<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1997
- --------------------------------------------------------------------------------
REGISTRATION NO. 333-1024
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
UNITED ARTISTS THEATRE CIRCUIT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 7832 13-1424080
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
9110 EAST NICHOLS AVENUE, SUITE 200
ENGLEWOOD, COLORADO 80112
(303) 792-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KURT C. HALL
CHIEF OPERATING OFFICER, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
UNITED ARTISTS THEATRE CIRCUIT, INC.
9110 EAST NICHOLS AVENUE, SUITE 200
ENGLEWOOD, COLORADO 80112
(303) 792-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
-----------------------
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
IN CONNECTION WITH THE ORIGINAL FILING ON FORM S-4, A REGISTRATION FEE OF
$40,259.66 WAS PAID TO THE ORDER OF THE COMMISSION.
================================================================================
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing the Location
of Information Required by Part I of Form S-4
<TABLE>
<CAPTION>
ITEM
----
NUMBER CAPTION CAPTION IN PROSPECTUS
- ------ ------- ---------------------
<C> <S> <C>
1. Forepart of Registration Outside Front Cover Page; Cross Reference
Statement and Outside Front Sheet; Inside Front Cover Page
Cover Page of Prospectus
2. Inside Front and Outside Inside Front Cover Page; Outside Back Cover
Back Cover Pages of Page; Available Information; Table of Contents
Prospectus
3. Risk Factors, Ratio of Prospectus Summary; Risk Factors; Selected
Earnings to Fixed Charges Financial Information; Business
and Other Information
4. Terms of the Transaction Prospectus Summary; Description of the
Certificates; Certain Federal Income Tax
Consequences
5. Pro Forma Information Not Applicable
6. Material Contacts with the Not Applicable
Company Being Acquired
7. Additional Information for Not Applicable
Reoffering by Persons and
Parties Deemed to be
Underwriters
8. Interests of Named Experts Experts; Legal Opinions
and Counsel
9. Disclosure of Commission Not Applicable
Position on
Indemnification for
Securities Act Liabilities
10. Information with Respect Not Applicable
to S-3 Reference
11. Incorporation of Certain Not Applicable
Information by Reference
12. Information with Respect Inside Front Cover Page; Prospectus Summary;
to S-2 or S-3 Registrants Risk Factors; United Artists; Capitalization;
Selected Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions;
Expert Financial Statements
13. Incorporation of Certain Available Information; Incorporation of
Information by Reference Certain Documents by Reference
14. Information with Respect Not Applicaple
to Registrants Other than
S-3 or S-2 Registrants
15. Information with Respect Not Applicable
to S-3 Companies
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
17. Information with Respect Not Applicable
to Companies Other Than
S-3 or S-2 Registrants
18. Information if Proxies, Not Applicable
Consents or Authorization
are to be Solicited
19. Information if Proxies, Incorporation of Certain Documents by
Consents or Authorization Reference; Management; Certain Transactions
are not to be Solicited or
in an Exchange Offer
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a propspectus (the "Market-Making
Prospectus") relating to certain market-making activities with respect to the
Certificates which may, from time to time, be carried out by Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The Market-Making Prospectus follows
immediately after this Explanatory Note.
<PAGE>
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 12.
__________________________
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 did not receive any 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 July 15, 1997
<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 New 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 New 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,
1996;
2. All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1996.
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............................................................. 12
United Artists........................................................... 18
Use of Proceeds.......................................................... 20
Capitalization........................................................... 21
Selected Financial Information........................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 24
Business................................................................. 36
Management............................................................... 49
Certain Transactions..................................................... 51
Structure of the Transaction............................................. 51
The Properties........................................................... 52
Diagram of Payments...................................................... 54
Description of the Certificates.......................................... 55
Description of the Mortgage Note......................................... 66
Description of the Lease................................................. 76
Description of Certain Indebtedness...................................... 82
Certain Federal Income Tax Consequences.................................. 92
Certain Connecticut Taxes................................................ 96
ERISA Considerations..................................................... 96
Plan of Distribution..................................................... 97
Legal Opinions........................................................... 98
Experts.................................................................. 98
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 March 31, 1997, UATC owned and
operated 2,259 screens at 371 theatre locations in 26 states and Puerto Rico and
through investments in various joint venture companies, operated 103 screens at
20 theatres in Hong Kong, Singapore, Mexico and Argentina. See "Business--
Theatre Properties." Consolidated admissions revenue for UATC's theatres for the
three months ended March 31, 1997 and the year ended December 31, 1996 were
approximately $121.7 million and $466.5 million, respectively. Over 82% of
UATC's screens are located in theatres with five or more screens. As of March
31, 1997, UATC's average number of screens per theatre was 6.1.
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 four consecutive record
years from 1992 through 1996. Other revenue is generated primarily from on-
screen advertising, electronic video games located in theatre lobbies, and
theatre rentals, the rental of theatres on a networked and non-networked basis
for corporate meetings, seminars and other training/educational uses and other
miscellaneous sources.
UATC's theatres are particularly focused in large and medium sized
metropolitan areas in California, southern New York (primarily New York City and
Long Island), New Jersey, Florida, Texas, eastern Pennsylvania (including
Philadelphia), Louisiana, Colorado (primarily Denver), Georgia, and certain
areas in North and South Carolina. UATC has strong positions in most of the
major metropolitan markets in these geographic areas. The states which
represent the largest geographic concentration of theatres and screens operated
accounted for approximately 57% of UATC's total screens at March 31, 1997 and
approximately 63% of UATC's total revenue for the three months ended March 31,
1997 and were as follows:
<TABLE>
<CAPTION>
Total Number Total Number Percent of
of Theatres of Screens Total Revenue
------------ ------------ --------------
<S> <C> <C> <C>
California 69 368 20%
New York 39 191 15
Florida 27 227 8
Texas 31 219 8
Pennsylvania 30 148 8
Louisiana 19 136 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. As a result of new construction and the sale
or closure of older, smaller theatres, over 20% of UATC's screens have been
constructed over the last five years.
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 may 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 March 31, 1997, UATC sold or closed 409 theatres (1,222
screens) and added 101 theaters (791 screens). UATC's average number of screens
per theatre has increased from 3.9 at December 31, 1988 to 6.1 at March 31,
1997.
During December 1996, subsequent to the resignation of UATC's former Chief
Executive Officer, a more focused theatre development and capital investment
strategy was initiated. As part of this strategy, UATC will focus its capital
investment activities towards developing new theatres and renovating existing
key theatres in its strategically important United States markets and will
increase its efforts to sell, close or exchange certain of its existing theatres
(in most cases smaller theatres) which are not profitable or which are not
located in geographically strategic areas. In addition, UATC will seek to
monetize certain of its international investments through a restructuring of its
joint ventures with its partners, or a sale of its interests for cash, or in
exchange for theatres located in its strategic markets in the United States.
This strategy is intended to provide a higher level of management focus on
strengthening UATC's competitive position in its United States markets where it
has existing strong operating positions. In addition, this strategy is intended
to provide increased liquidity from the disposal of non-cash flow producing
investments and theatres that are in markets which have limited growth potential
and/or which UATC does not intend to invest the capital required to defend its
position. This increased liquidity combined with the elimination of
underperforming theatres will be redeployed into the development of higher
margin new theatres or used to reduce UATC's debt.
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
5
<PAGE>
features which are appropriate for the markets in which the theatres are
located. United Artists has also developed 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."
During the three months ended March 31, 1997, UATC opened six theatres (61
screens) and closed three theatres (12 screens). During 1996, UATC developed
and opened 15 theatres (130 screens) and added eight new screens to three
existing theatres, and sold 39 theatres (188 screens) and closed 15 theatres (57
screens) in the United States. The new theatres are located primarily in areas
where UATC has a significant operating presence. As a result of this existing
presence, a minimal amount of incremental district and divisional overhead is
expected to be incurred in order to operate these theatres. Many of the
theatres sold or closed were not profitable or were in areas which are not part
of UATC's long-term strategic plans. In addition, as part of UATC's previous
investment strategy, during 1996, investments were made in one theatre (four
screens) in Singapore, three theatres (33 screens) in Mexico, and three theatres
(six screens) in Hong Kong.
As part of its strategic plan, UATC intends to continue to dispose of,
through sale or lease terminations, certain of its operating theatres and real
estate which are non-strategic or underperforming. This plan involves as many
as 100 theatres (410 screens). 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, several sales and lease negotiations
have been completed and negotiations are ongoing with respect to several other
theatres and parcels of real estate. During the three months ended March 31,
1997 and the year ended December 31, 1996, UATC sold 39 theatres (188 screens)
and closed 18 theatres (69 screens). The theatres which were sold provided UATC
with approximately $20.5 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. In April 1997, the Company sold its
Hong Kong investment to its partners for $17.5 million, which resulted in a gain
of approximately $11.0 million for financial reporting purposes.
In conjunction with its new operating strategy, UATC initiated a corporate
restructuring plan in December 1996 which is intended to provide a higher level
of focus on UATC's domestic theatrical business at a lower annual cost. This
corporate restructuring which was completed in January 1997 is projected to
reduce annual general and administrative expenses by approximately 20%. In
conjunction with this corporate restructuring plan, UATC recorded a $1.9 million
restructuring charge in 1996 for severance and other related expenses.
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 12 HEREIN, FOR A DESCRIPTION OF CERTAIN
RISK FACTORS IN CONNECTION WITH THIS EXCHANGE.
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."
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
9
<PAGE>
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 was 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
was paid to United Artists and the Mortgage Note was 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.
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
10
<PAGE>
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 applied such proceeds,
as they were 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.
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 New Certificates."
11
<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 three months ended March 31, 1997 and the year ended December 31, 1996. 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 March
31, 1997, UATC had outstanding approximately $391.6 million of indebtedness
under the Restated Bank Credit Agreement and the 11 1/2% Notes and $7.3 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.
12
<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
March 31, 1997 for UATC and its subsidiaries on a consolidated basis of 95.6%.
UATC had net losses of $2.3 million for the three months ended March 31, 1997
and $46.6 million for the year ended December 31, 1996. 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
Agreement and to foreclose on the assets securing the Restated Bank
13
<PAGE>
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 March 31, 1997,
UATC had interest rate caps expiring through 1998 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.
14
<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 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 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.
Motion pictures are generally made available through various distribution
methods of various dates after the theatrical release date. The release dates
of motion pictures in these other "distribution windows" begin four to six
months after the theatrical release date with video cassette rentals, pay-per-
view, pay television, other basic cable television services and broadcast
network and syndicated television. While there can be no assurance that such
trends will continue in the future, despite the proliferation of these other
distribution systems, industry theatre admissions have increased during each of
the last five years. Theatrical distribution remains the cornerstone of a films
financial success as it is the focal distribution window for the public's
evaluation of films and for motion picture promotion. The extent, if any, to
which such other entertainment media and other forms of home entertainment will
compete with the business of
15
<PAGE>
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."
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 New Certificates on any securities
exchange. No assurance can be given that an active trading market for the New
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.
16
<PAGE>
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. 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.
17
<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 March 31, 1997, UATC owned and operated
2,259 screens at 371 theatre locations in 26 states and Puerto Rico, and through
investments in various joint venture companies, operated 103 screens at 20
theatres in Hong Kong, Singapore, Mexico and Argentina. See "Business--Theatre
Properties." Consolidated admissions revenue for UATC's theatres for the three
months ended March 31, 1997 and the year ended December 31, 1996 were
approximately $121.7 million and $466.5 million, respectively. Over 82% of
UATC's screens are located in theatres with five or more screens. As of March
31, 1997, UATC's average number of screens per theatre was 6.1.
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 March 31, 1997
outstanding mortgage debt of UAR and UAP I, which is secured by their respective
theatre properties aggregated approximately $62.9 million.
18
<PAGE>
On February 28, 1995, OSCAR II was merged into OSCAR I. The merger was
effected by a one-for-one share exchange. As a result of this merger, OSCAR II
ceased to exist and OSCAR I became the parent company of UATC and UAR. In
conjunction with the Sale-Leaseback Transaction, the equipment from the Prop II
theatres sold and the remaining 11 theatres owned by Prop II were contributed to
UATC. The contribution of these theatres was accounted for in a manner similar
to a pooling of interests.
As a result of the various transactions described above, the corporate
structure of OSCAR I and UATC are as follows:
OSCAR I
|
|--------------|---------------|
| |
UAR.............................UATC
|
Affilate Leases |
|
Prop I............................|
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, 1997, MLCP and its affiliates owned in the aggregate
approximately 86.1% 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 and others owned in the aggregate approximately 5.2% of the
issued and outstanding capital stock of OSCAR I. In addition, 138,076 shares of
Series A Cumulative Redeemable Exchangeable Preferred Stock of OSCAR I (the
"Preferred Stock") having an aggregate liquidation preference of $138.1 million
were outstanding at March 31, 1997.
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 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.
19
<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 applied such proceeds, as they were released from
escrow, to fund construction costs of the Incomplete Properties.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of United Artists as of March
31, 1997. 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>
MARCH 31, 1997
---------------
(IN MILLIONS)
<S> <C>
Debt(1):
Term Loans.......................................... $ 237.6
Revolving Loans..................................... 29.0
11 1/2% Notes....................................... 125.0
Other............................................... 7.3
-------
Total Debt....................................... 398.9
-------
Stockholder's Equity:
Preferred Stock(2).................................. 176.0
Common Stock........................................ --
Additional Paid-In Capital.......................... 46.9
Accumulated Deficit................................. (204.8)
Cumulative Foreign Currency Translation Adjustment.. (0.5)
Intercompany Account................................ 0.6
-------
Total Stockholder's Equity....................... 18.2
-------
Total Capitalization........................... $ 417.1
=======
</TABLE>
(1) In addition to the Debt detailed above, UATC had $15.8 million of Letters
of Credit outstanding at March 31, 1997.
(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 March 31, 1997 was approximately $138.1 million.
21
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data (other than the operational data) presented below have
been derived from UATC's unaudited and audited Consolidated Financial
Statements. The selected historical financial information includes, in the
opinion of management, all adjustments (consisting of normal recurring accruals)
that are necessary to present fairly the financial position of UATC and the
results of its operations. 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 (dollars in millions).
<TABLE>
<CAPTION>
SUCCESSOR CORPORATION PREDECESSOR
-------------------------------------------------- CORPORATION
THREE MONTHS -------------
ENDED YEARS ENDED PERIOD FROM PERIOD FROM
MARCH 31, DECEMBER 31, MAY 13, 1992 TO JANUARY 1, 1992
------------------ ------------------------------ DECEMBER 31, TO MAY 12,
1997 1996 1996 1995 1994 1993 1992(1) 1992(1)
-------- -------- ------ ------ ------ ------ ------------------ -------------
Operating Data: (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $174.2 153.4 677.5 648.6 623.1 643.8 415.6 211.2
Costs and expenses:
Operating 141.3 131.4 567.5 538.9 509.0 530.0 355.5 172.7
General and administrative 6.4 8.3 34.5 34.6 32.5 29.9 20.3 9.2
Restructuring charge -- -- 1.9 -- -- 3.7 -- --
Affiliate management fees(2) -- -- -- -- -- -- -- 3.0
Depreciation and amortization 17.7 16.5 80.7 87.0 63.1 68.0 44.8 12.8
Interest expense, net(2) 9.3 8.3 36.9 39.2 32.9 31.4 20.8 8.9
Loss (gain) on disposition of
assets, net -- -- (1.3) 13.9 9.7 8.7 -- 2.9
Net loss (2.3) (12.8) (46.6) (68.9) (27.9) (31.6) (27.5) (.1)
Other Financial Data:
Ratio of earnings to fixed charges(3) -- -- -- -- -- -- -- 1.0
Capital expenditures $ 19.4 19.2 67.3 84.2 45.6 28.0 26.3 7.8
MARCH 31, DECEMBER 31,
-------- ---------------------------------------
1997 1996 1995 1994 1993 1992
-------- ------ ----- ----- ----- ----
Balance Sheet Data: (unaudited)
Property and Equipment at cost, net $322.5 306.9 306.3 327.2 314.1 325.6
Intangible assets, net(4) 119.8 127.5 165.8 202.9 236.4 271.2
Total assets 552.3 548.1 594.2 602.6 618.1 655.3
Debt(2) 398.9 389.0 383.2 320.2 327.0 339.8
Stockholder's equity 18.2 20.5 67.1 138.4 168.6 202.0
Operational Data:
Weighted avg. operating theatres(5) 367 397 411 416 437 468
Weighted avg. operating screens(5) 2,216 2,306 2,277 2,209 2,249 2,327
Weighted avg. screen per operating theatre 6.0 5.8 5.5 5.3 5.1 5.0
</TABLE>
22
<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 three months ended March 31,
1997 and 1996 and the years ended December 31, 1996, 1995, 1994 and 1993
and the period from May 13, 1992 to December 31, 1992. Earnings available
for fixed charges were thus inadequate to cover fixed charges for such
periods. The amount of the coverage deficiencies for the three months ended
March 31, 1997 and 1996 and the years ended December 31, 1996, 1995, 1994
and 1993 and the period from May 13, 1992 to December 31, 1992 were $1.5
million, $12.2 million, $44.7 million, $66.2 million, $25.4 million, $28.8
million and $26.2 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.
23
<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 Condensed
Consolidated Financial Statements and related notes thereto. Such financial
statements provide additional information regarding UATC's financial activities
and condition. The following discussion contains forward-looking statements and
such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those discussed. UATC undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrences of unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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>
Three Months
Ended March 31, %
--------------- Increase
1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Operating Theatres/(1)/
Revenue:
Admissions...................................... $ 121.7 107.3 13.4%
Concession sales................................ 47.7 41.3 15.5
Other........................................... 4.8 4.8 -
Direct Operating Expenses:
Film rental and advertising expenses............ 65.8 58.6 12.3
Concession costs................................ 7.4 6.6 12.1
Other Operating Expenses:
Personnel expense............................... 23.5 23.0 2.2
Occupancy expense............................... 22.3 20.8 7.2
Miscellaneous operating expenses................ 22.3 22.4 (0.4)
Weighted Avg. Operating Theatres/(2)/............ 367 408 (10.0)
Weighted Avg. Operating Screens/(2)/............. 2,216 2,326 (4.7)
Weighted Avg. Screens Per Avg. Theatre........... 6.0 5.7 5.3
Admissions Per Weighted Avg. Operating
Theatre......................................... $331,608 262,990 26.1
Admissions Per Weighted Avg.
Operating Screen................................ $ 54,919 46,131 19.1
Concession Sales Per Weighted Avg.
Operating Theatre............................... $129,973 101,225 28.4
</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.
24
<PAGE>
REVENUE FROM OPERATING THEATRES
- -------------------------------
ADMISSIONS: Admissions revenue and admissions revenue per weighted
average operating screen increased 13.4% and 19.1%, respectively, during the
three months ended March 31, 1997 as compared to the three months ended March
31, 1996. These increases were primarily the result of a 5.7% increase in
attendance and a 7.4% increase in the average ticket price. The increase in
attendance was primarily due to the success of several films released during the
quarter, in particular, the re-release of the Star Wars Trilogy, as well as the
success of several films released toward the end of 1996 that carried over into
1997. The increase in the average ticket price was primarily due to an increase
in ticket prices during late 1996 and a favorable mix of films. Admissions per
weighted average operating theatre increased 26.1% during the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996 primarily as
a result of the increased attendance and ticket prices discussed above, the
opening of several new theatres which have higher admissions per theatre and the
sale or closure of several smaller (in terms of screens) less productive
theatres.
CONCESSION SALES: Concession sales revenue increased 15.5% during the
three months ended March 31, 1997 as compared to the three months ended March
31, 1996, primarily as a result of the increased attendance discussed above and
to a 9.3% increase in the average concession sale per patron. Concession sales
per weighted average operating theatre increased 28.4% during the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996. The
increases in the average concession sale per patron and concession sales per
weighted average operating theatre were attributable to certain selective price
increases during late 1996, a favorable film mix, UATC's increased emphasis on
training, the renovation of concession stands at certain existing theatres, the
opening of several new theatres with more efficient concession operations and
sale of certain less efficient older, smaller theatres.
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 the Proteus Network(TM), non-
theatrical related revenue from the Starport(TM) entertainment centers and other
miscellaneous sources. Other revenue was constant for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996.
OPERATING EXPENSES FROM OPERATING THEATRES
- ------------------------------------------
FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising
expenses increased 12.3% during the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996, primarily as a result of the
increase in admissions discussed above. Film rental and advertising expenses as
a percentage of admissions revenue were 54.1% and 54.6% for the three months
ended March 31, 1997 and 1996, respectively. The slight decrease in film rental
and advertising as a percentage of admissions revenue related primarily to
slightly lower advertising expenses as a percentage of admissions revenue.
CONCESSION COSTS: Concession costs include direct concession product
costs and concession promotional expenses. Such costs increased 12.1% during
the three months ended March 31, 1997 as compared to the three months ended
March 31, 1996, primarily as a result of the increase in concession sales
revenue discussed above. Concession costs as a percentage of concession sales
revenue were 15.5% and 16.0% for the three months ended March 31, 1997 and 1996,
respectively. The decrease in concession costs as a percent of concession sales
for the three months ended March 31, 1997 as compared to March 31, 1996 was
primarily due to the sale of advertising on popcorn containers which was offset
against promotional expenses.
25
<PAGE>
PERSONNEL EXPENSE: 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 2.2% during the
three months ended March 31, 1997 as compared to the three months ended March
31, 1996. This increase in personnel expense was primarily attributable to the
increase in the federal minimum wage on October 1, 1996 and to the increased
attendance and concession sales discussed above, offset by more efficient
theatre staffing. Personnel costs as a percentage of total revenue declined to
13.5% in 1997 versus 15.0% in 1996 as a result of the increased revenue, more
efficient staffing and the fixed cost component of payroll costs.
OCCUPANCY EXPENSE: UATC's typical theatre lease arrangement provides
for a base rental as well as contingent rentals that is a function of the
underlying theatre's revenue over an agreed upon breakpoint. Occupancy rent
expense increased 7.2% during the three months ended March 31, 1997 as compared
to the three months ended March 31, 1996, primarily as a result of increased
percentage rent and higher base rentals on newly opened theatres, partially
offset by fewer weighted average operating theatres. In addition, occupancy
expense for the three months ended March 31, 1997 and 1996 includes $0.8 million
and $0.7 million, respectively, of non-cash charges relating to the effect of
escalating leases which have been "straight-lined" for accounting purposes.
MISCELLANEOUS OPERATING EXPENSES: Miscellaneous operating expenses
consist of utilities, repairs and maintenance, insurance, real estate and other
taxes, supplies and other miscellaneous operating expenses. Miscellaneous
operating expenses decreased 0.4% during the three months ended March 31, 1997
as compared to the three months ended March 31, 1996, primarily as a result of
reduced utilities, repairs and maintenance and supplies associated with having
fewer weighted average operating theatres.
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
- ----------------------------------
General and administrative expense consists primarily of costs
associated with corporate theatre administration and operating personnel,
international staff, Proteus Network(TM) sales and marketing staff and other
support functions located at UATC's corporate headquarters, two film booking and
three regional operating offices and 13 district theatre operations offices
(generally located in theatres). At the end of 1996, UATC initiated a corporate
restructuring plan intended to provide a higher level of focus on UATC's
theatrical business at a lower annual cost. This corporate restructuring which
was completed in January 1997 is projected to reduce annual general and
administrative expenses by approximately 20% on an annual basis. General and
administrative expense decreased $1.9 million, or 22.9%, for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996,
primarily as a result of the corporate restructuring.
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 $1.2
million during the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996, primarily due to depreciation charges on UATC's
newly opened theatres. Included in depreciation and amortization expense for
the three months ended March 31, 1997 and 1996 is a $6.0 million charge
associated with certain assets acquired as part of the Acquisition which are
being amortized over a five year life. In May 1997, such assets will be fully
amortized and, as a result, no further amortization expense will be recorded
associated with those assets subsequent to May 1997.
26
<PAGE>
OPERATING INCOME
- ----------------
During the three months ended March 31, 1997, UATC had operating
income of $8.8 million versus an operating loss of $2.8 million for the three
months ended March 31, 1996, or an increase of $11.6 million. This increase in
operating income relates to higher revenues and higher operating margins and
lower general and administrative expenses, partially offset by higher
depreciation and amortization expenses.
INTEREST
- --------
Interest expense increased $1.0 million for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996, due to
higher market interests rates on floating rate borrowings and slightly higher
average debt balances.
NET LOSS
- --------
During the three months ended March 31, 1997, UATC incurred a net loss
of $2.3 million compared to a net loss of $12.8 million for the three months
ended March 31, 1996. This decrease in net loss relates primarily to the
increase in operating income discussed above, partially offset by slightly
higher interest expense.
RESULTS OF OPERATIONS
s YEARS ENDED 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Years Ended Years Ended
December 31, % December 31, %
------------- Increase ----------------- Increase
1996 1995 (Decrease) 1995 1994 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Theatres /(1)/
Revenue:
Admissions $ 466.5 457.1 2.1 457.1 447.6 2.1
Concession sales 185.1 178.2 3.9 178.2 166.7 6.9
Other 25.9 13.3 94.7 13.3 8.8 51.1
Operating Expenses:
Film rental and advertising expenses 257.2 248.6 3.5 248.6 239.6 3.8
Direct concession costs 29.3 29.5 (0.7) 29.5 27.2 8.5
Other operating expenses:
Personnel expense 98.2 96.5 1.8 96.5 90.0 7.2
Occupancy expense:
Rent excluding sale and leaseback 75.2 73.7 2.0 73.7 70.3 4.8
Sale and leaseback rentals 11.6 0.5 N/M 0.5 - -
Misc. operating expenses 96.0 90.1 6.5 90.1 81.9 10.0
Weighted Avg. Operating Theatres/(2)/ 397 411 (3.4) 411 416 (1.2)
Weighted Avg. Operating Screens/(2)/ 2,306 2,277 1.3 2,277 2,209 3.1
Weighted Avg. Screens Per
Avg. Theatre 5.8 5.5 5.5 5.5 5.3 3.8
Admissions Per Weighted Avg.
Operating Theatre $1,175,063 1,112,165 5.7 1,112,165 1,075,962 3.4
Admissions Per Weighted Avg.
Operating Screen $ 202,298 200,747 0.8 200,747 202,626 (0.9)
Concession Sales Per Weighted
Avg. Operating Theatre $ 466,247 433,577 7.5 433,577 400,721 8.2
</TABLE>
27
<PAGE>
/(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.
REVENUE FROM OPERATING THEATRES
- -------------------------------
1996 VERSUS 1995
ADMISSIONS: Admissions revenue and admissions per weighted average
operating screen increased 2.1% and 0.8%, respectively, during 1996 as compared
to 1995. These increases were primarily the result of a 2.7% increase in
average ticket prices, partially offset by a 0.6% decrease in attendance. The
increase in average ticket prices was due primarily to a decline in the number
of tickets sold for lower priced matinee shows and to an increase in ticket
prices during late 1996. The decrease in attendance for 1996 was primarily
related to the release of a fewer number of "blockbuster" films during the
Summer Olympic Games and the adverse effect of the Olympics on films which were
in the market. While Independence Day and A Time to Kill performed very well
during the Olympics, the attendance of several other films in the market during
July and August appeared to be adversely impacted. Admissions per weighted
average operating theatre increased 5.7% during 1996 as compared to 1995
primarily as a result of several new theatres opened by UATC which have higher
admissions per screen, the sale or closure of several smaller (in terms of
screens) less productive theatres, and the average ticket prices and attendance
fluctuations discussed above.
CONCESSION SALES: Concession sales revenue increased 3.9% during 1996
as compared to 1995 primarily as a result of a 4.5% increase in the average
concession sale per patron, partially offset by the decreased attendance
discussed above. Concession sales per weighted average operating theatre
increased 7.5% during 1996 as compared to 1995. The increases in average
concession sales per patron and concession sales per weighted average operating
theatre were primarily attributable to certain selective price increases in late
1996, 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 older, smaller theatres.
The following table sets forth the admissions and concession sales
revenue for theatres operated throughout all of 1996 and 1995 (dollars in
millions):
<TABLE>
<CAPTION>
Theatres Screens 1996 1995 % Increase
-------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout
both periods 350 2,005
Admissions $417.6 407.4 2.5
Concession sales $163.1 157.2 3.8
</TABLE>
This "same theatre" analysis eliminates the effect of new theatre
openings, sales or closures during 1996 or 1995.
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 the Proteus Network(TM), non-
theatrical related revenue from the Starport(TM) entertainment centers and other
miscellaneous sources. Other revenue increased 94.7% (or $12.6 million) during
1996 as compared to 1995 primarily as a result of increased revenue from UATC's
on-screen advertising, Proteus Network(TM) and Starport(TM) entertainment
centers.
28
<PAGE>
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 was due 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 had 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 was 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 was not significant.
CONCESSION SALES: 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 concession 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>
OTHER: Other revenue increased 51.1% (or $4.5 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).
EXPENSES FROM OPERATING THEATRES
- --------------------------------
FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising
expenses increased 3.5% during 1996 as compared to 1995 and increased 3.8%
during 1995 as compared to 1994. Film rental and advertising expenses as a
percentage of admissions revenue were 55.1% for 1996, 54.4% for 1995 and 53.5%
for 1994. The 1996 increase in film rental and advertising expense as a
percentage of admissions revenue relates primarily to an increase in the
percentage of revenue from higher cost "blockbuster" films released during 1996
and the absence of many very successful lower budget films. In addition, due to
an increase in the number of films released and the effect of the Summer Olympic
Games, during the summer of 1996 several films had shorter runs with a higher
percentage of their total admissions falling during the
29
<PAGE>
opening weeks. The 1995 increase in film rental and advertising expenses as a
percentage of admissions revenue was primarily due to increased film rentals on
certain of 1995's very successful summer films and to increased advertising
expenses.
DIRECT CONCESSION COSTS: Direct concession costs include concession
product costs and concession promotional costs. Such costs decreased 0.7% during
1996 as compared to 1995 and increased 8.5% during 1995 as compared to 1994.
Direct concession costs as a percentage of concession sales revenue were 15.8%
for 1996, 16.6% for 1995 and 16.3% for 1994. The decrease in direct concession
costs during 1996 was primarily due to the sale of advertising on popcorn and
soft drink containers which was offset against promotional expenses, partially
offset by higher concession sales revenue and costs attributable to increased
sales of bulk candy. The increase in direct concession costs during 1995 as
compared to 1994 was attributable to the higher concession sales revenue and to
the higher cost of sales associated with bulk candy.
PERSONNEL EXPENSE: 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 1.8% during
1996 as compared to 1995 and increased 7.2% during 1995 as compared to 1994.
The increase in personnel expense in 1996 is primarily attributable to the new
federal minimum wage law which went into effect on October 1, 1996 and to an
increase in the number of weighted average operating screens, offset by more
efficient theatre staffing. While the increase in the federal minimum wage
affected a large number of UATC's theatres, it had a significant impact on the
average hourly wage paid to UATC's theatre employees located in smaller and mid-
sized markets. The 1995 personnel expense increase was primarily the result of
normal annual increases in the average hourly wage paid to part-time theatre
employees and an increase in the number of weighted average operating screens.
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. Personnel expense as a percentage of
total revenue declined in 1996 to 14.5% as compared to 14.9% in 1995. The 1995
percentage increased from 14.4% in 1994. The decrease in 1996 was primarily
attributable to changes in the theatre manager commission structure which
focused on more efficient staffing of theatres. The increase in 1995 was
primarily attributable to an increase in the number of staff hours related to
general concession operations and more showings of some of the more successful
1995 summer films.
OCCUPANCY EXPENSE: 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. Total rent expense
increased 17.0% during 1996 as compared to 1995 and increased 5.6% during 1995
as compared to 1994. The 1996 rent expense increase relates primarily to $11.1
million of incremental rent in 1996 associated with those theatres that were
part of the 1995 Sale and Leaseback and the 1996 sale and leaseback transaction
and incremental base rentals associated with newly opened theatres, partially
offset by fewer weighted average operating theatres. The 1995 rent expense
increase primarily relates to the base rentals on newly opened larger theatres
and rent associated with the 1995 Sale and Leaseback, partially offset by fewer
weighted average operating theatres. In addition, during 1996, 1995 and 1994
theatre rent expense included non-cash charges of $3.1 million, $2.0 million and
$1.5 million, respectively, relating to the effect of escalating leases which
have been "straight-lined" for accounting purposes. Excluding the rent
associated with the 1995 Sale and Leaseback and the 1996 sale and leaseback
transaction and the non-cash rent, rent expense would have increased only 6.2%
during 1996 as compared to 1995 and 5.1% during 1995 as compared to 1994.
30
<PAGE>
MISCELLANEOUS OPERATING EXPENSES: Miscellaneous operating expenses
include utilities, repairs and maintenance, insurance, real estate and other
taxes, supplies and other miscellaneous operating expenses. Miscellaneous
operating expenses increased 6.5% during 1996 as compared to 1995 and increased
10.0% during 1995 as compared to 1994. The 1996 increase relates primarily to
increased operating expenses associated with the Proteus Network(TM) and
Starport(TM) entertainment centers and normal inflationary increases. The 1995
increase relates to increased operating expenses associated with the Proteus
Network(TM), one Starport(TM) entertainment center and a $1.9 million increase
in UATC's general liability insurance reserve for adverse development of certain
claims.
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 corporate theatre administrative and operating personnel,
international staff, Proteus Network(TM) sales and marketing staff and other
support functions located at UATC's corporate headquarters, two film booking and
three regional operating offices and 13 district theatre operations offices
(generally located in theatres). Such general and administrative expenses
decreased $0.1 million in 1996 as compared to 1995 and increased $2.1 million in
1995 as compared to 1994. The 1996 decrease relates primarily to $2.1 million of
non-recurring severance and litigation charges accrued in 1995, partially offset
by normal annual salary adjustments, as well as increased professional and legal
fees associated with, among other legal matters, the Connie Arnold settlement
discussed herein. 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, partially offset by higher management fees received from international
operations and lower professional and other fees. The increase in the
litigation reserve was primarily associated with the Connie Arnold litigation
and certain other legal settlements. The terms of the Connie Arnold litigation
settlement require the Company to, among other things, renovate certain of the
Company's theatres, pay damages to the plaintiffs and pay the plaintiff's
attorney's fees and costs. In the opinion of the Company's management, the
Connie Arnold litigation settlement did not have a materially adverse effect on
the Company's financial position, liquidity or results of operations.
At the end of 1996, UATC initiated a corporate restructuring plan
intended to provided a higher level of focus on UATC's domestic theatrical
business at a lower annual cost. This corporate restructuring which was
completed in January 1997 is projected to reduce annual general and
administrative expenses by approximately 20%. In conjunction with this
corporate restructuring plan, UATC recorded a $1.9 million restructuring charge
in 1996 for severance and other related 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 decreased $6.3
million in 1996 as compared to 1995 and increased $23.9 million in 1995 as
compared to 1994. The 1996 decrease was primarily due to a decline in the
amount of non-cash impairments of assets from $21.0 million in 1995 to $8.7
million in 1996, offset by depreciation charges on UATC's new theatres opened
during late 1995 and 1996. The increase in 1995 versus 1994 related primarily
to the $21.0 million non-cash asset impairment. 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. UATC adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," during 1995. These non-cash charges relate 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).
Included in depreciation and amortization expense for each of the years ending
December 31, 1996, 1995 and 1994 is a $24.0 million charge associated with
certain assets acquired as part of the Acquisition which were being amortized
over a five year life. In May 1997, such assets will be
31
<PAGE>
fully amortized and, as a result, no further amortization expense will be
recorded associated with those assets subsequent to May 1997.
INTEREST, NET
- -------------
Interest, net decreased $2.3 million in 1996 as compared to 1995 and
increased $6.3 million in 1995 as compared to 1994. The 1996 decrease was
primarily due to lower market interest rates on floating rate borrowings and
interest income on the net cash proceeds from the 1995 Sale and Leaseback,
offset by slightly higher average debt balances. The 1995 increase was
primarily 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.
GAIN (LOSS) ON DISPOSITION OF ASSETS
- ------------------------------------
During 1996, UATC recognized $1.3 million of net gains on the
disposition of assets. This net gain relates to gains and losses associated
with the sale of certain theatres (for which cash proceeds of $20.5 million were
received) and the termination of certain leases related to theatres which were
closed. During 1995 and 1994, UATC incurred losses on the disposition of assets
of $13.9 million and $9.7 million, respectively. These losses relate primarily
to the sale of certain theatres (for which net cash proceeds of $7.7 million and
$2.9 million were received in 1995 and 1994, 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 TAX EXPENSE
- ------------------
Income tax expense consists of current state and federal income taxes
of UATC's less than 80%-owned consolidated subsidiaries. At December 31, 1996,
UATC has a net operating loss carryforward of approximately $175.0 million.
NET LOSS
- --------
During 1996, UATC incurred a net loss of $46.6 million as compared to
$68.9 million in 1995. This decrease in net loss was primarily the result of a
decrease in operating loss. Despite the $11.1 million increase in occupancy
costs during 1996 associated with the sale leaseback transactions, operating
loss decreased primarily as a result of a 4.5% increase in total operating
revenue and a $6.3 million decrease in depreciation and amortization.
During 1995, UATC incurred a net loss of $68.9 million as compared to
$27.9 million in 1994. This increase in UATC's net loss was primarily the
result of a $21.0 million non-cash asset impairment associated with the adoption
of SFAS No. 121, a decrease in operating margins resulting from increases in
certain variable operating costs, additional non-cash rent charges, additional
losses on the disposition of assets, and increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, cash provided by operating
activities increased by $31.1 million as compared to the three months ended
March 31, 1996. Cash provided by operating activities of $19.8 million, in
addition to $3.6 million of cash provided by financing activities and $7.8
million of proceeds from the sale and leaseback escrow were used to fund $21.7
million of net capital expenditures and $5.9 million of investments in and
receivables from theatre joint ventures 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.
32
<PAGE>
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.
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 additional funding for its working
capital needs and repays those facilities during periods of higher attendance.
On December 13, 1995, UATC entered into a sale and leaseback
transaction whereby the land and buildings underlying ten of its operating
theatres and four theatres and a screen addition under development were sold to,
and leased back from an unaffiliated third party. At December 31, 1996,
approximately $7.8 million of sales proceeds were held in escrow for the final
theatre and the screen addition under construction. These proceeds were paid to
UATC during March 1997 after construction of the remaining theatre and the
screen addition was completed.
In November 1996, UATC entered into another sale and leaseback
transaction whereby the buildings and land underlying three of its operating
theatres and two theatres under development were sold to, and leased back from
an unaffiliated third party. At March 31, 1997, approximately $12.3 million of
sales proceeds were held in escrow and will be used to fund substantially all of
the land and construction costs associated with the two theatres under
development.
During December 1996, UATC initiated a new investment strategy which
is primarily focused on the development of new theatres and renovations to
existing high revenue theatres in markets in the United States where UATC has a
significant operating presence. As part of this increased focus on its U.S.
operations, UATC has restructured and realigned its corporate overhead functions
and is seeking to sell or restructure several of its international investments.
The proceeds received from the sale of international investments and corporate
overhead savings will be redeployed into new theatre developments or the
renovation of existing key theatres in UATC's core markets and/or used to pay
down existing debt.
As part of its strategic plan, UATC intends to continue to dispose of,
through sale or lease terminations, certain of its operating theatres and real
estate which are non-strategic or underperforming. 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, several sales
and lease negotiations have been completed or are under contract and
negotiations are ongoing with respect to several other theatres and parcels of
real estate. During the three months ended March 31, 1997, UATC closed three
theatres (12 screens). The theatres which were closed were unprofitable and
were not considered part of UATC's long-term strategic plans.
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) and then seek to enter into a sale and
leaseback transaction after the theatre is opened. Regardless of whether the
theatre is fee-owned or leased, in most cases the equipment and other theatre
fixtures are owned by UATC. For the three months ended March 31, 1997, UATC
invested approximately $21.7 million on the development of six new theatres (61
screens) which opened during the period, construction on six theatres (71
screens) expected to open during the remainder of 1997 or in 1998 and recurring
maintenance to certain existing theatres.
33
<PAGE>
At March 31, 1997, UATC had entered into theatre construction and
equipment commitments aggregating approximately $85.7 million for 19 theatres
which UATC intends to open through December 31, 1998. Such amount relates only
to projects in which UATC had executed a definitive lease agreement and all
significant lease contingencies have been satisfied. Of the committed amount,
approximately $12.3 million will be reimbursed to UATC or paid directly from
proceeds of the sale and leaseback transaction currently held in escrow.
On April 30, 1997, UATC sold its Hong Kong theatre investment to its
partners for $17.5 million. This sale will result in a gain during the second
quarter of 1997 of approximately $11.0 million for financial reporting purposes.
The level of continued investing activities by UATC is dependent on,
among other factors, its on-going operating liquidity and to other sources of
liquidity. One measure commonly used in the theatrical industry to measure
operating liquidity is referred to as "Interest Coverage." Interest Coverage is
the ratio of Operating Cash Flow (operating income before depreciation,
amortization and other non-recurring or non-cash operating credits or charges)
to interest expense (excluding amortization of deferred loan costs). Following
is a calculation of Operating Cash Flow and Interest Coverage for each of the
three months ended March 31, 1997 and 1996, including a reconciliation of
Operating Income to Operating Cash Flow ($ in millions):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Operating Income (Loss) $ 8.8 (2.8)
Depreciation and Amortization 17.7 16.5
Non-Cash Rent 0.8 0.7
----- ----
Operating Cash Flow $27.3 14.4
===== ====
Interest Expense $ 9.2 8.2
===== ====
Interest Coverage Ratio 3.0 1.8
===== ====
</TABLE>
As shown above, UATC's Interest Coverage Ratio increased significantly
from 1.8 times for the three months ended March 31, 1996 to 3.0 times for the
three months ended March 31, 1997, primarily as a result of the increased
operating income for the three months ended March 31, 1997, partially offset by
slightly higher interest expense.
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 or used in
operating activities as reflected in the accompanying Consolidated Statements of
Cash Flow. For the three months ended March 31, 1997, $19.8 million of net cash
was provided by operating activities. This compares to $11.3 million of net
cash used in operating activities for the three months ended March 31, 1996.
This measurement shows the net cash from the operation of UATC which provided
for UATC's liquidity needs after taking into consideration certain additional
costs of doing business which are not reflected in the Operating Cash Flow
calculations discussed above.
34
<PAGE>
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 Bank Credit Facility,
contributions made by landlords under long-term lease arrangements, amounts
deposited in escrow as a result of the 1995 and 1996 sale and leaseback
transactions and the proceeds from possible asset sales and additional sale and
leaseback transactions will be sufficient to fund its capital expenditures and
other investments, debt service 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.
35
<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 March 31, 1997, UATC owned and operated 2,259 screens at 371 theatre
locations in 26 states and Puerto Rico, and through investments in various joint
venture companies, operated 103 screens at 20 theatres in Hong Kong, Singapore,
Mexico 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 March 31, 1997, UATC believes it operated
approximately 8% of the screens located in North America, representing
approximately 8% of admissions revenue for North America. Admissions revenue
chain-wide for the three months ended March 31, 1997 and the year ended December
31, 1996 were approximately $121.7 million and $466.5 million, respectively.
Over 82% of UATC's screens are located in theatres with five or more screens.
As of March 31, 1997, UATC's average number of screens per theatre was 6.1. 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:
36
<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 409 theatres (1,222 screens) and has added 101 theatres
(791 screens) primarily through new construction. UATC's average screens per
theatre has increased from 3.9 at December 31, 1988 to 6.1 at March 31,
1997.
THEATRICAL OPERATING STRATEGY
Geographic positioning and operating efficiencies are key elements of
UATC's operating strategy. Geographic clustering at both the regional and local
level, is important in providing UATC with access to attractive new theatre
development opportunities 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 theatre
level expense control and the continued construction of multiplex theatres, (ii)
concentrating regional corporate operations within fewer strategic markets and
(iii) reducing the number of less efficient, non-strategic theatres.
UATC operates its theatres from its Englewood corporate headquarters,
through its three regional operating offices and 13 district operating offices
and two geographically located film booking offices. In most cases, the
district offices are located within theatres.
37
<PAGE>
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.
UATC's theatres are particularly focused in large and medium sized
metropolitan areas in California, southern New York (primarily New York City and
Long Island), New Jersey, Florida, Texas, eastern Pennsylvania (including
Philadelphia), Louisiana, Colorado (primarily Denver), Georgia, and certain
areas in North and South Carolina. UATC has strong positions in most of the
major metropolitan markets in these geographic areas. The states which
represent the largest geographic concentration of theatres and screens operated
accounted for approximately 57% of UATC's total screens at March 31, 1997 and
approximately 63% of UATC's total revenue for the three months ended March 31,
1997 and were as follows:
<TABLE>
<CAPTION>
Total Number Total Number Percent of
of Theatres of Screens Total Revenue
------------ ------------ --------------
<S> <C> <C> <C>
California 69 368 20%
New York 39 191 15
Florida 27 227 8
Texas 31 219 8
Pennsylvania 30 148 8
Louisiana 19 136 4
</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, 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. UATC has also developed 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."
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.
38
<PAGE>
In addition to new construction, UATC also intends to devote resources
to adding additional screens to existing theaters and to refurbishing certain
existing theatres to strengthen its position in existing markets.
Multiplex Format. As set forth in the following table, almost all of
UATC's theatres are multiscreen (i.e., consist of two or more screens):
Number of Screens Number of % of
per Theatres Theatres Total Screens
----------------- --------- -------------
Greater than 10 25 13.7%
10 33 14.5
8 - 9 64 23.3
6 - 7 91 24.9
4 - 5 89 16.8
2 - 3 53 6.0
1 16 0.8
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 multiple showtimes of the same film and 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 efficient of floor
and concession staff, the starting times of films at multiscreen theatres are
staggered. UATC believes that multi-screen theatres designed with 10 to 16
screens generally provide the best balance of return on invested capital and
adequate screen numbers for patrons and film distribution companies.
Concession Penetration. The typical UATC theatre derives
approximately 69% of its total revenue from admissions and 27% from concession
sales. 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, UATC has implemented training programs for all
concession employees, remodeled concession stands at certain existing theatres
to make them more visible, attractive and efficient, constructed new theatres
with increased concession capacity, expanded concession menus in selected
locations and adopted seasonal and event-oriented marketing plans (e.g., Super
Bowl promotional tie-ins). 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 and Los Angeles.
Individuals in the regional booking offices are 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
39
<PAGE>
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 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. UATC operates in 105 film zones where
it is the only exhibitor, and thus, will not have any competition with respect
to licensing the film product in those film zones.
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. 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, UATC also sells pizza, pretzels, cookies, ice
cream, bottled water, fruit juices and other specialty items in many of its
theatres. 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. Concession sales
are recorded net of applicable sales taxes.
In an effort to further increase its concession sales, UATC has
introduced new products and initiated programs to increase the percentage of
patrons who purchase concessions and increase the amount of concessions
purchased by each patron. To assist in achieving these goals, UATC has
implemented training programs for all concession employees, remodeled concession
stands at certain existing theatres to make them more visible, attractive and
efficient, constructed new theatres with increased concession capacity, expanded
concession menus in selected locations and installed bulk candy stands in most
theatres and adopted certain seasonal and event-oriented promotional programs.
In addition, theatre managers and assistant managers are incented through
concession commission programs which represent a significant portion of their
total compensation.
40
<PAGE>
INTERNATIONAL OPERATIONS
In addition to its domestic theatres, UATC has also developed theatres
in certain markets outside of the United States in conjunction with strategic
partners. The Company's international operating theatres at March 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Country Theatres Screens Ownership
- ------- -------- ------- ---------
<S> <C> <C> <C>
Hong Kong................ 7 26 50%
Singapore................ 2 7 50%
Mexico................... 4 45 50%
Argentina................ 3 13 25%
-- --
16 91
== ==
</TABLE>
As all of UATC's international operations are owned 50% or less, they
are accounted for on an equity basis and as such, their revenue and expenses are
not included in the revenue and operating expenses of UATC. Generally, UATC
only invests in international theatre projects with local partners and requires
that the Company manage such theatre operations. UATC receives a management fee
based on a percentage of revenue for such management services. During the year
ended December 31, 1996, UATC received approximately $0.7 million of management
fees from its international theatres. During the year ended December 31, 1996,
UATC received approximately $0.6 million of dividends from the Hong Kong
theatres. UATC's international operations are managed by corporate executives
based in Englewood, Colorado and limited staff based in the applicable country.
In addition to the theatres set forth above, two theatres (20 screens) in
Argentina and two theatres (14 screens) in Thailand were under construction.
As mentioned previously, UATC is currently discussing the
restructuring of its international joint ventures in an effort to monetize
certain of its investments by admitting new partners through a sale of all or a
part of its interest for cash or in exchange for theatres located in its key
markets in the United States. In April 1997, UATC sold its Hong Kong investment
to its partners for $17.5 million, which resulted in a gain of approximately
$11.0 million for financial reporting purposes.
ENTERTAINMENT CENTERS
UATC currently has six Starport/TM/ entertainment center locations,
one which opened in September 1995 and five which opened during 1996. These
existing Starport/TM/ locations range in size from 30,000 square feet to 75,000
square feet, depending on the needs of the given development project, and
consist of various combinations of a multi-screen theatre, expanded concession
and food service venues and several themed and unthemed "high-tech" virtual
reality venues, attractions and other electronic games.
OTHER NEW BUSINESS INITIATIVES
In an effort to utilize its existing theatres more effectively during
periods of low 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/ rents 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" equipment, a network of theatres
has been created by installing high quality (high definition-like) video
projection equipment within theatres which are networked via the combination of
satellite delivery from a single or multiple location and telephonic
communication.
41
<PAGE>
As of March 31, 1997, the Proteus Network/TM/ included 30 theatres
with electronic video capability and an additional 341 theatres which were being
rented for individual non-networked uses. Since 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. UATC recorded $6.0 million of revenue from the Proteus Network/TM /
for the year ended December 31, 1996.
THEATRE PROPERTIES
As of March 31, 1997, UATC and its subsidiaries owned and operated 371
theatres with an aggregate of 2,259 screens in 26 states and Puerto Rico, and
through investments in various joint venture companies, operated 20 theatres
with 103 screens in Hong Kong, Singapore, Mexico and Argentina. The table below
summarizes the theatres operated by UATC and its subsidiaries at March 31, 1997.
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER
OF THEATRES OF SCREENS
------------ ------------
<S> <C> <C>
Fee-Owned....................................... 17 67
Leased:
Third party........................... 313 1,962
UAR and UAP I......................... 41 230
--- -----
Total owned and leased theatres.. 371 2,259
Managed theatres................................ 20 103
--- -----
Total operating theatres 391 2,362
=== =====
</TABLE>
Of the 371 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 UATC and two theatres (19 screens) held by two partnerships each of
which are owned 51% by UATC. The remaining theatres are held directly by UATC
or its wholly-owned subsidiaries. The managed theatres include four theatres
(12 screens) located in the United States and the rest are in countries outside
of the United States and are all held by corporations owned 50% or less by UATC.
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.
UATC leases the land, building and equipment of those theatres owned
by UAR and its wholly-owned subsidiaries, UAP I and Prop II (prior to December
31, 1995) in accordance with two master leases. In conjunction with the Sale-
Leaseback transaction, the Prop II master lease was canceled. The
42
<PAGE>
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 $53.0 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 1996 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.
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
43
<PAGE>
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 March 31, 1997, UAR and UAP I had approximately $62.9 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 March 31, 1997 there were 37 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 $53.0 million will be due on November
1, 1998. As of March 31, 1997, an aggregate principal amount of approximately
$54.0 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 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
44
<PAGE>
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 13 district operating offices
and two geographically located film booking offices. In most 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 13. 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 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.
45
<PAGE>
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.
Motion pictures are generally made available through various
distribution methods at various dates after the theatrical release date. The
release dates of motion pictures in these other "distribution windows" begin
four to six months after the theatrical release date with video cassette
rentals, followed generally by off-air or cable television programming including
pay-per-view, pay television, other basic cable and broadcast network and
syndicated programming. While there can be no assurance that such trend will
continue in the future, despite the proliferation of these other distribution
systems, industry theatre admissions have increased during each of the last five
years as more motion pictures have been produced and distributed to theatres and
then to the other distribution channels. Theatrical distribution remains the
cornerstone of a film's financial success as it is the focal distribution window
for the public's evaluation of films and for motion picture promotion. 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 three months ended March 31, 1997 and
1996 and the years ended December 31, 1996, 1995, 1994, 1993 and 1992 UATC's
advertising expenditures were approximately 4.0%, 4.8%, 4.2%, 4.5%, 3.9%, 4.2%
and 4.0%, respectively, of box office revenue.
EMPLOYEES
As of March 31, 1997, UATC had approximately 10,500 employees of which
approximately 1,300 were full time. Approximately 40% 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 100
employees (primarily consisting of film projectionists) are covered by
collective bargaining agreements. UATC considers its relations with its
employees to be satisfactory.
46
<PAGE>
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
There are various pending legal proceedings by or against UATC
involving alleged breaches of contract, torts and miscellaneous other causes of
action. In addition, there are 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 anti-trust 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
47
<PAGE>
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.
48
<PAGE>
MANAGEMENT
Information regarding members of UATC's and OSCAR I's Board of Directors as of
March 21, 1997 is set forth below. Directors will serve until the next annual
meeting and until his successor is duly elected and qualified.
<TABLE>
<CAPTION>
Name Age Business Experience During Past Five Years Other Public Directorships
- ---- --- ------------------------------------------ --------------------------
<S> <C> <C> <C>
Kurt C. Hall........... 38 Acting Chief Operating Officer since February Mr. Hall is a director of Showscan
24, 1997 and Executive Vice President, Chief Entertainment, Inc.
Financial Officer and Director since May 12,
1992. Mr. Hall served as Vice President and
Treasurer of UATC from September 1990 to
December 1991.
James J. Burke, Jr. ... 45 Director since May 12, 1992. Director of Mr. Burke is a director of Ann Taylor Stores
Merrill Lynch Capital Partners, Inc. ("MLCP"), Corporation, Borg-Warner Security
since 1985 and Managing Partner and Director of Corporation, Education Management
Stonington Partners, Inc. ("SP"), since July Corporation,Pathmark Stores, Inc. and
1993 and Managing Partner and Director of Supermarkets General Holdings Corp.
Stonington Partners, Inc. II ("SPII") since
1994. Prior to July 1994, Mr. Burke was
President and Chief Executive Officer of
MLCP from 1987 to 1994, a Managing Director of
the Investment Banking Division of Merrill
Lynch & Co. ("ML&Co.") from 1985 to 1994 and a
First Vice President of Merrill Lynch Pierce
Fenner and Smith, Inc. from 1988 to 1994.
Albert J. Fitzgibbons, III..51 Director since May 12, 1992. Director of MLCP Mr. Fitzgibbons is a director of Borg-Warner
since 1988 and a Partner and a Director of SP since Automotive, Inc., Borg-Warner Security
July 1993 and a Partner and a Director of SPII Corporation and Dictaphone Corporation.
since 1994. 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.
Robert F. End.......... 41 Director since February 17, 1993. Director of MLCP Mr. End is a director of Gas Graphic
since 1993 and a Partner and a Director of SP since Systems, Inc. and Packard BioScience
July 1993 and a Partner and a Director of SPII since Company.
1994. 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.
Scott M. Shaw.......... 34 Director since February 17, 1993. Principal of SP Mr. Shaw is a director of Dictaphone
since July 1993. Prior to July 1994, Mr. Shaw was a Corporation.
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 of 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.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
John W. Boyle.......... 67 Director since March 5, 1997. Mr. Mr. Boyle is a director of Eckerd
Boyle was Chief Financial Officer Corporation and Supermarkets General
of Eckerd Corporation from 1983 to Holdings Corp.
1995 and Vice Chairman from 1992 to
1995.
</TABLE>
Information regarding executive officers of UATC who are not directors of UATC
as of March 21, 1997 is set forth below. Executive officers 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.
<TABLE>
<CAPTION>
Name Age Business Experience During Past Five Years
- ---- --- ------------------------------------------
<S> <C>
Hal Cleveland...........43 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 21 years in various capacities.
Joseph R. Crotty........52 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 U.S.
operations. Mr. Crotty has served UATC for 26 years in various capacities.
Dennis R. Daniels......49 Executive Vice President. Mr. Daniels became Executive Vice President of UATC in 1993. Mr.
Daniel's duties include supervision of UATC's domestic theatre operations. Mr. Daniels was
previously the Senior Vice President in charge of Central U.S. operations. Mr. Daniels has
served UATC for 18 years in various operating capacities.
Thomas C. Elliot........49 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..............46 Executive Vice President and General Counsel. Mr. Hardy was promoted to Executive Vice
President of UATC in charge of legal affairs and general counsel in September 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.
Michael Pade............47 Executive Vice President. Mr. Pade became Executive Vice President of UATC in February 1997
in charge of film operations. Mr. Pade joined UATC in October 1994 as a Senior Vice
President of film operations. Prior to joining UATC, Mr. Pade worked for Mann Theatres as
the Senior Vice President in charge of domestic film booking.
Jim Ruybal..............51 Executive Vice President. Mr. Ruybal became Executive Vice President of UATC in 1992. Mr.
Ruybal is responsible for new business development and sales. Mr. Ruybal formerly served as
Vice President of Corporate Operations for UAE.
Bruce M. Taffet.........49 Executive Vice President. Mr. Taffet was promoted to Executive Vice President in January
1995 and is responsible for purchasing, marketing and national concession operations of
UATC. Prior to February 1995, Mr. Taffet was the Senior Vice President in charge of 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.
</TABLE>
50
<PAGE>
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, 1997, MLCP
and its affiliates in the aggregate owned approximately 86.1% 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, was 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.
51
<PAGE>
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 6.1. 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>
52
<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 05/96(2) 9.6
Fossil Creek(1) Fort Worth TX 11 436 43 02/97(2) 8.0
Lafayette(1) Lafayette LA 10 275 32 04/96(2) 4.3
Clinton Center(1) Jackson MS 10 305 32 06/96(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 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 was 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. in December 1996.
53
<PAGE>
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.
------------------------------------
United Artists Theatre Circuit, Inc.
------------------------------------
Lease Rental Payments
Assigned by Owner Trustee
-----------------
Indenture Trustee
-----------------
Excess
Payments
-------------
Owner Trustee Mortgage Note Payments
-------------
--------------------
Pass Through Trustee
--------------------
Excess
Payments
Pass Through Distributions
-----------------
Owner Participant
----------------- ------------
Holders of
Pass Through
Certificates
------------
54
<PAGE>
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 New Certificates were 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.
55
<PAGE>
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
56
<PAGE>
customers 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.
57
<PAGE>
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."
58
<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.
59
<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>
60
<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.
61
<PAGE>
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
62
<PAGE>
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
63
<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
64
<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.
65
<PAGE>
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>
66
<PAGE>
<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
67
<PAGE>
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."
68
<PAGE>
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).
69
<PAGE>
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
70
<PAGE>
described 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."
71
<PAGE>
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
72
<PAGE>
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
73
<PAGE>
to the legal 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
74
<PAGE>
Redemption 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.
75
<PAGE>
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
76
<PAGE>
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).
77
<PAGE>
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;
78
<PAGE>
(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
79
<PAGE>
(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
80
<PAGE>
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 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
81
<PAGE>
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.
82
<PAGE>
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 As of March
31, 1997, $3.3 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
83
<PAGE>
retirement of the Prop II debt and $12.5 million of revolving loan commitment
were made available to UATC.
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.
<TABLE>
<CAPTION>
APPLICABLE MARGINS
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.
84
<PAGE>
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.
85
<PAGE>
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.
86
<PAGE>
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 1998.
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.
87
<PAGE>
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.
88
<PAGE>
(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;
89
<PAGE>
(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.
90
<PAGE>
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 March 31, 1997, $125.0 million of aggregate principal amount of
11 1/2% Notes were outstanding.
91
<PAGE>
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
having only one maturity date,
92
<PAGE>
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.
93
<PAGE>
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.
94
<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.
95
<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.
96
<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 intend 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.
97
<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 sheet of United Artists Theatre Circuit, Inc. and
subsidiaries as of December 31, 1996, and the related statements of operations,
stockholder's equity and cash flow for the year then ended included in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report dated March 27, 1997 with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The consolidated balance sheet of United Artists Theatre Circuit, Inc. and
subsidiaries as of December 31, 1995 and the related statements of operations,
stockholder's equity and cash flow for the two-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.
98
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNITED ARTISTS THEATRE CIRCUIT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets, March 31, 1997 and
December 31, 1996 (unaudited).................................................. F-2
Condensed Consolidated Statements of Operations, Three Months
Ended March 31, 1997 and 1996 (unaudited)...................................... F-3
Condensed Consolidated Statement of Stockholder's Equity, Three
Months Ended March 31, 1997 (unaudited)........................................ F-4
Condensed Consolidated Statements of Cash Flow, Three Months
Ended March 31, 1997 and 1996 (unaudited)...................................... F-5
Notes to Condensed Consolidated Financial Statements................................ F-6
Independent Auditors' Report........................................................ F-11
Independent Auditors' Report........................................................ F-12
Consolidated Balance Sheets, December 31, 1996 and 1995............................. F-13
Consolidated Statements of Operations, Years Ended December 31, 1996,
1995 and 1994.................................................................. F-14
Consolidated Statements of Stockholder's Equity, Years Ended
December 31, 1996, 1995 and 1994............................................... F-15
Consolidated Statements of Cash Flow, Years Ended December 31, 1996, 1995 and 1994.. F-16
Notes to Consolidated Financial Statements.......................................... F-17
</TABLE>
F-1
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Assets March 31, 1997 December 31, 1996
------ -------------- -----------------
<S> <C> <C>
Cash and cash equivalents................................. $ 10.9 9.6
Notes and other receivables, net.......................... 33.4 46.5
Prepaid expenses and concession inventory................. 19.5 15.4
Investments and related receivables (note 11)............. 35.6 30.2
Property and equipment, at cost:
Land.................................................... 34.0 31.6
Theatre buildings, equipment and other.................. 416.1 395.1
------- ------
450.1 426.7
Less accumulated depreciation and amortization.......... (127.6) (119.8)
------- ------
322.5 306.9
------- ------
Intangible assets, net.................................... 119.8 127.5
Other assets, net......................................... 10.6 12.0
------- ------
$ 552.3 548.1
======= ======
Liabilities and Stockholder's Equity
------------------------------------
Accounts payable.......................................... $ 77.7 79.9
Accrued liabilities....................................... 24.8 27.3
Other liabilities......................................... 25.4 24.4
Debt (note 4)............................................. 398.9 389.0
------- ------
Total liabilities....................................... 526.8 520.6
------- ------
Minority interests in equity of consolidated
subsidiaries............................................ 7.3 7.0
Stockholder's equity:
Preferred stock (note 6)................................ 176.0 170.1
Common stock............................................ - -
Additional paid-in capital.............................. 46.9 52.8
Accumulated deficit..................................... (204.8) (202.5)
Cumulative foreign currency translation adjustment...... (0.5) (0.5)
Intercompany account.................................... 0.6 0.6
------- ------
18.2 20.5
------- ------
$ 552.3 548.1
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
---------- --------
<S> <C> <C>
Revenue:
Admissions................................................... $ 121.7 107.3
Concession sales............................................. 47.7 41.3
Other........................................................ 4.8 4.8
------- -----
174.2 153.4
------- -----
Costs and expenses:
Film rental and advertising expenses......................... 65.8 58.6
Direct concession costs...................................... 7.4 6.6
Other operating expenses..................................... 65.6 63.5
Affiliate lease rentals (note 7)............................. 2.5 2.7
General and administrative (note 10)......................... 6.4 8.3
Depreciation and amortization................................ 17.7 16.5
------- -----
165.4 156.2
------- -----
Operating income (loss)...................................... 8.8 (2.8)
Other income (expense) (note 11):
Interest, net (notes 4)...................................... (9.3) (8.3)
Share of losses of affiliates, net........................... (0.5) -
Minority interests in earnings of consolidated subsidiaries.. (0.3) (0.2)
Other, net................................................... (0.6) (1.1)
------ -----
(10.7) (9.6)
------ -----
Loss before income tax expense............................... (1.9) (12.4)
Income tax expense (note 8).................................... (0.4) (0.4)
------ -----
Net loss..................................................... (2.3) (12.8)
Dividends on preferred stock (note 6).......................... (5.9) (5.2)
------ -----
Net loss available to common stockholder..................... $ (8.2) (18.0)
======= =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholder's Equity
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
foreign currency Total
Preferred Common Additional Accumulated translation Intercompany stockholder's
stock stock paid-in capital deficit adjustment account equity
-------- ------ --------------- ----------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997........ $ 170.1 - 52.8 (202.5) (0.5) 0.6 20.5
Accretion of dividends on
preferred stock................. 5.9 - (5.9) - - - -
Net loss.......................... - - - (2.3) - - (2.3)
------- ---- ------ ------ ------ ------ ------
Balance at March 31, 1997......... $ 176.0 - 46.9 (204.8) (0.5) 0.6 18.2
======= ==== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities................ $ 19.8 (11.3)
------ -----
Cash flow from investing activities:
Capital expenditures............................................. (19.4) (19.2)
(Increase) decrease in construction in progress, net............. (2.3) 0.7
Increase in receivable from sale and leaseback escrow............ (2.1) (5.0)
Proceeds from sale and leaseback escrow.......................... 7.8 -
Investments in and receivables from theatre joint ventures, net.. (5.9) (3.2)
Other, net....................................................... (0.2) (0.5)
------ -----
Net cash used in investing activities............................ (22.1) (27.2)
------ -----
Cash flow from financing activities:
Debt borrowings.................................................. 35.0 15.9
Debt repayments.................................................. (25.2) (10.7)
Increase (decrease) in cash overdraft............................ (6.3) 11.0
Other, net....................................................... 0.1 (0.5)
------ -----
Net cash provided by financing activities........................ 3.6 15.7
------ -----
Net increase (decrease) in cash.................................. 1.3 (22.8)
Cash and cash equivalents:
Beginning of period.............................................. 9.6 32.4
------ -----
End of period.................................................... $ 10.9 9.6
====== =====
Reconciliation of net loss to net cash provided by (used in)
operating activities:
Net loss........................................................... $ (2.3) (12.8)
Effect of leases with escalating minimum annual rentals............ 0.8 0.7
Depreciation and amortization...................................... 17.7 16.5
Share of losses of affiliates, net................................. 0.5 -
Minority interests in earnings of consolidated subsidiaries........ 0.3 0.2
Increase in receivables, prepaid expenses and
other assets, net................................................ (1.6) (0.7)
Increase (decrease) in account payables, accrued liabilities
and other liabilities, net....................................... 4.4 (15.2)
------ -----
Net cash provided by (used in) operating activities.............. $ 19.8 (11.3)
====== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
(1) General Information
-------------------
United Artists Theatre Circuit, Inc. (the "Company") was acquired (the
"Acquisition") on May 12, 1992 by OSCAR I Corporation ("OSCAR I"). OSCAR I
is owned by an investment fund managed by affiliates of Merrill Lynch
Capital Partners, Inc. ("MLCP"), certain institutional investors and
certain members of the Company's management. The Company's principle line
of business is the exhibition of motion pictures in the United States.
Certain prior period amounts have been reclassified for comparability with
the 1997 presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made in the accompanying interim condensed
consolidated financial statements which are necessary to present fairly the
financial position of the Company and the results of its operations.
Interim results are not necessarily indicative of the results for the
entire year because of fluctuations of revenue and related expenses
resulting from the seasonality of attendance and the availability of
popular motion pictures. These financial statements should be read in
conjunction with the audited December 31, 1996 consolidated financial
statements and notes thereto included as part of the Company's Form 10-K.
(2) Sale and Leaseback
------------------
In December 1995, the Company entered into a sale and leaseback transaction
whereby the buildings and land underlying ten of its operating theatres and
four theatres and a screen addition under development were sold to, and
leased back from, an unaffiliated third party. At December 31, 1996,
approximately $7.8 million of sales proceeds were held in escrow for the
remaining theatre and the screen addition under construction. The proceeds
held in escrow were paid to the Company during March 1997 after
construction of the remaining theatre and the screen addition was
completed.
In November 1996, the Company entered into another sale and leaseback
transaction whereby the buildings and land underlying three of its
operating theatres and two theatres under development were sold to, and
leased back from, an unaffiliated third party. At March 31, 1997,
approximately $12.3 million of sales proceeds were held in escrow and will
be used to fund substantially all of the land and construction costs
associated with the two theatres under development.
(3) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash payments for interest were $6.5 million and $5.9 million for the three
months ended March 31, 1997 and 1996, respectively.
The Company accrued $5.9 million and $5.2 million of dividends during the
three months ended March 31, 1997 and 1996, respectively, on its preferred
stock.
F-6
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Debt
----
Debt is summarized as follows (amounts in millions):
March 31, 1997 December 31, 1996
-------------- -----------------
Bank Credit Facility (a).. $ 266.6 255.6
Senior Secured Notes (b).. 125.0 125.0
Other (c)................. 7.3 8.4
-------- -----
$ 398.9 389.0
======== =====
(a) The 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 $8.75 million at
December 31, 1997 and 1998, $13.125 million at December 31, 1999
and 2000 and $21.875 million at December 31, 2001 and 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, substantially all
of the Company's subsidiaries and United Artists Realty Company
("UAR"), a separate wholly-owned subsidiary of OSCAR I, and is
guaranteed by OSCAR I and substantially all of the Company's
subsidiaries.
(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,
substantially all of the Company's subsidiaries and UAR, and are
guaranteed on a pari-passu basis with the Bank Credit Facility by
----------
OSCAR I and substantially all of the Company's subsidiaries.
(c) Other debt at March 31, 1997 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.
F-7
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Debt, continued
---------------
At March 31, 1997, 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 1998. 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 March 31, 1997, the Company had approximately $58.5 million of unused
revolving loan commitments pursuant to the Bank Credit Facility, $3.3
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.
For the three months ended March 31, 1997 and 1996, interest, net includes
$0.5 million of amortization of deferred loan costs and $0.4 million of
interest income.
(5) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
At March 31, 1997, the fair value of the Company's cash and cash
equivalents, outstanding borrowings under the Bank Credit Facility and
other debt, and interest rate cap agreements approximated their carrying
amount and the fair value of the Senior Secured Notes was approximately
$130.0 million.
(6) Preferred Stock
---------------
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. Dividends subsequent to December 31, 1996 are
required to be paid in cash unless any senior debt facility 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 March
31, 1997, the actual redemption value in accordance with the terms of the
preferred stock was approximately $138.1 million, or approximately $37.9
million less than the carrying amount at March 31, 1997.
F-8
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(7) Related Party Transactions
--------------------------
The Company leases certain of its theatres from UAR and UAR's wholly-owned
subsidiary, United Artists Properties I Corporation ("Prop I"). The leases
provide for basic monthly or quarterly rentals and may require additional
rentals, based on the revenue of the underlying theatre.
In conjunction with the Acquisition, the Company issued $12.5 million of
standby letters of credit as part of the Bank Credit Facility to support
certain indebtedness of Prop I.
(8) Income Taxes
------------
The Company and each of its 80% or more owned subsidiaries are included in
OSCAR I's consolidated federal income tax returns. 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 three
months ended March 31, 1997 and 1996, 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 condensed consolidated financial
statements of the Company.
At March 31, 1997, the Company had deferred tax assets and deferred tax
liabilities of approximately $74.4 million and $8.7 million, respectively,
relating primarily to the Company's net operating loss carry-forward and the
difference between the financial statement and income tax basis in the
Company's property and equipment. At March 31, 1997, the Company had
recorded a valuation allowance of approximately $65.7 million against the
net deferred tax asset.
(9) Commitments and Contingencies
-----------------------------
At March 31, 1997, the Company had outstanding approximately $15.8 million
of letters of credit, $12.5 million of which relates to the indebtedness of
Prop I.
There are 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 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.
F-9
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(9) Commitments and Contingencies, continued
----------------------------------------
The federal American With Disabilities Act of 1990 ("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
attorney's 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 ongoing, management believes that the cost of
complying with the ADA will not materially adversely affect the Company's
financial position, liquidity and results of operations.
(10) Corporate Restructuring
-----------------------
At the end of 1996, the Company initiated a corporate restructuring plan
intended to provide a higher level of focus on the Company's domestic
theatrical business at a lower annual cost. The corporate restructuring was
completed in January 1997. A restructuring charge was recorded in 1996 for
severance and other related expenses associated with the corporate
restructuring.
(11) Subsequent Event
----------------
On April 30, 1997, the Company sold its Hong Kong theatre investment to its
partners for $17.5 million. This sale will result in a gain during the
second quarter of 1997 of approximately $11.0 million for financial
reporting purposes.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
TO UNITED ARTISTS THEATRE CIRCUIT, INC.:
We have audited the accompanying consolidated balance sheet of United Artists
Theatre Circuit, Inc. and subsidiaries (the "Company") as of December 31, 1996,
and the related consolidated statements of operations, stockholder's equity and
cash flow for the year then ended. 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
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 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, 1996 and the results
of their operations and their cash flow for the year then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 27, 1997
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE BOARD OF DIRECTORS AND STOCKHOLDER
UNITED ARTISTS THEATRE CIRCUIT, INC.:
We have audited the accompanying consolidated balance sheet of United Artists
Theatre Circuit, Inc. and subsidiaries (the "Company") as of December 31, 1995,
and the related consolidated statements of operations, stockholder's equity and
cash flow for each of the years in the two-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 the results
of their operations and their cash flow for each of the years in the two-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-12
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Millions)
December 31,
----------------
1996 1995
------- ------
Cash and cash equivalents.................................. $ 9.6 32.4
Receivables, net:
Notes..................................................... 1.7 1.4
Related party (note 10)................................... 15.3 11.2
Other..................................................... 29.5 22.4
------- ------
46.5 35.0
------- ------
Prepaid expenses and concession inventory.................. 15.4 20.3
Investments and related receivables........................ 30.2 14.1
Property and equipment, at cost (note 13):
Land...................................................... 31.6 35.0
Theatre buildings, equipment and other.................... 395.1 370.3
------- ------
426.7 405.3
Less accumulated depreciation and amortization............ (119.8) (99.0)
------- ------
306.9 306.3
------- ------
Intangible assets, net (notes 4 and 13).................... 127.5 165.8
Other assets, net (notes 4 and 10)......................... 12.0 20.3
------- ------
$ 548.1 594.2
======= ======
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable:
Film rentals.............................................. $ 28.0 30.1
Other..................................................... 51.9 58.4
------- ------
79.9 88.5
------- ------
Accrued liabilities:
Salaries and wages........................................ 9.4 9.0
Interest.................................................. 5.0 6.8
Other..................................................... 12.9 11.2
------- ------
27.3 27.0
------- ------
Other liabilities.......................................... 24.4 21.4
Debt (note 6).............................................. 389.0 383.2
------- ------
Total liabilities......................................... 520.6 520.1
Minority interests in equity of consolidated subsidiaries.. 7.0 7.0
Stockholder's Equity:
Preferred stock (note 8).................................. 170.1 149.2
Common stock (note 9)..................................... - -
Additional paid-in capital................................ 52.8 73.7
Accumulated deficit....................................... (202.5) (155.9)
Cumulative foreign currency translation adjustment........ (0.5) (0.1)
Intercompany account...................................... 0.6 0.2
------- ------
20.5 67.1
------- ------
$ 548.1 594.2
======= ======
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 1994*
--------- ------- -------
<S> <C> <C> <C>
Revenue:
Admissions..................................... $466.5 457.1 447.6
Concession sales............................... 185.1 178.2 166.7
Other.......................................... 25.9 13.3 8.8
------ ----- -----
677.5 648.6 623.1
------ ----- -----
Costs and expenses:
Film rental and advertising expenses........... 257.2 248.6 239.6
Direct concession costs........................ 29.3 29.5 27.2
Other operating expenses....................... 259.4 246.2 227.5
Sale and leaseback rentals (note 2)............ 11.6 0.5 -
Affiliate lease rentals (note 10).............. 10.0 14.1 14.7
General and administrative (notes 10 and 12)... 34.5 34.6 32.5
Restructuring charge (note 11)................. 1.9 - -
Depreciation and amortization (note 13)........ 80.7 87.0 63.1
------ ----- -----
684.6 660.5 604.6
------ ----- -----
Operating income (loss)...................... (7.1) (11.9) 18.5
Other income (expense):
Interest, net (note 6):
Interest expense............................. (36.1) (39.0) (31.6)
Amortization of deferred loan costs.......... (2.2) (2.1) (1.4)
Interest income.............................. 1.4 1.9 0.1
------ ----- -----
(36.9) (39.2) (32.9)
Gain (loss) on disposition of assets, net...... 1.3 (13.9) (9.7)
Share of earnings (losses) of affiliates, net.. (0.5) 0.7 0.2
Minority interests in earnings of
consolidated subsidiaries.................... (0.8) (1.2) (1.0)
Other, net..................................... (1.5) (2.0) (1.7)
------ ----- -----
(38.4) (55.6) (45.1)
------ ----- -----
Loss before income tax expense............... (45.5) (67.5) (26.6)
Income tax expense (note 14).................... (1.1) (1.4) (1.3)
------ ----- -----
Net loss..................................... (46.6) (68.9) (27.9)
Dividend on preferred stock (note 8)............ (20.9) (18.3) (16.1)
------ ----- -----
Net loss available to common stockholder..... $(67.5) (87.2) (44.0)
====== ===== =====
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
(Amounts in Millions)
<TABLE>
<CAPTION>
Cumulative
foreign
Additional currency Total
Preferred Common paid-in Accumulated translation Intercompany stockholder's
stock stock capital deficit adjustment account equity
--------- ------ ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994*.................$ 114.8 - 108.1 (59.1) - 4.8 168.6
Accretion of dividends on preferred stock. 16.1 - (16.1) - - - -
Net decrease in intercompany account...... - - - - - (2.3) (2.3)
Net loss*................................. - - - (27.9) - - (27.9)
-------- --- ------ -------- ------- ------- --------
Balance at December 31, 1994*............... 130.9 - 92.0 (87.0) - 2.5 138.4
Accretion of dividends on preferred stock. 18.3 - (18.3) - - - -
Net decrease in intercompany account...... - - - - - (2.3) (2.3)
Foreign currency translation adjustment... - - - - (0.1) - (0.1)
Net loss.................................. - - - (68.9) - - (68.9)
-------- --- ------ -------- ------- ------- --------
Balance at December 31, 1995................ 149.2 - 73.7 (155.9) (0.1) 0.2 67.1
Accretion of dividends on preferred stock. 20.9 - (20.9) - - - -
Net increase in intercompany account...... - - - - - 0.4 0.4
Foreign currency translation adjustment... - - - - (0.4) - (0.4)
Net loss.................................. - - - (46.6) - - (46.6)
-------- --- ------ -------- ------- ------- --------
Balance at December 31, 1996................$ 170.1 - 52.8 (202.5) (0.5) 0.6 20.5
======== === ====== ======== ======= ======= ========
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Amounts in Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 1994*
-------- -------- -------
<S> <C> <C> <C>
Net cash provided by operating activities......................... $ 28.4 42.0 48.3
------- ------ ------
Cash flow from investing activities:
Capital expenditures............................................. (67.3) (84.2) (45.6)
(Increase) decrease in construction in progress, net............. 1.5 (5.1) (1.4)
Increase in receivable from sale and leaseback escrow............ (19.5) - -
Proceeds from disposition of assets.............................. 20.5 7.7 2.9
Proceeds from sale and leaseback transaction and escrow.......... 22.9 40.4 -
Cash paid for minority interest holding.......................... - (10.3) -
Investments in and receivables from theatre joint ventures, net.. (14.3) (2.3) -
Other, net....................................................... (2.5) (0.5) (3.0)
------- ------ ------
Net cash used in investing activities........................... (58.7) (54.3) (47.1)
------- ------ ------
Cash flow from financing activities:
Debt borrowings.................................................. 129.8 187.5 108.4
Debt repayments.................................................. (126.3) (127.9) (116.1)
Increase (decrease) in intercompany account...................... 0.4 (2.3) (2.0)
Increase (decrease) in cash overdraft............................ 6.2 (14.1) 13.2
Increase in related party receivables............................ (2.8) (6.7) (8.2)
Other, net....................................................... 0.2 (4.5) (0.1)
------- ------ ------
Net cash provided by (used in) financing activities............. 7.5 32.0 (4.8)
------- ------ ------
Net increase (decrease) in cash and cash equivalents............. (22.8) 19.7 (3.6)
Cash and cash equivalents:
Beginning of period.............................................. 32.4 12.7 16.3
------- ------ ------
End of period.................................................... $ 9.6 32.4 12.7
======= ====== ======
Reconciliation of net loss to net cash provided by
operating activities:
Net loss......................................................... $ (46.6) (68.9) (27.9)
Effect of leases with escalating minimum annual
rentals......................................................... 3.1 2.0 1.5
Depreciation and amortization.................................... 80.7 87.0 63.1
(Gain) loss on disposition of assets, net........................ (1.3) 13.9 9.7
Share of (earnings) losses of affiliates, net.................... 0.5 (0.7) (0.2)
Minority interests in earnings of
consolidated subsidiaries........................................ 0.8 1.2 1.0
(Increase) decrease in receivables, prepaid expenses
and other assets, net............................................ 0.6 (3.6) (0.4)
Increase (decrease) in accounts payable, accrued
liabilities and other liabilities, net........................... (9.4) 11.1 1.5
------- ------ ------
Net cash provided by operating activities....................... $ 28.4 42.0 48.3
======= ====== ======
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(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"), and certain 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 ("UAR"), a Delaware corporation 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 TRANSACTIONS
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 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 was held in short-term cash
investments at December 31, 1995. The proceeds related to three of the
theatres under development (approximately $14.2 million) were initially
deposited into an escrow account and were paid to the Company during 1996
after construction of the theatres was completed. The proceeds related to
one of the new theatres and a four screen addition to an existing theatre
under development (approximately $7.8 million) were deposited into the same
escrow account and are to be paid under the terms of the sale and leaseback
to the Company in 1997 when construction is completed.
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. An agreement with the Pass Through Trust requires the
maintenance of certain financial covenants by the Company.
F-17
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SALE AND LEASEBACK TRANSACTIONS (CONTINUED)
On November 8, 1996, the Company entered into a sale and leaseback
transaction whereby the buildings and land underlying three of its
operating theatres and two theatres currently under development were sold
to, and leased back from an unaffiliated third party for approximately
$21.5 million. The sales proceeds relating to the three operating theatres
(approximately $9.2 million) were used to pay certain transaction expenses
and repay outstanding bank debt. The sales proceeds related to the two
theatres under development (approximately $12.3 million) were deposited
into an escrow account and are to be paid under the terms of the sale and
leaseback to fund substantially all of the land and construction costs
associated with the two theatres. The lease has a term of 20 years and
nine months with options to extend for an additional 10 years.
(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, the $12.5 million letters of credit
established by the Company to guarantee the Prop II debt were canceled and
the Company's revolving credit facility was increased by $12.5 million.
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 prior to 1996. 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 for the years ended December 31, 1995 and 1994 are presented in
the following table (amounts in millions):
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------
1995 1994
--------- --------
<S> <C> <C>
Revenue:
Company................. $648.3 622.8
Eleven Theatres......... 0.3 0.3
------ -----
Combined................ $648.6 623.1
====== =====
Net income (loss):
Company................. $(70.9) (29.9)
Eleven Theatres......... 2.0 2.0
------ -----
Combined................ $(68.9) (27.9)
====== =====
</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.
F-18
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(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.
(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, 1996, 1995 and 1994,
approximately $0.6 million, $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 and equipment are stated at cost, including acquisition
costs allocated to tangible assets required. Construction costs,
including applicable direct 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,
-----------------
1996 1995
-------- -------
<S> <C> <C>
Theatre lease acquisition costs.. $ 169.7 182.9
Non-compete agreements........... 103.0 103.9
------- ------
272.7 286.8
Accumulated amortization......... (145.2) (121.0)
------- ------
$ 127.5 165.8
======= ======
</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-19
<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,
---------------
1996 1995
------- ------
<S> <C> <C>
Deferred acquisition costs.. $ 18.4 18.4
Deferred loan costs......... 14.9 14.9
Other....................... 8.4 7.6
------ -----
41.7 40.9
Accumulated amortization.... (29.7) (20.6)
------ -----
$ 12.0 20.3
====== =====
</TABLE>
(h) Operating Costs and Expenses
----------------------------
Film rental and advertising expenses include film rental and co-op
and directory 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) Accounting Changes
------------------
As discussed in note 13, in the fourth quarter of 1995, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" prior to its
required adoption date.
(k) Reclassification
----------------
Certain prior year amounts have been reclassified for comparability
with the 1996 presentation.
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest for the years ended December 31, 1996, 1995
and 1994, were $37.3 million, $35.0 million and $28.2 million,
respectively.
Cash payments by certain less than 80% owned entities for income taxes
for the years ended December 31, 1996, 1995 and 1994, were $1.2 million,
$0.7 million and $0.9 million, respectively.
F-20
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION, CONTINUED
The Company accrued $20.9 million, $18.3 million and $16.1 million of
dividends during the years ended December 31, 1996, 1995 and 1994,
respectively, on its preferred stock (see note 8).
During 1996 and 1995, the Company incurred $1.4 million and $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).
(6) DEBT
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
December 31,
-------------
1996 1995
------ -----
<S> <C> <C>
Bank Credit Facility (a).... $255.6 250.0
Senior Secured Notes (b).... 125.0 125.0
Other (c)................... 8.4 8.2
------ -----
$389.0 383.2
====== =====
</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")
currently 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 $8.75 million at
December 31, 1997 and 1998, $13.125 million at December 31, 1999
and 2000 and $21.875 million at December 31, 2001 and 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. During 1996, the Company
repaid $7.6 million on the Term Loans in conjunction with certain
asset dispositions. This repayment will be applied pro rata against
the remaining semi-annual Term Loan principal installments.
F-21
<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, 1996, 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, 1996, 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 1998. 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, 1996, the Company had approximately $69.5 million of
unused revolving loan commitments pursuant to the Bank Credit Facility,
$3.3 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>
<CAPTION>
<S> <C>
1997.................. $ 25.1
1998.................. 32.3
1999.................. 52.1
2000.................. 85.3
2001.................. 85.3
Thereafter............ 108.9
------
$389.0
======
</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-22
<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, 1996 are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
-------- ----------
<S> <C> <C>
Bank Credit Facility and Other Debt.. $264.0 264.0
====== =====
Senior Secured Notes................. $125.0 131.3
====== =====
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, 1996.
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, 1996.
(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, 1996, the actual redemption value
in accordance with the terms of the preferred stock was approximately
$133.5 million, or approximately $36.6 million less than the carrying
amount at December 31, 1996.
(9) COMMON STOCK
The Company is authorized to issue 1,000 shares of its $1.00 par value
common stock. At December 31, 1996 and 1995, the Company had 100 shares of
common stock outstanding, all of which were held by OSCAR I.
In connection with the Acquisition, OSCAR I established three separate
stock option plans for the benefit of the Company's employees: the
Incentive Stock Option Plan (the "Incentive Plan"), the Performance Stock
Option Plan (the "Performance Plan"), and the Premium Stock Option Plan
(the "Premium Plan" and collectively, the "Option Plans"). The options
covered under the Incentive Plan vest in equal amounts each year through
the fifth anniversary of the date of grant, while options covered under the
Performance and Premium Plans vest based on certain calculations of OSCAR
I's value or the investment returns received by the Class A common stock
shareholders. Each option granted under either the Incentive or Performance
Plans may be exercised for one Class B share at an exercise price equal to
the estimated market value of the Class B share at the date of grant
provided that such options have been vested under the terms of the
respective plan. Each option granted under the Premium Plan may be
exercised for one Class B share at an exercise price, which increases from
$30 to $233, provided that such options have vested under the terms of the
Premium Plan. All options granted expire 10 years after the date of grant.
The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees," and related Interpretations in accounting
for OSCAR I's stock option plans. No compensation cost has been recognized
by the Company for any of OSCAR I's stock option plans. The Company's
compensation expense would not have been materially different had the
Company recorded compensation expense for these three stock option plans in
accordance with SFAS No. 123, "Accounting for Stock Based Compensation,"
and accordingly, the pro forma net loss disclosure as if SFAS No. 123 had
been applied are not presented.
A summary of OSCAR I's Incentive Plan as of December 31, 1996, 1995 and
1994, and changes during those years is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ----------------------- --------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 594,720 $10.05 593,970 $10.04 594,620 $10.00
Granted 6,600 $10.79 3,000 $10.79 31,600 $10.79
Exercised - - - - - -
Forfeited (57,000) $10.00 (2,250) $10.00 (32,250) $10.00
------- ------ ------- -------- -------- ---------
Outstanding at December 31 544,320 $10.06 594,720 $10.05 593,970 $10.04
======= ====== ======= ======== ======== =========
</TABLE>
The following table summarizes information about the Incentive Plan at December
31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- -------------------
Weighted Avg.
Number Remaining Number
Exercise Price Outstanding Contractual Life Exercisable
- ------------------ ----------- ---------------- -----------
<S> <C> <C> <C>
$10.00 503,120 5.5 402,496
$10.79 41,200 7.9 13,240
------- ---------
544,320 5.7 415,736
======= =========
</TABLE>
A summary of OSCAR I's Performance Plan as of December 31, 1996, 1995 and
1994, and changes during those years is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ------------------------ -----------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 573,450 $10.04 572,825 $10.04 573,700 $10.00
Granted 5,900 $10.79 2,500 $10.79 27,875 $10.79
Exercised - - - - - -
Forfeited (50,375) $10.00 (1,875) $10.00 (28,750) $10.00
------- ------ ------- ------ ------- ------
Outstanding at December 31 528,975 $10.05 573,450 $10.04 572,825 $10.04
======= ====== ======= ====== ======= ======
Options Exercisable at
December 31 0 0 0
======= ======= =======
</TABLE>
As of December 31, 1996, the 528,975 Performance Plan options had an
exercise prices between $10.00 and $10.79 and a weighted average remaining
contractual life of 5.7 years.
A summary of OSCAR I's Premium Plan as of December 31, 1996, 1995 and 1994,
and changes during those years is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ------------------------ -----------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 287,791 $48.25 287,479 $35.25 287,917 $30.00
Granted 2,800 $48.25 1,250 $35.25 13,937 $30.00
Exercised - - - - - -
Forfeited (25,188) $48.25 (938) $35.25 (14,375) $30.00
------- ------ ------- ------ ------- ------
Outstanding at December 31 265,403 $48.25 287,791 $35.25 287,479 $30.00
======= ====== ======= ====== ======= ======
Options Exercisable at
December 31 0 0 0
======= ======= =======
</TABLE>
As of December 31, 1996, the 265,403 Premium Plan options had an exercise
price of $48.25 and a weighted average remaining contractual life of 5.7
years.
F-23
<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
arrangements 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 these financings, UAE provided for $12.0 million of residual
value guarantees on each of these 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 $1.1 million, $1.4 million and $0.3 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
During November 1996, the Company exchanged a fee-owned theatre property
with Prop I in return for a fee-owned theatre property and a $1.5 million
note. The note bears interest at the prime rate plus 1 1/2% and is due upon
demand.
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 $0.6 million, $0.9 million and $0.9 million for the years
ended December 31, 1996, 1995 and 1994, respectively.
Included in other assets are fees of Merrill Lynch & Co., as placement
agents for the Sale and Leaseback of $0.8 million and 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 CHARGE
At the end of 1996, the Company initiated a corporate restructuring
plan intended to provide a higher level of focus on the Company's domestic
theatrical business at a lower annual cost. This corporate restructuring
was completed in January 1997. In conjunction with this corporate
restructuring plan, the Company recorded a $1.9 million restructuring
charge in 1996 for severance and other related expenses.
F-24
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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. Prior to
January 1, 1997, the Company matched 100% of each employee's
contributions up to 10% of an employee's compensation. As part of the
corporate restructuring plan (see note 11), effective January 1, 1997,
the Savings Plan was amended to provide for a Company match of 100% of
each employee's contribution up to 3% of their compensation. Employees
vest in the Company's matching contributions 20% per year for every
year of service.
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.
Through December 31, 1996, such employees were allowed to contribute to
the Supplemental Plan; provided that the aggregate contributions to the
Savings Plan and Supplemental Plan did not exceed 10% of their
compensation. As part of the corporate restructuring plan (see note
11), effective January 1, 1997, the Company suspended the Supplemental
Plan. The Company matched 100% of the employee's contributions through
the date of suspension of the Supplemental Plan. 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, 1996, 1995 and 1994 were $2.3 million, $2.1 million and
$2.1 million, respectively.
(13) PROVISION FOR IMPAIRMENT
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," during
1995 prior to the required adoption date. Upon adoption of SFAS No. 121
in 1995, a non-cash charge of $21.0 million was recorded by the
Company. This initial charge resulted from the Company grouping assets
at a lower level than under its previous accounting policy for
evaluating and measuring impairment. During 1996, the Company recorded
a non-cash charge for the impairment of its long-lived assets of $8.7
million. These non-cash charges relate to the difference between the
historical book value of the individual theatres (in some cases groups
of theatres) and the undiscounted cash flow expected to be received
from the operation or future sale of the individual theatres (or groups
of theatres).
(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, 1996, 1995 and
1994, 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.
F-25
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) INCOME TAXES, CONTINUED
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.
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,
-------------------------
1996 1995 1994*
-------- ------ -------
<S> <C> <C> <C>
Current income taxes:
State expense.......... $ 0.1 0.4 0.4
Federal expense........ 1.0 1.0 0.9
----- ---- ------
1.1 1.4 1.3
Deferred income taxes:
State expense.......... - - -
Federal expense........ - - -
----- ---- ------
$ 1.1 1.4 1.3
===== ==== ======
</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,
-------------------------
1996 1995 1994*
-------- ------ -------
<S> <C> <C> <C>
Expected tax benefit........ $(15.9) (23.6) (9.3)
Change in valuation
allowance.................. 13.3 24.8 10.5
State tax, net of federal
benefit.................... - 0.3 0.3
Adjustment of net operating
less carryforward.......... 0.7 - -
Other....................... 3.0 (0.1) (0.2)
------ ----- ----
$ 1.1 1.4 1.3
====== ===== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996
and 1995 are as follows (amounts in millions):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 65.6 52.0
Intangible and other assets.................... 3.9 2.5
Accrued liabilities............................ 2.8 2.5
Other.......................................... 1.1 2.5
------ -----
73.4 59.5
Less: valuation allowance..................... (65.4) (52.1)
------ -----
Net deferred tax assets....................... 8.0 7.4
------ -----
Deferred tax liabilities:
Property and equipment......................... 6.7 5.8
Other.......................................... 1.3 1.6
------ -----
Net deferred tax liabilities.................. 8.0 7.4
------ -----
Net............................................. $ - -
====== =====
</TABLE>
*Restated
F-26
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) INCOME TAXES, CONTINUED
At December 31, 1996, the Company had a net operating loss carryforward
for Federal income tax purposes of approximately $175.0 million which
will begin to expire in 2007.
The Federal income tax return of OSCAR I is 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, 1996 the Company had issued $12.5 million of Standby
Letters of Credit related to certain guarantees of indebtedness of Prop
I. Should 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, 1996. 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,
1996 1995 1994*
---- ---- -----
<S> <C> <C> <C>
Minimum rental......................... $82.5 69.6 66.3
Contingent rental...................... 3.5 3.5 3.7
Effect of leases with escalating
minimum annual rentals................ 3.1 2.0 1.5
Rent tax............................... 0.6 0.7 0.7
----- ---- ----
$89.7 75.8 72.2
===== ==== ====
</TABLE>
*Restated
Approximately $11.6 million and $0.5 million of the minimum rentals
reflected in the preceding table for the years ended December 31, 1996 and
1995, respectively, were incurred pursuant to the sale and leaseback
transactions (see note 2).
Approximately $9.9 million, $13.8 million and $14.6 million of the
minimum rentals reflected in the preceding table for the years ended
December 31, 1996, 1995 and 1994, respectively, were incurred pursuant to
operating leases between the Company and UAR, Prop I and Prop II.
Additionally, $0.1 million, $0.3 million and $0.1 million of the contingent
rentals reflected in the preceding table for the years ended December 31,
1996, 1995 and 1994, respectively, were incurred pursuant to such
leases.
F-27
<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 December 31, 1996 are summarized as follows
(amounts in millions):
<TABLE>
<CAPTION>
Third Party Affiliate
Leases Leases
----------- ---------
<S> <C> <C>
1997.......................... $73.2 $9.8
1998.......................... 71.8 9.8
1999.......................... 71.1 9.8
2000.......................... 67.6 9.8
2001.......................... 63.9 9.8
</TABLE>
Included in the future minimum lease payments table above are lease
payments relating to theatres which the Company intends to dispose of.
To the extent the Company is successful in disposing of these theatres,
the future minimum lease payments will be decreased.
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, 1996, the Company had entered into theatre construction
and equipment commitments aggregating approximately $106.0 million for
23 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 all significant lease
contingencies have been satisfied. Of the committed amount,
approximately $20.1 million will be reimbursed to the Company or paid
directly from proceeds of the sale and leaseback transactions currently
held in escrow (see note 2). The lease agreements have terms of between
15 and 20 years and, upon the opening of the theatres, require future
minimum lease payments over the terms of the leases averaging $18.5
million per annum.
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-28
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) SUBSEQUENT EVENT
In March 1997, the Company signed an agreement to sell its Hong Kong
investment to its partners for $17.5 million, which will result in an
$11.0 million gain for financial reporting purposes upon the consummation
of the transaction.
F-29
<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.
AI-1
<PAGE>
"DTC Participants" means those participants for whom DTC holds securities on
deposit.
"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.
AI-2
<PAGE>
"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
AI-3
<PAGE>
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.
"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.
AI-4
<PAGE>
"Theatre" means the buildings, structures, alterations, modifications and
other additions to and changes in such buildings and site improvements located
on the Land.
"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.
AI-5
<PAGE>
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
AII-1
<PAGE>
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
AII-2
<PAGE>
deemed to have been paid on such date of declaration for purposes of calculation
required by the provisions of the foregoing paragraph;
(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.
AII-3
<PAGE>
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 (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.
AII-4
<PAGE>
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.
AII-5
<PAGE>
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.
AII-6
<PAGE>
"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.
AII-7
<PAGE>
"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
AII-9
<PAGE>
consolidated Subsidiaries during such period, in each case as determined in
accordance with the GAAP consistently applied.
"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.
AII-10
<PAGE>
"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 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
AII-11
<PAGE>
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 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.
AII-12
<PAGE>
"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 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
AII-13
<PAGE>
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
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
AII-14
<PAGE>
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 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.
AII-15
<PAGE>
"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 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.
AII-16
<PAGE>
"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.
"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
AII-17
<PAGE>
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 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).
AII-18
<PAGE>
- -------------------------------------------------------------------------------
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
------------
PROSPECTUS
------------
July 15, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the General Corporation Law of the State of Maryland sets forth
provisions pursuant to which directors, officers, employees and agents of UATC
may be indemnified against any liabilities which they may incur in their
capacity as such.
Pursuant to Section 2-418 of the General Corporation Law, a Maryland corporation
is required to indemnify an officer or director who is a party to a proceeding
by reason of his or her service in such capacity for reasonable expenses
incurred in connection with the proceeding only if the officer or director is
successful in the defense of the proceeding, whether on the merits or otherwise.
Under Section 2-418, a Maryland corporation is permitted to indemnify an officer
or a director unless it is established that (i) the act or omission of the
officer or director was material to the matters giving rise to the proceeding
and either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the officer or director actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceedings, the officer or director had reasonable cause to believe that the
act or omission was unlawful. However, if the proceeding is one by in the right
of the corporation, indemnification may not be made in respect of any proceeding
in which the officer or director shall have been adjudged liable on the merits.
Whether an officer or a director has met the required standard of conduct must
be determined by a majority vote of a quorum of the Board of Directors not
parties to the proceeding or, in the absence of such a quorum, by a committee of
directors not interested in the proceeding, or by special legal counsel selected
by the Board of Directors or a committee of directors, or by the shareholders of
the corporation. The termination of a proceeding by judgment, order or
settlement does not create a presumption that the officer or director shall have
been adjudged to be liable to the corporation. The termination of a proceeding
by conviction, or a plea of nolo contendere or its equivalent, or any entry of
any order of probation prior to judgment creates a rebuttable presumption that
the officer or director did not meet the required standard of conduct.
UATC's By-laws provide that UATC shall indemnify officers and directors,
including the advancing of reasonable expenses, to the full extent permitted by
Maryland law, upon a finding by the Board of Directors, or pursuant to another
procedure prescribed by Maryland law, that the requisite standard of conduct set
forth in Section 2-418 has been met.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 - Placement Agreement, dated December 8, 1995, between United Artists
Theatre Circuit, Inc., Fleet National Bank of Connecticut, as trustee,
Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.(1)
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
4.1 - Agreement of Purchase and Sale dated as of November 30, 1995 by and
between United Artists Properties II Corp. and United Artists Theatre
Circuit, Inc., and Theatre Investors, Inc.(1)
4.2 - Trust Indenture and Security Agreement dated as of December 13, 1995,
between Wilmington Trust Company, William J. Wade and Fleet National
Bank of Connecticut, and Alan B. Coffey.(1)
4.3 - Pass Through Certificates, Series 1995-A Registration Rights Agreement,
dated as of December 13, 1995 among United Artists Theatre Circuit,
Inc., Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.(1)
4.4 - Participation Agreement, dated as of December 13, 1995, among United
Artists Theatre Circuit, Inc., Wilmington Trust Company, William J.
Wade, Theatre Investors, Inc., Northway Mall Associates, LLC, Wilmington
Trust Company, William J. Wade, Fleet National Bank of Connecticut, Alan
B. Coffey and Fleet National Bank of Connecticut.(1)
4.5 - Pass Through Trust Agreement, dated as of December 13, 1995, between
United Artists Theatre Circuit, Inc. and Fleet National Bank of
Connecticut.(1)
4.6 - Lease Agreement, dated as of December 13, 1995, between Wilmington Trust
Company and William J. Wade and United Artists Theatre Circuit, Inc.(1)
5.1 - Opinion of Sherman & Howard, L.L.C., dated January 30, 1996.(1)
5.2 - Opinion of Shipman & Goodwin, dated January 29, 1996.(1)
8.1 - Opinion of Sherman & Howard, L.L.C., dated April 9, 1996.(1)
12.1 - Computation of ratio of earnings to fixed charges.
23.1 - Consent of Arthur Andersen LLP.
23.2 - Consent of KPMG Peat Marwick LLP.
23.3 - Consents of Sherman & Howard, L.L.C. (included in Items 5.1 and 8.1).(1)
23.4 - Consent of Shipman & Goodwin (included in Item 5.2).(1)
25.1 - Statement of Eligibility and Qualification on Form T-1 of Fleet National
Bank of Connecticut, as trustee, under the Indenture filed as Exhibit
4.2 to this Registration Statement on Form S-2 separately bound.(1)
______________
(1)Previously filed, incorporated herein by reference
</TABLE>
II-2
<PAGE>
(b) Financial Statement Schedules
None
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Englewood, State of
Colorado, on July 15, 1997.
SIGNATURE TITLE
--------- -----
/S/ Kurt C. Hall Chief Operating Officer, Executive
---------------- Vice President; Chief Financial
Kurt C. Hall Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ Kurt C. Hall Chief Operating Officer, Executive July 15, 1997
- ------------------------------ Vice President; Chief Financial
Kurt C. Hall Officer
/S/ James J. Burke, Jr. Director July 15, 1997
- ------------------------------
James J. Burke, Jr.
/S/ Albert J. Fitzgibbons III Director July 15, 1997
- ------------------------------
Albert J. Fitzgibbons III
/S/ Robert F. End Director July 15, 1997
- ------------------------------
Robert F. End
/S/ Scott M. Shaw Director July 15, 1997
- ------------------------------
Scott M. Shaw
Director July 15, 1997
- ------------------------------
John W. Boyle
</TABLE>
II-5
<PAGE>
United Artists Theatre Circuit, Inc. Exhibit 12.1
Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Predecessor
Successor Corporation Corporation
------------------------------------------------------------------------ ---------------
Three Months Ended Years Ended Period from Period from
March 31, December 31, May 13, 1992 January 1, 1992
-------------------- ------------------------------ to to
1997 1996 1996 1995 1994 1993 December 31, 1992 May 12, 1992
--------- --------- ------ ------ ------ ------ ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Pretax income (loss) from
continuing operations.................. $(1.9) (12.4) (45.5) (67.5) (26.6) (30.2) (26.9) 0.0
Minority interest in earnings of
consolidated subsidiaries that
havefixed charges..................... 0.4 0.2 0.8 1.3 1.2 1.4 0.7 0.5
Fixed charges (from below)............... 17.0 15.6 67.0 65.4 56.3 55.1 35.7 17.0
----- ----- ----- ----- ----- ----- ----- ----
Total Earnings (Loss).................... $15.5 3.4 22.3 (0.8) 30.9 26.3 9.5 17.5
===== ===== ===== ===== ===== ===== ===== ====
FIXED CHARGES:
Interest expense and amortization of
debt expense............................ $ 9.7 8.7 38.3 41.0 33.0 31.6 20.6 9.0
Rent expense representing interest....... 7.3 6.9 28.7 24.4 23.3 23.5 15.1 8.0
----- ----- ----- ----- ----- ----- ----- ----
Total Fixed Charges...................... 17.0 15.6 17.0 65.4 56.3 55.1 35.7 17.0
===== ===== ===== ===== ===== ===== ===== ====
Ratio of Earnings to Fixed Charges....... - - - - - - - 1.0
===== ===== ===== ===== ===== ===== ===== ====
Deficiency............................... $(1.5) 12.2 44.7 66.2 25.4 28.8 26.2 -
===== ===== ===== ===== ===== ===== ===== ====
CONSIDERATION OF MANAGEMENT FEES ON
RATIO OF EARNINGS TO FIXED CHARGES:
Management Fees.......................... n/a n/a n/a n/a n/a n/a n/a 3.0
Total Earnings........................... n/a n/a n/a n/a n/a n/a n/a 20.5
Total Fixed Charges...................... n/a n/a n/a n/a n/a n/a n/a 20.0
Ratio of Earnings to Fixed Charges....... n/a n/a n/a n/a n/a n/a n/a 1.0
</TABLE>
Page 1
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
THE BOARD OF DIRECTORS
UNITED ARTISTS THEATRE CIRCUIT, INC.:
As independent public accountants, we hereby consent to the use of our report
(and all references to our Firm) included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
July 15, 1997
Page 2
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
THE BOARD OF DIRECTORS
UNITED ARTISTS THEATRE CIRCUIT, INC.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the registration statement.
KPMG PEAT MARWICK LLP
Denver, Colorado
July 15, 1997
Page 3
