<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 27, 1996
READING COMPANY
---------------
(Exact name of registrant as specified in its charter)
Pennsylvania 1-649 23-6000773
------------ ----- ----------
(State of incorporation) (Commission File Number) (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
------------
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On July 1, 1996, Reading Investment Company, Inc., an indirect wholly owned
subsidiary of Reading Company (collectively, the "Company"), entered into an
asset purchase and sale agreement (the "Sale Agreement") with Angelika Film
Centers, Inc. ("AFCI") and Houston Cinema, Inc., to acquire the Angelika Theater
(the "Angelika"), a multiplex theater located in the Soho district of Manhattan.
On August 27, 1996, the parties closed the Sale Agreement. Under its
terms, the Company acquired for approximately $10,357,000 (inclusive of
expenses) an 83.3% interest in the Angelika. The remaining 16.7% interest was
purchased by Sutton Hill Associates ("Sutton Hill"), an affiliate of James J.
Cotter, Chairman of the Company.
The Company and Sutton Hill formed a Delaware limited liability company,
Angelika Film Centers LLC ("AFC"), to hold their interest in the Angelika. The
Angelika assets were purchased by AFC with a combination of available cash, a
$2,000,000 promissory note collateralized with a cash escrow for the same amount
issued to AFCI (pending completion of an audit and satisfaction of certain other
contingencies) and credit in full satisfaction of a judgement encumbering AFCI
(in the amount of $1,285,000 plus interest at 9%) which judgement was acquired
by the Company in November 1995.
AFC will be managed by City Cinemas, an affiliate of Sutton Hill pursuant
to the terms of a management agreement.
For accounting purposes, the acquisition of the Angelika will be accounted
for under the purchase method and the operating results of AFC consolidated with
the results of the Company from August 27, 1996 forward.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a. Financial Statements of Business Acquired
The following financial statements of AFCI are included in Appendix A
hereto and incorporated herein by reference:
Angelika Film Centers, Inc., Financial Statements for the year ended
December 31, 1995.
Angelika Film Centers, Inc., Financial Statements for the six months ended
June 30, 1996 and 1995.
b. Pro Forma Financial Information.
The proforma financial information is included in Appendix B hereto and
incorporated herein by reference.
c. Exhibits
Item Description
---- -----------
2(a) The Sale Agreement dated as of July 1, 1996, by and among
Reading Investment Company, Inc., as Purchaser, AFCI, as
Seller, and Houston Cinema, Inc., with all Exhibits and
Schedules omitted.
2(b) Amendment to the Sale Agreement made and entered into as of
July 27, 1996 by and among Reading Investment Company, Inc.,
AFCI and Houston Cinema, Inc.
2(c) $2,000,000.00 Non-Negotiable Secured Promissory Note dated as
of August 27, 1996 (the "Holdback Note") by AFC, as Maker, to
AFCI, as Payee.
2(d) Pledge Agreement dated August 27, 1996 by and among AFCI, as
Secured Party, and AFC, as Debtor, concerning the cash security
for the Holdback Note.
23 Consent of Independent Auditors - Miller and Company.
<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: September 18, 1996 By: /s/ James A. Wunderle
------------------ ------------------------------------
James A.Wunderle
Executive Vice President,
Chief Financial Officer
Chief Operating Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: September 18, 1996 By: /s/ Eileen Mahady
------------------ ---------------------------------------
Eileen M. Mahady
Controller
(Chief Accounting Officer)
<PAGE>
APPENDIX A
ANGELIKA FILM CENTERS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Angelika Film Centers, Inc., New York City, New York
We have audited the accompanying balance sheet of Angelika Film Centers,
Inc. as of December 31, 1995 and the related statements of income, retained
earnings (accumulated deficit), and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Angelika Film Centers,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the financial statements, the Company is involved
in litigation matters which could, if not successfully defended, result in a
declaration of bankruptcy. The Company and legal counsel cannot predict the
outcome of these matters. The financial statements include a provision for an
estimated cost that might result from the outcome of the landlord
indemnification matter. The Company cannot predict the outcome or range of
potential loss, if any, that might result from the other litigation matters.
No provision for any liability that may result from these other matters has
been made in the financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, as of December 31, 1995, the Company had a working capital
deficiency. As discussed in Note 9, the Company has entered into negotiations
to sell its theater, which represents its only revenue producing asset.
Although the Company believes that it will recover the carrying value of such
asset, the ultimate proceeds from such sale cannot presently be determined.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include
adjustments that might result from the outcome of this uncertainty.
July 1, 1996
Miller and Company
Certified Public Accountants P.C.
2
<PAGE>
ANGELIKA FILM CENTERS, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash............................................................. $ 114,698
Receivables...................................................... 32,129
Inventory........................................................ 11,419
Prepaid expenses................................................. 104,432
----------
Total Current Assets........................................... 262,678
Property and Equipment, at cost, less accumulated depreciation of
$1,433,370 (Note 1)............................................... 2,987,119
Other Assets
Advances to affiliate (Note 2)................................... 259,376
Security deposits................................................ 16,080
Trademark........................................................ 6,189
----------
$3,531,442
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable................................................. $ 539,598
Film rental payable.............................................. 637,793
Accrued expenses and taxes....................................... 555,951
Deferred compensation (Note 5)................................... 76,301
Deferred revenues from prepaid tickets (Note 1).................. 36,954
Due to shareholders (Note 4)..................................... 1,142,417
----------
Total Current Liabilities...................................... 2,989,014
Deferred rent and rent tax (Note 5)................................ 529,370
Commitments (Note 5)
Shareholders' Equity
Common stock--no par value, authorized 200 shares; 113 shares
issued and outstanding.......................................... 500,000
Accumulated deficit.............................................. (486,942)
----------
13,058
----------
$3,531,442
==========
</TABLE>
See accompanying notes and auditors' report
3
<PAGE>
ANGELIKA FILM CENTERS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Revenues:
Theater admissions.............................................. $ 6,207,237
Cafe and concession............................................. 1,163,574
Rental and miscellaneous........................................ 72,415
-----------
7,443,226
-----------
Expenses:
Theater costs, including depreciation of $244,742............... 4,538,363
Cafe and concession costs....................................... 977,368
Selling, general and administrative............................. 908,697
Litigation costs................................................ 444,863
-----------
6,869,291
-----------
Income from operations............................................ 573,935
Interest expense.................................................. 84,095
-----------
Net income before income taxes.................................... 489,840
Less: New York City income tax.................................... 55,438
-----------
Net income........................................................ 434,402
-----------
Retained earnings--beginning of year as previously reported....... 3,930,961
Prior period adjustments:
Unrecorded expenses in prior years (Note 6)..................... (840,751)
Prior years dividends paid (Note 7)............................. (2,568,903)
-----------
Retained earnings--beginning of year as restated.................. 521,307
-----------
955,709
Less: Dividends paid (1,442,651)
-----------
Accumulated deficit--end of year.................................. $ (486,942)
===========
</TABLE>
See accompanying notes and auditors' report
4
<PAGE>
ANGELIKA FILM CENTERS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................................................... $ 434,402
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................... 244,742
Amortization................................................... 9,736
Changes in operating assets and liabilities:
(Increase) in receivables.................................... (23,553)
Decrease in inventory........................................ 11,646
(Increase) in prepaid expenses............................... (2,344)
Increase in accounts payable................................. 303,153
Increase in film rental payable.............................. 36,010
Increase in accrued expenses and taxes....................... 211,336
Increase in deferred compensation............................ 76,301
Deferred revenues received from prepaid tickets.............. 21,712
Increase in security deposits................................ (5,000)
Increase in deferred rent and rent tax....................... 45,970
-----------
Net Cash Provided by Operating Activities........................ 1,364,111
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of employee loans.................................... 5,300
Purchase of property and equipment............................. (40,501)
Decrease in advance to affiliate............................... 27,768
Investment in trademark........................................ (6,189)
-----------
Net Cash Used In Investing Activities............................ (13,622)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of bank loan payable...................... (170,330)
Advances from shareholders..................................... 593,100
Repayments to shareholders..................................... (327,961)
Dividends paid................................................. (1,442,651)
-----------
Net Cash Used in Financing Activities............................ (1,347,842)
-----------
Net Increase in Cash............................................. 2,647
Cash, Beginning of Year.......................................... 112,051
-----------
Cash, End of Year................................................ $ 114,698
===========
</TABLE>
See accompanying notes and auditors' report
5
<PAGE>
ANGELIKA FILM CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
a. Company:
The Company was formed and commenced operations in New York City, New
York in 1989 as a motion picture exhibition theater. The theater derives
revenues from six motion picture screens, concession stand sales, cafe food
and beverages, and theater rentals.
b. Income Recognition:
Income from the theater box office, concession stand and cafe is
recognized daily. Prepaid ticket revenues are recognized when tickets are
used and theater rental revenues are recognized as the rental event occurs.
c. 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.
d. Inventories:
Inventories are comprised of food and confection goods and are stated at
the lower of cost (first-in, first-out method) or net realizable value.
e. Property and equipment:
Depreciation is provided for by the straight line and declining balance
methods over the estimated useful lives of the assets. Routine repairs and
maintenance are charged to operations as incurred and major repairs are
capitalized.
<TABLE>
<CAPTION>
DEPRECIATION
LIVES
------------
<S> <C> <C>
Theater and improvements............................ 10 - 39 yrs. $3,726,241
Equipment and furniture............................. 3 - 7 yrs. 694,248
----------
4,420,489
Less: Accumulated depreciation.................... 1,433,370
----------
$2,987,119
==========
</TABLE>
f. Income taxes:
The provision for income taxes is computed using current New York City
tax rates including an alternative tax computation. For federal and state
income tax purposes, the Company, with the consent of its stockholders, has
elected to be treated as an "S" corporation. The stockholders will be
liable for individual income taxes on their respective shares of the
Company's taxable income. New York State and New York City have granted
permission to file a combined franchise and income tax return with an
affiliated corporation (Angelika Films, Inc.). The Company has made all
required tax payments.
g. Advertising:
Advertising costs are charged to operations when incurred. The amount
charged to expense for the year ended December 31, 1995 is $398,197.
See auditors' report
6
<PAGE>
ANGELIKA FILM CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. ADVANCES TO AFFILIATE
The Company has made advances to and on behalf of Naima Saleh (a relative of
the shareholders) which are in dispute and counterclaimed for a much larger
sum. See Litigation Note 4a.
3. GOING CONCERN
The Company's financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
a working capital deficiency of $2,726,336 at December 31, 1995 and a net
worth of $13,058. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
4. LITIGATION
a. Naima Saleh, mother of Joseph Saleh, a shareholder and former officer of
the Company, commenced an action in the Supreme Court of the State of New York
seeking $6.5 million in connection with loans allegedly made by her to the
Company, and for the enforcement of a security interest in the Company's
assets allegedly given to her in March 1990. The Company has interposed
various affirmative defenses and counterclaims against Naima Saleh based upon
the books and records of the Company. Management has directed counsel to
vigorously contest the action and discovery is proceeding. In February 1996
the Supreme Court dismissed that portion of the Amended Complaint which sought
enforcement of the security interest on the grounds that the alleged security
interest was never authorized by the Company. At this time counsel for the
Company is not in a position to assess the likelihood of an unfavorable
outcome or the scope thereof.
b. The Company has indemnified the Theater's landlord against any loss it
may sustain resulting from an action commenced by 31-32 Gourmet Corp., another
tenant in the building in which the theater is located. 31-32 Gourmet claims
that the theater's cafe restaurant operation violates a restrictive covenant
contained in its lease. The action went to trial and the complaint was
dismissed; however, 31-32 Gourmet prosecuted an appeal resulting in a reversal
of the trial court's dismissal of the complaint and a new trial ordered. The
Company is pursuing settlement negotiations before the commencement of a new
trial and estimates that a settlement can be reached for the approximate sum
of $160,000 which has been accrued.
c. In October 1995 Joseph Saleh, a shareholder and the former president of
the Company, commenced an action seeking recovery of $1,760,000 allegedly owed
to him by the Company as repayment of loans. The Company's records reflect a
loan payable for approximately $730,000 less than is claimed by Mr. Saleh, but
the Company and other defendants have filed counterclaims against Mr. Saleh in
the aggregate amount of $4,000,000 claiming that Mr. Saleh, on a net basis, is
indebted to the Company. The counterclaims arise out of actions by Mr. Saleh
while he was the president and chief operating officer of the Company which
resulted in waste and mismanagement of the assets of the Company, and the
breach by Mr. Saleh of his fiduciary obligations to the Company which resulted
in damages. The outcome of this action and counterclaims cannot be predicted
at this time.
d. In January 1996, the Company commenced an action against Mr. Joseph Saleh
and others seeking injunctive relief in connection with an attempted physical
takeover of the theater premises. Mr. Saleh has counterclaimed that he is the
beneficial owner of all issued and outstanding shares of the Company. He
claims that at the time the other shareholders were given their shares, it was
with the understanding and agreement that Mr. Saleh would receive the return
of all shares in the event he was no longer the chief operating officer of the
Company. Discovery has not yet commenced in the action and as a result counsel
is unable to evaluate the likelihood of an unfavorable outcome.
See auditors' report
7
<PAGE>
ANGELIKA FILM CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS
a. Leased premises--theater:
The Company leases its theater under an operating lease expiring December
31, 2008. The basic rent is subject to certain guaranteed increases plus
adjustments for taxes, utilities and maintenance charges. A straight-line
rent expense of $467,740 under this lease has been charged to operations.
The minimum lease commitment as of December 31, 1995 under this long-term
lease is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1996........................................................... $ 424,603
1997........................................................... 424,603
1998........................................................... 451,144
1999........................................................... 488,294
2000........................................................... 488,294
Thereafter..................................................... 4,303,090
----------
$6,580,028
==========
</TABLE>
a. Leased premises--office and storage:
The Company obligated itself on December 15, 1995 to rent office space
commencing February 1, 1996 and ending on July 31, 1996 for a monthly
expense of $2,400. On January 2, 1996 the Company prepaid $1,500 for
records storage space for calendar year 1996.
b. Deferred compensation
On October 23, 1995 the Company entered into employment contracts with
three shareholders providing for an annual wage of $150,000 each. Due to
the cash flow needs of the Company, a portion of the payment of these
salaries has been deferred.
6. CORRECTION OF PRIOR YEARS EARNINGS
The beginning retained earnings has been adjusted for $840,751 of expenses
which should have been reflected in prior periods.
7. CORRECTION OF PRIOR YEARS ADVANCES TO AFFILIATE
The beginning retained earnings has been adjusted by $2,568,903 to correct
dividend distributions to shareholders in prior years erroneously recorded as
advances to an affiliated company.
8. INTEREST AND TAXES PAID
The Company made interest payments of $55,560 ($46,884 to an affiliate) and
tax payments of $47,744 ($47,119 to an affiliate) for the year ended December
31, 1995.
9. SUBSEQUENT EVENT
On July 1, 1996 the Company entered into a contract to sell its theater for
$12,500,000 subject to certain price reduction adjustments and the approval of
the purchaser's board of directors.
See auditors' report
8
<PAGE>
ANGELIKA FILM CENTERS, INC.
FINANCIAL STATEMENTS
JUNE 30, 1996
9
<PAGE>
ANGELIKA FILM CENTERS, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Current Assets
Cash................................................. $ 288,667 $ 13,500
Receivables.......................................... 21,186 3,541
Inventory............................................ 11,419 11,400
Advances to officers................................. 61,886 37,240
Prepaid expenses..................................... 46,897 35,492
Due from affiliated company.......................... 137,000 -0-
---------- ----------
Total Current Assets............................... 567,055 101,173
Property and Equipment, at cost, less accumulated
depreciation of $1,520,065 and and $1,310,999 (Note
1).................................................... 2,900,424 3,109,490
Other Assets
Advances to affiliate (Note 2)....................... 259,376 258,644
Security deposits.................................... 16,080 11,080
Trademark............................................ 6,189 -0-
---------- ----------
$3,749,124 $3,480,387
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, accrued expenses and taxes......... $1,718,161 $1,352,696
Bank loan payable.................................... -0- 68,132
Deferred compensation (Note 4)....................... 103,767 -0-
Deferred revenues (Note 1)........................... 49,867 29,375
Due to shareholders (Note 3)......................... 1,062,827 1,088,487
---------- ----------
Total Current Liabilities.......................... 2,934,622 2,538,690
Deferred rent and rent tax (Note 4).................... 552,234 506,385
Commitments (Note 4)
Shareholders' Equity
Common Stock--no par value, authorized 200 shares;
113 shares issued and outstanding................... 500,000 500,000
Accumulated deficit.................................. (237,732) (64,688)
---------- ----------
262,268 435,312
---------- ----------
$3,749,124 $3,480,387
========== ==========
</TABLE>
See accompanying notes
10
<PAGE>
ANGELIKA FILM CENTERS, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Theater admissions.............................. $ 2,816,354 $ 2,976,154
Cafe and concession............................. 532,282 560,671
Rental and miscellaneous........................ 13,756 29,534
------------ ------------
3,362,392 3,566,359
------------ ------------
Expenses:
Theater costs, including depreciation of $86,695
and $122,371................................... 1,926,281 2,152,588
Cafe and concession costs....................... 448,917 419,313
Selling, general and administrative............. 473,576 522,164
Litigation costs................................ 199,753 99,690
------------ ------------
3,048,527 3,193,755
------------ ------------
Income from operations............................ 313,865 372,604
Interest expense.................................. 42,211 32,818
------------ ------------
Net income before income taxes.................... 271,654 339,786
Less: New York City income tax.................... 22,444 37,394
------------ ------------
Net income........................................ 249,210 302,392
------------ ------------
Retained earnings (accumulated deficit) beginning
of period as previously reported................. (486,942) 3,930,961
Prior period adjustments:
Unrecorded expenses in prior years (Note 5)..... -0- (840,751)
Prior years dividends paid (Note 6)............. -0- (2,568,903)
------------ ------------
Retained earnings--beginning of period as
restated......................................... (486,942) 521,307
------------ ------------
(237,732) 823,699
Less: Dividends paid.............................. -0- 888,387
------------ ------------
Accumulated deficit--end of period................ $ (237,732) $ (64,688)
============ ============
</TABLE>
See accompanying notes
11
<PAGE>
ANGELIKA FILM CENTERS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................... $ 249,210 $ 302,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 86,695 122,371
Amortization..................................... -0- 3,314
Changes in operating assets and liabilities:
Decrease in receivables........................ 10,943 5,035
Decrease in inventory.......................... -0- 11,665
Decrease in prepaid expenses................... 57,535 66,596
(Decrease) Increase in accounts payable,
accrued expenses and taxes.................... (15,181) 169,853
Increase in deferred compensation.............. 27,466 -0-
Increase deferred revenues..................... 12,913 14,133
Increase in deferred rent and rent tax......... 22,864 22,985
----------- ------------
Net Cash Provided by Operating Activities.......... 452,445 718,344
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of employee loans...................... -0- 5,300
Decrease in advance to affiliate................. -0- 28,500
Purchase of property and equipment............... -0- (40,501)
Advances to shareholders......................... (141,476) (37,240)
Decrease in intangible assets.................... -0- 6,422
Advances to affiliated company................... (137,000) -0-
----------- ------------
Net Cash Used in Investing Activities.............. (278,476) (37,519)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of bank loan payable........ -0- (102,198)
Advances from shareholders....................... -0- 211,209
Dividends paid................................... -0- (888,387)
----------- ------------
Net Cash Used in Financing Activities.............. -0- (779,376)
----------- ------------
Net Increase (Decrease) in Cash.................... 173,969 (98,551)
Cash, beginning of period.......................... 114,698 112,051
----------- ------------
Cash, end of period................................ $ 288,667 $ 13,500
=========== ============
</TABLE>
See accompanying notes
12
<PAGE>
ANGELIKA FILM CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
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.
a. Company:
The Company was formed and commenced operations in New York City, New
York in 1989 as a motion picture exhibition theater. The theater derives
revenues from six motion picture screens, concession stand sales, cafe
food and beverages, and theater rentals.
b. Income Recognition:
Income from the theater box office, concession stand and cafe is
recognized daily. Prepaid ticket revenues are recognized when tickets are
used and theater rental revenues are recognized as the rental event
occurs.
c. 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.
d. Inventories:
Inventories are comprised of food and confection goods and are stated at
the lower of cost (first-in, first-out method) or net realizable value.
e. Property and equipment:
Depreciation is provided for by the straight line and declining balance
methods over the estimated useful lives of the assets. Routine repairs and
maintenance are charged to operations as incurred and major repairs are
capitalized.
<TABLE>
<CAPTION>
DEPRECIATION
LIVES JUNE 30,
------------ ---------------------
1996 1995
---------- ----------
<S> <C> <C> <C>
Theater and improvements.................... 10 - 39 yrs. $3,726,241 $3,726,241
Equipment and furniture..................... 3 - 7 yrs. 694,248 694,248
---------- ----------
4,420,489 4,420,489
Less: Accumulated depreciation.............. 1,520,065 1,310,999
---------- ----------
$2,900,424 $3,109,490
========== ==========
</TABLE>
f. Income taxes:
The provision for income taxes is computed using current New York City
tax rates including an alternative tax computation. For federal and state
income tax purposes, the Company, with the consent of its stockholders,
has elected to be treated as an "S" corporation. The stockholders will be
liable for individual income taxes on their respective shares of the
Company's taxable income. New York State and New York City have granted
permission to file a combined franchise and income tax return with an
affiliated corporation (Angelika Films, Inc.). The Company has made all
required tax payments.
g. Advertising:
Advertising costs are charged to operations when incurred. The amounts
charged to expense for the six months ended June 30, 1996 and 1995 are
$147,708 and $209,293 respectively.
13
<PAGE>
ANGELIKA FILM CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. ADVANCES TO AFFILIATE
The Company has made advances to and on behalf of Naima Saleh (a relative of
the shareholders) which are in dispute and counterclaimed for a much larger
sum. See Litigation Note 3a.
3. LITIGATION
a. Naima Saleh, mother of Joseph Saleh, a shareholder and former officer of
the Company, commenced an action in the Supreme Court of the State of New York
seeking $6.5 million in connection with loans allegedly made by her to the
Company, and for the enforcement of a security interest in the Company's
assets allegedly given to her in March, 1990. The Company has interposed
various affirmative defenses and counterclaims against Naima Saleh based upon
the books and records of the Company. Management has directed counsel to
vigorously contest the action and discovery is proceeding. In February, 1996
the Supreme Court dismissed that portion of the Amended Complaint which sought
enforcement of the security interest on the grounds that the alleged security
interest was never authorized by the Company. At this time counsel for the
Company is not in a position to assess the likelihood of an unfavorable
outcome or the scope thereof.
b. The Company has indemnified the theater's landlord against any loss it
may sustain resulting from an action commenced by 31-32 Gourmet Corp., another
tenant in the building in which the theater is located. 31-32 Gourmet Corp.
claims that the theater's cafe restaurant operation violates a restrictive
covenant contained in its lease. The action went to trial and the complaint
was dismissed; however, 31-32 Gourmet prosecuted an appeal resulting in a
reversal of the trial court's dismissal of the complaint and a new trial
ordered. The Company is pursuing settlement negotiations before the
commencement of a new trial and estimates that a settlement can be reached for
the approximate sum of $160,000 which has been accrued.
c. In October, 1995 Joseph Saleh, a shareholder and the former president of
the Company, commenced an action seeking recovery of $1,760,000 allegedly owed
to him by the Company as repayment of loans. The Company's records reflect a
loan payable for approximately $730,000 less than is claimed by Mr. Saleh, but
the Company and other defendants have filed counterclaims against Mr. Saleh in
the aggregate amount of $4,000,000 claiming that Mr. Saleh, on a net basis, is
indebted to the Company. The counterclaims arise out of actions by Mr. Saleh
while he was the president and chief operating officer of the Company which
resulted in waste and mismanagement of the assets of the Company, and the
breach by Mr. Saleh of his fiduciary obligations to the Company which resulted
in damages. The outcome of this action and counterclaims cannot be predicted
at this time.
d. In January, 1996, the Company commenced an action against Mr. Joseph
Saleh and others seeking injunctive relief in connection with an attempted
physical takeover of the theater premises. Mr. Saleh has counterclaimed that
he is the beneficial owner of all issued and outstanding shares of the
Company. He claims that at the time the other shareholders were given their
shares, it was with the understanding and agreement that Mr. Saleh would
receive the return of all shares in the event he was no longer the chief
operating officer of the Company. Discovery has not yet commenced in the
action and as a result counsel is unable to evaluate the likelihood of an
unfavorable outcome.
4. COMMITMENTS
a. Leased premises--theater:
The Company leases its theater under an operating lease expiring December
31, 2008. The basic rent is subject to certain guaranteed increases plus
adjustments for taxes, utilities and maintenance charges. A straight-line
rent expense of $233,870 under this lease has been charged to operations.
14
<PAGE>
ANGELIKA FILM CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The minimum lease commitment as of December 31, 1995 under this long-term
lease is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1996........................................................... $ 424,603
1997........................................................... 424,603
1998........................................................... 451,144
1999........................................................... 488,294
2000........................................................... 488,294
Thereafter..................................................... 4,303,090
----------
$6,580,028
==========
</TABLE>
Leased premises--office and storage:
The Company obligated itself on December 15, 1995 to rent office space
commencing February 1, 1996 and ending on July 31, 1996 for a monthly
expense of $2,400. On January 2, 1996 the Company prepaid $1,500 for
records storage space for calendar year 1996.
b. Deferred compensation
On October 23, 1995 the Company entered into employment contracts with
three shareholders providing for an annual wage of $150,000 each. Due to
the cash flow needs of the Company, a portion of the payment of these
salaries has been deferred.
c. Sale of assets
On July 1, 1996 the Company entered into a contract to sell its theater
for $12,500,000 subject to certain price reduction adjustments and the
approval of the purchaser's board of directors.
5. CORRECTION OF PRIOR YEARS EARNINGS
The beginning retained earnings at December 31, 1994 has been adjusted for
$840,751 of expenses which should have been reflected in prior periods.
6. CORRECTION OF PRIOR YEARS ADVANCES TO AFFILIATE
The beginning retained earnings at December 31, 1994 has been adjusted by
$2,568,903 to correct dividend distributions to shareholders in prior years
erroneously recorded as advances to an affiliated company.
7. INTEREST AND TAXES PAID
The Company made interest and tax payments as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1995
------ ------
<S> <C> <C>
Interest..................................................... 30,648 30,273
Taxes........................................................ 22,444 37,394
</TABLE>
15
<PAGE>
Appendix B
Unaudited
Pro Forma Consolidated Balance Sheet
June 30, 1996
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Reading Angelika Acquisition Pro Forma
Company Film Center Adjustments as Adjusted
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash, marketable securities and cash equivalents $32,431 $567 ($9,043)1 $23,955
Deferred tax asset 1,861 11 2 1,872
- -------------------------------------------------------------------------------------------------------------
Total Current Assets 34,292 567 (9,032) 25,827
- -------------------------------------------------------------------------------------------------------------
Other investments 2,277 266 (1,881)3 662
Investment in Reading International 13,174 13,174
Investment in Citadel 4,807 4,807
Restricted cash 214 16 1,984 4 2,214
Real estate held for sale 1,107 1,107
Property and equipment (net) 9,125 2,900 1,520 2 13,545
Intangible assets:
Beneficial leases-net 15,081 15,081
Goodwill 0 8,097 2 8,097
- -------------------------------------------------------------------------------------------------------------
Total Assets $80,077 $3,749 $688 $84,514
=============================================================================================================
LIABILITIES:
Accounts and film rent payable $2,738 $1,718 ($1,353)2 $3,103
Accrued compensation 292 104 (104)5 292
Accrued taxes and other 438 438
Other liabilities 1,063 50 (50)5 1,063
Notes payable 0 1,500 4 1,500
Note payable to affiliate 3,325 3,325
Due to shareholders 0 1,063 (1,063)5 0
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 7,856 2,935 (1,070) 9,721
- -------------------------------------------------------------------------------------------------------------
Notes payable 0 500 4 500
Other liabilities 2,518 552 (552)5 2,518
Minority interest 0 2,072 6 2,072
Shareholders' equity
Common stock 1 500 (500) 1
Class A common stock 51 51
Other capital 57,094 57,094
Retained earnings 15,237 (238) 238 15,237
Foreign currency translation (57) (57)
Class A common stock held in treasury (2,623) (2,623)
- -------------------------------------------------------------------------------------------------------------
Total Liabilities & Shareholders Equity $80,077 $3,749 $688 $84,514
=============================================================================================================
</TABLE>
See notes to Unaudited Pro Forma Consolidated Balance Sheet
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
1. Records payment of purchase price of $12,429,131 inclusive of estimated
expenses of $520,000 and assumed liabilities of $100,000, less minority
interest contribution of $2,072,000, a $1,359,460 credit for the Angelika
Judgement, cash acquired in Acquisition and unexpended transaction
expenses.
2. To reflect the estimated fair market value of the acquired assets and
liabilities. The difference between the purchase price (including
expenses) and the fair market value of the acquired assets and liabilities
has been reflected as Goodwill of $8,097,000.
3. To redeem the Angelika Judgement from "Investments" and reflect the credit
received against the purchase price for cancellation of the Angelika
Judgement.
4. To record the $2,000,000 contribution to "Restricted Cash" for the portion
of the purchase price which is placed in escrow and the issuance of the
$2,000,000 Payment Note, $1,500,000 of which is payable in April 1997 and
the balance of which is due upon resolution of certain contingencies.
5. Liabilities not assumed in acquisition.
6. To record capital contribution of Sutton Hill as a minority interest.
<PAGE>
Unaudited
Pro Forma Consolidated Statement of Operations
Year ended December 31, 1995
(in thousands except share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Reading Angelika Acquisition Pro Forma
Company Film Center Adjustments as Adjusted
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Theater:
Admissions $10,356 $6,207 $16,563
Concessions 3,883 1,164 5,047
Advertising and other 686 72 758
Real estate 272 0 272
Interest and dividends 2,435 0 ($551)1 1,884
Condemnation and other 2,341 0 2,341
- ---------------------------------------------------------------------------------------------------------------
19,973 7,443 (551) 26,865
- ---------------------------------------------------------------------------------------------------------------
EXPENSES:
Theater costs 10,784 4,293 125 2 15,202
Theater concession costs 640 978 1,618
Depreciation and amortization 1,369 245 404 3 2,018
General and administrative 4,200 1,353 (64)4 5,489
Equity loss from investment in Reading International 390 0 390
Interest expense 0 84 (66)5 18
- ---------------------------------------------------------------------------------------------------------------
Net income before taxes and minority interest 2,590 490 (950) 2,130
- ---------------------------------------------------------------------------------------------------------------
Income taxes 239 55 53 6 347
Minority interest 9 7 9
- ---------------------------------------------------------------------------------------------------------------
Net income 2,351 435 (1,012) 1,774
- ---------------------------------------------------------------------------------------------------------------
Less: preferred dividends 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Earnings available to common shareholders $2,351 $435 ($1,012) $1,774
===============================================================================================================
Earnings per common share $0.47 $0.36
Average common shares outstanding 4,973,369 4,973,369
</TABLE>
See notes to Unaudited Pro Forma Consolidated Statements of Operations
<PAGE>
Unaudited
Pro Forma Consolidated Statement of Operations
Six-months ended June 30, 1996
(in thousands except share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Reading Angelika Acquisition Pro Forma
Company Film Center Adjustments as Adjusted
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Theater:
Admissions $5,557 $2,816 $8,373
Concessions 2,064 532 2,596
Advertising and other 388 14 402
Real estate 144 0 144
Interest and dividends 1,076 0 ($260)1 816
Equity in earnings of affiliate 1,433 0 1,433
Other 24 0 24
- -----------------------------------------------------------------------------------------------------------------------------
10,686 3,362 (260) 13,788
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Theater costs 6,112 1,839 63 2 8,014
Theater concession costs 347 449 796
Depreciation and amortization 772 87 202 3 1,061
General and administrative 2,087 674 (269)4 2,492
Equity loss from investment in Reading International 307 0 307
Interest expense 0 42 (33)5 9
- -----------------------------------------------------------------------------------------------------------------------------
Net income before taxes and minority interest 1,061 271 (223) 1,109
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes 22 22 67 6 111
Minority interest 48 7 48
- -----------------------------------------------------------------------------------------------------------------------------
Net income 1,039 249 (338) 950
- -----------------------------------------------------------------------------------------------------------------------------
Less: preferred dividends 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Earnings available to common shareholders $1,039 $249 ($338) $950
=============================================================================================================================
Earnings per common share $0.21 $0.19
Average common shares outstanding 4,973,241 4,973,241
</TABLE>
See notes to Unaudited Pro Forma Consolidated Statements of Operations
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
1. To eliminate interest income on cash portion of purchase price.
2. To record management fee to City Cinemas.
3. To record amortization of $8,089,000 of Goodwill over 20 year life.
4. To reduce salary expense for services to be provided by City Cinemas under
management agreement. Certain historical expenses of AFCI, including but
not limited to, $404,000 and $235,000 of litigation expenses included in
the respective year and six month periods are non-recurring. Management
believes that the Management Agreement will permit the Angelika to
significantly reduce "General and administrative" expenses from historical
levels to an amount significantly less than the level included in the Pro
Forma Consolidated Statements of Operations.
5. To eliminate AFCI interest expense. No interest bearing liabilities are to
be assumed by the Company in the Acquisition.
6. To reflect federal, state and local taxes payable on pro forma income.
7. To reflect Sutton Hill's share (minority interest) of net income.
<PAGE>
Exhibit 2(2)
ANGELIKA THEATRE
----------------
ASSET PURCHASE AND SALE AGREEMENT
---------------------------------
This Purchase and Sale Agreement (this "Agreement") is made and
entered into as of this 1st day of July, 1996 by and among READING INVESTMENT
COMPANY, INC., a Delaware corporation ("Reading"), ANGELIKA FILM CENTERS, INC.,
a New York corporation ("Seller"), and HOUSTON CINEMA, INC., a New York
corporation ("Houston").
RECITALS
--------
A. Seller owns certain Assets (as hereafter defined) consisting of,
among other things, the assets used in connection with the business operations
thereon commonly known as the Angelika Film Center Theatre and Cafe (the
"Angelika Theatre").
B. Houston was the original tenant of and owned a leasehold interest
in certain property in which the Angelika Theatre is located (namely the
building located at 18 W. Houston Street, New York, New York), pursuant to that
certain Agreement of Lease made as of March 4, 1988 between Cable Building
Association as landlord and Houston as tenant and as modified by that certain
Amendment of Lease dated December 26, 1989, which leasehold interest is more
particularly described on Exhibit A attached hereto (collectively, the
"Leasehold").
C. Houston previously assigned all of its right, title and interest
as tenant in and to the Leasehold to Seller, as well as all of its right, title
and interest in and to any of the assets used in connection with the business or
operations of the Angelika Theatre (collectively, the "Houston Assignment").
From and after the Houston Assignment, Seller solely owned, operated and managed
the Angelika Theatre; paid all rent, additional rent and other sums due under
the lease on the Angelika Theatre to the Landlord thereunder and otherwise
performed or satisfied all of the terms and conditions on the part of tenant to
be performed or satisfied under or pursuant to the Angelika Theatre Lease
subsequent to the Houston Assignment to and including the date hereof.
D. Reading or its designee ("Purchaser") desires to purchase, and
Seller desire to sell, the Assets described in Section 1.01 on the terms and
conditions hereinafter set forth.
E. Houston is joining into and signing this Agreement at the request
of Purchaser not only so as to confirm and ratify its prior Houston Assignment,
but also to formally waive any
<PAGE>
conceivable right, title or interest which anyone might claim Houston may have
in or to any of the Assets being sold by Seller to Purchaser.
F. This Agreement is being entered into by Seller and Houston
through and with the consent of each of Joseph J.M. Saleh, Angelika T. Saleh,
Jessica Saleh Hunt and Eva Saleh.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and
representations, warranties and covenants herein set forth, the parties hereto
agree as follows:
ARTICLE I
Purchase and Sale of Assets
---------------------------
1.01 Purchase of Assets. On the terms and subject to the conditions
------------------
set forth herein, Seller (and Houston, but only to the extent Houston has any
right, title or interest in and to any of the Assets; for convenience, any
reference to "Seller" herein shall be deemed to refer also to Houston) hereby
agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from
Seller, at the Closing (as that term is hereinafter defined in Section 1.06),
all of Seller's right, title and interest in and to the business known as the
Angelika Theatre and its property and assets (collectively, the "Assets") as
follows:
(a) Personal Property. Other than certain sculptures, paintings and
-----------------
posters presently in the Angelika Theatre, but not owned by Seller, all tangible
personal property owned by Seller and used exclusively for the operation,
maintenance and management of the Angelika Theatre (collectively, the "Personal
Property"), including all structures and fixtures located on, and all
improvements to, the Leasehold property (collectively, the "Improvements"). The
Personal Property and Improvements (are sometimes collectively referred to as
the "Theatre Property"), are more fully described in the form of Bill of Sale
(the "Bill of Sale") attached hereto as Exhibit B and incorporated herein by
reference.
(b) Contracts. All of Seller's right, title and interest in all
---------
contracts and agreements in effect and designated by Purchaser as contracts to
be assumed by Purchaser (the "Designated Contracts") at or on the "Closing Date"
(as hereafter defined), if any (collectively, the "Contracts"), as described in
the form of Assignment of Contracts (the "Assignment and Assumption of
Contracts") attached hereto as Exhibit C.
2
<PAGE>
(c) Good Will and Intellectual Property. All of Seller's right, title
-----------------------------------
and interest in and to the good will of the Angelika Theatre, all of Seller's
right, title and interest in the tradename and trademark "Angelika" for motion
picture theatre and food service purposes (the "Trademark") in the form of the
Assignment of Trademarks (the "Assignment of Trademarks") attached hereto as
Exhibit D; subject, however, to the licenses to use the Trademark from Purchaser
in favor of the Saleh Family Members and Angelika 57, Inc., in the form annexed
as Exhibits E and F (the "Trademark Licenses").
(d) Leasehold. All of Seller's right, title and interest in and to
---------
the Leasehold and all appurtenant rights, privileges and easements related or
used incidental thereto.
(e) Improvements. All of Seller's right, title and interest in and to
------------
the Improvement in, on or to the Leasehold.
The purchase price for the Assets shall be determined and paid in
accordance with the terms and provisions of Sections 1.02 through 1.04 hereof.
1.02 Purchase Price. The aggregate purchase price (the "Purchase
--------------
Price") to be paid by Purchaser for the Assets shall be an amount equal to:
(a) Twelve Million Five Hundred Thousand Dollars ($12,5000,000.00),
plus interest thereon from March 1, 1996 through the Closing Date at the
"Reference Rate" (as used herein, "Reference Rate" shall mean the thirteen
[13] week Treasury Bill rate, as it changes and is published in the Wall
Street Journal from time to time), plus
(b) the amount shown on Schedule 1 attached hereto for till cash and
inventory on hand at the Angelika Theatre and other appropriate closing
adjustments as of the Closing Date and, minus
(c) the amount shown on Schedule 1 attached hereto for the liabilities
shown thereon as of the Closing Date and specifically assumed by Purchaser,
minus
(d) a sum equal to Seller's "Estimated Pre-Closing Earnings". As used
herein, "Estimated Pre-Closing Earnings" shall be determined as follows:
3
<PAGE>
(i) Seller will prepare an income statement in accordance with
generally accepted accounting principles for the two (2)
month period beginning January 1, 1996 and ending
February 29, 1996 (the "Interim Statement");
(ii) the gross operating revenues derived from all Angelika
Theatre business and operations (including box office
receipts, concession revenues, theatre rental revenues and
membership sales) for the period beginning March 1, 1996
through the Closing Date (the "Computation Period") shall
be multiplied by the "Gross Profit Percentage" (i.e., the
ratio of gross profit -- excluding, however, the
expenditures excluded under (iii) below -- to gross
operating revenues) derived from the Interim Statement,
less
(iii) an amount equal to one-half (1/2) of all other operating
expenses as shown in the Interim Statement not included in
computing "Gross Profit Percentage" excluding, however,
interest, depreciation, taxes on income, amortization and
any (x) executive or management compensation, including any
payments to any stockholders of Seller or (y) any
professional fees for any attorneys or accountants paid by
Seller to the extent the annualized sum of (x) plus (y)
exceeds $225,000;
(iv) Multiply the amount determined in (iii) by the number of
whole and fractional months included in the Computation
Period and then subtract that product from (ii).
The final result of the calculations in (d) above are Seller's "Estimated Pre-
Closing Earnings".
4
<PAGE>
Notwithstanding anything to the contrary in this Agreement, within
five (5) business days after Purchaser receives a copy of the final
determination of the Seller's actual Pre-Closing Earnings by the Pre-Closing
Earnings Auditors (as provided in Section 1.03 below), Purchaser shall have the
exclusive right and unilateral option, exercisable by sending written notice to
Seller within such five (5) business day period, to elect to delete from the
Purchase Price and make no adjustment for: (x) any addition for interest on the
$12,500,000 from March 1 1996 through the Closing Date, as provided for in
Section 1.02(a) and (y) any subtraction for Seller's "Estimated Pre-Closing
Earnings" provided for in subparagraphs (d) of this Section 1.02 -- in which
event, all corresponding references in Section 1.03 to Seller's "Estimated Pre-
Closing Earnings" or Seller's "actual Pre-Closing Earnings" shall also be
deleted.
1.03 Closing Audit of Seller. For purposes of determining the final
-----------------------
adjustments to the Purchase Price pursuant to Section 1.02 (b) through (d)
above, on the Closing Date, Purchaser and Seller shall initially use the figures
set forth on Schedule 1 and (unless the parties in writing agree upon the actual
Pre-Closing Earnings) shall initially use the Seller's calculation of Estimated
Pre-Closing Earnings. The Purchase Price shall be paid based on these estimates
(the "Closing Estimates") subject to any necessary reconciliation as determined
by the closing audit to be performed in accordance with this Section 1.03 (the
"Closing Audit"). On or immediately after the Closing Date, the accounting firm
of Ernst & Young (the "Closing Auditors"), with the assistance and cooperation
of Seller's personnel, shall perform a complete review and, where appropriate,
an audit of the Angelika Theatre assets on hand as of the Closing Date, and
shall prepare, within thirty (30) days of the Closing Date, (1) a statement
setting forth the dollar amount as of the Closing Date of each of the assets and
liabilities listed on Schedule 1 and (2) a statement setting forth the Seller's
unpaid film rentals, if any. For purposes of this last statement, the amount
of film rentals due and owing shall be calculated by reference to the statements
provided by the lessor of such films; provided, however, for ten (10) days after
-------- -------
the Closing Date or ten (10) days after the amount of any film rental becomes
due and owing, whichever is later, Seller shall have the sole right to negotiate
settlements with respect to amounts due and owing to film lessors and thereafter
Purchaser shall do so; provided, however, that in the event that Purchaser is
-------- -------
able to negotiate a reduction in such rentals, the Seller shall be entitled to a
credit in an amount equal to such reduction. If within thirty (30) days of the
Closing Date the parties are unable to agree in writing upon the actual Pre-
Closing Earnings, then Seller shall have the sole right to designate a "Big 6"
accounting firm (the "Pre-Closing Actual Earnings Auditor") who shall be
retained by the parties to finally determine the actual Pre-Closing Earnings who
shall follow the method set forth in Section 1.02(d); provided, however, if
Seller
5
<PAGE>
fails to name the Pre-Closing Actual Earnings Auditors within forty-five (45)
days of the Closing Date, then Purchaser shall have the right to name a "Big 6"
accounting firm to act as the Pre-Closing Actual Earnings Auditors. The
foregoing statements as finally determined pursuant to this Section 1.03 are
hereinafter referred to as the "Closing Statement." The Purchaser and Seller
shall each equally pay one-half of (i) all of the fees and disbursements of the
Pre-Closing Actual Earnings Auditors in determining Seller's actual Pre-Closing
Earnings, (ii) the first $5,000 of all other fees and disbursements of the
Closing Auditors and (iii) Purchaser alone shall pay all of the fees and
expenses of the Closing Auditors in excess of $5,000.
1.04 Payment of the Purchase Price. The purchase price for the
-----------------------------
Assets shall be paid as follows:
(a) On the Closing Date, Purchaser shall make, execute and deliver to
Seller a non-negotiable promissory note in the original principal amount of
$2,000,000 dated as of the Closing Date, which promissory note shall bear
interest at the Reference Rate; provided, however, with respect to any
principal amount above $1,500,00, the interest rate shall be greater of the
Reference Rate or nine percent (9%) per annum, shall automatically be reduced
by $1,500,000 on April 1, 1997 and shall be otherwise substantially in the
form of Exhibit K/1/ attached hereto (the "Holdback Note"). On or before the
Closing Date, Purchaser shall establish an interest bearing escrow account
(the "Escrow Account") with Paine Webber, as escrow and Seller's agent (the
"Escrow Agent"), provided Seller shall pay any fees which the Escrow Agent
may charge, over and above its usual brokerage fees for buying short-term
U.S. Treasury obligations. On the Closing Date Purchaser shall deposit Two
Million Dollars ($2,000,000) in the Escrow Account and Purchaser, Seller and
Escrow Agent shall enter into an escrow agreement (the "Escrow Agreement")
substantially in the form attached hereto as Exhibit L. Purchaser hereby
grants, effective as of the Closing date and subject to the Closing of the
transactions contemplated hereby, to Seller a security interest in the Escrow
Account for the purpose of securing Purchaser's obligations under the
Holdback Note. Purchaser shall take all necessary and appropriate steps to
create a perfected security interest in favor of Seller in
- -----------------------
/1/ Exhibits G through J have been intentionally deleted.
6
<PAGE>
and to the Escrow Account. On the Closing Date, the Escrow Agent shall be
authorized to invest funds in the Escrow Account only in short-term U.S.
Treasury obligations earning at least the Reference Rate. On April 1, 1997,
provided there has been no Seller default under this Agreement, $1,500,000
under the Holdback Note shall become due and payable on April 1, 1997 and in
order to satisfy such Purchaser payment obligations, $1,500,000 in the Escrow
Account shall be released and transferred to Seller on such date, provided,
--------
however, if Purchaser claims Seller is in default under this Agreement and
-------
Escrow Agent has received Seller's Notice of Indemnity Dispute and as a
result thereof, Escrow Agent does not release and transfer the $1,500,000 to
Seller, then Seller shall have all of its rights and remedies, provided for
in the Holdback Note subject to Purchaser's right of offset thereunder. All
interest on escrowed funds shall be delivered to Purchaser promptly upon
receipt, so long as there has been no default by Purchaser under the Holdback
Note.
Subject to the provisions of Section 8.05, Purchaser shall be entitled
to first offset against the Holdback Note and simultaneously therewith assert
against the Escrow Account any claims it may have under Article VIII of this
Agreement. In addition, Purchaser shall be entitled to receive with respect
to all transactions after the Closing Date an amount equal to the difference
between the regular admission or concession price as the case may be, and the
price at which any patron purchases such admission or concession with the
benefit of any discount, guest or club card issued prior to the Closing Date
calculated without reference to any amounts paid to the Seller with respect
to such discount, guest or club card; provided, however, Purchaser shall not
be entitled to receive any amount with respect to single use, free admission
passes which, in accordance with generally accepted movie theatre practice,
Seller has given to certain religious groups, motion picture distributors and
the like, without receiving in exchange any payment or other consideration.
7
<PAGE>
(b) On the Closing Date, Purchaser shall pay to Seller by certified
check or bank check either of which shall be drawn on a bank which is a
member of the New York Clearinghouse, an amount equal to the difference
between the Purchase Price (based on the Closing Estimates), minus the sum of
(y) $2,000,000, plus (z) the Judgment Satisfaction Amount if the Judgment is
assigned to Seller in accordance with the provisions of Section 6.12.
(c) Within five (5) business days of receipt by Purchaser of the
Closing Statement, Purchaser shall pay to Seller an amount equal to the
difference, if positive, between the Closing Estimates and the results of the
Closing Audit. Within five (5) business days of receipt by Seller of the
Closing Statement, the Seller shall pay to Purchaser an amount equal to the
difference, if negative, between the Closing Estimates and the results of the
Closing Audit. Any payment required to be made pursuant to this Section
1.04(d) shall be made by certified or bank check drawn on a bank which is a
member of the New York Clearinghouse.
(d) In the event that there is any dispute as to the Closing Audit,
the parties reserve the right to contest the results of such Closing Audit
through an action for declaratory relief. However, in the event that the
court approves the Closing Audit, or approves the Closing Audit with
adjustments representing a no greater than five percent (5%) adjustment, then
the party or parties challenging such Closing Audit shall be jointly and
severally responsible for the reasonable costs of defense (including, without
limitation, reasonable attorney's fees) of both the Auditors and the party or
parties defending such action. In the event the court finds that adjustments
representing a greater than five percent (5%) adjustment are necessary, then
the party or parties defending such action shall be jointly and severally
responsible for the reasonable litigation costs (including, without
limitation, reasonable attorney's fees) of both the Auditors in defending
such action, and the party or parties challenging such Closing Audit in
litigating such action. Any funds not timely paid under Section 1.04(d) shall
bear interest at the fluctuating rate from time to time published in the Wall
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Street Journal as the "prime rate" plus 150 basis points or the maximum
amount allowed by law, whichever is less (the "Contract Rate").
1.05 Review Period. In the event and to the extent any required
-------------
Exhibits or Schedules have not been completed by Seller and attached to this
Agreement upon signing, then Seller hereby covenants and agrees to deliver to
Purchaser complete copies of any required Exhibits or Schedules not yet attached
to this Agreement, on or before the date which is ten (10) business days after
the date hereof, which still-to-be attached Exhibits and Schedules, Seller
represents and warrants will not contain any information or terms and provisions
materially and adversely affecting the business and operations of the Angelika
Theatre or the Assets being purchased hereunder not previously disclosed in
writing to Purchaser. Notwithstanding the fact that this Agreement is being
executed without some or all of the Exhibits or Schedules to be attached hereto
having been completed, Seller hereby agrees and acknowledges that this Agreement
shall constitute a binding obligation on the part of Seller to sell the Assets,
subject to the attachment of a complete set of Exhibits and Schedules in
accordance with the representations and warranties set forth in the immediately
preceding sentence. On or before the tenth (10th) business day after (i)
execution of this Agreement by Seller, (ii) the attachment of all Exhibits and
Schedules hereto and (iii) satisfaction or waiver by both the Seller and
Purchaser of the Marital Court Order set forth in Article V hereto, but not
earlier than July 23, 1996, Purchaser shall seek to obtain the approval of its
Board of Directors to this Agreement, including the completed Schedules, and the
transactions contemplated hereby. If Board approval (as evidenced by a notice
from Purchaser to Seller of such approval) is not obtained within such period,
provided Seller is not then in default under this Agreement, Seller may at any
time thereafter terminate this Agreement by sending a five (5) business day
written notice to Purchaser, which shall be effective to terminate this
Agreement five (5) business days after Purchaser's receipt of the Seller's
notice, unless Purchaser sends Seller notice of Purchaser's Board approval
within such five (5) business day period.
1.06 Closing. The Closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the offices of Baer Marks & Upham
LLP, 805 Third Avenue, New York, New York at 10:00 a.m., on the first business
day after 30 days of the date hereof (as it may be accelerated or extended, the
"Closing Date") with any date earlier or later than the first business day after
30 days of the date hereof to be mutually agreed upon by the parties.
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1.07 Transfer of Title.
-----------------
(a) On the Closing Date, Seller shall convey to Purchaser all of
Seller's right, title and interest to the Leasehold by execution and delivery of
the Assignment and Assumption of Lease substantially in the form of Exhibit M
attached hereto (the "Assignment and Assumption of Lease").
(b) On the Closing Date, Seller shall transfer to Purchaser title to
the Personal Property, the Theatre Property and Seller's interest in the
Designated Contracts by execution and delivery of the Bill of Sale and the
Assignment of Contracts.
(c) On the Closing Date, Seller shall transfer to Purchaser its
interest in the Angelika name and trademark for motion picture theatre and food
services purposes by execution and delivery of the Assignment of Trademarks.
1.08 Allocation of Purchase Price. The parties hereto agree that the
----------------------------
Purchase Price, unless the parties otherwise agree prior to the Closing Date,
shall be allocated among the Assets being transferred by using the Seller's "net
book value" of the Assets transferred, as computed and determined by Miller &
Company, CPAs, in the manner set forth on Exhibit N, such allocation to be
adjusted in a manner consistent with the adjustments to the Purchase Price as
set forth in Section 1.02(b) through (d).
ARTICLE II
Representations and Warranties
of Purchaser
------------------------------
Except as expressly set forth in this Article II, Purchaser makes no,
and has made no, representations and warranties in connection with this
Agreement, the subject matter hereof or the transactions contemplated hereby.
Purchaser represents and warrants to Seller that:
2.01 Organization, Good Standing and Authority. Purchaser is
-----------------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This
Agreement and all other agreements herein contemplated to be executed in
connection herewith by Purchaser have been (or upon execution shall have been)
duly executed and delivered by Purchaser, have been effectively authorized by
all necessary action, corporate or otherwise, and constitute (or upon execution
shall constitute) legal, valid and binding obligations of Purchaser subject only
to the Board of Directors of Purchaser approving the terms of this Agreement as
provided in Section 6.08.
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2.02 No Broker. No broker or finder has acted for Purchaser in
---------
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fees or other
commission in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Purchaser.
2.03 Agreement Not in Violation of Law. The execution and delivery
---------------------------------
of this Agreement, the consummation of the transaction contemplated hereby and
the fulfillment of the terms hereof shall not result in a material violation of
any law, rule or regulation applicable to Purchaser.
2.04 Seller's Future Movie Bookings. After the Closing, Purchaser
------------------------------
shall either (a) honor the movies bookings previously arranged by Seller through
Jeffrey Jacobs, the Angelika Theatre's present film programmer, as more
particularly shown on Schedule 2.04 or (b) to the extent Purchaser decides not
to exhibit one or more of the movies at the Angelika Theatre shown on Schedule
2.04, then Purchaser shall indemnify and hold Seller harmless from and against
any claims, losses or damages which Jeffrey Jacobs, any distributor or any other
party may assert or recover against Seller; provided, however, Purchaser shall
have the sole right to settle or defend any such claims or litigation, and
provided further, Seller shall assign to Purchaser all defenses, offsets, rights
or claims Seller may have against Jeffrey Jacobs, any distributor or any other
party.
ARTICLE III
Representations and Warranties
of Seller
------------------------------
For purposes of this Article III, the phrase "to the best knowledge of
Seller" means no stockholder, officer or director of Seller has actual
knowledge, actual belief or implied knowledge that the statement made is not
true and correct. Implied knowledge as used in the preceding sentence means
knowledge of facts discoverable from all information available in the books,
records and files of Seller. Except as expressly set forth in this Article III,
Seller makes no, and has made no, representations and warranties in connection
with this Agreement, the subject matter hereof or the transactions contemplated
hereby. The representations and warranties in this Article III shall survive
for a period of eighteen months after the Closing Date. Seller hereby
represents and warrants to Purchaser that:
3.01 Organization, Good Standing and Authority. Each of Seller and
-----------------------------------------
Houston is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York. Seller has full corporate power and
authority to own, operate and convey the Assets and to enter into and otherwise
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perform and comply with the terms of this Agreement. This Agreement and all
other agreements herein contemplated to be executed by Seller in connection
herewith have been (or upon execution shall have been) duly executed and
delivered by Seller, have been effectively authorized by all necessary action,
corporate (including Board of Directors and stockholders approvals) or otherwise
and constitute (or upon execution shall constitute) legal, valid and binding
obligations of Seller.
3.02 No Broker. No broker or finder has acted for Seller in
---------
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fees or other
commissions in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Seller.
3.03 Financial Statements. Included in Schedule 3.03 are the balance
--------------------
sheets of Seller as of December 31, 1995, and the related statements of income
and retained earnings and changes in financial position for the fiscal years
then ended, each such financial statement having been audited by an independent
certified public accountant and prepared in accordance with generally accepted
accounting principles consistently applied. If not available at the time of
signing this Agreement, Seller hereby covenants and agrees to use its
commercially reasonable efforts to deliver to Purchaser by no later than July
20, 1996 (i) the audited balance sheet of Seller as of December 31, 1995, and
the related statements of income and retained earnings and changes in financial
position for the fiscal year then ended, as well as (ii) unaudited comparative
quarterly financial statements for the three month periods ending March 31, 1995
and June 30, 1995; provided, however, it being understood that with respect to
each of the quarterly financial statements for the three months ending March 31,
1995 and June 30, 1995, no such separate financial statement was previously
prepared in the ordinary course and Seller, in cooperation with its accountant,
will review its own and its accountant's "workpapers" and use its good faith
efforts to reconstruct what Seller believes is the most accurate semi-annual
financial statement for the three month period ending March 31, 1995 and June
30, 1995. Seller hereby represents that the sum of its gross revenues
attributable to ticket sales, concession sales and its gross receipts generated
by the cafe located on the Leasehold premises was not less than $7,035,630 for
1994, $7,422,806 for 1995 and not less than $1,295,580 for the three month
period from January 1, 1996 through March 31, 1996. Seller further represents
and warrants that all books and records of the Seller requested by, and
presented to Purchaser constitute the books and records of the Seller and there
are no other books and records of the Seller which conflict with the books and
records presented to the Purchaser.
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3.04 Absence of Certain Changes. Except as disclosed in Schedule
--------------------------
3.04 or as provided for or contemplated in this Agreement and to the best
knowledge of Seller, since December 31, 1995 (the "Balance Sheet Date") there
has not been (i) any transaction not in the ordinary course of business; (ii)
any material adverse change in the results of operations, condition (financial
or otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise), business or prospects of Seller; (iii) any damage, destruction or
loss, whether or not covered by insurance, which has had or may have a material
and adverse effect on the Assets; (iv) any sale or transfer of the Assets, or
any portion thereof, except sales in the ordinary course of business of
inventory; (v) any mortgage, pledge or subjection to lien, charge or encumbrance
of any kind, except liens for taxes not due, of the Assets, or any portion
thereof; (vi) any material amendment, modification or termination of any
material contract or agreement relating in any way to the Assets to which Seller
is a party; (vii) any material alteration in the manner of keeping the books,
accounts or records of Seller relating to the Assets, or in the accounting
practices therein reflected; or (viii) any other event or condition of any
character which has had or may have a material and adverse effect on the Assets.
Purchaser acknowledges that changes in gross receipts due to fluctuations in
attendance at the Angelika Theatre in the ordinary course of business do not
constitute material adverse changes for purposes of clause (ii) above.
3.05 Leasehold. Except as indicated in Schedule 3.05:
---------
(a) Seller has good marketable title to the Assets, free and clear of
all mortgages, liens, encumbrances, leases, equities, claims, charges,
easements, rights-of-way, covenants, conditions and restrictions, except for
liens, if any, for property taxes not due;
(b) Other than the failure of Houston to have obtained the prior
written consent of the Landlord to the Houston Assignment, Seller is not in
default with respect to any material term or condition of any lease, contract
or other agreement relating to the Assets to which Seller is a party, nor has
any event occurred which through the passage of time or the giving of notice,
or both, would constitute a default thereunder by Seller or would cause the
acceleration of any obligation of Seller or the creation of a lien or
encumbrance upon the Assets, or any portion thereof; and
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(c) The Assets are in good operating condition, ordinary wear and tear
excepted, and have been maintained in accordance with reasonable industry
practices, and Seller has not received any notice of a violation of any
applicable building code, zoning ordinance or other law or regulation in
respect of the Assets.
3.06 Tangible Personal Property. There is listed on Schedule 3.06
--------------------------
(i) a description of each item of tangible personal property owned by Seller and
located on the Real Property having on the date hereof either a depreciated book
value or estimated fair market value per unit in excess of $10,000 or not owned
by Seller but located on the Real Property; and (ii) a description of the owner
of, and any agreement relating to the use of, each such item of tangible
personal property not owned by Seller and the circumstances under which such
property is used. Except as indicated in Schedule 3.06:
(a) Seller has good and marketable title to each item of such tangible
personal property free and clear of all liens, leases, encumbrances, claims
under bailment and storage agreements, equities, conditional sales contracts,
security interests, charges and restrictions, except for liens, if any, for
personal property taxes not due;
(b) Each item of such tangible personal property not owned by Seller
is in such condition that upon the return of such property to its owner in
its present condition at the end of the relevant lease term or as otherwise
contemplated by the applicable agreement between Seller, and the owner or
lessor thereof, the obligations of Seller to such owner or lessor shall be
discharged;
(c) Each item of tangible personal property listed in Schedule 3.06 is
in good operating condition, ordinary wear and tear excepted and repair and
is fit for its intended purposes; and
(d) Seller owns or otherwise has the right to use all of the tangible
personal properties now used by it in the operation of the Angelika Theatre.
3.07 Intangible Personal Property. There is listed on Schedule 3.07
----------------------------
(i) a description of the items of intangible personal property owned by Seller
and comprising part of the Assets, including, but not limited to, United States
and foreign
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patents, patent applications, tradenames, trademarks, tradename and
trademark registrations, copyright registrations and applications for any of the
foregoing and (ii) a true and complete list of all licenses or similar
agreements or arrangements to which Seller, or any of its directors, officers or
shareholders, is a party either as licensee or licensor for each such item of
intangible personal property. Except as indicated on Schedule 3.07(ii):
(a) Seller is the owner of all right, title and interest in and to
each such item of intangible personal property, free and clear of all liens,
security interests, charges, encumbrances, equities and other adverse claims;
(b) No officer, director, stockholder or employee of Seller, nor any
spouse, child or other relative or affiliate thereof, owns directly or
indirectly, in whole or in part, any of the items of intangible personal
property described on Schedule 3.07(i);
(c) No interference actions or other judicial or adversary proceedings
concerning any of such items of intangible personal property have been
initiated, there is no basis for any such action or proceeding and, to the
best knowledge of Seller, no such action or proceeding is threatened;
(d) Seller has the right and authority to use said items of intangible
personal property in connection with the conduct of its business in the
manner presently conducted, and such use does not conflict with, infringe
upon or violate any rights of any other person, firm or corporation; and
(e) There are no outstanding, nor to the best knowledge of Seller, any
threatened disputes or other disagreements with respect to any licenses or
similar agreements with respect to any licenses or similar agreements or
arrangements described on Schedule 3.07(i).
3.08 Agreement Not in Breach of Other Instruments. Neither the
--------------------------------------------
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will violate, or result in a breach
of, any of the terms and provisions of, or constitute a default under, or
conflict with, any agreement, indenture or other instrument to which Seller is a
party or by which Seller or any of the Assets is bound, the Articles or
Certificate of Incorporation or Bylaws of Seller, or
15
<PAGE>
by any judgment, decree, order or award of any court, governmental body or
arbitrator applicable to Seller, subject to the consent of the landlord under
the lease of the Angelika Theatre to the transfer of the Assets and the
assignment of such lease as contemplated hereby.
3.09 Insurance. Schedule 3.09 sets forth a true and correct list of
---------
all insurance policies of any nature whatsoever maintained by Seller as of the
date hereof in respect of the Assets and the annual or other premiums payable
from time to time thereunder. To the best knowledge of Seller, there are no
outstanding requirements or recommendations by any insurance company that issued
any such policy or by any Board of Fire Underwriters or other similar body
exercising similar functions or by any governmental authority exercising similar
functions which requires or recommends any changes in the conduct of Seller's
business relating to, or any repairs or other work to be done on or with respect
to, the Assets. Seller has not received any notice or other communication from
any such insurance company within the three (3) years preceding the date hereof
canceling or materially amending such insurance policies or materially
increasing the annual or other premiums payable under any of said insurance
policies, and to the best knowledge of Seller, no such cancellation or amendment
of such insurance policies or increase of premiums under such insurance policies
is threatened. There are no audits presently pending with respect to such
insurance policies.
3.10 Litigation. Except as listed on Schedule 3.10:
----------
(a) There is no action, suit or proceeding pertaining to any of the
Assets, or the operation thereof, pending before any court or governmental
agency, authority or body or arbitrator; to the best knowledge of Seller,
there is no such action, suit or proceeding threatened; and to the best
knowledge of Seller, there is no basis for any such action, suit or
proceeding;
(b) Neither Seller nor, to the best knowledge of Seller, any officer,
director or employee of Seller, has been permanently or temporarily enjoined
by any order, judgment or decree of any court or any governmental agency,
authority or body from engaging in or continuing any conduct or practice in
connection with the operation or use of the Assets; and
16
<PAGE>
(c) There is not in existence on the date hereof any order, judgment
or decree of any court or other tribunal or other agency enjoining or
requiring Seller to take any action of any kind with respect to the Assets.
3.11 Contracts. Schedule 3.11 sets forth a true and correct list of
---------
each contract, agreement, purchase order, lease, license, indenture or
commitment, written or oral, relating to the use and operation of any of the
Assets and to which Seller is a party.
The contracts, agreements, purchase orders, leases, licenses,
indentures or commitments which are required to be identified in Schedule 3.11
are hereinafter referred to as the "Submitted Contracts." True and complete
copies of each of the Submitted Contracts, or where they are oral, true and
complete written summaries thereof, have been delivered by Seller to Purchaser
for its approval or disapproval. Upon the later of (i) ten (10) business days
after Purchaser's receipt of all of the Submitted Contracts, and (ii) seven (7)
business days after the date hereof, Purchaser shall designate which of the
Submitted Contracts it approves and which of the Submitted Contracts it
disapproves. Only those Submitted Contracts which are Designated Contracts
shall be subject to the Assignment and Assumption of Contracts. Except as set
forth on Schedule 3.11:
(a) Each of the Contracts is a valid and binding agreement of Seller
and, to the best knowledge of Seller, all other parties thereto;
(b) Seller has fulfilled all material obligations required pursuant to
each Contract to have been performed by it prior to the date hereof, and
Seller has no reason to believe that Seller will not be able to fulfill,
when due, all of its obligations under the Contracts which remain to be
performed after the date hereof;
(c) There has not occurred any material default under any of the
Contracts on the part of Seller, or to the best knowledge of Seller, on the
part of any other party thereto nor has any event occurred which with the
giving of notice or the lapse of time, or both, would constitute a material
default on the part of Seller under any of the Contracts nor, to the best
knowledge of Seller, has any event occurred which with the giving of notice
or the lapse of time, or both, would constitute a material default on the
part of any other party to any of the Contracts; and
17
<PAGE>
(d) No consent of any party to any of the Contracts is required by the
execution, delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby.
3.12 Inventory. The inventory of Seller is good and merchantable,
---------
first quality material and is saleable in the ordinary course of business
without discount from the prices generally charged for like material of first
quality, and the quantities of all inventory are reasonable and warranted in the
present circumstances of the business of Seller.
3.13 Compliance with Law. The conduct of business by Seller in
-------------------
respect of the Assets on the date hereof does not violate any federal, state,
local or foreign laws, statutes, ordinances, rules, regulations, decrees,
orders, permits or other similar items in force on the date hereof (including,
but not limited to, any of the foregoing relating to employment discrimination,
environmental protection or conservation), the enforcement of which would
materially and adversely affect the Assets, nor has Seller received any notice
of any such violation. Notwithstanding the foregoing, Seller has timely applied
for, but not as yet received, a renewal of its public assembly permit from the
City of New York (Department of Buildings and/or Consumer Affairs), which
renewal Seller represents will be obtained by Closing.
3.14 Other Information. To the best knowledge of Seller, the
-----------------
information concerning the Assets set forth in this Agreement, the Schedules
attached hereto and any document, statement or certificate furnished or to be
furnished to Purchaser pursuant hereto, does not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances in which they are made, not
false or misleading (other than the unaudited quarterly financial statement for
the three month period ending March 31, 1995, which Seller instead represents
subject to the proviso in Section 3.03, that Seller believes it to be accurate
and that it was prepared in good faith after reviewing its own and its
accountant's "work papers"). Copies of all documents heretofore or hereafter
delivered or made available to Purchaser pursuant hereto were or will be
complete and accurate copies of such documents.
3.15 Effect of Omissions in Any Schedule. The failure of Seller to
-----------------------------------
identify a particular exception or item on a particular schedule will not
constitute a breach of the representation or warranty to which such schedule
pertains, so long as (i) the exception or item is described in another schedule
in a manner that would cause a reasonable reader to understand
18
<PAGE>
that such exception or item must also be applicable to such one or more other
schedules on which it was not identified, even though not specifically
identified therein, or (ii) Purchaser suffers no damage as a consequence of the
failure to so identify such exception or item.
3.16 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants made in Article III hereof by Seller
shall survive the Closing for a period of 18 months.
ARTICLE IV
Seller's Covenants
------------------
4.01 Conduct of Business. Prior to the Closing Date, Seller shall
-------------------
conduct its business consistent with Seller's prior practices and will not do,
or permit to be done, anything which is represented and warranted not to have
occurred since the date hereof in Section 3.04 hereof, except as otherwise
permitted by this Agreement or consented to by Purchaser in writing. Except as
otherwise permitted by this Agreement or consented to by Purchaser in writing,
prior to the Closing Date, Seller shall not:
(a) sell, assign, mortgage, hypothecate, pledge, encumber or otherwise
transfer any of the Assets, or any interest therein;
(b) fail in any material respect to comply with any material laws,
ordinances, regulations or other governmental restrictions applicable to the
Assets, or any portion thereof;
(c) make any alterations or capital expenditures in respect of the
Assets in excess of $10,000.; provided, however, that if Seller makes an
expenditure for emergency repairs in excess of the foregoing amount without
first obtaining the written consent of Purchaser thereto, then Purchaser's
sole remedy for such violation under this Section 4.01(c) shall be not to
close under this Agreement;
(d) make or entertain any solicitations with respect to the sale of,
or cooperate with any potential bidders (other than Purchaser, or its
designee) with respect to the sale of, any of the Assets, or any interest
therein; or
(e) amend or terminate the Angelika Theatre Lease without the prior
written consent of Purchaser.
19
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4.02 Preservation of Organization. Seller shall use commercially
----------------------------
reasonable efforts to (i) preserve its business organization intact (including
the preservation of the Assets); (ii) continue the operations of Seller at its
present level; (iii) keep available to Seller the services of the present
employees of Seller; and (iv) preserve the goodwill of the suppliers, customers
and others having business relations with Seller with respect to the Assets.
Seller shall maintain in full force and effect the insurance policies disclosed
in Schedule 3.09 (or policies providing substantially the same coverage, copies
of which shall be made available to Purchaser for its inspection)
4.03 Reports, Taxes, etc. Between the date hereof and the Closing
--------------------
Date (and continuing after the Closing Date, if required to comply with any of
its obligations hereunder), Seller shall duly and timely file all reports or
returns required to be filed with federal, state, local and foreign authorities,
and promptly pay all federal, state, local and foreign taxes, assessments and
governmental charges levied or assessed upon Seller or any of the Assets --
including all "Transfer Taxes" referred to in Section 6.10 below (unless
contesting any such in good faith and adequate provision has been made
therefor), and duly observe and conform to all lawful requirements of any
governmental authority relating to any of the Assets and all covenants, terms
and conditions upon or under which any of the Assets are held.
4.04 Management Information and Access. Seller shall give to
---------------------------------
authorized representatives of Purchaser, upon reasonable notice, full access,
during normal business hours, in such manner as not to unduly disrupt normal
business activities, to the Assets, and all contracts, commitments, books and
records of Seller relating thereto and shall cause its officers to furnish any
and all financial, technical and operating data and other information pertaining
to the Assets as Purchaser shall from time to time reasonably request.
Purchaser shall hold in confidence all information so obtained and shall use
such information only for the purpose of considering the transactions
contemplated hereby. Purchaser further agrees that it shall not otherwise
disclose any such information to any third party except upon the written consent
of the furnishing party, or except as Purchaser may be advised by its counsel
that disclosure is required by law. If the transactions contemplated hereby are
not consummated as contemplated herein, Purchaser shall return all returnable
data furnished to it to the party that furnished such data. Such obligation of
confidentiality shall not extend to any information which is shown to be or to
have been generally known to others engaged in the same trade or business as the
furnishing party, or that is or shall be public knowledge through no act or
omission by Purchaser or any of its directors, officers, employees, professional
advisors or other representatives.
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4.05 Compliance with Bulk Sales Act. To the full extent applicable
------------------------------
to the sale of any of the Assets, Seller shall, in all respects, comply with all
of the relevant provisions of Article 6 of the Uniform Commercial Code --
dealing with Bulk Transfers as adopted in New York (the "Bulk Sales Act") and at
least ten (10) days prior to the Closing Date, the Seller shall provide to
Purchaser an Affidavit signed by its President listing all creditors of
Purchaser and any other information necessary for Seller's compliance with all
of the relevant provisions of the Bulk Sales Act.
4.06 Insurance; Utilities; Security Deposit on Lease. Purchaser
-----------------------------------------------
acknowledges that Seller shall cause its policies of casualty and liability
insurance, if any, to be terminated with respect to the Real Property as of the
Closing Date. Purchaser shall be responsible for obtaining its own insurance
and utilities as of the Closing Date and thereafter. On the Closing Date all
deposits for utilities made by Seller, and subject to the assignment by Seller
to Purchaser of all of Purchaser's rights in the security deposit under the
Angelika Theatre Lease, an amount equal to the security deposit so assigned,
shall be paid to Seller by Purchaser.
4.07 Amendment of the Existing "Angelika" License Agreement. Prior to
------------------------------------------------------
the Closing, Seller and its affiliate, Angelika Films, Inc. ("AFI") shall enter
into an amendment of that certain License Agreement dated December 19, 1995
between Seller, as LICENSOR, and AFI, as LICENSEE, so as to expressly (i)
include the Saleh Family Members, as LICENSEE, and (ii) exclude from the "Grant
of License" provided in Section 1.1 the right of the LICENSEE to use The Name
"ANGELIKA" or any of the MARKS referred to therein in connection with any
"motion picture theatre" or with any "motion picture theatre and food service
purposes".
ARTICLE V
Condition to Obligations of Each Party
--------------------------------------
5.01 The obligation of each party to sell or purchase the Assets, as
the case may be, shall be subject to the fulfillment, at or prior to the Closing
Date, of the condition that no claim, action, suit, investigation or other
proceeding shall be pending or threatened before any court or governmental
agency which, in the good faith, reasonable legal opinion of counsel for either
Seller or Purchaser, presents a substantial risk of the restraint or prohibition
of such transaction or the obtaining of material damages or other relief in
connection therewith.
5.02 Without limiting the foregoing, neither party shall have an
obligation to sell or purchase the Assets, as the case may be, if at or prior to
the Closing Date:
21
<PAGE>
(i) the marital court having jurisdiction over the marital
proceeding between Joseph J.M. Saleh and Angelika T. Saleh
(the "Marital Court") shall not have either (x) approved the
Sale of the Assets pursuant to the terms hereof, or (y)
rescinded any and all orders restraining or otherwise
prohibiting such sale (the "Marital Court Order"); provided
that in the event no Marital Court Order has been entered on
or before the Closing Date, (a) Purchaser shall have the
option of extending the Closing Date for so long as and until
such time as such Marital Court Order is entered; or (b) both
Seller and Purchaser mutually agree in writing that no
Marital Court Order is required for the consummation of the
transactions contemplated by this Agreement; or
(ii) any Court of competent jurisdiction, on application of
Anthony Jones, a judgment creditor of Joseph J.M. Saleh
(Supreme Court, N.Y. Co. Index No. 124966/95), enters an
order restraining or enjoining the closing of the
transactions contemplated hereunder; provided that in such
event (i) Purchaser shall have the option of extending the
Closing Date for so long as and until such time as the
restraining order or injunction precludes the closing; and,
pending such time, (ii) Purchaser may take such action as it
deems appropriate to vacate the restraining order or
injunction, including selling all of the shares of stock
which Joseph J.M. Saleh owns in the Seller and which
Purchaser presently holds pursuant to one or more previous
levies under its prior Judgment (as more particularly
described in Section 6.12 hereof) at a public auction
22
<PAGE>
conducted by the Sheriff pursuant to Section 5233 of the
Civil Practice Law and Rules.
5.03 Good Faith Efforts. Seller and Purchaser each hereby agrees and
------------------
covenants to use all commercially reasonable efforts to bring about the
transactions contemplated by this Agreement, including without limitation, the
obtaining of any third party approvals, agreements and/or consents necessary to
effectuate the transactions contemplated hereby.
ARTICLE VI
Conditions to Obligations of Purchaser
--------------------------------------
The obligations of Purchaser to effect the transactions contemplated
hereby shall be, at the option of Purchaser, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions:
6.01 Representations and Warranties True. The representations and
-----------------------------------
warranties of Seller contained in this Agreement, the Schedules hereto, or in
any other document of Seller delivered pursuant hereto, were true and correct in
all material respects on the date such representations and warranties were made,
and continue to be true and correct as of the Closing Date and at the Closing
Seller shall have delivered to Purchaser a certificate to such effect signed by
the Seller. For purposes of this Section 6.01 only, any representation and
warranty of Seller contained in this Agreement that was qualified to the best
knowledge of Seller shall not be so qualified in determining whether such
representation and warranty was true and correct in all material respects as of
the date made.
6.02 Seller's Performance. Each of the obligations of Seller to be
--------------------
performed by it on or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed on or before the Closing Date, and at
the Closing Seller shall have delivered to Purchaser a certificate to such
effect signed by the President or Chief Financial Officer of Seller, as the case
may be. For purposes of this Section 6.02 only, any obligation of Seller in
Article VI hereof for which Seller was only required to use its good faith
efforts to perform shall be deemed not to have been performed if such obligation
was not in fact performed, regardless of whether Seller used its good faith
efforts or not.
6.03 Opinion of Seller's Counsel. Purchaser shall have been
---------------------------
furnished at the Closing with an opinion of Seller's counsel dated as of the
Closing Date, addressed to and in form and substance satisfactory to Purchaser,
to the effect that:
23
<PAGE>
(a) Each of Seller and Houston is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and
each has full corporate power and authority to carry on the business which it
is now conducting and to own, lease, operate and convey the Assets;
(b) This Agreement and each of the documents executed by Seller pursuant to
this Agreement, including the Pledge Agreement, the Escrow Agreement and any
Seller's Promissory Note delivered hereunder have each been duly and validly
executed and delivered by the Seller, and each constitutes a legal, valid and
binding obligation of Seller enforceable in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors rights;
(c) the consummation of the transactions contemplated hereby, assuming that
a Naima Saleh consent to the transactions is obtained, will not:
(1) to the knowledge of such counsel, violate, or conflict with,
or result in a breach of any provisions of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the Assets under any of the
terms, conditions or provisions of the Certificate or Articles of
Incorporation of Seller or the Bylaws of Seller, or any Designated
Contract to which Seller is a party, or by which it or any of the Assets
may be bound or affected, except for such violations, conflicts,
breaches or defaults as to which requisite waivers or consents shall
have been obtained by Seller by the Closing Date;
(2) to the knowledge of such counsel, violate any order, writ,
injunction, decree, statute, rule or regulation which has applicability
to Seller or any of the Assets;
24
<PAGE>
In the event Naima Saleh fails to consent to the transactions contemplated in
the Agreement then, to the knowledge of such counsel, Naima Saleh will have
such rights, if any, in and to the Assets being transferred as may be
declared or provided in the Final Judgment entered in that certain pending
Supreme Court, New York County lawsuit entitled "Naima Saleh, Plaintiff, vs.
---------------------------
Angelika Films, Inc., Houston Cinema, Inc. and Angelika Film Centers, Inc.,
---------------------------------------------------------------------------
Defendants." (Index No. 109393/94) and to the knowledge of such counsel,
-----------
Naima Saleh has not asserted any other claims to the Assets;
(d) to the knowledge of such counsel, except for (i) the failure of
Seller to have previously obtained the consent of the Landlord to an
assignment of the lease on the Angelika Theatre from Houston to Seller and
thereafter, if Purchaser waives the delivery of Landlord's consent, the
assignment of the lease from Seller to Purchaser, (ii) the claims asserted in
the Gourmet Deli Litigation and (iii) the failure of Seller to file New York
City Commercial Rent and Occupancy Tax Returns and to pay the taxes, interest
and penalties in connection therewith, there is no default (or event which,
with notice or lapse of time or both, would constitute a default) under any
material note, bond, mortgage, indenture, deed of trust, license, agreement
or other instrument to which any of the Assets may be subject or under any
governmental license, franchise, permit or other governmental authorization,
which defaults and events would, in the aggregate, have a material adverse
effect with respect to the Assets, or a breach of any provision of the
Certificate or Articles of Incorporation or the Bylaws of Seller; and
(e) to the knowledge of such counsel, no consent or approval, which has
not been obtained, by any governmental authority is required in connection
with the consummation by Seller of the transactions contemplated by this
Agreement.
6.04 No Adverse Change. There shall not have occurred between the
-----------------
date hereof and the Closing Date any material adverse changes in the Assets.
6.05 Compliance with Law. There shall have been obtained any and all
-------------------
permits, approvals and consents of all governmental bodies or agencies which
counsel for Purchaser may
25
<PAGE>
reasonably deem necessary or appropriate so that consummation of the
transactions contemplated by this Agreement shall be in compliance with
applicable laws.
6.06 Consent of Landlord under Angelika Theatre Lease. The landlord
------------------------------------------------
with respect to the Angelika Theatre Lease (the "Landlord") shall have consented
to the assignment of the Angelika Theatre Lease initially from Houston to Seller
and then from Seller to Purchaser as contemplated by this Agreement. Seller
shall use all commercially reasonable efforts to obtain the consent of the
Landlord to the assignment of the Angelika Theatre Lease to Purchaser. In the
event that any consent required from the Landlord under this Section 6.06 is not
obtained prior to August 15, 1996 then Purchaser may notify Seller that it
waives such consent (in which event, Purchaser shall have no claim against
Seller by reason of the failure to obtain Landlord's consent) and if Purchaser
does not waive such consent by July 30, 1996, then either party may thereafter
terminate this Agreement, provided such party is not then in default under this
Agreement and upon such termination Purchaser shall have no claim against Seller
arising out of such inability to obtain Landlord's consent.
6.07 INTENTIONALLY OMITTED
---------------------
6.08 Purchaser Board Approval. The Board of Directors of Purchaser
------------------------
shall have approved the terms of this Agreement, including the Schedules to be
attached hereto, and the transactions contemplated hereby.
6.09 Delivery of Financial Statements. Purchaser shall have received
--------------------------------
(a) the financial statements required pursuant to Section 3.03 hereof and (b)
the written consent of the Seller's accountants reporting on such financial
statements, as well as (c) the written consent of the Seller's independent
certified public accountants who audited the previously delivered financial
statements as of December 31, 1993 and December 31, 1994 to the use of such
financial statements and reports in public filings made with the Securities and
Exchange Commission and/or other regulatory agencies or bodies. In the event
that any financial statement required to be delivered under this Section 6.09 is
not obtained prior to August 15, 1996, Purchaser may waive such condition or if
Purchaser fails to waive such condition by August 30, 1996, then either party
may terminate this Agreement, provided such party is not then in default under
this Agreement and upon such termination, Purchaser shall have no claim against
Seller arising out of such inability to deliver any such financial statements.
6.10 Transfer Taxes. All New York State and New York City transfer
--------------
taxes and transfer gains taxes applicable to the transactions contemplated
hereby shall have been paid, or a mechanism acceptable to Purchaser shall be in
place for the
26
<PAGE>
payment of such taxes through the Closing, and all materials and information
required to be filed with the New York State Department of Taxation and Finance,
or other governmental authority, by Seller and Purchaser shall have been timely
filed provided, however, that Purchaser shall use its reasonable
-------- -------
commercial efforts in assisting Seller in compiling any such material or
information and, shall not unreasonably delay the execution by Purchaser of such
forms or documents necessary for Seller to file all necessary tax forms and
related questionnaires.
6.11 Delivery of Closing Documents. Purchaser shall have received
-----------------------------
each of the following closing documents executed by Seller: (i) the Assignment
of Lease, (ii) the Bill of Sale, (iii) the Assignment of Contracts, (iv) the
Assignment of Trademarks and (v) a Non-Foreign Affidavit satisfying the
requirements of Section 1445 of the United States Internal Revenue Code of 1986,
as amended, substantially in the form attached hereto as Exhibit O and
incorporated herein by reference.
6.12 Satisfaction or Assignment of Judgment. Joseph J.M. Saleh and
--------------------------------------
Angelika Saleh shall have simultaneously satisfied that certain judgment entered
in the Supreme Court, New York County Clerk's Office on December 20, 1994 (Index
No. 32147/92) in favor of Citibank, N.A. currently held by Reading jointly and
severally against Joseph J.M. and Angelika Saleh (the "Judgment") for a total
satisfaction price equal to $1,285,000 plus interest at the rate of 9% per annum
from November 8, 1995 to the date of satisfaction (the "Judgment Satisfaction
Amount"). If, for any reason, Joseph J.M. and Angelika Saleh have not satisfied
the Judgment on or before the Closing Date as herein provided, then in lieu of
paying the full amount, as provided in Section 1.04(b), Reading may instead
assign the Judgment to Seller, without any representation, warranty or recourse
and the value of the Judgment, for purposes of such assignment, shall equal the
Judgment Satisfaction Amount. Until the Closing or earlier termination of this
Agreement, Reading agrees to take no actions or pursue any collection or
enforcement remedies with respect to the Judgment or any property previously
levied upon or obtained from others in connection with the Judgment and Reading
shall promptly vacate all existing restraining notices affecting any property or
assets of Angelika T. Saleh.
6.13 Certain Shareholders Deliveries. Purchaser shall have received
-------------------------------
(i) from each of Angelika Saleh, Eva Saleh, Jessica Hurt and Joseph J.M. Saleh
and each of their affiliates a quit claim assignment of their entire rights,
title and interest, if any, in the name "Angelika" for motion picture exhibition
and cafe purposes, except as set forth in the Trademark Licenses, and (ii)
either evidence, reasonably acceptable to Purchaser, that final Marital Court
approval has been obtained or evidence, reasonably
27
<PAGE>
acceptable to Purchaser, that no Marital Court approval or action is required
for the consummation of the transactions contemplated by this Agreement.
6.14 Seller's Authority. All actions required to be taken by, or on
------------------
the part of, Seller to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Seller's Board of Directors and
Stockholders. Seller shall deliver at Closing a Certificate by an officer of
Seller certifying that corporate resolutions were duly adopted by the Board of
Directors and Stockholders of Seller authorizing Seller to execute, deliver and
perform the Agreement, as well as all related documents to be signed by
Purchaser hereunder and to consummate the transactions contemplated by the
Agreement. Such certificate shall also provide that the resolutions are in full
force and effect without modification or rescission on and as of the Closing
Date.
6.15 Occurrence of Closing. Purchaser may at its sole option
---------------------
terminate this Agreement if the Closing shall not have occurred on or prior to
September 1, 1996 provided, however, that neither Purchaser nor Seller shall be
-------- -------
relieved of any obligation to the other which arises prior to such termination
and further provided, that if the Closing shall not have occurred on or prior to
------- --------
September 1, 1996 due to the failure of Purchaser to fulfill the conditions
contained in Article VII (other than the approval of Purchaser's Board),
Purchaser may not terminate this Agreement without the consent of Seller.
ARTICLE VII
Conditions to Obligations of Seller
-----------------------------------
The obligations of Seller to effect the transactions contemplated
hereby shall be, at the option of Seller, subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions:
7.01 Representations and Warranties True. The representations and
-----------------------------------
warranties of Purchaser contained in this Agreement or in any document delivered
by Purchaser pursuant hereto were true and correct in all material respects on
the date such representations and warranties were made, and at the Closing
Purchaser shall have delivered to Seller a certificate to such effect.
7.02 Opinion of Purchaser's Counsel. Seller shall have been
------------------------------
furnished at the Closing with an opinion of Purchaser's counsel dated as of the
Closing Date, addressed to and in form and substance satisfactory to Seller, to
the effect that:
28
<PAGE>
(a) Reading is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full corporate
power and authority to acquire the Assets;
(b) This Agreement and each of the documents executed by Purchaser pursuant
to the Agreement, including the Payment Note, the Pledge Agreement, the
Holdback Note, the Escrow Agreement, the Assignment and Assumption of Lease,
as well as the Assignment and Assumption of Contracts, have been duly and
validly executed and delivered by Reading, and constitute legal, valid and
binding obligations of Reading enforceable in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights;
(c) the consummation of the transactions contemplated hereby shall not:
(1) to the knowledge of such counsel, violate, or conflict with, or
result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under any of the terms, conditions or provisions of the
Certificate or Articles of Incorporation of Reading or the Bylaws of
Reading, or any agreement to which Reading is a party, or by which it may
be bound or affected.
(2) to the knowledge of such counsel, violate any order, writ,
injunction, decree, statute, rule or regulation (including, without
limitation, Regulations U and X of the Board of Governors of the Federal
Reserve System) which has applicability to Reading;
(d) to the knowledge of such counsel, no consent or approval, which has not
been obtained, by any governmental authority is required and no consent of
any other party (including shareholders of Purchaser) is required in
connection with the consummation by Purchaser of the transactions
contemplated by this Agreement.
29
<PAGE>
7.03 Performance of Covenants. Each of the obligations of Purchaser
------------------------
to be performed by it on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed on or before the Closing Date, and
at the Closing Purchaser shall have delivered to Seller a certificate to such
effect.
7.04 Purchaser's Authority. All actions required to be taken by, or
---------------------
on the part of, Purchaser to authorize the execution, delivery and performance
of this Agreement, and the consummation of the transactions contemplated hereby
shall have been duly and validly taken by the Purchaser's Board of Directors.
Purchaser shall deliver at Closing a Certificate by an officer of Purchaser
certifying that corporate resolutions were duly adopted by the Board of
Directors of Purchaser authorizing Purchaser to execute, deliver and perform the
Agreement, as well as all related documents to be signed by Purchaser hereunder
and to consummate the transactions contemplated by the Agreement. Such
certification shall also provide that the resolutions are in full force and
effect without modification or rescission on and as of the Closing Date.
7.05 Trademark Licenses. Seller shall have received, on behalf of
------------------
the named Licensees, the Trademark Licenses duly executed by Purchaser in the
form of Exhibits E and F.
7.06 Occurrence of Closing. Seller may at its sole option terminate
---------------------
this Agreement if the Closing shall not have occurred on or prior to September
1, 1996 provided, however, that neither Purchaser nor Seller shall be relieved
-------- -------
of any obligation to the other which arises prior to such termination and
further provided, that if the Closing shall not have occurred on or prior to
- ------- --------
September 1, 1996 due to the failure of Seller to fulfill the conditions
contained in Article VI (other than Sections 6.06, 6.08 or 6.09), Seller may not
terminate this Agreement without the consent of Purchaser.
7.07 Termination of the Agreement between Reading and Joseph J.M.
------------------------------------------------------------
Saleh. At or prior to the Closing and at the written request of Joseph J.M.
- -----
Saleh, Reading shall cause its affiliate Reading Cinemas, Inc. to enter into a
Termination Agreement with Joseph J.M. Saleh (the "Termination Agreement")
pursuant to which the parties to the Termination Agreement shall, effective upon
the Closing of the transactions provided for herein, terminate all of their
respective rights, duties or obligations of any kind, nature of description
under that certain prior Agreement dated October 13, 1995 as amended and
extended, between the parties to the Termination Agreement and that certain
Letter Agreement dated October 13, 1995 between the same parties executed in
connection therewith.
30
<PAGE>
ARTICLE VIII
Indemnification by Seller
-------------------------
8.01 General. From and after the Closing Date, Seller shall
-------
indemnify and hold harmless Purchaser in respect of any and all claims, losses,
damages and liabilities arising within 18 months after the Closing Date and
regardless of when they are paid or incurred, together with all expenses paid or
incurred by Purchaser (including, without limitation, settlement costs and any
legal or other expenses for investigating or defending any actions or threatened
actions -- collectively, "Defense Costs"), together with interest thereon at the
Contract Rate, compounded annually, from the date incurred until reimbursed,
reasonably incurred by Purchaser in connection with or as a result of each and
all of the following (a "Breach of Warranty"):
(a) any misrepresentation or breach of any warranty made by Seller in
Article III hereof. For purposes of this Section 8.01(a) only (and not for
purposes of Section 8.07(b), any representation and warranty of Seller
contained in Article III hereof that was qualified to the best knowledge of
Seller shall not be so qualified in determining whether such representation
and warranty was true and correct as of the date made;
(b) the breach of any covenant, agreement or obligation of Seller
contained in this Agreement or any other instrument contemplated by this
Agreement. For purposes of this Section 8.01(b) only (and not for purposes of
Section 8.07(b)), any covenant, agreement or obligation of Seller contained
in this Agreement or any other instrument contemplated by this Agreement for
which Seller was only required to use its good faith and/or commercially
reasonable efforts to perform shall be deemed to have been breached if such
covenant, agreement or obligation was not in fact performed, regardless of
whether Seller used its good faith and/or commercially reasonable efforts or
not provided, however, that in the event Purchaser elects to close
-------- -------
notwithstanding any failure by the Seller to obtain Landlord's consent to the
assignment of the lease, then Seller shall have no obligation to Purchaser
with respect to such assignments so long as Seller has used its good faith
and/or commercially reasonable efforts to acquire such Landlord's consent and
continues to cooperate with Purchaser in its efforts to obtain such consent;
and
31
<PAGE>
(c) any misrepresentation contained in any statement or certificate
furnished by Seller pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement. For purposes of this Section
8.01(c) only (and not for purposes of Section 8.07(b)), any representation
contained in any statement or certificate furnished by Seller pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement that was qualified to the best knowledge of Seller shall not be so
qualified in determining whether such representation was true and correct as
of the date made.
8.02 Special Claims. From and after the Closing Date, without any
--------------
limitation of time other than the applicable statute of limitations governing
the right to assert any such claims, Seller shall indemnify and hold Purchaser
harmless from and against any and all claims, losses, damages or liabilities,
including Defense Costs arising out of:
(a) Any governmental assertion that Purchaser is liable for any unpaid
taxes owed by Seller; or
(b) any person's assertion that (i) Purchaser is liable for any
fraudulent transfer by Seller or (ii) Purchaser does not have good title to
the Assets purchased, or (iii) Purchaser is otherwise responsible for any
unpaid debts of Seller under New York's Bulk Sales Act or Debtor and Creditor
Laws.
8.03 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification under this Article VIII, Purchaser shall promptly notify Seller
(with copy to Pledgeholder or Escrow Agent, as the case may be) of the claim
and, when known, the facts constituting the basis for such claim. In the event
of any claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by a third party, such notice shall specify, if
known, the amount or an estimate of the amount of the liability arising
therefrom. In no event shall the failure to give prompt notice of any such
claim to Seller relieve Seller from liability hereunder except to the extent,
and only to the extent, that actual prejudice from such delay is shown provided,
--------
however, that any notice of claims for indemnification or to be held harmless
- -------
under this Agreement arising within 18 months after the Closing Date must be
made (i) during the period from the Closing Date to a date 18 months from the
Closing Date or (ii) 15 days
32
<PAGE>
after Purchaser learns of the claim for indemnification, but in no event
subsequent to 20 months from the Closing Date, whichever is later.
8.04 Manner of Indemnification. Subject to the further provisions of
-------------------------
this Agreement, all indemnification by Seller under this Article VIII may be
effected, at the option of Purchaser, by claim against the Escrow Account first,
pursuant to the Escrow Agreement, or by delivery of cash by Seller.
8.05 Seller's Right to Dispute Any Purchaser Claim For
-------------------------------------------------
Indemnification. Within fifteen (15) days after Seller receives any
- ---------------
notification from Purchaser of any claim for indemnification under or pursuant
to Section 8.03, Seller may send notification to Purchaser (with copy to
Pledgeholder or Escrow Agent as the case may be) indicating that Purchaser
disagrees with and objects to Seller's claim for indemnification and further
stating all of the reasons or bases for such disagreement and objection
("Seller's Notice of Indemnity Dispute"). Pending the resolution of such
dispute either (i) by a final determination of a Court of competent jurisdiction
(a "Final Judgment") or (ii) Purchaser and Seller settling such dispute by a
written agreement signed by both Purchaser and Seller (a "Settlement
Agreement"), the Pledge Holder or the Escrow Agent, as the case may be, shall
take no action with respect to the disputed claim until it receives a copy of
the Final Judgment or Settlement Agreement directing how it should act and any
sums otherwise due and payable under either the Holdback Note or the Payment
Note to the extent of the disputed claim shall not become due and payable until
the entry of the Final Judgment of the signing of the Settlement Agreement, at
which time the proper amount due and payable under the Holdback Note or the
Payment Note, together with interest on such amount, shall be automatically
amended so as to comply with the determinations made in the Final Judgment or
the directions provided in the Settlement Agreement.
8.06 INTENTIONALLY OMITTED
---------------------
8.07 Limitation on Liability.
-----------------------
(a) The aggregate liability of Seller under this Article VIII shall be
limited to the Purchase Price paid to Seller hereunder. For purposes of this
Section 8.07, liabilities of Seller which have been satisfied out of the Escrow
Account shall not be included in determining the aggregate liability of Seller
under this Article VIII. Likewise, for purposes of this Section 8.07, the
portion of the Purchase Price attributable to the funds in the Escrow Account
shall not be deemed to have been paid to Seller until such time as, and to the
extent that, Seller actually receives monies from the release of any remaining
funds from the Escrow Account.
33
<PAGE>
(b) The limitations of this Section 8.07 do not apply to the
following:
(i) liability for any willful or fraudulent misconduct on the
part of Seller; and
(ii) liability for any conduct on the part of Seller after the
Closing.
ARTICLE IX
Miscellaneous
-------------
9.01 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by telecopy transmission or mailed by certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
If to Purchaser: Reading Investment Company, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Fax No. (302) 478-3667
Attention: President
---------
With copies to: Reading Investment Company, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
Fax No. (215) 569-2862
Attention: Mr. James A. Wunderle
---------
Donald S. Snider, Esq.
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022-7513
Fax No. (212) 702-5941
If to Seller: Angelika Film Centers, Inc.
Houston Cinema, Inc.
c/o Skolnick & Hochberg, P.C.
122 East 42nd Street
New York, New York 10017
Fax No. (212) 986-0931
Attention: Ralph R. Hochberg, Esq.
---------
34
<PAGE>
With copies to: Angelika T. Saleh
1261 Madison Avenue, Apartment 5S
New York, New York 10128
Fax No. (212) 876-4365
Jessica Saleh Hunt
330 West End Avenue, Apartment 8A
New York, New York 10023
Fax No. (212) 986-0931
Eva Saleh
35 West 90th Street
New York, New York 10021
Fax No. (212) 986-0931
Joseph J.M. Saleh
240 Central Park South, Apartment 15D
New York, New York 10019
Fax No. (212) 265-6542
David B. Bernfeld, Esq.
Hoffinger Friedland Dobrish Bernfeld &
Stern, P.C.
110 East 59th Street
New York, New York 10022
Fax No. (212) 223-3857
Michael S. Mullman, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Fax No. (212) 885-5001
9.02 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the parties hereto and their respective
successors.
9.03 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws, and not the laws
pertaining to choice or conflicts of laws, of the State of New York.
9.04 Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute but one and the same instrument.
9.05 Further Assurances. Each of Seller and Purchaser shall use
------------------
their respective commercially reasonable efforts to bring about the transactions
contemplated by this Agreement and agree to take such further actions as are
necessary to effectuate the intent of the parties hereto. Seller hereby agrees
to fully
35
<PAGE>
cooperate with Purchaser with respect to the obtaining and preparation of
certified financial statements that Purchaser, or its affiliates, may need in
connection with public reports to be filed by such entities.
9.06 Complete Agreement. This Agreement, the exhibits hereto and the
------------------
Schedules hereto delivered pursuant to this Agreement contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and, except as provided herein, supersede all previous oral
and written and all contemporaneous oral negotiations, commitments, writings and
understandings. Neither Seller nor Purchaser is relying on any inducement
whatsoever other than that represented by this Agreement in executing and
delivering this Agreement.
9.07 Modifications, Amendments and Waivers. At any time prior to the
-------------------------------------
Closing Date or termination of this Agreement, Purchaser, on the one hand, and
Seller (through unanimous action taken by all of the shareholders of Seller), on
the other hand, may, by written agreement:
(a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto;
(b) waive any inaccuracies in the representations and warranties made
by the other parties contained in this Agreement or in the Schedule hereto or
any other document delivered pursuant to this Agreement; and
(c) waive compliance with any of the covenants or agreements of the
other parties contained in this Agreement.
9.08 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.09 Severability. Any provision of this Agreement which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
9.10 Investigation of the Parties. All representations and
----------------------------
warranties contained herein which are made to the best knowledge of a party
shall require that such party make reasonable investigation and inquiry with
respect thereto to ascertain the correctness and validity thereof.
36
<PAGE>
9.11 Payment of Expenses. Purchaser, on the one hand, and Seller, on
-------------------
the other hand, shall pay all fees and expenses (including, without limitation,
legal and accounting fees and expenses) incurred by them in connection with the
transactions contemplated hereunder. Seller shall be responsible for the
payment of all taxes, including transfer taxes arising out of the conveyance of
the Assets as contemplated hereby, except Purchaser shall pay all sales taxes.
9.12 Termination for Failure of Certain Conditions. Notwithstanding
---------------------------------------------
anything herein to the contrary, no party shall have the right or privilege to
terminate this Agreement if and during any period of time when such party is in
breach of this Agreement. In the event either party properly terminates this
Agreement by reason of Sections 6.06, 6.08 or 6.09, then except as provided in
Section 9.13 below, neither party shall have any further obligation or liability
hereunder of any kind to the other party.
9.13 Rights Upon Termination. In the event this Agreement is
-----------------------
terminated (i) by Purchaser by reason of Seller's default or (ii) by Seller for
any reason other than Purchaser default or failure of Purchaser to satisfy any
condition on its party to be satisfied, then, in either event, Seller hereby
grants to Purchaser until January 1, 1997 or six months after Seller's
termination, whichever is later, a right of first refusal with respect to the
acquisition of the Angelika Theatre. Such right of first refusal shall give
Purchaser or its designee the right to acquire the Angelika Theatre on the same
terms and conditions (except as set forth below) set forth in any bona fide
offer which Seller is willing to accept (the "Third Party Offer"). Seller shall
not accept any Third Party Offer except making such acceptance expressly subject
to Purchaser's right of first refusal and Seller shall immediately send
Purchaser a copy of any Third Party Offer. If Purchaser wishes to exercise its
right of first refusal, then Purchaser must within ten (10) business days of
receipt of the Third Party Offer notify Seller of its decision to match the
Third Party Offer; provided, however, in such event Purchaser shall pay a
-------- -------
purchase price five percent (5%) higher than stated in the Third Party Offer;
provided, further, that any Seller financing specified in such Third Party Offer
will be by the issuances of similar notes of Purchaser, or its designee
(guaranteed by Purchaser), having similar terms and that any other non-cash
consideration in such offer shall be reduced to its fair market value in dollars
for purposes of such right of first refusal and, at Seller's option, Purchaser
shall pay such fair market value either in cash or by the further issuance of
additional promissory notes in the amount of the fair market value of such non-
cash consideration. If the Purchaser fails to notify Seller of its election to
exercise its right of first refusal within ten (10) business days of receipt of
the Third Party Offer, then Purchaser shall have waived such right.
37
<PAGE>
9.14 Upon Whom Binding. This Agreement shall be binding upon and
-----------------
inure to the benefit of the parties and their respective successors, assigns and
legal representatives.
9.15 Counterparts. This Agreement may be signed in counterparts and
------------
shall be binding and enforceable when signed by all parties.
9.16 All Parties Represented by Independent Counsel. The parties
----------------------------------------------
acknowledge that this Agreement is the product of negotiations by the parties
represented by independent counsel of their choice. The parties represent that
they consulted with counsel prior to the execution of this Agreement.
9.17 Interpretation of This Agreement. This Agreement shall be
--------------------------------
deemed (a) to have been fully negotiated by independent counsel for each party
of their own selection and (b) to have been drafted by counsel for each of the
parties so that in the event of any ambiguity no negative inference of any kind
shall be drawn against any drafter for either party. The captions have been
added solely for convenience and shall not be used or referred to in
interpreting this Agreement.
9.18 Attorneys Fees. Each party shall be responsible for and pay
--------------
their own attorneys in connection with the negotiations and drafting of this
Agreement. Notwithstanding the foregoing, the prevailing party shall be
entitled to recover any and all attorneys' fees and other costs paid or incurred
in connection with any action or proceeding to interpret or declare the rights,
duties or obligations of the parties or to enforce this Agreement.
38
<PAGE>
ARTICLE X
Assignment by Purchaser
-----------------------
10.01 Assignment by Purchaser. Purchaser may assign its rights under
-----------------------
this Agreement to an entity jointly owned by Purchaser, or its affiliates, and
City Cinemas, or its affiliates, provided such assignee expressly assumes in
writing Purchaser's obligations under this Agreement and such assignment shall
not relieve Purchaser of its obligations under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the date first above written.
Purchaser:
READING INVESTMENT COMPANY, INC., a
Delaware corporation
Witnessed: /s/ Donald S. Snider By: /s/ James A. Wunderle
--------------------------
Title: V.P.
----------------------
Seller:
ANGELIKA FILM CENTERS, INC., a New York
corporation
Witnessed: /s/ David B. Bernfeld By: /s/ Joseph J.M. Saleh
-------------------------------
Joseph J.M. Saleh, its authorized
agent
By: /s/ Angelika T. Saleh
-------------------------------
Angelika T. Saleh, its authorized
agent
39
<PAGE>
Witness: /s/Ralph R. Hochberg By: /s/ Jessica Saleh Hunt
-------------------------------
Jessica Saleh Hunt, its authorized
agent
Witness: /s/Ralph R. Hochberg By: /s/ Eva Saleh
-------------------------------
Eva Saleh, its authorized agent
HOUSTON CINEMA, INC., a
New York corporation
By: /s/ Joseph J.M. Saleh
--------------------------------
Joseph J.M. Saleh, its
authorized agent
Witness: /s/David B. Bernfeld By: /s/ Angelika T. Saleh
--------------------------------
Angelika T. Saleh, its
authorized agent
Witness: /s/Ralph R. Hochberg By: /s/ Jessica Saleh Hunt
--------------------------------
Jessica Saleh Hunt, its
authorized agent
Witness: /s/Ralph R. Hochberg By: /s/ Eva Saleh
---------------------------------
Eva Saleh, its authorized agent
Solely in their capacity as shareholders of the
Seller and for the sole purpose of consenting
that the Seller may enter into this Agreement
and effectuate the transactions contemplated
thereby.
<PAGE>
Saleh Family Members:
/s/ Joseph J.M. Saleh
--------------------------------
Joseph J.M. Saleh
Address:________________________
________________________
________________________
Witness: /s/ David B. Bernfeld /s/ Angelika T. Saleh
--------------------------------
Angelika T. Saleh
Address:________________________
________________________
________________________
Witness: /s/ Ralph R. Hochberg /s/ Jessica Saleh Hunt
--------------------------------
Jessica Saleh Hunt
Address:________________________
________________________
________________________
Witness: /s/ Ralph R. Hochberg /s/ Eva Saleh
--------------------------------
Eva Saleh
Address:________________________
________________________
________________________
<PAGE>
Schedule 1
CLOSING ADJUSTMENTS
-------------------
Additions to Purchase Price
- -------------------------------------
Estimated Till Cash $____________
Estimated Inventory $____________
Prorated Rent $____________
Total $____________
Deductions to Purchase Price
- -------------------------------------
Estimated CAM Adjustment $____________
Estimated Accrued Union Liabilities $____________
Accrued Vacation Pay and Benefits $____________
for Continuing Employees
Total $____________
Net Purchase Price Adjustment $____________
42
<PAGE>
EXHIBIT 2(b)
AMENDMENT TO
------------
ANGELIKA THEATRE
----------------
ASSET PURCHASE AND SALE AGREEMENT
---------------------------------
This Amendment (the "Amendment Agreement") to the Angelika Theatre
Asset Purchase and Sale Agreement dated as of July 1, 1996 (the "Sale
Agreement") is made and entered into as of this 27th day of August, 1996 by and
among READING INVESTMENT COMPANY, INC., a Delaware corporation ("Reading"),
ANGELIKA FILM CENTERS, INC., a New York corporation ("Seller"), and HOUSTON
CINEMA, INC., a New York corporation ("Houston").
RECITALS
--------
A. The Sale Agreement was previously modified by Letter Agreements
dated July 9, 1996 and July 24, 1996 between the attorneys for Reading and
Seller with the prior approval and authority of their respective Clients.
B. The parties are simultaneously herewith Closing the Sale
Agreement and in connection therewith, wish to further amend the Sale Agreement
so as to defer the "Closing Audit" of Seller by the "Closing Auditors" as
required under Section 1.03 (as defined therein) until a date which is sixty
(60) days after the Closing Date in order for the parties to continue their good
faith discussions and negotiations and allow sufficient time for the parties to
agree upon not only Seller's "actual Pre-Closing Earnings" (as defined therein),
but also allow the parties to seek agreement upon any further necessary and
appropriate adjustments to the final Purchase Price.
AMENDMENT AGREEMENT
-------------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
representations, warranties and covenants herein set forth, the parties hereto
agree as follows:
1. The first clause of the second sentence of Section 1.03 of the
Sale Agreement, which provides "On or immediately after the Closing Date,",
shall be deleted and the following shall be substituted in lieu thereof: "On or
immediately following the first business day which is sixty (60) days after the
Closing Date,".
2. The Seller has recently received an audit notice from the
Department of Labor (the "Department of Labor Audit"), which Department of Labor
Audit will review and determine whether Seller has underpaid any of its
employees during the period beginning with the last quarter of 1994 to date.
The parties
<PAGE>
recognize and acknowledge that the initial "Purchase Price" stated in the Sale
Agreement for the Angelika Theatre "Assets" being sold and transferred under the
Sale Agreement was, in large part, predicated upon a formula (the "Formula"),
which Formula represented an initial Purchase Price (subject to certain agreed
upon adjustments) based upon six times (6 x) the "net income" of the Angelika
Theatre for the twelve (12) month period ended December 31, 1995. In the event
and to the extent the Department of Labor Audit finally determines that the
Seller materially underpaid its employees during calendar year 1995 and thus the
Seller not only concomitantly materially understated its labor costs, but also
to the same extent overstated its earnings under the Formula referred to above,
then the parties wish to provide and equitable post-closing adjustment to the
Purchase Price based upon the results of the Department of Labor Audit as
finally determined for calendar year 1995.
a. If the Department of Labor Audit for calendar year 1995
finally determines by order or settlement that the Seller's employees were
either not underpaid or if underpaid then by a sum not greater than $35,000
(exclusive of interest, penalties or fines), then and in such event, there shall
be no further adjustment to the Purchase Price.
b. If the Department of Labor Audit for calendar year 1995
finally determines by order or settlement that the Seller's employees were
underpaid by a sum greater than $35,000, then and in such event, for each one
dollar ($1.00) in excess of $35,000 (exclusive of interest, penalties or fines),
the Purchase Price shall be adjusted and reduced six times (6 x) the amount of
underpayment in excess of $35,000, which adjustment and reduction in Purchase
Price shall in no event exceed the total adjustment or reduction of $150,000.
c. Seller hereby instructs either its accountant, Andrew Siegel
of Miller & Co., P.C., or its attorney, Ralph R. Hochberg, Esq. of Skolnick &
Hochberg, P.C., to advise Purchaser's attorney, Donald S. Snider, Esq. of Baer
Marks & Upham, LLP, of any settlement or final determination of the Department
of Labor Audit.
d. If by reason of the Department of Labor Audit referred to
above, Purchaser is entitled to an equitable adjustment and reduction of the
Purchase Price, as provided herein, Purchaser shall have the automatic right to
offset the amount by which the Purchase Price has been reduced from any sum
which may become due and owing under the Holdback Note and in addition thereto,
instruct the Escrow Agent to pay the Purchaser such amount from the Escrow
Account securing the Holdback Note.
2
<PAGE>
3. Except as expressly provided herein, the Sale Agreement, as
previously amended, is hereby ratified and in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the date first above written.
Purchaser:
READING INVESTMENT COMPANY, INC., a
Delaware corporation
By: /s/ Charles S. Groshon
-------------------------------
Charles S. Groshon
Title: Vice President
----------------------------
Seller:
ANGELIKA FILM CENTERS, INC., a New York
corporation
By:
-------------------------------
Joseph J.M. Saleh, its authorized
agent
By: /s/ Angelika T. Saleh
-------------------------------
Angelika T. Saleh, its authorized
agent
By: /s/ Jessica Saleh Hunt
-------------------------------
Jessica Saleh Hunt, its authorized
agent
3
<PAGE>
By: /s/ Eva Saleh
-------------------------------
Eva Saleh, its authorized agent
HOUSTON CINEMA, INC., a
New York corporation
By: /s/ Joseph JM Saleh
-------------------------------
Joseph J.M. Saleh, its
authorized agent
By: /s/ Angelika T. Saleh
-------------------------------
Angelika T. Saleh, its
authorized agent
By: /s/ Jessica Saleh Hunt
-------------------------------
Jessica Saleh Hunt, its
authorized agent
By: /s/ Eva Saleh
-------------------------------
Eva Saleh, its authorized agent
Solely in their capacity as shareholders of the
Seller and for the sole purpose of consenting that
the Seller may enter into this Agreement and
effectuate the transactions contemplated thereby.
4
<PAGE>
Saleh Family Members:
/s/ Joseph JM Saleh
-----------------------------
Joseph J.M. Saleh
Address: 240 Central Park So
----------------------
New York, NY
----------------------
10019
----------------------
/s/ Angelika T. Saleh
-----------------------------
Angelika T. Saleh
Address: 1261 Madison Ave.
----------------------
NYC
----------------------
10023
----------------------
/s/ Jessica Saleh Hunt
-----------------------------
Jessica Saleh Hunt
Address: 330 West End Ave. St.
----------------------
NY NY
----------------------
10023
----------------------
/s/ Eva Saleh
-----------------------------
Eva Saleh
Address: 35 W. 90 St.
----------------------
NYC 10024
----------------------
5
<PAGE>
Exhibit 2(c)
NON-NEGOTIABLE SECURED PROMISSORY NOTE
$2,000,000.00 New York, N.Y.
August 27, 1996
FOR VALUE RECEIVED, the undersigned, ANGELIKA FILM CENTERS LLC, a limited
liability company organized and existing under the laws of the State of
Delaware, United States of America, having an office located at c/o Reading
Theaters, 950 Third Avenue, New York, New York 10022-1207 ("Maker"), hereby
promises to pay to ANGELIKA FILM CENTERS, INC., having an office at c/o Skolnick
& Hochberg, P.C., 122 east 42 Street, New York, N.Y. 10168 ("Payee"), or at such
other place in New York as may be designated from time to time by the Payee, the
sum of TWO MILLION DOLLARS ($2,000,000) and to pay interest on the unpaid
principal from the date hereof at a rate equal to the thirteen (13) week
Treasury Bill rate, as it changes and is published in the "Wall Street Journal"
from time to time (hereinafter the "Reference Rate"), provided, however,
-----------------
interest shall be paid on any outstanding principal amount due hereunder in
excess of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) at the greater
of the Reference Rate or at the rate of nine percent (9%) per annum.
The Maker hereof promises to pay the principal and interest due hereunder
as follows: (a) accrued interest as calculated in accordance with the
provisions of this Note to be paid commencing three (3) months form the date
hereof, and quarterly thereafter during the term hereof, (b) on April 1, 1997, a
principal payment of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) and
(c) on February 27, 1998 (18 months after the date hereof) the remaining unpaid
balance of principal, together with accrued interest. All amounts paid pursuant
to this paragraph shall be applied first to the payment of accrued interest to
the date of payment and then to the reduction of principal.
This Note is subject to and entitled to the benefits of that certain
Angelika Theatre Asset Purchase and Sale Agreement entered into as of the 1st
day of July between Reading Investment Company, Inc. ("Reading"), the assignor
of the Maker and Angelika Film Centers, Inc. (herein "Sale Agreement"), the
provisions of which are hereby incorporated in this Note, with the same force
and effect as though said terms, covenants and conditions were fully set forth
herein.
Payment of principal and interest due hereunder is secured by a pledge by
the Maker of "Collateral" described in the Sale Agreement and in that certain
Pledge Agreement and Escrow Agreement of even date herewith. This Note shall be
non-recourse to the Maker unless the Collateral described in the Sale Agreement,
Escrow Agreement and Pledge Agreement is unavailable to the Holder of this Note
by reason of attachment or other actions of creditors of Reading or the Maker,
including the voluntary or involuntary bankruptcy of Reading or the Maker.
<PAGE>
Upon failure of the Maker hereof to pay any part of the principal or
interest on this Note when due and payable, the entire outstanding principal
balance and interest due on this Note shall, upon the written demand of the
holder hereof, become immediately due and payable without presentment or protest
or other notice or demand, all of which are expressly waived by the undersigned.
The undersigned waives demand, protest, and notice of maturity, non-payment
or protest and all requirements necessary to hold the undersigned liable as
maker.
In the event of any Federal, State or local authority having appropriate
jurisdiction, shall after the date hereof, duly enact or promulgate any statue
or regulation, which, if enforced, would tender the rate of interest payable
hereunder illegal or unenforceable, then, in such event, the undersigned agrees
that the rate of interest to be paid hereunder shall be appropriately reduced to
the highest rate of interest permitted by law at the time any payment of
interest shall be due.
This Note may not be changed or terminated orally, by only by an agreement
in writing and signed by the person against whom enforcement of any waiver,
change, modification or discharge is sought. No waiver of any breach or default
hereunder shall be deemed a waiver of any subsequent breach or default of the
same or similar nature.
The undersigned agrees to pay each and every cost of collection, including
reasonable attorneys' fees and attorney's expenses and other costs paid or
incurred in connection with any action or proceeding to enforce this Note,
including any appeal(s) and any judgment or order obtained in connection
therewith.
This Note shall be binding upon and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns.
This Note has been made in and shall be construed and enforced according to
the laws of the State of New York.
ANGELIKA FILM CENTERS LLC
By: /s/ Charles S. Groshon
---------------------------------
Charles S. Groshon
Vice President and Secretary
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 27th day of August 1996, before me personally came Charles S.
Groshon to me known, who, by me duly sworn, did depose and say that he resides
at Glenside, Pennsylvania, that deponent is the Vice-President and Secretary of
Angelika Film Centers LLC, the limited liability company described in, and which
executed the foregoing instrument and that deponent signed deponent's name
thereto.
/s/ Teresita Magsino
------------------------------
Notary Public
TERESITA MAGSINO
Notary Public, State of New York
No. 41-4986829
Qualified in Queens County
Commission Expires Sept. 30, 1997
<PAGE>
Exhibit 2(d)
PLEDGE AGREEMENT
AGREEMENT made the 27th day of August 1996, by and among ANGELIKA FILM
CENTERS, INC., a corporation organized and existing under the laws of the State
of New York, having its principal offices at c/o Skolnick & Hochberg, P.C., 122
East 42 Street Suite 1507, New York, N.Y. 10168 (hereinafter "Secured Party")
and ANGELIKA FILM CENTERS LLC, a limited liability company organized and
existing under the laws of the State of Delaware having an office c/o Reading
Theaters, 950 Third Avenue, New York, N.Y. 10022-1207 (hereinafter "Debtor").
STATEMENT OF FACTS
(A) Secured Party is owed the sum of TWO MILLION DOLLARS ($2,000,000)
pursuant to the provisions of a certain Angelika Theatre Asset Purchase and Sale
Agreement dated as of July 1, 1996 between the Secured Party and Reading
Investment Company, Inc. ("Reading"), Debtor's assignor (hereinafter the "Sale
Agreement"), and as part of the agreed upon "Purchase Price" Secured Party has
taken back a Holdback Note, as such term is defined in the Sale Agreement. This
Pledge Agreement is entered into to secure the payment of the Holdback Note of
even date herewith in said amount made payable to the Secured party, bearing
interest at the rate set forth in the Holdback Note and payable in accordance
with its terms;
(B) Contemporaneously with the execution of this agreement, the Debtor has
delivered to Secured Party as collateral security for the Holdback Note the sum
of $2,000,000 by delivery thereof to Baer Marks & Upham LLP, which shall act as
Secured Party's agent and as Escrow Agent with respect to the $2,000,000
pursuant to separate Escrow Agreement. The $2,000,000 and the proceeds thereof
and all increases, substitutions and additions thereto, as maintained by the
Escrow Agent is hereinafter collectively referred to as the "Collateral."
(C) To secure payment of the Holdback Note, inclusive of accrued interest
(collectively called the "Indebtedness"), Debtor herewith pledges and assigns
the Collateral to Secured Party and grants to the Secured Party a security
interest in and to the Collateral, all proceeds thereof and all increases,
substitutions and additions thereto.
(D) The parties hereto desire to set forth their understanding and
agreements in connection with the pledge of the Collateral by Debtor to the
Secured Party.
NOW THEREFORE in consideration of the mutual promises hereinafter set
forth, it is hereby covenanted and agreed as follows:
<PAGE>
1. The Debtor agrees:
1.(a) To defend the title to the Collateral against all persons and
against all claims and demands whatsoever, which Collateral, except for the
security interest granted hereby, is lawfully owned by the Debtor and is now
free and clear of any and all liens, security interests, claims, charges,
encumbrances, taxes and assessments except as may be set forth in the schedule.
1.(b) On demand of the Secured Party to do the follow; furnish further
assurance of sale, execute any written agreement or do any other acts necessary
to effectuate the purposes and provisions of this pledge agreement, execute any
instrument or statement required by law or otherwise in order to perfect,
continue or terminate the security interest of the Secured Party in the
Collateral and pay all costs of filing in connection therewith.
2. The parties further agree:
2.(a) Waiver of acquiescence in any default by the Debtor, or failure of
the Secured Party to insist upon strict performance by the Debtor of any
warranties or agreements in this Security Agreement, shall not constitute a
waiver of any subsequent or other default or failure.
2.(b) Notices to either party shall be in writing and shall be delivered
personally or by mail addressed to the party at the address set forth in the
Sale Agreement or in this Pledge Agreement or otherwise designated in writing.
2.(c) The Uniform Commercial Code as adopted by new York shall govern the
rights, duties and remedies of the parties and any provisions herein declared
invalid under any law shall not invalidate any other provision or this
agreement.
2.(d) The following shall constitute a default by Debtor:
(i) Failure to pay the principal or any installment of principal
or of interest on the Indebtedness or any notes when due, unless such nonpayment
is permitted under the Holdback Note or Escrow Agreement; (ii) failure by Debtor
to comply with or perform any provision of this Pledge Agreement; (iii)
Subjection of the Collateral to levy of execution or other judicial process;
(iv) any reduction in the value of the Collateral caused by actions of creditors
of Reading or Debtor described in paragraph 5 below, or any act of the Debtor
which imperils the prospect of full performance or satisfaction of the Debtor's
obligations herein; and (v) Debtor's insolvency or the commission of any act of
bankruptcy by Debtor or the taking advantage of any bankruptcy act and/or other
law for the relief of debtors, including, without limitation, the filing of a
petition in bankruptcy, whether voluntary or involuntary, by or against Debtor
(unless such involuntary petition is dismissed within thirty (30) days
thereafter), an assignment for the benefit of creditors, the appointment
(whether temporary or permanent) of a receiver, trustee or liquidator of
Debtor's property,
2
<PAGE>
unless such appointment is vacated within thirty (30) days thereafter, the
filing of a petition for a composition, extension or an arrangement under the
National Bankruptcy Act, or the admission by Debtor in writing of his inability
to pay his debts as they become due.
2.(e) Upon any default of the Debtor and at the option of the Secured
Party, the obligations secured by this agreement shall immediately become due
and payable in full without notice or demand and the Secured Party shall have
all the rights, remedies and privileges with respect to repossession, retention
and sale of the Collateral and disposition of the proceeds as are accorded by
the applicable sections of the Uniform Commercial Code respecting "Default".
Upon any default, the Secured Party's reasonable attorneys' fees and
the legal and other expenses for pursuing, searching for, receiving, taking,
keeping, storing, advertising, and selling the Collateral shall be chargeable to
the Debtor.
2.(f) The Secured Party is hereby authorized to file a Financing
Statement.
3.(a) Upon payment by Debtor to the Secured Party of the entire principal
balance of the Holdback Note with accrued interest thereon together with any
other sums that may become due under the Holdback Note and hereunder, this
Pledge Agreement shall be deemed terminated and of no further force or effect,
the security interest created herein shall cease and come to an end, and the
Holdback Note, Pledge Agreement and Collateral Loan Documents (excluding the
filing officer's copies of the Financing Statement) then being held by the
Secured Party shall be returned to Debtor together with the requisite UCC-3
Termination Statement signed by Secured Party in form for filing (whereupon all
parties hereto shall be relieved of all further liability hereunder).
(b) If, in the opinion of the Secured Party's attorneys, additional
Financing Statements and/or Continuation Statements and/or amendments of any
Financing Statements are required at any time prior to the date on which all
sums owed by the Debtor to the Secured Party are fully repaid to perfect or to
continue perfection of the security interest created thereby, then the Debtor
shall execute as may counterparts of same as the Secured Party shall request
from time to time, and hereby authorizes the Secured Party to execute same on
behalf of the Debtor and to file same in the manner provided by law.
4. In the event of a default under the Holdback Note, the proceeds
received on said public or private sale shall be applied in the following order:
(a) to pay all costs and expenses of collection and of the public
or private sale (including, without limitation, reasonable attorneys' fees,
advertising costs, fees and expenses);
3
<PAGE>
(b) to pay to Secured Party all sums expended by it (if any) to
cure any default under this Pledge Agreement, plus interest thereon, pursuant to
the preceding subparagraph (a);
(c) to pay interest accrued under the Holdback Note; and
(d) to pay Secured Party the unpaid principal balance on the
Holdback Note.
5. In the even the net proceeds of such sale (after deducting the items
set forth hereinabove) shall be insufficient to any the unpaid principal balance
of the Holdback Note and accrued interest, Debtor shall not in any way be
personally liable for any deficiency unless the deficiency was caused by actions
taken by creditors of Reading or Debtor including but not limited to attachment,
or by reason of the bankruptcy of Reading or Debtor Any surplus realized after
said deductions, and the payment of interest and the unpaid principal balance of
the Holdback Note, shall be turned over to Debtor.
6. Notwithstanding that the Escrow Agent shall hold the Collateral on
behalf of the Secured party pursuant to this Pledge Agreement, the Debtor shall
be entitled to receive and retain interest, dividends or other income realized
from the Collateral, if any, to be applied first to accrued interest and then to
principal.
7. The term "Secured Party" as used in this Agreement includes the
Secured Party named herein, its successors, assigns, heirs, executors,
administrators and legal representatives.
8. The pronouns used herein shall be male, female, or neuter and in the
singular or possessive, whichever the sense requires.
9. If any action or proceeding be commenced by the Secured Party, or if
the same be commenced by the Debtor or anyone else and if the Secured Party is
made a party thereto, in which action or proceeding it becomes necessary or
desirable to foreclose, uphold or defend the security interest created by this
Agreement, or to enforce, uphold or defend any of the rights granted to the
Secured Party by this Agreement, any sums paid by the Secured Party for the
expense of such litigation (including reasonable attorneys' fees and
disbursements), together with interest thereon at the maximum rate permitted by
law, shall be added to the Indebtedness hereby secured and shall be payable to
the Secured Party by the Debtor, on demand.
10. All notices required or permitted hereunder shall be in writing and
given or made by addressing same to the party to whom directed at the address
hereinabove set forth by registered or certified mail, return receipt requested.
Either party may change the address to which notices are to be sent by a writing
directed to the other party in the manner aforesaid. Unless otherwise
specifically provided, all notices hereunder given by mail shall
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be deemed delivered when deposited in a United States Post Office, general or
branch, or an official mail depository, maintained by the U.S. Postal Service in
the City and State of New York, enclosed in a registered or certified prepaid
wrapper addressed as above provided, except notice of change of address shall be
deemed served when received.
11. This Pledge Agreement contains the full understanding of the parties
and may not be amended, altered, discharged or terminated, except by another
instrument in writing signed by the party sought to be charged therewith, or by
his, her or its duly authorized agent.
12. This Pledge Agreement shall bind and inure to the benefit of, and be
enforceable against, the heirs, distributees, executors, administrators, legal
representatives, successors and permitted assigns of the respective parties
thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year above written.
DEBTOR:
ANGELIKA FILM CENTERS LLC
By:/s/ Charles S. Groshon
---------------------------
Charles S. Groshon,
Vice-President, Secretary
SECURED PARTY:
ANGELIKA FILM CENTERS, INC.
By:/s/ Jessica Saleh Hunt
---------------------------
Jessica Saleh Hunt,
President
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STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 27th day of August 1996, before me personally came Jessica Saleh
Hunt, to me known, who, by me duly sworn, did depose and say that deponent
resides at New York, New York, that she is the President of Angelika Film
Centers, Inc., the corporation described in, and which executed the foregoing
instrument and that she signed deponent's name thereto by order of the Board of
Directors of the Corporation.
/s/ Teresita Magsino
------------------------------
NOTARY
TERESITA MAGSINO
Notary Public, State of New York
No. 41-4986829
Qualified in Queens County
Commission Expires Sept. 30, 1997
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 27th day of August 1996, before me personally came Charles S.
Groshon, to me known, who, by me duly sworn, did depose and say that deponent
resides at Glenside, Pennsylvania, that deponent is the Vice President and
Secretary of Angelika Film Centers LLC, the limited liability company described
in, and which executed the foregoing instrument and that deponent signed
deponent's name thereto.
/s/ Teresita Magsino
------------------------------
NOTARY
TERESITA MAGSINO
Notary Public, State of New York
No. 41-4986829
Qualified in Queens County
Commission Expires Sept. 30, 1997
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 2-83039 and No. 33-57222) pertaining to the stock option plans of
Reading Company of our report dated July 1, 1996, with respect to the financial
statements of Angelika Film Centers, Inc. included in Reading Company's Form 8-K
filed with the Securities and Exchange Commission on September 18, 1996.
Miller and Company
New York, New York
September 18, 1996
