<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1998.
REGISTRATION NO. 333-56999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED ARTISTS THEATRE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7832 84-1198391
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
OFINCORPORATION OR CODE NUMBER) NUMBER)
ORGANIZATION)
UNITED ARTISTS THEATRE COMPANY
9110 E. NICHOLS AVENUE, SUITE 200
ENGLEWOOD, COLORADO 80112-3405
(303) 792-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDINGAREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
COPIES OF ALL COMMUNICATION TO:
GENE HARDY STEPHANIE J. SELIGMAN, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL WACHTELL, LIPTON, ROSEN & KATZ
COUNSEL 51 WEST 52ND STREET
UNITED ARTISTS THEATRE COMPANY NEW YORK, NEW YORK 10019
9110 E. NICHOLS AVENUE, SUITE 200 (212) 403-1000
ENGLEWOOD, COLORADO 80112-3405
(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 public: Upon
consummation of the Exchange Offer referred to herein.
----------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G check the following box. [_]
----------------
THE REGISTRANT HEREBY AMEND THE REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $225,000,000 of 9 3/4% Series B Senior Subordinated Notes
due 2008 (the "Exchange Notes") of United Artists Theatre Company (formerly
named Oscar I Corporation) ("United Artists" or the "Company"), which will
have been registered under the Securities Act pursuant to a Registration
Statement of which this Prospectus is a part, that may be exchanged for equal
principal amounts of the Company's outstanding 9 3/4% Senior Subordinated
Notes due 2008 (the "Notes") (the "Exchange Offer"). This Registration
Statement also covers the registration of the Exchange Notes for resale by
Merrill Lynch, Pierce, Fenner & Smith Incorporated in market-making
transactions. The complete Prospectus relating to the Exchange Offer (the
"Exchange Offer Prospectus") follows immediately after this Explanatory Note.
Following the Exchange Offer Prospectus are certain pages of the Prospectus
relating solely to such market-making transactions (the "Market-Making
Prospectus"), including alternate front and back cover pages, a section
entitled "Risk Factors--Trading Market for the Exchange Notes" to be used in
lieu of the section entitled "Risk Factors--Absence of Public Market for the
Exchange Notes," a new section entitled "Use of Proceeds" and an alternate
section entitled "Plan of Distribution." In addition, the Market-Making
Prospectus will not include the following captions (or the information set
forth under such captions) in the Exchange Offer Prospectus: "Prospectus
Summary--The Note Offering" and "--The Exchange Offer," "Risk Factors--
Exchange Offer Procedures" and "--Restrictions on Transfer," "The Exchange
Offer," and "Certain Federal Income Tax Consequences of the Exchange Offer."
All other sections of the Exchange Offer Prospectus will be included in the
Market-Making Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED AUGUST 12, 1998
UNITED ARTISTS[LOGO]
THEATRES
OFFER TO EXCHANGE
9 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
($225,000,000 PRINCIPAL AMOUNT)
FOR ALL OF ITS OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2008
($225,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1998, UNLESS EXTENDED.
United Artists Theatre Company (formerly known as Oscar I Corporation) (the
"Company") hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus (this "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
up to an aggregate principal amount of $225,000,000 of its 9 3/4% Series B
Senior Subordinated Notes due 2008 (the "Exchange Notes"), which will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus is a part, for an
equal principal amount of its outstanding 9 3/4% Senior Subordinated Notes due
2008 (the "Notes" or the "Fixed Rate Notes"), in integral multiples of $1,000.
The Exchange Notes will be senior unsecured obligations of the Company and are
substantially identical (including principal amount, interest rate, maturity
and redemption rights) to the Notes for which they may be exchanged pursuant to
this Exchange Offer, except that (i) the offering and sale of the Exchange
Notes will have been registered under the Securities Act and (ii) holders of
Exchange Notes will not be entitled to certain rights of holders under the
Registration Rights Agreement of the Company dated as of April 21, 1998
relating to the Notes (the "Registration Rights Agreement").
The Company is also offering to exchange its Floating Rate Series B Senior
Subordinated Notes due 2007 (the "Other Exchange Notes" or "Floating Rate
Exchange Notes") for its outstanding Floating Rate Senior Subordinated Notes
due 2007 (the "Other Notes" or "Floating Rate Notes") by a separate Prospectus
(the "Other Exchange Offer"). Consummation of neither exchange offer is
conditioned upon consummation of the other.
The Exchange Notes will be unsecured senior subordinated obligations of the
Company, will rank pari passu with the Fixed Rate Notes, the Floating Rate
Notes and the Floating Rate Exchange Notes and will be subordinated in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company, including Indebtedness (as defined) under the Senior Credit Facilities
(as defined). At May 31, 1998, the Company and its subsidiaries had
approximately $644.9 million of indebtedness (excluding trade payables)
outstanding, consisting of $310.0 million of Senior Indebtedness of the Company
(guaranteed by certain of the Company's subsidiaries), $59.9 million of other
indebtedness of the Company's subsidiaries, $225.0 million representing the
Notes and $50.0 million representing the Floating Rate Notes. In addition, on
May 31, 1998 the Company had additional delayed draw and revolving credit
availability of $140.0 million under the Senior Credit Facilities, all of which
would be Senior Indebtedness, if borrowed. Additional Senior Indebtedness may
be incurred by the Company and additional indebtedness may be incurred by the
Company and its subsidiaries, in each case from time to time, subject to
certain restrictions.
The Notes are expected to be designated eligible for trading in the National
Association of Securities Dealers, Inc.'s Private Offerings, Resales and
Trading through Automated Linkages (PORTAL) market.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY HOLDERS OF NOTES BEFORE TENDERING THEIR NOTES IN
THE EXCHANGE OFFER.
-----------
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.
-----------
The date of this Prospectus is , 1998.
<PAGE>
The Notes have been, and the Exchange Notes will be, issued under an
Indenture dated as of April 21, 1998 (the "Indenture") between the Company and
State Street Bank & Trust Company of Missouri, N.A., as trustee (the
"Trustee"). See "Description of the Exchange Notes." There will be no proceeds
to the Company from this offering; however, pursuant to the Registration
Rights Agreement, the Company will bear certain offering expenses.
The Company will accept for exchange any and all Notes validly tendered at
or prior to 5:00 p.m., New York City time, on , 1998, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. State Street Bank and
Trust Company of Missouri, N.A. will act as Exchange Agent with respect to the
Notes (in such capacity, the "Exchange Agent") in connection with the Exchange
Offer. The Exchange Offer is not conditioned upon any minimum principal amount
of Notes being tendered for exchange, but is otherwise subject to certain
customary conditions.
The Notes were sold by the Company on April 21, 1998 in transactions not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. The remainder of the Notes were resold outside the United
States in reliance on Regulation S under the Securities Act. Accordingly, the
Notes may not be reoffered, resold or otherwise transferred in the United
States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
certain obligations of the Company under the Registration Rights Agreement.
See "The Exchange Offer."
The Exchange Notes will bear interest from April 21, 1998, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined) to which interest on such
Notes has been paid), at a rate equal to 9 3/4% per annum. Interest on the
Exchange Notes will be payable semi-annually on April 15 and October 15 of
each year, commencing October 15, 1998. The Exchange Notes are redeemable at
the option of the Company, in whole or in part, at any time on or after April
15, 2003, and prior to maturity, at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of redemption.
See "Description of the Exchange Notes."
In addition, at any time on or prior to April 15, 2001, the Company may
redeem up to 35% of the aggregate principal amount of the Notes and Exchange
Notes with the net proceeds of one or more Public Equity Offerings (as
defined) at 109.75% of the principal amount together with accrued and unpaid
interest, if any, to the date of redemption; provided that at least $146.25
million aggregate principal amount of Notes and Exchange Notes remains
outstanding immediately after such redemption. Upon the occurrence of Change
of Control (as defined), each holder of the Exchange Notes shall have the
right to require the Company to purchase all or any portion of such holder's
Exchange Notes at a purchase price equal to 101% of the principal amount
thereof together with accrued and unpaid interest, if any, to the date of
purchase. There can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required purchases of validly
tendered Exchange Notes and to repay any other indebtedness then in default.
See "Risk Factors--Purchase of Exchange Notes Upon a Change of Control."
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the Securities and Exchange
Commission (the "Commission"), which require each tendering holder to
represent that it acquired the Notes in the ordinary course of its business
and that such holder does not intend to participate and has no arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such Exchange Notes. See "The Exchange Offer--Resale of Exchange
Notes." This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. See "Prospectus Summary--The Note Offering--The Exchange Offer."
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek admission thereof to trading in any automated
quotation system. Merrill Lynch, Pierce, Fenner & Smith
i
<PAGE>
Incorporated ("Merrill Lynch") has advised the Company that it intends to make
a market in the Exchange Notes; however, it is not obligated to do so and any
market-making may be discontinued at any time. As a result, the Company cannot
determine whether an active public market will develop for the Exchange Notes.
See "Risk Factors--Absence of Public Market for the Exchange Notes."
Any Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent any Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Notes could be adversely
affected. Following consummation of the Exchange Offer, the holders of the
Notes will continue to be subject to the existing restrictions upon transfer
thereof and the Company will have fulfilled one of its obligations under the
Registration Rights Agreement. Holders of Notes who do not tender their Notes
generally will not have any further registration rights under the Registration
Rights Agreement or otherwise. See "The Exchange Offer--Consequences of
Failure to Exchange."
The Exchange Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global Exchange Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depository" or "DTC") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in the Global Exchange Notes
representing the Exchange Notes will be shown on, and transfers thereof will
be effected through, records maintained by the Depository and its
participants. Notwithstanding the foregoing, Notes held in certificated form
will be exchanged solely for Exchange Notes in certificated form. After the
initial issuance of the Global Exchange Notes, Exchange Notes in certificated
form will be issued in exchange for the Global Exchange Notes only on the
terms set forth in the Indenture. See "Description of the Exchange Notes--
Book-Entry, Delivery and Form."
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE
NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act for the registration of the Exchange Notes
offered hereby (the "Registration Statement"). This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which
are contained in exhibits and schedules to the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company or the Exchange Notes offered hereby,
reference is made to the Registration Statement, including the exhibits and
financial statement schedules thereto. With respect to each such document
filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company and UATC are subject to the informational requirements of the
Exchange Act and in accordance therewith, file reports and other information
with the Commission. The Registration Statement, such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549; the Chicago Regional Office, Suite 1400, 500
West Madison Street, Citicorp Center, Chicago, Illinois 60661; and the New
York Regional Office, Suite 1300, 7 World Trade Center, New York, New York
10048. Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site on the Internet that
contains reports and other information regarding registrants that file
electronically with the Commission. The address of this site on the Internet
is http://www.sec.gov.
ii
<PAGE>
The Company will send to each Holder of Exchange Notes copies of annual
reports and quarterly reports containing the information required to be filed
under the Exchange Act. So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it is required to furnish the
information required to be filed with the Commission to the Trustee and the
Holders of the Notes and the Exchange Notes. The Company has agreed that, even
if it is not required under the Exchange Act to furnish such information to
the Commission, it will nonetheless continue to furnish information that would
be required to be furnished by the Company by Section 13 of the Exchange Act
to the Trustee and the Holders of the Notes or Exchange Notes as if it were
subject to such periodic reporting requirements.
CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS PROSPECTUS MAY CONSTITUTE FORWARD-
LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUCH FORWARD-LOOKING
STATEMENTS INVOLVE UNCERTAINTIES AND OTHER FACTORS AND THE ACTUAL RESULTS AND
PERFORMANCE OF UNITED ARTISTS MAY BE MATERIALLY DIFFERENT FROM FUTURE RESULTS
OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. CAUTIONARY STATEMENTS
REGARDING THE RISKS ASSOCIATED WITH SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS." CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO
THE HIGHLY LEVERAGED NATURE OF UNITED ARTISTS, THE HOLDING COMPANY STRUCTURE,
THE RESTRICTIONS IMPOSED ON UNITED ARTISTS BY CERTAIN INDEBTEDNESS, THE
SENSITIVITY OF UNITED ARTISTS TO ADVERSE TRENDS IN THE GENERAL ECONOMY, THE
HIGH DEGREE OF COMPETITION IN UNITED ARTISTS' INDUSTRY, THE VOLATILITY OF
UNITED ARTISTS' QUARTERLY RESULTS AND UNITED ARTISTS' SEASONALITY, THE
DEPENDENCE OF UNITED ARTISTS ON FILMS AND DISTRIBUTORS AND ON ITS ABILITY TO
OBTAIN POPULAR MOTION PICTURES, THE CONTROL OF UNITED ARTISTS BY THE MERRILL
LYNCH GROUP (AS DEFINED) AND THE DEPENDENCE OF UNITED ARTISTS ON KEY
PERSONNEL, AMONG OTHERS.
ALL WRITTEN FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO UNITED ARTISTS ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context requires otherwise: (i) all references
herein to the "Company" mean United Artists Theatre Company (formerly named
Oscar I Corporation); (ii) all references herein to "United Artists" mean the
Company, United Artists Theatre Circuit, Inc. and United Artists Realty
Company, on a consolidated basis with their subsidiaries; (iii) all references
herein to "UATC" mean United Artists Theatre Circuit, Inc., a wholly owned
subsidiary of the Company; and (iv) all references herein to "UAR" mean United
Artists Realty Company, a wholly owned subsidiary of the Company. The Company
is a holding company that conducts virtually all of its business through
subsidiaries. The Company's subsidiaries, including UATC and UAR and their
respective subsidiaries, will have no obligation to pay amounts due on the
Exchange Notes and will not guarantee the Exchange Notes. See "Risk Factors--
Holding Company Structure; Source of Repayment of Exchange Notes; Effective
Subordination of Exchange Notes to Indebtedness of Subsidiaries." Unless the
context requires otherwise, all theatre and screen information contained herein
is as of December 31, 1997, and relates only to theatres in which United
Artists owns more than a 50.0% equity interest.
THE COMPANY
OVERVIEW
United Artists is a leading motion picture exhibitor in North America and
operates 2,164 screens at 330 theatres located in 25 states. United Artists
licenses films from all major and substantially all independent film
distributors and derives revenues primarily from theatre admissions and
concession sales. Through its geographically diverse theatre locations, United
Artists operates screens in seven of the ten largest demographic market areas
("DMAs") in the United States and approximately 50.0% of United Artists'
screens are located in the top 20 DMAs. In addition, approximately 28.6% of
United Artists' screens (619 screens) have been constructed since January 1,
1992. United Artists believes that it is the largest single exhibitor, based on
number of screens, in many of its core areas of operation and that the location
of its theatres represents a competitive advantage in many of these areas. Six
states (California, New York, Florida, Texas, Pennsylvania and Louisiana)
accounted for approximately 57.9% and 56.5% of United Artists' total theatres
and screens, respectively, at March 31, 1998 and 61.5% and 65.6% of United
Artists' theatrical revenue and theatrical EBITDA (as defined herein),
respectively, for the twelve months ended March 31, 1998. For the twelve months
ended March 31, 1998, the Company incurred a net loss of $24.8 million.
In December 1996, United Artists implemented a corporate restructuring and
refocused its investment strategy on its core U.S. business. Since that time,
United Artists has: (i) reduced its corporate general and administrative
expenses by 30.4%, or approximately $10.1 million, for the twelve months ended
March 31, 1998 as compared to the twelve months ended March 31, 1997, and
30.8%, or approximately $10.8 million, for the year ended December 31, 1997 as
compared to the year ended December 31, 1996; (ii) increased its presence in
its core areas of operation through the development of new theatres and the
refurbishing or expansion of selected existing key theatres; (iii) implemented
operational improvements; and (iv) accelerated the divestitures of
underperforming and non-strategic theatres.
United Artists has invested more than $373.8 million since January 1, 1992
toward improving the quality of its asset base by, among other things,
renovating existing theatres and constructing new state-of-the-art theatres.
United Artists believes that this level of investment compares favorably with
other major North American theatre
1
<PAGE>
exhibitors. Almost all of the theatres United Artists currently plans to build
are state-of-the-art, 12 to 18 screen multiplex theatres with stadium seating,
high-backed rocking seats, digital sound, expanded concession areas and other
state-of-the-art design features and amenities. As compared to the prior
generation of theatres, United Artists believes that these theatres provide a
higher quality entertainment experience for patrons and significant operating
efficiencies and improved economics for United Artists. At March 31, 1998,
approximately 86.0% of United Artists' screens were located in theatres with
five or more screens. United Artists' average number of screens per theatre has
increased 37.5% in the last six years to 6.6 at March 31, 1998 from 4.8 at
January 1, 1992.
Although ownership of movie exhibition theatres has become more concentrated
in the last ten years, with the top ten exhibitors operating approximately
56.0% of the over 31,000 screens in North America, the industry is still
largely fragmented, with approximately 450 exhibitors operating the remaining
44.0% of screens.
United Artists believes that movies are attractively priced compared to
certain other forms of entertainment such as sporting events, concerts, and
live theatre. During the five year period ended December 31, 1996, according to
industry sources, industry-wide theatre attendance increased at a compound
annual growth rate ("CAGR") of 3.3%, and industry-wide admissions revenue for
the year ended December 31, 1997 increased approximately 6.6% as compared to
the year ended December 31, 1996.
In addition, management expects that the number of motion pictures rated by
the Classification and Rating Administration, which increased approximately
18.0% from 1993 to 1996, will continue to increase in part as a result of the
increase in the number of major studios and reissues of films as well as an
increased popularity of films made by independent producers (although no
assurance exists concerning any such increase). In addition, the number of
large budget films and the level of marketing support provided by the
production companies has risen, as evidenced by the increase in average
production costs and average advertising costs per film of 55.7% and 38.2%,
respectively, from 1994 to 1997. See "Risk Factors--Dependence on Films and
Distributors."
BUSINESS AND OPERATING STRATEGY
United Artists' business and operating strategy is to continue focusing on
its core U.S. business and improving theatre-level operating efficiencies. Key
elements of this strategy include:
Refocus Overhead and Capital Investment Strategy. In December 1996, United
Artists implemented a corporate restructuring and refocused its investment
strategy on its core U.S. business. United Artists' core business strategy
focuses management's attention and capital resources on those geographic areas
where United Artists intends to strengthen and defend its current position.
United Artists has also implemented operational improvements and overhead
reductions intended to increase aggregate EBITDA and EBITDA per theatre and has
already sold or closed several underperforming or non-strategic theatres. The
corporate restructuring plan resulted in a higher level of focus by United
Artists on its domestic theatrical business and a reduction of corporate
general and administrative expenses of 30.4%, or approximately $10.1 million,
for the twelve months ended March 31, 1998 as compared to the twelve months
ended March 31, 1997 and 30.8%, or approximately $10.8 million, for the year
ended December 31, 1997 as compared to the year ended December 31, 1996. These
savings were achieved primarily through headcount reductions and a
consolidation of regional administrative offices.
Develop New Theatres and Rebuild or Expand Existing Key Theatre
Locations. United Artists plans to continue increasing its number of screens
and operating margins by focusing its capital investment activities on
developing new theatre locations in United Artists' core areas of operation and
leveraging its favorable theatre locations through the renovation, rebuilding,
or expansion of existing theatres in those key locations. United Artists is
developing higher margin multi-screen theatres ("multiplexes") of 12 to 18
screens and is seeking to increase concession sales through, among other
things, more efficient theatre design. As a result, the average EBITDAR margin
for theatres built since January 1, 1992 was 31.1% for the twelve months ended
March 31,
2
<PAGE>
1998 as compared to 26.4% for United Artists' remaining theatres. United
Artists is also constructing its new theatres with stadium seating, digital
sound, more comfortable seats and other state-of-the-art design features and
amenities. United Artists believes that these theatres will have an optimal
relationship between the number of screens (12 to 18) and the size of the
auditoriums (125 to 400 seats). These theatres are designed to increase the
revenue per square foot generated by the facility and reduce the cost per
square foot of constructing and operating the theatres. This multi-screen
strategy, in combination with an emphasis on concession sales, is designed to
improve revenue and profitability by enhancing attendance and concession sales,
theatre utilization and operating efficiencies and provide more efficient
clustering around regional and district management centers. During the three
months ended March 31, 1998 and the year ended December 31, 1997, United
Artists developed and opened two theatres (23 screens) and 13 theatres (132
screens), respectively. During the remainder of 1998 and 1999, United Artists
plans to open eight new theatres (96 screens), and to make screen additions to
or renovate 12 existing theatres (117 screens).
Divestiture of Underperforming Theatres. United Artists' 1996 corporate
restructuring was also designed to rationalize underperforming or non-strategic
assets by: (i) terminating leases for theatres that have negative EBITDA; (ii)
selling real estate underlying non-strategic or underperforming theatres; (iii)
divesting theatres in non-core areas; and (iv) exchanging theatres in non-core
areas for theatres in core areas. During the three months ended March 31, 1998,
United Artists closed or sold seven theatres (24 screens). During 1997, United
Artists received approximately $70.0 million from the sale of substantially all
of its international assets and certain non-operating real estate assets and
closed or sold 44 underperforming or non-strategic theatres with 170 screens.
Many of the theatres closed or sold were not profitable or were located in
areas that are not part of United Artists' long-term strategic plans. United
Artists has identified 43 theatres (225 screens) that are not considered
strategically important or had negative EBITDA for the twelve months ended
March 31, 1998. United Artists currently plans to sell or close these theatres
during the next two years although there can be no assurance that United
Artists will be able to accomplish such divestitures or closings. In
conjunction with United Artists' core market focus, these restructuring efforts
have resulted in an Adjusted EBITDAR (as defined on page 16) per weighted
average operating theatre increase of 3.4% from $133,425 during the three
months ended March 31, 1997 to $137,952 during the three months ended March 31,
1998 and 20.5% from $411,649 during the year ended December 31, 1996, to
$496,045 during the year ended December 31, 1997.
Implement Operational Improvements. In the past two years United Artists has
recognized theatre and concession operating efficiencies through heightened
focus on increasing concession sales, managing theatre payrolls and variable
costs and increased staff training. United Artists increased concession sales
per capita by approximately 7.9% for the twelve months ended March 31, 1998
versus the twelve months ended March 31, 1997 and 5.0% annually on average from
1993 to 1997. Management believes that there are opportunities to achieve
additional operating efficiencies by disposing of less efficient theatres,
developing new multiplex theatres and continuing to improve theatre-level
operating expenses. Areas of focus in 1998 will include lowering concession
costs, improving entertainment center operations and implementing new theatre
point-of-sale computer systems and corporate level information systems.
Manage Individual Theatre Capital Requirements. While United Artists plans to
continue to develop several new state-of-the-art theatres each year, United
Artists intends to seek to reduce individual theatre financial leverage and
capital requirements by also focusing on expanding, renovating and rebuilding
many of its key locations. In many cases, these existing key locations can be
transformed into state-of-the-art multiplex stadium theatres without competing
against other operators for new locations and incurring higher rent and
excessive preconstruction costs. Furthermore, existing structures can be
utilized while being refurbished to help reduce overall construction costs. In
addition, United Artists' renovation of theatres in desirable locations
eliminates much of the geographic risk related to a project's success. In order
to reduce the overall investment by United Artists in new theatres, United
Artists has entered into "build to suit" and other landlord leasing
arrangements or sale and leaseback transactions. United Artists also intends to
continue to sell non-strategic and
3
<PAGE>
underperforming assets (such as the sale during 1997 of the majority of its
international investments) and expects to redeploy capital to its core U.S.
business. This strategy is intended to provide increased liquidity from the
disposal of non-cash flow producing investments and theatres with limited
growth potential.
Enhance Studio/Distributor Relationships. Management intends to continue to
enhance and balance its studio relationships to obtain the optimal number of
marketable motion pictures. United Artists believes that it will continue to
increase the number of prints it obtains from each studio as it increases the
number of its screens in select locations and leverages its attractive theatre
locations through the development of new, larger (in terms of screens), higher
margin theatres. To the extent that theatrical exhibition remains the primary
distribution channel for new motion picture releases and the overall number of
movies produced continues to increase, management believes that United Artists'
focus on its core business will provide it with access to more prints of each
motion picture.
Develop Ancillary Revenue Opportunities. United Artists believes that there
are opportunities to increase its ancillary revenue from its Satellite Theatre
NetworkTM by renting theatres for seminars and business meetings, product and
customer research and other entertainment uses. Through its VIP/Premier
program, United Artists seeks to enhance theatre attendance by selling large
groups of tickets to businesses and groups through coupon books as well as gift
certificates. On-screen advertising also provides an additional opportunity to
increase revenue and profitability.
TRANSACTION WITH HICKS MUSE
On November 19, 1997, the Company entered into a definitive recapitalization
agreement (the "Recapitalization Agreement") with an affiliate of Hicks, Muse,
Tate & Furst Incorporated ("Hicks Muse"). The Recapitalization Agreement
provided for (i) the sale of newly issued common stock of the Company ("Common
Stock") to Hicks Muse for $266.0 million and the simultaneous repurchase by the
Company of a number of shares of Common Stock which would result in Hicks Muse
owning approximately 88.8% of the outstanding Common Stock; (ii) the redemption
of the Preferred Stock (as defined); (iii) the redemption of the Senior Secured
Notes (as defined) and the issuance of new senior subordinated indebtedness;
and (iv) the establishment of a new bank credit facility to refinance the Prior
Credit Facilities (as defined) and to provide additional working capital. In
late January 1998, just prior to the scheduled closing date, Hicks Muse
indicated that they were unwilling to close on the terms of the
Recapitalization Agreement. Due to the failure by Hicks Muse to close on the
agreed terms, the Company's principal stockholder, the Merrill Lynch Group,
terminated the Recapitalization Agreement on February 20, 1998.
REFINANCING TRANSACTIONS
On April 21, 1998, the Company (i) issued the Fixed Rate Notes; (ii) issued
the Floating Rate Notes; and (iii) entered into $450.0 million of senior
secured credit facilities consisting of up to $350.0 million of term loans and
a $100.0 million senior secured revolving credit facility (collectively, the
"Senior Credit Facilities"). Approximately $170 million of the term loan
portion of the Senior Credit Facilities were available on a delayed draw basis,
of which approximately $125 million was drawn as of May 31, 1998. On April 21,
1998, the Company caused UATC to repay UATC's then existing credit facilities
(the "Prior Credit Facilities"). On May 1, 1998, the Company redeemed all of
its outstanding preferred stock (the "Preferred Stock") and on May 21, 1998,
the Company caused UATC to redeem UATC's 11 1/2% Senior Secured Notes due 2002
(the "Senior Secured Notes"). (The transactions described in this paragraph are
collectively referred to herein as the "Transactions.")
4
<PAGE>
SOURCES AND USES
The following table sets forth the actual sources and uses of funds in
connection with the Transactions. The proceeds to the Company from the
issuances of the Fixed Rate Notes, the Floating Rate Notes and the borrowings
under the Senior Credit Facilities were used: (i) to redeem all of the
outstanding Preferred Stock of the Company; (ii) to repay UATC's Prior Credit
Facilities; (iii) to redeem UATC's Senior Secured Notes; and (iv) to pay
related fees and expenses. See "Use of Proceeds."
<TABLE>
<CAPTION>
AMOUNT
-------------
SOURCES OF FUNDS:
----------------- (IN MILLIONS)
<S> <C>
Senior Credit Facilities....................................... $303.5
Fixed Rate Notes............................................... 225.0
Floating Rate Notes............................................ 50.0
------
Total........................................................ $578.5
======
<CAPTION>
USES OF FUNDS:
--------------
<S> <C>
Redemption of Preferred Stock.................................. $159.2
Repayment of Prior Credit Facilities........................... 272.9
Redemption of Senior Secured Notes............................. 129.4
Transaction fees and expenses.................................. 17.0
------
Total...................................................... $578.5
======
</TABLE>
5
<PAGE>
THE NOTE OFFERING
The Notes...................
The Notes were sold by the Company on April 21,
1998, and were subsequently resold to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act and to certain persons in
transactions outside the United States in
reliance on Regulation S under the Securities Act
(the "Note Offering").
Registration Rights In connection with the Note Offering, the Company
Agreement.................. entered into the Registration Rights Agreement,
which grants holders of the Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights, which generally terminate
upon the consummation of the Exchange Offer.
Issuer......................
United Artists Theatre Company (formerly named
Oscar I Corporation).
THE EXCHANGE OFFER
Securities Offered.......... $225,000,000 aggregate principal amount of 9 3/4%
Series B Senior Subordinated Notes due 2008.
The Exchange Offer..........
$1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Notes. As of the date hereof, $225,000,000
principal amount of Notes are outstanding. The
Company will issue the Exchange Notes to holders
on or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which
is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's
business and that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes.
Each broker-dealer that receives Exchange Notes
for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to
time, may be used by a broker-dealer in
connection with resales of Exchange Notes
received in exchange for Notes where such
6
<PAGE>
Notes were acquired by such broker-dealer as a
result of market-making activities or other
trading activities.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes may not rely on the position of
the staff of the Commission enunciated in Exxon
Capital Holdings Corporation (available April 13,
1989), Morgan Stanley & Co., Incorporated
(available June 5, 1991) or similar no-action
letters and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirement of the Securities
Act in connection with the resale of the Exchange
Notes. Failure to comply with such requirements
in such instance may result in such holder
incurring liability under the Securities Act for
which the holder is not indemnified by the
Company.
The Exchange Offer is not being made to, nor will
the Company accept surrender for exchange from,
holders of Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would
not be in compliance with the securities or blue
sky laws of such jurisdiction. The Registration
Rights Agreement provides that the Company will
use its best efforts to register or qualify the
Exchange Notes under applicable state securities
or blue sky laws of certain jurisdictions and to
do other acts which may be reasonably necessary
or advisable to enable holders of Notes to
consummate the disposition of their Notes.
Expiration Date............. 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Interest on the Exchange
Notes and the Notes........ The Exchange Notes will bear interest from April
21, 1998, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes
(or the most recent Interest Payment Date, as
defined below in the Summary of Terms of Exchange
Notes). Accordingly, holders of Notes that are
accepted for exchange will not receive interest
on the Notes that is accrued but unpaid at the
time of tender, but such interest will be payable
on the first Interest Payment Date after the
Expiration Date.
Conditions to the Exchange The Exchange Offer will not be subject to any
Offer...................... conditions, other than that the Exchange Offer,
or the making of any exchange by a Holder, does
not violate applicable law or any applicable
interpretation of the staff of the Commission and
that the Company will not be required to
consummate the Exchange Offer if (a) there is in
effect any law, statute, rule, regulation or
interpretation of the Commission or any other
governmental authority, or any order, decree or
judgment, which, in the reasonable opinion of
counsel to the Company satisfactory to the
Initial Purchasers, might materially
7
<PAGE>
impair the ability of the Company to proceed with
the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to
the Company; or (b) any governmental approval has
not been obtained, which approval of the Company
shall, in its reasonable judgment, deem necessary
for the consummation of the Exchange Offer. See
"The Exchange Offer--Conditions."
Procedures for Tendering Each holder of Notes wishing to accept the
Notes...................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Notes and any other required documentation to the
Exchange Agent at the address set forth in the
Letter of Transmittal. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the holder or
the person receiving such Exchange Notes, whether
or not such person is the holder, is acquiring
the Exchange Notes in the ordinary course of
business and that neither the holder nor any such
other person has any arrangement or understanding
with any person to participate in the
distribution of such Exchange Notes. In lieu of
physical delivery of the certificates
representing Notes, tendering holders may
transfer Notes pursuant to the procedure for
book-entry transfer as set forth under "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Notes,
either make appropriate arrangements to register
ownership of the Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery Holders of Notes who wish to tender their Notes
Procedures................. and whose Notes are not immediately available or
who cannot deliver their Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date pursuant to the procedures described under
"The Exchange Offer--Withdrawals of Tenders."
8
<PAGE>
Acceptance of Notes and
Delivery of Exchange The Company will accept for exchange any and all
Notes...................... Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Federal Income Tax
Consequences............... The issuance of the Exchange Notes to holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no
gain or loss would be recognized by holders of
the Notes upon receipt of the Exchange Notes. See
"Certain Federal Income Tax Consequences of the
Exchange Offer."
Effect on Holders of As a result of the making of this Exchange Offer,
Notes...................... the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such holders will
continue to hold the untendered Notes and will be
entitled to all the rights and will be subject to
all the limitations applicable thereto under the
Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease
to have further effectiveness as a result of the
Exchange Offer. All untendered Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, if any Notes are tendered
and accepted in the Exchange Offer, the trading
market for the untendered Notes could be
adversely affected.
Exchange Agent..............
State Street Bank and Trust Company of Missouri,
N.A.
9
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
Maturity.................... April 15, 2008.
Interest Payment Dates...... Interest on the Exchange Notes will accrue from
April 21, 1998 or the last date on which interest
was paid on the Fixed Rate Notes and is payable
semi-annually on April 15 and October 15 of each
year, commencing October 15, 1998.
Optional Redemption......... The Exchange Notes will be redeemable at the
option of the Company, in whole or in part, at
any time on or after April 15, 2003 at the
redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time on or
prior to April 15, 2001, the Company may redeem
up to 35% of the aggregate principal amount of
the Notes and Exchange Notes with the net
proceeds of one or more Public Equity Offerings
(as defined) at 109.75% of the principal amount
thereof together with accrued and unpaid
interest, if any, to the date of redemption;
provided that at least $146.25 million aggregate
principal amount of the Notes and Exchange Notes
remains outstanding immediately after such
redemption. See "Description of the Exchange
Notes--Optional Redemption."
Change of Control........... Upon the occurrence of a Change of Control (as
defined), each holder of the Exchange Notes shall
have the right to require the Company to purchase
all or any portion of such holder's Exchange
Notes at a purchase price equal to 101% of the
principal amount thereof, together with accrued
and unpaid interest, if any, to the date of
purchase. See "Description of the Exchange
Notes--Repurchase of Exchange Notes upon a Change
of Control."
Ranking..................... The Exchange Notes will be unsecured, senior
subordinated obligations of the Company, will
rank pari passu with the Fixed Rate Notes, the
Floating Rate Notes and the Floating Rate
Exchange Notes and will be subordinated in right
of payment to all existing and future Senior
Indebtedness of the Company, including
Indebtedness under the Senior Credit Facilities.
The Exchange Notes will rank pari passu in right
of payment with any future senior subordinated
indebtedness of the Company and will be senior in
right of payment to Subordinated Indebtedness (as
defined), if any, of the Company. In addition,
the Exchange Notes will be effectively
subordinated to all liabilities of the Company's
subsidiaries, including trade payables. By reason
of such subordination, holders of Senior
Indebtedness must be paid in full before holders
of the Exchange Notes may be paid in the event of
a liquidation, dissolution or other winding up of
the Company, whether voluntary or involuntary and
whether or not involving insolvency or
bankruptcy. At May 31, 1998, the Company and its
subsidiaries had approximately $644.9 million of
indebtedness (excluding trade
10
<PAGE>
payables) outstanding, consisting of $310.0
million of Senior Indebtedness of the Company
(guaranteed by certain of the Company's
subsidiaries), $59.9 million of other
indebtedness of the Company's subsidiaries,
$225.0 million representing the Fixed Rate Notes
and $50.0 million representing the Floating Rate
Notes. In addition, on May 31, 1998 the Company
had additional delayed draw and revolving credit
availability of $140.0 million under the Senior
Credit Facilities, all of which would be Senior
Indebtedness, if borrowed. Additional Senior
Indebtedness may be incurred by the Company and
additional indebtedness may be incurred by the
Company and its subsidiaries, in each case from
time to time, subject to certain restrictions.
See "Risk Factors--Ability to Service Debt;
Substantial Indebtedness," "--Restrictions
Imposed by the 1995 Sale Leaseback," "--Holding
Company Structure; Source of Repayment of
Exchange Notes; Effective Subordination of
Exchange Notes to Indebtedness of Subsidiaries,"
"--Subordination of Exchange Notes" and
"Description of the Exchange Notes--Ranking and
Subordination."
Certain Covenants........... The Indenture contains certain covenants,
including, among others, covenants limiting the
incurrence of additional indebtedness by the
Company and any of its subsidiaries, the payment
of dividends, the redemption of capital stock,
the making of investments, the issuance of
capital stock of subsidiaries, the creation of
dividend and other restrictions affecting
subsidiaries, transactions with affiliates, asset
sales and certain mergers and consolidations.
However, these limitations will be subject to a
number of important qualifications and
exceptions. See "Description of the Exchange
Notes--Certain Covenants."
Absence of a Public There has been no public market for the Notes and
Market...................... there can be no assurance that such a market will
develop or, if such a market develops, as to the
liquidity of such market. The Exchange Notes will
not be listed on any securities exchange but are
expected to be eligible for trading in the PORTAL
market. If the Exchange Notes are traded after
their initial issuance, they may trade at a
discount from their initial offering price for
many reasons, including prevailing interest
rates, the market for similar securities, general
economic conditions and the financial condition
and performance of, and prospects for, United
Artists and other factors. United Artists has
been advised by Merrill Lynch that it intends to
make a market in the Exchange Notes after
consummation of the Exchange Offer as permitted
by applicable laws and regulations; however,
Merrill Lynch is not obligated to do so and any
such market making activities may be discontinued
at any time without notice. In addition, such
market making activities will be subject to the
limits imposed by the Securities Act and the
Exchange Act. Therefore, there can be no
assurance that an active market for the Exchange
Notes will develop.
11
<PAGE>
Exchange Offer; Pursuant to the Registration Rights Agreement,
Registration Rights......... the Company has agreed (i) to file a registration
statement (the "Exchange Offer Registration
Statement") with respect to an offer to exchange
the Notes for senior subordinated notes of the
Company with substantially identical terms as the
Notes within 60 calendar days after the date of
the original issuance of the Notes (the "Issuance
Date" or "Closing Date"), (ii) to use its best
efforts to cause the Exchange Offer Registration
Statement to become effective under the
Securities Act within 120 calendar days after the
Issuance Date and (iii) to use its best efforts
to consummate such an exchange offer within 150
calendar days after the Issuance Date.
In the event that any changes in law or the
applicable interpretations of the staff of the
Commission do not permit the Company to effect
such an exchange offer, or if for any other
reason such an exchange offer is not consummated
within 150 calendar days after the Issuance Date,
or if any holder of the Notes (other than the
Initial Purchasers) is not eligible to
participate in such an exchange offer, or upon
request of the initial purchasers of the Notes
(the "Initial Purchasers") under certain
circumstances, the Company will use its best
efforts to cause to become effective by the 150th
calendar day after the Issuance Date a shelf
registration statement with respect to the resale
of the Notes (a "Shelf Registration Statement")
and to keep the Shelf Registration Statement
effective until two years after the Issuance Date
or such shorter period which will terminate when
all the Notes covered by the Shelf Registration
Statement have been sold pursuant thereto or all
of the Notes become eligible for resale pursuant
to Rule 144 under the Securities Act without
volume restrictions.
In the event that (a) the Exchange Offer
Registration Statement is not filed with the
Commission on or prior to the 60th calendar day
following the Issuance Date, (b) the Exchange
Offer Registration Statement has not been
declared effective on or prior to the 120th
calendar day following the effectiveness of the
Exchange Offer Registration Statement or (c) the
exchange offer to which the Exchange Offer
Registration Statement relates is not consummated
or the Shelf Registration Statement is not
declared effective on or prior to the 150th
calendar day following the Issuance Date, the
interest rate borne by the Notes shall be
increased by one-quarter of one percent per annum
following such 60-day period in the case of
clause (a) above, following such 120-day period
in the case of clause (b) above, or following
such 150-day period in the case of clause (c)
above, which rate will be increased by an
additional one-quarter of one percent per annum
for each 90-day period that any additional
interest continues to accrue; provided that the
aggregate increase in such annual interest rate
may in no event exceed one percent per annum.
Upon (x) the filing of the Exchange Offer
Registration Statement after the 60-day period
described in clause (a) above, (y) the
effectiveness of the Exchange Offer Registration
Statement after the 120-day period described in
clause (b) above or
12
<PAGE>
(z) the consummation of the exchange offer to
which the Exchange Offer Registration Statement
relates or the effectiveness of the Shelf
Registration Statement after the 150-day period
described in clause (c) above, the interest rate
borne by the Notes from the date of such filing,
effectiveness or consummation, as the case may
be, will be reduced to the original interest rate
if the Company is otherwise in compliance with
this paragraph; provided, however, that if, after
any such reduction in interest rate, a different
event specified in clause (a), (b) or (c) above
occurs, the interest rate may again be increased
and thereafter reduced pursuant to the foregoing
provisions. See "Exchange Offer; Registration
Rights."
Trading..................... The Exchange Notes are expected to be designated
eligible for trading in the PORTAL market. The
Exchange Notes are a new issue of securities for
which there is no existing trading market. There
can be no assurance regarding the future
development of a market for the Exchange Notes or
the liquidity of any such market. See "Risk
Factors--Absence of a Public Market for the
Exchange Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain matters that should be
considered by holders of Notes before tendering their Notes in the Exchange
Offer.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial information presented below for
each of the years ended December 31, 1993, 1994, 1995 and 1996 and 1997 have
been derived from, and should be read in conjunction with, the consolidated
financial statements of the Company and notes thereto which are included
elsewhere in this Prospectus. The summary historical financial information for
the three months ended March 31, 1997 and 1998 (unaudited) have been derived
from, and should be read in conjunction with, the consolidated financial
statements of the Company and the notes thereto which are included elsewhere in
this Prospectus. In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) considered necessary for a fair presentation
have been included in the unaudited consolidated and combined financial
statements of the Company. Results for the three months ended March 31, 1997
and 1998 are not necessarily indicative of results that can be expected for an
entire year.
The following table also presents certain summary unaudited pro forma
financial data of the Company. The unaudited pro forma consolidated financial
data (other than the balance sheet data) give effect to the Transactions as if
they had occurred as of January 1, 1997. The pro forma consolidated balance
sheet data of the Company as of March 31, 1998 give effect to the Transactions
as if they had occurred on March 31, 1998.
The information set forth below should be read in conjunction with "The
Transactions," "Use of Proceeds," "Selected Historical Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Consolidated and Condensed Consolidated
Financial Statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus. The summary unaudited pro forma financial data
are provided for informational purposes only and do not purport to be
indicative of the results that would have actually been obtained had the
Transactions been completed on the dates indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Admissions............ $464.3 $447.6 $457.1 $466.5 $473.9 $121.7 $113.4
Concession sales...... 169.6 166.7 178.2 185.1 189.6 47.7 46.6
Other................. 10.7 9.7 14.5 27.5 22.8 5.1 4.7
------ ------ ------ ------ ------ ------ ------
Total revenue....... 644.6 624.0 649.8 679.1 686.3 174.5 164.7
------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Operating expenses:
Film rental and
advertising........ 254.9 239.6 248.6 257.2 262.5 65.8 60.9
Direct concession... 28.5 27.2 29.5 29.3 30.2 7.4 6.5
Occupancy........... 54.4 55.0 58.8 64.6 67.8 16.5 17.0
Sales and leaseback
rental............. -- -- 0.5 11.0 12.8 3.0 3.5
Other operating..... 176.8 172.7 187.5 194.9 193.7 46.0 46.1
General and
administrative....... 30.9 33.4 35.5 35.1 24.3 6.6 5.4
Depreciation and
amortization......... 72.1 66.7 69.8 74.9 60.7 18.4 13.7
Provision for
impairment(1)........ -- -- 21.0 9.5 36.0 -- --
Restructuring charge.. 3.7 -- -- 1.9 0.8 -- --
------ ------ ------ ------ ------ ------ ------
Operating income
(loss)........... 23.3 29.4 (1.4) 0.7 (2.5) 10.8 11.6
Interest expense, net... 43.5 45.3 53.3 45.4 45.6 11.4 10.4
Loss (gain) on
disposition of assets,
net.................... 7.9 9.8 5.7 (2.7) (28.0) -- --
Other expense, net...... 2.6 2.8 2.6 2.7 5.4 1.2 0.9
------ ------ ------ ------ ------ ------ ------
Income (loss)
before income
tax expense...... (30.7) (28.5) (63.0) (44.7) (25.5) (1.8) 0.3
Income tax expense...... 1.6 1.4 1.8 1.1 1.5 0.4 0.3
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(32.3) $(29.9) $(64.8) $(45.8) $(27.0) $ (2.2) $ --
====== ====== ====== ====== ====== ====== ======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(2)............... $ 95.4 $ 96.1 $ 89.4 $ 85.1 $ 94.2 $ 29.2 $ 25.3
EBITDAR(2).............. 149.8 151.1 148.7 160.7 174.8 48.7 45.8
Adjusted EBITDA(3)...... 100.4 97.6 91.4 90.1 98.7 30.0 26.2
Adjusted EBITDAR(3)..... 153.5 151.1 148.7 162.6 175.6 48.7 45.8
Adjusted EBITDA
margin(4).............. 15.6% 15.6% 14.1% 13.3% 14.4% 17.2% 15.9%
Adjusted EBITDAR
margin(4).............. 23.8% 24.2% 22.9% 23.9% 25.6% 27.9% 27.8%
Ratio of EBITDA to
interest expense(5).... 2.28x 2.18x 1.72x 1.96x 2.14x 2.65x 2.53x
Ratio of EBITDAR to
interest and rent
expense(5)............. 1.56x 1.53x 1.34x 1.35x 1.40x 1.60x 1.50x
Ratio of Adjusted EBITDA
to interest
expense(5)............. 2.40x 2.22x 1.76x 2.07x 2.25x 2.73x 2.62x
Ratio of Adjusted
EBITDAR to interest and
rent expense(5)........ 1.60x 1.53x 1.34x 1.37x 1.41x 1.60x 1.50x
Statement of cash flow
information(6):
Net cash provided by
(used in) operating
activities........... $ 67.3 $ 49.7 $ 40.7 $ 30.8 $ 51.0 $ 20.7 $ (0.6)
Net cash used in
investing
activities........... (31.2) (54.4) (1.6) (56.7) (4.6) (22.3) (20.2)
Net cash provided by
(used in) financing
activities........... (23.8) 1.1 (19.4) 3.5 (45.7) 2.7 17.3
------ ------ ------ ------ ------ ------ ------
Net cash flow......... $ 12.3 $ (3.6) $ 19.7 $(22.4) $ 0.7 $ 1.1 $ (3.5)
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges(7)....... -- -- -- -- -- -- 1.0x
PRO FORMA FINANCIAL
DATA:(8)
Ratio of Adjusted EBITDA
to interest
expense(5)............. -- -- -- -- 1.8x 2.1x 1.9x
Ratio of Adjusted
EBITDAR to interest and
rent expense(5)........ -- -- -- -- 1.3x 1.5x 1.4x
OPERATING DATA:
Adjusted EBITDAR:
Per weighted average
theatre.............. $352.9 $365.0 $363.6 $411.6 $496.0 $133.4 $138.0
Per weighted average
screen............... 68.5 68.6 65.5 70.7 79.7 22.0 21.3
Admissions per weighted
average screen......... 207.1 203.3 201.4 202.9 215.0 55.1 52.6
Weighted average(9):
Operating theatres.. 435 414 409 395 354 365 332
Operating screens... 2,242 2,202 2,270 2,299 2,204 2,209 2,154
Screens per
operating theatre.. 5.2 5.3 5.6 5.8 6.2 6.1 6.5
Screens added........... 32 90 137 138 132 61 23
Screens divested........ 128 28 81 245 170 12 24
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1997 MARCH 31, 1998
------------ ----------------------
ACTUAL ACTUAL AS ADJUSTED(4)
------------ ------ --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 10.8 $ 7.3 $ 7.3
Total assets................................ 563.0 560.5 572.9
Total debt.................................. 414.0 429.7 615.9
Total stockholders' deficit................. (20.3) (20.2) (187.6)
</TABLE>
15
<PAGE>
- --------
(1) Reflects non-cash charges for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" which the Company adopted in 1995.
(2) EBITDA represents operating income (loss) before depreciation,
amortization, and provision for impairment. EBITDAR represents operating
income (loss) before depreciation, amortization, provision for impairment,
and rent expense. While EBITDA and EBITDAR are not intended to represent
cash flow from operations as defined by GAAP and should not be considered
as an indicator of operating performance or an alternative to cash flow
(as measured by GAAP) as a measure of liquidity, they are included herein
to provide additional information with respect to the ability of United
Artists to meet its future debt service, capital expenditures, rental
obligations, and working capital requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) Adjusted EBITDA represents EBITDA before the effects of restructuring
charges, which are not expected to recur, and non-cash rent expense, which
is excluded from Consolidated EBITDA as defined by the Indenture. Adjusted
EBITDAR represents EBITDAR before the effects of restructuring charges.
While Adjusted EBITDA and Adjusted EBITDAR are not intended to represent
cash flow from operations as defined by GAAP and should not be considered
as an indicator of operating performance or an alternative to cash flow
(as measured by GAAP) as a measure of liquidity, they are included herein
to provide additional information with respect to the ability of United
Artists to meet its future debt service, capital expenditures, rental
obligations, and working capital requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The ability of United Artists to use Adjusted EBITDA and Adjusted EBITDAR
to meet future debt service, capital expenditures, rental obligations and
working capital requirements may be limited by law, covenants contained in
the Indenture or the Bank Credit Agreement or for other reasons. See
"Description of Certain Indebtedness" and "Description of the Exchange
Notes". Other companies may use measures other than Adjusted EBITDA and
Adjusted EBITDAR to reflect their ability to meet future debt service,
capital expenditures, rental obligations and working capital requirements.
(4) Defined as Adjusted EBITDA and Adjusted EBITDAR as a percentage of total
revenue.
(5) "Interest expense" means interest expense recorded during the related
period excluding interest income and amortization of deferred financing
fees.
(6) Amounts derived from the Company's statements of cash flow.
(7) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by the Company to be representative of the
interest factor thereon. Earnings were insufficient to cover fixed charges
for each of the years ended December 31, 1993, 1994, 1995, 1996 and 1997
and for the three months ended March 31, 1997 by $29.3 million, $27.3
million, $61.7 million, $43.4 million, $22.6 million and $0.9 million,
respectively. In addition, on a pro forma basis after giving effect to the
Transactions as if they occurred on January 1, 1997, earnings would have
been insufficient to cover fixed charges for the year ended December 31,
1997 and the three months ended March 31, 1998 by $33.4 million and $3.3
million, respectively.
(8) Presented on a pro forma basis as though the Transactions had occurred as
of January 1, 1997 in the case of all pro forma information other than
balance sheet data and at March 31, 1998 for balance sheet data.
(9) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.
16
<PAGE>
RISK FACTORS
Holders of Notes should carefully consider the following factors as well as
the other information set forth in this Prospectus before tendering their
Notes in the Exchange Offer.
INABILITY TO COVER FIXED CHARGES; SUBSTANTIAL INDEBTEDNESS
United Artists has substantial indebtedness and, as a result, significant
debt service obligations. At May 31, 1998, the Company and its subsidiaries
had approximately $644.9 million of indebtedness (excluding trade payables)
outstanding. In addition, on May 31, 1998 the Company had additional delayed
draw and revolving credit availability of $140.0 million under the Senior
Credit Facilities. For the three months ended March 31, 1998 and the year
ended December 31, 1997, the Company's earnings were insufficient to cover its
fixed charges by $0.9 million and $22.6 million, respectively, and EBITDA was
insufficient to cover the Company's capital expenditures and interest expense
by $2.1 million and $17.1 million, respectively. On a pro forma basis after
giving effect to the Transactions, the Company's earnings would have been
insufficient to cover its fixed charges for the twelve months ended March 31,
1998, the three months ended March 31, 1998 and the year ended December 31,
1997 by $36.4 million, $3.3 million and $33.4 million, respectively, and
EBITDA would have been insufficient to cover the Company's capital
expenditures and interest expense by $27.8 million, $6.1 million and $28.0
million, respectively. United Artists' leveraged financial position poses
substantial risks to holders of the Exchange Notes, including the risks that:
(i) a substantial portion of United Artists' cash flow from operations will be
dedicated to the payment of interest and principal on its indebtedness; (ii)
United Artists' ability to obtain financing in the future for working capital,
capital expenditures, acquisitions and general corporate purposes may be
impeded; (iii) United Artists may be more vulnerable to economic downturns,
which may limit its ability to withstand competitive pressures; (iv) most of
United Artists' other indebtedness, including the Senior Credit Facilities,
matures prior to the Notes and the Exchange Notes, and the Floating Rate Notes
and Floating Rate Exchange Notes mature prior to the Fixed Rate Notes and
Fixed Rate Exchange Notes; (v) the indebtedness under the Senior Credit
Facilities is secured by a pledge of the stock of UATC, UAR and certain of the
Company's other subsidiaries and by certain intercompany notes; (vi) the
indebtedness under the Senior Credit Facilities is guaranteed by certain of
the Company's subsidiaries, including UATC and UAR; and (vii) certain
indebtedness under the Senior Credit Facilities and the Floating Rate Notes
and Floating Rate Exchange Notes bears interest at floating rates, causing
United Artists to be sensitive to increases in interest rates. There can be no
assurance that the future cash flow of United Artists will be sufficient to
meet United Artists' obligations and commitments or that the Company will have
access to sufficient capital to enable it to pay the Notes or the Exchange
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Description of the
Exchange Notes," "Description of the Other Exchange Notes" and "Description of
Certain Indebtedness."
During the twelve months ended March 31, 1998, the three months ended March
31, 1998 and the year ended December 31, 1997, United Artists' interest
expense was approximately $42.9 million, $10.0 million and $43.9 million,
respectively, which would increase to $56.0 million, $14.0 million and $54.8
million, respectively, on a pro forma basis for such periods assuming the
Transactions occurred on January 1, 1997. Accordingly, one of the effects of
the Transactions was to increase the Company's interest expense.
HISTORY OF NET LOSSES
For each of the last five fiscal years, United Artists has reported net
losses and earnings have not been sufficient to cover fixed charges. While
United Artists reported a net loss of $27.0 million for the year ended
December 31, 1997 compared to a net loss of $45.8 million for the year ended
December 31, 1996, there can be no assurance that the reduction in net losses
are indicative of future results of operations or that such net losses and
earnings to fixed charges deficiencies will not continue in future periods.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated and Condensed Consolidated Financial
Statements of the Company, and the notes thereto, appearing elsewhere in this
Prospectus.
17
<PAGE>
DEPENDENCE ON FILMS AND DISTRIBUTORS
United Artists' business depends upon the availability and appeal of motion
pictures and on United Artists' ability to license motion pictures. Any
significant disruption in the production of popular motion pictures by major
film producers or independent producers, the failure of United Artists to
obtain popular films or the poor performance of motion pictures licensed by
United Artists may have a material adverse effect on United Artists' business
and results of operations.
United Artists' business also depends to a significant degree on maintaining
good relations with the major film distributors which allocate films to United
Artists' theatres. Although United Artists obtains films from all major film
distributors, because of the relatively small number of such distributors, if
United Artists' relationship with any one or more of the major film
distributors were to deteriorate or if United Artists were unable to obtain
films from any one or more of the major motion picture distributors, it could
have a material adverse effect on United Artists' business and results of
operations. See "Business--Film Licensing."
COMPETITION
United Artists competes for the public's leisure time and disposable income
with all forms of entertainment including sporting events, concerts, live
theatre, and restaurants. United Artists also is subject to varying degrees of
competition from other theatre circuits and independent theatres, some of
which may have greater access to capital resources. The motion picture
exhibition industry is highly competitive, particularly with respect to film
licensing, attracting patrons and acquiring or leasing new theatre sites. Some
of United Artists' competitors may be better established in certain areas
where United Artists' theatres are located. Competition for patrons occurs
locally and depends upon factors such as: (i) which films a particular theatre
is showing; (ii) location of theatres; (iii) comfort and quality of theatres;
and (iv) ticket prices. Film patrons are not "brand" conscious and generally
choose a theatre because of film selection, location and quality of the
theatre.
Competition among theatre circuits for licensing popular films occurs
locally and is based on the prestige and location of an exhibitor's theatres,
quality of the theatres (especially projection and sound quality), seating
capacity, and the exhibitor's ability and willingness to promote the films.
United Artists believes that promoting good relations with film distribution
and production companies is important to consistently obtain the best mix of
available films.
Where real estate is readily available there are few barriers preventing
competitors from opening theatres near one of United Artists' theatres, which
may have a material adverse effect on United Artists' theatre. In addition,
"megaplexes" (theatres with 20 or more screens) have been built or are planned
to be built by competitors in certain areas in which United Artists operates,
which may result in excess capacity and adversely affect attendance and
pricing at other theatres in such areas.
Alternative motion picture exhibition delivery systems, including cable
television, video cassettes, satellite and pay per view, also exhibit filmed
entertainment after its theatrical release. The expansion of such delivery
systems (such as video on demand) could have a material adverse effect upon
United Artists' business and results of operations.
Consolidation in the industry has included the merger of Sony Corp.'s Loews
Theatres Exhibit Group with Cineplex Odeon Corp. announced in October 1997 and
consummated in May 1998; the acquisition by Kohlberg Kravis Roberts & Co.
("KKR") of Act III Cinemas Inc., also announced in October 1997 and
consummated in December 1997; and the joint acquisition of Regal Cinemas Inc.
by affiliates of KKR and Hicks Muse announced in January 1998 and consummated
in May 1998. Such consolidation could increase the level of competition in the
industry.
18
<PAGE>
SUBSTANTIAL CAPITAL EXPENDITURES
United Artists' strategy involves the development (either on owned land or
through leases) of new theatres. United Artists developed and opened two new
theatres (23 screens) and 13 new theatres (132 screens) during the three
months ended March 31, 1998 and the year ended December 31, 1997,
respectively. At March 31, 1998, United Artists had entered into construction
or lease agreements for eight new theatres and for screen additions or
renovations to 12 existing theatres that United Artists intends to open or
renovate during the remainder of 1998 and 1999. United Artists estimates that
capital expenditures associated with these theatres will aggregate
approximately $90.0 million. Such amounts relate only to projects in which
United Artists has executed a definitive lease and all significant lease
contingencies have been satisfied. United Artists expects additional capital
expenditures to be made as other projects are finalized. Of the committed
amount, approximately $15.0 million will be funded from proceeds of certain
sale and leaseback transactions currently held in escrow. United Artists
expects to fund the balance of these capital expenditures from cash flow from
operations, asset sale proceeds and borrowings under the Senior Credit
Facilities. There can be no assurance, however, that these sources of funds
will be sufficient to enable United Artists to make its anticipated capital
expenditures. United Artists intends to continue its expansion over the next
several years. Future theatre development may require additional financing.
There can be no assurance that such additional financing will be available to
United Artists on favorable terms, if at all.
The development of new theatres involves certain risks, including the
possibility of construction cost overruns and delays, uncertainty of site
acquisition costs and availability, uncertainties as to market potential,
market deterioration after commencement of development, increased competition
and lower than anticipated financial performance of new theatres. If new
theatres perform below United Artists' expectations, United Artists may not be
able to service the debt incurred to finance such expansion. Although United
Artists attempts to minimize these risks through its theatre development
process, United Artists may determine not to proceed with its planned theatre
development projects. No assurance can be given therefore that any of the
projected new theatre developments will open or that such developments will
perform in accordance with United Artists' expectations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Competition."
POTENTIAL VOLATILITY OF FUTURE OPERATING RESULTS
United Artists' operating results may fluctuate because of a number of
factors, including the availability of popular major motion pictures.
Historically, the most marketable motion pictures have been released during
the summer extending from Memorial Day to Labor Day and the holiday season
extending from Thanksgiving through year-end. The unexpected emergence of a
hit film during other periods or the failure to release marketable motion
pictures during these periods could alter the traditional trend. Fluctuations
in results could affect the market price of the Exchange Notes in a manner
unrelated to the long-term operating performance of United Artists. In
addition, United Artists competes with other forms of entertainment for the
public's disposable income. A general economic downturn that decreases
disposable income could therefore have a material adverse effect upon United
Artists and the price of the Exchange Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RESTRICTIONS IMPOSED BY THE 1995 SALE LEASEBACK
In connection with a sale leaseback transaction that occurred in December
1995 (the "1995 Sale Leaseback"), certain restrictions were imposed on the
ability of UATC and its subsidiaries to incur indebtedness, pay dividends or
make distributions and transfer assets. Generally, with certain exceptions,
UATC may not incur additional indebtedness (or permit its subsidiaries to
incur additional indebtedness) unless its "consolidated fixed charge coverage
ratio" (as defined in the Participation Agreement (as defined)), which
includes "consolidated operating rental expense" (as defined in the
Participation Agreement) for the preceding four fiscal quarters is at least
1.40 to 1 after giving effect to the incurrence of the additional
indebtedness. On a pro forma basis after giving effect to the Transactions,
UATC's consolidated fixed charge coverage ratio for the twelve months ended
19
<PAGE>
March 31, 1998 would have been 1.49 to 1. Such restriction applies to draws
under the Senior Credit Facilities since such indebtedness is guaranteed by
UATC. As of March 31, 1998, on such pro forma basis United Artists would have
been able to draw approximately $369.0 million under the Senior Credit
Facilities in compliance with such covenants. UATC is also prohibited from
making "restricted payments," which generally constitute UATC making
distributions on its capital stock, acquiring its stock or the stock of an
affiliate or making certain investments (or permitting its subsidiaries to
engage in any of the foregoing activities) unless UATC could incur additional
indebtedness pursuant to the debt incurrence test described above, the amount
of such distributions and payments does not exceed the amount available under
a "basket" and no "default" or "event of default" exists thereunder. The
amount of this basket includes 50.0% of UATC's "consolidated adjusted net
income" (as defined in the Participation Agreement) accumulated since May 12,
1992 (or if UATC has a loss, less 100.0% of such loss) and the aggregate net
proceeds received by UATC after May 12, 1992 as capital contributions from the
Company. At March 31, 1998 the basket was approximately $45.8 million. After
giving effect to the Transactions and the contribution to UATC of certain of
the proceeds of the issuances of the Fixed Rate Notes and Floating Rate Notes,
the basket would have been approximately $155.8 million at March 31, 1998. The
amounts available for distribution to the Company under the basket, therefore,
will be initially insufficient to repay the principal amount of the
indebtedness of the Company. Accordingly, unless the amount of the basket
increases, the Company will be unable to obtain funds from UATC to repay the
Notes and the Exchange Notes at their maturity and will be required to attempt
to refinance them. In addition, any distributions to the Company or other
restricted payments by UATC (including distributions, if any, to repay the
Floating Rate Notes and the Floating Rate Exchange Notes which mature six
months prior to the Fixed Rate Notes and Fixed Rate Exchange Notes) will
decrease the basket available to permit the Company to make interest and
principal payments on the Notes and the Exchange Notes or otherwise. For UATC
to make distributions to the Company after the $155.8 million basket is
utilized, UATC will need to generate net income or receive additional equity
contributions. UATC is generally prohibited from transferring assets to the
Company. To the extent that the 1995 Sale Leaseback requirements are not met
so that UATC cannot distribute amounts to the Company to pay the interest and
principal payments on the Notes and the Exchange Notes, UATC will not be able
to make such distributions unless the 1995 Sale Leaseback is amended or
unwound, which could be at a substantial cost to United Artists. There also
can be no assurance that United Artists would be able to amend or unwind the
1995 Sale Leaseback.
The computations of the "consolidated fixed charge coverage ratio" and the
restricted payments basket are based on estimates and interpretations. As a
result of these estimates and interpretations, there can be no assurance that
the Company's computations of such ratio and basket will not be contested. For
example, UATC will recognize the interest expense on the Senior Credit
Facilities because UATC will guarantee these facilities, which will decrease
the restricted payments basket. If UATC distributes cash to the Company to pay
such interest expense, the Participation Agreement could be interpreted by a
third party as requiring a second decrease to the basket in the amount of the
distribution, resulting in a "double-counting" of the interest expense when
computing the restricted payments basket. The Company is currently not aware
of any third party contesting the calculation of the restricted payments
basket or the consolidated fixed charge coverage ratio.
Further, any distributions by UATC to the Company will be in the form of
dividends. Applicable law requires that the Board of Directors of UATC
determine that any dividend will not render UATC insolvent. If the Board of
Directors of UATC is unable to make such determination, UATC will not be able
to pay a dividend, and United Artists will not have access to the funds of
UATC.
If a Lease Event of Default (as defined in the 1995 Sale Leaseback) occurs,
the owner trustee under the 1995 Sale Leaseback may terminate the lease and
may transfer the properties to UATC (in which case UATC would be required to
pay liquidated damages as calculated pursuant to the 1995 Sale Leaseback) or
may repossess or relet the properties. The 1995 Sale Leaseback also contains
certain other restrictive covenants. The Participation Agreement and certain
other agreements related to the 1995 Sale Leaseback have been filed by United
Artists with the Commission and the foregoing discussion of the terms and
conditions of such agreements is qualified in its entirety to reference to the
agreements themselves. See "Restrictions Imposed by the 1995 Sale Leaseback"
and "Available Information."
20
<PAGE>
SUBSTANTIAL OPERATING LEASE COMMITMENTS
United Artists leases many of its theatres pursuant to non-cancelable
operating leases. For the twelve months ended March 31, 1998 the amount paid
under UATC's non-cancelable operating leases was $81.6 million. United Artists
expects to fund payments under these leases from theatre operations, although
no assurance exists that the revenue from such operations will be sufficient
to make these rent payments and pay other theatre operating expenses. In
addition, the lease payments decrease UATC's "consolidated fixed charge
coverage ratio" under the Participation Agreement, which affects the ability
of UATC and its subsidiaries to incur additional indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RESTRICTIONS IMPOSED BY THE INDENTURE, THE OTHER INDENTURE AND THE SENIOR
CREDIT FACILITIES
The Senior Credit Facilities require the Company to maintain specified
financial ratios and to meet certain financial tests which become more
restrictive over time pursuant to the terms of the Senior Credit Facilities.
The Indenture, the indenture pursuant to which the Other Notes were issued
(the "Other Indenture") (which Other Indenture contains restrictions that are
substantially equivalent to those in the Indenture) and the Senior Credit
Facilities contain additional restrictions on the ability of the Company to
incur additional indebtedness, make investments, capital expenditures,
acquisitions or asset dispositions, create or incur liens, make certain
payments and dividends or merge or consolidate. There can be no assurance that
the Company can maintain such ratios or that such covenants will not adversely
affect United Artists' ability to finance its future operations or capital
needs or engage in business activities that may be in the best interests of
United Artists. Failure to comply with the restrictions contained in either
the Senior Credit Facilities or the Other Indenture could lead to an event of
default thereunder, which could result in an acceleration of such
indebtedness, or in the case of the Senior Credit Facilities, a blockage of
payments on the Exchange Notes prior to acceleration. There can be no
assurance that the Company would have access to sufficient resources to pay
its obligations under the Senior Credit Facilities, the Fixed Rate Notes, the
Fixed Rate Exchange Notes, the Floating Rate Notes or the Floating Rate
Exchange Notes if such indebtedness were to be accelerated. See "Description
of Certain Indebtedness--Senior Credit Facilities."
SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes will be general unsecured indebtedness of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness, including all obligations under the Senior Credit Facilities.
The Exchange Notes will also be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, including certain of the
Company's subsidiaries' (including UATC's and UAR's) guarantees of the Senior
Credit Facilities. The Exchange Notes will rank pari passu with the Other
Notes and the Other Exchange Notes. At May 31, 1998, the Company and its
subsidiaries had approximately $644.9 million of indebtedness (excluding trade
payables) outstanding, consisting of $310.0 million of Senior Indebtedness of
the Company (guaranteed by certain of the Company's subsidiaries), $59.9
million of other indebtedness of the Company's subsidiaries, and $275.0
million representing the Fixed Rate Notes and the Floating Rate Notes. In
addition, on May 31, 1998, the Company had additional delayed draw and
revolving credit availability of $140.0 million under the Senior Credit
Facilities, all of which would be Senior Indebtedness, if borrowed. Additional
Senior Indebtedness may be incurred by the Company and additional indebtedness
may be incurred by the Company or its subsidiaries, in each case from time to
time, subject to certain restrictions. As a result of the subordination
provisions contained in the Indenture and the Other Indenture, in the event of
a liquidation or insolvency of the Company, the assets of the Company will be
available to pay obligations on the Exchange Notes and the Other Exchange
Notes only after all Senior Indebtedness has been paid in full, and there may
be insufficient assets remaining to pay amounts due on any or all of the
Exchange Notes and the Other Exchange Notes then outstanding. In addition, the
capital stock of UATC, UAR and certain of the Company's other subsidiaries and
certain intercompany notes are pledged to secure the indebtedness under the
Senior Credit Facilities. Upon any payment or distribution of assets of the
Company in a total or partial liquidation, dissolution, reorganization or
similar proceeding, the holders of Senior Indebtedness will be entitled to
receive payment in full before the holders of the Exchange Notes are entitled
to receive any payment. In addition, under certain
21
<PAGE>
circumstances, no payment of principal or interest may be made on the Exchange
Notes if a payment default or certain other defaults exist with respect to
certain Senior Indebtedness. See "Description of the Exchange Notes--Ranking
and Subordination," "Description of the Other Exchange Notes" and "Description
of Certain Indebtedness--Senior Credit Facilities."
HOLDING COMPANY STRUCTURE; SOURCE OF REPAYMENT OF EXCHANGE NOTES; EFFECTIVE
SUBORDINATION OF EXCHANGE NOTES TO INDEBTEDNESS OF SUBSIDIARIES
As a holding company that conducts virtually all of its business through
subsidiaries, the Company has no source of operating cash flow other than from
dividends and distributions from its subsidiaries. See "Restrictions Imposed
by the 1995 Sale Leaseback." To pay cash interest on the Exchange Notes and to
repay the principal amount of the Exchange Notes at maturity, or to redeem or
repurchase the Exchange Notes, the Company will be required to obtain
dividends or distributions from its subsidiaries, refinance its indebtedness
(including the Floating Rate Notes and Floating Rate Exchange Notes, which
mature six months prior to the Fixed Rate Notes and the Fixed Rate Exchange
Notes) or obtain funds in a public or private equity or debt offering by it.
The Indenture, the Other Indenture and the Senior Credit Facilities will,
however, limit the Company's ability to incur additional indebtedness.
If the Company is required to conduct an offering of its capital stock or to
refinance the Exchange Notes, its ability to do so on acceptable terms, if at
all, will be affected by several factors, including financial market
conditions and the value and performance of the Company at the time of such
offering or refinancing, which in turn may be affected by many factors,
including economic and industry cycles. There can be no assurance that an
offering of the Company's capital stock or a refinancing of the Exchange Notes
can or will be completed on satisfactory terms, that such offering or
refinancing would be sufficient to enable the Company to make any payments
with respect to the Exchange Notes if required or that such offering or
refinancing would be permitted by the terms of the debt instruments of the
Company and its subsidiaries then in effect.
The Company's subsidiaries, including UATC and UAR, will have no obligation
to pay amounts due on the Exchange Notes and will not guarantee the Exchange
Notes. Certain of the Company's subsidiaries, including UATC and UAR, do
however, guarantee the Company's obligations under the Senior Credit
Facilities. Therefore, the Exchange Notes will be effectively subordinated to
all obligations under the Senior Credit Facilities and to all existing
liabilities of the Company's subsidiaries, including trade payables. As of May
31, 1998, after giving effect to the Transactions (including the redemption of
the Senior Secured Notes), the total liabilities of the Company's subsidiaries
on a consolidated basis would have been approximately $507.7 million,
including the guarantees of the Company's indebtedness under the Senior Credit
Facilities. Any rights of the Company and its creditors, including the holders
of the Exchange Notes and the Other Exchange Notes, to recover on the assets
of any of the Company's subsidiaries to satisfy indebtedness upon any
liquidation or reorganization of any such subsidiary will be subject to the
prior claims of that subsidiary's creditors, including the lenders under the
Senior Credit Facilities and trade creditors.
PURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to purchase all
outstanding Fixed Rate Exchange Notes and Floating Rate Exchange Notes at 101%
of the aggregate principal amount thereof plus accrued and unpaid interest to
the date of purchase. The source of funds for any such purchase would be the
Company's available cash or cash generated from other sources, including
dividends from subsidiaries, borrowings, sales of assets, sales of equity or
funds provided by new controlling persons. A Change of Control would also give
the lenders under the Senior Credit Facilities the right to require the
Company to repay all indebtedness then outstanding thereunder. There can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required purchases of validly tendered Fixed Rate Exchange
Notes and Floating Rate Exchange Notes and to repay any other indebtedness
then in default. See "Description of the Exchange Notes--Repurchase of
Exchange Notes upon a Change of Control," "Description of the Other Exchange
Notes" and "Description of Certain Indebtedness--Senior Credit Facilities."
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ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are a new issue of securities for which there is
currently no trading market. Although Merrill Lynch has informed United
Artists that it currently intends to make a market in the Exchange Notes, it
is not obligated to do so, and any such market making may be discontinued at
any time without notice. There can be no assurance that an active trading
market for the Exchange Notes will develop. If a market were to develop, the
Exchange Notes could trade at prices that may be lower than their initial
offering price for many reasons, including prevailing interest rates, the
markets for similar securities, general economic conditions and the financial
condition and performance of, and prospects for, United Artists and other
factors. See "Exchange Offer; Registration Rights."
CONTROLLING STOCKHOLDERS
Affiliates of Merrill Lynch Capital Partners, Inc. (the "Merrill Lynch
Group") hold approximately 90.8% of the Company's outstanding voting stock
and, accordingly, have the power to control all matters submitted to the
stockholders of the Company, elect all of the directors of the Company,
appoint new management and approve any action requiring the approval of the
holders of the Common Stock, including adopting amendments to the Company's
certificate of incorporation and approving mergers or sales of all or
substantially all of the Company's assets in each case subject to whatever
contractual restrictions apply to the Company, including the Indenture, the
Other Indenture and the Senior Credit Facilities. The interests of the Merrill
Lynch Group may differ from the interests of holders of the Exchange Notes.
See "Management--Directors and Executive Officers of the Company" and "Certain
Transactions."
RISKS ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY
Management of United Artists believes that the indebtedness represented by
the Fixed Rate Notes and the Floating Rate Notes, and to the extent exchanged
for the Notes and Other Notes, the Exchange Notes and Other Exchange Notes,
was incurred for proper purposes and in good faith, and that as a result of,
and after giving effect to, the Note Offering, the Exchange Offer and the
Other Exchange Offer, based on forecasts, asset valuations and other financial
information, the Company was and will be solvent, had and will have sufficient
capital for carrying on its business and was and is able to pay its debts as
they mature. See "Risk Factors--Ability to Service Debt; Substantial
Indebtedness." If under relevant federal and state fraudulent conveyance
statutes in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of the Company, a
court were to find that, at the time of the incurrence of such indebtedness,
(i) the Company incurred such indebtedness with the intent of hindering,
delaying or defrauding current or future creditors or (ii) (A) the Company
received less than reasonably equivalent value or fair consideration for
incurring such indebtedness and (B) the Company, (1) was insolvent or was
rendered insolvent by reason of such incurrence, (2) was engaged, or about to
engage, in a business or transaction for which its assets constituted
unreasonably small capital, (3) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured (as all of the
foregoing terms are defined in or interpreted under such fraudulent conveyance
statutes) or (4) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if in either case, after final
judgment, the judgment is unsatisfied), such court could avoid or further
subordinate the Exchange Notes to presently existing and future indebtedness
of the Company and take other action detrimental to the holders of the
Exchange Notes, including under certain circumstances, invalidating the
Exchange Notes and requiring the holders of the Exchange Notes to repay
amounts previously received thereon.
The measure of insolvency for purposes of the foregoing considerations
varies depending upon the federal or local law that is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it issues the Exchange Notes, either: (i) the fair market
value (or fair saleable value) of its assets is less than the amount required
to pay its total existing debts and liabilities (including the probable
liability on contingent liabilities) as they become absolute and mature or
(ii) it is incurring debts beyond its ability to pay as such debts mature.
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The Company believes that at the time of the issuance of the Notes, the
Other Notes and the Exchange Notes, the Company: (i) (A) was and will be
neither insolvent nor rendered insolvent thereby, (B) had and will have
sufficient capital to operate its business effectively and (C) was and will be
incurring debts within its ability to pay as the same mature or become due;
and (ii) was and will have sufficient resources to satisfy any probable money
judgment against it in any pending action. These beliefs are based on the
Company's operating history and analysis of internal cash flow projections and
estimated values of assets and liabilities of United Artists at the time of
the Exchange Offer and the time of the offering of the Fixed Rate Notes and
the Floating Rate Notes. Since each of the components of the question of
whether the incurrence of the indebtedness represented by the Fixed Rate Notes
and the Floating Rate Notes is inherently fact-based and fact-specific, there
can be no assurance that such analysis will prove to be correct or that a
court passing on such questions would reach the same conclusions. Special
counsel for the Company will not express any opinion as to federal or state
laws relating to fraudulent transfers.
DEPENDENCE ON KEY PERSONNEL
United Artists' success will depend, in large part, on the efforts,
abilities and experience of its executive officers and other key employees.
The loss of the services of one or more of such individuals could have a
material adverse effect on United Artists' business. United Artists has
employment agreements with certain of its executive officers, which, as
amended in May 1998, expire in December 1998, 1999 or 2000, with subsequent
one or two year extensions (absent notice to the contrary by either United
Artists or the employee). United Artists does not maintain key-man life
insurance with respect to any of its executive officers or key employees. In
connection with United Artists' corporate restructuring United Artists'
previous chief executive officer and three additional executive officers
resigned from United Artists during 1996 and 1997. Another executive officer
resigned in early 1998 in connection with United Artists' divestiture of its
remaining international operations. See "Management."
RISKS OF FUTURE ACQUISITIONS
While United Artists has no immediate acquisition plans, United Artists'
growth strategy may from time to time involve the strategic acquisition of
additional theatres or theatre companies. There is substantial competition for
attractive acquisition candidates. There can be no assurance that United
Artists will be able to acquire suitable acquisition candidates at reasonable
prices or terms or that it will be able to successfully integrate acquired
operations into its existing operations. There also can be no assurance that
future acquisitions will not have an adverse effect upon United Artists'
operating results, particularly in the quarters immediately following the
completion of an acquisition while the operations of an acquired business are
being integrated. Once integrated, acquired theatres may not achieve levels of
revenue or profitability comparable with those achieved by United Artists'
existing theatres, or otherwise perform as expected. Additionally, expansion
of United Artists' theatre circuit involves the risk that United Artists might
not effectively manage such growth and that significant additional debt may be
incurred in connection with acquisitions. See "Business--Business and
Operating Strategy."
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent
of such Notes, a properly completed and duly executed Letter of Transmittal
and all other required documents. Therefore, holders of the Notes desiring to
tender such Notes in exchange for Exchange Notes should allow sufficient time
to ensure timely delivery. The Company is under no duty to give notification
of defects or irregularities with respect to the tenders of Notes for
exchange. Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer, the registration rights under the Registration Rights
Agreement generally will terminate. In addition, any holder of Notes who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale. Each
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broker-dealer that receives Exchange Notes for its own account in exchange for
Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes
could be adversely affected. See "The Exchange Offer."
RESTRICTIONS ON TRANSFER
The Notes were offered and sold by the Company in a private offering exempt
from registration pursuant to the Securities Act and have been resold pursuant
to Rule 144A and Regulation S under the Securities Act. As a result, the Notes
may not be reoffered or resold by purchasers except pursuant to an effective
registration statement under the Securities Act, or pursuant to an applicable
exemption from such registration, and the Notes are legended to restrict
transfer as aforesaid. Each holder of Notes (other than any holder who is an
affiliate or promoter of the Company) who duly exchanges Notes for Exchange
Notes in the Exchange Offer will receive Exchange Notes that are freely
transferable under the Securities Act. Holders of Notes who participate in the
Exchange Offer should be aware, however, that if they accept the Exchange
Offer for the purpose of engaging in a distribution, the Exchange Notes may
not be publicly reoffered or resold without complying with the registration
and prospectus delivery requirements of the Securities Act. As a result, each
holder of Notes accepting the Exchange Offer will be deemed to have
represented, by its acceptance of the Exchange Offer, that it acquired the
Exchange Notes in the ordinary course of business and that it is not engaged
in, and does not intend to engage in, a distribution of the Exchange Notes. If
existing Commission interpretations permitting free transferability of the
Exchange Notes following the Exchange Offer are changed prior to consummation
of the Exchange Offer, the Company will use its best efforts to register the
Notes for resale under the Securities Act. See "Prospectus Summary--The
Exchange Offer" and "Description of the Exchange Notes--Registration Rights."
The Notes currently may be sold pursuant to the restrictions set forth in
Rule 144A or Regulation S, or pursuant to another available exemption under
the Securities Act, without registration under the Securities Act. To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for the untendered and tendered but unaccepted Notes could be adversely
affected.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are
incorporated by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on April 21, 1998, and were subsequently
resold to qualified institutional buyers pursuant to Rule 144A under the
Securities Act and to certain persons in transactions outside the United
States in reliance on Regulation S under the Securities Act. In connection
with the Note Offering, the Company entered into the Registration Rights
Agreement, which requires, among other things, that promptly following the
completion of the Transactions, the Company to (i) file with the Commission a
registration statement under the Securities Act with respect to an issue of
new notes of the Company containing terms substantially identical in all
material respects to the Notes, (ii) use its best efforts to cause such
registration statement to be declared effective by the Commission under the
Securities Act and (iii) upon the effectiveness of that registration
statement, promptly commence the Exchange Offer, it being the objective of the
Exchange Offer to enable each holder (other than certain broker-dealers)
eligible and electing to exchange their Notes for Exchange Notes (assuming
that such holder that is not an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act, acquires the Exchange Notes in the
ordinary course of such holder's business and has no arrangements or
understandings with any person to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes) to trade such Exchange Notes from
and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities law of a
substantial proportion of the several states of the United States. A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The term "Holder"
with respect to the Exchange Offer means any person in whose name the Notes
are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount
of Notes outstanding. Following the consummation of the Exchange Offer,
Holders of the Notes who did not tender their Notes generally will not have
any further registration rights under the Registration Rights Agreement, and
such Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Notes could be adversely
affected. The Notes are currently eligible for sale pursuant to Rule 144A
through the PORTAL System of the National Association of Securities Dealers,
Inc. Because the Company anticipates that most Holders of Notes will elect to
exchange such Notes for Exchange Notes due to the absence of restrictions on
the resale of Exchange Notes under the Securities Act, the Company anticipates
that the liquidity of the market for any Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Notes pursuant to the Exchange Offer. However, Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which
rights generally will terminate upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Notes and will be entitled
to the benefits of the Indenture.
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Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder, including Rule
14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" means the latest date
and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by a
public announcement thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered Holders, and, depending upon the significance
of the amendment and the manner of disclosure to the registered Holders, the
Company will extend the Exchange Offer for a period of five to ten business
days if the Exchange Offer would otherwise expire during such five to ten
business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein,
liquidated damages will accrue and be payable on the Notes either temporarily
or permanently. See "Exchange Offer; Registration Rights."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
INTEREST ON EXCHANGE NOTES
The Exchange Notes will bear interest from April 21, 1998, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date to which interest on such Notes has been
paid). Accordingly, Holders of Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Notes at the time of
tender, but such interest will be payable on the first Interest Payment Date
after the Expiration Date. Interest on the Exchange Notes will be payable
semiannually on each April 15 and October 15, commencing October 15, 1998.
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PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent so as to be received by the Exchange
Agent at the address set forth below prior to 5:00 p.m., New York City time,
on the Expiration Date. Delivery of the Notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of
such book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the Company
the representation set forth below in the second paragraph under the heading
"--Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Notes tendered pursuant thereto are tendered (i) by a registered Holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule l7Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered Holder as such
registered Holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the Depository for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the
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Depository's system may make book-entry delivery of the Notes by causing the
Depository to transfer such Notes into the Exchange Agent's account with
respect to the Notes in accordance with the Depository's procedures for such
transfer. Although delivery of the Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depository, an appropriate
Letter of Transmittal properly completed and duly executed with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Depository does
not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will
be determined by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the absolute right to reject any
and all Notes not properly tendered or any Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right, in its reasonable judgment, to waive any
defects, irregularities or conditions of tender as to particular Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as the Company
shall determine. Although the Company intends to notify Holders of defects or
irregularities with respect to tenders of Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering Holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery ("Notice of Guaranteed Delivery") (by facsimile
transmission, mail or hand delivery) setting forth the name and address of
the Holder, the certificate number(s) of such Notes and the principal
amount of Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Notes (or a confirmation
of book-entry transfer of such Notes into the Exchange Agent's account at
the Depository) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
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WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at
its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by book-
entry transfer, the name and number of the account at the Depository to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents
of transfer sufficient to have the Trustee with respect to the Notes register
the transfer of such Notes into the name of the person withdrawing the tender
and (iv) specify the name in which any such Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Notes may be retendered by following one of
the procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
CONDITIONS
The Exchange Offer will not be subject to any conditions, other than that
the Exchange Offer, or the making of any exchange by a Holder, does not
violate applicable law or any applicable interpretation of the staff of the
Commission and that the Company will not be required to consummate the
Exchange Offer if:
(a) there is in effect any law, statute, rule, regulation or
interpretation of the Commission or any other governmental authority, or
any order, decree or judgment, which, in the reasonable opinion of counsel
to the Company satisfactory to the Initial Purchasers, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(b) any governmental approval has not been obtained, which approval of
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer.
If any of the conditions are not satisfied, the Company may (i) refuse to
accept any Notes and return all tendered Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of Holders
to withdraw such Notes (see "--Withdrawals of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten business days if
the Exchange Offer would otherwise expire during such five to ten business-day
period.
EXCHANGE AGENT
State Street Bank and Trust Company of Missouri, N.A., will act as Exchange
Agent for the Exchange Offer.
30
<PAGE>
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for copies of the
Notice of Guaranteed Delivery should be directed to the Exchange Agent,
addressed as follows:
By Registered or Certified Mail:
State Street Bank and Trust Company of Missouri, N.A.
Two International Place, 4th Floor
Boston, MA 02110
Attention: Corporate Trust Department
Kellie Mullen
By Overnight Courier or By Hand:
State Street Bank and Trust Company of Missouri, N.A.
61 Broadway, 15th Floor
New York, NY 10016
Attention: Corporate Trust Department
By Facsimile (for eligible institutions only) :
(617) 664-5290
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5587
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and pay other registration expenses, including fees and expenses of the
Trustee, filing fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered Holder of the Notes
tendered, or if tendered Notes are registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other person) will be payable by the tendering
Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Notes,
which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the
Exchange Offer. The expenses of the Exchange Offer will be amortized over the
term of the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be
offered for resale, resold and otherwise transferred by any Holder of such
Exchange Notes (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
31
<PAGE>
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holder's business and such Holder does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of such Exchange Notes. Any Holder who
tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes may not rely
on the position of the staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989), Morgan Stanley & Co.,
Incorporated (available June 5, 1991) or similar no-action letters, but rather
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with the resale of the Exchange Notes. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K of the Securities Act. Each broker-
dealer that receives Exchange Notes for its own account in exchange for Notes,
where such Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, may be a statutory underwriter
and must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of
the person receiving such Exchange Notes, whether or not such person is a
Holder, (ii) neither the Holder nor any such other person is engaged or
intends to engage in, or has an arrangement or understanding with any person
to participate in, the distribution of such Exchange Notes and (iii) the
Holder and such other person acknowledge that if they participate in the
Exchange Offer for the purpose of distributing the Exchange Notes (a) they
must, in the absence of an exemption therefrom, comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale of the Exchange Notes and cannot rely on the no-action letters
referenced above and (b) failure to comply with such requirements in such
instance could result in such Holder or such other person incurring liability
under the Securities Act for which such persons are not indemnified by the
Company. Further, by tendering in the Exchange Offer, each Holder or person
receiving the Exchange Notes acquired pursuant thereto that may be deemed an
"affiliate" (as defined under Rule 405 of the Securities Act) of the Company
will represent to the Company that such Holder understands and acknowledges
that the Exchange Notes may not be offered for resale, resold or otherwise
transferred by that Holder or such other person without registration under the
Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act. In connection with the
Note Offering, the Company entered into the Registration Rights Agreement
pursuant to which the Company agreed to file and maintain, subject to certain
limitations, a registration statement that would allow Merrill Lynch to engage
in market-making transactions with respect to the Notes or the Exchange Notes.
The Company has agreed to bear all registration expenses incurred under such
agreement, including printing and distribution expenses, reasonable fees of
counsel, blue sky fees and expenses, reasonable fees of independent
accountants in connection with the preparation of comfort letters, and
Commission and the National Association of Securities Dealers, Inc. filing
fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled certain of its obligations under the Registration Rights Agreement,
and Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that
Holder's Notes for Exchange Notes will continue to hold the untendered Notes
and will be entitled to all the rights and limitations applicable thereto
under the Indenture, except to the extent that such rights or limitations, by
their terms, terminate or cease to have further effectiveness as a result of
the Exchange Offer.
32
<PAGE>
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) pursuant
to an effective registration statement under the Securities Act, (iii) so long
as the Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act
in a transaction meeting the requirements of Rule 144A, (iv) outside the
United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available) or (vi) to an
institutional accredited investor in a transaction exempt from the
registration requirements of the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States. See
"Risk Factors--Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Notes
that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Notes.
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, Holders of Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction. The Registration Rights
Agreement provides that the Company will use its best efforts to register or
qualify the Exchange Notes under applicable state securities or blue sky laws
of certain jurisdictions and to do other acts which may be reasonably
necessary or advisable to enable holders of Notes to consummate the
disposition of their Notes.
33
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "IRS") will not
take a contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to Holders. Certain Holders of the Notes
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules
not discussed below. Each Holder of a Note should consult his, her or its own
tax advisor as to the particular tax consequences of exchanging such Holder's
Notes for Exchange Notes, including the applicability and effect of any state,
local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for federal
income tax purposes. Consequently, no gain or loss would be recognized by
Holders of the Notes upon receipt of the Exchange Notes, and ownership of the
Exchange Notes will be considered a continuation of ownership of the Notes.
For purposes of determining gain or loss upon the subsequent sale or exchange
of the Exchange Notes, a Holder's basis in the Exchange Notes should be the
same as such Holder's basis in the Notes exchanged therefor. A Holder's
holding period for the Exchange Notes should include the Holder's holding
period for the Notes exchanged therefor. The issue price and other tax
characteristics of the Exchange Notes should be identical to the issue price
and other tax characteristics of the Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes."
34
<PAGE>
THE REFINANCING TRANSACTIONS
On April 21, 1998, the Company (i) issued the Fixed Rate Notes; (ii) issued
the Floating Rate Notes and (iii) entered into $450.0 million of the Senior
Credit Facilities, consisting of $350.0 million of term loans and a $100.0
million senior secured revolving credit facility. Approximately $170 million
of the term loan portion of the Senior Credit Facilities were available on a
delayed term basis, of which approximately $125 million was drawn as of May
31, 1998. On April 21, 1998, the Company caused UATC to repay the Prior Credit
Facilities. On May 1, 1998, the Company redeemed all of its outstanding
Preferred Stock and on May 21, 1998, the Company caused UATC to redeem UATC's
Senior Secured Notes. See "Use of Proceeds."
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
following table sets forth the actual sources and uses of funds in connection
with the Transactions. The proceeds to the Company from the issuances of the
Fixed Rate Notes, the Floating Rate Notes and the borrowings under the Senior
Credit Facilities were used: (i) to redeem all of the outstanding Preferred
Stock of the Company; (ii) to repay UATC's Prior Credit Facilities; (iii) to
redeem UATC's Senior Secured Notes; and (iv) to pay related fees and expenses.
See "The Transactions," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
the Exchange Notes."
<TABLE>
<CAPTION>
AMOUNT
-------------
SOURCES OF FUNDS:
----------------- (IN MILLIONS)
<S> <C>
Senior Credit Facilities....................................... $303.5
Fixed Rate Notes............................................... 225.0
Floating Rate Notes............................................ 50.0
------
Total........................................................ $578.5
======
<CAPTION>
USES OF FUNDS:
--------------
<S> <C>
Redemption of Preferred Stock.................................. $159.2
Repayment of Prior Credit Facilities........................... 272.9
Redemption of Senior Secured Notes............................. 129.4
Transaction fees and expenses.................................. 17.0
------
Total........................................................ $578.5
======
</TABLE>
35
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization as of March 31, 1998, of
United Artists: (i) on an actual historical basis; and (ii) on a pro forma
basis after giving effect to the Transactions as if they had occurred on such
date. The following table should be read in conjunction with "The
Transactions," "Use of Proceeds," "Selected Historical Consolidated Financial
Information" and the Consolidated and Condensed Consolidated Financial
Statements of the Company, and the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------
AS
ACTUAL ADJUSTED(1)
---------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents... $ 7.3 $ 7.3
========== ==========
Debt:
Senior Credit
Facilities(2)............ $ -- $ 279.7
Prior Credit Facilities... 243.5 --
Senior Secured Notes...... 125.0 --
Prop I Mortgage Notes(3).. 46.0 46.0
Other indebtedness(4)..... 15.2 15.2
Fixed Rate Notes.......... -- 225.0
Floating Rate Notes....... -- 50.0
---------- ----------
Total debt.............. 429.7 615.9
Stockholders' deficit:
Preferred Stock(5)........ 200.6 --
Common Stock.............. 0.1 0.1
Additional paid-in
capital(5)(6)............ 9.7 52.9
Accumulated deficit(5).... (228.5) (238.5)
Cumulative foreign
currency translation
adjustment............... (0.3) (0.3)
Less: Treasury stock...... (1.8) (1.8)
---------- ----------
Total stockholders'
deficit................ (20.2) (187.6)
---------- ----------
Total capitalization........ $ 409.5 $ 428.3
========== ==========
</TABLE>
- --------
(1) Gives effect to the Transactions as if they had been consummated on March
31, 1998. The actual amounts required for (i) the redemption of the
Preferred Stock, (ii) the repayment of the Prior Credit Facilities, and
(iii) the redemption of the Senior Secured Notes were approximately $159.2
million, $272.9 million, and $129.4 million, respectively (including
accrued dividends, interest and prepayment premiums). See "Use of
Proceeds."
(2) The Company had additional availability of $146.5 million under the Senior
Credit Facilities after completion of the Transactions. See "Description
of Certain Indebtedness--Senior Credit Facilities."
(3) The Prop I Mortgage Notes (as defined) are obligations of a subsidiary of
the Company and bear interest at 11.15% per annum. Principal and interest
are payable in monthly installments with a lump sum payment of principal
and accrued but unpaid interest due on November 1, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Certain
Indebtedness--Prop I Mortgage Notes." Approximately $45.0 million of the
Senior Credit Facilities is intended to be available for the repayment of
the Prop I Mortgage Notes upon the maturity thereof on a delayed draw
basis.
(4) Other indebtedness consists of: (i) $4.6 million of non-interest bearing
promissory notes issued by UAR; and (ii) $10.6 million of various term
loans, mortgage notes, capital leases and other borrowings of UATC.
(5) In connection with the redemption of the Preferred Stock, the repayment of
the Prior Credit Facilities and the redemption of the Senior Secured
Notes, United Artists recorded an increase to additional paid in capital
on redemption of the Preferred Stock and recorded an extraordinary loss on
the early extinguishment of debt. Had the redemption of the Preferred
Stock occurred on March 31, 1998, United Artists would have recorded the
difference of $43.2 million between the carrying value of $200.6 million
and the redemption value of $157.4 million as an increase to additional
paid in capital. Had the repayment of the Prior Credit Facilities and the
redemption of the Senior Secured Notes occurred on March 31, 1998, United
Artists would have recorded an extraordinary loss on the early
extinguishment of debt of approximately $10.0 million, consisting of $5.4
million in premiums and $4.6 million of deferred costs written-off. The
actual amount required for the redemption of the Preferred Stock was
approximately $159.2 million. See "Use of Proceeds."
(6) Pro forma additional paid-in capital reflects: (i) beginning additional
paid-in capital of $9.7 million and (ii) a $43.2 million increase
attributable to the difference between the Preferred Stock carrying value
of $200.6 million and the redemption value of $157.4 million.
36
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information presented below
for each of the years ended December 31, 1993, 1994, 1995 and 1996 and 1997
has been derived from audited financial statements and notes thereto of the
Company. The selected historical consolidated financial information for the
three months ended March 31, 1997 and 1998 (unaudited) have been derived from
the consolidated financial statements of the Company and the notes thereto
which are included elsewhere in this Prospectus. Results for the three months
ended March 31, 1997 and 1998 are not necessarily indicative of results that
can be expected for an entire year. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated and Condensed
Consolidated Financial Statements of the Company, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Admissions............. $464.3 $447.6 $457.1 $466.5 $473.9 $121.7 $113.4
Concession sales....... 169.6 166.7 178.2 185.1 189.6 47.7 46.6
Other.................. 10.7 9.7 14.5 27.5 22.8 5.1 4.7
------ ------ ------ ------ ------ ------ ------
Total revenue.......... 644.6 624.0 649.8 679.1 686.3 174.5 164.7
------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Operating expenses:
Film rental and
advertising........... 254.9 239.6 248.6 257.2 262.5 65.8 60.9
Direct concession...... 28.5 27.2 29.5 29.3 30.2 7.4 6.5
Occupancy.............. 54.4 55.0 58.8 64.6 67.8 16.5 17.0
Sales and leaseback
rental................ -- -- 0.5 11.0 12.8 3.0 3.5
Other operating........ 176.8 172.7 187.5 194.9 193.7 46.0 46.1
General and
administrative........ 30.9 33.4 35.5 35.1 24.3 6.6 5.4
Depreciation and
amortization.......... 72.1 66.7 69.8 74.9 60.7 18.4 13.7
Provision for
impairment(1)......... -- -- 21.0 9.5 36.0 -- --
Restructuring charge... 3.7 -- -- 1.9 0.8 -- --
------ ------ ------ ------ ------ ------ ------
Operating income
(loss)............... 23.3 29.4 (1.4) 0.7 (2.5) 10.8 11.6
Interest expense, net... 43.5 45.3 53.3 45.4 45.6 11.4 10.4
Loss (gain) on
disposition of assets,
net.................... 7.9 9.8 5.7 (2.7) (28.0) -- --
Other expense, net...... 2.6 2.8 2.6 2.7 5.4 1.2 0.9
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income tax expense... (30.7) (28.5) (63.0) (44.7) (25.5) (1.8) 0.3
Income tax expense...... 1.6 1.4 1.8 1.1 1.5 0.4 0.3
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(32.3) $(29.9) $(64.8) $(45.8) $(27.0) $ (2.2) $ --
====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA(2)............... $ 95.4 $ 96.1 $ 89.4 $ 85.1 $ 94.2 $ 29.2 $ 25.3
EBITDAR(2).............. 149.8 151.1 148.7 160.7 174.8 48.7 45.8
Adjusted EBITDA(3)...... 100.4 97.6 91.4 90.1 98.7 30.0 26.2
Adjusted EBITDAR(3)..... 153.5 151.1 148.7 162.6 175.6 48.7 45.8
Adjusted EBITDA
margin(4).............. 15.6% 15.6% 14.1% 13.3% 14.4% 17.2% 15.9%
Adjusted EBITDAR
margin(4).............. 23.8% 24.2% 22.9% 23.9% 25.6% 27.9% 27.8%
Ratio of EBITDA to
interest expense(5).... 2.28x 2.18x 1.72x 1.96x 2.14x 2.65x 2.53x
Ratio of EBITDAR to
interest and rent
expense(5)............. 1.56x 1.53x 1.34x 1.35x 1.40x 1.60x 1.50x
Ratio of Adjusted EBITDA
to interest
expense(5)............. 2.40x 2.22x 1.76x 2.07x 2.25x 2.73x 2.62x
Ratio of Adjusted
EBITDAR to interest and
rent expense(5)........ 1.60x 1.53x 1.34x 1.37x 1.41x 1.60x 1.50x
Statement of cash flow
information(6):
Net cash provided by
(used in) operating
activities............ $ 67.3 $ 49.7 $ 40.7 $ 30.8 $ 51.0 $ 20.7 $ (0.6)
Net cash used in
investing activities.. (31.2) (54.4) (1.6) (56.7) (4.6) (22.3) (20.2)
Net cash provided by
(used in) financing
activities............ (23.8) 1.1 (19.4) 3.5 (45.7) 2.7 17.3
------ ------ ------ ------ ------ ------ ------
Net cash flow.......... $ 12.3 $ (3.6) $ 19.7 $(22.4) $ 0.7 $ 1.1 $ (3.5)
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges(7)....... -- -- -- -- -- -- 1.0x
<CAPTION>
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Adjusted EBITDAR:
Per weighted average
theatre............... $352.9 $365.0 $363.6 $411.6 $496.0 $133.4 $138.0
Per weighted average
screen................ 68.5 68.6 65.5 70.7 79.7 22.0 21.3
Admissions per weighted
average screen......... 207.1 203.3 201.4 202.9 215.0 55.1 52.6
Weighted average(8):
Operating theatres..... 435 414 409 395 354 365 332
Operating screens...... 2,242 2,202 2,270 2,299 2,204 2,209 2,154
Screens per operating
theatre............... 5.2 5.3 5.6 5.8 6.2 6.1 6.5
Screens added........... 32 90 137 138 132 61 23
Screens divested........ 128 28 81 245 170 12 24
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ---------
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 16.4 $ 12.8 $ 32.5 $ 10.1 $ 10.8 $ 7.3
Total assets.................... 737.5 717.6 665.8 612.7 563.0 560.5
Total debt...................... 463.1 451.7 453.7 453.1 414.0 429.7
Total stockholders' equity
(deficit)...................... 149.4 119.5 54.6 8.4 (20.3) (20.2)
</TABLE>
- --------
(1) Reflects non-cash charges for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" which the Company adopted in 1995.
(2) EBITDA represents operating income (loss) before depreciation,
amortization, and provision for impairment. EBITDAR represents operating
income (loss) before depreciation, amortization, provision for impairment,
and rent expense. While EBITDA and EBITDAR are not intended to represent
cash flow from operations as defined by GAAP and should not be considered
as an indicator of operating performance or an alternative to cash flow
(as measured by GAAP) as a measure of liquidity, they are included herein
to provide additional information with respect to the ability of United
Artists to meet its future debt service, capital expenditures, rental
obligations, and working capital requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) Adjusted EBITDA represents EBITDA before the effects of restructuring
charges, which are not expected to recur, and non-cash rent expense which
is excluded from Consolidated EBITDA as defined by the Indenture.
Adjusted EBITDAR represents EBITDAR before the effects of restructuring
charges. While Adjusted EBITDA and Adjusted EBITDAR are not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, they are
included herein to provide additional information with respect to the
ability of United Artists to meet its future debt service, capital
expenditures, rental obligations, and working capital requirements. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." The ability of United Artists to use Adjusted EBITDA and
Adjusted EBITDAR to meet future debt service, capital expenditures,
rental obligations and working capital requirements may be limited by
law, covenants contained in the Indenture or the Bank Credit Agreement or
for other reasons. See "Description of Certain Indebtedness" and
"Description of the Exchange Notes". Other companies may use measures
other than Adjusted EBITDA and Adjusted EBITDAR to reflect their ability
to meet future debt service, capital expenditures, rental obligations and
working capital requirements.
(4) Defined as Adjusted EBITDA and Adjusted EBITDAR as a percentage of total
revenue.
(5) "Interest expense" means interest expense recorded during the related
period excluding interest income and amortization of deferred financing
fees.
(6) Amounts derived from the Company's statements of cash flow.
(7) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by United Artists to be representative of the
interest factor thereon. Earnings were insufficient to cover fixed charges
for each of the years ended December 31, 1993, 1994, 1995, 1996 and 1997
and for the three months ended March 31, 1997 by $29.3 million, $27.3
million, $61.7 million, $43.4 million, $22.6 million and $0.9 million,
respectively. In addition, on a pro forma basis after giving effect to the
Transactions as if they occurred on January 1, 1997, earnings would have
been insufficient to cover fixed charges for the year ended December 31,
1997 and the three months ended March 31, 1998 by $33.4 million and $3.3
million, respectively.
(8) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated and Condensed
Consolidated Financial Statements of the Company, including the notes thereto,
appearing elsewhere in this Prospectus.
OVERVIEW
Company Background
The Company's primary operating subsidiary, UATC, was founded in 1926 by
stockholders including Mary Pickford, Douglas Fairbanks, Sam Goldwyn and Joe
Schenck. During the 1980s UATC was acquired by Tele-Communications, Inc.
("TCI") and subsequently undertook a major acquisition program. By December
31, 1988, UATC operated 2,677 screens in 686 theatres principally in the
south, northeast, midwest and California.
In 1992, the Company acquired all of the outstanding stock of UATC (the
"Acquisition") and began to invest internationally, streamline and rejuvenate
UATC by developing new multi-screen theatres in existing and new areas of
operation, renovating existing properties on a limited basis and selling or
closing less productive or non-strategic theatres. In December 1996, the
Company implemented a corporate restructuring and refocused its investment
strategy on its core U.S. business by, among other things: (i) renovating,
rebuilding, or expanding existing key locations; and (ii) accelerating the
sale or closure of under-performing or non-strategic assets (including its
international investments). Since January 1992, UATC has sold or closed 226
theatres (826 screens) and has added 61 theatres (619 screens), primarily
through new construction. UATC's average number of screens per theatre has
increased 37.5% from 4.8 at January 1, 1992 to 6.6 at March 31, 1998. See
"Business--Business and Operating Strategy."
Revenue
United Artists' principal sources of revenue from its theatres are derived
from theatrical admissions and concession sales. For the twelve months ended
March 31, 1998, theatrical admissions and concession sales comprised
approximately 68.8% and 27.9%, respectively, of United Artists' revenue. The
remaining 3.3% of revenue for this period was derived primarily from on-screen
advertising, electronic video games located in theatre lobbies, theatre
rentals and other miscellaneous sources. Theatre rental revenue relates
primarily to the Satellite Theatre NetworkTM business unit that rents theatres
on a networked and non-networked basis for corporate meetings, seminars and
other training/educational uses.
Admissions. United Artists' admissions revenue is based on the level of
theatrical attendance and the mix of tickets sold. Theatre attendance is
dependent primarily upon the ability to license the most popular films. United
Artists' ticket prices vary throughout the circuit depending upon such things
as local competition, whether the theatre is showing first run or second run
movies and the local economy in which the theatre operates. Reduced ticket
prices are typically charged for senior citizens, children and matinee
showings. The mix of tickets sold is primarily related to the types of movies
available to and exhibited by United Artists. Admissions revenue is recorded
net of applicable sales taxes.
Concession Sales. Concession sales are a significant factor in the overall
profitability of a theatre. United Artists' primary concession products are
various sizes of popcorn, soft drinks, candy and certain other products such
as nachos and hot dogs. United Artists 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 (including children's) sizes. Retail prices for concession items
vary by the size of the product and are generally market sensitive. Concession
sales are recorded net of applicable sales taxes.
39
<PAGE>
To further increase its concession sales, United Artists has introduced new
products and initiated programs intended to increase the percentage of patrons
who purchase concessions and increase the amount of concessions purchased by
each patron. To achieve these goals United Artists 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, installed bulk candy stands in most
theatres and adopted certain seasonal and event-oriented promotional programs.
In addition, theatre managers and assistant managers are incentivized through
concession commission programs that represent a significant portion of their
total compensation.
Operating Expenses
United Artists' major operating expenses include film rental and
advertising, concession, personnel, occupancy, miscellaneous, general and
administrative and depreciation and amortization.
Film rental and advertising expenses. Film rental and advertising expense
includes the rental fees paid to film distribution companies as well as local
newspaper advertising expenditures. Film rental fees vary based upon the
amount and timing of admissions revenue for a particular film.
Film licenses typically specify rental fees equal to the higher of a
percentage of gross box office receipts or 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 theatre expenses.
Most terms of the film licenses (and therefore the film rental costs) with
many film distributors are historically finalized after 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. United Artists has historically been able to license a
majority of the motion pictures available; however, there is no guarantee that
it can continue to do so in the future.
Local newspaper advertising expenditures include costs to advertise United
Artists' theatres and showtimes as well as a portion of the costs to promote
upcoming film releases. In most areas, multi-media advertisements for upcoming
film releases are paid by the film's distributor. In selected areas there is a
"co-op" arrangement whereby exhibitors and distributors share in the cost of
film advertisement in newspapers.
Concession costs. Concession costs include direct concession product costs
as well as concession promotional expenses. Concession product costs include
the cost of the concession items sold as well as the cost of spoiled or wasted
concession inventory. Concession promotional expenses include all costs
associated with the various concession promotions that United Artists
undertakes, including costs for promotional kiosks and literature and awards
granted to employees.
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. Theatre managers are typically paid a
base salary and a commission that varies based upon the theatre's concession
sales and overall theatre performance. The wages paid to the theatre staff
vary to a certain extent with the level of theatre attendance.
Occupancy expense. Occupancy expense includes base rentals as prescribed in
the theatre leases, contingency rentals that are a percentage of revenue over
a certain breakpoint and non-cash rent expense associated with "straight-
lining" leases that have escalating lease terms.
Miscellaneous operating expenses. Miscellaneous other expenses include
utilities, repairs and maintenance, insurance, real estate and other taxes and
supplies.
40
<PAGE>
General and administrative expense. General and administrative expense
consists primarily of costs associated with corporate theatre administration
and operating personnel, international staff, Satellite Theatre Network(TM)
sales and marketing staff and other support functions located at the Company's
corporate headquarters, two film booking offices, three regional operating
offices and 14 district theatre operations offices. At the end of 1996, United
Artists initiated a corporate restructuring plan intended to provide a higher
level of focus on United Artists' domestic theatrical business at a lower
annual cost.
Depreciation and Amortization and Provision for Asset
Impairments. Depreciation and amortization expense includes the depreciation
of theatre buildings and equipment, the amortization of theatre lease costs
and certain non-compete agreements and non-cash provisions for asset
impairments. The provision for asset impairments relates to non-cash charges
for the difference between the historical book value of individual theatres
(in some cases, groups of theatres) and the net discounted cash flow expected
to be received from the operation or future sale of the individual theatres
(or groups of theatres).
Other. As discussed under "Risk Factors--Potential Volatility of Operating
Results," the Company's operating results may fluctuate because of a number of
factors, including, among others, the availability of popular major motion
pictures. In the first quarter of 1997, the Company experienced favorable
operating results compared to the prior period, principally due to the release
of several popular motion pictures and the occurrence of Easter in such
quarter. See "-- Seasonality."
41
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The following table summarizes certain operating data of United Artists'
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
1998 1997 (DECREASE)
-------- ------- ----------
<S> <C> <C> <C>
Operating Theatres(1)
Revenue:
Admissions..................................... $ 113.4 121.7 (6.8)
Concession sales............................... 46.6 47.7 (2.3)
Other.......................................... 4.7 5.1 (7.8)
Operating Expenses:
Film rental and advertising expenses........... 60.9 65.8 (7.4)
Concession costs............................... 6.5 7.4 (12.2)
Other Operating Expenses:
Personnel expense............................ 22.8 23.1 (1.3)
Occupancy expense............................ 20.5 19.5 5.1
Miscellaneous operating expenses............. 23.3 22.9 1.7
Weighted Avg. Operating Theatres(2).............. 332 365 (9.0)
Weighted Avg. Operating Screens(2)............... 2,154 2,209 (2.5)
Weighted Avg. Screens Per Avg. Theatre........... 6.5 6.1 6.6
Admissions Per Weighted Avg. Operating Theatre... $341,566 333,425 2.4
Admissions Per Weighted Avg. Operating Screen.... $ 52,646 55,093 (4.4)
Concession Sales Per Weighted Avg. Operating The-
atre............................................ $140,361 130,685 7.4
</TABLE>
- --------
(1) The operating theatres include revenue and expenses of all theatres
operated by United Artists that 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 for the Three Months Ended March 31, 1998
Compared to the Three Months Ended March 31, 1997
Admissions. Admissions revenue and admissions revenue per weighted average
operating screen decreased 6.8% and 4.4%, respectively, during the three
months ended March 31, 1998 as compared to the three months ended March 31,
1997. These decreases were primarily the result of a 10.0% decrease in
attendance, partially offset by a 3.6% increase in the average ticket price.
The decrease in attendance was primarily due to the success of several films
released and United Artists' disproportionately high market share of certain
films during the 1997 quarter, the occurrence of Easter during the 1997
quarter, as well as a decrease in the weighted average number of theatres and
screens. The increase in the average ticket price was primarily due to
selective increases in ticket prices during late 1997 and a higher percentage
of full price and adult tickets sold during 1998. Admissions per weighted
average operating theatre increased 2.4% during the three months ended March
31, 1998 as compared to the three months ended March 31, 1997 primarily as a
result of the increased ticket prices discussed above (3.0%), the opening of
several new theatres which have higher admissions per theatre (4.3%) and the
sale or closure of several smaller (in terms of screens) less productive
theatres (8.7%), partially offset by the decreased attendance (13.6%).
Concession Sales. Concession sales revenue decreased 2.3% during the three
months ended March 31, 1998 as compared to the three months ended March 31,
1997, primarily as a result of the decreased attendance discussed above,
partially offset by an 8.6% increase in the average concession sale per
patron. Concession sales
42
<PAGE>
per weighted average operating theatre increased 7.4% during the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997. 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 1997, United Artists' increased emphasis on staff
training, the opening of several new theatres with more efficient concession
operations (5.7%) and the sale or closure of certain less productive theatres
(9.5%).
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 Satellite Theatre
Network(TM) and other miscellaneous sources. Other revenue decreased 7.8% for
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997, primarily as a result of United Artists operating fewer
weighted average theatres and screens.
Operating Expenses for the Three Months Ended March 31, 1998
Compared to the Three Months Ended March 31, 1997
Film rental and advertising expenses. Film rental and advertising expenses
decreased 7.4% during the three months ended March 31, 1998 as compared to the
three months ended March 31, 1997, primarily as a result of the decrease in
admissions revenue discussed above. Film rental and advertising expenses as a
percentage of admissions revenue were 53.7% and 54.1% for the three months
ended March 31, 1998 and 1997, respectively. The slight decrease in film
rental and advertising expenses as a percentage of admissions revenue related
primarily to the long run during 1998 of several films released in late 1997.
Concession costs. Concession costs include direct concession product costs
and concession promotional expenses. Such costs decreased 12.2% during the
three months ended March 31, 1998 as compared to the three months ended March
31, 1997, primarily as a result of the decrease in concession sales revenue
discussed above. Concession costs as a percentage of concession sales revenue
were 14.0% and 15.5% for the three months ended March 31, 1998 and 1997,
respectively. The decrease in concession costs as a percent of concession
sales for the three months ended March 31, 1998 as compared to March 31, 1997
was primarily due to lower promotional expenses and the rebidding or
restructuring of the product and distribution contracts associated with many
of United Artists' concession supply products.
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 decreased 1.3% during
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997. This decrease in personnel expense was primarily due to more
efficient theatre staffing and fewer weighted average operating theatres,
partially offset by the increase in the Federal minimum wage in late 1997. The
1997 increase in the Federal minimum wage resulted in a 7.9% increase in the
average hourly wage paid to theatre staff in 1998 versus 1997. Personnel
expense as a percentage of admissions and concessions revenue was 14.3% and
13.6% for the three months ended March 31, 1998 and 1997, respectively. The
increase in personnel expense as a percentage of admissions and concessions
was primarily attributable to the decrease in attendance discussed above
combined with the increase in the Federal minimum wage, partially offset by
the closure or sale of several less efficient theatres (2.8%) and the opening
of several new larger, more efficient multiplex theatres (1.0%).
Occupancy expense. United Artists' 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
expense increased 5.1% during the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997, primarily as a result of
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, 1998 and 1997 includes $0.9 million and $0.8
million, respectively, of non-cash charges relating to the effect of
escalating leases which have been "straight-lined" for accounting purposes.
43
<PAGE>
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 increased 1.7% during the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997, primarily as a result of
increased real estate and other taxes, partially offset by lower insurance
expense and fewer weighted average theatres.
The revenue and operating expenses discussed above are incurred exclusively
within United Artists' theatres. The other expense discussions below reflect
the combined expenses of corporate, divisional, district and theatre
operations.
Other Expenses for the Three Months Ended March 31, 1998 and 1997
General and Administrative Expense
General and administrative expense consists primarily of costs associated
with corporate theatre administration and operating personnel, Satellite
Theatre Network sales and marketing staff and other support functions located
at United Artists' corporate headquarters, two film booking and three regional
operating offices and 14 district theatre operations offices (generally
located in theatres). At the end of 1996, United Artists initiated a corporate
restructuring plan intended to provide a higher level of focus on United
Artists' theatrical business at a lower annual cost. This corporate
restructuring was completed in January 1997. General and administrative
expense decreased $1.2 million, or 18.2%, for the three months ended March 31,
1998 as compared to the three months ended March 31, 1997, as certain aspects
of the corporate restructuring were not completed until later in 1997.
Depreciation and Amortization
Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment, the amortization of theatre lease costs and certain
non-compete agreements and non-cash provisions for asset impairments.
Depreciation and amortization decreased $4.7 million during the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997,
primarily due to lower amortization from non-compete agreements which were
fully amortized during 1997 and changing the estimated remaining useful lives
of certain assets during 1998, partially offset by increased depreciation
charges on United Artists' newly opened theatres. United Artists recorded
approximately $6.0 million of amortization expense during the three months
ended March 31, 1997 on non-compete agreements which were fully amortized in
May 1997. As a result, no amortization expense was recorded during the three
months ended March 31, 1998 on those non-compete agreements.
Operating Income
During the three months ended March 31, 1998, United Artists had operating
income of $11.6 million versus $10.8 million for the three months ended March
31, 1997. This 7.4% increase in operating income relates to higher gross
concession margins and reduced operating, general and administrative, and
depreciation and amortization expenses, partially offset by lower revenue.
Interest, Net
Interest, net decreased $1.0 million for the three months ended March 31,
1998 as compared to the three months ended March 31, 1997, due primarily to
lower average debt balances.
Net Income (Loss)
During the three months ended March 31, 1998, United Artists broke even from
a net income standpoint versus a net loss of $2.2 million for the three months
ended March 31, 1997. This increase relates primarily to the increase in
operating income and reduction in interest, net discussed above.
44
<PAGE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED 1997, 1996 AND 1995
The following table summarizes certain operating data of United Artists'
theatres (dollars in millions, except admissions per weighted average
operating theatre, admissions per weighted average operating screen and
concession sales per weighted average operating theatre):
<TABLE>
<CAPTION>
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------- --------------------------------
% %
INCREASE INCREASE
1997 1996 (DECREASE) 1996 1995 (DECREASE)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating theatres(1)
Revenue:
Admissions............. $ 473.9 $ 466.5 1.6% $ 466.5 $ 457.1 2.1%
Concession sales....... 189.6 185.1 2.4 185.1 178.2 3.9
Other.................. 22.8 27.5 (17.1) 27.5 14.5 89.7
Operating expenses:
Film rental and
advertising expenses.. 262.5 257.2 2.1 257.2 248.6 3.5
Concession costs....... 30.2 29.3 3.1 29.3 29.5 (0.7)
Other operating
expenses:
Personnel expense...... 95.5 96.4 (0.9) 96.4 95.2 1.3
Occupancy expense:
Rent excluding sale
and leaseback........ 67.8 64.6 5.0 64.6 58.8 9.9
Sale and leaseback
rentals.............. 12.8 11.0 16.4 11.0 0.5 N/M
Misc. operating
expenses.............. 98.2 98.5 (0.3) 98.5 92.3 6.7
Weighted avg. operating
theatres(2)............ 354 395 (10.4) 395 409 (3.4)
Weighted avg. operating
screens(2)............. 2,204 2,299 (4.1) 2,299 2,270 1.3
Weighted avg. screens
per avg. theatre....... 6.2 5.8 6.9 5.8 5.6 3.6
Admissions per weighted
avg. operating
theatre................ $1,338,701 $1,181,013 13.4 $1,181,013 $1,117,604 5.7
Admissions per weighted
avg. operating screen.. $ 215,018 $ 202,914 6.0 $ 202,914 $ 201,366 0.8
Concession sales per
weighted avg. operating
theatre................ $ 535,593 $ 468,608 14.3 $ 468,608 $ 435,697 7.6
</TABLE>
- --------
(1) The operating theatres include revenue and expenses of all theatres
operated by United Artists that 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 for the Year Ended December 31, 1997
Compared to the Year Ended December 31, 1996
Admissions. Admissions revenue increased 1.6% during 1997 as compared to
1996, despite a 10.4% decline in the average number of theatres operated. This
increase was primarily due to a 7.0% increase in the average ticket price,
partially offset by a 5.0% decrease in attendance. The increase in the average
ticket price for 1997 was primarily due to an increase in the percentage of
full priced tickets purchased and certain selective increases in ticket prices
during 1997 and late 1996. The decrease in attendance for 1997 was primarily
due to decreases in the number of weighted average theatres and screens
operated during the year. Admissions per weighted average operating theatre
and screen increased 13.4% and 6.0%, respectively, during 1997 as compared to
1996. These admissions increases were primarily due to an increase in the
number of films released and the success of those films and the opening of
several new theatres, which have higher admissions per theatre and screen
(5.0% and 1.4%), the sale or closure of several less productive theatres (2.9%
and 0.4%), and the 1997 and late 1996 increases in ticket prices (8.0%),
partially offset by decreased attendance (2.5% and 3.8%).
45
<PAGE>
Concession sales. Concession sales revenue increased 2.4% during 1997 as
compared to 1996. This increase was primarily due to a 7.8% increase in the
average concession sale per patron, partially offset by the decreased
attendance discussed above. Concession sales per weighted average operating
theatre increased 14.3% during 1997 as compared to 1996. The increases in the
average concession sale per patron and concession sales per weighted average
operating theatre were primarily due to certain selective price increases
during 1997 and late 1996, United Artists' increased emphasis on sales staff
training, the opening of several new theatres with more efficient concession
operations (6.5%), the sale or closure of several less productive theatres
(2.0%) and the introduction of new concession menu items at certain theatres.
The following table sets forth the admissions and concession sales revenue for
theatres operated throughout all of 1997 and 1996 (dollars in millions):
<TABLE>
<CAPTION>
THEATRES SCREENS 1997 1996 % INCREASE
-------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout both
periods............................ 312 1,922
Admissions.......................... $412.1 $410.8 0.3%
Concession sales.................... $162.0 $160.5 0.9%
</TABLE>
This "same theatre" analysis eliminates the effect of new theatre openings,
sales or closures during 1997 or 1996.
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 Satellite Theatre
Network(TM), and other miscellaneous sources. Other revenue decreased 17.1%
during 1997 as compared to 1996 primarily as a result of United Artists
operating fewer weighted average operating theatres and a decrease in revenue
from on-screen advertising.
Revenue from Operating Theatres for the Year Ended December 31, 1996
Compared to the Year Ended December 31, 1995
Admissions. Admissions revenue increased 2.1% during 1996 as compared to
1995. This increase was 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 being shown. While Independence Day and A Time to Kill performed very
well during the Olympics, the attendance of several other films in the
marketplace during July and August appeared to be adversely impacted.
Admissions per weighted average operating theatre and screen increased 5.7%
and 0.8%, respectively, during 1996 as compared to 1995 primarily as a result
of several new theatres opened by United Artists which have higher admissions
per theatre and screen (4.0% and 1.0%), the sale or closure of several smaller
(in terms of screens) less productive theatres (4.1% and 0.9%), and the
average ticket prices (5.1%) and attendance fluctuations (7.5% and 6.2%)
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 7.6% 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, United Artists' 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
(5.1%) and the closure of certain less efficient older, smaller theatres
(5.5%).
46
<PAGE>
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>
Other. Other revenue increased 89.7% (or $13.0 million) during 1996, as
compared to 1995, primarily as a result of increased revenue from United
Artists' on-screen advertising and Satellite Theatre Network (TM).
Operating Expenses for the Year Ended December 31, 1997
Compared to the Year Ended December 31, 1996
Film rental and advertising expenses. Film rental and advertising expenses
increased 2.1% during 1997 as compared to 1996. Film rental and advertising
expenses as a percentage of admissions revenue were 55.4% for 1997 and 55.1%
for 1996. The increase in film rental and advertising expenses as a percentage
of admissions revenue for 1997 was primarily due to the shorter run of several
major films released in the second quarter of 1997, partially offset by
slightly lower advertising expenses. Typically, film rental as a percentage of
admissions revenue increases when a higher percentage of a film's total
admissions is collected in the opening weeks of a film's run. Advertising
expenses were lower as a result of more efficient buying of print advertising
by United Artists and distributors and to fewer number of theatres operated.
Concession costs. Concession costs include direct concession product costs
and concession promotional expenses. Such costs increased 3.1% during 1997 as
compared to 1996. Concession costs as a percentage of concession sales were
15.9% for 1997 and 15.8% for 1996. The slight increase in concession costs as
a percentage of concession sales for 1997 was primarily due to an increase in
the cost of certain commodity priced items such as corn seed and oil.
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 decreased 0.9% during
1997 as compared to 1996. This decrease in personnel expense in 1997 was
primarily due to more efficient theatre staffing and fewer weighted average
operating theatres, partially offset by the increases in the Federal (and
certain state) minimum wage in late 1996 and late 1997. These increases
resulted in a 7.4% increase in the average hourly wage paid to theatre staff
in 1997 versus 1996. Despite the increases in the Federal minimum wage in 1997
and 1996, personnel expense as a percentage of admissions and concession sales
revenue decreased to 14.4% in 1997 from 14.8% in 1996. These improved payroll
statistics relate to more efficient staffing and some increases in ticket and
concession sales. Additionally, United Artists' personnel expense efficiencies
have been positively impacted by the closure or sale of several less efficient
theatres (3.3%) and the opening of several new larger, more efficient
multiplex theatres (1.2%) and reduced expenses for fringe benefits.
Occupancy expense. United Artists' typical theatre lease arrangement
provides for a base rental as well as contingent rental that is a function of
the underlying theatre's revenue over an agreed upon breakpoint. Total
occupancy expense increased 6.6% during 1997 as compared to 1996. This
increase in 1997 relates to higher contingent rentals, rentals on newly opened
theatres and rentals related to the sale and leaseback transaction completed
in late 1996, partially offset by the decrease in the number of weighted
average operating theatres. Occupancy expense includes non-cash charges
relating to the effect of escalating leases which have been "straight lined"
for accounting purposes of $3.7 million and $3.1 million for 1997 and 1996,
respectively.
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 0.3% during 1997 as compared to 1996. This decrease in 1997
relates primarily to reduced utilities, repairs and maintenance and insurance
associated with fewer weighted average theatres, partially offset by
additional expenses associated with United Artists' Satellite Theatre
Network(TM).
47
<PAGE>
Operating Expenses for the Year Ended December 31, 1996
Compared to the Year Ended December 31, 1995
Film rental and advertising expenses. Film rental and advertising expenses
increased 3.5% during 1996 as compared to 1995. Film rental and advertising
expenses as a percentage of admissions revenue were 55.1% for 1996 and 54.4%
for 1995. The increase in film rental and advertising expense as a percentage
of admissions revenue for 1996 related 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
opening weeks.
Direct concession costs. Direct concession costs decreased 0.7% during 1996
as compared to 1995. Direct concession costs as a percentage of concession
sales revenue were 15.8% for 1996 and 16.6% for 1995. The decrease in direct
concession costs during 1996 was primarily due to the sale of advertising on
popcorn and soft drink containers, partially offset by higher concession sales
revenue and costs attributable to increased sales of bulk candy.
Personnel expense. Personnel expense increased 1.3% during 1996 as compared
to 1995. The increase in personnel expense in 1996 is primarily attributable
to the increase of the Federal minimum wage law increase 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 United
Artists' theatres, it had a significant impact on the average hourly wage paid
to United Artists' theatre employees located in smaller and mid-sized markets.
Personnel expense as a percentage of admissions and concession sales revenue
declined in 1996 to 14.8% as compared to 15.0% in 1995. This decrease was
primarily attributable to changes in the theatre manager commission structure,
which focused on more efficient staffing of theatres. Additionally, United
Artists' personnel expense efficiencies have been positively impacted by the
closure or sale of several less efficient theatres (3.5%) and the opening of
several new, more efficient theatres (0.7%).
Occupancy expense. Total occupancy expense increased 27.5% during 1996 as
compared to 1995. This increase in 1996 relates primarily to $10.5 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 transactions and
incremental base rentals associated with newly opened theatres, partially
offset by fewer weighted average operating theatres. Additionally, occupancy
expense includes non-cash charges relating to the effect of escalating leases
which have been "straight-lined" for accounting purposes of $3.1 million and
$2.0 million for 1996 and 1995, respectively. Excluding the rent associated
with the 1995 Sale and Leaseback and the 1996 Sale and Leaseback transaction
and the non-cash rent, occupancy expense would have increased 8.3% during 1996
as compared to 1995.
Miscellaneous operating expenses. Miscellaneous operating expenses increased
6.7% during 1996 as compared to 1995. This increase relates primarily to
increased operating expenses associated with the Satellite Theatre Network(TM)
and normal inflationary increases.
Other Expenses for the Years Ended December 1997, 1996 and 1995
General and Administrative Expense and Restructuring Charges
General and administrative expense consists primarily of costs associated
with corporate theatre administrative and operating personnel, international
staff, Satellite Theatre Network(TM) sales and marketing staff and other
support functions located at United Artists' 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, United
Artists initiated a corporate restructuring plan intended to provide a higher
level of focus on United Artists' domestic theatrical business at a lower
annual cost. As a result of this corporate restructuring plan, which was
substantially completed in January 1997, general and administrative expenses
decreased $10.8 million in 1997, or 30.8%, as compared to 1996. During 1996,
administrative costs decreased $0.4 million primarily as a result of $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. During 1997 and 1996, United
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<PAGE>
Artists recorded $0.8 million and $1.9 million, respectively, of restructuring
charges relating to severance and other related expenses associated with
United Artists' corporate restructuring.
Depreciation and Amortization and Provisions for Asset Impairments
Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment, the amortization of theatre lease costs and certain
non-compete agreements and non-cash provisions for asset impairments. The
provision for asset impairments relates to non-cash charges for the difference
between the historical book value of individual theatres (in some cases,
groups of theatres) and the net discounted cash flow expected to be received
from the operation or future sale of the individual theatre (or groups of
theatres). Depreciation and amortization decreased $14.2 million in 1997 as
compared to 1996 and increased $5.1 million in 1996 as compared to 1995. The
1997 decrease was primarily due to lower amortization of non-compete
agreements. The 1996 increase was primarily due to depreciation charges on
United Artists' newly opened theatres. Included in depreciation and
amortization expense for each of the years ending December 31, 1997, 1996 and
1995 was $9.0 million, $24.0 million and $24.0 million, respectively, relating
to certain assets, non-compete agreements and other assets acquired as part of
the Acquisition which were being amortized over a five year life. In May 1997,
such assets were fully amortized and, as a result, no further amortization
expense will be recorded related to those assets. During the years ended
December 31, 1997, 1996 and 1995, United Artists recorded $36.0 million, $9.5
million and $21.0 million, respectively, of non-cash provisions for asset
impairments.
Operating Loss
United Artists incurred operating losses of $2.5 million in 1997 and $1.4
million in 1995 and recognized operating income of $0.7 million in 1996. As
shown in the table below, prior to United Artists recording non-cash
provisions for asset impairments, United Artists recognized operating income
of $33.5 million in 1997, $10.2 million in 1996 and $19.6 million in 1995.
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Operating income (loss)................................ $(2.5) 0.7 (1.4)
Non-cash provisions for asset impairments.............. 36.0 9.5 21.0
----- ---- ----
Operating income before non-cash provision for asset
impairments........................................... $33.5 10.2 19.6
===== ==== ====
</TABLE>
The increase in operating income before non-cash provisions for asset
impairments in 1997 was primarily due to the operating improvements discussed
above, savings associated with United Artists' corporate restructuring in 1996
and reduced depreciation and amortization expense in 1997 versus 1996. The
reduction in operating income in 1996 before non-cash provisions for asset
impairments was primarily due to $10.5 million of incremental rent associated
with the 1995 Sale and Leaseback, partially offset by increased operating
margins.
Interest, Net
Interest, net increased $0.2 million in 1997 as compared to 1996 and
decreased $7.9 million in 1996 as compared to 1995. The 1997 increase was
primarily due to a slightly higher average outstanding debt balance. The 1996
decrease was primarily due to lower market interest rates on floating rate
borrowings and a lower average outstanding debt balance during 1996.
Gain (Loss) on Disposition of Assets, Net
During April 1997, United Artists sold its 50% interest in a Hong Kong
theatre company to its partner for approximately $17.5 million and during
September 1997, United Artists sold its theatre investments in Mexico and the
majority of its theatre assets in Argentina for approximately $25.0 million.
In addition, various non-strategic or underperforming operating theatres and
real estate assets were sold for net cash proceeds of approximately $27.5
million. In conjunction with these sales, United Artists recognized $28.0
million of gains. During 1996, United Artists sold certain theatres for which
cash proceeds of $23.5 million were received. In conjunction with these sales,
United Artists recognized $2.7 million of gains. During 1995, United Artists
incurred net losses on the disposition of assets of $5.7 million. These losses
relate primarily to the sale of certain theatres for which net cash proceeds
of $16.6 million were received, and the termination or non-renewal
49
<PAGE>
of leases related to theatres, which were closed. The theatres sold and closed
were non-strategic or underperforming.
Income Tax Expense
Income tax expense consists of current state and federal income taxes of
United Artists' less than 80%-owned consolidated subsidiaries. At December 31,
1997, United Artists has a net operating loss carryforward of approximately
$200.0 million. The income tax returns of the Company are currently being
audited by the Internal Revenue Service. The outcome of this audit may reduce
the amount of the Company's net operating loss carryforward and/or change the
basis (and thus future depreciation) related to certain assets. United Artists
believes that the result of the audit will not have a material adverse effect
on the financial condition or results of operations of United Artists.
Net Loss
During 1997, United Artists incurred a net loss of $27.0 million as compared
to $45.8 million in 1996. This decrease in net loss was primarily attributable
to an increase in the operating margins at United Artists' theatres and the
gain recognized on the sale of certain of United Artists' international
theatre operations and certain other operating theatres and real estate
assets, offset by non-cash provisions for asset impairments. During 1996,
United Artists incurred a net loss of $45.8 million as compared to $64.8
million in 1995. This decrease in net loss was due to a decrease in operating
loss, a $7.9 million decrease in interest expense and to $5.7 million of
losses recognized on the disposition of assets during 1995. Despite the $10.5
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 $6.4 million decrease in
depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, $0.6 million of cash was used in
United Artists' operating activities, primarily to pay down accounts payable
and accrued liabilities. This operating use of cash, in addition to $20.2
million of cash used for capital expenditures and other investing activities,
was provided by $17.3 million of financing activities and $3.5 million of cash
balances available at December 31, 1997.
For the year ended December 31, 1997, net cash provided by United Artists'
operating activities increased to $51.0 million from $30.8 million for the
year ended December 31, 1996. This net cash provided by operating activities
was $46.4 million in excess of cash used in investment activities, which
provided for a $40.6 million reduction in net debt balances. During 1996, the
net cash provided by operating activities was $25.9 million less than cash
used in investment activities.
Substantially all of United Artists' admissions and concession sales revenue
are collected in cash. Due to the unfavorable interest rate spread between
bank facility borrowings and cash investments, United Artists seeks to use all
of its available cash to repay its revolving bank borrowings and borrow under
those facilities as cash is required. United Artists' benefits from the fact
that film expenses (except for films that require advances) are usually paid
15 to 45 days after the admissions revenue is collected.
During December 1996, United Artists initiated a new investment strategy
that focuses on the development of new theatres and renovation and expansion
of existing high revenue theatres in the United States where United Artists
has a significant operating presence. As part of this increased focus on its
U.S. operations, United Artists restructured and realigned its corporate
overhead functions and has sold most of its international investments. The
proceeds received from the sale of international investments and corporate
overhead savings were redeployed into new theatre developments or the
renovation of existing key theatres in United Artists' core areas and used to
repay existing debt. United Artists currently has an agreement to sell a
portion of its investments in Singapore and Thailand for $8.1 million. After
the consummation of such sale, United Artists' international investments will
only include a 10.0% interest in four theatres in Singapore and Thailand.
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<PAGE>
As part of its strategic plan, United Artists intends to continue to dispose
of, through sale or lease terminations, certain of its non-strategic or
underperforming operating theatres and real estate in the United States. Net
proceeds, if any, from these increased disposition efforts are also expected
to be used to repay existing debt or redeployed into the renovation and/or
expansion of existing theatres and new, larger (in terms of screens), higher
margin theatres. While there can be no assurance that such sales or lease
termination efforts will be successful, negotiations are ongoing with respect
to several theatres and parcels of real estate. During the three months ended
March 31, 1998, United Artists closed or sold seven theatres (24 screens).
During the year ended December 31, 1997, United Artists closed or sold 44
theatres (170 screens). The theatres that were closed or sold were primarily
non-strategic or underperforming.
In an effort to limit the amount of investment exposure on any one project,
United Artists typically develops theatre projects where both the land and
building are leased through long-term operating leases. Where such lease
transactions are unavailable, however, United Artists 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. Regardless of whether the theatre
is leased or fee-owned, in most cases the equipment and other theatre fixtures
are owned by United Artists. For the three months ended March 31, 1998, United
Artists invested approximately $17.4 million on the development of two new
theatres (23 screens) which opened during the period, construction on eight
theatres (96 screens) and screen additions or renovations to 12 theatres
expected to open during the remainder of 1998 or in 1999 and recurring
maintenance to certain existing theatres. For the year ended December 31,
1997, United Artists invested approximately $67.4 million on the development
of 13 new theatres (132 screens) that opened during the period, construction
on ten theatres (119 screens), screen additions or renovations to 12 theatres
expected to open during 1998 and 1999, and recurring maintenance on certain
existing theatres.
In December 1995, United Artists entered into the 1995 Sale Leaseback
pursuant to which 27 of its operating theatres and the associated land and
buildings and four theatres and a four screen addition under development were
sold to, and leased back from, an unaffiliated third party for $97.6 million.
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 United Artists in 1997 when construction of the
remaining theatre and the screen addition was completed.
In November 1996, United Artists entered into the 1996 Sale Leaseback
pursuant to which three of its operating theatres and the associated land and
buildings and two theatres under development were sold to, and leased back
from, an unaffiliated third party for approximately $21.5 million. The sales
proceeds related to the two theatres under development (approximately $12.3
million) were deposited into an escrow account to be used to fund the related
construction costs. During 1997, United Artists opened one of the theatres
under development and received approximately $10.8 million of proceeds from
the escrow account.
In December 1997, United Artists entered into a sale and leaseback
transaction whereby two theatres currently under development were sold to, and
leased back from, an unaffiliated third party for approximately $18.1 million.
At March 31, 1998, approximately $13.5 million of the sales proceeds were
deposited into an escrow account and are to be paid under the terms of the
sale and leaseback to fund certain of the construction costs associated with
the two theatres.
At March 31, 1998, United Artists had entered into construction or lease
agreements for eight new theatres (96 screens) and for screen additions or
renovations to 12 existing theatres (117 screens) that United Artists intends
to open or renovate during the next two years. United Artists estimates that
capital expenditures associated with these theatres will aggregate
approximately $90.0 million. Such amounts relate only to projects in which
United Artists had executed a definitive lease and all significant lease
contingencies have been satisfied. United Artists expects additional capital
expenditures to be made as other projects are finalized. Of the committed
amount, approximately $15.0 million will be funded from proceeds of certain
sale and leaseback transactions currently held in escrow.
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<PAGE>
At March 31, 1998, United Artists had approximately $243.5 million of
indebtedness outstanding under the Prior Credit Facilities and approximately
$38.8 million of unused revolving loan commitments thereunder (of which $9.6
million had been used for the issuance of letters of credit).
United Artists is party to interest rate cap agreements on $100.0 million of
floating rate debt which provide for a LIBOR interest rate cap of 7 1/2% per
annum and expire at various dates through July 1999. The terms of the Prior
Credit Facilities required United Artists to obtain interest rate hedges on a
certain portion of its indebtedness thereunder. United Artists 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.
The level of continued investing activities by United Artists is dependent
on, among other factors, its on-going operating liquidity and 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 (defined as EBITDA (as defined on page 16)
plus other non-recurring or non-cash operating credits or charges) to interest
expense (excluding amortization of deferred loan costs). As described
previously, several non-recurring or non-cash operating charges were recorded
in the Consolidated Statements of Operations during 1997, 1996 and 1995 which
adversely affected United Artists' Operating Income for such years. Following
is a calculation of Operating Cash Flow and Interest Coverage for each of the
last three years and the three months ended March 31, 1998 and 1997, including
a reconciliation of Operating Income to Operating Cash Flow. Additionally,
information from the statements of cash flow is presented as well as the
Company's ratio of earning to fixed charges.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ----------------
(DOLLARS IN MILLIONS)
1997 1996 1995 1998 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Operating income (loss)............. $ (2.5) $ 0.7 $ (1.4) $ 11.6 $ 10.8
Depreciation and amortization and
provisions for asset impairments... 96.7 84.4 90.8 13.7 18.4
Non-cash rent....................... 3.7 3.1 2.0 0.9 0.8
Severance, litigation and
restructuring charges.............. 0.8 1.9 2.1 -- --
------ ------ ------ ------- -------
Operating cash flow................. $ 98.7 $ 90.1 $ 93.5 $ 26.2 $ 30.0
====== ====== ====== ======= =======
Interest expense.................... $ 43.9 $ 43.5 $ 51.9 $ 10.0 $ 11.0
====== ====== ====== ======= =======
Interest coverage ratio............. 2.2x 2.1x 1.8x 2.6x 2.7x
====== ====== ====== ======= =======
<CAPTION>
STATEMENT OF CASH FLOW INFORMATION:
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) oper-
ating activities................... $ 51.0 $ 30.8 $ 40.7 $ (0.6) $ 20.7
Net cash used in investing activi-
ties............................... (4.6) (56.7) (1.6) (20.2) (22.3)
Net cash provided by (used in) fi-
nancing activities................. (45.7) 3.5 (19.4) 17.3 2.7
------ ------ ------ ------- -------
Net cash flow....................... $ 0.7 $(22.4) $ 19.7 $ (3.5) $ 1.1
====== ====== ====== ======= =======
Ratio of earnings to fixed charges
(1)................................ -- -- -- 1.0x --
</TABLE>
- --------
(1) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by United Artists to be representative of the
interest factor thereon. Earnings were insufficient to cover fixed charges
for each of the years ended December 31, 1997, 1996 and 1995 and the three
months ended March 31, 1997 by $22.6 million, $43.4 million, $61.7 million
and $0.9 million, respectively.
Operating Cash Flow 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 United Artists' debt
agreements or for cash flows provided by operating activities, a measure of
performance provided herein in
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accordance with generally accepted accounting principles, and should not be
relied upon as such. The Operating Cash Flow as set forth above does not take
into consideration certain costs of doing business, and as such, should not be
considered in isolation to other measures of performance.
Another measure of liquidity is net cash provided by operating activities as
reflected in the accompanying Consolidated Statements of Cash Flow. For the
three months ended March 31, 1998, $0.6 million of net cash was used in United
Artists' operating activities, primarily to pay down accounts payable and
accrued liabilities. Net cash provided by operating activities was $51.0
million, $30.8 million and $40.7 million for the years ended December 31,
1997, 1996 and 1995, respectively. This measurement sets forth the net cash
from the operations of United Artists which was available for United Artists'
liquidity needs after taking into consideration certain additional costs of
doing business which are not reflected in the Operating Cash Flow calculations
discussed above.
For the year ended December 31, 1997, net cash provided by operating
activities exceeded net cash used in investing activities by $46.4 million, as
compared to a deficit of $25.9 million for the year ended December 31, 1996.
For the year ended December 31, 1995, net cash provided by operating
activities exceeded net cash used in investing activities by $39.1 million
primarily due to the proceeds from the 1995 Sale and Leaseback.
On April 21, 1998, United Artists completed the offering of $225 million of
its 9.75% Senior Subordinated Notes due April 15, 2008 and the offering of $50
million of its Floating Rate Senior Subordinated Notes due October 15, 2007
(collectively, the "Senior Subordinated Notes"), and entered into the $450
million Senior Credit Facility with a final maturity of April 2007.
The securities referred to above have not been and will not be registered
under the Securities Act and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
The proceeds from the offerings of the Senior Subordinated Notes and a
portion of the borrowings under the Senior Credit Facilities were used to
repay the outstanding borrowings under UATC's Prior Credit Facilities ($272.5
million) on April 21, 1998, and to fund the redemption of United Artists'
Preferred Stock (approximately $159.2 million) on May 1, 1998. Additional
borrowings under the Senior Credit Facilities were used to fund the redemption
of UATC's $125 million Senior Secured Notes on May 21, 1998 at 102.875% of par
value plus accrued but unpaid interest of $0.8 million.
The Senior Credit Facilities consists of $100 million of reducing revolving
loan commitments and $350 million of delayed draw term loan commitments. The
Senior Credit Facilities contains certain provisions that require the
maintenance of certain financial ratios and place limitations on, among other
things, additional indebtedness, disposition of assets and payment of
dividends.
The Senior Credit Facilities are guaranteed, on a joint and several basis,
by UATC and by certain of United Artists' subsidiaries, including UAR and,
after the repayment of the Prop I mortgage notes, by Prop I (as defined). The
Senior Credit Facilities are secured by, among other things, the capital stock
of UATC, UAR, Prop I, and certain other subsidiaries of United Artists and an
intercompany note of UATC to United Artists established with respect to
borrowings by UATC from United Artists.
As a result of the repayment of the Prior Credit Facilities and the
redemption of the Senior Secured Notes, United Artists will recognize an
extraordinary loss during the second quarter of 1998 of approximately $8.2
million, consisting of the $3.6 million prepayment premium on the Senior
Secured Notes and approximately $4.6 million of unamortized deferred loan
costs.
United Artists leases many of its theatres and therefore has a significant
amount of commitments under noncancelable operating leases. Management
believes that the proceeds necessary to fund payments under these leases will
be provided by United Artists' operations, the excess commitment availability
under the Senior Credit Facilities, future asset dispositions and future sale
and leaseback transactions.
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<PAGE>
Certain notes of United Artists Properties I Corp. ("Prop I") outstanding
pursuant to an Indenture of Mortgage, dated October 1, 1988 (the "Prop I
Mortgage Notes"), mature on November 1, 1998. The outstanding principal
balance of the Prop I Mortgage Notes on the maturity date will be
approximately $45.7 million. Management believes that the proceeds necessary
to repay the Prop I Mortgage Notes at the maturity date will be provided by
United Artists' operating activities or such Prop I Mortgage Notes may be
refinanced under a $45.0 million delay draw portion of the Senior Credit
Facilities.
United Artists believes that the net cash provided by operations and
borrowings available under the Senior Credit Facilities will be sufficient to
fund its future cash requirements. United Artists expects that future cash
requirements will principally be for repayments of indebtedness, working
capital requirements and capital expenditures. United Artists' future
operating performance and ability to service or refinance its current
indebtedness will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond United Artists' control.
For a discussion of certain relevant factors, see "Risk Factors." The
Company's access to the cash generated by UATC's operations and United
Artists' ability to incur indebtedness, however, may be limited by the
restricted payments and debt incurrence tests in the Participation Agreement.
See "Risk Factors--Restrictions Imposed by the 1995 Sale Leaseback."
From time to time, United Artists evaluates the value of its theatres and
other assets in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." To the
extent such values are less than the recorded values for such assets, United
Artists may recognize a non-cash charge against net income to reflect any
impairment.
INFLATION
Historically, the principal impact of inflation and changing prices upon
United Artists has been with respect to the construction of new theatres, the
purchase of theatre equipment and the utility and labor costs incurred in
connection with continuing theatre operations. Film rental fees, which are the
largest operating expense incurred by United Artists, are customarily paid as
a percentage of admission revenues and hence while the film rental fees may
increase on an absolute basis the percentages are not directly affected by
inflation. Inflation and changing prices have not had a significant impact on
United Artists' total revenues and results of operations.
SEASONALITY
United Artists' revenues have been seasonal, coinciding with the timing of
releases of motion pictures by the major distributors. Generally, the most
successful motion pictures have been released during the summer extending from
Memorial Day to Labor Day and the holiday season extending from Thanksgiving
through year-end. The unexpected emergence of a hit film during other periods
can alter this traditional trend. The timing of such film releases can have a
significant effect on United Artists' results of operations, and the results
of one quarter are not necessarily indicative of results for the next quarter
or for the same period in the following year. The seasonality of motion
picture exhibition, however, has become less pronounced in recent years as
studios have begun to release major motion pictures somewhat more evenly
throughout the year.
OTHER
In connection with the repayment of the Prior Credit Facilities and the
redemption of the Senior Secured Notes, United Artists expects to record an
extraordinary loss on the early extinguishment of debt of approximately $8.2
million during the second quarter of 1998 consisting of: (i) $4.6 million of
deferred financing costs written off related to the Prior Credit Facilities
and the Senior Secured Notes and (ii) $3.6 million of early payment premiums
recognized on the redemption of the Senior Secured Notes.
YEAR 2000
The Company has initiated a review of its internal information systems for
Year 2000 transition problems and, although such review is still in progress,
believes that conversion requirements will not result in significant
54
<PAGE>
disruption of United Artists' business operations or have a material adverse
effect on its future liquidity or results of operations. The Company has not
extensively investigated the Year 2000 compliance of its customers, suppliers
and other third parties with whom it has business relationships, but intends
to make selected inquiries. Compliance by such third parties is voluntary and
failures could occur, in which case there is the possibility of a material
adverse effect on United Artists. However, the nature of United Artists'
business and its business relationships are not such that the Company
considers the potential Year 2000 compliance failure of a third party with
whom it has a direct business relationship likely to have a material adverse
effect on United Artists.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes the standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners.
Comprehensive income includes net income plus other comprehensive income
(other revenues, expenses, gains, and losses that under generally accepted
accounting principles bypass net income). The effective date for SFAS No. 130
is for fiscal years beginning after December 15, 1997 and the impact on United
Artists' financial position, results of operations or cash flow is not
expected to be material.
In 1997, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities"
("SOP 98-5"), which requires costs of start-up activities to be expensed when
incurred. The effective date for SOP 98-5 is for fiscal years beginning after
December 15, 1998 and the impact on United Artists' financial position,
results of operations or cash flow is not expected to be material.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes the standards for
accounting and reporting of derivative instruments. SFAS No. 133 will require
derivative instruments to be recorded at their fair value on the balance sheet
and changes in the derivative instrument's fair value be recognized currently
in the calculation of net income unless specific hedge accounting criteria are
met. The effective date for SFAS No. 133 is for fiscal years beginning after
June 15, 1999. United Artists has not quantified the impact of adopting SFAS
No. 133 on its financial position, results of operations or cash flow and has
not determined the timing of adoption of SFAS No. 133. However, SFAS No. 133
could increase volatility in net income and comprehensive income.
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BUSINESS
OVERVIEW
United Artists is a leading motion picture exhibitor in North America and,
in the United States operates 2,164 screens at 330 theatres located in 25
states. United Artists licenses films from all major and substantially all
independent film distributors and derives revenues primarily from theatre
admissions and concession sales. Through its geographically diverse theatre
locations, United Artists operates screens in seven of the ten largest DMAs in
the United States and approximately 50.0% of United Artists' screens are
located in the top 20 DMAs. In addition, approximately 28.6% of United
Artists' screens (619 screens) have been constructed since January 1, 1992.
United Artists believes that it is the largest single exhibitor, based on
number of screens, in many of its core areas of operation and that the
location of its theatres represents a competitive advantage in many of these
areas. Six states (California, New York, Florida, Texas, Pennsylvania and
Louisiana) accounted for approximately 57.9% and 56.5% of United Artists'
total theatres and screens, respectively, at March 31, 1998 and 61.5% and
65.6% of United Artists' theatrical revenue and theatrical EBITDA,
respectively, for the twelve months ended March 31, 1998. For the twelve
months ended March 31, 1998, the Company incurred a net loss of $24.8 million.
In December 1996, United Artists implemented a corporate restructuring and
refocused its investment strategy on its core U.S. business. Since that time,
United Artists has: (i) reduced its corporate general administrative expenses
by 30.4%, or approximately $10.1 million, for the twelve months ended March
31, 1998, as compared to the twelve months ended March 31, 1997 and 30.8%, or
approximately $10.8 million for the year ended December 31, 1997 as compared
to the year ended December 31, 1996; (ii) increased its presence in its core
areas of operation through the development of new theatres and the
refurbishing or expansion of selected existing key theatres; (iii) implemented
operational improvements; and (iv) accelerated the divestitures of
underperforming and non-strategic theatres.
United Artists has invested more than $373.8 million since January 1, 1992
toward improving the quality of its asset base by, among other things,
renovating existing theatres and constructing new state-of-the-art theatres.
United Artists believes that this level of investment compares favorably with
other major North American theatre exhibitors. Almost all of the theatres
United Artists currently plans to build are state-of-the-art, 12 to 18 screen
multiplex theatres with stadium seating, high-backed rocking seats, digital
sound, expanded concession areas and other state-of-the-art design features
and amenities. As compared to the prior generation of theatres, United Artists
believes that these theatres provide a higher quality entertainment experience
for patrons and significant operating efficiencies and improved economics for
United Artists. At March 31, 1998, approximately 86.0% of United Artists'
screens were located in theatres with five or more screens. United Artists'
average number of screens per theatre has increased 37.5% in the last six
years to 6.6 at March 31, 1998 from 4.8 at January 1, 1992.
The Company was incorporated in the State of Delaware in May 1992. The
Company's executive offices are located at 9110 E. Nichols Avenue, Suite 200,
Englewood, Colorado 80112-3405. The Company's telephone number at its
executive offices is (303) 792-3600.
INDUSTRY OVERVIEW
More than 460 participants in the domestic motion picture theatre exhibition
business operate in excess of 31,000 screens in North America. In 1996 the top
ten companies operated approximately 56.0% of the total screens as compared to
31.0% in 1986. The remainder of the domestic motion picture theatre exhibition
industry is highly fragmented, with the remaining 44.0% of the screens being
operated by approximately 450 exhibitors. United Artists has one of the
largest shares of total screens with approximately 7.0% of all screens in
North America.
The number of screens operated nationally has increased at an annual average
rate of approximately 4.8% since 1978, while the number of seats has increased
at a much slower rate. Exhibitors generally turned to multi-screen formats
with smaller auditoriums. Typically, multiplexes have six or more screens per
theatre, although in some instances multiplexes may have as many as 30 screens
in a single theatre. The multiplex format provides numerous benefits for
theatre operators, including allowing facilities (concession stands and
restrooms) and
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operating costs (lease rentals, utilities and personnel) to be allocated over
a larger base of screens and patrons. Multiplexes have varying seating
capacities (typically from 100 to 500 seats) that allow for multiple showtimes
of the same film and a variety of films with differing audience appeal to be
shown. They also provide the flexibility to shift films to larger or smaller
auditoriums depending on their popularity. To limit crowd congestion and
maximize the efficiency of floor and concession staff, the starting times of
films at multiplexes are staggered.
Certain trends in the theatre exhibition industry favor larger, better
capitalized companies, creating an environment for new construction and
consolidation. Foremost among these trends is larger exhibitors actively
seeking and building multiplexes or megaplexes. Moreover, many smaller theatre
owners who operate older cinemas without state-of-the art stadium seating and
projection and sound equipment may not have the capital required to maintain
or upgrade their circuits. The growth of the number of screens, strong
domestic consumer demand, and growing foreign theatrical and domestic and
foreign ancillary revenue opportunities have led to an increase in the volume
of major film releases. The greater number of screens has allowed films to be
produced for and marketed to specific audience segments (e.g., horror films
for teenagers) without using capacity required for mainstream product.
The greater number of screens has also prompted distributors to increase
promotion of new films. Not only are there more films in the market at any
given time, but the multiplex format allows for much larger simultaneous
national theatrical release. In prior years a studio might have released 1,000
prints of a major film, initially releasing the film only in major
metropolitan areas, then gradually releasing it in smaller cities and towns
nationwide. Today studios might release over 3,000 prints of a major film and
open it nationally in one weekend. These national openings have made up-front
promotion of films critical to attract audiences and stimulate word-of-mouth
advertising.
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 syndicated
programming. These new distribution windows have given producers the ability
to generate a greater portion of a film's revenues through channels other than
theatrical release. This increased revenue potential after a film's initial
domestic release has enabled major studios and certain independent producers
to increase film production and theatrical advertising. The additional non-
theatrical revenue has also allowed for higher individual film production and
marketing costs. The total cost of producing and distributing a picture
averaged approximately $53.4 million in 1997 compared with approximately $17.5
million in 1986. The average cost to advertise and promote a picture averaged
approximately $22.2 million in 1997 as compared with $5.4 million in 1986.
These higher costs have made a large successful theatrical release more
important. Distributors strive for a successful opening run at the theatre to
establish a film and substantiate the film's revenue potential both
internationally and through other release windows. The value of home video and
pay cable distribution agreements frequently depends on the success of a
film's theatrical release. Furthermore, the studios' revenue-sharing
percentage and ability to control who views the product within each of the
distribution windows generally declines as one moves farther from the
theatrical release window. Because theatrical distribution remains the
cornerstone of a film's financial success, it is the focal distribution window
for the public's evaluation of films and motion picture promotion.
Management expects that the overall supply of films will continue to
increase, although no assurance exists concerning any such increase. Over the
past three years there has been an increase of approximately 18.0% in the
number of motion pictures rated by the Classification and Rating
Administration. There has also been an increase in the number of major studios
and reissues of films as well as an increased popularity of films made by
independent producers. During the past three years the number of large budget
films and the level of marketing support provided by the production companies
has risen, as evidenced by the increase in average production costs and
average advertising costs per film of 55.7% and 38.2%, respectively from 1994
to 1997.
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BUSINESS AND OPERATING STRATEGY
United Artists' business and operating strategy is to continue focusing on
its core U.S. business and improving theatre-level operating efficiencies. Key
elements of this strategy include:
Refocus Overhead and Capital Investment Strategy. In December 1996, United
Artists implemented a corporate restructuring and refocused its investment
strategy on its core U.S. business. United Artists' core business strategy
focuses management's attention and capital resources on those geographic areas
where United Artists intends to strengthen and defend its current position.
United Artists has also implemented operational improvements and overhead
reductions intended to increase aggregate EBITDA and EBITDA per theatre and
has already sold or closed several underperforming or non-strategic theatres.
The corporate restructuring plan resulted in a higher level of focus by United
Artists on its domestic theatrical business and a reduction of corporate
general and administrative expenses of 30.4%, or approximately $10.1 million,
for the twelve months ended March 31, 1998 as compared to the twelve months
ended March 31, 1997 and 30.8%, or approximately $10.8 million for the year
ended December 31, 1997, as compared to the year ended December 31, 1996.
These savings were achieved primarily through headcount reductions and a
consolidation of regional administrative offices.
Develop New Theatres and Rebuild or Expand Existing Key Theatre
Locations. United Artists plans to continue increasing its number of screens
and operating margins by focusing its capital investment activities on
developing new theatre locations in United Artists' core areas of operation
and leveraging its favorable theatre locations through the renovation,
rebuilding, or expansion of existing theatres in those key locations. United
Artists is developing higher margin multiplexes of 12 to 18 screens and is
seeking to increase concession sales through, among other things, more
efficient theatre design. As a result, the average EBITDAR margin for theatres
built since January 1, 1992 was 31.1% for the twelve months ended March 31,
1998 as compared to 26.4% for United Artists' remaining theatres. United
Artists is also constructing its new theatres with stadium seating, digital
sound, more comfortable seats and other state-of-the-art design features and
amenities. United Artists believes that these theatres will have an optimal
relationship between the number of screens (12 to 18) and the size of the
auditoriums (125 to 400 seats). These theatres are designed to increase the
revenue per square foot generated by the facility and reduce the cost per
square foot of constructing and operating the theatres. This multi-screen
strategy, in combination with an emphasis on concession sales, is designed to
improve revenue and profitability by enhancing attendance and concession
sales, theatre utilization and operating efficiencies and provide more
efficient clustering around regional and district management centers. During
the three months ended March 31, 1998 and the year ended December 31, 1997,
United Artists developed and opened two theatres (23 screens) and 13 theatres
(132 screens), respectively. During the remainder of 1998 and 1999, United
Artists plans to open eight new theatres (96 screens), and make screen
additions to or renovate 12 existing theatres (117 screens).
Divestiture of Underperforming Theatres. United Artists' 1996 corporate
restructuring was also designed to rationalize underperforming or non-
strategic assets by: (i) terminating leases for theatres that have negative
EBITDA; (ii) selling real estate underlying non-strategic or underperforming
theatres; (iii) divesting theatres in non-core areas; and (iv) exchanging
theatres in non-core areas for theatres in core areas. During the three months
ended March 31, 1998, United Artists closed or sold seven theatres (24
screens). During 1997, United Artists received approximately $70.0 million
from the sale of substantially all of its international assets and certain
non-operating real estate assets and closed or sold 44 underperforming or non-
strategic theatres with 170 screens. Many of the theatres closed or sold were
not profitable or were located in areas that are not part of United Artists'
long-term strategic plans. United Artists has identified 43 theatres (225
screens) that are not considered strategically important or had negative
EBITDA for the twelve months ended March 31, 1998. United Artists currently
plans to sell or close these theatres during the next two years although there
can be no assurance that United Artists will be able to accomplish such
divestitures or closings. In conjunction with United Artists' core market
focus, these restructuring efforts have resulted in an Adjusted EBITDAR (as
defined) per weighted average operating theatre increase of 3.4% from $133,425
during the three months ended March 31, 1997 to $137,952 during the three
months ended March 31, 1998 and 20.5% from $411,649 during the year ended
December 31, 1996, to $496,045 during the year ended December 31, 1997.
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Implement Operational Improvements. In the past two years, United Artists
has recognized theatre and concession operating efficiencies through an
increased focus on increasing concession sales, managing theatre payrolls and
variable costs and increased staff training. United Artists increased
concession sales per capita by approximately 7.9% for the twelve months ended
March 31, 1998 versus the twelve months ended March 31, 1997 and 5.0% annually
on average from 1993 to 1997. Management believes that there are opportunities
to achieve additional operating efficiencies by disposing of less efficient
theatres, developing new multiplex theatres and continuing to improve theatre-
level operating expenses. Areas of focus in 1998 will include lowering
concession costs, improving entertainment center operations and implementing
new theatre point-of-sale computer systems and corporate level information
systems.
Manage Individual Theatre Capital Requirements. While United Artists plans
to continue to develop several new state-of-the-art theatres each year, United
Artists intends to seek to reduce individual theatre financial leverage and
capital requirements by also focusing on expanding, renovating and rebuilding
many of its key locations. In many cases, these existing key locations can be
transformed into state-of-the-art multiplex stadium theatres without competing
against other operators for new locations and incurring higher rent and
excessive preconstruction costs. Furthermore, existing structures can be
utilized while being refurbished to help reduce overall construction costs. In
addition, United Artists' renovation of theatres in desirable locations
eliminates much of the geographic risk related to a project's success. In
order to reduce the overall investment by United Artists in new theatres,
United Artists has entered into "build to suit" and other landlord leasing
arrangements or sale and leaseback transactions. United Artists also intends
to continue to sell non-strategic and underperforming assets (such as the sale
during 1997 of the majority of its international investments) and expects to
redeploy capital to its core U.S. business. This strategy is intended to
provide increased liquidity from the disposal of non-cash flow producing
investments and theatres with limited growth potential.
Enhance Studio/Distributor Relationships. Management intends to continue to
enhance and balance its studio relationships to obtain the optimal number of
marketable motion pictures. United Artists believes that it will continue to
increase the number of prints it obtains from each studio as it increases the
number of its screens in select locations and leverages its attractive theatre
locations through the development of new, larger (in terms of screens), higher
margin theatres. To the extent that theatrical exhibition remains the primary
distribution channel for new motion picture releases and the overall number of
movies produced continues to increase, management believes that United
Artists' focus on its core business will provide it with access to more prints
of each motion picture.
Develop Ancillary Revenue Opportunities. United Artists believes that there
are opportunities to increase its ancillary revenue from its Satellite Theatre
NetworkTM by renting theatres for seminars and business meetings, product and
customer research and other entertainment uses. Through its VIP/Premier
program, United Artists seeks to enhance theatre attendance by selling large
groups of tickets to businesses and groups through coupon books as well as
gift certificates. On-screen advertising also provides an additional
opportunity to increase revenue and profitability.
OPERATIONS
Overview. As of March 31, 1998, United Artists operated 330 theatres with an
aggregate of 2,164 screens in 25 states and, through joint ventures owned
50.0% or less by United Artists, operated 13 theatres with 53 screens in the
United States and certain foreign countries. The table below summarizes the
theatres operated by United Artists and its subsidiaries as of March 31, 1998:
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER
OF THEATRES OF SCREENS
------------ ------------
<S> <C> <C>
Fee-Owned.......................................... 43 241
Leased:
From third parties............................... 254 1,626
Through sale and leaseback transactions.......... 33 297
--- -----
Total owned and leased theatres.................... 330 2,164
Theatres owned 50.0% or less....................... 13 53
--- -----
Total operating theatres....................... 343 2,217
=== =====
</TABLE>
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Almost all of United Artists' theatres are multiplexes with an average of
6.6 screens per theatre. In comparison to a single screen theatre, multiplex
theatres allocate facilities such as concession stands and restroom
facilities, and operating costs such as rent, utilities and personnel, over a
larger base of screens and patrons. Multiplexes allow for a variety of films
with different audience appeal to be shown in the same theatre and permit
multiple showtimes of popular films. Multiplexes also provide the flexibility
to shift films to larger or smaller auditoriums depending on the film's
popularity. To limit crowd congestion and maximize staff efficiency, United
Artists' theatres stagger the starting times of films. United Artists believes
that multiplex theatres designed with 12 to 18 screens generally provide the
optimal balance of return on invested capital and adequate screen numbers for
patrons and film distribution companies, as compared to even larger "megaplex"
theatres (20 or more screens). United Artists believes that megaplex theatres
do not provide a favorable relationship with respect to the revenue per square
foot generated and the cost per square foot to construct and operate such
theatres. United Artists believes that megaplex theatres are more susceptible
to competition from other new theatres as the drawing area for megaplex
theatres is generally required to be larger.
As set forth in the following table, even though United Artists operates
several smaller theatres (in terms of number of screens), approximately 86% of
United Artists' screens as of March 31, 1998 were located in theatres
containing five or more screens.
<TABLE>
<CAPTION>
NUMBER OF SCREENS NUMBER OF % OF CUMULATIVE
PER THEATRE THEATRES TOTAL SCREENS % OF TOTAL SCREENS
----------------- --------- ------------- ------------------
<S> <C> <C> <C>
Greater than 10................... 29 17% 17%
9--10............................. 54 24% 41%
7--8.............................. 64 23% 64%
5--6.............................. 85 22% 86%
3--4.............................. 66 12% 98%
1--2.............................. 32 2% 100%
</TABLE>
Consistent with its operating strategy, United Artists expects to
rationalize many of its smaller and less productive theatres over the next
several years although there can be no assurance with respect thereto. The
following table sets forth EBITDA, operating margins and other operating
statistics by EBITDA range. Generally, theatres with fewer screens are less
profitable than those with a greater number of screens. Although there can be
no assurance that the Company will effect such closings or sales, as reflected
in the table below, if theatres with negative EBITDA or with EBITDA of less
than $100,000 are closed or sold, the Company's EBITDA margins would be
expected to increase.
<TABLE>
<CAPTION>
EBITDA RANGE TOTAL TOTAL
DURING THEATRE REVENUE THEATRE EBITDA THEATRE EBITDA
WELVE MONTHST DURING DURING MARGIN DURING
ENDED NUMBER NUMBER AVERAGE TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
MARCH 31, OF OF SCREENS PER ENDED ENDED ENDED
1998 THEATRES SCREENS THEATRE MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1998
- ------------- -------- ------- ----------- --------------- -------------- --------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
$1,000,000+............. 19 194 10.2 $113.0 $ 31.1 27.5 %
500,000-999,999........ 54 473 8.8 182.8 37.9 20.7 %
250,000-499,999........ 86 579 6.7 159.1 31.0 19.5 %
100,000-249,999........ 65 333 5.1 82.0 11.4 13.9 %
0-100,000.............. 51 217 4.3 43.9 2.6 5.9 %
0 (Negative)........... 55 368 6.7 62.3 (8.5) (13.6)%
--- ----- ---- ------ ------
Total................. 330 2,164 6.6 $643.1 $105.5 Average 16.4 %
=== ===== ==== ====== ======
</TABLE>
Centralized Management. United Artists operates its theatres from its
corporate headquarters in Englewood, Colorado, three regional operating
offices, fourteen district operating offices and two film booking offices. All
of United Artists' district offices and two of the regional operating offices
are located within theatres.
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There is active communication between the theatres and division management
and corporate management, which allows management to react on a daily basis to
revenue and staffing information. Division management provides guidance in
scheduling, staffing, screen allocation, and other operating decisions.
Management personnel with United Artists' marketing and concessions operations
are also continually involved with theatre management to promote strong
performance in those areas. This structure allows the theatre manager to focus
solely on the day-to-day operations of the theatre. A primary responsibility
of the theatre manager is on improving efficiency and managing costs at the
local theatre level.
Corporate and divisional management assists in the daily operations of
United Artists' theatres by booking and settling films, training new and
existing employees, setting admission and concessions pricing policies,
selecting concession products, advertising theatres and showtimes, selecting
new theatre sites and negotiating national purchasing contracts. Corporate
management also assists in theatre development and construction and capital
raising activities and provides cash management, accounting, tax and
management information services.
United Artists' reporting systems provide management and each theatre
manager with weekly and monthly operating reports for individual theatres.
This allows management to monitor theatre manager performance and progress in
attaining certain identifiable goals. United Artists' computer system,
installed in all of its theatres, allows United Artists 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. All accounting,
reporting and management information systems are centralized at the Company's
corporate headquarters. United Artists is currently upgrading its corporate
and theatre level computer systems to improve its reporting and point-of-sale
capabilities.
THEATRE PROPERTIES
The majority of United Artists' theatres are located in free-standing
buildings or are "anchor" tenants in regional malls or strip centers.
Typically, United Artists' third-party leases have remaining terms that range
from 10 to 25 years, and provide for options to extend for up to 20 additional
years at United Artists' election. The leases provide for annual base rent and
many require additional rent based upon a percentage of the leased theatres'
revenue over a certain breakpoint. Certain of the leases provide for
escalating minimum annual rentals during the term of the lease. The leases
typically require United Artists to pay for property taxes, insurance, and
certain of the lessors' overhead costs. United Artists expects that in the
normal course of business, desirable leases that expire will be renewed or
replaced by other leases, although such renewals or replacements may be on
materially different terms. United Artists owns directly or through its
subsidiaries substantially all of the theatre equipment used in all of its
theatres.
Construction. United Artists' construction strategy focuses on selecting
sites in its existing core areas of operation and enhancing the theatre-goer's
experience by building state-of-the-art theatres. Each new location is
selected after considering United Artists' relative strength in the particular
area, the number of existing competitive screens, growth potential of the area
and the minimum threshold population within a certain radius of the theatre.
As part of its construction strategy, United Artists intends to construct or
lease theatres that have a favorable balance between the number of screens (12
to 18) and the size of the auditoriums (125 to 400 seats). United Artists
believes that this balance will allow United Artists to provide an adequate
number of screens for film distributors and increased entertainment value to
patrons afforded by larger auditoriums. In addition to increasing the number
of screens in certain locations, United Artists is also constructing theatres
with stadium seating, more comfortable seats, analog and digital stereo sound
systems and other state-of-the-art design features and amenities.
As a result of new construction and the sale or closure of older, smaller
theatres, approximately 28.6% of United Artists' screens have been constructed
since January 1, 1992 and approximately 45.7% of theatres
operated on January 1, 1992 have been sold or closed. As a result of this new
construction and the sale or closure of older, smaller theatres, United
Artists' average number of screens per theatre has increased 37.5% from 4.8
screens at January 1, 1992 to 6.6 screens as of March 31, 1998.
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United Artists has historically financed, and plans to continue to finance,
a significant portion of the cost of construction of new theatres by entering
into long-term leases or sale and leaseback transactions. United Artists'
long-term leases typically have initial terms of 15 to 25 years with renewal
options and require the landlord to provide a significant portion of the up-
front construction costs. As a result, capital expenditures are often only
required for equipment and certain tenant finishes thereby reducing the net
capital expenditures required for new leased theatres. Although in certain
circumstances United Artists may choose to acquire an existing theatre, United
Artists believes that it is generally more cost effective to add a new theatre
location through construction. See "Risk Factors--Substantial Capital
Expenditures."
In addition to new construction, United Artists also intends to devote
significant resources to adding additional screens to existing theatres and
refurbishing or rebuilding existing theatres to strengthen its position in
existing areas. United Artists believes that renovating, expanding or
completely rebuilding certain of its existing theatre locations provides it
with a significant competitive advantage in many of the large metropolitan
areas where the availability of suitable theatre sites is limited.
Geographic Positioning. Geographic positioning and operating efficiencies
are key elements of United Artists' operating strategy. Geographic clustering
at both the regional and local level is important in providing United Artists
with access to attractive new theatre development opportunities and enhancing
film buying and operating efficiencies. United Artists achieves operating
efficiencies by concentrating regional corporate operations around fewer
strategic markets and reducing its number of less profitable, non-strategic
theatres.
Theatrical exhibitors depend upon strong geographic positioning to obtain
the most attractive film rental arrangements because film bookings are
negotiated on a market by market basis. Strong geographic positioning in terms
of both number of screens and locations 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.
United Artists' theatres are located 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. United Artists believes that it has strong
positions in many of these major metropolitan areas. The states that
represented the largest geographic concentration of theatres and screens
operated, accounting for approximately 57.9% and 56.5% of United Artists'
total theatres and screens, respectively, as of March 31, 1998 and
approximately 61.5% and 65.6% of United Artists' theatrical revenue and
theatrical EBITDA, respectively, for the twelve months ended March 31, 1998,
were as follows:
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER PERCENT OF PERCENT OF
OF OF THEATRE TOTAL THEATRE
STATE THEATRES SCREENS REVENUE EBITDA
- ----- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
California................... 63 356 20% 15%
New York..................... 31 171 14% 20%
Florida...................... 25 217 8% 9%
Pennsylvania................. 27 142 8% 11%
Texas........................ 26 195 8% 5%
Louisiana.................... 19 142 4% 5%
</TABLE>
FILM LICENSING
United Artists obtains licenses to exhibit films by directly negotiating
with film distributors on a film-by-film and theatre-by-theatre basis. United
Artists licenses films through its booking offices located in New York and Los
Angeles. Individuals in the booking offices are responsible for booking films
for theatres in their assigned regions. This regional film booking structure
allows United Artists to maintain better relationships with the film
distributors' regional representatives and provides better insight to the film
tastes of its patrons. 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. See "Risk Factors--Dependence on Films and
Distributors."
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United Artists licenses the majority of its first run films from
distributors owned by the major and independent film production companies.
Each film distributor establishes geographic areas known as "film zones," and
typically allocates each of its films to only one theatre within each film
zone. In most cases where there is more than one exhibitor in a film zone this
allocation process is based on long standing relationships between the
distributor and exhibitor or is done on an alternating basis. In certain very
limited cases where several exhibitors operate in a single film zone, films
are allocated based on an exhibitor bidding process. The size of a film zone
is based primarily upon population density. United Artists operates in
approximately 275 film zones and believes that it is the only exhibitor in 108
of these zones, and therefore does not currently compete with other exhibitors
for licensing specific film product at a given time in such film zones.
MARKETING AND ADVERTISING
United Artists relies principally upon newspaper advertisements, newspaper
film schedules and word of mouth to inform its patrons of film titles and
exhibition times. United Artists utilizes local newspaper advertisements to
promote its theatres and inform its patrons of the films being played and show
times. United Artists typically pays for this type of advertisement. In most
areas, multi-media advertisements for upcoming film releases are paid by film
distributors. In selected areas there is a "co-op" arrangement whereby the
exhibitors and distributors share in the cost of film advertisements in
newspapers. Film distributors will also typically pay for radio and television
spots to promote certain motion pictures and special events. During the three
months ended March 31, 1998 and 1997 and each of the years ended December 31,
1997, 1996, 1995, and 1994, United Artists' advertising expenditures were
approximately 3.9%, 4.0%, 3.8%, 4.0%, 4.5%, and 3.8%, respectively, of
admissions revenue.
Prior to the opening of a new theatre, United Artists typically initiates a
marketing campaign that advertises and promotes the new theatre for several
weeks to several months prior to the new theatre's opening date. The costs
associated with such marketing campaigns are capitalized and expensed as other
operating expenses over the twelve months subsequent to the new theatre's
opening date. In addition, in instances in which a theatre is performing below
management's expectations, United Artists may initiate a newspaper marketing
campaign with the objective of increasing attendance at the theatre.
COMPETITION
United Artists competes for the public's leisure time and disposable income
with all forms of entertainment including sporting events, concerts, live
theatre, and restaurants. United Artists also is subject to varying degrees of
competition from other theatre circuits and independent theatres, some of
which may have greater access to capital resources. The motion picture
exhibition industry is highly competitive, particularly with respect to film
licensing, attracting patrons and acquiring or leasing new theatre sites. Some
of United Artists' competitors may be better established in certain areas
where United Artists' theatres are located. Competition for patrons occurs
locally and depends upon factors such as: (i) which films a particular theatre
is showing; (ii) location of theatres; (iii) comfort and quality of theatres;
and (iv) ticket prices. Film patrons are not "brand" conscious and generally
choose a theatre because of film selection, location and quality of the
theatre.
Competition among theatre circuits for licensing popular films occurs
locally and is based on the prestige and location of an exhibitor's theatres,
quality of the theatres (especially projection and sound quality), seating
capacity, and the exhibitor's ability and willingness to promote the films.
United Artists believes that promoting good relations with film distribution
and production companies is important to consistently obtain the best mix of
available films.
Where real estate is readily available there are few barriers preventing
competitors from opening theatres near one of United Artists' theatres, which
may have a material adverse effect on United Artists' theatre. In addition,
"megaplexes" (theatres with 20 or more screens) have been built or are planned
to be built by competitors in certain areas in which United Artists operates,
which may result in excess capacity and adversely affect attendance and
pricing at other theatres in such areas.
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Alternative motion picture exhibition delivery systems, including cable
television, video cassettes, satellite and pay per view, also exhibit filmed
entertainment after its theatrical release. The expansion of such delivery
systems (such as video on demand) could have a material adverse effect upon
United Artists' business and results of operations.
Recent consolidation in the industry has included the merger of Sony Corp.'s
Loews Theatres Exhibit Group with Cineplex Odeon Corp. announced in October
1997 and consummated in May 1998; the acquisition by KKR of Act III Cinemas
Inc., also announced in October 1997 and consummated in December 1997; and the
joint acquisition of Regal Cinemas Inc. by affiliates of KKR and Hicks Muse
announced in January 1998 and consummated in May 1998. Such consolidation
could increase the level of competition for the industry.
SATELLITE THEATRE NETWORKTM
In an effort to utilize its existing theatres more effectively during
periods of low attendance (such as mornings and weekdays), United Artists has
developed a business unit called the Proteus NetworkTM or Satellite Theatre
NetworkTM. The Satellite Theatre NetworkTM rents theatre auditoriums for
seminars, corporate training, business meetings and other educational or
communication uses, product and customer research and other entertainment
uses. Theatre auditoriums are rented individually or on a networked basis. To
provide the "broadcast" network or "teleconferencing" equipment, a network of
theatres has been created by installing high quality (high definition-like)
video projection equipment within theatres that are networked via the
combination of satellite delivery from a single location or multiple locations
and telephonic communication.
As of March 31, 1998, the Satellite Theatre NetworkTM included 31 theatres
equipped with electronic video capability and additional 299 theatres that
were being rented for individual non-networked uses. All of United Artists'
theatres can be "networked" through the use of temporary equipment. Because
the Satellite Theatre NetworkTM operations within the theatre are managed by
existing personnel, very little incremental personnel expenditures are
required. Marketing of the Satellite Theatre NetworkTM services is performed
on a national basis by staff located in Englewood, Colorado. United Artists
recorded $1.4 million, $1.8 million, $6.2 million, $6.0 million and $1.6
million of revenue from the Satellite Theatre NetworkTM for the three months
ended March 31, 1998 and 1997 and the years ended December 31, 1997, 1996, and
1995, respectively.
TRADEMARKS AND TRADE NAMES
Pursuant to a Trademark Agreement, dated as of May 12, 1992, between UATC
and TCI, UATC's former parent corporation, and certain affiliates of TCI, UATC
was granted the right to use the names "United Artists" and "UA" and
derivatives thereof and other related intellectual property rights
(collectively, the "UA Marks") in connection with the motion picture theatre
business worldwide, except in the United Kingdom. TCI retained the right to
use the UA Marks in connection with any use in the United Kingdom and in
connection with any use other than the motion picture theatre business
worldwide, except in the United Kingdom. TCI is not an issuer or a guarantor
of, or otherwise obligated with respect to, the Notes. Neither UATC nor United
Artists owns any trademark registrations relating to any of the UA Marks. UATC
has used the name "United Artists" and derivatives thereof and other related
intellectual property rights since its formation in 1926.
United Artists Corporation and its affiliates ("MGM"), which is not
affiliated with United Artists, owns trademark registrations covering certain
uses of the "United Artists" name, including but not limited to the production
and distribution of motion pictures. In 1997, MGM and UATC entered into two
agreements regarding the use of the UA Marks. Pursuant to an agreement
relating to the United States, UATC has the exclusive right to use "United
Artists Theatres" in connection with the business of operating motion picture
theatres and the theatrical exhibition of motion pictures, and operations
which are directly incident thereto and ancillary therewith as well as the
business of presenting non-motion picture events, such as meetings, seminars,
training sessions and presentations, including such programs and interactive
events conducted simultaneously at more than one of UATC's motion picture
theatres which are linked together by communication equipment. Pursuant to the
same agreement, UATC has the non-exclusive right to use "United Artists
Theatres" in connection with the operation
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of entertainment centers in the nature of interactive arcades located in the
same theatre, or in the same building or complex as a theatre in which UATC is
engaged in the exhibition of motion pictures. The agreement further provides
that MGM has the exclusive right to the name "United Artists" in connection
with all of its present and future activities, including the business of
creating, producing, distributing and exploiting motion pictures, video tapes
and other entertainment goods and services, and operations which are directly
incident thereto and ancillary therewith. MGM also has the right to use and
authorize others to use the "UNITED ARTISTS" mark in connection with the
exhibition of motion pictures in theatres located in theme parks. This
agreement is terminable upon 60 days notice by either party. The international
agreement is for an initial term of 10 years with eight automatic ten-year
renewals. During the initial term, UATC has an exclusive, royalty-free license
to use "United Artists Theatres" outside the United States in connection with
the exhibition of motion pictures in motion picture theatres and operations
which are directly incident thereto and ancillary therewith, such as the sale
of concessions and a non-exclusive, royalty-free license during each of the
renewal terms. During the initial term and each of the renewal terms, UATC has
a non-exclusive royalty-free license to use "United Artists Theatres" outside
the United States in connection with the operation of entertainment centers in
the nature of interactive arcades located in the same theatre, or in the same
building or complex as a theatre in which UATC is engaged in the exhibition of
motion pictures and the presentation of non-motion picture programs and the
interactive events at UATC's motion picture theatres, such as meetings,
seminars, training sessions and presentations, including such programs and
interactive events conducted simultaneously at more than one of UATC's motion
picture theatres which are linked together by communication equipment.
GOVERNMENTAL REGULATIONS
The distribution of motion pictures is in large part regulated by federal
and state antitrust laws and has been the subject of numerous antitrust 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 United Artists was not a party in the Paramount case, the
consent decrees resulting from that litigation do have a material impact on
United Artists. Those consent decrees bind certain major film distributors and
require the films of such distributors to be offered and licensed to
exhibitors, including United Artists, on a theatre-by-theatre basis.
Consequently, United Artists 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 Americans 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 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
reimbursement of plaintiff's attorneys' fees and expenses under certain
circumstances. United Artists has established a program to review and evaluate
United Artists' theatres and to make any changes that may be required by the
ADA. In 1995, UATC settled the lawsuit styled Connie Arnold et al. v. UATC,
filed in 1991. This lawsuit involved allegations that certain of UATC's
theaters lacked accessibility to persons with mobility disabilities in
violation of the ADA. In the settlement agreement, UATC, the plaintiffs and
the Department of Justice established standards of modification which must be
made to UATC's theatres throughout the United States to make them more
accessible to persons with disabilities. United Artists believes that the cost
of complying with the ADA and the settlement agreement in the Connie Arnold
case will not have a material adverse effect on United Artists' financial
position or results of operations.
INSURANCE
United Artists' 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 United Artists.
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EMPLOYEES
As of March 31, 1998, United Artists employed approximately 9,400 employees,
of which approximately 1,300 were full time. Approximately 41.4% of United
Artists' 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 regulations. Approximately 100 employees (primarily consisting of film
projectionists) are covered by collective bargaining agreements. United
Artists considers its relations with its employees to be satisfactory.
LEGAL PROCEEDINGS
United Artists is involved in various pending and threatened legal
proceedings involving allegations concerning contract breaches, torts,
employment matters, environmental issues, antitrust violations, local tax
disputes and miscellaneous other matters. In addition, there are various
claims against United Artists relating to certain of the leases held by United
Artists. Although it is not possible to predict the outcome of these
proceedings, United Artists believes that such legal proceedings will not have
a material adverse effect on United Artists' financial position, liquidity or
results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kurt C. Hall............ 39 President and Chief Executive Officer and Director
Dennis R. Daniels....... 50 Executive Vice President of Theatre Operations
Gene Hardy.............. 47 Executive Vice President and General Counsel
Michael L. Pade......... 48 Director and Executive Vice President of Film Operations
Jim Ruybal.............. 53 Executive Vice President of New Business Development
Bruce M. Taffet......... 51 Executive Vice President of Purchasing, Marketing, and National Concessions
Trent J. Carman......... 37 Chief Financial Officer
John W. Boyle........... 69 Director and Chairman of the Board
James J. Burke, Jr...... 46 Director
Albert J. Fitzgibbons,
III.................... 52 Director
Robert F. End........... 42 Director
Scott M. Shaw........... 35 Director
</TABLE>
Kurt C. Hall was named President and Chief Executive Officer of the Company
on March 6, 1998. Mr. Hall was Chief Operating Officer from February 24, 1997
until March 6, 1998 and Executive Vice President, Chief Financial Officer and
a director of the Company since May 12, 1992. Mr. Hall is also a director of
Showscan Entertainment Inc.
Dennis R. Daniels has been Executive Vice President of Theatre Operations of
the Company since 1993. He was previously a Vice President of UATC responsible
for Central U.S. operations. Mr. Daniels has served United Artists for 24
years in various operating capacities.
Gene Hardy has been Executive Vice President and General Counsel of the
Company since September 1994. From May 1992 to September 1994, Mr. Hardy was
Senior Vice President and General Counsel of United Artists.
Michael L. Pade has been Executive Vice President of Film Operations of the
Company since February 1997 and was appointed as a director on May 5, 1998.
Mr. Pade joined United Artists in October 1994 as a Senior Vice President of
Film Operations. Prior to joining United Artists, Mr. Pade worked for Mann
Theatres as the Senior Vice President in charge of domestic film booking.
Jim Ruybal has been Executive Vice President of New Business Development of
the Company since 1992. Mr. Ruybal's duties include supervision of the
Company's Satellite Theatre NetworkTM.
Bruce M. Taffet was promoted to Executive Vice President of Purchasing,
Marketing and National Concessions of the Company in January 1995. Prior to
January 1995, Mr. Taffet was the Senior Vice President in charge of national
concession operations of United Artists.
Trent J. Carman was named Chief Financial Officer of the Company on March 6,
1998. Mr. Carman was Senior Vice President and Treasurer of the Company from
September 1997 until March 6, 1998 and was Vice President of Finance from June
1992 to September 1997. He was previously with KPMG Peat Marwick for seven
years.
John W. Boyle was named Chairman of the Board of the Company on March 6,
1998. He has been a director of the Company since March 5, 1997. Mr. Boyle was
Chief Financial Officer of Eckerd Corporation from 1983 to 1995 and Vice
Chairman from 1992 to 1995. Mr. Boyle is a director of Supermarkets General
Holdings Corp.
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James J. Burke, Jr. has been a director of the Company since May 12, 1992.
Mr. Burke is a Partner and Director of Stonington Partners, Inc., a private
investment firm, a position that he has held since 1993, and a Partner and
Director of Stonington Partners, Inc. II since 1994. He has also been a member
of the Board of Directors of Merrill Lynch Capital Partners, Inc. ("MLCP"), a
private investment firm affiliated with Merrill Lynch & Co., Inc. since 1987
and a Consultant to MLCP since 1994. He was the Managing Partner of MLCP from
1993 to July 1994 and President of MLCP from 1987 to 1994. Mr. Burke was also
a Managing Director of the Investment Banking Division of Merrill Lynch,
Pierce, Fenner & Smith Incorporated from 1985 to 1994. Mr. Burke is a Director
of the following companies with publicly registered debt and equity
securities: Ann Taylor Stores Corporation, Education Management Corporation,
Pathmark Stores, Inc., and Supermarkets General Holdings Corporation.
Albert J. Fitzgibbons, III has been a director of the Company since May 12,
1992. Mr. Fitzgibbons is a Partner and a Director of Stonington Partners,
Inc., a private investment firm, a position that he has held since 1993 and a
Partner and a Director of Stonington Partners, Inc. II. He has also been a
Director of MLCP, since 1988 and a Consultant to MLCP since 1994. He was a
Partner of MLCP from 1993 to 1994 and Executive Vice President of MLCP from
1988 to 1993. Mr. Fitzgibbons was also a Managing Director of the Investment
Banking Division of ML&Co. from 1978 to July 1994. Mr. Fitzgibbons is a
Director of the following companies with public debt or equity securities:
Borg-Warner Security Corporation, Dictaphone Corporation, Merisel, Inc. and
U.S. Foodservice, Inc.
Robert F. End has been a director of the Company since February 17, 1993.
Mr. End is a Partner and a Director of Stonington Partners, Inc., a private
investment firm, a position that he has held since 1993 and is a Partner and
Director of Stonington Partners, Inc. II. He has also been a Director of MLCP,
since 1993 and a Consultant to MLCP since 1994. He was a Partner of MLCP from
1993 to 1994 and Vice President of MLCP from 1989 to 1993. Mr. End was also a
Managing Director of the Investment Banking Division of Merrill Lynch, Pierce,
Fenner & Smith Incorporated from 1993 to July 1994 and a Director of the
Investment Banking Division of MLPF&S from 1990 to 1993. Mr. End is a Director
of the following companies with publicly registered debt or equity securities:
Goss Graphic Systems, Inc. and Packard BioScience Company.
Scott M. Shaw has been a director of the Company since February 17, 1993.
Mr. Shaw is a Principal of Stonington Partners, Inc., a private investment
firm, a position that he has held since 1993. He has also been a Consultant to
MLCP, since 1994, and was formerly an Associate of MLCP from 1991 to July,
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, 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. Mr. Shaw is a Director of the following companies with publicly traded
debt securities: Dictaphone Corporation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Compensation Committee consisted of Messrs. Burke and
Fitzgibbons, neither of whom has ever been an officer or employee of United
Artists.
COMPENSATION OF DIRECTORS
Mr. Boyle received 10,000 performance options (with a $12.00 exercise price)
and $20,000 in cash for his services as a director during 1997. No other
directors of the Company received any compensation for their services as
directors or committee members.
LIMITATION ON DIRECTORS' LIABILITY
The Company's certificate of incorporation provides that no director of
United Artists shall be personally liable to United Artists or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or
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omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for any unlawful dividend payments or stock
redemptions or repurchases or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of these provisions is to
eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director
(including breaches resulting from grossly negligent behavior), except in the
situations described above. In addition, the Company's employment agreements
with certain of its executive officers, one of whom is also a director,
provide for indemnification of such persons.
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company to the
Chief Operating Officer and Chief Financial Officer and the four next most
highly compensated executive officers who were officers of the Company on
December 31, 1997 (collectively, the "Named Executive Officers") for services
rendered in all capacities during fiscal 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS/
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING OTHER ANNUAL ALL OTHER
NAME AND SALARY BONUS STOCK COMPENSATION COMPENSATION
PRINCIPAL POSITIONS YEAR ($)(1) ($)(2) OPTIONS (#) ($)(3) ($)(4)
------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Hall(5) ........ 1997 283,103 -- 80,000 2,877 4,684
Chief Operating Officer 1996 220,514 -- -- 920 22,182
and 1995 216,300 12,500 -- -- 23,127
Chief Financial Officer
Michael L. Pade ........ 1997 253,846 -- 12,000 6,083 41,079
Executive Vice 1996 220,080 -- -- 5,426 --
President 1995 185,000 -- -- -- --
Dennis R. Daniels ...... 1997 205,130 -- 12,000 2,287 4,800
Executive Vice 1996 195,473 -- -- 2,500 14,723
President 1995 185,640 4,375 -- -- 15,273
Jim Ruybal ............. 1997 193,481 -- 12,000 1,073 4,800
Executive Vice 1996 186,300 -- -- -- 18,630
President 1995 183,998 8,000 -- -- 19,297
Thomas C. Elliot(6) .... 1997 215,029 -- -- 4,603 4,800
Executive Vice 1996 204,244 -- 15,300 4,845 20,765
President 1995 198,000 8,000 -- -- 21,053
Stewart D. Blair(7) .... 1997 697,745 -- -- 7,000 445,760
Former Chief Executive 1996 681,882 -- -- 10,258 72,085
Officer 1995 642,467 47,250 -- -- 68,959
Robert E. Capps, Jr.(8) 1997 272,950 -- -- 908 22,448
....................... 1996 254,260 -- -- 2,545 10,498
Former Executive Vice 1995 242,022 25,000 -- -- 150,323
President
</TABLE>
- --------
(1) Represents annual salary, including compensation deferred by the Named
Executive Officer pursuant to the UATC 401(k) Savings Plan and the UATC
Supplemental 401(k) Savings Plan (prior to January 1, 1997).
(2) The executive officers were entitled to receive bonuses depending on
United Artists' achievement of certain performance criteria. Bonus amounts
are reflected in the year paid but relate to the performance of the
previous year.
(3) Other annual compensation consists of reimbursement of membership dues.
(4) Consists primarily of matching contributions to employee benefit plans
except for amounts attributable to Mr. Blair which are in connection with
his severance package, Mr. Capps which are primarily related to
reimbursement of moving expense and to Mr. Pade which are related to a
loan which was forgiven.
(5) During 1997 the Company did not have a chief executive officer. Mr. Hall
was named President and Chief Executive Officer of the Company on March 6,
1998.
(6) Mr. Elliot resigned from the Company in 1998.
(7) Mr. Blair resigned as Chief Executive Officer of the Company in December
1996. Amounts received by Mr. Blair in 1997 are in connection with his
severance arrangements with the Company.
(8) Mr. Capps resigned from the Company in February 1997. A portion of the
amount received by Mr. Capps in 1997 is in connection with his severance
arrangements with the Company.
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The following table sets forth all stock options granted to the Named
Executive Officers during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------- -------
NAME GRANTED 1997 SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kurt C. Hall............ 80,000 40.6% $12.00 2007 $ 603,739 $ 1,529,993
Michael L. Pade......... 12,000 6.1 12.00 2007 90,561 229,499
Dennis R. Daniels....... 12,000 6.1 12.00 2007 90,561 229,499
Jim Ruybal.............. 12,000 6.1 12.00 2007 90,561 229,499
Thomas C. Elliot........ -- -- -- -- -- --
Stewart D. Blair........ -- -- -- -- -- --
Robert E. Capps, Jr..... -- -- -- -- -- --
</TABLE>
The following table sets forth the stock options held by the Named Executive
Officers as of December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXCERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
------------------------------- -------------------------
NAME OPTION TYPE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Kurt C. Hall............ Incentive 30,250 -- $60,500 --
Performance -- 107,500 -- $55,000
Premium -- 13,750 -- --
Michael L. Pade......... Incentive 6,200 1,550 7,502 1,876
Performance -- 18,750 -- 8,168
Premium -- 3,375 -- --
Dennis R. Daniels....... Incentive 10,000 -- 20,000 --
Performance -- 21,125 -- 18,250
Premium -- 6,063 -- --
Jim Ruybal.............. Incentive 13,850 -- 27,700 --
Performance -- 24,500 -- 25,000
Premium -- 6,250 -- --
Thomas C. Elliot........ Incentive 18,170 5,280 36,340 10,560
Performance -- 20,900 -- 41,800
Premium -- 10,300 -- --
Stewart D. Blair........ Incentive -- -- -- --
Performance -- -- -- --
Premium -- -- -- --
Robert E. Capps, Jr..... Incentive -- -- -- --
Performance -- -- -- --
Premium -- -- -- --
</TABLE>
- --------
(1) As the Common Stock is not publicly held, the Company has valued the
unexercised stock options using the value attributable to the stock
options granted closest to, but not after, December 31, 1997 ($12.00).
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LONG-TERM INCENTIVE AWARDS
No long-term incentive awards were granted to any Named Executive Officers
during 1996 or 1997.
EMPLOYEE BENEFIT PLANS
The Company established the United Artists Theatre Circuit, Inc. 401(k)
Savings Plan (the "Savings Plan") which allows electing employees to
contribute up to 10.0% of their compensation, subject to certain Internal
Revenue Service (the "IRS") limitations. Prior to January 1, 1997, the Company
matched 100.0% of the electing employee's contributions up to 10.0% of an
employee's compensation. As part of the corporate restructuring plan,
effective January 1, 1997, the Savings Plan was amended to provide for a
Company match of 100.0% of each employee's contribution up to 3.0% of their
compensation. Employees vest in the Company's matching contributions 20.0% per
year for every year of service, as defined in the Savings Plan.
Effective January 1, 1993, the Company established the United Artists
Theatre Circuit, Inc. 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 Service's
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 10.0% of their
compensation. As part of the corporate restructuring plan, effective January
1, 1997, the Company suspended the Supplemental Plan. The Company matched
100.0% of the employee's contributions through the date of suspension of the
Supplemental Plan. Employees vest ratably in the Company's matching
contributions over five years from the date of participation in the
Supplemental Plan.
Matching contributions to the Savings Plan and the Supplemental Plan for the
Named Executive Officers have been included in the summary compensation table.
During 1997, the Company established a bonus plan for all non-commissioned
corporate employees that is based upon the Company achieving its operating
budgets and other financial and operating goals and the employee achieving
certain specified goals.
STOCK OPTION PLAN
In 1992, the Company established a stock option plan (the "Stock Option
Plan") under which all of the stock options granted during 1997 are governed.
The Stock Option Plan permits the grant of: (i) incentive stock options; (ii)
performance stock options; and (iii) premium stock options. The incentive
stock options vest in equal amounts each year through the fifth anniversary of
the date of grant, while the performance and premium stock options vest based
on certain calculations of United Artists' value or the investment returns
received by the Class A common stockholders of the Company. Upon the
occurrence of certain extraordinary corporate transactions, the incentive
stock options and the premium stock options will become immediately
exercisable. Each vested incentive or performance stock options may be
exercised for one Class B share of Common Stock at an exercise price equal to
the estimated market value of the Class B Common Stock at the date of grant.
Each vested premium stock option may be exercised for one Class B share of
Common Stock at an exercise price that increases from $30.00 to $233.00. All
options expire ten years after the date of grant. The Class A Common Stock and
the Class B Common Stock are identical except that the shares of Class B
Common Stock do not have any voting rights. The Class C Common Stock vests
over a four-year period and is identical to the Class B Common Stock except
for a $9.50 per share liquidation preference in favor of the holders of the
Class A and Class B common stockholders.
In July 1998, the Company adopted a management stock plan (the "Management
Stock Plan") which permits the grant of stock options to employees and
directors of United Artists and certain of its subsidiaries. Stock options
granted under the Management Stock Plan vest according to the terms and
conditions of the applicable option agreement. Certain options granted during
1998 under the Management Stock Plan vest 25% as of the date of grant and
18.75% on each of the first and second anniversaries of the date of grant,
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with vesting of an additional 18.75% shares on December 31, 1998 and 1999 if
the Company meets certain performance goals as established by the Board of
Directors from time to time; provided that in each case the option grantee
remains an employee of United Artists on such vesting date. Other options vest
in equal 25% shares on each of the first and second anniversaries of the date
of grant, with vesting of an additional 25% shares on December 31, 1998 and
1999 conditioned on the same performance goals, and subject to the same
employment condition in each case. Upon the occurrence of a change of control
of the Company (as defined in the Management Stock Plan), all options will
become fully vested. Each vested option may be exercised for one Class B share
of Common Stock at an exercise price set forth in the applicable option
agreement. The Company expects to grant approximately 232,000 options at an
exercise price of $12.00 per share and approximately 92,000 options at an
exercise price of $22.50 per share to certain Named Executive Officers under
the Management Stock Plan at the time of its adoption.
EMPLOYMENT AGREEMENTS
UATC entered into employment agreements (each an "Employment Agreement" and
collectively, the "Employment Agreements") with each of Kurt C. Hall, Edward
C. Cooper, Dennis R. Daniels, Gene Hardy, Robert A. McCormick, Michael L.
Pade, Jim Ruybal and Bruce M. Taffet. In May 1998, UATC extended the terms of
the Employment Agreements. As extended, the Employment Agreements with Messrs.
Daniels, Hardy, Ruybal and Taffet expire on December 31, 1998; the Employment
Agreements with Messrs. Cooper and McCormick expire on December 31, 1999; and
the Employment Agreements with Mr. Hall and Mr. Pade expire on December 31,
2000. Each of the Employment Agreements provides for automatic one year
renewals on its expiration date and each one year anniversary of its
expiration date absent notice to the contrary by the Company or the employee
except for the Employment Agreements for Messrs. Hall and Pade which provide
for automatic two year renewals on their expiration dates and each two year
anniversary of their expiration date absent such notice.
Under the Employment Agreements, the employee receives a Base Salary (as
defined in the Employment Agreements) and certain customary benefits,
including health and disability insurance, participation in employee benefit
plans and certain perquisites. Each Employment Agreement provides that the
employee will be eligible to receive annual bonuses during the term of
employment, as determined by the Board of Directors.
In the event that Mr. Hall or Mr. Pade is terminated without cause, such
individual will be entitled to his Base Salary for two years and annual
bonuses for two years, in an amount based upon the average of the annual
bonuses awarded to him over the preceding two fiscal years.
In the event that Mr. McCormick or Mr. Cooper is terminated without cause,
such individual will be entitled to his Base Salary for the remainder of the
term of his employment agreement following his termination but not less than
12 months and annual bonuses for the remainder of the term of his employment
agreement but not less than 12 months, in an amount based upon the average
bonuses paid to him over the preceding two fiscal years.
In the event that Mr. Daniels, Mr. Ruybal, Mr. Hardy or Mr. Taffet is
terminated without cause, such individual will be entitled to his Base Salary
for the lesser of two years or the remainder of the term of his employment
agreement following termination, but not less than 12 months and annual
bonuses for the lesser of two years or the remainder of the term of his
employment agreement following termination, but not less than 12 months, in an
amount based upon the average bonuses paid to him over the preceding two
fiscal years.
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<PAGE>
CERTAIN TRANSACTIONS
The descriptions set forth below do not purport to be complete and are
qualified in their entirety by reference to the applicable agreements.
STOCKHOLDERS AGREEMENT
In connection with the Acquisition, the Company, the Merrill Lynch Group,
the Management Investors and Institutional Investors (as such terms are
defined therein) entered into a Stockholders Agreement, dated as of May 12,
1992 (the "Stockholders' Agreement"). The Stockholders' Agreement provides,
among other things, for certain (a) restrictions on transfers of shares of
Common Stock by the Management Investors and the Institutional Investors prior
to the tenth anniversary of the Acquisition, (b) "puts and calls" with respect
to shares of capital stock of the Company owned by the Management Investors
upon termination of a Management Investors' employment, (c) "tag-along and
drag-along rights" in the event of certain sales of capital stock of the
Company by any one or more of the members of the Merrill Lynch Group, (d)
registration rights, (e) rights for the Management Investors to exchange all
or any portion of their Class B Common Stock for an equal number of shares of
Class A Common Stock immediately prior to any registration and sale of any
such Class B Common Stock pursuant to the incidental registration rights under
the Stockholders' Agreement, (f) preemptive rights in favor of the
Institutional Investors and the Management Investors who are "Accredited
Investors" to acquire certain newly issued equity securities of the Company
which are sold to the Merrill Lynch Group, and (g) in the case of the
Institutional Investors, rights relating to access to information and the
ability to sell their shares of Common Stock after the fifth anniversary of
the Acquisition, subject to compliance with a right of first offer procedure.
The Stockholders' Agreement will terminate on May 12, 2002; except that the
provisions thereof relating to puts and calls, preemptive rights and certain
of the special provisions relating to the Institutional Investors will
terminate and be of no further force or effect upon the sale of any shares of
Common Stock pursuant to an effective registration statement (other than any
registration with respect to mergers, recapitalizations or other business
combinations or with respect to employee benefit plans) under the Securities
Act.
The Merrill Lynch Group owns approximately 90.8% of the outstanding voting
stock of the Company. Messrs. Burke, Fitzgibbons, End and Shaw serve as
representatives of the Merrill Lynch Group on the Board of Directors of the
Company and Messrs. Burke, Fitzgibbons and End also serve as directors of MLCP
and the other companies in which certain affiliates of the Merrill Lynch Group
have equity investments and for which they were serving as a director in July
1994. In this connection, each of Messrs. Burke, Fitzgibbons, End and Shaw
entered into a consulting agreement with MLCP which is effective through
December 31, 1998 and provides, among other things, for his continued
availability to serve on the Board of Directors of the Company and the
respective boards of directors of such other companies for which he was
serving as a director in July 1994 until requested to resign by MLCP, and for
his compensation (directly or indirectly) by MLCP for serving in such director
capacities and for other consulting services. See "Risk Factors--Controlling
Stockholders" and "Management--Directors and Executive Officers of the
Company."
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<PAGE>
PRINCIPAL STOCK OWNERSHIP
The following table sets forth certain information with respect to the
expected beneficial ownership of the Common Stock as of March 31, 1998 by: (i)
each person known by the Company to own beneficially more than 5.0% of the
outstanding shares of the Common Stock; (ii) each executive officer and
director of the Company; and (iii) all executive officers and directors of the
Company as a group. Unless noted otherwise, the address for each executive
officer is in care of the Company at 9110 E. Nichols Avenue, Englewood,
Colorado 80112-3405.
<TABLE>
<CAPTION>
BENEFICIAL PERCENTAGE BENEFICIAL PERCENTAGE BENEFICIAL PERCENTAGE
INTEREST OF INTEREST OF INTEREST OF PERCENTAGE
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C OF
NAME AND ADDRESS COMMON COMMON COMMON COMMON COMMON COMMON COMMON
BENEFICIAL OWNER STOCK STOCK STOCK STOCK STOCK STOCK STOCK
---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch Capital Partners, Inc.
("MLCP")(1)(5)(7).................. 8,409,761 72.8% 0 -- 0 -- 71.6%
Other affiliates of Merrill Lynch &
Co., Inc. (2)(5)................... 2,082,205 18.0% 0 -- 0 -- 17.7%
Institutional Investors(8).......... 1,059,417 9.2% 0 -- 0 -- 9.0%
Kurt C. Hall(3)(6).................. 0 -- 41,750 23.3% 0 -- 0.4%
Michael Pade(3)(6).................. 0 -- 6,775 3.8% 811 6.2% 0.1%
Dennis R. Daniels(3)(6)............. 0 -- 12,600 7.0% 0 -- 0.1%
Jim Ruybal(3)(6).................... 0 -- 20,850 11.6% 0 -- 0.2%
Thomas C. Elliot(3)(6).............. 0 -- 30,370 16.9% 550 4.2% 0.3%
James J. Burke, Jr.(4)(7)........... 0 -- 0 -- 0 -- --
Albert J. Fitzgibbons, III(4)(7).... 0 -- 0 -- 0 -- --
Robert F. End(4)(7)................. 0 -- 0 -- 0 -- --
Scott Shaw(4)....................... 0 -- 0 -- 0 -- --
John W. Boyle(9).................... 0 -- 0 -- 0 -- --
Directors and Executive Officers as
a group (12 persons)(6)............ 0 -- 141,995 79.2% 1,361 10.4% 1.2%
</TABLE>
- --------
(1) Shares of Common Stock beneficially owned by MLCP are held as follows:
5,049,958.2 by Merrill Lynch Capital Appreciation Partnership No. B-XIX,
L.P. ("MLCAP B-XIX"); 46,396.0 by Merrill Lynch Capital Appreciation
Partnership No. B-XX, L.P. ("MLCAP B-XX"); 3,229,723.5 by Roman Nineteen
Offshore Fund Holdings N.V. ("Roman Holdings") and 83,683.3 by MLCP
Associates L.P. No. II ("MLCP II"). MLCP is the indirect managing general
partner of MLCAP B-XIX and MLCAP B-XX and the general partner of MLCP II.
Affiliates of MLCP are the sole stockholders of Roman Holdings. The
address of each of the aforementioned record holders is South Tower, World
Financial Center, New York, New York 10080 except for Roman Holdings for
which the address is c/o CIBC Bank & Trust, P.O. Box 696GT, Edward St.,
George Town, Grand Cayman, Cayman Islands BWI.
(2) Shares of Common Stock beneficially owned by other affiliates of Merrill
Lynch & Co., Inc. are owned of record as follows: 1,932,204.7 by ML IBK
Positions, Inc. and 150,000.0 by Merrill Lynch KECALP L.P. 1991. The
address for ML IBK Positions, Inc. and Merrill Lynch KECALP L.P. 1991 is
South Tower, World Financial Center, New York, New York 10080.
(3) The address for each of Messrs. Hall, Pade, Daniels, Ruybal and Elliot is
9110 E. Nichols Avenue, Englewood, Colorado 80112-3405.
(4) The address for each of Messrs. Burke, Fitzgibbons, End and Shaw is c/o
Stonington Partners, Inc., 767 Fifth Avenue, New York, New York 10153.
(5) Entities affiliated with Merrill Lynch & Co., Inc. own approximately
10,491,966 of the outstanding shares of Common Stock, which represents
approximately 89.3% of the outstanding shares.
(6) Includes vested incentive options that are exercisable within 60 days and
shares of Class C Common Stock.
(7) Each of Messrs. Burke, Fitzgibbons and End are members of the Board of
Directors of MLCP, but each disclaims beneficial ownership of the shares
of Common Stock.
(8) To the knowledge of the Company, none of the Institutional Investors
beneficially owns 5% or more of the outstanding shares of Common Stock.
(9) The address for Mr. Boyle is 7 North Pine Circle, Belleair, Florida 34616.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITIES
The following description of certain of the material terms of the Senior
Credit Facilities is based upon the Senior Credit Agreement (the "Credit
Agreement") and does not purport to be complete and is qualified in its
entirety to the full text of the Credit Agreement which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
execution of the Senior Credit Facilities and the delivery of the required
documentation thereunder occurred at the time of the closing of the Note
Offering. All capitalized terms used in this section without definition shall
have the meanings assigned to them in the Credit Agreement.
Facilities (Including Delayed Draws)
The Credit Agreement provides that, subject to the terms and conditions
thereof, the Senior Credit Facilities provide for a (i) $70.0 million term
loan (the "Tranche A Term Loan"), $20.0 million of which will be available at
Closing through December 31, 1998, $5.0 million of which was available for a
single delayed draw until May 31, 1998 (which was utilized to redeem a portion
of the Senior Secured Notes) and $45.0 million of which is available to
refinance the Prop I Mortgage Notes upon the maturity thereof, (ii) $118.0
million term loan (the "Tranche B Term Loan"), $100.0 million of which was
utilized at Closing and $18.0 million which was available for a single delayed
draw until May 31, 1998 (which was utilized to redeem a portion of the Senior
Secured Notes), (iii) $162.0 million term loan (the "Tranche C Term Loan"),
$60 million of which was available at Closing, $12.0 million which was
available for a single delayed draw until May 31, 1998 (which was utilized to
redeem a portion of the Senior Secured Notes) and $90 million of which was
available for a single delayed draw until May 31, 1998 (which was utilized to
redeem the remainder of the Senior Secured Notes) and (iv) $100 million
revolving credit facility (the "Revolving Loans"). Borrowings under the Senior
Credit Facilities are hereinafter referred to as "Loans."
The Senior Credit Facilities provide that the Company's ability to borrow
thereunder on and after the Closing Date are subject among other things to the
requirement that the representations and warranties contained therein are true
and correct in all material respects on and as of such borrowing date and that
no Default or Event of Default shall exist or result from such borrowing. The
Company's ability to draw the portions of the Tranche A Term Loan and Tranche
C Term Loan used to redeem the Senior Secured Notes, was subject among other
things to the pledge of the collateral contemplated by the Credit Agreement
and the Loan Documents, to the addition of UAR as a guarantor thereof and to
the absence of a Default or Event of Default thereunder or resulting from such
borrowing and such pledges and guarantees were effected in connection
therewith.
Guarantees and Collateral
The Senior Credit Facilities are guaranteed, on a joint and several basis,
by UATC and by certain of the Company's other subsidiaries, including UAR and,
after the repayment of the Prop I Mortgage Notes, will also be guaranteed by
Prop I. The Senior Credit Facilities are secured by among other things the
capital stock of UATC, UAR, Prop I, and certain other subsidiaries of the
Company and UATC and by an intercompany note of UATC to the Company.
Maturity, Amortization and Prepayment
The Revolving Loans and the Tranche A Term Loan have a final maturity date
of seven years from the Closing Date. The Tranche A Term Loan is subject to
mandatory amortization in installments aggregating 1% of the principal amount
thereof per annum in the first three years and is fully amortizing in years
four through seven. The maximum amount available in respect of the Revolving
Loans will reduce in years four through seven.
The Tranche B Term Loan has a maturity date of eight years from the Closing
Date and the Tranche C Term Loan has a maturity date of nine years from the
Closing Date. The Tranche B Term Loan and the Tranche C
75
<PAGE>
Term Loan are required to be amortized in installments aggregating 1% of the
principal amount thereof per annum until the final year, with the balance
payable during the final year.
The Credit Agreement provides that the Company must prepay Loans (or the
Commitments must be reduced) from (i) 100% of the proceeds of sales of assets
(with certain exceptions for among other things the reinvestment of the net
proceeds in the business and for the proceeds of certain sale and leaseback
transactions), (ii) from a specified percentage (ranging from 50% to 100%
based upon the then applicable Total Leverage Ratio) of the proceeds of equity
offerings (with certain permitted exceptions, including for up to $50 million
of proceeds used to redeem the Notes, the Exchange Notes, the Other Notes or
the Other Exchange Notes), (iii) 100% of the proceeds of additional debt
issuances, with certain exceptions and (iv) from a specified percentage
(ranging from 50% to 75% based upon the then applicable Total Leverage Ratio)
of Excess Cash Flow. If a Default or Event of Default exists, all of such
specified percentages will be 100%.
Interest
At the Company's option, with certain exceptions, the Loans may be comprised
of either Base Rate Borrowings or LIBOR Borrowings. Loans will bear interest
at LIBOR or the Reference Rate plus in each case an applicable spread (the
"Applicable Spread") determined from time to time by reference to the
Company's Total Leverage Ratio.
Covenants; Events of Default; Representations and Warranties
The Credit Agreement contains certain representations and warranties and
certain affirmative, negative and financial covenants. Affirmative covenants
include covenants with respect to, among other things, reporting and notices,
preservation of corporate existence, maintenance of properties, insurance,
payment of obligations, compliance with laws, environmental laws, ERISA, use
of proceeds and interest rate protection. Negative covenants include covenants
with respect to, among other things, limitations on indebtedness, liens and
Negative Pledges, dispositions of assets, consolidations and mergers, loans
and investments, affiliate transactions, conduct of business, compliance with
ERISA, lease obligations, capital stock and equity issuances, restricted
payments, priority of loan payments and amendments to certain other
agreements.
The Senior Credit Facilities also contain certain financial covenants
including with respect to maximum Total Leverage Ratio and maximum Senior
Leverage Ratio, a minimum ratio of Operating Cash Flow plus Pro Forma Lease
Expense to Pro Forma Debt Service and a minimum ratio of Operating Cash Flow
plus Consolidated Lease Expense to Consolidated Interest Expense plus
Consolidated Lease Expense. The Credit Agreement requires the establishment of
an interest rate protection program (including interest rate protection and/or
fixed debt) with respect to at least 50% of the aggregate Funded Indebtedness,
with certain exceptions.
The failure to satisfy any of the covenants constitutes an Event of Default
under the Credit Agreement. The Credit Agreement also includes other events of
default, including, without limitation, nonpayment, misrepresentation, cross-
default to other indebtedness and interest rate contracts, including without
limitation the Notes, the Exchange Notes, the Other Notes and the Other
Exchange Notes, material adverse change, bankruptcy, ERISA, judgments,
collateral, guarantees, involuntary closings and change of ownership or
control.
PROP I MORTGAGE NOTES
The Prop I Mortgage Notes were issued by Prop I under an Indenture of
Mortgage and Deed of Trust, dated October 1, 1988. The Prop I Mortgage Notes
constitute senior secured obligations of Prop I and will effectively rank
senior to the Notes and the Exchange Notes with respect to the assets of Prop
I. The Prop I Mortgage Notes bear interest at a rate of 11.15% per annum.
76
<PAGE>
Principal and interest on the Prop I Mortgage Notes are payable in monthly
installments with a lump sum payment of principal and accrued and unpaid
interest, due on November 1, 1998. The outstanding principal balance of the
Prop I Mortgage Notes on the maturity date will be approximately $45.7
million. The Prop I Mortgage Notes are secured by, among other things, a first
mortgage on Prop I's theatre properties and the assignment of the leases of
such theatres with UATC.
The Indenture of Mortgage contains certain restrictive covenants that impose
limitations on Prop I's ability to, among other things, sell or substitute any
of its properties or incur additional debt.
As of March 31, 1998, $46.0 million of aggregate principal amount of Prop I
Mortgage Notes was outstanding.
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<PAGE>
DESCRIPTION OF THE OTHER EXCHANGE NOTES
Concurrently with this Exchange Offer, the Company is also offering in the
Other Exchange Offer to exchange up to an aggregate principal amount of
$50,000,000 of the Floating Rate Notes, or Other Notes, by a separate
Prospectus dated the date hereof. Consummation of the Other Exchange Offer is
not conditioned upon consummation of the Exchange Offer. The Floating Rate
Exchange Notes, issued pursuant to the Other Indenture, will rank pari passu
with the Exchange Notes offered hereby. The terms and conditions of the
Exchange Notes offered hereby and the Floating Rate Exchange Notes will be
substantially equivalent in all material respects, except for the final
maturity, interest rates thereon, the interest payment dates and the
redemption provisions. The Floating Rate Exchange Notes will mature on October
15, 2007. The Floating Rate Exchange Notes will bear interest at a rate per
annum, determined quarterly, equal to the Applicable LIBOR Rate (437.5 basis
points over the LIBOR Rate), as defined in the Other Indenture. Interest on
the Floating Rate Exchange Notes will accrue from their issue date and is
payable quarterly on January 15, April 15, July 15 and October 15 of each
year, commencing July 15, 1998.
The Floating Rate Exchange Notes are redeemable at the option of the
Company, in whole or in part, on any Interest Payment date on or after April
15, 1999 at the redemption prices set forth in the Other Indenture, together
with accrued and unpaid interest, if any, to the date of redemption.
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<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes are to be issued under an Indenture, to be dated as of
April 21, 1998, between the Company, as issuer, and State Street Bank and
Trust Company of Missouri, N.A. (the "Trustee"). The following summary of
certain provisions of the Indenture and the Exchange Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Indenture (which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part), including the
definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
Whenever particular defined terms of the Indenture not otherwise defined
herein are referred to, such defined terms are incorporated herein by
reference. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions." For purposes of this section, references
to the Company mean United Artists Theatre Company (formerly named Oscar I
Corporation), excluding its subsidiaries.
On April 21, 1998, the Company issued $225.0 million aggregate principal
amount of Notes under the Indenture. The terms of the Exchange Notes are
substantially identical to the Notes, except for certain transfer restrictions
and registration and other rights relating to the exchange of the Notes for
the Exchange Notes. The Trustee will authenticate and deliver Exchange Notes
for original issue only in exchange for a like principal amount of Notes. Any
Notes that remain outstanding after the consummation of the Exchange Offer,
together with the Exchange Notes, will be treated as a single class of
securities under the Indenture. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding
Exchange Notes shall be deemed to mean, at any time after the Exchange Offer
is consummated, such percentage in aggregate principal amount of the Notes and
Exchange Notes then outstanding.
As of April 21, 1998, all of the Company's subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company will be able
to designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, the City of New York
(which initially will be the corporate trust office of the Trustee at 61
Broadway, 15th Floor, Corporate Trust Window, New York, New York 10006;
provided that, at the option of the Company, payment of interest may be made
by check mailed to the Holders at their addresses as they appear in the
Security Register.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See "--Book-Entry; Delivery and Form." No service charge
will be made for any registration of transfer or exchange of the Exchange
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be unsecured senior subordinated obligations of the
Company, limited to $225.0 million aggregate principal amount, and will mature
on April 15, 2008. Each Exchange Note offered hereby will initially bear
interest at 9 3/4% per annum from April 21, 1998, or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on April 1 or
October 1 immediately preceding the Interest Payment Date) on April 15 and
October 15 of each year, commencing October 15, 1998. Interest on the Exchange
Notes will be computed on the basis of a 360-day year consisting of twelve 30-
day months.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after April 15, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at the
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<PAGE>
following Redemption Prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the Redemption Date (subject to
the right of Holders of record on the relevant Regular Record Date that is on
or prior to the Redemption Date to receive interest due on an Interest Payment
Date), if redeemed during the 12-month period commencing April 15 of the years
set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003 ....................... 104.875%
2004 ....................... 103.250
2005 ....................... 101.625
2006 and thereafter ........ 100.000
</TABLE>
In addition, at any time prior to April 15, 2001, the Company may redeem up
to 35% of the principal amount of the Exchange Notes with the proceeds
received by the Company from one or more Public Equity Offerings following
which there is a Public Market, at any time or from time to time in part, at a
Redemption Price (expressed as a percentage of principal amount) of 109.75%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date); provided
that at least $146.25 million aggregate principal amount of Exchange Notes
remains outstanding after each such redemption. Notice of any such redemption
must be given not later than 90 days after consummation of such Public Equity
Offering.
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Exchange Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Exchange
Notes are listed or, if th Exchangee Notes are not listed on a national
securities exchange, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Exchange
Note of $1,000 in principal amount or less shall be redeemed in part. If any
Exchange Note is to be redeemed in part only, the notice of redemption
relating to such Exchange Note shall state the portion of the principal amount
thereof to be redeemed. A new Exchange Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Exchange Note. On and after the Redemption
Date, the Exchange Notes or portions thereof called for redemption shall cease
to accrue interest (unless the Company defaults in the payment of such
Exchange Notes at the Redemption Price and accrued interest to the Redemption
Date).
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Exchange Notes then
outstanding, at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest (if any) to the Payment Date.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay the purchase price for all
Exchange Notes delivered by Holders seeking to accept the Offer to Purchase.
An Offer to Purchase might constitute an event of default under the terms of
Senior Indebtedness, including the Credit Agreement. In addition, any
instruments governing Senior Indebtedness may prohibit the Company from
purchasing any Exchange Notes prior to their maturity (including pursuant to
an Offer to Purchase). If on the Payment Date for an Offer to Purchase the
Company does not have sufficient funds to pay the purchase price or is unable
to obtain the consent of the holders of such Senior Indebtedness or to repay
such Senior Indebtedness, an Event of Default would occur under the Exchange
Notes. In the event the Company is required to purchase outstanding Exchange
Notes pursuant to an Offer to Purchase, the Company expects that it would seek
third party financing to the extent it does not have available funds to meet
its obligations. However, there can be no assurance that the Company would be
able to obtain such financing.
The Company will not be required to make an Offer to Purchase pursuant to
this covenant if a third party makes an Offer to Purchase in compliance with
this covenant and repurchases all Exchange Notes validly tendered and not
withdrawn under such Offer to Purchase.
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<PAGE>
The Company will comply with any tender offer rules under the Exchange Act,
including Rule 14e-1, in connection with any Offer to Purchase. To the extent
that the provisions of any applicable securities laws or regulations conflict
with the provisions of the Indenture, the Company will comply with such
securities laws and regulations and shall not be deemed to have breached its
obligations under the Indenture by virtue thereof.
RANKING AND SUBORDINATION
The Exchange Notes will be senior subordinated Indebtedness of the Company
and will rank pari passu with the Other Notes and Other Exchange Notes. The
payment of the Senior Subordinated Obligations will, to the extent set forth
in the Indentures, be subordinated in right of payment to the prior payment in
full, in cash or cash equivalents, of all Senior Indebtedness. In addition,
the Exchange Notes will be effectively subordinated to all existing and future
liabilities (including the guarantees of the Company's obligations under the
Credit Agreement and trade payables) of the subsidiaries of the Company. At
May 31, 1998, the Company and its subsidiaries had approximately $644.9
million of indebtedness (excluding trade payables) outstanding, consisting of
$310.0 million of Senior Indebtedness of the Company (guaranteed by certain of
the Company's subsidiaries), $59.9 million of other indebtedness of the
Company's subsidiaries, $225.0 million representing the Fixed Rate Notes and
$50.0 million representing the Floating Rate Notes. In addition, on May 31,
1998 the Company had additional delayed draw and revolving credit availability
of $140.0 million under the Senior Credit Facilities, all of which would be
Senior Indebtedness, if borrowed. Additional Senior Indebtedness may be
incurred by the Company and additional indebtedness may be incurred by the
Company and its subsidiaries, in each case from time to time, subject to
certain restrictions. The Notes and the Exchange Notes (which together will
have an aggregate principal amount of $225.0 million) will rank pari passu
with the Floating Rate Notes and Floating Rate Exchange Notes (which together
will have an aggregate principal amount of $50.0 million). See
"Capitalization." Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and its Restricted Subsidiaries may
incur, the amount of such Indebtedness could be substantial and such
Indebtedness could be Senior Indebtedness. See "Risk Factors--Subordination of
Exchange Notes" and "--Holding Company Structure; Source of Repayment of
Exchange Notes; Effective Subordination of Exchange Notes to Indebtedness of
Subsidiaries."
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities, upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness (including any interest accruing on or after, or which
would accrue but for, an event of bankruptcy, whether or not such interest is
an allowed claim enforceable against the debtor under the United States
Bankruptcy Code) shall first be paid in full, in cash or cash equivalents,
before the Holders of the Exchange Notes or the Trustee on behalf of the
Holders of the Exchange Notes shall be entitled to receive any payment by (or
on behalf of) the Company on account of Senior Subordinated Obligations or any
payment to acquire any of the Exchange Notes for cash, property or securities
(other than any payment in the form of Junior Securities), or any distribution
with respect to the Exchange Notes of any cash, property or securities (other
than any payment in the form of Junior Securities). Before any payment may be
made by, or on behalf of, the Company on any Senior Subordinated Obligations,
upon any such dissolution, winding up, liquidation or reorganization, any
payment or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities (other than any payment in
the form of Junior Securities), to which the Holders of the Exchange Notes or
the Trustee on behalf of the Holders of the Exchange Notes would be entitled,
but for the subordination provisions of the Indenture, shall be made by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person making such payment or distribution or by the Holders
of the Exchange Notes or the Trustee if received by them or it, directly to
the holders of the Senior Indebtedness (pro rata to such holders on the basis
of the respective amounts of Senior Indebtedness held by such holders) or
their representatives or to any trustee or trustees under any indenture
pursuant to which any such Senior Indebtedness may have been issued, as their
respective interests
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appear, to the extent necessary to pay all such Senior Indebtedness in full,
in cash or cash equivalents after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior
Indebtedness.
No direct or indirect payment (other than any payment in the form of Junior
Securities) by or on behalf of the Company of Senior Subordinated Obligations,
whether pursuant to the terms of the Exchange Notes or upon acceleration or
otherwise, shall be made if, at the time of such payment, there exists a
default in the payment of all or any portion of the obligations under or with
respect to any Senior Indebtedness of the Company and such default shall not
have been cured or waived or the benefits of this sentence waived by or on
behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any other event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated,
upon receipt by the Trustee of written notice from the trustee or other
representative for the holders of such Designated Senior Indebtedness (or the
holders of at least a majority in principal amount of such Designated Senior
Indebtedness then outstanding), no payment of Senior Subordinated Obligations
may be made by or on behalf of the Company upon or in respect of the Exchange
Notes for a period (a "Payment Blockage Period") commencing on the date of
receipt of such notice and ending 179 days thereafter (unless, in each case,
such Payment Blockage Period shall be terminated by written notice to the
Trustee from such trustee of, or other representatives for, such holders or by
payment in full in cash or cash equivalents of such Designated Senior
Indebtedness or such event of default has been cured or waived). Not more than
one Payment Blockage Period may be commenced with respect to the Notes during
any period of 360 consecutive days. Notwithstanding anything in the Indenture
to the contrary, there must be 180 consecutive days in any 360-day period in
which no Payment Blockage Period is in effect. No event of default that
existed or was continuing (it being acknowledged that any subsequent action
that would give rise to an event of default pursuant to any provision under
which an event of default previously existed or was continuing shall
constitute a new event of default for this purpose) on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or shall
be made, the basis for the commencement of a second Payment Blockage Period by
the representative for, or the holders of, such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days.
To the extent any payment of Senior Indebtedness (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Indebtedness or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as
if such payment had not occurred. To the extent the obligation to repay any
Senior Indebtedness is declared to be fraudulent, invalid, or otherwise set
aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then the obligation so declared fraudulent, invalid or otherwise
set aside (and all other amounts that would come due with respect thereto had
such obligation not been so affected) shall be deemed to be reinstated and
outstanding as Senior Indebtedness for all purposes hereof as if such
declaration, invalidity or setting aside had not occurred.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event
of Default under the Indenture and would enable the Holders to accelerate the
maturity thereof. See"--Events of Default."
By reason of the subordination provisions described above, in the event of
liquidation or insolvency, creditors of the Company who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than Holders of the Exchange
Notes.
The subordination provisions described above will cease to be applicable to
the Exchange Notes upon any defeasance of the Exchange Notes described under
"--Defeasance."
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CERTAIN COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Exchange Notes and
Indebtedness existing on the Closing Date, including Acquired Indebtedness at
United Artists Realty Company and United Artists Properties I Corp.); provided
that the Company may Incur Indebtedness, and any Restricted Subsidiary may
Incur Acquired Indebtedness, if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, (i)
the Consolidated Leverage Ratio would be less than 6:1 and (ii) the
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding the incurrence of such Indebtedness for which internal
financial statements are available, taken as one period (and after giving pro
forma effect to (A) the incurrence of such Indebtedness and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of
such proceeds occurred, on the first day of such four-quarter period, (B) the
incurrence, repayment or retirement of any other Indebtedness by the Company
and its Restricted Subsidiaries since the first day of such four-quarter
period as if such Indebtedness was incurred, repaid or retired on the first
day of such four-quarter period (except that, in making such computation, the
amount of Indebtedness under any revolving credit facility shall be computed
based upon the average daily balance of such Indebtedness during such four-
quarter period) and (C) the acquisition (whether by purchase, merger or
otherwise) or disposition (whether by sale, merger or otherwise) of any
company, entity or business acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such four-
quarter period, as if such acquisition or disposition occurred on the first
day of such four-quarter period), would have been at least equal to 1.75 to
1.0.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness under the Credit Agreement in an aggregate principal amount
outstanding at any time not to exceed $450 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below and less any Indebtedness Incurred in reliance
on clause (ix) below; (ii) Indebtedness owed (A) to the Company or (B) to any
Restricted Subsidiary; provided that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another Restricted
Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii); (iii) Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or refund,
then outstanding Indebtedness (other than the Prop I Mortgage Notes and
Indebtedness Incurred under clause (i), (ii), (iv), (vi) or (viii) of this
paragraph) and any refinancings thereof in an amount not to exceed the amount
so refinanced or refunded (plus premiums, prepayment penalties, accrued
interest, fees and expenses); provided that Indebtedness the proceeds of which
are used to refinance or refund the Exchange Notes or Indebtedness that is
pari passu with, or subordinated in right of payment to, the Exchange Notes
shall only be permitted under this clause (iii) if (A) in case the Exchange
Notes are refinanced in part or the Indebtedness to be refinanced is pari
passu with the Exchange Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness
is outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Exchange Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Exchange Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding, is
expressly made subordinate in right of payment to the Exchange Notes at least
to the extent that the Indebtedness to be refinanced is subordinated to the
Exchange Notes and (C) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average
Life of such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded; and provided further that in
no event may Indebtedness of the Company (other than Indebtedness in the form
of a Guarantee of Indebtedness of a Restricted Subsidiary permitted to be
incurred by such Subsidiary, which Guarantee is released upon a subsequent
refinancing of such Subsidiary's Indebtedness) be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, bid, surety or appeal bonds
provided in the ordinary course of business, (B) under Currency Agreements and
Interest Rate
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Agreements; provided that such agreements (a) are designed solely to protect
the Company or its Restricted Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder, and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
bid or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
for the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition; (v) Indebtedness of the
Company, to the extent the net proceeds thereof are promptly (A) used to
purchase Exchange Notes tendered in an Offer to Purchase made as a result of a
Change in Control or (B) deposited to defease the Exchange Notes as described
below under "Defeasance"; (vi) Guarantees of the Exchange Notes and Guarantees
of Indebtedness of the Company by any Restricted Subsidiary provided the
Guarantee of such Indebtedness is permitted by and made in accordance with the
"Limitation on Issuance of Guarantees by Restricted Subsidiaries" covenant
described below; (vii) Indebtedness represented by Capitalized Leases,
mortgage financings or purchase money obligations Incurred to finance all or
any part of the purchase price or cost of construction or improvement of
property in an aggregate principal amount outstanding at any time (together
with any refinancings thereof) not to exceed $25 million; (viii) Indebtedness
(in addition to Indebtedness permitted under clauses (i) through (vii) above
and clause (ix) below) (A) of the Company in an aggregate principal amount
outstanding at any time not to exceed $50 million and (B) of the Company or
any Restricted Subsidiaries in an aggregate principal amount outstanding at
any time not to exceed $15 million, and (ix) Indebtedness Incurred to extend,
renew, refinance or replace any Indebtedness in respect of the Prop I Mortgage
Notes outstanding on the Closing Date or any Indebtedness Incurred to extend,
renew, refinance or replace any such Indebtedness so Incurred (including
successive extensions, renewals, refinancings and replacements thereof).
(b) Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness" covenant
shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under
the Credit Agreement on or prior to the Closing Date shall be treated as
Incurred pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant, (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (3) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant shall not be treated as Indebtedness. For
purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the above clauses (other
than Indebtedness referred to in clause (1) of the preceding sentence), the
Company, in its sole discretion, shall classify (and from time to time may
reclassify) such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of such clauses.
Limitation on Senior Subordinated Indebtedness
The Company shall not Incur any Indebtedness that is subordinate in right of
payment to any Senior Indebtedness unless such Indebtedness is pari passu
with, or subordinated in right of payment to, the Exchange Notes; provided
that the foregoing limitation shall not apply to distinctions between
categories of Senior Indebtedness of the Company that exist by reason of any
Liens or Guarantees arising or created in respect of some but not all such
Senior Indebtedness.
Limitation on Liens
The Company shall not Incur any Indebtedness secured by a Lien ("Secured
Indebtedness") which is not Senior Indebtedness (or Indebtedness that would
constitute Senior Indebtedness except that it is without recourse
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to the Company) unless contemporaneously therewith effective provision is made
to secure the Exchange Notes equally and ratably with (or, if the Secured
Indebtedness is subordinated in right of payment to the Exchange Notes, prior
to) such Secured Indebtedness for so long as such Secured Indebtedness is
secured by a Lien.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on or with respect to its Capital Stock (other than (x) dividends
or distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares
of such Capital Stock and (y) pro rata dividends or distributions on Capital
Stock of Restricted Subsidiaries held by minority stockholders) held by
Persons other than the Company or any of its Restricted Subsidiaries, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of (A) the Company or an Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by any
Person (other than with respect to the Capital Stock of an Unrestricted
Subsidiary, Permitted Investments) or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock)
held by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary or a Restricted Subsidiary in which no Affiliate of the Company
(other than the Company or any Restricted Subsidiary) or holder of 5% or more
of the aggregate value of the Capital Stock of the Company has an interest) or
any holder (or any Affiliate (other than a Wholly Owned Restricted Subsidiary
or a Restricted Subsidiary in which no Affiliate of the Company (other than
the Company or any Restricted Subsidiary) or holder of 5% or more of the
aggregate value of the Capital Stock of the Company has an interest) of such
holder) of 5% or more of the aggregate value of the Capital Stock of the
Company, (iii) make any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Exchange Notes or (iv) make any Investment, other than
a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) above being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and
be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant or (C)
the aggregate amount of all Restricted Payments (the amount, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) made
after the Closing Date shall exceed the sum of (1) Consolidated EBITDA accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter preceding
the Determination Date for which reports have been filed with the Commission
or provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant less two times Consolidated Interest Expense for such
period, plus (2) the aggregate Net Cash Proceeds received by the Company after
the Closing Date as a capital contribution or from the issuance and sale of
its Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, including an issuance or sale permitted by the
Indenture of Indebtedness of the Company for cash subsequent to the Closing
Date upon the conversion or exchange of such Indebtedness into Capital Stock
(other than Disqualified Stock) of the Company, or from the issuance to a
Person who is not a Subsidiary of the Company of any options, warrants or
other rights to acquire Capital Stock of the Company (in each case, exclusive
of any Disqualified Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed, prior
to the Stated Maturity of the Exchange Notes) plus (3) an amount equal to the
net reduction in Investments (other than reductions in Permitted Investments)
in any Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary or from the Net Cash Proceeds from
the sale of any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Consolidated EBITDA),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend or other distribution within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
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comply with the foregoing paragraph; (ii) the redemption, repurchase,
defeasance or other acquisition or retirement for value of Indebtedness that
is subordinated in right of payment to the Exchange Notes including premium,
if any, and accrued and unpaid interest, with the proceeds of, or in exchange
for, Indebtedness Incurred under clause (iii) of the second paragraph of part
(a) of the "Limitation on Indebtedness" covenant; (iii) the repurchase,
redemption or other acquisition of Capital Stock of the Company or an
Unrestricted Subsidiary (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified
Stock) of the Company (or options, warrants or other rights to acquire such
Capital Stock); (iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to the
Exchange Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock (other than Disqualified
Stock) of the Company (or options, warrants or other rights to acquire such
Capital Stock); (v) payments or distributions, to dissenting stockholders
pursuant to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; (vi) Investments
acquired as a capital contribution to or in exchange for Capital Stock (other
than Disqualified Stock) of the Company; (vii) the declaration or payment of
dividends on the Common Stock of the Company following a Public Equity
Offering, of up to 6% per annum of the Net Cash Proceeds received by the
Company in such Public Equity Offering; (viii) the purchase, redemption,
retirement or other acquisition for value of shares of Capital Stock of the
Company, options to purchase such shares or Indebtedness of the Company that
is subordinated in right of payment to the Exchange Notes issued in exchange
for any of the foregoing or issued in lieu of cash interest thereon (the
"Junior Notes"), held by directors, employees, or former directors or
employees of the Company or any Restricted Subsidiary (or their estates or
beneficiaries under their estates), upon their death, disability, retirement,
termination of employment or pursuant to the terms of any agreement under
which such shares of Capital Stock, options or Junior Notes were issued;
provided that the aggregate consideration paid (other than in the form of
Junior Notes) for such purchase, redemption, retirement or other acquisition
for value of such shares of Capital Stock, options or Junior Notes after the
Closing Date does not exceed $2 million in any fiscal year, plus the aggregate
Net Cash Proceeds received by the Company from the reissuance of such shares
during such fiscal year or $10 million in the aggregate, plus the aggregate
Net Cash Proceeds received by the Company from the reissuance of such shares
(unless such repurchases are made with the proceeds of insurance policies and
the shares of Capital Stock are repurchased from the executors,
administrators, testamentary trustees, heirs, legatees or beneficiaries); or
(ix) the redemption or other acquisition of the Preferred Stock as
contemplated by the Transactions; provided that, except in the case of clauses
(i), (iii) and (ix), no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments set forth
therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) and (ix) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock
referred to in clauses (iii), (iv) or (viii) shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to any
subsequent Restricted Payments; provided that the payment of any dividend or
other distribution shall not be included in calculating whether the conditions
of clause (C) of the first paragraph of this "Limitation on Restricted
Payments" covenant have been met if the declarations of such dividend or other
distribution has been included in such calculation. In the event the proceeds
of an issuance of Capital Stock of the Company are used for the redemption,
repurchase or other acquisition of the Exchange Notes, or Indebtedness that is
pari passu with the Exchange Notes, then the Net Cash Proceeds of such
issuance shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such proceeds
are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted 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
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Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii)
make loans or advances to the Company or (iv) transfer any of its property or
assets to the Company.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Credit Agreement, the
Indenture or any other agreements in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any material
respect to the Holders than those encumbrances or restrictions that are then
in effect and that are being extended, refinanced, renewed or replaced; (ii)
existing under or by reason of applicable law; (iii) existing with respect to
any Person or the property or assets of such Person acquired by the Company or
any Restricted Subsidiary, existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than
such Person or the property or assets of such Person so acquired and any
extensions, refinancings, renewals or replacements thereof; provided that the
encumbrances and restrictions in any such extensions, refinancings, renewals
or replacements are no less favorable in any material respect to the Holders
than those encumbrances or restrictions that are then in effect and that are
being extended, refinanced, renewed or replaced; (iv) in the case of clause
(iv) of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in
a customary manner the subletting, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar property or
asset, (B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the Indenture
or (C) arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company and the Restricted
Subsidiaries, taken as a whole; (v) with respect to a Restricted Subsidiary
and imposed pursuant to an agreement that has been entered into for the sale
or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction applies only in the event of
a payment default or a default with respect to a financial covenant contained
in such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Exchange Notes than is
customary in comparable financings (as determined by the Company) and (C) the
Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Exchange Notes. Nothing contained in this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent the Company or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the
"Limitation on Liens" covenant or (2) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been
permitted to be made under the "Limitation on Restricted Payments" covenant if
made on the date of such issuance or sale; or (iv) sales of Common Stock of a
Restricted Subsidiary, provided that the Company or such Restricted Subsidiary
applies the Net Cash Proceeds, if any, from any such sale under this clause
(iv) in accordance with clause (A) or (B) of the "Limitation on Asset Sales"
covenant described below.
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Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Exchange Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the Exchange Notes by such
Restricted Subsidiary and (ii) such Restricted 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 the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee until such time as the
Exchange Notes have been paid in full; provided that this paragraph shall not
be applicable to any Guarantee of any Restricted Subsidiary that existed at
the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Exchange
Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari passu
with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to the
Exchange Notes, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Exchange Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release
or discharge of the Guarantee which resulted in the creation of such
Subsidiary Guarantee, except a discharge or release by or as a result of
payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of the aggregate value of the Capital
Stock of the Company or with any Affiliate of the Company or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement,
at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized
investment banking firm stating that the transaction is fair to the Company or
such Restricted Subsidiary from a financial point of view; (ii) any
transaction solely between the Company and any of its Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries; (iii) the
payment of reasonable and customary regular fees to directors of the Company
who are not employees of the Company; (iv) any payments or other transactions
pursuant to any tax-sharing agreement between the Company and any other Person
with which the Company files a consolidated tax return or with which the
Company is part of a consolidated group for tax purposes; (v) 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 the Company
or any of its Subsidiaries; (vi) loans or advances to officers and employees
of the Company and its Restricted Subsidiaries made in the ordinary course of
business; provided that the aggregate amount of such loans or advances
outstanding at any time shall not exceed $1 million; (vii) any Restricted
Payments not prohibited by the "Limitation on Restricted Payments" covenant or
(viii) transactions pursuant to agreements in effect on the Closing Date that
are referred to herein or in the Company's filings with the Commission.
Notwithstanding the foregoing, any transaction or series of related
transactions
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covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii) through
(viii) of this paragraph, the aggregate amount of which exceeds $5 million in
value, must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the
Company or such Restricted Subsidiary is at least equal to the fair market
value of the assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash Investments or the
assumption of Indebtedness of the Company or any Restricted Subsidiary,
provided that the Company or such Subsidiary is irrevocably released from all
liability under such Indebtedness. If the Company or any Restricted Subsidiary
engages in an Asset Sale, the Company may use the Net Cash Proceeds thereof to
(i) within twelve months after the date of such Asset Sale, (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay Senior
Indebtedness of the Company or any Restricted Subsidiary in each case owing to
a Person other than the Company or any of its Restricted Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A)
(or enter into a definitive agreement committing to so invest within 12 months
after the date of such agreement), in property or assets (other than current
assets) of a nature or type or that are used in a business (or in a company
having property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of, or the
business of, the Company and its Restricted Subsidiaries existing on the date
of such investment and (ii) apply (no later than the end of the 12-month
period referred to in clause (i)) such excess Net Cash Proceeds (to the extent
not applied pursuant to clause (i)) as provided in the following paragraph of
this "Limitation on Asset Sales" covenant. The amount of such Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $10 million, the
Company must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders of the Exchange
Notes and the Floating Rate Notes (and if required by the terms of any
Indebtedness that is pari passu with the Exchange Notes ("Pari Passu
Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro
rata basis an aggregate principal amount of Exchange Notes, Floating Rate
Notes and Pari Passu Indebtedness equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount thereof, plus, in
each case, accrued interest (if any) to the Payment Date. Upon consummation of
an Offer to Purchase, any Excess Proceeds subject to such Offer to Purchase
remaining after all Exchange Notes, Floating Rate Notes and Pari Passu
Indebtedness validly tendered and not withdrawn are purchased by the Company
shall no longer constitute "Excess Proceeds" and may be used for general
corporate purposes.
The Company will comply with any tender offer rules under the Exchange Act,
including Rule 14e-1, in connection with any Offer to Purchase subject to the
provisions of this "Limitation on Asset Sales" covenant. To the extent that
the provisions of any applicable securities laws or regulations conflict with
the provisions of the Indenture, the Company will comply with such securities
laws and regulations and shall not be deemed to have breached its obligations
under the Indenture by virtue thereof.
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times from and after the earlier of (i) the date of the commencement
of this Exchange Offer or the effectiveness of the Shelf Registration
Statement (the "Registration") and (ii) the date that is six months after the
Closing Date, in either case, whether or not the Company is then required to
file reports with the Commission, the Company shall file with the Commission
all such reports and other information as it would be required to file with
the Commission by Section 13(a) or 15(d) under the Exchange Act if it were
subject thereto (unless the Commission will not accept such a filing, in which
case the Company shall provide such documents to the Trustee). The Company
shall supply the Trustee and each Holder or shall supply to the Trustee for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information; provided, however, that copies of such reports
may omit exhibits, which the Company shall deliver at its cost to any Holder
upon request. In addition, at all times prior to the earlier of the date of
the Registration and six months after the Closing
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Date, the Company shall, at its cost, deliver to each Holder of the Exchange
Notes quarterly and annual reports substantially equivalent to those which
would be required by the Exchange Act; provided, however, that copies of such
reports may omit exhibits, which the Company shall supply at its cost to any
Holder upon request. In addition, at all times prior to the Registration, upon
the request of any Holder or any prospective purchaser of the Exchange Notes
designated by a Holder, the Company shall supply to such Holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Exchange Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise, whether or not such payment is
prohibited by the provisions described above under "--Ranking and
Subordination"; (b) default in the payment of interest on any Exchange Note
when the same becomes due and payable, and such default continues for a period
of 30 days, whether or not such payment is prohibited by the provisions
described above under "--Ranking and Subordination"; (c) default in the
performance or breach of the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the
assets of the Company or the failure to make or consummate an Offer to
Purchase in accordance with the "Limitation on Asset Sales" or "Repurchase of
Exchange Notes upon a Change of Control" covenant; (d) the Company defaults in
the performance of or breaches any other covenant or agreement of the Company
in the Indenture or under the Exchange Notes (other than a default specified
in clause (a), (b) or (c) above) and such default or breach continues for a
period of 60 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Exchange Notes;
(e) there occurs with respect to any issue or issues of Indebtedness of the
Company or any Significant Subsidiary having an outstanding principal amount
of $10 million or more in the aggregate for all such issues of all such
Persons, whether such Indebtedness now exists or shall hereafter be created,
(I) an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or
extended within 30 days of such payment default; (f) any final judgment or
order (to the extent not covered by insurance) for the payment of money in
excess of $10 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against the Company or any
Significant Subsidiary and shall not be paid, discharged or vacated, and there
shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final
judgments or orders outstanding and not paid or discharged against all such
Persons to exceed $10 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; (g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant Subsidiary
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of
the property and assets of the Company or any Significant Subsidiary or (C)
the winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; (h) the Company or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or any Significant
Subsidiary or (C) effects any general assignment for the benefit of creditors;
(i) the Company fails to redeem all of its outstanding Preferred Stock within
60 days after the Closing Date; and (j) UATC fails to redeem the Senior
Secured Notes within 60 days after the Closing Date.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25%
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in aggregate principal amount of the Exchange Notes, then outstanding, by
written notice to the Company (and to the Trustee if such notice is given by
the Holders), may, and the Trustee at the request of such Holders shall,
declare the principal of, premium, if any, and accrued interest on the
Exchange Notes to be immediately due and payable. Upon a declaration of
acceleration (an "Acceleration Notice"), such principal of, premium, if any,
and accrued interest shall be immediately due and payable; provided, however,
that if there are any amounts outstanding under the Credit Agreement, such
declaration shall not become effective until the earlier of (i) an
acceleration of the Indebtedness under the Credit Agreement and (ii) 5
Business Days after receipt by the Company and the Bank Agent of such
Acceleration Notice. In the event of a declaration of acceleration because an
Event of Default set forth in clause (e) above has occurred and is continuing,
such declaration of acceleration shall be automatically rescinded and annulled
if the event of default triggering such Event of Default pursuant to clause
(e) shall be remedied or cured by the Company or the relevant Significant
Subsidiary or waived by the holders of the relevant Indebtedness within 60
days after the declaration of acceleration with respect thereto. If an Event
of Default specified in clause (g) or (h) above occurs with respect to the
Company, the principal of, premium, if any, and accrued interest on the
Exchange Notes then outstanding shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder. The Holders of at least a majority in aggregate principal amount
of the outstanding Exchange Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Exchange Notes that have become due solely by such declaration of
acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Exchange Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow
any direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of Exchange Notes not
joining in the giving of such direction and may take any other action it deems
proper that is not inconsistent with any such direction received from Holders
of Exchange Notes. A Holder may not pursue any remedy with respect to the
Indenture or the Exchange Notes unless: (i) the Holder gives the Trustee
written notice of a continuing Event of Default; (ii) the Holders of at least
25% in aggregate principal amount of outstanding Exchange Notes make a written
request to the Trustee to pursue the remedy; (iii) such Holder or Holders
offer the Trustee indemnity satisfactory to the Trustee against any costs,
liability or expense; (iv) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of indemnity; and (v)
during such 60-day period, the Holders of a majority in aggregate principal
amount of the outstanding Exchange Notes do not give the Trustee a direction
that is inconsistent with the request. However, such limitations do not apply
to the right of any Holder of an Exchange Note to receive payment of the
principal of, premium, if any, or interest on, such Exchange Note or to bring
suit for the enforcement of any such payment, on or after the due date
expressed in the Exchange Notes, which right shall not be impaired or affected
without the consent of the Holder.
The Indenture requires certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof.
The Company will also be obligated to notify the Trustee of any default or
defaults in the performance of any covenants or agreements under the
Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the
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Company unless: (i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing under the laws
of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Exchange Notes
and under the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis the Company, or any Person becoming the successor obligor of the
Exchange Notes, as the case may be, could Incur at least $1.00 of Indebtedness
under clause (i) of the first paragraph of the "Limitation on Indebtedness"
covenant; and (iv) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clause (iii)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with; provided, however, that
clause (iii) above does not apply if, in the good faith determination of the
Board of Directors of the Company, whose determination shall be evidenced by a
Board Resolution, the principal purpose of such transaction is to change the
state of incorporation of the Company and any such transaction shall not have
as one of its purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Exchange Notes on the 123rd day after the deposit referred to
below, and the provisions of the Indenture will no longer be in effect with
respect to the Exchange Notes (except for, among other matters, certain
obligations to register the transfer or exchange of the Exchange Notes, to
replace stolen, lost or mutilated Exchange Notes, to maintain paying agencies
and to hold monies for payment in trust) if, among other things, (A) the
Company has deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
the Exchange Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Exchange Notes, (B) the Company has
delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect
that Holders will not recognize income, gain or loss for federal income tax
purposes as a result of the Company's exercise of its option under this
"Defeasance" provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred, which Opinion
of Counsel must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a ruling is
no longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit (except with respect to holders
who may be deemed to be insiders), the trust fund will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15 of
the New York Debtor and Creditor Law, (C) immediately after giving effect to
such deposit on a pro forma basis, no Event of Default, or event that after
the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound, (D) the Company is not prohibited from making payments
in respect of the Exchange Notes by the provisions described under "--Ranking
and Subordination" and (E) if at such time the Exchange Notes are listed on a
national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Exchange Notes will not be delisted
as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The Indenture
further provides that the provisions of the Indenture will no longer be in
effect with respect to clause (iii) under "Consolidation, Merger and Sale of
Assets" and all the covenants described herein under "Repurchase of Exchange
Notes Upon a
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Change of Control" and "Certain Covenants," clause (c) under "Events of
Default," clause (d) under "Events of Default" with respect to such other
covenants and clauses (e) and (f) under "Events of Default" shall be deemed
not to be Events of Default upon, among other things, the deposit with the
Trustee, in trust, of money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the Exchange Notes on the Stated
Maturity of such payments in accordance with the terms of the Indenture and
the Exchange Notes, the satisfaction of the provisions described in clauses
(B)(ii), (C) (without any requirement relating to the 123-day period), and (E)
of the preceding paragraph and the delivery by the Company to the Trustee of
an Opinion of Counsel to the effect that, among other things, the Holders will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance of certain covenants and Events of Default and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Exchange Notes as described in the
immediately preceding paragraph and the Exchange Notes are declared due and
payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on the Exchange Notes
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on the Exchange Notes at the time of the acceleration resulting from such
Event of Default. However, the Company will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Exchange Notes; provided,
however, that no such modification or amendment may, without the consent of
each Holder affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of interest on, any Exchange Note or alter the optional
redemption or repurchase provisions of any such Exchange Note or the Indenture
in a manner adverse to the Holders, (ii) reduce the principal amount of, or
premium, if any, or interest on, any Exchange Note, (iii) change the place or
currency of payment of principal of, or premium, if any, or interest on, any
Exchange Note, (iv) impair the right to institute suit for the enforcement of
any payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any Exchange Note, (v) reduce the above-
stated percentage of outstanding Exchange Notes the consent of whose Holders
is necessary to modify or amend the Indenture, (vi) waive a default in the
payment of principal of, premium, if any, or interest on the Exchange Notes,
(vii) modify the subordination provisions in a manner adverse to the Holders,
(viii) amend, change or modify the obligation of the Company to make and
consummate an Excess Proceeds Offer with respect to any Asset Sale in
accordance with the "Limitation on Sale of Assets" covenant or the obligation
of the Company to make and consummate a Change of Control Offer in the event
of a Change of Control in accordance with the "Purchase of Exchange Notes Upon
a Change in Control" covenant, including, in each case, amending, changing or
modifying any definition relating thereto in any manner materially adverse to
the holders of the Exchange Notes affected thereby, or (ix) reduce the
percentage or aggregate principal amount of outstanding Exchange Notes the
consent of whose Holders is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Exchange Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon
any obligation, covenant or agreement of the Company in the Indenture, or in
any of the Exchange Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of the Company or of any
successor Person thereof or of any subsidiary guarantor or of any successor
person as such. Each Holder, by accepting the Exchange Notes, waives and
releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If a Default has occurred
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and is continuing, the Trustee will use the same degree of care and skill in
its exercise of the rights and powers vested in it under the Indenture as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes initially issued in exchange for the Notes generally will
be represented by one or more fully-registered global notes (collectively, the
"Global Exchange Note"). Notwithstanding the foregoing, Notes held in
certificated form will be exchanged solely for Exchange Notes in certificated
form, as discussed below. The Global Exchange Note will be deposited upon
issuance with the Depository and registered in the name of the Depository or a
nominee of the Depository (the "Global Exchange Note Registered Owner").
Except as set forth below, the Global Exchange Note may be transferred, in
whole and not in part, only to another nominee of the Depository or to a
successor of the Depository or its nominee.
The Company 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 New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" 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 (collectively, the "Participants" or the "Depository's
Participants") and to 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. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depository's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depository's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by or on behalf of the Depository only
through the Depository's Participants or the Depository's Indirect
Participants.
The Company expects that pursuant to procedures established by the
Depository, (i) upon deposit of the Global Exchange Note, the Depository will
credit the accounts of Participants designated by the Exchange Agent with
portions of the principal amount of the Global Exchange Note and (ii)
ownership of such interests in the Global Exchange Note will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interests of the
Depository's Participants), the Depository's Participants and the Depository's
Indirect Participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Exchange Notes is limited to that
extent. For certain other restrictions on the transferability of the Exchange
Notes. See "Risk Factors--Restrictions on Transfer."
Except as described below, owners of interests in the Global Exchange Note
will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in definitive form and will not be
considered the registered owners or holders thereof under the Indenture for
any purpose.
Payments in respect of the principal of and premium, if any, and interest on
any Exchange Notes registered in the name of the Global Exchange Note
Registered Owner will be payable by the Trustee to the Global Exchange Note
Registered Owner in its capacity as the registered Holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Exchange Notes, including the Global Exchange Note,
are registered as the owners thereof for the purpose of receiving such
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payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or
will have any responsibility or liability for (i) any aspect of the
Depository's records or any Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Exchange Note, or
for maintaining, supervising or reviewing any of the Depository's records or
any Participant's records relating to the beneficial ownership interests in
the Global Exchange Note or (ii) any other matter relating to the actions and
practices of the Depository or any of its Participants. The Company believes,
however, that it is the current practice of the Depository, upon receipt of
any payment in respect of securities such as the Exchange Notes (including
principal and interest), to credit the accounts of the relevant Participants
with the payment on the payment date, in the amounts proportionate to their
respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of the Depository unless the
Depository has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of the Exchange Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility
of the Depository, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by the Depository or any of its
Participants in identifying the beneficial owners of the Exchange Notes, and
the Company and the Trustee may conclusively rely on and will be protected in
relying on instruction from the Global Exchange Note Registered Owner for all
purposes.
The Global Exchange Note is exchangeable for definitive Exchange Notes if
(i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository of the Global Exchange Note and the Company thereupon
fails to appoint a successor Depository, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Exchange Notes in definitive registered form, (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default with respect to the Exchange
Notes or (iv) as provided in the following paragraph. Such definitive Exchange
Notes shall be registered in the names of the owners of the beneficial
interests in the Global Exchange Note as provided by the Participants.
Exchange Notes issued in definitive form will be in fully registered form,
without coupons, in minimum denominations of $1,000 and integral multiples
thereof. Upon issuance of Exchange Notes in definitive form, the Trustee is
required to register the Exchange Notes in the name of, and cause the Exchange
Notes to be delivered to, the person or persons (or the nominee thereof)
identified as the beneficial owners as the Depository shall direct.
Subject to the restrictions on the transferability of the Exchange Notes
described in "Risk Factors-- Restrictions on Transfer," an Exchange Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange
for certificated Notes or (ii) following the Exchange Offer, upon the resale,
pledge or other transfer of any Exchange Note or interest therein to any
person or entity that does not participate in the Depository. The exchange of
certificated notes in the Exchange Offer may be made only by presentation of
the Notes, duly endorsed, together with a duly completed Letter of Transmittal
and other required documentation as described under "The Exchange Offer--
Procedures for Tendering" and "--Guaranteed Delivery Procedures." Transfers of
certificated Exchange Notes may be made only by presentation of Exchange
Notes, duly endorsed, to the Trustee for registration of transfer on the Note
Register maintained by the Trustee for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Exchange Notes evidenced by registered, definitive certificates
("Certificated Securities") under the Indenture, then, upon surrender by the
Global Exchange Note Holder of its Global Exchange Notes, Exchange Notes in
such form will be issued to each person that the Global Exchange Note Holder
and the Depository identify as being the beneficial owner of the related
Exchange Note.
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Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depository in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depository for all purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a
Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company
or any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of
the Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or
a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets (other than the Capital
Stock or other Investment in an Unrestricted Subsidiary) of the Company or any
of its Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not governed
by the provisions of the Indenture applicable to mergers, consolidations and
sales of assets of the Company; provided that "Asset Sale" shall not include
(a) sales or other dispositions of inventory, receivables and other current
assets, (b) sales, transfers or other dispositions of assets constituting a
Restricted Payment permitted to be made under the "Limitation on Restricted
Payments" covenant, (c) sales, transfers or other dispositions of assets with
a fair market value not in excess of $500,000 in any transaction or series of
related transactions, (d) sales, transfers or other dispositions of theatres
which are determined in good faith by the Board of Directors to be
nonstrategic and underperforming ("Underperforming Theatres") for
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consideration at least equal to the fair market value of the Underperforming
Theatre disposed of, (e) sales, transfers or other dispositions of Temporary
Cash Investments in the ordinary course of business for consideration at least
equal to the fair market value of the Temporary Cash Investments disposed of
or (f) sales or other dispositions of assets for consideration at least equal
to the fair market value of the assets sold or disposed of, to the extent that
the consideration received would satisfy clause (B) of the "Limitation on
Asset Sales" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the
amount of such principal payment by (ii) the sum of all such principal
payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) other than the
Permitted Holders becomes the ultimate "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed
to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), of more than a majority of the total voting power of the
Voting Stock of the Company on a fully diluted basis; (ii) the Company
consolidates with, or merges with or into, another Person or conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person, or any Person consolidates with, or merges with or into,
the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction (a) where
the outstanding Voting Stock of the Company is not converted or exchanged at
all (except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company) or is converted into or exchanged for (x) Voting
Stock (other than Disqualified Stock) of the surviving or transferee
corporation or (y) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation and cash, securities and other property
(other than Capital Stock of the surviving or transferee corporation) in an
amount that could be paid by the Company as a Restricted Payment as described
under the "Limitation on Restricted Payments" covenant and (b) immediately
after such transaction, no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders,
is the ultimate "beneficial owner" directly or indirectly, of more than a
majority of the total outstanding Voting Stock of the surviving or transferee
corporation; or (iii) individuals who on the Closing Date constitute the Board
of Directors (together with any new directors whose election by the Board of
Directors or whose nomination by the Board of Directors for election by the
Company's stockholders was approved (x) by a vote of at least a majority of
the members of the Board of Directors then in office who either were members
of the Board of Directors on the Closing Date or whose election or nomination
for election was previously so approved or (y) in writing by the Permitted
Holders) cease for any reason to constitute a majority of the members of the
Board of Directors then in office.
"Closing Date" means April 21, 1998, the date of the Indenture.
"Consolidated EBITDA" means, for any period, the operating income of the
Company and its Restricted Subsidiaries for such period plus, to the extent
such amount was deducted in calculating such operating income (i) Consolidated
Interest Expense, (ii) income taxes (other than income taxes (either positive
or negative)
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attributable to extraordinary and non-recurring gains or losses or sales of
assets), (iii) depreciation expense, (iv) amortization expense and (v) all
other non-cash items reducing such operating income, less all non-cash items
increasing such operating income, all as determined on a consolidated basis
for the Company and its Restricted Subsidiaries in conformity with GAAP;
provided that, (a) Consolidated EBITDA shall not include (x) the operating
income (or operating loss) of any Person that is not a Restricted Subsidiary,
except (I) with respect to operating income, to the extent the amount of
dividends or other distributions actually paid to the Company or any of its
Restricted Subsidiaries by such Person during such period and (II) with
respect to operating losses, to the extent of the amount of Investments made
by the Company or any Restricted Subsidiary in such Person during such period;
(y) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such
case, except to the extent includable pursuant to clause (x) above), the
operating income (or operating loss) of any Person accrued prior to the date
it becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or any of its Restricted Subsidiaries or all or substantially all of
the property and assets of such Person are acquired by the Company or any of
its Restricted Subsidiaries; and (z) the operating income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such operating income
is not at the time permitted by the operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; and (b)
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) (I) except for purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described above,
by any amount paid (but only to the extent not accrued in a prior period) or
accrued as dividends on preferred stock of the Company (other than dividends
payable in Capital Stock (other than Disqualified Stock) and other than
dividends accruing on the outstanding Preferred Stock) or any Restricted
Subsidiary owned by Persons other than the Company and any of its Restricted
Subsidiaries and (II) if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, by an amount equal to (A) the amount of the operating
income attributable to such Restricted Subsidiary multiplied by (B) the
percentage ownership interest in the income of such Restricted Subsidiary not
owned on the last day of such period by the Company or any of its Restricted
Subsidiaries.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated EBITDA for such period to (b)
the Consolidated Interest Expense for such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and the aggregate amount of interest in respect of Indebtedness that is
Guaranteed or secured by the Company or any of its Restricted Subsidiaries)
and all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Company and its Restricted Subsidiaries during such period (other than
Capitalized Lease Obligations paid during such period if such obligations were
accrued in a prior period); excluding, however, (i) any amount of such
interest of any Restricted Subsidiary if the operating income of such
Restricted Subsidiary is excluded in the calculation of Consolidated EBITDA
pursuant to clause (z) of the definition thereof (but only in the same
proportion as the operating income of such Restricted Subsidiary is excluded
from the calculation of Consolidated EBITDA pursuant to clause (z) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the Transactions, all as
determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Determination Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Determination Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent
fiscal quarter
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for which financial statements of the Company have been filed with the
Commission pursuant to the "Commission Reports and Reports to Holders"
covenant described above (such fiscal quarter being the "Quarter"), multiplied
by four; provided that, in making the foregoing calculation, (A) pro forma
effect shall be given to any Indebtedness to be Incurred or repaid on the
Determination Date; (B) pro forma effect shall be given to Asset Dispositions
and Asset Acquisitions (including giving pro forma effect to the application
of proceeds of any Asset Disposition) that occur from the beginning of the
Quarter through the Determination Date (the "Reference Period"), as if they
had occurred and such proceeds had been applied on the first day of such
Reference Period; and (C) pro forma effect shall be given to asset
dispositions and asset acquisitions (including giving pro forma effect to the
application of proceeds of any asset disposition) that have been made by any
Person that has become a Restricted Subsidiary or has been merged with or into
the Company or any Restricted Subsidiary during such Reference Period and that
would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the full fiscal quarter immediately
preceding the Determination Date of the Person, or division or line of
business of the Person, that is acquired or disposed of for which financial
information is available.
"Credit Agreement" means the credit agreement entered into by the Company on
the Closing Date, together with any agreements, instruments and documents
executed or delivered pursuant to or in connection with such credit agreement,
in each case as such credit agreement or such agreements, instruments or
documents may be amended, supplemented, extended, renewed, refinanced,
replaced or otherwise modified from time to time; provided, for purposes of
the provisions described under "Ranking and Subordination," that with respect
to any agreement providing for the refinancing or replacement of Indebtedness
under the Credit Agreement, such agreement shall be the Credit Agreement under
the Indenture only if a notice to that effect is delivered by the Company to
the Trustee and there shall be at any time only one instrument that is
(together with the aforementioned related agreements, instruments and
documents) the Credit Agreement under the Indenture.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means the Indebtedness specified in clause
(i) of the definition of Senior Indebtedness and any other Indebtedness
constituting Senior Indebtedness that, at the date of determination, has an
aggregate principal amount outstanding of at least $25 million and that is
specifically designated by the Company, in the instrument creating or
evidencing such Senior Indebtedness as "Designated Senior Indebtedness."
"Determination Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Exchange Notes, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Exchange Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or
Indebtedness having a scheduled maturity prior to the Stated Maturity of the
Exchange Notes; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Exchange Notes shall not constitute Disqualified Stock
if the "asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital Stock than
the provisions contained in "Limitation on Asset Sales" and "Repurchase of
Exchange Notes upon a Change of Control" covenants described above and such
Capital
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Stock specifically provides that such Person will not repurchase or redeem any
such stock pursuant to such provision prior to the Company's repurchase of
such Exchange Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Exchange Notes upon a Change of
Control" covenants described above.
"fair market value" means the price that would be paid 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.
"Floating Rate Notes" means the $50,000,000 aggregate principal amount
Floating Rate Senior Subordinated Notes due 2007 of the Company to be issued
on the Issue Date or the Floating Rate Exchange Notes to the extent exchanged
therefor.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a significant
segment of the accounting profession. All ratios and computations contained or
referred to in the Indenture shall be computed in conformity with GAAP applied
on a consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect to (i) the
amortization of any fees, expenses or goodwill incurred in connection with the
Transactions, (ii) losses incurred for the early extinguishment of debt in
connection with the Transactions and (iii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or
by agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion in value of non-interest bearing or
other discount Indebtedness shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v),
(vi) or (vii) below) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if drawn
upon, to the extent such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for reimbursement),
(iv) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six
months after the date of placing such property in service or taking delivery
and title thereto or the completion of such services, except Trade Payables,
(v) all Capitalized
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Lease Obligations, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser of
(A) the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by
such Person and (viii) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding principal balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation, provided (A) that the amount outstanding at any time of any non-
interest bearing or other discount Indebtedness is the principal amount of
such Indebtedness at such time that would be shown on the balance sheet of
such Person prepared in conformity with GAAP, (B) that money borrowed and set
aside at the time of the Incurrence of any Indebtedness in order to prefund
the payment of the interest on such Indebtedness shall not be deemed to be
"Indebtedness" so long as such money is held to secure the payment of such
interest and (C) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers, suppliers or
lessors in the ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable, prepaid expenses or deposits on the balance
sheet of the Company or its Restricted Subsidiaries and negotiable instruments
held for collection) 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 of Capital
Stock, bonds, notes, debentures or other similar instruments issued by, such
Person and shall include (i) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock
(or any other Investment), held by the Company or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary, including, without limitation, by reason of any transaction
permitted by clause (iii) of the "Limitation on the Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant; provided that the fair
market value of the Investment remaining in any Person that has ceased to be a
Restricted Subsidiary shall not exceed the aggregate amount of Investments
previously made in such Person valued at the time such Investments were made
less the net reduction of such Investments. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of
its Restricted Subsidiaries)) of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the
fair market value of the assets (net of liabilities (other than liabilities to
the Company or any of its Restricted Subsidiaries)) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary, and the fair market value of the outstanding
Investments in any Person other than an Unrestricted Subsidiary that
thereafter becomes a Restricted Subsidiary at the time such Person becomes a
Restricted Subsidiary, shall be considered a reduction in outstanding
Investments and (iii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer.
"Junior Securities" means (i) Capital Stock of the Company (other than any
Capital Stock which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part), (ii) securities of the Company or any other corporation
authorized by an order or decree giving effect, and stating in such order or
decree that effect is given, to the subordination of the Exchange Notes to the
Senior Indebtedness, and made by a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy, insolvency or other
similar law, or (iii) any securities of the Company provided for by a plan of
reorganization or readjustment that
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are subordinated in right of payment to all Senior Indebtedness that may at
the time be outstanding to substantially the same extent as, or to a greater
extent than, the Exchange Notes are so subordinated.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Majority Owned Subsidiary" means any corporation, association or other
business entity that is not a Subsidiary of the Company but of which 50% of
the voting power of the outstanding Voting Stock is owned, directly or
indirectly, by the Company or one or more of its Restricted Subsidiaries as of
the Issue Date.
"ML Funds" means Merrill Lynch Capital Appreciation Partnership No. B-XIX,
L.P., Merrill Lynch Capital Appreciation Partnership No. B-XX, L.P., Roman
Nineteen Offshore Fund Holdings N.V., MLCP Associates L.P. No. II, ML IBK
Positions, Inc., and Merrill Lynch KECALP L.P. 1991 and any Affiliates of the
foregoing and any of their respective successors.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes (whether or not such
taxes will actually be paid or are payable) as a result of such Asset Sale
without regard to the consolidated results of operations of the Company and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset
Sale that either (A) is secured by a Lien on the property or assets sold or
(B) is required to be paid as a result of such sale and (iv) appropriate
amounts to be provided by the Company or any Restricted Subsidiary as a
reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of
Capital Stock, the proceeds of such issuance or sale in the form of cash or
cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents
(except to the extent such obligations are financed or sold with recourse to
the Company or any Restricted Subsidiary) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
attorney's fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Offer to Purchase" means an offer to purchase Exchange Notes by the Company
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Exchange Notes validly tendered will be accepted for payment on a pro rata
basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Exchange Note not
validly tendered will continue to accrue interest pursuant to its terms; (iv)
that, unless the Company defaults in the payment of the purchase price, any
Exchange Note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date; (v) that Holders
electing to have an Exchange Note purchased pursuant to the Offer to Purchase
will be required to surrender the Exchange Note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of the
Exchange Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day
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immediately preceding the Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the third Business Day immediately preceding the Payment Date,
a telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Exchange Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Exchange
Notes purchased; and (vii) that Holders whose Exchange Notes are being
purchased only in part will be issued new Exchange Notes equal in principal
amount to the unpurchased portion of the Exchange Notes surrendered; provided
that each Exchange Note purchased and each new Exchange Note issued shall be
in a principal amount of $1,000 or integral multiples thereof. On the Payment
Date, the Company shall (i) accept for payment on a pro rata basis Exchange
Notes or portions thereof validly tendered pursuant to an Offer to Purchase;
(ii) deposit with the Paying Agent money sufficient to pay the purchase price
of all Exchange Notes or portions thereof so accepted; and (iii) deliver, or
cause to be delivered, to the Trustee all Exchange Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Exchange
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the Holders of Exchange Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Exchange Note equal in principal
amount to any unpurchased portion of the Exchange Note surrendered; provided
that each Exchange Note purchased and each new Exchange Note issued shall be
in a principal amount of $1,000 or integral multiples thereof. The Company
will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase.
"Permitted Holders" means any of the ML Funds or any of their respective
Affiliates.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Majority Owned Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or substantially
all its assets to, the Company or a Restricted Subsidiary; provided that such
person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
Investment; (ii) Temporary Cash Investments; (iii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) loans or
advances to officers and employees of the Company and its Restricted
Subsidiaries made in the ordinary course of business; provided that the
aggregate amount of such loans or advances outstanding at any time shall not
exceed $1 million; (v) Investments in Interest Rate Agreements and Currency
Agreements designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates; (vi) Investments in any Person the primary business of which
is related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investments; provided that the
aggregate amount of Investments made pursuant to this clause (vi) does not
exceed $25 million; (vii) Investments received in consideration for sales of
Underperforming Theatres; (viii) stock, obligations or securities received in
satisfaction of judgments or in settlement of debts owing to the Company or
any Restricted Subsidiary that arose in the ordinary course of business,
received pursuant to any plan of reorganization or similar arrangement in
satisfaction of liabilities owing to the Company or a Restricted Subsidiary
that arose in the ordinary course of business or received upon the foreclosure
or enforcement of a Lien in favor of the Company or any Restricted Subsidiary
that arose in the ordinary course of business and (ix) non-cash proceeds of
Asset Sales conducted in accordance with the provisions of "Certain
Covenants--Limitation on Asset Sales."
"Public Equity Offering" means an underwritten primary public offering of
Capital Stock (other than Disqualified Stock) of the Company, pursuant to an
effective registration statement under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 10% of the total issued and outstanding
aggregate value of the voting Capital Stock of the Company has been
distributed by means of an effective registration statement under the
Securities Act or sales pursuant to Rule 144 under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
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"Senior Indebtedness" means the following obligations of the Company,
whether outstanding on the Closing Date or thereafter Incurred: (i) all
Indebtedness and all other monetary obligations (including expenses, fees and
other monetary obligations) of the Company under the Credit Agreement and (ii)
all other Indebtedness and all other monetary obligations of the Company
(other than the Exchange Notes), including principal and interest on such
Indebtedness, unless such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is pari
passu with, or subordinated in right of payment to, the Exchange Notes;
provided that the term "Senior Indebtedness" shall not include (a) any
Indebtedness of the Company that, when Incurred, was without recourse to the
Company, (b) any Indebtedness of the Company to a Subsidiary of the Company,
or to a joint venture in which the Company has an interest, (c) any
Indebtedness of the Company, to the extent not permitted by the "Limitation on
Indebtedness" covenant or the "Limitation on Senior Subordinated Indebtedness"
covenant described above (but as to any such Indebtedness under the Credit
Agreement, no such violation shall be deemed to exist for purposes of this
clause (c) if the Bank Agent shall have received a representation from an
Officer of the Company to the effect that the issuance of such Indebtedness
does not violate such covenants), (d) any Indebtedness to any employee of the
Company or any of its respective Subsidiaries, (e) any liability for taxes
owed or owing by the Company or (f) any Trade Payables. Senior Indebtedness
will also include interest accruing on or after, or which would accrue but
for, events of bankruptcy of the Company and its respective Subsidiaries at
the rate provided for in the document governing such Senior Indebtedness,
whether or not such interest is an allowed claim enforceable against the
debtor in a bankruptcy case under bankruptcy law.
"Senior Subordinated Obligations" means any principal of, premium, if any,
or interest on the Exchange Notes or the Floating Rate Notes payable pursuant
to the terms of the Exchange Notes or the Floating Rate Notes or upon
acceleration, including any amounts received upon the exercise of rights of
rescission or other rights of action (including claims for damages) or
otherwise, to the extent relating to the purchase price of the Exchange Notes
or the Floating Rate Notes or amounts corresponding to such principal,
premium, if any, or interest on the Exchange Notes or the Floating Rate Notes.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company, accounted for more than 10% of the consolidated
revenues of the Company and its Restricted Subsidiaries or (ii) as of the end
of such fiscal year, was the owner of more than 10% of the consolidated assets
of the Company and its Restricted Subsidiaries, all as set forth on the most
recently available consolidated financial statements of the Company for such
fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time-deposit accounts, certificates of
deposit and money-market deposits maturing within 360 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$250 million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank or trust
company meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 270 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence
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under the laws of the United States of America, any state thereof or any
foreign country recognized by 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 "A-1" (or higher) according to S&P, (v) securities
with maturities of six months or less from the date of acquisition issued or
fully and unconditionally guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or Moody's and (vi) overnight
and demand deposits in a bank or trust company meeting the qualifications
described in clause (ii) above.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors (including
film payables) created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof at any time
prior to the Stated Maturity of the Exchange Notes, and shall also include a
depository receipt issued by a bank or trust company as custodian with respect
to any such U.S. Government Obligation or a specific payment of interest on or
principal of any such U.S. Government Obligation held by such custodian for
the account of the holder of a depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or the
specific payment of interest on or principal of the U.S. Government Obligation
evidenced by such depository receipt.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns
any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any Restricted Subsidiary; provided that (A) any Guarantee by the
Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary
being so designated shall be deemed an "Incurrence" of such Indebtedness and
an "Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to
be so designated has total assets of $1,000 or less or (II) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under the
"Limitation on Restricted Payments" covenant described above and (C), if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under the "Limitation on
Indebtedness" and "Limitation on Restricted Payments" covenants described
above. The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that (i) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if Incurred
at such time, have been permitted to be Incurred (and shall be deemed to have
been Incurred) for all purposes of the Indenture. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
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EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on April 21, 1998, pursuant to which the Company agreed, for the
benefit of the holders of the Notes, that it will, at its own expense, (i)
file the Exchange Offer Registration Statement with the Commission with
respect to the Exchange Offer to exchange the Notes for Exchange Notes having
substantially identical terms in all material respects to the Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions or interest rate increases as described herein) within 60
calendar days after the Issuance Date, (ii) use its best efforts to cause the
Exchange Offer Registration Statement to be declared effective by the
Commission under the Securities Act within 120 calendar days after the
Issuance Date and (iii) use its best efforts to consummate the Exchange Offer
within 150 calendar days after the Issuance Date. Upon the Exchange Offer
Registration Statement being declared effective, the Company will offer the
Exchange Notes in exchange for surrender of the Notes. The Company will keep
the Exchange Offer open for at least 20 business days (or longer if required
by applicable law) after the date that notice of the Exchange Offer is mailed
to holders of the Notes. For each Note surrendered to the Company pursuant to
the Exchange Offer, the holder who surrendered such Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Note.
Interest on each Exchange Note will accrue from the last interest payment date
on which interest was paid on the Note surrendered in exchange therefor or, if
no interest has been paid on such Note, from the original issue date of such
Note.
Each holder of the Notes (other than certain specified holders) who wishes
to exchange Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of
business, (ii) it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes, (iii) it is not an "affiliate" (as defined in Rule 405
under the Securities Act) of the Company or, if it is such an affiliate, it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable and (iv) it is not acting on behalf of
any person who could not truthfully make the foregoing representations.
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the
Exchange Offer, (ii) for any other reason the Exchange Offer is not
consummated within 150 days after the Issuance Date, (iii) under certain
circumstances, if the Initial Purchasers shall so request or (iv) any holder
of Notes (other than the Initial Purchasers) is not eligible to participate in
the Exchange Offer, the Company will, at its expense, (a) as promptly as
practicable, file with the Commission the Shelf Registration Statement
covering resales of the Notes, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act on or
prior to 150 days after the Issuance Date and (c) use its best efforts to keep
effective the Shelf Registration Statement until the earlier of two years
after its Issuance Date or such shorter period ending when all Notes covered
by the Shelf Registration Statement have been sold in the manner set forth and
as contemplated in the Shelf Registration Statement or when the Notes become
eligible for resale pursuant to Rule 144 under the Securities Act without
volume restrictions, if any. The Company, will, in the event of the filing of
the Shelf Registration Statement, provide to each holder of the Notes copies
of the prospectus which is a part of the Shelf Registration Statement, notify
each such holder when the Shelf Registration Statement has become effective
and take certain other actions as are required to permit unrestricting resales
of the Notes. A holder of Notes that sells its Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification rights and obligations thereunder).
In addition, each holder of the Notes will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and to benefit from the provisions regarding
liquidated damages set forth in the following paragraph.
In the event that either (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 60th calendar day following
the Issuance Date, (b) the Exchange Offer Registration Statement has
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not been declared effective on or prior to the 120th calendar day following
the Issuance Date or (c) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective on or prior to the 150th
calendar day following the Issuance Date, the interest rate borne by the Notes
shall be increased by one-quarter of one percent per annum following such 60-
day period in the case of clause (a) above, following such 120-day period in
the case of clause (b) above or following such 150-day period in the case of
clause (c) above, which rate will be increased by an additional one-quarter of
one percent per annum for each 90-day period that any additional interest
continues to accrue; provided, that the aggregate increase in such annual
interest rate may in no event exceed one percent. Upon (x) the filing of the
Exchange Offer Registration Statement after the 60-day period described in
clause (a) above, (y) the effectiveness of the Exchange Offer Registration
Statement after the 120-day period described in clause (b) above or (z) the
consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 150-day period described
in clause (c) above, the interest rate borne by the Notes from the date of
such filing, effectiveness or consummation, as the case may be, will be
reduced to the original interest rate if the Company is otherwise in
compliance with this paragraph; provided, however, that if, after any such
reduction in interest rate, a different event specified in clause (a), (b) or
(c) above occurs, the interest rate may again be increased pursuant to the
foregoing provisions. Pending the announcement of a material corporate
transaction, if the Company issues a notice that the Shelf Registration
Statement is unusable, or such a notice is required under applicable
securities laws to be issued by the Company, and the aggregate number of days
in any consecutive twelve-month period for which all such notices are issued
or required to be issued exceeds 30 days per occurrence or more than 60 days
in the aggregate in a calendar year, then the interest rate borne by the Notes
will be increased by one-quarter of one percent per annum following the date
that such Shelf Registration Statement ceases to be usable for a period of
time in excess of that permitted above, which rate shall be increased by an
additional one-quarter of one percent per annum at the beginning of each
subsequent 90-day period; provided that the aggregate increase in such annual
interest rate may in no event exceed one percent per annum. Upon the Company
declaring that the Shelf Registration Statement is usable after the period of
time described in the preceding sentence, the interest rate borne by the Notes
will be reduced to the original interest rate if the Company is otherwise in
compliance with this paragraph; provided, however, that if after any such
reduction in interest rate a different event of the kind described in the
preceding sentence occurs, the interest rate may again be increased pursuant
to the foregoing provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement,
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part and is incorporated by reference herein.
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RESTRICTIONS IMPOSED BY THE 1995 SALE LEASEBACK
In December 1995, the United Artists Theatre Circuit, Inc. 1995-A Pass
Through Trust (the "Trust") issued $116.8 million of Pass Through
Certificates, Series 1995-A (the "Certificates"). In connection with the
issuance of the Certificates, UATC and UAR sold an aggregate of 31 theatre
properties to a trust (the "Owner Trust"). UATC then entered into a lease with
the Owner Trust to lease back these theatres. To finance the purchase price,
the Owner Trust issued a mortgage note to the Trust, which in turn obtained
the funds to loan to the Owner Trust from issuing the Certificates. UATC and
certain other persons then entered into a Participation Agreement (the
"Participation Agreement") to undertake and clarify their obligations and
rights in the transaction.
The Participation Agreement imposes certain restrictions on UATC. Among
other things, these restrictions limit the ability of UATC and its
subsidiaries to incur indebtedness, pay dividends or make distributions, make
investments, enter into transactions with affiliates, guarantee indebtedness,
and transfer assets.
Under the debt incurrence restriction, UATC generally, with certain
exceptions, may not incur additional indebtedness (or permit its subsidiaries
to incur additional indebtedness) unless its "consolidated fixed charge
coverage ratio" (as defined in the Participation Agreement), which includes
"consolidated operating rental expense" (as defined in the Participation
Agreement) for the preceding four fiscal quarters is at least 1.40 to 1 after
giving effect to the incurrence of the additional indebtedness. On a pro forma
basis after giving effect to the Transactions, UATC's consolidated fixed
charge coverage ratio for the twelve months ended March 31, 1998 would have
been 1.49 to 1. Such restriction applies to draws under the Senior Credit
Facilities since such indebtedness is guaranteed by UATC. As of March 31,
1998, on such pro forma basis United Artists would have been able to draw
approximately $369.0 million under the Senior Credit Facilities in compliance
with such covenants.
Under the distribution restriction, UATC is prohibited from making
"restricted payments," which generally constitute UATC making distributions on
its capital stock, acquiring its stock or the stock of an affiliate or making
certain investments (or permitting its subsidiaries to engage in any of the
foregoing activities) unless UATC could incur additional indebtedness pursuant
to the debt incurrence test described above, the amount of such distributions
and payments does not exceed the amount available under a "basket" and no
"default" or "event of default" exists thereunder. The amount of this basket
includes 50.0% of UATC's "consolidated adjusted net income" (as defined in the
Participation Agreement) accumulated since May 12, 1992 (or if UATC has a
loss, less 100.0% of such loss) and the aggregate net proceeds received by
UATC after May 12, 1992 as capital contributions from the Company. At March
31, 1998 the basket was approximately $45.8 million. After giving effect to
the Transactions and the contribution to UATC of certain of the proceeds of
this Offering and the Other Note Offering, the basket would have been
approximately $155.8 million at March 31, 1998. The amounts available for
distribution to the Company under the basket, therefore, will be initially
insufficient to repay the principal amount of the indebtedness of the Company.
Accordingly, unless the amount of the basket increases, the Company will be
unable to obtain funds from UATC to repay the Notes and the Exchange Notes at
their maturity and will be required to attempt to refinance them. In addition,
any distributions to the Company or other restricted payments by UATC
(including distributions, if any, to repay the Floating Rate Notes and
Floating Rate Exchange Notes which mature six months prior to the Fixed Rate
Notes and Exchange Notes) will decrease the basket available to permit the
Company to make interest and principal payments on the Notes and the Exchange
Notes or otherwise. For UATC to make distributions to the Company after the
$158.8 million basket is utilized, UATC will need to generate net income or
receive additional equity contributions. UATC is generally prohibited from
transferring assets to the Company. To the extent that the 1995 Sale Leaseback
requirements are not met so that UATC cannot distribute amounts to the Company
to pay the interest and principal payments on the Notes, UATC will not be able
to make such distributions unless the 1995 Sale Leaseback is amended or
unwound, which could be at a substantial cost to the Company. There also can
be no assurance that United Artists would be able to amend or unwind the 1995
Sale Leaseback.
The computations of the "consolidated fixed charge coverage ratio" and the
restricted payments basket are based on estimates and interpretations. As a
result of these estimates and interpretations, there can be no
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assurance that the Company's computations of such ratio and basket will not be
contested. For example, UATC will recognize the interest expense on the Senior
Credit Facilities because UATC will guarantee these facilities, which will
decrease the restricted payments basket. If UATC distributes cash to the
Company to pay such interest expense, the Participation Agreement could be
interpreted by a third party as requiring a second decrease to the basket in
the amount of the distribution, resulting in a "double-counting" of the
interest expense when computing the restricted payments basket. The Company is
currently not aware of any third party contesting the calculation of the
restricted payments basket or the consolidated fixed charge coverage ratio.
If a Lease Event of Default (as defined in the 1995 Sale Leaseback) occurs,
the owner trustee under the 1995 Sale Leaseback may terminate the lease and
may transfer the properties to UATC (in which case UATC would be required to
pay liquidated damages as calculated pursuant to the 1995 Sale Leaseback) or
may repossess or relet the properties. The 1995 Sale Leaseback also contains
certain other restrictive covenants. The Participation Agreement and certain
other agreements related to the 1995 Sale Leaseback have been filed by United
Artists with the Commission and the foregoing discussion of the terms and
conditions of such agreements is qualified in its entirety to reference to the
agreements themselves. See "Available Information."
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of certain federal income tax consequences
associated with the acquisition, ownership, and disposition of the Exchange
Notes by investors who acquire the Exchange Notes in the Exchange Offer. The
following summary does not discuss all of the aspects of federal income
taxation that may be relevant to such a prospective holder of the Exchange
Notes in light of his or her particular circumstances, or to certain types of
holders (including dealers in securities, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, S corporations, and
except as discussed below, foreign corporations, persons who are not citizens
or residents of the United States and persons who hold the Exchange Notes as
part of a hedge, straddle, "synthetic security" or other integrated
investment) which are subject to special treatment under the federal income
tax laws. This discussion also does not address the tax consequences to
nonresident aliens or foreign corporations that are subject to United States
federal income tax on a net basis on income with respect to an Exchange Note
because such income is effectively connected with the conduct of a U.S. trade
or business. Such holders generally are taxed in a similar manner to U.S.
Holders (as defined below); however, certain special rules apply. In addition,
this discussion is limited to holders who hold the Exchange Notes as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code"). This summary also does not describe any tax
consequences under state, local, or foreign tax laws.
The discussion is based upon the Code, Treasury Regulations, IRS rulings and
pronouncements and judicial decisions all in effect as of the date hereof, all
of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a
manner that could adversely affect a holder of the Exchange Notes. The Company
has not sought and will not seek any rulings or opinions from the IRS or
counsel with respect to the matters discussed below. There can be no assurance
that the IRS will not take positions concerning the tax consequences of the
purchase, ownership or disposition of the Exchange Notes that are different
from those discussed herein.
PERSONS CONSIDERING THE ACQUISITION, OWNERSHIP OR DISPOSITION OF EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL
INCOME TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS WELL AS THE APPLICATION OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which is (i) a citizen or resident of the
United States; (ii) a domestic corporation or domestic partnership; (iii) an
estate other than a "foreign estate" as defined in Section 7701(a)(31) of the
Code; or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have the authority to control all substantial decisions
of the trust.
Taxation of Stated Interest. In general, U.S. Holders of the Exchange Notes
will be required to include interest received thereon in taxable income as
ordinary income at the time it accrues or is received, in accordance with the
holder's regular method of accounting for federal income tax purposes.
Effect of Optional Redemption and Repurchase. Under certain circumstances
the Company may be entitled to redeem a portion of the Exchange Notes. In
addition, under certain circumstances, each holder of Exchange Notes will have
the right to require the Company to repurchase all or any part of such
holder's Exchange Notes. Treasury Regulations contain special rules for
determining the yield to maturity and maturity on a debt instrument in the
event the debt instrument provides for a contingency that could result in the
acceleration or deferral of one or more payments. The Company does not believe
that these rules are likely to apply to either the Company's right to redeem
the Exchange Notes or to the holders' rights to require the Company to
repurchase the Exchange Notes. Therefore, the Company does not intend to treat
such redemption and repurchase provisions of the Exchange Notes as affecting
the computation of the yield to maturity or maturity date of the Exchange
Notes.
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Sale or other Taxable Disposition of the Exchange Notes. The sale, exchange,
redemption, retirement or other taxable disposition of an Exchange Note will
result in the recognition of gain or loss to a U.S. Holder in an amount equal
to the difference between (a) the amount of cash and fair market value of
property received in exchange therefor (except to the extent attributable to
the payment of accrued but unpaid stated interest) and (b) the holder's
adjusted tax basis in such Exchange Note.
A U.S. Holder's basis in an Exchange Note acquired in exchange for a Note
pursuant to the terms set forth in this Prospectus should be the same as such
U.S. Holder's basis in the Notes exchanged therefor. See "Certain Federal
Income Tax Consequences of the Exchange Offer," above. Otherwise, a U.S.
Holder's initial tax basis in an Exchange Note purchased by such Holder will
be equal to the price paid for the Exchange Note.
Any gain or loss on the sale or other taxable disposition of an Exchange
Note generally will be capital gain or loss. Payments on such disposition for
accrued interest not previously included in income will be treated as ordinary
interest income.
Market Discount and Bond Premium. If a U.S. Holder of an Exchange Note has a
tax basis in the Exchange Note that is less than its "stated redemption price
at maturity," the amount of the difference will be treated as "market
discount" for U.S. federal income tax purposes, unless such difference is less
than a specified de minimis amount. Under the market discount rules of the
Code, a U.S. Holder will be required to treat any principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, an Exchange
Note as ordinary income to the extent of any accrued market discount that has
not previously been included in income. Market discount generally accrues on a
straight-line basis over the term of a debt instrument remaining after the
acquisition. A U.S. Holder may not be allowed to deduct immediately all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or to carry such Exchange Note (or the Note for which the Exchange
Note was exchanged, as the case may be). A U.S. Holder may elect to include
market discount in income currently as it accrues (either on a straight-line
basis or, if the U.S. Holder so elects, on a constant yield basis), in which
case the interest deferral rule set forth in the preceding sentence will not
apply. Such an election will apply to all bonds acquired by the U.S. Holder on
or after the first day of the first taxable year to which such election
applies and may be revoked only with the consent of the IRS.
If a U.S. Holder purchases an Exchange Note (or purchased the Note for which
the Exchange Note was exchanged, as the case may be) for an amount greater
than the sum of all amounts payable on the Exchange Note (or Note) after the
purchase date, other than stated interest, such holder will be considered to
have purchased such Exchange Note (or such Note) with "amortizable bond
premium" equal in amount to such excess, and may elect (in accordance with
applicable Code provisions) to amortize such premium, using a constant yield
method over the remaining term. The amount amortized in any year will be
treated as a reduction of the U.S. Holder's interest income from the Exchange
Note in such year. A U.S. Holder that elects to amortize bond premium must
reduce its tax basis in the Exchange Note by the amount of the premium
amortized in any year. An election to amortize bond premium applies to all
taxable debt obligations then owned and thereafter acquired by the U.S. Holder
and may be revoked only with the consent of the IRS.
Backup Withholding. The backup withholding rules require a payor to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of "reportable payments" and the IRS has notified
the payor that withholding is required, or (iv) the payee fails to certify
under the penalty of perjury that such payee is not subject to backup
withholding. If any one of the events discussed above occurs with respect to a
holder of Exchange Notes, the Company, its paying agent or other withholding
agent will be required to withhold a tax equal to 31% of any "reportable
payment" made in connection with the Exchange Notes of such holder. A
"reportable payment" includes, among other things, amounts paid in respect of
interest on an Exchange Note. Any amounts withheld from a payment to a holder
under the backup withholding rules will be allowed as a refund or credit
against such holder's federal income
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tax, provided that the required information is furnished to the IRS. Certain
holders (including, among others, corporations and certain tax-exempt
organizations) are not subject to backup withholding.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder (as
defined below) of Exchange Notes. This summary does not address the tax
consequences to stockholders, partners or beneficiaries in a Non-U.S. Holder.
For purposes hereof, a "Non-U.S. Holder" is any person who is not a U.S.
Holder and is not subject to U.S. federal income tax on a net basis on income
with respect to an Exchange Note because such income is effectively connected
with the conduct of a U.S. trade or business.
Interest. Payments of interest to a Non-U.S. Holder that do not qualify for
the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30% unless a U.S. income
tax treaty applies to reduce, or eliminate, the rate of withholding. To claim
a treaty reduced rate, the Non-U.S. Holder must provide a properly executed
Form 1001 or applicable successor form.
Interest that is paid to a Non-U.S. Holder on an Exchange Note will not be
subject to U.S. income or withholding tax if the interest qualifies as
"portfolio interest." Generally, interest on the Exchange Notes that is paid
by the Company will qualify as portfolio interest if (i) the Non-U.S. Holder
does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote; (ii) the
Non-U.S. Holder is not a controlled foreign corporation that is related to the
Company actually or constructively through stock ownership for U.S. federal
income tax purposes; (iii) the Non-U.S. Holder is not a bank receiving
interest on a loan entered into in the ordinary course of business; and (iv)
either (x) the beneficial owner of the Exchange Note provides the Company or
its paying agent with a properly executed certification on IRS Form W-8 (or a
suitable substitute form), signed under penalties of perjury, that the
beneficial owner is not a "U.S. person" for U.S. federal income tax purposes
and that provides the beneficial owner's name and address, or (y) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its business holds the
Exchange Note and certifies to the Company or its agent under penalties of
perjury that the IRS Form W-8 (or a suitable substitute) has been received by
it from the beneficial owner of the Exchange Note or a qualifying intermediary
and furnishes the payor a copy thereof.
Treasury regulations that will be effective with respect to payments made
after December 31, 1999 (the "Withholding Regulations") provide alternative
methods for satisfying the certification requirements described in clause (iv)
above. The Withholding Regulations also will require, in the case of Exchange
Notes held by a foreign partnership, that (x) the certification described in
clause (iv) above be provided by each partner and (y) the partnership provide
certain information, including its taxpayer identification number. A look-
through rule will apply in the case of tiered partnerships.
Sale, Exchange or Retirement of Exchange Notes. Any gain realized by a Non-
U.S. Holder on the sale, exchange or retirement of the Exchange Notes, will
generally not be subject to U.S. federal income tax or withholding unless (i)
the Non-U.S. Holder is an individual who was present in the U.S. for 183 days
or more in the taxable year of the disposition and meets certain other
requirements; or (ii) the Non-U.S. Holder is subject to tax pursuant to
certain provisions of the Code applicable to certain individuals who renounce
their U.S. citizenship or terminate long-term U.S. residency. If a Non-U.S.
Holder falls under (ii) above, the holder will be taxed on the net gain
derived from the sale under the graduated U.S. federal income tax rates that
are applicable to U.S. citizens and resident aliens, and may be subject to
withholding under certain circumstances. If a Non-U.S. Holder falls under (i)
above, the holder generally will be subject to U.S. federal income tax at a
rate of 30% on the gain derived from the sale (or reduced treaty rate) and may
be subject to withholding in certain circumstances.
U.S. Information Reporting and Backup Withholding Tax. Back-up withholding
generally will not apply to an Exchange Note issued in registered form that is
beneficially owned by a Non-U.S. Holder if the certification
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of Non-U.S. Holder status is provided to the Company or its agent as described
above in "Certain U.S. Federal Income Tax Consequences for Non-U.S. Holders--
Interest," provided that the payor does not have actual knowledge that the
holder is a U.S. person. The Company may be required to report annually to the
IRS and to each Non-U.S. Holder the amount of interest paid to, and the tax
withheld, if any, with respect to each Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner of an
Exchange Note by or through the foreign office of a custodian, nominee or
other agent of such beneficial owner, or if the proceeds of the sale of
Exchange Notes are paid to the beneficial owner of an Exchange Note through a
foreign office of a "broker" (as defined in the pertinent Regulations), the
proceeds will not be subject to backup withholding (absent actual knowledge
that the payee is a U.S. person). Information reporting (but not backup
withholding) will apply, however, to a payment by a foreign office of a
custodian, nominee, agent or broker that is (i) a U.S. person, (ii) a
controlled foreign corporation for U.S. federal income tax purposes, or (iii)
a foreign person that derives 50% or more of its gross income from the conduct
of a U.S. trade or business for a specified three-year period or, effective
after December 31, 1999, by a foreign office of certain other persons, unless
the broker has in its records documentary evidence that the holder is a Non-
U.S. Holder and certain conditions are met (including that the broker has no
actual knowledge that the holder is a U.S. Holder) or the holder otherwise
establishes an exemption. Payment through the U.S. office of a custodian,
nominee, agent or broker is subject to both backup withholding at a rate of
31% and information reporting, unless the holder certifies that it is a Non-
U.S. Holder under penalties of perjury or otherwise establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such
holder's U.S. federal income tax liability, provided that certain information
is provided by the holder to the IRS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Notes
where such Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180
days after the Registration Statement is declared effective, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Registration Statement is declared
effective, the Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed
to pay certain expenses incident to the Exchange Offer, other than commission
or concessions of any brokers or dealers, and will indemnify the holders of
the Exchange Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemental Prospectus to such broker-dealer.
Merrill Lynch has in the past and may in the future provide investment
banking and financial advisory services to the Company and United Artists.
Merrill Lynch acted as purchasers in connection with the initial sale of the
Fixed Rate Notes and the Floating Rate Notes and received an aggregate
underwriting discount of approximately $4.5 million in connection therewith.
An affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated is a lender
and acted as a co-syndication agent under the Senior Credit Facilities for
which it received usual and customary fees. The Merrill Lynch Group are
affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated and currently
own approximately 90.8% of the voting stock of the Company. See "Principal
Stock Ownership." If Merrill Lynch conducts any market-making activities in
the Exchange Notes, it may be required to deliver a "market-making
prospectus," registered with the Commission, when effecting offers and sales
in the Exchange Notes because of such equity ownership of the Company by the
Merrill Lynch Group. Merrill Lynch has no obligation to make a market in the
Notes or the Exchange Notes, and may discontinue its market-making activities
at any time without notice, at its sole discretion.
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VALIDITY OF THE EXCHANGE NOTES
The validity of the Exchange Notes will be passed on for the Company by
Wachtell, Lipton, Rosen & Katz, New York, New York, special counsel to the
Company.
EXPERTS
The consolidated financial statements of Oscar I Corporation (subsequently
renamed United Artists Theatre Company) and subsidiaries as of December 31,
1997 and December 31, 1996 and for the years then ended included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated statements of operations, stockholders' equity and cash
flow of Oscar I Corporation (subsequently renamed United Artists Theatre
Company) and subsidiaries for the year ended December 31, 1995, have been
included herein and in the Registration Statement 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 contains an
explanatory paragraph that states 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.
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INDEX TO FINANCIAL STATEMENTS
OSCAR I CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants--Arthur Andersen LLP............ F-2
Independent Auditors' Report--KPMG Peat Marwick LLP...................... F-3
Consolidated Balance Sheets, December 31, 1997 and 1996.................. F-4
Consolidated Statements of Operations, Years Ended December 31, 1997,
1996 and 1995........................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)................ F-6
Consolidated Statements of Cash Flow, Years Ended December 31, 1997, 1996
and 1995................................................................ F-7
Notes to Consolidated Financial Statements............................... F-8
Condensed Consolidated Balance Sheets, March 31, 1998 and December 31,
1997.................................................................... F-20
Condensed Consolidated Statements of Operations, Three Months Ended March
31, 1998 and 1997 ...................................................... F-21
Condensed Consolidated Statement of Stockholder's Equity (Deficit), March
31, 1998................................................................ F-22
Condensed Consolidated Statements of Cash Flow, Three Months Ended March
31, 1998 and 1997 ...................................................... F-23
Notes to Condensed Consolidated Financial Statements..................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OSCAR I Corporation:
We have audited the accompanying consolidated balance sheets of OSCAR I
Corporation and subsidiaries (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flow for the years 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 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 OSCAR I
Corporation and subsidiaries as of December 31, 1997 and 1996 and the results
of their operations and their cash flow for the years then ended in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
March 23, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OSCAR I Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flow of OSCAR I Corporation and subsidiaries
(the "Company") for the year 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 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 results of operations and cash
flow of OSCAR I Corporation and subsidiaries for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in note 10 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-3
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 10.8 10.1
Receivables, net............................................ 13.1 30.5
Prepaid expenses and concession inventory................... 18.4 15.4
Other assets................................................ 0.3 2.6
------- ------
Total current assets.................................... 42.6 58.6
Investments and related receivables........................... 15.4 30.2
Property and equipment, at cost (note 10):
Land........................................................ 54.7 62.2
Theatre buildings, equipment and other...................... 499.0 453.2
------- ------
553.7 515.4
Less accumulated depreciation and amortization.............. (158.4) (130.4)
------- ------
395.3 385.0
------- ------
Intangible assets, net (notes 3 and 10)....................... 101.5 127.5
Other assets, net (note 3).................................... 8.2 11.4
------- ------
$ 563.0 612.7
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................ $ 57.3 51.9
Film rentals payable........................................ 29.8 28.0
Accrued salaries and wages.................................. 7.9 9.4
Accrued interest............................................ 5.6 5.7
Other accrued liabilities................................... 15.6 11.9
Current portion of long-term debt (note 5).................. 81.7 29.9
------- ------
Total current liabilities............................... 197.9 136.8
Other liabilities (note 2).................................... 45.9 37.3
Debt (note 5)................................................. 332.3 423.2
------- ------
Total liabilities....................................... 576.1 597.3
Minority interests in equity of consolidated subsidiaries..... 7.2 7.0
Stockholders' Equity (Deficit) (note 7):
Preferred stock............................................. 193.9 170.1
Common stock:
Class A................................................... 0.1 0.1
Class B................................................... -- --
Class C................................................... -- --
Additional paid-in capital.................................. 16.4 40.2
Accumulated deficit......................................... (228.5) (201.5)
Cumulative foreign currency translation adjustment.......... (0.4) (0.5)
Treasury stock.............................................. (1.8) --
------- ------
(20.3) 8.4
------- ------
$ 563.0 612.7
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Revenue:
Admissions............................................. $473.9 466.5 457.1
Concession sales....................................... 189.6 185.1 178.2
Other.................................................. 22.8 27.5 14.5
------ ----- -----
686.3 679.1 649.8
------ ----- -----
Costs and expenses:
Film rental and advertising expenses................... 262.5 257.2 248.6
Direct concession costs................................ 30.2 29.3 29.5
Other operating expenses............................... 261.5 259.5 246.3
Sale and leaseback rentals (note 2).................... 12.8 11.0 0.5
General and administrative (note 9).................... 24.3 35.1 35.5
Restructuring charge (note 8).......................... 0.8 1.9 --
Depreciation and amortization.......................... 60.7 74.9 69.8
Provision for impairment (note 10)..................... 36.0 9.5 21.0
------ ----- -----
688.8 678.4 651.2
------ ----- -----
Operating income (loss)............................ (2.5) 0.7 (1.4)
Other income (expense):
Interest, net (note 5):
Interest expense..................................... (43.9) (43.5) (51.9)
Amortization of deferred loan costs.................. (2.2) (2.2) (1.9)
Interest income...................................... 0.5 0.3 0.5
------ ----- -----
(45.6) (45.4) (53.3)
Gain (loss) on disposition of assets, net (note 11).... 28.0 2.7 (5.7)
Share of earnings (losses) of affiliates, net.......... (1.6) (0.5) 0.7
Minority interests in earnings of consolidated
subsidiaries.......................................... (1.3) (0.8) (1.2)
Other, net............................................. (2.5) (1.4) (2.1)
------ ----- -----
(23.0) (45.4) (61.6)
------ ----- -----
Loss before income tax expense..................... (25.5) (44.7) (63.0)
Income tax expense (note 12)............................. (1.5) (1.1) (1.8)
------ ----- -----
Net loss........................................... (27.0) (45.8) (64.8)
Dividend on preferred stock (note 7)..................... (23.8) (20.9) (18.3)
------ ----- -----
Net loss available to common stockholders.......... $(50.8) (66.7) (83.1)
====== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON COMMON COMMON FOREIGN TOTAL
STOCK STOCK STOCK ADDITIONAL CURRENCY STOCKHOLDERS'
PREFERRED CLASS CLASS CLASS PAID-IN ACCUMULATED TRANSLATION TREASURY EQUITY
STOCK A B C CAPITAL DEFICIT ADJUSTMENT STOCK (DEFICIT)
--------- ------ ------ ------ ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... $130.9 0.1 -- -- 79.4 (90.9) -- -- 119.5
Accretion of dividends
on preferred stock... 18.3 -- -- -- (18.3) -- -- -- --
Foreign currency
translation
adjustment........... -- -- -- -- -- -- (0.1) -- (0.1)
Net loss.............. -- -- -- -- -- (64.8) -- -- (64.8)
------ --- --- --- ----- ------ ---- ---- -----
Balance at December 31,
1995................... 149.2 0.1 -- -- 61.1 (155.7) (0.1) -- 54.6
Accretion of dividends
on preferred stock... 20.9 -- -- -- (20.9) -- -- -- --
Foreign currency
translation
adjustment........... -- -- -- -- -- -- (0.4) -- (0.4)
Net loss.............. -- -- -- -- -- (45.8) -- -- (45.8)
------ --- --- --- ----- ------ ---- ---- -----
Balance at December 31,
1996................... 170.1 0.1 -- -- 40.2 (201.5) (0.5) -- 8.4
Accretion of dividends
on preferred stock... 23.8 -- -- -- (23.8) -- -- -- --
Foreign currency
translation
adjustment........... -- -- -- -- -- -- 0.1 -- 0.1
Purchase of treasury
stock................ -- -- -- -- -- -- -- (1.8) (1.8)
Net loss.............. -- -- -- -- -- (27.0) -- -- (27.0)
------ --- --- --- ----- ------ ---- ---- -----
Balance at December 31,
1997................... $193.9 0.1 -- -- 16.4 (228.5) (0.4) (1.8) (20.3)
====== === === === ===== ====== ==== ==== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net cash provided by operating activities............ $ 51.0 30.8 40.7
------- ------ ------
Cash flow from investing activities:
Capital expenditures............................... (60.0) (68.6) (91.4)
(Increase) decrease in construction in progress,
net............................................... (7.4) 1.5 (5.1)
Increase in receivable from sale and leaseback
escrow............................................ (12.8) (19.5) --
Proceeds from sale and leaseback transaction and
escrow............................................ 23.2 22.9 90.9
Cash paid for minority interest holding............ -- -- (10.3)
Proceeds from disposition of assets................ 70.0 23.5 16.6
Investments in and receivables from theatre joint
ventures.......................................... (18.3) (14.3) (2.3)
Other, net......................................... 0.7 (2.2) --
------- ------ ------
Net cash used in investing activities.......... (4.6) (56.7) (1.6)
------- ------ ------
Cash flow from financing activities:
Debt borrowings.................................... 150.9 129.8 187.5
Debt repayments.................................... (191.5) (132.7) (188.9)
Increase (decrease) in cash overdraft.............. (2.8) 6.2 (14.1)
Other, net......................................... (2.3) 0.2 (3.9)
------- ------ ------
Net cash provided by (used in) financing activ-
ities......................................... (45.7) 3.5 (19.4)
------- ------ ------
Net increase (decrease) in cash and cash equiv-
alents........................................ 0.7 (22.4) 19.7
Cash and cash equivalents:
Beginning of period................................ 10.1 32.5 12.8
------- ------ ------
End of period...................................... $ 10.8 10.1 32.5
======= ====== ======
Reconciliation of net loss to net cash provided by
operating activities:
Net loss........................................... $ (27.0) (45.8) (64.8)
Effect of leases with escalating minimum annual
rentals........................................... 3.7 3.1 2.0
Depreciation and amortization...................... 60.7 74.9 69.8
Provision for impairment........................... 36.0 9.5 21.0
(Gain) loss on disposition of assets, net.......... (28.0) (2.7) 5.7
Share of (earnings) losses of affiliates, net...... 1.6 0.5 (0.7)
Minority interests in earnings of consolidated
subsidiaries...................................... 1.3 0.8 1.2
Changes in assets and liabilities:
Receivables...................................... 2.4 (4.4) (1.2)
Prepaid expenses and concession inventory........ (3.0) 4.0 (3.4)
Other assets..................................... 1.9 1.3 0.9
Accounts payable................................. 3.3 (8.4) 3.5
Accrued liabilities.............................. 2.1 (0.2) 5.5
Other liabilities................................ (4.0) (1.8) 1.2
------- ------ ------
Net cash provided by operating activities...... $ 51.0 30.8 40.7
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) ORGANIZATION
Oscar I Corporation ("OSCAR I"), a Delaware corporation, was formed in
February 1992 for the purpose of purchasing United Artists Theatre Circuit,
Inc. ("UATC") from an affiliate 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 UATC's management. On May
12, 1992, OSCAR I purchased all of the outstanding common stock of UATC from
an affiliate of TCI (the "Acquisition").
Simultaneously with the Acquisition, the Non-Management Investors formed
OSCAR II Corporation, ("OSCAR II"), a Delaware corporation, and acquired from
an affiliate of TCI all of the outstanding capital stock of United Artists
Realty Company ("UAR") and its subsidiaries, United Artists Properties I Corp.
("Prop I") and United Artists Properties II Corp. ("Prop II"). UAR, Prop I and
Prop II were the owners and lessors of certain operating theatre properties
leased to and operated by UATC and its subsidiaries. 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, OSCAR I entered into a sale and leaseback transaction
(the "1995 Sale and Leaseback") whereby the buildings and land underlying 27
of its operating theatres and four theatres currently under development were
sold to, and leased back from, the 1995-A United Artists Pass Through Trust
(the "Pass Through Trust"), an unaffiliated third party, for approximately
$97.6 million. A portion of the sale proceeds were used to pay certain
transaction expenses, repay certain existing indebtedness and the remainder
was held in short-term cash investments. The proceeds related to three of the
theatres under development (approximately $14.2 million) were initially
deposited into an escrow account and were funded 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 were paid to the Company in 1997 when construction of the new
theatre and the screen addition was completed.
The net book value of the land and buildings included in the 1995 Sale and
Leaseback was approximately $85.5 million, and OSCAR I realized a net gain of
approximately $12.1 million as a result of the Sale and Leaseback. For
financial statement purposes, this gain has been deferred and will be
recognized over the term of the lease as a reduction of rent expense. The 1995
Sale and Leaseback requires UATC 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. An agreement with the Pass Through Trust requires the maintenance of
certain financial covenants by UATC.
On November 8, 1996, OSCAR I 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
of UATC. 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 certain of the
construction costs associated with the two theatres. During 1997, OSCAR I
opened one of the theatres under development and received approximately $10.8
million of proceeds from the escrow account. The lease has a term of 20 years
and nine months with options to extend for an additional 10 years.
On December 31, 1997, OSCAR I entered into a sale and leaseback transaction
whereby two theatres currently under development were sold to, and leased back
from, an unaffiliated third party for approximately
F-8
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$18.1 million. At December 31, 1997, approximately $13.5 million of the sales
proceeds were deposited into an escrow account and are to be paid under the
terms of the sale and leaseback to fund certain of the construction costs
associated with the two theatres. The lease has a term of 22 years with
options to extend for an additional 10 years.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of OSCAR I and
its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Nature of Operations
OSCAR I, through its subsidiaries, is principally engaged in the operation
and ownership of motion picture theatres.
(c) Cash and Cash Equivalents
OSCAR I considers investments with initial maturities of three months or
less to be cash equivalents.
(d) Investments
Investments in which OSCAR I'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 OSCAR I's
share of net earnings or losses of the investee as they occur. Investments in
which OSCAR I'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.
(e) Property and Equipment
Property and equipment are stated at cost, including acquisition costs
allocated to tangible assets acquired. 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 that 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-9
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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). During
1997, approximately $100 million of non-compete agreements relating to the
Acquisition were fully amortized. Intangible assets and related accumulated
amortization are summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Theatre lease acquisition costs.............................. $156.9 169.7
Non-compete agreements....................................... 3.0 103.0
------ ------
159.9 272.7
Accumulated amortization..................................... (58.4) (145.2)
------ ------
$101.5 127.5
====== ======
</TABLE>
(g) Other Assets
Other assets primarily consist of deferred loan and acquisition costs.
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.
Amortization of the deferred acquisition costs is calculated on a straight
line basis over five years. During 1997, approximately $18.4 million of
deferred acquisition costs relating to the Acquisition and approximately $7.2
million of other assets were fully amortized. Other assets and related
accumulated amortization are summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ -----
<S> <C> <C>
Deferred loan costs........................................... $ 16.2 16.2
Deferred acquisition costs.................................... -- 18.4
Other......................................................... 2.9 3.9
------ -----
19.1 38.5
Accumulated amortization...................................... (10.9) (27.1)
------ -----
$ 8.2 11.4
====== =====
</TABLE>
(h) Admissions and Concession Sales Revenue
Admissions and concession sales revenue are recognized upon receipt at the
theatre. Admissions and concession sales revenue are recorded net of
applicable sales taxes.
(i) Operating Costs and Expenses
Film rental and advertising expenses include film rental and co-op and
directory advertising costs. Film rental costs are accrued based on the
applicable admissions revenue and the terms of the film licenses. 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 that are common to both ticket sales and concession operations.
As such, other operating expenses are reported as a combined amount as
F-10
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(j) 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.
(k) Reclassification
Certain prior year amounts have been reclassified for comparability with the
1997 presentation.
(4) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest for the years ended December 31, 1997, 1996 and
1995, were $42.8 million, $44.6 million and $47.3 million, respectively.
Cash payments by certain less than 80% owned entities for income taxes for
the years ended December 31, 1997, 1996 and 1995, were $1.4 million, $1.4
million and $0.7 million, respectively.
OSCAR I accrued $23.8 million, $20.9 million and $18.3 million of dividends
during the years ended December 31, 1997, 1996 and 1995, respectively, on its
preferred stock (see note 7).
During 1997, 1996 and 1995, OSCAR I incurred $1.1 million, $1.4 million and
$2.4 million, respectively, of capital lease obligations relating to new
equipment.
(5) DEBT
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ -----
<S> <C> <C>
UATC Bank Credit Facility(a).................................. $226.5 255.6
UATC Senior Secured Notes(b).................................. 125.0 125.0
UATC Other(c)................................................. 10.7 8.4
UAR Promissory Notes(d)....................................... 5.6 10.0
Prop I Mortgage Notes(e)...................................... 46.2 54.1
------ -----
414.0 453.1
Less: current portion......................................... (81.7) (29.9)
------ -----
$332.3 423.2
====== =====
</TABLE>
- --------
(a) UATC's bank credit facility (the "Bank Credit Facility") currently
provides for term loans aggregating $203.5 million (the "Term Loans"), a
reducing revolving loan with commitments aggregating $78.8 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 through March 31, 2002. The
aggregate commitments available for borrowing under the Revolving Facility
decline $8.75 million at December 31, 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
F-11
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
defined. Interest is payable at varying dates depending on the type of rate
selected by UATC, 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 UATC and substantially all
of UATC's subsidiaries and is guaranteed by OSCAR I and substantially all
of UATC's subsidiaries. During 1997, UATC repaid $10.8 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.
(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 UATC
and substantially all of UATC's subsidiaries, and are guaranteed on a
pari-passu basis with the Bank Credit Facility by OSCAR I and
substantially all of UATC's subsidiaries. The Senior Secured Notes are
redeemable at the option of UATC. The redemption price of the Senior
Secured Notes at December 31, 1997 was 104.313% of the outstanding
principal balance.
(c) UATC's other debt at December 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 June 2007.
(d) In conjunction with the acquisitions of certain theatres prior to the
Acquisition, UAR issued non-interest bearing promissory notes to the
sellers. Principal on the promissory notes is due quarterly through
October 1999. For financial statement purposes, the promissory notes were
discounted at UAR's effective borrowing rate on the date the promissory
notes were executed. The undiscounted amount payable under the promissory
notes at December 31, 1997 was approximately $6.2 million.
(e) The Prop I first mortgage notes (the "Prop I Notes") bear interest at
11.15% per annum. Principal and interest are payable in monthly
installments, with a lump sum payment of principal and accrued, but
unpaid, interest due on November 1, 1998. The Prop I Notes are secured by
a first mortgage on Prop I's theatre properties, an assignment of the
lease agreement with UATC, and $12.5 million of bank Standby Letters of
Credit provided by UATC. The Indenture of Mortgage, among its other
provisions, contains limitations on the sale and/or substitution of
properties and a limitation on any additional debt incurred by Prop I
other than intercompany advances.
At December 31, 1997, UATC was party to interest rate cap agreements on
$100.0 million of floating rate debt which provide for a LIBOR interest rate
cap of 7 1/2% and expire at various dates through July 1999. UATC is subject
to credit risk exposure from non-performance of the counterparties to the
interest rate cap agreements. As UATC has historically received payments
relating to such interest rate cap agreements, it does not anticipate such
non-performance in the future. UATC 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, 1997, UATC had approximately $55.8 million of unused
revolving loan commitments pursuant to the Bank Credit Facility, $11.1 million
of which has been used for the issuance of letters of credit. Commitment fees
of 3/8% per annum are paid on the average unused revolver commitments.
F-12
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Annual maturities of debt for each of the next five years and thereafter are
as follows (amounts in millions):
<TABLE>
<S> <C>
1998................................................................ $ 81.7
1999................................................................ 50.8
2000................................................................ 83.8
2001................................................................ 83.7
2002................................................................ 110.2
Thereafter.......................................................... 3.8
------
$414.0
======
</TABLE>
(6) 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.
Financial Instruments
The carrying amount and estimated fair value of OSCAR I's financial
instruments at December 31, 1997 are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
UATC Bank Credit Facility and Other Debt................. $237.2 237.2
====== =====
UATC Senior Secured Notes................................ $125.0 130.6
====== =====
UAR Promissory Notes..................................... $ 5.6 5.6
====== =====
Prop I Mortgage Notes.................................... $ 46.2 47.1
====== =====
Interest Rate Cap Agreements............................. $ 0.1 0.1
====== =====
</TABLE>
UATC Bank Credit Facility and Other Debt: The carrying amount of UATC'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.
UATC Senior Secured Notes: The fair value of the Senior Secured Notes is
estimated based upon quoted market prices at December 31, 1997.
UAR Promissory Notes: The fair value of the UAR Promissory Notes is
estimated based upon dealer quotes for similar agreements at December 31,
1997.
Prop I Mortgage Notes: The fair value of the Prop I Mortgage Notes is
estimated based upon dealer quotes for similar agreements at December 31,
1997.
Interest Rate Cap Agreements: The fair value of the interest rate cap
agreements is estimated based upon dealer quotes for similar agreements at
December 31, 1997.
(7) STOCKHOLDERS' EQUITY
Preferred Stock
The OSCAR I preferred stock is redeemable any time at the option of OSCAR I
at its stated liquidation value plus accrued and unpaid dividends. Dividends
accrue at a rate of 8% through December 31, 1995, 9%
F-13
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 of OSCAR I or UATC
restricts such cash payment. Currently, such restrictions exist. The preferred
stock contains certain restrictions on, among other things, the incurrence of
additional indebtedness by OSCAR I or its subsidiaries. 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, 1997,
the actual redemption value in accordance with the terms of the preferred
stock was approximately $152.1 million, or approximately $41.8 million less
than the carrying amount at December 31, 1997.
OSCAR I is authorized to issue 5,000,000 shares of preferred stock.
Common Stock
At December 31, 1997, OSCAR I had outstanding 11,551,383 shares of Class A
common stock, $0.01 par value per share, 48,425 shares of Class B common
stock, $0.01 par value per share and has granted 15,462 shares of Class C
common stock, $0.01 par value to certain members of management. The Class A
and Class B shares are identical except that the Class B shares do not have
any voting rights. The Class C shares vest over a four-year period and are
identical to the Class B common stock except for a $9.50 per share liquidation
preference in favor of the holders of the Class A and Class B common stock. As
of December 31, 1997, 13,001 shares of the Class C common stock had vested.
OSCAR I is authorized to issue 23,200,000 shares of Class A common stock,
1,818,000 shares of Class B common stock and 57,000 shares of Class C common
stock.
Stock Options
In connection with the Acquisition, the OSCAR I Management Stock Plan was
established. The OSCAR I Management Stock Plan established three types of
options, those being: the Incentive Options (the "Incentive Plan"),
Performance Options (the "Performance Plan"), and Premium Options (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 UATC's value or the
investment returns received by the Class A common stockholders. 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.
OSCAR I applies the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its Option Plans. No compensation cost has been recognized by
OSCAR I for any of the Option Plans. OSCAR I's compensation expense would not
have been materially different had OSCAR I recorded compensation expense for
its 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.
F-14
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of OSCAR I's Incentive Plan as of December 31, 1997, 1996 and 1995,
and changes during those years is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ---------------------- ----------------------
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...................... 544,320 $10.06 594,720 $10.05 593,970 $10.04
Granted............... -- -- 6,600 $10.79 3,000 $10.79
Exercised............. -- -- -- -- -- --
Forfeited............. (413,487) $10.04 (57,000) $10.00 (2,250) $10.00
-------- ------- -------
Outstanding at December
31..................... 130,833 $10.12 544,320 $10.06 594,720 $10.05
======== ======= =======
</TABLE>
The following table summarizes information about the Incentive Plan at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------
WEIGHTED AVG.
EXERCISE NUMBER REMAINING
PRICE OUTSTANDING CONTRACTUAL LIFE NUMBER EXERCISABLE
-------- ----------- ---------------- -------------------
<S> <C> <C> <C>
$10.00 111,233 4.5 111,233
$10.79 19,600 6.8 9,470
------- -------
130,833 5.0 120,703
======= =======
</TABLE>
A summary of OSCAR I's Performance Plan as of December 31, 1997, 1996 and
1995, and changes during those years is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ---------------------- ----------------------
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...................... 528,975 $10.05 573,450 $10.04 572,825 $10.04
Granted............... 197,250 $12.00 5,900 $10.79 2,500 $10.79
Exercised............. -- -- -- -- -- --
Forfeited............. (414,350) $10.04 (50,375) $10.00 (1,875) $10.00
-------- ------- -------
Outstanding at December
31..................... 311,875 $11.31 528,975 $10.05 573,450 $10.04
======== ======= =======
</TABLE>
The following table summarizes information about the Performance Plan at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------
WEIGHTED AVG.
EXERCISE NUMBER REMAINING
PRICE OUTSTANDING CONTRACTUAL LIFE NUMBER EXERCISABLE
-------- ----------- ---------------- -------------------
<S> <C> <C> <C>
$10.00 103,500 4.5 0
$10.79 11,125 6.8 0
$12.00 197,250 9.3 0
------- ---
311,875 7.6 0
======= ===
</TABLE>
F-15
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of OSCAR I's Premium Plan as of December 31, 1997, 1996 and 1995,
and changes during those years is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ---------------------- ----------------------
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...................... 265,403 $66.00 287,791 $48.25 287,479 $35.25
Granted............... -- -- 2,800 $48.25 1,250 $35.25
Exercised............. -- -- -- -- -- --
Forfeited............. (208,972) $66.00 (25,188) $48.25 (938) $35.25
-------- ------- -------
Outstanding at December
31..................... 56,431 $66.00 265,403 $48.25 287,791 $35.25
======== ======= =======
Options Exercisable at
December 31............ 0 0 0
======== ======= =======
</TABLE>
As of December 31, 1997, the 56,431 Premium Plan options had an exercise
price of $66.00 and a weighted average remaining contractual life of 5.0
years.
(8) RESTRUCTURING CHARGE
At the end of 1996, OSCAR I initiated a corporate restructuring plan
intended to provide a higher level of focus on OSCAR I's domestic theatrical
business at a lower annual cost. This corporate restructuring was
substantially completed in January 1997. In conjunction with this corporate
restructuring plan, OSCAR I recorded $0.8 million and $1.9 million
restructuring charges in 1997 and 1996, respectively, for severance and other
related expenses.
(9) 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, to
the Savings Plan. Employee contributions are invested in various investment
funds based upon elections made by the employee. Prior to January 1, 1997,
OSCAR I matched 100% of each employee's contributions up to 10% of an
employee's compensation. As part of the corporate restructuring plan (see note
8), effective January 1, 1997, the Savings Plan was amended to provide for an
OSCAR I match of 100% of each employee's contribution up to 3% of their
compensation. Employees vest in OSCAR I's matching contributions 20% per year
for every year of service, as defined.
Effective January 1, 1993, OSCAR I 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 8), effective January 1, 1997, OSCAR I suspended the Supplemental
Plan. OSCAR I matched 100% of the employee's contributions through the date of
suspension of the Supplemental Plan. Employees vest ratably in OSCAR I'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, 1997, 1996 and 1995, were $0.6 million, $2.3 million and $2.1
million, respectively.
F-16
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) PROVISION FOR IMPAIRMENT
OSCAR I adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," during 1995. Upon
adoption of SFAS No. 121 in 1995, a non-cash charge of $21.0 million was
recorded by OSCAR I. During 1997 and 1996, OSCAR I recorded non-cash charges
for the impairment of its long-lived assets of $36.0 million and $9.5 million,
respectively. 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 discounted cash flow expected to be received from the
operation or future sale of the individual theatres (or groups of theatres).
(11) GAIN ON DISPOSITION OF ASSETS
During April 1997, OSCAR I sold its 50% interest in Hong Kong theatre
company to its partner for approximately $17.5 million and, during September
1997, OSCAR I sold its theatre investments in Mexico and the majority of its
theatre assets in Argentina for approximately $25.0 million. During the year
ended December 31, 1997, OSCAR I sold various other non-strategic or
underperforming theatres for net cash proceeds of approximately $27.5 million.
Additionally, OSCAR I has entered into an agreement to sell a portion of its
theatre investments in Singapore and Thailand for approximately $8.1 million.
(12) INCOME TAXES
Consolidated subsidiaries in which OSCAR I 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 OSCAR I.
The current state income tax expense of OSCAR I and Federal income tax
expense of OSCAR I'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,
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
State expense............................................... $0.2 0.1 0.7
Federal expense............................................. 1.3 1.0 1.1
---- --- ---
1.5 1.1 1.8
---- --- ---
Deferred income taxes:
State expense............................................... -- -- --
Federal expense............................................. -- -- --
---- --- ---
$1.5 1.1 1.8
==== === ===
</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,
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Expected tax benefit.................................... $(8.9) (15.7) (22.0)
Change in valuation allowance........................... 11.1 16.1 22.3
State tax, net of Federal benefit....................... 0.1 -- 0.5
Adjustment of net operating loss carryforward........... 0.1 2.9 --
Other................................................... (0.9) (2.2) 1.0
----- ----- -----
$ 1.5 1.1 1.8
===== ===== =====
</TABLE>
F-17
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1996 are as follows (amounts in millions):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $75.1 68.0
Intangible and other assets.................................. 3.7 3.9
Accrued liabilities.......................................... 3.6 2.8
Deferred gain on Sale and Leaseback.......................... 3.5 4.6
Other........................................................ 1.2 1.1
----- -----
87.1 80.4
Less: valuation allowance.................................... (80.5) (69.4)
----- -----
Net deferred tax assets.................................... 6.6 11.0
----- -----
Deferred tax liabilities:
Property and equipment....................................... 3.5 8.1
Deferred intercompany gains.................................. 1.6 1.6
Other........................................................ 1.5 1.3
----- -----
Net deferred tax liabilities............................... 6.6 11.0
----- -----
Net............................................................ $ -- --
===== =====
</TABLE>
At December 31, 1997, OSCAR I had a net operating loss carryforward for
Federal income tax purposes of approximately $200.0 million which will begin
to expire in 2007.
The income tax returns of OSCAR I are currently being audited by the
Internal Revenue Service. The outcome of this audit may reduce the amount of
OSCAR I's net operating loss carryforward and/or change the basis (and thus
future depreciation) related to certain assets. Management believes that the
result of the audit will not have a material adverse effect on the
consolidated financial condition or results of operations of OSCAR I.
(13) COMMITMENTS AND CONTINGENCIES
OSCAR I 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, 1997. 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 that 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,
---------------
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Minimum rental.............................................. $76.5 72.0 55.8
Contingent rental........................................... 3.7 3.4 3.2
Effect of leases with escalating minimum annual rentals..... 3.7 3.1 2.0
Rent tax.................................................... 0.5 0.6 0.7
----- ---- ----
$84.4 79.1 61.7
===== ==== ====
</TABLE>
F-18
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Approximately $12.8 million, $11.0 million and $0.5 million of the minimum
rentals reflected in the preceding table for the years ended December 31,
1997, 1996 and 1995, respectively, were incurred pursuant to the sale and
leaseback transactions (see note 2).
Future minimum lease payments under noncancelable operating leases for each
of the next five years and thereafter are summarized as follows (amounts in
millions):
<TABLE>
<S> <C>
1998................................................................ $ 79.3
1999................................................................ 78.5
2000................................................................ 75.2
2001................................................................ 73.1
2002................................................................ 70.4
Thereafter.......................................................... 689.0
</TABLE>
Included in the future minimum lease payments table above are lease payments
relating to theatres which OSCAR I intends to sell or close. To the extent
OSCAR I 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, 1997, OSCAR I had entered into theatre construction and
equipment commitments aggregating approximately $100 million for ten new
theatres and screen additions or renovations to 12 existing theatres which
OSCAR I intends to open during the next two years. Such amount relates only to
projects in which OSCAR I had executed a definitive lease agreement and all
significant lease contingencies have been satisfied. Of the committed amount,
approximately $15.0 million will be reimbursed to OSCAR I 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 $13.8 million per annum.
OSCAR I and/or its subsidiaries are involved in various pending and
threatened legal proceedings involving allegations concerning contract
breaches, torts, employment matters, environmental issues, anti-trust
violations, local tax disputes and miscellaneous other matters. In addition,
there are various claims against OSCAR I and/or its subsidiaries relating to
certain of the leases held by OSCAR I and/or its subsidiaries. Although it is
not possible to predict the outcome of these proceedings, OSCAR I believes
that such legal proceedings will not have a material adverse effect on OSCAR
I's financial position, liquidity or results of operations.
The 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 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
reimbursement of plaintiff's attorneys' fees and expenses under certain
circumstances. OSCAR I has established a program to review and evaluate OSCAR
I's theatres and to make any changes which may be required by the ADA. In
1995, OSCAR I settled the lawsuit styled Connie Arnold et al. vs. UATC, filed
in 1991. This lawsuit involved allegations that certain of OSCAR I's theatres
lacked accessibility to persons with mobility disabilities in violation of the
ADA. In the settlement agreement, OSCAR I, the plaintiffs and the Department
of Justice established standards of modifications that must be made to OSCAR I
theatres throughout the United States to make them more accessible to persons
with disabilities. OSCAR I believes that the cost of complying with the ADA
and the settlement agreement in the Connie Arnold case will not have a
material adverse effect on the OSCAR I's financial position, liquidity or
results of operations.
F-19
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 7.3 10.8
Receivables, net..................................... 17.6 13.1
Prepaid expenses and concession inventory............ 22.2 18.4
Other assets......................................... 0.3 0.3
------ ------
Total current assets............................... 47.4 42.6
Investments and related receivables.................... 16.4 15.4
Property and equipment, at cost:
Land................................................. 54.3 54.7
Theatre buildings, equipment and other............... 503.3 499.0
------ ------
557.6 553.7
Less accumulated depreciation and amortization (note
4).................................................. (166.8) (158.4)
------ ------
390.8 395.3
------ ------
Intangible assets, net................................. 98.4 101.5
Other assets, net...................................... 7.5 8.2
------ ------
$560.5 563.0
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................... $ 69.2 87.1
Accrued liabilities.................................. 25.5 29.1
Current portion of long-term debt (notes 2 and 6).... 81.1 81.7
------ ------
Total current liabilities.......................... 175.8 197.9
Other liabilities (note 3)............................. 49.1 45.9
Debt (notes 2 and 6)................................... 348.6 332.3
------ ------
Total liabilities.................................... 573.5 576.1
------ ------
Minority interests in equity of consolidated
subsidiaries.......................................... 7.2 7.2
Stockholders' equity (deficit) (note 2):
Preferred stock (note 8)............................. 200.6 193.9
Common stock:
Class A............................................ 0.1 0.1
Class B............................................ -- --
Class C............................................ -- --
Additional paid-in capital (note 8).................. 9.7 16.4
Accumulated deficit.................................. (228.5) (228.5)
Cumulative foreign currency translation adjustment... (0.3) (0.4)
Treasury stock....................................... (1.8) (1.8)
------ ------
(20.2) (20.3)
------ ------
$560.5 563.0
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue:
Admissions.............................................. $ 113.4 121.7
Concession sales........................................ 46.6 47.7
Other................................................... 4.7 5.1
--------- --------
164.7 174.5
--------- --------
Costs and expenses:
Film rental and advertising expenses.................... 60.9 65.8
Direct concession costs................................. 6.5 7.4
Other operating expenses (note 3)....................... 66.6 65.5
General and administrative.............................. 5.4 6.6
Depreciation and amortization (note 4).................. 13.7 18.4
--------- --------
153.1 163.7
--------- --------
Operating income.................................... 11.6 10.8
Other income (expense):
Interest, net (notes 2 and 6)........................... (10.4) (11.4)
Share of earnings (losses) of affiliates, net........... -- (0.5)
Minority interests in earnings of consolidated subsidi-
aries.................................................. (0.4) (0.3)
Other, net.............................................. (0.5) (0.4)
--------- --------
(11.3) (12.6)
--------- --------
Income (loss) before income tax expense............. 0.3 (1.8)
Income tax expense (note 9)............................... (0.3) (0.4)
--------- --------
Net income (loss)................................... -- (2.2)
Dividends on preferred stock (notes 2 and 8).............. (6.7) (5.9)
--------- --------
Net loss available to common stockholders........... $ (6.7) (8.1)
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN TOTAL
COMMON COMMON COMMON ADDITIONAL CURRENCY STOCKHOLDERS'
PREFERRED STOCK STOCK STOCK PAID-IN ACCUMULATED TRANSLATION TREASURY EQUITY
STOCK CLASS A CLASS B CLASS C CAPITAL DEFICIT ADJUSTMENT STOCK (DEFICIT)
--------- ------- ------- ------- ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998................... $193.9 0.1 -- -- 16.4 (228.5) (0.4) (1.8) (20.3)
Accretion of dividends
on preferred stock.... 6.7 -- -- -- (6.7) -- -- -- --
Foreign currency trans-
lation adjustment..... -- -- -- -- -- -- 0.1 -- 0.1
Net income............. -- -- -- -- -- -- -- -- --
------ --- --- --- ---- ------ ---- ---- -----
Balance at March 31,
1998................... $200.6 0.1 -- -- 9.7 (228.5) (0.3) (1.8) (20.2)
====== === === === ==== ====== ==== ==== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities...... $ (0.6) 20.7
--------- --------
Cash flow from investing activities:
Capital expenditures................................... (20.8) (19.5)
(Increase) decrease in construction in progress, net... 3.4 (2.3)
Increase in receivable from sale and leaseback escrow.. (0.8) (2.1)
Proceeds from sale and leaseback escrow................ -- 7.8
Investments in and receivables from theatre joint ven-
tures................................................. (1.0) (5.9)
Other, net............................................. (1.0) (0.3)
--------- --------
Net cash used in investing activities.............. (20.2) (22.3)
--------- --------
Cash flow from financing activities:
Debt borrowings........................................ 42.0 35.0
Debt repayments........................................ (26.4) (26.4)
Increase (decrease) in cash overdraft.................. 1.8 (6.3)
Other, net............................................. (0.1) 0.4
--------- --------
Net cash provided by financing activities.......... 17.3 2.7
--------- --------
Net increase (decrease) in cash.................... (3.5) 1.1
Cash and cash equivalents:
Beginning of period.................................... 10.8 10.1
--------- --------
End of period.......................................... $ 7.3 11.2
========= ========
Reconciliation of net income (loss) to net cash provided
by (used in) operating activities:
Net income (loss)........................................ $ -- (2.2)
Effect of leases with escalating minimum annual rentals.. 0.9 0.8
Depreciation and amortization............................ 13.7 18.4
Share of (earnings) losses of affiliates, net............ -- 0.5
Minority interests in earnings of consolidated subsidiar-
ies..................................................... 0.4 0.3
Changes in assets and liabilities:
Receivables............................................ 0.2 1.9
Prepaid expenses and concession inventory.............. (3.8) (3.9)
Other assets........................................... 0.2 0.7
Accounts payable....................................... (8.0) 6.4
Accrued liabilities.................................... (3.6) (2.5)
Other liabilities...................................... (0.6) 0.3
--------- --------
Net cash provided by (used in) operating activi-
ties.............................................. $ (0.6) 20.7
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) GENERAL INFORMATION
OSCAR I Corporation ("OSCAR I"), a Delaware corporation, was formed in
February 1992 for the purpose of purchasing United Artists Theatre Circuit,
Inc. ("UATC") from an affiliate 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 UATC's management. On May
12, 1992, OSCAR I purchased all of the outstanding common stock of UATC from
an affiliate of TCI (the "Acquisition").
Simultaneously with the Acquisition, the Non-Management Investors formed
OSCAR II Corporation, ("OSCAR II"), a Delaware corporation, and acquired from
an affiliate of TCI all of the outstanding capital stock of United Artists
Realty Company ("UAR"). UAR and its subsidiary, United Artists Properties I
Corp. ("Prop I"), are the owners and lessors of certain operating theatre
properties leased to and operated by UATC and its subsidiaries. On February
28, 1995, OSCAR II was merged into OSCAR I effected by a one-for-one share
exchange.
Certain prior period amounts have been reclassified for comparability with
the 1998 presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made in the accompanying interim condensed
consolidated financial statements that are necessary to present fairly the
financial position of OSCAR I 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, 1997 consolidated financial statements and notes thereto included
as part of UATC's Form 10-K.
(2) SUBSEQUENT EVENT--RECAPITALIZATION
On April 21, 1998, OSCAR I completed the offering of $225 million of its
9.75% senior subordinated notes due April 15, 2008 and the offering of $50
million of its floating rate senior subordinated notes due October 15, 2007
(collectively, the "Senior Subordinated Notes"), and entered into a $450
million bank credit facility (the "New Bank Credit Facility") with a final
maturity of April 2007.
The securities referred to herein have not been and will not be registered
under the Securities Act of 1933, as amended, and may not be offered or sold
in the United States absent registration or an applicable exemption from
registration requirements.
The proceeds from the offerings of the Senior Subordinated Notes and a
portion of the borrowings under the New Bank Credit Facility were used to
repay the outstanding borrowings under UATC's existing bank credit facility
(the "Bank Credit Facility") (approximately $272.5 million) on April 21, 1998
and to fund the redemption of OSCAR I's preferred stock (approximately $159.2
million) on May 1, 1998. Additional borrowings under the New Bank Credit
Facility are expected to be used to fund the redemption of UATC's $125 million
senior secured notes (the "Senior Secured Notes") on May 21, 1998 at 102.875%
of par value plus accrued but unpaid interest of approximately $0.8 million.
On April 21, 1998, UATC gave notice of the redemption of the Senior Secured
Notes. In addition, OSCAR I expects to use a portion of the New Bank Credit
Facility (approximately $45.7 million) to repay certain Prop I mortgage notes
maturing on November 1, 1998.
F-24
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net proceeds from the offerings of the Senior Subordinated Notes in
excess of the OSCAR I preferred stock redemption value were contributed to
UATC, as an equity contribution, from OSCAR I.
The New Bank Credit Facility consists of $100 million of reducing revolving
loan commitments and $350 million of delayed draw term loan commitments. The
New Bank Credit Facility contains certain provisions that require the
maintenance of certain financial ratios and place limitations on, among other
things, additional indebtedness, disposition of assets and payment of
dividends.
The New Bank Credit Facility will be guaranteed, on a joint and several
basis, by UATC and by certain of OSCAR I's other subsidiaries, including UAR
and, after the repayment of the Prop I mortgage notes, by Prop I. The New Bank
Credit Facility will be secured by among other things the capital stock of
UATC, UAR, Prop I, and certain other subsidiaries of OSCAR I and UATC and by
an intercompany note of UATC to OSCAR I established with respect to borrowings
by UATC from OSCAR I.
As a result of the repayment of the Bank Credit Facility and redemption of
the Senior Secured Notes, UATC will recognize an extraordinary loss during the
second quarter of 1998 of approximately $8.2 million, consisting of the $3.6
million prepayment premium on the Senior Secured Notes and approximately $4.6
million of unamortized deferred loan costs that will be written off.
(3) SALE AND LEASEBACK
In December 1995, UATC and UAR entered into a sale and leaseback transaction
whereby the buildings and land underlying 31 of their operating theatres and
four theatres and a screen addition under development were sold to, and leased
back from, an unaffiliated third party.
OSCAR I realized a net gain of approximately $12.1 million as a result of
this sale and leaseback transaction. For financial statement purposes, this
gain has been deferred and is being recognized over the term of the lease as a
reduction of rent expense.
In November 1996, UATC entered into a 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. During 1997, UATC opened one of the theatres under development.
At March 31, 1998, approximately $1.5 million of sales proceeds were held in
escrow and will be used to fund substantially all of the remaining
construction costs associated with the one remaining theatre under
development.
In December 1997, UATC entered into a sale and leaseback transaction whereby
two theatres currently under development were sold to, and leased back from,
an unaffiliated third party for approximately $18.1 million. At March 31,
1998, approximately $13.5 million of the sales proceeds were held in escrow
and will be paid under the terms of the sale and leaseback to fund certain of
the construction costs associated with the two theatres.
(4) CHANGE IN ESTIMATED USEFUL LIVES
During 1998, OSCAR I revised the estimated useful lives of certain equipment
and leasehold improvements to more closely reflect the actual lives of these
assets. The effect of this change in estimated useful lives was to decrease
depreciation and amortization expense for the three months ended March 31,
1998 by approximately $0.7 million.
F-25
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest were $7.3 million and $8.2 million for the three
months ended March 31, 1998 and 1997, respectively.
OSCAR I accrued $6.7 million and $5.9 million of dividends during the three
months ended March 31, 1998 and 1997, respectively, on its preferred stock.
(6) DEBT
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Bank Credit Facility (a).......................... $243.5 226.5
Senior Secured Notes (a).......................... 125.0 125.0
Other (b)......................................... 10.6 10.7
UAR Promissory Notes (c).......................... 4.6 5.6
Prop I Mortgage Notes (d)......................... 46.0 46.2
------ -----
429.7 414.0
Less: current portion............................. (81.1) (81.7)
------ -----
<CAPTION>
$348.6 332.3
====== =====
</TABLE>
- --------
(a) As discussed in note (2), Subsequent Event-Recapitalization, the Bank
Credit Facility was repaid on April 21, 1998, and the Senior Secured Notes
are to be redeemed on May 21, 1998 from proceeds of the offerings of the
Senior Subordinated Notes and the New Bank Credit Facility. The Senior
Secured Notes will be redeemed at par plus a prepayment premium of 2.875%,
or approximately $3.6 million.
(b) Other debt at March 31, 1998 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.
(c) In conjunction with the acquisitions of certain theatres prior to 1992,
UAR issued $51.6 million of non-interest bearing promissory notes to the
sellers. Principal on the promissory notes is due quarterly through
October 1999. For financial statement purposes, the promissory notes were
discounted at UAR's effective borrowing rate on the date the promissory
notes were executed.
(d) The Prop I mortgage notes (the "Prop I Notes") bear interest at 11.15% per
annum. Principal and interest are payable in monthly installments, with a
lump sum payment of principal and accrued, but unpaid, interest due on
November 1, 1998. The Prop I Notes are secured by a first mortgage on Prop
I's theatre properties, an assignment of the lease agreement with UATC,
and $12.5 million of bank letters of credit. The Indenture of Mortgage,
among its other provisions, contains limitations on the sale and/or
substitution of properties and a limitation on any additional debt
incurred by Prop I other than intercompany advances. As discussed in note
(2), Subsequent Event-Recapitalization, additional borrowings under the
New Bank Credit Facility are expected to be used to fund the remaining
principal balance due on November 1, 1998 (approximately $45.7 million).
At March 31, 1998, UATC was party to interest rate cap agreements on $100.0
million of floating rate debt which provide for a LIBOR interest rate cap of 7
1/2% and expire at various dates through July 1999. UATC is subject to credit
risk exposure from non-performance of the counterparties to the interest rate
cap agreements. As OSCAR I has historically received payments relating to such
interest rate cap agreements, it does not
F-26
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
anticipate such non-performance in the future. OSCAR I amortizes the cost of
its interest rate cap agreements to interest expense over the life of the
agreement. Amounts received from the counterparties to the interest rate cap
agreements are recorded as a reduction of interest expense.
For the three months ended March 31, 1998 and 1997, interest, net includes
$0.5 million of amortization of deferred loan costs and $0.1 million of
interest income.
(7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
At March 31, 1998, the fair value of OSCAR I's cash and cash equivalents,
outstanding borrowings under the Bank Credit Facility, the other debt, the
promissory notes, and the Prop I Notes, and interest rate cap agreements
approximated their carrying amount and the fair value of the Senior Secured
Notes was approximately $129.1 million.
(8) PREFERRED STOCK
The OSCAR I preferred stock is redeemable any time at the option of OSCAR I
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. 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, 1998, the actual redemption value in accordance with
the terms of the preferred stock was approximately $157.4 million, or
approximately $43.2 million less than the carrying amount at March 31, 1998.
As discussed in note (2), Subsequent Event-Recapitalization, the proceeds
from the Senior Subordinated Notes and a portion of the borrowings under the
New Bank Credit Facility were used to fund the redemption of OSCAR I's
preferred stock on May 1, 1998. At the redemption date, the actual redemption
value of the preferred stock was approximately $159.2 million, or
approximately $43.7 million less than the carrying amount at the redemption
date. This difference will be shown as an increase in additional paid-in
capital subsequent to the redemption date.
(9) INCOME TAXES
Consolidated subsidiaries in which OSCAR I 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
OSCAR I.
At March 31, 1998, OSCAR I had deferred tax assets and deferred tax
liabilities of approximately $87.0 million and $6.3 million, respectively,
relating primarily to OSCAR I's net operating loss carry-forward and the
difference between the financial statement and income tax basis in OSCAR I's
property and equipment. At March 31, 1998, OSCAR I had recorded a valuation
allowance of approximately $80.7 million against the net deferred tax asset.
(10) COMMITMENTS AND CONTINGENCIES
OSCAR I and/or its subsidiaries are involved in various pending and
threatened legal proceedings involving allegations concerning contract
breaches, torts, employment matters, environmental issues, anti-trust
violations, local tax disputes, and miscellaneous other matters. In addition,
there are various claims against OSCAR I and/or its subsidiaries relating to
certain of the leases held by OSCAR I and/or its subsidiaries. Although it is
not possible to predict the outcome of these proceedings, OSCAR I believes
that such legal proceedings will not have a material adverse effect on the
OSCAR I's financial position, liquidity or results of operations.
F-27
<PAGE>
OSCAR I CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 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 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
reimbursement of plaintiff's attorneys' fees and expenses under certain
circumstances. OSCAR I has established a program to review and evaluate OSCAR
I's theatres and to make any changes that may be required by the ADA. OSCAR I
believes that the cost of complying with the ADA will not have a material
adverse affect on OSCAR I's financial position, liquidity or results of
operations.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SE-
CURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 17
The Exchange Offer....................................................... 26
Certain Federal Income Tax Consequences of the Exchange Offer............ 34
The Refinancing Transactions............................................. 35
Use of Proceeds.......................................................... 35
Capitalization........................................................... 36
Selected Historical Consolidated Financial Information................... 37
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Business................................................................. 56
Management............................................................... 67
Certain Transactions..................................................... 73
Principal Stock Ownership................................................ 74
Description of Certain Indebtedness...................................... 75
Description of the Other Exchange Notes.................................. 78
Description of the Exchange Notes........................................ 79
Exchange Offer; Registration Rights...................................... 106
Restrictions Imposed by the 1995 Sale Leaseback.......................... 108
Description of Certain Federal Income Tax Consequences of an Investment
in the Exchange Notes................................................... 110
Plan of Distribution..................................................... 114
Validity of the Exchange Notes........................................... 115
Experts.................................................................. 115
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED ARTISTS THEATRE COMPANY
OFFER TO EXCHANGE
9 3/4% SERIES B SENIOR SUBORDINATED NOTES
DUE 2008
($225,000,000 PRINCIPAL AMOUNT)
FOR
9 3/4% SENIOR SUBORDINATED NOTES
DUE 2008
($225,000,000 PRINCIPAL AMOUNT OUTSTANDING)
UNITED ARTISTS[LOGO]
THEATRES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATIVE COVER FOR MARKET-MAKING PROSPECTUS]
UNITED ARTISTS THEATRE COMPANY
9 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
---------------
The 9 3/4% Series B Senior Subordinated Notes due 2008 (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
this Prospectus is a part, were issued in exchange for the 9 3/4% Senior
Subordinated Notes due 2008 (the "Notes" or the "Fixed Rate Notes") by United
Artists Theatre Company (the "Company"), a Delaware corporation (formerly
named Oscar I Corporation).
The Exchange Notes are unsecured senior subordinated obligations of the
Company, rank pari passu with the Fixed Rate Notes, the Floating Rate Notes
(as defined) and the Floating Rate Exchange Notes (as defined) and will be
subordinated in right of payment to all existing and future Senior
indebtedness (as defined) of the Company, including Indebtedness (as defined)
under the Senior Credit Facilities (as defined). At May 31, 1998, the Company
and its subsidiaries had approximately $644.9 million of indebtedness
(excluding trade payables) outstanding, consisting of $310.0 million of Senior
Indebtedness of the Company (guaranteed by certain of the Company's
subsidiaries), $59.9 million of other indebtedness of the Company's
subsidiaries, $225.0 million representing the Notes and $50.0 million
representing the Floating Rate Notes. In addition, on May 31, 1998, the
Company had additional delayed draw and revolving credit availability of
$140.0 million under the Senior Credit Facilities, all of which would be
Senior Indebtedness, if borrowed. Additional Senior Indebtedness may be
incurred by the Company and additional indebtedness may be incurred by the
Company and its subsidiaries, in each case from time to time, subject to
certain restrictions. See "The Transaction" and "Capitalization."
The Exchange Notes will bear interest from April 21, 1998, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined) to which interest on such
Notes has been paid), at a rate equal to 9 3/4% per annum. Interest on the
Exchange Notes will be payable semiannually on April 15 and October 15 of each
year, commencing October 15, 1998. The Exchange Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after April 15,
2003, and prior to maturity, at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of redemption.
See "Description of the Exchange Notes."
In addition, at any time prior to April 15, 2001, the Company may redeem up
to 35% of the aggregate principal amount of the Notes and Exchange Notes with
the net proceeds of one or more Public Equity Offerings (as defined) at
109.75% of the principal amount together with accrued and unpaid interest, if
any, to the date of redemption; provided that at least $146.25 million
aggregate principal amount of Notes and Exchange Notes remains outstanding
immediately after such redemption. Upon the occurrence of a Change of Control
(as defined), each holder of the Exchange Notes shall have the right to
require the Company to purchase all or any portion of such holder's Exchange
Notes at a purchase price equal to 101% of the principal amount thereof
together with accrued and unpaid interest, if any, to the date of purchase.
See "Risk Factors -- Purchase of Exchange Notes Upon a Change of Control" and
"Description of the Exchange Notes."
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the Securities and Exchange
Commission (the "Commission"), which require each tendering holder to
represent that it acquired the Notes in the ordinary course of its business
and that such holder does not intend to participate and has no arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes. In some cases, certain broker-dealers may be required to deliver a
prospectus in connection with the resale of Exchange Notes that they receive
in the Exchange Offer. See "Prospectus Summary -- The Note Offering -- The
Exchange Offer."
Prior to the consummation of the Exchange Offer, there was no public market
for the Notes or Exchange Notes. If a market for the Exchange Notes should
develop, the Exchange Notes could trade at a discount from their principal
amount. The Company does not intend to list the Exchange Notes on a national
securities exchange. There can be no assurance that an active public market
for the Exchange Notes will develop.
SEE "RISK FACTORS," COMMENCING ON PAGE , FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF NOTES BEFORE TENDERING THEIR
NOTES IN THE EXCHANGE OFFER.
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 ("Merrill Lynch") in connection with offers and sales of the
Exchange Notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. Merrill Lynch may act as
principal or as agent in such transactions. The Company will receive no
portion of the proceeds of the sales of such Exchange Notes and will bear the
expenses incident to the registration thereof under the Securities Act of
1933, as amended. See "Principal Stock Ownership" for a description of the
ownership of capital stock of the Company by affiliates of Merrill Lynch.
MERRILL LYNCH & CO.
The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or Merrill Lynch. This
Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any security other than the Exchange Notes offered hereby, nor
does it constitute an offer to sell or the solicitation of an offer to buy any
of the Exchange Notes to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act
for the registration of the Exchange Notes offered hereby (the "Registration
Statement"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company or the Exchange Notes offered hereby, reference is made to the
Registration Statement, including the exhibits and financial statement
schedules thereto. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Company and UATC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports and other information with the Commission.
The Registration Statement, such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; the Chicago Regional Office, Suite 1400, 500 West Madison Street,
Citicorp Center, Chicago, Illinois 60661; and the New York Regional Office,
Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of such
material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site on the Internet that contains
reports and other information regarding registrants that file electronically
with the Commission. The address of this site on the Internet is
http://www.sec.gov.
The Company will send to each Holder of Exchange Notes copies of annual
reports and quarterly reports containing the information required to be filed
under the Exchange Act. So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it is required to furnish the
information required to be filed with the Commission to the Trustee and the
Holders of the Notes and the Exchange Notes. The Company has agreed that, even
if it is not required under the Exchange Act to furnish such information to
the Commission, it will nonetheless continue to furnish information that would
be required to be furnished by the Company by Section 13 of the Exchange Act
to the Trustee and the Holders of the Notes or Exchange Notes as if it were
subject to such periodic reporting requirements.
A-2
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE EXCHANGE NOTES
There is no existing trading market for the Exchange Notes, and there can be
no assurance regarding the future development of a market for the Exchange
Notes or the ability of the Holders of the Exchange Notes to sell their
Exchange Notes or the price at which such Holders may be able to sell their
Exchange Notes. If such market were to develop, the Exchange Notes could trade
at prices that may be higher or lower than their initial
offering price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities.
Although it is not obligated to do so, Merrill Lynch intends to make a
market in the Exchange Notes. Any such market-making activity may be
discontinued at any time, for any reason, without notice at the sole
discretion of Merrill Lynch. No assurance can be given as to the liquidity of
or the trading market for the Exchange Notes.
Merrill Lynch is affiliated with entities that beneficially own a majority
of the voting power of the capital stock of the Company. If Merrill Lynch
conducts any market-making activities, it may be required to deliver a
prospectus when effecting offers and sales in the Exchange Notes because
Merrill Lynch is affiliated with such entities. Pursuant to the Registration
Rights Agreement, the Company agreed to file and maintain a registration
statement that would allow Merrill Lynch to engage in market-making
transactions in the Exchange Notes. Subject to certain exceptions set forth in
the Registration Rights Agreement, the registration statement will remain
effective for as long as Merrill Lynch may be required to deliver a prospectus
in connection with market-making transactions in the Exchange Notes. The
Company has agreed to bear substantially all the costs and expenses related to
such registration statement.
A-3
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the Exchange
Notes by Merrill Lynch in market-making transactions. The Company will not
receive any of the proceeds from such transactions.
A-4
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus is to be used by Merrill Lynch in connection with offers and
sales of the Exchange Notes in market-making transactions effected from time
to time. Merrill Lynch may act as a principal or agent in such transactions,
including as agent for the counterparty when acting as principal or as agent
for both counterparties, and may receive compensation in the form of discounts
and commissions, including from both counterparties when it acts as agent for
both. Such sales will be made at prevailing market prices at the time of sale,
at prices related thereto or at negotiated prices.
Affiliates of Merrill Lynch currently own approximately 90.8% of the
Company's outstanding voting stock. See "Principal Stock Ownership." Merrill
Lynch has informed the Company that it does not intend to confirm sales of the
Exchange Notes to any accounts over which it exercises discretionary authority
without the prior specific written approval of such transactions by the
customer.
The Company has been advised by Merrill Lynch that, subject to applicable
laws and regulations, Merrill Lynch currently intends to make a market in the
Exchange Notes following completion of the Exchange Offer. However, Merrill
Lynch is not obligated to do so and any such market-making may be interrupted
or discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. There can be no assurance that an active trading market will
develop or be sustained. See "Risk Factors--Absence of Public Market for the
Exchange Notes."
Merrill Lynch has provided investment banking services to the Company in the
past and may provide such services and financial advisory services to the
Company and United Artists in the future. Merrill Lynch acted as purchasers in
connection with the initial sale of the Fixed Rate Notes and the Floating Rate
Notes and received an aggregate underwriting discount of approximately $4.5
million in connection therewith. An affiliate of Merrill Lynch is a lender and
acted as a co-syndication agent under the Senior Credit Facilities for which
it received usual and customary fees.
Merrill Lynch and the Company have entered into a registration rights
agreement with respect to the use by Merrill Lynch of this Prospectus.
Pursuant to such agreement, the Company agreed to bear substantially all
registration expenses incurred under such agreement, and the Company agreed to
indemnify Merrill Lynch against certain liabilities, including liabilities
under the Securities Act.
A-5
<PAGE>
[ALTERNATE BACK COVER FOR MARKET-MAKING PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SE-
CURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................
Risk Factors.............................................................
The Refinancing Transactions.............................................
Use of Proceeds..........................................................
Capitalization...........................................................
Selected Historical Consolidated Financial Information...................
Management's Discussion and Analysis of Financial Condition and Results
of Operations...........................................................
Business.................................................................
Management...............................................................
Certain Transactions.....................................................
Principal Stock Ownership................................................
Description of Certain Indebtedness......................................
Description of the Other Exchange Notes..................................
Description of the Exchange Notes........................................
Exchange Offer; Registration Rights......................................
Restrictions Imposed by the 1995 Sale Leaseback..........................
Description of Certain Federal Income Tax Consequences of an Investment
in the Exchange Notes...................................................
Plan of Distribution.....................................................
Validity of the Exchange Notes...........................................
Experts..................................................................
Index to Financial Statements............................................
</TABLE>
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- --------------------------------------------------------------------------------
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UNITED ARTISTS THEATRE COMPANY
9 3/4% SERIES B SENIOR SUBORDINATED NOTES
DUE 2008
($225,000,000 PRINCIPAL AMOUNT)
UNITED ARTISTS[LOGO]
THEATRES
PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation in such capacity at another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe that such person's conduct was unlawful.
Section 145 of the DGCL also provides that a corporation may indemnify any
person who was or is a party or threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such
person acted under similar standards, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
Section 145 of the DGCL also provides that to the extent that a director,
officer, employee or agent of a corporation is successful on the merits or
otherwise in the defense of any action referred to above, or in defense of any
claim, issue or matter therein, the corporation must indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection therewith.
In accordance with Section 145 of the DGCL, the Registrant's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation")
provides that the Registrant will indemnify and hold harmless, to the fullest
extent authorized by the DGCL (as existing or amended, but in the case of such
amendment, only to the extent such amendment permits the Registrant to provide
broader indemnification rights than prior to such amendment), each person who
was or is made a party or is threatened to be made a party to or is involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is, or a person of whom he
or she is the legal representative, is or was a director or officer of the
Registrant or is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection with such action, suit or proceeding, and such indemnification will
continue as to a person who has ceased to be a director, officer, employee or
agent and will inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in the Certificate
of Incorporation of the Registration, the Registration will indemnify any such
person seeking indemnification in connection with a proceeding initiated by
such person only if such proceeding was authorized by the Board of Directors.
The Registrant's Certificate of Incorporation also provides that the right
to indemnification is a contract right and includes the right to be paid by
the Registrant the expenses incurred in defending any such proceeding in
II-1
<PAGE>
advance of its final disposition; provided, however, that, if the DGCL
requires, the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, will be made only upon delivery of
an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall be ultimately be determined that such director
or officer is not entitled to be indemnified by the Registrant by law or
pursuant to the Registrant's Certificate of Incorporation.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (regarding certain illegal distributions) or (iv) for any
transaction from which the director derived an improper personal benefit. The
Registrant's Certificate of Incorporation provides that the personal liability
of the Registrant's directors to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director is limited to the
fullest extent permitted by Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1* Amended and Restated Certificate of Incorporation of United Artists
Theatre Company
3.2* By-Laws of United Artists Theatre Company
4.1* Indenture, dated as of April 21, 1998, by and among the Company and
State Street Bank and Trust Company of Missouri, N.A. with respect to
the 9 3/4% Senior Subordinated Notes due 2008
4.2* Indenture, dated as of April 21, 1998, by and among the Company and
State Street Bank and Trust Company of Missouri, N.A. with respect to
the Floating Rate Senior Subordinated Notes due 2007
4.3* Form of 9 3/4% Senior Subordinated Note (included in Exhibit 4.1)
4.4* Form of Floating Rate Senior Subordinated Note (included in Exhibit
4.2)
4.5* Form of 9 3/4% Series B Senior Subordinated Note (included in Exhibit
4.1)
4.6* Form of Floating Rate Series B Senior Subordinated Note (included in
Exhibit 4.2)
5.1 Opinion of Wachtell, Lipton, Rosen & Katz with respect to the 9 3/4%
Series B Senior Subordinated Notes due 2008
10.1* Registration Rights Agreement, dated as of April 21, 1998, by and
among the Company and Merrill Lynch & Co., Merrill Lynch Pierce,
Fenner & Smith Incorporated, BancAmerica Robertson Stephens, Morgan
Stanley & Co. Incorporated, BancBoston Securities Inc. and
NationsBanc Montgomery Securities LLC
10.2* Registration Rights Agreement, dated as of April 21, 1998, by and
among the Company and Merrill Lynch & Co., Merrill Lynch Pierce,
Fenner & Smith Incorporated
10.3* Credit Agreement, dated as of April 21, 1998, among the Company, Bank
of American National Trust and Savings Association, BankBoston, N.A.,
NationsBank Texas, N.A., Merrill Lynch Capital Corporation and Morgan
Stanley Senior Funding, Inc. and the lenders party thereto
10.4 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 (3)
10.5 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 (3)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 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
(3)
10.7 Pass Through Trust Agreement, dated as of December 13, 1995, between
United Artists Theatre Circuit, Inc. and Fleet National Bank of
Connecticut (3)
10.8 Lease Agreement, dated as of December 13, 1995, between Wilmington
Trust Company and William J. Wade and United Artists Theatre Circuit,
Inc. (3)
10.9 Lease Agreement, dated as of October 1, 1988, between United Artists
Properties I Corporation and United Artists Theatre Circuit, Inc. (1)
10.10* United Artists Theatre Company Stock Incentive Plan
10.11 Stockholders' Agreement, dated as of May 12, 1992, by and among OSCAR
I Corporation, Merrill Lynch Capital Appreciation Partnership No. B-
XIX, L.P., Roman Nineteen Offshore Fund B.V., ML IBK Positions, Inc.,
MLCP Associates L.P. No. II, Equitable Capital Private Income and
Equity Partnership II, L.P. and Equitable Deal Flow Fund, L.P. and
the holders of Options or Restricted Stock awards under the
Management Stock Option Plan (1)
10.12 Stock Subscription Agreement, dated as of May 12, 1992, by and among
OSCAR I Corporation, Merrill Lynch Capital Appreciation Partnership
No. B-XIX, L.P., Roman Nineteen Offshore Fund B.V., ML IBK Positions,
Inc., MLCP Associates L.P. No. II, Equitable Capital Private Income
and Equity Partnership II, L.P. and Equitable Deal Flow Fund, L.P.
(1)
10.13 Non-Competition Agreement, dated as of May 12, 1992, by and among
Tele-Communications, Inc., United Artists Theatre Circuit, Inc. and
OSCAR I Corporation (1)
10.14 Trademark Agreement as of May 12, 1992 by United Artists Entertainment
Company, United Artists Holdings, Inc., United Artists Cable
Holdings, Inc., United Artists Theatre Holding Company, on the one
hand and United Artists Theatre Circuit, Inc., United Artists Realty
Company, UAB, Inc., and UAB II, Inc., on the other hand (1)
10.15 United Artists Theatre Circuit 401(k) Savings Plan (1)
10.16 United Artists Theatre Circuit Supplemental 401(k) Savings Plan (2)
10.17 Tax Sharing Agreement, dated as of May 12, 1992, between OSCAR I
Corporation and United Artists Theatre Circuit, Inc. (1)
10.18 Employment Agreement, dated as of May 12, 1992, between the Company
and Kurt C. Hall (1)
10.19* Employment Agreement Extention Letter, dated as of May 12, 1998,
between the Company and Kurt C. Hall
10.20* United Artists Theatre Company 1998 Management Stock Plan
12.1* Statement re computation of ratios
21.1* Subsidiaries of the Company
23.1* Consent of Arthur Andersen LLP
23.2* Consent of KPMG Peat Marwick LLP
23.3 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1)
24.1* Powers of Attorney
25.1* Statement of Eligibility and Qualification of trustee on Form T-1 of
State Street Bank and Trust Company of Missouri, N.A. under the Trust
Indenture Act of 1939
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1* Financial Data Schedule
99.1* Form of Letter of Transmittal for the 9 3/4% Senior Subordinated Notes
due 2008
99.2* Form of Notice of Guaranteed Delivery
99.3* Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
(b) Financial Statement Schedule
- --------
(1) Incorporated herein by reference from Form S-1 dated October 5, 1992.
(2) Incorporated herein by reference from Form 10-K for the year ended December
31, 1993.
(3) Incorporated herein by reference from Form S-2 dated January 31, 1996.
* Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 August 11, 1998.
United Artists Theatre Company
*
By: _________________________________
Name:Kurt C. Hall
Title:President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 16, 1998.
NAME TITLE
* President, Chief Executive
------------------------------------- Officer and Director
KURT C. HALL (principal executive
officer)
* Senior Vice President, Chief
------------------------------------- Financial Officer and
TRENT J. CARMAN Treasurer (principal
financial and accounting
officer)
* Chairman of the Board and
------------------------------------- Director
JOHN W. BOYLE
* Director
-------------------------------------
ALBERT J. FITZGIBBONS, III
* Director
-------------------------------------
JAMES J. BURKE, JR.
* Director
-------------------------------------
SCOTT M. SHAW
* Director
-------------------------------------
ROBERT F. END
* Director
-------------------------------------
MICHAEL L. PADE
*/s/ Ralph E. Hardy
-------------------------------------
RALPH E. HARDY
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ]
August 11, 1998
United Artists Theatre Company
9110 E. Nichols Avenue, Suite 200
Englewood, Colorado 80112
Dear Sirs:
We have acted as special counsel for United Artists Theatre Company, a
Delaware corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-4 of the Company (the "Registration
Statement"), filed with the Securities and Exchange Commission on June 16, 1998,
as amended, relating to an offer to exchange (the "Exchange Offer") 9-3/4%
Series B Senior Subordinated Notes due 2008 of the Company (the "Exchange
Notes") which will have been registered under the Securities Act of 1933, as
amended, for an equal principal amount of the Company's outstanding 9-3/4%
Senior Subordinated Notes due 2008 (the "Notes").
The Exchange Notes will be issued under an Indenture dated as of April
21, 1998 (the "Indenture"), among the Company and State Street Bank and Trust
Company of Missouri, N.A., as trustee (the "Trustee").
As counsel we have examined the Registration Statement, the Indenture,
the form of the Exchange Notes, the form of the Notes and such other documents,
records and other matters as we have deemed necessary or appropriate in order to
give the opinions set forth herein.
In giving the opinions contained herein, we have, with your approval,
relied upon representations of officers of the Company and certificates of
public officials with respect to the accuracy of the material factual matters
addressed by such representations and certificates. We have, with your
approval, assumed the genuineness of all signatures or instruments submitted to
us, and the conformity of certified copies submitted to us with the original
documents to which such certified copies relate.
<PAGE>
United Artists Theatre Company
August 11, 1998
Page 2
We are members of the bar of the State of New York and we express no
opinion as to the laws of any jurisdiction other than the federal laws of the
United States and the laws of the State of New York.
Based upon and subject to the foregoing, assuming that the Indenture
has been duly authorized, executed and delivered by, and represents the valid
and binding obligations of, the Trustee, it is our opinion that:
(1) the Indenture has been duly executed and delivered by, and constitutes the
legal, valid and binding obligation of, the Company enforceable against the
Company in accordance with its terms; and
(2) the Exchange Notes, when duly executed and delivered by the Company upon
the terms set forth in the Exchange Offer, will constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms;
subject in each case to (a) bankruptcy, insolvency, moratorium, reorganization
and other laws of general applicability relating to or affecting creditors'
rights from time to time in effect and (b) application of general principles of
equity (regardless of whether considered in proceedings in equity or at law).
We express no opinion with respect to: (i) the enforceability of
provisions in the Indenture relating to delay or omission of enforcement of
rights or remedies, or waivers of defenses, or waivers of benefits of usury,
appraisement, valuation, stay, extension, moratorium, redemption, statutes of
limitation, or other non-waivable benefits bestowed by operation of law; or (ii)
the lawfulness or enforceability of exculpation clauses, clauses relating to
releases of unmatured claims, clauses purporting to waive unmatured rights,
severability clauses, and clauses similar in substance or nature to those
expressed in the foregoing clause (i) and this clause (ii), insofar as any of
the foregoing are contained in the Indenture. In addition, we express
no opinion as to whether a federal or state court outside of the State of New
York would give effect to the choice of New York law provided for in the
Indenture.
***
<PAGE>
United Artists Theatre Company
August 11, 1998
Page 3
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the Prospectus that
is a part of the Registration Statement. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
ARB:flm
