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
-------------------------------------
(a) No Options shall be granted under this Plan after 10 years from the
date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option agreement,
in form satisfactory to the Administrator, executed by the Company and the
person to whom such Option is granted. In the event of a conflict between the
terms or conditions of an option agreement and the terms and conditions of this
Plan, the terms and conditions of this Plan shall govern.
(c) The stock option agreement shall specify whether each Option it
evidences is an NQO or an ISO, provided, however, all Options granted under this
Plan to non-employee directors and consultants of the Company are intended to be
NQOs.
(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator may
approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval, and the date of
approval shall be deemed to be the date of grant unless otherwise specified by
the Administrator.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NQOs shall be also subject to the terms
and conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
-----------------------------------------------------
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if
----------------------------
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification, or if
the Company effects a spin-off of the Company's subsidiary, appropriate
adjustments shall be made by the Board, in its sole discretion, in (a) the
number and class of shares of stock subject to this
Page 3 of 10
<PAGE>
Plan and each Option outstanding under this Plan, and (b) the exercise price of
each outstanding Option; provided, however, that the Company shall not be
required to issue fractional shares as a result of any such adjustments.
6.1.2 Corporate Transactions. In the event of a Corporate
----------------------
Transaction (as defined below), the Administrator shall notify each optionee at
least 30 days prior thereto or as soon as may be practicable. To the extent not
previously exercised, all Options shall terminate immediately prior to the
consummation of such Corporate Transaction unless the Administrator determines
otherwise in its sole discretion; provided, however, that the Administrator, in
its sole discretion, may permit exercise of any Options prior to their
termination, even if such Options would not otherwise have been exercisable. The
Administrator may, in its sole discretion, provide that all outstanding Options
shall be assumed or an equivalent option substituted by an applicable successor
corporation or any Affiliate of the successor corporation in the event of a
Corporate Transaction. A "Corporate Transaction" means a liquidation or
dissolution of the Company, a merger or consolidation of the Company with or
into another corporation or entity, a sale of all or substantially all of the
assets of the Company, or a purchase of more than 50 percent of the outstanding
capital stock of the Company in a single transaction or a series of related
transactions by one person or more than one person acting in concert.
6.1.3 Time of Option Exercise. Subject to Section 5 and Section
-----------------------
6.3.4, an Option granted under this Plan shall be exercisable (a) immediately as
of the effective date of the stock option agreement granting the Option, or (b)
in accordance with a schedule or performance criteria as may be set by the
Administrator and specified in the written stock option agreement relating to
such Option. In any case, no Option shall be exercisable until a written stock
option agreement in form satisfactory to the Company is executed by the Company
and the optionee.
6.1.4 Option Grant Date. The date of grant of an Option under
-----------------
this Plan shall be the effective date of the stock option agreement granting the
Option.
6.1.5 Nontransferability of Option Rights. Except with the
-----------------------------------
express written approval of the Administrator which approval the Administrator
is authorized to give only with respect to NQOs, no Option granted under this
Plan shall be assignable or otherwise transferable by the optionee except by
will or by the laws of descent and distribution. During the life of the
optionee, an Option shall be exercisable only by the optionee.
Page 4 of 10
<PAGE>
6.1.6 Payment. Except as provided below, payment in full, in
-------
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. The Administrator, in the exercise of
its absolute discretion after considering any tax, accounting and financial
consequences, may authorize any one or more of the following additional methods
of payment:
(a) Acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such terms and
bearing such interest rate as determined by the Administrator (but in no event
less than the minimum interest rate specified under the Code at which no
additional interest or original issue discount would be imputed), which
promissory note may be either secured or unsecured in such manner as the
Administrator shall approve (including, without limitation, by a security
interest in the shares of the Company);
(b) Subject to the discretion of the Administrator and
the terms of the stock option agreement granting the Option, delivery by the
optionee of shares of Company Stock already owned by the optionee for all or
part of the Option price, provided the fair market value (determined as set
forth in Section 6.1.9) of such shares of Company Stock is equal on the date of
exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock;
(c) Subject to the discretion of the Administrator,
through the surrender of shares of Company Stock then issuable upon exercise of
the Option, provided the fair market value (determined as set forth in Section
6.1.9) of such shares of Company Stock is equal on the date of exercise to the
Option price, or such portion thereof as the optionee is authorized to pay by
surrender of such stock; and
(d) By means of so-called cashless exercises as
permitted under applicable rules and regulations of the Securities and Exchange
Commission and the Federal Reserve Board.
6.1.7 Withholding and Employment Taxes. In the case of an
--------------------------------
employee exercising an NQO, at the time of exercise and as a condition thereto,
or at such other time as the amount of such obligation becomes determinable, the
optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. Such obligation to remit may be satisfied, if
authorized by the Administrator in its sole discretion, after considering any
tax, accounting and financial consequences, by the optionee's (i) delivery of a
promissory note in the required amount on such terms as the Administrator deems
appropriate, (ii) tendering to the Company previously owned shares of Company
Stock or other securities of the Company with a fair market value equal to the
required amount, or (iii) agreeing to have shares of Company Stock (with a fair
market value equal to the required amount) which are acquired upon exercise of
the Option withheld by the Company.
Page 5 of 10
<PAGE>
6.1.8 Other Provisions. Each Option granted under this Plan may
----------------
contain such other terms, provisions, and conditions not inconsistent with this
Plan as may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code.
6.1.9 Determination of Value. For purposes of this Plan, the
----------------------
fair market value of Company Stock or other securities of the Company shall be
determined as follows:
(a) If the stock of the Company is listed on a
securities exchange or is regularly quoted by a recognized securities dealer,
and selling prices are reported, its fair market value shall be either, as
determined by the Administrator, (i) the closing price of such stock on the date
the value is to be determined or (ii) the average closing price of such stock
over such number of trading days (not to exceed ten (10) trading days)
immediately preceding the date the value is to be determined, as determined by
the Administrator, but if selling prices are not reported, its fair market value
shall be the mean between the high bid and low asked prices for such stock on
the date the value is to be determined (or if there are no quoted prices for the
date of grant, then for the last preceding business day on which there were
quoted prices).
(b) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry, the Company's management, and the values of
stock of other corporations in the same or a similar line of business.
6.1.10 Option Term. Subject to Section 6.3.4, no Option shall be
-----------
exercisable more than 10 years after the date of grant, or such lesser period of
time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options granted under
---------------------------------------------------
this Plan which are designated as NQOs shall be subject to the following terms
and conditions:
6.2.1 Exercise Price.
--------------
(a) The exercise price of an NQO shall be the amount
determined by the Administrator as specified in the option agreement.
(b) To the extent required by applicable laws, rules
and regulations, the exercise price of an NQO granted to any person who owns,
directly or by
Page 6 of 10
<PAGE>
attribution under the Code (currently Section 424(d)), stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or of any Affiliate (a "Ten Percent Stockholder") shall in no event
be less than 110% of the fair market value (determined in accordance with
Section 6.1.9) of the stock covered by the Option at the time the Option is
granted.
6.2.2 Termination of Employment. Except as otherwise provided in
-------------------------
the stock option agreement, if for any reason an optionee ceases to be employed
by the Company or any of its Affiliates, Options that are NQOs held at the date
of termination (to the extent then exercisable) may be exercised in whole or in
part at any time within 90 days of the date of such termination or such longer
period as the Administrator may approve (but in no event after the Expiration
Date). For purposes of this Section 6.2.2, "employment" includes service as a
director or as a consultant. For purposes of this Section 6.2.2, an optionee's
employment shall not be deemed to terminate by reason of sick leave, military
leave or other leave of absence approved by the Administrator, if the period of
any such leave does not exceed 90 days or, if longer, if the optionee's right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options granted under
---------------------------------------------------
this Plan which are designated as ISOs shall be subject to the following terms
and conditions:
6.3.1 Exercise Price.
--------------
(a) The exercise price of an ISO shall be not less than
the fair market value (determined in accordance with Section 6.1.9) of the stock
covered by the Option at the time the Option is granted.
(b) The exercise price of an ISO granted to any Ten
Percent Stockholder shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.9) of the stock covered by the Option
at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by exercise
--------------------------
of an ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within the meaning of Section 422 of the Code (a disposition within
two years from the date of grant of the Option or within one year after the
transfer of such stock on exercise of the Option), the holder of the stock
immediately before the disposition shall promptly notify the Company in writing
of the date and terms of the disposition and shall provide such other
information regarding the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
----------
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the
Page 7 of 10
<PAGE>
basis for such grant, and, in addition, satisfies all requirements of this Plan
for Options granted on that date.
6.3.4 Term. Notwithstanding Section 6.1.10, no ISO granted to
----
any Ten Percent Stockholder shall be exercisable more than five years after the
date of grant.
6.3.5 Termination of Employment. Except as otherwise provided in
-------------------------
the stock option agreement, if for any reason an optionee ceases to be employed
by the Company or any of its Affiliates, Options that are ISOs held at the date
of termination (to the extent then exercisable) may be exercised in whole or in
part at any time within 90 days of the date of such termination or such longer
period as the Administrator may approve (but in no event after the Expiration
Date). For purposes of this Section 6.3.5, an optionee's employment shall not be
deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Administrator, if the period of any such leave does not
exceed 90 days or, if longer, if the optionee's right to reemployment by the
Company or any Affiliate is guaranteed either contractually or by statute.
7. MANNER OF EXERCISE
------------------
(a) An optionee wishing to exercise an Option shall give written notice
to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price and withholding taxes as provided in Sections 6.1.6 and
6.1.7. The date the Company receives written notice of an exercise hereunder
accompanied by payment of the exercise price will be considered as the date such
Option was exercised.
(b) Promptly after receipt of written notice of exercise of an Option
and the payments called for by Section 7(a), the Company shall, without stock
issue or transfer taxes to the optionee or other person entitled to exercise the
Option, deliver to the optionee or such other person a certificate or
certificates for the requisite number of shares of stock. An optionee or
permitted transferee of the Option shall not have any privileges as a
stockholder with respect to any shares of stock covered by the Option until the
date of issuance (as evidenced by the appropriate entry on the books of the
Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
-------------------------------------
Nothing in this Plan or any Option granted hereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
Page 8 of 10
<PAGE>
9. CONDITIONS UPON ISSUANCE OF SHARES
----------------------------------
Shares of Company Stock shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").
10. NONEXCLUSIVITY OF THIS PLAN
---------------------------
The adoption of this Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options other than under this Plan.
11. MARKET STANDOFF
---------------
Each optionee, if so requested by the Company or any representative of the
underwriters in connection with any registration of the offering of any
securities of the Company under the Securities Act, shall not sell or otherwise
transfer any shares of Company Stock acquired upon exercise of Options during
the 180-day period following the effective date of a registration statement of
the Company filed under the Securities Act; provided, however, that such
restriction shall apply only to the first registration statement of the Company
to become effective under the Securities Act after the date of adoption of this
Plan which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restriction until the end of such 180-day period.
12. AMENDMENTS TO PLAN
------------------
The Board may at any time amend, alter, suspend or discontinue this Plan.
Without the consent of an optionee, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to the requirements of federal or other
tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require stockholder approval unless (a)
stockholder approval is required to preserve incentive stock option treatment
for federal income tax purposes or (b) the Board otherwise concludes that
stockholder approval is advisable.
Page 9 of 10
<PAGE>
13. EFFECTIVE DATE OF PLAN; TERMINATION
-----------------------------------
This Plan shall become effective upon adoption by the Board provided,
however, that no Option shall be exercisable unless and until written consent of
the stockholders of the Company, or approval of stockholders of the Company
voting at a validly called stockholders' meeting, is obtained within twelve
months after adoption by the Board. If any Options are so granted and
stockholder approval shall not have been obtained within twelve months of the
date of adoption of this Plan by the Board, such Options shall terminate
retroactively as of the date they were granted. Options may be granted and
exercised under this Plan only after there has been compliance with all
applicable federal and state securities laws. This Plan (but not Options
previously granted under this Plan) shall terminate within ten years from the
date of its adoption by the Board.
Page 10 of 10
<PAGE>
EXHIBIT 10.28
THE CORPORATEPLAN
FOR RETIREMENT 100/SM/
(PROFIT SHARING/401(K) PLAN)
A FIDELITY PROTOTYPE PLAN
Non-Standardized Adoption Agreement No. 001
For use With
Fidelity Basic Plan Document No. 10
The CORPORATEplan for Retirement 100/SM/, Basic Plan Document No. 10, and
related Adoption Agreements has not yet received approval from the Internal
Revenue Service for use as a prototype plan. The CORPORATEplan for Retirement
100/SM/ will be submitted in 1999 to the Internal Revenue Service as a minor
modifier to Fidelity Basic Plan Document No. 14 once the Internal Revenue
Service has issued an opinion letter with respect to Fidelity Basic Plan
Document No. 14. The document is considered an individually-designed plan until
it is approved by the Internal Revenue Service, Revisions to the Basic Plan
Document and/or Adoption Agreement may be required by the Internal Revenue
Service as part of the approval process. If revisions are required, the approved
document will be distributed to adopting employers and must be re-executed by
them within a specified time period
<PAGE>
ADOPTION AGREEMENT
ARTICLE 1
NON-STANDARDIZED PROFIT SHARING/401(K) PLAN
1.01 PLAN INFORMATION
----------------
(a) Name of Plan:
This is the Craig Corporation Employee Savings Plan (the "Plan")
-------------------------------------------
(b) Type of Plan:
(1) [_] 401(k) Only
(2) [X] 401(k) and Profit Sharing
(3) [_] Profit Sharing Only
(c) Administrator Name (if not the Employer):
-------------------------------------------------------------------
Address:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Telephone Number:
--------------------------------------------------
The Administrator is the agent for service of legal process for the
Plan.
(d) Plan Year End (month/day): 12/31
-----
(e) Three Digit Plan Number: 001
---
(f) Limitation Year (check one):
(1) [X] Calendar Year
(2) [_] Plan Year
(3) [_] Other:
------------------------
1
<PAGE>
(g) Plan Status (check appropriate box(es)):
(1) [X] New Plan Effective Date: 3/l/2000
--------
(2) [_] Amendment Effective Date:
---------------
This is (check one):
(A) [_] an amendment of The CORPORATE plan for Retirement
100(SM) Basic Plan Document No. 10 Adoption Agreement
previously executed by the Employer; or
(B) [_] a conversion to The CORPORATEplan for Retirement 100(SM)
Basic Plan Document No. 10.
The original effective date of the Plan:
______________
The substantive provisions of the Plan shall apply prior to
the Amendment Effective Date to the extent required by the
Internal Revenue Code, as specifically provided in the Basic
Plan Document.
(3) [_] Plan Merger Effective Dates. Please complete the Special
Effective Dates Addendum to the Adoption Agreement
indicating the plan(s) that have merged into the Plan and
the effective date(s) of such merger(s).
1.02 EMPLOYER
--------
(a) Employer Name: Craig Corporation
---------------------------------------------------
Address: 550 South Hope St., Suite 1825
---------------------------------------------------
Los Angeles, CA 90071
---------------------------------------------------
Contact's Name: Mr. Andrzej Matyczynski
---------------------------------------------------
Telephone Number: (213) 239-0555
-------------------------------------------------
(1) Employer's Tax Identification Number: 95-1620188
----------------------
2
<PAGE>
(2) Business Form of Employer (check one):
(A) [X] Corporation or LLC being taxed as a corporation
(B) [_] Sole proprietor, partnership, or LLC or LLP being taxed
as a partnership
(C) [_] Subchapter S Corporation
(D) [_] Tax-exempt organization
(E) [_] Governmental entity
(3) Employer's fiscal year end: 12/31
----------------
(4) Date business commenced: 07/60
-------------------
(b) The term "Employer" includes the following Related Employer(s) (as
defined in Subsection 2.01(rr)) (list each participating Related
Employer and its Employer Tax Identification Number):
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
1.03 TRUSTEE
-------
(a) Trustee Name: Fidelity Management Trust Company
Address: 82 Devonshire Street
Boston, MA 02109
1.04 COVERAGE
--------
All Employees who meet the conditions specified below shall be eligible to
participate in the Plan:
(a) Age Requirement (check one):
(1) [_] no age requirement.
(2) [X] must have attained age: 21 (not to exceed 21).
----
3
<PAGE>
(b) Eligibility Service Requirement (check one):
(1) [_] no Eligibility Service requirement.
(2) [_] three months of Eligibility Service requirement (no minimum
number Hours of Service can be required).
(3) [_] six months of Eligibility Service requirement (no minimum
number Hours of Service can be required).
(4) [X] one year of Eligibility Service requirement (at least 1,000
Hours of Service are required during the Eligibility
Computation Period).
(c) Eligible Class of Employees (check one):
Note: The Plan may not cover employees who are citizens of Puerto
Rico. These employees are automatically excluded from the eligible
class, regardless of the Employer's selection under this Subsection
1.04(c).
(1) [_] includes all Employees of the Employer.
(2) [X] includes all Employees of the Employer except for (check the
appropriate box(es)):
(A) [X] employees covered by a collective bargaining agreement.
(B) [_] Highly Compensated Employees as defined in Code Section
414(q).
(C) [X] Leased Employees as defined in Subsection 2.01(dd).
(D) [X] nonresident aliens who do not receive any earned income
from the Employer which constitutes United States source
income.
(E) [_] other:
-----------------------------------------------------
-----------------------------------------------------
4
<PAGE>
Note: No exclusion in this Subsection 1.04(c) may create a
discriminatory class of employees. An Employer's Plan must
still pass the Internal Revenue Code coverage requirements
if one or more of the above groups of Employees have been
excluded from the Plan.
(d) The Entry Dates shall be (check one):
(1) [_] the first day of each Plan Year (do not select if Section
1.04(b)(4) is selected or if there is an age requirement of
more than 20-l/2 in Subsection 1.04(a)).
(2) [_] the first day of each Plan Year and the first day of the
seventh month of each Plan Year.
(3) [X] the first day of each Plan Year and the first day of the
fourth, seventh, and tenth months of each Plan Year.
(4) [_] the first day of each month.
(e) Date of Initial Participation - An Employee shall become a Participant
unless excluded by Subsection 1.04(c) above on the Entry Date
immediately following the date the Employee completes the service and
age requirement(s) in Subsections 1.04(a) and (b), if any, except
(check one):
(1) [_] no exceptions.
(2) [X] Employees employed on the Effective Date in Subsection
1.01(g) shall become Participants on that date.
(3) [_] Employees who meet the age and service requirement(s) of
Subsections 1.04(a) and (b) on the Effective Date in
Subsection 1.01(g) shall become Participants on that date.
1.05 COMPENSATION
------------
Compensation for purposes of determining contributions shall be as defined
in Subsection 2.01(j), modified as provided below.
(a) Compensation Exclusions: Compensation shall exclude the item(s) listed
below for purposes of determining contributions. (Check the appropriate
box(es)):
5
<PAGE>
(1) [X] No exclusions. (Must be selected if Section 1.10(a)(3)or
Section 1.11(a)(3), safe harbor Matching Employer
Contribution or safe harbor Nonelective Employer
Contribution, is selected.)
(2) [_] Overtime Pay.
(3) [_] Bonuses.
(4) [_] Commissions.
(5) [_] The value of a qualified or a non-qualified stock option
granted to an Employee by the Employer to the extent such
value is includable in the Employee's taxable income.
(6) [_] Severance Pay.
Note: If the Employer selects Option (2), (3), (4), (5), or (6)
and has selected 1.1l(a) or (b), Compensation must be tested to
show that it meets the requirements of Code Section 414 (s) or
401(a)(4). These exclusions shall not apply for purposes of the
"Top Heavy" requirements in Section 15.03 or for allocating
Nonelective Employer Contributions if the Integrated Formula is
elected in Subsection 1.11(b)(2).
(b) Compensation for the First Year of Participation-Contributions for
the Plan Year in which an Employee first becomes a Participant shall
be determined based on the Employee's Compensation (check one):
(1) [_] for the entire Plan Year.
(2) [X] for the portion of the Plan Year in which the Employee is
eligible to participate in the Plan.
Note: If the initial Plan Year of a new Plan consists of fewer
than 12 months from the Effective Date in Subsection
1.01(g)(l) through the end of the initial Plan Year, Compensation
for purposes of determining the amount of contributions, other
than nonsafe harbor Nonelective Employer Contributions, under the
Plan shall be the period from such Effective Date through the end
of the initial year. However, for purposes of determining the
amount of non-safe harbor Nonelective Employer Contributions and
for other Plan purposes, where appropriate, the full 12-
consecutive-month period ending on the last day of the initial
Plan Year shall be used.
6
<PAGE>
1.06 TESTING RULES
-------------
(a) ADP/ACP Present Testing Method - The testing method for purposes of
applying the "ADP" and "ACP" tests described in Sections 6.03 and 6.06
of the Plan shall be the (check one):
(1) [_] Current Year Testing Method - The ADP or ACP of Highly
Compensated Employees for the Plan Year shall be compared to
the ADP or ACP of Non-Highly Compensated Employees for the
same Plan Year. (Must choose if Option 1.10(a)(3), Safe
Harbor Matching Employer Contributions, or Option 1.11(a)(3),
Safe Harbor Formula, with respect to Nonelective Employer
Contributions is checked)
(2) [X] Prior Year Testing Method - The ADP or ACP of Highly
Compensated Employees for the Plan Year shall be compared to
the ADP or ACP of Non-Highly Compensated Employees for the
immediately preceding Plan Year. (Do not choose if Option
---
1.10(a)(3), Safe Harbor Matching Employer Contributions, or
Option 1.11(a)(3), Safe Harbor Formula, with respect to
Nonelective Employer Contributions is checked.)
(3) [_] Not applicable. (Only if Option 1.01(b)(3), Profit Sharing
Only, is checked.)
(b) [_] ADP/ACP Testing Methods Used in Prior Years - For Plan Years
prior to the effective date of this amendment, the "ADP" and
"ACP" tests were applied using a different testing method as
shown in the ADP/ACP Testing Methods History Addendum to the
Adoption Agreement. (Choose if there has been a change in the
testing method used under the Plan.)
(c) [X] Initial Year Testing Method - For the initial Plan Year of a new
Plan, other than a successor plan, the ADP and ACP tests shall be
applied (check one):
(1) [_] assuming a 3% ADP and ACP for Non-Highly Compensated
Employees.
(2) [X] using the actual ADP and ACP of Non-Highly Compensated
Employees for the initial Plan Year.
(d) HCE Determinations: Look Back Year - The look back year for purposes
of determining which Employees are Highly Compensated Employees shall
be the 12-consecutive-month period preceding the Plan Year, unless
otherwise provided below.
7
<PAGE>
(1) [_] Calendar Year Determination - The look back year shall be the
calendar year beginning within the preceding Plan Year. (Do
not choose if the Plan Year is the calendar year.)
(2) [_] Prior Plan Years - For Plan Years prior to the effective date
of this amendment, the Plan was operated in accordance with a
different look back year election as shown in the Special
Effective Dates Addendum to the Adoption Agreement. (Choose
if there has been a change in the look back year used under
the Plan.)
(e) HCE Determinations: Top Paid Group - Employees with Compensation
exceeding $80,000 (as indexed) shall be considered Highly Compensated
Employees only if they are in the top paid group (the top 20% of
Employees ranked by Compensation), unless otherwise provided below.
(1) [_] No Top Paid Group Election Current Plan Year - All Employees
with Compensation exceeding $80,000 (as indexed) shall be
considered Highly Compensated Employees.
(2) [_] Prior Plan Years - For Plan Years prior to the effective date
of this amendment, the Plan was operated in accordance with a
different top paid group election as shown in the Special
Effective Dates Addendum to the Adoption Agreement. (Choose
if the Plan has used the top paid group election in some
prior Plan Years, but not in others.)
Note: Effective for determination years beginning on or after January
1, 1998, if the Employer elects Option 1.06(d)(l) and/or applies the
top paid group election described in Option 1.06(e), such election
must apply consistently to all retirement plans of the Employer for
determination years that begin with or within the same calendar year
(except that Option 1.06(d)(l), Calendar Year Determination, shall not
apply to calendar year plans). Effective for determination years
beginning on or after January 1, 2000, any such election must apply
consistently to all plans of the Employer, including non-retirement
plans.
8
<PAGE>
1.07 DEFERRAL CONTRIBUTIONS
----------------------
(a) [X] Deferral Contributions - Participants may elect to have a portion
of their Compensation contributed to the Plan on a before-tax
basis pursuant to Code Section 401(k).
(1) Regular Contributions - The Employer shall make a Deferral
Contribution in accordance with Section 5.03 on behalf of each
Participant who has an executed salary reduction agreement in
effect with the Employer for the payroll period in question, not
to exceed 15.00% (not to exceed 25%) of Compensation for that
-----
period.
Note: The percentage elected above must be less than 25% in
order to satisfy the limitation on annual additions under Code
Section 415 if other types of contributions are provided under
th e Plan.
(A) [_] Instead of specifying a percentage of Compensation, a
Participant's salary reduction agreement may specify a
dollar amount to be contributed each payroll period,
provided such dollar amount does not exceed the maximum
percentage of Compensation specified in Subsection
1.07(a)(l) above.
(B) A Participant may increase or decrease, on a prospective
basis, his salary reduction agreement percentage as of the
next Entry Date.
Note: Notwithstanding the provisions of Subsection
1.07(a)(l)(B), if Option 1.10(a)(3), Safe Harbor Matching
Employer Contributions, or 1.11(a)(3), Safe Harbor
Formula, with respect to Nonelective Employer Contributions
is checked, the Plan provides that an Active Participant
may change his salary reduction agreement percentage for
the Plan Year within a reasonable period (not fewer than 30
days) of receiving the notice described in Section 6.10.
(C) A Participant may revoke, on a prospective basis, a salary
reduction agreement at any time upon proper notice to the
Administrator but in such case may not file a new salary
reduction agreement until any subsequent Entry Date.
(2) [X] Catch-Up Contributions - The Employer may allow
Participants upon proper notice and approval to enter into
a special salary reduction agreement to make additional
Deferral Contributions in an amount up to 100% of their
Compensation for the payroll period(s) in the final month
of the Plan Year.
9
<PAGE>
(3) [X] Bonus Contributions - The Employer may allow Participants
upon proper notice and approval to enter into a special
salary reduction agreement to make Deferral Contributions in
an amount up to 100% of any Employer paid cash bonuses
designated by the Employer on a uniform and non-
discriminatory basis that are made for such Participants
during the Plan Year. The Compensation definition elected by
the Employer in Subsection 1.05(a) must include bonuses if
bonus contributions are permitted.
Note: A Participant's contributions under Subsection 1.07(a)(2)
and/or (3) may not cause the Participant to exceed the percentage
limit specified by the Employer in Subsection 1.07(a)(1) for the
full Plan Year. The Employer has the right to restrict a
Participant's right to make Deferral Contributions if they will
adversely affect the Plan's ability to pass the "ADP" and/or the
"ACP" test.
1.08 EMPLOYEE CONTRIBUTIONS
----------------------
(a) [_] Employee Contributions - Participants are not permitted to
contribute amounts to the Plan on an after-tax basis but the
Employer does maintain frozen Employee Contributions Accounts.
1.09 QUALIFIED NONELECTIVE CONTRIBUTIONS
-----------------------------------
(a) Qualified Nonelective Employer Contributions - If Option 1.07(a),
Deferral Contributions, is checked, the Employer may contribute an
amount which it designates as a Qualified Nonelective Employer
Contribution to be included in the "ADP" or "ACP" test. Qualified
Nonelective Employer Contributions shall be allocated to Participants
who were eligible to participate in the Plan at any time during the
Plan Year and are Non-Highly Compensated Employees either (A) in the
ratio which each Participant's "testing compensation", as defined in
Subsection 6.01(t), for the Plan Year bears to the total of all
Participant's "testing compensation" for the Plan Year or (B) as a
flat dollar amount.
1.10 MATCHING EMPLOYER CONTRIBUTIONS (Only if Option 1.07(a), Deferral
-------------------------------
Contributions is checked)
(a) [X] Basic Matching Employer Contributions (check one):
(1) [_] Non-Discretionary Matching Employer Contributions - The
Employer shall make a basic Matching Employer Contribution
on behalf of each Participant in an amount equal to the
following percentage of a Participant's Deferral
Contributions during the Contribution Period (check (A) or
(B) and, if applicable, (C)):
Note: Effective for Plan Years beginning on or after January 1,
1999, if the Employer elected Option 1.11(a)(3), Safe Harbor
Formula, with respect to Nonelective Employer
10
<PAGE>
Contributions and meets the requirements for deemed satisfaction
of the "ADP" test for a Plan Year, the Plan will also be deemed
to satisfy the "ACP" test with respect to Matching Employer
Contributions if Matching Employer Contributions hereunder meet
the requirements in Section 6.11.
(A) [X] Single Percentage Match:
(B) [_] Tiered Match:
_____% of the first ____% of the Active Participant's
Compensation contributed to the Plan,
____% of the next ____% of the Active Participant's
Compensation contributed to the Plan,
____% of the next ____% of the Active Participant's
Compensation contributed to the Plan.
Note: The percentages specified above for basic Matching
Employer Contributions may not increase as the percentage of
Compensation contributed increases.
[X] Limit on Non-Discretionary Matching Employer
Contributions (check the appropriate box(es)):
(i) [X] Deferral Contributions in excess of 3.00% of the
----
Participant's Compensation for the period in
question shall not be considered for non-
discretionary Matching Employer Contributions.
Note: If the Employer elected a percentage limit in
(i) above and requested the Trustee to account
separately for matched and unmatched Deferral
Contributions, the non-discretionary Matching Employer
Contributions allocated to each Participant must be
computed, and the percentage limit applied, based upon
each payroll period.
(ii) [_] Matching Employer Contributions for each
Participant for each Plan Year shall be limited
to $____.
11
<PAGE>
(2) [X] Discretionary Matching Employer Contributions - The Employer
may make a basic Matching Employer Contribution on behalf of
each Participant in an amount equal to the percentage
declared for the Contribution Period, if any, by a Board of
Directors' Resolution (or by a Letter of Intent for a sole
proprietor or partnership) of the Deferral Contributions
made by each Participant during the Contribution Period. The
Board of Directors' Resolution (or Letter of Intent, if
applicable) may limit the Deferral Contributions matched to
a specified percentage of Compensation or limit the amount
of the match to a specified dollar amount.
(A) [_] 4% Limitation on Discretionary Matching Employer
Contributions for Deemed Satisfaction of "ACP" Test -
Effective only for Plan Years beginning on or after
January 1, 2000, in no event may the dollar amount of
the discretionary Matching Employer Contribution made on
a Participant's behalf for the Plan Year exceed 4% of
the Participant's Compensation for the Plan Year. (Only
if Option 1.11(a)(3), Safe Harbor Formula, with respect
to Nonelective Employer Contributions is checked.)
(3) [_] Safe Harbor Matching Employer Contributions - Effective only
for Plan Years beginning on or after January 1, 1999, if the
Employer elects one of the safe harbor formula Options
provided in the Safe Harbor Matching Employer Contribution
Addendum to the Adoption Agreement and provides written
notice each Plan Year to all Active Participants of their
rights and obligations under the Plan, the Plan shall be
deemed to satisfy the "ADP" test and, in certain
circumstances, the "ACP" test.
(b) [_] Additional Matching Employer Contributions - The Employer may at
Plan Year end make an additional Matching Employer Contribution
equal to a percentage declared by the Employer, through a Board
of Directors' Resolution (or by a Letter of Intent for a sole
proprietor or partnership), of the Deferral Contributions made by
each Participant during the Plan Year. (Only if Option 1.10(a)(1)
or (3) is checked.) The Board of Directors' Resolution (or Letter
of Intent, if applicable) may limit the Deferral Contributions
matched to a specified percentage of Compensation or limit the
amount of the match to a specified dollar amount.
(1) [_] 4% Limitation on Discretionary Matching Employer
Contributions for Deemed Satisfaction of "ACP" Test -
Effective only for Plan Years beginning on or after January
1, 2000, in no event may the dollar amount of the additional
Matching Employer Contribution made on a Participant's
behalf for the Plan Year exceed 4% of the Participant's
Compensation for the Plan Year. (Only if Option 1.11(a)(3),
Safe Harbor Formula, with respect to Nonelective Employer
Contributions is checked.)
Note: If the Employer elected Option 1.10(a)(3), Safe Harbor Matching
Employer Contributions, above and wants to be deemed to have satisfied
the "ADP" test for Plan Years
12
<PAGE>
beginning on or after January 1, 1999, the additional Matching
Employer Contribution must meet the requirements of Section 6.10. In
addition to the foregoing requirements, if the Employer elected either
Option 1.10(a)(3), Safe Harbor Matching Employer Contributions, or
Option 1.11(a)(3), Safe Harbor Formula, with respect to Nonelective
Employer Contributions, and wants to be deemed to have satisfied the
"ACP" test with respect to Matching Employer Contributions for Plan
Years beginning on or after January 1, 1999, the Deferral
Contributions matched may not exceed 6% of a Participant's
Compensation.
(c) Contribution Period for Matching Employer Contributions - The
Contribution Period for purposes of calculating the amount of basic
Matching Employer Contributions described in Subsection 1.10(a)(1) or
(2) is:
(1) [X] each Plan Year.
(2) [_] each payroll period.
The Contribution Period for safe harbor Matching Employer
Contributions described in Subsection 1.10(a)(3) and additional
Matching Employer Contributions described in Subsection 1.10(b) is the
Plan Year.
(d) Continuing Eligibility Requirement(s) - A Participant who makes
Deferral Contributions during a Contribution Period shall only be
entitled to receive Matching Employer Contributions under Section 1.10
for that Contribution Period if the Participant satisfies the
following requirement(s) (Check the appropriate box(es). Options (3)
and (4) may not be elected together; Option (5) may not be elected
with Option (2), (3), or (4); Options (2), (3), (4), (5) and (7) may
not be elected if Option 1.10(a)(3), Safe Harbor Matching Employer
Contributions, is checked):
(1) [X] No requirements.
(2) [_] Is employed by the Employer or a Related Employer on the last
day of the Plan Year.
(3) [_] Earns at least 501 Hours of Service during the Plan Year.
(Only if the Contribution Period is the Plan Year.)
13
<PAGE>
(4) [X] Earns at least 1,000 Hours of Service during the Plan Year.
(Only if the Contribution Period is the Plan Year.)
(5) [_] Either earns at least 501 Hours of Service during the Plan
Year or is employed by the Employer or a Related Employer on
the last day of the Plan Year. (Only if the Contribution
Period is the Plan Year.)
(6) [_] Is not a Highly Compensated Employee for the Plan Year.
(7) [_] Is not a partner or a member of the Employer, if the Employer
is a partnership or an entity taxed as a partnership.
(8) [_] Special continuing eligibility requirement(s) for additional
Matching Employer Contributions. (Only if Options 1.10(a)(3),
Safe Harbor Matching Employer Contributions, and (b),
Additional Matching Employer Contributions, are checked.)
(A) The continuing eligibility requirement(s) for additional
Matching Employer Contributions is/are:_____ (Fill in number
of applicable eligibility requirement(s) from above.)
Note: If Option (2), (3), (4), (5), (6) or (7) above is selected, then
Matching Employer Contributions can only be funded by the Employer
after the Plan Year ends. Matching Employer Contributions funded
during the Plan Year shall not be subject to the eligibility
requirements of Option (2), (3), (4), (5), (6) or (7). If Option (2),
(3), (4), (5), (6) or (7) is adopted during a Plan Year, as
applicable, such Option shall not become effective until the first day
of the next Plan Year.
(e) [X] Qualified Matching Employer Contributions - The Employer may make
a Qualified Matching Employer Contribution that may be used to
satisfy the "ADP" test on Deferral Contributions in an amount
equal to the percentage declared for the Plan Year, if any, by a
Board of Directors' Resolution (or by a Letter of Intent for a
sole proprietor or partnership) of the Deferral Contributions
made by each eligible Participant during the Plan Year. The Board
of Directors' Resolution (or Letter of Intent, if applicable) may
limit the contributions matched to a specified percentage of
Compensation or limit the amount of the match to a specified
dollar amount. Qualified Matching Employer Contributions shall be
allocated to Participants who meet the continuing eligibility
requirement(s) for basic Matching Employer Contributions
described in Subsection 1.10(d) above and who are Non-Highly
Compensated Employees for the Plan Year.
14
<PAGE>
Note: Qualified Matching Contributions may not be excluded in
applying the "ACP" test for a Plan Year if the Employer elected
Option 1.10(a)(3), Safe Harbor Matching Employer Contributions,
or Option 1.11(a)(3), Safe Harbor Formula, with respect to
Nonelective Employer Contributions, and the "ADP" test is deemed
satisfied under Section 6.10 for such Plan Year.
1.11 NONELECTIVE EMPLOYER CONTRIBUTIONS
----------------------------------
Note: An Employer who has elected the safe harbor formula in Subsection
1.11(a)(3) may also elect a discretionary formula. If both are selected,
the discretionary formula shall be treated as an additional Nonelective
Employer Contribution and allocated separately in accordance with the
allocation formula selected by the Employer.
(a) [_] Fixed Formula (check one):
(1) [_] Fixed Percentage Employer Contribution - For each Plan Year,
the Employer shall contribute for each eligible Active
Participant an amount equal to _____% (not to exceed 15%) of
such Active Participant's Compensation.
(2) [_] Fixed Flat Dollar Employer Contribution - For each Plan
Year, the Employer shall contribute for each eligible Active
Participant an amount equal to $____.
(3) [_] Safe Harbor Formula - Effective only with respect to Plan
Years that begin on or after January 1, 1999, the
Nonelective Employer Contribution is intended to satisfy the
safe harbor contribution requirements under the Code such
that the "ADP" test is deemed satisfied. Please complete the
Safe Harbor Nonelective Employer Contribution Addendum to
the Adoption Agreement. (Choose only if Option 1.07(a),
Deferral Contributions, is checked.)
(b) [X] Discretionary Formula - The Employer may decide each Plan Year
whether to make a discretionary Nonelective Employer Contribution
on behalf of eligible Active Participants in accordance with
Section 5.10. Such contributions shall be allocated to eligible
Active Participants based upon the following (check (1) or (2)):
(1) [X] Non-integrated Allocation Formula - In the ratio that each
eligible Active Participant's Compensation bears to the
total Compensation paid to all eligible Active Participants
for the Plan Year.
15
<PAGE>
(2) [_] Integrated Allocation Formula - As (A) a percentage of each
eligible Active Participant's Compensation plus (B) a percentage
of each eligible Active Participant's Compensation in excess of
the "integration level" as defined below. The percentage of
Compensation in excess of the "integration level" shall be equal
to the lesser of the percentage of the Active Participant's
Compinsation allocated under (A) above or the "permitted
disparity limit" as defined below.
Note: An Employer that has elected the Safe Harbor formula in Subsection
1.11(a)(3) above may not take Nonelective Employer Contributions made to
satisfy the safe harbor into account in applying the integrated
allocation formula described above.
"Integration level" means the Social Security taxable wage base for the
Plan Year, unless the Employer elects a lesser amount in (A) or (B)
below.
(A) ______% (not to exceed 100%) of the Social Security taxable wage
base for the Plan Year, or
(B) $_____(not to exceed the Social Security taxable wage base).
"Permitted disparity limit" means the percentage provided by the
following table:
<TABLE>
<CAPTION>
=======================================================================
If the "Integration Level" But Less Than The "Permitted
is at least ____% of the _____% of the Disparity
Taxable Wage Base Taxable Wage Base Limit" is
_____________________________________________________________________
<S> <C> <C>
0% 20% 5.7%
____________________________________________________________________
20% 80% 4.3%
____________________________________________________________________
80% 100% 5.4%
____________________________________________________________________
100% N/A 5.7%
=====================================================================
</TABLE>
Note: An Employer who maintains any other plan that provides for Social
Security Integration (permitted disparity) may not elect 1.11(b)(2).
16
<PAGE>
(c) Continuing Eligibility Requirement(s) - A Participant shall only be
entitled to receive Nonelective Employer Contributions for a Plan
Year under this Section 1.11 if the Participant satisfies the
following requirement(s) (Check the appropriate box(es) - Options
(3) and (4) may not be elected together; Option (5) may not be
elected with Option (2), (3), or (4); Options (2), (3), (4) and (5)
may not be elected with respect to Nonelective Employer
Contributions under the fixed formula if Option 1.11(a)(3), Safe
Harbor Formula, is checked):
(1) [X] No requirements.
(2) [X] Is employed by the Employer or a Related Employer on the
last day of the Plan Year.
(3) [_] Earns at least 501 Hours of Service during the Plan Year.
(4) [X] Earns at least 1,000 Hours of Service during the Plan
Year.
(5) [_] Either earns at least 501 Hours of Service during the
Plan Year or is employed by the Employer or a Related
Employer on the last day of the Plan Year.
(6) [_] Special continuing eligibility requirement(s) for
discretionary Nonelective Employer Contributions. (Only
if both Options 1.11(a)(3), Safe Harbor Formula, and 1.11
(b), Discretionary Formula, are checked.)
(A) The continuing eligibility requirement(s) for additional
discretionary Nonelective Employer Contributions is/are:
__________ (Fill in number of applicable eligibility
requirement(s) from above.)
Note: If Option (2), (3), (4), or (5) above is selected then
Nonelective Employer Contributions can only be funded by the Employer
after the Plan Year ends. Nonelective Employer Contributions funded
during the Plan Year shall not be subject to the eligibility
requirements of Option (2), (3), (4), or (5). If Option (2), (3), (4),
or (5) is adopted during a Plan Year, such Option shall not become
effective until the first day of the next Plan Year.
1.12 EXCEPTIONS TO CONTINUING ELIGIBILITY REQUIREMENTS
-------------------------------------------------
[X] Death, Disability, and Retirement Exception to Eligibility
Requirements - Active Participants who do not meet any last day or
Hours of Service requirement under Subsection 1.10(d) or 1.11(c)
because they become disabled, as defined in Section 1.14, retire, as
provided in Subsection 1.13(a) or (b), or die shall nevertheless
receive an allocation of Nonelective Employer and/or Matching
Employer Contributions. No Compensation shall be imputed to Active
Participants who become disabled for the period following their
disability.
1.13 RETIREMENT
----------
17
<PAGE>
(a) The Normal Retirement Age under the Plan is (check one);
(1) [X] age 65.
(2) [_] age _____ (specify between 55 and 64).
(3) [X] later of age 65.0 (not to exceed 65) or the fifth
----
anniversary of the Participant's Employment Commencement
Date.
(b) [X] The Early Retirement Age is the first day of the month after
the Participant attains age 59.5 (specify 55 or greater) and
----
completes 4.0 years of Vesting Service.
---
Note: If this Option is elected, Participants who are employed by
the Employer or a Related Employer on the date they reach Early
Retirement Age shall be 100% vested in their Accounts under the
Plan.
(c) [X] A Participant who becomes disabled, as defined in
Section 1.14, is eligible for disability retirement.
Note: If this Option is elected, Participants who are employed by
the Employer or a Related Employer on the date they become
disabled shall be 100% vested in their Accounts under the
Plan.
1.14. DEFINITION OF DISABLED
----------------------
A Participant is disabled if he/she (check the appropriate box(es)):
(a) [_] satisfies the requirements for benefits under the Employer's
Long-Term Disability Plan.
(b) [_] satisfies the requirements for Social Security disability
benefits.
Note: If this Option is elected, Participants who are employed by
the Employer or a Related Employer on the date they reach Early
Retirement Age shall be 100% vested in their Accounts under the
Plan.
(c) [X] is determined to be disabled by a physician approved by the
Employer.
1.15 VESTING
-------
A Participant's vested interest in Matching Employer Contributions and/or
Nonelective Employer Contributions, other than Safe Harbor Matching
Employer and/or Nonelective Employer Contributions elected in Subsection
1.10(a)(3) or 1.11(a)(3), shall be based upon his years of Vesting
Service and the schedule selected below.
(a) Vesting Schedule (check one):
18
<PAGE>
(1) [_] N/A - No Nonelective Employer Contributions or Matching
Employer Contributions
(2) [_] 100% Vesting immediately
(3) [_] 3 year cliff (see 3 below)
(4) [_] 6 year graduated (see 4 below)
(5) [X] Other vesting (complete 5 below)
Years of
Vesting Service Applicable Vesting Schedule(s)
============================================================
3 4 5
============================================================
0 0% 0% 0.00%
----
-------------------------------------------------------------
1 0% 0% 25.00%
-----
-------------------------------------------------------------
2 0% 20% 50.00%
-----
-------------------------------------------------------------
3 100% 40% 75.00%
-----
-------------------------------------------------------------
4 100% 60% 100.00%
------
-------------------------------------------------------------
5 100% 80% 100.00%
------
-------------------------------------------------------------
6 or more 100% 100% 100.00%
------
=============================================================
Note: A schedule elected under 5 above must be at least as favorable as
one of the schedules in 3 or 4 above.
1.16 PREDECESSOR EMPLOYER SERVICE
----------------------------
[_] Service for purposes of eligibility in Subsection 1.04(b) and
vesting in Subsection 1.15(a) of this Plan shall include service
with the following predecessor employer(s);
(a) Reading Entertainment Inc.
-------------------------------------------------
(b) Citadel Holding Corportaion
-------------------------------------------------
(c) City Cinemas Corporation, a New York Corporation
-------------------------------------------------
(Fed. Tax ID 95-4111198)
-------------------------------------------------
(d)
-------------------------------------------------
1.17 PARTICIPANT LOANS
-----------------
19
<PAGE>
Participants loans (check one);
(a) [X] are allowed in accordance with Article 9 and loan procedures
outlined in the Service Agreement.
(b) [_] are not allowed.
---
1.18 IN-SERVICE WITHDRAWALS
----------------------
Participants may make withdrawals prior to termination of employment
under the following circumstances (check the appropriate box(es)):
(a) [X] Hardship Withdrawals - Hardship withdrawals from a
Participant's Deferral Contributions Account shall be allowed
in accordance with Section 10.05, subject to a $500 minimum
amount.
(b) [X] Age 59 l/2 - Participants shall be entitled to receive a
distribution of all or any portion of the following Accounts
upon attainment of age 59 l/2 (check one):
(1) [X] Deferral Contributions Account
(2) [_] All Accounts
(c) Withdrawal of Employee Contributions and Rollover Contributions -
The Plan provides for in-service withdrawals of Employee
Contributions under Section 1.08 and Rollover Contributions at any
time.
(d) [_] Protected Inc-Service Withdrawal Provisions - Check if the Plan
was converted by plan amendment or received transfer
contributions from another defined contribution plan, and
benefits under the other defined contribution plan were payable
as (check the appropriate box(es)):
20
<PAGE>
(1) [_] an in-service withdrawal of vested employer contributions
maintained in a Participant's Account (check (A) and/or (B)):
(A) [_] for at least _________ (24 or more) months.
(B) [_] after the Participant has at least 60 months of
participation.
(2) [_] another in-service withdrawal option that is a "protected
benefit" under Code Section 411(d)(6). The other in-service
withdrawal options available under the plan are:
-------------------------------------------------------------
-------------------------------------------------------------
1.19 FORM OF DISTRIBUTIONS
---------------------
Subject to Article 14, distributions under the Plan shall be paid as
(check the appropriate box(es) with respect to optional forms):
(a) Lump Sum Payments - Lump sum payments are always available under the
Plan. If a Participant's account balance is less than or equal to
the "cashout limit", distribution shall be made to the Participant
as soon as reasonably practicable following his termination of
employment in a lump sum payment. Effective the first day of the
first Plan Year beginning on or after August 5, 1997 (or the date
the Plan is first operated in compliance with the increase, if
later, but not later than the effective date specified in Subsection
1.01(g)(1) or (2)), the "cashout limit" is $5,000 (increased from
$3,500).
(b) [X] Installments Payments - In lieu of a lump sum, Participants
may elect distribution under a systematic withdrawal plan
(installments).
(c) [_] Protected Benefit Forms - Check if the Plan was converted by
plan amendment or received transfer contributions from another
defined contribution plan, and benefits under the other defined
contribution plan were payable in any other form. The following
protected benefit forms shall apply to the Accounts of all
Participants (check the appropriate box(es)):
(1) [_] The prior plan provided a life annuity form of payment.
(A) The normal annuity form for unmarried Participants is a
-------------------------------------------------------.
The normal annuity form for married Participants is a
_____ % (must be at least 50%, but not more than
100%)"qualified joint and survivor annuity".
21
<PAGE>
(B) The normal form of distribution under the Plan is:
(i) [_] A lump sum payment.
(ii) [_] A "qualified joint and survivor annuity".
(C) The qualified preretirement survivor annuity provided to a
Participant's spouse is purchased with ___% (must be at
least 50%) of the Participant's Account.
(2) [_] The prior plan provided other optional annuity forms. The
other optional annuity forms available under the Plan are:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
(3) [_] The prior plan provided other forms of distribution that
are protected benefits. The other forms of distribution
available under the Plan are:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
1.20 TIMING OF DISTRIBUTIONS
-----------------------
Distribution shall be made to an eligible Participant from his vested
interest in his Account as soon as reasonably practicable following the
date the Participant's application for distribution is received by the
Administrator, but in no event later than his Required Beginning Date, as
defined in Subsection 2.01(ss).
(a) Required Beginning Date - The Required Beginning Date of a
Participant who is not a five percent owner shall be determined
under Code Section 401(a)(9) as amended by the Small Business Job
Protection Act.
(1) [_] If a Participant attained age 70 1/2 before January 1,
1999 (or such later date as may be specified below), he
may elect to have his Required Beginning Date
22
<PAGE>
determined under Code Section 401(a)(9) as in effect prior to
the amendment. (Choose only if the Plan was originally
effective before January 1, 1997.)
(A) [_] later effective date applies for grandfathering the prior
Code Section 401(a)(9) rules. Please complete Section (c)
of the Special Effective Dates Addendum to the Adoption
Agreement indicating the late effective date.
1.21 TOP HEAVY STATUS
----------------
(a) The Plan shall be subject to the Top-Heavy Plan requirements of
Article 15 (check one):
(1) [_] for each Plan Year, whether or not the Plan is a
"top-heavy plan" as defined in Subsection 15.01(f).
(2) [X] for each Plan Year, if any, for which the Plan is a
"top-heavy plan" as defined in Subsection 15.01(f).
(3) [_] Not applicable. (Choose only if Plan covers only employees
subject to a collective bargaining agreement.)
(b) In determining whether the Plan is a "top-heavy plan" for an
Employer with at least one defined benefit plan, the following
assumptions shall apply:
(1) [_] Interest rate: ______% per annum.
(2) [_] Mortality table:_______.
(3) [X] Not applicable. (Choose only if either (A) Plan covers
only employees subject to a collective bargaining
agreement or (B) Employer does not maintain and has never
maintained any defined benefit plans.)
23
<PAGE>
(c) If the Plan is or is treated as a "top-heavy plan" for a Plan Year, each
non-key Employee shall receive an Employer Contribution of at least 3.0
(3, 4, 5, or 7 1/2)% of Compensation for the Plan Year in accordance
with Section 15.03. The minimum Employer Contribution provided in this
Subsection 1.21(c) shall be made under this Plan only if the Participant
is not entitled to such contribution under another qualified plan of the
Employer, unless the Employer elects otherwise in (1) or (2) below:
(1) [_] The minimum Employer Contribution shall be paid under
this Plan in any event.
(2) [_] Not applicable. (Choose only if Plan covers only
employees subject to a collective bargaining agreement.)
Note: The minimum Employer contribution may be less than the
percentage indicated in Subsection 1.21(c) above to the extent
provided in Section 15.03.
(d) If the Plan is or is treated as a "top-heavy plan" for a Plan Year and
Section 1.15(a)(1)(A) was elected,the following vesting schedule shall
apply to required top-heavy Employer contributions for such Plan Year
and each Plan Year thereafter (check one):
(1) [X] Not applicable. (Choose only if either (A) Section
1.15(a)(1)(A) was not selected or (B) Plan covers only
---
employees subject to a collective bargaining agreement.)
(2) [_] 100% vested after______(not in excess of 3) years of
Vesting Service.
(3) [_] Graded vesting:
<TABLE>
<CAPTION>
====================================================
Years of Vesting Vesting Must be
Service Percentage at least
____________________________________________________
<S> <C> <C>
0 0.00% 0%
____________________________________________________
1 25.00% 0%
____________________________________________________
2 50.00% 20%
____________________________________________________
3 75.00% 40%
_____________________________________________________
4 100.00% 60%
______________________________________________________
5 100.00% 80%
______________________________________________________
6 or more 100.00% 100%
=======================================================
</TABLE>
24
<PAGE>
1.22 CORRECTION TO MEET 415 REQUIREMENTS UNDER MULTIPLE DEFINED CONTRIBUTION
-----------------------------------------------------------------------
PLANS
-----
If the Employer maintains other defined contribution plans, annual
additions to a Participant's Account shall be limited as provided in
Section 6.11 of the Plan to meet the requirements of Code Section 415.
1.23 INVESTMENT DIRECTION
--------------------
(a) Investment Directions - Participant Accounts shall be invested in
accordance with investment directions provided to the Trustee by
each Participant for allocating his entire Account among the
-----------
Options listed in the Service Agreement.
(b) [X] 404(c) Election - The Administrator intends to treat this
Plan as being subject to ERISA Section 404(c).
1.24 RELIANCE ON OPINION LETTER
--------------------------
An adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this
Plan is qualified under Code Section 401. If the Employer wishes to
obtain reliance that its Plan is qualified, application for a
determination letter should be made to the appropriate Key District
Director of the Internal Revenue Service. Failure to fill out the
Adoption Agreement properly may result in disqualification of the Plan.
This Adoption Agreement may be used only in conjunction with Fidelity
Basic Plan Document No. 10. The Prototype Sponsor shall inform the
adopting Employer of any amendments made to the Plan or of the
discontinuance or abandonment of the prototype plan document.
1.25 PROTOTYPE INFORMATION:
---------------------
Name of Prototype Sponsor: Fidelity Management & Research Company
Address of Prototype Sponsor: 82 Devonshire Street
Boston, MA 02109
Questions regarding this prototype document may be directed to the
following telephone number: 1-800-343-9184.
25
<PAGE>
EXECUTION PAGE
(Employer's Copy)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed this 24th day of January, 2000.
---- ------- ----
Employer: Craig Corporation
-------------------------------------------
By: /s/ [ILLEGIBLE]
-------------------------------------------
Title: President
-------------------------------------------
Employer: Craig Corporation
--------------------------------------------
By: /s/ [ILLEGIBLE]
--------------------------------------------
Title: Chief Financial Officer
--------------------------------------------
Accepted by:
Fidelity Management Trust Company, as Trustee
By: /s/ Bryon R. Wall Date: 1-28-00
----------------------------- ---------------
Title: Bryon R. Wall
Authorized Signatory
-----------------------------
27
<PAGE>
ADDENDUM
Re: SPECIAL EFFECTIVE DATES
for
Plan Name: The Craig Corporation Employee Savings Plan
-------------------------------------------
(a) [_] Plan Merger Effective Dates - The following plan(s) were merged into
the Plan after the Effective Date indicated in Subsection 1.O1
(g)(1) or (2), as applicable. The provisions of the Plan are
effective with respect to the merged plan(s) as of the date(s)
indicated below:
(1) Name of merged plan:
-------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Effective
date:
---------------------------------------------------------------
(2) Name of merged plan:
-------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Effective
date:
----------------------------------------------------------------
(3) Name of merged plan:
-------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Effective
date:
----------------------------------------------------------------
28
<PAGE>
(b) HCE Determination - HCE determinations for prior Plan Years shall be made
applying the following rules:
(1) [_] HCE Determination: Look Back Year Elections - Prior to the
effective date of this amendment, the Plan was administered in
accordance with the following look back year election(s):
(A) [_] No calendar year election - For the following Plan Years,
the look back year was the 12-consecutive-month period
immediately preceding the Plan Year:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
(B) [_] Calendar year election - For the following Plan Years,
the look back year was the calendar year beginning within the
preceding Plan Year:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
(2) [_] HCE Determination: Top Paid Group Elections - For Plan Years
prior to the effective date of this amendment, the Plan was
administered in accordance with the following top paid group
election(s):
(A) [_] For the following Plan Years, Highly Compensated
Employees included only the top 20% of Employees ranked
by Compensation:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
29
<PAGE>
(B) [_] For the following Plan Years, Highly Compensated
Employees included all Employees with Compensation
exceeding $80,000 (as indexed):
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
(c) [_] Late Effective Date for Grandfathering Prior Required
Beginning Date Rules
Effective date: January 1, (Must be first day of the calendar year
beginning after the date the Plan was first amended to comply with
the new Required Beginning Date rules, but not later than the first
day of the calendar year beginning after the end of the Employer's
remedial amendment period for making changes to comply with the Small
Business Job Protection Act.)
30
<PAGE>
ADDENDUM
Re: ADP/ACP TESTING METHODS HISTORY
for
Plan Name: The Craig Corporation Employee Savings Plan
-------------------------------------------
(A) For Plan Years prior to the date of this amendment, the Plan applied the
following testing methods:
(1) [_] Current Year Testing Method - The ADP/ACP tests for the
following Plan Years were applied using the current year
testing method described in Subsection 1.06(a)(l):
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
(2) [_] Prior Year Testing Method - The ADP/ACP tests for the
following Plan Years were applied using the prior year testing
method described in Subsection 1.06(a)(2):
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
31
<PAGE>
ADDENDUM
Re: SAFE HARBOR MATCHING EMPLOYER CONTRIBUTION
for
Plan Name: The Craig Corporation Employee Savings Plan
-------------------------------------------
(a) Safe Harbor Matching Employer Contribution Formula
Note: Matching Employer Contributions made under this Option must be
100% vested when made and may only be distributed because of death,
disability, separation from service, age 59 l/2, or termination of the
Plan without the establishment of a successor plan. In addition, each Plan
Year, the Employer must provide written notice to all Active Participants
of their rights and obligations under the Plan.
(1) [_] 100% of the first 3% of the Active Participant's Compensation
contributed to the Plan and 50% of the next 2% of the Active
Participant's Compensation contributed to the Plan.
(A) [_] Safe harbor Matching Employer Contributions shall not
---
be made on behalf of Highly Compensated Employees.
Note: If the Employer selects this formula and does not elect Option
---
1.10(b), Additional Matching Employer Contributions, Matching
Employer Contributions will automatically meet the safe harbor
contribution requirements for deemed satisfaction of the "ACP" test.
(2) [_] Other Tiered Match:
___% of the first ___% of the Active Participant's Compensation
contributed to the plan,
___% of the next ___% of the Active Participant's Compensation
contributed to the plan,
___% of the next ___% of the Active Participant's Compensation
contributed to the plan.
Note: To satisfy the safe harbor contribution requirement for the
"ADP" test, the percentages specified above for Matching Employer
Contributions may not increase as the percentage of Compensation
contributed increases, and the aggregate amount of Matching Employer
Contributions at such rates must at least equal the aggregate amount
of Matching Employer Contributions which would be made under the
percentages described in (a)(1) of this Addendum.
32
<PAGE>
(A) [_] Safe harbor Matching Employer Contributions shall not be made
---
on behalf of Highly Compensated Employees.
(B) [_] The formula specified above is also intended to satisfy the
safe harbor contribution requirement for deemed satisfaction
of the "ACP".
Note: To satisfy the safe harbor contribution requirement for the
"ACP" test, the Deferral Contributions matched cannot exceed 6% of a
Participant's Compensation.
33
<PAGE>
ADDENDUM
Re: SAFE HARBOR NONELECTIVE EMPLOYER CONTRIBUTION
for
Plan Name: The Craig Corporation Employee Savings Plan
-------------------------------------------
(a) For each Plan Year, the Employer shall contribute for each eligible Active
Participant an amount equal to ___% (not less than 3% nor more than 15%) of
such Active Participant's Compensation.
Note: Contributions that are intended to satisfy the safe harbor
contribution requirement must be 100% vested when made and may only be
distributed because of death, disability, separation from service, age
59 l/2, or termination of the Plan without the establishment of a successor
plan. In addition, each Plan Year, the Employer must provide written notice
to all Active Participants of their rights and obligations under the Plan.
(1) [_] Safe harbor Nonelective Employer Contributions shall not be
---
made on behalf of Highly Compensated Employees.
(2) [_] In conjunction with its election of the safe harbor described
above, the Employer has elected to make Matching Employer
Contributions under Subsection 1.10 that are intended to meet
the requirements for deemed satisfaction of the "ACP" test
with respect to Matching Employer Contributions (i.e. (1) the
percentage of Deferral Contributions matched does not increase
as the percentage of Compensation contributed increases; (2)
Highly Compensated Employees are not provided a greater
percentage match than Non-Highly Compensated Employees; (3)
Deferral Contributions matched do not exceed 6% of a
Participant's Compensation; and (4) for Plan Years beginning
on or after January 1,2000, the dollar amount of any
discretionary Matching Employer Contributions made on a
Participant's behalf for the Plan Year shall not exceed 4% of
the Participant's Compensation for the Plan Year).
34
<PAGE>
EXHIBIT 10.29
================================================================================
PURCHASE AGREEMENT
AMONG
NATIONAL AUTO CREDIT, INC.,
NATIONAL CINEMAS, INC.
FA, INC.
and
READING ENTERTAINMENT, INC.
______________________________
Dated as of April 5, 2000
______________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS........................................................................ 1
Section 1.1. Definitions................................................................... 1
ARTICLE II. PURCHASE AND SALE.................................................................. 6
Section 2.1. Transfer of Shares............................................................ 6
Section 2.2. Closing....................................................................... 6
Section 2.3. Purchase Price................................................................ 6
Section 2.4. Certain Indemnitees........................................................... 7
Section 2.5. Newco......................................................................... 7
Section 2.6. Option Letters................................................................ 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PARENT........................ 7
Section 3.1. Organization.................................................................. 7
Section 3.2. Capitalization; Title to the Interests........................................ 8
Section 3.3. Subsidiaries and Investments.................................................. 8
Section 3.4. Authorization and Validity of Agreement....................................... 8
Section 3.5. No Conflict or Violation...................................................... 9
Section 3.6. Consents and Approvals........................................................ 9
Section 3.7. Financial Statements.......................................................... 9
Section 3.8. Absence of Certain Changes or Events.......................................... 10
Section 3.9. Tax Matters................................................................... 11
Section 3.10. Intentionally Omitted......................................................... 12
Section 3.11. Intellectual Property......................................................... 12
Section 3.12. Personal Property............................................................. 12
Section 3.13. Real Property................................................................. 12
Section 3.14. Licenses, Permits and Governmental Approvals.................................. 14
Section 3.15. Compliance with Law........................................................... 14
Section 3.16. Contracts..................................................................... 15
Section 3.17. Intentionally Omitted......................................................... 15
Section 3.18. Litigation.................................................................... 16
Section 3.19. Insurance..................................................................... 16
Section 3.20. Employee Plans................................................................ 16
Section 3.21. Labor Matters................................................................. 16
Section 3.22. Environmental Matters......................................................... 16
Section 3.23. Brokers and Finders........................................................... 17
Section 3.24. Year 2000 Compliance.......................................................... 17
Section 3.25. Intentionally Omitted......................................................... 17
Section 3.26. Change in Ownership........................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 3.27. Intentionally Omitted......................................................... 17
Section 3.28. Absence of Undisclosed Liabilities............................................ 18
Section 3.29. Purchase for Investment....................................................... 18
Section 3.30. Restricted Securities......................................................... 18
Section 3.31. Due Diligence................................................................. 18
Section 3.32. Survival...................................................................... 19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND NEWCO.............................. 19
Section 4.1. Corporate Organization........................................................ 19
Section 4.2. Subsidiaries and Investments.................................................. 19
Section 4.3. Authorization and Validity of Agreement....................................... 20
Section 4.4. Capitalization................................................................ 20
Section 4.5. No Conflict or Violation...................................................... 21
Section 4.6. Consents and Approvals........................................................ 21
Section 4.7. Financial Statements.......................................................... 21
Section 4.8. Absence of Certain Changes or Events.......................................... 21
Section 4.9. Tax Matters................................................................... 22
Section 4.10. Real Property................................................................. 23
Section 4.11. Litigation.................................................................... 25
Section 4.12. Employee Plans................................................................ 25
Section 4.13. Labor Matters................................................................. 28
Section 4.14. Environmental Matters......................................................... 28
Section 4.15. Purchase for Investment....................................................... 29
Section 4.16. Brokers and Finders........................................................... 29
Section 4.17. Due Diligence................................................................. 29
Section 4.18. Survival...................................................................... 29
ARTICLE V. COVENANTS OF THE PARTIES........................................................... 30
Section 5.1. Consents and Approvals Required on Closing Date............................... 30
Section 5.2. Further Assurances............................................................ 30
Section 5.3. Best Efforts.................................................................. 30
Section 5.4. Nondisclosure................................................................. 30
Section 5.5. Tax Matters................................................................... 30
Section 5.6. Cooperation on Tax Matters.................................................... 31
Section 5.7. Amendment to Management Agreement............................................. 31
Section 5.8. Amendment to Trademark License Agreement...................................... 31
Section 5.9. Notification and Put Rights................................................... 31
Section 5.10. Amendment to Certificate of Incorporation..................................... 32
Section 5.11. Board Representation.......................................................... 32
ARTICLE VI. INDEMNIFICATION.................................................................... 32
Section 6.1. Indemnification by the Seller and the Parent.................................. 32
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 6.2. Procedures for Indemnification by the Seller and the Parent................... 33
Section 6.3. Indemnification by the Buyer and Newco........................................ 34
Section 6.4. Procedures for Indemnification by the Buyer and Newco......................... 35
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE SELLER AND
THE PARENT......................................................................... 36
Section 7.1. Representations and Warranties of the Buyer and Newco......................... 36
Section 7.2. Performance of the Obligations of the Buyer and Newco......................... 36
Section 7.3. Consents and Approvals........................................................ 36
Section 7.4. No Violation of Orders........................................................ 36
Section 7.5. Registration Rights Agreement................................................. 36
Section 7.6. Buyer Closing Documents....................................................... 36
Section 7.7. Legal Matters................................................................. 37
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF THE BUYER AND NEWCO................................... 37
Section 8.1. Representations and Warranties of the Seller and the Parent................... 37
Section 8.2. Performance of the Obligations of the Seller and the Parent................... 37
Section 8.3. Consents and Approvals........................................................ 37
Section 8.4. No Violation of Orders........................................................ 37
Section 8.5. Sellers Closing Documents..................................................... 38
Section 8.6. Legal Matters................................................................. 38
ARTICLE IX. TERMINATION........................................................................ 38
Section 9.1. Conditions of Termination..................................................... 38
Section 9.2. Effect of Termination......................................................... 39
Section 9.3. Intentionally Omitted......................................................... 39
ARTICLE X. MISCELLANEOUS...................................................................... 39
Section 10.1. Successors and Assigns........................................................ 39
Section 10.2. Governing Law; Jurisdiction................................................... 39
Section 10.3. Service of Process............................................................ 39
Section 10.4. Expenses; Fees................................................................ 39
Section 10.5. Severability.................................................................. 39
Section 10.6. Notices....................................................................... 39
Section 10.7. Amendments; Waivers........................................................... 41
Section 10.8. Public Announcements.......................................................... 41
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Section 10.9. Entire Agreement.............................................................. 41
Section 10.10. Parties in Interest........................................................... 41
Section 10.11. Scheduled Disclosures......................................................... 41
Section 10.12. Specific Performance.......................................................... 41
Section 10.13. Section and Paragraph Headings................................................ 41
Section 10.14. Counterparts.................................................................. 42
</TABLE>
Exhibits
- --------
Exhibit A - Form of Amendment and Waiver
Exhibit B - Option Letters
Exhibit C - Company Financial Statements
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Amendment to Trademark License Agreement
Exhibit F - Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Special Rights and the
Qualifications, Limitations, Restrictions, and Other Distinguishing
Characteristics of the Series A Convertible Preferred Stock of
National Auto Credit, Inc.
iv
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into as of
this 4th day of April, 2000, by and among National Auto Credit, Inc., a Delaware
corporation (the "Buyer"), National Cinemas, Inc. ("Newco"), FA, Inc. (d/b/a FA
of Delaware), a Delaware corporation (the "Seller"), and Reading Entertainment,
Inc., a Nevada corporation (the "Parent").
PRELIMINARY STATEMENT
WHEREAS, Angelika Film Centers LLC, a Delaware limited liability company
(the "Company"), owns and operates the Angelika Film Center, consisting of a
multiplex cinema and caf complex, located at 18 W. Houston Street, New York, New
York, in the SOHO District of Manhattan;
WHEREAS, the Seller owns an 83.34% membership interest in the Company
which, together with the remaining 16.66% membership interest in the Company
owned by Sutton Hill Associates, a California general partnership ("Sutton
Hill"), constitutes all of the outstanding membership interests in the Company
(the "Interests"); and
WHEREAS, the Parent owns indirectly all of the issued and outstanding
shares of capital stock of the Seller and Buyer owns all of the issued and
outstanding capital stock of Newco; and
WHEREAS, the Buyer desires to enter into the motion picture exhibition
business in the United States and to purchase a 50% membership interest in the
Company from the Seller (the "Purchased Interests"), and the Seller desires to
sell the Purchased Interests to the Buyer, on the Closing Date (as hereinafter
defined), upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement (including the
recitals and Schedules hereto), the following terms shall have the following
meanings (such meanings to be applicable equally to both singular and plural
forms of the terms defined):
"Affiliate" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of the power to direct or cause the
direction of management, policies or investments (whether through ownership of
securities or partnership or other ownership interests, by management or
advisory contract or otherwise) of such Person.
1
<PAGE>
"Agreement" shall have the meaning set forth in the preamble hereto.
"Amended Trademark License Agreement" shall have the meaning set forth in
Section 5.9 hereof.
"Amendment and Waiver" means the Amendment and Waiver to the Limited
Liability Company Agreement between the Seller and Sutton Hill to be entered
into among the Seller and Sutton Hill on or prior to the Closing Date in the
form attached hereto as Exhibit A.
"Benefit Arrangement" shall have the meaning set forth in Section 3.20
hereof.
"Buyer" shall have the meaning set forth in the preamble hereto.
"Buyer Common Stock" means the Common Stock, par value $.05 per share, of
the Buyer.
"Buyer Series A Preferred Stock" means the Series A Convertible Preferred
Stock, par value $.05 per share, of the Buyer, described on Exhibit F hereto.
"Buyer Employee Plans" shall have the meaning set forth in Section 4.12
hereof.
"Buyer ERISA Affiliate" shall have the meaning set forth in Section 4.12
hereof.
"Buyer Events of Breach" shall have the meaning set forth in Section 6.3
hereof.
"Buyer Indemnitees" shall have the meaning set forth in Section 6.1 hereof.
"Buyer Leased Property" shall have the meaning set forth in Section 4.10(b)
hereof.
"Buyer Leases" shall have the meaning set forth in Section 4.10(b) hereof.
"Buyer Losses" shall have the meaning set forth in Section 6.1 hereof.
"Buyer Material Adverse Effect" shall mean a material adverse effect on the
business, operations, assets, properties or condition (financial or otherwise)
of the Buyer and its subsidiaries, taken as a whole.
"Buyer Multiemployer Plan" shall have the meaning set forth in Section
4.12(b) hereof.
"Buyer Owned Real Property" shall have the meaning set forth in Section
4.10(a) hereof.
"Buyer Pension Plans" shall have the meaning set forth in Section 4.12
hereof.
"Buyer Plans" shall have the meaning set forth in Section 4.12 hereof.
"Buyer Financial Statements" shall have the meaning set forth in Section
4.7 hereof.
2
<PAGE>
"CERCLA" shall have the meaning set forth in Section 3.22(b) hereof.
"Certificate of Designation" shall mean that Certificate of Designation,
Number, Powers, Preferences and Relative, Participating, Optional and Other
Special Rights and the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of the Series A Convertible Preferred Stock of
National Auto Credit, Inc., the form of which is attached hereto as Exhibit F.
"Closing" shall have the meaning set forth in Section 2.2 hereof.
"Closing Date" shall have the meaning set forth in Section 2.2 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder, as in effect from time to time.
"Commission" means the Securities and Exchange Commission.
"Company" shall have the meaning set forth in the preliminary statement
hereof.
"Company Balance Sheet" shall have the meaning set forth in Section 3.7
hereof.
"Company Financial Statements" shall have the meaning set forth in Section
3.7 hereof.
"Company Material Adverse Effect" shall mean a material adverse effect on
the business, operations, assets, properties or condition (financial or
otherwise) of the Company.
"Company Permits" shall have the meaning set forth in Section 3.14 hereof.
"Company Unaudited Financial Statements" shall have the meaning set forth
in Section 3.7 hereof.
"Contracts" shall have the meaning set forth in Section 3.16 hereof.
"Employee Plans" shall have the meaning set forth in Section 3.20(a)
hereof.
"Employment and Labor Agreements" shall have the meaning set forth in
Section 4.13(a) hereof.
"Environmental Laws" shall have the meaning set forth in Section 3.22(a)
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in effect from time to
time.
"GAAP" shall mean United States generally accepted accounting principles as
in effect on the date on which the document or calculation to which it refers
relates, applied on a consistent basis throughout the periods covered thereby.
3
<PAGE>
"Government" shall mean any agency, division, subdivision, audit group or
procuring office of the Government of the United States, any state of the United
States or any foreign government, including the employees or agents thereof.
"Hazardous Materials" shall have the meaning set forth in Section 3.22(c)
hereof.
"Income Tax" or "Income Taxes" shall mean all Taxes based upon, measured
by, or calculated with respect to (i) gross or net income or gross or net
receipts or profits (including, but not limited to, any capital gains, minimum
taxes and any Taxes on items of tax preference, but not including sales, use,
goods and services, real or personal property transfer or other similar Taxes),
(ii) multiple bases (including, but not limited to, corporate franchise, doing
business or occupation Taxes) if one or more of the bases upon which such Tax
may be based upon, measured by, or calculated with respect to, is described in
clause (i) above or (iii) withholding taxes measured by, or calculated with
respect to, any payments or distributions (other than wages).
"Indebtedness" shall mean all loan and credit agreements, indentures,
debentures, promissory notes and other evidences of indebtedness, and all
guarantees related thereto, of the Company.
"Intellectual Property" shall have the meaning set forth in Section 3.11
hereof.
"Interests" shall have the meaning set forth in the Preliminary Statement
hereof.
"Leases" shall have the meaning set forth in Section 3.13(b) hereof.
"Leased Property" shall have the meaning set forth in Section 3.13(b)
hereof.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien (statutory or other) or conditional sale agreement.
"Management Agreement" shall mean the Management Agreement, dated as of
August 27, 1996, by and between the Company and City Cinemas Corporation, a New
York corporation.
"Newco" shall have the meaning set forth in the preamble hereto.
"NLRB" shall have the meaning set forth in Section 4.13(b) hereof.
"Option Letters" shall have the meaning set forth in Section 2.6 hereof.
"Parent" shall have the meaning set forth in the preamble hereto.
"PBGC" shall have the meaning set forth in Section 4.12(e) hereof.
"Permits" shall mean licenses, permits, franchises, authorizations and
approvals issued or granted by the Government, any state or local government,
any foreign national or local
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government, or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing.
"Person" shall mean and include any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock company,
trust, any other unincorporated organization or Government.
"Plans" shall have the meaning set forth in Section 3.20(a) hereof.
"Proceeding" shall have the meaning set forth in Section 6.2 hereof.
"Purchased Interests" shall have the meaning set forth in the Preliminary
Statement hereof.
"Reading Investment" shall have the meaning set forth in Section 5.9
hereof.
"Registration Rights Agreement" means the Registration Rights Agreement to
be entered into among the Buyer and the Seller on the Closing Date in the form
attached hereto as Exhibit D.
"SEC Reports" means the registration statements, reports and proxy
statements filed with the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Events of Breach" shall have the meaning set forth in Section 6.1
hereof.
"Seller Indemnitees" shall have the meaning set forth in Section 6.3
hereof.
"Seller Losses" shall have the meaning set forth in Section 6.3 hereof.
"Seller" shall have the meaning set forth in the preamble hereto.
"Share Consideration" shall have the meaning set forth in Section 2.3
hereof.
"Sutton Hill" shall have the meaning set forth in the Preliminary Statement
hereof.
"Taxes" shall mean any and all federal, state, local, foreign and other
taxes, levies, fees, imposts, duties and charges of whatever kind (including any
interest, penalties or additions to the tax imposed in connection therewith or
with respect thereto), whether or not imposed on the Company, including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, and also ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, employment,
social security, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer and gains taxes and customs duties.
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"Tax Returns" shall mean returns, reports, information statements and other
documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any Tax and shall
include any amended returns required as a result of examination adjustments made
by the Internal Revenue Service or other Tax authority.
"Transaction Documents" shall mean this Agreement and the Exhibits and
Schedules hereto, the Registration Rights Agreement, the Option Letters, the
Amendment and Waiver, the Amended Trademark License Agreement and all other
agreements, instruments, certificates and other documents to be entered into or
delivered by any party in connection with the transactions contemplated to be
consummated pursuant to any of the foregoing.
ARTICLE II
PURCHASE AND SALE
Section 2.1 Transfer of Interests. On the Closing Date and upon
the terms and subject to the conditions set forth in this Agreement, the Seller
shall sell, assign, transfer, convey and deliver the Purchased Interests, free
and clear of any liens, claims, charges, security interests or other legal or
equitable encumbrances, limitations or restrictions, to the Buyer, and the Buyer
shall purchase and accept the Purchased Interests from the Seller.
Section 2.2 Closing. The closing of the sale and purchase of the
Purchased Interests (the "Closing") shall take place on the 5th day of April,
2000, or at such other time and date as the parties hereto shall agree in
writing (the "Closing Date"), at the offices of De Martino Finkelstein Rosen &
Virga, 1818 N Street, N.W., Suite 400, Washington, D.C. 20036, or at such other
place as the parties hereto shall agree. At the Closing, the Seller shall
deliver to the Buyer or its designees instruments of transfer reasonably
acceptable to the Buyer transferring the Purchased Interests, with all stamp or
other taxes attributable to the transfer of such Purchased Interests paid or
provided for as contemplated herein, and the Seller and the Parent shall execute
and deliver the Transaction Documents to which each of them is a party. In full
consideration and exchange for the Purchased Interests, the Buyer shall
thereupon pay to the Seller the purchase price as provided in Section 2.3
hereof, and the Buyer and Newco shall execute and deliver the Transaction
Documents to which each of them is a party.
Section 2.3 Purchase Price. Upon the terms and subject to the
conditions set forth in this Agreement, in reliance on the representations,
warranties, covenants and agreements of the parties contained herein, the
consideration for the sale and transfer of the Purchased Interests on the
Closing Date shall consist of (i) 8,999,900 shares of Buyer Common Stock (the
"Common Share Consideration") and (ii) 100 shares of Buyer Series A Preferred
Stock (the "Preferred Share Consideration"). The Buyer shall deliver to the
Seller the certificates representing the Common Share Consideration on the
Closing Date, and the Buyer shall deliver to the Seller the certificates
representing the Preferred Share Consideration promptly following the acceptance
for filing under the Delaware General Corporation Law of the Certificate of
Designation. In the event that the Certificate of Designation for the Buyer's
Series A Preferred Stock has not been filed with the appropriate Delaware
authorities at the Closing Date, the parties will nevertheless
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close the transaction, based upon Buyer's covenant to file such Certificate of
Designation and to issue the Buyer Series A Preferred Stock immediately
thereafter. In such case, stock certificates representing such Buyer Series A
Preferred Stock will be conditionally delivered to Seller at the Closing to be
effective immediately upon the filing of the Certificate of Designation. The
failure to file the Certificate of Designation within 48 hours of the Closing
will give to Seller the right, at its election, either (a) to rescind the
transactions provided for in this Agreement or (b) to surrender to Buyer the
Buyer Common Stock received and its rights to receive the Buyer Series A Common
Stock in exchange for cash in the amount of $13.5 million.
Section 2.4 Certain Indemnitees. Reference is made to that certain
Guarantee dated August 28, 1996 by Parent in favor of Cable Building Associates,
pursuant to which Parent has guaranteed the obligations of the Company under the
lease between Cable Building Associates and the Company (the "Cable Guarantee").
Effective upon the Closing, NAC agrees to indemnify Parent for 50% of any
liability that Parent may incur under the Cable Guarantee other than any
liability resulting solely from the breach by Parent of its obligations under
the Cable Guarantee. Upon the request of Parent, NAC and Parent will cooperate
and work in good faith to separately document such indemnity, with the intention
that Parent and NAC be, in effect, each responsible for 50% of the obligations
of the guarantor under such guarantee.
Section 2.5 Newco. On the Closing Date, the Buyer shall transfer
to Newco the Purchased Interests. Seller hereby consents to the transfer of the
Purchased Interests to Newco. The parties acknowledge and agree that other than
Newco's obligations pursuant to this Agreement, ownership and management of the
Purchased Interests, ownership of any distributions received from the Company
and obligations pursuant to the operating agreement with respect to the Company,
Newco shall not incur any liabilities or obligations or conduct any business.
Buyer hereby covenants and agrees that it will not take, and will cause Newco
not to take, any action that would foreseeably cause Newco to be unable to
satisfy its obligations hereunder or would foreseeably render such obligations
unenforceable, including, without limitation, any action with respect to the
sale or other disposition by Newco of any of its assets, the declaration of
dividends by Newco, the repurchase, redemption or other acquisition by Newco of
any of its stock, the incurrence of indebtedness by Newco, the creation of any
liens or encumbrances by Newco on any of its assets, or the merger,
consolidation, liquidation or dissolution of Newco.
Section 2.6 Option Letters. The Buyer and the Parent acknowledge
that they are executing and delivering simultaneously with this Agreement the
Option Letters in the form set forth as Exhibits B-1 and B-2 hereto (the "Option
Letters").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PARENT
The Seller and the Parent (jointly and severally) represent and warrant to
the Buyer as follows:
Section 3.1 Organization. The Company is a limited liability
company duly formed, validly existing and in good standing under the laws of the
State of Delaware and has all requisite
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power and authority and all governmental licenses, authorizations, permits,
consents and approvals to own its properties and assets and to conduct its
businesses as now conducted and as proposed to be conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority will not, in the aggregate, have a Company Material Adverse
Effect. The Company is duly qualified to do business as a foreign company and is
in good standing in every jurisdiction where the character of the properties
owned or leased by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified would not
have a Company Material Adverse Effect. The Company is qualified to do business
only in the State of New York. Copies of the Limited Liability Company
Agreement, the Management Agreement of the Company and other formation documents
of the Company, with all amendments thereto to the date hereof, have been
furnished by the Parent to the Buyer or its representatives, and such copies are
accurate and complete as of the date hereof.
Section 3.2 Capitalization; Title to the Interests. The authorized
and outstanding capitalization of the Company is as set forth in Schedule 3.2.
------------
All of the Purchased Interests are issued and outstanding as of the date of this
Agreement and are owned of record and beneficially by the Seller as set forth in
Schedule 3.2. The Purchased Interests have been duly authorized and validly
- ------------
issued and no personal liability attaches to the ownership thereof. The
Purchased Interests represent 50% of the issued and outstanding Interests of the
Company. Except for this Agreement and as set forth on Schedule 3.2, there are
------------
no outstanding options, warrants, agreements, conversion rights, preemptive
rights or other rights to subscribe for, purchase or otherwise acquire the
Interests, any unissued or treasury shares of capital stock or interests of the
Company, any outstanding obligations of the Company to repurchase, redeem or
otherwise acquire outstanding Interests or any securities convertible into or
exchangeable for any shares of capital stock or interests of the Company. The
Seller owns beneficially and of record and has all of the ownership interests
in, all of the Purchased Interests, free and clear of any mortgage, pledge,
hypothecation, rights of others, claim, security interest, charge, encumbrance,
title defect, title retention agreement, voting trust agreement, interest,
option, lien, charge or similar restriction or limitation (including any
restriction on the right to vote, sell or otherwise dispose of the Purchased
Interests).
Section 3.3 Subsidiaries and Investments. The Company does not,
directly or indirectly, own, of record or beneficially, any outstanding voting
securities or other equity interests in or control any corporation, limited
liability company, partnership, trust, joint venture or other entity.
Section 3.4 Authorization and Validity of Agreement. Each of the
Seller and the Parent has all requisite corporate or other authority to enter
into the Transaction Documents to which it is a party and to carry out its
obligations thereunder. The execution and delivery of the Transaction Documents
to which the Seller and Parent are parties by the Seller and the Parent and the
performance by the Seller and the Parent of their respective obligations
thereunder have been duly authorized by all necessary action on the part of the
Seller and the Parent, and no other proceedings on the part of the Seller and
the Parent are necessary to authorize such execution, delivery and performance.
The Transaction Documents to which the Seller and Parent are parties have been
duly and validly executed and delivered by each of the Seller and the Parent and
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constitute a valid and binding obligation of each of the Seller and the Parent,
enforceable against each of them in accordance with their terms, except as may
be limited by applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors' rights generally and
except for the limitations imposed by general principles of equity.
Section 3.5 No Conflict or Violation. Assuming the consents and
approvals listed on Schedule 3.6 are obtained or waived, the execution, delivery
------------
and performance by each of the Seller and the Parent of the Transaction
Documents to which it is a party (i) does not and will not violate or conflict
with the Limited Liability Company Agreement, Operating Agreement, Management
Agreement or any formation documents of the Company, (ii) does not and will not
violate any provision of law, or any order, judgment or decree of any court or
other governmental or regulatory authority binding on the Company, the Seller or
the Parent except which individually or in the aggregate would not have a
Company Material Adverse Effect, (iii) does not violate and will not result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any contract, lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Seller, the Parent or
the Company is a party or by which the Seller, the Parent or the Company is
bound or to which any of their respective properties or assets is subject,
except which in the aggregate would not have a Company Material Adverse Effect,
(iv) will not result in the creation or imposition of any Lien upon any of the
Purchased Interests, and (v) will not result in the cancellation, modification,
revocation or suspension of any of the licenses, franchises, Permits,
authorizations or approvals referred to on Schedule 3.14, except which in the
aggregate would not have a Company Material Adverse Effect.
Section 3.6 Consents and Approvals. Except as set forth on
Schedule 3.6, no consent, waiver, authorization or approval of, or declaration
- ------------
or filing with, any governmental or regulatory authority, domestic or foreign,
or other Person is required in connection with the execution and delivery of the
Transaction Documents by the Seller and the Parent or the performance by the
Seller and the Parent of their respective obligations thereunder.
Section 3.7 Financial Statements. The Parent has heretofore
furnished to the Buyer copies of (i) the unaudited consolidated balance sheet of
the Company as of December 31, 1999 (the "Company Balance Sheet"), together with
the related statements of operations, members' equity and cash flows for the
twelve month period then ended and the notes thereto, if any (the "Company
Unaudited Financial Statements"); and (ii) the unaudited consolidated balance
sheet of the Company as of December 31, 1998, together with the related
statement of operations, members' equity and cash flows for the twelve month
period then ended and the notes thereto, if any and (iii) the audited
consolidated balance sheet of the Company as of the fiscal years ended January
1, 1998 and December 31, 1996, together with the related statements of
operations, members' equity and cash flows for the periods then ended and the
notes thereto, if any, (the financial statements listed in clause (i) (ii) and
(iii) above being hereinafter referred to as the "Company Financial
Statements"). Except as set forth therein, the Company Financial Statements:
(i) were prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby; (ii) present fairly in all material
respects the financial position, results of operations and cash flow of the
Company as of such dates and for the periods then
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<PAGE>
ended, except for customary audit adjustments which are not material to the
financial position or results of operations of the Company; and (iii) are in
accordance with the books of account and records of the Company. The Company
Financial Statements are attached hereto as Exhibit C.
Section 3.8 Absence of Certain Changes or Events. Except as
contemplated by this Agreement, or as set forth in Schedule 3.8, since December
------------
31, 1999, the business of the Company has been conducted in the ordinary course
consistent with past practices and, other than any of the following actions
taken in the ordinary course of business, there has not been any:
(a) Event that has had or is reasonably likely to have a Company
Material Adverse Effect, and no factor or condition exists and no event has
occurred that would be likely to result in a Company Material Adverse Effect;
(b) Destruction of, damage to, or loss of, any material asset of the
Company (whether or not covered by insurance);
(c) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization methods, policies, or
rate) by the Company;
(d) Declaration or making of, or agreement to declare or make, any
payment of dividends or distribution of any asset of any kind whatsoever in
respect to any of the Company's interests, nor any purchase, redemption, or
other acquisition or agreement to purchase, redeem, or otherwise acquire, any of
such outstanding interests;
(e) Borrowing of, or agreement to borrow, any funds by the Company,
and the Company has not incurred or become subject to any material obligation or
liability (whether absolute, accrued, contingent or otherwise);
(f) Payment of any obligation or liability (absolute or contingent),
by the Company other than current liabilities reflected in or shown on the
Company Financial Statements and current liabilities incurred in the ordinary
course of business;
(g) Mortgage, pledge, or subjection to lien, charge, or other
encumbrance, of any of the assets, properties, or rights (tangible or
intangible) of the Company, except for mechanics lien and Liens for taxes, in
each case, not yet due and payable;
(h) Sale, transfer or disposal of any of the assets, properties, or
rights (tangible or intangible) of the Company;
(i) Agreement entered into granting any preferential rights to
purchase any of the assets, properties, or rights (tangible or intangible) of
the Company (including management and control thereof), or requiring the consent
of any party to the transfer and assignment of any such assets, properties, or
rights (including management and control thereof);
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(j) Amendment, modification, or termination of any contract, lease,
license, promissory note, commitment, indenture, mortgage, deed of trust,
collective bargaining agreement, employee benefit plan, or any other agreement,
instrument, indebtedness, or obligation to which the Company is a party, or by
which it or any of its assets or properties are bound, except those agreements,
amendments, or terminations effected in the ordinary course of business
consistent with past practices;
(k) Capital expenditure by the Company exceeding $25,000, or
additions to property, plant and equipment used in the operations of the Company
other than ordinary repairs and maintenance;
(l) Citation received by the Company from any governmental entity or
agency for any violations of any act, law, rule, regulation, or code of any
governmental entity or agency, which citations in the aggregate would be
reasonably likely to result in a Company Material Adverse Effect;
(m) Claim against the Company for damages or alleged damages for any
actual or alleged negligence or other tort or breach of contract (whether or not
fully covered by insurance) except as would not have a Company Material Adverse
Effect; or
(n) Agreement by the Seller, the Parent or the Company to do any of
the things described in the preceding clauses.
Section 3.9 Tax Matters. Except as otherwise disclosed in
Schedule 3.9, (i) the Company has filed (or joined in the filing of) when due
- ------------
all Tax Returns required by applicable law to be filed with respect to the
Company and all Taxes shown to be due on such Tax Returns have been paid; (ii)
all such Tax Returns were true, correct and complete in all material respects as
of the time of such filing; (iii) all Taxes relating to periods ending on or
before the Closing Date, owed by the Company (whether or not shown on any Tax
Return) at any time on or prior to the Closing Date, if required to have been
paid, have been paid (except for Taxes which are being contested in good faith);
(iv) any liability of the Company for Taxes not yet due and payable, or which
are being contested in good faith, has been provided for on the financial
statements of the Company in accordance with and to the extent required by GAAP;
(v) there is no action, suit, proceeding, investigation, audit or claim now
pending against, or with respect to, the Company in respect of any Tax or
assessment, nor is any claim for additional Tax or assessment asserted by any
Tax authority; (vi) no material claim has been made by any Tax authority in a
jurisdiction where the Company does not currently file a Tax Return that it is
or may be subject to Tax by such jurisdiction, nor to the Company's knowledge is
any such assertion threatened; (vii) there is no outstanding request for any
extension of time within which to pay any Taxes or file any Tax Returns; (viii)
there has been no waiver or extension of any applicable statute of limitations
for the assessment or collection of any Taxes of the Company; (ix) no property
of the Company is "tax-exempt use property" within the meaning of Section 168(h)
of the Code; (x) the Company is not a party to any lease made pursuant to former
Section 168(f)(8) of the Internal Revenue Code of 1954; (xi) the Company is
currently and for all periods since its formation has qualified as a
"partnership" within the meaning of Section 7701(a)(2) of the Code; (xii) the
Company has a
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valid election in effect under Section 754 of the Code or, at the request of
Buyer, will make a timely election under Section 754 of the Code with respect to
the Purchased Interests; (xiii) Seller is not a "foreign person" within the
meaning of Section 1445 of the Code; (xiv) the Company is not a party to any
agreement, whether written or unwritten, providing for the payment of Taxes,
payment for Tax losses, entitlements to refunds or similar Tax matters; and
(xiv) the Company has withheld and paid all material Taxes required to be
withheld in connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party.
Section 3.10 Intentionally Omitted.
Section 3.11 Intellectual Property. Schedule 3.11 sets forth a
-------------
true and complete list of all domestic and foreign trademarks, trademark
applications, patents, registered copyrights (except copyrighted software and
theatrical films and film trailers licensed to the Company in its ordinary
course of business) and patent applications owned by, registered in the name of
or licensed to or from the Company as of the date hereof. The Company owns or
possesses adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on its business as presently
conducted. Except as set forth on Schedule 3.11, the Company has not received
-------------
any notice of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect the
interest of the Company, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
individually or in the aggregate, would result in a Company Material Adverse
Effect.
Section 3.12 Personal Property. Except as set forth in Schedule
--------
3.12, the Company owns and has good and marketable title, free and clear of all
- ----
title defects and objections, security interests, Liens, charges and
encumbrances of any nature whatsoever to each item of personal property owned or
leased by the Company and reflected on the Company Balance Sheet and all such
property acquired or leased since the date thereof, except for sales and
dispositions in the ordinary course of business since such date. The property
owned, leased or used by the Company is sufficient and adequate to carry on its
business as presently conducted and all items thereof are in good operating
condition and repair. Except as set forth in Schedule 3.12, the Company holds
-------------
good and transferable leaseholds under valid and enforceable leases in all of
the personal property leased by it, and none of the property leased by the
Company is subject to any sublease, license or other agreement granting to any
person any right to use such personal property. Except as set forth in Schedule
--------
3.12, the Company is not in breach of or default (and no event has occurred
- ----
which, with due notice or lapse of time or both, may constitute such a lapse or
default) of any provision of any of its personal property leases. Except as
disclosed in Schedule 3.12, and except for the personal property of the Seller
-------------
located at 950 Third Avenue, New York, New York, the Company does not hold any
personal property of the Seller or any of their respective Affiliates or any
other Person.
Section 3.13 Real Property.
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(a) The Company does not own any real property.
(b) Schedule 3.13(b) contains a list of all leases and subleases,
together with any amendments thereto and any subordination, nondisturbance and
attornment agreements (the "Leases"), with respect to all real property leased
by the Company (the "Leased Property"). Each Lease is in full force and effect.
The Company has performed all material obligations required to be performed by
it to date under each of the Leases and neither the Company nor, to the best
knowledge of the Parent or the Seller, any other party thereto is (except as set
forth on Schedule 3.13(b)) in material default under any of the Leases (and,
----------------
except as set forth on Schedule 3.13(b), no event has occurred which, with due
----------------
notice or lapse of time or both, would constitute such a lapse or default).
Except as set forth on Schedule 3.13(b), no amount due under the Leases remains
----------------
unpaid and no material controversy, claim, dispute or disagreement exists
between the parties to any of the Leases. The Company has delivered to the Buyer
a copy of each Lease, and all amendments thereto, listed in Schedule 3.13(b),
----------------
except to the extent otherwise noted therein.
(c) To the knowledge of the Parent and the Seller, the covenants,
conditions, restrictions, encroachments, encumbrances, easements, rights of way,
licenses, grants, building or use restrictions, exceptions, reservations,
limitations or other impediments affecting the Leased Property do not and will
not, with respect to each Leased Property, materially impair the Company's
ability to use any such Leased Property in the operation of the Company's
business as presently conducted. There are no pending or, to the knowledge of
the Company, threatened condemnation or similar proceedings affecting the Leased
Property. The Company has access to public roads, streets or the like or valid
easements over private streets, roads or other private property for such ingress
to and egress from the Leased Property, except as would not materially impair
the Company's ability to use any such Leased Property in the operation of the
Company's business as presently conducted.
(d) All brokerage commissions and other compensation and fees payable
by reason of the Leases have been paid in full or are reflected in the Company
Financial Statements except for such commissions and other compensation related
to options or extensions in the Leases which are not yet exercised.
(e) No notices of violations have been received with respect to the
improvements on the Leased Property and the operations therein conducted,
including without limitation, health, fire, environmental, safety, zoning and
building laws, ordinances and administrative regulations, except as set forth on
Schedule 3.13(e).
- ----------------
(f) There are no outstanding requirements or recommendations by any
insurance company which has issued to the Company a policy covering the Leased
Property, or by any board of fire underwriters or other body exercising similar
functions, requiring or recommending any repairs or work to be done on such
property.
(g) All public utilities required for the operation of the Leased
Property, as it is currently operated, and necessary for the conduct of the
business of the Company, as it is
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presently conducted, are installed and operating, and all installation and
connection charges are paid in full.
(h) Except as set forth in Schedule 3.13(b), the Leased Property
----------------
is not subject to any lease, sublease, license or other agreement granting to
any person any right to the use, occupancy or enjoyment of such property or any
portion thereof.
(i) The plumbing, electrical, heating, air conditioning,
elevator, ventilating and all other mechanical or structural systems for which
the Company is responsible under the Leases in the buildings or improvements
are, to the knowledge of the Company, in good working order and condition, and
the roof, basement and foundation walls of such buildings and improvements for
which the Company is responsible under said Leases are, to the knowledge of the
Company, in good condition and free of leaks and other material defects. All
such mechanical and structural systems and such roofs, basement and foundation
walls for which others are responsible under said Leases are, to the knowledge
of the Company, in good working order and condition and free of leaks and other
material defects.
Section 3.14 Licenses, Permits and Governmental Approvals. Schedule 3.14
sets forth a true and complete list of all material Permits issue or granted to
the Company (the "Company Permits"), and all pending applications therefor. Such
list contains a summary description of each such item and, where applicable,
specifies the date issued, granted or applied for, the expiration date and the
current status thereof. Except as set forth in Schedule 3.14, each Company
Permit has been duly obtained, is valid and in full force and effect, and is not
subject to any pending or threatened administrative or judicial proceeding to
revoke, cancel or declare such Company Permit invalid in any respect. The
Company Permits have never been suspended, revoked or otherwise terminated,
subject to any fine or penalty, or subject to judicial or administrative review,
for any reason other than the renewal or expiration thereof nor has any
application of any of the Company for any Company Permit ever been denied. The
Company Permits are sufficient and adequate in all material respects to permit
the continued lawful conduct of the Company's business in the manner now
conducted, and none of the operations of the Company are being conducted in a
manner that violates any of the terms or conditions under which any Company
Permit was granted, except for such Company Permits the absence of which would
not have a Company Material Adverse Effect or any non-compliance which will not
have a Company Material Adverse Effect. Except as set forth in Schedule 3.14, no
-------------
such Company Permit will in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by the Transaction Documents.
Section 3.15 Compliance with Law. Except as set forth in Schedule
3.15 or as would not reasonably be expected to have a Company Material Adverse
Effect, the operations of the Company have been conducted in accordance with all
applicable laws, regulations, orders and other requirements of all courts and
other governmental or regulatory authorities having jurisdiction over the
Company and its assets, properties and operations. Except as set forth in
Schedule 3.15 or as would not reasonably be expected to have a Company Material
- -------------
Adverse Effect, the Company has not received notice of any violation of any such
law, regulation, order or other legal requirement binding on it, and the Company
is not in default with respect to any order,
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writ, judgment, award, injunction or decree of any federal, state or local court
or governmental or regulatory authority or arbitrator, domestic or foreign,
applicable to it or any of its assets, properties or operations. The Company
does not have knowledge of any proposed change in any such laws, rules or
regulations (other than laws of general applicability) that would materially and
adversely affect the transactions contemplated by the Transaction Documents or
all or a material part of the Company's business.
Section 3.16 Contracts.
(a) Schedule 3.16 sets forth (subject to the dollar amount limitations
-------------
of clause (i) below) a true and complete list of all material contracts,
agreements, instruments, commitments and other arrangements to which the Company
is a party or to which the Parent or the Seller is a party and which otherwise
relate to or affect in a material way any of the Company's assets, properties or
operations including, without limitation, all written or oral, express or
implied, (i) contracts, agreements and commitments for the purchase or sale of
products or services which involve a consideration in excess of $25,000; (ii)
contracts, loan agreements, letters of credit, repurchase agreements, mortgages,
security agreements, guarantees, pledge agreements, trust indentures, promissory
notes and other documents or arrangements relating to the borrowing or lending
of money or for lines of credit (including intercompany Indebtedness); (iii)
personal property leases, agreements relating to intangible assets; (iv)
agreements and other arrangements for the sale, pledge, transfer of, or placing
of a Lien on any Interests of the Company, any material assets, property or
rights or for the grant of any options or preferential rights to purchase any
assets, property or rights; (v) documents granting any power of attorney with
respect to the affairs of the Company; (vi) suretyship contracts, performance
bonds, working capital maintenance or other forms of guaranty agreements; (vii)
contracts or commitments limiting or restraining the Company from engaging or
competing in any lines of business or with any person, firm, or corporation;
(viii) partnership or joint venture agreements; (ix) shareholder or membership
agreements or agreements relating to the issuance of any securities of the
Company or the granting of any registrations rights with respect thereto; and
(x) all amendments, modifications, extensions or renewals of any of the
foregoing (the foregoing contracts, agreements and documents are hereinafter
referred to collectively as the "Contracts" and individually as a "Contract").
(b) Each Contract is valid, binding and enforceable against the
Company in accordance with its terms, and in full force and effect on the date
hereof. The Seller, the Parent and the Company have performed all material
obligations, including, but not limited to, the timely making of any rental or
other payments, required to be performed by it under, and is not in default or
in breach of in respect of, any Contract, and no event has occurred which, with
due notice or lapse of time or both, would constitute such a default. To the
Company's knowledge, no other party to any Contract is in default in respect
thereof, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default. The Parent has delivered to the Buyer or
its representatives true and complete originals or copies of all the Contracts.
Section 3.17 Intentionally Omitted.
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Section 3.18 Litigation. Except as set forth in Schedule 3.18,
-------------
there are no claims, actions, suits, proceedings, labor disputes or
investigations pending or, to the knowledge of the Seller or the Parent,
threatened, before any federal, state or local court or governmental or
regulatory authority, domestic or foreign, or before any arbitrator of any
nature, brought by or against any of the Seller, Parent or, to their knowledge
after due inquiry, the Company or any of its respective officers, directors,
employees, agents or Affiliates, except as would not have a Company Material
Adverse Effect. Schedule 3.18 sets forth a list and a summary description of
-------------
all such pending actions, suits, proceedings, disputes or investigations. None
of the Seller, the Parent nor the Company is subject to any order, writ,
judgment, award, injunction or decree which of any national, state or local
court or governmental or regulatory authority or arbitrator, domestic or
foreign, which would have a Company Material Adverse Effect, or that would
interfere with the transactions contemplated by the Transaction Documents.
Section 3.19 Insurance. Schedule 3.19 sets forth a complete and
-------------
accurate list of the insurance policies of the Company as in effect on the date
hereof, including in each case the applicable coverage limits, deductibles and
the policy expiration dates. No notice of any termination or threatened
termination of any of such policies has been received by the Company and such
policies are in full force and effect.
Section 3.20 Employee Plans.
The Company has no employee benefit plans (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974) covering former and current
employees of the Company, or under which the Company has any obligation or
liability. Schedule 3.20 lists all material plans, contracts, bonuses,
-------------
commissions, profit-sharing, savings, stock options, insurance, deferred
compensation, or other similar fringe or employee benefits covering former or
current employees of the Company or under which the Company has any obligation
or liability (each, a "Benefit Arrangement"), if any. The Benefit Arrangements
are and have been administered in substantial compliance with their terms and
with the requirements of applicable federal, state and local laws.
Section 3.21 Labor Matters.
The Company is in material compliance with all laws, if applicable,
regarding employment, wages, hours, equal opportunity, collective bargaining and
payment of social security and other taxes. The Company is not engaged in any
unfair labor practice or discriminatory employment practice and no complaint of
any such practice against the Company has been filed or, to the best of the
Company's knowledge, threatened to be filed with or by the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
administrative agency, federal or state, that regulates labor or employment
practices. The Company is in compliance with all applicable federal, state and
local laws and regulations regarding occupational safety and health standards.
Section 3.22 Environmental Matters. Notwithstanding anything to the
contrary contained in this Agreement and in addition to the other
representations and warranties contained herein:
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(a) The Company and its operations are in material compliance with
all applicable laws, regulations and other requirements of governmental or
regulatory authorities or duties under the common law relating to Hazardous
Materials (as defined below) or to the protection of health, safety or the
environment (collectively, "Environmental Laws") and has obtained, maintained in
effect and complied in all material respects with all licenses, permits and
other authorizations or registrations required under Environmental Laws except
where such noncompliance or such failure to obtain, maintain in effect or comply
with such licenses, permits and other authorizations or registrations would not
give rise to a Material Adverse Effect.
(b) The Company has not performed any act which would reasonably be
expected to give rise to, and has not otherwise incurred, liability to any
person (governmental or not) under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq. ("CERCLA"), or any
-- ----
similar state or municipal law, except in either case where such liability would
not constitute a Material Adverse Effect. nor has the Company received notice of
any such liability or any claim therefor or submitted notice pursuant to Section
103 of CERCLA to any governmental agency.
(c) To the knowledge of James A. Wunderle or Robert F. Smerling, no
asbestos, lead, petroleum, hazardous substance, hazardous waste, contaminant,
pollutant or toxic substance (as such terms may be defined in any Environmental
Law and collectively referred to herein as "Hazardous Materials") has been
released, placed, dumped or otherwise come to be located on, at, beneath or
near, and no storage tank containing any Hazardous Materials is located at, any
of the real property and/or improvements currently or formerly owned or leased
by the Company which could subject the Company to a claim or claims pursuant to
Environmental Laws.
Section 3.23 Brokers and Finders. None of the Seller, the Parent,
the Company or any of their respective officers, directors or employees has
employed any broker or finder and none of the Seller, the Parent, the Company or
any of their respective officers, directors or employees has incurred any
liability for any investment banking fees, brokerage fees, commissions or
finders' fees in connection with the transactions contemplated by this
Agreement.
Section 3.24 Year 2000 Compliance. To the knowledge of the Seller
and the Parent after due inquiry, the software used by the Company will be year
2000 compliant, which, for purposes of this Agreement, shall mean that the data
outside the range 1900-1999 will be correctly processed.
Section 3.25 Intentionally Omitted.
Section 3.26 Change in Ownership. Neither the purchase of the
Purchase Interests by the Buyer nor the consummation of the transactions
contemplated by the Transaction Documents are reasonably likely to result in any
material adverse change in the business operations of the Company or in the loss
of the benefits of any servicing relationship.
Section 3.26 Intentionally Omitted.
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Section 3.28 Absence of Undisclosed Liabilities. Except as set
forth in Schedule 3.28, the Company has no indebtedness or liability, absolute
-------------
or contingent, direct or indirect, which is not shown or provided for on the
balance sheets of the Company included in the Company Financial Statements other
than liabilities incurred or accrued in the ordinary course of business
(including liens of current taxes and assessments not in default) since December
31, 1999 and other than liabilities which GAAP does not require to be shown or
provided for and there is no existing condition, situation or set of
circumstances which would reasonably be expected to result in such a liability.
Except as shown in such balance sheets or in the Company Financial Statements,
the Company is not, directly or indirectly, liable upon or with respect to (by
discount, repurchase agreements or otherwise), or obligated in any other way to
provide funds in respect of, or to guarantee or assume, any debt, obligation or
dividend of any person.
Section 3.29 Purchase for Investment. Each of the Seller and the
Parent is an accredited investor as defined under Rule 501(a) of the Securities
Act. The Share Consideration will be acquired for investment for the Seller's
own account and not with a view to the resale or distribution of any part
thereof, except in compliance with the registration provisions of the Securities
Act or an exemption therefrom.
Section 3.30 Restricted Securities. Each of the Seller and the
Parent understands that the Share Consideration is characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Buyer in a transaction not involving a public offering and
that under such laws and applicable regulations the Share Consideration may be
resold without registration under the Securities Act only in certain limited
circumstances.
Each of the Seller and the Parent further agrees that each certificate
representing the Share Consideration shall be stamped or otherwise imprinted
with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES HAVE BEEN REGISTERED
UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if the Seller shall have delivered
to the Buyer an opinion of counsel reasonably satisfactory to the Buyer to the
effect that the securities being sold may be publicly sold without registration
under the Securities Act. The foregoing shall not be deemed to affect the
obligations of the Buyer under the Registration Rights Agreement.
Section 3.31 Due Diligence. Each of the Seller and the Parent has
sufficient knowledge and experience in investing in companies similar to the
Buyer and is capable of evaluating the merits and risks of its investment in the
Buyer as contemplated by this Agreement and is able to bear the economic risk of
such investment for an indefinite period of time. Each of the Seller and the
Parent has been given access to full and complete information regarding the
Buyer and has utilized such access to its satisfaction for the purpose of
obtaining information each of the Seller
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and the Parent desires or deems relevant to its decision to acquire the Share
Consideration. Each of the Seller and the Parent has had the opportunity to ask
questions of and receive answers from management and representatives of the
Buyer, including the Buyer's accountants, to discuss the Buyer's business,
management and financial affairs and to obtain any additional information each
of the Seller and the Parent desires or deems relevant. Each of the Seller and
the Parent has obtained, to the extent it has deemed necessary, professional
advice with respect to the risks inherent in the acquisition of the Share
Consideration, including, without limitation, the matters relating to the
Buyer's business and financial condition set forth in the Buyer's internal
reports and public filings.
Section 3.32 Survival. Except where a representation or warranty
expressly refers to another date, in which case such representation or warranty
need be true and correct only as of such date, each of the representations and
warranties set forth in this Section 3 shall be deemed represented and made by
the Seller and the Parent at the Closing as if made at such time and shall
survive the Closing for a period terminating on the later of (a) the date 6
months after the Closing Date, and (b) with respect to claims asserted pursuant
to Section 6.1 of this Agreement before the expiration of the applicable
representation or warranty, on the date such claim is finally liquidated or
otherwise resolved; provided, however, that (x) the representations and
-------- -------
warranties in Sections 3.22 hereof shall survive until the third anniversary of
the Closing Date and (y) the representations and warranties in Sections 3.2 and
3.9 hereof shall survive until the applicable statute of limitations for third
party or governmental actions has expired.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND NEWCO
The Buyer and Newco represent and warrant (jointly and severally) to
the Seller as follows:
Section 4.1 Corporate Organization. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to own
its properties and assets and to conduct its businesses as now conducted, except
where the failure to be so organized, existing and in good standing or to have
such power or authority will not, in the aggregate, have a Buyer Material
Adverse Effect. The Buyer is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the character
of the properties owned or leased by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so
qualified would not have a Buyer Material Adverse Effect. Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
own its properties and assets and to conduct its businesses as now conducted.
Section 4.2 Subsidiaries and Investments. Except as set forth in
Schedule 4.2, the Buyer does not, directly or indirectly, own, of record or
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beneficially, any outstanding voting securities or other equity interests in or
control any corporation, limited liability company, partnership, trust, joint
venture or other entity.
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Section 4.3 Authorization and Validity of Agreement. Each of the
Buyer and Newco has all requisite power and authority to enter into the
Transaction Documents to which it is a party and to carry out its obligations
thereunder. The execution and delivery of the Transaction Documents to which
Buyer and Newco are parties and the performance of the Buyer's and Newco's
obligations thereunder have been duly authorized by all necessary corporate
action by the Buyer and Newco, respectively, and no other proceedings on the
part of the Buyer or Newco are necessary to authorize such execution, delivery
and performance. The Transaction Documents to which the Buyer and Newco are
parties have been duly executed by the Buyer and Newco, respectively, and
constitute a valid and binding obligation of each of them, enforceable against
each of them in accordance with their terms, except as may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights generally and except for
the limitations imposed by general principles of equity. The Buyer has
authorized the issuance and delivery of the Share Consideration in accordance
with this Agreement. For purposes of Section 203 of the General Corporation Law
of the State of Delaware, the Board of Directors of the Buyer, prior to the
execution and delivery of this Agreement by the Buyer, and as a condition to the
parties' reaching agreement hereunder, has approved the transactions that are
the subject hereof as contemplated by subsection (a)(1) of said Section 203.
Section 4.4 Capitalization. The authorized and outstanding capital
stock of the Buyer is as set forth in Schedule 4.4. Upon issuance, sale and
------------
delivery as contemplated by this Agreement, the shares which constitute the
Share Consideration will be duly authorized, validly issued, fully paid and non-
assessable shares of the Buyer, free of all preemptive or similar rights, and
entitled to the rights therein described. Except as set forth in Schedule 4.4,
------------
there are no outstanding options, warrants, agreements, conversion rights,
preemptive or similar rights to subscribe for or purchase shares of capital
stock of the Buyer. The fair market value of the Buyer's net assets (calculated
net of all liabilities whether or not currently liquidated and whether currently
known or unknown, including, without limitation, all contingent liabilities
which may be asserted against the Buyer by a Person with respect to the actions
of the Buyer, its officers and/or directors during the time that Sam Frankino
was an officer and/or director of the Buyer, all current litigation claims, and
any liabilities, if any, which may result from the current audit of the Buyer by
the Internal Revenue Service) is not less than $1.65 per share. Notwithstanding
the provisions of Section 4.18 to the contrary, the representation and warranty
set forth in the penultimate sentence of this Section 4.4 shall be deemed
represented and made by the Buyer at the Closing as if made at such time and
shall survive the Closing for a period terminating on the earlier of (a) the
date that the Buyer files its Annual Report on Form 10-K for the fiscal year
ended January 31, 2001 with the Securities and Exchange Commission; or (b) April
1, 2001.
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Section 4.5 No Conflict or Violation.
(a) Assuming the consents and approvals listed on Schedule 4.6 are
obtained or waived, the execution, delivery and performance by the Buyer and
Newco of the Transaction Documents to which it is a party does not and will not
violate or conflict with any provision of the Certificate of Incorporation or
the By-laws of the Buyer or Newco and does not and will not violate any
provision of law, or any order, judgment or decree of any court or other
governmental or regulatory authority, nor violate nor will result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
contract, lease, loan agreement, mortgage, security agreement, trust indenture
or other agreement or instrument to which the Buyer or Newco is a party or by
which either of them is bound or to which any of the Buyer's or Newco's
properties or assets is subject, except for such violations, breaches or
defaults which, in the aggregate, will not have a Buyer Material Adverse Effect.
(b) Neither the transfer to Newco of the Purchased Interests and cash
as contemplated in Section 2.5 hereof, nor the payment by Newco to the Seller of
any amount required to be paid pursuant to Section 2.4(a) or (b) hereof, will
render the Buyer or Newco insolvent or be made with the intention to hinder,
delay or defraud creditors of either the Buyer or Newco, nor will any such
transfer or payment contravene any requirement under Delaware or other
applicable law that such payment be made only out of legally available funds.
Section 4.6 Consents and Approvals. Except as set forth in
Schedule 4.6, no consent, waiver, authorization or approval of, or declaration
- ------------
or filing with, any governmental or regulatory authority, domestic or foreign,
or other Person is required in connection with the execution and delivery of the
Transaction Documents by the Buyer or Newco or the performance by the Buyer or
Newco of its obligations thereunder.
Section 4.7 Financial Statements. The Buyer has heretofore furnished to
the Seller copies of the audited consolidated balance sheets of the Company as
of: (i) January 31, 1999, 1998 and 1997, together with the related statements of
income, stockholders' equity and cash flows for the twelve month period then
ended and the notes thereto, if any, and (ii) the unaudited consolidated balance
sheet of the Company as of October 31, 1999, together with the related
statements of income, stockholders' equity and cash flows for the nine month
period then ended and the notes thereto, if any, (the "Buyer Financial
Statements"). Except as set forth therein, the Buyer Financial Statements,
including the notes thereto: (i) were prepared in accordance with GAAP; (ii)
present fairly in all material respects the consolidated financial position,
results of operations and changes in cash flows of the Buyer as of such dates
and for the periods then ended; and (iii) are in accordance with the books of
account and records of the Buyer.
Section 4.8 Absence of Certain Changes or Events.
(a) Except as contemplated by this Agreement or as set forth in
Schedule 4.8, since October 31, 1999, there has not been:
------------
(i) Any material adverse change in the business, operations,
properties, assets, condition (financial or other) or prospects of the Buyer,
or any event that has
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had or is reasonably likely to have a Buyer Material Adverse Effect, and no
factor or condition exists and no event has occurred that would be likely to
result in any such change;
(ii) Any material loss, damage, destruction or other casualty to its
business (whether or not insurance awards have been received or
guaranteed); or
(iii) Any material change in any method of accounting or accounting
practice of the Buyer.
(iv) Except as contemplated by the Transaction Documents or as set
forth in Schedule 4.8, since October 31, 1999, the Buyer has not:
------------
(i) Incurred any material obligation or liability (whether
absolute, accrued, contingent or otherwise) relating to the operations of
Buyer except in the ordinary course of business consistent with past
practice;
(ii) Sold or transferred any assets material to its business
or canceled any debts or claims or waived any material rights relating to
the operations of its business, except in the ordinary course of business
consistent with past practice;
(iii) Defaulted on any of its material obligations;
(iv) Entered into any material transaction, except in the
ordinary course of business consistent with past practice;
(v) Made any capital expenditure in excess of $25,000, or
additions to property, plant and equipment used in the operations of its
business other than ordinary repairs and maintenance;
(vi) Entered into any agreement or made any commitment to do
any of the foregoing.
Section 4.9 Tax Matters. Except as otherwise disclosed in Schedule 4.9,
------------
(i) the Buyer has filed (or joined in the filing of) when due all
Tax Returns required by applicable law to be filed with respect to the Buyer and
all Taxes shown to be due on such Tax Returns have been paid; (ii) all such Tax
Returns were true, correct and complete in all material respects as of the time
of such filing; (iii) all Taxes relating to periods ending on or before the
Closing Date owed by the Buyer (whether or not shown on any Tax Return) or to
which the Buyer may be liable under Treasury Regulations (S) 1.1502-6 (or
analogous state or foreign provisions) by virtue of having been members of any
"affiliated group" (or other group filing on a combined or unitary basis) at any
time on or prior to the Closing Date, if required to have been paid, have been
paid (except for Taxes which are being contested in good faith); (iv) any
liability of the Buyer for Taxes not yet due and payable, or which are being
contested in good faith, has been provided for on the financial statements of
the Buyer in accordance with and to the extent required by GAAP; (v) there is no
action, suit, proceeding, investigation, audit or claim now pending against, or
with
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respect to, the Buyer in respect of any Tax or assessment, nor is any claim
for additional Tax or assessment asserted by any Tax authority; (vi) no material
claim has been made by any Tax authority in a jurisdiction where the Buyer does
not currently file a Tax Return that it is or may be subject to Tax by such
jurisdiction, nor to the Buyer's knowledge is any such assertion threatened;
(vii) there is no outstanding request for any extension of time within which to
pay any Taxes or file any Tax Returns; (viii) there has been no waiver or
extension of any applicable statute of limitations for the assessment or
collection of any Taxes of the Buyer; (ix) no property of the Buyer is "tax-
exempt use property" within the meaning of Section 168(h) of the Code; (x) the
Buyer is not a party to any lease made pursuant to former Section 168(f)(8) of
the Internal Revenue Code of 1954; (xi) the Buyer has not filed any agreement or
consent under Section 341(f) of the Code; (xii) the Buyer is not a "foreign
person" within the meaning of Section 1445 of the Code; (xiii) the Buyer is not
a party to any agreement, whether written or unwritten, providing for the
payment of Taxes, payment for Tax losses, entitlements to refunds or similar Tax
matters; and (xiv) the Buyer has withheld and paid all material Taxes required
to be withheld in connection with any amounts paid or owing to any employee,
creditor, independent contractor or other third party.
Section 4.10 Real Property.
(a) Schedule 4.10(a) lists all real property owned by the Buyer or
----------------
its subsidiaries (the "Buyer Owned Real Property"). Except as disclosed on
Schedule 4.10(a), the Buyer or its subsidiaries have good and marketable title
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in fee simple to the Buyer Owned Real Property free and clear of any Liens. All
buildings, plants and structures included on the Buyer Owned Real Property lie
wholly within the boundaries of the Buyer Owned Real Property and do not
encroach upon the property of, or otherwise conflict with the property rights
of, any other Person.
(b) Schedule 4.10(b) contains a list of all leases and subleases,
----------------
together with any amendments thereto and any subordination, nondisturbance and
attornment agreements (the "Buyer Leases"), with respect to all real property
leased by the Buyer or its subsidiaries (the "Buyer Leased Property"). Each
Lease is in full force and effect. Each of the Buyer or its subsidiaries has
performed all material obligations required to be performed by it to date under
each of the Leases and neither the Buyer or its subsidiaries nor any other party
thereto is, except as set forth on Schedule 4.10(b), in material default under
----------------
any of the Leases (and, except as set forth on Schedule 4.10(b), no event has
----------------
occurred which, with due notice or lapse of time or both, would constitute such
a lapse or default). No amount due under the Leases remains unpaid and no
material controversy, claim, dispute or disagreement exists between the parties
to any of the Leases. The Buyer has delivered to the Seller a copy of each
Lease, and all amendments thereto, listed in Schedule 4.10(b), except to the
----------------
extent otherwise noted therein.
(c) The covenants, conditions, restrictions, encroachments,
encumbrances, easements, rights of way, licenses, grants, building or use
restrictions, exceptions, reservations, limitations or other impediments
affecting the Buyer Owned Real Property or Buyer Leased Property do not and will
not, with respect to each Buyer Owned Real Property
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or Buyer Leased Property, materially impair the Buyer's or its subsidiaries'
ability to use any such Buyer Owned Real Property or Buyer Leased Property in
the operation of the Buyer's and its subsidiaries' business as presently
conducted. There are no pending or, to the knowledge of the Buyer, threatened
condemnation or similar proceedings affecting the Buyer Owned Real Property.
There are no pending or, to the knowledge of the Buyer, threatened condemnation
or similar proceedings affecting the Buyer Leased Property. The Buyer and its
subsidiaries have access to public roads, streets or the like or valid easements
over private streets, roads or other private property for such ingress to and
egress from the Buyer Owned Real Property and the Buyer Leased Property, except
as would not materially impair the Buyer's and its subsidiaries' ability to use
any such Buyer Owned Real Property or Buyer Leased Property in the operation of
the Buyer's and its subsidiaries' business as presently conducted.
(d) All brokerage commissions and other compensation and fees payable
by reason of the Buyer Leases or the Buyer Owned Real Property have been paid in
full or are reflected in the Buyer Unaudited Financial Statements except for
such commissions and other compensation related to options or extensions in the
Buyer Leases which are not yet exercised.
(e) No notices of violations have been received with respect to the
improvements on the Buyer Owned Real Property and Buyer Leased Property and the
operations therein conducted, including without limitation, health, fire,
environmental, safety, zoning and building laws, ordinances and administrative
regulations, except as set forth on Schedule 4.10(e).
----------------
(f) There are no outstanding requirements or recommendations by any
insurance company which has issued to the Buyer or its subsidiaries a policy
covering the Buyer Owned Real Property or Buyer Leased Property, or by any board
of fire underwriters or other body exercising similar functions, requiring or
recommending any repairs or work to be done on such property.
(g) All public utilities required for the operation of the Buyer
Owned Real Property and the Buyer Leased Property, as they are currently
operated, and necessary for the conduct of the business of the Buyer and its
subsidiaries, as it is presently conducted, are installed and operating, and all
installation and connection charges are paid in full.
(h) Except as set forth in Schedule 4.10(b), the Buyer Owned Real
----------------
Property and the Buyer Leased Property are not subject to any lease, sublease,
license or other agreement granting to any person any right to the use,
occupancy or enjoyment of such property or any portion thereof.
(i) The plumbing, electrical, heating, air conditioning, elevator,
ventilating and all other mechanical or structural systems for which the Buyer
or its subsidiaries are responsible under the Buyer Leases in the buildings or
improvements are, to the knowledge of the Buyer, in good working order and
condition, and the roof, basement and foundation walls of such buildings and
improvements for which the Buyer or its subsidiaries are responsible under said
Buyer Leases, to the knowledge of the Buyer, are in good condition and free of
leaks and other material defects. All such mechanical and structural systems
and such roofs,
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basement and foundation walls for which others are responsible under said Buyer
Leases are, to the knowledge of the Buyer, in good working order and condition
and free of leaks and other material defects.
Section 4.11 Litigation. Except as set forth in the Buyer's
public filings or in Schedule 4.11, there are no claims, actions, suits,
-------------
proceedings, labor disputes or investigations pending or, to the knowledge of
Buyer, threatened before any federal, state or local court or governmental or
regulatory authority, domestic or foreign, or before any arbitrator of any
nature, brought by or against Buyer, any of its officers, directors, employees,
agents or Affiliates, nor is any basis known to Buyer or its Affiliates for any
such action, suit, proceeding or investigation which would reasonably be
expected to have a Buyer Material Adverse Effect. The Buyer is not subject to
any order, writ, judgment, award, injunction or decree of any national, state or
local court or governmental or regulatory authority or arbitrator, domestic or
foreign, which would have a Buyer Material Adverse Effect, or that would or
might interfere with the transactions contemplated by the Transaction Documents.
Section 4.12 Employee Plans.
(a) Schedule 4.12 sets forth: (i) all "employee benefit plans," as
-------------
defined in Section 3(3) of ERISA, and all other employee benefit arrangements or
payroll practices, including, without limitation, any employment or consulting
agreements, any such arrangements or payroll practices providing severance pay,
sick leave, vacation pay, salary continuation for disability, retirement
benefits, deferred compensation, bonus pay, incentive pay, stock options,
hospitalization insurance, medical insurance, life insurance, scholarships or
tuition reimbursements, maintained by the Buyer or its subsidiaries or to which
the Buyer or its subsidiaries are obligated to contribute thereunder for current
or former employees, consultants and directors of the Buyer or its subsidiaries
(the "Buyer Plans"), and (ii) all "employee pension plans", as defined in
Section 3(2) of ERISA, maintained by the Buyer or its subsidiaries or any trade
or business (whether or not incorporated) which is or has ever been under
control or treated as a single employer with the Buyer or its subsidiaries under
Section 414(b), (c), (m), or (o) of the Code ("Buyer ERISA Affiliate") or to
which the Buyer or its subsidiaries or any Buyer ERISA Affiliate has contributed
or has ever been obligated to contribute thereunder (the "Buyer Pension Plans")
(the Buyer Plans and Buyer Pension Plans are hereafter collectively referred to
as the "Buyer Employee Plans").
(b) None of the Buyer Employee Plans is a multiemployer plan, as
defined in Section 3(37) of ERISA ("Buyer Multiemployer Plan"), and neither the
Buyer or its subsidiaries nor any Buyer ERISA Affiliate has withdrawn in a
complete or partial withdrawal from any Buyer Multiemployer Plan, nor has any of
them incurred any liability due to the termination or reorganization of a Buyer
Multiemployer Plan.
(c) Each Buyer Employee Plan that is intended to qualify under
Section 401 of the Code has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Code Section
401(a) and the trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code, and nothing has
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occurred with respect to the operation of any such Buyer Employee Plan that
could cause the loss of such qualification or exemption or the imposition of any
liability, penalty or tax under ERISA or the Code.
(d) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Buyer Employee Plans or by law (without regard to any waivers granted under
Section 412 of the Code) to any funds or trusts established thereunder or in
connection therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before the Closing
Date which are not yet due will have been paid or accrued on or prior to the
Closing Date. No accumulated funding deficiencies exist in any of the Buyer
Employee Plans subject to Section 412 of the Code.
(e) There is no "amount of unfunded benefit liabilities" within the
meaning of Section 4001(a)(18) of ERISA in any of the respective Buyer Pension
Plans which are subject to Title IV of ERISA. Each of the respective Buyer
Pension Plans are fully funded in accordance with the actuarial assumptions used
by the Pension Benefit Guaranty Corporation (the "PBGC") to determine the level
of funding required in the event of the termination of the Buyer Pension Plans.
(f) None of the Buyer or its subsidiaries or any Buyer ERISA
Affiliate has terminated any Buyer Pension Plan subject to Title IV, or incurred
any outstanding liability under Section 4062 of ERISA to the PBGC or to a
trustee appointed under Section 4042 of ERISA. All premiums due the PBGC with
respect to the Buyer Pension Plans have been paid. None of the Buyer or its
subsidiaries or any Buyer ERISA Affiliate has engaged in any transaction
described in Section 4069 of ERISA.
(g) There has been no "reportable event" within the meaning of
Section 4043 of ERISA with respect to any Buyer Pension Plans subject to Title
IV of ERISA which would require the giving of notice or any other event
requiring disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA.
(h) There has been no material violation of ERISA or the Code with
respect to the filing of applicable reports, documents and notices regarding the
Buyer Employee Plans with the Secretary of Labor or the Secretary of the
Treasury or the furnishing of required reports, documents or notices to the
participants or beneficiaries of the Buyer Employee Plans.
(i) True, correct and complete copies of the following documents,
with respect to each of the Buyer Employee Plans, have been delivered to the
Seller by the Buyer: (i) all plans and related trust documents, and amendments
thereto; (ii) the most recent Forms 5500; (iii) the last IRS determination
letter; (iv) summary plan descriptions; (v) the most recent actuarial report
relating to the Buyer Employee Plans; and (vi) written descriptions of all non-
written agreements relating to the Buyer Employee Plans.
(j) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Buyer Employee Plans, the assets of any of
the trusts under
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such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the Buyer Employee Plans with respect to the operation
of such plans (other than routine benefit claims), nor do the Buyer or Newco
have knowledge of facts which could form the basis for any such claim or
lawsuit.
(k) All amendments and actions required to bring the Buyer Employee
Plans into conformity in all material respects with all of the applicable
provisions of ERISA, the Code and other applicable laws have been made or taken
except to the extent that such amendments or actions are not required by law to
be made or taken until a date after the Closing Date.
(l) Any bonding required with respect to the Buyer Employee Plans in
accordance with applicable provisions of ERISA has been obtained and is in full
force and effect.
(m) The Buyer Employee Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA and
the Code (including rules and regulations thereunder) and other applicable
federal and state laws and regulations, and none of the Buyer or its
subsidiaries or any "party in interest" or "disqualified Person" with respect to
the Buyer Employee Plans has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or 4975 of the Code. No fiduciary has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any Buyer
Employee Plan.
(n) None of the Buyer Employee Plans provide retiree life or retiree
health benefits except as may be required under Section 4980B of the Code or
Section 601 of ERISA and at the expense of the participant or the participant's
beneficiary. The Buyer and its subsidiaries and the Buyer ERISA Affiliates have
at all times complied with the notice and health care continuation requirements
of Section 4980B of the Code and Sections 601 through 608 of ERISA.
(o) Except as disclosed on Schedule 4.12, no stock or other security
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issued by the Seller, the Buyer or its subsidiaries or any of their Affiliates
forms or has formed part of the assets of any Buyer Employee Plan.
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Section 4.13 Labor Matters.
(a) Except as set forth in Schedule 4.13: (i) none of the Buyer or
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its subsidiaries is a party to any outstanding employment, consulting or
management agreements or contracts with officers or employees that provide for
the payment of any bonus or commission; (ii) none of the Buyer or its
subsidiaries is party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Buyer or its subsidiaries
nor do the Seller, the Buyer or its subsidiaries know of any activities or
proceedings of any labor union to organize any such employees. The Buyer has
furnished to the Seller complete and correct copies of all such agreements
("Employment and Labor Agreements"). The Buyer and its subsidiaries have not
breached or otherwise failed to comply with any provisions of any Employment and
Labor Agreement, and are in full compliance with all terms of any collective
bargaining agreement and there are no grievances outstanding thereunder.
(b) The Buyer and its subsidiaries are in compliance with all
applicable laws relating to employment and employment practices, wages, hours,
and terms and conditions of employment and are not engaged in any unfair labor
practice; (ii) there is no unfair labor practice charge or complaint pending
before the National Labor Relations Board ("NLRB"); (iii) there is no labor
strike, material slowdown or material work stoppage or lockout actually pending
or threatened against or affecting the Buyer or its subsidiaries, and the Buyer
and its subsidiaries have not at any time experienced any strike, material slow
down or material work stoppage, lockout or other collective labor action by or
with respect to employees of the Buyer or its subsidiaries; (iv) there is no
representation claim or petition pending before the NLRB or any similar foreign
agency and no question concerning representation exists relating to the
employees of the Buyer or its subsidiaries; (v) there are no charges with
respect to or relating to the Buyer or its subsidiaries pending before the Equal
Employment Opportunity Commission or any state, local or foreign agency
responsible for the prevention of unlawful employment practices; and (vi) the
Buyer and its subsidiaries have no formal notice from any federal, state, local
or foreign agency responsible for the enforcement of labor or employment laws of
an intention to conduct an investigation of the Buyer or its subsidiaries and no
such investigation is in progress.
Section 4.14 Environmental Matters. Notwithstanding anything to
the contrary contained in this Agreement and in addition to the other
representations and warranties contained herein:
(a) The Buyer and its subsidiaries and their operations are in
compliance with all applicable Environmental Laws and have obtained, maintained
in effect and complied with all licenses, permits and other authorizations or
registrations required under Environmental Laws.
(b) The Buyer and its subsidiaries have not performed or suffered any
act which could give rise to, or have otherwise incurred, liability to any
person (governmental or not) under CERCLA or any similar state or municipal law,
nor has the Buyer or its
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subsidiaries received notice of any such liability or any claim therefor or
submitted notice pursuant to Section 103 of CERCLA to any governmental agency.
(c) No Hazardous Materials have been released, placed, dumped or
otherwise come to be located on, at, beneath or near, and no storage tank
containing any Hazardous Materials is located at, any of the real property
and/or improvements currently or, to the knowledge of the Buyer, formerly owned
or leased by the Company which could subject the Buyer to a claim or claims
pursuant to Environmental Laws.
Section 4.15 Purchase for Investment. Each of the Buyer and Newco
is an accredited investor as defined under Rule 501(a) of the Securities Act.
The Purchased Interest will be acquired for investment for Buyer's own account
and not with a view to the resale or distribution of any part thereof, except in
compliance with the registration provisions of the Securities Act or an
exemption therefrom.
Section 4.16 Brokers and Finders. None of the Buyer or its
subsidiaries or any of their respective officers, directors or employees has
employed any broker or finder, except for Slusser Associates, Inc., and none of
the Buyer or its subsidiaries or any of their respective officers, directors or
employees has incurred any liability for any investment banking fees, brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement other than fees payable to Slusser Associates,
Inc.
Section 4.17 Due Diligence. Each of the Buyer and Newco has
sufficient knowledge and experience in investing in companies similar to the
Company and is capable of evaluating the merits and risks of its investment in
the Company as contemplated by this Agreement and is able to bear the economic
risk of such investment for an indefinite period of time. Each of the Buyer and
Newco has been given access to full and complete information regarding the
Company and has utilized such access to its satisfaction for the purpose of
obtaining information each of the Buyer and Newco desires or deems relevant to
its decision to acquire the Purchased Interests. Each of the Buyer and Newco
has had the opportunity to ask questions of and receive answers from management
and representatives of the Company to discuss the Company's business, management
and financial affairs and to obtain any additional information each of the Buyer
and Newco desires or deems relevant. Each of the Buyer and Newco has obtained,
to the extent it has deemed necessary, professional advice with respect to the
risks inherent in the acquisition of the Purchased Interests, including, without
limitation, the matters relating to the Company's business and financial
condition.
Section 4.18 Survival. Except where a representation or warranty
expressly refers to another date, in which case such representation or warranty
need be true and correct only as of such date, each of the representations and
warranties set forth in this Section 4 shall be deemed represented and made by
the Buyer at the Closing as if made at such time and shall survive the Closing
for a period terminating on the later of (a) date 6 months after the Closing
Date, and (b) with respect to claims asserted pursuant to Section 6.2 of this
Agreement before the expiration of the applicable representation or warranty, on
the date such claim is finally liquidated or otherwise resolved; provided,
--------
however, that (x) the representations and warranties in Sections 4.14 hereof
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shall survive until the third anniversary of the Closing Date and (y) the
representations and warranties in Sections 4.4 and 4.9 hereof shall survive
until the applicable statute of limitations for third party or governmental
actions has expired.
ARTICLE V
COVENANTS OF THE PARTIES
The Parties hereto covenant as follows (all covenants of the Seller and the
Parent being joint and several obligations and all covenants of the Buyer and
Newco being joint and several obligations):
Section 5.1 Consents and Approvals Required on Closing Date. Each
of the parties hereto has or will have on or prior to the Closing Date, at its
cost and expense, obtained all necessary consents, waivers, authorizations and
approvals of all governmental and regulatory authorities, domestic and foreign,
and of all other Persons required on the Closing Date in connection with the
execution, delivery and performance by it of the Transaction Documents.
Section 5.2 Further Assurances. Upon the request of another party
at any time after the Closing Date, the Buyer, Newco, the Seller and the Parent
shall forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or its counsel may request to perfect title of
the Buyer and its successors and assigns to the Purchased Interests and to
perfect title of the Seller in and to the Share Consideration or otherwise to
effectuate the purposes of the Transaction Documents.
Section 5.3 Best Efforts. Upon the terms and subject to the
conditions of this Agreement, each party shall use its reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable consistent with applicable law to
consummate and make effective in the most expeditious manner practicable the
transactions contemplated hereby and in the Transaction Documents.
Section 5.4 Nondisclosure. Except as required under applicable
law, from and after the Closing Date, no party shall use, divulge, furnish or
make accessible to anyone any proprietary, material non-public, confidential or
secret information to the extent relating to the Buyer or its subsidiaries, in
the case of the Seller and the Parent, or relating to the Seller and the Parent,
in the case of the Buyer and Newco (in each case including, without limitation,
customer lists, supplier lists and pricing and marketing arrangements with
customers or suppliers), and each of the parties shall cooperate reasonably with
the others in preserving such proprietary, confidential or secret aspects of the
parties.
Section 5.5 Tax Matters. All transfer, documentary, sales, use, stamp,
registration, value added and other such taxes and fees (including any penalties
and interest) incurred in connection with this Agreement shall be borne and paid
equally by the Parent and the Seller, on the one hand, and the Buyer and Newco,
on the other hand, when due, and the Seller will file all necessary tax returns
and other documentation with respect to all such taxes and fees, and, if
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required by applicable law, the Buyer will, and will cause its affiliates to,
join in the execution of any such tax returns and other documentation.
Section 5.6 Cooperation on Tax Matters. The Buyer and the Seller
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the preparation and filing of any tax return,
statement, report or form (including any report required pursuant to Section
6043 of the Code and all Treasury Regulations promulgated thereunder), any
audit, litigation or other proceeding with respect to taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Seller and the Buyer agree (i) to retain, and
to cause the Company to retain, all books and records with respect to tax
matters pertinent to the Company relating to any pre-closing tax period, and to
abide by all record retention agreements entered into with any taxing authority
and (ii) to give the other party reasonable written notice prior to destroying
or discarding any such books and records and, if the party so requests, the
Buyer or the Seller, as the case may be, shall allow the other party to take
possession of such books and records.
Section 5.7 Amendment to Management Agreement. The Parent shall
use its best efforts to cause the Company and City Cinemas Corporation to amend
the Management Agreement so that it provides the Buyer with the same rights as
the Parent pursuant to Section 3.2(b) thereof, and in any event, the Parent
shall deliver to the Buyer the financial statements referenced in such Section
promptly following receipt thereof.
Section 5.8 Amendment to Trademark License Agreement. The Parent
shall cause its affiliate Reading Investment Company, Inc. ("Reading
Investment") and the Company to execute an amended Angelika-SOHO Trademark
License Agreement dated as of April 15, 1997 by and between Reading Investment
(as amended, the "Amended Trademark License Agreement") in the form attached
hereto as Exhibit E.
Section 5.9. Notification and Put Rights.
(a) Buyer covenants and agrees that it shall provide written
notice to Parent at least thirty (30) days prior to the date on which any of the
following is proposed to occur: (i) the issuance of shares of Common Stock or of
any class or series of Preferred Stock (in one or a series of related
transactions) representing more than fifteen percent (15%) of the number or
voting power of the shares of Common Stock or Buyer Preferred Stock, as the case
may be, outstanding immediately prior to such issuance, or (ii) the making of an
investment or series of related investments involving aggregate payments by
Buyer of $10 million or more (calculated on a consolidated basis);
(b) Parent shall notify Buyer within thirty (30) days after the
date of the notice in paragraph (a) above whether it agrees with the proposed
issuance or investment described in such notice. If (x) Parent objects to any
such proposed transaction and (y) Buyer notifies Parent
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that Buyer will nonetheless proceed with the proposed transaction, Parent shall
have the option, exercisable within fifteen (15) days after the date of such
written notice, to cause Buyer to repurchase, out of funds legally available
therefor, all of the Common Share Consideration and the Preferred Share
Consideration, for an aggregate purchase price equal to (aa) $13.5 million plus
(bb) interest at a per annum rate of ten percent (10%) calculated on a daily
basis through the date of such repurchase, which repurchase shall be consummated
no later than thirty (30) days after the date of the notice of exercise of the
option provided herein; and
(c) The rights of Parent to receive notice and to require the Buyer
to repurchase the Common Share Consideration and the Preferred Share
Consideration shall expire on the date that is thirty (30) days following the
date on which Buyer files with the Securities and Exchange Commission its Annual
Report on Form 10-K for the fiscal year ended January 30, 2001, provided that
the parties shall be obligated to consummate any repurchase for which Parent has
provided notice of exercise of the repurchase option provided in Section 5.9(b)
prior to such expiration date.
Section 5.10. Amendment to Certificate of Incorporation. Buyer hereby
covenants, subject to the fiduciary duty of the Board of Directors of Buyer, to
present to the stockholders of Buyer, at Buyer's next annual or special meeting
of stockholders, a proposed amendment to Buyer's restated Certificate of
Incorporation to eliminate Article SIXTH thereof, and shall use their best
efforts to solicit proxies in favor of such amendment.
Section 5.11. Board Representation. Parent will be entitled to have a
representative attend all meetings of the Board of Directors of the Buyer, and
of any meetings of any executive or other similar committee of the Board of
Directors as may be formed from time to time. Buyer will give Parent
substantially the same notice of any such meeting as Parent provides to its
directors, so as to allow such representative to attend such meetings in person,
and provide to such representative copies of any materials provided to directors
from time to time, whether or not in connection with any particular Board or
executive committee meeting, contemporaneously with the delivery of such
materials to such directors. Notwithstanding the above, it is acknowledged and
agreed that such representative will not be entitled to attend any portions of
any such meeting where specific advice is being given by legal counsel to the
directors and where the presence of such representative would result in a waiver
of any otherwise applicable attorney-client communication privilege.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification by the Seller and the Parent. Notwithstanding
the Closing and except to the extent that the Buyer or Newco has any knowledge
or information with respect to such matter on or prior to the Closing Date, the
Seller and the Parent, jointly and severally, shall indemnify and fully defend,
save and hold the Buyer, Newco, and their directors, officers and employees (the
"Buyer Indemnitees"), harmless if any Buyer Indemnitee shall at any time or from
time to time suffer any damage, liability, loss, cost, expense (including all
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reasonable attorneys' fees and expenses of investigation incurred by the Buyer
Indemnitees in any action or proceeding between the Seller or the Parent and the
Buyer Indemnitees or between the Buyer Indemnitees and any third party or
otherwise), deficiency, interest, penalty, impositions, assessments or fines
(collectively, "Buyer Losses") arising out of or resulting from, or shall pay or
become obliged to pay any sum on account of, any and all the Seller Events of
Breach. As used herein, "Seller Events of Breach" shall be and mean any one or
more of the following:
(a) any untruth or inaccuracy in any representation of the Seller
or the Parent or the breach of any warranty of the Seller or the Parent
contained in the Transaction Documents written notice of which has been given to
the Seller and the Parent prior to the expiration of any survival period
applicable thereto;
(b) any failure of the Seller or the Parent duly to perform or
observe any term, provision, covenant, agreement contained in the Transaction
Documents on the part of such Person to be performed or observed,
provided, however, that, except for Buyer Losses incurred by the Buyer
Indemnitees in connection with the inaccuracy of any representation or the
breach of any warranty of the Seller or the Parent relating to Taxes, the
representations and warranties contained in Section 3.2 or actual fraud by the
Seller or the Parent, the Seller and the Parent shall not have any obligation to
make any payment under Section 6.1(a) hereof with respect to any representation
or warranty unless (i) the Buyer Indemnitees have suffered Buyer Losses by
reason of any particular representation or warranty, together with all other
particular claims arising from the same facts and circumstances, in excess of
$50,000 and (ii) until all Buyer Indemnitees have suffered Buyer Losses (other
than Buyer Losses below the $50,000 threshold referred to in clause (i) above)
by reason of all such claims that exceed $500,000, it being understood that once
such amount is exceeded, the aggregate of all such claims in excess of $500,000
shall be payable by the Seller and Parent on demand by the Buyer.
Section 6.2 Procedures for Indemnification by the Seller and the
Parent. If a Seller's Event of Breach occurs or is alleged and a Buyer
Indemnitee asserts that the Seller or the Parent has become obligated to such
Buyer Indemnitee pursuant to Section 6.1 hereof, or if any suit, action,
investigation, claim or proceeding (a "Proceeding") is begun, made or instituted
by a third party as a result of which the Seller or the Parent may become
obligated to a Buyer Indemnitee hereunder, such Buyer Indemnitee shall give
written notice to the Seller and the Parent. The Seller and the Parent, jointly
and severally, agree to defend, contest or otherwise protect the Buyer
Indemnitee against any Proceeding at their sole cost and expense. The Buyer
Indemnitee shall have the right, but not the obligation, to participate at its
own expense in the defense thereof by counsel of the Buyer Indemnitee's choice
and shall in any event cooperate with and assist the Seller and the Parent to
the extent reasonably possible. If the Seller and the Parent fail timely to
defend, contest or otherwise protect against such Proceeding, the Buyer
Indemnitee shall have the right to do so, including, without limitation, the
right to make any compromise or settlement thereof, and the Buyer Indemnitee
shall be entitled to recover the entire cost thereof from the Seller or the
Parent, including, without limitation, reasonable attorneys' fees, disbursements
and amounts paid as the result of such Proceeding, as such costs are incurred,
and
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the Seller and the Parent shall be bound by any determination made in such
Proceeding or any compromise or settlement effected by the Buyer. If the Buyer
Indemnitee shall have reasonably concluded upon advice from counsel that there
may be a conflict of interest between the Buyer Indemnitee and the Seller or the
Parent, the Buyer Indemnitee shall have the right to defend, contest or
otherwise protect against such Proceeding, provided that if the Buyer Indemnitee
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shall compromise or settle such claims without consent of Seller and Parent,
such compromise or settlement shall not bind Seller or Parent. If the Seller or
the Parent assumes the defense of any Proceeding, (a) it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification, (b) no
compromise or settlement of such claims may be effected by the Seller or the
Parent without the Buyer Indemnitee's consent unless (i) there is no finding or
admission of any violation of federal, state, local, municipal, foreign,
international, multinational or other administrative order, law, ordinance,
principal of common law, regulation, statute or treaty or any violation of the
rights of any Person and no effect on any other claims that may be made against
the Buyer Indemnitee and (ii) the sole relief provided is monetary damages that
are paid in full by the Seller or the Parent; and (c) the Buyer Indemnitee will
have no liability with respect to any compromise or settlement of such claims
effected without its consent.
Section 6.3 Indemnification by the Buyer and Newco. Notwithstanding the
Closing, and, with respect to paragraph (a) only, except to the extent that the
Seller or the Parent has any knowledge or information with respect to such
matter on or prior to the Closing Date (it being agreed that the Seller
Indemnitees are entitled to indemnification under this Section 6.3 regardless of
their knowledge of facts giving rise to any litigation referred to in paragraph
(b) hereof or of their knowledge for purposes of the representation and warranty
set forth in the penultimate sentence of Section 4.4 of any liabilities or
claims against the Buyer or any of its Affiliates), the Buyer and Newco shall,
jointly and severally, indemnify and agree to fully defend, save and hold the
Seller, the Parent, or any Affiliate of the Seller or of the Parent and their
directors, officers and employees (the "Seller Indemnitees"), harmless if any
Seller Indemnitee shall at any time or from time to time suffer any damage,
liability, loss, cost, expense (including all reasonable attorneys' fees and
expenses of investigation incurred by the Seller Indemnitees in any action or
proceeding between the Buyer or Newco and the Seller Indemnitees or between the
Seller Indemnitees and any third party or otherwise), deficiency, interest,
penalty, impositions, assessments or fines (collectively, "Seller Losses")
arising out of or resulting from, or shall pay or become obligated to pay any
sum on account of, any and all the Buyer Events of Breach. As used herein,
"Buyer Events of Breach" shall be and mean any one or more of the following:
(a) any untruth or inaccuracy in any representation of the Buyer
or Newco or the breach of any warranty of the Buyer or Newco contained in the
Transaction Documents written notice of which has been given to the Buyer and
Newco prior to the expiration of any survival period applicable thereto;
(b) any Proceeding is brought by any stockholder of the Buyer,
either directly or derivatively, challenging any of the transactions
contemplated herein or in any other Transaction Document or asserting any
liability on the part of Parent, any of its affiliates or any of the respective
officers or directors;
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(c) any failure of the Buyer or Newco duly to perform or observe
any term, provision, covenant, agreement or condition contained herein or in the
Transaction Documents on the part of the Buyer or Newco to be performed or
observed;
provided, however, that, except for Seller Losses incurred by the Seller
Indemnitees in connection with the inaccuracy of any representations or the
breach of any warranty of the Buyer or Newco relating to Taxes, the
representations and warranties contained in Section 5.4 hereof or actual fraud
by the Buyer or Newco, the Buyer and Newco shall have no obligation to make any
payment under Section 6.3(a) hereof with respect to any representation or
warranty unless (i) the Seller Indemnitees have suffered Seller Losses by reason
of any particular representation or warranty, together with all other particular
claims arising from the same facts and circumstances, in excess of $50,000 and
(ii) until all Seller Indemnitees have suffered Seller Losses (other than Seller
Losses below the $50,000 threshold referred to in clause (i) above) by reason of
all such claims that exceed $500,000, it being understood that once such amount
is exceeded, the aggregate of all such claims in excess of $500,000 shall be
payable by the Buyer and Newco on demand by the Seller.
Section 6.4 Procedures for Indemnification by the Buyer and Newco.
If a Buyer Event of Breach occurs or is alleged and a Seller Indemnitee asserts
that the Buyer or Newco has become obligated to such Seller Indemnitee pursuant
to Section 6.3 hereof, or if any Proceeding is begun, made or instituted by a
third party as a result of which the Buyer or Newco may become obligated to a
Seller Indemnitee hereunder, such Seller Indemnitee shall give written notice to
the Buyer and Newco. The Buyer and Newco, jointly and severally, agree to
defend, contest or otherwise protect the Seller Indemnitee against any
Proceeding at their sole cost and expense. The Seller Indemnitee shall have the
right, but not the obligation, to participate at its own expense in the defense
thereof by counsel of the Seller Indemnitee's choice and shall in any event
cooperate with and assist the Buyer and Newco to the extent reasonably possible.
If the Buyer or Newco fail timely to defend, contest or otherwise protect
against such Proceeding, the Seller Indemnitee shall have the right to do so,
including, without limitation, the right to make any compromise or settlement
thereof, and the Seller Indemnitee shall be entitled to recover the entire cost
thereof from the Buyer or Newco, including, without limitation, reasonable
attorneys' fees, disbursements and amounts paid as the result of such
Proceeding, as such costs are incurred, and the Buyer or Newco shall be bound by
any determination made in such Proceeding or any compromise or settlement
effected by the Seller. If the Seller Indemnitee shall have reasonably
concluded upon advice from counsel that there may be a conflict of interest
between the Seller Indemnitee and the Buyer or Newco, the Seller Indemnitee
shall have the right to defend, contest or otherwise protect against such
Proceeding, provided that if the Seller Indemnitee shall compromise or settle
--------
such claims without consent of Buyer and Newco, such compromise or settlement
shall not bind the Buyer or Newco. If the Buyer or Newco assumes the defense of
any Proceeding, (a) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and
subject to indemnification, (b) no compromise or settlement of such claims may
be effected by the Buyer or Newco without the Seller Indemnitee's consent unless
(i) there is no finding or admission of any violation of federal, state, local,
municipal, foreign, international, multinational or other administrative order,
law, ordinance, principal of common law, regulation, statute or treaty or any
violation of the rights of
35
<PAGE>
any Person and no effect on any other claims that may be made against the Seller
Indemnitee and (ii) the sole relief provided is monetary damages that are paid
in full by the Buyer or Newco; and (c) the Seller Indemnitee will have no
liability with respect to any compromise or settlement of such claims effected
without its consent. Notwithstanding the above, in the event of any claim for
indemnity under clause 6.3(b) the Seller Indemnitees will be entitled to retain
their own counsel and Buyer will promptly reimburse such Seller Indemnitees for
the reasonable costs and disbursements of such separate counsel.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE SELLER AND THE PARENT
The obligations of the Seller and the Parent to consummate the transactions
contemplated by the Transaction Documents are subject to the fulfillment, at or
before the Closing Date of the following conditions, any one or more of which
may be waived by the Parent and the Seller in their sole discretion:
Section 7.1 Representations and Warranties of the Buyer and Newco.
All representations and warranties made by the Buyer and Newco in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as if again made by the Buyer and Newco on and as of such date, except for any
warranties made with reference to a specific date, which shall be true and
correct as of such specific date.
Section 7.2 Performance of the Obligations of the Buyer and Newco.
The Buyer and Newco shall have performed in all material respects all
obligations required under this Agreement to be performed by them on or before
the Closing Date.
Section 7.3 Consents and Approvals. All consents, waivers,
authorizations and approvals of any governmental or regulatory authority,
domestic or foreign, and of any Person, other than the Seller, the Parent or
their respective subsidiaries or affiliates, required on the Closing Date in
connection with the execution, delivery and performance of the Transaction
Documents shall have been duly obtained and shall be in full force and effect on
the Closing Date.
Section 7.4 No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or other governmental or
regulatory authority, domestic or foreign, nor any statute, rule, regulation,
decree or executive order promulgated or enacted by any government or
governmental or regulatory authority, domestic or foreign, that declares any of
the Transaction Documents invalid or unenforceable in any respect or which
prevents the consummation of the transactions contemplated hereby shall be in
effect on the Closing Date.
Section 7.5 Registration Rights Agreement. On the Closing Date,
the Buyer and the Seller shall enter into the Registration Rights Agreement in
the form attached hereto as Exhibit D for the registration of the Buyer Common
Stock included in the Share Consideration.
Section 7.6 Buyer Closing Documents. The Buyer shall have delivered
to the Seller or cause Newco to deliver to the Seller the following documents on
the Closing Date:
36
<PAGE>
(a) the certificates representing the Share Consideration;
(b) a certificate dated the Closing Date of the Secretary of State
of the jurisdiction of incorporation of the Buyer as to its good standing in
such jurisdiction;
(c) the Transaction Documents; and
(d) such other documents, including legal opinions, or
certificates relating to the transactions contemplated by the Transaction
Documents as the Seller reasonably requests.
Section 7.7 Legal Matters. All certificates, instruments, opinions
and other documents required to be executed or delivered by or on behalf of the
Buyer and Newco under the provisions of the Transaction Documents, and all other
actions and proceedings required to be taken by or on behalf of the Buyer and
Newco in furtherance of the transactions contemplated hereby and thereby, shall
be reasonably satisfactory in form and substance to counsel for the Seller.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE BUYER AND NEWCO
The obligations of the Buyer to consummate the transactions contemplated by
the Transaction Documents are subject to the fulfillment, at or before the
Closing Date of the following conditions, any one or more of which may be waived
by the Buyer in its sole discretion:
Section 8.1 Representations and Warranties of the Seller and the
Parent. All representations and warranties made by the Seller and the
Parent in this Agreement shall be true and correct in all material respects on
and as of the Closing Date as if again made by the Seller and the Parent on and
as of such date, except for any warranties made with reference to a specific
date, which shall be true and correct as of such specific date.
Section 8.2 Performance of the Obligations of the Seller and the
Parent. The Seller and the Parent shall have performed in all material
respects all obligations required under this Agreement to be performed by them
on or before the Closing Date and the Buyer shall have received a certificate
dated the Closing Date signed by the duly authorized representatives of the
Seller and the Parent to that effect.
Section 8.3 Consents and Approvals. All consents, waivers,
authorizations and approvals of any governmental or regulatory authority,
domestic or foreign, and of any Person, other than the Buyer, Newco or their
respective subsidiaries or affiliates, in connection with the execution,
delivery and performance of the Transaction Documents shall have been duly
obtained and shall be in full force and effect on the Closing Date, subject to
the proviso in Section 8.4 hereof.
Section 8.4 No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or other governmental or
regulatory authority, domestic or foreign, nor
37
<PAGE>
any statute, rule, regulation, decree or executive order promulgated or enacted
by any government or governmental or regulatory authority, domestic or foreign,
that declares any of the Transaction Documents invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby shall be in effect on the Closing Date; provided that if Buyer or Newco
--------
fail to consummate the transactions contemplated by the Transaction Documents
because of a failure of the conditions specified in Sections 8.3 and 8.4 based
solely upon the entry by the Delaware Court of Chancery in the Chancery Court
Litigation or another court in related litigation of an injunction or other
order barring the Closing, then the parties agree that their contractual rights
under this agreement are not affected.
Section 8.5 Seller Closing Documents. The Seller shall have
delivered to the Buyer or caused the Parent to deliver to the Buyer the
following documents on the Closing Date:
(a) instruments of transfer duly transferring all the Purchased
Interests on the Closing Date with appropriate transfer stamps, if any, affixed
thereto;
(b) a certificate dated the Closing Date of the Secretary of State
of the State of Delaware as to its good standing in such jurisdiction;
(c) copies of the consents, waivers and approvals specified on
Schedule 3.6;
- ------------
(d) the Transaction Documents; and
(e) such other documents, including legal opinions, or
certificates relating to the transactions contemplated by the Transaction
Documents as the Buyer reasonably requests.
Section 8.6 Legal Matters. All certificates, instruments, opinions
and other documents required to be executed or delivered by or on behalf of the
Seller and the Parent under the provisions of the Transaction Documents, and all
other actions and proceedings required to be taken by or on behalf of the Seller
and the Parent in furtherance of the transactions contemplated hereby and
thereby, shall be reasonably satisfactory in form and substance to counsel for
the Buyer.
ARTICLE IX
TERMINATION
Section 9.1 Conditions of Termination. Notwithstanding anything to
the contrary contained herein, this Agreement may be terminated at any time
before the Closing (a) by mutual consent of the Seller and the Buyer, (b) by the
Seller if the conditions set forth in Section 8 hereof are not satisfied or
waived by the Closing Date, (c) by the Buyer if the conditions set forth in
Section 9 hereof are not satisfied or waived by the Closing Date or (d) by any
party hereto that is not in breach of its material obligations hereunder if the
Closing shall not have occurred on or prior to April 30, 2000, provided that the
--------
Buyer and Newco shall not have a right to terminate this Agreement pursuant to
clause (d) if they are prohibited from closing because of a preliminary or
permanent injunction binding on them.
38
<PAGE>
Section 9.2 Effect of Termination. In the event of termination
pursuant to Section 9.1 hereof, this Agreement shall become null and void and
have no effect, with no liability on the part of the Seller, the Company or the
Buyer, or their respective directors, officers, agents or stockholders, with
respect to this Agreement, except for the (i) liability of a party for expenses
pursuant to Section 11.3 hereof, (ii) liability for any breach of this Agreement
and (iii) Buyer and Newco's indemnification obligations under Section 6.3(b).
Section 9.3 Intentionally Omitted.
ARTICLE X
MISCELLANEOUS
Section 10.1 Successors and Assigns. Except as otherwise provided
in this Agreement, no party hereto shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other parties
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect, provided that the Buyer may assign its
rights to a wholly-owned subsidiary. This Agreement shall inure to the benefit
of and shall be binding upon the successors and permitted assigns of the parties
hereto.
Section 10.2 Governing Law; Jurisdiction. This Agreement shall be
construed, performed and enforced in accordance with, and governed by, the laws
of the State of New York, without giving effect to the principles of conflicts
of laws thereof. The parties hereto irrevocably elect as the sole judicial
forum for the adjudication of any matters arising under or in connection with
this Agreement, and consent to the jurisdiction of, the courts of the State of
New York.
Section 10.3 Service of Process. The parties hereto acknowledge
and agree that under this Agreement process may be served, in the case of the
Buyer and Newco, by delivery to CT Corporation, 111 8th Avenue, New York, New
York, 10011, in the case of the Seller, the Parent and the Company, by delivery
to Duane, Morris & Heckscher LLP, 380 Lexington Avenue, New York, New York
10168, Attn: Michael H. Margulis, Esq. or to such other address or to the
attention of such other person in New York City as the parties may provide by
notice by given in accordance with Section 10.6 hereof.
Section 10.4 Expenses; Fees. Except as otherwise provided herein,
each of the parties hereto shall pay its own expenses in connection with this
Agreement and the transactions contemplated hereby, including, without
limitation, any legal and accounting fees, whether or not the transactions
contemplated hereby are consummated.
Section 10.5 Severability. In the event that any part of this
Agreement is declared by any court or other judicial or administrative body to
be null, void or unenforceable, said provision shall survive to the extent it is
not so declared, and all of the other provisions of this Agreement shall remain
in full force and effect.
Section 10.6 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii) on the day of
39
<PAGE>
transmission if sent via facsimile transmission to the facsimile number given
below, and telephonic confirmation of receipt is obtained promptly after
completion of transmission, (iii) on the day after delivery to Federal Express
or similar overnight courier or the Express Mail service maintained by the U.S.
Postal Service or (iv) on the fifth day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid and properly addressed, to the party as follows:
If to the Seller:
Reading Entertainment, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
Attention: James J. Cotter, Chairman
Facsimile: (215) 569-2862
Copy to:
Potter Anderson & Corroon LLP
Hercules Plaza
1313 N. Market Street
Wilmington, Delaware 19801
Attention: John F. Grossbauer, Esq.
Facsimile: (302) 984-1192
If to the Buyer:
National Auto Credit, Inc.
30000 Aurora Road
Solon, Ohio 44139
Attention: David L. Huber, Chairman of the Board
Facsimile: (440) 349-0442
Copy to:
National Auto Credit, Inc.
30000 Aurora Road
Solon, Ohio 44139
Attention: Raymond A. Varcho, Esq., Vice President,
Secretary and General Counsel
Facsimile: (440) 349-3959
Any party may change its address for the purpose of this Section by giving
the other party written notice of its new address in the manner set forth above.
40
<PAGE>
Section 10.7 Amendments; Waivers. This Agreement may be amended or
modified, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties hereto, or in the case of a waiver, by the party waiving compliance.
Any waiver by any party of any condition, or of the breach of any provision,
term, covenant, representation or warranty contained in this Agreement, in any
one or more instances, shall not be deemed to be nor construed as further or
continuing waiver of any such condition, or of the breach of any other
provision, term, covenant, representation or warranty of this Agreement.
Section 10.8 Public Announcements. The parties agree that after
the signing of this Agreement, neither party shall make any press release or
public announcement concerning the transactions contemplated by the Transaction
Documents without the prior written approval of the other parties unless the
disclosing party is advised by counsel that a press release or public
announcement is required by law. If any such announcement or other disclosure
is required by law, the disclosing party agrees to give the nondisclosing
parties prior notice and an opportunity to comment on the proposed disclosure.
Section 10.9 Entire Agreement. The Transaction Documents contain
the entire understanding between the parties hereto with respect to the
transactions contemplated hereby and thereby and supersedes and replaces all
prior and contemporaneous agreements and understandings, oral or written, with
regard to such transactions. All schedules hereto and any documents and
instruments delivered pursuant to any provision hereof are expressly made a part
of this Agreement as fully as though completely set forth herein.
Section 10.10 Parties in Interest. Except for the rights granted
to the Buyer Indemnitees and the Seller Indemnitees in Article VI hereof,
nothing in this Agreement is intended to confer any rights or remedies under or
by reason of this Agreement on any persons other than the Seller, the Parent,
the Company, the Buyer and Newco and their respective successors and permitted
assigns. Nothing in this Agreement is intended to relieve or discharge the
obligations or liability of any third persons to the Seller, the Parent, the
Company, the Buyer or Newco. No provision of this Agreement shall give any
third persons any right of subrogation or action over or against the Seller, the
Parent, the Company, the Buyer or Newco.
Section 10.11 Scheduled Disclosures. Disclosure of any matter,
fact or circumstance in a Schedule to this Agreement shall not be deemed to be
disclosure thereof for purposes of any other Schedule hereto.
Section 10.12 Specific Performance. The parties recognize that
the Purchased Interests and the Company's principal asset, the Angelika Film
Center, are unique and not capable of duplication. Accordingly, without limited
or waiving any rights or remedies the parties may have under this Agreement now
or hereinafter existing at law or in equity or by statute, each of the parties
hereto shall be entitled to seek specific performance by the other of the
obligations to be performed by the other in accordance with the provisions of
this Agreement.
Section 10.13 Section and Paragraph Headings. The section and
paragraph headings in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
41
<PAGE>
Section 10.14 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
April __, 2000.
SELLER:
FA, INC.
By:
-----------------------------
Name:
Title:
PARENT:
READING ENTERTAINMENT, INC.
By:
-----------------------------
Name:
Title:
BUYER:
NATIONAL AUTO CREDIT, INC.
By:
------------------------------
Name:
Title:
NEWCO:
NATIONAL CINEMAS, INC.
By:
-----------------------------
Name:
Title:
43
<PAGE>
Security and Exchange Commission
Exhibit 16
<TABLE>
<S> <C>
(a)(1)(i) Ernst & Young LLP, the former accountant for Craig Corporation,
has resigned as of May 28, 1999.
(a)(1)(ii) Ernst & Young LLP's reports on the financial statements for the
years ended December 31, 1998 and 1997 did not contain adverse
opinions or disclaimers of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
(a)(1)(iii) Ernst & Young LLP's resignation as of May 28, 1999 was
communicated to the Craig Corporation's audit committee on June 3,
1999.
(a)(1)(iv) During the audit of Craig Corporation's fiscal years ended
December 31, 1998 and 1997, there were no disagreements with Ernst
& Young LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures.
(a)(2) Deloitte & Touche LLP has been engaged as the principal accountant
to audit the financial statements of Craig Corporation and to
audit the financial statements of Reading Entertainment, Inc., a
significant majority owned subsidiary of the Craig Corporation, as
of December 17, 1999.
(a)(2)(ii)(g) Deloitte & Touche LLP has reviewed this letter as of March
2000.
(a)(3) Ernst & Young LLP has reviewed this letter as of March 2000.
</TABLE>
<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 company, 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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 16,025
<SECURITIES> 0
<RECEIVABLES> 695
<ALLOWANCES> 0
<INVENTORY> 316
<CURRENT-ASSETS> 19,425
<PP&E> 65,609
<DEPRECIATION> 7,108
<TOTAL-ASSETS> 148,006
<CURRENT-LIABILITIES> 22,286
<BONDS> 7,000,000
0
0
<COMMON> 1,448
<OTHER-SE> 79,155
<TOTAL-LIABILITY-AND-EQUITY> 148,006
<SALES> 37,811
<TOTAL-REVENUES> 38,488
<CGS> 34,635
<TOTAL-COSTS> 66,287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 534
<INCOME-PRETAX> (14,206)
<INCOME-TAX> 1,147
<INCOME-CONTINUING> (15,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,353)
<EPS-BASIC> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
