<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-1024
PROSPECTUS
- ----------
UNITED ARTISTS THEATRE CIRCUIT, INC.
1995-A PASS THROUGH TRUST 9.3% PASS THROUGH CERTIFICATES, SERIES 1995-A
---------------
Interest on the United Artists Theatre Circuit, Inc. 1995-A Pass Through
Trust's (the "Pass Through Trust") 9.3% Pass Through Certificates, Series 1995-A
(the "Certificates") is payable semi-annually on January 1 and July 1 of each
year, accruing from December 13, 1995 at a rate of 9.3% per annum. The
Certificates were issued pursuant to an exchange offer (the "Exchange Offer") in
exchange for an equal principal amount of 9.3% Pass Through Certificates, Series
1995-A (the "Old Certificate"). Principal on the Certificates is payable semi-
annually on January 1 and July 1 of each year commencing July 1, 1996. See
"Description of the Certificates."
The Certificates are not direct obligations of, or guaranteed by, United
Artists Theatre Circuit, Inc. ("United Artists" or "UATC"). However, pursuant
to a Lease Agreement (the "Lease") between United Artists and the owner trustee
(the "Owner Trustee") the amounts unconditionally payable by United Artists
under the Lease will be sufficient to pay in full when due all payments of the
principal of, premium, if any, and interest on the Certificates.
Prior to the consummation of the Exchange Offer, there was no public market
for the Old Certificates or Certificates. If a market for the Certificates
should develop, the Certificates could trade at a discount from their principal
amount. The Pass Through Trust does not intend to list the Certificates on a
national securities exchange. There can be no assurance that an active public
market for the Certificates will develop.
FOR A DISCUSSION OF CERTAIN RISK FACTORS IN CONNECTION WITH THE CERTIFICATES,
SEE "RISK FACTORS" ON PAGE 13.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------
This Prospectus is to be used by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") and Morgan Stanley & Co., Incorporated ("MS & Co.") in
connection with offers and sales of the Certificates in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. MLPF&S and MS & Co. may act as principal or as agent in such
transactions. United Artists will receive no portion of the proceeds sales of
such Certificates and will bear the expenses incident to the registration
thereof under the Securities Act of 1933, as amended (the "Securities Act").
See "Certain Transactions" for a description of the ownership of capital stock
of United Artists' parent company by affiliates of MLPF&S.
---------------
The date of this Prospectus is May 13, 1996
<PAGE>
AVAILABLE INFORMATION
UATC has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Certificates offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to UATC and the
Certificates, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of certain documents are not
necessarily complete, and, in each instance, reference is made to the
Registration Statement. The Registration Statement (and the exhibits thereto)
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; or at its
regional offices at Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661, and at Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can also be obtained from the
Commission at prescribed rates through its Public Reference Section at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
UATC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Commission. Such
reports and other information can be inspected and copied at prescribed rates at
the public reference facilities mentioned above.
If UATC ceases to be subject to the informational reporting requirements of
the Exchange Act, UATC has agreed that, so long as any Certificates remain
outstanding, it will file with the Commission and distribute to holders of the
Certificates copies of the financial information that would have been contained
in annual reports and quarterly reports that UATC would have been required to
file with the Commission pursuant to the Exchange Act, including management's
discussion and analysis of financial condition and results of operations. Such
financial information shall include annual reports containing consolidated
financial statements and certificates thereto, together with an opinion thereon
expressed by an independent public accounting firm, as well as quarterly reports
containing unaudited condensed consolidated financial statements for the first
three quarters of each fiscal year. UATC also will make such reports available
to prospective purchasers of the Certificates, securities analysts and broker-
dealers upon their reasonable request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 33-49598)
pursuant to the Exchange Act are incorporated herein by reference:
1. United Artists Theatre Circuit, Inc.'s ("United Artists" or "UATC")
Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
2. All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1995.
Any statement in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
to the extent that a statement contained in this Prospectus, or in any other
subsequently filed document which is also, or is deemed to be, incorporated by
reference herein modifies or replaces such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus, except as so modified or superseded.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
the Financial Reporting Department, United Artists Theatre Circuit, Inc. 9110
East Nicholas Avenue, Englewood, Colorado 80112, telephone number (303) 792-
3600.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 13
United Artists............................................................ 19
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Selected Financial Information............................................ 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business.................................................................. 33
Management................................................................ 46
Certain Transactions...................................................... 49
Structure of the Transaction.............................................. 49
The Properties............................................................ 50
Diagram of Payments....................................................... 52
Description of the Certificates........................................... 53
Description of the Mortgage Note.......................................... 64
Description of the Lease.................................................. 74
Description of Certain Indebtedness....................................... 80
Certain Federal Income Tax Consequences................................... 90
Certain Connecticut Taxes................................................. 94
ERISA Considerations...................................................... 94
Plan of Distribution...................................................... 95
Legal Opinions............................................................ 96
Experts................................................................... 96
Index to Financial Statements............................................. F-1
Glossary of Certain Terms................................................. AI-1
Description of Certain Covenants.......................................... AII-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto contained
elsewhere or incorporated by reference in this Prospectus. Certain capitalized
terms used in this summary are defined elsewhere in this Prospectus.
UNITED ARTISTS
United Artists believes that it is one of the largest theatrical exhibitors
of motion pictures in the United States in terms of number of screens operated.
United Artists was founded in 1926 by shareholders including Mary Pickford,
Douglas Fairbanks, Sam Goldwyn and Joe Schenck. From its founding through the
1980's, UATC expanded its theatrical exhibition activities through acquisitions
and partnerships with other operators. As of December 31, 1995, UATC operated
2,365 screens at 420 theatre locations in 29 states, Puerto Rico, Hong Kong,
Singapore and Argentina. See "Business--Theatre Properties." Consolidated
admissions revenue for UATC's theatres for the years ended December 31, 1995
and 1994 was approximately $457.1 million and $447.6 million, respectively.
Over 77% of UATC's screens are located in theatres with five or more screens.
As of December 31, 1995, UATC's average number of screens per theatre was 5.6.
United Artists' principal business is that of motion picture exhibition and
its revenue is principally derived from theatre admissions and concession sales.
United Artists licenses films from all of the major and independent film
distributors and is not overly dependent on any one film distributor for film
product. Due to an increasing supply of films from the various major and minor
studios, theatre admissions revenue for the industry as a whole has been
relatively stable over the last 20 years and has posted three consecutive record
years from 1992 through 1995. While UATC is currently developing new business
initiatives designed to utilize its theatre seats during non-theatre operating
hours (such as mornings) and during periods of low theatrical attendance (such
as weekdays), other revenue is currently generated primarily from electronic
video games located in theatre lobbies, theatre rentals and on-screen
advertising.
United Artists operates theatres in a variety of different markets ranging
from small towns and cities where it is the only operator to large metropolitan
areas such as New York, Los Angeles, Dallas, Denver, Atlanta, San Diego and San
Francisco. The states which represent the largest geographic concentration of
theatres and screens operated accounted for approximately 54% of UATC's total
theatres and screens at December 31, 1995 and approximately 62% of UATC's total
revenue for the year ended December 31, 1995 and were as follows:
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER PERCENT OF
STATE OF THEATRES OF SCREENS TOTAL REVENUE
- ----- ------------ ------------ --------------
<S> <C> <C> <C>
California......... 68 334 19%
New York........... 42 199 14
Florida............ 31 260 9
Texas.............. 37 222 8
Pennsylvania....... 31 149 8
Louisiana.......... 18 126 4
</TABLE>
4
<PAGE>
The majority of United Artists' theatres are located in free-standing
buildings or are "anchor" tenants in regional malls or strip-centers and are
equipped with state of the art projection and sound equipment. While UATC (or
its affiliates) owns some of its theatres, most of the theatres are leased
through long-term operating leases.
United Artists believes that it is the largest exhibitor in many of
the communities which it serves and that its theatres are generally regarded as
attractive by film suppliers and patrons. Management believes that these
factors give UATC a competitive cost advantage with respect to UATC's
operations.
OPERATING STRATEGY
As part of its operating strategy, United Artists intends to increase
the number of its multiscreen theatres ("multiplexes") through new construction
and additions and selective renovations to existing theatres, and increase its
concession sales through increased emphasis on employee training, selling
techniques and more efficient theatre design. This multiplex strategy in
combination with the emphasis on its concession operations is designed to
improve revenue and profitability by enhancing attendance and concession sales,
theatre utilization and operating efficiencies and provide a better clustering
of theatres around regional and district management centers. Consistent with
this strategy, UATC also intends to close or sell non-strategic or less
profitable theatres, thereby improving overall operating margins. From December
31, 1988 through December 31, 1995, UATC sold or closed 352 theatres (965
screens) and added 86 theaters (653 screens). UATC's average number of screens
per theatre has increased from 3.9 at December 31, 1988 to 5.6 at December 31,
1995.
As part of its development plans, United Artists intends to construct
theatres which have a good balance between the number of auditoriums and the
size of those auditoriums. This balance will allow UATC to provide an adequate
number of screens sought by distributors and increased entertainment value to
patrons afforded by larger auditoriums. In addition to increasing the number of
screens in certain locations, UATC is also constructing theatres with stadium
seating, upgraded seats and other design features which are appropriate for the
market in which the theatre is located. United Artists also intends to develop
new motion picture and other uses for its theatre complexes in an effort to
attract new patrons and to make better use of its facilities during periods in
which theatrical attendance is low. See "Business--Other New Business
Initiatives." In addition to its domestic theatre development plans, UATC also
intends to develop theatres selectively in certain markets outside of the United
States with strategic partners.
During March 1996, UATC initiated a plan to increase its efforts to dispose of,
through sale or lease terminations, certain of its operating theatres and real
estate which are underperforming or are not considered part of its long-term
strategic plans. This increased emphasis on the disposal of non-strategic or
underperforming theatres and/or real estate involves; (i) 36 leased theatres
(134 screens) where the leases are expiring by their terms in 1996 or where UATC
will seek an early termination; (ii) 41 theatres (173 screens) which are being
marketed for sale to other operators, and (iii) 18 operating theatres (59
screens) and seven parcels of real estate owned by UATC and its affiliates where
the theatre operations do not support the value of the underlying real estate.
Net proceeds from these increased disposition efforts will be used to repay
existing debt and/or redeployed into new higher margin theatres. While there
can be no assurance that such theatre sales or lease termination efforts will be
successful, negotiations have been initiated with respect to several theatres.
5
<PAGE>
The address of United Artists' principal executive office is 9110 East Nicholas
Avenue, Suite 200, Englewood, CO 80112, telephone number (303) 792-3600.
SEE "RISK FACTORS," COMMENCING ON PAGE 13 HEREIN, FOR A DESCRIPTION OF CERTAIN
RISK FACTORS IN CONNECTION WITH THE CERTIFICATES.
6
<PAGE>
SUMMARY OF TERMS OF NEW CERTIFICATES
In connection with the Sale-Leaseback Transaction (as defined below), the
Pass Through Trust completed a private placement of $116,753,000 principal
amount of the Old Certificates. In connection with the sale of the Old
Certificates, the purchasers thereof became entitled to the benefits of a
registration rights agreement (the "Registration Rights Agreement"). Pursuant
to the terms of the Registration Rights Agreement, United Artists effected the
Exchange Offer pursuant to which an equal principal amount of Certificates were
issued in exchange for an equal principal amount of Old Certificates in order to
provide the purchasers of Old Certificates with securities registered under the
Securities Act. The form and terms of the Certificates are the same as the form
and terms of the Old Certificates except that the Certificates are registered
under the Securities Act. See "Description of the Notes."
Glossary Included at the end of this Prospectus as Appendix I is a
Glossary of certain of the significant defined terms
used herein.
Pass Through Trust The United Artists Theatre Circuit, Inc. 1995-A United
Artists Pass Through Trust (the "Pass Through Trust")
was formed pursuant to the Pass Through Trust Agreement
(the "Agreement") between United Artists and Fleet
National Bank, as trustee thereunder (the "Trustee").
Trust Property The property of the Pass Through Trust (the "Trust
Property") consists of a mortgage note (the "Mortgage
Note") issued on a nonrecourse basis by the owner
trustee (the "Owner Trustee") which was used to finance
not more than 92.5% of the value of 14 United Artists
Properties and 17 Prop II Properties (which were
previously leased to United Artists) which were acquired
by the Owner Trustee. Pursuant to the Lease Agreement
(the "Lease") between the Owner Trustee and United
Artists, all such Properties were leased to United
Artists concurrently with the issuance of the Mortgage
Note (collectively, the "Sale-Leaseback Transaction").
Pursuant to the Agreement, the Pass Through Trust
acquired the Mortgage Note, which bears interest at the
same rate as the Certificates and will mature on the
final distribution date of the Certificates. See
"Structure of the Transaction" and "Description of the
Certificates General."
Regular Distribution
Dates January 1 and July 1, commencing July 1, 1996.
Special Distribution
Dates The 1st day of any month.
Record Dates The fifteenth day preceding a Regular Distribution Date
or a Special Distribution Date.
Initial Average
Life Date The initial average life date for the Certificates is
January 4, 2009 and will change after principal repayments
of the Mortgage Note commence.
7
<PAGE>
Distributions All payments of principal, Make-Whole Premium, if any, and
interest received by the Trustee on the Mortgage Note will
be distributed by the Trustee to the Certificateholders on
the Regular Distribution Dates referred to above, except
in certain cases where the Mortgage Note has been redeemed
or is in default. Payments of principal and interest on
the Mortgage Note are scheduled to be received by the
Trustee and distributed to the Certificateholders on such
Regular Distribution Dates. Payments of principal of,
Make-Whole Premium, if any, and interest on the Mortgage
Note resulting from any redemption thereof, or from
actions taken in connection with an Indenture Default,
will be distributed on a Special Distribution Date after
not less than 20 days' notice from the Trustee to the
Certificateholders. For a discussion of distributions upon
an Indenture Default, see "Description of the
Certificates--Payments and Distributions."
Interest Interest will be passed through to the
Certificateholders on each January 1 and July 1,
commencing July 1, 1996, at 9.3% per annum, on the unpaid
principal amount of the Mortgage Note.
Principal Principal of the Mortgage Note will be payable in
scheduled amounts, commencing July 1, 1996 in accordance
with the principal repayment schedule set forth herein
under "Description of the Mortgage Note--Principal and
Interest Payments."
Prepayment of
Mortgage Note at a
Premium (a) If at any time after January 1, 2006, United Artists
shall determine that a Property is uneconomic,
obsolete or surplus to its needs and does not elect
to exercise its rejectable offer of substitution ,
then the Mortgage Note may be redeemed in part at a
redemption price equal to the unpaid principal amount
of the Mortgage Note allocated to such Property (the
"Allocated Debt Amount") plus accrued but unpaid
interest thereon (together with the Allocated Debt
Amount, the "Redemption Price") plus a Make-Whole
Premium, See "Description of the Mortgage Note--
Redemption" for a description of the manner of
computing the Make-Whole Premium.
(b) If, at any time during the last three years of the
Lease term, there shall occur a Major Repair Event or
a Major Requirement Event (as hereinafter defined),
and United Artists does not elect to exercise its
rejectable offer of substitution, then the Mortgage
Note shall be redeemed in part in an amount equal to
the Redemption Price plus a Make-Whole Premium.
8
<PAGE>
(c) If an Indenture Default arising from a Lease Event of
Default shall have occurred and be continuing for a
period of between 180 days and 270 days and the
Indenture Trustee shall not have given notice of its
intent to accelerate the Mortgage Note, the Owner
Trustee may elect to redeem or purchase the Mortgage
Note in whole at a price equal to the aggregate
unpaid principal amount thereof, plus accrued but
unpaid interest thereon, plus any other amounts then
due and payable with respect to the Mortgage Note,
plus a Make-Whole Premium.
See "Description of the Mortgage Note--Redemption."
Prepayment of
Mortgage Note
at Par (a) Upon the occurrence of an Event of Loss (as
hereinafter defined) with respect to a Property and
the election by United Artists not to exercise its
rejectable offer of substitution , the Mortgage Note
shall be redeemed in part at a redemption price equal
to the Redemption Price plus any other amounts then
due and payable with respect to the Mortgage Note,
but without premium.
(b) If an Indenture Default arising from a Lease Event of
Default shall have occurred and (i) be continuing for
a period of 270 days or more during which time the
Mortgage Note has not been accelerated or (ii) the
Indenture Trustee shall have given notice of its
intent to accelerate the Mortgage Note, the Owner
Trustee may elect to redeem or purchase the Mortgage
Note at a price equal to the aggregate unpaid
principal amount thereof, plus accrued but unpaid
interest thereon, plus any other amounts then due and
payable with respect to the Mortgage Note, but
without premium.
(c) On February 1, 1997, if any Incomplete Property (as
hereinafter defined) has not been completed by
December 31, 1996, and United Artists has been unable
to exercise its substitution right, then on such date
the Mortgage Note shall be redeemed in part at a
redemption price equal to the aggregate Redemption
Price for each such Incomplete Property, but without
premium.
See "Description of the Mortgage Note--Redemption."
9
<PAGE>
Security The Owner Trustee issued one Mortgage Note to the Pass
Through Trust pursuant to a single trust indenture (the
"Base Indenture"). The Base Indenture has been
supplemented, with respect to each Property, by a
mortgage, leasehold mortgage, deed of trust, assignment of
leases and rents, security agreement, financing statement
and first supplemental mortgage (each, a "Supplemental
Indenture"). Pursuant to the Supplemental Indentures, the
Mortgage Note is secured, with respect to the Properties,
by (i) an assignment to the Indenture Trustee of certain
of the Owner Trustee's rights under the Lease, including
the right to receive base rentals and certain other
amounts payable thereunder by United Artists, (ii) a first
mortgage lien on the Building Improvements and Estates for
Years (each as hereinafter defined) related to the
Properties, (iii) the Owner Trustee's rights under the
Option (as hereinafter defined) related to the Properties
and (iv) a first mortgage lien on the Remainderman
Trustee's remainder interest in the underlying land
(collectively, the "Indenture Estate").
With respect to each of the five Properties, the
construction of which was not completed as of the Closing
Date (the "Incomplete Properties"), the Mortgage Note was
secured by a first mortgage lien on the Estates for Years
and remainder interests related to such Properties and the
Building Improvements related to such Properties, to the
extent such Building Improvements were constructed, plus
cash in an amount equal to the cost to the Owner Trustee
of the Building Improvements related to such Properties.
Such cash will be held in escrow pending completion of
each Property. Upon completion of each Incomplete
Property, the cost of the Building Improvements related to
such Incomplete Property will be paid to United Artists
and the Mortgage Note will be secured with respect to such
Property as described in the preceding paragraph.
See "Description of the Mortgage Note--Security" and "--
Indenture Defaults, Notice and Waiver."
Although the Mortgage Note is not a direct obligation of,
or guaranteed by, United Artists, the amounts
unconditionally payable by United Artists under the Lease
will be sufficient to pay in full when due all payments of
the principal of, Make-Whole Premium, if any, and interest
on the Mortgage Note. See "Description of the Mortgage
Note--Redemption" and "--Security." None of the Trustee,
the Certificateholders or the Indenture Trustee will have
recourse in respect of the Mortgage Note against the Owner
Trustee or the Owner Participant. See "Description of the
Mortgage Note--General."
Use of Proceeds The proceeds from the sale of the Certificates were used
to purchase the Mortgage Note in order to finance not more
than 92.5% of the value of the Properties acquired by the
Owner Trustee.
10
<PAGE>
The proceeds received by Prop II of approximately $51.4
million from the sale of 17 Properties were used to repay
its outstanding mortgage debt. The proceeds received by
United Artists of approximately $48.4 million from the
sale of 14 Properties were used to prepay rent pursuant to
the Lease through June 30, 1996 of $6.7 million, repay
outstanding bank debt and/or make investments of
approximately $39.5 million and to pay certain transaction
expenses of approximately $2.2 million. In addition,
approximately $22.0 million of the proceeds were held in
escrow by the Indenture Trustee pending completion of the
Incomplete Properties. United Artists will apply such
proceeds, as they are released from escrow, to reduce
outstanding bank debt.
Certain Covenants United Artists has agreed to be bound by certain covenants
that, among other things, will restrict the ability of
United Artists and its Restricted Subsidiaries (as defined
in Appendix II) to: incur additional indebtedness; pay
dividends or make distributions in respect of their
capital stock; make investments or make certain other
restricted payments; transfer assets; issue or sell stock
of Restricted Subsidiaries; enter into transactions with
stockholders or affiliates; or consolidate, merge or sell
all or substantially all of their assets. Certain of these
covenants will not be applicable in the event that (and
for so long as) the Certificates are rated Investment
Grade by both Moody's and S&P. See "Description of the
Lease--The Participation Agreement" and Appendix II.
Federal Income Tax
Consequences In the opinion of counsel to United Artists, the Pass
Through Trust will be classified as a grantor trust for
federal income tax purposes, and each holder of an
interest in the Certificates will be treated as the owner
of a pro rata undivided interest in the Mortgage Note and
any other property held in the Pass Through Trust and will
be required to report on its federal income tax return its
pro rata share of income from the Mortgage Note and other
property in accordance with such holder's method of
accounting. See "Certain Federal Income Tax Consequences."
ERISA Considerations The Certificates, with certain exceptions, are eligible
for purchase by employee benefit plans. A fiduciary
considering purchasing Certificates for or on behalf of an
employee benefit plan should consider the issues discussed
in "ERISA Considerations."
Market There is no public market for the Certificates. United
Artists does not intend to apply for listing of the
Certificates on a securities exchange. No assurance can be
given that an active trading market for the Certificates
will develop or that any such market would be sustainable.
11
<PAGE>
Settlement at DTC Transfers of certificates between participants in The
Depository Trust Company ("DTC") will be effected in the
ordinary way in accordance with DTC rules and will be
settled in next day funds.
For more complete information regarding the New Certificates, see "Description
of the Certificates."
12
<PAGE>
RISK FACTORS
Prospective investors in the Certificates should carefully consider
the risk factors set forth below, as well as the other information set forth in
this Prospectus..
RANK; SECURITY INTERESTS
UATC's obligations under the Lease are general unsecured obligations
of UATC. UATC's principal indebtedness, the 11 1/2% Senior Secured Notes due
2002 (the "11 1/2% Notes") and the Senior Bank Facilities (as amended and
restated on May 1, 1995, the "Restated Bank Credit Agreement"), are secured by a
first priority security interest in the issued and outstanding capital stock of
certain material subsidiaries of UATC (the "Subsidiary Guarantors") and are
guaranteed by OSCAR I Corporation, a Delaware corporation ("OSCAR I"), which
owns all of the issued and outstanding capital stock of UATC and of United
Artists Realty Company ("UAR"), and by the Subsidiary Guarantors. Such
guarantees by the Subsidiary Guarantors are full and unconditional and joint and
several and are respectively referred to herein as the "Subsidiary Note
Guarantees" or the "Subsidiary Bank Guarantees" and together as the "Subsidiary
Guarantees." Such guarantees of the 11 1/2% Notes and the Restated Bank Credit
Agreement by OSCAR I are full and unconditional and joint and several and are
respectively referred to herein as the "OSCAR I Note Guarantee" and the "OSCAR I
Bank Guarantee" and together as the "Guarantees." The Guarantees are secured by
a first priority security interest in all the issued and outstanding capital
stock of UATC and UAR. See "Description of Certain Indebtedness." As described
in Appendix II, the Participation Agreement permits UATC to incur (and OSCAR I
and the Subsidiary Guarantors to guarantee) certain additional indebtedness,
including additional secured indebtedness. Although the Mortgage Note will be
secured by the Properties, UATC's obligations under the Lease will not be
secured or guaranteed. As a result of the foregoing, in the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of
UATC, or upon the acceleration of UATC's obligations under the Restated Bank
Credit Agreement or the 11 1/2% Notes, proceeds from the sale of the stock of
the Subsidiary Guarantors and the assets of the Subsidiary Guarantors and OSCAR
I would first be applied to pay obligations under the Restated Bank Credit
Agreement, the 11 1/2% Notes and any additional secured or guaranteed
indebtedness before any such proceeds are used to satisfy obligations under the
Lease. Revenue generated by the Subsidiary Guarantors represented less than 5%
of UATC's total revenue for the year ended December 31, 1995. Any unsecured
indebtedness that is not subordinated to the Lease would rank pari passu in
right of payment to UATC's obligations under the Lease. As of December 31,
1995, UATC had outstanding approximately $375.0 million of indebtedness under
the Restated Bank Credit Agreement and the 11 1/2% Notes and $8.2 million of
other indebtedness.
Subject to certain restrictions in the Restated Bank Credit Agreement
and under the indenture for the 11 1/2% Notes, the UATC Preferred Stock and the
Preferred Stock (each as defined in "United Artists") are exchangeable at the
option of UATC and OSCAR I into subordinated notes of UATC (in the case of the
UATC Preferred Stock) and of OSCAR I or UATC (in the case of the Preferred
Stock) (as the case may be, the "UATC Exchange Notes" or the "OSCAR I Exchange
Notes," and, together, the "Exchange Notes"). The UATC Exchange Notes would be
unsecured subordinated obligations.
13
<PAGE>
LEVERAGE
The indebtedness incurred in connection with the Acquisition (as
defined in "United Artists"), including the indebtedness under the Restated Bank
Credit Agreement and the 11 1/2% Notes, resulted in debt-to-total-capitalization
as of December 31, 1995 for UATC and its subsidiaries on a consolidated basis of
85.1%. UATC had a net loss of $68.9 million for the year ended December 31,
1995. In order to repay the obligations incurred in connection with the
Acquisition and to satisfy its obligations under the Lease, UATC will be
required to generate substantial operating cash flow. The ability of UATC to
meet its debt service, rental and other obligations will depend on the future
performance of UATC, which will be subject to prevailing economic conditions and
to financial, business and other factors beyond the control of UATC. While UATC
believes that based upon current levels of operations and completion of its
business plan it will be able to meet its debt service and rental obligations,
there can be no assurances with respect thereto. See "Selected Financial
Information" for information regarding the operating cash flow and debt service
obligations of UATC.
RESTRICTIONS UNDER FINANCING AGREEMENTS; VARIABLE INTEREST RATE
The Restated Bank Credit Agreement contains certain financial and
other covenants, including covenants requiring UATC to maintain certain
financial ratios and restricting the ability of UATC and its subsidiaries to
incur indebtedness or to create or suffer to exist certain liens. The Restated
Bank Credit Agreement also requires that certain amounts of indebtedness
thereunder be repaid by specified dates. The ability of UATC to comply with
such provisions may be affected by events beyond its control. A failure to make
any required payment under the Restated Bank Credit Agreement or to comply with
any of the financial and operating covenants included in the Restated Bank
Credit Agreement would result in an event of default thereunder, permitting the
lenders to vote to accelerate the maturity of the indebtedness under the
Restated Bank Credit Agreement and to vote to foreclose upon the collateral
securing the Restated Bank Credit Agreement.
Any such acceleration could also result in the acceleration of the 11
1/2% Notes and UATC's and its subsidiaries' other indebtedness. The indenture
relating to the 11 1/2% Notes also contains certain covenants and restrictions
which, if not complied with, would result in an event of default thereunder
permitting holders of the 11 1/2% Notes to accelerate the 11 1/2% Notes. Any
such event of default or acceleration could also result in the acceleration of
the Restated Bank Credit Agreement. The acceleration of the Restated Bank
Credit Agreement, the 11 1/2% Notes or any refinancings thereof would also
result in an increase in the dividend rate payable on the Preferred Stock and
the UATC Preferred Stock and on the interest rate payable on any Exchange Notes,
and would entitle the holders of any Exchange Notes to accelerate the
indebtedness thereunder. If the lenders under the Restated Bank Credit
Agreement or the holders of the 11 1/2% Notes accelerate the maturity of the
indebtedness thereunder, there can be no assurance that UATC and OSCAR I will
have sufficient assets to satisfy (to the extent applicable) their respective
obligations under the Lease, the Restated Bank Credit Agreement, the 11 1/2%
Notes, the Guarantees and the Subsidiary Guarantees.
The lenders under the Restated Bank Credit Agreement have issued
standby letters of credit with an aggregate face amount of $12.5 million for
the benefit of certain holders of indebtedness of United Artists Properties I
Corp. ("UAP I") If the holders of any such indebtedness were to draw upon any
such letters of credit, such lenders party to the Restated Bank Credit Agreement
would be entitled to demand repayment from UATC of any amounts so drawn under
such letters of credit. If UATC were not able to pay such amounts, such lenders
would be entitled to accelerate the indebtedness under the Restated Bank Credit
14
<PAGE>
Agreement and to foreclose on the assets securing the Restated Bank Credit
Agreement. See "Business--Certain Transactions with UAR and its Subsidiaries--
Guarantee."
UATC's indebtedness under the Restated Bank Credit Agreement bears
interest at rates that fluctuate with changes in certain prevailing interest
rates (although, with respect to a portion of the indebtedness under the
Restated Bank Credit Agreement, such rates are required to be fixed for limited
periods of time). If interest rates increase, UATC may be unable to meet its
debt service obligations and its rental obligations under the Lease. As of
December 31, 1995, UATC had interest rate caps expiring from 1996 to 1997 at
rates ranging from 6 1/2% to 7 1/2% on $125.0 million of debt.
POTENTIAL INABILITY TO FULLY EXERCISE REMEDIES
The Indenture provides that the Indenture Trustee will not exercise
foreclosure remedies under the Indenture for an Indenture Event of Default which
results from a Lease Event of Default unless it has exercised or is exercising
material remedies seeking to dispossess UATC under the Lease, unless such
exercise of remedies under the Lease shall be stayed by law, governmental
authority or court order. However, if such a stay remains in effect 270 days
after the occurrence of such Lease Event of Default, then the Indenture Trustee
may exercise remedies under the Indenture without exercising material remedies
under the Lease. The Indenture also provides the Owner Trustee with the right
under certain circumstances to cure an Indenture Default that results from the
occurrence of a Lease Event of Default. In general, the Owner Trustee has the
right under the Lease to cure defaults by UATC, subject to a limit of curing no
more than three consecutive or six cumulative defaults in the payment of Fixed
Rent.
The foregoing provisions relating to rights to cure and limitations on
the exercise of remedies by the Owner Trustee and the Indenture Trustee may
delay the Owner Trustee and the Indenture Trustee from exercising the full range
of remedies otherwise available to them. Any such delay in the exercise of
remedies with respect to the Properties or UATC may impair the ability of the
Owner Trustee and the Indenture Trustee, at such time as they may be permitted
to exercise remedies, to realize sufficient funds to satisfy the then unpaid
obligations with respect to the Mortgage Note (and thus on the Certificates).
This may be the case if, at the time remedies are permitted to be exercised, the
value of the Properties has decreased due to the then prevailing market
conditions or because UATC has fewer assets available to satisfy all of its
creditors. See "Description of the Mortgage Note--Remedies."
POTENTIAL INABILITY TO REALIZE FULL VALUE OF COLLATERAL UPON FORECLOSURE
The Mortgage Note is secured by the Properties. UATC believes that
the aggregate value of the Properties is greater than the aggregate principal
amount of the Mortgage Note. However, certain factors that adversely affect the
ability of a lender to realize fair market value of real property in a mortgage
foreclosure, including the scarcity of buyers at foreclosure sales, the need to
sell property with few or no representations and warranties and the limited
opportunity for buyers to perform diligence investigations, create conditions in
which it may be difficult or impossible in the context of a foreclosure sale of
the Properties, either individually or in the aggregate, to realize sufficient
value to satisfy the then unpaid obligations with respect to the Mortgage Note.
Thus, the amount passed through to the Certificateholders might be less than the
amount due on the Certificates. See "The Properties" and "Description of the
Mortgage Note--Security" for a description of the Properties.
15
<PAGE>
POSSIBLE REJECTION OF LEASE IN BANKRUPTCY
If UATC were to become a debtor in a bankruptcy proceeding under the
Bankruptcy Code, UATC or its bankruptcy trustee could reject the Lease. If the
bankruptcy court treated the Lease as a true lease and approved the rejection of
the Lease, such rejection would constitute a breach of the Lease and, as
provided in applicable non-bankruptcy law, deprive UATC of the use and
possession of all of the Properties. If the Lease were rejected, rental
payments thereunder would terminate, thereby leaving the Owner Trustee (and by
virtue of the assignment effected by the Indenture, the Indenture Trustee)
without regular rent payments and with a claim for damages as a source of
payment of amounts due under the Mortgage Note. Under section 502(b)(6) of the
Bankruptcy Code, a claim by a lessor for damages resulting from the rejection by
a debtor of a lease of real property is limited to an amount equal to the rent
reserved under the lease, without acceleration, for the greater of one year or
15 percent (but not more than three years) of the remaining term of the lease,
plus rent already due but unpaid. There can be no assurance that any such claim
for damages would be sufficient to provide for the repayment of amounts then due
under the Mortgage Note. Regardless of any limitation of damages pursuant to
section 502(b)(6) of the Bankruptcy Code, the Indenture Trustee could also seek
to foreclose upon its lien and security interest in the Properties under
applicable state law, which lien and security interest would not be affected by
rejection of the Lease, and apply the proceeds of any foreclosure sale to any
amounts unpaid with respect to the Mortgage Note. See "Description of the
Lease--Consequences of United Artists' Bankruptcy."
COMPETITION
UATC's operations are subject to varying degrees of competition with
other theatre circuits and independent theatres with respect to, among other
things, licensing films, attracting patrons and obtaining new theatre sites.
Management believes that the principal competitive factors with respect to film
licensing include acceptable licensing terms, seating capacity, prestige and
location of an exhibitor's theatres, the quality of the theatre in general,
especially of projection and sound, and the exhibitor's ability and willingness
to promote the films. Management also believes that ongoing relationships with
film distribution and production companies are important in continuously
obtaining a competitive mix of available films.
The competition for patrons is dependent upon factors such as the
availability of popular films, the location of the theatres, the comfort and
quality of the theatres and ticket prices. Film patrons are not necessarily
"brand" conscious and generally choose a theatre to attend based on film
selection, location and quality of the theatre. In order to attract more
patrons and to develop loyal customers, however, UATC is in the process of
developing a number of brand awareness and attendance enhancement programs.
Other motion picture distribution methods include video cassette
rentals, pay-per-view, pay television, other basic cable television services and
broadcast network and syndicated television. Despite the proliferation of these
other distribution systems, theatre attendance has increased during each of the
last four years although there can be no assurance that such trend will continue
in the future. Theatrical distribution remains the focal distribution window
for the public's evaluation of films and for motion picture promotion, and
remains the cornerstone of a film's financial success. The extent, if any, to
which such other entertainment media and other forms of home entertainment will
compete with the business of UATC may not be known for several years and there
can be no assurance that the development of such alternative media will not
materially adversely affect the business or financial condition of UATC in the
future. See "Business--Competition."
16
<PAGE>
AVAILABILITY OF MOTION PICTURES
UATC's business is dependent upon the availability and quality of
motion pictures. Accordingly, poorly performing motion pictures and/or any
significant disruption in the production of popular motion pictures by the major
motion picture production companies or independent producers may have an adverse
effect on UATC's financial position and results of operations.
GOVERNMENTAL REGULATION AND LITIGATION
For a discussion of certain governmental regulations and certain
litigation, see "Business--Legal Proceedings" and "--Governmental Regulations."
ABSENCE OF A MARKET FOR THE CERTIFICATES
The Certificates are a new issue of securities for which there is
currently no active trading market.
United Artists does not intend to list the Certificates on any
securities exchange. No assurance can be given that an active trading market
for the Certificates will develop or that any such market would be sustainable.
CERTAIN FRAUDULENT TRANSFER CONSIDERATIONS
Various laws, including laws relating to fraudulent conveyance,
enacted for the protection of creditors may have applied to UATC's entering into
the Sale-Leaseback Transaction. If a court were to find, in a bankruptcy or
reorganization proceeding under the Bankruptcy Code, that UATC did not receive
fair consideration or reasonably equivalent value in exchange for the Properties
and, at the time of entering into the Sale-Leaseback Transaction, (i) was
insolvent, (ii) was rendered insolvent by reason of such transaction, (iii) was
engaged in a business or transaction for which the assets remaining in UATC
constituted unreasonably small capital or (iv) intended to incur, assumed or
believed it would incur debts beyond its ability to pay such debts as they
matured, such court, subject to applicable statutes of limitation, could
invalidate, in whole or in part, the Sale-Leaseback Transaction as a fraudulent
conveyance or, if the Sale-Leaseback Transaction were recharacterized as a
loan, subordinate such indebtedness to existing or future creditors of UATC
and/or find that the liens granted are unenforceable. Alternatively, a
conveyance is considered fraudulent and therefore void against creditors if (i)
it was made with the intention to delay or defraud creditors and such intention
was known to the party acquiring the property, (ii) the transaction was not for
valuable consideration and was made by an insolvent debtor or (iii) the debtor
was insolvent at the time and transferred or assigned its property in trust and
reserved a benefit of the property to itself.
The measure of insolvency for purposes of the foregoing varies
depending on the law of the jurisdiction which is being applied. In general,
UATC would be considered insolvent at a particular time if the sum of its debts
was then greater than all of its property at a fair valuation or if the present
fair saleable value of its assets was then less than the amount that would be
required to pay its probable liabilities on its existing debts as they became
absolute and matured.
Additionally, it is possible that a court could find that the
indebtedness incurred or assumed by UATC in connection with the Acquisition was
fraudulent and that the Sale-Leaseback Transaction is also fraudulent because
the proceeds of the Sale-Leaseback Transaction were used to refinance a portion
of such indebtedness. It is also possible that the ongoing lease payment
obligations could be considered a fraudulent conveyance to the extent UATC is
insolvent and does not receive fair consideration therefor.
17
<PAGE>
This situation could arise if the rent payable under the Lease is not reasonably
equivalent to the rental value of the Properties. UATC believes that the rentals
payable under the Lease are a fair consideration for the use of the Properties.
To the extent that a federal or state proceeding invalidates the transactions
described in this Prospectus, a creditor or representative of creditors of UATC
could seek to avoid the Sale-Leaseback Transaction. This would result in an
Indenture Event of Default and would allow the Indenture Trustee to exercise its
remedies under the Indenture.
On the basis of UATC's historical financial information and its recent
operating history as discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (and taking into account that
UATC and its subsidiaries will have received fair consideration for their sale
of the Properties and the proceeds of such sale will have been used to repay
outstanding indebtedness), UATC believes that, at the time of the Sale-Leaseback
Transaction, UATC was not insolvent and was not rendered insolvent, and has
sufficient capital for the businesses in which it is engaged and is able to pay
its debts as they mature.
18
<PAGE>
UNITED ARTISTS
United Artists believes that it is one of the largest theatrical
exhibitors of motion pictures in the United States in terms of number of screens
operated. United Artists was founded in 1926 by shareholders including Mary
Pickford, Douglas Fairbanks, Sam Goldwyn and Joe Schenck. From its founding
through the 1980's, UATC expanded its exhibition activities through acquisitions
and partnerships with other operators. As of December 31, 1995, UATC operated
2,365 screens at 420 theatre locations in 29 states, Puerto Rico, Hong Kong,
Singapore and Argentina. See "Business--Theatre Properties." Consolidated
admissions revenue for UATC's theatres for the years ended December 31, 1995 and
1994 was approximately $457.1 million and $447.6 million, respectively. Over
77% of UATC's screens are located in theatres with five or more screens. As of
December 31, 1995, UATC's average number of screens per theatre was 5.6.
On May 12, 1992, OSCAR I purchased all of the issued and outstanding
capital stock of UATC (the "Acquisition") from an affiliate of Tele-
Communications, Inc., a Delaware corporation ("TCI"). In connection with the
Acquisition, OSCAR I was also issued 92,500 shares of Series A Cumulative
Redeemable Exchangeable Preferred Stock of UATC (the "UATC Preferred Stock").
OSCAR I was formed by Merrill Lynch Capital Partners, Inc. ("MLCP") on February
4, 1992 solely to effect the Acquisition.
Simultaneously with the Acquisition, the Non-Management Investors (as
defined below) formed OSCAR II Corporation ("OSCAR II"), separately acquiring
from an affiliate of TCI all of the outstanding capital stock of UAR. UAR and
its subsidiaries, UAP I and Prop II, were the owners and lessors of certain
operating theatre properties then leased to and operated by UATC and its
subsidiaries, including certain of the Properties that were acquired by the
Owner Trustee in the Sale-Leaseback Transaction. The acquisition of UAR by
OSCAR II is herein referred to as the "UAR Acquisition" and, collectively with
the Acquisition and the acquisition by OSCAR I of all of the capital stock of
each of UAB, Inc. and UAB II, Inc., the "Acquisitions." OSCAR I and OSCAR II are
hereinafter referred to together as the "Purchaser." As of December 31, 1995
outstanding mortgage debt of UAR and UAP I, which is secured by their respective
theatre properties aggregated approximately $70.5 million.
19
<PAGE>
On February 28, 1995, OSCAR II was merged into OSCAR I. The merger was
effected by a one-for-one share exchange. Set forth below is a diagram setting
forth the basic corporate structure of OSCAR I subsequent to the Sale-Leaseback
Transaction.
OSCAR I
Lease
UATC UAR
(Lessee)
Various Lease
Subsidiaries UAP I Prop II
OSCAR I is owned by affiliates of MLCP and certain institutional
investors (the "Non-Management Investors"), as well as certain members of
management of UATC. As of March 21, 1996, MLCP and its affiliates owned in the
aggregate approximately 86.3% of the issued and outstanding capital stock of
OSCAR I, certain institutional investors owned in the aggregate approximately
8.7% of the issued and outstanding capital stock of OSCAR I and certain members
of management of UATC owned in the aggregate approximately 5.0% of the issued
and outstanding capital stock of OSCAR I. In addition, TCI Realty Investments
Company, a Delaware corporation and an affiliate of TCI (the "Seller"), owned
122,448 shares of Series A Cumulative Redeemable Exchangeable Preferred Stock of
OSCAR I (the "Preferred Stock") having an aggregate liquidation preference of
$122.4 million at December 31, 1995.
On May 1, 1995, UATC restated its bank credit agreement used to effect
the Acquisition with the Restated Bank Credit Agreement. The Restated Bank
Credit Agreement provides for a $250 million delayed draw term loan facility,
$87.5 million of revolving loan and letters of credit commitments and $12.5
million of standby letters of credit. The Restated Bank Credit Agreement
provided for a reduction of the floating interest rate spreads paid by UATC and
lengthened the average life of UATC's bank debt by requiring installment
principal payments on term loans commencing December 31, 1996, and extending the
maturity date to March 31, 2002. The Restated Bank Credit Agreement is secured
by the stock of UATC and substantially all of UATC's subsidiaries and is
guaranteed by OSCAR I and substantially all of UATC's subsidiaries. In
addition, in conjunction with the merger of OSCAR II into OSCAR I, the stock of
UAR was also pledged as additional security.
OSCAR I is not an operating company, currently conducts no independent
operations, and has no significant assets other than the issued and outstanding
capital stock of UATC and UAR which it owns.
United Artists was incorporated under the laws of the State of
Maryland on May 22, 1926. The principal executive offices of United Artists are
located at 9110 East Nichols Avenue, Englewood, Colorado 80112, and its
telephone number is (303) 792-3600.
20
<PAGE>
USE OF PROCEEDS
In conjunction with the issuance of the Old Certificates, Prop II
received approximately $51.4 million from the sale of 17 Properties and United
Artists received approximately $48.4 million from the sale of 14 Properties.
The Prop II proceeds were used to repay the outstanding Prop II mortgage debt.
The United Artists proceeds were used to prepay lease rent pursuant to the Lease
through June 30, 1996 of approximately $6.7 million, repay outstanding bank debt
and/or make investments of approximately $39.5 million and to pay certain
transaction expenses of approximately $2.2 million. In addition, proceeds of
approximately $22.0 million were held in escrow pending completion of the
Incomplete Properties. United Artists will apply such proceeds, as they are
released from escrow, to reduce outstanding bank debt.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of United Artists as
of December 31, 1995. The information set forth below should be read in
conjunction with the historical financial statements and related notes of UATC
that are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------
(IN MILLIONS)
<S> <C>
Debt/(1):/
Term Loans........................................... $ 250.0
Revolving Loans...................................... -
11 1/2% Notes........................................ 125.0
Other................................................ 8.2
-------
Total Debt........................................ 383.2
-------
Stockholder's Equity:
Preferred Stock/(2)/................................. 149.2
Common Stock......................................... --
Additional Paid-In Capital........................... 73.7
Accumulated Deficit.................................. (155.9)
Cumulative Foreign Currency Translation Adjustment... (0.1)
Intercompany Account................................. 0.2
-------
Total Stockholder's Equity........................ 67.1
-------
Total Capitalization............................ $ 450.3
=======
</TABLE>
(1) In addition to the Debt detailed above, UATC had $14.5 million of Letters
of Credit outstanding at December 31, 1995.
(2) The terms of the Preferred Stock provide for the accretion of dividends at
8% per annum through December 31, 1995, 9% per annum through December 31,
1996 and 14% per annum thereafter. Due to the increasing dividend rates,
dividends have been accrued at a 14% per annum rate since issuance. The
actual redemption value in accordance with the terms of the Preferred Stock
as of December 31, 1995 was approximately $122.4 million.
22
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data (other than the operational data) presented below
have been derived from UATC's audited Consolidated Financial Statements. This
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
During December 1995, the remaining 11 theatres owned by Prop II
subsequent to the Sale-Leaseback transaction were contributed to UATC. The
contribution of these theatres has been accounted for in a manner similar to a
pooling of interests, and accordingly, UATC's financial statements have been
restated to include these theatres for all periods subsequent to the Acquisition
as if they had been owned for all such periods. The following table of UATC's
selected financial data takes into consideration the restatement of UATC's
financial statements.
<TABLE>
<CAPTION>
SUCCESSOR CORPORATION PREDECESSOR CORPORATION
-------------------------------------------------------- -----------------------------
YEARS ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, MAY 13, 1992 TO JANUARY 1, 1992 DECEMBER 31,
----------------------------------- DECEMBER 31, TO MAY 12, ------------
1995 1994 1993 1992(1) 1992(1) 1991
---- ---- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue $646.1 623.0 643.8 415.6 211.2 618.9
Costs and expenses:
Operating 536.4 508.9 530.0 355.5 172.7 519.1
General and administrative 34.6 32.5 29.9 20.3 9.2 22.3
Restructuring charge -- -- 3.7 -- -- --
Affiliate management fees(2) -- -- -- -- 3.0 22.7
Depreciation and amortization 66.0 63.1 68.0 44.8 12.8 34.0
Provision for impairment 21.0 -- -- -- -- --
Interest expense, net(2) 39.2 32.9 31.4 20.8 8.9 34.9
Loss (gain) on disposition of
assets, net 13.9 9.7 8.7 -- 2.9 (.6)
Net loss (68.9) (27.9) (31.6) (27.5) (.1) (16.8)
Other Financial Data:
Ratio of earnings to fixed
charges(3) -- -- -- -- 1.0 --
Capital expenditures $ 84.2 45.6 28.0 21.1 11.8 23.7
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT AVERAGE TICKET PRICE AND AVERAGE CONCESSION SALE PER
PATRON)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property and Equipment at
cost, net $309.7 327.2 314.1 325.6 279.8
Intangible assets, net(4) 165.8 202.9 236.4 271.2 86.1
Total assets 594.2 602.6 618.1 655.3 420.7
Debt(2) 383.2 320.2 327.0 339.8 311.1
Parent's investment
(deficit)(2) -- -- -- -- (17.0)
Stockholder's equity 67.1 138.4 168.6 202.0 --
Operational Data:
Weighted avg. operating
theatres(5) 411 416 437 468 462
Weighted avg. operating
screens(5) 2,276 2,209 2,249 2,327 2,226
Weighted avg. screen per
operating theatre 5.5 5.3 5.1 5.0 4.8
</TABLE>
23
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
NOTES TO SELECTED HISTORICAL FINANCIAL INFORMATION
(1) Amounts were derived from UATC's Consolidated Financial Statements. The
amounts are for the period from January 1, 1992 to May 12, 1992 (period
prior to Acquisition) and the period from May 13, 1992 to December 31, 1992
(period subsequent to Acquisition). Certain theatres acquired as part of
the Acquisition from the Predecessor Corporation have been included in the
Operating and Other Data since May 13, 1992.
(2) During 1987, in conjunction with the restructuring of the debt of United
Artists Communications, Inc. ("UACI"), United Artists Holdings, Inc.
("UAHI") was formed as a holding company for all of UACI's primary
operating subsidiaries (including UATC). Subsequent to the restructuring,
UAHI began charging each operating subsidiary (including UATC) a management
fee. In general, this management fee represented an allocation of interest
and general and administrative expenses to each operating subsidiary based
primarily upon the percentage of revenue contributed by each operating
subsidiary to UAHI. During 1989, UAHI's debt was refinanced (and the
principal aggregate amount increased) as part of the merger with United
Cable Television Corporation and the formation of United Artists
Entertainment Company ("UAE"). During August 1990, in conjunction with
further debt restructuring, certain UAHI subsidiaries (including UATC) each
assumed a portion of UAHI's debt in exchange for shares of UAHI preferred
stock and certain intercompany balances. This restructuring resulted in a
reduction in the stockholder's equity of UATC (for the value of UAHI
preferred stock) and the management fees, and a corresponding increase in
the Debt and Interest expense of UATC. As part of the Acquisition, the
management agreement was canceled.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss before income taxes plus fixed charges and minority interest in
the earnings of consolidated subsidiaries that have fixed charges. Fixed
charges consist of interest expense and that portion of rental expense that
UATC believes to be representative of interest (i.e., one-third of rental
expense). The management fees paid to UAHI were not considered in
determining the ratio of earnings to fixed charges. The ratio of earnings
to fixed charges was less than 1.0 for the years ended December 31, 1995,
1994 and 1993, the period from May 13, 1992 to December 31, 1992, and the
year end December 31, 1991. Earnings available for fixed charges were thus
inadequate to cover fixed charges for such periods. The amount of the
coverage deficiencies for the years ended December 31, 1995, 1994 and
1993, the period from May 13, 1992 to December 31, 1992, and the year ended
December 31, 1991 were $66.2 million, $25.4 million, $28.8 million, $26.2
million and $13.9 million, respectively. Had the management fees paid to
UAHI been considered in determining the ratio of earnings to fixed charges,
the ratio for the period from January 1, 1992 to May 12, 1992 would have
been 1.0.
(4) Intangible assets represent primarily lease acquisition costs and the non-
competition agreement among United Artists, OSCAR I and TCI entered into in
connection with the Acquisition.
(5) The operating theatres include revenue and expenses of all theatres
operated by UATC which are more than 50% owned. Weighted average operating
theatres and screens represent the number of theatres and screens operated
weighted by the number of days operated during the period.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following discussion and analysis of UATC's financial condition and
results of operations should be read in conjunction with UATC's Consolidated
Financial Statements and related notes thereto. Such financial statements
provide additional information regarding UATC's financial activities and
condition.
During December 1995, the remaining 11 theatres owned by Prop II subsequent to
the Sale-Leaseback transaction were contributed to UATC. The contribution of
these theatres has been accounted for in a manner similar to a pooling of
interests, and accordingly, UATC's financial statements have been restated to
include these theatres for all periods presented as if they had been owned for
all of such periods. The following discussion of UATC's results of operations
takes into consideration the restatement of UATC's financial statements.
RESULTS OF OPERATIONS
YEARS ENDED 1995, 1994 AND 1993
The following table summarizes certain operating data of UATC's theatres
(dollars in millions, except admissions per weighted average operating theatre,
admissions per weighted average operating screen and concession sales per
weighted average operating theatre):
<TABLE>
<CAPTION>
Years Ended Years Ended
December 31, % December 31, %
---------------------- Increase --------------------- Increase
1995 1994 (Decrease) 1994 1993 (Decrease)
---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Theatres /(1)/
Revenue:
Admissions $ 457.1 447.6 2.1 447.6 464.3 (3.6)
Concession sales 178.2 166.7 6.9 166.7 169.6 (1.7)
Other 10.8 8.7 24.1 8.7 9.9 (12.1)
Operating Expenses:
Direct exhibition expenses 249.9 240.1 4.1 240.1 254.9 (5.9)
Direct concession costs 29.5 27.2 8.4 27.2 28.5 (4.5)
Personnel expense 96.5 90.0 7.3 90.0 94.0 (4.3)
Rent expense 74.2 70.3 5.6 70.3 70.5 (0.3)
Other operating expenses 86.3 81.3 6.1 81.3 82.1 (0.9)
Weighted Avg. Operating Theatres/(2)/ 411 416 (1.2) 416 437 (4.8)
Weighted Avg. Operating Screens/(2)/ 2,276 2,209 3.0 2,209 2,249 (1.8)
Weighted Avg. Screens Per
Avg. Theatre 5.5 5.3 3.8 5.3 5.1 3.9
Admissions Per Weighted Avg.
Operating Theatre $1,112,165 1,075,849 3.4 1,075,849 1,062,471 1.3
Admissions Per Weighted Avg.
Operating Screen $ 200,835 202,604 (0.9) 202,604 206,447 (1.9)
Concession Sales Per Weighted
Avg. Operating Theatre $ 433,820 400,793 8.2 400,793 388,101 3.3
</TABLE>
/(1)/ The operating theatres include revenue and expenses of all theatres
operated by UATC which are more than 50% owned.
/(2)/ Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.
25
<PAGE>
REVENUE FROM OPERATING THEATRES
- -------------------------------
1995 VERSUS 1994
ADMISSIONS: Admissions revenue increased 2.1% during 1995 as compared to 1994,
primarily as a result of a 1.9% increase in total attendance and a 0.2% increase
in the average ticket price. The increase in attendance was due primarily to an
increase in the number of weighted average operating screens and an increase in
UATC's market share of films available and the admissions revenue related to
such films. This increase in market share of available films and admissions
revenue relates to an improvement in the film licensing relationships with
certain distributors and to an increase in the market share of admissions by
certain distributors with which UATC has a broader relationship. Due to long-
standing relationships and efforts to improve relationships, screen availability
and other factors, UATC's percentage share of films varies among the various
distributors. Admissions per weighted average operating screen decreased 0.9%
during 1995 primarily as a result of a 1.1% decrease in attendance per weighted
average operating screen. This decrease in attendance per weighted average
operating screen is primarily the result of a decline in attendance per screen
from many of UATC's older and smaller theatres partially offset by attendance
from newly developed theatres which on average had smaller auditoriums than
older theatres. Admissions per weighted average operating theatre increased
3.4% primarily as a result of the new theatres opened in late 1994 and 1995 and
the sale of older smaller (in terms of screens) theatres. Many of the new 1995
theatres were not opened until very late in the year, and as such, their effect
on UATC's operations were not significant.
CONCESSIONS: Concession sales revenue increased 6.9% during 1995 as compared to
1994, primarily as a result of the increased attendance discussed above and to a
4.9% increase in the average concession sale per patron. Concession sales per
weighted average operating theatre increased 8.2% during 1995 as compared to
1994. The increases in the average concession sale per patron and concession
sales per weighted average operating theatre were attributable to UATC's
increased emphasis on training, the installation of bulk candy stands in May
1995, the renovation of concession stands at certain existing theatres, the
opening of several new theatres and the closure of certain less efficient
theatres.
The following table sets forth the admissions and concessions sales revenue for
theatres operated throughout all of both 1995 and 1994 (dollars in millions):
<TABLE>
<CAPTION>
%
Increase
Theatres Screens 1995 1994 (Decrease)
--------- ------- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout
both periods 376 2,086
Admissions $400.0 403.5 (0.9)
Concession sales $155.7 150.6 3.4
</TABLE>
This "same theatre" analysis, eliminates the effect of new theatre openings,
sales or closures during 1995 or 1994.
OTHER: Other revenue is derived primarily from on-screen advertising,
electronic video games located in theatre lobbies, theatre rentals, the rental
of theatres on a networked and non-networked basis for corporate meetings,
seminars and other training/educational uses by UATC's newly formed Proteus
Network(TM) and other miscellaneous revenue. Other revenue increased 24.1% (or
$2.1 million) during 1995 as compared to 1994 primarily as a result of revenue
recognized from UATC initiating a circuit-wide pre-show slide advertising
program in 1995 and revenue from the Proteus Network(TM).
1994 VERSUS 1993
ADMISSIONS: Admissions revenue decreased by 3.6% during 1994 as compared to
1993, primarily as a result of a 4.2% decrease in total attendance, offset
partially by a 0.7% increase in the average ticket price. Admissions per
weighted average operating screen decreased only 1.9% during 1994 as a result of
the attendance decline and the positive net effect of the sale or closure of
less efficient theatres and the opening of several new theatres. The decline in
attendance and admissions per weighted average operating screen for 1994,
despite slightly higher admissions per weighted average operating screen for the
industry as a whole, was primarily due to the change in mix of films available
to UATC, and to UATC's market share of those films, and to a 1.8% decrease in
the number of weighted average screens operated by UATC. UATC's
26
<PAGE>
1994 admissions revenue was adversely impacted by the decline in market share
versus 1993 of a distributor with which UATC has a higher than average share of
admissions revenue and a significant increase in market share in 1994 of a
distributor with which UATC has a lower historical market share.
CONCESSION SALES: Concession sales revenue decreased 1.7%, while concession
sales per weighted average operating theatre increased 3.3% during 1994 as
compared to 1993. Despite the effect of certain widely publicized negative
reports on the health aspects of popcorn, during 1994, UATC's average concession
sale per patron increased 2.3%. The decrease in concessions sales revenue was
primarily attributable to the decreased attendance discussed above, partially
offset by the increased average concession sale per patron. The increases in
concession sales per weighted average operating theatre and average concession
sale per patron reflect UATC's increased emphasis on personnel training and
concession promotions and to the effect of concession stand renovations in
certain existing theatres, the closure of certain less efficient theatres and
the opening of several new theatres.
The following table sets forth the admissions and concession sales revenue for
theatres operated throughout both 1994 and 1993 (dollars in millions):
<TABLE>
<CAPTION>
%
Increase
Theatres Screens 1995 1994 (Decrease)
--------- ------- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout both periods 393 2,082
Admissions $421.8 438.0 (3.7)
Concession sales $156.7 159.4 (1.7)
</TABLE>
OTHER: Other revenue decreased 12.1% (or $1.2 million) during 1994 as compared
to 1993 primarily as a result of fewer weighted average theatres being operated
by UATC.
EXPENSES FROM OPERATING THEATRES
- --------------------------------
DIRECT EXHIBITIONS: Direct exhibition expenses include film rental and film and
theatre advertising costs. Such expenses increased 4.1% during 1995 as compared
to 1994 and decreased 5.9% during 1994 as compared to 1993. Direct exhibition
expenses as a percentage of admissions revenue were 54.7% for 1995, 53.6% for
1994 and 54.9% for 1993. The 1995 increase in direct exhibition expense
percentage was primarily due to increased film rentals on certain of 1995's very
successful summer films and to increased pre-opening advertising costs
associated with theatres opened in 1995. The 1994 decrease in the direct
exhibition expense percentage was primarily due to the success of certain films
released by independent and other distributors which have historically lower
film rentals and to the long run of films released in 1993 into 1994 which
lowered the film cost percentage in 1994. .
DIRECT CONCESSION: Direct concession costs include concession product costs and
concession promotional costs. Such costs increased 8.4% during 1995 as compared
to 1994 and decreased 4.5% during 1994 as compared to 1993. Direct concession
costs as a percentage of concession sales revenue were 16.6% for 1995, 16.3% for
1994 and 16.8% for 1993. The increase in direct concession costs during 1995 as
compared to 1994 was attributable to higher concession sales revenue and to
higher cost of sales associated with bulk candy. The decrease in direct
concession costs during 1994 as compared to 1993 was attributable to lower
concessions revenue. The 1995 and 1994 concession cost percentages were
positively impacted by UATC's concession waste control efforts within the
theatres and to the implementation of centralized national buying programs. The
slight increase in the 1995 concession cost percentage was attributable to the
implementation of bulk candy.
PERSONNEL: Personnel expense includes the salary and wages of the theatre
manager and all theatre staff, commissions on concession sales, payroll taxes
and employee benefits. Personnel expense increased 7.3% during 1995 as compared
to 1994 and decreased 4.3% during 1994 as compared to 1993. The 1995 personnel
expense increase was primarily the result of a 1% increase in the average hourly
wage paid to part-time theatre employees, an increase in the number of average
screens and an increase in the number of staff hours related to general
concession operations, more showings of some of the more successful 1995 summer
films and to staff certain Proteus Network(TM) events. In addition, concession
sales related commissions increased with concession sales and additional
staffing was added during the summer and holiday periods for the newly installed
bulk candy stands. The 1994 personnel expense decrease was
27
<PAGE>
primarily attributable to the reduced attendance discussed above, to fewer
weighted average operating theatres and to certain expense efficiency programs
implemented by UATC.
RENT: UATC's typical theatre lease arrangement provides for a base rental as
well as contingent rental that is a function of the level of the theatre's
revenue over an agreed upon breakpoint. Rent expense increased 5.6% during 1995
as compared to 1994 and decreased 0.3% during 1994 as compared to 1993. The
1995 rent expense increase primarily relates to the base rentals on newly opened
larger theatres and rent associated with the Sale-Leaseback transaction,
partially offset from savings on smaller theatres which were closed or sold.
The 1994 rent expense decrease primarily relates to fewer weighted average
operating theatres, partially offset by higher base rentals on newly opened
theatres. In addition, during 1995, 1994 and 1993 theatre rent expense included
non-cash charges of $2.0 million, $1.5 million and $1.3 million, respectively
for the effect of future increases in base rent payments.
OTHER OPERATING: Other operating expenses include utilities, repairs and
maintenance insurance, real estate and other taxes, supplies and miscellaneous
operating expenses. Other operating expenses increased 6.1% during 1995 as
compared to 1994 and decreased 0.9% during 1994 as compared to 1993. The 1995
increase relates to normal inflationary increases and an increase in the number
of average screens. Also, an additional $1.9 million was added to UATC's
general liability insurance reserve for adverse development of certain claims.
The 1994 decrease was primarily due to certain expense efficiency programs and
to fewer weighted average operating theatres and screens, partially offset by
normal inflationary increases.
The revenue and operating expenses discussed above are incurred exclusively
within UATC's theatres. The other expense discussions below reflect the
combined expenses of corporate, divisional, district and theatre operations.
GENERAL AND ADMINISTRATIVE EXPENSE AND RESTRUCTURING CHARGE
- -----------------------------------------------------------
General and administrative expense consists primarily of costs associated with
UATC's corporate headquarters, film booking and three general manager and 15
district theatre operations offices (generally located in theatres). Such
general and administrative expenses increased $2.1 million in 1995 as compared
to 1994 and $2.6 million in 1994 as compared to 1993. The 1995 increase relates
primarily to $2.1 million of non-recurring severance and litigation charges, a
$0.5 million increase in expenses associated with the Proteus Network/TM/ and
UATC's international development efforts, offset by higher management fees
received from international operations and lower professional and other fees.
The increase in the litigation reserve is primarily associated with the Connie
Arnold litigation and certain other legal settlements. The increase in 1994
versus 1993 was primarily attributable to a $1.0 million increase in
professional and other fees and a $1.5 million increase in general and
administrative expenses associated with the Proteus Network/TM/ and the
international development efforts.
During 1993, UATC completed a plan to restructure its domestic divisional and
district theatre operating offices to eliminate two divisions and seven
districts and centralize certain of its corporate functions in its Englewood
headquarters. The increase in general and administrative expenses for 1993 was
primarily attributable to operating UATC on a stand-alone basis for the full
year, partially offset by savings resulting from the restructuring. In
conjunction with the restructuring, UATC incurred $3.7 million in severance,
relocation and other restructuring expenses.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment and the amortization of theatre lease costs and certain
non-compete agreements. Depreciation and amortization increased $2.9 million
during 1995 as compared to 1994 and decreased $4.9 million during 1994 as
compared to 1993. The 1995 increase was primarily due to depreciation charges
on UATC's new theatres opened during early 1995 and at the end of 1994. The
1994 decrease was primarily due to the sale or closure of 14 theatres (32
screens). As the majority of new theatres in 1994 and 1995 opened at the end of
each of those years, they did not have a significant effect on the year in which
they opened.
28
<PAGE>
ADOPTION OF SFAS NO. 121
- ------------------------
UATC elected to early adopt SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," early during 1995.
The adoption of this new accounting policy has required UATC to evaluate the
expected undiscounted future cash flow and the fair value of its theatres and
other assets on a lower level of grouping than its previous policy for measuring
impairment. As a result of the adoption of this new accounting policy, a non-
cash charge of $21.0 million was recorded by UATC. This non-cash charge relates
to the difference between the historical book value of individual theatres (in
some cases groups of theatres) and the net undiscounted cash flow expected to be
received from the operation or future sale of the individual theatres (or groups
of theatres).
INTEREST
- --------
Interest expense increased $6.3 million during 1995 as compared to 1994 and
increased $1.5 million during 1994 as compared to 1993. The 1995 increase was
due to higher average debt balances, higher market interest rates on floating
rate debt and increased amortization of deferred loan costs relating to the 1995
restated Bank Credit Facility. The 1994 increase was primarily due to higher
average market borrowing rates which increased UATC's overall borrowing rate on
its floating rate Bank Credit Facility.
LOSS ON DISPOSITION OF ASSETS
- -----------------------------
During 1995, 1994 and 1993, UATC incurred losses on the disposition of assets of
$13.9 million, $9.7 million and $8.7 million, respectively. These losses relate
primarily to the sale of certain theatres (for which net cash proceeds of $7.7
million, $2.9 million and $5.4 million were received in 1995, 1994 and 1993,
respectively), and the termination or non-renewal of leases related to theatres
which were closed. The theatres sold and closed were primarily unprofitable
and/or not considered part of UATC's long-term strategic plans.
INCOME TAXES
- ------------
On January 1, 1993, OSCAR I and UATC adopted SFAS No. 109, "Accounting for
Income Taxes." The adoption of SFAS No. 109 did not have any effect on UATC's
1993 results of operations as a valuation allowance was established equal to the
net deferred tax asset at the date of adoption. At December 31, 1995, UATC has
a net operating loss carryforward of approximately $139.0 million.
NET LOSS
- --------
During 1995, UATC incurred a net loss of $68.9 million as compared to $27.9
million in 1994. This increase was primarily the result of a $21.0 million non-
cash charge associated with the early adoption of SFAS No. 121, a decrease in
operating margins resulting from increases in certain variable film, personnel
and rent costs, certain non-cash and/or non-recurring operating and general and
administrative expenses aggregating approximately $4.0 million, additional non-
cash rent charges, increased depreciation and amortization expenses, $4.2
million of additional losses on the disposal of assets, and increases in
interest expenses. During 1994, UATC incurred a net loss of $27.9 million as
compared to $31.6 million in 1993. This decrease was primarily the result of
increased operating margins (before depreciation and amortization) from UATC's
theatres and reduced depreciation and amortization in 1994, and the impact of
the restructuring charge in 1993.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, $42.0 million of cash was provided by
UATC's operating activities. This source of cash, in addition to $32.0 million
of cash provided by financing activities and $48.1 million of proceeds from the
disposition of assets and the Sale-Leaseback transaction was used to fund $89.3
million of net capital expenditures, $10.3 million of minority interest buyouts
and $2.8 million of international investments (net of $1.4 million of
international dividends) and other investments.
Substantially all of UATC's admissions and concession sales revenue are
collected in cash. Due to the unfavorable interest rate spread between bank
facility borrowings and cash investments, UATC seeks to use all of its available
cash to repay its revolving bank borrowings and borrow under those facilities as
cash is required. UATC benefits from the fact that film expenses (except for
films that require advances or guarantees) are usually paid 15 to 45 days after
the admissions revenue is collected.
29
<PAGE>
UATC's results of operations and cash resources provided by operating activities
are subject to seasonal fluctuations in attendance which corresponds to periods
when there is a greater availability of popular motion pictures during the
period from Memorial Day through Labor Day and during the Easter, Thanksgiving
and Christmas holidays. During periods in which there is not an abundant supply
of successful motion pictures, UATC uses availability under its revolving credit
facilities to provide any required funding for its working capital needs and
then repays these facilities during periods of higher attendance.
On February 28, 1995, UAR's parent company OSCAR II was merged into OSCAR I. As
a result of this merger, OSCAR II ceased to exist and OSCAR I became the parent
company of both UATC and UAR. In accordance with the terms of UATC's Restated
Bank Facility and Senior Secured Notes, the stock of UAR was pledged as
additional collateral for such borrowings. At the time of the merger, UATC
estimated that the market value of properties (primarily land, building and
equipment associated with operating theatres) owned by UAR and its subsidiaries
was significantly in excess of the mortgage and other debt held by UAR and its
subsidiaries.
Effective May 1, 1995, UATC restated its Bank Credit Facility to correspond with
UATC's current capital and corporate structure and its current business plan.
The Bank Credit Facility provides for a $250.0 million delayed draw term loan,
$87.5 million of revolving loan and letters of credit commitments, and $12.5
million of standby letters of credit. The Bank Credit Facility has reduced the
floating interest rate spreads paid by UATC and extended the average life of
UATC's bank debt by requiring semi-annual principal payments on term loans
commencing December 31, 1996, and extending the maturity date to March 31, 2002.
On December 13, 1995, UATC entered into the Sale-Leaseback transaction whereby
the land and buildings underlying ten of its operating theatres and four
theatres currently under development were sold to, and leased back from, the
Pass Through Trust, an unaffiliated third party, for approximately $47.1
million. A portion of the sale proceeds were used to pay certain transaction
expenses, repay the outstanding revolving bank debt of UATC or are included in
UATC's cash balances at year end. The remainder of the proceeds related to the
four theatres under development (approximately $22.0 million) were deposited
into an escrow account and will be used by UATC to fund substantially all of the
construction costs associated with the four theatres. In addition, 17 theatres
owned by Prop II were sold to the Pass Through Trust and leased back to UATC.
During December 1995, the remaining 11 theatres owned by Prop II were
contributed to UATC. The Prop II master lease with UATC was terminated and the
$12.5 million letters of credit established by UATC to guarantee the Prop II
mortgage debt were canceled. The contribution of these theatres has been
accounted for in a manner similar to a pooling of interests whereby the
historical carrying value of the theatres and related equity was contributed.
Prop II's historical cost basis of these theatres prior to the contribution was
approximately $20.3 million. In addition to the contribution of the remaining
Prop II theatres, the equipment in the 17 Prop II theatres included in the Sale-
Leaseback transaction was contributed to UATC.
UATC is continuously looking for attractive theatre development opportunities
which have strategic significance and offer attractive returns and growth
potential. In addition, in an effort to attract additional theatre patrons and
increase theatre operating results, UATC is installing entertainment centers in
certain of its newly constructed theatres. The entertainment centers typically
consist of one or more virtual reality rides and expanded food operations. The
entertainment centers will operate during the same periods as the theatre and
require little incremental management overhead to operate.
In an effort to limit the amount of investment exposure on any one project, UATC
typically develops theatre projects where the land and building is leased
through long-term operating leases. However, where such lease transactions are
not available, UATC will invest in the land and development of the entire
theatre facility (fee-owned). Regardless of whether the theatre is owned or
leased, in most cases the equipment and other theatre fixtures are owned by
UATC. For the year ended 1995, UATC invested approximately $84.2 million on 14
new theatres (121 screens), additions to four existing theatres (16 screens),
renovations and recurring maintenance to certain existing theatres and corporate
capital expenditures. In instances where
30
<PAGE>
UATC invests in land and develops a theatre, once opened, UATC seeks to enter
into sale leaseback transactions whereby the theatre land and building are sold
and leased back in accordance with a long-term lease (20 years, with options).
In addition, during 1995, UATC opened a three screen theatre in Singapore for
which UATC's ownership interest is 50% and purchased a 25% ownership interest in
three operating theatres (13 screens) in Argentina.
At December 31, 1995, UATC had entered into theatre construction and equipment
commitments aggregating approximately $67.0 million for theatres which UATC
intends to open during the next two years. Such amount relates only to projects
in which UATC had executed a definitive lease agreement and for which
construction had started. Of the committed amount, UATC will be reimbursed
approximately $22.0 million from the Sale-Leaseback transaction proceeds
currently held in escrow.
During 1995, UATC sold eight theatres (34 screens) and closed 13 theatres (47
screens). The theatres which were sold provided UATC with approximately $7.7
million of net cash proceeds. The majority of theatres which were closed were
unprofitable and those that were sold were not considered part of UATC's long-
term strategic plans.
During 1995, UATC paid approximately $10.3 million for the remaining 49%
interest of a consolidated partnership which owned three theatres in the New
York City.
During March 1996, UATC initiated a plan to increase its efforts to dispose of,
through sale or lease terminations, certain of its operating theatres and real
estate which are not considered part of its long-term strategic plans. This
increased emphasis on the disposal of non-strategic or underperforming theatres
and/or real estate involves; (i) 36 leased theatres (134 screens) where the
leases are expiring by their terms in 1996 or where UATC will seek an early
termination; (ii) 41 theatres (173 screens) which are being marketed for sale to
other operators, and (iii) 18 operating theatres (59 screens) and seven parcels
of real estate owned by UATC, UAR or Prop I where the theatre operations do not
support the value of the underlying real estate. Net proceeds from these
increased disposition efforts will be used to repay existing debt and/or
redeployed into new higher margin theatres. While there can be no assurance
that such sales or lease termination efforts will be successful, negotiations
have been initiated with respect to several theatres.
The level of continued investing activities by UATC is dependent on, among other
factors, its on-going operating liquidity and to other sources of liquidity.
One measure commonly used in the theatrical industry to measure operating
liquidity is referred to as "Interest Coverage." Interest Coverage is the ratio
of Operating Cash Flow (operating income before depreciation, amortization and
other non-recurring or non-cash operating credits or charges) to interest
expense (excluding amortization of deferred loan costs). As described
previously, several non-recurring or non-cash operating charges were recorded in
the Consolidated Statement of Operations during 1995 and 1994 which adversely
affected UATC's Operating Income for such years. Following is a calculation of
Operating Cash Flow and Interest Coverage for each of the last three years,
including a reconciliation of Operating Income to Operating Cash Flow ($ in
millions):
<TABLE>
<CAPTION>
1995 1994 1993
------- ---- ----
<S> <C> <C> <C>
Operating Income (Loss) $(11.9) 18.5 12.2
Depreciation and Amortization 66.0 63.1 68.0
Adverse Development of Insurance Claims 1.9 - -
Non-Cash Rent 2.0 1.5 1.3
Severance, Litigation and Restructuring Expenses 2.1 - 3.7
Adoption of SFAS 121 21.0 - -
------ ---- ----
Operating Cash Flow $ 81.1 83.1 85.2
====== ==== ====
Interest Expense $ 39.0 31.6 29.8
====== ==== ====
Interest Coverage Ratio 2.1 2.6 2.8
====== ==== ====
</TABLE>
31
<PAGE>
While UATC's Interest Coverage Ratio has declined in 1994 and 1995, UATC
considers such coverages adequate to meet its on-going liquidity needs. The
decline in the 1995 interest coverage ratio set forth above relates to a slight
decrease in Operating Cash Flow and an increase in interest expense relating to
higher market interest rates and higher debt balances associated with increased
new theatre construction activity. In addition, the interest coverage ratio was
adversely impacted by the fact that the 1994 and 1995 new theatre construction
was funded (in part through debt borrowings) throughout each of those years, but
the theatres were not opened until late in each of those years and thus they did
not have a significant impact on UATC's Operating Cash Flow in the year opened.
Operating Cash Flow set forth above is one measure of value and borrowing
capacity commonly used in the theatrical exhibition industry and is not intended
to be a substitute for Operating Cash Flow as defined in UATC's debt agreements
or for cash flows provided by operating activities, a measure of performance
provided herein in accordance with generally accepted accounting principles, and
should not be relied upon as such. The Operating Cash Flow as set forth above
does not take into consideration certain costs of doing business and as such
should not be considered in isolation to other measures of performance.
Another measure of liquidity is net cash provided by operating activities as
reflected in the accompanying Consolidated Statements of Cash Flow. Net cash
provided by operating activities of $42.0 million, $48.3 million and $63.6
million in 1995, 1994 and 1993, respectively, reflects the net cash from the
operation of UATC provided for UATC's liquidity needs after taking into
consideration additional costs of doing business which are not reflected in the
Operating Cash Flow calculations discussed above. While amounts expended by
UATC in its investing activities exceed net cash provided by operating
activities, Management believes that its net cash provided by operating
activities, borrowings under its Restated Bank Credit Facility, contributions
made by landlords under long-term lease arrangements, amounts deposited in
escrow as a result of the Sale-Leaseback transaction and the proceeds from asset
sales and additional Sale-Leaseback transaction transactions will be sufficient
to fund its debt service, capital expenditures and other investments, and other
liquidity requirements for the foreseeable future.
OTHER
UATC's results of operations are subject to seasonal fluctuations in attendance
which corresponds to holiday school vacation periods and a greater availability
of popular motion pictures during the period from Memorial Day through Labor Day
and during the Easter, Thanksgiving and Christmas holidays. Poorly performing
motion pictures and/or any significant disruption in the production of popular
motion pictures by several of the major motion picture production companies or
independent producers may have an adverse effect on UATC's results of
operations.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by the
Financial Accounting Standards Board in October 1995. SFAS No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans as well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. UATC will include
the disclosures required by SFAS No. 123 in the notes to future financial
statements.
Inflation did not have a material impact on UATC's results of operations during
1995, 1994 or 1993.
32
<PAGE>
BUSINESS
GENERAL
United Artists believes it is one of the largest theatrical exhibitors
of motion pictures in the United States in terms of number of screens operated.
As of December 31, 1995, UATC operated 2,365 screens at 420 theatre locations in
29 states, Puerto Rico, Hong Kong, Singapore and Argentina. UATC's geographic
focus is in the southern and eastern regions of the United States, certain
midwestern states and in California. See "--Theatre Properties." As of December
31, 1995, UATC believes it operated approximately 8% of the screens located in
North America, representing approximately 9% of admissions revenue for North
America. Admissions revenue chain-wide for the years ended December 31, 1995
and 1994 were approximately $457.1 million and $447.6 million, respectively.
Over 77% of UATC's screens are located in theatres with five or more screens.
As of December 31, 1995, UATC's average number of screens per theatre was 5.6.
As discussed under "Theatrical Operating Strategy" below, this multiscreen
theatre strategy, or multiplexing, is designed to improve revenue and
profitability by enhancing attendance, theatre utilization and operating
efficiencies.
United Artists believes that it is the largest exhibitor in many of
the communities that it serves and that its theatres are generally regarded as
attractive by film suppliers and patrons. Management believes that these
factors give UATC a competitive cost advantage with respect to UATC's
operations.
HISTORICAL OVERVIEW
United Artists was founded in 1926 by shareholders including Mary
Pickford, Douglas Fairbanks, Sam Goldwyn and Joe Schenck. From its founding
through the 1980's, UATC expanded its theatrical exhibition activities through
acquisitions and partnerships with other operators.
By the 1980's, cable television had become a major business of UATC.
With the development of the cable business, UATC evolved into UACI. In 1986,
TCI became UACI's controlling shareholder. In May 1989, UACI acquired United
Cable Television Corporation, and UACI changed its name to UAE. In December
1991, UAE became a wholly owned subsidiary of TCI.
In order to establish operations in certain regions which were located
between its existing areas of operation, from 1986 to 1988 UATC undertook a
major acquisition program, completing transactions with Gulf States Theatres,
Georgia Theatres, Commonwealth Theatres, Litchfield Theaters and Sameric
Construction Company. By December 31, 1988, UATC operated 2,677 screens in 686
theatres located in three principal regions--the southern and northeastern
regions of the United States, certain midwestern states and in California. The
following table summarizes UATC's significant acquisitions from 1986 to the
present:
33
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
THEATRE NUMBER OF OPERATING
DATE OF TRANSACTION CIRCUIT PURCHASED THEATRES SCREENS STATES OF OPERATIONS
------------------- ------------------- --------- ------------- --------------------
<S> <C> <C> <C> <C>
October 4, 1988...................... Commonwealth 180 383 Arizona, Arkansas,
Colorado, Idaho,
Kansas, Missouri,
Nebraska, New
Mexico, Oklahoma,
South Dakota, Texas,
Wyoming
April 22, 1988....................... Sameric
Construction 42 116 Delaware, New
Jersey, Pennsylvania
May 15, 1987......................... Litchfield Theatres 51 240 Alabama, Ohio,
Tennessee, Florida,
Georgia, Kansas,
North Carolina,
South Carolina,
Virginia, West
Virginia
December 23, 1986.................... Georgia Theatres 33 105 Georgia, Alabama
November 25, 1986.................... Gulf States 53 210 Louisiana, Texas,
Florida,
Mississippi, Alabama
</TABLE>
Concurrent with the growth of theatre operations by acquisition,
United Artists has continued to rejuvenate the circuit through the development
of new theatre properties and the upgrading of existing ones. Subsequent to the
acquisitions described above, United Artists has streamlined the circuit through
the sale or closure of 352 theatres (965 screens) and has added 86 theatres (653
screens) primarily through new construction. UATC's average screens per theatre
has increased from 3.9 at December 31, 1988 to 5.6 at December 31, 1995.
THEATRICAL OPERATING STRATEGY
Geographic positioning and operating efficiencies are key elements of
UATC's operating strategy. Geographic location, both regional and local, is
important in providing UATC with access to attractive markets and in enhancing
film buying and operating efficiencies. Operating efficiencies are achieved by
(i) minimizing the ratio of theatre operating costs to patrons and revenues,
largely through the continued construction of multiplex theatres, (ii) by
concentrating regional corporate operations around fewer strategic markets and
(iii) reducing its number of less efficient, non-strategic theatres. Operating
expense control at the theatre level is also an important factor. Theatre
manager compensation is specifically tied to controlling payroll, supplies,
concession and other controllable costs.
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UATC operates its theatres from its Englewood corporate headquarters,
through its three strategically located regional operating and film booking
offices and 15 district operating offices.
Geographic Positioning. Theatrical exhibitors depend upon strong
geographic positioning to obtain the most attractive film rental arrangements,
since film bookings are negotiated on a local, market-by-market basis. Strong
geographic positioning in terms of screen number and location enhances the
attractiveness of a theatre exhibitor to film distributors, in part due to the
exhibitor's ability to influence the local success of a film release. Depending
upon area size and local demographics (such as population density and
transportation systems), an individual market can be a state, a city or a
neighborhood.
United Artists' strategy is to concentrate its theatres in particular
geographic regions. The UATC circuit is particularly focused in the greater New
York/New Jersey metropolitan area, eastern Pennsylvania (including
Philadelphia), Colorado (primarily Denver), Georgia, Florida, Texas, certain
areas in North and South Carolina, Louisiana and California. UATC has strong
positions in most of the major metropolitan markets in these geographic areas.
Approximately 48% of UATC's screens are in its top 15 geographic areas.
Management believes that the New York/New Jersey and California areas are
particularly attractive to film distributors because of the promotional benefits
derived from their concentrated populations. The states which represent the
largest geographic concentration of theatres and screens operated accounted for
approximately 54% of UATC's total theatres and screens at December 31, 1995 and
were as follows:
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER
STATE OF THEATRES OF SCREENS
----- ------------ ------------
<S> <C> <C>
California..... 68 334
New York....... 42 199
Florida........ 31 260
Texas.......... 37 222
Pennsylvania... 31 149
Louisiana...... 18 126
</TABLE>
Construction Plans. UATC's construction strategy focuses on site
selection and on enhancing the theatre-goer's experience. Each new location
will be selected giving consideration to UATC's position in the particular
market, the number of existing competitive screens, growth potential of the area
and, in general, a minimum threshold population within a certain radius of the
theatre. Theatres generally are designed so as not to create barriers to access
by certain patrons and employees with disabilities, and with more comfortable
chairs with cupholders, analog or digital stereo and increased concession
capacity.
As part of its construction strategy, UATC intends to construct
theatres that have a good balance between the number of auditoriums and the size
of those auditoriums. This balance will allow UATC to provide an adequate number
of screens sought by distributors and increased entertainment value to patrons
afforded by larger auditoriums. In addition to increasing the number of screens
in certain locations, the Company is also constructing theatres with stadium
seating, upgraded seats and other design features which are appropriate for the
market in which the theatre is located. UATC is developing new motion picture
and other uses for its theatre complexes in an effort to attract new patrons and
to make better use of its facilities during time periods in which theatrical
attendance is low. See "--Other New Business Initiatives." In addition to its
domestic theatre development plans, UATC also intends to develop theatres in
certain select markets outside of the United States with strategic partners.
See "--International Operations."
35
<PAGE>
UATC has historically financed, and plans to continue to finance, a
significant portion of the cost of construction of new theatres by entering into
leases which generally require the landlord to fund a significant portion of
the up-front construction costs in exchange for UATC entering into a long-term
net lease. As a result, in many cases expenditures are only required for the
projection equipment and furniture and fixtures and thus, net capital
expenditures for new leased theatres are minimized.
In addition to new construction, UATC also intends to devote resources
to adding additional screens to existing theatres and to refurbishing certain
existing theatres to strengthen its position in existing markets.
UATC maintains an architectural design staff, an engineering staff and
professional real estate personnel responsible for the design and construction
of new theatres and the remodeling and upgrading of existing theatres.
Multiplex Format. Almost all of UATC's theatres are multi-screens
(i.e., consist of two or more screens). In comparison to a single screen
theatre, multiscreen theatres allow facilities such as concession stands and
restroom facilities, and operating costs such as lease rentals, utilities and
personnel, to be spread over a larger base of screens and patrons. Multiscreen
theatres also allow for a variety of films with differing audience appeal to be
shown and provide the flexibility to shift films to larger or smaller
auditoriums depending on the popularity of the film. In order to limit crowd
congestion and to maximize the efficiency of floor and concession staff, the
starting times of films at multiscreen theatres are staggered.
Concession Penetration. The typical UATC theatre derives
approximately 71% of its total revenue from admissions and most of the balance
from concessions. Concession sales are a very important factor with respect to
the overall profitability of a theatre. As a result of this, UATC's strategy is
to focus on increasing concession sales by seeking to increase the percentage of
patrons who purchase concessions and by seeking to increase the amount of
concessions purchased by each patron. To accomplish these goals and to improve
its concession performance relative to prior periods and relative to that of
other major theatre operators, UATC is implementing training programs for all
concession employees, remodeling concession stands at certain existing theatres
to make them more visible, attractive and efficient, constructing new theatres
with increased concession capacity, expanding concession menus in selected
locations and adopting seasonal and event-oriented marketing plans (e.g., Super
Bowl promotional tie-ins) to increase concession penetration. See "--
Concessions."
FILM LICENSING
UATC obtains licenses to exhibit films by directly negotiating with
film distributors on a film-by-film and theatre-by-theatre basis. UATC licenses
films through its booking offices located in New York, Dallas and Los Angeles.
Each regional booking office is responsible for booking films for theatres in
their region. This regional film booking structure allows UATC to maintain
better relationships with regional representatives from the various film
distributors, and provides better insight to the film tastes of patrons in each
market. UATC licenses films from all of the major and independent film
distributors and is not overly dependent on any one film distributor for film
product.
UATC licenses the majority of its first run films from distributors
owned by the major and independent film production companies. Each film
distributor establishes geographic areas known as "film zones," and typically
allocates each of its films to only one theatre within each film zone. In most
cases where there is more than one exhibitor in a film zone, this allocation
process is based on long standing relationships between the distributor and
exhibitor or is done on an alternating basis. In certain very limited
36
<PAGE>
cases where there are several exhibitors in a film zone, film is also allocated
based on an exhibitor bidding process. Film zones vary in size based primarily
upon population density. In film zones in which UATC is the only exhibitor, UATC
will not have any competition with respect to licensing the film product.
Film licenses typically specify rental fees equal to the higher of a
percentage of (i) gross box office receipts or (ii) adjusted box office
receipts. Under the gross box office receipts formula, the film distributor
receives a specified weekly percentage of the gross box office receipts. Under
the adjusted box office receipts formula, the film distributor receives a
specified percentage of the excess of box office receipts over a periodically
negotiated amount of house expenses. In certain very limited cases, UATC may be
required to pay a non-refundable guarantee or make film rental advances in order
to obtain certain film licenses.
Most terms of the film licenses (and hence the film rental costs) with
many film distributors are historically finalized subsequent to exhibition of
the film in a process known as "settlement." The settlement process considers,
among other things, the actual success of a film relative to original
expectations, an exhibitor's commitment to the film, and the exhibitor's
relationship with the film distributor.
UATC has historically been able to license a majority of the motion
pictures available; however, there is no guarantee that this will continue in
the future.
CONCESSIONS
Concession sales are a very important factor with respect to the
overall profitability of a theatre and as such, increasing concession sales is
an important aspect of UATC's operating strategy. UATC's primary concession
products are varying sizes of popcorn, soft drinks, candy and certain other
products such as nachos and hot dogs. In addition, in an effort to further
broaden the base of patrons which buys concessions, UATC is expanding its
concession menus in many theatres to include bulk candy, pizza, pretzels,
cookies, ice cream, bottled water, fruit juices and other specialty items.
Popcorn, soft drinks and packaged candy are generally sold in three or four
(includes children's) sizes. Retail prices for concession items vary by the
size of the offering and are generally market sensitive. Concessions revenue is
recorded in UATC's Consolidated Financial Statements net of applicable sales
taxes.
The placement, design and appearance of concession stands, as well as
minimizing the waiting time for service, are key factors in improving concession
sales. All of UATC's new or refurbished theatres are, and will continue to be,
designed with lobbies that allow for an efficient number of seats per concession
station and for improved visibility of, and traffic flow around, the concession
stands. UATC is also devoting additional resources to training its concession
personnel to "up-sell" or "cross-sell" products more effectively.
INTERNATIONAL OPERATIONS
United Artists' operations outside of the United States and Puerto
Rico ("international operations") were established in 1984 with the construction
of its first theatre in Hong Kong through a non-consolidated subsidiary. In the
years prior to the Acquisition, additional theatres were constructed in Hong
Kong. After the Acquisition, UATC sought to expand its Hong Kong operations and
seek out other opportunities in Southeast Asia. During early 1995, UATC's first
theatre in Singapore opened. During December 1995, the Company purchased a 25%
interest in three existing theatres in Argentina. As of December 31, 1995,
UATC's international operating theatres are summarized as follows:
37
<PAGE>
<TABLE>
<CAPTION>
COUNTRY THEATRES SCREENS OWNERSHIP
------- -------- ------- ----------
<S> <C> <C> <C>
Hong Kong... 4 20 50%
Singapore... 1 3 50%
Argentina... 3 13 25%
- --
8 36
= ==
</TABLE>
In addition to expanding its existing Southeast Asia and Argentina
operations, UATC is investigating other opportunities on a very selective basis
in other countries with high entertainment demand and poor existing theatrical
infrastructures. Generally, UATC will only invest in international projects
with local partners and will require that UATC manage such operations. UATC
receives a management fee based on a percentage of revenue for such management
services. Operating revenue from international operations for the years ended
December 31, 1995 and 1994 was $41.5 million and $30.4 million, respectively.
In addition to $.3 million and $.1 million received from management fees, for
the years ended December 31, 1995 and 1994, respectively, $1.4 million and $3.2
million were received in cash dividends during the same periods, respectively.
It is United Artists' intent that much of its international expansion will be
funded by limited initial "start-up" funding, from dividends received and other
funds generated by international investments or from stand alone financing.
United Artists' international operations are managed by corporate executives
based in Englewood, Colorado and limited staff based in Hong Kong, Singapore and
Argentina. Generally, local operating offices will only be established in
foreign countries when there is sufficient operations to support such overhead.
ENTERTAINMENT CENTERS
In an effort to complement its existing theatre development plans and
broaden the demographic reach of theatres located in larger metropolitan areas,
UATC has begun to design and construct fully integrated multi-venued indoor
theme parks or entertainment centers called Starport/TM/. The Starports/TM/
will range in size from 30,000 square feet to 100,000 square feet, depending on
the needs of a given development project and will consist of various
combinations of a multi-screen theatre (in the larger centers), expanded
concession and food service venues and several themed and unthemed "high-tech"
virtual reality venues, attractions and other electronic games. With the
increased critical mass created by the Starport/TM/ around UATC's concession
stands and theatres, UATC believes these centers will become more of a
destination location, thus enhancing attendance and operating margins. The first
Starport/TM/ opened in September 1995 in Indianapolis, Indiana within a new
regional mall. UATC intends to open as many as five Starports/TM/ during 1996 as
part of its ongoing theatre development.
OTHER NEW BUSINESS INITIATIVES
In an effort to utilize its existing asset base more effectively during
periods of low theatre attendance (such as mornings and weekdays), UATC has
developed a business unit called the Satellite Theatre Network or Proteus
Network/TM/. The Proteus Network/TM/ is developing a business for the purpose
of renting theatre auditoriums for seminars, corporate training, business
meetings and other educational or communication uses, for product and customer
research and for other entertainment uses. Theatre auditoriums are rented on an
individual basis or on a networked basis. In order to provide the
"broadcasting" network or "teleconferencing" capability, a network of theatres
has been created by installing high quality (high definition-like) video
projection capabilities within theatres which are networked via the combination
of satellite delivery from a single or multiple location and telephonic
communication.
38
<PAGE>
As of December 31, 1995, Proteus Network/TM/ included 27 theatres with
electronic video capability and an additional 393 theatres which were being
rented for individual non-networked uses. As the Proteus Network/TM/ operations
within the theatre are managed by existing personnel, very little incremental
personnel expenditures are required. Marketing of the Proteus Network/TM/
services is done on a national basis by staff located in Englewood, Colorado.
THEATRE PROPERTIES
As of December 31, 1995, UATC and its subsidiaries operated 420 theatres
with an aggregate of 2,365 screens in 29 states, Hong Kong, Puerto Rico,
Singapore and Argentina. Of these locations, 408 theatres representing 2,317
screens are operated by UATC and its subsidiaries, the results of which are
included in the Consolidated Financial Statements for UATC, while the remainder
are owned 50% or less and are managed pursuant to arrangements under which UATC
receives management fees (which are included as a reduction of "General and
Administrative Expenses" in the Consolidated Financial Statements of UATC). The
table below summarizes the theatres operated by UATC and its subsidiaries at
December 31, 1995.
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER
OF THEATRES OF SCREENS
------------ ------------
<S> <C> <C>
Fee-Owned................................ 26 99
Leased:
Third party............................ 338 1,978
UAR and UAP I.......................... 44 240
--- -----
Total owned and leased theatres... 408 2,317
Managed theatres......................... 12 48
--- -----
Total operating theatres 420 2,365
=== =====
</TABLE>
Of the 408 theatres where the land and building are owned or leased by
UATC, nine theatres (30 screens) are held through two corporations which are
owned 75% by the Company and three theatres (23 screens) held by three
partnerships each of which are owned 51% by the Company. The remaining theatres
are held directly by UATC or its wholly-owned subsidiaries. The managed theatres
are all held by corporations owned 50% or less by the Company.
Pursuant to the Sale-Leaseback Transaction, the land and building
improvements relating to 10 operating theatres and four theatres under
development owned by UATC, and 17 theatres owned by Prop II and leased to UATC
were sold to the Owner Trustee and leased back by UATC. The remaining theatres
owned by Prop II and the theatre equipment used by the 17 theatres sold were
transferred to UATC in conjunction with a merger or other combination of Prop II
into UATC. See "The Properties."
UATC's third party leases generally have terms that range from 10-20
years, and provide for options to extend for up to 20 additional years at UATC's
option. UATC expects that in the normal course of business, desirable leases
that expire will be renewed or replaced by other leases The leases provide for
minimum annual rentals and, under certain circumstances, may require additional
rentals based upon a percentage of the leased theatres' revenue over an agreed
upon breakpoint. Certain of the leases provide for escalating minimum annual
rentals during the term of the lease. The leases typically require UATC to pay
for property taxes, insurance, and certain of the lessor's overhead costs.
39
<PAGE>
UATC leases the land, building and equipment of those theatres owned
by UAR and its two wholly-owned subsidiaries, UAP I and Prop II in accordance
with three master leases. In conjunction with the Sale-Leaseback transaction,
the Prop II master lease was canceled. The UAP I and the UAR Leases, defined
below, expire in 2003, and provide for options to extend the leases at UATC's
option for up to an additional ten years. See "--Certain Transactions with UAR
and its Subsidiaries."
UATC owns directly or through its subsidiaries substantially all of
the theatre equipment used in its fee-owned theatres and theatres leased from
unaffiliated third parties.
CERTAIN TRANSACTIONS WITH UAR AND ITS SUBSIDIARIES
General. Prior to the Sale-Leaseback Transaction, UAP I leased 40
theatre properties (the "UAP I Lease") and Prop II leased 28 theatre properties
(the "Prop II Lease") to UATC (collectively, the "UAP Leases"). Pursuant to the
UAP I Indenture and the Prop II Indenture (each as defined below), such
properties were mortgaged to the respective holders of the UAP Indebtedness. As
a result of the February 28, 1995 merger of OSCAR II into OSCAR I, the common
stock of UAR became 100% owned by OSCAR I.
After giving effect to the lease payments required to be made pursuant
to the UAP I Lease, a balloon payment of approximately $55.0 million will be
required under the UAP Indebtedness of UAP I on November 1, 1998. UAP I has no
substantial operations independent of the lease of properties to UATC and,
accordingly, will be required to refinance such indebtedness upon maturity
thereof. UATC is under no contractual obligation to refinance any portion of the
UAP Indebtedness and there can be no guarantee that UATC will refinance any
portion of the UAP Indebtedness. In conjunction with the Sale-Leaseback
Transaction, UATC and Prop II canceled the Prop II master lease and retired the
UAP indebtedness of Prop II. Pursuant to the Sale-Leaseback Transaction the land
and building improvements relating to 17 of the Prop II properties were sold and
leased back to UATC. The remaining theatre properties owned by Prop II and all
of the theatre equipment owned by Prop II were contributed to UATC after the
Sale-Leaseback Transaction.
The UAP I Lease and Subordination, Non-Disturbance and Attornment
Agreement between the UAP Trustee (as defined below) and UATC provide that
UATC's rights of use and occupancy of the properties on the terms and conditions
of the UAP I Lease will not be disturbed upon a foreclosure or other exercise of
remedies by the UAP Trustee, so long as UATC is not in default under the
applicable UAP Lease. The enforceability of such a non-disturbance agreement
would, however, be subject to the equitable powers of a court.
UAP I Lease and the UAR Lease. Following the consummation of the Sale-
Leaseback Transaction, UATC and Prop II canceled the Prop II Lease. The UAP I
Lease provides for a minimum base rent plus a percentage rent. The annual basic
rent for 1994 was approximately $6.9 million for the UAP I properties. The
annual percentage rent payable in respect of the UAP I Lease is equal to the
amount by which 8% of the total of gross box office receipts plus concession
receipts (as such receipts are determined under such lease) exceeds the basic
rent under such lease. The UAP I Lease is a net lease, which provides that UATC
will pay, in addition to the minimum basic and percentage rent due thereunder,
the taxes, insurance, maintenance and any other charges relating to the leased
theatre properties.
40
<PAGE>
The UAP I Lease expires on October 31, 2003 with two options to extend
the term for an additional term of five years each, exercisable at the option of
UATC. During the extension terms, if any, the minimum rent will be the fair
market value.
UATC leases six theatre properties from UAR (representing 30 screens)
(the "UAR Lease"). The UAR Lease provides for a specified annual basic rent
representing an initial aggregate annual base rent of approximately $3.0
million. The UAR Lease provides that the taxes, insurance, maintenance and any
other charges relating to the leased or subleased theatre properties will be
paid by UATC.
Certain Existing Indebtedness of UAR. In order to finance its purchase
of certain theatre properties that are currently leased to UATC pursuant to the
UAP I Lease, and in order to provide funds for certain other purposes, UAP I
incurred indebtedness which remains outstanding following the Acquisitions.
Although UATC and its subsidiaries are not direct obligors under such
indebtedness, pursuant to the $12.5 million of letters of credit issued under
the Restated Bank Credit Agreement, standby letters of credit have been issued
for the benefit of the holders of such indebtedness to support certain
guarantees thereof by UAE as required by the Stock Purchase Agreement. See "--
Guarantees." At December 31, 1995, UAR and UAP I had approximately $70.5 million
of indebtedness outstanding.
The UAP I Financing. Pursuant to an Indenture of Mortgage and Deed of
Trust from UAP I, as grantor, to the Connecticut Bank and Trust Company,
National Association, and Lese Amato, as trustees (the "UAP I Trustees"), dated
as of October 1, 1988 (the "UAP I Indenture"), UAP I issued notes (the "UAP I
Notes") in an aggregate principal amount of $60 million and granted to the UAP I
Trustees a first priority lien on (i) 41 parcels of land, together with the
buildings thereon and the rents and profits therefrom; (ii) the lease of the 41
properties to UATC (as described above under "Certain Transactions with UAR and
its Subsidiaries"); and (iii) the equipment and machinery used to operate the
theatres located on the properties. As a result of sales and substitutions of
properties, as of December 31, 1995 there were 40 properties securing the UAP I
Notes.
The UAP I Notes bear interest at a rate of 11.15% per annum and mature
on November 1, 1998. The UAP I Notes require that UAP I make 119 equal monthly
installments of principal and interest from December 1, 1988 through October 1,
1998, each in the amount of approximately $572,200. All unpaid principal and
interest due in respect of the UAP I Notes is payable on November 1, 1998. Since
the amortization payments are based upon a 30-year amortization period, a
balloon principal payment of approximately $55.0 million will be due on November
1, 1998. As of December 31, 1995, an aggregate principal amount of approximately
$56.7 million of UAP I Notes remained outstanding.
The UAP I Indenture contains provisions customarily found in mortgages
of this type, including, but not limited to, negative pledges and limitations on
the incurrence of indebtedness. The UAP I Notes are prepayable at any time
(subject to certain notice and minimum payment provisions) at an amount equal to
the principal amount being prepaid, all accrued and unpaid interest thereon and
a make-whole prepayment premium.
Substitution of Properties. The UAP I Indenture permits the
substitution of other properties for the properties encumbered thereby, provided
that certain conditions are satisfied. United Artists contemplates that any such
substitution will be accomplished by the transfer of theater properties from
UATC and its subsidiaries to UAR in exchange for the property which is being
replaced. Any such property transferred from UATC must have a value not less
than the property being replaced. Since the fair market value of the two
properties may not be equivalent, UATC contemplates that it will receive a note
with a principal amount equal to the difference between the fair market values
of such properties. The Indenture for the
41
<PAGE>
11 1/2% Notes places limitations on the issuance of such notes and requires that
any such note when issued shall be pledged for the benefit of the holders of the
Notes and the other parties to the Collateral Documents.
Guarantees. In connection with the incurrence of indebtedness by UAP I
under the UAP I Indenture, UACI, the predecessor entity to UAE (the "UAP
Guarantor"), agreed to guarantee certain obligations of UAP I under the UAP I
Indenture and to guarantee all sums payable by UAP I under the UAP I Notes;
provided, however, that, with certain exceptions, the UAP Guarantor's liability
for the payment of principal, interest and premium of the indebtedness under
each of the UAP I Indenture is limited to $12.0 million (subject to adjustment
in certain circumstances). The UAP Guarantor may assign certain of such
obligations to a direct or indirect wholly owned subsidiary, and will be
released from such obligations, 90 days after letters of credit satisfying
certain conditions and certain undertakings, certificates and opinions are
delivered to the respective trustees.
In conjunction with the Acquisition, UATC was required by the Seller
to obtain standby letters of credit which were issued to the UAP Trustees for
the benefit of the holders of the UAP I Notes and the Prop II Notes to support
such guarantee obligations and certain related fee and expense obligations. The
initial amount of such standby letters of credit was $25.0 million. In
conjunction with the Sale-Leaseback Transaction, the Prop II Notes were prepaid,
the Prop II Lease was terminated and $12.5 million of standby letters of credit
issued by UATC were canceled. If an event of default under the UAP I Indenture
were to occur, the holders of such indebtedness would be entitled to accelerate
the UAP I Notes and to draw under the applicable letters of credit. Events of
Default under the UAP I Indenture include certain customary events of default
(including defaults under the UAP I Lease) and certain events of default
relating to certain bankruptcy or insolvency events, judgments and indebtedness
defaults of UAP I and of the UAP Guarantor. If such letter of credit is drawn,
the lenders under the Restated Bank Credit Agreement would be entitled to demand
payment from UATC of the amounts advanced to fund such letter of credit.
CORPORATE OPERATIONS
UATC operates its theatres from its Englewood corporate headquarters, through
its three regional operating offices and 15 district operating offices and three
strategically located film booking offices. In many cases, the district offices
are located within theatres. In an effort to reduce its general and
administrative expenses and to make its divisional and district operations and
film booking structure more efficient, since the Acquisition, UATC has
restructured its regional operating offices and reduced the number of district
offices from 27 to 15. In addition, certain corporate functions such as
accounting were centralized in the corporate headquarters.
A key focus of the theatre manager is on improving efficiency and managing
costs at the local theatre level. UATC's computer systems, installed in all of
its theatres, allows UATC to centralize all theatre-level administrative
functions at its three regional operating offices and corporate headquarters.
The system allows regional and corporate management to monitor ticket revenue
and concession sales.
Accordingly, there is active communication between the theatres and division
management and corporate management. Management can react on a daily basis to
profit and staffing information. Division management provides guidance in
scheduling, staffing, screen allocation, and other operating decisions.
Management associated with UATC's marketing and concessions operations are also
continually involved with theatre management to promote strong performance in
those areas. The theatre manager, therefore, can focus solely on the day-to-day
operations of the theatre. UATC's reporting systems provide
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<PAGE>
management and each theatre manager with monthly operating reports for
individual theatres. This allows management to monitor theatre manager
performance and progress in attaining certain identifiable goals.
COMPETITION
UATC's operations are subject to varying degrees of competition with other
theatre circuits and independent theatres with respect to, among other things,
licensing films, attracting patrons and obtaining new theatre sites. Management
believes that UATC is well positioned within its industry and that the theatre
exhibition industry as a whole will continue to play a leading role in the
exhibition and marketing of motion pictures and in the entertainment industry as
a whole.
Management believes that the principal competitive factors with respect to
film licensing include acceptable licensing terms, seating capacity, prestige
and location of an exhibitor's theatres, the quality of the theatre in general,
especially of projection and sound, and the exhibitor's ability and willingness
to promote the films. Management also believes that ongoing relationships with
film distribution and production companies are important in continuously
obtaining the best mix of available films.
The competition for patrons is dependent upon factors such as the availability
of popular films, the location of the theatres, the comfort and quality of the
theatres and ticket prices. Film patrons are not necessarily "brand" conscious
and generally choose a theatre to attend based on film selection, location and
quality of the theatre. In order to attract more patrons and to develop loyal
customers, however, UATC is in the process of developing a number of brand
awareness and attendance enhancement programs.
Other motion picture distribution methods include video cassette rentals, pay-
per-view, pay television, other basic cable television services and broadcast
network and syndicated television. Despite the proliferation of these other
distribution systems, industry theatre attendance has increased during each of
the last four years although there can be no assurance that such trend will
continue in the future. Theatrical distribution remains the focal distribution
window for the public's evaluation of films and for motion picture promotion,
and remains the cornerstone of a film's financial success. See "Risk Factors--
Competition."
UATC competes for the public's outside-the-home leisure time and disposable
income with other forms of entertainment, such as sporting events, concerts and
live theatre.
MARKETING AND ADVERTISING
UATC relies principally upon newspaper advertisements, newspaper film
schedules and "word of mouth" to inform its patrons of film titles and
exhibition times. Radio and television spots are used to promote certain motion
pictures and special events. During the years ended December 31, 1995, 1994,
1993, 1992, and 1991 UATC's advertising expenditures were approximately 4.5%,
3.9%, 4.2%, 4.0%, and 3.9%, respectively, of box office revenue.
EMPLOYEES
As of December 31, 1995, UATC had approximately 11,100 employees of which
approximately 1,350 were full time. Approximately 42% of UATC's employees
(substantially all of whom are part-time employees who work in the theatres) are
paid based on the applicable state and federal minimum wage. Approximately 150
employees (primarily consisting of film projectionists) are covered by
collective bargaining agreements. UATC considers its relations with its
employees to be satisfactory.
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TRADEMARKS AND TRADE NAMES
Pursuant to a Trademark Agreement, dated as of May 12, 1992, by and among
United Artists Entertainment Company ("UAE"), United Artists Holdings, Inc.
("UAHI"), United Artists Cable Holdings, Inc. ("Cable"), and Seller (such
parties collectively being the "Seller Entities"), on the one hand, and UATC,
UAR, UAB and UAB II, on the other hand, the Seller Entities conveyed to UATC,
UAR, UAB and UAB II their right to use (other than in the United Kingdom) the
names "United Artists" and "UA" and derivatives thereof and other related
intellectual property rights (collectively, the "UA Marks") in connection with
the theatrical exhibition businesses of UATC, UAR, UAB and UAB II. The Seller
Entities retain the right to use the UA Marks in connection with any other uses
of such marks. In the event that any of TCI and the Seller Entities, on the one
hand, or any of UATC and its subsidiaries, on the other hand, uses any of the UA
Marks in connection with a prospectus or registration statement involving the
offering or sale of its securities, such party has agreed to take the necessary
steps to make clear in such prospectus or registration statement that the
securities being offered or sold are not the obligations of, or guaranteed by,
the other party. None of UATC, UAR, UAB, UAB II or the Seller Entities has a
registered trademark in the United States relating to any of the UA Marks.
Companies which are unaffiliated with UATC have registered trademarks covering
certain uses of the United Artists name. UATC has used the name "United Artists"
and derivatives thereof and other related intellectual property rights since its
formation in 1926. UATC also has registered Trademarks for certain of its
business activities.
LEGAL PROCEEDINGS
Connie Arnold and Annette Cupolo vs. United Artists Theatre Circuit, Inc.
This action was originally filed in the Superior Court, Alameda County,
California on July 31, 1991, case number 683090-4. The complaint originally
alleged that UATC violated various California statutes and engaged in actions
which violated plaintiffs' civil rights by allegedly constructing a theatre
which is not lawfully accessible to certain disabled persons. The relief sought
included injunctive relief and damages (including statutory damages pursuant to
California law). The action was certified by the state court as a class action,
although the size of the class was not determined. The amount of statutory
damages sought would depend upon the size of the putative class. In February
1993, the defendant removed the case to U. S. District Court for the Northern
District of California (Connie Arnold and Annette Cupolo vs. United Artists
Theatre Circuit, Inc. d/b/a/ U.A. Emery Bay; and Does 1 through 20, inclusive,
case number C 93 0079 TEH). The plaintiffs then amended their complaint to
include claims similar to those made in the state court with respect to all of
UATC's owned or operated theatres in California. The plaintiffs also added a
cause of action alleging violation of the ADA relating to accessibility for
certain persons in the theatres in California. The Company then sued, as third-
party defendants, various architects who had participated in the design or
construction of certain of the Company's theatres located in California.
In 1994 the plaintiffs and the Company, along with several other parties named
as third-party and fourth-party defendants, began a formal mediation process
supervised by the court. During the process plaintiffs and the Company agreed
to expand the ADA claims to cover all of the Company's theatres throughout the
United States and to attempt to involve the United States Department of Justice
("DOJ") in the mediation process and any settlement which might result. The DOJ
has consented to joining as a party to the litigation and the settlement
agreement.
The plaintiffs, the Company, the DOJ and the third and fourth-party defendants
have reached agreement as to the terms and conditions of a settlement agreement,
the effectiveness of which is subject to a number of conditions, including
approval thereof by the court after conducting one or more hearings. The
proposed settlement agreement requires, among other things, that the Company pay
certain amounts as
44
<PAGE>
damages and for plaintiffs' attorneys' fees, as well as make certain physical
modifications to its theatres. Such damages and attorneys' fees had previously
been accrued by the Company.
On April 16, 1996 the parties filed a joint motion for preliminary approval
and final approval of the settlement agreement. After a period of 55 days,
during which various forms of notice will be published to notify the class of
the proposed settlement, the court will hold a hearing to determine whether it
should approve the settlement even if the settlement is so approved, under
certain conditions the Company can opt to void a portion of the settlement
agreement relating to the payment of damages. If UATC does not invoke such
option and the court enters a final order of approval of the settlement
agreement, the Company will be ordered, among other things, to pay certain
damages to the plaintiff class, pay a certain amount as plaintiffs' attorneys'
fees, pay certain incidental costs relating to the settlement process, and make
certain physical modifications to its theatres during the six-year period which
began on July 6, 1995. The third-party defendant architects have agreed to pay
a certain amount to the Company as damages.
There are other pending legal proceedings by or against UATC involving alleged
breaches of contract, torts and miscellaneous other causes of action. In
addition, there are other various claims against UATC relating to certain of the
leases held by UATC.
Although it is not possible to predict the outcome of the proceedings set
forth above, in the opinion of UATC's management, such legal proceedings will
not have a material adverse effect on UATC's financial position, liquidity or
results of operations.
INSURANCE
UATC's management believes that it maintains insurance coverage in such
amounts, with such deductibles and covering such risks as is customary for
companies engaged in similar businesses as UATC.
GOVERNMENTAL REGULATIONS
The distribution of motion pictures is in large part regulated by federal and
state antitrust laws and has been the subject of numerous anti-trust cases. The
most significant of these cases is United States v. Paramount Pictures
Corporation, et al., which was affirmed by the United States Supreme Court in
1950. Although UATC was not a party in the Paramount case, the consent decrees
resulting from that litigation have a material impact on UATC. Those consent
decrees bind certain major film distributors and require the films of such
distributors to be offered and licensed to exhibitors, including UATC, on a
theatre-by-theatre basis. Consequently, UATC cannot assure itself of a supply
of films by entering into long-term arrangements with major distributors, but
must compete for its licenses on a film-by-film and theatre-by-theatre basis.
The federal ADA and certain state statutes, among other things, require that
places of public accommodation, including theatres (both existing and newly
constructed), be accessible to and that assistive listening devices be available
for use by certain patrons with disabilities. With respect to access to
theatres, the ADA may require that certain modifications be made to existing
theatres in order to make such theatres accessible to certain theatre patrons
and employees who are disabled. The ADA requires that theatres be constructed
in such a manner that persons with disabilities have full use of the theatre and
its facilities and reasonable access to work stations. The ADA provides for a
private right of action and for reimbursement of plaintiff's attorneys' fees and
expenses under certain circumstances. See the discussion of the Arnold
litigation under "Legal Proceedings" herein. UATC has established a program to
review and evaluate UATC's theatres and to make any changes which may be
required by the ADA. Although UATC's review and evaluation is on-going,
management believes that the cost of complying with the ADA will not have a
material adverse affect on UATC's financial position, liquidity or results of
operations.
45
<PAGE>
MANAGEMENT
The operating management of UATC is divided into various function
areas including: theatre operations, film, marketing, concessions, real estate
and construction, corporate operations, finance and administration.
The following persons are members of the Board of Directors of each of
UATC, UAR and OSCAR I and/or are executive officers of each of UATC and OSCAR I.
Each director will serve until the next annual meeting of stockholders and until
his successor is duly elected and qualified. Each officer will hold office for
such term as may be prescribed by the Board of Directors and until such Person's
successor is chosen and qualified or until such Person's death, resignation, or
removal.
NAME AGE POSITION AND EXPERIENCE
- ---- --- -----------------------
[S] [C] [C]
Stewart D. Blair 46 Chairman, Chief Executive Officer and Director since
May 12, 1992. Mr. Blair also currently serves as
President and Chief Operating Officer. Mr. Blair
served as Vice Chairman and Chief Executive Officer of
UAE, former parent company, from 1986 until the merger
with TCI in December 1991. He also served as Chairman
of UATC from 1987 to December 1991.
Kurt C. Hall 37 Executive Vice President, Chief Financial Officer and
Director since May 12, 1992. Mr. Hall served as Vice
President and Treasurer of UATC from September 1990 to
December 1991. Previously, Mr. Hall served at various
times as Director of Financial Reporting, Director of
Finance and Vice President and Treasurer of UAE. Mr.
Hall is also a director of Showscan Entertainment,
Inc.
Robert E. Capps, Jr. 44 Executive Vice President. Mr. Capps joined UATC in
October 1994 as Executive Vice President of Film.
Prior to joining UATC, Mr. Capps worked for Tri-Star
Pictures as General Sales Manager in charge of U.S.
and Canada. Prior to working for Tri-Star Pictures,
Mr. Capps worked for MGM as Southern Division Manager.
Hal Cleveland 42 Executive Vice President. Mr. Cleveland has been
Executive Vice President of UATC since 1990. Mr.
Cleveland's duties include supervision of UATC's
domestic theatre development. Mr. Cleveland has served
UATC for 20 years in various capacities.
Joseph R. Crotty 51 Executive Vice President. Mr. Crotty became Executive
Vice President of UATC in 1993. Mr. Crotty's duties
include supervision of UATC's international theatre
development and operations. Mr. Crotty was previously
the Senior Vice President in charge of Western US
operations. Mr. Crotty has served UATC for 25 years in
various capacities.
46
<PAGE>
Dennis R. Daniels 48 Executive Vice President. Mr. Daniels became Executive
Vice President of UATC in 1993. Mr. Daniels duties
include supervision of UATC's domestic theatre
operations. Mr. Daniels was previously the Senior Vice
President in charge of Central US operations. Mr.
Daniels has served UATC for 17 years in various
capacities.
Thomas C. Elliot 48 Executive Vice President. Mr. Elliot became Executive
Vice President of UATC in 1992. Mr. Elliot's duties
include supervision of UATC's international theatre
development and operations. Prior to his appointment
to Executive Vice President, Mr. Elliot was President
and Chief Operating Officer of UAR, an affiliated
company since 1988.
Gene Hardy 45 Executive Vice President and General Counsel. Mr.
Hardy was promoted to Executive Vice President of
legal affairs and general counsel in November 1994.
Mr. Hardy was previously the Senior Vice President and
general counsel of UATC. Prior to May 12, 1992, Mr.
Hardy worked in the legal departments of UAE and
Daniels & Associates, a Denver-based cable television
concern.
Jim Ruybal 50 Executive Vice President. Mr. Ruybal became Executive
Vice President of UATC in 1992. Mr. Ruybal is
responsible for new business development and
marketing. Mr. Ruybal formerly served as Vice
President of Corporate Operations for UAE.
Bruce M. Taffet 48 Executive Vice President. Mr. Taffet was promoted to
Executive Vice President in February 1995 and to
Senior Vice President in 1987 and is responsible for
the national concession operations of UATC. Mr. Taffet
began in the industry in 1971 when he owned and
operated an independent theatre chain in Louisiana and
Mississippi.
James J. Burke, Jr. 44 Director since May 12, 1992. Mr. Burke has been a
Director of Merrill Lynch Capital Partners, Inc.
("MLCP") since 1985 and Managing Partner and director
of Stonington Partners, Inc. ("SP"), formerly known as
First Capital Partners, Inc., since 1993. Prior to
July 1994, Mr. Burke was President and Chief Executive
Officer of MLCP since 1987, a Managing Director of the
Investment Banking Division of Merrill Lynch and Co.
("ML&CO.") since 1985 and a First Vice President of
Merrill Lynch, Pierce, Fenner & Smith, Incorporated
("MLPF&S") since 1988. Mr. Burke is a Director of
Borg-Warner Security Corporation, Ann Taylor Stores
Corporation, , Supermarkets General Holdings Corp.,
Pathmark Stores, Inc., Wherehouse Entertainment, Inc.
47
<PAGE>
Albert J. Fitzgibbons,
III 50 Director since May 12, 1992. Mr. Fitzgibbons
has been a Director of MLCP since 1998 and a Partner
and Director of SP since 1993. Prior to July 1994, Mr.
Fitzgibbons was a Partner of MLCP from 1993 to 1994
and an Executive Vice President of MLCP from 1988 to
1993. Mr. Fitzgibbons was also a Managing Director of
the Investment Banking Division of ML&Co. from 1978 to
July 1994. Mr. Fitzgibbons is a Director of , Borg-
Warner Security Corporation, Borg-Warner Automotive,
Inc., Eckerd Corporation and Dictaphone Corporation.
Robert F. End 40 Director since February 17, 1993. Mr. End has been a
Director of MLCP since 1993 and a Partner and Director
of SP since 1993. Prior to July 1994, Mr. End was a
Partner of MLCP from 1993 to 1994 and a Vice President
of MLCP from 1989 to 1993. Mr. End was also a Managing
Director of the Investment Banking Division of ML&Co.
from 1993 to July 1994. Mr. End is a Director of
Beatrice Foods, Inc.
Scott M. Shaw 33 Director since February 17, 1993. Principal of SP
since 1993. Prior to July 1994, Mr. Shaw was a Vice
President of MLCP from January 1994, an Associate of
MLCP from 1991 to 1994, and an analyst of MLCP from
1986 to 1989. Mr. Shaw was also a Vice President of
the Investment Banking Division of ML&Co. from January
to July 1994 and an Associate in the Investment
Banking Division of ML&Co. from 1991 to 1994 and an
Analyst of the Investment Banking Division of ML&Co.
from 1986 to 1989. Mr. Shaw is a Director of
Dictaphone Corporation.
48
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CERTAIN TRANSACTIONS
UATC, OSCAR I and MLCP are affiliates of one of the Placement Agents,
Merrill Lynch, Pierce, Fenner & Smith Incorporated. As of March 21, 1996, MLCP
and its affiliates in the aggregate owned approximately 86.3% of the issued and
outstanding capital stock of OSCAR I, which owns 100% of the issued and
outstanding common stock of UATC.
For a discussion of the ownership of OSCAR I, see "United Artists."
STRUCTURE OF THE TRANSACTION
The proceeds from the sale of the Old Certificates were used by the
Trustee on behalf of the Pass Through Trust to purchase the Mortgage Note issued
by Wilmington Trust Company, acting not in its individual capacity but solely as
owner trustee (the "Owner Trustee") under a Trust Agreement for the benefit of
an institutional investor (the "Owner Participant"), to finance not more than
92.5% of the value of (i) fee title to the building improvements (the "Building
Improvements"), including the Incomplete Properties, comprising 31 United
Artists theatre locations and (ii) a 21-year estate for years interest (the
"Estate for Years") in the underlying land (the "Land") being acquired by the
Owner Trustee. The Building Improvements and Estate for Years with respect to
each United Artists theatre location are referred to herein collectively as a
"Property." The Owner Trustee leases all of the Properties to United Artists
pursuant to the master lease agreement (the "Lease").
With respect to four of the five Incomplete Properties, the Owner
Trustee acquired the related Estates for Years as of the Closing Date, and the
related Building Improvements upon their completion. Pending completion, cash
in an amount equal to the cost to the Owner Trustee of such Building
Improvements will be held in escrow by the Indenture Trustee. As each
Incomplete Property is completed, the cost of the related Building Improvements
will be paid to United Artists. With respect to the seventh Incomplete
Property, the Estate for Years with respect to a portion of the related
underlying land will be acquired after the Closing Date. Concurrently with the
acquisition of such portion by the Owner Trustee, the Owner Trustee will pay,
from amounts previously held in escrow, the cost to the Owner Trustee of
acquiring such portion. In all other respects, the portion of this Incomplete
Property being acquired after the Closing Date shall be treated as the other
Incomplete Properties. The aggregate Allocated Debt Amount of each Incomplete
Property that has not been completed by December 31, 1996, plus accrued but
unpaid interest thereon, shall be distributed to Certificateholders on February
1, 1997. See "Description of the Mortgage Note--Redemption."
Simultaneously with the conveyance of the Estate for Years with
respect to each parcel of Land to the Owner Trustee and with no additional
consideration to UATC, the related remainder interest in the Land subject to the
Estate for Years was conveyed by UATC to Wilmington Trust Company, not in its
individual capacity but solely as remainderman trustee (the "Remainderman
Trustee") under the Remainderman Trust Agreement for the benefit of Northway
Mall Associates LLC, an unrelated third party (the "Remainderman Participant").
The Remainderman Trustee in turn, conveyed to the Owner Trustee an option (the
"Option") to purchase or ground lease the Land upon the expiration of the Estate
for Years and mortgaged its remainder interest in the Land to the Indenture
Trustee.
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The Owner Trustee initially issued one Mortgage Note to the Pass
Through Trust pursuant to a single trust indenture (the "Base Indenture"). The
trust indenture has been supplemented, with respect to each Property, by a
mortgage, leasehold mortgage, deed of trust, assignment of leases and rents,
security agreement, financing statement and first supplemental mortgage (each, a
"Supplemental Indenture"). Pursuant to each Supplemental Indenture, the
Mortgage Note has been secured, with respect to each Property, by (i) an
assignment to the Indenture Trustee of certain of the Owner Trustee's rights
under the Lease, including the right to receive base rentals and certain other
amounts payable thereunder by United Artists, (ii) a first mortgage lien on the
Building Improvements and Estate for Years, (iii) a collateral assignment of the
Owner Trustee's rights under the Option and (iv) a first mortgage lien on the
Remainderman Trustee's remainder interest in the Land. In addition, the
Mortgage Note has been secured by, with respect to each Incomplete Property,
cash and cash equivalents in an amount equal to the cost to the Owner Trustee of
the Building Improvements related to such Property. The Owner Participant
provided from sources other than the Mortgage Note not less than 7.5% of the
value of the Properties. The Owner Participant, however, is not be personally
liable for any amount payable under the Indenture or the Mortgage Note issued
thereunder.
THE PROPERTIES
The Properties consist of 31 theatres operated by United Artists which
were owned by UATC or Prop II or which are being developed by United Artists.
The Properties included substantially all of UATC's and Prop II's fee-owned
properties which have been developed and which UATC anticipates it will operate
for the foreseeable future. The Properties are located in a good mix of both
large and medium size markets (in terms of population) and are geographically
dispersed in 14 states. All but two theatres are located in theatres with six
or more screens, with an overall screen per theatre average (excluding the
planned four screen addition to the Jackson 10) of all Properties of 8.3,
compared with an average for all of UATC's theatres of 5.6. Certain information
regarding each of the Properties including their approximate value as of the
Closing Date is set forth in the following table:
<TABLE>
<CAPTION>
THEATRE NO. OF LAND BUILDING YEAR VALUE OF
NAME CITY STATE SCREENS (SQ. FT.) (SQ. FT.) CONSTRUCTED PROPERTY
------- ---- ----- ------- ----------- ---------- ----------- ---------------
(SQ. FT. IN THOUSANDS) ($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
UATC Owned & Opened
Seigen Village 10 Baton Rouge LA 10 239 34 1987 $ 3.7
Kanawha Mall Cinemas Charleston WV 9 372 70 1984 4.6
Greenwood 12 Englewood CO 12 261 43 1992 6.0
Cache Cinema Lawton OK 8 306 44 1982 2.9
Cooper Twin Greeley CO 2 135 12 1969 .9
UA Lake Point Lewisville TX 10 372 35 1994 4.6
Washington Township Sewell NJ 14 677 50 1994 8.1
UA Grand Prairie Grand Prairie TX 10 402 40 1995 6.0
Lake Charles Lake Charles LA 10 261 32 1995 4.1
Eagle Highlands Indianapolis IN 10 367 41 1995 6.6
-- ----- --- -----
Total UATC Owned
& Opened 95 3,392 401 47.5
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
THEATRE NO. OF LAND BUILDING YEAR VALUE OF
NAME CITY STATE SCREENS (SQ. FT.) (SQ. FT.) CONSTRUCTED PROPERTY
------- ---- ----- ------- ---------- --------- ----------- --------
(SQ. FT. IN THOUSANDS) ($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
UATC Owned & Under Development
Jupiter Road(1) Dallas TX 9 418 54 8/96(2) 9.6
Fossil Creek(1) Fort Worth TX 11 436 43 10/96(2) 8.0
Lafayette(1) Lafayette LA 10 275 32 5/96(2) 4.3
Clinton Center(1) Jackson MS 10 305 32 10/96(2) 4.0
--- ----- ----- ------
Total UATC Owned &
Under Development 40 1,434 161 25.9
Prop II Owned
Larchmont Playhouse Larchmont NY 1 11 7 1932 .4
Movies @ Regency Jacksonville FL 12 269 34 1980 4.2
Orange Park Jacksonville FL 7 218 21 1980 2.5
Movies @ Maplewood Maplewood MN 6 192 20 1981 2.6
Florida Mall Orlando FL 7 309 28 1987 4.0
UA 6 Hayward Hayward CA 6 219 23 1977 4.3
Park Sierra-Riverside Riverside CA 6 87 20 1981 2.9
UA Bowen Arlington TX 8 309 33 1985 2.8
UA 6 Movies Colma CA 6 39 39 1986 4.9
UA Cinemas 6 Port Arthur TX 6 254 18 1980 1.2
Las Vegas Trail 8 Fort Worth TX 8 305 29 1984 1.9
UA Bedford 10 Bedford TX 10 322 39 1986 3.7
Jackson 10(1)(3) Ridgeland MS 14 348 37 1987/1996 4.4
UA Cinemas 6 Corpus Christi TX 6 234 31 1968 1.9
Beaucatcher 7 Asheville NC 7 188 39 1982 3.4
College Road Cinema Wilmington NC 6 399 36 1983 2.8
Haywood Cinemas Greenville SC 10 559 51 1985/1989 4.9
--- ----- ----- ------
Total Prop II 126 4,262 505 52.8
--- ----- ----- ------
Total 261 9,088 1,067 $126.2
--- ----- ----- ------
</TABLE>
(1) Represents an Incomplete Property.
(2) Represents the expected completion date of such Incomplete Property.
(3) The Owner Trustee acquired the existing Jackson 10 theatre, which at the
Closing Date was comprised of ten screens, 239,000 square feet ("sq. ft.")
of land and a building of 27,000 sq. ft. This theatre will be expanded
through the acquisition of an additional 2.4 acres of land and the
construction, by UATC on behalf of the Owner Trustee, of four additional
screens occupying an estimated 10,000 sq. ft. by December 1996. Upon
completion, this theatre will be as described in the table.
51
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DIAGRAM OF PAYMENTS
The following diagram illustrates certain aspects of the payment flows
among United Artists, the Owner Trustee, the Owner Participant, the Indenture
Trustee, the Trustee and the Certificateholders.
United Artists leases the Properties from the Owner Trustee under the
Lease. The Mortgage Note was initially issued pursuant to the Indenture by the
Owner Trustee. Rent is payable under the Lease to the Owner Trustee. However,
as a result of the assignment of certain of the Owner Trustee's rights under the
Lease to the Indenture Trustee, United Artists makes rental payments thereunder
directly to the Indenture Trustee. From such rental payments, the Indenture
Trustee, on behalf of the Owner Trustee, makes payments on the Mortgage Note
held in the Pass Through Trust to the Trustee and remits the balance to the
Owner Trustee for distribution to the Owner Participant. The Trustee
distributes payments received on the Mortgage Note held in the Pass Through
Trust to the Certificateholders.
[CHART APPEARS HERE]
52
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DESCRIPTION OF THE CERTIFICATES
The Certificates have been issued pursuant to an Agreement entered
into between United Artists and the Trustee. The statements under this caption
are a summary of the terms of the Certificates and the Agreement and do not
purport to be complete. The summary makes use of terms defined in and is
qualified in its entirety by reference to all of the provisions of the Agreement
and the Certificates, the forms of which are available without charge to each
Person to whom this Prospectus is delivered, upon request of such Person to
Financial Reporting Department, United Artists Theatre Circuit, Inc., 9110 East
Nichols Avenue, Englewood, Colorado 80112.
GENERAL
The Certificates will be issued in fully registered form only. Each
Certificate represents a fractional undivided interest in the Pass Through
Trust. The property of the Pass Through Trust includes the Mortgage Note, all
monies at any time paid thereon and all monies due and to become due thereunder
and funds from time to time deposited with the Trustee in the accounts
established pursuant to the Agreement. Each Certificate corresponds to a pro
rata share of the outstanding principal amount of the Mortgage Note held in the
Pass Through Trust.
Interest paid on the Mortgage Note will be passed through to
Certificateholders at the rate per annum of 9.3% which will be calculated on the
basis of a 360-day year of twelve 30-day months.
Each Certificate represents a fractional undivided interest in the
Pass Through Trust and all payments and distributions will be made only from
Trust Property. The Certificates do not represent an interest in or obligation
of United Artists, the Trustee, the Indenture Trustee, the Owner Trustee in its
individual capacity, the Owner Participant, or any of their respective
affiliates. Each Certificateholder by its acceptance of a Certificate agrees to
look solely to the income and proceeds from the Trust Property to the extent
available for distribution as provided in the Agreement.
The Certificateholders have the benefit of a lien on the Properties
and the other property in the Indenture Estate securing the Mortgage Note, as
discussed under "Description of the Mortgage Note--Security."
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Old Certificates were issued in
fully-registered form without interest coupons. Old Certificates sold in
offshore transactions in reliance on Regulation S under the Securities Act were
initially represented by a single, permanent Global Certificate, in definitive,
fully-registered form without interest coupons ("Regulation S Global
Certificate") and were deposited with the Trustee as custodian for, and
registered in the name of, a nominee of DTC for the accounts of Euroclear and
Cedel.
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Certificates sold in reliance on Rule 144A were represented by a
single, permanent global Certificate, in definitive, fully-registered form
without interest coupons (the "144A Global Certificate" and, together with the
Regulation S Global Certificate, the "Global Certificates") and were deposited
with the Trustee as custodian for, and registered in the name of, a nominee of
DTC. The 144A Global Certificate (and any Certificates issued for exchange
thereof) are subject to certain restrictions on transfer as described under
"Transfer Restrictions."
Certificates originally purchased by or transferred to Institutional
Accredited Investors who were not qualified institutional buyers ("Non-Global
Purchasers") were in definitive registered form without coupons ("Certificated
Certificates"). Upon the transfer of Certificated Certificates initially issued
to a Non-Global Purchaser to a qualified institutional buyer, such Certificated
Certificate was, unless the relevant Global Certificate has previously been
exchanged in whole for Certificated Certificates, be exchanged for an interest
in such Global Certificate. For a description of the restrictions on the
transfer of Certificated Certificates, see "Transfer Restrictions."
Ownership of beneficial interests in the 144A Global Certificate was
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. Ownership of beneficial interests in the
144A Global Certificate was shown on, and the transfer of that ownership could
be effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified institutional buyers
may hold their interests in the 144A Global Certificate directly through DTC if
they are participants in such system, or indirectly through organizations which
are participants in such system.
Investors may hold their interests in the Regulation S Global
Certificate directly through Cedel or Euroclear, if they are participants in
such systems, or indirectly through organizations that are participants in such
system. As a result of the Exchange Offer, investors may also hold such
interest through organizations other than Cedel or Euroclear that are
participants in the DTC system. Cedel and Euroclear will hold interests in the
Regulation S Global Certificates on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Certificates represented by such Global
Certificate for all purposes under the Agreement and such Certificates. No
beneficial owner of an interest in a Global Certificate will be able to transfer
that interest except in accordance with DTC's applicable procedures, in addition
to those provided for under the Agreement and, if applicable, those of Euroclear
and Cedel.
Payments of the principal of, and interest on, a Global Certificate
will be made to DTC nor its nominee, as the case may be, as the registered owner
thereof. Neither United Artists, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global
Certificate or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
United Artists expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Certificate, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Certificate as shown on the records of DTC or its nominee. United Artists also
expects that payments by participants to owners of beneficial interests in such
Global Certificate held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers
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<PAGE>
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
United Artists expects that DTC will take any action permitted to be
taken by a holder of Certificates (including the presentation of Certificates
for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the relevant Global
Certificate is credited and only in respect of such portion of the aggregate
face amount of Certificates as to which such participant or participants has or
have given such direction. However, if there is an Event of Default under the
Certificates, DTC will exchange the applicable Global Certificate for
Certificated Certificates, which it will distribute to its participants and
which may be legended as set forth under the heading "Transfer Restrictions."
United Artists understands that: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the Uniform Commercial Code and a "Clearing
Agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interest in the Global
Certificates among participants of DTC, Euroclear and Cedel, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither United Artists nor the
Trustee will have any responsibility for the performance by DTC, Euroclear or
Cedel or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED CERTIFICATES
If DTC is at any time unwilling or unable to continue as depositary
for the Global Certificates and a successor depositary is not appointed, the
Trustee will issue Certificated Certificates, which may bear the legend referred
to under "Transfer Restrictions," in exchange for the Global Certificates.
SAME-DAY SETTLEMENT AND PAYMENT
All payments made by United Artists to the Indenture Trustee under the
Lease will be in immediately available funds and, to the extent such payments
are allocable to the Mortgage Note, will be passed through to DTC in immediately
available funds. Transfers between participants in Euroclear and Cedel will be
similarly effected in accordance with their respective rules and operating
procedures.
The Certificates will trade in DTC's Same-Day Funds Settlement System
until maturity, and secondary market trading activity in the Certificates will
therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in same-day funds
on trading activity in the Certificates.
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PAYMENTS AND DISTRIBUTIONS
All Scheduled Payments (as defined below) of principal and interest on
the Mortgage Note received by the Trustee will be distributed by the Trustee to
Certificateholders on the date such receipt of payment is confirmed, except in
certain cases when the Mortgage Note is in default. See "--Events of Default
and Certain Rights Upon an Event of Default." Payments of interest on the unpaid
principal amount of the Mortgage Note are scheduled to be received by the
Trustee on January 1 and July 1 of each year, commencing July 1, 1996, until the
final distribution date for the Pass Through Trust. Payments of principal on
the Mortgage Note are scheduled to be received in specified amounts by the
Trustee commencing on July 1, 1996, until the final distribution date for the
Pass Through Trust (such scheduled payments of interest and principal on the
Mortgage Note are herein referred to as "Scheduled Payments," and January 1 and
July 1 of each year, commencing July 1, 1996, are herein referred to as "Regular
Distribution Dates"). The Trustee will distribute to the Certificateholders on
each Regular Distribution Date all Scheduled Payments the receipt of which is
confirmed by the Trustee on such Regular Distribution Date. Each such
distribution of Scheduled Payments will be made by the Trustee to the
Certificateholder of record on the fifteenth day preceding the applicable
Regular Distribution Date, subject to certain exceptions. If a Scheduled
Payment is not received by the Trustee on a Regular Distribution Date but is
received within five days thereafter, it will be distributed on the date
received to such Certificateholders. If it is received after such five day
period, it will be treated as a Special Payment (as defined below) and
distributed as described below.
Each Certificateholder will be entitled to receive a pro rata share of
any distribution in respect of Scheduled Payments of principal and interest made
on the Mortgage Note. The Regular Distribution Dates on which, and the amounts
in which, Scheduled Payments of principal on the Mortgage Note are payable are
set forth below under "Description of the Mortgage Note--Principal and Interest
Payments."
Payments of principal, Make-Whole Premium, if any, and interest
received by the Trustee on account of a redemption, if any, of the Mortgage Note
payments received by the Trustee following a default in respect of the Mortgage
Note (including payments received by the Pass Through Trust on account of the
purchase or redemption by the Owner Trustee of the Mortgage Note or payments
received on account of the sale of the Mortgage Note by the Trustee) and any
Scheduled Payments not paid within five days of a Regular Distribution Date
("Special Payments"), will be distributed on the 1st day of a month (each, a
"Special Distribution Date"). The Trustee will mail notice to the
Certificateholders of record not less than 20 days prior to the Special
Distribution Date on which any Special Payment is scheduled to be distributed by
the Trustee in the event the Mortgage Note is to be redeemed, in whole or in
part, prior to maturity and, in all other instances, as soon as practicable
after the Trustee has received the Special Payment. The notice will specify the
anticipated Special Distribution Date, the amount of such anticipated Special
Payment, the reason for the Special Payment and the total amount to be
distributed if such Special Distribution Date is the same date as a Regular
Distribution Date. Each distribution of a Special Payment, other than a final
distribution, on a Special Distribution Date will be made by the Trustee to the
Certificateholders of record on the fifteenth day preceding such Special
Distribution Date. See "--Events of Default and Certain Rights Upon an Event of
Default" and "Description of the Mortgage Note--Redemption."
After partial or full redemption or default in respect of the Mortgage
Note or other Special Payment, a Certificateholder should refer to the
information with respect to the Pool Balance and the Pool Factor reported
periodically by the Trustee to determine the remaining amortization of the
Mortgage Note. See "--Pool Factors" and "--Reports to Certificateholders."
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<PAGE>
The Agreement requires that the Trustee establish and maintain, for
the benefit of the Certificateholders, one or more non-interest bearing accounts
(the "Certificate Account") for the deposit of payments representing Scheduled
Payments on the Mortgage Note. The Agreement also requires that the Trustee
establish and maintain, for the benefit of the Certificateholders, one or more
non-interest bearing accounts (the "Special Payments Account") for the deposit
of payments representing Special Payments. Pursuant to the terms of the
Agreement, the Trustee is required to deposit any Scheduled Payments received by
it in the Certificate Account and to deposit any Special Payments so received by
it in the Special Payments Account. All amounts so deposited will be
distributed by the Trustee on a Regular Distribution Date or a Special
Distribution Date, as the case may be, to the Certificateholders.
At such time, if any, as definitive Certificates are issued,
distributions by the Trustee to Certificateholders, other than a final
distribution, will be made by check mailed to each Certificateholder of record
on the applicable record date at its address appearing on the register. The
final distribution, however, will be made only upon presentation and surrender
of the Certificate at the office or agency of the Trustee specified in the
notice given by the Trustee of such final distribution. The Trustee will mail
such notice of the final distribution to the Certificateholders, specifying the
date set for such final distribution and the amount of such distribution. See
"--Termination of the Pass Through Trust."
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding Business
Day without any additional interest due to the delay.
POOL FACTORS
Unless there has been an early redemption, or a default, in respect of
the Mortgage Note as described under "--Events of Default and Certain Rights
Upon an Event of Default" and "Description of the Mortgage Note--Redemption,"
the Pool Factor for the Pass Through Trust will decline in proportion to the
Scheduled Payments of principal on the Mortgage Note as described under
"Description of the Mortgage Note--Principal and Interest Payments." In the
event of such redemption or default, the Pool Factor and the Pool Balance of the
Pass Through Trust will be recomputed after giving effect thereto and notice
thereof will be mailed to the Certificateholders.
The "Pool Balance" for the Pass Through Trust will indicate, as of any
date, the aggregate unpaid principal amount of the Mortgage Note on such date
plus any amounts in respect of principal on the Mortgage Note held by the
Trustee and not yet distributed. The Pool Balance as of any Regular
Distribution Date or Special Distribution Date will be computed after giving
effect to the payment of principal, if any, on the Mortgage Note and the
distribution thereof to be made on that date.
The "Pool Factor" for the Pass Through Trust as of any Regular
Distribution Date or Special Distribution Date will be the quotient (rounded to
the seventh decimal place) computed by dividing the then outstanding Pool
Balance by the aggregate original principal amount of the Mortgage Note. The
Pool Factor will initially be 1.0000000; thereafter, the Pool Factor will
decline to reflect reductions in the Pool Balance resulting from distributions
in respect of principal on the Certificates. The amount of a
Certificateholder's pro rata share of the Pool Balance can be determined by
multiplying the original denomination of the holder's Certificate by the Pool
Factor as of the applicable Regular Distribution Date or Special Distribution
Date. The Pool Factor and the Pool Balance will be mailed to Certificateholders
of record on each Regular Distribution Date and Special Distribution Date.
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<PAGE>
As of the date of issuance of the Certificates and assuming that no
early redemption, delinquency or default in respect of the Mortgage Note occurs,
the Scheduled Payments of principal on the Mortgage Note, and the resulting Pool
Factors after giving effect to each such payment, are set forth below.
<TABLE>
<CAPTION>
SCHEDULED
REGULAR PRINCIPAL
DISTRIBUTION DATE PAYMENTS POOL FACTOR
- -------------------- ---------- -----------
<S> <C> <C>
July 1, 1996........ $ 961,492 0.9917647
January 1, 1997..... 1,006,202 0.9831465
July 1, 1997........ 1,052,990 0.9741276
January 1, 1998..... 1,101,954 0.9646892
July 1, 1998........ 1,153,195 0.9548120
January 1, 1999..... 1,206,819 0.9444755
July 1, 1999........ 1,262,936 0.9336583
January 1, 2000..... 1,321,662 0.9223382
July 1, 2000........ 1,383,119 0.9104916
January 1, 2001..... 1,595,746 0.8968239
July 1, 2001........ 1,669,949 0.8825207
January 1, 2002..... 1,747,601 0.8675523
July 1, 2002........ 1,828,865 0.8518879
January 1, 2003..... 1,913,907 0.8354951
July 1, 2003........ 2,002,904 0.8183401
January 1, 2004..... 2,096,039 0.8003873
July 1, 2004........ 2,193,504 0.7815998
January 1, 2005..... 2,295,502 0.7619386
July 1, 2005........ 2,402,243 0.7413631
January 1, 2006..... 2,666,173 0.7185271
July 1, 2006........ 2,790,150 0.6946292
January 1, 2007..... 2,919,892 0.6696201
July 1, 2007........ 3,055,667 0.6434480
January 1, 2008..... 3,197,755 0.6160590
July 1, 2008........ 3,346,451 0.5873963
January 1, 2009..... 3,502,061 0.5574009
July 1, 2009........ 3,664,906 0.5260106
January 1, 2010..... 3,835,325 0.4931607
July 1, 2010........ 4,013,667 0.4587833
January 1, 2011..... 4,328,672 0.4217078
July 1, 2011........ 4,529,955 0.3829083
January 1, 2012..... 4,740,598 0.3423047
July 1, 2012........ 4,961,036 0.2998130
January 1, 2013..... 5,191,724 0.2553454
July 1, 2013........ 5,433,139 0.2088101
January 1, 2014..... 5,685,780 0.1601108
July 1, 2014........ 5,950,169 0.1091471
January 1, 2015..... 6,226,851 0.0558136
July 1, 2015........ 6,516,400 0.0000000
</TABLE>
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<PAGE>
To the extent that the Mortgage Note is redeemed in whole or in part
or a delinquency or default in respect thereof occurs, the timing (and, in the
case of defaults, the amount) of distributions in respect of principal on the
Certificates will differ from that set forth above.
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
Trustee will include with each distribution of a Scheduled Payment or Special
Payment to Certificateholders of record a statement, giving effect to such
distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 aggregate
principal amount, as to (i) and (ii) below):
(i) the amount of such distribution allocable to principal and the
amount allocable to Make-Whole Premium, if any;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor.
So long as the Certificates are registered in the name of Cede, as nominee
for DTC, on the Record Date prior to each Regular Distribution Date and Special
Distribution Date, the Trustee will request from DTC a securities position
listing setting forth the names of all DTC Participants reflected on DTC's books
as holding positions in the Certificates on such Record Date. On each Regular
Distribution Date and Special Distribution Date, the Trustee will mail to each
such DTC Participant the statement described above, and will make available
additional copies as requested by such DTC Participant, to be available for
forwarding to the Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of record at any time during the preceding calendar
year a report containing the sum of the amounts determined pursuant to clauses
(i) and (ii) above for such calendar year or, in the event such Person was a
Certificateholder of record during a portion of such calendar year, for the
applicable portion of such calendar year, and such other items as are readily
available to the Trustee and which a Certificateholder shall reasonably request
as necessary for the purpose of such Certificateholder's preparation of its
federal income tax returns. Such report and such other items shall be prepared
on the basis of information supplied to the Trustee by the DTC Participants, and
shall be delivered by the Trustee to such DTC Participants to be available for
forwarding by such DTC Participants to Certificate Owners in the manner
described above.
At such time, if any, as definitive Certificates are issued, the Trustee
will prepare and deliver the information described above to each
Certificateholder of record as the name of such Certificateholder appears on the
records of the Trustee.
United Artists is required to furnish annually to the Trustee a certificate
as to its compliance with the conditions and covenants under the Agreement
during the preceding year.
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VOTING OF THE MORTGAGE NOTE
The Trustee, as holder of the Mortgage Note, will have the right to vote
and give consents and waivers in respect of such Mortgage Note under the
Indenture. The Agreement sets forth the circumstances in which the Trustee
shall direct any action or cast any vote as the holder of the Mortgage Note at
its own discretion and the circumstances in which the Trustee shall seek
instructions from the Certificateholder. Under the Agreement, prior to an Event
of Default (as defined below), the principal amount of the Mortgage Note
directing any action or being voted for or against any proposal shall be in
proportion to the principal amount of Certificates held by the Certificateholder
taking the corresponding position.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
An event of default under the Agreement (an "Event of Default" for purposes
of this section "Description of the Certificates" only) is defined as the
occurrence and continuance of an event of default under the Indenture (an
"Indenture Default" for purposes of this section "Description of the
Certificates" only). See "Description of the Mortgage Note--Indenture Defaults,
Notice and Waiver" for a description of the Indenture Defaults.
The Owner Trustee (except during any period during which United Artists is
an Owner Participant or otherwise controls the Owner Trustee) will have the
right, under certain circumstances, to cure Indenture Defaults that result from
the occurrence of a Lease Event of Default. If the Owner Trustee chooses to
exercise such cure right, the Indenture Default, and consequently the Event of
Default under the Agreement, will be deemed to be cured. See "Description of
the Mortgage Note--Indenture Defaults, Notice and Waiver."
The Indenture Trustee's right to exercise remedies under the Indenture is
subject to certain limitations. See "Description of the Mortgage Note--
Remedies."
The Agreement provides that, so long as an Indenture Default shall have
occurred and be continuing, the Trustee may vote the Mortgage Note and, upon the
direction of the holders of Certificates evidencing fractional undivided
interests aggregating not less than 25% of the Pass Through Trust, shall vote a
corresponding percentage of the Mortgage Note in favor of directing the
Indenture Trustee to declare the unpaid principal amount of the Mortgage Note
and any accrued and unpaid interest thereon to be due and payable. The
Agreement in addition provides that, if an Indenture Default shall have occurred
and be continuing, the Trustee may vote the Mortgage Note, and upon the
direction of the holders of Certificates evidencing fractional undivided
interests aggregating not less than a majority in interest shall vote a
corresponding percentage of the Mortgage Note, in favor of directing the
Indenture Trustee as to the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee or of exercising any trust or
power conferred on the Indenture Trustee under the Indenture, provided that if
an Event of Default shall have occurred and be continuing, such direction by the
Certificateholders shall not obligate the Trustee to vote more than a
corresponding majority of the Mortgage Note in favor of directing any action by
the Indenture Trustee with respect to such Indenture Default.
The Indenture provides that, if an Indenture Default shall occur and be
continuing thereunder, the Indenture Trustee, upon the instructions of the
holders of 25% of the outstanding principal amount of the Mortgage Note, shall
declare the unpaid principal amount of the Mortgage Note to be immediately due
and payable, together with any accrued and unpaid interest thereon. The
Indenture further provides that, if an Indenture Default shall occur and be
continuing thereunder, the holders of a majority in aggregate
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outstanding principal amount of the Mortgage Note may direct the Indenture
Trustee with respect to the exercise of remedies thereunder. See "Description of
the Mortgage Note--Remedies."
As an additional remedy, if an Indenture Default shall have occurred and be
continuing, the Agreement provides that the Trustee may, and upon the direction
of the holders of Certificates evidencing fractional undivided interests
aggregating not less than a majority in interest shall, sell all or part of the
Mortgage Note for cash. The proceeds received by the Trustee upon any such sale
(net of the costs and expenses incurred in connection with such sale) shall be
deposited in the Special Payments Account and shall be distributed on the next
succeeding Special Distribution Date to Certificateholders. The market for the
Mortgage Note in default may be very limited and there can be no assurance that
it could be sold for a reasonable price. If the Trustee sells the Mortgage Note
for less than its outstanding principal amount and accrued interest thereon, the
amount of distributions made to Certificateholders will be less than would
otherwise be the case.
Any amount distributed to the Trustee by the Indenture Trustee following an
Indenture Default will be deposited in the Special Payments Account and
distributed to the Certificateholders on the next succeeding Special
Distribution Date. In addition, if, following an Indenture Default, the Owner
Trustee exercises its option to redeem the outstanding Mortgage Note as
described below under "Description of the Mortgage Note--Redemption," the price
paid by Owner Trustee to the Trustee for the Mortgage Note will be deposited in
the Special Payments Account and distributed to the Certificateholders on a
Special Distribution Date.
Any funds representing payments received with respect to the defaulted
Mortgage Note, or the proceeds from the sale by the Trustee of the Mortgage Note
received by the Trustee, will be deposited in the Special Payments Account and
(except when received on a Special Distribution Date as to which notice has been
timely given), to the extent practicable, invested and reinvested by the Trustee
in Permitted Investments maturing no later than the next succeeding Special
Distribution Date pending the distribution of such funds on such Special
Distribution Date. Permitted Investments are defined in the Agreement as
obligations of the United States.
The Agreement provides that the Trustee shall, within 90 days after the
occurrence of a default in respect of the Pass Through Trust, give notice,
transmitted by mail, to the Certificateholders of all uncured or unwaived
defaults under the Agreement known to it; provided that, except in the case of a
default in the payment of principal of, Make-Whole Premium, if any, or interest
on the Mortgage Note, the Trustee need not give such notice if the Trustee makes
a good faith determination that it is in the interests of the Certificateholders
to withhold such notice. The term "default," for the purpose of the provision
described in this paragraph only, means the occurrence of any event which is, or
after notice or lapse of time, or both, would become an Event of Default.
The Agreement contains a provision entitling the Trustee to be indemnified
by the Certificateholders before proceeding to exercise any right or power under
the Agreement at the request of such Certificateholders.
In certain cases, the holders of Certificates evidencing fractional
undivided interests aggregating not less than a majority in interest may, on
behalf of all Certificateholders, waive any past Event of Default and thereby
annul any direction given by such holders to the Indenture Trustee with respect
thereto, except (i) a default in the deposit of any Scheduled Payment or Special
Payment or in the distribution of any such payment, (ii) a default in payment of
the principal of, Make-Whole Premium, if any, or interest on the Mortgage Note
or (iii) a default in respect of any covenant or provision of the Agreement that
cannot be
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<PAGE>
modified or amended without the consent of each Certificateholder affected
thereby. See "--Modifications of the Agreement." The Indenture provides that,
with certain exceptions, the holders of not less than a majority in aggregate
outstanding principal amount of the Mortgage Note may, on behalf of all such
holders, waive any past Indenture Default thereunder. In the event of a waiver
under the Agreement as described above, the principal amount of the Mortgage
Note shall be counted as having voted for a waiver of such past Indenture
Default. For a discussion of waivers of Indenture Defaults under the Indenture,
see "Description of the Mortgage Note--Indenture Defaults, Notice and Waiver."
DEFEASANCE
The Indenture pursuant to which the Mortgage Note held in the Pass Through
Trust was issued is subject to defeasance under certain circumstances. See
"Description of the Mortgage Note."
MODIFICATIONS OF THE AGREEMENT
The Agreement contains provisions permitting United Artists and requiring
the Trustee to enter into supplements to the Agreement, without the consent of
any Certificateholder, among other things, (i) to evidence the succession of
another corporation to United Artists and the assumption by such corporation of
United Artists' obligations under the Agreement, (ii) to add to the covenants of
United Artists for the benefit of the Certificateholders, (iii) to cure any
ambiguity, to correct or supplement any defective or inconsistent provision of
the Agreement or any supplement, or to make any other provisions with respect to
matters or questions arising under the Agreement or any supplement, provided
such action shall not adversely affect the interests of the Certificateholders,
or (iv) to ensure that the Agreement qualifies under or is in conformance with
the Trust Indenture Act.
The Agreement also contains provisions permitting United Artists and
requiring the Trustee, with the consent of the holders of Certificates
evidencing fractional undivided interests aggregating not less than a majority
in interest, and the consent of the Owner Trustee (such consent not to be
unreasonably withheld), to execute supplements thereto adding any provisions to
or changing or eliminating any of the provisions of the Agreement or modifying
the rights of the Certificateholders thereunder, except that no such supplement
may, without the consent of each Certificateholder so affected, (a) reduce in
any manner the amount of, or delay the timing of, any receipt by the Trustee of
payments on the Mortgage Note, or distributions in respect of any Certificate,
change any date if payment on any certificate or change the place of payments or
make distributions payable in coin or currency other than that provided for in
such Certificates, or impair the right of any Certificateholder to institute
suit for the enforcement of any such payment when due, (b) permit the
disposition of the Mortgage Note, except as provided in the Agreement, or
otherwise deprive any Certificateholder of the benefit of the ownership of the
Mortgage Note or (c) reduce the percentage of the aggregate fractional undivided
interests of the Pass Through Trust provided for in the Agreement, the consent
of the holders of which is required for any such supplement or for any waiver
provided for in the Agreement.
MODIFICATION OF LEASE AND OTHER DOCUMENTS
In the event that the Trustee, as the holder of the Mortgage Note, receives
a request for its consent to any amendment, modification, waiver or supplement
under the Indenture, the Participation Agreement, the Lease or any other
document relating to the Mortgage Note, the Trustee shall mail a notice of such
proposed amendment, modification, waiver or supplement to each Certificateholder
of record as of the date of such notice. The Trustee shall request instructions
from such Certificateholders as to whether or not to direct the Indenture
Trustee to take or refrain from taking any action that a Certificateholder may
direct to
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<PAGE>
consent to such amendment, modification, waiver or supplement, and
shall act, vote or consent, subject to the applicable vote or consent
requirements of the Indenture, with respect to the Mortgage Note in the same
proportion as the Certificates were actually voted or not voted by the
Certificateholders. Notwithstanding the foregoing, if an Event of Default shall
have occurred and be continuing, the Trustee, subject to the voting instructions
referred to under "--Events of Default and Certain Rights Upon an Event of
Default," may in its own discretion consent to such amendment, modification,
waiver or supplement, and may so notify the Indenture Trustee.
TERMINATION OF THE PASS THROUGH TRUST
The obligations of United Artists and the Trustee created by the Agreement
will terminate upon the distribution to Certificateholders of all amounts
required to be distributed to them pursuant to the Agreement and the disposition
of all property held in the Pass Through Trust. The Trustee will mail to each
Certificateholder notice of the termination thereof, the amount of the proposed
final payment and the proposed date for the distribution of such final payment.
The final distribution to any Certificateholder will be made only upon surrender
of such holder's Certificates at the office or agency of the Trustee specified
in such notice of termination.
THE TRUSTEE
Fleet National Bank is the Trustee. The Trustee and any of its affiliates
may hold Certificates in their own names. With certain exceptions, the Trustee
makes no representations as to the validity or other sufficiency of the
Agreement, the Certificates, the Mortgage Note, the Indenture, the Lease, the
Participation Agreement or other related documents. Fleet National Bank is also
the Indenture Trustee under the Indenture under which the Mortgage Note is
issued.
The Trustee may resign at any time, in which event United Artists will be
obligated to appoint a successor trustee. If a Trustee ceases to be eligible to
continue as Trustee under the Agreement or becomes incapable of acting as
Trustee or becomes insolvent, United Artists may remove such Trustee, or any
holder of Certificates for at least six months of Certificates may, on behalf of
itself and all others similarly situated, petition any court of competent
jurisdiction for the removal of such Trustee and the appointment of a successor
trustee. In addition, the holders evidencing fractional undivided interests
aggregating not less than a majority in interest may at any time remove the
Trustee without cause by delivering an instrument in writing to United Artists,
the Trustee, the Owner Trustee and the Indenture Trustee. Any resignation or
removal of the Trustee and appointment of a successor trustee will not become
effective until acceptance of the appointment by the successor trustee.
The Agreement further provides that the Trustee will be entitled to
indemnification by United Artists for, and will be held harmless against, any
loss, liability or expense incurred by the Trustee (other than through its own
willful misconduct, negligence or by reason of a breach of any of its
representations or warranties set forth in the Agreement). To the extent that
such loss, liability or expense is for or with respect to taxes, the Trustee may
be entitled to be reimbursed by the Pass Through Trust.
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DESCRIPTION OF THE MORTGAGE NOTE
The statements under this caption are summaries of the terms of the
Mortgage Note and the Indenture and do not purport to be complete. The
summaries make use of the terms defined in and are qualified in their entirety
by reference to all of the provisions of the Mortgage Note, the Base Indenture
and the Supplemental Indentures (the Base Indenture and the Supplemental
Indentures collectively being referred as the "Indenture"), the forms of which
are available without charge to each Person to whom this Prospectus is
delivered, upon request of such Person to Financial Reporting Department,
United Artists Theatre Circuit, Inc., 9110 East Nichols Avenue, Englewood,
Colorado 80112.
GENERAL
One Mortgage Note was issued under the Base Indenture and is secured
by, among other things, a lien on the Properties.
The Owner Trustee leases the Properties to United Artists. United
Artists is obligated under the Lease to make or cause to be made rental and
other payments to the Owner Trustee in amounts that will be at least sufficient
to pay when due all payments required to be made on the Mortgage Note and all
ongoing fees payable under the Operative Documents, except in certain cases of
optional redemption which require the Owner Trustee to deposit an amount
sufficient to pay the redemption price and Make-Whole Premium, if any, with the
Indenture Trustee. The Mortgage Note is not, however, a direct obligation of,
or guaranteed by, United Artists. United Artists' rental obligations under the
Lease are general obligations of United Artists. Payments under the Lease in
excess of the amounts necessary to make required payments on the Mortgage Note
will be paid by the Indenture Trustee to the Owner Trustee for distribution to
the Owner Participant and will not be available for distributions on the
Certificates, except in certain cases upon an Indenture Default.
PRINCIPAL AND INTEREST PAYMENTS
The original principal amount of the Mortgage Note was $116,753,000.
The Scheduled Payments of principal of the Mortgage Note will be payable as set
forth below:
<TABLE>
<CAPTION>
REGULAR
DESCRIPTION DATE AMOUNT
- ------------------- ----------
<S> <C>
July 1, 1996....... $ 961,492
January 1, 1997.... 1,006,202
July 1, 1997....... 1,052,990
January 1, 1998.... 1,101,954
July 1, 1998....... 1,153,195
January 1, 1999.... 1,206,819
July 1, 1999....... 1,262,936
January 1, 2000.... 1,321,662
July 1, 2000....... 1,383,119
January 1, 2001.... 1,595,746
July 1, 2001....... 1,669,949
January 1, 2002.... 1,747,601
</TABLE>
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<TABLE>
<CAPTION>
REGULAR
DESCRIPTION DATE AMOUNT
- ------------------- ------------
<S> <C>
July 1, 2002....... 1,828,865
January 1, 2003.... 1,913,907
July 1, 2003....... 2,002,904
January 1, 2004.... 2,096,039
July 1, 2004....... 2,193,504
January 1, 2005.... 2,295,502
July 1, 2005....... 2,402,243
January 1, 2006.... 2,666,173
July 1, 2006....... 2,790,150
January 1, 2007.... 2,919,892
July 1, 2007....... 3,055,667
January 1, 2008.... 3,197,755
July 1, 2008....... 3,346,451
January 1, 2009.... 3,502,061
July 1, 2009....... 3,664,906
January 1, 2010.... 3,835,325
July 1, 2010....... 4,013,667
January 1, 2011.... 4,328,672
July 1, 2011....... 4,529,955
January 1, 2012.... 4,740,598
July 1, 2012....... 4,961,036
January 1, 2013.... 5,191,724
July 1, 2013....... 5,433,139
January 1, 2014.... 5,685,780
July 1, 2014....... 5,950,169
January 1, 2015.... 6,226,851
July 1, 2015....... 6,516,400
------------
Total......... $116,753,000
============
</TABLE>
Interest is payable on the Mortgage Note at the rate borne by the Mortgage
Note on the unpaid principal amount thereof on January 1 and July 1 in each
year, commencing July 1, 1996. Such interest will be computed on the basis of a
360-day year of twelve 30-days months.
If a date scheduled for any payment of principal, Make-Whole Premium, if
any, or interest on the Mortgage Note is not a Business Day, such payment shall
be made on the next succeeding Business Day without any additional interest.
REDEMPTION
The Mortgage Note is subject to redemption in part in the event that, on or
after January 1, 2006, United Artists determines that a Property is obsolete, no
longer economic for United Artists' use or surplus to United Artists' needs (the
"Termination Right") and the Owner Trustee has not accepted United Artists'
offer to substitute another property. The Mortgage Note is also subject to
redemption in part if, at any time during the last three years of the Lease
term, there occurs a Major Repair Event or a Major Requirement Event and the
Owner Trustee does not accept United Artists' offer to substitute another
property. See "Description of the Lease--Obsolescence Termination" and "--
Substitution." The redemption price in each
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such case shall be equal to the Redemption Price with respect to such property
plus a Make-Whole Premium, if any.
The Make-Whole Premium, if any, on the Mortgage Note will be determined by
an independent investment banking institution of national standing (the
"Investment Banker") selected by United Artists. The Investment Banker will
first determine the Treasury Rate with respect to any redemption of the Mortgage
Note. The Treasury Rate means a per annum rate (expressed as a semiannual
equivalent and as a decimal and, in the case of United States Treasury bills,
converted to a bond equivalent yield) determined to be the per annum rate equal
to the semiannual yield to maturity of United States Treasury securities
maturing on the Average Life Date (as defined below) of the Mortgage Note, as
determined by interpolation between the most recent weekly average yields to
maturity for two series of United States Treasury securities (A) one maturing as
close as possible to, but earlier than, the Average Life Date of the Mortgage
Note and (B) the other maturing as close as possible to, but later than, the
Average Life Date of the Mortgage Note, in each case as published in the most
recent H.15(519) (or, if a weekly average yield to maturity for United States
Treasury securities maturing on the Average Life Date of the Mortgage Note is
reported in the most recent H.15(519), as published in H.15(519)). H.15(519)
means "Statistical Release H.15(519), Selected Interest Rates", or any successor
publication, published by the Board of Governors of the Federal Reserve System.
The most recent H.15(519) means the latest H.15(519) which is published prior to
12:00 noon, New York City time, on the third business day prior to the
applicable Redemption Date. The Average Life Date shall be the date which
follows the Redemption Date, by a period equal to the Remaining Weighted Average
Life of such Mortgage Note. The Remaining Weighted Average Life is the number
of days equal to the quotient obtained by dividing (A) the sum of the products
obtained by multiplying (1) the amount of each remaining principal payment on
the Mortgage Note by (2) the number of days from and including the Redemption
Date, to but excluding the scheduled payment date of such principal payment by
(B) the unpaid principal amount of the Mortgage Note.
To determine the Make-Whole Premium, the Investment Banker then will
determine, as of the third business day prior to the Redemption Date, the sum of
the present values of all of the remaining scheduled payments of principal and
interest from the Redemption Date to Stated Maturity on the Mortgage Note
computed on a semiannual basis by discounting such payments (assuming a 360-day
year consisting of twelve 30-day months) using such Treasury Rate. If the sum
of these present values of the remaining payments as computed above exceeds the
aggregate unpaid principal amount of the Mortgage Note (in the case of a
redemption in whole) or the Allocated Debt Amount (in the case of a redemption
related to the termination of the Lease with respect to a Property), plus any
accrued but unpaid interest thereon, the difference will be payable as a premium
upon such redemption. If the sum is equal to or less than such principal amount
plus accrued interest, there will be no premium payable with respect to such
redemption.
Following the occurrence of an Event of Loss with respect to any Property,
if United Artists elects not to exercise its Substitution Right (as defined in
"Description of the Lease--Substitution Right") with respect to such Property,
then the Mortgage Note shall be redeemed in part at a price equal to the
Redemption Price. The Mortgage Note is also subject to redemption in part on
February 1, 1997 in the event that, prior to December 31, 1996 (the
"Construction Completion Deadline"), any of the Incomplete Properties is not
completed and United Artists has been unable to exercise its Substitution Right.
See "Description of the Lease--Condemnation and Casualty," "--Substitution" and
"--The Participation Agreement."
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The Mortgage Note is subject to redemption or purchase by the Owner Trustee
(except during any period during which United Artists is an Owner Participant or
otherwise controls the Owner Trustee), in whole but not in part, if under the
Indenture an Indenture Default arising from a Lease Event of Default shall have
occurred and (i) the Indenture Trustee shall have given notice of its intent to
accelerate the Mortgage Note or (ii) such Indenture Default shall have continued
for a period of 180 days or more during which the Mortgage Note could, but shall
not, have been accelerated at a price equal to the aggregate unpaid principal
amount thereof, plus accrued but unpaid interest thereon, plus all other amounts
then due and payable to the holder of the Mortgage Note plus, in the case of
redemption or purchase pursuant to clause (ii), if such Lease Event of Default
shall have continued for less than 270 days, a Make-Whole Premium, if any.
Any redemption of the Mortgage Note will occur on the respective date of
redemption (the "Redemption Date") fixed in accordance with the Indenture. The
Redemption Date will be the date designated in the notice of redemption given by
the Owner Trustee (or by United Artists pursuant to the Lease) to the Indenture
Trustee. Any such notice must be given not less than 30 days prior to the
applicable Redemption Date.
SECURITY
One Mortgage Note was issued under the Indenture, and, except as described
below, is secured by, among other things, (i) an assignment to the Indenture
Trustee of certain of the Owner Trustee's rights under the Lease including the
right to receive rentals and certain other amounts payable thereunder by United
Artists (but excluding Excepted Payments), (ii) a first mortgage lien on all of
the Building Improvements and Estates for Years acquired by the Owner Trustee
and leased to United Artists, (iii) a collateral assignment of the Owner
Trustee's rights under the Option and (iv) a first mortgage lien on the
Remainderman Trustee's remainder interest in the Land. The Mortgage Note is
secured by a first mortgage lien on all of the Properties. Solely with respect
to each of the Incomplete Properties, as of the Closing Date and until such time
as such Properties are completed, the Mortgage Note is secured by the rights
described in clauses (i), (iii) and (iv) of the preceding sentence, plus a first
mortgage lien on the Estate for Years related to such Incomplete Properties (and
the Building Improvements related to such Property, to the extent such Building
Improvements are constructed), plus cash in an amount equal to the cost to the
Owner Trustee of acquiring the Building Improvements related to such Incomplete
Properties. Such cash will be held in escrow by the Indenture Trustee pending
completion of the Incomplete Properties. Upon completion of each Incomplete
Property, the Mortgage Note will be secured with respect to such property as
described in the first sentence of this paragraph. See "Description of the
Lease--The Participation Agreement." Unless and until an Indenture Default has
occurred and is continuing, payments under the Lease in excess of the amount
required to pay amounts owed in respect of the Mortgage Note will be paid to the
Owner Trustee for distribution to the Owner Participant and, accordingly, no
such excess payments distributed prior to an Indenture Default will be available
to satisfy any deficiency in the amount available to pay the Mortgage Note in
full.
Unless and until an Indenture Default has occurred and is continuing and
the Mortgage Note has been declared due and payable, the Indenture Trustee may
not exercise any of the rights of the Owner Trustee under the Lease, except the
right to receive payments of rentals due thereunder (other than Excepted
Payments).
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Funds, if any, held from time to time by the Indenture Trustee, including
funds held pending completion of the Incomplete Properties or as the result of
an Event of Loss with respect to a Property or partial termination of the Lease
as it relates thereto, will be invested and reinvested in certain Permitted
Investments selected by United Artists. United Artists will be obligated to pay
the amount of any loss resulting from any such investment directed by it.
LIMITATION OF LIABILITY
The Mortgage Note is not a direct obligation of or guaranteed by, United
Artists or the Owner Trustee. None of the Owner Trustee, the Owner Participant,
the Trustee or the Indenture Trustee, or any affiliate thereof, will be
personally liable to any holder of the Mortgage Note or to the Indenture Trustee
for any amounts payable under the Mortgage Note or for any liability under the
Indenture. All payments of principal, Make-Whole Premium, if any, and interest
on the Mortgage Note will be made only from the assets subject to the liens of
the Supplemental Indentures and the income and proceeds received by the
Indenture Trustee therefrom (including Fixed Rent and certain amounts of
Additional Rent payable by United Artists under the Lease). None of the Owner
Trustee, the Owner Participant or the Indenture Trustee will be personally
liable for or in respect of this Prospectus.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults include: (a) the occurrence and continuance of any Lease
Event of Default (other than a Lease Event of Default related to Excepted
Payments), (b) failure by the Owner Trustee to pay when due any principal of,
Make-Whole Premium, if any, or interest on the Mortgage Note and continuance of
that failure for 10 days, (c) failure by the Owner Trustee to comply with any
covenant contained in the Indenture or the Participation Agreement, which
continues unremedied for a period of 30 days (or such longer period (but in no
event more than 60 days) if the Owner Trustee is diligently proceeding to
correct the failure at the end of the original 30-day period and reasonably
expects to correct such failure within the additional 30-day period) after
notice to the Owner Trustee by the Indenture Trustee or to the Owner Trustee and
the Indenture Trustee by the holders of at least 25% of the outstanding
principal amount of the Mortgage Note, (d) any representation or warranty made
by the Owner Trustee or the Owner Participant in the Indenture or the
Participation Agreement shall prove at any time to have been inaccurate in any
material respect as of the date made, and any material adverse impact of such
inaccuracy shall continue unremedied for a period of 30 days (or such longer
period (but in no event more than 60 days) if such inaccuracy is curable but is
not reasonably susceptible to cure within 30 days and if the Owner Trustee or
the Owner Participant, as applicable, is diligently proceeding to correct such
inaccuracy at the end of the original 30-day period) after notice to the Owner
Trustee by the Indenture Trustee or to the Owner Trustee and the Indenture
Trustee by the holders of at least 25% of the outstanding principal amount of
the Mortgage Note and (e) the occurrence of certain events of bankruptcy,
reorganization or insolvency of the Owner Trustee, subject to certain limited
exceptions.
In the event United Artists fails to make any semiannual fixed rental
payment when due under the Lease and such failure shall not constitute the
fourth or subsequent consecutive or the seventh or subsequent cumulative such
failure, then the Owner Trustee or the Owner Participant may cure the default by
paying the Indenture Trustee an amount equal to but not less than all principal
and interest as shall then be due on the Mortgage Note, together with any
overdue interest, in which event the Indenture Trustee and the holder of the
Mortgage Note may not exercise any remedies otherwise available under the
Indenture or the Lease as the result of such failure to make such rental
payment. The Owner Trustee may also cure any other default by United Artists in
the performance of its obligations under the Lease. The cure rights described
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above will not apply during any period during which United Artists is an Owner
Participant or otherwise controls the Owner Trustee.
The Indenture provides that the Indenture Trustee must, within 30 days
after any event resulting in the occurrence of an Indenture Default or any event
that would, with notice or the passage of time or both, be an Indenture Default,
known by it, give notice hereof to the holder of the Mortgage Note.
The holders of not less than a majority of the unpaid principal amount of
the Mortgage Note may direct the Indenture Trustee thereunder, on behalf of all
holders, to waive any past default under the Indenture except a default in the
payment of the principal of, Make-Whole Premium, if any, or interest on or other
amounts due under the Mortgage Note or a default in respect of any covenant or
provision of the Indenture that cannot be modified or amended without unanimous
consent.
REMEDIES
Upon the occurrence of an Indenture Default resulting from the bankruptcy,
insolvency or reorganization of the Owner Trustee, or a Lease Event of Default
resulting from the bankruptcy, insolvency or reorganization of United Artists,
the unpaid principal amount of the Mortgage Note together with accrued but
unpaid interest thereon, but without Make-Whole Premium, and all other amounts
due under the Indenture, shall become due and payable. Upon the occurrence of
any other Indenture Default, the Indenture Trustee may, or when instructed by
the holders of at least 25% of the outstanding principal amount of the Mortgage
Note shall, declare the principal of the outstanding Mortgage Note, together
with accrued but unpaid interest thereon, but without Make-Whole Premium, ,
immediately due and payable.
The holders of a majority in principal amount of the Mortgage Note may
rescind any declaration of acceleration by the Indenture Trustee, whether made
on its own accord or as directed by the holder of the Mortgage Note, at any time
prior to the sale of all or part of the Indenture Estate if (i) there has been
paid or deposited with the Indenture Trustee an amount sufficient to pay (a) all
overdue installments of interest on the Mortgage Note, (b) the principal of and
the Make-Whole Premium, if any, on the Mortgage Note that has become due other
than as a result of such declaration and interest thereon as provided therein,
and (c) to the extent permitted by law, interest on overdue installments of
interest and (ii) all Indenture Defaults, other than the non-payment of
principal that has become due solely because of such acceleration, have been
cured or waived. No such rescission will affect any subsequent default or
impair any right or remedy consequent thereon.
If an Indenture Default has occurred and is continuing, the Indenture
Trustee may, and upon the written request of the holders of not less than a
majority of the unpaid principal amount of the Mortgage Note shall, subject to
the condition described below and the Owner Trustee's rights to cure such
Indenture Default or to redeem or purchase such Mortgage Note, exercise certain
rights and remedies available to it under the Lease, the Indenture and
applicable law, including the right to (a) take possession of all or part of the
Indenture Estate, either directly or through an agent or court-appointed
receiver, and exclude the Owner Trustee, the Remainderman Trustee and United
Artists, (b) foreclose on the Indenture Estate and (c) enforce its security
interests in any personal property included within the Indenture Estate;
provided that the Indenture Trustee may not exercise any remedy against the
Indenture Estate seeking to deprive the Owner Trustee of its interests therein
unless a declaration of acceleration of such Mortgage Note has been delivered to
the Owner Trustee and to United Artists. See "Description of the Lease--
Remedies."
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In connection with an Indenture Default that arises solely by reason of a
Lease Event of Default, the Indenture Trustee may not foreclose the lien of any
Supplemental Indenture or exercise any of its rights and remedies under any
Supplemental Indenture that would result in the exclusion of the Owner Trustee
from the Indenture Estate or any substantial part thereof unless (a) the
Indenture Trustee has exercised or is concurrently exercising remedies under the
Lease involving termination of the Lease or of United Artists' right to
possession thereunder or (b) such Lease Event of Default has continued for a
period of at least 270 days and a stay prohibiting the exercise of such remedies
is in effect as of the expiration of such 270-day period.
So long as no Lease Event of Default shall have occurred and be continuing,
United Artists is entitled to undisturbed possession of all of the Properties,
even if an Indenture Default has occurred and is continuing. Because the
Indenture provides for certain Indenture Defaults that are not caused by a Lease
Event of Default, there are circumstances in which the Mortgage Note may be
accelerated even if no default exists under the Lease. In such case,
notwithstanding any acceleration, United Artists would not be obligated to pay
more than the amounts of rent required to be paid periodically under the Lease.
The holders of a majority in the unpaid principal amount of the Mortgage
Note shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Indenture Trustee or exercising any
trust or power conferred on the Indenture Trustee; provided that such direction
does not conflict with applicable law or with the rights of the Owner Trustee
under the Indenture; and provided further that the Indenture Trustee may take
any other action it deemed proper that is not inconsistent with such direction.
If an Indenture Default occurs and is continuing, any sums held or received
by the Indenture Trustee (other than Excepted Payments) may be applied to
reimburse the Indenture Trustee for all amounts then due to it under the
Indenture prior to any payments to the holder of the Mortgage Note.
In the event of a bankruptcy of the Owner Participant, it is possible that,
notwithstanding that the Owner Participant's interest in each Property is owned
by the Owner Trustee in trust, the Properties, the Lease and the Mortgage Note
might become affected by the bankruptcy proceedings. In such event, payments
under the Lease or on the Mortgage Note might be interrupted and the ability of
the Indenture Trustee to exercise its remedies under the Indenture might be
restricted, although the Indenture Trustee would retain its status as a secured
creditor in respect of the Lease and the Properties.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Owner Trustee may, at its option and at any time, elect to have its
obligations discharged with respect to the Mortgage Note ("defeasance"). Such
defeasance means that the Owner Trustee shall be deemed to have paid and
discharged the entire indebtedness represented by the Mortgage Note, except for
(i) the rights of the holder of the Mortgage Note to receive payments in respect
of the principal of, Make-Whole Premium, if any, and interest on such Mortgage
Note when such payments are due, (ii) the Owner Trustee's obligations with
respect to the Mortgage Note concerning issuing temporary Mortgage Notes,
registration of Mortgage Notes, mutilated, destroyed, lost or stolen Mortgage
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Indenture Trustee, and (iv) the defeasance provisions of the
Indenture. In addition, the Owner Trustee may, at its option and at any time,
elect to have released its obligations with respect to certain covenants
contained in the Indenture and the obligations of United Artists with respect to
certain covenants contained in the Participation Agreement and the Lease
("covenant defeasance") and any omission to comply with such obligations shall
not constitute an Indenture Default
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with respect to the Mortgage Note. In the event covenant defeasance occurs,
certain events (not including non-payment, bankruptcy and insolvency events)
described under "Events of Default" will no longer constitute an Indenture
Default with respect to the Mortgage Note and neither the failure of United
Artists to comply with certain covenants contained in the Participation
Agreement nor the occurrence of a Lease Event of Default will constitute an
Indenture Default.
In order to exercise either defeasance or covenant defeasance, (i) the
Owner Trustee must irrevocably deposit with the Indenture Trustee, in trust, for
the benefit of the holders of the Mortgage Note, cash in U.S. dollars, U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent certified public accountants, to pay the principal of, Make-
Whole Premium, if any, and interest on the Mortgage Note at the Stated Maturity
of such principal or installment of principal or interest; (ii) in the case of
defeasance, the Owner Trustee shall have delivered to the Indenture Trustee an
opinion of counsel in the United States stating that (A) the Owner Trustee has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holder of the Mortgage
Note will not recognize income, gain or loss for federal income tax purposes as
a result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same time as would have been the
case if such defeasance had not occurred; (iii) in the case of covenant
defeasance, the Owner Trustee shall have delivered to the Indenture Trustee an
opinion of counsel in the United States to the effect that the holder of the
Mortgage Note will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred; (iv) no
Lease Default or Indenture Default shall have occurred and be continuing on the
date of such deposit or, insofar as clause (xii) of Lease Events of Default and
clause (e) of Indenture Defaults are concerned, at any time during the period
ending the 123rd day after the date of deposit; (v) in the case of defeasance or
covenant defeasance, the Owner Trustee shall have delivered to the Indenture
Trustee an opinion of counsel to the effect that after the applicable preference
period following the deposit, the trust funds will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (vi) the Owner Trustee shall have
delivered to the Indenture Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to
either the defeasance or the covenant defeasance, as the case may be, have been
complied with.
POSSIBLE RECHARACTERIZATION OF THE LEASE AS A LOAN FOR CERTAIN STATE LAW
PURPOSES
For federal and state income tax and accounting purposes, it is the
intention and belief of United Artists that the Sale-Leaseback Transaction
constitute a "true lease" of the Properties. In this regard, United Artists has
agreed not to take or omit to take any action during the Lease term inconsistent
with "true lease" classification under state law. Notwithstanding the
foregoing, in an action involving the enforcement of the Lease with respect to
any Property, a court in the jurisdiction where such Property was located might
determine that the leveraged lease transaction entered into by United Artists
with respect to each Property located in such jurisdiction was actually a loan
and, accordingly, that the conveyance by United Artists to the Owner Trustee
constitutes an equitable mortgage of such Property or Properties. Under such
circumstances, the Owner Trustee would be considered a secured lender to United
Artists for purposes of enforcing state law landlord remedies, and the Indenture
Trustee would be considered a lender to the Owner Trustee holding an assignment
of the security. Consequently, to enforce United Artists' payment obligations
under the Lease with respect to such Property or Properties, the Owner Trustee
or the Indenture Trustee would be required to comply with the procedural
requirements of, and would be subject to the legal
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limitations on recovery, if any, under the laws of the state in which such
Property or Properties are located that are applicable to a lender seeking to
recover the principal of a loan secured by real property. It is unclear whether
the mortgage interest deemed to be held by the Owner Trustee in a
recharacterized transaction would be deemed to be properly perfected and thus
enforceable against other third party creditors. If the mortgage interest were
deemed perfected, the Owner Trustee (and, by assignment, the Indenture Trustee)
would have a secured claim against United Artists. If such mortgage interest
were not deemed perfected, it could be defeated by other creditors or a trustee
in bankruptcy, in which event the Owner Trustee (and, by assignment, the
Indenture Trustee) would be limited to an unsecured claim against United Artists
in an amount at least equal to the principal of, and accrued interest on, the
Allocated Debt Amount related to such Property or Properties. In either event
such secured or unsecured claim would not be subject to the limitations on
lessor damages imposed by Section 502(b)(6) of the Bankruptcy Code. See
"Description of the Lease--Consequences of United Artists' Bankruptcy."
MODIFICATION OF THE INDENTURE AND OTHER DOCUMENTS
The parties to the Lease, the Participation Agreement, the Agreement and
the other Operative Documents (as defined in the Glossary) may grant the
consents under, or modify, waive, amend or supplement certain provisions of such
Operative Documents without the consent of the holder of the Mortgage Note,
provided that no such modification, amendment, supplement, consent or waiver
shall, without the consent of the holder of the Mortgage Note, modify, amend or
supplement, or give any consent in respect of or waive any provision of the
Lease in any manner (i) as to reduce the amounts payable by United Artists under
the Lease, or change the time for the payment thereof, so that such payments are
less than the amounts necessary to pay the principal of, Make-Whole Premium, if
any, and interest on the Mortgage Note when due (whether at maturity, upon
acceleration or otherwise) or (ii) as would release United Artists from its
obligation in respect of payment of rent or any other amount payable under the
Lease and intended to be used to pay the principal of, Make-Whole Premium, if
any, or interest on the Mortgage Note, in any manner inconsistent with clause
(i) above. In addition, without the consent of the Indenture Trustee given at
the direction of the holders of at least a majority of the unpaid principal
amount of the Mortgage Note, the Owner Trustee may not (except as it relates to
certain indemnity or other payment to the Owner Trustee or the Owner
Participant) agree to any amendment to, waiver, discharge, supplement or
termination of or grant any consent under, certain specified provisions of such
Operative Documents, including provisions of the Lease relating to (i) the
permitted uses of the Properties; (ii) certain conditions United Artists must
satisfy in order to construct improvements to any Property; (iii) the rights of
United Artists upon the occurrence of an Event of Loss (if the result thereof
would be to adversely affect, delay or decrease the amount of any redemption of
the Mortgage Note); (iv) the events constituting Lease Events of Default; or (v)
the remedies available to the Owner Trustee upon the occurrence of a Lease Event
of Default, if, in general, such amendment, waiver, discharge, supplement,
termination or consent would materially adversely affect the rights of the
holder of the Mortgage Note.
The Indenture contains provisions permitting the Owner Trustee and the
Indenture Trustee, with the consent of the holders of not less than a majority
of the unpaid principal amount of the Mortgage Note, to add, modify or eliminate
any provision of the Indenture, except that, without unanimous consent, no
amendment or modification of the Indenture may (a) change the Stated Maturity of
the principal of or any installment of interest on, or the dates or
circumstances of payment of Make-Whole Premium, if any, on the Mortgage Note, or
reduce the principal amount thereof or the interest thereon or any amount
payable upon the redemption thereof, or change the circumstances for redemption
or change the place of payment where, or the coin or currency in which, the
Mortgage Note or the Make-Whole Premium, if any, or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment of principal or interest on or after the Stated Maturity thereof (or, in
the case of Redemption, on or after the Redemption
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Date) or such payment of Make-Whole Premium, if any, on or after the date such
Make-Whole Premium becomes due and payable or change the dates or the amounts of
payments to be made through installment payments; (b) permit the creation of any
lien prior to the lien of any Supplemental Indenture with respect to the
Indenture Estate or deprive the holder of the Mortgage Note of the security
afforded by the lien of any Supplemental Indentures except as may be required to
release property from the lien of any Supplemental Indenture as expressly
provided in such Indenture; (c) terminate the Lease, reduce the amounts payable
under the Lease or change the time for the payment thereof so that such payments
are less than the amounts necessary to pay when due the principal of, Make-Whole
Premium, if any, and interest on the outstanding Mortgage Note; (d) reduce the
percentage in principal amount of the outstanding Mortgage Note, the consent of
the holders of which is required for any such amendment, or the consent of the
holders of which is required for any waiver provided for in the Indenture, or
(e) modify the provisions of the Indenture governing amendments or waivers
thereunder except to increase the percentage of holders of Mortgage Note
necessary to permit certain actions or to add provisions of the Indenture that
cannot be modified or waived without unanimous consent.
Each of the Owner Trustee and the Indenture Trustee have agreed in the
Participation Agreement (i) to comply with the provisions of the Indenture, (ii)
not to waive any provision of the Indenture requiring United Artists' consent
thereunder, and (iii) not to amend, supplement, waive or otherwise modify any
provision of the Indenture in such a manner as to adversely affect the rights or
increase the obligations of United Artists or the Owner Participant without the
prior written consent of such party.
DISCHARGE OF LIEN
The Indenture will cease to be of further effect when, among other things,
(a) the principal of, Make-Whole Premium, if any, and interest on the Mortgage
Note have been paid, and the Mortgage Note has been delivered to the Indenture
Trustee for cancellation, or (b) (i) the Mortgage Note issued thereunder and not
theretofore delivered to the Indenture Trustee for cancellation will mature or
is to be called for redemption such that it will be due and payable within one
year or the conditions to defeasance of the Indenture shall have been satisfied,
and (ii) there shall have been irrevocably deposited with the Indenture Trustee
in trust cash in an amount that will be sufficient to pay, or direct obligations
of the United States of America maturing in such amounts and at such times as
will ensure the availability of cash sufficient to pay, when due, the principal
of, Make-Whole Premium, if any, and interest on such Mortgage Note to maturity
or redemption as the case may be, and all other sums payable under the
Indenture. The lien of any Supplemental Indenture shall be released by the
Indenture Trustee when, among other things, the Allocated Debt Amount with
respect to the Property subject to such lien, together with accrued but unpaid
interest thereon, and (if applicable) Make-Whole Premium, if any, shall have
been paid.
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DESCRIPTION OF THE LEASE
The statements under this caption are summaries of the terms of the Lease
and do not purport to be complete. The summaries make use of terms defined in
and are qualified in their entirety by reference to all of the provisions of the
Lease, the form of which is available without charge to each Person to whom this
Prospectus is delivered, upon request of such Person to Legal Department,
United Artists Theatre Circuit, Inc., 9110 East Nichols Avenue, Englewood,
Colorado 80112.
TERM AND RENT
The Owner Trustee leases each Property to United Artists pursuant to the
Lease for a base term of 21 years. United Artists has the right to renew the
term of the Lease for two five-year renewal terms. Rent is required to be paid
by United Artists under the Lease in immediately available funds on each January
1 and July 1, commencing July 1, 1996 (the "Rent Payment Dates"). On each Rent
Payment Date, the aggregate amount of rent payable under the Lease will be at
least equal to the scheduled amount of principal and interest due on the
Mortgage Note on such date. United Artists' obligation to pay rent is absolute
and unconditional, and, with certain limited exceptions, payments of rent under
the Lease are to be made without notice, demand, counterclaim, setoff,
deduction, defense, abatement, or reduction.
NET LEASE; MAINTENANCE
The obligations of United Artists under the Lease are those of a lessee
under a "net lease." Accordingly, United Artists is obligated under the Lease to
pay the real estate taxes attributable to each Property as well as all other
costs and expenses of owning, operating and maintaining each such Property.
The Lease requires United Artists to maintain each Property in good repair
and condition, ordinary wear and tear excepted, and obligates United Artists to
comply with all applicable laws and the terms of any agreements affecting any
shopping center in which any Property is located in compliance with applicable
laws and health and safety standards.
USE; NO CONTINUOUS OPERATION
Each Property may be used for any lawful purpose, provided that no use of
any Property may be made that would: (i) be a public nuisance; (ii) violate any
certificate of occupancy required for such Property; (iii) cancel or make it
commercially unreasonable to obtain the issuance of any insurance policy
required for such Property by the Lease; or (iv) cause any injury or damage to
the related Building Improvements.
United Artists is not obligated under the Lease to operate a business at
any Property, except as required by law or by other agreement binding on such
Property.
ALTERATIONS
United Artists may, at its own expense, make certain alterations and
additions to any Building Improvements ("Alterations"); provided that such
Alterations shall not (i) reduce the value of the applicable Property, (ii)
materially reduce the usable square footage of such Property or weaken the
structure of the applicable Building Improvements, (iii) have an adverse effect
on the use or operation of, or impair the other amenities associated with, the
applicable Property, or (iv) reduce the permitted uses thereof under
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applicable zoning laws. In connection with any Alterations, United Artists shall
perform and complete all work in a first-class, workmanlike manner in compliance
with applicable laws. All Alterations shall be and remain the property of the
Owner Trustee subject to all of the terms and provisions of the Lease. All trade
fixtures and furniture installed at the expense of United Artists shall remain
the property of United Artists, not subject to the lien of the Indenture.
EASEMENTS
The Owner Trustee agrees, at the request of United Artists, without
additional consideration, to grant easements and licenses, and rights of way,
and release existing easements or appurtenances in respect of any Property that
do not impair the usefulness of such Property for the purposes contemplated and
permitted by the Lease, or adversely affect its value and shall not be
detrimental to the proper conduct of business of United Artists.
LIENS
Under the Lease, if any lien or encumbrance (other than a permitted lien)
shall be filed against any Property or any part thereof, any rent, title thereto
or interest therein that is created, caused or suffered by United Artists,
United Artists shall promptly, but no later than 30 days after the attachment
thereof, at its own expense, discharge, eliminate or bond such lien or
encumbrance in a manner satisfactory to the Owner Trustee.
ASSIGNMENT OR SUBLEASING
Under the Lease, United Artists may assign its right, title and interest to
and under the Lease, provided that United Artists will remain primarily liable
for the performance of its obligations under the Lease. With respect to each
Property, United Artists may sublease all or any portion of such Property to any
Person, provided that any sublease shall be expressly subordinate to the Lease.
No sublease may extend beyond the end of the term of the Lease.
INSURANCE
Under the Lease, United Artists is required, at its own cost and expense,
to carry insurance against loss by fire and other casualties included under
extended-coverage, all-risk endorsements, in an amount not less than 100% of the
actual replacement value of the Building Improvements constituting part of the
Property, general public liability insurance with minimum coverage of $5,000,000
with respect to injury of any one Person, $10,000,000 with respect to any one
accident or disaster and $1,000,000 with respect to damage to property, and such
additional coverages as may be required under any of the Operative Documents.
In no event shall the deductible amount under such public liability policies
exceed $500,000 or, under each such other policy, $100,000.
CONDEMNATION AND CASUALTY
In the event of a total or substantial condemnation or casualty to any
Property that is sufficient to render such Property uneconomic for continued use
in United Artists' business (an "Event of Loss"), United Artists may elect to
either repair or restore such Property or to terminate the Lease with respect to
such Property. If United Artists elects to terminate the Lease with respect to
such Property, it must either make a rejectable offer to purchase the Property
for an amount at least equal to the Allocated Debt Amount, or may replace the
Property with a Substitute Property (as hereafter defined).
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If following a casualty or condemnation to any Property, United Artists
does not or is not entitled to terminate the Lease, United Artists will be
obligated to restore such Property at its own expense as nearly as practicable
to the condition that existed as of the Commencement Date, reasonable wear and
tear excepted, or, with respect to an Incomplete Property, its condition upon
completion. The proceeds of any insurance claim or condemnation award shall, if
the Indenture is outstanding, be deposited with the Owner Trustee and shall be
disbursed to United Artists upon progress of completion of restoration, repair,
replacement or rebuilding, subject to certain provisions set forth in the Lease.
In the event that condemnation proceeds exceed the actual cost of restoration,
the Owner Trustee shall have the right to retain the excess proceeds.
OBSOLESCENCE TERMINATION
At any time after January 1, 2001 and provided that no Lease Event of
Default has occurred and is continuing, United Artists may terminate the Lease
as to a Property if it determines that the Property has become uneconomic,
obsolete, or surplus or has become impracticable for United Artists' continued
use and occupancy in its business. United Artists may also terminate the Lease
as to a Property in the last three years of the Lease term if such Property
requires repairs (a "Major Repair Event") or if a legal requirement necessitates
capital expenditures to such Property (a "Major Requirement Event") that, in
either instance, United Artists determines is uneconomic. In any such event,
United Artists may either (i) exercise its rejectable Substitution Option (as
defined in "-- Substitution") or (ii) deliver to the Owner Trustee a rejectable
offer to purchase the Property for an amount at least equal to the Allocated
Debt Amount for such Property plus any accrued but unpaid interest thereon plus
a Make-Whole Premium; provided, however, that from January 1, 2001 to December
31, 2005 with respect to any termination pursuant to the first sentence of this
paragraph, United Artists may only exercise its rejectable Substitution Option.
The Owner Trustee may not reject any rejectable offer under clause (ii) above
unless it deposits with the Indenture Trustee the amount specified in the
preceding sentence.
EVENTS OF DEFAULT
Events of default under the Lease ("Lease Events of Default") include the
following:
(i) the failure by United Artists to pay any installment of Fixed
Rent within five days after the same is due;
(ii) the failure by United Artists to make payment constituting
Additional Rent within five days after the same is due;
(iii) the failure by United Artists to maintain insurance as required
by the Lease;
(iv) if the Lease is assigned, sublet, transferred, mortgaged or
encumbered without compliance with the Lease;
(v) if United Artists shall default in the performance of its
obligations under the Participation Agreement;
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(vi) (a) an event of default as defined in any mortgage, bond,
indenture, loan agreement or other evidence of Indebtedness under which
there may be issued or by which there may be secured or evidenced, any
Indebtedness of United Artists or any Subsidiary for money borrowed (other
than any interest rate contracts), in each case in excess of $25,000,000 in
the aggregate, shall happen and shall result in such Indebtedness being due
and payable prior to the date on which it would otherwise be due and
payable, (b) any default under the instruments referred to in clause
(vi)(a) above resulting from the failure to pay such Indebtedness at final
maturity shall occur or (c) any breach or default under interest rate
contracts, if the effect of such breach or default is termination of any of
such interest rate contracts and a demand or demands in an aggregate amount
in excess of $25,000,000 is made upon United Artists to pay any claim or
claims for compensation, termination or loss which have remained
unsatisfied for three business days;
(vii) there shall have been final judgments or orders of any court or
regulatory or administrative agency rendered against United Artists or any
Subsidiary which require the payment in money, either individually or in an
aggregate amount, that is more than $25,000,000, which shall not have been
discharged and either (a) any judgment creditor shall have commenced an
enforcement proceeding upon any such judgment, order or decree or (b) such
judgment or order shall remain unsatisfied or unstayed for 60 days;
(viii) any Person holding at least $25,000,000 in aggregate principal
amount of Indebtedness of United Artists or any Subsidiary, after a default
under such Indebtedness, shall commence proceedings, or take any action
(including by way of set-off), to retain in satisfaction of Indebtedness or
to collect on, seize, dispose of or apply in satisfaction of Indebtedness,
assets of United Artists or any Subsidiary having a Fair Market Value of
$25,000,000 individually or in the aggregate (including funds on deposit or
held pursuant to lockbox and other similar arrangements) and shall be
entitled to commence such proceedings or to take such action pursuant to
the terms of such Indebtedness;
(ix) any event, including, but not limited to, a Reportable Event or
an event which could give rise to liability under Title IV of ERISA, shall
have occurred which, pursuant to ERISA, could subject United Artists or any
of its Subsidiaries to any tax, penalty, lien or other liability under
ERISA or the Code which in the aggregate is reasonably likely to have a
material adverse effect on United Artists and its Subsidiaries taken as a
whole;
(x) if any representation or warranty made by United Artists in any
of the Operative Documents shall prove at any time to have been false or
inaccurate in any material respect as of the date made and any material
adverse impact of such falseness or inaccuracy shall continue unremedied
for a period of 30 days (or such longer period but in no event more than 60
days) if such falseness or inaccuracy is susceptible of being remedied and
United Artists commences such cure within 30 days after notice thereof and
diligently and continuously pursues such cure thereafter;
(xi) the failure by United Artists to perform any of its other
covenants or obligations under the Lease within 30 days after notice
thereof; provided that any non-monetary default that is curable but is not
susceptible to a cure within 30 days shall not be deemed a default if a
cure is commenced within 30 days after such notice, and is diligently and
continuously pursued thereafter; and provided further that in no event
shall such cure period exceed 180 days; and
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(xii) certain events of bankruptcy, insolvency, reorganization
pursuant to bankruptcy or similar laws, receivership, dissolution or
liquidation of United Artists.
REMEDIES
If a Lease Event of Default has occurred and is continuing, the Owner
Trustee may declare the Lease to be in default. Except as provided below, and
to the extent permitted by law, the Owner Trustee may at any time thereafter
exercise one or more of the remedies set forth in the Lease, including the right
to terminate the Lease and repossess and use or relet the Properties, or to
transfer the Properties or any part thereof, together with any interest of the
Owner Trustee in the Properties to United Artists. If the Properties are to be
transferred to United Artists, United Artists is required to pay, as liquidated
damages, certain unpaid rent plus any one of the following sums: (a) the
difference between a Stipulated Loss Value identified in the Lease (the
"Termination Value") and the present value of the fair market sales value of the
Properties, for the remainder of the term of the Lease, such present value to be
computed using a 6% per annum rate (the "Discount Rate"), discounted
semiannually from the dates such rent would be paid; (b) the difference between
the present value computed using a per annum rate equal to the Discount Rate of
all rents, discounted semiannually, for the remainder of the base or applicable
renewal term of the Lease (the "Discounted Basic Rents") and the present value
computed using a per annum rate equal to the Discount Rate of the fair market
rental value of the Properties for the remainder of such term, discounted
semiannually; (c) an amount equal to the excess of the Discounted Basic Rents
over the present value computed using a per annum rate equal to the Discount
Rate of the aggregate fair market rental value of the Properties; or (d) the
greater of the Termination Value, the Discounted Basic Rents and the aggregate
fair market sales value of the Properties.
SUBSTITUTION
Following a determination by United Artists of economic obsolescence at any
time on or after January 1, 2006 or, in the last three lease years of the Lease
term, a Major Repair Event or Major Requirement Event with respect to a
Property, United Artists will have an option to make a rejectable offer to
either (a) substitute another property (the "Substitute Property") for such
Property (the "Substitution Option") or (b) purchase such Property. The Owner
Trustee shall have the option to accept or reject such offer. In addition, at
any time from January 1, 2001 to December 31, 2005, following a determination by
United Artists of economic obsolescence, United Artists may exercise its
rejectable Substitution Option. With respect to any Incomplete Property, or
following an Event of Loss to any Property, United Artists may elect to
substitute a Substitute Property (the "Substitution Right"). In any event,
United Artists may not substitute a Substitute Property unless it satisfies
certain conditions with respect to the Substitute Property, including but not
limited to, (i) the fair market value of the Substitute Property is not less
than the fair market value of the Property immediately prior to the Event of
Loss which gave rise to the substitution (in any other event the Substitute
Property must have a fair market value not less than the fair market value of
the Property as of the date of the Lease), (ii) United Artists shall deliver an
environmental assessment report, survey and title search report, each of which
shall be satisfactory to the Owner Trustee and (iii) the substitution shall not
reduce the amount or timing of any rents due under the Lease.
CONSEQUENCES OF UNITED ARTISTS' BANKRUPTCY
If United Artists were to become a debtor in a bankruptcy proceeding under
the Bankruptcy Code, United Artists or its bankruptcy trustee could seek to
reject the Lease. If the bankruptcy court treated the Lease as a true lease and
approved the rejection of the Lease, such rejection would constitute a breach of
the Lease and, as provided in applicable non-bankruptcy law, deprive United
Artists of the use and possession
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of all of the Properties. If the Lease were rejected, rental payments thereunder
would terminate, thereby leaving the Owner Trustee (and by virtue of the
assignment effected by the Indenture, the Indenture Trustee) without regular
rent payments and with a claim for damages as a source of payment of amounts due
under the Mortgage Note. Under section 502(b)(6) of the Bankruptcy Code, a claim
by a lessor for damages resulting from the rejection by a debtor of a lease of
real property is limited to an amount equal to the rent reserved under the
lease, without acceleration, for the greater of one year or 15 percent (but not
more than three years) of the remaining term of the lease, plus rent already due
but unpaid. There can be no assurance that any such claim for damages would be
sufficient to provide for the repayment of the outstanding Mortgage Note.
Regardless of any limitation of damages pursuant to section 502(b)(6) of the
Bankruptcy Code, the Indenture Trustee could also seek to foreclose upon its
lien and security interest in the Properties under applicable state law, which
lien and security interest would not be affected by rejection of the Lease, and
apply the proceeds of any foreclosure sale to any amounts unpaid with respect to
the Mortgage Note. Furthermore, notwithstanding the intent of United Artists and
the Owner Trustee, it is possible that the bankruptcy court could determine that
the Lease is a separate lease of real property with respect to each Property. If
such a determination were made, then the consequences described in this
paragraph could occur on a Property by Property basis.
THE PARTICIPATION AGREEMENT
United Artists is required to indemnify the Owner Participant, the Owner
Trustee, the Indenture Trustee and the Trustee for certain losses and claims and
for certain other matters. Subject to certain restrictions, the Owner
Participant may transfer its interest in the Properties. The Participation
Agreement requires United Artists to comply with certain covenants, which are
described in Appendix II attached hereto. United Artists will not be required to
comply with certain of such covenants in the event that (and for so long as) the
Certificates are rated Investment Grade by both Moody's and S&P.
With respect to each of the Incomplete Properties, as of the Closing Date,
the Owner Trustee paid to United Artists an amount equal to the value of the
Estate for Years for each such property and acquired title to each such
Property, except that the Estate for Years with respect to a portion of the land
underlying one Incomplete Property will not be acquired until after the Closing
Date, and the purchase price therefor will be held in escrow with the Indenture
Trustee pending such acquisition. The remainder of the purchase price for each
such Property was placed in escrow with the Indenture Trustee. With respect to
each Incomplete Property, upon satisfaction of certain conditions and so long as
no Lease Default or Lease Event of Default shall have occurred and be
continuing, the Indenture Trustee shall release to United Artists an amount
equal to the portion of the purchase price of such Property that was held in
escrow. Such conditions shall include the provision of all necessary permits
and approvals, satisfactory title insurance, the absence of liens with respect
to such Property and an opinion of counsel to the effect that all conditions
precedent have been satisfied. In the event that such conditions are not
satisfied with respect to all Incomplete Properties on or before December 31,
1996, the Owner Trustee shall make a redemption in part of the Mortgage Note on
February 1, 1997. See "Description of the Mortgage Note--Redemptions."
OPTION AND SUBORDINATION AGREEMENT
Pursuant to the Option and Subordination Agreement, the Remainderman
Trustee has granted to the Owner Trustee exclusive and irrevocable options to
(i) lease one or more remainder interests from the Remainderman Trustee upon the
expiration of the Estate for Years pursuant to a triple-net ground lease (the
"Ground Lease") or (ii) purchase one or more remainder interests from the
Remainderman Trustee. Pursuant to the Ground Lease, the Owner Trustee leases the
remainder interests for a primary term of five years and has options to extend
the term for total additional terms of 60 years. The Owner Trustee may
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purchase the Remainderman Trustee's remainder interests subject to the Lease if
then in effect, at the fair market value of the fee interest in the applicable
Property (a) upon the expiration of the Estate for Years or on the last day of
the primary term or the renewal term under the Ground Lease or (b) after certain
Remainderman Trustee defaults.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the instruments governing certain
indebtedness of United Artists does not purport to be complete and is qualified
in its entirety by reference to such instruments, copies of which have been
filed, or incorporated by reference, as exhibits to UATC's reports filed
pursuant to the Exchange Act. Capitalized terms used but not defined herein
have the meanings ascribed to them in such instruments.
THE BANK CREDIT AGREEMENT
As the Bank Credit Agreement was refinanced and restated on May 1,
1995 with the Restated Bank Credit Agreement, the following description of
UATC's senior bank financing will only address the material terms of the
Restated Bank Credit Agreement. A description of the material terms of the Bank
Credit Agreement can be found in the Offering Memorandum dated June 13, 1994.
The following description of material terms of the Restated Bank
Credit Agreement does not purport to be complete and is subject to all of the
provisions of the Restated Bank Credit Agreement. See "Available Information."
Bank of America National Trust and Savings Association, as managing
agent, and The First National Bank of Boston, as co-managing agent
(collectively, the "Co-Managing Agents"), and 18 other financial institutions
(collectively with the Co-Managing Agents, the "Banks") provide senior secured
bank financing pursuant to the Restated Bank Credit Agreement. All capitalized
terms used in this Section without definition shall have the meanings assigned
to them in the Restated Bank Credit Agreement, except that the term "Notes"
refers to the 11 1/2% Senior Secured Notes due 2002.
The following is a summary description of the Restated Bank Credit
Agreement:
Senior Bank Facilities. The Restated Bank Credit Agreement provides
for $250 million delay draw term loans (the "Tranche A Term Commitment"), $87.5
million of revolving loan and letters of credit commitments (the "Tranche B
Revolving Commitment"), and $12.5 million of standby letters of credit (the
"Tranche C Commitment"). The Tranche C Commitment supports certain obligations
in respect of certain existing indebtedness of UAP I which is a wholly owned
subsidiary of UAR.
Borrowings under the Restated Bank Credit Agreement are hereinafter
referred to as "Loans." The Restated Bank Credit Agreement is guaranteed by
OSCAR I, and the OSCAR I Bank Guarantee is secured (on a pari passu basis with
the OSCAR I Note Guarantee and any senior guarantee by OSCAR I of any Additional
Senior Debt permitted by the Restated Bank Credit Agreement) by all of the
outstanding capital stock of UATC, the stock of UAR and the stock of the
Subsidiary Guarantor. The Restated Bank Credit Agreement is also guaranteed by
the Subsidiary Guarantors and is secured (on a pari passu basis with the Notes
and any Additional Senior Debt permitted by the Restated Bank Credit Agreement)
by a first priority security interest in all of the issued and outstanding
capital stock of such Subsidiary Guarantors.
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Term, Amortization. The Tranche A Term Commitment has a final
maturity date of March 31, 2002. Tranche A Term Commitments of $200 million
were drawn on May 1, 1995. The remaining $50 million of Tranche A Term
Commitments were drawn on November 6, 1995 and the proceeds were used to repay
UATC's revolving debt. The Tranche A Term Commitment is required to be
amortized in installments as follows:
PERCENTAGE OF
DECEMBER 31, 1995
PAYMENT DATE OUTSTANDING BALANCE
------------ -------------------
December 31, 1995 0%
December 31, 1996 2.0%
June 30 and December 31, 1997 5.0%
June 30 and December 31, 1998 6.5%
June 30 and December 31, 1999 10.0%
June 30 and December 31, 2000 11.0%
June 30 and December 31, 2001 11.0%
March 31, 2002 11.0%
The Tranche B Revolving Commitment is available for working capital
and other general corporate purposes. The Tranche B Revolving Commitment has a
final maturity of March 31, 2002. The Tranche B Revolving Commitments reduce
(and any excess borrowings thereunder are required to be repaid) in accordance
with the following schedule:
AMOUNT OF
YEAR ENDED
REDUCTION
---------
December 31, 1995 0%
December 31, 1996 0%
December 31, 1997 10%
December 31, 1998 10%
December 31, 1999 15%
December 31, 2000 15%
December 31, 2001 25%
March 31, 2002 25%
The Restated Bank Credit Agreement also provides for $12.5 million of
Tranche C Commitments. The Tranche C Commitments will expire on November 1,
1998. Any drawing thereunder which occurs after 20 days prior to the expiration
of the applicable letter of credit under Tranche C Commitment (the "Expected
Drawdown Period") will be required to be equally amortized in semi-annual
installments during the remaining term of the Tranche A Term Commitments. Any
drawings under the Tranche C Commitment other than during the Expected Drawdown
Period, will be payable on demand. Any drawings under the Tranche C Commitment
will permanently reduce the availability thereof. In addition to the Tranche C
Commitment UATC may utilize up to $17.5 million of the availability under the
Tranche B Revolving Commitments for Letters of Credit if any Bank in its sole
discretion shall agree to issue any such Letter of Credit. As of May 1, 1995,
$14.5 million of Letters of Credit had been issued under the Tranche B Revolving
Commitment. As a result of the Sale-Leaseback Transaction $12.5 million of
Letters of Credit which were backed by the Tranche B Revolving Commitment were
canceled upon the retirement of the Prop II debt and $12.5 million of revolving
loan commitment were made available to UATC.
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Interest Rates; LC Fee, Commitment Fees. With certain exceptions,
interest on Loans is payable at a rate per annum equal to the Applicable Margin
(as defined below) plus (i) the Alternate Base Rate, (ii) the CD Rate (available
for 30, 60, 90 and 180 day periods) or (iii) the Eurodollar Rate (available for
1, 2, 3 or 6 month periods) (the rate in clause (i), (ii) or (iii), as
applicable, the "Applicable Base Rate"), at UATC's option. The term "Applicable
Margin" is determined as of the end of each fiscal quarter of UATC by reference
to the Pricing Leverage Ratio (as defined below) as of the date of
determination, as set forth in the table below. The term "Pricing Leverage
Ratio" means the ratio of (a) UAT Indebtedness less the sum of (i) the average
daily undrawn face amount of any letters of credit issued under the Tranche B
Revolving Tranche C Commitments and (ii) Subordinated Indebtedness to (b) UAT
Annualized Operating Cash Flow.
APPLICABLE MARGINS
<TABLE>
<CAPTION>
ALTERNATE BASE EURODOLLAR CD
RATE LOAN RATE LOAN RATE LOAN
--------------- ----------- ----------
<S> <C> <C> <C>
4.75:1 and above.............. 1.000% 2.000% 2.125%
4.50:1 but less than 4.75:1... .875% 1.875% 2.000%
4:00:1 but less than 4.50:1... .625% 1.625% 1.750%
3.50:1 but less than 4.00:1... .375% 1.375% 1.500%
3.00:1 but less than 3.50:1... .125% 1.125% 1.250%
Less than 3.00:1.............. 0% 1.000% 1.125%
</TABLE>
Interest is computed on the basis of a 360-day year. Interest on
Alternate Base Rate Loans is payable quarterly in arrears. Interest on CD Rate
Loans and Eurodollar Loans is payable in arrears at the end of the Applicable
Interest Period, but no less often than quarterly. Interest is also payable in
arrears on the date of any prepayment or conversion of the Loans. After the
occurrence and during the continuance of an Event of Default, interest is
payable on demand.
Interest on any Loans which represent drawings under the Tranche C
Commitments after the Expected Drawdown Period will bear interest at the
Applicable Base Rate plus the Applicable Margin. Interest on any Loans which
represent drawings under the Tranche C Commitments prior to the Expected
Drawdown Period will bear interest at the Applicable Base Rate plus the
Applicable Margin plus 1% per annum.
While any Event of Default exists and is continuing or after the
exercise by the Banks of any remedies under the Restated Bank Credit Agreement,
UATC will be required to pay interest on the principal amount of all Loans and
Unreimbursed Drawings due and unpaid at a rate per annum which is determined by
increasing the Applicable Margin then in effect by 2% per annum (plus, if
applicable, the Letter of Credit Premium). If any interest on any Loan, or any
other amount payable under the Restated Bank Credit Agreement or under any of
the other Loan Documents is not paid in full when due (whether at stated
maturity, by acceleration, demand or otherwise), such unpaid amount will accrue
interest at a rate per annum equal to the sum of the Alternate Base Rate plus
the Applicable Margin then in effect for Alternate Base Rate Loans plus 2% per
annum. On or after the expiration of the Interest Period applicable to a
Eurodollar Rate Loan or CD Rate Loan outstanding on the date of occurrence such
Event of Default or exercise of remedies, Loans will accrue interest at the
Alternate Base Rate plus the Applicable Margin (including the 2% per annum
increase therein) plus, if applicable, the Letter of Credit Premium.
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The Restated Bank Credit Agreement provides for a fee per annum in
respect of issued and undrawn letters of credit under the Tranche C Commitment
equal to the then Applicable Margin (including any applicable default premium)
for Eurodollar Rate Loans and, if any amounts are drawn under the Tranche B and
Tranche C Commitments prior to the Expected Drawdown Period, plus 1% per annum.
Such fees under the Tranche B and Tranche C Commitment are payable quarterly in
advance. A similar fee will apply if any Facility Letters of Credit are issued.
UATC is also required to pay certain customary fees for services of the Banks
issuing the letters of credit.
UATC is required to pay a commitment fee on the average daily unused
portion of the Tranche B Revolving Commitments equal to 1/2 of 1% per annum;
provided that the commitment fees will be adjusted by deducting therefrom the
Commitment Fee Discount. The Commitment Fee Discount will be determined as of
the end of each fiscal quarter of UATC and will be applied as a credit against
the amount of commitment fees payable for the subsequent quarter. The
Commitment Fee Discount for each period equals 1/8 of 1% per annum and will be
applied for any fiscal quarter for which the Leverage Ratio (as defined below)
of UATC is less than 4.25:1. The term "Leverage Ratio" means, with respect to
any period, the ratio of UAT Indebtedness to UAT Annualized Operating Cash Flow
for such period.
Mandatory Prepayments. The Restated Bank Credit Agreement requires
that Net Cash Proceeds from any Disposition (with certain exceptions) be applied
as follows. The Restated Bank Credit Agreement provides that, promptly upon
receipt, UATC is required to prepay the Tranche A Term Loans in an amount equal
to the Banks' Pro Rata Share of the Applicable Percentage of the Net Cash
Proceeds therefrom, less the amount of investments permitted by the Restated
Bank Credit Agreement from such Net Cash Proceeds where the "Applicable
Percentage" is (a) 100% so long as a Default or an Event of Default shall have
occurred and is continuing at the time of any such Disposition or (b) so long as
no Default or Event of Default shall have occurred and then be continuing, the
percentage set forth below depending upon the Pricing Leverage Ratio of UATC as
such ratio existed on the last day of the fiscal quarter immediately preceding
the date of receipt by UATC or its Subsidiary of such Net Cash Proceeds:
PRICING LEVERAGE RATIO APPLICABLE PERCENTAGE
- ---------------------- ---------------------
4.5:1 and above 90%
3.5:1 but less than 4.5:1 60%
Less than 3.5:1 25%
The Restated Bank Credit Agreement also provides generally that any
remaining portion of the Applicable Percentage of Net Cash Proceeds in respect
of any Disposition not utilized to repay the holders of the Notes or any
Replacement Debt must be utilized to repay the Banks. The Restated Bank Credit
Agreement further provides generally that any portion of the Net Cash Proceeds
of any Disposition which represents any excess of the Net Cash Proceeds thereof
over the Applicable Percentage of such Net Cash Proceeds and which is utilized
to repay the holders of the Notes or any Replacement Debt must also be so
utilized on a pro rata basis to repay the Banks.
The Restated Bank Credit Agreement also provides that if any Event of
Default has occurred and is continuing at the time of any Disposition requiring
a prepayment pursuant to the Restated Bank Credit Agreement, then the terms of
any Disposition entered into when a Default or Event of Default has occurred and
is continuing shall require that not less than 75% of the consideration for such
Disposition be cash or Cash Equivalents.
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The Restated Bank Credit Agreement provides that the portion of any
mandatory prepayment made in respect of Tranche A Term Loans is required to be
applied pro rata to the remaining unpaid installments of the Tranche A Term
Loans then outstanding.
The Restated Bank Credit Agreement also provides that 100% of the Net
Cash Proceeds arising from any Permitted Senior Term Debt (as defined herein)
will be applied first, to prepay UAP I Notes to the extent that it is
indebtedness of UATC, and second, to be applied (or, except as set forth below,
offered to be applied) pro rata to the prepayment of the Tranche A Term Loans,
the Notes and any other Permitted Senior Term Debt. The portion of such Net
Proceeds applied to the Tranche A Term Loans will be applied pro rata across
remaining scheduled maturities.
The term "Permitted Senior Term Debt" is defined as term (and not
revolving credit) Indebtedness that: (a) has terms (other than pricing),
covenants and defaults that are not more onerous or more restrictive on UATC or
its Subsidiaries nor more favorable to the lender of such Indebtedness than the
terms and conditions set forth in the Restated Bank Credit Agreement on the date
of incurrence of such Permitted Senior Term Debt, (b) has an average life
greater than any outstanding borrowings under the Restated Bank Credit Agreement
and (c) has a maturity at least one year after the Tranche A Maturity Date and
the Tranche B Revolving Maturity Date (or having additional or different terms
(other than pricing), or covenants or defaults that are, in the reasonable
judgment of Majority Banks, more onerous or more restrictive on UATC or more
favorable to such lender, but which terms and provisions have been approved in
writing by Majority Banks).
The Restated Bank Credit Agreement also provides that, commencing in
fiscal year ending December 31, 1998, and on each anniversary thereof, UATC will
be required to apply (or, except as set forth below, offer to apply) 50% of the
Excess Cash to prepay on a pro rata basis the principal amount outstanding under
the Tranche A Term Loans, and any Permitted Senior Term Debt. The amount of
such prepayment in respect of the Tranche A Term Loans will be applied pro rata
to the remaining unpaid installments of Tranche A Term Loans then outstanding.
The Restated Bank Credit Agreement provides that any prepayment, on
account of the Notes or any Permitted Senior Term Debt permitted pursuant to the
provisions of the Restated Bank Credit Agreement relating to prepayment from the
net cash proceeds of permitted Senior Term Debt or (to the extent applicable)
Excess Cash, but not required under such agreements or, if required, waived, is
required to be applied first to prepayment of the Tranche A Term Loans and, upon
payment in full thereof, to UATC or whomever shall be entitled thereto.
Optional Prepayments. UATC may voluntarily prepay amounts outstanding
under the Restated Bank Credit Agreement (or reduce the availability of the
Tranche B Revolving Commitments) in whole or in part at any time without premium
or penalty, subject to customary breakage provisions, compliance with certain
notice requirements and minimum prepayment amounts. The Restated Bank Credit
Agreement provides that the portion of any optional prepayment made in respect
of the Tranche A Term Loans is required to be applied pro rata to the remaining
unpaid installments of the Tranche A Term Loans then outstanding. After the
Tranche A Term Loans have been repaid in full, the amount of any such prepayment
is required to be applied pro rata to the remaining unpaid installments of any
Letter of Credit Loans then outstanding.
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Covenants. The Restated Bank Credit Agreement contains certain
customary affirmative covenants, including covenants with respect to, among
other things, the delivery of financial statements and other information, the
preservation of corporate existence, the maintenance of property, the
maintenance of insurance, the payment of obligations, compliance with laws,
inspection of property and books and records, use of proceeds, compliance with
environmental laws, compliance with ERISA, Replacement Debt and further
assurances (including pledges of newly acquired subsidiaries).
The Restated Bank Credit Agreement also requires UATC to enter into
and thereafter maintain in effect until the Tranche A Term Loans have been
repaid in full (except during any period during which the Senior Leverage Ratio
of UATC is less than 3.5:1 commencing after the second consecutive quarter that
the Senior Leverage Ratio is less than 3.5:1) one or more Rate Contracts and/or
interest rate cap agreements (containing certain specified terms) providing
protection against fluctuations in interest rates in respect of a specified
portion of certain Indebtedness. UATC has entered into interest rate cap
agreements covering an aggregate $125.0 million of debt which provide for a
LIBOR rate cap ranging between 6 1/2% and 7 1/2% and expire at various dates
through 1997.
The Restated Bank Credit Agreement allows UATC to exchange the
Preferred Stock (as defined below) into Exchange Notes, other subordinated
indebtedness and other preferred stock. Any subordinated indebtedness issued in
exchange for the Preferred Stock may not have an interest rate in excess of 12%
per annum, may not require or permit principal payments prior to all Obligations
being paid in full and, if an Event of Default has occurred, no payments of
interest can occur until such Event of Default is cured or waived. Any other
preferred stock issued in exchange for the Preferred Stock may not have an
annual coupon rate in excess of 12% per annum, may not be acquired or required
to be acquired prior to all Obligations being paid in full and, if an Event of
Default has occurred, no payments of dividends can occur until such Event of
Default is cured or waived.
The Restated Bank Credit Agreement also contains certain customary
negative covenants, including, without limitation, covenants restricting the
incurrence of indebtedness, the grant or sufferance to exist of liens,
dispositions of assets, consolidations and mergers, loans and investments
(including without limitation acquisitions), transactions with affiliates,
change in business, compliance with ERISA, lease obligations, capital stock and
equity issuances, restricted payments, capital expenditures, certain
transactions with UAR and its affiliates, investments in margin stock,
amendments to agreements and accounting changes.
The Restated Bank Credit Agreement provides that, except for the Loans
(and with certain other exceptions), UATC will not directly or indirectly make
any optional or other voluntary payment, prepayment, retirement, repurchase or
redemption on account of the principal of or interest in respect of any
Indebtedness or set aside money or securities for a sinking or other similar
fund for the payment of principal of or premium or interest on any Indebtedness
or set apart money for the defeasance of any Indebtedness; provided that, during
any fiscal year, UATC may apply Excess Cash and the proceeds from Dispositions,
in excess of that required to make any prepayments pursuant to the Restated Bank
Credit Agreement, to the prepayment of Indebtedness of UATC (other than the
Notes) and refinancings thereof. The Restated Bank Credit Agreement provides
that OSCAR I and UATC will not, and will not permit any Subsidiary to, directly
or indirectly, pay any fee or other consideration to any other Secured Party for
the receipt of its consent to or approval of any disposition of the Collateral,
including the release of any Collateral from the Liens created by the Collateral
Documents, unless the Banks receive a payment in an amount proportionate to the
amount of such fee or other consideration.
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The Restated Bank Credit Agreement also contains the following
financial covenants:
(a) As of the end of any fiscal quarter, the ratio of UAT Annualized
Operating Cash Flow to the sum of (i) Pro Forma Interest Expense on UAT
Indebtedness plus (ii) Pro Forma Dividends may not be less than the ratio
set forth below with respect to each period set forth below:
PERIOD MULTIPLE
------ --------
From May 1, 1995 through and including December 31, 1996 1.75:1.00
January 1, 1997 and thereafter 2.00:1.00
(b) As of the end of any fiscal quarter, the ratio of the sum of (i)
UAT Annualized Operating Cash Flow plus (ii) the excess (if greater than
zero) of cash and Cash Equivalents over the principal amount of the sum of
Revolving Loans plus the face amount of, and Unreimbursed Drawings under,
Facility Letters of Credit outstanding as of the end of such period to the
sum of (A) Pro Forma Debt Service on UAT Indebtedness plus (B) Pro Forma
Dividends may not be less than the ratio set forth below with respect to
each period set forth below:
PERIOD MULTIPLE
------ --------
From May 1, 1995 through and including December 31, 1996 1.15:1.00
January 1, 1997 and thereafter 1.25:1.00
(c) As of the end of any fiscal quarter, UAT Senior and Total
Indebtedness may not exceed an amount equal to the following multiples of
UAT Annualized Operating Cash Flow:
<TABLE>
<CAPTION>
SENIOR TOTAL
INDEBTEDNESS INDEBTEDNESS
QUARTERLY PERIOD MULTIPLE MULTIPLE
- ----------------- ------------ ------------
<S> <C> <C>
May 1, 1995 through December 31, 1995...... 5.00 5.00
March 31, 1996 through December 31, 1996... 4.75 5.00
March 31, 1997 through December 31, 1997... 4.50 5.00
March 31, 1998 through December 31, 1998... 4.00 4.50
March 31, 1999 through December 31, 1999... 3.75 4.00
March 31, 2000 through December 31, 2000... 3.50 3.75
March 31, 2001 and thereafter.............. 3.00 3.50
</TABLE>
(d) As of the end of any fiscal quarter, the ratio of (i)(A) UAT
Annualized Operating Cash Flow plus (B) Pro Forma Lease Expense, to (ii)(A)
Pro Forma Debt Service plus (B) Pro Forma Lease Expense, plus (C) Pro Forma
Dividends, may not be less than 1.10 to 1.0.
(e) As of the end of fiscal year 1995 and 1996, permit the ratio of
the sum of (i)(A) UAT Annualized Operating Cash Flow plus (B) an amount
designated to be drawn under committed lending facilities (provided that,
if such amounts were actually drawn the borrower would be in compliance
with all other financial ratios) plus (C) Net Cash Proceeds from
Dispositions not required to prepay Indebtedness or used to make Capital
Expenditures to (ii) the sum of (1) Pro Forma Debt Service on Indebtedness
plus (2) Pro Forma Dividends and (3) actual Capital Expenditures may not be
less than 1.10 to 1.00.
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(f) As of the end of fiscal year 1997 and thereafter, permit the
ratio of the sum of (i)(A) UAT Annualized Operating Cash Flow plus (B) Net
Cash Proceeds from Dispositions not required to prepay Indebtedness or used
to make Capital Expenditures plus (C) an amount equal to the amount of
Capital Expenditures that could have been made during the prior two years
but were not made to (ii) the sum of (1) Pro Forma Debt Service on
Indebtedness plus (2) Pro Forma Dividends and (3) actual Capital
Expenditures may not be less than 1.00 to 1.00.
Events of Default. The Restated Bank Credit Agreement contains certain
Events of Default, including, without limitation, the following:
(a) default shall occur in the payment of any principal of any Loan
or of any amount due upon drawing of any letter of credit;
(b) default shall occur in the payment of any interest, any
commitment fee, any letter of credit commission, or any other fee (other
than an amount referred to in (a) above or (c) below) within five days
after the due date;
(c) default shall occur in the payment of any expense reimbursement
or any other amount (other than an amount referred to in (a) or (b) above)
within 30 days after the due date;
(d) any representation or warranty made in connection with the
Restated Bank Credit Agreement, any other Loan Document, or in any document
furnished in connection therewith shall prove to have been false or
misleading in a material respect when made;
(e) default shall occur in the due observance of certain covenants,
conditions or agreements of the Restated Bank Credit Agreement, the OSCAR I
Bank Guarantee, or any other Loan Document (in certain cases, after the
expiration of an applicable grace period); any Guarantee, any Pledge
Agreement or in any other Collateral Document shall cease to be in full
force and effect, or any security interest shall cease to be a valid and
perfected first priority security interest in any Collateral;
(f) certain events of bankruptcy or insolvency shall occur with
respect to OSCAR I, UATC or a Material Subsidiary;
(g) a default shall occur under any mortgage, indenture, agreement or
instrument or other document evidencing any Indebtedness (other than a Rate
Contract) of UATC or any Subsidiary thereof, if, as a result of such
default (i) Indebtedness in an aggregate amount in excess of $10 million of
UATC or any Subsidiary thereof shall become or be declared due and payable
prior to the date on which it would otherwise become due and payable or
(ii) the holder or obligee of any Indebtedness (or any trustee or agent on
behalf of such holder or obligee) shall be permitted to accelerate, whether
or not such acceleration actually occurs, the maturity of any Indebtedness
of UATC or a Subsidiary thereof in an aggregate amount in excess of $10
million;
(h) certain events with respect to ERISA shall occur;
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(i) there shall occur the rendering of one or more final judgments
for the payment of money in excess of $5 million against UATC or any Subsidiary
thereof which remains undischarged and unstayed for a period of 30 consecutive
days, or there shall occur the taking of any action by a judgment creditor to
levy upon the assets of UATC or any Subsidiary to enforce any such judgment;
(j) there shall occur the rendering of one or more final judgments by
a court or other tribunal against UATC or any Subsidiary thereof in favor
of TCI, any of its Affiliates, or any holder of OSCAR Preferred Stock, UAT
Preferred Stock, OSCAR Exchange Notes or UAT Exchange Notes, in each case
in its capacity, as a holder of such security;
(k) (i) OSCAR I shall cease to directly own, beneficially and of
record, 100% of the issued and outstanding voting stock of UATC, (ii) the
Merrill Lynch Entities shall cease to own, directly or indirectly, over 50%
of the issued and outstanding voting stock of OSCAR I or (iii) UATC shall
make any payments pursuant to the Change in Control Offer (as defined in
the Indenture);
(l) there shall have occurred a Material Adverse Effect and the Agent
shall have notified UATC in writing that Majority Banks have determined
that there has occurred a Material Adverse Effect and the Agent shall not
have withdrawn such notice by the earlier of: (i) 60 days after the date of
such notice and (ii) the first date following the date of such notice when
UATC is required to deliver the financial reports and certificates pursuant
to the Restated Bank Credit Agreement;
(m) UATC shall breach or default one or more Rate Contracts to which
any Bank or Banks are party, if the effect of such breach or default is
termination of any of such Rate Contracts and a demand or demands in an
aggregate amount in excess of $10 million are made upon UATC to pay any
claim or claims for compensation, termination or loss which remain
unsatisfied for three Business Days or more;
(n) if, during any period of 12 consecutive months there shall occur
Involuntary Closings of 30 theatres owned, leased or operated by UATC
and/or its Subsidiaries or if there shall occur Involuntary Closings of 60
or more theatres owned, leased or operated by UATC and/or its Subsidiaries;
or
(o) an Event of Acceleration (as defined in the Intercreditor
Agreement, as in effect on the date of the Closing or as amended with the
consent of UATC) shall occur.
In addition to other customary remedies, upon an Event of Default, the
Majority Banks are entitled to require UATC to cash collateralize any amounts
then available for draw under any outstanding letters of credit.
11 1/2% NOTES
The 11 1/2% Notes were issued in conjunction with the Acquisition under an
Indenture, dated as of May 12, 1992 (the "11 1/2% Note Indenture"), among United
Artists, OSCAR I, as guarantor, and The Bank of New York, as Trustee. The 11
1/2% Notes constitute senior secured obligations of United Artists, and will
mature on May 1, 2002. The 11 1/2% Notes bear interest at a rate of 11 1/2% per
annum.
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The 11 1/2% Notes are redeemable at the option of UATC, commencing May 1,
1997 at 104.313% of the principal amount thereof, decreasing to 102.875% of the
principal amount thereof on May 1, 1998, decreasing to 101.438% of the principal
amount thereof on May 1, 1999, and after May 1, 2002 at 100% of the principal
amount, in each case together with accrued and unpaid interest to the redemption
date. The Restated Bank Credit Agreement contains a provision prohibiting the
optional redemption of the 11 1/2% Notes.
The 11 1/2% Note Indenture contains certain restrictive covenants which
impose limitations on United Artists' and certain of its subsidiaries' ability
to, among other things: (i) incur additional indebtedness; (ii) pay dividends
and make other distributions; (iii) create liens; and (iv) merge or consolidate
or transfer substantially all of United Artists' assets.
As of December 31, 1995, $125.0 million of aggregate principal amount of 11
1/2% Notes were outstanding.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The material federal income tax consequences of the ownership and
disposition of Certificates described below. This discussion is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change or different interpretation. Moreover, certain of the anticipated
federal income tax consequences discussed herein are based on regulations of the
Treasury Department ("Treasury Regulations") which are proposed and subject to
change and which are not binding authority until adopted as final or temporary
Treasury Regulations. As a result, definitive guidance cannot be provided
regarding all of the federal income tax consequences to Certificateholders or to
the Pass Through Trust. In addition, there can be no assurance that the
Internal Revenue Service or the courts would not take positions different from
those discussed herein and which positions could be materially adverse to
Certificateholders. Investors should consult their own tax advisors in
determining the federal, state, local, foreign and any other tax consequences to
them of the purchase, ownership, redemption, exchange and/or other disposition
of the Certificates, including the advisability of making any elections
discussed herein. This discussion does not purport to address federal income
tax consequences applicable to particular categories of investors some of which
(for example, insurance companies and foreign investors) may be subject to
special rules.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE FEDERAL, STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THEM OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF CERTIFICATES, INCLUDING THE
ADVISABILITY OF MAKING ANY ELECTION DISCUSSED BELOW.
The Pass Through Trust will not be indemnified for any federal income
taxes that may be imposed upon it, and the imposition of any such taxes could
result in a reduction in the amounts available for distribution to the
Certificateholders.
GENERAL
In the opinion of Sherman and Howard L.L.C., based on Rev. Rule. 84-
10, 1984-1 C.B. 155 and the underlying "Fannie Mae" PLR 83-45-020 for "straight
pass-through" mortgage-backed certificates, the Pass Through Trust will not be
considered an association taxable as a corporation, but will be classified as a
"grantor trust" under subpart E of subchapter J of the Code. In the opinion of
Sherman and Howard L.L.C., each Certificateholder will be treated as the owner
of a pro rata undivided interest in the Mortgage Note or any other property held
in the Pass Through Trust in which the Certificate evidences an interest,
pursuant to Treasury Regulations (S)1.671-3(a)(1).
Rev. Proc. 86-15, 1986-1 C.B. 544, (S)7.01(5) provides that taxpayers
may rely on a revenue ruling published in the IRS Cumulative Bulletin when the
facts and circumstances are substantially the same as the revenue ruling.
Section 7.01(3) provides, pursuant to (S)7805(b) of the Code, that a new ruling
ordinarily will not be applied retroactively to the extent the new ruling has
adverse tax consequences to taxpayers.
In reaching the conclusion that the Pass Through Trust will be
classified as a grantor trust, counsel considered whether the Pass Through Trust
could be recharacterized as a "taxable mortgage pool" which is treated as a
corporation for federal income tax purposes under (S)7701(i) of the Code.
Generally an entity is classified as a "taxable mortgage pool" only if, among
other requirements, the entity is the obligor on debt obligations (or equity
interests with terms similar to debt obligations) with two or more maturities.
Because the Pass Through Trust issued only one class of beneficial interest
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having only one maturity date, the Pass Through Trust will not be treated as a
"taxable mortgage pool", but will be treated as a trust under the investment
trust provisions of Treasury Regulations (S)301.7701-4(b) and Rev. Rul. 90-63,
1990-2 C.B. 270.
Each Certificateholder, in accordance with its method of accounting,
will be required to report on its federal income tax return its pro rata share
of the interest and other income from the Mortgage Note or any other property
held in the Pass Through Trust and may, subject to applicable Code limitations
on deductions, deduct its pro rata share of the deductible expenses of the Pass
Through Trust, at the same time and to the same extent as if it held directly a
pro rata interest in the assets of the Pass Through Trust and received and paid
directly the amounts received and paid by the Pass Through Trust. The
Applicable High Yield Debt Obligation ("AHYDO") payment ordering rules of
(S)163(i) of the Code and Treasury Regulations (S)1.1275-2 will not apply
inasmuch as the 9.3% interest rate did not exceed the semi-annual mid-term or
long-term Applicable Federal Rates prescribed in Rev. Rul. 95-79, I.R.B. 1995-49
for debt issues in December, 1995 by more than five percent points. A
Certificateholder who is an individual, trust or estate will be allowed a
deduction for certain itemized deductions only to the extend they exceed, in the
aggregate, 2% of the Certificateholder's adjusted gross income, and such amounts
will not be deductible in computing such taxpayer's alternative minimum tax
liability, if any.
A purchaser of a Certificate will be treated as purchasing an interest
in the Mortgage Note and any other property in the Pass Through Trust at a price
determined by allocating the purchase price paid for the Certificate among the
Mortgage Note and other property in proportion to their fair market values at
the time of purchase of the Certificate.
TAX BASIS
A holder's adjusted tax basis (determined by taking into account
accrued interest at the time of purchase) in a New Certificate received in
exchange for an Old Certificate will equal the cost of the Old Certificate to
such holder, increased by the amounts of market discount previously included in
income by the holder and reduced by any principal payments received by such
holder with respect to the New Certificate and by amortized bond premium. A
holder's adjusted tax basis in a New Certificate purchased by such holder will
be equal to the price paid for such New Certificates (determined by taking into
account accrued interest at the time of purchase), increased by market discount
previously included in income by the holder and reduced by any principal
payments received by such holder with respect to a New Certificate and by
amortized bond premium. See "--Market Discount."
SALES OF CERTIFICATES
A Certificateholder that sells a Certificate will recognize gain or
loss (in the aggregate) equal to the difference between its adjusted tax basis
in the Certificate and the amount realized on the sale (except to the extent
attributable to accrued interest, which should be taxable as interest income).
Subject to the market discount provisions of the Code (described below), any
such gain or loss will be capital gain or loss if the Certificate was held as a
capital asset and will be long-term capital gain or loss if the Certificate was
held for more than one year.
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MARKET DISCOUNT
A purchaser of a Certificate subsequent to its original issue will be
considered to have acquired an interest in the Mortgage Note at a "market
discount" to the extent the remaining principal amount of the Mortgage Note
allocable to the Certificate exceeds the Certificateholder's tax basis allocable
to such Mortgage Note, unless the excess does not exceed a prescribed de minimis
amount. In the event such excess exceeds the de minimis amount, the
Certificateholder will be subject to the market discount rules of sections 1276
to 1278 of the Code with regard to its interest in the Mortgage Note.
In the case of a sale or certain other disposition of indebtedness
subject to the market discount rules, section 1276 of the Code requires that
gain, if any, from such sale or disposition be treated as ordinary income to the
extent such gain does not exceed the market discount that has accrued on such
indebtedness during the period in which it was held.
In the case of a partial principal payment on indebtedness subject to
the market discount rules, section 1276 of the Code requires that such payment
be included in gross income as ordinary income to the extent such payment does
not exceed the market discount that has accrued on such indebtedness during the
period in which it was held. The amount of any accrued discount later required
to be included in income upon a disposition, or a subsequent partial principal
payment, will be reduced by the amount of such partial principal payment
previously included in income.
Generally, market discount accrues under a straight line method, or,
at the election of the taxpayer, a constant interest method. However, in the
case of an installment obligation (such as the Mortgage Note), the manner in
which market discount is to be accrued has been left to Treasury Regulations not
yet issued. Until such Treasury Regulations are issued, the 1986 Tax Reform Act
Conference Report indicates that holders of installment obligations with market
discount may elect to accrue market discount currently (see below), either on
the basis of a constant interest rate or (assuming the installment obligation
was issued without original issue discount) as follows: the amount of market
discount that is deemed to accrue is the amount of market discount that bears
the same ratio to the total amount of market discount remaining that the amount
of stated interest paid in the accrual period bears to the total amount of
stated interest remaining to be paid on the installment obligation as of the
beginning of such period.
Under section 1277 of the Code, if in any taxable year interest paid
or accrued on indebtedness incurred or continued to purchase or carry market
discount indebtedness exceeds the interest currently includable in income with
respect to such market discount indebtedness, deduction of such excess interest
must be deferred to the extent of the market discount allocable to the portion
of the taxable year in which such market discount indebtedness was held by the
taxpayer. The deferred portion of such interest will generally be deductible
when such market discount is included in income upon the sale or other
disposition (including repayment) of the indebtedness.
Section 1278(b) of the Code allows a taxpayer to elect to include
market discount in gross income currently. If such election is made, the rules
of Sections 1276 and 1277 of the Code (described above) will not apply to the
taxpayer. Such an election will apply to all debt instruments with market
discount acquired by the taxpayer on or after the first day of the first taxable
year to which the election applies. The election will apply to all subsequent
taxable years and may not be revoked without the consent of the Secretary of
Treasury. The procedures for the election and requesting IRS consent to revoke
the election are contained in Rev. Proc. 92-67, 1992-2 C.B. 429.
92
<PAGE>
PREMIUM
A Certificateholder will generally be considered to have acquired an
interest in the Mortgage Note at a premium to the extent the purchaser's tax
basis allocable to such interest exceeds the remaining principal amount of the
Mortgage Note allocable to such interest. In that event, a Certificateholder
that holds a Certificate as a capital asset may elect to amortize that premium
as an offset to interest income under section 171 of the Code with corresponding
reductions in the Certificateholder's tax basis in that Mortgage Note.
Generally, such amortization is on a constant yield basis. However, in the case
of an installment obligation (such as the Mortgage Note), the Conference Report
indicates a Congressional intent that amortization be in accordance with the
rules that apply to the accrual of market discount on installment obligations.
See "--Market Discount." Such an election shall apply to all debt instruments
with amortizable bond premium (other than debt instruments the interest on which
is excludable from gross income) held by the Certificateholder as of the
beginning of the taxable year for which the election applies or thereafter
acquired. The election will apply to all subsequent taxable years, and may not
be revoked without the consent of the Secretary of the Treasury.
Since the Mortgage Note may be redeemed at a premium prior to
maturity, amortizable bond premium may be determined by reference to an early
redemption date if this results in a smaller premium attributable to the period
before the redemption date. Due to the complexities of the amortizable premium
rules, particularly where there is more than one possible redemption date and
the amount of any premium is uncertain, Certificateholders are urged to consult
their own tax advisors as to the amount of any such amortizable premium.
ORIGINAL ISSUE DISCOUNT
Generally, a holder of a debt instrument issued with original issue
discount that is not de minimis must include original issue discount in income
for federal income tax purposes as it accrues, in advance of the receipt of the
cash attributable to such income, using a method that takes into account the
compounding of interest. The Mortgage Note was not issued with original issue
discount.
BACKUP WITHHOLDING
Payments made on the Certificates, and proceeds from the sale of the
Certificates to or through certain brokers, may be subject to a "backup"
withholding tax of 31% unless the Certificateholder complies with certain
reporting procedures or is an exempt recipient under section 6049(b)(4) of the
Code. Any such withheld amount will be allowed as a credit against the
Certificateholder's federal income tax.
93
<PAGE>
CERTAIN CONNECTICUT TAXES
The Trustee is a national banking association with its principal
corporate trust office in Hartford, Connecticut. Shipman & Goodwin, special
counsel to the Trustee, has advised United Artists that, in its opinion,
assuming that the Trustee will not hold any legal or equitable title to, or
lease, any real or tangible personal property and that the Pass Through Trust
will not be classified as an association taxable as a corporation but, rather,
will be classified as a grantor trust under Subpart E, Part I of Subchapter J
of the Code, (i) the Pass Through Trust will not be subject to any tax
(including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the State of Connecticut or any political
subdivision thereof and (ii) Certificateholders who are not residents of or
otherwise subject to tax in the State of Connecticut will not be subject to any
tax (including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the State of Connecticut or any political
subdivision thereof solely as a result of purchasing, holding (including
receiving payments with respect to) or selling a Certificate. Neither the Pass
Through Trust nor the Certificateholders will be indemnified for any state or
local taxes imposed on them, and the imposition of any such taxes on the Pass
Through Trust could result in a reduction in the amounts available for
distribution to the Certificateholders. In general, should a Certificateholder
or the Pass Through Trust be subject to any state or local tax which would not
be imposed if the Trustee were located in a different jurisdiction in the United
States, the Trustee will resign and a new Trustee in such other jurisdiction
will be appointed.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code impose certain restrictions on covered
employee benefit plans, including corporate pension and profit sharing plans
("Plans"), and on persons who are parties in interest or disqualified persons
("Parties in Interest") with respect to such Plans. ERISA also imposes certain
duties on persons who are fiduciaries of Plans and prohibits non-exempt
transactions between a Plan and its Parties in Interest. Governmental plans and
certain church plans are not subject to ERISA or Section 4975 of the Code.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. Moreover, each Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
Plan fiduciaries must also determine whether the acquisition and
holding of the Certificates and the operations of the Pass Through Trust and the
Owner Trustee (collectively, the "Trust Funds") would result in direct or
indirect prohibited transactions. The operations of the Trust Funds could
result in prohibited transactions if Plans that purchase the Certificates are
deemed to own an interest in the underlying assets of the Pass Through Trust
under the Plan Assets Regulation (as described below). There may also be an
improper delegation of the responsibility to manage Plan assets if Plans that
purchase the Certificates are deemed to own an interest in the underlying assets
of the Pass Through Trust.
94
<PAGE>
The U.S. Department of Labor ("DOL") has issued a final regulation (29
C.F.R. Section 2510.3-101) (the "Plan Assets Regulation") providing that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities (other than operating companies)
in which a Plan makes an equity investment will be deemed for purposes of ERISA
and Section 4975 of the Code to be assets of the investing Plan, unless certain
exceptions apply. If the assets of the Pass Through Trust were deemed to
constitute assets of the Plans holding Certificates, the persons providing
services with respect to the assets of the Pass Through Trust may be subject to
the fiduciary responsibility provisions of Title I of ERISA, and transactions
involving such Pass Through Trust assets may be subject to the prohibited
transaction provisions of ERISA and Section 4975 of the Code.
Transactions involving the assets of the Pass Through Trust, as well
as purchases and sales of the Certificates, however, may be exempt from the
prohibited transaction restrictions of ERISA and the Code under administrative
exemptions issued by the DOL or statutory exemptions. Among the administrative
class and statutory exemptions that may be available are: Prohibited Transaction
Class Exemption ("PTE") 75-1, which exempts certain securities transactions
involving employee benefit plans and certain broker-dealers and banks; PTE 84-
14, which exempts certain transactions effected on behalf of a plan by a
"qualified professional asset manager"; PTE 91-38, which exempts certain
transactions between bank collective investment funds and parties in interest;
PTE 90-1, which exempts certain transactions with insurance company pooled
separate accounts; or PTE 95-60, which exempts certain transactions with
insurance company generated accounts.
Any Plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code (including the Plan Assets Regulation) to
such investments, whether any prohibited transaction exemptions would be
applicable, and whether all conditions of any potentially applicable prohibited
transaction exemption have been satisfied. Additionally, the Plan fiduciary
should consult its counsel with respect to any valuation issues which may be
presented by an investment in Certificates.
PLAN OF DISTRIBUTION
The Prospectus is to be used by MLPFS and MS & Co. in connection with
offers and sales in market-making transactions at negotiated prices relating to
prevailing market prices at the time of sale. MLPFS and MS & Co. may act as
principal or agent in such transactions. MLPFS and MS & Co. have no obligation
to make a market in the Certificates and may discontinue their market-making
activities at any time without notice, at their sole discretion.
There is currently no established public market for the Certificates.
United Artists does not currently intend to apply for listing of the
Certificates on any securities exchange or approval for quotation through any
automated quotation system. Therefore, any trading that does develop will occur
on the over-the-counter market. United Artists has been advised by MLPFS and MS
& Co. that they intends to make a market in the Certificates but they have no
obligation to do so and any market-making may be discontinued at any time
without notice. No assurance can be given that an active public market for the
Certificates will develop.
MLPFS is affiliated with entities that beneficially own a substantial
majority of the outstanding shares of capital stock of United Artists' parent
company.
95
<PAGE>
LEGAL OPINIONS
The validity of the Certificates offered hereby were passed upon for
United Artists by Sherman & Howard L.L.C., Denver, Colorado. Sherman & Howard
L.L.C. relied on the opinion of Shipman & Goodwin, special counsel for Fleet
National Bank, as Trustee, as to certain matters relating to the authorization,
execution and delivery of the Certificates by, and the valid and binding effect
thereof on, such Trustee.
EXPERTS
The consolidated balance sheets of United Artists Theatre Circuit,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholder's equity and cash flow for
each of the years in the three-year period ended December 31, 1995 have been
included herein in reliance upon the report, dated March 27, 1996 of KPMG Peat
Marwick, LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1995
consolidated financial statements refers to the adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," in 1995.
96
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNITED ARTISTS THEATRE CIRCUIT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets, December 31, 1995 and 1994............................ F-3
Consolidated Statements of Operations, Years Ended December 31, 1995,
1994 and 1993................................................................. F-4
Consolidated Statements of Stockholder's Equity, Years Ended
December 31, 1995, 1994 and 1993.............................................. F-5
Consolidated Statements of Cash Flow, Years Ended December 31, 1995, 1994 and 1993. F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE BOARD OF DIRECTORS AND STOCKHOLDER
UNITED ARTISTS THEATRE CIRCUIT, INC.:
We have audited the accompanying consolidated balance sheets of United Artists
Theatre Circuit, Inc. and subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholder's
equity and cash flow for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Artists
Theatre Circuit, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flow for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in notes 4 and 13 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in 1995.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 27, 1996
F-2
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Millions)
<TABLE>
<CAPTION>
December 31,
------------
1995 1994*
------ -----
<S> <C> <C>
Cash and cash equivalents.................................. $ 32.4 12.7
Receivables, net:
Notes..................................................... 1.4 1.0
Related party (note 10)................................... 11.2 10.5
Other..................................................... 19.0 8.5
------ -----
31.6 20.0
------ -----
Prepaid expenses and concession inventory.................. 20.3 10.2
Investments and related receivables........................ 14.1 11.1
Property and equipment, at cost (note 13):
Land...................................................... 35.0 51.1
Theatre buildings, equipment and other.................... 373.7 346.6
------ -----
408.7 397.7
Less accumulated depreciation and amortization............ (99.0) (70.5)
------ -----
309.7 327.2
------ -----
Intangible assets, net (note 13)........................... 165.8 202.9
Other assets, net (note 10)................................ 20.3 18.5
------ -----
$594.2 602.6
===== =====
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable:
Film rentals.............................................. $ 30.1 31.8
Other..................................................... 58.4 61.8
------ -----
88.5 93.6
------ -----
Accrued liabilities:
Salaries and wages........................................ 9.0 7.7
Interest.................................................. 6.8 4.8
Other..................................................... 11.2 8.2
------ -----
27.0 20.7
------ -----
Other liabilities.......................................... 21.4 17.2
Debt (note 6).............................................. 383.2 320.2
------ -----
Total liabilities......................................... 520.1 451.7
Minority interests in equity of consolidated subsidiaries.. 7.0 12.5
Stockholder's Equity:
Preferred stock (note 8).................................. 149.2 130.9
Common stock (note 9)..................................... - -
Additional paid-in capital................................ 73.7 92.0
Accumulated deficit....................................... (155.9) (87.0)
Cumulative foreign currency translation adjustment........ (0.1) -
Intercompany account...................................... 0.2 2.5
------ -----
67.1 138.4
------ -----
$594.2 602.6
===== =====
*Restated
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994* 1993*
---- ----- ------
<S> <C> <C> <C>
Revenue:
Admissions.................................... $457.1 447.6 464.3
Concession sales.............................. 178.2 166.7 169.6
Other......................................... 10.8 8.7 9.9
------ ----- -----
646.1 623.0 643.8
------ ----- -----
Costs and expenses:
Direct exhibition expenses.................... 249.9 240.1 254.9
Direct concession costs....................... 29.5 27.2 28.5
Other operating expenses...................... 242.9 226.9 231.1
Affiliate lease rentals (note 10)............. 14.1 14.7 15.5
General and administrative (notes 10 and 12).. 34.6 32.5 29.9
Restructuring charge (note 11)................ - - 3.7
Depreciation and amortization................. 66.0 63.1 68.0
Provision for impairment (note 13)............ 21.0 - -
------ ----- -----
658.0 604.5 631.6
------ ----- -----
Operating income (loss)..................... (11.9) 18.5 12.2
Other income (expense):
Interest, net (note 6)........................ (39.2) (32.9) (31.4)
Loss on disposition of assets, net............ (13.9) (9.7) (8.7)
Share of earnings of affiliates, net.......... 0.7 0.2 0.6
Minority interests in earnings of
consolidated subsidiaries................... (1.2) (1.0) (1.4)
Other, net.................................... (2.0) (1.7) (1.5)
------ ----- -----
(55.6) (45.1) (42.4)
------ ----- -----
Loss before income tax expense.............. (67.5) (26.6) (30.2)
Income tax expense (note 14)................... (1.4) (1.3) (1.4)
------ ----- -----
Net loss.................................... (68.9) (27.9) (31.6)
Dividend on preferred stock (note 8)........... (18.3) (16.1) (14.0)
------ ----- -----
Net loss available to common stockholder.... $(87.2) (44.0) (45.6)
====== ===== =====
*Restated
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
(Amounts in Millions)
<TABLE>
<CAPTION>
Cumulative
foreign currency
Preferred Common Additional Accumulated translation
stock stock paid-in capital* deficit* adjustment
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993................... $100.8 - 122.1 (27.5) -
Accretion of dividends on preferred stock.. 14.0 - (14.0) - -
Net decrease in intercompany account....... - - - - -
Net loss................................... - - - (31.6) -
------ ----- ----- ------ ----
Balance at December 31, 1993................. 114.8 - 108.1 (59.1) -
Accretion of dividends on preferred stock.. 16.1 - (16.1) - -
Net decrease in intercompany account....... - - - - -
Net loss................................... - - - (27.9) -
------ ----- ----- ------ ----
Balance at December 31, 1994................. 130.9 - 92.0 (87.0) -
Accretion of dividends on preferred stock.. 18.3 - (18.3) - -
Net decrease in intercompany account....... - - - - -
Foreign currency translation adjustment.... - - - - (0.1)
Net loss................................... - - - (68.9) -
------ ----- ----- ------ ----
Balance at December 31, 1995................. $149.2 - 73.7 (155.9) (0.1)
====== ===== ===== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Total
Intercompany stockholder's
account* equity*
<S> <C> <C>
Balance at January 1, 1993................... 6.6 202.0
Accretion of dividends on preferred stock.. - -
Net decrease in intercompany account....... (1.8) (1.8)
Net loss................................... - (31.6)
---- -----
Balance at December 31, 1993................. 4.8 168.6
Accretion of dividends on preferred stock.. - -
Net decrease in intercompany account....... (2.3) (2.3)
Net loss................................... - (27.9)
---- -----
Balance at December 31, 1994................. 2.5 138.4
Accretion of dividends on preferred stock.. - -
Net decrease in intercompany account....... (2.3) (2.3)
Foreign currency translation adjustment.... - (0.1)
Net loss................................... - (68.9)
---- -----
Balance at December 31, 1995................. 0.2 67.1
==== =====
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Amounts in Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994* 1993*
---- ----- -----
<S> <C> <C> <C>
Net cash provided by operating activities.............. $ 42.0 48.3 63.6
------- ------ ------
Cash flow from investing activities:
Capital expenditures.................................. (84.2) (45.6) (28.0)
Increase in construction in progress, net............. (5.1) (1.4) (3.3)
Proceeds from disposition of assets................... 7.7 2.9 5.4
Proceeds from sale and leaseback...................... 40.4 - -
Cash paid for minority interest holding............... (10.3) - -
Other, net............................................ (2.8) (3.0) (3.8)
------- ------ ------
Net cash used in investing activities................. (54.3) (47.1) (29.7)
------- ------ ------
Cash flow from financing activities:
Debt borrowings....................................... 187.5 108.4 122.2
Debt repayments....................................... (127.9) (116.1) (135.8)
Decrease in intercompany account...................... (2.3) (2.0) (2.1)
Increase (decrease) in cash overdraft................. (14.1) 13.2 (6.1)
Increase in related party receivables................. (6.7) (8.2) (0.1)
Other, net............................................ (4.5) (0.1) 0.3
------- ------ ------
Net cash provided by (used in) financing activities... 32.0 (4.8) (21.6)
------- ------ ------
Net increase (decrease) in cash and cash equivalents.. 19.7 (3.6) 12.3
Cash and cash equivalents:
Beginning of period................................... 12.7 16.3 4.0
------- ------ ------
End of period......................................... $ 32.4 12.7 16.3
======= ====== ======
Reconciliation of net loss to net cash provided by
operating activities:
Net loss.............................................. $ (68.9) (27.9) (31.6)
Effect of leases with escalating minimum annual
rentals.............................................. 2.0 1.5 1.3
Depreciation and amortization......................... 66.0 63.1 68.0
Provision for impairment.............................. 21.0 - -
Loss on disposition of assets, net.................... 13.9 9.7 8.7
Share of earnings of affiliates, net.................. (0.7) (0.2) (0.6)
Minority interests in earnings of
consolidated subsidiaries............................. 1.2 1.0 1.4
(Increase) decrease in receivables, prepaid expenses
and other assets, net................................. (3.6) (0.4) 1.7
Increase in accounts payable, accrued
liabilities and other liabilities, net................ 11.1 1.5 14.7
------- ------ ------
Net cash provided by operating activities............. $ 42.0 48.3 63.6
======= ====== ======
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION
On May 12, 1992, United Artists Theatre Circuit, Inc. and substantially
all of its then existing subsidiaries (the "Company") were acquired (the
"Acquisition") by OSCAR I Corporation ("OSCAR I") from an indirect
subsidiary of Tele-Communications, Inc. ("TCI"). OSCAR I is owned by an
investment fund managed by affiliates of Merrill Lynch Capital Partners,
Inc., ("MLCP") and certain institutional investors (collectively the
"Non-Management Investors"), Mr. Stewart D. Blair (Chairman and Chief
Executive Officer of the Company) and certain other members of the
Company's management. The purchase price was approximately $543.8
million comprised of: (i) approximately $134.1 million of cash; (ii)
$92.5 million of OSCAR I preferred stock, and (iii) the assumption of
approximately $317.2 million of indebtedness and certain other
obligations. Prior to the Acquisition, the Company was an indirect
wholly owned subsidiary of United Artists Holdings Inc. ("UAHI"), which
was a wholly-owned subsidiary of United Artists Entertainment Company
("UAE"). On December 2, 1991, UAE became a wholly-owned subsidiary of
TCI pursuant to a merger agreement. Previously in 1986, TCI had
acquired a controlling interest in UAE's predecessor.
Simultaneously with the Acquisition, the Non-Management Investors formed
OSCAR II Corporation, a Delaware corporation ("OSCAR II"), separately
acquiring from an affiliate of TCI all of the outstanding capital stock
of United Artists Realty Company, a Delaware corporation ("UAR") and its
subsidiaries. UAR and its subsidiaries, United Artists Properties I
Corp. ("Prop I") and United Artists Properties II Corp. ("Prop II") were
the owners and lessors of certain operating theatre properties leased to
and operated by the Company and its subsidiaries. Certain mortgage debt
of UAR, Prop I and Prop II, which was secured by their theatre
properties, remained outstanding after the acquisition by Oscar II. On
February 28, 1995, OSCAR II was merged into OSCAR I effected by a one-
for-one share exchange.
(2) SALE AND LEASEBACK
On December 13, 1995, the Company entered into a sale and leaseback
transaction (the "Sale and Leaseback") whereby the buildings and land
underlying ten of its operating theatres and four theatres currently
under development were sold to, and leased back from, the 1995-A United
Artists Pass Through Trust (the "Pass Through Trust"), an unaffiliated
third party, for approximately $47.1 million. A portion of the sale
proceeds were used to pay certain transaction expenses and repay the
outstanding revolving bank debt of the Company and the remainder is
included in the Company's cash balances at year end. The proceeds
related to the four theatres under development (approximately $22.0
million) were deposited into an escrow account and will be used by the
Company to fund substantially all of the construction costs associated
with the four theatres. In addition, 17 theatres owned by Prop II were
sold to the Pass Through Trust and leased back to the Company.
The net book value of the land and buildings included in the Sale and
Leaseback was approximately $50.9 million, and the Company recorded a
loss of approximately $3.8 million as a result of the Sale and
Leaseback.
The Sale and Leaseback requires the Company to lease the underlying
theatres for a period of 21 years and one month, with the option to
extend for up to an additional 10 years. The Company accounts for the
lease as an operating lease. The Sale and Leaseback requires the
maintenance of certain financial covenants by the Company.
F-7
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) RESTATEMENT
During December 1995, the remaining 11 theatres owned by Prop II
subsequent to the Sale and Leaseback were contributed to the Company,
the Prop II master lease was terminated and the $12.5 million letters of
credit established by the Company to guarantee the Prop II debt were
canceled. The contribution of these theatres has been accounted for in
a manner similar to a pooling of interests, and accordingly, the
accompanying financial statements have been restated to include these
theatres for all periods presented. Prop II's historical cost basis of
these theatres at December 13, 1995 was approximately $20.3 million.
Separate revenue and net income (loss) amounts for the Company and the
11 remaining Prop II theatres are presented in the following table
(amounts in millions):
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Company........... $645.8 622.7 643.5
Eleven Theatres... 0.3 0.3 0.3
------ ----- -----
Combined.......... $646.1 623.0 643.8
====== ===== =====
Net income (loss):
Company........... $(70.9) (29.9) (33.7)
Eleven Theatres... 2.0 2.0 2.1
------ ----- -----
Total............. $(68.9) (27.9) (31.6)
====== ===== =====
</TABLE>
In addition to the contribution of the remaining theatres, the equipment
in the 17 Prop II theatres included in the Sale and Leaseback was
transferred to the Company at Prop II's historical cost basis
(approximately $6.1 million).
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(b) Nature of Operations
--------------------
The Company is principally engaged in the operation of motion
picture theatres.
(c) Cash and Cash Equivalents
-------------------------
The Company considers investments with initial maturities of three
months or less to be cash equivalents. Transactions effected
through intercompany accounts are considered to be constructive
cash receipts and payments.
F-8
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) Investments
-----------
Investments in which the Company's ownership is 20% to 50% are
accounted for using the equity method. Under this method, the
investment, originally recorded at cost, is adjusted to recognize
dividends received and the Company's share of net earnings or
losses of the investee as they occur. Investments in which the
Company's ownership is less than 20% are accounted for using the
cost method. Under this method, the investments are recorded at
cost and any dividends received are recorded as income.
During the years ended December 31, 1995 and 1994, approximately
$1.4 million and $3.0 million, respectively, of dividends were
received from the Company's 50% owned Hong Kong investment.
(e) Property and Equipment
----------------------
Property equipment is stated at cost, including acquisition costs
allocated to tangible assets required. Construction costs
including applicable overhead, are capitalized. Repairs and
maintenance are charged to operations.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets which range from 3 to 40
years. Leasehold improvements are amortized over the terms of the
leases, including certain renewal periods or, in the case of
certain improvements, the estimated useful lives of the assets, if
shorter. Costs associated with new theatre construction are
depreciated once such theatres are placed in service.
(f) Intangible Assets
-----------------
Intangible assets consist of theatre lease acquisition costs and
non-compete agreements. Amortization of theatre lease acquisition
costs and non-compete agreements is calculated on a straight-line
basis over the terms of the underlying leases including certain
renewal periods (weighted average life of approximately 17 years)
and non-compete agreements (primarily 5 years). Intangible assets
and related accumulated amortization are summarized as follows
(amounts in millions):
<TABLE>
<CAPTION>
December 31,
----------------
1995 1994
---- ----
<S> <C> <C>
Theatre lease acquisition costs.. $ 182.9 190.8
Non-compete agreements........... 103.9 103.9
------- -----
286.8 294.7
Accumulated amortization......... (121.0) (91.8)
------- -----
$ 165.8 202.9
======= =====
</TABLE>
(g) Other Assets
------------
Other assets primarily consist of deferred acquisition and loan
costs. Amortization of the deferred acquisition costs is
calculated on a straight line basis over five years. Amortization
of the deferred loan costs is calculated on a straight-line basis
over the terms of the underlying loan agreements (average life of
approximately seven years) and is included as a component of
interest expense. Other assets and related accumulated
amortization are summarized as follows (amounts in millions):
F-9
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
---- ----
<S> <C> <C>
Deferred acquisition costs.. $ 18.4 18.4
Deferred loan costs......... 14.9 10.8
Other....................... 7.6 3.3
------ -----
40.9 32.5
Accumulated amortization.... (20.6) (14.0)
------ -----
$ 20.3 18.5
====== =====
</TABLE>
(h) Operating Costs and Expenses
----------------------------
Direct exhibition expenses include film rental and film and theatre
advertising costs. Film advertising costs are expensed as
incurred. Direct concession costs include direct concession
product costs and concession promotional expenses. Concession
promotional expenses are expensed as incurred. Other operating
expenses include joint facility costs such as employee costs,
theatre rental and utilities which are common to both ticket sales
and concession operations. As such, other operating expenses are
reported as a combined amount as the allocation of such costs to
exhibition and concession activities would be arbitrary and not
meaningful. Rental expense for operating leases which provide for
escalating minimum annual rentals during the term of the lease are
accounted for on a straight-line basis over the terms of the
underlying leases.
(i) 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 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.
(j) Stock Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued
by the Financial Accounting Standards Board in October 1995. SFAS
No. 123 establishes financial accounting and reporting standards
for stock-based employee compensation plans as well as transactions
in which an entity issues its equity instruments to acquire goods
or services from non-employees. The Company will include the
disclosures required by SFAS No. 123 in the notes to future
financial statements.
(k) Accounting Changes
------------------
As discussed in note 13, in the fourth quarter of 1995, the Company
early adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of."
(l) Reclassification
----------------
Certain prior year amounts have been reclassified for comparability
with the 1995 presentation.
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest for the years ended December 31, 1995, 1994
and 1993, were $35.0 million, $28.2 million and $29.0 million,
respectively.
F-10
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION, CONTINUED
Cash payments by certain less than 80% owned entities for income taxes
for the years ended December 31, 1995, 1994 and 1993, were $0.7 million,
$0.9 million and $1.2 million, respectively.
The Company accrued $18.3 million, $16.1 million and $14.0 million of
dividends during the years ended December 31, 1995, 1994 and 1993,
respectively, on its preferred stock (see note 8).
During 1995, the Company incurred $2.4 million of capital lease
obligations relating to new equipment.
During 1995, Prop II transferred equipment with a net historical basis
of $6.1 million to the Company (see note 3).
During 1993, the Company exchanged 11 theatres (67 screens) and
approximately $1.0 million for 4 theatres (32 screens) with other motion
picture exhibitors.
(6) DEBT
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
December 31,
--------------
1995 1994
---- ----
<S> <C> <C>
Bank Credit Facility (a).. $250.0 188.9
Senior Secured Notes (b).. 125.0 125.0
Other (c)................. 8.2 6.3
------ -----
$383.2 320.2
====== =====
</TABLE>
(a) On May 1, 1995, the Company restated its existing bank credit
facility to principally provide for additional term and revolving
loan commitments and to extend the final maturity of the facility.
The restated bank credit facility (the "Bank Credit Facility")
provides for term loans aggregating $250.0 million (the "Term
Loans"), a reducing revolving loan with commitments aggregating
$87.5 million (the "Revolving Facility") and standby letters of
credit aggregating $12.5 million (the "Standby Letters of Credit").
Principal on the Term Loans is payable in escalating semi-annual
installments commencing December 31, 1996, with a final installment
due March 31, 2002. The aggregate commitments available for
borrowing under the Revolving Facility decline each year commencing
December 31, 1997 through March 31, 2002. Borrowings under the Bank
Credit Facility provide for interest to be accrued at varying rates
depending on the ratio of indebtedness to annualized operating cash
flow, as defined. Interest is payable at varying dates depending on
the type of rate selected by the Company, but no less frequently
than once each quarter. The Bank Credit Facility contains certain
provisions that require the maintenance of certain financial ratios
and place limitations on additional indebtedness, disposition of
assets, capital expenditures and payment of dividends. The Bank
Credit Facility is secured by the stock of the Company and
substantially all of the Company's subsidiaries, and is guaranteed
by OSCAR I and substantially all of the Company's subsidiaries. In
addition, in conjunction with the merger of OSCAR II into OSCAR I,
the stock of UAR was pledged as additional security.
F-11
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) DEBT, CONTINUED
(b) The senior secured notes (the "Senior Secured Notes") are due May
1, 2002 and require repayments prior to maturity of $31.25 million
on May 1, 2000 and on May 1, 2001. The Senior Secured Notes
accrue interest at 11 1/2% per annum, which is payable semi-
annually. The Senior Secured Notes place limitations on, among
other things, additional indebtedness, disposition of assets and
payment of dividends. The Senior Secured Notes are secured on a
pari-passu basis with the Bank Credit Facility by the stock of the
Company and substantially all of the Company's subsidiaries, and
are guaranteed on a pari-passu basis with the Bank Credit Facility
by OSCAR I and substantially all of the Company's subsidiaries.
In addition, in conjunction with the merger of OSCAR II into OSCAR
I, the stock of UAR was pledged as additional security on a pari-
passu basis with the Bank Credit Facility.
(c) Other debt at December 31, 1995, consists of various term loans,
mortgage notes, capital leases and other borrowings. This other
debt carries interest rates ranging from 7% to 12%. Principal and
interest are payable at various dates through March 1, 2006.
At December 31, 1995, the Company was party to interest rate cap
agreements on $125.0 million of floating rate debt which provide for a
LIBOR interest rate cap ranging between 6 1/2% and 7 1/2% and expire at
various dates through 1997. The Company is subject to credit risk
exposure from non-performance of the counterparties to the interest rate
cap agreements. As the Company has historically received payments
relating to its interest rate cap agreements, it does not anticipate
such non-performance in the future. The Company amortizes the cost of
its interest rate cap agreements to interest expense over the life of
the underlying agreement. Amounts received from the counterparties to
the interest rate cap agreements are recorded as a reduction of interest
expense.
At December 31, 1995, the Company had approximately $87.5 million of
unused revolving loan commitments pursuant to the Bank Credit Facility,
$2.0 million of which has been used for the issuance of letters of
credit. The Company pays commitment fees of 1/2% per annum on the
average unused revolver commitments.
Annual maturities of debt for each of the next five years and
thereafter are as follows (amounts in millions):
<TABLE>
<S> <C>
1996.................................... $ 5.9
1997.................................... 26.2
1998.................................... 33.4
1999.................................... 51.0
2000.................................... 86.7
Thereafter.............................. 180.0
------
$383.2
======
</TABLE>
(7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
-------------------------
The carrying amount of cash and cash equivalents approximates fair value
because of its short maturity.
F-12
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Financial Instruments
---------------------
The carrying amount and estimated fair value of the Company's financial
instruments at December 31, 1995 are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
-------- ----------
<S> <C> <C>
Bank Credit Facility and Other Debt.. $258.2 258.2
====== =====
Senior Secured Notes................. $125.0 134.7
====== =====
Interest Rate Cap Agreements......... $ 0.1 0.1
====== =====
</TABLE>
BANK CREDIT FACILITY AND OTHER DEBT: The carrying amount of the
Company's borrowings under the Bank Credit Facility and other debt
approximates fair value because the interest rates on the majority of
this debt floats with market interest rates.
SENIOR SECURED NOTES: The fair value of the Company's Senior Secured
Notes is estimated based upon quoted market prices at December 31, 1995.
INTEREST RATE CAP AGREEMENTS: The fair value of the Company's interest
rate cap agreements is estimated based upon dealer quotes for similar
agreements at December 31, 1995.
(8) PREFERRED STOCK
Concurrent with the Acquisition, the Company issued 92,500 shares of
preferred stock with a liquidation value of $92.5 million to OSCAR I.
The preferred stock is redeemable at any time at the option of the
Company at its stated liquidation value plus accrued and unpaid
dividends. Dividends accrue at a rate of 8% through December 31, 1995,
9% through December 31, 1996 and 14% thereafter, and are payable in cash
or in kind through December 31, 1996. Cash dividends are required for
periods subsequent to December 31, 1996, provided that no provisions
exist in any senior debt facility which restricts such cash payments.
Currently, such restrictions exist. Due to the perpetual nature of the
preferred stock and the escalating terms of the required dividend rates,
for financial reporting purposes, dividends have been accrued at a 14%
per annum rate for all periods since issuance. At December 31, 1995, the
actual redemption value in accordance with the terms of the preferred
stock was approximately $122.4 million.
(9) COMMON STOCK
The Company is authorized to issue 1,000 shares of its $1.00 par value
common stock. At December 31, 1995 and 1994, the Company had 100 shares
of common stock outstanding, all of which was held by OSCAR I.
F-13
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) RELATED PARTY TRANSACTIONS
The Company leases certain of its theatres from UAR, Prop I and Prop II
(through December 13, 1995) in accordance with three master leases. The
master leases provide for basic monthly rentals and may require
additional rentals, based on the revenue of the underlying theatre. The
lease arrangement with Prop I and Prop II were entered into in
conjunction with the placement of mortgage debt financing in 1988 and
1989, respectively. As part of this financing, UAE provided for $24.0
million of residual value guarantees on each of such mortgage debt
issues and guarantees covering certain contingent liabilities. In
conjunction with the Acquisition, the Company issued $25.0 million of
Standby Letters of Credit as part of its Bank Credit Facility in order
to release UAE from certain of its obligations under the guarantees. In
conjunction with the Sale and Leaseback, the Prop II mortgage debt was
prepaid, the Prop II master lease was terminated and $12.5 million in
Standby Letters of Credit issued by the Company were canceled.
In order to fund the cost of additions and/or renovations to the
theatres leased by the Company from UAR or Prop I, the Company has
periodically made advances to UAR. Interest on the advances accrues at
the prime rate and amounted to $1.4 million, $0.3 million and $0.2
million for the years ended December 31, 1995, 1994 and 1993,
respectively.
In conjunction with the Acquisition, the Company entered into a
management agreement with UAR. Such management agreement provides for a
fee to be paid to the Company in return for certain accounting and
management services. These fees are recorded as a reduction of general
and administrative expenses in the accompanying consolidated financial
statements and approximated $0.9 million for each of the years ended
December 31, 1995, 1994 and 1993.
Included in other assets are fees of Merrill Lynch, Pierce, Fenner &
Smith, Incorporated, as placement agents for the Senior Secured Notes,
of $3.0 million. Also included in assets acquired in the Acquisition is
$6.7 million of fees paid to MLCP relating to structuring the
Acquisition.
(11) RESTRUCTURING EXPENSES
During 1993, the Company completed a plan to restructure its divisional
and district offices and centralize certain of its corporate functions
in its headquarters' office. As a result of this restructuring, the
Company incurred approximately $3.7 million of severance and other
restructuring expenses.
(12) EMPLOYEE BENEFIT PLANS
The UATC 401(k) Savings Plan (the "Savings Plan") provides that
employees may contribute up to 10% of their compensation, subject to IRS
limitations. Employee contributions are invested in various investment
funds based upon elections made by the employee. The Company matches
100% of the employee's contributions. Employees vest in the Company's
matching contributions 20% per year for every year of service.
F-14
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) EMPLOYEE BENEFIT PLANS, CONTINUED
Effective January 1, 1993, the Company established the UATC Supplemental
401(k) Savings Plan (the "Supplemental Plan") for certain employees who
are highly compensated as defined by the IRS and whose elective
contributions to the Savings Plan exceed the IRS limitations. Such
employees are allowed to contribute to the Supplemental Plan; provided
that the aggregate contributions to the Savings Plan and Supplemental
Plan do not exceed 10% of their compensation. The Company matches 100%
of the employee's contributions. Employees vest ratably in the Company's
matching contributions over 5 years from the date of participation in
the Supplemental Plan.
Contributions to the various employee benefit plans for the years ended
December 31, 1995, 1994 and 1993, were $2.1 million, $2.1 million and
$2.0 million, respectively.
(13) IMPAIRMENT OF LONG-LIVED ASSETS
The Company early adopted SFAS No. 121, ("Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of,") in
the fourth quarter of 1995. This date was chosen to allow adequate time
to collect and analyze data related to the Company's theatres for
purposes of identifying, measuring and reporting any impairments in
1995.
The initial non-cash charge upon adoption of SFAS No. 121 was $21.0
million. This initial charge resulted from the Company grouping assets
at a lower level than under its previous accounting policy for
evaluating and measuring impairment. The initial charge represented a
reduction of the carrying amount of the impaired assets to their
estimated fair value, as such carrying amount was less than the
undiscounted cash flow from such theatres.
SFAS No. 121 also specifies that certain assets held for disposal be
reported at the lower of the asset's carrying amount or its net
realizable value less costs to sell. The impact of adopting SFAS No.
121 for assets held for disposal was immaterial.
(14) INCOME TAXES
The Company and each of its 80% or more owned subsidiaries are included
in OSCAR I's consolidated Federal income tax return. Pursuant to a tax
sharing agreement with OSCAR I, the Company and each of its 80% or more
owned consolidated subsidiaries are allocated a portion of OSCAR I's
current Federal income tax expense (benefit). Such allocations are
determined as if the Company and each of its 80% or more owned
consolidated subsidiaries were separate tax paying entities within the
consolidated group. For the years ended December 31, 1995, 1994 and
1993, the Company and each of its 80% or more owned consolidated
subsidiaries were allocated no current Federal income tax expense
(benefit) pursuant to such tax sharing agreement as a result of the
group's overall net loss position.
Consolidated subsidiaries in which the Company owns less than 80% file
separate Federal income tax returns. The current and deferred federal
and state income taxes of such subsidiaries are calculated on a separate
return basis and are included in the accompanying consolidated financial
statements of the Company.
F-15
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) INCOME TAXES, CONTINUED
The current state income tax expense of the Company and Federal income
tax expense of the Company's less than 80%-owned consolidated
subsidiaries and deferred state and Federal income tax expense are as
follows (amounts in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994* 1993*
---- ----- -----
<S> <C> <C>
Current income taxes:
State expense.................... $ 0.4 0.4 0.5
Federal expense.................. 1.0 0.9 0.9
----- ---- ----
1.4 1.3 1.4
Deferred income taxes:
State expense.................... - - -
Federal expense.................. - - -
----- ---- ----
$ 1.4 1.3 1.4
===== ==== ====
</TABLE>
Income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate (35% for all periods) to loss before income
tax expense as a result of the following (amounts in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1994* 1993*
--------- ------- -------
<S> <C> <C> <C>
Expected tax benefit............... $(23.6) (9.3) (10.6)
Change in valuation allowance...... 24.8 10.5 12.1
State tax, net of federal benefit.. 0.3 0.3 0.3
Other.............................. (0.1) (0.2) (0.4)
------ ---- -----
$ 1.4 1.3 1.4
====== ==== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995
and 1994 are as follows (amounts in millions):
<TABLE>
<CAPTION>
1995 1994*
---- -----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.. $ 52.0 36.1
Intangible and other assets....... 2.5 0.9
Accrued liabilities............... 2.5 1.4
Other............................. 2.5 1.7
------ -----
59.5 40.1
Less: valuation allowance........ (52.1) (27.3)
------ -----
Net deferred tax assets......... 7.4 12.8
------ -----
Deferred tax liabilities:
Property and equipment............ 5.8 11.6
Other............................. 1.6 1.2
------ -----
Net deferred tax liabilities.... 7.4 12.8
------ -----
Net............................ $ - -
====== =====
*Restated
</TABLE>
F-16
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) INCOME TAXES, CONTINUED
At December 31, 1995, the Company had a net operating loss carryforward
for Federal income tax purposes of approximately $139.0 million which
will begin to expire in 2007.
The Federal income tax returns of OSCAR I are presently under
examination by the Internal Revenue Service for 1992. In the opinion of
management, any additional tax liability, not previously provided for,
resulting from this examination should not have a material adverse
effect on the consolidated financial position of the Company.
(15) COMMITMENTS AND CONTINGENCIES
As discussed in note 10, in conjunction with the Acquisition, at
December 31, 1995 the Company had issued $12.5 million of Standby
Letters of Credit in order to release UAE from certain guarantees of
indebtedness of Prop I. Should the Prop I default on such indebtedness,
the Company may be liable for up to $12.5 million under the Standby
Letters of Credit.
The Company conducts a significant portion of its theatre and corporate
operations in leased premises. These leases have noncancelable terms
expiring at various dates after December 31, 1995. Many leases have
renewal options. Most of the leases provide for contingent rentals
based on the revenue results of the underlying theatre and require the
payment of taxes, insurance, and other costs applicable to the property.
Also, certain leases contain escalating minimum rental provisions which
have been accounted for on a straight-line basis over the initial term
of the leases.
Rent expense for theatre and corporate operations is summarized as
follows (amounts in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994* 1993*
---- ----- -----
<S> <C> <C> <C>
Minimum rental.................... $69.6 66.3 65.9
Contingent rental................. 3.5 3.7 4.7
Effect of leases with escalating
minimum annual rentals........... 2.0 1.5 1.3
Rent tax.......................... 0.7 0.7 0.5
----- ---- ----
$75.8 72.2 72.4
===== ==== ====
*Restated
</TABLE>
Approximately $13.8 million, $14.6 million and $15.2 million of the
minimum rentals reflected in the preceding table for the years ended
December 31, 1995, 1994 and 1993, respectively, were incurred pursuant
to operating leases between the Company and UAR, Prop I and Prop II.
Additionally, $0.3 million, $0.1 million, $0.3 million of the contingent
rentals reflected in the preceding table for the years ended December
31, 1995, 1994 and 1993 were incurred pursuant to such leases.
F-17
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) COMMITMENTS AND CONTINGENCIES, CONTINUED
Future minimum lease payments under noncancelable operating leases for
the five years after 1995 are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
Third Party Affiliate
Leases Leases
----------- ---------
<S> <C> <C>
1996.................... $64.2 9.9
1997.................... 68.8 9.9
1998.................... 67.2 9.9
1999.................... 66.2 9.9
2000.................... 63.2 9.9
</TABLE>
It is expected that in the normal course of business, desirable leases
that expire will be renewed or replaced by other leases.
At December 31, 1995, the Company had entered into theatre construction
and equipment commitments aggregating approximately $67.0 million for
theatres which the Company intends to open during the next two years.
Such amount relates only to projects in which the Company had executed a
definitive lease agreement and for which construction had started. Of
the committed amount, the Company will be reimbursed approximately $22.0
million from the Sale and Leaseback proceeds currently held in escrow.
The Company is named as a defendant, together with a number of other
companies engaged in the business of motion picture distribution and
exhibition, in certain actions which charge violations of antitrust laws
with respect to the distribution and exhibition of motion pictures in
certain market areas. In addition, there are other pending legal
proceedings by or against the Company involving alleged breaches of
contracts, torts, violations of antitrust laws, and miscellaneous other
causes of action. In addition, there are various claims against the
Company relating to certain of the leases held by the Company. Although
it is not possible to predict the outcome of such legal proceedings, in
the opinion of management, such legal proceedings will not have a
material adverse effect on the Company's financial position, liquidity
or results of operations.
The federal Americans With Disabilities Act of 1990 (the "ADA"), and
certain state statutes among other things, require that places of public
accommodation, including theatres (both existing and newly constructed)
be accessible to and that assistive listening devices be available for
use by certain patrons with disabilities. With respect to access to
theatres, the ADA may require that certain modifications be made to
existing theatres in order to make such theatres accessible to certain
theatre patrons and employees who are disabled. The ADA requires that
theatres be constructed in such a manner that persons with disabilities
have full use of the theatre and its facilities and reasonable access to
work stations. The ADA provides for a private right of action and for
reimbursement of plaintiff's attorneys' fees and expenses under certain
circumstances. The Company has established a program to review and
evaluate the Company's theatres and to make any changes which may be
required by the ADA. Although the Company's review and evaluation is on-
going, management believes that the cost of complying with the ADA will
not materially adversely affect the Company's financial position,
liquidity or results of operations.
F-18
<PAGE>
APPENDIX I
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus.
The definitions of terms used in this glossary that are also used in the
Agreement, the Indenture, the Lease, the Trust Agreement and the Participation
Agreement are qualified in their entirety by reference to the definitions of
such terms contained therein.
"Additional Rent" means, generally, all amounts payable under the
Lease other than the basic semiannual rental payments.
"Agreement" means the Pass Through Trust Agreement between United
Artists and the Trustee, pursuant to which the Pass Through Trust will be
formed.
"Bankruptcy Code" means the United States Bankruptcy Code of 1978, as
amended.
"Base Indenture" means the trust indenture between the Owner Trustee
and the Indenture Trustee pursuant to which the Mortgage Note to be held in the
Pass Through Trust will be issued.
"Building Improvements" shall have the meaning specified in "Structure
of the Transaction."
"Business Day" means any day other than Saturday or Sunday or other
day on which banking institutions in the States of New York, Denver, Colorado,
or the States in which the principal offices of the Trustee, Owner Trustee or
Indenture Trustee are located, are authorized or required by law to close.
"Cede" means Cede & Co., as nominee of DTC.
"Certificate" means any of the Pass Through Certificates issued under
the Agreement.
"Certificate Account" means one or more non-interest bearing accounts
established and maintained by the Trustee for the benefit of Certificateholders
for the deposit of payments representing Scheduled Payments on the Mortgage
Note.
"Certificate Owner" means any person acquiring a beneficial interest
in any Certificate.
"Certificated Certificates" means Certificates issued in fully
registered, certificated form to Certificate Owners or their nominees, rather
than to DTC or its nominee.
"Certificateholder" means the registered holder of any Certificate.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Commission" means the Securities and Exchange Commission.
"Company" means United Artists Theatre Circuit, Inc.
"DTC" means The Depository Trust Company.
"DTC Participants" means those participants for whom DTC holds
securities on deposit.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Estate for Years" shall have the meaning specified under "Structure
of the Transaction."
"Event of Default" shall have the meaning specified under "Description
of the Certificates--Events of Default and Certain Rights Upon an Event of
Default."
"Event of Loss" means, for any Property, any casualty or condemnation
requiring United Artists to make a purchase offer as described in "Description
of the Lease--Condemnation and Casualty."
"Excepted Payments" means rights of the Owner Trustee and the Owner
Participant relating to indemnification by United Artists of the Owner Trustee
or the Owner Participant for certain matters, insurance proceeds payable to the
Owner Trustee or to the Owner Participant under certain insurance maintained by
or for the benefit of the Owner Trustees or the Owner Participant, and certain
reimbursement payments made by United Artists to the Owner Trustee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall have the meaning specified in Appendix II.
"Indebtedness" shall have the meaning specified in Appendix II.
"Indenture" means the Indenture, as supplemented by each Supplemental
Indenture, as such Indenture may be modified, supplemented or amended from time
to time.
"Indenture Default" means each of the events designated as an event of
default in the Indenture. See "Description of the Mortgage Note--Indenture
Defaults, Notice and Waiver."
"Indenture Estate" means (i) the assignment of certain rights of the
Owner Trustee's rights as lessor under the Lease, including the right to receive
base rentals and certain other payments from United Artists (excluding Excepted
Payments), (ii) a first mortgage lien on the Building Improvements and Estate
for Years related to each property acquired by the Owner Trustee, (iii) the
assignment of the Owner Trustee's rights under the Option and (iv) a first
mortgage lien on the Remainderman Trustee's remainder interest in the Land.
"Indenture Trustee" means collectively, Fleet National Bank of
Connecticut, a national banking association, in its capacity as an Indenture
Trustee under the Indenture, and its successors and assigns thereunder, and Alan
B. Coffey, in his capacity as an Indenture Trustee under the Indenture, and his
successors and assigns thereunder.
"Indirect Participants" means those persons that clear through or
maintain a custodial relationship with a DTC Participant either directly or
indirectly.
"Initial Scheduled Principal Distribution Date" means the date when
the first scheduled payment of principal on the Mortgage Note is to be received
by the Trustee, as specified on the front cover page of this Memorandum .
"Land" means each of the separate parcels of land upon which a Theatre
subject to the lien of a Supplemental Indenture is located.
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"Lease" means the Lease between United Artists and the Owner Trustee,
pursuant to which United Artists will lease the Theatres and the Land, as such
Lease may from time to time be modified, supplemented or amended.
"Lease Default" means any event that with the passage of time or the
giving of notice, or both, would become a Lease Event of Default.
"Lease Event of Default" means each of the events designated as an
event of default in the Lease. For a description of the events constituting
Lease Events of Default, see "Description of the Lease--Events of Default."
"Major Repair Event" shall have the meaning specified in "Description
of the Lease--Obsolescence Termination."
"Major Requirement Event" shall have the meaning specified in
"Description of the Lease--Obsolescence Termination."
"Make-Whole Premium" shall have the meaning specified in "Description
of the Mortgage Note--Redemption."
"Mortgage Note" means the Mortgage Note (including any Mortgage Note
issued in exchange, replacement or substitution therefor) issued pursuant to the
Indenture.
"Operative Documents" means the Lease, the Base Indenture, the
Supplemental Indentures, the Participation Agreement, the Option Agreement, the
Tripartite Agreement, the Trust Agreement, the Mortgage Note, the Certificates
and certain related instruments and documents contemplated by the foregoing
documents.
"Option" shall have the meaning specified in "Structure of the
Transaction."
"Owner Participant" means the institutional investor for whose benefit
the Owner Trustee owns the Properties leased to United Artists pursuant to the
Lease, and its permitted successors and assigns.
"Owner Trustee" means collectively, Wilmington Trust Company, a
Delaware banking corporation, in its capacity as Owner Trustee under the Trust
Agreement, and its successors and assigns thereunder, and William J. Wade, in
his capacity as additional trustee under the Trust Agreement in certain
jurisdictions, and his successors and assigns thereunder.
"Participation Agreement" means the Participation Agreement among
United Artists, the Owner Trustee, the Owner Participant, the Remainderman
Participant, the Remainderman Trustee, the Indenture Trustee and the Trustee.
"Pass Through Trust" means the 1995-A United Artists Theatre Circuit
Pass Through Trust, to be formed pursuant to the Agreement.
"Person" shall have the meaning described in Appendix II.
"Pool Balance" means, as of any date of determination, the aggregate
unpaid principal amount of the Mortgage Note that constitutes Trust Property on
such date plus the amount of the principal payments on the Mortgage Note held by
the Trustee and not yet distributed. The Pool Balance as of a Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on such Mortgage Note and the
distribution thereof being made on that date.
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"Pool Factor" means, as of any date of determination, the quotient
(rounded to the seventh decimal place) computed by dividing (i) the Pool Balance
by (ii) the aggregate original principal amount of the Mortgage Note.
"Property" shall have the meaning specified in "Structure of the
Transaction."
"Regular Distribution Date" means January 1 and July 1 of each year,
commencing July 1, 1996.
"Remainderman Participant" means Northway Mall Associates LLC, a
Delaware limited liability company, which will own the remainder interest in the
Land, and its permitted successors and assigns.
"Remainderman Trust Agreement" means the Remainderman Trust Agreement
between the Remainderman Participant and the Remainderman Trustee, as
supplemented and amended.
"Remainderman Trustee" means Wilmington Trust Company.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder excluding those events for which
the 30-day notice requirement is waived, a withdrawal from an employee benefit
plan described in Section 4063 of ERISA, or a cessation of operations described
in Section 4062(e) of ERISA.
"Rules" means the rules, regulations and procedures creating and
effecting DTC and its operations.
"Scheduled Payments" means each payment of principal of and/or
interest on the Mortgage Note scheduled to be received by the Trustee on a
Regular Distribution Date.
"Special Distribution Date" means the date on which a Special Payment
will be distributed, which date will be the 1st day of a month.
"Special Payment" mean any payments of principal, Make-Whole Premium,
if any, and interest received by the Trustee on account of redemption, if any,
of the Mortgage Note, payments received by the Trustee following a default in
respect of the Mortgage Note (including payments received by the Trustee on
account of the redemption or purchase by the Owner Trustee of the Mortgage Note
or payments received on account of the sale of the Mortgage Note by the Trustee)
and any Scheduled Payments not paid within five days of a Regular Distribution
Date.
"Special Payments Account" means one or more non-interest bearing
accounts established and maintained by the Trustee pursuant to the Agreement for
the benefit of Certificateholders for the deposit of payments representing
Special Payments and certain other amounts.
"Subsidiary" shall have the meaning specified in Appendix II.
"Supplemental Indenture" means, with respect to each Property, the
mortgage, leasehold mortgage deed of trust, assignment of leases and rents,
security agreement, financing statement and first supplemental indenture to the
Base Indenture.
"Theatre" means the buildings, structures, alterations, modifications
and other additions to and changes in such buildings and site improvements
located on the Land.
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"Trust Agreement" means the Trust Agreement between the Owner
Participant and the Owner Trustee, as supplemented and amended.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Trust Property" means all money, instruments, including the Mortgage
Note, and other property held as the property of the Pass Through Trust,
including all distributions thereon and proceeds thereof.
"Trustee" means Fleet National Bank of Connecticut, and its successors
and assigns under the Agreement.
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APPENDIX II
DESCRIPTION OF CERTAIN COVENANTS
Pursuant to the Participation Agreement, United Artists has agreed to
comply with the following financial covenants; provided, however, that the
covenants described under "Limitation on Indebtedness," "Limitation on
Restricted Payments," "Limitation on Transactions with Affiliates," "Limitation
on Guarantees," "Restrictions on Preferred Stock of Subsidiaries and Subsidiary
Distributions," "Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries," and "Restriction on Transfer of Assets" will not be
applicable in the event, and only for so long as, the Certificates are rated
Investment Grade by both Moody's and S&P.
Limitation on Indebtedness. (a) Except as provided in paragraph (b)
below, United Artists will not, and will not permit any of its Subsidiaries to,
create, incur, assume or guarantee, or in any other manner become directly or
indirectly liable for the payment of, any Indebtedness (including any Acquired
Indebtedness, but excluding Permitted Indebtedness) unless, in the case of
Indebtedness of United Artists and Acquired Indebtedness, at the time of such
event and after giving effect thereto on a pro forma basis United Artists'
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding such event, taken as one period calculated on the
assumption that such Indebtedness had been incurred on the first day of such
four-quarter period and, in the case of Acquired Indebtedness, on the assumption
that the related acquisition (whether by means of purchase, merger or otherwise)
also had occurred on such date with the appropriate adjustments with respect to
such acquisition being included in such pro forma calculation, would have been
(x) for the period beginning on the Closing Date and ending December 31, 1997,
at least equal to 1.35:1 and (y) thereafter, 1.40:1.
(b) Notwithstanding paragraph (a) above, United Artists may issue the
Exchange Debentures if and only if (I) such Indebtedness is issued upon the
exchange of either OSCAR I Exchangeable Preferred Stock or Company Exchangeable
Preferred Stock and (II) at the time of such event and after giving effect
thereto on a pro forma basis, United Artists' Funded Debt Ratio (as determined
in accordance with the Bank Credit Agreement in effect on May 12, 1992) would
have been less than or equal to 4.0 to 1.0.
Limitation on Restricted Payments. (a) United Artists will not, and
will not permit any of its Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution in
respect of, any shares of United Artists' Capital Stock (excluding
dividends or distributions payable in shares of its Capital Stock or in
options, warrants or other rights to purchase such Capital Stock, but
including dividends or distributions payable in Redeemable Capital Stock or
in options, warrants or other rights to purchase Redeemable Capital Stock
(other than dividends on such Redeemable Capital Stock payable in shares of
such Redeemable Capital Stock));
(ii) purchase, redeem or acquire or retire for value, any Capital
Stock of United Artists or any Affiliate thereof (other than any wholly-
owned Subsidiary of United Artists and Existing Majority-owned
Subsidiaries) or any options, warrants or other rights to acquire such
Capital Stock; or
(iii) make any Investment (other than any Permitted Investment) in any
Person;
(such payments or any other actions described in (i) through (iii) are
collectively referred to as "Restricted Payments") unless at the time of and
after giving effect to the proposed Restricted Payment (the amount of any
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such Restricted Payment, if other than cash, as determined by the Board of
Directors of United Artists, whose determination shall be conclusive and
evidenced by a board resolution), (1) no Default or Event of Default shall have
occurred and be continuing, (2) United Artists could incur $1.00 of additional
Indebtedness under the provisions of "Limitation on Indebtedness" (other than
Permitted Indebtedness and the Exchange Debentures) and (3) the aggregate amount
of all Restricted Payments, including any Restricted Payments permitted by
clauses (iii), (iv), (vi) and (vii) of paragraph (b) hereof (but excluding
clauses (i), (ii), (v), (viii), (ix) and (x) thereof), declared or made after
May 12, 1992, plus any payment, purchase, redemption, acquisition or retirement
made to any Person (other than United Artists or any Subsidiary) pursuant to
paragraph (b) of "Restrictions on Preferred Stock of Subsidiaries and Subsidiary
Distributions" shall not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Adjusted Net Income
of United Artists accrued on a cumulative basis during the period beginning
on May 12, 1992 and ending on the last day of United Artists' last fiscal
quarter ending prior to the date of such proposed Restricted Payment (or,
if such aggregate cumulative Consolidated Adjustment Net Income shall be a
loss, minus 100% of such loss);
(B) the aggregate net proceeds, including the Fair Market Value of
property other than cash (as determined by United Artists' Board of
Directors, whose determination shall be conclusive, except that for any
property whose Fair Market Value exceeds $10,000,000, such Fair Market
Value shall be confirmed by an independent appraisal obtained by United
Artists) received after May 12, 1992 by United Artists as capital
contributions by OSCAR I;
(C) the aggregate net proceeds, including the Fair Market Value of
property other than cash (as determined by United Artists' Board of
Directors, whose determination shall be conclusive, except that for any
property whose Fair Market Value exceeds $10,000,000, such Fair Market
Value shall be confirmed by an independent appraisal obtained by United
Artists) received after May 12, 1992 by United Artists from the issuance or
sale (other than to any of its Subsidiaries) of shares of Capital Stock of
United Artists (other than Redeemable Capital Stock) or warrants, options
or rights to purchase such shares of Capital Stock of United Artists;
(D) the aggregate net cash proceeds received after May 12, 1992 by
United Artists (other than from any of its Subsidiaries) upon the exercise
of options, warrants or rights to purchase shares of Capital Stock of
United Artists (other than Redeemable Capital Stock); and
(E) the aggregate net proceeds, including the Fair Market Value of
property other than cash (as determined by United Artists' Board of
Directors, whose determination shall be conclusive, except that for any
property whose Fair Market Value exceeds $10,000,000, such Fair Market
Value shall be confirmed by an independent appraisal obtained by United
Artists) received after May 12, 1992 by United Artists from debt securities
that have been converted into or exchanged for Capital Stock of United
Artists (other than Redeemable Capital Stock) to the extent such debt
securities were originally sold for such net proceeds plus the aggregate
cash received by United Artists at the time of such conversion or exchange.
(b) Notwithstanding the foregoing and, in the case of clauses (iii), (vi),
(vii), (viii) and (ix) below, so long as no Default or Event of Default has
occurred and is continuing, the foregoing provisions shall not prohibit:
(i) dividends paid within 60 days after the date of declaration if at
the date of declaration, such payment would be permitted by the provisions
of the foregoing paragraph and such payment shall be deemed to have been
paid on such date of declaration for purposes of calculation required by
the provisions of the foregoing paragraph;
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(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of United Artists in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege in connection with which cash is paid in lieu of the issuance
of fractional shares or scrip), or out of the net cash proceeds of a
substantially concurrent issue and sale (other than to a Subsidiary) of,
other shares of Capital Stock (other than Redeemable Capital Stock) of
United Artists; provided that the net proceeds from the Capital Stock are
excluded from clause 3 of paragraph (a) of "Limitation on Restricted
Payments";
(iii) the cancellation or repurchase of stock or stock options of
OSCAR I pursuant to the terms of the Management Agreements in the aggregate
amount of $2,000,000 in any fiscal year and $10,000,000 for all such
repurchases and loans, advances, dividends or distributions to OSCAR I in
an amount to permit such cancellation or repurchase;
(iv) loans, advances, dividends or distributions by United Artists to
OSCAR I not to exceed an amount necessary to permit OSCAR I to pay its
expenses incurred in the ordinary course of business but in any event not
in an amount in excess of $2,000,000 in any fiscal year;
(v) payments by United Artists to OSCAR I pursuant to the Tax Sharing
Agreement;
(vi) at any time after the fifth anniversary of the first date on
which United Artists could have issued Exchange Debentures pursuant to
paragraph (b) under "Limitation on Indebtedness", cash dividends on United
Artists Exchangeable Preferred Stock or advances, loans or dividends to pay
cash dividends on the OSCAR I Exchangeable Preferred Stock (but not both),
provided that United Artists could incur $1.00 of additional Indebtedness
under the provisions of "Limitation on Indebtedness" (other than Permitted
Indebtedness and the Exchange Debentures) and the aggregate amount of all
such dividends does not exceed the amount of cash dividends required under
OSCAR I Exchangeable Preferred Stock;
(vii) loans, advances, dividends or distributions to pay any interest
incurred on notes incurred by OSCAR I pursuant to the Management
Agreements, provided that United Artists could incur additional
Indebtedness equal to the amount of such interest under the provisions of
"Limitation on Indebtedness" (other than Permitted Indebtedness and the
Exchange Debentures);
(viii) the assumption by United Artists of the guarantees listed in
clauses (ii) and (vi) of the definition of "UAR Financing Agreements" to
the extent that the liability under such guarantees does not exceed
$25,000,000 in the aggregate at any one time and letters of credit issued
to support any such guarantees;
(ix) the issuance of the Exchange Debentures in exchange for either
OSCAR I Exchangeable Preferred Stock or Company Exchangeable Preferred
Stock if such issuance would be permitted by the provisions of "Limitation
on Indebtedness" and, if such issuance is in exchange for the OSCAR I
Exchangeable Preferred Stock, the dividend or distribution of such Exchange
Debentures by United Artists to OSCAR I to facilitate such issuance; or
(x) the set-off or any similar transaction with respect to
indemnification obligations under the Purchase Agreement against any
Exchange Debentures or OSCAR I Preferred Stock.
Limitation on Transactions with Affiliates. (a) United Artists will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction or series of related transactions
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(including, without limitation, the sale, purchase, exchange or lease of assets,
property or services) with any Affiliate of United Artists (other than a wholly-
owned Subsidiary of United Artists) unless (i) such transaction or series of
transactions is or are on terms that are no less favorable to United Artists or
such Subsidiary, as the case may be, than would be available at the time of such
transaction or transactions in a comparable transaction in arm's-length dealings
with an unaffiliated third party, (ii) United Artists delivers an officer's
certificate to the Trustee certifying that such transaction or transactions
complies with clause (i) above, (iii) with respect to a transaction or series of
transactions involving aggregate payments equal to or greater than $10,000,000
(other than any transaction or series of transactions with any Affiliate of
United Artists conducted in the ordinary course of business), United Artists
shall have obtained a written opinion of an independent investment banking firm
or independent appraiser that such transaction or transactions are fair to
United Artists or such Subsidiary, as the case may be, from a financial point of
view and (iv) with respect to a transaction or series of transactions involving
UAR or any of its subsidiaries, United Artists shall have obtained a written
opinion of an independent appraiser that such transaction or transactions are
fair to United Artists or such Subsidiary, as the case may be, from a financial
point of view; provided, however, that the foregoing restriction shall not apply
to (i) the payment of fees to Merrill Lynch or any of its Affiliates for
consulting, investment banking or financial advisory services rendered by such
Person to United Artists or any of its Subsidiaries, (ii) the payment of
reasonable and customary regular fees to directors of United Artists or any of
its Subsidiaries who are not employees of United Artists or any Affiliate, (iii)
any payments made pursuant to the Tax Sharing Agreement, (iv) any UAR Lease or
any Subsequent UAR Lease (as such terms are defined in the 11 1/2% Notes
Indenture) (subject to the provisions under "Restrictions on Arrangements with
UAR" contained in the 11 1/2% Notes Indenture), (v) any Restricted Payment
permitted by "Limitation on Restricted Payments", including any Restricted
Payments permitted under clauses (i) through (x) of the last paragraph of such
covenant, (vi) any management fees or similar fees paid by UAR or its
subsidiaries to United Artists or any Subsidiary, (vii) any transaction or
series of transactions arising out of any agreement existing on May 12, 1992,
(viii) any Affiliate Subordinated Indebtedness incurred in accordance with the
Participation Agreement, (ix) any Excess Rent Note which qualifies as "Permitted
Indebtedness" under the definition thereof or (x) any UAR Deficiency Note or UAR
Indebtedness, in each case in accordance with the Participation Agreement.
(b) United Artists will not, and will not permit its Subsidiaries to,
amend, modify or in any way alter the terms of the Intercompany Agreement or the
Tax Sharing Agreement in a manner adverse to United Artists other than (i) by
adding new Subsidiaries and (ii) with respect to the Tax Sharing Agreement,
amendments or modifications necessary to reflect changes in applicable law or
the interpretation thereof.
Limitation on Guarantees. United Artists will not permit any Subsidiary to,
directly or indirectly, guarantee or secure the payment of any Indebtedness of
United Artists unless (i) such Subsidiary simultaneously executes and delivers
supplemental leases providing for the guarantee of payment of United Artists'
payment obligations under the Lease on an unsubordinated basis and (ii) any such
guarantee of United Artists' payment obligations under the Lease by any
Subsidiary shall provide that such Subsidiary waives and will not in any manner
whatsoever claim, or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against United
Artists, any other Subsidiary, OSCAR I or its other subsidiaries as a result of
any payment by such Subsidiary under its guarantee of United Artists' payment
obligations under the Lease.
Notwithstanding the foregoing, any such guarantee by a Subsidiary of United
Artists' payment obligations under the Lease shall provide by its term that it
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of United Artists, of
all of the Capital Stock of such Subsidiary, or all or substantially all of the
assets of such Subsidiary, pursuant to a transaction which is in compliance with
the Participation Agreement.
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Restrictions on Preferred Stock of Subsidiaries and Subsidiary
Distributions. (a) United Artists will not permit any Subsidiary to issue any
Preferred Stock (other than to United Artists or a wholly owned Subsidiary of
United Artists), or permit any Person (other than United Artists or a wholly
owned Subsidiary of United Artists), to own or hold an interest in any Preferred
Stock of any such Subsidiary.
(b) United Artists will not, and will not permit any Subsidiary to, declare
or pay dividends or distributions on any Capital Stock of any such Subsidiary to
any Person (other than to United Artists and its wholly owned Subsidiaries) or
purchase, redeem or otherwise acquire or retire for value, any Capital Stock of
any such Subsidiary held by such Person, except for, so long as no Default or
Event of Default shall have occurred and be continuing, (i) the payment of pro
rata dividends or distributions to all holders of such Capital Stock, (ii) the
pro rata purchase, redemption or other acquisition or retirement for value of
such Capital Stock or (iii) the purchase or acquisition for value of Capital
Stock of any Existing Majority-owned Subsidiary from any Person, provided that
United Artists or such Subsidiary purchases or otherwise acquires such number of
shares of Capital Stock of such Subsidiary which, together with shares
previously owned by United Artists or such Subsidiary as the case may be, would
aggregate at least 80% of the issued and outstanding Capital Stock of such
Subsidiary. Notwithstanding the foregoing, nothing contained in this covenant
shall prohibit United Artists or any Subsidiary from making any purchase,
redemption or other acquisition or retirement for value of Capital Stock of any
Subsidiary or the payment of dividends or distributions on Capital Stock of any
Subsidiary in the aggregate up to the amount of Restricted Payments that United
Artists could make at any time pursuant to "Limitations on Restricted Payments",
provided that any amount so paid to any Person (other than United Artists and
its wholly owned Subsidiaries) or the amount of any such purchase, redemption or
other acquisition shall be used in determining the aggregate amount of all
Restricted Payments made pursuant to such covenant.
Restriction on Transfer of Assets. United Artists will not, and will not
permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise
dispose of any of their respective assets or property to OSCAR I or any of its
subsidiaries (other than United Artists) or any Subsidiary of United Artists
except for (i) sales, conveyances, transfers, leases or other dispositions made
in the ordinary course of business (as determined by the Board of Directors of
United Artists, whose determination shall be conclusive and evidenced by a board
resolution) by means of an intercompany loan evidenced by an intercompany note
pursuant to the Intercompany Agreement, the principal amount of which shall be
equal to the Fair Market Value of such assets or property (as determined by the
Board of Directors of United Artists, whose determination shall be conclusive
and evidenced by a board resolution), and otherwise in compliance with the
Participation Agreement and (ii) dividends or distributions to OSCAR I as
permitted under the provisions of "Limitations on Restricted Payments."
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. United Artists will not, and will not permit any Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind, on the ability of any Subsidiary to (a)
pay dividends or make any other distribution on its Capital Stock, (b) pay any
Indebtedness owed to United Artists or any other Subsidiary, (c) make loans or
advances to United Artists or any other Subsidiary, or (d) transfer any of its
property or assets to United Artists or any other Subsidiary except, in the case
of the foregoing clauses (a) through (d), (i) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on May 12, 1992 or on the
Closing Date; (ii) any encumbrance or restriction existing under the 11 1/2%
Notes Indenture or the Bank Credit Agreement as in effect on May 12, 1992; (iii)
any encumbrance or restriction, with respect to a Subsidiary that is not a
Subsidiary of United Artists on the Closing Date, in existence at the time such
Person becomes a Subsidiary or created on the date it becomes a Subsidiary; and
(iv) any encumbrance or restriction existing under any agreement that extends,
refinances, renews or replaces any of the agreements containing any of the
restrictions in the foregoing clauses (i) through (iii), provided that the terms
and conditions of any such restrictions are not materially less favorable to the
holders of the Certificates than those under or pursuant to the agreement
evidencing the Indebtedness extended, refinanced, renewed or replaced.
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MERGER AND SALE OF ASSETS
United Artists shall not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons or
permit its subsidiaries to enter into any such transaction or transactions
unless at the time and after giving effect thereto (i) either (a) United Artists
shall be the continuing corporation, or (b) the Person (if other than United
Artists) formed by such consolidation or into which United Artists is merged or
the Person which acquires by conveyance, transfers, lease or disposition the
properties and assets of United Artists, substantially as an entirety (the
"Surviving Entity") shall be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall, in either case, expressly assume all the
obligations of United Artists under the Lease and Related Documents; (ii)
immediately before and immediately after giving effect to such transaction on a
pro forma basis, no Default or Event of Default shall have occurred and be
continuing; (iii) except in the case of the consolidation or merger of any
Subsidiary with or into United Artists, immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of United Artists
(or the Surviving Entity if United Artists is not the continuing corporation) is
at least equal to the Consolidated Net Worth of United Artists immediately
before such transaction; and (iv) immediately before and immediately after
giving effect to such transaction on a pro forma basis, (A) no Default or Event
of Default shall have occurred and be continuing and (B) except in the case of
the consolidation or merger of any Subsidiary with or into United Artists,
United Artists (or the Surviving Entity if United Artists is not the continuing
corporation) could incur $1.00 of additional Indebtedness under the provisions
of "Limitation on Indebtedness" (other than Permitted Indebtedness and the
Exchange Debentures); provided that clauses (iii) and (iv)(B) shall not apply
with respect to any transaction if United Artists has been informed by each of
Moody's and S&P that, on a pro forma basis after giving effect to such
transaction, it would rate the Certificates as Investment Grade.
In connection with any consolidation, merger, transfer or lease
contemplated hereby, United Artists shall deliver, or cause to be delivered, to
the Trustee, in the form and substance reasonably satisfactory to the Trustee,
an officer's certificate and an opinion of counsel, each stating that such
consolidation, merger, transfer of lease and the supplemental indenture in
respect thereto comply with the provisions described herein and that all
conditions precedent herein provided for relating to such transaction have been
complied with.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of United Artists in accordance with the foregoing, the
successor corporation formed by such a consolidation or into which United
Artists is merged or to which such transfer is made, shall succeed to, and be
substituted for, and may exercise every right and power of, United Artists under
the Lease and the related documents with the same effect as if such successor
corporation had been named as United Artists therein.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which United Artists is not the continuing corporation, the successor Person
formed or remaining shall succeed to, and be substituted for, and may exercise
every right and power of, United Artists, and United Artists would be discharged
from all obligations and covenants under the Lease and the related documents.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (x) existing at the
time such Person becomes a Subsidiary or (y) assumed in connection with the
acquisition of assets from such Person, in each case other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition.
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"Acquisition" means the acquisition by OSCAR I of all the issued and
outstanding shares of Capital Stock of United Artists, UAB and UAB II pursuant
to the Purchase Agreement.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 10% or more of such Person's Capital Stock or any
officer or director of any such Person or other Person or with respect any
natural Person, any person having a relationship with such Person by blood,
marriage or adoption not more remote than first cousin. For the purposes of
this definition, "control" when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Affiliate Subordinated Indebtedness" means Indebtedness of United Artists
or any Subsidiary Guarantor to OSCAR I, UAR or any subsidiary of UAR (other than
any Excess Rent Notes and any Exchange Debentures), provided that (i) such
Indebtedness provides that no cash interest shall be payable on such Affiliate
Subordinated Indebtedness unless at the time of any such interest payment, (a)
assuming that the portion of the Affiliate Subordinated Indebtedness on which
interest will be paid was incurred on the first day of the four full fiscal
quarters immediately preceding such interest payment date, United Artists could
incur the aggregate principal amount outstanding under such portion of Affiliate
Subordinated Indebtedness under "Limitations on Indebtedness") (other than
Permitted Indebtedness and Exchange Debentures), and (b) after giving effect
thereto no Default or Event of Default has occurred and is continuing, (ii) no
mandatory principal payments may be made on the notes prior to the final Stated
Maturity of the Certificates, provided the foregoing shall not restrict
voluntary prepayments of the Indebtedness outstanding thereunder in accordance
with the terms of the Participation Agreement, (iii) such note may not be
pledged to any Person and (iv) any Person which provides the funds to OSCAR I ,
UAR or any subsidiary thereof to enable any such Affiliate Subordinated
Indebtedness shall acknowledge the terms and provisions of such Affiliate
Subordinated Indebtedness.
"Attributable Debt" means, when used in connection with any Sale-and-
Leaseback Transaction, the greater of (a) the Fair Market Value of the property
subject to such transaction (as determined by the Board of Directors of United
Artists) and (b) the present value of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
transaction (including my period for which such lease has been extended).
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bank Credit Agreement" means the Credit Agreement, dated as of May 12,
1992, among United Artists, Bank of America National Trust and Savings
Association, as administrative agent, Bank of America National Trust and Savings
Association, Barclays Bank PLC, Continental Bank N.A. and the First National
Bank of Boston, collectively as co-agents, and the other banks party thereto, as
such agreement may be amended, renewed, extended, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified from time to time,
including on May 1, 1995 and including successive amendments, renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplements or other modifications thereof, whether or not such amendment,
renewal, extension, substitution, refinancing, restructuring, replacement,
supplement or other modification is with none, all or some of the lenders under
such agreement on May 12, 1992 or with any bank, financial institution, any
other Person or any trustee on behalf of any such Persons.
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"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States Federal and State law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means any obligations of such
Person and its Subsidiaries on a consolidated basis under any capital lease of a
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations, or other equivalents (however designated) of such Person's
capital stock, any rights (other than debt securities convertible into capital
stock), warrants or options to acquire such capital stock, whether now
outstanding or issued after the date of the Participation Agreement.
"Cash Equivalent" means (A) any security, maturing not more than six months
after the date of acquisition, issued by the United States of America, or an
instrumentality or agency thereof and guaranteed fully as to principal, premium,
if any, and interest by the United States of America, (B) any certificate of
deposit, time deposit, Eurodollar time deposit or bankers' acceptance, maturing
not more than six months after the date of acquisition, issued by any lender who
was an original signatory to the Bank Credit Agreement or a commercial banking
institution that is a member of the Federal Reserve System and that has combined
capital and surplus and undivided profits of not less than $100,000,000, whose
debt has a rating, at the time as of which any investment therein is made, of
"P-1" (or higher) according to Moody's or any successor rating agency, or "A-1"
(or higher) according to S&P or any successor rating agency, (C) commercial
paper, maturing not more than three months after the date of acquisition, issued
by any lender who was an original signatory to the Bank Credit Agreement or a
corporation (other than an Affiliate or Subsidiary of United Artists or OSCAR I)
organized and existing under the laws of the United States of America with a
rating, at the time as of which any investment therein is made, of "P-1" (or
higher) according to Moody's or any successor rating agency, or "A-1" (or
higher) according to S&P or any successor rating agency, and (D) any security,
on the date of acquisition by any Person, that is listed for trading on any
national securities exchange, trades of which are reported on the National
Association of Securities Dealers Automated Quotations system or that has a
stated maturity on or before the first anniversary of the date of such
acquisition.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means, collectively, all of the property and assets that are
from time to time subject to the Collateral Documents.
"Collateral Agent" means Bankers Trust Company or any successor collateral
agent under the Collateral Documents.
"Collateral Documents" means, collectively, the documents governing the
Collateral in favor of the Secured Parties.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Participation Agreement such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
AII-8
<PAGE>
"Company" means United Artists Theatre Circuit, Inc., a corporation
incorporated under the laws of the State of Maryland or any successor thereof.
"Company Exchangeable Preferred Stock" means the Series A Cumulative
Redeemable Exchangeable Preferred Stock of United Artists issued on May 12, 1992
and any additional shares of such exchangeable preferred stock issued after such
date in the form of stock dividends, with terms in effect on May 12, 1992.
"Consolidated Adjusted Net Income (Loss)" of any Person means, for any
period, the consolidated net income (or loss) of United Artists and its
consolidated Subsidiaries for such period as determined in accordance with GAAP,
adjusted, to the extent included in calculating such net income (loss), by
excluding (i) all extraordinary gains or losses (less all fees and expenses
relating thereto), (ii) the portion of net income (or loss) of United Artists
and its consolidated Subsidiaries allocable to minority interests in
unconsolidated Persons to the extent that cash dividends or distributions have
not actually been received by United Artists or one of its consolidated
Subsidiaries, (iii) net income (or loss) of any Person combined with United
Artists or any of its Subsidiaries in a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains or losses (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary course
of business, (vi) the net income of any Subsidiary to the extent that the
declaration of dividends or similar distributions by that Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulations applicable to that Subsidiary or its
shareholders, (vii) in the case of United Artists, any depreciation and
amortization to the date of determination resulting from (a) any write-up in the
book value of any assets due to the Acquisition, (b) any goodwill and other
intangibles due to the Acquisition and (c) any expenses incurred in connection
with the Acquisition and the financing thereof and (viii) fifty percent of the
non-cash Consolidated Interest Expense attributable to any outstanding Exchange
Debentures.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Operating Rental
Expense plus, without duplication, all depreciation, amortization and all other
non-cash charges (excluding any such noncash charge constituting an
extraordinary item of loss or any non-cash charge which requires an accrual of
or a reserve for cash charges for any future period), in each case, for such
period, of United Artists and its Subsidiaries on a consolidated basis, to (b)
the sum of Consolidated Interest Expense and Consolidated Operating Rental
Expense for such period (other than any non-cash Consolidated Interest Expense
attributable to any outstanding Exchange Debentures and any amortization or
write-off of deferred financing costs) and the aggregate amount of cash
dividends paid in such period in respect of Preferred Stock; provided that (A)
in making such computation, the Consolidated Interest Expense attributable to
interest on any Indebtedness computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) with
respect to any Indebtedness which bears, at the option of United Artists, a
fixed or floating rate of interest, United Artists shall apply, at its option,
either the fixed or floating rate for purposes of calculating the Consolidated
Fixed Charge Coverage Ratio.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, as applied to any Person, the sum of (a) the aggregate of the
interest expense on Indebtedness of such Person and its consolidated
Subsidiaries for such period, on a consolidated basis, including, without
limitation, (i) amortization of debt discount, (ii) the net cost under interest
rate contracts (including amortization of discounts), (iii) the interest portion
of any deferred payment obligation and (iv) accrued interest, plus (b) the
interest component of the Capital Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its consolidated Subsidiaries
during such period, in each case as determined in accordance with the GAAP
consistently applied.
AII-9
<PAGE>
"Consolidated Operating Rental Expense" of any Person means, for any
period, the aggregate amount of fixed base rental expense (including non-cash
rental expense recorded in accordance with GAAP) with respect to any lease of
any property (whether real, personal or mixed), other than Capitalized Lease
Obligations, deducted in computing net income of such Person during such Period.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
consolidated net income (or loss) of United Artists and its consolidated
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income (loss), by excluding (i) all
extraordinary gains or losses (less all fees and expenses relating thereto),
(ii) the portion of net income (or loss) of United Artists and its consolidated
Subsidiaries allocable to minority interests in unconsolidated Persons to the
extent that cash dividends or distributions have not actually been received by
United Artists or one of its consolidated Subsidiaries, (iii) net income (or
loss) of any Person combined with United Artists or any of its Subsidiaries in a
"pooling of interests" basis attributable to any period prior to the date of
combination, (iv) any gain or loss, net of taxes, realized upon the termination
of any employee pension benefit plan, (v) net gains or losses (less all fees and
expenses relating thereto) in respect of dispositions of assets other than in
the ordinary course of business, (vi) the net income of any Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Subsidiary or its shareholders and (vii) in the case of United Artists, any
depreciation and amortization to the date of determination resulting from (a)
any writeup in the book value of any assets due to the Acquisition, (b) any
goodwill and other intangibles due to the Acquisition and (c) any expenses
incurred in connection with the Acquisition and the financing thereof.
"Consolidated Net Worth" of any Person means, with respect to United
Artists, the consolidated stockholders' equity (excluding any Redeemable Capital
Stock) of such Person and its Subsidiaries, as determined in accordance with
GAAP consistently applied.
"Consolidated Tax Expense" of any Person means for any period, as applied
to any Person, the provision for federal, state, local and foreign income taxes
of such Person and its consolidated Subsidiaries for such period as determined
in accordance with GAAP.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"11 1/2% Notes" means the notes issued under the 11'% Notes Indenture.
"11 1/2% Notes Indenture" means the Indenture, dated as of May 12, 1992,
among United Artists, OSCAR I, as guarantor, and The Bank of New York, as
Trustee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Rent Notes" means the notes in the form attached as an exhibit to
the 11 1/2% Notes Indenture evidencing the loan from UAR to United Artists.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means Indebtedness of United Artists which may be
issued, at the option of OSCAR I or United Artists, in exchange for either (i)
shares of outstanding Company Exchangeable Preferred Stock or (ii) shares of
outstanding OSCAR I Exchangeable Preferred Stock, pursuant to the terms thereof
in effect
AII-10
<PAGE>
on May 12, 1992; provided that the aggregate principal amount of such
Indebtedness shall not exceed $92,500,000 plus (A) the liquidation value of any
OSCAR I Exchangeable Preferred Stock issued after May 12, 1992 in the form of
stock dividends pursuant to the terms thereof in effect on May 12, 1992 and (B)
any accrued and unpaid dividends thereon.
"Existing Majority-owned Subsidiary" means any of those subsidiaries listed
on Schedule I to the 11 1/2% Notes Indenture.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on May 12, 1992.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
contained in this Section guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property (other than in connection with the
UAR Leases or the subsequent UAR Leases), or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services to be acquired by such debtor
irrespective of whether such property is received or such services are
rendered), (iv) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial condition of
the debtor or (v) otherwise to assure a creditor against loss; provided that the
term "guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities and in
connection with any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, now or hereafter outstanding,
(ii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) every obligation of such Person issued or contracted
for as payment in consideration of the purchase by such Person or an Affiliate
of such Person of the Capital Stock or substantially all of the assets of
another Person or in consideration for the merger consolidation with respect to
which such Person or an Affiliate of such Person was a party, (v) all Capital
Lease Obligations of such Person, (vi) all Indebtedness referred to in clauses
(i) through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien, upon or
in property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vii) all Guaranteed Debt of such Person, (viii)
all Redeemable Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
(ix) all
AII-11
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obligations under interest rate contracts of such Person, and (x) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (ix) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value to be determined in good faith by the Board of Directors of the
issuer of such Redeemable Capital Stock.
"Intercompany Agreement" means the agreement in the form attached as an
exhibit to the 11 1/2% Notes Indenture.
"Investments" means, with respect to any Person, directly or indirectly,
any advance, loan or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities issued or owned by any other Person. Investments shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Investment Grade" means a rating of the Certificates by both S&P and
Moody's, each such rating being in one of such agency's four highest generic
rating categories that signifies investment grade; provided, in each case, such
ratings are publicly available.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Management Agreements" means any agreement providing for the purchase or
disposition of Capital Stock of United Artists or OSCAR I by future, present or
past officers, employees or directors of OSCAR I or United Artists and its
Subsidiaries.
"Material Subsidiary" means, at any particular time, any Subsidiary of
United Artists that, together with the Subsidiaries of such Subsidiary, (a)
accounted for more than 10% of the consolidated revenues of United Artists and
its Subsidiaries for the most recently completed fiscal year of United Artists
or (b) was the owner of more than 10% of the consolidated assets of United
Artists and its Subsidiaries as at the end of such fiscal year, all as shown on
the consolidated financial statements of United Artists and its Subsidiaries for
such fiscal year.
"Maturity" when used with respect to any Certificate means the date on
which the principal of such Certificate becomes due and payable as therein
provided or as provided in the Participation Agreement, whether at Stated
Maturity, the "Offer Date" or the redemption date and whether by declaration of
acceleration, Offer in respect of Excess Proceeds, Change in Control, call for
redemption or otherwise.
"Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith Incorporated,
together with its successors.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Cash Equivalents including payments
in respect of deferred payment obligations, including Asset Sale Notes, when
received in the form of, or stock or other assets when disposed of for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to such Person or any Subsidiary
AII-12
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thereof) net of (a) the reasonable direct costs relating to such Asset Sale, (b)
sale, use or other transaction taxes but not actual or estimated income taxes
payable on any gain from the Asset Sale paid or payable as a result thereof
(except such reasonable estimate of income taxes on the gain from the Asset Sale
as United Artists actually expects to pay in respect of the year in which the
Asset Sale occurs) and (c) amounts required to be applied to repay principal,
interest and prepayment premiums and penalties on Indebtedness secured by a Lien
on the asset which is the subject of such Asset Sale.
"OSCAR I" means OSCAR I Corporation, a corporation incorporated under the
laws of the State of Delaware, together with any successors thereto.
"OSCAR I Exchangeable Preferred Stock" means the Series A Cumulative
Redeemable Exchangeable Preferred Stock issued by OSCAR I to an Affiliate of TCI
pursuant to the Purchase Agreement and any additional shares of such
Exchangeable Preferred Stock issued after May 12, 1992 in the form of stock
dividends, with terms in effect on May 12, 1992.
"OSCAR II" means OSCAR II Corporation, a corporation incorporated under the
laws of the State of Delaware, together with its successors.
"Permitted Holders" means Merrill Lynch, any Affiliate or subsidiary of
Merrill Lynch and any general or limited partnership of which any of Merrill
Lynch or any Affiliate or subsidiary of Merrill Lynch is a general partner.
"Permitted Indebtedness" means the following:
(i) Indebtedness of United Artists under the Bank Credit Agreement in
an aggregate principal amount at any one time outstanding not to exceed the
sum of $325,000,000 less principal payments made by United Artists on any
term Indebtedness facility under the Bank Credit Agreement (other than
principal payments made in connection with or pursuant to refinancing of
the Bank Credit Agreement permitted under the terms of the Participation
Agreement) and less any amount by which any revolving credit facility
commitment or letter of credit commitment thereunder has been permanently
reduced to the extent that any repayments required to be made in connection
with such permanent reduction have been made (and such commitment may not
be required to be recommitted);
(ii) Indebtedness of United Artists or any of its Subsidiaries
pursuant to the 11 1/2% Notes and the guarantees thereof existing on the
Closing Date;
(iii) Indebtedness of United Artists or any of its Subsidiaries
outstanding on the Closing Date;
(iv) obligations pursuant to interest rate contracts;
(v) Indebtedness of Capital Lease Obligations of United Artists or
any Subsidiary not to exceed $10,000,000 outstanding at any one time in the
aggregate, other than pursuant to a Sale-and-Leaseback Transaction;
(vi) (a) Indebtedness of United Artists or any Subsidiary arising out
of any Sale-and-Leaseback Transaction (x) in effect on May 12, 1992 or (y)
by United Artists or any Subsidiary to any one or the other of them,
provided that such Sale-and-Leaseback Transaction is upon commercially
reasonable terms to the seller or transferor of such property or assets (as
determined by the Board of Directors of such seller or transferor whose
determination shall be conclusive) and in accordance with the terms of the
Participation Agreement and (b) Indebtedness of United Artists or any
Subsidiary arising out of any
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Sale-and-Leaseback Transaction (in addition to the Indebtedness permitted
by clause (a) above), provided that the aggregate principal amount of all
such Indebtedness shall not exceed $5,000,000 outstanding at any one time;
(vii) Purchase Money Mortgages, the principal amount of which shall
not exceed $10,000,000 outstanding at any one time in the aggregate;
(viii) Indebtedness of United Artists or any Subsidiary, the
principal amount of which shall not exceed $10,000,000 outstanding at any
one time in the aggregate, in respect of trade letters of credit and
standby letters of credit incurred in the ordinary course of business;
(ix) Indebtedness of United Artists or any wholly owned Subsidiary to
any one or the other of them, provided that the obligations of each obligor
of such Indebtedness shall be subject to the terms of the Intercompany
Agreement; and Indebtedness of United Artists or any wholly owned
Subsidiary to any Existing Majority-Owned Subsidiary or Indebtedness of any
Existing Majority-owned Subsidiary to United Artists or any wholly owned
Subsidiary, provided that such Indebtedness is incurred in the ordinary
course of business consistent with past practices and the obligations of
each obligor of such Indebtedness shall be subject to the terms of the
Intercompany Agreement;
(x) Indebtedness not to exceed the aggregate principal amount of
$5,000,000 represented by the obligations of United Artists to repurchase
under certain circumstances shares, or cancel options to purchase shares,
of OSCAR I's or United Artists' Common Stock held by present, former or
future officers, directors or employees of United Artists or OSCAR I or
their respective Subsidiaries as set forth in the Management Agreements;
(xi) Indebtedness of any Subsidiary made in accordance with the
provisions of "Certain Covenants Limitations on Issuances on Guarantees";
(xii) Indebtedness of United Artists (other than the Exchange
Debentures), in addition to that described in clauses (i) through (xi) of
this definition "Permitted Indebtedness", not to exceed $25,000,000
outstanding at any one time in the aggregate;
(xiii) additional Exchange Debentures issued as payment of interest
on Exchange Debentures, when outstanding pursuant to the terms of the 11
1/2% Notes Indenture;
(xiv) any renewals, extensions, substitutions, refinancings or
replacements of any Indebtedness described in clauses (ii) and (iii) of
this definition of "Permitted Indebtedness", including any successive
extensions, renewals, substitutions, refinancings or replacements so long
as the aggregate amount of Indebtedness represented thereby is not
increased by such renewal, extension, substitution, refinancing or
replacement and such renewal, extension, substitution, refinancing or
replacement does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Indebtedness, provided that this clause (xiv) shall
not include the Exchange Debentures;
(xv) Excess Rent Notes, provided that, at the time of incurrence, the
aggregate principal amount of any Excess Rent Note shall not exceed an
amount equal to the excess, if any, of (x) the aggregate amount of payments
made by United Artists and its Subsidiaries to UAR and its subsidiaries
from May 12, 1992 to the date of incurrence of such Excess Rent Note over
(y)(i) the aggregate amount of principal and interest paid under the UAR
Financing Agreements and other expenses paid in the ordinary course of
business in connection with the properties held under the UAR Leases and
any Subsequent
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UAR Lease during such period plus (ii) the aggregate principal amount of
other Excess Rent Notes outstanding at the date of incurrence; and
(xvi) Affiliate Subordinated Indebtedness.
"Permitted Investment" means (a) any investment in any wholly owned
Subsidiary or any investment in any Existing Majority-owned Subsidiary made in
accordance with "Restrictions on Preferred Stock of Subsidiaries and Subsidiary
Distributions"; (b) Temporary Cash Investments; (c) intercompany notes to the
extent permitted under clause (ix) of the definition of "Permitted
Indebtedness"; (d) loans, advances or investments in existence on May 12, 1992
and listed on a schedule attached to the 11 1/2% Notes Indenture; (e) loans,
advances or investments in the aggregate amount of $10,000,000 at any one time
outstanding; (f) any UAR Deficiency Note permitted under paragraph (c) under
"Certain Covenants-Restrictions on Arrangements with UAR" in the 11 1/2% Notes
Indenture; (g) any Asset Sale Note permitted under "Certain Covenants-
Disposition of Proceeds of Asset Sales" in the 11 1/2% Notes Indenture; (h) UAR
Indebtedness; and (i) any investment in the 11 1/2% Notes or any guarantees
thereof.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the date of the Participation Agreement, and including, without limitation, all
classes and series of preferred or preference stock.
"Prop II" means United Artists Properties II Corp., a corporation
incorporated under the laws of the State of Colorado, together with its
successors.
"Purchase Agreement" means the Stock Purchase Agreement, dated as of
February 18, 1992, among TCI, UAE, United Artists Holdings, Inc., a corporation
incorporated under the laws of the State of Delaware, United Artists Theatre
Holding Company, a corporation incorporated under the laws of the State of
Delaware, United Artists, OSCAR I and OSCAR II, as in effect on May 12, 1992.
"Purchase Money Mortgages" means Indebtedness of United Artists or any
Subsidiary (i) issued to finance or refinance the purchase or construction of
any assets of United Artists or any Subsidiary or (ii) secured by a Lien or any
assets of United Artists or any Subsidiary where the lender's sole recourse is
to the assets so encumbered, in either case (a) to the extent the purchase or
construction prices for such assets are or should be included in "addition to
property, plant or equipment" in accordance with GAAP, (b) if the purchase or
construction of such assets is not part of any acquisition of a Person or
business unit, and (c) if the Lien securing such Indebtedness is created within
90 days of such purchase or construction.
"Redeemable Capital Stock" mean any Capital Stock (other than any Company
Exchangeable Preferred Stock held by OSCAR I) that, either by its terms, by the
terms of any security into which it is convertible or exchangeable or otherwise,
is or upon the happening of an event or passage of time would be, required to be
redeemed prior to the final Stated Maturity of the Certificate or is redeemable
at the option of the holder thereof at any time prior to such final Stated
Maturity, or is convertible into or exchangeable for debt securities at any time
prior to such final Stated Maturity at the option of the holder thereof.
"Sale-and-Leaseback Transaction" means any transaction or series of related
transactions pursuant to which United Artists or any of its Subsidiaries sell or
transfer any real or tangible property or asset in connection
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with the leasing, or the resale against installment payments, or as part of an
arrangement involving the leasing or the resale against installment payments, of
such property or asset to the seller or transferor.
"Secured Parties" means (i) holders of the 11 1/2% Notes, (ii) the lenders
under the Bank Credit Agreement, such lenders which are parties to any interest
rate contracts with United Artists and (iii) any other Person which is entitled
to the benefits of the Collateral Documents as permitted by the Collateral
Documents.
"Securities Act" means the Securities Act of 1933, as amended.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Subsidiary" means any person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by United
Artists or by one or more other Subsidiaries, or by United Artists and one or
more other Subsidiaries.
"Tax Sharing Agreement" means the tax sharing agreement, dated as of May
12, 1992, as amended through the date of the Participation Agreement, between
United Artists and OSCAR I, as the same may be amended.
"TCI" means Tele-Communications, Inc., a corporation incorporated under the
laws of the State of Delaware.
"Temporary Cash Investment" means (A) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and guaranteed
fully as to principal, premium, if any, and interest by the United States of
America, (B) any certificate of deposit, maturing not more than one year after
the date of acquisition, issued by, or time deposit of, any lender who was an
original signatory to the Bank Credit Agreement or a commercial banking
institution that is a member of the Federal Reserve System and that has combined
capital and surplus and undivided profits of not less than $500,000,000, whose
debt has a rating, at the time as of which any investment therein is made, of
"P-1" (or higher) according to Moody's or any successor rating agency, or "A-1"
(or higher) according to S&P or any successor rating agency, (C) commercial
paper, maturing not more than one year after the date of acquisition, issued by
any lender who was an original signatory to the Bank Credit Agreement or a
corporation (other than an Affiliate or Subsidiary of United Artists or OSCAR I)
organized and existing under the laws of the United States of America with a
rating, at the time as of which any investment therein is made, of "P-1" (or
higher) according to Moody's or any successor rating agency, or "A-1" (or
higher) according to S&P or any successor rating agency, and (D) any money
market deposit accounts issued or offered by any lender who was an original
signatory to the Bank Credit Agreement or a domestic commercial bank having
capital and surplus in excess of $500,000,000.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as
in force at the date of the Participation Agreement.
"UAB" means UAB, Inc., a corporation incorporated under the laws of the
State of Delaware, together with its successors.
"UAB II" means UAB II, Inc., a corporation incorporated under the laws of
the State of Colorado, together with its successors.
AII-16
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"UAE" means United Artists Entertainment Company, a corporation
incorporated under the laws of the State of Delaware, together with its
successors.
"UAP I" means United Artists Properties I Corp., a corporation incorporated
under the laws of the State of Colorado, together with its successors.
"UAR" means United Artists Realty Company, a corporation incorporated under
the laws of the State of Delaware, together with its successors.
"UAR Financing Agreements" means (i) Indenture of Mortgage and Deed of
Trust, dated as of October 1, 1988, from Prop I to the Connecticut Bank and
Trust Company, N.A. (formerly the Connecticut Bank and Trust Association, N.A.)
and its successors and assigns ("Connecticut Bank") and Lease Amato, (ii)
Guaranty, dated as of October 1, 1988, from UAE (formerly United Artists
Communications, Inc.) to Connecticut Bank and Lease Amato, (iii) Note Purchase
Agreements, each dated October 1, 1988, between Prop I and noteholders listed
therein; (iv) Assignment of Lease Agreement, dated as of October 1, 1988, from
Prop I to Connecticut Bank and Lease Amato; (v) Indenture of Mortgage and Deed
of Trust, dated as of March 1, 1989, from Prop II to Connecticut Bank and the
other trustees named therein; (vi) Guaranty, dated as of March 1, 1989 from UAE
to Connecticut Bank and Lease Amato; (vii) Note Purchase Agreements, each dated
March 1, 1989, between Prop II and noteholders listed therein; (viii) Assignment
of Lease Agreement, dated as of March 1, 1989, from Prop II to Connecticut Bank
and Lease Amato; (ix) two Promissory Notes, each dated October 4, 1988, from UAR
to Commonwealth Theatres, Inc.; and (x) five Promissory Notes, each dated June
30, 1989, from UAR to Sameric Construction Company of Camden, Inc.; including,
with respect to (i) through (x), any amendments, renewals, extensions,
substitutions, refinancings, replacements, restructurings, supplements or other
modifications thereof.
"UAR Indebtedness" means a loan made by United Artists to Prop II
(guaranteed by UAR) in an amount not to exceed $50,000,000 in exchange for a
note issued by Prop II to United Artists; provided that United Artists shall be
prohibited from making such loan unless (a) UAR or its wholly-owned subsidiaries
use the proceeds from such loan solely toward the repayment in full of the
Indebtedness described under clauses (v), (vi) and (viii) of the definition of
"UAR Financing Agreements" (including any amendments, renewals, extensions,
substitutions, refinancings, replacements, restructurings, supplements or other
modifications thereof) and all of the properties so secured by such repaid
Indebtedness (the "Prop II Properties") shall be released from any Liens with
respect thereto; (b) such loan is made on the later of April 1, 1996 and the
final maturity of the Indebtedness described in clause (a) above; (c) at the
time such UAR Indebtedness is issued and after giving effect thereto on a pro
forma basis, there exists no Default or Event of Default; (d) at the time such
UAR Indebtedness is issued and after giving effect thereto on a pro forma basis,
United Artists' Funded Debt Ratio (as determined in accordance with the Bank
Credit Agreement in effect on May 12, 1992) would have been less than 3.0 to
1.0; (e) United Artists shall receive first priority perfected security
interests and mortgages on the Prop II Properties to secure the note issued in
exchange for UAR Indebtedness and such note shall be in the form attached to the
11 1/2% Notes Indenture, as described below; and (f) any such note and the
mortgage therefor shall be subject to a first priority perfected security
interest in favor of the Collateral Agent on behalf of the Secured Parties and
shall be subject to the Collateral Documents. A note issued in exchange for UAR
Indebtedness shall provide, among other things, that (i) so long as the note is
outstanding, (a) UAR and Prop II will not, and will not permit their respective
subsidiaries to, directly or indirectly, declare or pay any dividend on, or make
any distribution in respect of, any shares of UAR's or Prop II's Capital Stock
or purchase, redeem or acquire or retire for value, any such Capital Stock or
any options, warrants or other rights to acquire such Capital Stock, except any
dividend or distribution to OSCAR II by UAR for the payment of expenses and
taxes attributable to assets and operations of UAR and its subsidiaries or
attributable to OSCAR II on a stand-alone basis, (b) Prop II and UAR will comply
with certain additional covenants, (ii) the note will mature no later than
December 31, 1998, (iii) the note will bear interest at a
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market rate of interest (as determined on the date of incurrence of such UAR
Indebtedness) payable in cash or in kind, and (iv) the principal amount of the
note will become immediately due and payable upon, among other events, certain
bankruptcy events concerning UAR or Prop I and upon any acceleration of the
maturity of any Indebtedness of UAR or Prop II in the aggregate principal amount
in excess of $5,000,000.
"UAR Leases" means (i) the Lease Agreement, dated as of October 1, 1988,
between Prop I and United Artists, as amended or otherwise modified by (a) the
First Amendment thereto, dated as of May 1, 1990, (b) the Second Amendment
thereof, dated as of September 1, 1990 and (c) the Assignment of Lease
Agreement, dated as of October 1, 1988, from Prop I to The Connecticut Bank,
(ii) the Lease Agreement, dated as of March 1, 1989, between Prop II and United
Artists, as modified by the Assignment of Lease Agreement, dated as of March 1,
1989, from Prop II to Connecticut Bank and Lease Amato and (iii) Master Lease
Agreement and Master Sublease Agreement, each dated as of May 12, 1992, between
UAR and United Artists, in each case (i) through (iii), as such agreements are
amended, supplemented or otherwise modified from time to time.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
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No dealer, salesperson or other individual has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstance create an implication that there has
been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any state
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation.
----------------------
UNITED ARTISTS THEATRE
CIRCUIT, INC.
1995-A PASS THROUGH TRUST 9.3%
PASS THROUGH CERTIFICATES, SERIES
1995-A
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PROSPECTUS
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May 13, 1996
