<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended June 30, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ........ to ........
Commision file number 1-649
READING COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-600773
(State of incorporation) (I.R.S. Employer Identification No.)
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 215-569-3344
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 12 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[_]
There were 4,964,533 shares of Class A Common Stock and 8,678 shares of
Common Stock outstanding as of July 27, 1996.
<PAGE>
INDEX
READING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION PAGE
- ------------------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 1996
(Unaudited) and December 31, 1995................................................................... 3-4
Condensed Consolidated Statements of Operations -- Three Months and Six Months
Ended June 30, 1996 and 1995 (Unaudited)............................................................ 5
Condensed Consolidated Statements of Cash Flows -- Three Months and Six Months
Ended June 30, 1996 and 1995 (Unaudited)............................................................ 6
Notes to Condensed Consolidated Financial Statements (Unaudited)....................................... 7-20
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 21-24
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K........................................................................ 25-28
Signatures....................................................................................................... 29
</TABLE>
-2-
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
Reading Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1996 1995*
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $32,431 $44,147
Available-for-sale securities 49 42
Amounts receivable 726 624
Due from affiliates 96 1,040
Restricted cash 360 360
Inventories 88 112
Prepayments and other current assets 479 498
Due from insurance companies 63 87
- -------------------------------------------------------------------------------------------------
Total current assets 34,292 46,910
- -------------------------------------------------------------------------------------------------
Investment in Australian joint venture 13,174 640
Other investments 7,084 1,771
Restricted cash 214 362
Real estate held for sale or development 1,107 1,110
Property and equipment:
Buildings 733 733
Capitalized premises lease 538 538
Leasehold improvements 5,214 5,095
Equipment 3,761 3,787
Construction-in-progress 348 236
- -------------------------------------------------------------------------------------------------
10,594 10,389
Less: Accumulated depreciation 1,469 1,176
- -------------------------------------------------------------------------------------------------
9,125 9,213
Intangible assets:
Beneficial leases - net of accumulated amortization of $1,827 15,081 15,538
in 1996 and $1,370 in 1995
- -------------------------------------------------------------------------------------------------
45,785 28,634
- -------------------------------------------------------------------------------------------------
$80,077 $75,544
=================================================================================================
</TABLE>
* The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
Reading Company and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1996 1995*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,955 $ 2,279
Accrued compensation 292 222
Accrued taxes and other 438 528
Film rent payable 783 299
Other liabilities 1,063 916
Note payable to affiliate 3,325 0
- -----------------------------------------------------------------------------------------------------
Total current liabilities 7,856 4,244
- -----------------------------------------------------------------------------------------------------
Capitalized lease, less current portion 519 521
Other liabilities 1,999 2,067
- -----------------------------------------------------------------------------------------------------
Total long term liabilities 2,518 2,588
- -----------------------------------------------------------------------------------------------------
Commitments and contingencies (See Note 10)
Shareholders' equity
Preferred stock, par value $1.00 per share:
Authorized -- 5,000,000 shares
Common stock, par value $.01 per share:
Authorized -- 10,000,000 shares
Issued 1996 -- 8,828 shares; 1995 -- 11,530 shares 1 1
Class A common stock, par value $.01 per share:
Authorized -- 15,000,000 shares
Issued 1996 -- 5,147,863 shares; 1995 -- 5,145,161 shares 51 51
Other capital 57,094 56,257
Retained earnings 15,237 15,035
Foreign currency translation adjustment (57) (10)
Class A common stock in treasury, at cost:
1996 -- 183,480 shares; 1995 -- 183,397 (2,623) (2,622)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 69,703 68,712
- -----------------------------------------------------------------------------------------------------
$80,077 $75,544
=====================================================================================================
</TABLE>
* The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
Reading Company and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
- --------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Theater:
Admissions $2,781 2,376 $5,557 $4,637
Concessions 1,043 901 2,064 1,710
Advertising and other 174 150 388 294
Real estate 70 68 144 135
Interest and dividends 491 594 1,076 1,103
Equity in earnings of affiliate 1,433 0 1,433 0
Other 9 472 24 490
- --------------------------------------------------------------------------------------------------------------
6,001 4,561 10,686 8,369
- --------------------------------------------------------------------------------------------------------------
EXPENSES:
Theater costs 3,141 2,586 6,112 4,917
Theater concession costs 179 153 347 293
Depreciation and amortization 386 341 772 678
General and administrative 917 1,066 2,087 2,004
Equity loss from Australian theater developments 52 0 307 0
- --------------------------------------------------------------------------------------------------------------
4,675 4,146 9,625 7,892
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 1,326 415 1,061 477
Income tax provision 13 14 22 155
- --------------------------------------------------------------------------------------------------------------
Net income $1,313 $401 $1,039 $322
==============================================================================================================
Per share information:
Net income $0.26 $0.08 $0.21 $0.06
==============================================================================================================
Average shares outstanding 4,973,222 4,973,368 4,973,241 4,973,398
==============================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
Reading Company and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
June 30,
- -------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,039 $ 322
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation 293 231
Amortization 476 455
Deferred rent expense 82 82
Equity in earnings from affiliate (1,433) 0
Equity loss from Australian theater developments 307 0
Deferred income tax expense 0 132
Changes in operating assets and liabilities:
Increase in amounts receivable (102) (338)
Decrease in inventories 24 4
(Increase) decrease in prepaids and other current assets (72) 145
Decrease in insurance proceeds receivable 24 514
Decrease in accounts payable and accrued expenses (344) (316)
Increase in film rent payable 484 233
Decrease in other liabilities (3) (206)
Other, net 54 (24)
- --------------------------------------------------------------------------------------
Net cash provided from operating activities 829 1,234
- --------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (206) (270)
Investment in Australian joint venture (See Note 5) (12,888) 0
Purchase of Citadel preferred stock option (See Note 4) (50) 0
Angelika acquisition organization costs (See Note 4) (231) 0
Net proceeds from real estate joint venture investments 0 185
Decrease in restricted cash 148 60
Purchases of available-for-sale securities (91) (451)
Sales and maturities of available-for-sale securities 84 26,051
Decrease in due from affiliate 944 0
- -------------------------------------------------------------------------------------
Net cash (used for) provided from investing activities (12,290) 25,575
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of debt financing costs (254) 0
Purchase of treasury stock (1) 0
- -------------------------------------------------------------------------------------
Net cash used for financing activities (255) 0
- -------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (11,716) 26,809
Cash and cash equivalents at beginning of year 44,147 9,413
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 32,431 $36,222
=====================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-6-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
NOTE 1 -- OWNERSHIP AND BASIS OF PRESENTATION
Reading Company (the "Company") has operated motion picture exhibition
theaters in leased locations in the Commonwealth of Puerto Rico since the
acquisition of Theater Acquisitions of Puerto Rico, Inc. ("TAPR") in 1994. In
November 1995, the Company and Craig Corporation ("Craig"), currently the owner
of approximately 52.5% of the Company's capital stock, formed Reading
International Cinemas LLC ("Reading International"), a limited liability company
owned equally by the Company and Craig which has initiated theater development
activities in Australia. The Company's remaining real estate activities include
the managed sale of certain of its real properties, the possible future
development of certain center city Philadelphia properties and participation in
two real estate joint ventures.
The condensed consolidated financial statements of Reading Company and
Subsidiaries ("the Company") include the accounts of Reading Company and its
majority-owned subsidiaries. Significant intercompany transactions and accounts
have been eliminated. Certain amounts in previously issued financial statements
have been reclassified to conform with current classifications.
TAPR was acquired as of July 1, 1994 and the results of TAPR have been
consolidated with the Company's operating results since that date (See Note 3).
On December 31, 1994, TAPR was merged into its parent corporation, Reading
Cinemas of Puerto Rico, Inc. ("RCPR") with RCPR the surviving corporation and
the operating name changed to Cine Vista (unless otherwise required by the
context, TAPR, RCPR, and Cine Vista may be used interchangeably herein).
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments of a recurring nature considered necessary for a fair presentation
of the results for the interim periods presented have been included. Operating
results for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS: For purposes of the Balance
Sheet and Statement of Cash Flows, the Company considers all highly liquid
investments with 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 market value, and consist principally of federal
agency securities and short-term money market instruments.
AVAILABLE-FOR-SALE SECURITIES: Management classifies government securities
held by the Company with maturities in excess of three months at the time of
purchase as available-for-sale as such investments together with "Cash and cash
equivalents" are expected to be used to fund expansion of theater operations,
acquisition or other development activities.
-7-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INVENTORIES: Inventories are comprised of confection goods used in Cine
Vista's operations and are stated at the lower of cost (first-in, first-out
method) or net realizable value.
INCOME PER SHARE: Income per share (Common Stock and Class A Common Stock)
is calculated by dividing net income (loss) by the aggregate of the weighted
average shares outstanding during the period and the dilutive effect, if any, of
common stock equivalents that are outstanding. There were 359,732 and 374,732
Class A Common shares issuable under stock option plans on June 30, 1996 and
1995, respectively. These options were anti-dilutive and were therefore
excluded from the per share calculation.
PROPERTY AND EQUIPMENT: Property and equipment is carried at cost.
Depreciation of buildings, capitalized premises lease, leasehold improvements
and equipment is recorded on a straight line basis over the estimated lives of
the assets or, if the assets are leased, the remaining lease term (inclusive of
options, if likely to be exercised), whichever is shorter. The estimated useful
lives are generally as follows:
Building and Improvements 40 years
Equipment 15 years
Furniture and Fixtures 7 years
Leasehold Improvements 20 years
INTANGIBLE ASSETS: Intangible assets are comprised of beneficial theater
leases used in Cine Vista's operations. The amount of the TAPR purchase price
ascribed to the beneficial leases was determined by an independent appraiser by
computing the present value of the excess of market rental rates over the rental
rates in effect under TAPR's leases at the time of the Company's acquisition of
TAPR and allocating such amount as a component of the purchase price of TAPR.
The beneficial leases are amortized on a straight-line basis over the remaining
term of the underlying leases which approximates 17 years.
TRANSLATION OF NON-U.S. CURRENCY AMOUNTS: The financial statements and
transactions of Reading International's (See Note 5) Australian operations are
maintained in their functional currency (Australian dollars) and translated into
U.S. dollars in accordance with SFAS No. 52 "Foreign Currency Translation".
Assets and liabilities are translated at exchange rates in effect at the balance
sheet date and shareholders' equity is translated at historical exchange rates.
Revenues and expenses are translated at the average exchange rate for the
period. Translation adjustments are reported as a separate component of
shareholders' equity.
NOTE 3 -- ACQUISITION OF CINE VISTA
Effective July 1, 1994, the Company acquired TAPR from Theater
Acquisitions, LP ("TALP") for an aggregate cash purchase price of approximately
$22,700,000, inclusive of acquisition costs of $323,000. Cine Vista operates
motion picture exhibition theaters in seven leased locations with a total of 44
screens in the Commonwealth of Puerto Rico. At the time of its acquisition, TAPR
operated 36 screens in six leased locations. The acquisition was accounted for
using the purchase method and TAPR's operating results since July 1, 1994 have
been consolidated with the operating results of the Company.
-8-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
The purchase price was subject to the satisfaction of certain contingencies
in accordance with the provisions of a purchase agreement by and among TAPR,
TALP and the Company dated July 1, 1994 (the "Purchase Agreement"). The landlord
of one of Cine Vista's theaters has the right to terminate the lease relating to
space presently housing two theaters, subject to six months notice. Accordingly,
$1 million of the purchase price was escrowed and was payable over 36 months
provided the landlord did not cancel the lease during such period or assert
other claims relating to the lease, in which case the escrow is available for
set off. The landlord has asserted certain claims relating to the computation of
the rent and the Company and TALP therefore amended the terms under which the
payments are made from the escrow. Under amended terms, payments of $30,000 are
paid monthly to TALP. This escrow, which is invested in short term commercial
paper, has been classified as "Restricted cash." At June 30, 1996, $557,000 was
due to TALP under this arrangement and has been classified as an "Other
liability" (See Note 10).
Cine Vista currently has three new theaters under development and is
seeking additional theater sites in Puerto Rico.
NOTE 4 -- INVESTMENTS
On November 8, 1995, the Company acquired from a major bank, for
$1,285,000, a judgement (the "Angelika Judgement") encumbering, among other
things, a controlling interest in Angelika Film Centers, Inc. ("AFCI") which has
as its principal asset a Manhattan multiplex theater, the Angelika. The
judgement was acquired as part of the Company's plan to acquire, in conjunction
with Manhattan-based City Cinemas Corporation ("City Cinemas") (James J. Cotter,
Chairman of the Company, has an ownership interest in City Cinemas), a
controlling interest in the Angelika. The Company also has acquired options to
purchase shares representing 5/13ths of the voting power of AFCI and to obtain
certain other creditor claims against AFCI. In July 1996 the Company signed a
definitive purchase agreement to acquire the Angelika, pursuant to which the
Company will, in effect, receive a credit against the purchase price equal to
the amount of the judgement, plus interest thereon at a rate of 9% per annum.
On March 29, 1996, the Company purchased from Craig 1,564,473 shares of the
common stock of Citadel Holding Corporation, ("Citadel" and the "Citadel Common
Stock", respectively) for an aggregate purchase price of $3,324,505,
representing slightly less than $2.125 per share and ownership of approximately
26.1% of Citadel Common Stock. The Company paid Craig for the Citadel Common
Stock with a five year unsecured promissory note (the "Reading Note") which
provides for the payment of interest at a rate equal to LIBOR plus 2.25%. The
Reading Note is recorded on the Condensed Consolidated Balance Sheet at June 30,
1996 as "Note payable to affiliate" and was retired on July 29, 1996. The
Company accounts for its investment in the Citadel Common Stock by the equity
method. Citadel's net earnings for the three months ended June 30, 1996 were
$5,541,000, inclusive of revenues of $1,573,000, a nonrecurring gain on the sale
of real estate of $1,473,000 and nonrecurring income of $4,000,000 from the
recognition for financial statement purpose of previously deferred proceeds from
the bulk sale of loans by a previously owned subsidiary of Citadel. Citadel's
net income available to common stockholders was $5,500,000 of which the
Company's share for the same period was $1,434,000 which amount is included in
the Condensed Consolidated Statement of Operations for the six months ended June
30, 1996.
Pro forma operating results reflecting the acquisition of Citadel are set
forth below for the six months ended June 30, 1996 and 1995. For purposes of
preparing the pro forma operating statements, the acquisition of the Citadel
investment was assumed to be completed at the beginning of each period presented
and certain adjustments have been made, including reductions in "Interest and
dividend" income and the recording of interest expense resulting from payment of
the purchase price.
-9-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Revenues $10,739 $8,707
================ ================
Net income $ 1,029 $ 526
================ ================
Per Share:
Net income: $ .21 $ .11
================ ================
</TABLE>
The Company also acquired from Craig (for $50,000) a one year option to
acquire, at fair market value, as determined by an investment banker selected by
the parties, 1,329,114 shares of the 3% Cumulative Voting Convertible Preferred
Stock, stated value $3.95 per share, of Citadel and an option to acquire, under
certain circumstances, a warrant to acquire 666,000 shares of Citadel Common
Stock at an exercise price of $3 per share.
Management believes that the June 30, 1996 carrying amounts of the above-
mentioned investments and the Company's other investments totalling $661,000,
approximate fair value.
NOTE 5 -- READING INTERNATIONAL CINEMAS LLC
In November 1995, the Company and Craig formed Reading International to
develop and operate multiplex cinemas in Australia and other markets. A wholly
owned subsidiary of Reading International has retained the services of several
executive employees in Australia who provide services with respect to such
Australian operations on a full time or substantially full time basis. Reading
International is equally owned by the Company and Craig.
On March 29, 1996, the Company and Craig entered into a capital funding
agreement (the "Capital Funding Agreement") with respect to Reading
International pursuant to which they agreed to increase the capital committed by
the Company and Craig to Reading International from $10 million to approximately
$103 million through a combination of cash contributions and secured capital
funding undertakings. Under the terms of the Capital Funding Agreement, the
Company and Craig each immediately contributed to Reading International
$12,500,000 in cash, for an aggregate $25,000,000. In addition, the Company and
Craig have undertaken to contribute up to an additional $37,500,000 each, for an
aggregate future commitment of $75,000,000 on an as needed basis. The
commitments of the Company and Craig are secured by various assets of the two
parties. The collateral pledged by Craig was reviewed by an independent
committee of the Company's Board of Directors comprised of outside directors who
are unaffiliated with Craig, and found to be adequate to secure Craig's
commitment under the Capital Funding Agreement. The Company pledged its
interest in Cine Vista and government agency securities. The Company may
substitute collateral for the Funding Commitment, provided that the fair market
value of the collateral substituted is equal to at least 125% of the Funding
Commitment or, in the case of government or government agency securities, equal
to 100% of the Funding Commitment.
-10-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30,1996
(amounts in tables in thousands)
The Company accounts for its investment in Reading International and its
foreign subsidiaries by the equity method. Summarized financial information for
Reading International as of June 30, 1996 is as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 12,114
Other current assets 776
----------
Total current assets 21,890
Property and developments 7,922
Other noncurrent assets 181
----------
Total noncurrent assets 8,103
----------
Total assets $ 29,983
==========
Current liabilities 3,644
Shareholders' equity 26,349
----------
Total liabilities and shareholder's equity $ 29,993
==========
</TABLE>
Reading International's net loss for the six months ended June 30, 1996 was
$614,000, consisting primarily of general and administrative expenses and
development costs incurred with respect to its theater development activities.
The Company's share of the loss from Reading International was $307,000, which
is included in the Consolidated Statement of Operations for the six months ended
June 30, 1996.
As of June 30, 1996, advances and contributions amounting to approximately
$27,856,000 have been made to Reading International by Reading and Craig.
Pursuant to a land purchase contract, Reading International is required to make
an installment payment of $3,326,000 on December 20, 1996 which amount is
included in current liabilities on Reading International's balance sheet at June
30, 1996.
NOTE 6 -- LEASES
Cine Vista conducts all of its operations in leased premises. The leases
relate to motion picture theaters with remaining terms of approximately 7 to 26
years with certain leases containing options to extend the leases for up to an
additional 30 years. The minimum remaining lease term, inclusive of any renewal
options, for any of Cine Vista's theaters is approximately 17 years. Cine Vista
also leases office, warehouse space and various equipment. Certain theater
leases provide for contingent rentals based upon a specified percentage of
theater revenues with a guaranteed minimum. Performance under one lease has
been guaranteed by the Company. Substantially all of the leases require the
payment of property taxes, insurance and other costs applicable to the property.
With the exception of one capital lease, all leases are accounted for as
operating leases. Cine Vista determines annual base rent expense by amortizing
total minimum lease obligations on a straight-line basis over the lease terms.
Cine Vista's future minimum lease payments, by year and in the aggregate,
under noncancellable operating leases and the capital lease consist of the
following at June 30:
-11-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30,1996
(amounts in tables in thousands)
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
----- ------
<S> <C> <C>
1997 $ 95 $ 1,315
1998 95 1,301
1999 95 1,426
2000 95 1,401
2001 95 1,401
Thereafter 1,211 13,826
---------- ----------
Total net minimum lease payments 1,686 $20,670
==========
Less amount representing interest (1,163)
----------
Present value of net minimum lease payments
under capital lease $ 523
==========
</TABLE>
In June 1995, Cine Vista entered into a lease agreement for a new six-plex
motion picture theater. The lease provides for a 20-year term with an average
annual base rent of approximately $185,000 with options to extend the lease up
to an additional 10 years. The lease also provides for contingent rentals based
upon a specified percentage of theater revenues with a guaranteed minimum and
requires the payment of property taxes, insurance and other costs applicable to
the property. The lease will be effective after completion of construction of
the new theater. Cine Vista is responsible for certain construction costs of
the theater which are presently estimated to total $1.2 million. Completion of
construction and commencement of theater operations is scheduled to occur in
1996.
NOTE 7 -- REAL ESTATE HELD FOR SALE OR DEVELOPMENT
"Real estate held for sale or development" at June 30, 1996 is carried at
the lower of cost or estimated net realizable value and is classified as a
noncurrent asset due to the inherent difficulty in estimating the timing of
future sales. The Company is exploring development and sale options for its
center city Philadelphia properties which are adjacent to the Pennsylvania
Convention Center site and is actively seeking buyers for its properties located
outside center city Philadelphia.
-12-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30,1996
(amounts in tables in thousands)
NOTE 8 -- OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Reserve for guarantee obligations of
SWS Industries, Inc. (See Note 10) $ 406 $ 406
Obligations related to past railroad operations
and environmental issues (See Note 10) 1,248 1,251
Cine Vista deferred purchase price (See Note 3) 557 707
Minimum rent obligations 329 247
Other 522 372
--------------- ---------------
3,062 2,983
Less estimated current portion (1,063) (916)
--------------- ---------------
$ 1,999 $2,067
=============== ===============
</TABLE>
NOTE 9 -- INCOME TAXES
The Company accounts for income taxes under SFAS No. 109 "Accounting Income
Taxes". Under SFAS No. 109, an income tax provision is recorded in the statement
of operations using the enacted federal rates. Effective December 31, 1981,
after approval by its shareholders, the Company eliminated its accumulated
deficit by a charge to "Other capital." This quasi-reorganization did not
require the restatement of any assets or liabilities or any other modification
of capital accounts. Tax benefits realized from the carryforwards of pre-quasi-
reorganization losses have been included in the determination of net income and
then reclassified from "Retained earnings" to "Other capital". Had such tax
benefits been excluded from net income, the Company would have reported net
income of $202,000 or $.04 per share for the six months ended June 30, 1996 and
a net loss of $43,000 or $.01 per share for the six months ended June 30, 1995.
At December 31, 1995, net operating loss carryforwards totalled $162.7
million of which $123.1 million expires at the end of 1996 unless utilized prior
thereto and $39.6 million will expire in various amounts between 1997 and 2009
unless utilized prior thereto.
-13-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30,1996
(amounts in tables in thousands)
Carryforwards and temporary differences which give rise to the deferred tax
asset are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
<S> <C> <C>
Net operating loss carryforwards $ 54,581 $ 55,325
Reserves 1,004 1,004
Other, net 242 242
------------ -------------
Gross deferred asset 55,827 56,571
Valuation allowance (55,827) (56,571)
------------ -------------
Net deferred asset $ 0 $ 0
============ =============
</TABLE>
Based on an analysis of the likelihood of realizing the Company's gross
deferred tax assets (taking into consideration applicable statutory carryforward
periods), the Company concluded that under SFAS No. 109, a valuation allowance
for the entire asset was necessary.
The Company is required to pay federal alternative minimum tax ("AMT"). AMT
is calculated separately from the regular federal income tax and is based on a
flat rate applied to a broader tax base. Amounts payable thereunder cannot be
totally eliminated through the application of net operating loss carryforwards.
The Company recorded AMT expense of $22,000 and $23,000 in the six months ended
June 30, 1996 and 1995, respectively. Upon adoption of SFAS No. 109 in 1993, a
deferred tax asset of $132,000 was recorded for the tax benefits which were
determined by management to be more likely than not to be realized from the
Company's net operating loss carryforwards. The Company recorded a $132,000 tax
provision in the Condensed Consolidated Statement of Operations for the six
months ended June 30, 1995 related to the realization of such tax benefits in
that period.
NOTE 10-- COMMITMENTS AND CONTINGENCIES
SWS Industries, Inc.
- --------------------
The Company sold a subsidiary, SWS Industries, Inc. ("SWS"), in 1987. SWS
subsequently filed for bankruptcy in 1988. Under the terms of the SWS sales
agreement, the Company remained liable as guarantor on various performance bonds
issued on behalf of SWS. The Company's liability under the performance bond
guarantees has been reduced as the related contracts have been completed or
settled. Completion activities will continue throughout 1996. Management
believes the remaining reserve at June 30, 1996 is adequate for the remaining
obligations of the Company.
Cine Vista
- ----------
A landlord of Cine Vista has alleged that Cine Vista underpaid rent by
approximately $587,000 for the thirty-six month period ended June 30, 1996.
Cine Vista is finalizing a settlement of this claim under which Cine Vista will
pay approximately $130,000 and the former owner of Cine Vista will pay
approximately $220,000. Future rental rates may also increase as a result of
the settlement. A provision for the settlement has been reflected in Cine
Vista's financial results for the six months ended June 30, 1996.
-14-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
Historical Railroad Operations
- ------------------------------
The Company is a defendant in various personal injury legal actions
relating to its railroad operations prior to reorganization and has insurance
coverage relating to such actions. In accordance with the provisions of a 1990
settlement agreement (the "Settlement Agreement") with its insurance carriers,
the Company receives quarterly reimbursement for certain personal injury legal
actions. At June 30, 1996, $63,000 was reimbursable to the Company for amounts
expended in defense and settlement of such actions. This amount has been
classified as "Due from insurance companies." Three participants in the
insurance settlement are insolvent. Unreimbursed claims insured by these
insolvent companies totaled $64,000 from 1992 through June 30, 1996. The Company
believes that it may be entitled to reimbursement of such amounts from the other
parties to the agreement and may request an arbitration hearing on such matters.
Based upon the backlog of pending personal injury cases and the Company's
experience in settling such cases, the Company has established a reserve of
$146,000 reflecting the potential effect of such insolvencies on future
insurance reimbursement if no recovery is received from either the insolvent
carriers or the other parties to the Settlement Agreement. The reserve
associated with such insolvencies may increase if additional claims are filed;
however, the Company does not believe that such amount will be material.
Environmental
- -------------
The Company and a wholly-owned subsidiary, Reading Transportation Company
("RTC"), have each been advised by the Environmental Protection Agency ("EPA")
that they are potentially responsible parties ("PRPs") under environmental laws
including Federal Superfund legislation ("Superfund") for a site located in
Douglassville, Pennsylvania. The EPA issued an Administrative Order under
Superfund against 34 PRPs requiring, among other things, that the named parties
be required to incinerate materials at the site pursuant to a June 30, 1989
Record of Decision ("ROD"). The ROD estimated that the incineration would cost
approximately $53 million. Thirty-six PRPs were also named in a civil action
brought by the United States Government which seeks to recover alleged costs
incurred at the site by the United States of approximately $22 million. Reading
and RTC have each been named in a third-party action instituted by the majority
of the 36 PRPs sued by the United States. The actions instituted against the
Company and approximately 300 PRPs seek to have the parties contribute to
reimbursement for past costs and any costs associated with further remediation
at the site.
During 1994, based upon the Company's and counsel's evaluation of possible
outcomes in the matter, the Company increased its "Provision for environmental
matters" by $1,200,000. In September 1995, the federal district court judge who
presided over Reading's reorganization ruled that all liability asserted against
Reading relating to the site was discharged pursuant to the consummation order
issued in conjunction with the Company's amended plan of reorganization on
December 31, 1980. The United States Department of Justice and a named defendant
in the above described Administrative Order have appealed the decision and the
appeal was heard in July 1996. The judge's decision did not affect the
potential liability of RTC for the site. RTC has no assets and therefore cannot
fund a settlement or judgement relating to this matter and the Company believes
that the potential liability of RTC, if any, is not in excess of $300,000.
Based upon the appeal and possible alternate attempts by the PRPs to obtain
Reading's participation in funding for the site as well as the existence of the
other environmental matters set forth below, the Company has not reduced its
"Provision for environmental matters."
The Company is a party to a consent decree relating to a Superfund site
located on land owned by the Company. Apart from future operation and
maintenance expenses ("O&M"), remediation is complete. During 1994, the Company
paid approximately $106,000 as its estimated share of ten years of O&M and
charged such amount to "Provisions for environmental matters" expense. The
Company believes that the amounts expended to
-15-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
date will be adequate to fund O&M at the site. If additional amounts are
required, such amounts would not be material.
In 1991, the Company filed a lawsuit against the Southeastern Pennsylvania
Transportation Authority ("SEPTA"), Conrail, the City of Philadelphia, and other
parties which sought to recover costs expended by the Company in conjunction
with the cleanup of polychlorinated biphenyls ("PCBs") in the Reading Terminal
Train Shed and a portion of the viaduct south of Vine Street. In January 1996,
the Company and several parties agreed to settle this litigation by providing
for the Company to receive payments totalling $2.35 million which amount the
Company anticipates receiving in 1996. The parties to the settlement also
agreed to pay an amount ranging from 52% to 55% of certain future costs the
Company may incur in cleaning environmental contamination on one of its other
properties, the Viaduct, which the Company believes may be contaminated by PCBs
resulting from former railroad operations on that property conducted by, or on
behalf of the Reading Railroad, Conrail, the City of Philadelphia or the SEPTA.
The Company has advised the Environmental Protection Agency of the potential
contamination. The Company has not determined the scope and extent of any such
PCB contamination. However, the Company has been advised by counsel that, given
the lack of regulatory attention to the Viaduct in the eleven years which have
elapsed since EPA was notified of the likelihood of contamination, it is
unlikely that the Company will be required to decontaminate the Viaduct or incur
costs related thereto.
Prior to the Company's reorganization, the Company had extensive railroad
and related operations. Such operations could have contributed to environmental
contamination of properties now owned by the Company, previously sold or leased
by the Company, or to which the Company, prior to its reorganization, sent
waste. The ultimate extent of liabilities, if any, with respect to such matters,
as well as the timing of cash disbursements, if any, cannot be determined.
However, management is of the opinion that while the ultimate liability
resulting from such matters could have a material effect upon the results of
operations in a given year, they will not have a material adverse effect upon
the Company's financial position or liquidity.
The following is an analysis of the Company's accrual for environmental
claims:
<TABLE>
<S> <C>
Balance at January 1, 1994 $ 336
Provisions 1,306
Payments (133)
----------
Balance at December 31, 1994 1,509
Provisions 0
Payments (248)
----------
Balance at December 31, 1995 1,261
Provisions 0
Payments (3)
----------
Balance at June 30, 1996 $ 1,258
==========
</TABLE>
-16-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
NOTE 11 -- RELATED PARTY TRANSACTIONS
In 1994, 1995 and 1996, the Company's Board of Directors voted to waive the
transfer restrictions imposed by the provisions of the Company's Class A Common
Stock to the extent necessary to permit James J. Cotter, Chairman of the Board
of Directors of the Company and Craig, to acquire additional shares of the
Company's Class A Common Stock. The transfer provisions prohibit a party from
acquiring more than 4.75% of the Company's outstanding capital stock without the
permission of the Company's Board of Directors and are intended to assure the
continuing availability of the Company's tax loss carryforwards by precluding a
change in control which could limit the value of the carryforwards. Craig
currently owns approximately 52.5% of the Company's outstanding capital stock
and has been granted approval to acquire up to 55%. Prior to granting the waiver
of the restrictions, the Board of Directors had determined that acquisition of
the shares by Mr. Cotter and Craig would not affect the continuing availability
of the Company's tax loss carryforwards.
The Company has signed an agreement to acquire Angelika (See Note 4 and Note
13). The theater will be owned jointly by the Company and Sutton Hill
Associates, a California general partnership ("Sutton Hill") affiliated with
City Cinemas, a Manhattan-based theater operator. City Cinemas (owned
indirectly in equal parts by James J. Cotter, the Company's Chairman, and Mr.
Michael Forman) will operate the theater pursuant to a management agreement. Mr.
Cotter is a principal shareholder of Craig. Mr. Forman beneficially owns 16.4%
of Craig's common stock. Robert F. Smerling, President of Cine Vista, also
serves as President of City Cinemas.
On March 29, 1996, the Company purchased from Craig 1,564,473 shares of
Citadel Common Stock and acquired an option to acquire 1,329,114 shares of
Citadel's 3% Cumulative Voting Preferred Stock and under certain circumstances a
warrant to acquire 666,000 shares of Citadel Common Stock at an exercise price
of $3 per share. The purchase of Citadel Common Stock was paid by the issuance
of a five year unsecured $3,324,505 promissory note payable to Craig, which note
was retired on July 29, 1996. An independent committee comprised of outside
directors not affiliated with Craig reviewed, negotiated and approved the
provisions of the Citadel Stock Purchase Agreement and the Option Agreement.
(See Note 4 and Note 12).
In November 1995, the Company and Craig formed Reading International to
develop and operate multiplex cinemas in Australia and other markets. On March
29, the Company and Craig entered into a Capital Funding Agreement pursuant to
each of the parties contributed $12,500,000 and pledged to contribute an
additional $37,500,000 each to Reading International. The Company and Craig each
pledged various assets as security for the additional capital commitments. An
independent committee comprised of outside directors not affiliated with Craig
reviewed and determined that the collateral pledged by Craig as security for its
funding commitment was adequate. (See Note 5.)
NOTE 12 -- LONG-TERM DEBT
In December 1995, Cine Vista entered into a $15 million eight year
revolving credit agreement (the "Credit Agreement") with a bank. Under terms of
the Credit Agreement, Cine Vista may borrow up to $15 million to repay Cine
Vista acquisition loans, which loans are payable to a wholly-owned subsidiary of
the Company (the "Subsidiary Loans"), and fund certain new theater development
expenditures (the "Development Expenditures"). During the initial 30 months of
the eight-year term, Cine Vista may borrow and repay amounts outstanding under
the Credit Agreement. Any amounts outstanding during the initial term would be
payable in increasing quarterly installments over the balance of the loan term.
At June 30, 1996, no amounts were outstanding under this agreement.
-17-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
As security for the loan, Cine Vista has pledged substantially all of its
assets. In addition, the stock of Cine Vista's parent company has been pledged
as security for the loan. In conjunction with the loan, the Company has also
agreed to subordinate to the lender its right to payment of the Subsidiary Loans
as well as certain other fees payable by Cine Vista to the Company under certain
circumstances. In addition, the Company has agreed to contribute funds to Cine
Vista in the event that estimated unpaid Development Expenditures exceed the
amount of funds available to Cine Vista under the Credit Agreement.
The provisions of the Credit Agreement require Cine Vista to maintain a
minimal level of net worth and other financial ratios, restrict the payment of
dividends, and limit additional borrowings and capital expenditures. Borrowings
under the Credit Agreement accrue interest at LIBOR (the London Interbank
Offered Rate) plus 2.25%, the cost of Section 936 deposits (deposits held by
lenders in Puerto Rico which are qualified under Section 936 of the Internal
Revenue Code) to the lender (currently 5.29%) plus 2.25%, or the base rate plus
1/2 of 1%, at Cine Vista's election. In accordance with the provisions of the
Credit Agreement, Cine Vista is required to pay a commitment fee on the unused
commitment equal to 1/2 of 1%.
The Company paid Craig for the Citadel Common Stock with a five year
unsecured promissory note which provides for payment of interest at a rate equal
to LIBOR plus 2.25% (See Note 4). This promissory note is recorded on the
Condensed Consolidated Balance Sheets as "Note payable to affiliate" at June 30,
1996. On July 29, 1996, the note was repaid in full.
NOTE 13 - SUBSEQUENT EVENTS
In July 1996, the Company and the owners of AFCI entered into an asset
purchase and sale agreement under which terms the Company will acquire for
approximately $10,582,000 an 83.3% interest in the Angelika. The Company will
acquire these assets with a combination of available cash, a fully
collateralized promissory note to be issued to the sellers and by receiving a
credit for the Angelika Judgement (See Note 4) together with interest thereon at
a rate equal to 9%. The remaining ownership interest in Angelika will be
acquired by Sutton Hill, an affiliate of City Cinemas which operates an
additional 20 screens in seven cinemas in New York City. The Company and Sutton
Hill have formed a Delaware limited liability company, Angelika Film Centers,
LLC ("AFC"), to hold their interest in the Angelika. The Company anticipates
settlement on this transaction to occur during August 1996. Management believes
the Angelika is the premier specialty theater in the United States.
The Company will contribute 83.3% of the capital to AFC and City Cinemas
will contribute the remaining 16.7%. The provisions of the joint venture
agreement provide that all depreciation and amortization (the "Special
Deductions") will first be allocated to Sutton Hill until the aggregate amount
of such Special Deductions equal Sutton Hill's initial investment. Thereafter,
the Company will receive all Special Deductions until the relative ownership
interests are equal to the initial ownership interests of the parties. Sutton
Hill has agreed to subordinate its interest in AFC to the Company's interest in
order to permit the Company to pledge AFC as collateral for borrowings and
receive 100% of the proceeds of any such borrowings. In addition Sutton Hill
has agreed to subordinate its membership interest to the extent necessary to
permit the Company to receive up to 100% of the proceeds of borrowings by AFC up
to the amount of the Company's initial capital contribution in AFC.
AFC will be managed by City Cinemas pursuant to the terms of a management
agreement (the "Management Agreement"). The Management Agreement provides for
City Cinemas to manage the Angelika for a minimum fee of $125,000 plus an
incentive fee equal to 50% of annual cash flow (as defined in the Management
-18-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
Agreement) over $2,000,000, provided however that the maximum fee (minimum fee
plus incentive fee) does not exceed 5% of the Angelika revenues.
For accounting purposes, the acquisition will be accounted for under the
purchase method and accordingly, the operating results of the Angelika will be
included in the Condensed Consolidated Statement of Operation beginning with the
date of settlement.
In July 1996, the Company received $1,250,000 in full settlement of its
claim against TPI Enterprises, Inc. ("TPI"). The matter related to the
Company's 1993 offer to acquire from TPI a partnership interest in a partnership
which operates motion picture exhibition theaters. This amount, net of related
expenses, will be recorded as income in the Condensed Consolidated Statement of
Operations for the three months ending September 30, 1996.
Also in July 1996, the Company and the landlord of one of Cine Vista's
theaters reached a preliminary understanding relating to a claim the landlord
had asserted regarding the computation of rent (See Note 10). The agreement,
when finalized will require the Company and TALP to pay $130,000 and $220,000,
respectively, to the landlord. The Company recorded $130,000 in the Condensed
Consolidated Statement of Operations for the three months ended June 30, 1996 as
an estimate of additional rent expense for this matter and will record monthly
rent expense to this landlord at a slightly higher amount than in periods prior
to this agreement.
On August 12, 1996, the Company, with the approval of the Board of
Directors entered into a letter of intent (the "Letter of Intent")
contemplating two transactions. The first transaction is a reorganization of
the Company (the "Reorganization") pursuant to a proposed Agreement and Plan of
Merger (the "Merger Agreement") among the Company, Reading Entertainment, Inc.,
a Delaware corporation ("Reading Entertainment") which is a newly formed,
wholly-owned subsidiary of the Company, and Reading Merger Co., a Pennsylvania
corporation ("Merger Co.") which is a newly formed, wholly-owned subsidiary of
Reading Entertainment. Pursuant to the Reorganization, the Company will merge
with Merger Co. In the Reorganization, each outstanding share of the Company's
Common Stock, par value $.01 per share (the "Common Stock") (other than shares
of Common Stock as to which dissenters' rights are perfected), and Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), will be
converted into the right to receive one share of Reading Entertainment's Common
Stock, par value $.001 per share (the "Reading Entertainment Common Stock"), and
the outstanding shares of Merger Co. will be converted into shares of Common
Stock of the Company. As a result, the Company will become a wholly-owned
subsidiary of Reading Entertainment and the current shareholders of the Company
will become shareholders of Reading Entertainment. Among other changes in the
rights of shareholders resulting from the Reorganization, the transfer
restrictions on the Company's Class A Common Stock, which are currently
scheduled to expire January 1, 1997, will be extended with respect to the
Reading Entertainment Common Stock to January 1, 2003, in order to reduce the
possibility that a change-in-control of Reading Entertainment will occur, which
change could reduce the amount of its net operating loss carryforwards available
to offset taxable income.
The second transaction (the "Stock Transaction") is a contribution of
assets to Reading Entertainment by Craig, Craig Management, Inc., a wholly-owned
subsidiary of Craig ("CMI"), and Citadel in exchange for Reading Entertainment
convertible preferred and common stock. Following consummation of the
Reorganization, Reading Entertainment will issue (i) 70,000 shares of Reading
Entertainment's Series A Voting Cumulative Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock") to Citadel Acquisition
Corp., Inc. ("CAC"), a newly formed, wholly owned subsidiary of Citadel, for
$7,000,000 cash and (ii) 550,000 shares of Reading Entertainment's Series B
Voting Cumulative Convertible Preferred Stock, par value $.001 per share (the
"Series B Preferred Stock" and, together with the Series A Preferred Stock, the
"Convertible Preferred Stock"),
-19-
<PAGE>
READING COMPANY AND SUBSIDIARIES
Notes to Condensed Financial Statements (unaudited)
June 30, 1996
(amounts in tables in thousands)
and 2,476,190 shares of Reading Entertainment Common Stock to Craig and CMI in
exchange for certain assets now held by Craig. The assets to be transferred by
Craig consist of 693,650 shares of the Series B Preferred Stock of Stater Bros.
Holdings Inc., Craig's 50% membership interest in Reading International, and
1,329,114 shares of Citadel's 3% Cumulative Voting Convertible Preferred Stock,
stated value $3.95 per share, which assets have been valued for the transaction
at $81,000,000.
The Series A Preferred Stock will (i) bear a cumulative dividend of 6.5%,
payable quarterly, and (ii) be convertible, at any time after 18 months from
issuance (or earlier upon a change in control of Reading Entertainment) into
shares of Reading Entertainment Common Stock at a conversion price of $11.50 per
share. The Series B Preferred Stock will (i) bear a cumulative dividend of 6.5%,
payable quarterly, and (ii) be convertible, at any time after 18 months from
issuance, into shares of Reading Entertainment Common Stock at a conversion
price of $12.25 per share. Holders of each series of Convertible Preferred Stock
will be entitled to 9.64 votes per share held on all matters brought to a vote
of the shareholders of Reading Entertainment, voting as a single class with the
holders of the Reading Entertainment Common Stock and the other series of
Convertible Preferred Stock.
In addition, Citadel will have the option, exercisable at any time after
closing of the Stock Transaction through a date 30 days after the Company's 1999
Form 10-K is filed, to exchange all or substantially all of its assets for
shares of Reading Entertainment Common Stock. Also, Citadel and CAC will have
certain demand and piggyback registration rights with respect to the Reading
Entertainment Common Stock issuable on conversion of the Series A Preferred
Stock or on such asset exchange. In addition, if Reading Entertainment fails to
pay dividends on the Series A Preferred Stock for 4 consecutive quarters after
18 months from issuance, CAC will have the option to require Reading
Entertainment to repurchase such shares at their aggregate liquidation value
plus accumulated dividends. Citadel will also have a right to require redemption
of the Series A Preferred Stock in the event of a change in control of the
Company and after 5 years from the date of issuance. In addition, the Company
has agreed to reimburse Citadel for its out of pocket costs with respect to the
Stock Transaction, up to a maximum of $280,000.
The Letter of Intent is non-binding on each of the companies and
consummation of the Stock Transaction and the Reorganization is subject to
certain conditions, including execution of definitive agreements, approval of
the stockholders of the Company, delivery of written fairness opinions from the
respective financial advisors and certain other standard and customary
conditions. No stockholder approval is required with respect to Craig and
Citadel. Craig, which owns approximately 52.5% of the Company's capital stock,
has agreed to vote its shares in favor of the transactions, and, accordingly,
the vote of no other Reading stockholder is required for approval of the
transactions.
-20-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Due to the nature of the Company's historical business activities,
revenues and earnings have varied significantly reflecting the results of real
estate and other asset sales as well as the amount and timing of development
activities. In addition, Reading International is acquiring properties and
entering into leases for sites in Australia which it will develop into motion
picture theaters. Until the theaters have been constructed and are placed in
operation, Reading International will have no material revenues and can be
expected to generate losses. Accordingly, period-to-period comparisons of
operating results will not be indicative of future financial results. Cine
Vista's business is seasonal and the results of Cine Vista included in the six-
month period ended June 30, 1996 may not be indicative of Cine Vista's annual
operating results.
Revenues in the six-month period ended June 30, 1996 increased
$2,317,000 to $10,686,000 from $8,369,000 in the corresponding six-month period
last year. The increase was due primarily to a 21% increase in theater revenues
recorded by Cine Vista (which increase resulted from higher box office revenues
at existing theaters and the opening of a new 8-screen theater in late 1995) and
the equity earnings of $1,433,000 from the Company's investment in Citadel (See
Note 4). These equity earnings include a nonrecurring gain on sale of real
estate of $1,473,000 and nonrecurring income of $4,000,000 from the recognition
for financial statement purposes of previously deferred proceeds from the bulk
sale of loans by a previously owned subsidiary of Citadel. Revenues in the six-
month period last year included a $425,000 litigation settlement.
"Theater costs", "Theater concession costs" and "Depreciation and
amortization" reflect the direct theater costs of Cine Vista's operations. These
costs increased $1,343,000 from $5,888,000 in the six months ending June 30,
1995 to $7,231,000 in this year's six-month period due primarily to increased
costs associated with higher revenues and the operating expenses associated with
the opening of a new 8-screen theater in late 1995. Significant increases in the
current six-month period include a $519,000 increase in film rent (a 2%
increase as a percentage of box office revenues), an increase in concession
costs of $54,000 (which costs remained constant as a percentage of concession
revenues from the prior year), a $98,000 increase in contingent rent under
facility leases and increased wage and salary expense (which amount remained
constant as a percentage of sales).
"General and administrative" expenses in the current six-month period
remained consistent with the prior year six-month period.
"Equity loss from investment in Australian joint venture" reflects the
Company's 50% share of the initial general and administrative expenses in
Australia and noncapitalized development expenditures relating to new theater
site analysis and selection (See Note 5). The Company does not anticipate
material revenues from Reading International during the next 12 months and
therefore anticipates continuing losses during such period as new theaters are
developed and operations initiated. The investment in and operating results of
Reading International are reported under the equity method.
The Company recorded AMT expense of $22,000 and $23,000 in the six
months ended June 30, 1996 and 1995, respectively. Upon adoption of SFAS No. 109
in 1993, a deferred tax asset of $132,000 was recorded for the tax benefits
which were determined by management to be more likely than not to be realized
from the Company's net operating loss carryforwards. The Company recorded a
$132,000 tax provision in the Condensed Consolidated Statement of Operations for
the six months ended June 30, 1995 related to the realization of such tax
benefits in that period.
The Company recorded net income of $1,039,000 and net income of
$322,000 for the six months ended June 30, 1996 and 1995, respectively.
-21-
<PAGE>
Revenues for the three months ended June 30, 1996 increased $1,440,000
to $6,001,000 from $4,561,000 compared with the three months ended June 30,
1995. The increase was due primarily to an increase in revenues from Cine Vista
of $571,000 and the inclusion of $1,433,000 of equity earnings from the Citadel
investment (See Note 4). These equity earnings include a nonrecurring gain on
sale of real estate of $1,473,000 and nonrecurring income of $4,000,000 from the
recognition for financial statement purposes of previously deferred proceeds
from the bulk sale of loans by a previously owned subsidiary of Citadel. The
increase in revenues in the current six-month period was offset somewhat by the
inclusion of $425,000 received in the prior year quarter in settlement of
certain litigation.
"General and Administrative" expense decreased $149,000 from
$1,066,000 in the corresponding three months period last year. The decrease was
due mainly to lower professional fees.
LIQUIDITY AND CAPITAL RESOURCES:
The Company has sufficient funding available to meet its current
commitments. However, the Company believes that there are significant expansion
opportunities in the cinema exhibition business and, that if it is to fully
exploit the opportunities for growth in the exhibition business, the Company
needs to increase its capital base and simplify the corporate structures which
it has to date found necessary to utilize in pursuing such opportunities.
Accordingly, the Stock Transaction (See Note 13) has been developed to achieve
the goals of significantly increasing the Company's capital base while
simultaneously simplifying its corporate structure. Pursuant to the terms of the
Stock Transaction, the Company would receive 693,650 shares of Series B
Preferred Stock of Stater Bros. Holdings, Inc. (aggregate par value
$69,365,000), Craig's 50% membership interest in Reading International
(increasing the Company's ownership to 100% of Reading International), 1,329,114
shares of the 3% Cumulative Voting Convertible Preferred Stock of Citadel
(stated value of $5,250,000) and $7,000,000 in cash. In payment for the assets,
the Company would issue common and preferred stock to Craig and Citadel. It is
believed by the Company that the non-cash assets may be hypothecated or sold in
order to significantly increase the Company's base of liquid funds for
investment in the cinema exhibition business. Implementation of the Stock
Transactions is dependent upon a shareholder vote, which vote will be secured at
the Company's 1996 Annual Meeting of Shareholders. Craig currently owns
approximately 52.5% of the Company's voting securities and has agreed to vote
its shares in favor of the Stock Transaction.
In November 1995, the Company and Craig formed Reading International
in order to make available additional capital and liquidity to develop other
theater opportunities in Australia. Reading International is actively seeking
properties to develop in Australia and has acquired two sites and has made
deposits for several other real property purchases or leases. On March 29, 1996,
the Company and Craig entered into a Capital Funding Agreement with respect to
Reading International pursuant to which they agreed to increase the capital
committed by the Company and Craig to Reading International from $10 million to
approximately $103 million through a combination of cash contributions and
secured capital funding undertakings (See Note 5). The Company and Craig each
immediately contributed to Reading International $12,500,000 in cash and have
undertaken to contribute up to an additional $37,500,000 on an as needed basis
(the "Funding Commitment"). To secure the Funding Commitment, the Company
pledged its interest in Cine Vista and certain government securities and Craig
pledged its interest in Stater Brothers Holdings, Inc. The Company may
substitute collateral for the Funding Commitment provided that the fair market
value of the collateral substituted is equal to at least 125% of the unfunded
Funding Commitment or, in the case of government or government agency
securities, equal to 100% of the unfunded portion of the Funding Commitment. The
Company has signed an agreement to acquire an 83.3% interest in the Angelika
theater in Manhattan (See Note 4 and Note 13) for approximately $10,582,000. The
Company anticipates closing of this transaction to occur in August 1996 at which
time the funds would be disbursed. Cine Vista has three new theaters under
development and is seeking additional theater sites in Puerto Rico.
Cine Vista entered into a revolving credit agreement in December 1995
(the "Credit Agreement"). In accordance with the terms of the Credit Agreement,
Cine Vista may borrow up to $15,000,000 to repay certain loans payable to a
wholly-owned subsidiary of the Company and fund certain new theater development
expenditures (See Note 12). No amounts are presently outstanding under the
Credit Agreement. The Company may use funds available under the Credit Agreement
to fund its other theater development activities provided that a portion of such
funds are utilized to fund certain Cine Vista development projects.
-22-
<PAGE>
On March 29, 1996, the Company purchased from Craig 1,564,473 shares
of Citadel Common Stock for an aggregate purchase price of $3,324,505 (See Note
4). The Company paid Craig for the Citadel Common Stock with a five year
unsecured promissory note which provides for the payment of interest at a rate
equal to LIBOR plus 2.25%. In July 1996 the note together with accrued interest
was repaid. The Company also acquired from Craig (for $50,000) a one year option
to acquire, at fair market value, as determined by an investment banker selected
by the parties, 1,329,114 shares of the 3% Cumulative Voting Convertible
Preferred Stock, stated value $3.95 per share of Citadel and an option to
acquire, under certain circumstances, a warrant to acquire 666,000 shares of
Citadel Common Stock.
In January 1996, the Company and the other parties agreed to settle
litigation whereby the Company sought to recover certain environmental cleanup
costs previously expended by the Company on properties it formerly owned. The
agreement provides for the Company to receive payments totalling $2.35 million
to recover these costs, which amount the Company anticipates receiving in 1996.
The parties to the settlement also agreed to pay an amount ranging from 52% to
55% of certain future costs, if any, the Company may incur in cleaning
environmental contamination on the Viaduct (See Note 10).
Prior to the Company's reorganization, the Company had extensive
railroad and related operations. Such operations may have contributed to
environmental contamination of properties now owned by the Company, previously
sold by the Company, or to which the Company, prior to its reorganization, sent
waste. The ultimate extent of liabilities, if any, with respect to such matters,
as well as the timing of cash disbursements, if any, cannot be determined.
However, management is of the opinion, based on the information currently known,
that while the ultimate liability resulting from such matters could have a
material effect upon the results of operations in a given year, they will not
have a material adverse effect upon the Company's financial position or
liquidity.
"Cash and cash equivalents" together with "Available-for-sale
securities" decreased $11,709,000 from $44,189,000 at December 31, 1995 to
$32,480,000 at June 30, 1996 due primarily to $12,888,000 in capital
contributions to Reading International (See Note 5) and a decrease in "Accounts
payable and accrued expenses" of $344,000. While not necessarily indicative of
cash flows determined under generally accepted accounting principles, Cine
Vista's operating cash flow (income before depreciation and amortization)
totaled $983,000 in the six month period ended June 30, 1996 verses $1,029,000
in the prior year six month period. Current period Cine Vista operating cash
flow includes $130,000 in additional rent expense recorded as a result of the
settlement with a landlord (See Note 13). In addition to Cine Vista's operating
cash flow, other significant sources of liquid funds during this period included
"Interest and dividends" revenue of $1,076,000, a decrease in due from affiliate
of $944,000 (related to the payment by Craig of amounts advanced by the Company
on Craig's behalf for Reading International) and an increase of $484,000 in film
rent payable.
Principal sources of liquid funds in the prior year six-month period
included $1,029,000 from Cine Vista's operating cash flow, $1,103,000 in
"Interest and dividends" revenue and a decrease in insurance proceeds receivable
of $514,000. In addition to operating expenses, the principal uses of liquid
funds for the six months ended June 30, 1995, included a decrease in "Amounts
receivable" of $338,000, a decrease in "Accounts payable and accrued expenses"
of $316,000, a decrease in "Other liabilities" of $206,000 and $207,000 used to
purchase property, plant and equipment for Cine Vista's operations.
-23-
<PAGE>
For accounting purposes, the acquisition will be accounted for under
the purchase method and accordingly, the operating results of the Angelika will
be included in the Condensed Consolidated Statement of Operation beginning with
the date of settlement.
In July 1996, the Company received $1,250,000 in full settlement of
its claim against TPI Enterprises, Inc. ("TPI"). The matter related to the
Company's 1993 offer to acquire from TPI a partnership interest in a
partnership which operates motion picture exhibition theaters. This amount, net
of related expenses, will be recorded as income in the Condensed Consolidated
Statement of Operations for the three months ended September 30, 1996.
Also in July 1996, the Company and the landlord of one of Cine Vista's
theaters reached a preliminary understanding relating to a claim the landlord
had asserted regarding the computation of rent (See Note 10). The agreement,
when finalized will require the Company and TALP to pay $130,000 and $220,000,
respectively to the landlord. The Company recorded $130,000 in the Condensed
Consolidated Statement of Operations for the three months ended September 30,
1996 as an estimate of additional rent expense in relation to this matter and
will record monthly rent expense to this landlord at a slightly higher amount
than in periods prior to this agreement.
-24-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.8 By-Laws of Registrant, as amended May 23, 1996.
10.20 Service Deed between Australia Cinema Management Pty Limited
and John Rochester dated May 7, 1996.
10.21 Letter of Intent dated August 12, 1996 by and between Reading
Company, Citadel Holding Corporation and Craig Corporation.
27 Financial Data Schedule
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
READING COMPANY, REGISTRANT
Date: August 14, 1996 By: /s/ James A. Wunderle
-------------------------- -----------------------------------
James A. Wunderle
Executive Vice President,
Chief Operating Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 1996 By: /s/ Eileen M. Mahady
-------------------------- -----------------------------------
Eileen M. Mahady
Controller
(Principal Accounting Officer)
-26-
<PAGE>
EXHIBIT 3.8
BY-LAWS OF
READING COMPANY
ARTICLE I
CORPORATION OFFICE
------------------
1.1 Registered Office. The Corporation shall have and continuously
------------------
maintain in the Commonwealth of Pennsylvania a registered office at an address
to be designated from time to time by the Board of Directors which may, but need
not, be the same as its place of business.
1.2 Business Office. The Corporation may also have offices at such
----------------
other places as the Board of Directors may from time to time designate or the
business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
------------
2.1 Meetings.
---------
2.1.1 Place. Meetings of the shareholders shall be held at such
-----
place, within or without the Commonwealth of Pennsylvania, as may be determined
from time to time by the Board of Directors and need not be held at the
registered office of the Corporation.
2.1.2 Annual Meeting. An annual meeting of the shareholders for
--------------
the election of directors and for the transaction of other business as may be
properly be brought before the meeting shall be held in each calendar year at
such time and place as may be determined by the Board of Directors.
2.1.3 Special Meetings. Special meetings of the shareholders
----------------
may be called at any time by the President, the Chairman of the Board, any three
members of the Board of Directors or the holders of at least one-fifth of the
outstanding shares of stock of the Company entitled to vote at the meeting. The
request of any person who has called a special meeting of shareholders shall be
addressed to the Secretary of the Corporation, shall be signed by the persons
making the request and shall state the purpose or purposes of the meeting. Upon
receipt of any such request it shall be the duty of the Secretary to fix the
time and provide written notice of the special meeting of shareholders, which
shall be held not more
<PAGE>
than 60 days after the receipt of the request. If the Secretary shall neglect
or refuse to fix the time or provide written notice of the special meeting, the
person or persons making the request may fix the time and provide written notice
of the special meeting.
2.2 Notice. Written notice of the time and place of each meeting
------
of shareholders, other than an adjourned meeting of shareholders, and of the
general nature of the business to be transacted at each special meeting of
shareholders shall be given to each shareholder of record entitled to vote at
the meeting at least five days before the date of the meeting unless a greater
period of notice is required by law in a particular case.
2.3 Quorum. The presence in person or by proxy of the shareholders
------
entitled to cast at least a majority of votes that all shareholders are entitled
to cast on a particular matter to be acted upon at the meeting shall constitute
a quorum of the shareholders for the purpose of considering such matter. The
shareholders present at a duly organized meeting can continue to do business
until adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum. If a meeting cannot be organized because a quorum has not
attended, those present may, except as otherwise provided by statute, adjourn
the meeting to such time and place as they may determine.
2.4 Voting Rights.
-------------
2.4.1 One Vote per share. Each shareholder shall have the
------------------
right at every shareholders' meeting to one vote for each share of Common Stock
and one vote for each share of Class A Common Stock of the Corporation standing
in the name of the shareholder on the books of the Corporation which is entitled
to vote at such meeting. Shares of Common Stock and Class A Common Stock shall
be voted together as a single class. Each shareholder may vote such shares
either in person or by proxy.
2.4.2 Majority. Whenever any corporate action is to be taken
--------
by vote of the shareholders of this Corporation, it shall be authorized by a
majority of the votes cast at a duly organized meeting of the shareholders by
the holders of shares entitled to vote thereon.
2.5 Record Date. The Board of Directors may fix a time, not more
-----------
than ninety days prior to the date of any meeting of shareholders, or the date
fixed for the payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the
2
<PAGE>
determination of the shareholders entitled to notice of, or to vote at, any such
meeting, or entitled to receive payment of any such dividend or distribution, or
to receive any such allotment of rights, or to exercise the rights in respect to
any such change, conversion, or exchange of shares. Only such shareholders as
shall be shareholders of record on the date so fixed shall be entitled to notice
of, or to vote at, such meeting or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after any record date fixed, as aforesaid.
2.6 Shareholder Communications. Whenever the Corporation has been
--------------------------
unable to communicate with a shareholder for more than 24 consecutive months
because communications to the shareholder are returned unclaimed or the
shareholder has otherwise failed to provide the Corporation with a current
address, the giving of notice to such shareholder pursuant to Section 2.2 of
these By-laws shall not be required. Any action or meeting that is taken or
held without notice or communication to that shareholder shall have the same
validity as if the notice or communication had been duly given. Whenever a
shareholder provides the Corporation with a current address, this Section 2.6
shall cease to be applicable to such shareholder. The Corporation shall not be
required to give notice to any shareholder pursuant to Section 2.2 of these By-
laws if and for so long as communication with such shareholder is unlawful.
2.7 Participation by Telephone. Unless otherwise provided by a
--------------------------
resolution with respect to a specific meeting or with respect to a class of
meetings, no shareholder may participate in such meeting or meetings of
shareholders by means of conference telephone or other communications equipment
by means of which all persons participating in the meeting can hear one another.
Any notice otherwise required to be given in connection with any meeting at
which participation by conference telephone or other communications equipment is
permitted shall so specify.
2.8 Adjournment. Any regular or special meeting of the
-----------
shareholders of the Corporation, including one at which directors are to be
elected, may be adjourned for such period as the shareholders present and
entitled to vote shall direct.
3
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1. Number and Term. The Board shall consist of eight Directors.
---------------
Except as provided in Section 3.4 hereof, the Directors shall be elected by the
shareholders. Each Director shall hold office until the next annual meeting of
shareholders or until his earlier death, resignation or removal. Any director
may resign at any time upon written notice to the Corporation. Such resignation
shall be effective upon receipt thereof by the Corporation or at such subsequent
time as shall be specified in the notice of resignation. The Chairman of the
Board shall be elected by the Board and preside at all meetings of the
shareholders and directors, and in his absence the Board shall designate a
member of the Board to act as chairman at such meeting. The Board may elect a
Vice Chairman of the Board. Unless designated as the Chief Executive Officer
pursuant to Section 4.1 hereof, neither the Chairman of the Board nor Vice
Chairman of the Board shall be an officer of the Corporation.
3.1.2 Nomination by Shareholders. No shareholder shall be
--------------------------
permitted to nominate a candidate for election as a Director at or at any time
after the 1993 Annual Meeting of Shareholders unless such shareholder shall
provide in writing, not later than 120 days before the first anniversary of the
preceding annual meeting of shareholders, to the Nominating Committee of the
Board 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.
3.2 Powers. All corporate powers as required or permitted by
------
applicable law, the Articles of Incorporation or these By-laws shall be
exercised by or under authority of, and the business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
3.3 Meetings.
--------
3.3.1 Place. Meetings of the Board of Directors shall be held
-----
at the principal office of the Corporation in Philadelphia, Pennsylvania or at
such other place as may be designated by the Board or in the notice of the
meeting.
4
<PAGE>
3.3.2 Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at least quarterly on such dates and at such time as the
Board may designate. Notice of regular meetings need not be given.
3.3.3 Special Meetings. Special meetings of the Board of
----------------
Directors may be called at any time by the Chairman of the Board and shall be
called by him on the written request of three Directors. Notice (which need not
be written) of the time and place of each special meeting shall be given to each
Director at least two days before the meeting.
3.3.4 Quorum. A majority of the Directors in office shall
------
constitute a quorum for the transaction of business at any meeting. The acts of
a majority of the Directors present and voting at any meeting at which a quorum
is present shall be the acts of the Board of Directors.
3.3.5 Participation. One or more Directors may participate in a
-------------
meeting of the Board or a committee of the Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
3.4 Vacancies. Vacancies in the Board of Directors, including
---------
vacancies resulting from an increase in the number of directors, shall be filled
by vote of a majority of the remaining members of the Board, even if less than a
quorum. Any person selected to fill such a vacancy shall serve until the next
meeting of the shareholders called for the purpose of electing Directors.
3.5 Committees.
----------
3.5.1 Executive Committee. The Board of Directors may, by
-------------------
resolution adopted by a majority of the entire Board, create an Executive
Committee which shall consist of three or more Directors and shall have and
exercise the authority of the Board over the business of the Corporation between
meetings of the Board, except as restricted by Section 3.5.3 hereof.
3.5.2 Additional Committees. The Board of Directors may, by
---------------------
resolution adopted by a majority of the entire Board, designate one or more
additional committees, each committee to consist of two or more Directors and
such alternate members (also Directors) as may be designated by the Board. To
the extent provided in such resolution, any such committee shall have and
exercise the powers of the Board of Directors. Unless otherwise determined by
the Board, in the absence or disqualification of any member of a committee the
member or members thereof present at any meeting and not disqualified from
5
<PAGE>
voting, whether or not he or they constitute a quorum, may unanimously appoint
another Director to act at the meeting in the place of any such absent or
disqualified member, except as restricted by Section 3.5.3 hereof.
3.5.3 Actions not permitted by Committees. No Committee
-----------------------------------
shall have power or authority as to the following:
(1) The submission to shareholders of any action requiring approval
of shareholders;
(2) The creation or filling of vacancies in the Board;
(3) The adoption, amendment or repeal of the By-laws;
(4) The amendment or repeal of any resolution of the Board that by
its terms is amendable or repealable only by the Board; or
(5) Action on matters committed by the By-laws or resolution of the
Board to another committee of the Board.
3.6 Limitation of Liability of Directors.
-------------------------------------
3.6.1 Fiduciary Duty. A director of this Corporation shall
--------------
stand in a fiduciary relation to this Corporation and shall perform his duties
as a director, including his duties as a member of any committee of the Board of
Directors upon which he may serve, in good faith, in a manner he reasonably
believes to be in the best interests of this Corporation, and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing his duties, a
director shall be entitled to rely in good faith on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by any of the following:
(1) One or more officers or employees of this Corporation whom the
director reasonably believes to be reliable and competent in the
matters presented.
(2) Counsel, public accountants or other persons as to matters which
the director reasonably believes to be within the professional or
expert competence of such persons.
(3) A committee of the Board of Directors upon which he does not
serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director
reasonably believes to merit confidence.
6
<PAGE>
A director shall not be considered to be acting in good faith if he
has knowledge concerning the matter in questions that would cause his reliance
to be unwarranted.
3.6.2 Consideration of all Factors. In discharging the duties
----------------------------
of their respective positions, the Board of Directors, committees of the Board
of Directors and individual directors may, in considering the best interests of
this Corporation, consider the effects of any action upon employees, upon
suppliers and customers of this Corporation and upon communities in which
offices or other establishments of this Corporation are located, and all other
pertinent factors. The consideration of these factors shall not constitute a
violation of Section 3.6 hereof.
3.6.3 Actions. Absent breach of fiduciary duty, lack of good
-------
faith or self-dealing, actions taken as a director or any failure to take any
action shall be presumed to be in the best interests of this Corporation.
3.6.4 No Personal Liability. A director of this Corporation
---------------------
shall not be personally liable for monetary damages as such for any action taken
or any failure to take any action unless:
(1) the director has breached or failed to perform the duties of
his office under Sections 3.6.1 through 3.6.3 hereof; and
(2) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
3.6.5 Governing Law. The provisions of Section 3.6.4 hereof
-------------
shall not apply to:
(1) the responsibility or liability of a director pursuant to any
criminal statute; or
(2) the liability of a director for the payment of taxes pursuant
to local, state or federal law.
3.6.6 Shareholder Approval to Amend. Notwithstanding any
-----------------------------
other provisions of these By-laws, the approval of shareholders shall be
required to amend, alter, change, repeal or adopt any provision as part of these
By-laws which is inconsistent with the purpose or intent of Sections 3.6.1,
3.6.2, 3.6.3, 3.6.4, 3.6.5 or 3.6.6 of this Article III. The provisions of this
Section 3.6 were adopted by shareholders of the Corporation on April 24, 1987.
7
<PAGE>
ARTICLE IV
OFFICERS
--------
4.1 Election. The Board of Directors shall elect a President,
--------
Treasurer, Secretary and such Vice President and other officers and assistant
officers as the board may authorize from time to time. Two or more offices may
be held by the same person. The Directors shall designate either the Chairman
of the Board or the President to be the chief executive officer of the
Corporation. Each officer shall hold office at the pleasure of the Board and
until his successor has been selected and qualified or until his earlier death,
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Any such resignation shall be effective upon receipt
thereof by the Corporation or at such subsequent time as may be specified in the
notice of resignation.
4.2 President. The President may be designated as the chief
---------
operating officer or the chief executive officer of the Corporation. In the
absence of the Chairman of the Board, the President shall preside at all
meetings of the Board and of the shareholders and shall perform the other duties
of the Chairman of the Board.
4.3 Chief Executive Officer. The Chief Executive Officer of the
-----------------------
Corporation shall have general supervision over the business of the Corporation
and may perform any act and execute any instrument for the conduct of its
business and he or any officer or employee authorized by him may appoint, remove
or suspend agents or employees of the Corporation and may determine their duties
and compensation.
4.4 Vice President. The Vice President or, if more than one, the
--------------
Vice Presidents in the order, if any, established by the Board shall, in the
absence or incapacity of the President, have the authority to exercise all the
powers and perform the duties of the President. The Vice Presidents,
respectively, shall also have such other authority and perform such other duties
as may be provided in the By-laws or as shall be determined by the Board or the
President. Any Vice President may, in the discretion of the Board, be
designated as "executive," "senior," by departmental or functional
classification, or chief operating officer.
4.5 Secretary. The Secretary shall attend all meetings of the
---------
Board and of the shareholders and keep accurate records thereof in one or more
minute books kept for that purpose and shall perform the duties customarily
performed by the secretary of a corporation and such other duties as may be
assigned to him by the Board or the President.
8
<PAGE>
4.6 Treasurer. The Treasurer shall be responsible for the custody
---------
of the corporate funds and securities; shall be responsible for full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; and shall perform such other duties as may be assigned to him by
the Board or the President.
4.7 Assistant Officers. Each assistant officer shall assist in the
------------------
performance of the duties of the officer to whom he is assistant and shall
perform such duties in the absence of the officer. He shall perform such
additional duties as the Board of Directors, the President or the officer to
whom he is assistant may from time to time assign him. Such officers may be
given such functional titles as the Board of Directors shall from time to time
determine.
4.8 Other Officers. The duties of the other officers shall be
--------------
those usually related to their officers, except as otherwise prescribed by
resolution of the Board of Directors.
4.9 Standard of Care. An officer shall perform his duties as an
----------------
officer in good faith, in a manner he reasonably believes to be in the best
interests of the Corporation and with such care, including reasonable inquiry,
skill and diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his duties shall not be liable by
reason of having been an officer of the Corporation. The Corporation may secure
the fidelity of any or all of the officers by bond or otherwise at its expense.
4.10 Removal, Vacancies. Any officer or agent of the Corporation
------------------
may be removed by the Board with or without cause. The removal shall be without
prejudice to the contract rights, if any, of any person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
------------------------------------------------------------
5.1 Indemnification. This Corporation shall indemnify any director
---------------
or officer, and may indemnify any other employee or agent, who was or is a party
to, or is threatened to be made a party to or who is called as a witness in
connection with any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of this
9
<PAGE>
Corporation, by reason of the fact that he is or was a director, officer,
employee or agent of this Corporation, or is or was serving at the request of
this Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorney's fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding unless the act or failure to act giving rise to the
claim for indemnification is determined by a court to have constituted willful
misconduct or recklessness.
5.2 Non Exclusive Right. The indemnification and advancement of
-------------------
expenses provided by, or granted pursuant to, this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, contract,
vote of shareholders or disinterested directors pursuant to the direction,
howsoever embodied, of any court of competent jurisdiction or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office. It is the policy of this Corporation that indemnification
of, and advancement of expenses to, directors and officers of this Corporation
shall be made to the fullest extent permitted by law. To this end, the
provisions of this Article V shall be deemed to have been amended for the
benefit of directors and officers of this Corporation effective immediately upon
any modification of the Business Corporation Law of the Commonwealth of
Pennsylvania (the "BCL") or the Directors' Liability Act of the Commonwealth of
Pennsylvania (the "DLA") or any modification, or adoption of any other law that
which expands or enlarges the power or obligation of corporations organized
under the BCL or subject to the DLA to indemnify, or advance expenses to,
directors and officers of this Corporation.
5.3 Expenses. This Corporation shall pay expenses incurred by an
--------
officer or director, and may pay expenses incurred by any other employee or
agent, in defending a civil or criminal action, suit or proceeding in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by this
Corporation.
5.4 Continuation of Indemnification. The indemnification and
-------------------------------
advancement of expenses provided by, or granted pursuant to, this Article V
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
10
<PAGE>
5.5 Security for Obligations. This Corporation shall have the
------------------------
authority to create a fund of any nature, which may, but need not be, under the
control of a trustee, or otherwise secure or insure in any manner, its
indemnification obligations, whether arising under these By-laws or otherwise.
This authority shall include, without limitation, the authority to (i) deposit
funds in trust or in escrow, (ii) establish any form of self-insurance, (iii)
secure its indemnity obligation by grant of a security interest, mortgage or
other lien on the assets of this Corporation or (iv) establish a letter of
credit, guaranty or surety arrangement for the benefit of such persons in
connection with the anticipated indemnification or advancement of expenses
contemplated by this Article V. The provisions of this Article V shall not be
deemed to preclude the indemnification of, or advancement of expenses to, any
person who is not specified in Section 5.1 of this Article V but whom this
Corporation has the power or obligation to indemnify, or to advance expenses
for, under the provisions of the BCL [or the DLA or] otherwise. The authority
granted by this Section 5.5 shall be exercised by the Board of Directors of this
Corporation.
5.6 Right to Defend. As soon as practicable after receipt by any
---------------
person specified in Section 5.1 of this Article V of notice of the commencement
of any action, suit or proceeding specified in Section 5.1 of this Article V,
such person shall, if a claim with respect thereto may be made against this
Corporation under Article V of these By-laws, notify this Corporation in writing
of the commencement or threat thereof; however, the omission so to notify this
Corporation shall not relieve this Corporation from any liability under Article
V of these By-laws unless this Corporation shall have been prejudiced thereby or
from any other liability which it may have to such person other than under
Article V of these By-laws. With respect to any such action as to which such
person notifies this Corporation of the commencement of threat thereof, this
Corporation may participate therein at its own expense and, except as otherwise
provided below, to the extent that it desires, this Corporation jointly with any
other indemnifying party similarly notified, shall be entitled to assume the
defense thereof, with counsel selected by this Corporation to the reasonable
satisfaction of such person. After notice from this Corporation to such person
of its election to assume the defense thereof, this Corporation shall not be
liable to such person under Article V of these By-laws for any legal or other
expenses subsequently incurred by such person in connection with the defense
thereof other than as otherwise provided below. Such person shall have the
right to employ his own counsel in such action, but the fees and expenses of
such counsel incurred after notice from this Corporation of its assumption of
the defense thereof shall be at the expense of such person unless: (i) the
employment of counsel by such person shall have been
11
<PAGE>
authorized by this Corporation; (ii) such person shall have reasonably concluded
that there may be a conflict of interest between this Corporation and such
person in the conduct of the defense of such proceeding or (iii) this
Corporation shall not in fact have employed counsel to assume the defense of
such action. This Corporation shall not be entitled to assume the defense of
any proceeding brought by or on behalf of this Corporation or as to which such
person shall have reasonably concluded that there may be a conflict or interest.
If indemnification under Article V of these By-laws or advancement of expenses
are not paid or made by this Corporation, or on its behalf, within 90 days after
a written claim for indemnification or a request for an advancement of expenses
has been received by the Corporation, such person may, at any time thereafter,
bring suit against this Corporation to recover the unpaid amount of the claim or
the advancement of expenses. The right to indemnification and advancements of
expenses provided hereunder shall be enforceable by such person in any court of
competent jurisdiction. The burden of proving that indemnification is not
appropriate shall be on this Corporation. Expenses reasonably incurred by such
person in connection with successfully establishing the right to indemnification
or advancement of expenses, in whole or in part, shall also be indemnified by
this Corporation.
5.7 Contract. A contract shall exist between this Corporation
--------
and its officers and directors with respect to indemnification and advancement
of expenses as provided by this Article V and as otherwise provided by
applicable law.
5.8 Amendment. The repeal of Article V, in its entirety, of these
---------
By-laws, or any other alteration or amendment thereof which may impair or
otherwise diminish the protection afforded by such provisions to the persons
described therein, shall be effective only with respect to transactions, actions
or omissions to act by such persons which occur after the effective date of such
repeal or amendment and shall have no effect whatsoever with respect to such
transactions, actions or omissions occurring prior to such effective date.
5.9 Adoption. The provisions of this Article V were adopted by the
--------
shareholders of this Corporation on April 24, 1987.
12
<PAGE>
ARTICLE VI
SHARE CERTIFICATES AND TRANSFERS
--------------------------------
6.1 Share Certificates. Every shareholder of record shall be
------------------
entitled to a share certificate representing the shares held by him. Every
share certificate shall bear the corporate seal (which may be a facsimile) and
the signature of the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer of the Corporation. Where a certificate is
signed by a transfer agent or registrar the signature of any corporate officer
may be a facsimile.
6.2 Transfers. Upon surrender to the Corporation of a share
---------
certificate duly endorsed by the person named in the certificate or by attorney
duly appointed in writing and accompanied where necessary by proper evidence of
succession, assignment or authority to so transfer, and, subject to any
restrictions on transfer as provided on the certificate or in the Articles of
Incorporation, a new certificate shall be issued to the person entitled thereto
and the old certificate shall be cancelled and the transfer recorded on the
appropriate share register of the Corporation. A transferee of shares of the
Corporation shall not be a record holder of such shares entitled to the rights
and benefits associated therewith unless and until the share transfer has been
recorded on the share transfer books of the Corporation. No transfer shall be
made if it would be inconsistent with the provisions of Article 8 of the
Pennsylvania Uniform Commercial Code.
ARTICLE VII
FISCAL YEAR
-----------
7.1 The fiscal year of the Corporation shall begin on the first day
of January of each year and shall end on the following thirty-first day of
December.
ARTICLE VIII
CONTRIBUTIONS
-------------
8.1 Contributions. The Board of Directors is authorized to make such
-------------
contributions and donations for such
13
<PAGE>
public and charitable purposes as may now, or hereafter, be authorized or
permitted under the laws of Pennsylvania.
ARTICLE IX
PROVISIONS OF BUSINESS CORPORATION LAW
--------------------------------------
NOT APPLICABLE TO THE CORPORATION
---------------------------------
9.1 Section 910 of the Pennsylvania Business Corporation Law,
Pennsylvania Statute Annotated Title 15 (S)1910, shall not be applicable to
this Corporation. (Amended June 2, 1988)
9.2 Section 911 of the Pennsylvania Business Corporation Law,
Pennsylvania Statute Annotated Title 15, (S)1911, shall not be applicable to
this Corporation. (Amended June 2, 1988)
9.3 Subsections (d) through (f) of Section 511 of the Business
Corporation Law of 1988, Pennsylvania Statute Annotated Title 15 (S)511(d)
through (S)511(f), shall not be applicable to this Corporation. (Amended May
15, 1990)
9.4 Subsections (e) through (g) of Section 1721 of the Business
Corporation Law of 1988, Pennsylvania Statute Annotated Title 15 (S)1721(e)
through (S)1721(g), shall not be applicable to this Corporation. (Amended May
15, 1990)
9.5 Subchapter G of Chapter 25 of the Business Corporation Law of
1988 shall not be applicable to this Corporation. (Amended May 15, 1990)
9.6 Subchapter H of Chapter 25 of the Business Corporation Law of
1988 shall not be applicable to this Corporation. (Amended May 15, 1990)
ARTICLE X
AMENDMENTS
----------
10.1 These by-laws may be amended at any regular or special meeting of
the Board of Directors by the vote of a majority of all the Directors in office
or at any annual or special meeting of shareholders by the vote of the holders
of a majority of the outstanding stock entitled to vote. Notice to shareholders
of any such shareholders' meeting shall set forth the proposed amendment or
change or a summary thereof.
__________________
14
<PAGE>
By-laws amended and restated by Board resolution on May 15, 1990.
Article III, (S)3.1.1 Amended by Board resolution on September 18, 1990.
Article III, (S)3.1.2 Deleted by Board resolution on March 4, 1992.
Article III, (S)3.1.2 Adopted by Board resolution on May 4, 1992.
Article III, (S)3.1 Amended by Board resolution on May 22, 1992.
Article III, (S)3.1 Amended by Board resolution on February 26, 1993.
Article III, (S)3.1 Amended by Board resolution on October 6, 1995.
Article III, (S)3.1 Amended by Board resolution on May 23, 1996.
15
<PAGE>
EXHIBIT 10.20
AUSTRALIA CINEMA MANAGEMENT PTY LIMITED
AND
JOHN ROCHESTER
SERVICE DEED
<PAGE>
SERVICE DEED
DEED dated May 7, 1996 between:
1. AUSTRALIA CINEMA MANAGEMENT PTY LIMITED (ACN 071 110 097) incorporated in
New South Wales of Level 17, Chifley Tower, 2 Chifley Square, Sydney, New
South Wales ("Company"); and
2. JOHN ROCHESTER of 71 Mimosa Road, Turramurra, New South Wales ("Employee").
RECITALS
A. The Company has agreed to employ the Employee and the Employee has agreed
to serve the Company on the terms of this Deed.
B. The Employee has agreed that he will at the request of the Company work for
and perform service on behalf of any Group Member.
IT IS AGREED as follows.
I. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
The following definitions apply unless the context requires
otherwise.
BURGUNDY means Burgundy Two Pty Limited.
GROUP means:
(a) Ward Cinemas;
(b) Burgundy; and
(c) the Company and any Related Body Corporate from time to
time.
GROUP MEMBER means any member of the Group.
INCENTIVE PAYMENT means the payment by the Company to the
Employee under Clause 5.7 and Schedule 1.
OPERATIVE DATE means 1 January 1996.
RELATED BODY CORPORATE means, in relation to a body corporate, a
body corporate which is:
(a) a holding company of the first-mentioned body;
<PAGE>
(b) a subsidiary of the first-mentioned body; or
(c) a subsidiary of a holding company of the first-mentioned
body.
RELEVANT GROUP MEMBER means each Group Member for whom the
Employee may work or perform services from time to time.
SHAREHOLDERS' AGREEMENT means the proposed agreement between
Burgundy, Ward Cinemas, the Company, Robert Ward and Andrew Ward relating
to Ward Cinemas and the Company.
SUPERANNUATION FUND means a superannuation fund which is
established by the Company and which is a COMPLYING SUPERANNUATION FUND as
defined by the Superannuation Industry (Supervision) Act or any other
relevant legislation.
TERM means the period during which this Deed and the Employee's
employment with the Company whether under Clause 8 or otherwise.
TERMINATION DATE means the date of termination of the Employee's
employment with the Company whether under Clause 8 or otherwise.
TOTAL REMUNERATION means the amount of remuneration paid by the
Company in respect of the Employee, being the amount set out in Clause
5.1(a), as adjusted from time to time under Clause 5.1(c).
WARD CINEMAS means the proposed proprietary limited company to be
established for the purpose of owning, developing and operating cinemas in
areas other than the urban and suburban areas of Adelaide, Sydney,
Brisbane, Melbourne, Perth and the Gold Coast.
1.2 INTERPRETATION
Headings are for convenience only and do not affect
interpretation. The following rules of interpretation apply unless the
context requires otherwise.
(a) The singular includes the plural and conversely.
(b) A gender includes all genders.
(c) Where a word or phrase is defined, its other grammatical
forms have a corresponding meaning.
(d) A reference to a Clause or Schedule is to a clause of or
schedule to this Deed.
<PAGE>
(e) A reference to any party to this Deed or any other
agreement or document includes the party's successors and permitted
assigns.
(f) A reference to conduct includes, without limitation, any
omission, statement or undertaking, whether or not in writing.
(g) A reference to currency is to Australian currency.
(h) A reference to any legislation or to any provision of
any legislation includes any modification or re-enactment of it, any
legislative provision substituted for it and all regulations and
statutory instruments issued under it.
2. TERM OF EMPLOYMENT
2.1 ENGAGEMENT
The Company shall employ the Employee as Chief Executive Officer
and the Employee shall serve the Company (or, if directed by the Company,
one or more Group Members) in accordance with this Agreement during the
Term.
2.2 TERM
This Agreement, and the Employees' employment with the Company,
will continue from the Operative Date for a period of 2 years after which
it will be automatically renewed from year to year unless it is terminated
by either party under Clause 8.
3. EMPLOYEE'S OBLIGATIONS
3.1 POSITION
The Employee shall perform the duties of Chief Executive Officer
or any other position that may be agreed in writing between the Company and
the Employee from time to time.
3.2 DUTIES OF EMPLOYEE
The Employee shall, as Chief Executive Officer, during the Term,
report to the Chairman of the Board and the Board of Directors of the
Company and shall do the following:
(a) Give the whole of his time, ability and attention in
normal working hours, or when reasonably required outside those hours,
to the business and affairs of the Company and any Relevant Group
Member. The Employee will not be entitled to receive any remuneration
for work performed outside ordinary business hours.
<PAGE>
(b) Faithfully and diligently perform the duties and
exercise the powers consistent with his office that may be assigned to
him by the Company or any Relevant Group Member from time to time.
(c) Comply with all reasonable directions given to him by
the Company or any Relevant Group Member.
(d) Observe and comply with the provisions set out in any
written policy, practice or procedure circulated by the Company or any
Relevant Group Member from time to time.
(e) Use his best endeavours to promote the interests of the
Group.
(f) Protect the property of the Group from theft, loss,
damage or neglect and without delay give notice immediately to the
Company or any Relevant Group Member or its responsible
representatives of any theft, loss, damage or neglect of such property
which may come to his knowledge.
4. COMPETITION AND CONFIDENTIALITY DURING EMPLOYMENT
4.1 NO COMPETITION
During the Term, the Employee shall not directly or indirectly be
concerned or interested whether as principal, agent, partner, shareholder,
director, employee or otherwise in any firm, corporation or entity
involving the conduct of, or preparation for, any business in competition
with, or of a similar nature to, any business for the time being carried on
by the Company or any Group Member.
4.2 CONFIDENTIALITY
During the Term, the Employee shall not, without the prior
written consent of the Company or any Relevant Group Member, disclose or
use any confidential information of any kind including, without limitation,
any formula, process, method of manufacture, trade secret, record, data or
any information concerning the business, affairs or customers of the Group
which may come to his knowledge, except:
(i) disclosure or use in the proper course of the Employee's duties;
(ii) for information which is freely available to the public; or
(iii) to the extent the Employee is required to disclose information by
law or requirement of any regulatory body.
4.3 NO LIMITATION ON DUTIES OF EMPLOYEE
<PAGE>
Nothing in this Clause 4 limits the generality of the Employee's duties
arising either in Clause 3 or otherwise.
5. REMUNERATION AND BENEFITS
5.1 TOTAL REMUNERATION
(a) The Employee's Total Remuneration will be $200,000.00 per annum which
will comprise the following:
(i) superannuation contributions by the Company or a Relevant Group
Member under Clause 5.5;
(ii) payment by the Company or a Relevant Group Member for any
benefits (whether subject to fringe benefits tax or otherwise)
which the Employee receives under Clause 5.2;
(iii) payment of fringe benefits tax by the Company or a Relevant
Group Member under Clause 5.6; and
(iv) payment of the balance of the Remuneration to the Employee in
equal monthly installments on or about the 15th day of each
month (the PAYMENT DATE).
(b) The Total Remuneration shall be inclusive of all payments made to or
for the benefit of the Employee other than any payments made under
Clauses 5.3, 5.4 or 5.7 which shall be in addition to the Total
Remuneration.
(c) The Company shall undertake a review of the Total Remuneration on each
anniversary of the Operative Date. The amount of any increase in the
Total Remuneration resulting from such review will be in the sole and
absolute discretion of the Company. The Company shall not reduce the
Total Remuneration on any such review.
5.2 APPLICATION OF TOTAL REMUNERATION
The Employee may elect by notice to the Company to substitute any
benefits which may be lawfully provided by the Company to the Employee for
any part of the Total Remuneration and on receipt of a request from the
Employee the company shall apply a part of the Total Remuneration to the
provision of the requested benefits.
5.3 BONUS PAYMENTS
In its sole and absolute discretion, the Company may make bonus payments
to the Employee throughout the term of the Employee's employment.
<PAGE>
5.4 TRAVEL AND EXPENSES
The Company or any Relevant Group Member shall reimburse the Employee for
all travelling and other out of pocket expenses properly incurred by the
employee in or about its business. Those expenses must be evidenced in the
manner that the company or the Relevant Group Member reasonably requires.
5.5 SUPERANNUATION
The Employee shall be entitled to be a member of the Superannuation Fund.
The Company or Relevant Group Member shall provide for contributions in
respect of the Employee to the Superannuation Fund in accordance with the
rules of that fund. The Company or a Relevant Group Member shall
contribute the minimum level contribution required to satisfy the
requirements of any relevant legislation.
5.6 FRINGE BENEFITS TAX
The Company shall deduct from the Employee's remuneration by way of
reimbursement all fringe benefits taxes associated with the provision of
payments and reimbursements to the Employee, other than any fringe benefits
tax payable in respect of a single car parking space in Sydney which will
be paid by the Company.
5.7 INCENTIVE PAYMENT
The Company shall pay the Employee the Incentive Payment under terms set
out in Schedule 1.
6. LEAVE ENTITLEMENTS
6.1 ANNUAL LEAVE
The Company shall allow the Employee annual leave in accordance with the
relevant legislative requirements.
6.2 SICK LEAVE
The Company shall allow the Employee long service leave in accordance
with the relevant legislative requirements.
6.3 LONG SERVICE LEAVE
The Company shall allow the Employee long service leave in accordance
with the relevant legislative requirements.
7. IRREVOCABLE OFFER
This Deed constitutes an irrevocable offer by the Employee to any Group
Member to become a party to this Deed. A Group Member shall be taken to
have accepted the offer and to be a
<PAGE>
party to this Deed if the Employee works for, or performs services on
behalf of, that Group Member.
8. TERMINATION
8.1 TERMINATION FOR BREACH BY EMPLOYEE
The Company may immediately terminate this Deed by notice to the Employee
in writing if the Employee at any time:
(a) commits any serious breach or persistently breaches this Deed
including, without limitation, intentional disobedience, dishonesty,
serious or persistent breach of duty or serious or persistent neglect;
(b) materially breaches this Deed and does not remedy that breach within
two days after receiving notice from the Company specifying the
breach;
(c) commits an act of bankruptcy, is declared bankrupt or enters into any
composition or arrangement with or makes any assignment of his
property in favor of his creditors generally.
(d) becomes of unsound mind or a person whose person or estate is liable
to be dealt with in any way under laws relating to mental health;
(e) is convicted of a criminal offence which, in the reasonable opinion of
the Company, will detrimentally affect any Group Member; or
(f) has conducted himself in a manner which, in the reasonable opinion of
the Company, will detrimentally affect any Group Member.
8.2 PAYMENT ON TERMINATION
If the Employee's employment is terminated under Clause 8.1, the Company
shall not be obliged to pay the Employee any moneys other than the
following.
(a) Any accrued remuneration to which the Employee is entitled to on
Termination Date.
(b) Any contributions to the Superannuation Fund due as at the Termination
Date.
(c) Any amount to which the Employee is entitled in lieu of unused annual
leave.
(d) Any amount to which the Employee is entitled under the relevant
legislation relating to long service leave.
<PAGE>
8.3 GENERAL TERMINATION
(a) The Company may at any time and for any reason terminate the
Employee's employment by giving one month's notice to the Employee.
(b) If the Company terminates the Employee's employment under paragraph
(a), the Company shall pay the Employee the entitlements and the
severance payment specified in paragraphs (c) and (d) respectively in
accordance with those paragraphs.
(c) On the expiry of the relevant notice period, the Company shall pay the
Employee the following entitlements:
(A) any payments or reimbursements which are owed to the Employee
under this Deed; and
(B) any amounts which are owed to the Employee under the relevant
legislative requirements relating to annual leave and long
service leave.
(d) Commencing on the date which is one month after the date of expiry of
the relevant notice period and monthly thereafter, the Company shall
pay the Employee a termination payment as follows:
(i) if the Company terminates the Employee's employment under
paragraph (a) before the second anniversary of the Operative
Date, the Company shall pay in 17 equal monthly installments the
amount of $283,334.00 less:
(A) any payments made to the Employee for long service
leave; and
(B) any additional payments which the Company is or becomes
obliged to make to the Employee under any order or
direction of any court, tribunal or other judicial or
administrative body; or
(ii) if the Company terminates the Employee's employment under
paragraph (a) after the second anniversary of the Operative Date,
the Company shall pay in 11 equal monthly installments the amount
$183,334.00 less:
(A) any payments made to the Employee for long service
leave; and
(B) any additional payments which the Company is or becomes
obliged to make to
<PAGE>
the Employee under any order or direction of any court,
tribunal or other judicial or administrative body.
(e) Any outstanding entitlements under paragraph (d) will be accelerated
and become immediately due and payable by the Company to the Employee
if both of the following events occur:
(i) both Reading Company and Craig Corporation withdraw from any
material investment or involvement in the operations of all Group
Members and their respective Relevant Body Corporates in
Australia; and
(ii) the Employee does not receive an offer of employment on terms no
less favorable than those contained in this Deed from the
purchaser (if any) of any Group Member.
(f) The parties acknowledge that any payments made by the Company under
this clause 8.3 are in the nature of additional consideration by the
Company to the Employee for the Employee's covenants in clause 10.2.
(g) The Employee may at any time and for any reason resign as Chief
Executive Officer by giving four (4) months' notice to the Company.
8.4 SUSPENSION OF EMPLOYEE
The Company may suspend the Employee on full pay for any period if the
Company considers it in the best interests of the Company to do so.
8.5 NO CLAIM FOR COMPENSATION
(a) If this Deed is terminated by the Company under Clause 8, the Employee
will not be entitled to claim any amounts by way of retirement
allowance or liquidated damages or any other payments as a consequence
of termination except for the payments set out in Clauses 8.2 and
8.3.
(b) Any payments by the Company under this Clause 8 shall be without
prejudice to any rights or remedies the Company may have against the
Employee and shall not constitute any admission of fact or liability.
8.6 TRANSFER OF SUPERANNUATION
After termination of this Deed, subject to the terms of the trust deed
and rules of the Superannuation Fund, the Company shall cause that the
trustee of the Superannuation Fund transfers the Employee's entitlements
under the
<PAGE>
Superannuation Fund to another superannuation fund nominated by
the Employee or deals with then otherwise in accordance with relevant
legislation.
8.7 SURVIVAL OF EMPLOYEE'S OBLIGATIONS ON TERMINATION
Clause 8.5, 8.8, 8.9, 9 and 10 survive the termination of this Deed.
8.8 RETURN OF COMPANY PROPERTY
(a) On termination of this Deed, the Employee shall immediately deliver to
the Company all books, documents, papers, materials, credit cards,
motor vehicles and other property of the Group which may then be in
the Employee's possession or under his power or control.
(b) At the request of the Company, the Employee shall sign a statutory
declaration to the effect that:
(i) he has complied with paragraph (a); and
(ii) he does not have in his possession or under his power or control
any property of the Group.
(c) If the Company requests a statutory declaration under paragraph (b),
the Company may withhold any payments due to the Employee under this
Clause until the Employee has complied with that paragraph.
8.9 RESIGNATION AS DIRECTOR
Subject to the Shareholders' Agreement and at the request of the Company,
the Employee shall resign from any office held by him on the board of any
Group Member on the termination of his employment.
9. AMALGAMATION OR RECONSTRUCTION
The Employee will have no claim against the Company in respect of the
termination of this Deed and shall not be entitled to any payment under
Clause 8.3(d) if:
(a) the Employee is terminated because of the liquidation of the Company
for the purposes of amalgamation or reconstruction of the Group; and
(b) the Employee is offered employment with any business of the Company or
Group resulting from that amalgamation or reconstruction on terms not
less favourable than the terms of the Deed.
<PAGE>
10. OBLIGATIONS OF EMPLOYEE AFTER EMPLOYMENT CEASES
10.1 CONFIDENTIALITY
(a) Subject to paragraph (b), the Employee undertakes to the Company and
each Relevant Group Member that her will not, at any time after his
employment cease, in any manner directly or indirectly disclose or use
any confidential information of any kind, including, without
limitation, any formula, process, method of manufacture, trade secret,
record, data or any information concerning the business, affairs or
customers of the Company acquired by the Employee in the course of or
in consequence of his employment whether before or after the date of
this Deed.
(b) Paragraph (a) does not apply to the disclosure of information which is
freely available to the public, or disclosures required of the
Employee by any applicable law or requirement of any regulatory body.
10.2 COVENANT NOT TO COMPETE
The Employee covenants with the Company that, neither:
(a) the Employee, whether:
(i) directly or indirectly;
(ii) on hid own account;
(iii) jointly with or on behalf of any other person or
corporation as an officer, employee, independent contractor,
partner, joint venturer or agent; or
(iv) as principal, employee, partner, agent, director, or otherwise
on any account or pretence;
(b) any agent, independent contractor or employee while employed or
engaged by him or by any firm or corporation in which he has a
substantial interest whether that interest is legally enforceable or
not; nor
(c) any firm or corporation in which he may be interested as an employee,
director, shareholder, beneficial owner or controller (whether that
control can be legally enforced or not) of shares, lender or adviser
or otherwise,
shall:
(1) carry on or be engaged or concerned in, any business in competition
with, or of a similar nature to, any
<PAGE>
business being carried on by any Group Member as at the Termination
Date: or
(2) either on his own account or for any person, firm, company,
organization, or entity solicit or endeavour to solicit or entice
away from the Group any director or employee or any customer or
supplier of the Group,
for a period of 2 years after the Termination Date in any Australian
state or territory in which any Group Member carries on business as at the
Termination Date.
10.3 EXCEPTION
Clause 10.2 shall not prevent the Employee from holding less than 5% of
the issued capital of any company whose shares are listed on the Australian
Stock Exchange Limited.
10.4 REMEDIES
The Employee acknowledges that the remedy at law for breach of Clause
10.1 or 10.2 would be inadequate and that temporary and permanent relief by
way of injunction against him may be granted in any proceedings which the
Company or any Relevant Group Member or any persons on its behalf may bring
to enforce any of the provisions of that Clause without the necessity of
proof of actual damage suffered by the Company or any Relevant Group Member
as the case may be.
10.5 PROTECTION OF GOODWILL
The Employee acknowledges that having regard to his duties with the
Group, his undertakings in Clauses 10.1, 10.2 and 10.3 are reasonable and
necessary for the protection of the goodwill of the Group.
11. SET-OFF
On termination of his employment, the Employee authorizes each Relevant
Group Member to set-off against and deduct from all or any amounts payable
to the Employee, any amount owing by the Employee to that Group Member on
any account.
12. GOVERNING LAW
This Deed is governed by the laws of New South Wales. The parties submit
to the non-exclusive jurisdiction of courts exercising jurisdiction there.
13. NO WAIVER
No failure to exercise and no delay in exercising any right, power or
remedy under this Deed will operate as a waiver. Nor will any single or
partial exercise of any right, power
<PAGE>
or remedy preclude any other or
further exercise of hat or any other right, power or remedy.
14. NOTICES
Any notice required to be given under this Deed by any party to another
shall be in writing addressed to the intended recipient at the address last
notified by the intended recipient to the party giving notice.
15. SEVERANCE
Any provision of this Deed which is prohibited or unenforceable in any
jurisdiction will be ineffective in that jurisdiction to the extent of the
prohibition or enforceability of that provision in any other jurisdiction.
16. ASSIGNMENT
The rights and obligations of each party under this Deed are personal.
They cannot be assigned, charged or otherwise dealt with and no party shall
attempt or purport to do so, without the prior written consent of the
parties.
<PAGE>
17. AMENDMENT
This Deed may be amended only by an instrument in writing executed by or
on behalf of both parties.
18. ENTIRE DEED
This Deed contains the entire agreement of the parties with respect to
its subject matter. It sets out the only conduct relied on by the parties
and superseded all earlier conduct by the parties with respect to its
subject matter.
EXECUTED AS A DEED IN SYDNEY
EXECUTED FOR AND ON BEHALF
OF AUSTRALIA CINEMA MANAGEMENT
PTY LIMITED BY /s/ James J. Cotter
------------------------------
Signature
Director
------------------------------
Office held
/s/ S. Craig Tompkins
- --------------------------------
Witness
S. Craig Tompkins Corporate Seal
- -------------------------------
Print name
SIGNED SEALED and DELIVERED )
by JOHN ROCHESTER /s/ B. John Rochester
------------------------------
in the presence of: ) Signature
/s/ C. S. Ward
- --------------------------------
Witness
C. S. Ward
- --------------------------------
Print name
<PAGE>
SCHEDULE 1
INCENTIVE PAYMENT (CLAUSE 5.7)
1. OBLIGATION TO PAY THE INCENTIVE PAYMENT
(a) As long as this Deed has not been terminated earlier, on or at any time
after the fourth anniversary of the Operative Date, the Employee may elect
by notice to the company to receive the Incentive Payment. On the
Company's receipt of that notice, the Employee will be entitled to payment
of the Incentive Payment within one hundred and twenty (120) days after the
end of the applicable Calculation Period.
(b) If the Company terminated the Employee's engagement under Clause 8.3 before
the fourth anniversary of the Operative Date for any reason other than for
cause the Employee will still be entitled to payment of the Incentive
Payment within one hundred and twenty (120) days after the end of the
applicable Calculation Period.
(c) The Incentive Payment shall be calculated in accordance with the formula
set out in Clause 2 of this Schedule 1.
2. INCENTIVE PAYMENT FORMULA
The formula for calculating the Incentive Payment is:
IP = 1.0% X [(6 X CF) - (C + D)]
where:
IP means Incentive Payment;
CF means the operating income of all Included Burgundy Cinemas during
Calculation Period less that part of the Company's general and administrative
expenses which are Allocable to the Included Burgundy Cinemas;
C means the value of that part of the shareholder's funds of the Burgundy Two as
at the end of the Calculation Period which is Allocable to Included Burgundy
Cinemas;
D means the value of that part of the net debt incurred by Burgundy Two during
the Calculation Period which is Allocable to Included Burgundy Cinemas;
ALLOCABLE means that prorata portion determined by multiplying the amount to be
allocated by a fraction, expressed as a percentage, the numerator of which is
the average number of screens in Included Burgundy Cinemas and the denominator
of which is the total average number of screens in all cinemas owned, directly
or indirectly, by Burgundy Two during the Calculation
<PAGE>
Period. In the case of less than wholly owned Affiliates, the number of screens
owned by such Affiliates multiplied by the percentage ownership held by Burgundy
Two, or by one or more of its wholly owned Affiliates. For the purpose of
determining the average number of screens, no screen will be included with
respect to any time period during which it is not open for business. In the case
of determining as appropriate allocation of debt:
(a) the entirety of any debt and all of the screens of any Affiliate will be
included, whether or not such Affiliate is less than wholly owned by
Burgundy Two, to the extent that Burgundy Two or any of its parents or
Affiliates are liable for such debt;
(b) guarantees will be treated the same as debt to the extent of the amount
guaranteed; and
(c) intercompany debt will be treated in a manner which avoids double counting
of such indebtedness.
BURGUNDY TWO means Burgundy Two Pty Limited of Level 17, The Chifley Square,
Sydney NSW 2000.
CALCULATION PERIOD means the twelve (12) month period ending on either:
(a) if the Employee notifies the Company under Clause 1(a) of this Schedule 1,
the last day of the fiscal year in which the Company receives such notice;
or
(b) if the Company terminates the Employee's employment under Clause 8.3 before
the fourth anniversary of the Operative Date, then, at the Employee's
election (such election to be given in writing to the Company within sixty
(60) days after the Employee has been given notice under Clause 8.3 by the
Company), either:
(i) the last day of the fiscal year in which the Company's
termination of the Employee's employment is effective; or
(ii) the last day of the fiscal year in which the fourth anniversary
of the Operative Date would have fallen.
INCLUDED BURGUNDY CINEMAS means the cinemas in which Burgundy Two holds,
directly or indirectly through one or more Affiliates, a freehold or leasehold
interest at any time during the Calculation Period, other than cinemas which
were acquired as a part of a chain of 15 or more screens.
<PAGE>
Exhibit 10.21
Reading Company
30 South 15th Street, Suite 1300
Philadelphia, Pennsylvania 19102
August 12, 1996
Mr. Steve Wesson
President
Citadel Holding Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Ms. Robin W. Skophammer
Chief Financial Officer
Craig Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Dear Mr. Wesson and Ms. Skophammer:
This letter is intended to set forth the principal terms of a proposed
transaction among Reading Company ("Reading"), Citadel Holding Corporation
("Citadel"), Craig Corporation ("Craig"), Reading Entertainment, Inc. ("Reading
Entertainment"), Craig Management, Inc., ("CMI"), and Citadel Acquisition Corp.,
Inc. ("CAC"). It is understood that this letter is not a binding agreement, but
constitutes a statement of intentions only and is subject to the preparation,
execution and delivery of definitive documentation by each of Reading, Reading
Entertainment, Citadel, CAC, Craig and CMI, and, in the case of Reading, to the
approval of its stockholders and to the delivery of fairness and legal opinions
to the respective parties.
Reading is planning to form a new holding company (the "Holding Company
Transaction") to be organized under the laws of the State of Delaware under the
name Reading Entertainment. Promptly following the completion of the Holding
Company Transaction, Reading Entertainment would issue the securities described
below in exchange for the consideration described below.
1. Citadel Holding Corporation and Citadel Acquisition Corp., Inc.:
---------------------------------------------------------------
1.1 Consideration to be Paid: Cash in the amount of $7 million, by
------------------------
wire transfer in currently available funds at the closing.
1.2 Reading Entertainment Securities to be Issued: Series A Voting
---------------------------------------------
Cumulative Convertible Preferred Stock, with the following terms:
Stated Value: $7 million, $100 per share.
------------
<PAGE>
Dividend: 6 1/2% per annum, payable quarterly, and
-------- cumulative to the extent not paid.
Conversion Price: $11.50 per share
----------------
. No conversion for 18 months, unless there is
a public disclosure or announcement of a
transaction that would result in a third
party (other than a Craig affiliate) owning
50% or more of common stock or voting rights
of Reading or other change in control of
Reading.
. On change of control, Reading would have the
right to (i) call Citadel or CAC owned Series
A preferred shares (at a redemption premium
of 8% per annum ("p.a.") from date of
issuance through year 4 then decreasing 1%
p.a. thereafter beginning in year 5) only if
Craig assumes Citadel's asset put obligation
described below and (ii) call all other
Series A preferred shares (at the redemption
premium specified in clause (i) above.
Citadel has the right to put (at stated value
plus accrued but unpaid dividends and the
same redemption premium). In the event Craig
assumes the asset put obligation, Craig will
agree to issue Craig Class A Common
Preference Stock (the "Craig Stock") and the
exercise price for the Craig Stock to be
increased or decreased from Craig Stock
market price to reflect the percentage of
discount or premium on Reading stock
(measured in terms of percentage difference
between market price of Reading stock on
change of control date and $11.75 or $12.25
per share, as applicable) which Citadel would
be entitled to receive. Craig Stock market
price (prior to adjustment) to be measured
over 20 consecutive trading days prior to
change of control date.
Vote Per Share: 9.64 votes, which is approximately equal to
-------------- Stated Value / Common Stock price at close of
trading on the date of this Letter of Intent.
. Usual and customary preferred voting rights,
plus separate class vote for modifications or
issuance of any senior or pari passu equity
securities.
Forced conversion: Trading average of 135% of conversion price over
----------------- 180 trading day period.
Term: Perpetual
----
Put Rights: After 5 years at stated value plus accrued but
---------- unpaid dividends. In addition, right to put if
dividend is in arrears
<PAGE>
4 quarters; but in no event shall put be
exercised sooner than 18 months.
Call Rights: Callable after 5 years at 108% of stated value
----------- plus accrued but unpaid dividends, decreasing
thereafter at 2% p.a.
Ranking: Senior to the Series B Preferred Stock.
-------
Registration Rights: Two demands; unlimited piggyback.
--------------------
Transferability: Freely transferable, except for restrictions
--------------- based upon securities laws or charter
provisions.
Other: . Reading has the right of first offer on 100%
----- of any common or preferred stock of Reading
that Citadel sells. Reading will have 10
business days from being offered the stock at
a stated price. If Reading does not elect to
purchase within 10 business days, Citadel has
180 days to sell at that or higher price.
1.3 Asset Put: Citadel will have the right to exchange all or
---------
substantially all of its assets (other than Excluded Assets), together with
any debt encumbering or related to such assets, for Reading Common Stock.
Term: Immediately exercisable by Citadel. Notice of
---- exercise must be delivered on or before 30 days
after filing of Reading's annual report on Form
10-K for fiscal 1999.
Assets: (1) $20M in Net Asset Value (Gross Value less
------ liabilities including debt), of existing
assets (including cash and cash proceeds)
at fixed stock price set forth below; (2)
existing assets over $20M in Net Asset
Value (up to a maximum of $30M in Net Asset
Value), and after acquired assets (other
than cash) can only be put at market price
of stock, and (3) after acquired assets
over $5 M can only be put with Reading's
consent. No restrictions on Citadel
encumbering existing assets with additional
or refinanced debt.
Excluded Assets: (1) the Series A Preferred Stock and Common
--------------- Stock issued on conversion,
(2) cash or marketable securities as Citadel
may require to maintain appropriate level
of liquidity,
(3) assets with liabilities in excess of fair
market value of assets, and
(4) after acquired assets over $5M (except with
Reading's consent).
Asset Value: Fair market value
-----------
Common Stock Price
------------------
<PAGE>
issued in Exchange: Up to October '97 $11.75 per share thereafter
------------------ $12.25 per share. If average trading price of
Reading Common Stock is in excess of 130% of put
price for more than 60 days, then Citadel shall
have 120 days, after notice from Reading, to
give notice of exercise of the asset put. If
Citadel does not give notice of exercise at this
time, then put price shall be fair market value
of Common Stock. Reading shall convert a portion
of the Common Stock into debt for that amount
that would take the cumulative change of control
percentage of Reading under IRC (S) 382 over 45%
after exercise of the asset put. The amount
converted to debt would be based on the value of
Common Stock that would have been received. The
economic terms of the debt would be determined
by an independent investment banker. If Citadel
elects to sell the debt within 90 days from
issuance, Reading will take all reasonable
actions to assist in selling. Reading to
reimburse Citadel for Citadel's expenses and for
amount by which the net proceeds from the sale
of the debt is less than the value of the Common
Stock that would have been received on the date
of conversion.
Registration Rights: Reading Common Stock received to have same
------------------- registration rights as described in Section 1.2.
Information Statement: Reading's expense
---------------------
Citadel 3% Preferred Stock: Redemption premium accrual rate reduced to 3%
-------------------------- from Closing (no retroactive adjustment). No
conversion for a one-year period commencing on
the 15th day following the filing of Citadel's
Form 10-K for fiscal 1996, except in the event
of a change of control of Citadel.
1.4 Other Provisions: Reading will reimburse Citadel and CAC for
----------------
their reasonable out of pocket expenses (including fees and expenses of
legal counsel and financial advisors) with respect to the transaction, up
to a maximum reimbursement of $280,000.
2. Craig Corporation and Craig Management, Inc.:
-------------------------------------------
2.1 Consideration to be Paid: Craig and CMI will deliver at the
------------------------
closing their entire right, title and interest in the following assets:
a. 693,650 shares of Series B Stater Bros. Holdings Inc. 10.5%
Preferred Stock, stated value $100.00 per share,
b. 1,329,114 shares of Citadel 3% Cumulative Voting Convertible
Preferred Stock, stated value $3.95 per share, and
c. 50% Membership interest and any related interest in Reading
International Cinemas LLC.
<PAGE>
2.2 Reading Entertainment Securities to be Issued:
---------------------------------------------
a. Series B Voting Cumulative Convertible Preferred Stock, with
the following terms:
Stated Value: $55.0 million, $100 per share
------------
Dividend: 6 1/2% per annum, payable quarterly, and
-------- cumulative to the extent not paid.
Conversion Price: $12.25 per share
----------------
a. No conversion for 18 months.
b. Forced Conversion: no forced conversion for
first five years and then forced conversion
when average trading price of 135% of
conversion price over 180 trading day period.
Vote Per Share: 9.64 votes, which is approximately equal to
-------------- stated value / Common Stock price at the close
of trading on the date of this Letter of Intent.
Plus, usual and customary preferred voting
rights, including right to elect director in the
event of missed dividends for six or more
quarters, whether or not consecutive.
Term: Perpetual
----
Put Rights: None
----------
Call Rights: No call for first five years and then callable
----------- at 108% of stated value plus accrued but unpaid
dividends, decreasing thereafter at 2% p.a.
Ranking: Junior to Series A Preferred Stock
-------
Registration Rights: None
-------------------
Transferability: Freely transferable, except for restrictions
--------------- based upon securities laws or charter
provisions.
b. 2,476,190 shares of Reading Entertainment Common Stock
2.3 Other Agreements: Craig will agree to vote its shares in Reading
----------------
in favor of the Holding Company Transaction and in favor of the approval of
the transactions contemplated hereby. At the closing, (i) the Amended and
Restated Capital Funding Agreement between Reading Investment Company Inc.,
Craig and CMI dated March 8, 1996, and (ii) the Warrant and Preferred
Purchase Options set forth in the Stock Purchase and Sale Agreement dated
March 27, 1996 by and between Craig and Reading Holdings, Inc., will be
terminated.
<PAGE>
The definitive documentation will include, among other things, usual and
customary terms and conditions including usual and customary representations,
warranties, indemnities and conditions to closing. It shall be a condition to
Closing for Citadel and CAC, on the one hand, and Craig and CMI, on the other,
that the other party shall have performed all of its obligations under the
Exchange Agreement. Each of the parties represents that they have reviewed a
draft dated August 8, 1996 of the proposed Exchange Agreement and that they are
in substantial agreement with respect to the material terms and conditions set
forth therein.
The parties agree to consult with one another in the preparation of a press
release reasonably acceptable to all parties announcing the transactions
contemplated by this agreement and as to the wording of any applicable filings
made on Form 13D with respect to Reading and/or Citadel, and to thereafter
refrain from public statements concerning the transaction, absent prior
notification to and consultation with the other parties hereto.
If this letter of intent correctly sets forth our understanding, please so
indicate by executing and returning a copy of this letter. By executing and
delivering this letter of intent, subject to the satisfaction of the conditions
precedent set forth in this letter, Reading is representing and warranting that
the above terms and conditions have been reviewed and approved by the
Independent Committee of, and the Board of Directors of, Reading, after advice
and counsel from its legal counsel and financial advisors. By executing and
delivering this letter of intent, subject to the satisfaction of certain of the
conditions precedent set forth in this letter, Citadel, CAC, Craig and CMI are
similarly representing and warranting that the above terms and conditions, in so
far as they relate to Citadel or to Craig, as the case may be, have been
reviewed and approved by the Independent Committees of, and the Boards of
Directors of, Citadel or Craig as the case may be, after advice and counsel from
their respective legal counsel and financial advisors.
Very truly yours,
/s/James J. Wunderle
James J. Wunderle
Chief Financial Officer
<PAGE>
ACKNOWLEDGED AND AGREED
Citadel Holding Corporation Craig Corporation
/s/ Steve Wesson /s/ Robin W. Skophammer
- ---------------- -----------------------
By: Steve Wesson By: Robin W. Skophammer
Its: President Its: Chief Financial Officer
Date: August 12, 1996 Date: August 12, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 32,431
<SECURITIES> 49<F2>
<RECEIVABLES> 726
<ALLOWANCES> 0
<INVENTORY> 88
<CURRENT-ASSETS> 34,292
<PP&E> 10,594
<DEPRECIATION> 1,469
<TOTAL-ASSETS> 80,077
<CURRENT-LIABILITIES> 7,856
<BONDS> 519
52
0
<COMMON> 0
<OTHER-SE> 69,646
<TOTAL-LIABILITY-AND-EQUITY> 80,077
<SALES> 2,064
<TOTAL-REVENUES> 10,686
<CGS> 347
<TOTAL-COSTS> 7,231
<OTHER-EXPENSES> 2,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,061
<INCOME-TAX> 22
<INCOME-CONTINUING> 1,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,039
<EPS-PRIMARY> $0.21
<EPS-DILUTED> $0.21
<FN>
<F2>See "Note 2 - Summary of Significant Accounting Policies, Available-for-Sale
Securities" to the Notes to Condensed Financial Statements for June 30, 1996.
</FN>
</TABLE>
